Free Market Banking

Have you ever had too much money? I have. I once had so much money, that I had no idea what to do with all of it, so I went to my local bank to see if they would hold onto some of it for me. You know, keep it safe until I needed it for a large purchase. This should be a familiar sounding story for most people, yet the process by which banking truly takes place is extremely large and complex. The story of too much money, however, is exactly where banking starts. Banking is a result of the law of association. Its existence is based on specialization. When people build up a large store of wealth, they can either employ their own resources to protect that wealth, or they can seek out those who already have the necessary “set-up” to protect large amounts of money.

Originally, banking took place when people paid banking institutions a fee or some kind for protecting their stores of value. For our purposes, we will use gold as an example of a store of value. In any scenario, an individual would bring his or her gold to the bank and deposited it into a vault of some sort. The bank would then charge a fee large enough to cover all costs and still make a profit while remaining competitive. In exchange for the gold, the bank would issue units of promissory notes that reflected the amount of the gold he had stored. This note would state that at any time, the individual may come back and exchange the promissory notes for the gold he had stored in the bank. By this process, promissory notes make way for currencies. It is much easier to measure values in exchanges by using units of promissory notes instead of deciding the value of gold. They’re also much easier to carry around. As long as the bank kept their word, then the notes could be exchanged for other goods and services, and the party that ended up with the notes could return to the bank where the gold was stored and redeem the store of value.

Banks, then, have a very strong incentive to keep their word, and also to keep a 100% reserve storage of all of their customers’ valuables. This strict policy of honest banking, like any honest exchange, is kept alive by market competition. Banking institutions that don’t keep promises would go out of business, or at least lose business, overtime because customers would be willing to pay someone else for better service. Many banks, however, may be incentivized to cheat on their promissory notes by lending out a greater number of promissory notes than the given store of value that they held. In doing this, they have both stolen from the person whose store of wealth they promised to keep on hand, and they have committed fraud against the person who was lent promissory notes that may not be redeemable for the promised amount in the future.

Through the market process, however, competing banks with competing promissory notes would diminish the incentives to commit such crimes and inflate the supply of money. This is because not only can customers bring their gold to other banks, but competing banks could put rivals out of business by exposing their bad behavior and buying up a large amount of the promissory notes that the competitor has issued. In doing so, the competing bank could attempt to redeem said notes for the given amount of gold. If the rival bank was, indeed, issuing more notes than he had gold, he would be unable to give back enough gold to all of the people that he promised, and that bank would go out of business, and potentially be subject to the law.

Sadly, this is not the banking system that is utilized in America today. There is not market process to provide checks and balances to the operations of competing banks. Banks are not subject to the will of consumers, but rather to the will of the government and the Federal Reserve. When money is deposited into a bank today, there is no fee that is paid for the storage. In fact, in most cases the bank pays the customer a very small amount of interest. The money that is stored is not kept safe in a vault with the customer’s name on it; it is loaned out to others or used in various investment ventures. Granted, there is FDIC insurance, which allows for a portion of an individual’s deposits to be paid back were anything to happen to the bank, but this type of “insurance” comes with a heavy price: Inflation. Because banks do not see the same incentives to keep an honest store of value in the same way that they would in a free market banking, they may engage in riskier loans and investments. When these loans are unable to be paid at the same time as people come to redeem their deposits, banks (theoretically) would not be able to come through on all of their promises. Because of the Federal Reserve, banks can simply ask for an influx of cash from the central bank in order to fulfill their short-term obligations. This activity, coupled with the issuance of a multiplicity of promissory notes, leads to a severe increase in the supply of money over time. This drastic increase in money ultimately leads to inflation, and a decrease in the purchasing power of each unit of money.

 The only cure to such a disease is to allow people to bank freely, without force or coercion from the government or the Fed. Through the market process, competing currencies would once again emerge with a sound store of value, providing incentives to keep customers happy and keep dollars strong. Free the money... free the people.

Congress approves military spending for projects the pentagon just don't want

Recently congress has been issuing many different projects to improve military defense that cost a lot of tax payer money and in many circumstances the pentagon does not want the money for these projects. "On Monday, noted deficit hawk Rep. Jim Jordan (Oh.) told the Associated Press that in the interest of national security, Congress needed to give the Pentagon $436 million to make improvements to the 70-ton Abrams tank."    
He added to his request stating that "the one are we are supposed to spend taxpayer money is in the defense of our country." The pentagon stated that it had no use for the tanks and does not want them.  The tanks would be an effective weapon during World War 2 while fighting the Nazis but has no effective use in a modern world. The army chief of staff reported that they would use the money in a different way if given the opportunity. The reason that the bill was brought up and able to get through congress is the result of pork barrel politics.  The congressman who introduced the bill would have his district benefit in the form of money and jobs. 

