It takes a while to build up...

In response to Edmund Conway's post–break up (with Apple) letter comparing Apple with Obama, one comment said:

Apple and Obama fan here. Agree about Apple/iOS 6, but zero sourness about Obama. What does economy problem have to do with him, again? He did a damn grand job helping to smooth the landing and overseeing the takeoff. Building takes a lot longer than destroying; people forget that. So yeah, no matter how hard I look, I can’t see anything sour in my Obama relationship, so you’re wrong that all fans would admit that.

My response:

You are right, orchestrating and building a new bubble takes longer than contracting from an old one. It takes days or weeks for people to realize that the papers they are holding are trash. It takes years to build up the con. 

Maybe the administration has been busy choosing malinvestments into which new commodity should be encouraged.  

Perhaps it should be the tulips again. The government should declare that if you invest in tulips, but your investment flops, the government will bail you out. Then, when the over-blown tulip investments burst and crash the markets, the government should provide a ‘soft landing’ by bailing out the tulip farmers and prolonging the resulting contraction from a month to another four years. 

Obama should learn from the Japanese. They have been in stagnation for three decades. Four years are like a butterfly’s dream to them.

More on topic:

Why Did Solyndra Fail? 

Is price gouging evil?

A really nice article about how price gouging in extreme situations plays an important social role. (And making price gouging illegal does the opposite.)

Simply put, price gouging separates luxuries from necessities. imagine someone raises the price for a bag of ice from $4 to $15. Now, the first few lucky people coming into the store aren't going to buy up 10 bags each (leaving the rest of the people who need bags with empty hands). They will think: 'Do we really need so many bags?'

Even for each individual bag, each person will ask: 'Do I simply need it as a luxury, or do I have something really important I am trying to keep on ice?'

The people for whom it's really important will pay the $15 for a bag. The people for whom it's merely a luxury (e.g., they want to have some vodka on the rocks while they are waiting the storm out) will mumble something about those 'damn capitalist pigs' and go away.

This way the resources are 'rationed' appropriately throughout the society.

As the article mentions, it may be that a given store may set the price too high or too low. Well, that's why there is competition on the market. The stores that set their prices too high will have bags left over (since people will go to their competitors), and people who set their prices too low will be quickly sold out, not getting the 'right' amount of the capital for the merchandise.

If you're interested, read on: 'Price Gouging Saves Lives in a Hurricane'.

On a related topic, if you want to know how speculation can play a positive role in the society, watch this video by Bob Murphy:



P.S. By the way, the fact that New Jersey's governor made a warning against price gouging shows once again that though the Conservatives may talk about being friends of the free market, they are not. And they are as ignorant of how free markets work as the Liberals.

False sense of safety

*

The worst invention in the Western Civilization's recent history was a result of Americans' attempt to reduce fatalities from road accidents. They introduced the inflatable airbag into the cars. Now the passengers drive, having a sense of safety.

If I were trying to reduce the accidents, I would put a sharp knife in the middle of the steering wheel. And that would reduce the accidents, because, by G-d, people would be driving carefully now.

-- Hugh Hendry, British hedge funds manager (and a famous critic of the government's attempts to manage the economy)

The point of the above quote is that by creating agencies that manage our safety for us, without our choice, the government makes us less safe. First, the agencies like FDA are extremely inefficient and in general bad at what they're trying to do, as a result of being monopolies. But more severely, they prevent us from caring for our own lives and safety.

As a result, you have attempts at logical arguments that state that without FDA, unsafe drugs and food would fill the markets, because the people wouldn't have anyone watching out for them (while the businesses would of course care more about selling the drugs and not about the safety of their customers). The people who make them cannot imagine that someone might want to care for his own safety, relying (if necessary) on private inspection agencies whose reputation he would keep an eye on.


And I think, in the end, that is the worst result of socialism: it changes the culture. It creates a nation of slaves, of people who are similar to a 30-year-old who lives with his parents and is unable to make a decision himself about his life. (As I have written before, studies show that children who were given some small allowances and allowed to manage their purchases themselves grew up to be more responsible adults.)

This is the worst result of American and European governments' policies. We see this culture of dependent junkies in Greece today. When their government attempts to cut down on spending, they come out to streets and protest, since they are not getting the free pie.

The same thing happened in the Roman Empire: in an attempt to please the public and win popularity, the government created welfare programs, feeding and entertaining the masses for free (the source of the 'bread and circuses' expression). Unfortunately, this could not be sustained forever. In an attempt to pay for the ever-increasing demands of the public, Roman government debased the currency, creating massive economic crisis that spanned the centuries and was one of the reasons for the downfall of the Empire.

In my opinion, unless drastic change of course is undertaken (by the people themselves -- for the government will never change itself for the better), both American and European societies are headed the same way. They will destroy themselves from the inside, degenerating socially, economically, and culturally.

___________________________
* source of image

Livestockholm Syndrome

From Wikipedia's article:

In psychology, Stockholm Syndrome is an apparently paradoxical psychological phenomenon in which hostages express empathy and have positive feelings towards their captors, sometimes to the point of defending them. These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors for an act of kindness.

Citizens of many countries suffer from Livestockholm Syndrome — a paradoxical psychological phenomenon in which citizens express empathy and have positive feelings towards the governments that have enslaved them, sometimes to the point of defending them.

These feelings are generally considered irrational by libertarians in light of the danger, risk, abuse of rights, and financial damage endured by the victims, who essentially mistake a lack of a greater abuse from their captors for an act of kindness and excuse the abuse by arguing that their captors do some good things and that without their captors, such good things would be impossible (despite contemporary and historic evidence).

Interestingly, the victims of the governments are not oblivious to the damage they incur from their captors. But they always manage to attribute the damage to other factors (e.g., too much free market — in the cases when the damage was done by too much regulation or central management), oftentimes calling for more involvement of the government, one way or another.

