Posts
It will come as no surprise to this group that national health care cannot work. It cannot work because it violates economic law…and no, Mr. President, these are not laws that you can rescind. They are immutable laws of human action. You may ignore these economic laws, but these economic laws will not ignore you.
Like any socialist enterprise, National healthcare will bring excessive cost, shortages, and degraded quality of service. In short, it will fail to achieve all of its vaunted goals.
Since it makes healthcare a so-called free entitlement, demand will soar. It cannot do otherwise. This increased demand will swamp our healthcare providers—the hard working doctors, nurses, medical technicians, plus all the support services that accompany modern medicine. Some may believe that, yes, this may be so, but supply will catch up. Sadly they are mistaken.
The supply of all things related to healthcare actually will shrink, due to the other great evil—price controls. The law promises to hold down costs the old-fashioned way, by setting government-mandated maximum prices. So demand will increase while supply will decrease, creating all manner of shortages in the delivery of healthcare services.
This supply shortage will be exacerbated by the rising costs of healthcare. The elimination of private healthcare will remove the profit-and-loss incentive that is necessary for controlling costs of all kinds. The healthcare system will suffer from the same high costs as the Postal System and Amtrak. Without private owners with their own capital at risk, government bureaucrats will have little incentive to hold down costs.
Of course, a shortage of anything that cannot be relieved by price adjustments will mean that healthcare will be rationed. How? Perhaps it will be rationed by bureaucrats, as it is in every other country with a national healthcare system. Or it might be rationed by those who can wait the longest, which means that many will suffer and some will die before they receive proper care. This is the situation with our neighbor to the north. There is a reason that Canadians come to America for healthcare services and few Americans go to Canada, or Britain, or France, or Germany…
But it gets worse. Shortages, price controls, and rationing are just the near term problems. A long-term problem will be the diminished level of care and the end of medical innovations. How many here would like to return to the quality of care of 1950? Well, get sick in England and you will find out what decades of national healthcare can do to a once fine medical system. We have become accustomed to medical breakthroughs, new medical devices, and improved procedures. But with the medical system strapped for funds simply to keep things at their current level, much less will be spend on new and, initially at least, expensive care.
One last, but by no means final, problem is that of economic calculation. The healthcare system will not know how to treat patients most efficiently. And efficiency is just as important as is quality, because an efficient system will bring better quality care to more people. But price controls and government rationing will destroy all economic cues from the price system that are necessary to keep ANY service alive.
There are many, many more problems with national healthcare…I have not even mentioned the impact on business profits and worker employment…but here’s a hint…it will all go South.
All in all, national healthcare will throw America’s premier healthcare system into chaos…racked by corruption and incomprehensible government rules. It will go the way of all other national healthcare systems—it will become more expensive, access will diminish (even for the poor, who are served very well right now), and quality will diminish. This process will NOT stop, either. It is not as if our healthcare system will deteriorate to some new, lower plateau. It will deteriorate until, like government schools in our inner cities, even the poor will be afraid to utilize it. And, wasn’t it to aid the poor that is supposed to be the rationale for all this nonsense?
Real healthcare reform would eliminate current regulations on our healthcare system. Healthcare is a scare resource that must be integrated into the market to serve the peoples’ needs as expressed by their private expenditure of money. This is the process that has brought us unprecedented prosperity AND great healthcare. Now we are throwing it all away to pursue the discredited socialist dream of state control of what Lenin called “the commanding heights” of the economy. It worked so well for poor Russia that our own socialists just have to try it here in America. This law must be rescinded!
Friday, April 16, 2010
Wednesday, April 7, 2010
Why America Seems to Slide Inevitably Toward Socialism
A friend wrote to me recently expressing his concern that the US electorate is choosing socialism. That certainly seems to be the case. Republican President George W. Bush socialized prescription drugs for seniors, and now Democratic President Barack Obama has socialized the entire healthcare system. There are other examples, such as the government taking an equity position in General Motors, once the world’s largest private enterprise, and major banks. Since there is little real doubt that Barack Obama and his Democratic Party won the last election fairly and squarely, there is some justification to the claim that we are getting what we wanted—socialism. At least that is the conclusion that one must draw when our fairly elected representatives vote to enact these social programs.
But I don't think the US is consciously choosing socialism per se, even though we are sliding toward socialism one step at a time, with the electorate ratifying each and every step. Furthermore, I doubt that many of our representatives who voted for the healthcare bill, the bailouts, and all the rest would agree that it is fair to call them socialists. They are simply giving Americans what they think we want. If they did otherwise, they would be voted out of office.
The slide toward socialism in America is not a conscious act. Rather it is the inevitable consequence of abandoning the fetters placed upon the federal government by the Constitution. Nowhere in the Constitution will you find authorization for funding ninety percent of the federal government’s current operations or regulating America’s private businesses.
The Self-reliant Become Victims
Rather, the electorate understands that to refrain from lobbying for a government handout of some kind is to become a victim...the government robs you and returns nothing to you or it handicaps you in dealing cooperatively with others. Therefore, the electorate wants "middle class" entitlements similar to the ones the government has granted to the poor, the unions, and big business for decades...with no appreciable beneficial result, by the way.
