Features Columns Departments Page 26 Page 45

Features 8 Eating Disorder: How Governments Raise Food Prices by Arthur E. Foulkes 11 Inflation 101: Cause Versus Transmission by Howard Baetjer,Jr. 18 Dry-Cleaning Economics in One Lesson by E. Frank Stephenson 21 The "Risk" of Liberty: Criminal Law in the Welfare State by Michael N. Giuliano 28 "Free Market" Reforms and the Reduction of Statism by Kevin Carson 32 A Property-Rights Theory of Mass Murder by Stephen W. Carson

Columns 4 Ideas and Consequences *~ Freedom or Free-for-AU? by Lawrence W. Reed 16 Thoughts on Freedom ~ Sad Democracy by Donald J. Boudreaux 26 Our Economic Past ~ Equality, Markets, and Morality by Burton Folsom,Jr. 38 Give Me a Break! ~ Government Stifles the Wisdom of Crowds by John Stossel 47 The Pursuit of Happiness ~ Unpleasant Economists by Walter E. Williams v..

Page 26 Departments 2 Perspective ~ The "Stable Bulwark of Our Liberties" by Sheldon Richman 6 Freedom Is Not the Issue? It Just Ain't So! by James Bovard 40 Capital Letters

Book Reviews 42 The Politically Incorrect Guide to Capitalism by Robert P. Murphy Reviewed by George C. Leef

43 The Shock of the Old: Technology and Global History Since 1900 •h»li m umihe.. uuiditiil !»»» by David Edgerton Reviewed by David K. Levine 44 Illiberal Justice: John Rawls vs. the American Political Tradition Page 45 by David Lewis Schaefer Reviewed by Tibor R. Machan 45 Leaving Women Behind: Modern Families, Outdated Laws by Kimberly A. Strassel, Celeste Colgan, and John C Goodman Reviewed by Karen Y. Palasek Perspective The "Stable Bulwark Published by The Foundation for Economic Education of Our Liberties" Irvington-on-Hudson, NY 10533 Phone: (914) 591-7230; E-mail: [email protected] www.fee.org he U.S. Supreme Court in June struck a blow

President Lawrence W. Reed for the separation of powers and dealt the Bush Editor Sheldon Richman Tadministration a big setback by ruling that sus­ Managing Editor Beth A. Hoffman pects held without charge at Guantanamo Bay, Cuba, Assistant Managing Editor A.J. Gardner Book Review Editor George C. Leef have the right to contest their imprisonment under the doctrine of habeas corpus. Columnists Charles Baird Robert Higgs Simply put, the Court held that the government may Donald J. Boudreaux John Stossel not keep anyone in custody without having to justify its Stephen Davies Thomas Szasz actions to a judge. Burton W Folsom,Jr. Walter E.Williams In the 5—4 ruling the Court said Congress had David R. Henderson unconstitutionally suspended habeas corpus for the Contributing Editors detainees. It ruled that neither the fact that the petition­ Norman Barry Dwight R. Lee Peter J. Boettke Wendy McElroy ers were foreign nationals nor the fact that Guantanamo James Bovard Tibor Machan is not formally U.S. territory mattered to the question. Thomas J. DiLorenzo Andrew P. Morriss Habeas corpus—the Great Writ—was at the core of the Joseph S. Fulda James L. Payne Bettina Bien Greaves William H. Peterson Founders' efforts to deprive government of arbitrary John Hospers Jane S. Shaw power, the majority said. Raymond J. Keating Richard H.Timberlake Writing for the majority, Justice Anthony Kennedy Daniel B. Klein Lawrence H.White said, "[Protection for the privilege of habeas corpus was Foundation for Economic Education one of the few safeguards of liberty specified in a Con­ Board of Trustees, 2008-2009 stitution that, at the outset, had no Bill of Rights. In the Wayne Olson, Chairman system conceived by the Framers the writ had a central- Lloyd Buchanan Frayda Levy ity that must inform proper interpretation of the Sus­ Jeff Giesea Kris Mauren Edward M. Kopko Roger Ream pension Clause." Walter LeCroy Donald Smith The Suspension Clause of Article I, Section 9, of the U.S. Constitution states: "The privilege of the Writ of The Foundation for Economic Education (FEE) is a non-political, non-profit educational champion of Habeas Corpus shall not be suspended, unless when in individual liberty, private property, the free market, and Cases of Rebellion or Invasion the public Safety constitutionally limited government. may require it." The "privilege" is not restricted to The Freeman is published monthly, except for combined U.S. citizens. January-February and July-August issues. Views expressed by the authors do not necessarily reflect those of FEE's officers In a law signed by President Bush in 2006, the Mili­ and trustees. To receive a sample copy, or to have The Freeman tary Commissions Act (MCA), Congress sought to take come regularly to your door, call 800-960-4333, or e-mail away the courts' jurisdiction over habeas corpus peti­ [email protected]. tions from Guantanamo detainees. The majority The Freeman is available on microfilm from University Microfilm International, 300 North Zeeb Road, Ann Arbor, MI 48106. declared that section of the MCA unconstitutional. Copyright © 2008 Foundation for Economic Education, The Bush administration maintained that an ade­ except for graphics material licensed under Creative Commons quate alternative to habeas corpus had been provided, Agreement. Permission granted to reprint any article from this issue, with appropriate credit, except "Government Stifles the but the majority disagreed. In fact, under current law, Wisdom of Crowds." detainees have none of the usual safeguards accorded people accused of crimes.

