Tuesday, December 28, 2010

Anarcho-Capitalism, The New Beginning

Adam Smith is of notable importance in not just the history of America, but also in the history of Economics. He was no economist when he began writing, but he did develop a system by which people could satisfy their necessary wants, in a world of unlimited means. Smith delineated the division of labor (a more notable Ricardian phenomenon), and more importantly the theory of “The Invisible Hand.” This amazing breakthrough gave birth to an important system societies could be structured upon to survive, whilst giving the greatest freedom possible. Smith was no economist to begin with, but he was a philosopher whom by cobbling the various forms of information, with his keen ambition for freedom, and within the environment he lived, was able to transform himself into an economist by expanding on these economic ideas. He did so based upon his experiences. Smith was a man of gentry, of which many made their fortunes with help from the government, yet his love for freedom and his insight to economic logic made him realize that government was tyrannical and the result of many of the problems that existed in his time. Smith still had a lesser understanding of the common man and witnessed chaos he had no explanation of how to quell, and thus thought the government necessary to provide certain services he felt his nascent idea of Capitalism could not concoct within the private sector. Smith was thus a minarchist, and surely missed the fact that small government is still tyranny and a tool of exploitation that ratchets up over time.

Capitalism is not only an important synthesized model of economic thought which thus became an important economic system, but it is also perhaps the best theory aimed toward freedom many modern economists built upon. What Smith missed, was the fact that small government was tyranny and that it could not be quelled or controlled in any sense. His decision to include the ideas of government as a provider of what his experiment could not provide, left that economic theory lacking long-run substance. The Constitution of the United States is a document that is justified in Smith’s work, yet it is a disastrous form of organizing the natural existence of human life. What is more essential is the fact that “The Invisable Hand” in its very nature is plausible and effective, and his extensive writing and explanation of a natural locomotion of society based on personal fulfillment of desires and needs, is what today makes Smith so vital to us.

As various schools of thought continued to arise and as economists furthered their desire to still yet rid society of economic maladies, all of which the problem lied in the government that executed its ineffective programs, Keynesianism retracted the course of freedom toward a desire to restore tyranny through Socialism. This goal would be attained by giving government more powers to institutionalize sectors of the economy that could be better provided by the free-market itself. What minarchists fail to see is that Keynesianism is propped up by the existence on government at any level of fortitude. A large tree grows from the planting of a tiny seed, and of course dies at a certain point in its life, yet when this will happen is completely unpredictable. Timing the growth and death of government is nothing similar to timing the business cycle, unless of course a government exists, in which case one would be watching the fluctuations of the market based upon the growth of government power; something Austrian Economists are aware of and have precisely pegged to the activities of the Fed.

Ludwig Von Mises made great strides in waking the world up to the problems of government, and affirmed the fact that economics is not as complicated as government has made it, nor is it a problem, unless there indeed is a government that exists. Friedrich Von Hayek was Mises’ friend, and both were keen on the idea of displaying the maladies of government. Hayek won the Swedish Central Bank Prize for his work on the changing prices and its effect on individuals (aka The Nobel Prize in Economics), a feat which is quite commendable in respects to economic analysis, yet which was of course more precisely elaborated by Murray Rothbard. Winning a Nobel Prize is only important to have the media shed light on one’s work, but it is not a prize that will pick out the best economic theory that would give light to a newer better system. Hayek was a minarchist, and a man that Conservatives and Constitutionalists could embrace to help them win power in their corrupt game called politics. What people miss about Hayek is that his desire for Minarchy, was a desire for power in the hands of a different specified elite. It was not a broad change of economic theory which would bring true freedom. Hayek’s championing of downsizing government was his best accomplishment as an Austrian, yet the majority of the extensive work into economic theory was done by Rothbard, a man still to be recognized by a society that still worships government.

Rothbard not only elaborated and critiqued both Mises and Hayek, but he also corrected them on their mistakes. Those mistakes were usually a result of a lucid perspective on their mechanics, something a due to their inability to look beyond their desire for government. Murray Rothbard, being a man of immigrant parents from soviet countries, was no man of gentry, and profoundly desired freedom at its essence. Rothbard began as a student of the Austrain School and conventional theory of Capitalism, but as he deepened his analysis on his understanding of lassez-faire economics (Adam Smith’s Capitalism), he confronted a dilemma. The arguments for provision of goods and services applied across the board, and thus he realized that by this being the case, both protection and defense could be offered on the market, instead of by a coercive monopoly (government). Rothbard realized that he would either have to abandon lassez-faire, or embrace individualist anarchy. Rothbard arrived at the choice of keeping what worked well with Smith and “The Invisible Hand,” yet expanded on Smith and critiqued his ideas of minarchy as well.