The syndrome is a particularly dangerous meme in that it is very contagious and self-reinforcing. Seeing other victims' livestock-like behavior reinforces a citizen's conviction that without the kind shepherd, the herd would not survive.

Society vs. government

“Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all. We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain.”

― Frédéric Bastiat, The Law


Interestingly enough, proponents of privatization of Soviet collective farms in 1980s were accused of attempting to starve the people.


More on the topic: “The Role of the Government”

Time preference and the wealth (or poverty) of nations

A few hours ago, I was sitting in an airplane after it had just landed and observing the people taking their belongings from the overhead compartments and proceeding towards the exit. Everyone was very polite. Some people who had fewer things could have rushed forward, but they did not.

The cause of this politeness was patience (among other factors). In other countries, like some Western European countries, or Russia, or Israel, people might be pushing and behaving aggressively. One of the reasons for this difference, I think, is cultural predisposition to time preference -- a need for an instant gratification vs. ability to put things off.

A recent article by a Harvard economist hypothesized a link between the wealth of nations and the languages they spoke -- in particular, whether they spoke a language in which the future tense was definitively expressed (e.g., "It will rain tomorrow") or one in which the future tense was expressed as a form of the present tense ("It is raining tomorrow"). The article was very bad mainly because the data contradicted it. For instance, English-speaking countries tended to be the richest in the last few hundred years. On the other hand, while modern Germany is relatively stable, Germans have suffered one of the worst inflations in the world's history in 1930s. I.e., there simply is very little correlation.

But the premise of the article is correct. Time preference is an extremely important factor contributing to the wealth and prosperity of nations. Nations in which saving and investing are valued over spending tend to prosper more. Not just the nations. Many know of the famous experiment in which children were given a choice: to eat a marshmallow right away or wait for ten minutes and get two marshmallows. Most children chose to eat a marshmallow right away. Some were able to wait. Some time in future after the experiment, researchers tracked down those children who had now grown up. Those that had been able to wait (who had low time preference) did much better in their personal and financial lives that those that had needed the instant gratification.

High time preference can lead not only to economic ruin, but also to health problems associated with overeating or addictive behaviors. It can also lead to crime: a study has shown that most criminals have tendency towards high time preference.

Interestingly, most governments do too. (Well, as someone who considers all governments essentially criminal, I am not surprised.) By their nature, governments tend toward "quick" solutions to problems. Slavery? Let's invade the South and spend hundreds of thousands of lives. (The so-called Civil War remains the bloodiest American conflict. Never mind that most European nations got rid of slavery through peaceful means, driven by changing economic conditions. Not to mention that the result of the so-called Civil War was freeing the slaves but enslaving the free for the next century and a half to come. American Republic was essentially destroyed by Abraham Lincoln.)

Poverty? Let's tax the rich and give money to the poor. Poor education? Let's give more money to the schools, make it difficult to expel students, make teachers have greater assurance in tenures. Poor people can't afford medicine? Unsafe working conditions? Long hours? Traffic accidents?

All these problems have very effective solutions that markets can provide. The only thing is: one must wait for them. Sometimes they may take years or even a few decades. But, it's worth it. Because the solutions will truly improve everyday life and will be a real increase in the lifestyle, an advance in civilization.

All government solutions, on the other hand, seem like they might solve the problem right away, but: a) they almost never do (in many cases they make the problem worse), b) they create a lot of side-effects in a form of perverse incentives and unintended consequences.

So, one can wait for the markets to come up with solutions to low wages (accumulated capital will lead to expansion of industry, which will lead to an increased demand for workers, increased competition for the workers and thus increasing salaries), or one can pass minimum-wage laws, which effectively increase the unemployment among the low-wage earners. (If hiring a worker X will give me profit of $5 and hour, but the minimum wage is $7 an hour, I will not hire anyone from this group of workers. So, instead of helping the workers who were earning "only" $5 an hour, the government made them unemployed. On the other hand, had the government waited, I would have maybe invested capital, increased efficiency of production, increased marginal profit from hiring a worker, and increased each worker's salary. If I decided not to, competition with other business owners who were doing the same thing would force me to do that or lose my employees and much of the profit.)

Any time you hear of some social ill and the proposed solution that uses government's coercion, think of this idea. The government is nothing but a crack addict's quick dose that does not help the problem at all; it makes it worse, makes the real solution more distant, less likely, and more difficult, and introduces a lot of side effects (which in turn need to be solved... and the cycle continues).

And, as a little bonus, this is the kind of people that made American great (can you imagine this kid as a bureaucrat?):

Halachic basis for Medicare?

(George Washington, asking G-d whether he should socialize horse fodder production)

The Jewish Law blog, to which I am subscribed, linked to the following article in its recent post. You can read the article yourself, but basically, it argues that Halacha supports or even mandates some sort of socialized healthcare provided by the government through taxpayers' money. I urge you to read the article.

These are my two responses to it. The first one is rather brief and does not address my view of Dina D'Malchusa Dina fully, for I did not (nor do now) have time and all the necessary sources at my disposal for a full answer. This is my limited answer then:

First part:

A few comments: 

1. Of all the leaps of logic found in this article, this is probably the greatest in my opinion: 

“Applying this ruling leads to the conclusion that once a person is part of a community, there is a broad scope of public services that a community can compel its citizens to pay for. However, it would seem that the communal funds must be gathered for the purpose of meeting a public need.

It would be easy to imagine that public medical insurance could meet this definition. Medical care is a service that everybody needs at one point or another and if a town decides to create a communal insurance system to address the issue, the town would presumably have the right to set up such a system.”

