Thursday, February 23, 2017

A Sensible Economic and Foreign Polciy: Part II

A Sensible Foreign Policy: Mind Your Own Business and Set a Good Example


For the sake of peace and prosperity in the world, the US should take the true leadership role in proving to the world that free trade and non-interventionism are all that is required. In other words, all nations should simply mind their own business and set good examples. Just as laissez faire policies work within a nation's boundaries, free cooperation between individuals of different nations will quickly reveal which policies work and which do not. It is important to remember that there is nothing that a nation can do internally to force other nations to subsidize its economy. All subsidies, currency manipulations, etc. are self-defeating. Therefore, the US should take the following actions to remove government interference with peaceful, cooperative trade between its citizens and the citizens of other nations.



1.  Adopt unilateral free trade.


Completely eliminate all restrictions on the importation and export of legal products. For trade purposes treat the rest of the world as if it were part of one's own country; i.e., the freedom to buy and sell all legal products anywhere in the world. It is a mercantilist fallacy that a nation becomes wealthy by selling more than it imports, thereby accumulating gold (now foreign exchange). On the contrary, mercantilist nations deny their citizens the right to become wealthy. They do not allow their citizens to exchange the product of their labor for the most goods and services. Rather they deny their citizens a higher standard of living by forcing them to purchase higher priced and/or lower quality domestic goods. If this were not the case--i.e., if a nation could produce all things that it needed at the lowest worldwide price--trade barriers would  not be needed, since no one would wish to purchase inferior/higher priced foreign goods. Of course, this is not the case at all. The division of labor is a natural, beneficial process that knows no international, political boundaries. If Hawaii were not a state of the union, but rather a foreign nation under its own political system, would Americans be better off by denying themselves Hawaiian grown pineapples and instead grow inferior pineapples at higher prices somewhere in the remaining forty-nine states? Of course not. Free trade allows for the most efficient allocation of worldwide capital to produce the most goods and services for those who participate.



2. Do not lobby foreign governments to allow one's own citizens' goods into their countries.


A nation that restricts imports harms its own citizens. Allow them to correct their own government's errors themselves. A nation that denies its citizens the right to import goods from other countries yet encourages its citizens to sell goods into those same countries, (and may even subsidize these sales in some way), has adopted an illogical and unsustainable policy. It is similar to selling one's wares and never cashing the customers' checks. Foreign exchange accumulates in the protectionist nation's central bank. But to what end? If that government buys the national debt of the same nation, then the fallacy becomes even more clear. It denies its citizens the right to buy that nation's goods and services, yet when the government itself buys that same nation's debt it is funding that nation's spending--infrastructure, defense, etc.--with the fruit of its own citizens' toil. Nothing could be more illogical, and this policy will be abandoned eventually or the protectionist nation will fail economically.



3. Do not prevent one's own citizens from buying so-called subsidized or "dumped" products.


This oft-used policy is a consequence of mercantilism. Nation A prevents its citizens from buying products that it claims nation B subsidizes in some way. The US/Canadian softwood dispute is a good example. The reciprocal tariffs that emanated from this dispute have caused Americans to pay more for softwoods, reducing their standard of living. The "seen" consequence is that American softwood producers get higher prices for their product, but at the "unseen" expense of their fellow countrymen. The US consumer suffers and capital is used in less productive ways than if the tariff were not in place. If Canadians are foolish enough to subsidize exports, the beneficiaries are Americans. Canadians are taxed so that Americans can enjoy cheaper softwoods.



4. Do not subsidize in any way any good, whether sold domestically or to foreigners.


The flip side to number three above is that a nation should not subsidize exports. All the citizens of the exporting nation bear the cost, and the citizens of the importing nation reap the benefit. What could be more illogical?



5. Scrap all existing trade treaties, agreements, etc. and defund and close down all trade offices and personnel.


Free trade is incompatible with managed trade. All trade agreements are "managed" trade. If they aren't managed, then what is the point of the agreement itself? There is nothing to manage. But, if the point of the agreement is that a nation will open its doors to another nation's products only if that nation reciprocates, then each nation is still pursuing the illogical and self-defeating precepts of a mercantilist trade policy.



6. Do not intervene in any way into the internal affairs of any country.


If one's own citizens are disgusted with the governmental policies of another country, they can privately boycott that country's goods and refuse to invest in that country's economy. This is the international equivalence of boycotting some local vendor. (A good domestic example of this policy is the boycott organized by Cesar Chavez. See The 1965-70 Delano Grape Strike and Boycott.) A good international example is the closing over the last decade of most Cities Services (Citgo) gas stations. Venezuela owned Citgo, and Americans were disgusted with Venezuelan policies. No governmental policy was necessary for US citizens to register their disgust. The fact that the Venezuelan government has not changed its policies is no reason for the American government to take action. Americans can simply be reassured that they are not supporting Venezuela by purchasing it most recognizable product--oil.



7. Do not use military force except to retaliate against attack upon one's own territory or the right of one's own ships, planes, etc. to travel in international waters or airspace.


No nation has a right to intervene, especially militarily, in the internal affairs of others. This is the non-aggression principle extended to the behavior of nations. Of course, if no nation intervened in the affairs of another and no nation attacked another's territory, war between nations would end. There are many caveats to this policy--genocide of minorities by majorities, for example--but nations must beware of the slippery slope toward continuous interventions that so-called "special cases" seem to authorize.