THE FREEMAN: Ideas on Liberty 2 PERSPECTIVE: The "Stable Bulwark of Our Liberties

The Court rejected the argument that the detainees shortages, or is something else afoot? Arthur Foulkes are in effect conventional prisoners of war, since they has an explanation. can be held indefinitely without charge—some have Does a slowing economy offset the inflationary been held for six years—and some were apprehended forces that otherwise would be wreaking havoc with far from any actual battlefield. "The costs of delay can our household budgets? Today's conventional wisdom is no longer be borne by those who are held in custody," nothing to find comfort in, writes Howard Baetjer. Kennedy wrote. We can all sleep well knowing that the government What is heartening about the decision is the major­ protects us from the dastardly Chinese who are dump­ ity's emphasis on how important habeas corpus is to the ing wire shirt hangers on us at below-cost prices. never-ending effort to keep government on a short Well, some people seem to think so, Frank Stephenson leash. Key to that, it said, is the separation of powers. says. Without habeas corpus, the executive branch acquires There was a time when, to be convicted of a crime, the powers of the judiciary in conflict with the intent it had to be proven by the state that with malice afore­ of the framers. thought you meant to injure someone or take his prop­ "The Framers' inherent distrust of governmental erty. Those days are no more, and the resulting perils to power was the driving force behind the constitutional liberty are great. Michael Giuliano explains. plan that allocated powers among three independent Does every reform measure carrying the "free mar­ branches. This design serves not only to make Govern­ ket" label really roll back the power of government? ment accountable but also to secure individual liberty." Not necessarily. Kevin Carson, looking at the system as And what of security? Kennedy responded, "The a whole, tells why. laws and Constitution are designed to survive, and Governments have killed more civilians throughout remain in force, in extraordinary times. Liberty and history than any other force. While a noted scholar has security can be reconciled; and in our system they are correlated murder by government with the absence of reconciled within the framework of the law. The democracy, Stephen Carson proposes another culprit: Framers decided that habeas corpus, a right of first disregard of property rights. importance, must be a part of that framework, a part of Our columnists have cooked up some savory dishes. that law." New FEE President Lawrence Reed, in a reprint of his The Court noted that the great jurist William first "Ideas and Consequences" column, issues a still- Blackstone described the Habeas Corpus Act of 1679 as timely warning about the erosion of the consensus over the "stable bulwark of our liberties." the limits of government. Donald Boudreaux is unin­ Whatever the leeway extended to the U.S. govern­ spired by the pervasive romanticizing of democracy. ment in past wars, the Court majority understands that Burton Folsom shows that not all notions of equality the current situation is different and especially fraught are equal. John Stossel is beginning to believe that with the potential for tyranny in the name of security. crowds can be pretty smart. Walter Williams explains The administration has declared the entire world— why economists don't get invited to parties. And James including the territory of the United States—a battle­ Bovard, encountering the argument that freedom is field in a "war on terror" that by its very nature has no not what really matters these days, objects, "It Just specific adversary or identifiable end point. Thus Ain't So!" defenders of liberty must be wary of claims to Our book reviewers have been busy with volumes extraordinary powers. on capitalism, technology, women, and John Rawls. Capital Letters features an exchange between • • • Bettina Bien Greaves and Kevin Carson. Food prices are rising worldwide, and some of the —Sheldon Richman reaction has been ugly. Are we entering an era of food [email protected]