I can include almost every aspect of everyday life under the logic of the last sentence and then (following the logic of the quoted passage) include it under “a need of the community” that needs to be provided for by the government through compelled taxation.

For instance, cell phone service. Everybody in modern society, at one point or another, needs to make a call.

Food. Shoes. Clothes. Computers. Cars. Chairs. Housing. Etc.

This logic leads straight to socialism — all the property of the populace is transferred to a secular (or religious) “beis din” and then redistributed back according to the political or social calculations of the beis din.

Meanwhile, socialization of medicine leads to real decrease in the quality of services provided. Israel is a good example of how a potentially good medical system can be ruined by socialization.

2. The author of the article does not define a “thieving government”. My perusal of various Halachic sources suggests that the US government may very likely fall under this category.

3. Is there a source extending the rights of a Jewish king to eminent domain to a secular king (a king who is not a Jew or a Noahide gentile)? The article does not provide one.

4. I found this footnote curious: “19 Ad loc sv mahu; also see Rashi sv vayatzilah holding that it is forbidden to save oneself with the money of one’s friend” (p. 102 in the text).

The system of society that the Americans have established in the Thirteen Colonies during and after the American Revolution is not that of monarchy. This is not a trivial point. According to the philosophy of the Founding Fathers (explicit in the Declaration of the Independence, Federalist Papers, the Constitution, etc.), American government does not own the people. The people are not its subjects, and the government is not a sovereign.

The people are the government’s clients. The people are considered to possess certain natural rights to their property and livelihood, and they hire the government to protect those rights. They delegate their rights to the government. Thus, for instance, if I have a right to defend myself, I can delegate that right to the government.

That is the relationship between the people and the government. Now, if you follow Rashi’s stated opinion, if I may not compel you to save my life with your property (or use your property by force to save my life), I should not be able to use a company that I hired as my representative to do the same.

Second part:

This is all ignoring the question of even if it permissible for the current governments to tax people for whatever transfer-of-property scheme, whether it is a good idea for us to allow it. I.e., just because something is halachically permissible, does not mean it is a good idea pragmatically. (One could even say that it does not necessarily mean it is moral.) One can find halachic sources allowing beating one's wife if she did not cook the dinner...

One point is the one I already raised in the [previous] post: allowing the government to manage any kind of industry (from shoe making to television to roads to medical care) basically ruins that industry. The best way that the decisions about direction of capital in an industry can happen is through free market — competition and cooperation between service-providers for the customers' business (and competition between the customers for the products and services in the cases when the latter are scarce). 

The government (or any other monopoly) does not have the necessary foresight to manage the resources most effectively. This argument is known as “economic calculation problem” and was presented by Jewish-Austrian libertarian economist Ludwig von Mises.

The other problem with government-provided medical care is that it violates people’s “natural rights” through taxation (the taxation is potentially justified from natural rights perspective only when the one taxed receives some products or services in return). Now, a frum Jew may not be worried about “natural rights” as presented by the Western philosophers of the 18th-19th centuries, but, unfortunately, the history has shown that once you allow the government to violate natural rights for the supposed “common good”, you open the door for it to violate many different kinds of rights and interfere in personal lives — including Jews’ religious personal lives (not to mention their livelihoods).

All the regimes that constricted Jews’ freedom of religion have done so under the premises of “common good”. Indeed, if you follow their logic, they were doing Jews a favor by forcibly converting them to Christianity, not allowing their children to learn Torah, forcing them to send kids to secular governmental schools, etc. In our times, there has been a proposal to ban bris in San Francisco. It was rejected — but in many European countries, shechita and bris are banned. Homeschooling is banned. (So, if there are no private Jewish schools available in one’s area, one has to send kids to a public school or have them taken away by the state. Chabad shluchim in Sweden are currently facing this problem.) The list, from the past, the present and the potential future goes on.

Even in Israel, frum Jews are forced to listen to kol isha in the army, because a posek in the army has declared that it’s muttar. Well, these Jews’ poskim disagree, but the opinion of this, more meikel, posek is imposed upon them by the state. We see that Jewish governments and frum elements within them can be just as tyrannical.

Therefore, it seems to me that even if the government may have a number of powers granted to it by Halacha (a statement that I personally do not necessarily agree with), it may still be a bad idea for us to support a government that exercises these rights. Until Moshiach comes, the government that governs least governs best.

Effect of income tax on technological progress

[A re-post with some new points]

Oftentimes people tell me that science would not flourish as it has in the 20th century had it not been sponsored by income tax. The idea of private sponsorship of science (either in a form of investments, like in any other business, or in a form of donations) would not work, or at least would not work on the same scale as it has under governmental sponsorship. Until recently, I thought so too.

Let’s see if this is true — what effect has income tax (introduced in the late 19th century and made permanent in early 20th century) and, in general, government’s funding of science had on the rate of technological breakthroughs?




I think the effect is pretty clear. Until the end of 19th century, technology has been developing at an extremely high rate. Then, in late 19th – early 20th century, the rate started to slow down and then started to decrease. Saying “look how far we got in 20th century in terms of technology after government started sponsoring its development” is the same as saying “look how far I got walking on my feet after I abandoned my car on the side of the road”.

Recently someone told me that without inflation, there is no growth (apparently, Rick Santorum believes the same). I answered that England and US have grown tremendously in the period of 1700–1900 (when the currency was not only not inflating, but was actually deflating). He said: "yes, but it was the fraction of growth US has experienced in the last thirty years". I challenged him to provide me with evidence that the rate of growth was higher in the 20th century than in the 19th. Meanwhile, Tom Woods claims the opposite:



Going back to the question of governmental funding of science — so, why would private businesses fund science (after all, aren’t they interested in immediate profit?), and why don’t they do so now? Also, even if the businesses did fund science (and of course, they still do), it would be only applied, not fundamental science, right?