Rothbard created Anarcho-Capitalism, and the beginning movement of Libertarianism in America. He gave birth to a new economic theory, and left Captialsim in the past. Anarcho-Capitalism is indeed what Mises searched for, and thus accepted it in every dynamic, while Hayek spent his time sticking to his ideas of minarchy. In the end Rothbard’s theory and books became the standard bearers of the Austrian School and now epitomize freedom in general. Rothbard and Anarcho-Capitalism are indeed what we need to embrace to prosper in the future; we must allow spontaneous market order, the privatization of all sectors of the economy, and voluntary exchange within a purely free-market to render the world long-term prosperity. And we must be fearless to apply this experiment as did those governments and people did that applied Smith’s Capitalism. It would simply revive and put into practice the desires of freedom the American revolutionaries expounded. For if one does not take the risk to transpose the system, the maladies and inefficiencies are perpetuated over time. Anarcho-Capitalism removes the state, illuminates the free-market, and creates a milkshake of ever expanding innovation, choice and diversity. The economic system of Anarcho-Capitalism will surely wash away all the inequities of the state (monopolies, war, poverty, unemployment, less choice, etc.), since they were the ones that created them in the first place.

Sunday, December 12, 2010

An Alibi for Robbery

Government always uses the idea of taxation as an imperative must, and then ties morality and charity to it, as if it is pertinent to being an American in general. When one finally dusts off the sugar-coated gobbledygook, people finally see that below the veneer of good intentions, lies an abyss of treachery, inefficiency, waste and fraud. People don't realize how they are being completely counterintutive by relying on the state to coddle them and protect them. Most people believe the state is necessary because they confuse its existence (unnecessary) with the essential nature of many of the services and resources it currently (and poorly) provides, and over the provision of which it exercises a monopoly (almost always under the pretext of their public nature). People observe that today highways, hospitals, schools, public order, etc. are largely supplied by the state, and since these are highly necessary, people conclude without further analysis that the state is as well.

They fail to realize that the above-mentioned resources can be produced to a much higher standard of quality as well as more efficiently, economically, and in tune with the varied and changing needs of each individual, through the spontaneous market order, entrepreneurial creativity, and private property. Moreover, people make the mistake of believing the state is also necessary to protect the defenseless, poor, and destitute ("small" stockholders, ordinary consumers, workers, etc.), yet people do not understand that supposedly protective measures have the systematic result, as economic theory demonstrates, of harming in each case precisely those they are claimed to protect. Thus the clumsy and ill informed idea that higher taxes, to fund more government services, is dead in its tracks. Simply put, by privatization empirically demonstrating its efficiency, cutting spending (and more logically getting rid of government altogether), would require no taxes, only voluntary exchange and personal will to fulfill one's necessities in life.

The problem with today’s deficit is that the federal government has overspent, but what's new? First I want to show how the theory of diminishing utility can be applied to tax increases. Taxes have always been high, but never have revenues yielded the intended target by the government in so implementing them. As seen in the chart above, from 1930 to 2010, tax revenue collection in the United States has never topped 20.9%, averaging 16.5% of GDP over these 80 years. This comes despite the drastic historical fluctuation in the rate of taxes on the wealthiest Americans. As we move toward debt reduction, it is critical to keep the long-term path of the United States in mind, woefully government continues choosing ineffective plans. Veronique de Rugy of the Mercatus Institute empirically shows how despite tax increases spending has still remained high, as well as revenues remaining low. Surely this is not a good panacea. It would be more effective to get spending within GDP ratios, since our spending has hovered between an abysmal 15-20%. Also a VAT-tax would further reduce our consumption power, and create problems in the long run. Therefore tax increases of any kind are out the window.

In other cases that show the fizzling effects of Keynes' Multiplier, Robert Barro of Harvard University demonstrates how for every 1 dollar spent, the government only returns 70 cents. More recently John B Taylor of Stanford University and The Hoover Institute has done extensive analysis on the recent government stimulus. His data yielded the ineffectiveness of the government injection of capital, and how states used the money to fund their debt, which in turn returned no multiplier at all. Sadly the amounts of money that the government said was going to fund shovel-ready projects never got there, and instead went to fund government wages, entitlement debt, and over abused unemployment insurance.