Economists call this phenomenon a “Tragedy of the Commons”, where all scramble to grab as much of the commonly owned resources as they can before others grab them. Eventually these commonly owned resources are plundered to extinction; thus the name, “Tragedy of the Commons”.
The underlying fact of modern American life is that more and more resources are considered to be “commonly held” or at least subject to confiscation and/or regulation by the government for the benefit of government’s constituencies. It is clear that if you desire to live a life of personal responsibility, asking nothing of anyone, you will become the victim of all the rest—you will contribute more and more to the “common” and get nothing in return.
The Tyranny of State-Sponsored Altuism
Extending welfare benefits to a larger portion of society seems to be unstoppable. There is a very good reason for this. Welfare benefits are couched in the highest altruistic terms; for example, healthcare benefits are extended to the “uninsured”, whom we are told will suffer and die without them. We have heard this refrain before; it got us public housing, food stamps, and aid to families with dependent children.
To oppose the extension of these benefits is to incur the scorn of polite society as one who is callous, greedy, smugly comfortable, selfish, etc., and these are the polite terms! It is a brave person who can stand opposed to this scorn for very long. The temptation is to agree in principle but disagree as to the extent of welfare’s reach. One can easily see that this is no obstacle at all, for once any welfare program gains a foothold it is impossible to prevent its spread to the next tier of potential beneficiaries and then the next and then the next, ad infinitum.
Ayn Rand characterized taxpayer-supported welfare as the tyranny of altruism, for it places one at the state-enforced mercy of any and all who claim to be less well off. One no longer may labor for oneself, one’s family, or one’s chosen friends, but for the never-ending and growing ranks of one’s fellow men. The state lays claim as the moral arbiter of public altruism, and since there are legions of potential voters as recipients of all its largess, there is an inherent propensity for the state, acting in its own best interest, to grant more and more public welfare. Since the constitutional restraints have been removed that would have prevented raids on the public treasury, there is no limit to what the state may confiscate and redistribute. Nor is there any rational reason why more and more potential recipients should not lobby to get their share of the public pie. We now have the perfect storm brewing to drown the ship of state in a sea of red ink and the blood of warring “needy” constituents. The poor taxpayer finds that the state may lay a legal claim, backed by moral superiority, to unlimited amounts upon his time and wealth.
The welfare state has come to represent the ultimate form of despotism, because to oppose its greedy hands is to be labeled as a societal enemy of the worst kind. Being an enemy of a conquering power rests more easily upon the shoulders of a man than being an enemy of one’s own countrymen. That is why public altruism is the worst form of tyranny—it is a tyranny that one opposes at the risk of becoming an outlaw within one’s own country, with few friends or supporters. There is no solace borne of the confidence that one has earned the admiration of others that would serve to sustain one in his heroic defiance against this tyranny. Thusly, the American electorate, like electorates everywhere else, slides toward socialism from a combination of self-interest and fear of public condemnation.
But I don't think the US is consciously choosing socialism per se, even though we are sliding toward socialism one step at a time, with the electorate ratifying each and every step. Furthermore, I doubt that many of our representatives who voted for the healthcare bill, the bailouts, and all the rest would agree that it is fair to call them socialists. They are simply giving Americans what they think we want. If they did otherwise, they would be voted out of office.
The slide toward socialism in America is not a conscious act. Rather it is the inevitable consequence of abandoning the fetters placed upon the federal government by the Constitution. Nowhere in the Constitution will you find authorization for funding ninety percent of the federal government’s current operations or regulating America’s private businesses.
The Self-reliant Become Victims
Rather, the electorate understands that to refrain from lobbying for a government handout of some kind is to become a victim...the government robs you and returns nothing to you or it handicaps you in dealing cooperatively with others. Therefore, the electorate wants "middle class" entitlements similar to the ones the government has granted to the poor, the unions, and big business for decades...with no appreciable beneficial result, by the way.
Economists call this phenomenon a “Tragedy of the Commons”, where all scramble to grab as much of the commonly owned resources as they can before others grab them. Eventually these commonly owned resources are plundered to extinction; thus the name, “Tragedy of the Commons”.
The underlying fact of modern American life is that more and more resources are considered to be “commonly held” or at least subject to confiscation and/or regulation by the government for the benefit of government’s constituencies. It is clear that if you desire to live a life of personal responsibility, asking nothing of anyone, you will become the victim of all the rest—you will contribute more and more to the “common” and get nothing in return.
The Tyranny of State-Sponsored Altuism
Extending welfare benefits to a larger portion of society seems to be unstoppable. There is a very good reason for this. Welfare benefits are couched in the highest altruistic terms; for example, healthcare benefits are extended to the “uninsured”, whom we are told will suffer and die without them. We have heard this refrain before; it got us public housing, food stamps, and aid to families with dependent children.