This claim is repeated by most scientists I know. No wonder most of them love the government.

Well, think about this: oil companies invest money in geological research that will produce real profit 30 years from now. Sounds to me like investment into fundamental science that gives long-term profit. (I certainly hope that my personal discoveries will provide humanity, iyH, with some practical benefit, in addition to added theoretical knowledge, less than 30 years from now.)

Now, imagine if the government used taxpayers’ money to do the aforementioned geological research? Why would the oil companies spend money to do it then?

Meanwhile, the cost of doing science has risen greatly, because the companies that supply universities with materials know they can raise the prices, since the government will pick up the bill. The same is happening in medicine and education.

At the same time, the quality of service is going down. It is very hard to buy a good antibody nowadays (as opposed to, say, 10 years ago), since the market is full of antibodies that do not work or don’t work well. The companies mass-produce them and sell them, knowing that the government-sponsored labs will buy them no matter what, since they are less careful with their money spending (after all, the government will pick up the bill, and if you run out of one grant, there is always another to be applied for).

And this is just one example...

Activating trash

Continuing the previous conversation of why the government cannot "activate wealth" by investing into garbage.

First, it seems to be a very clear idea that if a company failed, it happened because the consumers chose not to buy its products, but went for the competitors (it's not like Americans decided they have no money for cars; it's also not like nobody in the world buys cars; Americans buy cars, and people throughout the world buy cars — just not the Fix Or Repair Daily brand). Investing more money into such a company is throwing bad money after the good. What needs to happen is for the company to sell off its assets to the companies that know what to do with them and let its workers be hired by the companies that can employ them to a better use.

Second, it seems that if the government has to invest in a business, it means that the private investors decided that this investment is not worth it. (The argument that some CEOs are overly reckless with their ivestments, because their personal gain from a return outweighs the possible risks of the failure which are shared equally by the investors, actually makes this point even stronger: even such overly reckless investors did not deem such garbage companies as GM worth investing in!) So, someone who supports stimulus basically thinks that Obama and his advisers are better at finding investment targets than entrepreneurs.

Now, let's read the news from National Palestinian Radio about Solyndra:

Administration officials defended the loan restructuring, saying that without an infusion of cash earlier this year, solar panel maker Solyndra Inc. would likely have faced immediate bankruptcy, putting more than 1,000 people out of work. 

Even with the federal help, Solyndra filed for Chapter 11 bankruptcy protection earlier this month and laid off its 1,100 employees.

No way! A company was on a bring of bankruptcy; it got a loan from the Federal Government, and it still filed for bankruptcy and fired all of its workers (plus extra 100 which it apparently hired after getting the loan). So, we are back to where we were, except $528 million poorer.

Now, there is no way someone could have foreseen that happening.

Oh, wait. I am predicting the liberal rebuttal: the problem is that we did not invest enough! Had we invested a couple more billion, the company would not go under and fire all those poor workers. This tragedy happened because of all those stingy Conservative bastards.

An injection of your own blood

If Obama can re-use his first stimulus speech from a few years ago (although I think he just plagiarized Hoover's 1931 stimulus speech), I can re-use one of my old posts:

Government can't really stimulate economy.

Why not? Read here:

Any statement about the economy that contains a mechanical metaphor is more than likely wrong. We’re told government must “jump start” the economy. How can it? Think about what happens when a car is jump started. Cables connected to a charged battery convey juice to a dead battery. Energy is injected into the broken-down car from outside.

Politicians and court economists want us think this is analogous to government’s jump starting the economy. But it cannot be. Since the government has no money lying around waiting to be spent*, it will have to borrow close to a trillion dollars to carry out the program President-elect Obama and the congressional leadership are planning.

But borrowing money for their pet projects injects nothing into the economy. It merely moves money from where it currently is in the economy to where politicians want it to be. How is that a stimulus?

Moreover, the debt will be covered (monetized) by the Federal Reserve by creating money out of thin air. That money will then be spent and “invested,” but notice the problem. Creating money is not the same as creating wealth. Imagine you were stranded on a desert island. Overhead you see a plane. It drops a large box down to you. Excitedly you tear open the box expecting to find food and water. But instead you find a printing press and a large supply of green paper. An instruction sheet states: “Print all the money you need.”

Are you better off?

All resources are scarce. A quantity of steel, for instance, can be used to make a washing machine or a machine to produce more steel. It can’t make both at the same time. When the Fed creates money, it increases the demand for scarce resources — but no new resources. How can that be a path to prosperity? Rather, it’s a path to higher prices and lower real incomes.

But it’s more than that. Since the new money gets into some hands rather than others first, monetary expansion — that is, inflation — changes the pattern of prices and production that would have resulted from voluntary exchange under sound money. Among the prices distorted are interest rates. By doing so, inflation transfers resources from those who produce wealth to others.

Inflation, therefore, is one more government income-distribution program. The lucky early recipients of the fresh fiat money gain purchasing power — command over scarce resources — at the expense of everyone else. The market process is thereby corrupted. In the absence of inflation (and other government interference), it is a system in which entrepreneurs pursue profit by pleasing consumers.

What makes this work amazingly well is the price system, which communicates to producers and consumers the relative scarcities of products and factors of production, the relative demands for such things, and the degree to which people prefer goods in the present to goods in the future. This permits production to be guided by consumers’ preferences.

Inflation distorts those relative prices, garbling the signals and ill-serving consumers. In the end society is poorer than it would have been. When the inflation is finally stopped, the economy suffers depression and mass unemployment as it corrects for the malinvestment. Or, if the inflation accelerates to hyperinflation, as it did in Germany in the 1920s and in Zimbabwe today, society will be thrown into chaos.

This is where the Obama-congressional “stimulus” plans will lead. Nothing is more dangerous than a politician who thinks he must “do something now”.