This demonstrates how the government operates on an ineffective level and as Murray Rothbard states the defense of the country should be in the hands of the free market.  The government is always stuck to the way things have been done instead of accepting change and continuing to build tanks, an outdated device is a perfect example of that.  If the defense was operated in the free market it would not have waisted spending like this and would be forced to innovate and improve.congress approves military spending for projects the pentagon just don't want

IRS stalled conservative groups

Recently the IRS had been caught for targeting conservative groups during the same time period as the 2012 election.  Today Tea Party activists protested in Washington saying they plan on Suing the IRS for what they believe to be a gross over reach by the government and a violation of their constitutional rights.  Michelle Bachmanm attacked the federal government for targeting specific groups who were applying for tax exempt status.  Tea party members say the were subjected to long questionnaires thats cost them hundreds of hours and thousands of dollars.  The IRS revealed they targeted groups with the phrases tea party and patriots in their names, but further reports show other instances from 2010 onward.
               "This is not only unconstitutional, it is illegal, said Jay Sekulow, chief counsel for the American Center for Law and Justice, a conservative civil-rights group that says it is suing the IRS on behalf of 17 clients who were targeted for extra scrutiny because of their groups' leanings."
      
This is another example of the government operating on an inefficient bases, and doing things that would not had been done in the free market.  As Rothbard states the government has a long history of violating the civil liberties of individuals, and even though it is supposed to protect are individual rights the state is greatest oppressor of our liberties. People who work for the government do things they would never normally do because of the institution of the government changes their perception on what is acceptable.  This is just another example of the government violating the non aggression axiom and over stepping their boundaries. Vowing lawsuit against IRS, teapartiers descend on DC

private property and elephant poaching

The population of elephants in Africa has declined dramatically in the last twenty years due to the overwhelming desire for ivory. In 1989 an international ban on the sale of ivory was implemented in an attempt to prevent the needless slaughter of these animals. Many objected though, including economist and nations whose citizen’s asserted property rights over these animals. In an essay written by Michael A. McPherson and Michael L. Nieswiadomy, African Elephants: The Effect of Property Rights and Political Stability, they conclude that 

…controlling for other factors, countries with property rights systems or community wildlife programs have rapid elephant population growth rates than do those countries that do not. Political instability and the absence of representative governments significantly lower elephant growth rates. (McPherson and Nieswiadomy)

Enacted by the Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES), the ban on ivory was not uniformly adhered to by many countries; especially the countries located in the southern tip, Namibia, Botswana, Zimbabwe, and South Africa, who all have a system devised in which property rights of elephants are governed and adhered to. For example, in, “Botswana…the elephant population has risen from 20,000 in 1981 to over 80,000 today. Zimbabwe, the roughly 30,000 elephants that existed in 1978 have increased their numbers by a factor of nearly 3 by this year (McPherson and Nieswiadomy).” Because of property rights there exists an economic incentive to protect the elephants by the very people who once hunted and killed them to prosper from the ivory trade. Like anything, if it’s held common to all, the resource will be used until it no longer exists. There exists more of an incentive for people to protect the elephant from illegal poaching when it is their property that’s directly affected by it.

http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7287.2000.tb00002.x/pdf

Libertarianism in practice: 4 May Blog Post

Libertarianism in practice:

Hayek really had me thinking about Libertarianism in practice. Although Hayek refrained from dissecting party politics, I want to know how a libertarian, assuming the Libertarian Party is a viable third party in this two party system, would vote in hot button social issues.

Marijuana, abortion, euthanasia, and gay marriage are just a few social issues that can cause arguments between the best of friends.  Sure other social issues exist, but for this exploratory/though experiment/blog I’m narrowing it down to one: Gay marriage. I recognize that there are members of both parties that do not always vote along party lines. But for simplicities sake I am going to put all politicians in an “us vs. them” spectrum (although Hayek disagrees that conservatives staunchly oppose modern liberals).

There is no doubt that gay marriage is a hot button topic. Modern American liberals (Democrats) have advocated for gay rights and gay marriage for a while now. Modern conservatives (Republicans) however have, as a collective, opposed various forms of gay marriage on religious grounds and on the argument that gay marriage violates traditional family values. Americans at this point would have to vote for a politician aligning with the left or the right.

Now enters the Libertarian and the Libertarian Party.

How would a Libertarian candidate vote on a matter like gay marriage? I think a Libertarian would most likely say that gay marriage is a state issue, not a federal issue and that the citizens of the respective states ought to have say over whether or not the state ought to allow gay marriage.

Or perhaps the Libertarian would posit that government ought to get out of the business of marriage altogether because marriage is an inherent religious sacrament or ceremony and government ought not to mingle in such affairs. Government may conduct civil unions but civil unions would be extended to both heterosexual (who do not want to marry in a church) and homosexual couples (who don’t want to marry in a church or can’t marry in a church). Churches would not be forced to marry anyone.