To oppose the extension of these benefits is to incur the scorn of polite society as one who is callous, greedy, smugly comfortable, selfish, etc., and these are the polite terms! It is a brave person who can stand opposed to this scorn for very long. The temptation is to agree in principle but disagree as to the extent of welfare’s reach. One can easily see that this is no obstacle at all, for once any welfare program gains a foothold it is impossible to prevent its spread to the next tier of potential beneficiaries and then the next and then the next, ad infinitum.
Ayn Rand characterized taxpayer-supported welfare as the tyranny of altruism, for it places one at the state-enforced mercy of any and all who claim to be less well off. One no longer may labor for oneself, one’s family, or one’s chosen friends, but for the never-ending and growing ranks of one’s fellow men. The state lays claim as the moral arbiter of public altruism, and since there are legions of potential voters as recipients of all its largess, there is an inherent propensity for the state, acting in its own best interest, to grant more and more public welfare. Since the constitutional restraints have been removed that would have prevented raids on the public treasury, there is no limit to what the state may confiscate and redistribute. Nor is there any rational reason why more and more potential recipients should not lobby to get their share of the public pie. We now have the perfect storm brewing to drown the ship of state in a sea of red ink and the blood of warring “needy” constituents. The poor taxpayer finds that the state may lay a legal claim, backed by moral superiority, to unlimited amounts upon his time and wealth.
The welfare state has come to represent the ultimate form of despotism, because to oppose its greedy hands is to be labeled as a societal enemy of the worst kind. Being an enemy of a conquering power rests more easily upon the shoulders of a man than being an enemy of one’s own countrymen. That is why public altruism is the worst form of tyranny—it is a tyranny that one opposes at the risk of becoming an outlaw within one’s own country, with few friends or supporters. There is no solace borne of the confidence that one has earned the admiration of others that would serve to sustain one in his heroic defiance against this tyranny. Thusly, the American electorate, like electorates everywhere else, slides toward socialism from a combination of self-interest and fear of public condemnation.
Monday, March 29, 2010
The Dehumanizing Pretentions and Inanities of Earth Hour
Environmentalists, in a gesture to spur governments to enact ever more restrictive environmental laws, called on the world to turn off all lights and electrical appliances at 8:30 p.m. local time on Saturday, March 27th. The environmentalists claim that the reduced demand for electricity would cause a significant reduction in greenhouse gases and, thusly, benefit Mother Earth. Many government buildings around the world, from the Mother of all Parliaments in London to the State University in Moscow, went dark, as did offices of major corporations such as Coca Cola on this side of the Pond.
In the 1960’s the term “radical chic” was applied to well-to-do socialites who became enamored with the Black Power movement. These tough-guy and tough-gal wannabes held cocktail parties in upper class New York apartments in order to rub shoulders with thugs advocating the overthrow of legally constituted government. Their dabbling in anti-Americanism was very much like children taking their first roller coaster ride—they got a nice thrill without much concern that there was really any risk involved. The same can be said of those who accede to the demands of the Earth Hour advocates. One can be “earth chic” by turning off the lights for an hour without much concern that the lights will come back on at the flick of a switch later in the evening.
As masters of public relations Earth Hour promoters were careful not to go too far in their demands. For example, they did not advise that governments turn off traffic lights or that hospitals shut off life supporting medical equipment. Nice of them, wouldn’t you say? But what about other uses of electricity? Just where do the Earth Hour advocates draw the line and what is their criterion for doing so?
From a practical point of view, it is hard to believe that electricity generating companies would be able to reduce their output knowing that the lowered demand would last for only one hour. A more likely scenario is that tasks that can be performed at just about any time, such as running the electric clothes dryer, will be bunched into the time frames before or after Earth Hour, causing spikes in peak power demand that would require more not less electric power production.
But let’s play along and say that demand for the one hour of electricity is lost forever along with demand for electricity. We turn out the lights, sit in the dark, and, in effect, lose one hour of our collective lives. What exactly has been accomplished? OK, that may be a little too hard to comprehend, so let’s lengthen the Earth Hour to an entire Earth Day, whereby we turn off all non-essential power usage (however that is defined) for an entire twenty-four hours. Shops close. Restaurants close. Sporting events are cancelled. Cultural centers, museums, grocery stores, laundromats, factories…all close. Surely, electric power production may be reduced by some significant amount, along with a concomitant reduction in greenhouse gases. But this perhaps significant reduction in greenhouse gases has come at the cost of loss of production. And it is production that generates the purchasing power to command consumption. Without sufficient production the lights just may not come on again at the flick of the switch.
Why Man is Different
The philosophical assumption behind Earth Hour is that energy use harms Mother Earth. If this is so, why are traffic lights and life supporting medical devices exempt? If man is harming Mother Earth, he must be stopped! But man is different from other species in his rationality, his free will, and his inherent recognition that by cooperating with other men he can improve his lot above mere existence in a rude, cold, and terrifying state of nature. It is man’s nature to cooperate under the division of labor that has given him all the comforts of modern life that the Earth Hour advocates decry as harmful. They are not. When combined with protection of private property and economic calculation under a money-price system, man reorders nature’s physical properties to produce goods on a sustainable basis.