Next here I will show how cutting spending will reduce the deficit drastically. For this I would use Daniel Mitchell’s method of capping spending at 1% to reduce the deficit by 2017. The Congressional Budget Office estimates that tax revenue will grow by an average of 7.3 percent annually over the next 10 years. Reducing the budget deficit is easy – so long as politicians increase overall spending by less than that amount. By bringing in more revenues than expenses, you are then reducing the deficit. Tad DeHaven of Cato has a much more detailed and overall realistic plan (Plan to Cut Federal Spending and Balance the Federal Budget) that the government should adopt. As the plan points out, the proposed cuts would make sense whether or not the federal government was running deficits. The point is that over time a steady decrease of the debt would abound. Policymakers should be focused on cutting federal spending because it would increase individual freedom and spur economic growth by shifting resources from the lower-return government uses to higher-return activities in the private sector. Sadly, after all is said and done in Washington, whatever rigmarole they propose will only provide us with higher spending and inefficiency, something which government always does.

The most outrageous thing about the deficit is not that those we trusted abused our trust, but that we as rational individuals still believe that a group of individuals, subject to the flaws and whims of every day people, are trusted in the first place to organize a society. Government has only grown since the first day central planning became en vogue with those power seeking individuals that tried a short-run stimulus through taxation in the Articles of Confederation. Free States was what the revolutionaries fought for, not a central government that resulted in something extremely close to Socialism, that which we have today. Negative long-run consequences arise whenever a bailout of any kind is thrown upon the back of a society which has no business within the expenditures rendering the debt in the first place. Sadly the attempt of centralizing a group of free states through taxation aimed at debt reduction, resulted in the first bailout indited by a group of power-hungry men; it took ten years to compromise a document that in the end unjustifiably expanded government power. Had they understood the powers of the Free-Market and privatization, society might be more prosperous, yet simply their hunger for power, resulted in an inefficient and ineffective system of centralization that has grown in tyrannical proportions.

Government Hinders Growth, Corporations Do Not

Many people point to Corporations as the culprit of all malpractice in a society that is witnessing an economic downturn. Although this can be true to a certain extent, it is for the most part false and the blame should be more centered on the affinity of centralized coddling. This of course means that the blame should be placed upon human choice. The choices that have been made are those which depreciate liberty and freedom, and watch it slowly slip away to nothing as government powers expand. Conferring as individuals the choice to keep yearning for the mandated direction of the state, could certainly decide the fate of our living standards and the amount of choice available to us in the future, which of course would be negative and not positive.

In the past companies had to receive charters from a state in order to be awarded government contracts to build bridges, roads, turnpikes, etc. Because of the subsidies being handed out, there was a mad rush to organize "corporations" and secure a charter from the state, causing many people today to think that the corporate form itself was a state creation. Granted Limited liability and special privileges are government granted, and differ from state to state, the pooling of resources in peaceful activities are free-market oriented. Corporations are not at all monopolistic privileges; they are free associations of individuals pooling their capital. On the purely free market, such men would simply announce to their creditors that their liability is limited to the capital specifically invested in the corporation, and that beyond this their personal funds are not liable for debts, as they would be under a partnership arrangement. Hence, the problem lies with the state, not the corporation.

Today’s predicament paints a very grim picture when it comes to job creation and job opportunities. Government is largely to blame. Globalization has introduced a vast array of new opportunities when it comes to the realm of employment, and this is due to the competition that serves as a catalyst of innovation. Granted America is a place that is quite resilient and above all persistently ambitious, the affects of globalization will not keep creating jobs for us if we continue to hinder the powers of the Free-Market. As the graph shows, we see that start-up companies in the US create the largest amount of jobs, and certainly this is more so the case during a recession such as the one we face.

When we piece together the reasons why start-ups create so many more jobs than older firms, of which the amount of jobs they create has a negative correlation compared to the amount they destroy, we can attribute this phenomenon, to above all else, the burden of government costs. Granted some of the reasons for this occurrence are of course the business cycle, technological advancement, and lack of innovative capacity, the most prevalent reason is that of government encroachment. Businesses aim to provide incentives to attract and keep the best workers at their business, so indeed older firms will lag in job creation; notwithstanding, government costs create greater gaps of job destruction vs job creation. Of course as an economist, I am aware that Creative Destruction is a necessary part of bringing about new and better jobs, yet even this process is hindered by the role of government in society.

Facts suggest that Government employment has increased since the start of the Great Recession. Since the passage of the Recovery Act the private sector has lost an additional 2.7 million jobs, or 2.5% of total private employment, while state and federal governments have continued to grow, adding an additional 400,000 jobs. One less knowledgeable on the subject of economics might be inclined to suggest job growth is good, but once one studies the wave of empirical evidence and the very negative ramifications this has on the private sector and taxpayers in general, one sees that freedom is in steep decline. As was previously discussed above, the private sector jobs are those which will boost the economy to a much greater degree, allowing the freedoms of the individual to roam free and allow the individual the opportunity to make the best choice for their future.