Are there any other alternatives that I’ve missed?

How would a Libertarian vote in economic matters? Suffice it to say that I don’t believe a Libertarian politician would vote for TARP or HAMP. I know a Libertarian would oppose price supports, tariffs, some or even all taxes.  I know a Libertarian would oppose Quantitative Easing measures implemented by the fed.

How else would a Libertarian legislate in economic affairs?

Libertarianism in practice…I’m interested.

Altering Immigration Bill Risks Losing Senators’ Votes

A panel of the Judiciary Committee are meeting to talk about the immigration proposal which will include talks about improving border patrol and defining what goals need to be met to allow immigrants to become U.S. citizens.  "Republicans will mainly focus on strengthening the bill’s border security goals, which Democrats say can’t be made so stringent that they become unreachable and prevent anyone from becoming a citizen. "  Whether you look at it from either political background, it is still impeding liberty in a sense that you are saying, "You can't come here because you have no right to be here".Considering America's history of immigration, this would seem hippo critical.  Granted the ability to just open the borders in this time of recovery after the great recession, it would be cumbersome to say the least.  But trying to improve security for the borders may not be the way to go, improving background checks of immigrants who want to be citizens is a must though.  After the bombing in Boston, clearance into the U.S. or standards must rise.  This may be contrary to liberty but for the safety of the public, it may be necessary.

 http://www.bloomberg.com/news/2013-05-09/altering-immigration-bill-risks-losing-senators-votes.html

Drug dealers are entrepreneurs not criminals

     We have discussed a lot about liberty. Liberty means freedom. Freedom means that you can do whatever you like in this world. But in order to avoid anarchy, we must have a rule to stop people from harming each other: The Non-Aggression Axiom or the Harm Principle. A person can do whatever they like in this world, as long as they do not harm anyone else's property. With this in mind, it is easy to see why drug dealers should not be classified as criminals.
     Drug dealing is simply the selling of drugs to customers. There is no coercion or force involved. People in pharmacies and cigarette companies do it all the time. But when people hear the name drug dealer, they think about weed, cocaine, crack, Ecstasy, PCP, meth and whatever "bad" drug we can think of. As long as this drug dealer is voluntarily exchanging his goods, there is no crime. Even if the drug can kill the person that is using it, that is the consumer's choice. The dealer did not force anyone to buy his product. Because drug dealing is just a voluntary exchange, we should all look up to this entrepreneurial spirit.
     Think about it: if drug dealing was legal, this person can set his own schedule, does not have to answer to a boss, can choose his days off, does not have to worry about sick days, does not have to do that much labor and his product can bring happiness to his customers' lives. It sounds like a pretty good set-up.
     What makes the business bad is the fact that it is illegal. If someone steals from the dealer, he cannot go to the police for help. He has to put himself in a dangerous situation to get his property back. Sometimes drug wars and turf wars can cost the lives of people in the business; because of the competition between dealers, they do not have to beat their competitor by having a better business, they can beat their competitor by having force. But we must consider that it is the fact that people are killing each other that is against the harm principle, not the selling of drugs. If we were to realize that drug dealing is consistent with liberty, and to make it a legal practice, then we could stop a lot of crime in our society and gain a lot of entrepreneurs.

Conservatives: Master Brake Operators

I have heard, and even said myself that it is hard to distinguish between liberals and conservatives these days. Perhaps myself and others have misspoken, but fortunately Hayek is here to eliminate (at least minimize) the confusion with his essay Why I Am Not a Conservative.

“It is that by its very nature [conservatism] cannot offer an alternative to the direction in which we are moving. It may succeed by its resistance to current tendencies in slowing down undesirable developments, but, since it does not indicate another direction, it cannot prevent their continuance. It has, for this reason, invariably been the fate of conservatism to be dragged along a path not of its own choosing.” (Hayek, 1-2)

Conservatism, as defined by Hayek in this essay, is an "attitude of opposition to drastic change".

Part of what Hayek is trying to highlight in this article is that based on that definition, conservatives political positions will inevitably be in constant flux. If I am in opposition to drastic changes in the status quo, yet despite my opposition, drastic change occurs, then a new status quo will emerge. If I remain steadfast to my conservative position, I will still be opposed to drastic changes to the (new) status quo, which entails taking a position that I was opposed to before the last shift in the status quo. Thus, conservatism is not founded on any particular set of unwavering values, and is subject to relativistic change in response to the outside world - what Hayek called being "dragged along a path not of its own choosing".