It is a gross misunderstanding of Nature to claim that it contains only so much quantity of resources and that once employed these resources are lost forever. Nature’s resources are limitless. The physical properties of nature may change, but, as Einstein proved, matter and energy cannot be destroyed. Man’s ability to exploit nature is limited only by his level of technological development and degree of social cooperation.
It is man’s ingenuity that allows him to exploit the hidden utility in what everyone once believed to be useless natural objects. Most of what we today call resources were useless and even hindrances until man processed them in some manner. Oil, uranium, trees, even water are useless until man alters them in some way to make them useful. We have no use for oil that seeps from the ground, uranium that is embedded in rock, standing trees (aside from the few that provide shade over man’s abodes), or water that flows in rivers or stands in lakes. But we do have use for petroleum products of all kinds, uranium to power nuclear reactors, a multitude of wood products, and hydroelectric power and potable tap water. But all of these resources require productive enterprise to make them useful, and that is what the Earth Hour advocates claim is harmful.
The consequence of Earth Hour or a more expansive Earth Day would be to reduce men to the status of the animals, consuming nothing because we produce nothing. But without the ability to engage in capitalistic productive enterprise not even traffic lights and life saving medical devices would be available and not one man in a million currently alive would survive. Neither vote seeking governments nor pandering corporations seeking protection from environmental extremists should succumb to its inhumane pretentions and inanities. So, turn on the lights and enjoy what man has accomplished. Your Mother Earth would be proud of you.
In the 1960’s the term “radical chic” was applied to well-to-do socialites who became enamored with the Black Power movement. These tough-guy and tough-gal wannabes held cocktail parties in upper class New York apartments in order to rub shoulders with thugs advocating the overthrow of legally constituted government. Their dabbling in anti-Americanism was very much like children taking their first roller coaster ride—they got a nice thrill without much concern that there was really any risk involved. The same can be said of those who accede to the demands of the Earth Hour advocates. One can be “earth chic” by turning off the lights for an hour without much concern that the lights will come back on at the flick of a switch later in the evening.
As masters of public relations Earth Hour promoters were careful not to go too far in their demands. For example, they did not advise that governments turn off traffic lights or that hospitals shut off life supporting medical equipment. Nice of them, wouldn’t you say? But what about other uses of electricity? Just where do the Earth Hour advocates draw the line and what is their criterion for doing so?
From a practical point of view, it is hard to believe that electricity generating companies would be able to reduce their output knowing that the lowered demand would last for only one hour. A more likely scenario is that tasks that can be performed at just about any time, such as running the electric clothes dryer, will be bunched into the time frames before or after Earth Hour, causing spikes in peak power demand that would require more not less electric power production.
But let’s play along and say that demand for the one hour of electricity is lost forever along with demand for electricity. We turn out the lights, sit in the dark, and, in effect, lose one hour of our collective lives. What exactly has been accomplished? OK, that may be a little too hard to comprehend, so let’s lengthen the Earth Hour to an entire Earth Day, whereby we turn off all non-essential power usage (however that is defined) for an entire twenty-four hours. Shops close. Restaurants close. Sporting events are cancelled. Cultural centers, museums, grocery stores, laundromats, factories…all close. Surely, electric power production may be reduced by some significant amount, along with a concomitant reduction in greenhouse gases. But this perhaps significant reduction in greenhouse gases has come at the cost of loss of production. And it is production that generates the purchasing power to command consumption. Without sufficient production the lights just may not come on again at the flick of the switch.
Why Man is Different
The philosophical assumption behind Earth Hour is that energy use harms Mother Earth. If this is so, why are traffic lights and life supporting medical devices exempt? If man is harming Mother Earth, he must be stopped! But man is different from other species in his rationality, his free will, and his inherent recognition that by cooperating with other men he can improve his lot above mere existence in a rude, cold, and terrifying state of nature. It is man’s nature to cooperate under the division of labor that has given him all the comforts of modern life that the Earth Hour advocates decry as harmful. They are not. When combined with protection of private property and economic calculation under a money-price system, man reorders nature’s physical properties to produce goods on a sustainable basis.
It is a gross misunderstanding of Nature to claim that it contains only so much quantity of resources and that once employed these resources are lost forever. Nature’s resources are limitless. The physical properties of nature may change, but, as Einstein proved, matter and energy cannot be destroyed. Man’s ability to exploit nature is limited only by his level of technological development and degree of social cooperation.
It is man’s ingenuity that allows him to exploit the hidden utility in what everyone once believed to be useless natural objects. Most of what we today call resources were useless and even hindrances until man processed them in some manner. Oil, uranium, trees, even water are useless until man alters them in some way to make them useful. We have no use for oil that seeps from the ground, uranium that is embedded in rock, standing trees (aside from the few that provide shade over man’s abodes), or water that flows in rivers or stands in lakes. But we do have use for petroleum products of all kinds, uranium to power nuclear reactors, a multitude of wood products, and hydroelectric power and potable tap water. But all of these resources require productive enterprise to make them useful, and that is what the Earth Hour advocates claim is harmful.