It is important to point out that any form of government program, job, or entity funded by them, will always be paid for by the citizens, in the form of taxes. And once one increases the amount of programs, one must increment the amount of taxes; thus increasing the power of the government, and decreasing the freedom of the individual. In more direct terms, the government will steal from people to fund its inefficient endeavors. Empirically, government has been very wasteful and inefficient in allocating the monies to the programs and institutions it creates. As evidence shows, government purchases such as military spending only yield 70 cents for every dollar implemented in the program. This is the case for many of its other disastrous institutions as well.

Overall, if we keep blaming corporations (like Wall Street Bankers) for the difficulties we endure, we will only decide to solve this problem with further government regulation, which of course is more government, which yields more problems like less private sector jobs. Regulations and bailouts create perverse incentives for management of which to profit off of at the expense of others, and all thanks to the government. Booms, busts, and bailouts correspond to inefficient production plans. To the extent that Corporations lobby for intervention that distorts markets, they help produce defective production plans. We must keep in mind the situation at hand, do we want to keep having government pay for our lives, or do we want to experience a libertarian utopia of sorts filled with economic progress and a plethora of jobs? The former will be paid for at the expense of the latter. The best stimulus for any economy will always be a downsizing of government.

Free Trade and World Peace

As in so many instances previously in history, the fear of free trade rings deep in the minds of a worker whom is misinformed of the circumstances. If people were truly for the basic principal of more progress, greater freedom, and world peace for human kind, they surely would see the notions of protectionism as naïve. Nevertheless, free trade is still railed against and pilloried, even though in all reality the skeptics are essentially jilting the richness America has endured, and hindering the world peace that would flourish, by preventing the free and voluntary exchange of goods and services.

What renders the whole situation grotesque is the fact that all countries want to decrease their imports, but at the same time to increase their exports. The effect of these policies is to interfere with the international division of labor and thereby generally to lower the productivity of labor. The only reason this result has not become more noticeable is that the advances of the capitalist system have always been so far sufficient to outweigh it. However, there can be no doubt that everyone today would be richer if the protective tariff did not artificially drive production from more favorable to less favorable localities.

What is very shameful is that at present, people fighting for “the greater good” continue to expound irony in all of their endeavors. People fight against poverty by attacking Free-Trade and feel more advanced nations are exploiting the citizens of lesser developed countries, simply in the pursuit of profit. What is incorrect is that these profitable companies are actually providing jobs for these impoverished nations, something otherwise not provided by their inefficient governments. In many cases, those jobs provided by larger corporations, are better paid and better equipped to suit the environment of the worker in the lesser developed country. Another perplexing and false argument is that Free-Trade takes jobs from the home country of the company, to export to another nation at the expense of the home nation’s workers. It is important to remember that in this case, companies should and must pursue profit making motives. By doing so, they reduce costs, create jobs, and are able to reinvest; the latter of course being the most globally beneficial, keeping the cycle of profits moving to other companies seeking capital.

Under a system of completely free trade, capital and labor would be employed wherever conditions are most favorable for production. Other locations would be used as long as it was still possible to produce anywhere under more favorable conditions. Capital and labor tend to move from areas where conditions are less favorable for production to those in which they are more favorable. In so mentioning the free movement of capital, immigration takes an important role as well. For if migration were constrained, considering that human capital is of course required within the sectors of the economy which that migrant is suited to work, business would lack the capacity to execute the best business policies, tactics and of course lack the ability to maximize efficiency. This would lead to a lack of good and services to the society in need of them.

The fear of displaced workers is of course empirically misgiven as well. Statistics show it is not outsourcing or even immigration that causes unemployment to rise, but other factors having to do with technology, domestic competition, changing consumer tastes, or the general business cycle. All of these factors are best solved and most often removed with the freeing up of the economy. Government regulation only constrains the Free-Market, and the attempt of saving jobs by regulating Free-Trade, is obviously at the expense of everyone else. This of course is a detrimental result of all regulation in general. The outcome of protectionism is, therefore, always a reduction in the productivity of human labor. In order to create the indispensable conditions for a lasting peace, one of the features of the present international situation that the libertarian wishes to change is the fact that emigrants from nations around the world looking for better job opportunities, must live in areas in which, because of the adoption of anti-libertarian policies, they are stuck clambering for a better life with limited resources. And therefore, the world sees the best tool to reaching world peace, above Democracy itself, destroyed at the whims of an ignorant collectivist society relying on an inefficient Government to nanny them.