Following Hayek's dissection, conservatism cannot be seen as an effective political strategy. This is made particularly obvious when he states "The tug of war between conservatives and progressives can only affect the speed, not the direction, of contemporary developments"(Hayek, 2), thus implying that a conservative really serves no function other than to slow down the progress of the liberals - in whatever direction they might be headed.

Therefore, Hayek determines that the most likely source for political change is the progressive party - whether their values are currently based on liberty or not, for they are the politicians who desire most to change the status quo and move us to new places, figuratively speaking. Conservatism, he concludes, for its lack of "guiding principles", is not equipped to "influence long-range developments", and has only really retarded the progress of liberals over time, for better or for worse.

Following Hayek's analysis, it would seem that in a nation founded upon liberty, true liberals and true conservatives would both be advocating to maintain the original system. How then, has our nation moved from its original political position fixed upon liberty is another story, but certainly one worth investigating; it seems the root of this problem comes from the liberal party's deviations from the principle of liberty as their absolute standard, and it seems that part of Hayek's vision was to restore liberty to liberalism.

"If it is only given freedom, enlightenment is almost inevitable" - Immanuel Kant 

Last week, my Modern European History class analyzed documents from the Enlightenment. These documents ranged from John Locke to Voltaire, but one that caught my interest was written by the renowned philosopher,  Immanuel Kant.Though most of Kant's philosophy hardly lines up with libertarianism, a few of his points do ring true in regards to a man's freedom to think and act for himself. 

Towards the beginning of his writing, "What is the Enlightenment?", Kant defines enlightenment as "man's emergence from his self-imposed nonage." Nonage being a person's incapability to think on his own without aid of another. Kant observed that laziness and cowardice were the roots of humanity's preference to "gladly remain minors all their lives". It may be tempting to believe that the Enlightenment was an international cultural awakening that lived only in the 18th century. However, I believe that the Enlightenment lives on today through the libertarian spirit and is in constant battle with nonage in the form of government interventionism. 

Though Kant lived a little under three centuries ago, his philosophy certainly applies today. We celebrate many freedoms in America, but could we call ourselves truly "enlightened" in Kant's sense of the word? I opine that were are not so enlightened. A libertarian's definition of freedom consists of one's property rights being established and protected: What's "mine" is NOT "yours" and the government's sole purpose is to protect what's "mine" and what's "yours". But how many times a day does our government trespass against our freedom under these slightly patronizing excuses: I'm doing this for your own good or I'm taking a chunk of your income for your own good or I get to tell you how to run your business because I'm looking out for your success. Many citizens fall for this facade and believe there's nothing wrong with assistance from Big Brother. Unfortunately, this mode of thinking eventually makes us believe that we cannot do anything without government assistance. As Kant put it so bluntly, we become glad to remain children for the rest of our lives underneath adult supervision. This is nonage under governmental influence and this trespasses against human kind's natural right to grow and flourish. Kant notes that "Once such men have thrown off the yoke of nonage, they will spread about them the spirit of a reasonable appreciation of man's value and of his duty to think for himself"

Yes, we have our flaws, but the human spirit isn't meant to be stupid and suppressed. We hold an innovative spirit that explodes exponentially when crossed with freedom. As students, we don't need the guidance of the government- telling us what to do with our creative skills and ambitions. We are educated thinkers- we have been equipped with knowledge to construct and to prosper.

Plastic or Metal can anyone own it?

After reading an article by Rebecca Morelle, from BBC I am curios to see what the government is going to say about 3D printed guns.

Just this week a man developed the blue prints for the first 3D printed gun. Now anyone who has a 3D printer, access to the internet and about 60$ worth of materials can own an operating gun! I find this to be interesting as the Obama administration is trying to control all guns in the US you would now not even have to leave your house and you could create thousands of guns. 

I was wondering what this is going to do with the gun control, and the right to bear arms. This give everyone no matter age, criminal back round, mental state the ability to own a gun and no one has to know. I feel like our class would say that, weather the gun is plastic or metal anyone should be able to own a gun; as long as it does not go against the aggression axiom. This opens a whole new issue that "the force" is going to feel that they are going to have to control. 

http://libertarianalliance.wordpress.com/2013/05/07/a-farewell-to-victim-disarmament/#more-19717

The Greatest Blog Post Ever Written

Deirdre McCloskey’s blog post entitled “Factual Free-Market Fairness” was called the “greatest blog post ever written” by an economist from George Mason University.  I agree.   With wit and charm, she dissected the arguments in favor of government intervention and replaced it with the truth of economic liberty. 

Current economic theory takes for granted that externalities exist and the government needs to do something about it.  Suffice it to say that McCloskey shot a whole in that argument in a matter of two sentences: “Externalities do not imply that a government can do better.  Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers.”   It is truth.  The free-market press is more than able to regulate free-market business. 