The consequence of Earth Hour or a more expansive Earth Day would be to reduce men to the status of the animals, consuming nothing because we produce nothing. But without the ability to engage in capitalistic productive enterprise not even traffic lights and life saving medical devices would be available and not one man in a million currently alive would survive. Neither vote seeking governments nor pandering corporations seeking protection from environmental extremists should succumb to its inhumane pretentions and inanities. So, turn on the lights and enjoy what man has accomplished. Your Mother Earth would be proud of you.
Friday, March 26, 2010
My Latest Letter to the NY Times
From: Patrick Barron
To: NY Times
Sent: Friday, March 26, 2010 1:55 PM
Subject: Don't Dismiss Health Care Bill's Opponents
Re: "The Fight Is Over, the Myths Remain", by Brendan Nyhan
http://www.nytimes.com/2010/03/25/opinion/25nyhan.html?scp=1&sq=The%20Fight%20is%20over&st=cse
and "Brave New Health Care World", by Gail Collins
http://www.nytimes.com/2010/03/25/opinion/25collins.html?scp=1&sq=Brave%20New%20Health%20Care%20World&st=cse
Dear Sirs:
In their defense of the health care law, Mr. Nyhan and Ms. Collins just will not recognize that there are any principled objections to this new government intervention into our lives or that there are any substantive concerns about its adverse consequences. Mr. Nyhan dismisses as "myth" the objection that the law is socialistic; he treats all such concerns as mere public relations problems. Ms. Collins portrays the Republicans' last ditch procedural efforts to delay the law's passage as "insane" and "loopy". (Maybe these are pre-existing conditions that Ms. Collins says will be "the coolest spring accessory"). But neither writer is willing to face the many legitimate patient concerns honestly and forthrightly. For example, it is a serious issue if someone besides my doctor or myself is making decisions about my care, which may mean whether I live or die. There is too much empirical evidence to suggest that citizens in countries with decades' experience with national health care do, in fact, have higher death rates from treatable illnesses as a result of rationed care. These questions deserve more adult response than the shallow answers by Mr. Nyhan and Ms. Collins.
Patrick Barron
Adjunct Instructor in Austrian Economics
University of Iowa
Iowa City, Iowa
To: NY Times
Sent: Friday, March 26, 2010 1:55 PM
Subject: Don't Dismiss Health Care Bill's Opponents
Re: "The Fight Is Over, the Myths Remain", by Brendan Nyhan
http://www.nytimes.com/2010/03/25/opinion/25nyhan.html?scp=1&sq=The%20Fight%20is%20over&st=cse
and "Brave New Health Care World", by Gail Collins
http://www.nytimes.com/2010/03/25/opinion/25collins.html?scp=1&sq=Brave%20New%20Health%20Care%20World&st=cse
Dear Sirs:
In their defense of the health care law, Mr. Nyhan and Ms. Collins just will not recognize that there are any principled objections to this new government intervention into our lives or that there are any substantive concerns about its adverse consequences. Mr. Nyhan dismisses as "myth" the objection that the law is socialistic; he treats all such concerns as mere public relations problems. Ms. Collins portrays the Republicans' last ditch procedural efforts to delay the law's passage as "insane" and "loopy". (Maybe these are pre-existing conditions that Ms. Collins says will be "the coolest spring accessory"). But neither writer is willing to face the many legitimate patient concerns honestly and forthrightly. For example, it is a serious issue if someone besides my doctor or myself is making decisions about my care, which may mean whether I live or die. There is too much empirical evidence to suggest that citizens in countries with decades' experience with national health care do, in fact, have higher death rates from treatable illnesses as a result of rationed care. These questions deserve more adult response than the shallow answers by Mr. Nyhan and Ms. Collins.
Patrick Barron
Adjunct Instructor in Austrian Economics
University of Iowa
Iowa City, Iowa
Thursday, March 25, 2010
Use Logic to Understand Economics
The citizenry of the world are being misled by the faulty economic doctrine of Keynesianism, which places consumption as the most important factor in producing prosperity. Business is slow? Then boost spending! Already in debt up to your eyeballs? Then borrow even more! Can’t borrow more? Then lobby the federal government to spend! It is not limited in its spending; it can print all the money that it needs. This is what passes for economic reasoning at the pinnacles of government power throughout the world.
The challenge of understanding economics is that observation of economic activity sheds little light on the “why” of things. If business is slow, observation does little to inform us why business is slow. People aren’t buying; goods are accumulating on shelves; they can be sold only by dropping prices, probably below cost. Our observation and experience tell us that selling below cost is the route to bankruptcy. So, it is easy for government to convince us that deflation—i.e., falling prices—is an evil that must be avoided. Therefore, only the government has the power to boost total spending, clearing the market of unsold goods, and at a profit, too!
Unfortunately, this doesn’t work. Our observation of conditions may be accurate, but a higher level of thinking is required to understand how we came to those conditions and how to correct the problem. This is the role of logic, the foundation of Austrian school economics.