The last statement points at the root of the problem. People think of government as some creative force — government creates things (products, services, initiatives) and directs civilization. This is a model of a slave society, where people belong to the society, which itself is a big beehive.

On the other hand, a model of a free society, where each person is an individual who belongs to himself but agreed with others to build a society together, involves only one function of the government — not creative, but restrictive. Such a government merely protects people’s rights allowing them to make decisions in building civilization, providing services, inventing new products, etc. — something people have been doing just fine by themselves (and better than when government got involved).

In a free model of a government, the latter has no mitzvos aseh (“thou shalt”) — it only has mitzvos loi ta’aseh (“thou shalt not”).

___________
* Now, it's not actually true that there is no way to inject money into an economy from "without", as one injects juice into a dead battery. There is. Hitler, y"sh, used it to "jump-start" German economy. What you do is invade another country, rob it of its resources, and the "inject" those resources in your economy.

The only question is: should we invade Mexico or Canada? The first is full of cheap labor, but we already have more of their cheap labor than we know what to do with. The second is full of liberals and hippy guitar players (yes, I am thinking of Tzvi Freeman), and we seem to have too many of those too. Perhaps we can invade an oil-rich country and... oh, wait...

A stretch of bad luck

(Obama, looking at the falling American economy — source)

"Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all 'right-thinking people'. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as 'bad luck'."
— Robert Heinlein, science fiction writer


“We had reversed the recession, avoided a depression, gotten the economy moving again. But over the last six months we’ve had a run of bad luck.”
— Barack Obama, science fiction president

[via Istapundit through arbat]

Left march

I like the music. :)

“Anarchist sailors’ march”. Although, wrong kind of anarchists (the socialist ones).

Those of you who don’t understand the words (Google-translate this), you can appreciate at least the rolling rrrr’s.

Free soup and education

From Murray Rothbard’s book For a New Liberty, chapter 7, “Education”:

Protection of a child against starvation or malnutrition is presumably just as important as protection against ignorance. It is difficult to envisage, however, that any government, in its anxiety to see that children have minimum standards of food and clothing, would pass laws for compulsory and universal eating, or that it should entertain measures which lead to increased taxes or rates in order to provide children’s food, “free” at local authority kitchens or shops.

It is still more difficult to imagine that most people would unquestioningly accept this system, especially where it had developed to the stage that for “administrative reasons” parents were allocated to those shops which happened to be nearest their homes . . . . Yet strange as such hypothetical measures may appear when applied to the provision of food and clothing they are nevertheless typical of . . . state education . . . .

Liberals, Tories and liberty

From the preface (by Albert Jay Nock) to Herbert Spencer’s The Man Versus the State:

Spencer ends The New Toryism with a prediction which American readers today will find most interesting, if they bear in mind that it was written [ninety five] years ago in England and primarily for English readers. He says:

The laws made by Liberals are so greatly increasing the compulsions and restraints exercised over citizens, that among Conservatives who suffer from this aggressiveness there is growing up a tendency to resist it. Proof is furnished by the fact that the “Liberty and Property Defense League”, largely consisting of Conservatives, has taken for its motto “Individualism versus Socialism”. So that if the present drift of things continues, it may by-and-by really happen that the Tories will be defenders of liberties which the Liberals, in pursuit of what they think popular welfare, trample under foot.

This prophecy has already been fulfilled in the United States.

And earlier:

Spencer shows that the early Liberal was consistently for cutting down the State's coercive power over the citizen, wherever this was possible. He was for reducing to a minimum the number of points at which the State might make coercive interventions upon the individual. He was for steadily enlarging the margin of existence within which the citizen might pursue and regulate his own activities as he saw fit, free of State control or State supervision. Liberal policies and measures, as originally conceived, were such as reflected these aims. The Tory, on the other hand, was opposed to these aims, and his policies reflected this opposition.
        In general terms, the Liberal was consistently inclined towards the individualist philosophy of society, while the Tory was consistently inclined towards the Statist philosophy.
        Spencer shows moreover that as a matter of practical policy, the early Liberal proceeded towards the realization of his aims by the method of repeal. He was not for making new laws, but for repealing old ones. It is most important to remember this. Wherever the Liberal saw a law which enhanced the State's coercive power over the citizen, he was for repealing it and leaving its place blank. There were many such laws on the British statute-books, and when Liberalism came into power it repealed an immense grist of them.
        Spencer must be left to describe in his own words, as he does in the course of this essay, how in the latter half of the [19th] century British Liberalism went over bodily to the philosophy of Statism, and abjuring the political method of repealing existent coercive measures, proceeded to outdo the Tories in constructing new coercive measures of ever-increasing particularity.
        This piece of British political history has great value for American readers, because it enables them to see how closely American Liberalism has followed the same course. It enables them to interpret correctly the significance of Liberalism's influence upon the direction of our public life in the last half-century, and to perceive just what it is to which that influence has led, just what the consequences are which that influence has tended to bring about, and just what are the further consequences which may be expected to ensue.

Now, the bit about repealing earlier-existing laws vs. creating new laws is interesting to me. In the earlier post called “Evolution of Liberal Reform”, I earlier quoted Arbat (translated from Russian):

All starts with the leftists finding a “Problem”. Oftentimes the Problem is not really a problem. For instance they think that asset inequality is a problem. Even though it is the main stimulus for the economy’s development. To call it a problem is similar to calling voltage difference in the electric grid a problem that needs to be corrected as soon as possible, so that there is no difference in electric potentials at all. [For those less physically inclined, replace electric grid with a ski resort and the voltage difference with the height difference between the top and the bottom of the hill.]