She goes on to back up her ideology with precision: “How do I know that my narrative is better than yours?  The experiments of the 20^th century told me so.”  Her argument is hard to deny.  Today we have a plethora of data that shows that experiments with central planning have failed; governments built on the principles of economic liberty have thrived. 

In the latter half of the post, McCloskey poignantly clarified the ultimate consequences of government regulation: it always hurts the poor and common man in favor of those well-connected and in control.  Example after example drove home her point: labor unions and minimum wage help some at expense of everybody else (particularly the poor).   The SEC and FDIC has done little to help small investors or depositors when the government uses tax-payers money to bail-out the banks that had incentive to give out risky loans.   “Foreign aid has enriched tyrants not helped the poor”.    And the list goes on; profound example after profound example.   

This Greatest Blog Post Ever Written needs to be required reading. 

To open the border or not to open, that is the question

Every few years politicians from both sides always seem to start debating the issue of legalizing the 11 or so million illegal immigrants in the United States. Some argue that it is inhumane and against our moral fabric, it goes against our values and or ideals of liberty to force people to live in the shadows of our society. I tend to see it a different way, I see it as if government officials decide to give blanket citizenship to all people we might as well just have open borders. For what is the use of having general rules or laws if we allow people to break them time and time again. I do not mean to be harsh, I speak of this being born in another country and being an immigrant myself. My parents came to this great country when I was about the age of three in search of opportunity and prosperity. I personally feel that the founders of the United States felt that having a restricted border was not against liberty but the only way to preserve liberty. What is the use of trying to preserve the individual rights of citizens if anybody from other countries walk right in and call themselves citizens? We as a country have chosen to give the central government the power to exclude and allow people from all over the world to apply for a chance to come here and call this country their home. My point is if we have this discussion every few years and ever 30 or 40 years decide to give citizenship to vast numbers of immigrants, then we might as well have permanent open border. I personally believe that no one should get rewarded for breaking the law and our sovereignty. We should make it easier to apply for visa or citizenship but to just give to those that break the law is just foolish in my book and should expect to see this same scenario again in 30 years down the line if this is allowed to take place.

"Army Says No To More Tanks, But Congress Insists"

"'When an institution as risk averse as the Defense Department says they have enough tanks, we can probably believe them,' Kennedy said."

I read an article on NPR a few days ago titled "Army Says No To More Tanks, But Congress Insists" that I thought was very relevant to our discussion about Mises' "Liberal Foreign Policy" a few weeks ago.

http://www.npr.org/templates/story/story.php?storyId=179606996

We discussed how it is possible that our spending on an overseas military may yield a net-zero use of the productive resources that need to be shifted from the domestic, private sector to the military. However, much of the time the use of the resources proves to be worse. In this case, legislators trying to achieve protectionist economic goals are pushing for more Abrams tank production while the Army itself is saying they do not want them. 

According to Gen. Ray Odierno, the Army's chief of staff, "If we had our choice, we would use that money in a different way." According to the article--and I'm not sure I needed it to tell me this after the first few paragraphs-- is that the reasons are entirely political. The article states that the two champions of more tanks are legislators from Ohio, the location of the plants that make them. These Congressmen, and others in support, will first and foremost say that national defense is a key goal of their platform. However, when they are confronted with the fact that the Army itself does not want them, they shift their statements to include rhetoric often associated with most interventionist economic policies. They cite the fact that the Abram's tank production requires a large network of contractors throughout the country, all of which will inevitably have to make employment cuts. These "highly specialized" jobs cannot be lost, as the skill set will disappear and ""When we start to lose this base of people, what are we going to do? Buy our tanks from China?" (Verhoff). 

As we are nearing the end of the semester, I'm sure I don't have to explain how these kinds of statements are ludicrous. Any public debate where people begin to talk about specific outcomes via government is usually inconsistent with a government for liberty. As I mentioned earlier, this is a very good example of how it is difficult to shift factors of production to an overseas military and have it be equal to the production if it were being used domestically (but at least our tanks are not being produced only to be destroyed in large numbers). However, it is also a perfectly adequate example of any other interventionist policy. With the statements from the Army, it practically forces the legislators to lay out their true intentions on the table. They may or may not believe that what they are doing actually is consistent with liberty and free trade, but they certainly know it will get them the votes and money of the contractors and workers that it benefits. The fact of the matter is that this type of policy is only prolonging shifts in production that are going to inevitably occur. One man in the article even claimed that these jobs are not nearly as specialized as they are made out to be, and are easily replaceable if we need more production of tanks in the future. It does not make sense to me how voters still buy into this kind of political rhetoric when the true situation is so cut-and-dry; when the 'consumers' of the tanks (albeit artificial), which are the reason for production in the first place, even say they have no interest in acquiring more. 