Keynesian economics would place itself solidly within the discipline of the natural sciences, which have gained such a well-deserved reputation since the beginning of the industrial revolution. The natural sciences call upon research based upon observation and empirical testing to arrive at the truth or at least the truth until new observations and new testing arrives at a greater truth. In the natural sciences there is no such thing as irrefutable truth. We may be absolutely certain about physics, medicine, and even mathematics, until some new observation comes along to give us a new truth. An example is that of Einstein supplanting Newtonian physics. So all truth in the natural sciences is conditional and subject to refutation, even though we may believe that there are some things that will never be supplanted. But this just is not the case. It is this wing of science into which the Keynesians have attempted to place all of economics.
Contrary to placing economics in the natural science, observational and testing discipline, the Austrians claim that economics is a social science subject to deductive reasoning. Deductive reasoning requires NO observation and NO testing. If one postulates an irrefutable maxim and deduces other maxims from it in a logical manner, then these other maxims are irrefutable, too. Thusly, we arrive at the truth, and this truth requires no observation.
Here is the primary maxim in Austrian economics, as postulated by Ludwig von Mises—Man Acts. This is an irrefutable maxim, because if one attempts to refute the maxim he has only confirmed it: to refute the maxim that Man Acts is to “act”! The maxim is irrefutable! Furthermore, from this maxim much truth can be implied. For example, we must conclude that man acts purposefully; that is, he is rational and his actions are not merely physiological reflect actions; he acts in the context of time, performing one act ahead of another; he acts out of an understanding of cause and effect, for he believes that prior actions will bring about later desired results; he performs the more important actions ahead of the less important ones; he expects the result of his actions to improve his position in some way; etc., etc..
Let us now turn to how an Austrian would analyze the previously mentioned condition that business is slow. Austrians know that supply and demand constantly move toward equilibrium; this is known as Say’s Law. Therefore, Austrians would ask what external forces intervened to cause a general overabundance of unsold goods. Austrians would examine subsidies that encourage production of more goods of one type at the expense of other goods more desired by the market. This is the case with many agricultural gluts, which have their origin in government subsidy programs. Austrians would examine why costs are so high in relation to what consumers are willing and able to pay. Labor, environmental, safety, and licensing rules would draw their attention.
In other words, Austrian economists would look for the logical causes of undesirable circumstances, which most often reside well in the past. Therefore, the Austrian prescription of what to do differs radically from those of the Keynesians. Austrians would recommend the removal of all obstacles to the smooth interplay of supply and demand in a free market; whereas, the Keynesians would recommend more interventions, such as greater subsidies to more businesses in order to prevent their failure.
There is no doubt that the Keynesian prescription of vigorous, direct action is more appealing, at least in the short run, than the Austrian one of removing the shackles on the smooth running of the market. The Keynesian points to recipients of government bailout money and proclaims that businesses and jobs were saved; the Austrian advises that what is unseen is the price the rest of society pays through monetary debasement. The Keynesian prescription is further boosted by the shameless claim that what we have is a failure of the free market. But no country in the world today has a free market. All are managed, guided, restricted, and encouraged in some form by government. Some markets may be more free than others, and some are freer by some measures and less free by others; for example, some countries may have lower taxes but more stringent labor laws. This merely reflects the internal power politics of given countries.
The challenge to those of us who believe that we understand “real economics” is to recognize the appeal of the Keynesians and counter that appeal with a more powerful one of our own—the appeal to freedom. Keynesianism represents more government intervention and more loss of freedom; Austrian economics represents less government intervention and more freedom. America was founded on the principle that man is born free and that it is the proper role of government to protect his freedom not stifle it. The greatest attack upon our freedom has not come from foreign enemies bearing bombs and guns but from false economic doctrines bearing the poisonous idea that by giving up our economic freedom we will get the greater freedom of economic security. Not only is this a false statement—those countries with the least economic freedom have the least economic security--but freedom itself is indivisible. Economic freedom cannot be separated from political freedom--just try not paying your new healthcare taxes and see what happens!
The challenge of understanding economics is that observation of economic activity sheds little light on the “why” of things. If business is slow, observation does little to inform us why business is slow. People aren’t buying; goods are accumulating on shelves; they can be sold only by dropping prices, probably below cost. Our observation and experience tell us that selling below cost is the route to bankruptcy. So, it is easy for government to convince us that deflation—i.e., falling prices—is an evil that must be avoided. Therefore, only the government has the power to boost total spending, clearing the market of unsold goods, and at a profit, too!
Unfortunately, this doesn’t work. Our observation of conditions may be accurate, but a higher level of thinking is required to understand how we came to those conditions and how to correct the problem. This is the role of logic, the foundation of Austrian school economics.
Keynesian economics would place itself solidly within the discipline of the natural sciences, which have gained such a well-deserved reputation since the beginning of the industrial revolution. The natural sciences call upon research based upon observation and empirical testing to arrive at the truth or at least the truth until new observations and new testing arrives at a greater truth. In the natural sciences there is no such thing as irrefutable truth. We may be absolutely certain about physics, medicine, and even mathematics, until some new observation comes along to give us a new truth. An example is that of Einstein supplanting Newtonian physics. So all truth in the natural sciences is conditional and subject to refutation, even though we may believe that there are some things that will never be supplanted. But this just is not the case. It is this wing of science into which the Keynesians have attempted to place all of economics.