Having identified the Problem, leftists propose a Plan. Oftentimes the Plan involves people giving up some kind of freedom and the government, in turn, forbidding the Problem away. As a rule, the freedom is indeed taken away. It’s the only part that goes according to the Plan. The original “Problem” remains the same, but in addition to it arise a number of “unforeseen side effects”. Which are of course presented as the next set of “Problems”, which are treated with new Plans (instead of getting rid of the original plan, which caused the problems in the first place), and so on.

False analogies

Pray for the welfare of the government, for without the government, people would eat each other alive.

— Pirkei Avos

My rabbi once told me that the worst thing is false analogies.

In the comment thread on the post on Liberia, one of the comments says:

Over Shabbos I was contemplating the two countries, and I came to the following conclusion: when Pirkei Avos said what it did about Government, it was talking about this situation. North Korea, for all its many evils, is at least a (semi) functioning country. It may be starving its citizens, but at least people there live slightly normal lives. Contrast this to Liberia, where without a government, people literally eat each other. It's crazy. They may be much more western in their outlook, but without government? It's horrific.

Well, admitedly, I don’t know what’s worse: to live in North Korea or in Liberia. I would say — North Korea, because in Liberia, you still have a chance to get out of poverty, even though it’s very difficult. And even though there was a good chance you could be killed and eaten during the civil war, if North Korea starts a war, there is a good chance one can get vaporized by a nuclear attack.

Also, as I said to someone else, however many people General Butt Naked killed and ate, Hitler, Stalin or Mao each killed many more.

But even if what the comment says is true, therefore what? It seems that the thesis is: without the government, in Liberia people literally eat each other; therefore, we need the government to provide law and order. (Again, in Liberia there is government, but never mind that.)

Well, if you watch the third video (graphic alert) in the post, you will see right at the beginning that Liberians living in Westpoint, the largest slum of their capital Monrovia, go to bathroom right on the beach in front of their houses since the sanitation system is broken. Actually, one of the Liberian journalists blames the government. In fact, the video begins with the journalists going to see “what the government and UN are doing to rebuild Liberia”. And “the government does nothing about the lack of sanitation. In fact, the Commissioner himself sometimes goes on the beach, squats and [...] together with the people.”

Now, following the logic of the comment, living in North Korea is better than in Liberia — at least you have toilets there (actually, I am not completely sure what they have in Korean villages). Yes, the government may be a necessary evil, but at least it’s necessary to provide us with the toilets. I mean, no way would the market be able to provide us with the sanitation system if not for the government.

Right?

Also, for instance, when the people of medieval Iceland decided to be independent from Norwegian king and formed a nearly-anarchic society (mind you, not completely anarchic), everybody just spontaneously started going to the bathroom to Greenland Sea or Atlantic Ocean, since the king wasn’t there to provide them with chamberpots (or law and order), right? (That is, when they weren’t busy eating each other.)

As I said, in my opinion, it has nothing to do with either anarchy or government. It has to do with the culture. For instance, when the hurricane Katrina hit New Orleans, a lot of local residents were sitting on the roofs screaming, while one Russian journalist living in the area somehow managed to blog about what was going on around him, and when the water hit the attic of his house, he built a boat and just left (literally).

(There was another story of a couple with kids running out of gas in some forest in Oregon after taking a wrong turn. After about a week of waiting for the help to come, the father decided to go look for it by himself. He got lost and froze to death. All the time being a few miles away from civilization. The family was rescued. When my mother heard the story, she didn’t believe it. She couldn’t believe people could have so few survival skills. I mean, everybody knows, in such a situation, you just go up the hill to see better what’s around you.)

What is really wrong with socialism?

In his famous two essays on the anarchist model of law and defense, Robert Murphy gives a good summary of libertarian critique of socialism while also explaining not just the advantage but the necessity of capitalism:

* * *

The traditional opponents of socialism argued that it had insufficient incentives for the average worker; without tying pay to performance, people would shirk and output would be far lower than in a capitalist economy. Only if a new “Socialist Man” evolved, who enjoyed working for his comrades as much as for himself, could a socialist system succeed.
     Although valid, this criticism misses the essence of the problem. It took Ludwig von Mises to explain, in a 1920 paper, the true flaw with socialism: Without market prices for the means of production, government planners cannot engage in economic calculation, and so literally have no idea if they are using society’s resources efficiently. Consequently, socialism suffers not only from a problem of incentives, but also from a problem of knowledge. To match the performance of a market economy, socialist planners would not need to be merely angels, committed to the commonweal—they would also need to be gods, capable of superhuman calculations.
     At any time, there is only a limited supply of labor, raw materials, and capital resources that can be combined in various ways to create output goods. A primary function of an economic system is to determine which goods should be produced, in what quantities and in what manner, from these limited resources. The market economy solves this problem through the institution of private property, which implies free enterprise and freely floating prices.
     The owners of labor, capital, and natural resources—the “means of production”—are free to sell their property to the highest bidder. The entrepreneurs are free to produce and sell whatever goods they wish. The ultimate test of profit and loss imposes order on this seeming chaos: If a producer consistently spends more on his inputs than he earns from selling his output, he will go bankrupt and no longer have any influence on the manner in which society’s resources are used.
     On the other hand, the successful producer creates value for consumers, by purchasing resources at a certain price and transforming them into goods that fetch a higher price. In the market economy, such behavior is rewarded with profits, which allow the producer in question to have a greater say in the use of society’s scarce resources.

None of this is true in the socialist state. Even if they truly intended the happiness of their subjects, the government planners would squander the resources at their disposal. With no test of profit and loss, the planners would have no feedback and would thus be operating in the dark. A decision to produce more shoes and fewer shirts, or vice versa, would be largely arbitrary. Furthermore, the individuals to ultimately decide the fate of society’s resources would be selected through the political process, not through the meritocracy of the market. [Ad kan.]