Government is Force (Feb Posting)

Over the course the semester, I have benefited from examining some of the literary works of notable Austrian Economists. Although I have had difficulty adjusting my thought process from a neoclassical economic one to an Austrian one, I have especially become fond of the work of Murray Rothbard.

To be sure it took me a while to appreciate some the philosophical implications of Rothbard’s work. And while I have made every attempt to partition my neoclassical academic training from my new Austrian academic training, inevitably the sound arguments from the Austrian School have slowly taken over the neoclassical.

One particular position Rothbard has, that I have come to be fond of, is his view of the “role of the State—the government.”

Rothbard writes in For a New Liberty, “Only the government, in society, is empowered to aggress against the property rights of its subjects, whether to extract revenue, to impose its moral code, or to kill those with whom it disagrees.”

Government uses its coercive power to tax to compel its citizens to pay for services and goods he or she may not otherwise use. I get taxed to pay for our police departments and our Sherriff’s Office, but I have never called on them for service. I am compelled to pay taxes to support our local fire department, but I have never used them to extinguish anything.

Grocery stores do not force me to purchase groceries from them. I willingly enter into a free-exchange agreement to purchase foodstuffs from them. Clothing stores do not compel me to purchase clothes from them. I voluntarily purchase clothing or other goods from them as a consumer.

But government forces and compels its citizenry to purchase goods and services through the threat of coercion. To be sure we can all refuse to pay taxes. But the State will compel payment by the threat of wage garnishment or imprisonment. The State will get its share because the State can freely exercise its force wantonly.

There is no protection from government. The military is government. The police are the State. There exists no protection from the freely exercisable force that is government.

As stated in class, “Government is force.”

Rent Seeking

 

            In today’s political climate, special interest groups and “lobbying” are a constant topic of discussion. Many special interest groups or individuals attempt to use government to provide them with special privileges in the market. Economists refer to this activity as “rent seeking.” In a marketplace, competition provides incentive for other players to enter the market in order to reap the same benefits, thus lowering the cost of goods and services over time. With the ability to use force, Politicians are sought out by individuals in the market in an attempt to keep others out of the market so that they may eliminate competition and see higher profits for themselves. This, of course, is harmful to consumers.

Most often, rent seeking takes the form of occupational licensure; where government limits the number of entries into the market below the level of competition there would otherwise be in a free/competitive market. There are literally thousands of examples of rent seeking in the United States alone. A good example right here in Colorado would be the monopoly on Taxi Cab drivers in the city of Denver. For nearly 50 years, the city had only three taxi cab companies. The city, through the power to permit licenses, denied entry to any companies that made an attempt to enter the market. This placed the three existing companies at a competitive advantage, and left the consumers paying higher prices.

When companies attempted to enter the taxi business, the city would deny them entry because they would take business away from the existing companies and that would be “unnecessary.” This type of arbitrary decision making is obviously harmful to the market process in various ways. Not only are competitors forced to stay out of the market, but consumers are stuck with higher prices. Also, productive resources are spent by the special interest groups on political affairs rather than in the market where they would benefit consumers. The problems that rent seeking creates will continue as long as government has the power to force potential players out of the market.

The problem is in concentrated benefits and dispersed costs. Existing businesses have an incentive to “seek rent” from government due to the increased profits that are at stake for them. Therefore, they are willing to spend a lot of time and resources in an effort to convince legislators to pass laws that work in their favor. The rest of the population, mainly consumers, have hardly any knowledge of these events, nor do they see much incentive to spend a large amount of time and recourses fighting their case just to save $20 on their next cab ride in Denver Colorado, which most consumers will probably never notice. Most people are unwilling to spend hundreds, perhaps thousands, of dollars just to save $20. This is not a problem; it’s great that people act rationally. The problem is that we have sanctioned government’s ability to use force in the market.

The only solution to this problem is to remove the government’s power to influence the market. As long as the government’s power to arbitrarily choose the success of certain players in the market is legitimized by our society, then individuals will continue to spend time and resources seeking that power, instead of providing for consumers in a competitive market. If government did not have the power to use force in such a harmful way, then the market process would provide consumers with products and services at the lowest cost, while supplying incentives to innovate and spend more time and resources doing so, rather than seeking rent from the legislators and the political process.