Contrary to placing economics in the natural science, observational and testing discipline, the Austrians claim that economics is a social science subject to deductive reasoning. Deductive reasoning requires NO observation and NO testing. If one postulates an irrefutable maxim and deduces other maxims from it in a logical manner, then these other maxims are irrefutable, too. Thusly, we arrive at the truth, and this truth requires no observation.
Here is the primary maxim in Austrian economics, as postulated by Ludwig von Mises—Man Acts. This is an irrefutable maxim, because if one attempts to refute the maxim he has only confirmed it: to refute the maxim that Man Acts is to “act”! The maxim is irrefutable! Furthermore, from this maxim much truth can be implied. For example, we must conclude that man acts purposefully; that is, he is rational and his actions are not merely physiological reflect actions; he acts in the context of time, performing one act ahead of another; he acts out of an understanding of cause and effect, for he believes that prior actions will bring about later desired results; he performs the more important actions ahead of the less important ones; he expects the result of his actions to improve his position in some way; etc., etc..
Let us now turn to how an Austrian would analyze the previously mentioned condition that business is slow. Austrians know that supply and demand constantly move toward equilibrium; this is known as Say’s Law. Therefore, Austrians would ask what external forces intervened to cause a general overabundance of unsold goods. Austrians would examine subsidies that encourage production of more goods of one type at the expense of other goods more desired by the market. This is the case with many agricultural gluts, which have their origin in government subsidy programs. Austrians would examine why costs are so high in relation to what consumers are willing and able to pay. Labor, environmental, safety, and licensing rules would draw their attention.
In other words, Austrian economists would look for the logical causes of undesirable circumstances, which most often reside well in the past. Therefore, the Austrian prescription of what to do differs radically from those of the Keynesians. Austrians would recommend the removal of all obstacles to the smooth interplay of supply and demand in a free market; whereas, the Keynesians would recommend more interventions, such as greater subsidies to more businesses in order to prevent their failure.
There is no doubt that the Keynesian prescription of vigorous, direct action is more appealing, at least in the short run, than the Austrian one of removing the shackles on the smooth running of the market. The Keynesian points to recipients of government bailout money and proclaims that businesses and jobs were saved; the Austrian advises that what is unseen is the price the rest of society pays through monetary debasement. The Keynesian prescription is further boosted by the shameless claim that what we have is a failure of the free market. But no country in the world today has a free market. All are managed, guided, restricted, and encouraged in some form by government. Some markets may be more free than others, and some are freer by some measures and less free by others; for example, some countries may have lower taxes but more stringent labor laws. This merely reflects the internal power politics of given countries.
The challenge to those of us who believe that we understand “real economics” is to recognize the appeal of the Keynesians and counter that appeal with a more powerful one of our own—the appeal to freedom. Keynesianism represents more government intervention and more loss of freedom; Austrian economics represents less government intervention and more freedom. America was founded on the principle that man is born free and that it is the proper role of government to protect his freedom not stifle it. The greatest attack upon our freedom has not come from foreign enemies bearing bombs and guns but from false economic doctrines bearing the poisonous idea that by giving up our economic freedom we will get the greater freedom of economic security. Not only is this a false statement—those countries with the least economic freedom have the least economic security--but freedom itself is indivisible. Economic freedom cannot be separated from political freedom--just try not paying your new healthcare taxes and see what happens!
Wednesday, March 24, 2010
My Letter to the NY Times re: Stifling Free Trade
From: Patrick Barron
To: NY Times
Sent: Wednesday, March 24, 2010 10:02 AM
Subject: A Brilliant Call for Autarky and War
Re: Stifling the Economy, One Argument at a Time, by Robert E. Lighthizer, March 22, 2010
http://www.nytimes.com/2010/03/22/opinion/22lighthizer.html?scp=1&sq=Robert%20E.%20Lighthizer&st=cse
Dear Sirs:
The irony of the title to Mr. Lighthizer's article--Stifling the Economy, One Argument at a Time--is that it applies to HIS arguments and not to those who advocate free trade. Like the front page, above-the-fold report by Mr. Bradsher on March 15, Mr. Lighthizer believes that China is harming others by holding its currency cheap. No, it is harming its own citizens by importing inflation; it is subsidizing its trading partners' lifestyles. It is laughable that Mr. Lighthizer writes that "many economists" believe that China contributed to our housing bubble. Would those be Curly, Moe, and Larry? And what is Mr. Lighthizer's brilliant answer to his upside down view of the world?--Make the rest of the world raise taxes to America's level and make the rest of the world adopt our punishing labor and environmental regulations. Since the rest of the world is unlikely to follow America as we jump off this bridge, Mr. Lighthizer would have us adopt trade barriers, ala Messrs Smoot and Hawley. Americans' view of free trade indeed has been poisoned, as Mr. Lighthizer says, but not by China's trade gap. It has been poisoned by the likes of Mr. Lighthizer himself, whose policies will lead to the same conclusion as did those of Herbert Hoover and FDR--autarky and war.