* * *

Sometimes people blame the failure of socialism in Russia on the dictators. But what did the violation of human rights have to do with the economy (besides the fact that they had to force people into socialism, just like today in the US people are forced into being taxed, so that US auto industry can be bailed out)? Killing off the intelligentsia did not cause the great famines of 1920’s and 30’s. Collectivization of the farms did. Suppressing freedom of speech was terrible, but it wasn’t the reason why the Soviet Union had to import grain from Canada after the Virgin Lands disaster (and other similar campaigns).

One adviser to Khrushchev was Trofim Lysenko, who promised greatly increased production with minimal investment. Such schemes were attractive to Khrushchev, who ordered them implemented. Lysenko managed to maintain his influence under Khrushchev despite repeated failures; as each proposal failed, he advocated another. Lysenko's influence greatly retarded the development of genetic science in the Soviet Union. In 1959, Khrushchev announced a goal of overtaking the United States in production of milk, meat, and butter. Local officials, with Khrushchev's encouragement, made unrealistic pledges of production. These goals were met by forcing farmers to slaughter their breeding herds and by purchasing meat at state stores, then reselling it back to the government, artificially increasing recorded production.

In June 1962, food prices were raised, particularly on meat and butter (by 25-30%). This caused public discontent. In the southern Russian city of Novocherkassk (Rostov Region) this discontent escalated to a strike and a revolt against the authorities. The revolt was put down by the military who opened fire on unarmed demonstrators. According to Soviet official accounts, 22 people were killed and 87 wounded. In addition, 116 demonstrators were convicted of involvement and seven of them executed. Information about the revolt and the massacre was completely suppressed in the USSR, but spread through Samizdat and damaged Khrushchev's reputation in the West.

Drought struck the Soviet Union in 1963; the harvest of 107,500,000 short tons (97,500,000 t) of grain was down from a peak of 134,700,000 short tons (122,200,000 t) in 1958. The shortages resulted in bread lines, a fact at first kept from Khrushchev. Reluctant to purchase food in the West, but faced with the alternative of widespread hunger, Khrushchev exhausted the nation's hard currency reserves and expended part of its gold stockpile in the purchase of grain and other foodstuffs.

The tea girl

“State” at its best.


From a bunch of undercover journalists filming the great successes of socialism in North Korea.

I like the song and the clip at the beginning, because it reminds me of Russia, except Asian communists are like Russians that had their souls sucked out of them. Actually, a bit like Germans. Russians were just a bunch of shlemazels who hated the fact that nobility oppressed the peasants. Asians took Marx and put him on the conveyor belt.



To me the above video represents the complete destruction of what human spirit is. But the thing is: the idea of doing what’s best for the society vs. individuals is that destruction.

The tea girl:



Luckily, playing ping pong is all that she has to do.

One comment on YouTube said:

God I feel like I'm being brainwashed just watching this. What an awful, awful country. I feel sorry for the people.

Now, this is absolutely my favorite episode. I think Barrage is the symbol of governmental involvement in the society.

Disinclination to work

In the present instance, going back to the liver-pill circular, I had the symptoms, beyond all mistake, the chief among them being "a general disinclination to work of any kind." What I suffer in that way no tongue can tell. From my earliest infancy I have been a martyr to it. As a boy, the disease hardly ever left me for a day.
— Jerome K. Jerome, Three Men in a Boat

I know I am posting too many things at one time, but this bit that I have just read is too brilliant to pass by. The Conservatives and Classical Liberals are oftentimes accused of being heartless pigs who do not care for the poor. Figures are oftentimes cited to reveal the levels of unemployment and poverty. And the solution is more free soup, more governmental charities.
        In his book, The Worldy Philosophers (hardly a work of libertarian economic philosophy), Robert L. Heilbroner writes (p. 24 in the 7th ed.):

Sir William Petty, an astonishing seventeenth-century character (who was in his lifetime cabin boy, hawker, clothier, physician, professor of music, and founder of a school named Political Arithmetik), claimed that when wages were good, labor was “scarce to be had at all, so licentious are they who labor only to eat, or rather to drink”. And Sir William was not merely venting the bourgeois prejudices of his day. He was observing a fact that can still be remarked among the unindustrialized peoples of the world: a raw working force, unused to wagework, uncomfortable in factory life, unschooled to the idea of an ever-rising standard of living, will not work harder if wages rise; it will simply take more time off.
        The idea of gain, the idea that each working person not only may, but should, constantly strive to better his or her material lot, is an idea that was quite foreign to the great lower and middle strata of Egyptian, Greek, Roman, and medieval cultures, only scattered throughout Renaissance and Reformation times and largely absent in the majority of Eastern civilizations. As a ubiquitous characteristic of society, it is as modern an invention as printing.
        Not only is the idea of gain by no means as universal as we sometimes suppose, but the social sanction of gain is an even more modern and restricted development. In the Middle Ages, the Church taught that no Christian ought to be a merchant [good news for the Jews, eh?], and behind that teaching lay the thoughts that merchants were a disturbing yeast in the leaven of society. In Shakespeare’s time the object of life for the ordinary citizen, for everybody, in fact, except the gentility, was not to advance his station in life, but to maintain it. Even to our Pilgrim forefathers, the idea that gain might be tolerable — even a useful — goal in life would have appeared as nothing short of a doctrine of the devil.