United States Sugar

     One thing it seems many of my peers are aware of, even outside economics, is the high price of sugar in the US. In fact, we were recently discussing different types of exchange in an Anthropology class, and many students seemed to be aware of protectionist trade policies, and especially the fact the sugar in the US is sold at a much higher price than other places of the world. I recently read an article that I believe explores most of the important implications of interventionist policies that often go unmentioned...

http://www.npr.org/2013/03/28/175569499/farm-bills-sugar-subsidy-more-taxing-than-sweet-critics-say

     Essentially, the price of sugar in the US is due to "a complicated combination of import restrictions, production quotas and a kind of guaranteed price." Chris Edwards of the CATO institute calls it "essentially a Soviet-style control on production." Basic economic principles will tell you that these types of policies will undoubtedly create some kind of a surplus, but the article became much more interesting when it discussed the loan program for sugar refineries. In order to encourage them to buy more sugar from the producers, they take out government loans using the sugar itself as collateral. So we have an ill-effect of government intervention (sugar surplus), and now another policy to combat the effects of it. Now the incentives for refineries are to either sell their sugar at market prices, or simply 'give' the sugar back to government and keep the loan money. As economics students, I'm sure you see how this could easily go awry, and apparently this year, it is expected to. When the loans cannot be repaid, the government plans to buy the excess sugar and sell it at a loss to ethanol producers, at the expense of the taxpayer. 
     The article humorously said that there is an ongoing feud between "Big Sugar" versus "Big Candy." The President of Jelly Belly said he only wishes that producers would have to compete in an open market, and he even opened up a manufacturing plant in Thailand partly to avoid the trade restrictions. This is yet another effect that I doubt politicians or big sugar saw coming, the adaption of the entrepreneur. Jack Roney, of the American Sugar Alliance, argues that sugar market policies are "the most successful of any US commodity policy," and that they almost never cost the US taxpayer anything. After reading the article, it seems that they are very ineffective, and Roney apparently does not understand that artificially high commodity prices is, in fact, an unseen cost to the masses, even without direct taxation.
     Roney even adds that his opposition is simply profit-seeking, is not doing any of its lobbying for the benefit of the consumer, and that getting rid of the policies would cost thousands of sugar jobs (and then proceeds to blame the problems on the tariff-free Mexican imports, suggesting that they, too, need to be regulated). I cannot say I would not expect a response along these lines, as this is the kind of rhetoric that usually gets the policy there in the first place. He discusses profit in a negative light, and uses emotional arguments about jobs and exploited consumers to garner support. 
     Overall, although it is somewhat brief, I believe this article brings to light many concepts we have discussed in class. Primarily, it shows the 'chain reaction' of interventionist policy--how much must be done just to combat the problems of the previous intervention, and suggests who is really paying for it. It exemplifies policy that obviously benefits one group with the often-unseen costs to everyone else. However, I do not understand how more people are not upset about paying nearly twice the price for sugar as the rest of the world. Maybe they buy into the rhetoric that it benefits sugar producers, and see it as a good thing, but perhaps do not draw a line to how they end up paying for it. Maybe the consumers lack the organizational power of the sugar lobby. Whatever the reason, more people should recognize how these sugar trade policies, and others like them work--and mainly understand that there is no free lunch. 

Does Inclusion in Democracy Lead to Liberty?

To increase inclusion in democracy, Young argues for proportional representation as means to encourage voter involvement in politics. A voting system that elects party members proportionate to the overall votes they receive, eliminating “single-member, winner-take-all” system that we currently utilize, “provides more opportunity for differentiated representation,” (Young 152) claims Young. Furthermore, “proportional representation tends to increase party competition and enable more parties to obtain legislative seats.” (Young 152) This, Young believes, will eliminate exclusion by giving minority groups more incentive to vote. She believes proportional representation to be a viable solution to many of the problems that are apparent in our democratic process.

            Young says participation is still an important factor in the success of proportional representation. Without it, representatives are “liable to become separate from the constituents, and the citizens relatively passive in relation to the representatives.” (Young 152) While Young discards this as a minor problem with the thinking that this model encourages participation by giving minority parties a deciding voice in political situation and one which holds politicians accountable, I disagree. Proportional representation gives these groups a false sense of inclusion, “you can speak and we will listen but, your voice doesn’t matter,” consequently promoting exclusion. In addition, it follows that the proportion of the popular vote that is received by a minority politician, is also the weight of their particular vote in legislative decisions. It seems improbable that the small percentage of influence that is possessed by a minority group could ever be enough to swing a positive result in their direction, even if several groups agreed on the same issues and voted accordingly, the problem would still persist.

            Political congestion is an inevitable outcome that would seem to positively correlate with the number of parties that exist. With an expanded legislative system that is required to accommodate proportional representation, it follows that inefficiency in the government process is a strong possibility. Assuming that the model works and many different groups are represented proportionately. With such diverse opinions presented across a wide range of represented groups, if a conclusion could ever be agreed upon, the concessions made to achieve a compromise would in no way satisfy the entire population of groups, if any at all. Assuming again that the model works and many different groups are represented, but disproportionately, the weight of their vote is once again taken into account making their vote irrelevant; much like a third party in our presidential elections.