Patrick Barron
Adjunct Instructor in Austrian Economics
University of Iowa
To: NY Times
Sent: Wednesday, March 24, 2010 10:02 AM
Subject: A Brilliant Call for Autarky and War
Re: Stifling the Economy, One Argument at a Time, by Robert E. Lighthizer, March 22, 2010
http://www.nytimes.com/2010/03/22/opinion/22lighthizer.html?scp=1&sq=Robert%20E.%20Lighthizer&st=cse
Dear Sirs:
The irony of the title to Mr. Lighthizer's article--Stifling the Economy, One Argument at a Time--is that it applies to HIS arguments and not to those who advocate free trade. Like the front page, above-the-fold report by Mr. Bradsher on March 15, Mr. Lighthizer believes that China is harming others by holding its currency cheap. No, it is harming its own citizens by importing inflation; it is subsidizing its trading partners' lifestyles. It is laughable that Mr. Lighthizer writes that "many economists" believe that China contributed to our housing bubble. Would those be Curly, Moe, and Larry? And what is Mr. Lighthizer's brilliant answer to his upside down view of the world?--Make the rest of the world raise taxes to America's level and make the rest of the world adopt our punishing labor and environmental regulations. Since the rest of the world is unlikely to follow America as we jump off this bridge, Mr. Lighthizer would have us adopt trade barriers, ala Messrs Smoot and Hawley. Americans' view of free trade indeed has been poisoned, as Mr. Lighthizer says, but not by China's trade gap. It has been poisoned by the likes of Mr. Lighthizer himself, whose policies will lead to the same conclusion as did those of Herbert Hoover and FDR--autarky and war.
Patrick Barron
Adjunct Instructor in Austrian Economics
University of Iowa
Tuesday, March 23, 2010
My Letter to the NY Times re: China's Currency Manipulation
Re: China Uses Rules on Global Trade to Its Advantage, by Keith Bradsher--March 15, 2010
http://www.nytimes.com/2010/03/15/business/global/15yuan.html?scp=1&sq=China%20Uses%20Rules%20on%20Global%20Trade&st=cse
Dear Sirs:
Mr. Bradsher gets the consequences of state currency manipulation exactly backwards. No country can inflict damage upon another by manipulating its own currency; all harm accrues to the citizens of that country alone. By holding its currency weak, China subsidizes exports at the expense of its own citizens. The citizens of China's trading partners enjoy cheaper and/or better quality goods, while the Chinese experience higher prices due to trading more renmindi for foreign currencies than the unhampered market would allow. In economic terms this is called "importing inflation". Mr. Bradsher makes another crucial error when he makes the claim that "unlike extra government spending in the United States and other countries, currency intervention does not expand global demand, but shifts it from other countries to China." No, the process is the same, whether within one country or among several countries; that is, that governments cannot increase total demand. Mr. Bradsher describes perfectly the "fallacy of composition", whereby it is assumed that, since a government can shower benefits on one economic entity, it can shower benefits on all economic entities. On the contrary, government spending rewards some at the expense of others. Neither currency manipulation nor government spending will increase resources, but, instead, will transfer them--at a cost, of course--from some segments of the economy to others. The so-called stimulus spending in the United States does not increase total demand within our country any more than China's currency manipulation increases worldwide total demand.
Patrick Barron
Adjunct Instructor in Austrian Economics
University of Iowa
Iowa City, Iowa
http://www.nytimes.com/2010/03/15/business/global/15yuan.html?scp=1&sq=China%20Uses%20Rules%20on%20Global%20Trade&st=cse
Dear Sirs:
Mr. Bradsher gets the consequences of state currency manipulation exactly backwards. No country can inflict damage upon another by manipulating its own currency; all harm accrues to the citizens of that country alone. By holding its currency weak, China subsidizes exports at the expense of its own citizens. The citizens of China's trading partners enjoy cheaper and/or better quality goods, while the Chinese experience higher prices due to trading more renmindi for foreign currencies than the unhampered market would allow. In economic terms this is called "importing inflation". Mr. Bradsher makes another crucial error when he makes the claim that "unlike extra government spending in the United States and other countries, currency intervention does not expand global demand, but shifts it from other countries to China." No, the process is the same, whether within one country or among several countries; that is, that governments cannot increase total demand. Mr. Bradsher describes perfectly the "fallacy of composition", whereby it is assumed that, since a government can shower benefits on one economic entity, it can shower benefits on all economic entities. On the contrary, government spending rewards some at the expense of others. Neither currency manipulation nor government spending will increase resources, but, instead, will transfer them--at a cost, of course--from some segments of the economy to others. The so-called stimulus spending in the United States does not increase total demand within our country any more than China's currency manipulation increases worldwide total demand.
Patrick Barron
Adjunct Instructor in Austrian Economics
University of Iowa
Iowa City, Iowa
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