Now, I must point out, from my experience of having lived in New Orleans for four years, that the attitude described in the first paragraph of the quote is not unique to the “unindustrialized people of the world” — it is prevalent among many sub-cultures of American society as well.
        I know a Jew from Manhattan who was in real estate business in New Orleans. He would buy apartment buildings and renovate them to rent out. He employed one man who, according to my friend, was a very talented craftsman. Gaining his services, however, was very difficult. First, to find him, one had to cross a bayou on a boat. Second, even if found, the guy was most of the times in a state of intoxication from various substances. Third, even if employed, he more often than not would not show up to work.
        Now, if one personally wishes to stay poor, that’s his business (and there is a difference between “advancing one’s station in life” to the point of being able to buy a yacht vs. to the point of being able to buy two pairs of tefillin for each son and send all children to good schools, and maybe buy some Jewish books and invite a few guests for Shabbos). But if he wishes to help other poor people, he must encourage them to help themselves and provide them with economic means to do so, not encourage the government to hand out free soup to keep the poor barely alive.

A little socialism never hurt anyone

You don’t say... (And if you tell me this could happen only in Russia and never in UK, Canada or US, I will answer that I saw similar things in public hospitals in Brooklyn, in Coney Island.)

I recall the case of a fourteen-year-old girl from my district who died of acute nephritis in a Moscow hospital. She died because a doctor decided that it was better to save "precious" X-ray film (imported by the Soviets for hard currency) instead of double-checking his diagnosis. These X-rays would have disproven his diagnosis of neuropathic pain.

Instead, the doctor treated the teenager with a heat compress, which killed her almost instantly. There was no legal remedy for the girl's parents and grandparents. By definition, a single-payer system cannot allow any such remedy. The girl's grandparents could not cope with this loss and they both died within six months. The doctor received no official reprimand.

[...]

The appalling quality of service is not simply characteristic of "barbarous" Russia and other Eastern European nations: it is a direct result of the government monopoly on healthcare and it can happen in any country. In "civilized" England, for example, the waiting list for surgeries is nearly 800,000 out of a population of 55 million. State-of-the-art equipment is nonexistent in most British hospitals. In England, only 10 percent of the healthcare spending is derived from private sources.

Britain pioneered in developing kidney-dialysis technology, and yet the country has one of the lowest dialysis rates in the world. The Brookings Institution (hardly a supporter of free markets) found that every year 7,000 Britons in need of hip replacements, between 4,000 and 20,000 in need of coronary bypass surgery, and some 10,000 to 15,000 in need of cancer chemotherapy are denied medical attention in Britain.

Age discrimination is particularly apparent in all government-run or heavily regulated systems of healthcare. In Russia, patients over 60 are considered worthless parasites and those over 70 are often denied even elementary forms of healthcare.

In the United Kingdom, in the treatment of chronic kidney failure, those who are 55 years old are refused treatment at 35 percent of dialysis centers. Forty-five percent of 65-year-old patients at the centers are denied treatment, while patients 75 or older rarely receive any medical attention at these centers.

In Canada, the population is divided into three age groups in terms of their access to healthcare: those below 45, those 45–65, and those over 65. Needless to say, the first group, who could be called the "active taxpayers," enjoys priority treatment.

Read more: What Soviet Medicine Teaches Us

And of course, such a thing could never happen in our times. Not in a country like Japan, with its bullet trains, and high-tech industries.

“Traffic insident victim dies after refused being seen by 14 hospitals”:

United Kingdom before Margaret Thatcher

It is absolutely amazing how what seems to have been the state of the political system in the pre-Thatcher UK resembled the state of affairs in late (and crumbling) Byzantine Empire. This video shows some of the beauties of large governments:



I’ve posted this before. An excerpt from an interview of a Soviet dissident who had come to the UK just before Thatcher came to power (translated from Russian):

[After arriving to the UK] I was astonished by the extremely low level of life. Not as in the famished Soviet Union, of course, but impossible to compare with Switzerland, from which I escaped. London was filled with garbage, lines were snaking around the streets, stores were standing half-empty… The winter of 1978-79 was a winter of destruction.

The thing is: by that time, Britain was already long-ruled by socialists who destroyed the economy as only they know how. At that point, everybody was on strike — garbage collectors, transport workers… It was a sight to see! As soon as the railroad workers’ strike ended, the train drivers’ strike began. Then went the ticket collectors. Labor unions had huge power, and the country was inevitably rolling towards a cliff. I was just amazed — after Geneva I’d thought that all of the West was prospering. And it turned out that socialism got its hands on England too. Unbelievable! Such a great country brought to a level of some Bulgaria.

Fortunately, the elections were won by Margaret Thatcher. She came to power and started breaking apart socialism and saving Britain. The most difficult thing was to defeat the miners. It was unprofitable to mine coal in England, and every ton of coal was impoverishing the country. Just like in the Soviet Union — the more meat a collective farm produced, the more losses for the country’s budget. Thatcher started closing down the mines; the miners started striking, since they were accustomed to robbing their own country, being parasites on it. But the Iron Lady did not give up.

It wasn’t just the miners either! Dockers were the second major enemy. All the world by that time was already using high-efficiency container unloading of ships. But English dockers’ union was against the innovations, because container unloading increased productivity, leading to firing of additional workers. Sometimes it was like a comics strip: container-carrying ships would arrive at Dutch Rotterdam; there, everything was unloaded on trains and delivered to England by railroad. While the dockers were still getting paid, since the labor union forced this out of the business owners.

Or another idiocy… Socialists decided to defend English cinematography. Before, cameras were inefficient and had to be assisted by three people. Then cameras became better and could be served only by one person. But the socialists enacted a law where three people had to work on a camera anyway! What, should we fire a worker because of some progress?! At that point English cinematography could not compete with Hollywood and lost the juice.

Socialism is a national suicide. And Margaret with her iron hand started to choke it, saving her country. She showed utmost will not to give up. And she won. After that, the country started climbing out of the nightmare. And now England is one of the world leaders. It blossomed virtually in front of my eyes. No wonder Russian oligarchs come here…

Yet, socialism is not dead everywhere. [He goes on to give some modern examples where unions or state-sponsored monopolies drive prices up and slow down the progress.]