Again, assuming that proportional representation does work and the new system does give opportunity for minority groups to gain power. The possibility then increases for radical groups to achieve representation. If inclusion is indeed promoted and representation is in fact accounted for, nothing is present to prevent groups like the National Socialist Party of America from gaining legitimate status in government. It may be a stretch to argue this fact, but a causal link does exist and with Young’s argument being so general in nature, it seems she overlooked some of the key variables that could have at least added some validity to her argument. 

Another reason for criticism of Young’s model is it fails to present any viable options for eliminating corruption through elections. With the existence of advocacy groups such as lobbyists and money from big business, whose interests often oppose those of the general public’s, the doors still remain open for unethical decisions that are influenced monetarily and predacious activity that is inconsistent with liberty. The process of campaigning for a political position and the money required to even be a feasible candidate presently puts the minority in a position of exclusion from the start. Until these problems are addressed it seems that any democracy that suffers these initial setbacks is flawed from the beginning. The quandary with the repeating process of political corruption is the group of politicians, businesses, and advocacy groups who benefit from the existing conditions, ironically are the ones who have the power to change them. If the incentive outweighs the likelihood of repercussion, political corruption through campaigning will persistently be a problem that needs to be addressed.  

Young argues that equal representation is a key aspect of justice and inclusion in democracy. I agree, but I fail to see where Young makes any clear accounts of how to accomplish this. The solutions that she supports don’t seem to rid politics of the oligarchy or even the fascist tendencies that are present in our contemporary model. The proportional representation model argued for in this instance, still allows for the same unequal grounds in representation that our current model boasts. Existing problems will endure until the terms money and politics are no longer synonymous or each individual citizen takes our political process to be one with intrinsic value.   

Young, Iris Marion. Democracy and Justice. New York: Oxford University Press Inc., 2000.

On the Verge of Totalitarianism?

Are We on the Verge of Totalitarianism?

On pages 70-71 of Law, Legislation and Liberty, Vol. 1, FA Hayek states:

"What concerns us here however, not so much the past as the present. In spite of the collapse of totalitarian regimes in the western world, their basic ideas have in the theoretical sphere continued to gain ground, so much so that to transform completely the legal system into a totalitarian one all that is needed now is to allow the ideas already reigning in the abstract sphere to be translated into practice."

If you believe FA Hayek, this is a bone-chilling prophecy. He is saying that although our law books have not yet caught up with the contemporary mindset, they are not far behind: all it would take is to allow the "reigning ideas of the abstract sphere" to become physically represented in our law books.

In chapter three of Rules and Order, Hayek describes the process by which lawyers establish law over time.  He argued that quite often, these lawyers are merely pawns serving their masters: "Tools, not of principles of justice, but of an apparatus in which the individual is made to serve the ends of his rulers."

He then goes on to describe how this process of change in legislation leads to the movement away from private lawyers, towards public lawyers, "whose main concern is the public law". Hayek claims that this movement has been occurring in error, based on the myth that spontaneous orders are something that can be easily adjusted or 'fixed' via government policies.

Hayek says that most contemporary legal philosophy is "full of outdated cliches about the alleged self-destructive tendency of competition, or the need for 'planning' created by the increased complexity of the modern world, cliches deriving from the high tide of enthusiasm for 'planning' of thirty or forty years ago, when it was widely accepted and its totalitarian implications not yet clearly understood."

Because the lawyers creating new legislation are not serving justice, but rather their masters, the law is beginning to resemble, more and more, the mind of the ruler. Hayek reminds us that it was not the evil men of the world who have brought the most pain and suffering, but that it is the great ideologues whose ideas have  infiltrated and permeated the abstract sphere who have truly been the most destructive, despite having "good" intentions.

On page 62, Hayek reminds us that we have strayed far from the original ideals embodied in classical liberalism, yet much of the population is still under the assumption that these are the ideals that still govern our nation. Because of this underlying misconception, Hayek fears we are dangerously close to falling back into a totalitarian state.

It is of utmost importance that each individual understands the ideal Hayek is promoting in this reading. If we do not understand the nature of spontaneous orders and the purposes they serve, we will easily be convinced that the solution to our woes is not more freedom, but is actually less!

If we do not take the initiative to investigate the "development of social institutions", we will, like the examples in Hayek's book, be likely to believe that when problems are 'fixed' within a spontaneous order, it is due to some kind of government intervention or regulation, not the process by which all problems are fixed within a spontaneous order - through the discovery process of competition.

It is time we stop "waiting for superman" or some other hero to solve our problems. This is the exact mentality that leads to a totalitarian state. A bunch of crying babies screaming "please help us" form exactly the perfect conditions for a totalitarian takeover.

"The people have always some champion whom they set over them and nurse into greatness. ...This and no other is the root from which a tyrant springs; when he first appears he is a protector." - Plato