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Thursday, December 13, 2012


Corruption and Communism

            Mancur Olson’s book, Power and Prosperity would predict that communist countries are at a much greater risk for corruption than are democratic societies with a free market.  It then comes as no surprise that when Mr. Xi, the new leader of the communist party in China, made his first speech he pointed out that corruption is one of the main concerns surrounding the success of his party.  This corruption comes as a result of market contrary policy.  Everyone inside a communist country will at some point see a reason to break the laws, even those who help to lead the country.   It should not be surprising then that the last leader of the communist party is accused of wide spread corruption.  The final straw for him was actually an accusation of involvement in a murder.  This may be a little outside of what Olson predicted would happen in a communist party, but we can see how corruption such as skimming off the top could lead to a crime as serious as murder.  It could very easily happen in an attempt to conceal the initial crime of stealing from the regime.
            Respondents to Mr. Xi’s speech pointed out that nearly every new leader of the communist party has mentioned combating corruption, but non have been able to limit it.  This would be inline with what Olson would predict, the system of communism fosters corruption so it will be impossible, or nearly impossible, to get rid of.  If what Olson says about corruption and communism is true, and so far all evidence what point to it is, then communist China will continue to have problems with corruption until they become so sclerotic that they eventually can no longer “pay the bills.”

Source Article Link:

Sunday, December 02, 2012


Sharing Stationary Banditry Between Countries

            Enrique Pea Nieto from the Washing Post claims that the U.S. and Mexico can prosper as partners; this last U.S. presidential election demonstrated to him the growing demographic bonds between the U.S. and Mexico that connects the two counties’ prosperous futures.  “To build a more prosperous future for our two countries, we must continue strengthening and expanding our deep economic, social and cultural ties.  It is a mistake to limit our bilateral relationship to drugs and security concerns.  Our mutual interests are too vast and complex to be restricted in the shortsighted way…. I want to discuss the best way to rearrange our common priorities.  After all, our agenda affects millions of citizens.”  I think what he is implying is that Mexico may understand the logic of force and exchange and would like to become a stationary bandit with the U.S. government.  Mexico seems to want a larger population to steal from; they see that the net benefit for trade outweighs the net benefit for force.  “Perhaps the most important issue is finding new ways to bolster our economic and trade relationship to attain common prosperity in our nations.”  Clearly Mexico wants to enhance their stationary banditry power through the U.S. understanding of Diplomacy.  Mexico needs more people to prosper under them in order for them to see increased revenue in their country.  “Consequently, in NAFTA we have a solid foundation to further integrate our economies through greater investments in finance, infrastructure, manufacturing and energy.  Together, we must build a more competitive and productive region.”  For Mexico to become a successful bandit, they need the help of the United States power and a growing population that is more prosperous.  Right now it seems to me that the Mexican government is stealing too much and the country has become corrupt.  Thus,  “Above all, our mutual interest lies in our intertwined peoples.  More than 1 million U.S. citizens live in Mexico, and my country remains the largest source of immigrants to the United States.  Some analysts detect new momentum for comprehensive immigration reform since the U.S. presidential election.  All Mexican would welcome such a development.”  It’s obvious that Mexicans would be open to higher immigration rates into their country.  Again, for their government the be better off they need to protect their own property rights and play less of a predator role on their society.  Mexico needs more people to steal from, but first they need to understand the logic of force, exchange and diplomacy in order to become a successful stationary banditry. 


Saturday, December 01, 2012


Soft Budget Constraint

I was unable to find a good publication that related to something that caught my attention in chapter eight of Power and Prosperity so I figured it best to just discuss it.

The subject is the emergence and implications of a “soft budget constraint” within an autocracy in which the government owns the means to production, and therefore, allocates resources to producers (Olson, pp. 147-148). The basic idea is that a firm’s actual productivity does not have an effect on the resources it receives. Whether or not a firm is successful enough to cover its costs, it will continue to receive the same amount of resources. It is easy to see the major failure of a system that works in this way: in a free market system, a firm that is unable to cover its costs will eventually fail. By not allowing this natural outcome to occur, weak players are given an advantage while strong players are faced with a disadvantage.

Although in a free market economy within a democratic system of government (like that of the U.S), firms are not simply given a stock of resources with which to work, similar types of inefficiencies have been observed throughout history when government has stepped in to offer a helping hand to businesses that have proven to be negligent enough to have a severely imbalanced budget. The mere existence of government bailouts gives an advantage to the weak and a disadvantage to the strong, resulting in the same distortion referred to in the book: firms that do not cover their costs are not required to stop using resources.

When the government itself is the source of huge quantities of deficits, meaning that it has done a very poor job of balancing its budget, not allowing it to fail almost seems to be another violation of the natural order of success and failure. I was listening to 740AM here in Colorado Springs and a caller (probably a Liberal) asked the host why Republicans are so opposed to letting us go over the fiscal cliff, given that it would essentially force the government to fix its spending problems. The host’s response was that he personally is not okay with the idea that we go over the fiscal cliff, because it was designed as a punishment for not coming up with a solution and absolutely everyone suffers from this punishment. Although the consequences of going over the highest level of the fiscal cliff are sickening to think about, I think the caller had a good point, especially if you take into consideration not only the self-correcting philosophies of a free market system, but also Thomas Jefferson’s argument that governments occasionally need to be refreshed, mentioned in another of Olson’s books The Rise and Decline of Nations. It seems that if the country goes over this cliff in the worst possible way it may bring about the threat of a revolution in the most general sense of the word. Letting our government come severely close to failure or even actually failing may allow for a sort of “mini-revolution”. Don’t get me wrong, I do not enjoy the idea of this country being taken over by another, but if there was a real threat that it may happen, because our own government got itself into so much fiscal trouble that we are no longer able to finance spending through borrowing from other countries, essentially leading to bankruptcy, it just may be enough to slap some sense into the people we elect to run this country. Then again, given the logic of collective action, it might not work out that way. Either way, I think from the angle of market efficiency, that caller had a good point, despite the fact that he is likely an advocate of ObamaCare.

Works Cited

Olson, M. (2000). Power and Prosperity. New York: Basic Books.

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