8. Do not enter into unlimited and/or ill-defined collected security agreements.


Just as a nation should not intervene militarily into the affairs of others on its own accord, so the speak, it should be even more circumspect about not becoming legally tied to intervene in the affairs of others as a result of a collective security agreement. This would be second hand intervention, whereby the nation itself is not attacked but acts as if it were. Collective security agreements should be written very carefully. Carte blanche agreements remove the incentive of one's allies to resolve agreements peacefully. There are few disputes in which side is completely innocent and the other is completely guilty. There are few disputes in which there are only one of two alternatives. Furthermore, collective security agreements may backfire; i.e., reducing the security of current members and admitting new members with ancient animosities that they now find no reason to attempt to resolve peacefully. Collective security agreements suffer the same adverse consequences of other socialist policies.





Most of the issues confounding Americans today are the result of government hubris and overreach. Government apologists believe that the economy can be improved by intervening into the free market. But sound economic theory reveals that government intervention is both unnecessary and destructive. It reduces market transactions that participants believe will benefit both parties. Furthermore, it misdirects capital to unsustainable investment, resulting in capital deccumulation. Complete laissez faire is the only rational policy that remains.


Internationally, government should follow the maxim "Mind your own business and set a good example." Avoid intervening into the affairs of others and allow your good example to speak for itself. In trade avoid the fallacies of mercantilism. Avoid or strictly limit collective security agreements and follow the non-aggression principle.

Wednesday, February 22, 2017

A Sensible Economic and Foreign Policy: Part I

A Sensible Economic Policy: Laissez Faire


The Misesean insight that all economics is based upon methodological individualism plus the no harm principle calls into question the raison d' entre of the regulatory state, including legal tender laws; i.e., the mandatory and exclusive use of state produced and controlled money within the sovereign boundaries of the state.


Since every economic transaction is between private parties who believe that they will benefit from the transaction, how can any other individual--much less some remote burreaucrat--even know what these transactions might be or their terms? All that is required for peaceful cooperation among people everywhere is ordinary commercial law to define contracts, fraud, etc. and the law of torts to define harms. These laws arose out of the common law over the centuries and not out of the hubris of self-aggrandizing bureaucrats.


There is no harm that can be visited upon the population that the common law has not addressed. It follows, then, that the people should take the following actions to defund and remove from power the expensive and business-stifling regulatory state.



1. Eliminate all federal cabinet level agencies related to regulating economic life.


Of the current cabinet level bureaus, the following should be eliminated immediately, including all departments within these bureaus, such as OSHA (within the Department of Labor) and the EPA (customarily accorded cabinet rank):


a. Agriculture

b. Commerce

c. Labor

d. Energy

e. Education

f. Housing and Urban Development

g. Transportation


The above seven agencies spent $667 billion in 2010, representing 23% of all federal spending.



2. Eliminate the central bank--the Fed--and scrap legal tender laws.


Of course, a free market must include freedom of its participants to use whatever medium of exchange--money--that it chooses. Money is part and parcel of the market economy. It arises naturally to break the limits of a barter economy, also known as direct exchange. Commodity money becomes indirect exchange, whereby market participants trade for the most widely accepted commodity rather than trade directly to satisfy their ultimate goals. There is no need for the state to dictate what may be used for indirect exchange. Market participants themselves are in the best position to determine which commodity makes the best money.


Furthermore, central bank produced and controlled money has allowed government to act like a common counterfeiter, producing money out of thin air to fund its own spending programs and/or reward its supporters, all at the expense of society as a whole. It is much easier to fund wars and welfare out of printed money than taxes, or borrowing from real savings. The steady erosion of money's purchasing power hits retirees the hardest, diminishing their ability to plan for a retirement of comfort and dignity. Furthermore, the Austrian Theory of the Business Cycle places fiat money expansion as the root cause of the Boom/Bust cycle that misallocates and eventually destroys capital.



3. Eliminate government licensing of occupations and products.


The best regulator of occupation quality is the free market. Government agencies protect the status quo, erecting unnecessary barriers to cheaper, affordable alternative services. There is no objective standard for determining service quality. This is a judgment of market participants themselves. In a free market unscrupulous and incompetent practitioners are weeded out by competition and ordinary commercial and tort law.



4. Eliminate standing in court of third parties.


Environmental groups and other anti-business, anti-development groups file suits to stop projects over which they are not parties; i.e., they do not own property, cannot show that they are suffering real, as opposed to hypothetical or psychological harm, such as the loss of scenic views. Such groups are always at liberty to solicit funds from their members to buy and set aside what they consider special, scenic areas. Like licensing of occupations under the banner of consumer protection, there is no objective standard of what is and is not a scenic view or special area. Only the market can decide such things. Environmental groups cannot assume to have a superior, or more insightful position outside the market, because there is no standard for determining such things as beauty. These are subjective evaluations which change constantly. If you think this is not the case, just study the rural cemetery movement of the nineteenth century in which the world's best landscape architects were hired to design cemeteries where families would spend many hours each weekend among their ancestors.



5. Restrict monetary damages for violations of commercial law, torts, and other harms.


Only the parties to a dispute who have standing in court as suffering real damages should be compensated financially for violations of the common law, and these compensations should go entirely to the parties involved, not third party whistleblowers and/or their attorneys. Current friend-of-the-court rules allow meddling by third parties who can delay business projects almost indefinitely or drive up costs until the projects are abandoned.  Those who suffer are the project developers, of course, plus all the unseen employees who never became employees and all the projects' happy customers who never became happy customers.



6. End all subsidies.


If a business cannot produce a profit acceptable to its investors, then the investors should close it down and invest their scarce capital in a business whose product is more highly desired. Businesses that produce losses are prima facie evidence that capital is being consumed rather than accumulated. Private investors will close down such businesses or lose all their capital. Government subsidies plunder existing capital in order to prop up those businesses that are consuming it. But subsidies do not stop capital deccumulation, only those who suffer the loss. Typically high profile businesses, those with large union workforces, or those politically connected are the recipients of capital provided by common, working people. In other words, subsidies are theft.