3 SEPTEMBER 2008 Ideas and Consequences

Freedom or Free-for-All?

BY LAWRENCE W. REED

magine playing a game—baseball, cards, "Monop­ supposed to do. The "instruction books" on this matter oly," or whatever—in which there was only one are America's founding documents, namely the Decla­ I rule: anything goes. ration of Independence and the original Constitution You could discard the "instruction book" from the with its Bill of Rights. In the spirit of those great start and make things up as you go. If it "works," do it. works, most Americans once shared a common view of If it "feels good," why not? If opposing players have a the proper role of government—the protection of life disagreement (an obvious inevitability)—well, you can and property. just figure that out later. Jefferson himself phrased it with typical eloquence: What kind of a game would this be? Chaotic, frus­ "Still one thing more, fellow citizens—a wise and frugal trating, unpredictable, impossible. Sooner or later, the Government, which shall restrain men from injuring one whole thing would degenerate into a another, shall leave them otherwise free to mad free-for-all. Somebody would regulate their own pursuits of industry and have to knock heads together and The most profound improvement, and shall not take from the bring order to the mess. political and mouth of labor the bread it has earned. Simple games would be intolerable This is the sum of good government." played this way, but for many deadly philosophical trend of Today, there is no common view serious things humans engage in, from our time is a serious of the proper role of government or, driving on the highways to waging if there is one, it is light-years from war, the consequences of throwing erosion of any Jefferson's. Far too many people think away the instruction book can be consensus about what that government exists to do anything almost too frightful to imagine. for anybody any time they ask for it, The business of government is one government is from day care for their children to of those deadly serious things, and supposed to do and handouts for artists. like a game run amok, it's showing Former [and current] Texas Con­ signs that the players don't care much what it's not supposed gressman Ron Paul used to blow the for the rules any more, if they even whistle whenever a bill was proposed know them at all. to do. that violated the spirit or the letter of Don't think for a moment that by the Constitution. How were his use of the term "players" I'm pointing fingers at appeals received by the great majority of other mem­ politicians and somehow absolving everyone else of bers of Congress? "Like water off a duck's back," Paul responsibility. In a sense, all of us are players; it's just once told me. that some are more actively so than others, and of In a series of lectures to high-school classes one day those who are active, some are more destructively so last October, I asked the students (most of whom were than the rest. At the very least, every citizen has a stake seniors) what they thought the responsibilities of in the outcome. The most profound political and philosophical trend Lawrence Reed (lreed@fee. org) became the president of FEE on September of our time is a serious erosion of any consensus about l.To honor the occasion, we reprint his first "Ideas and Consequences" what government is supposed to do and what it's not column, which was originally published in The Freeman in April 1994.

THE FREEMAN: Ideas on Liberty 4 Freedom or Free-for-AII? government were. I heard "Provide jobs" far more mean to say that one has a right to be given a micro­ often than I heard "Guarantee our freedoms." (In fact, phone, a printing press, a lecture hall, or a Playboy mag­ I think the only time I heard the latter was when I said azine at someone else's expense. it myself.) Indeed, the Founders' concept of rights did not An organization called the Communitarian Net­ require the initiation of force against others, or the ele­ work made news recently when it called for govern­ vation of any "want" to a lawful lien on the life or ment to make organ donations mandatory, so that each property of any other citizen. Each individual was citizen's body after death could be "harvested" for the deemed a unique and sovereign being, requiring only benefit of sick people. A good cause, for sure, but is it that others either deal with him voluntarily or not at really a duty of government to take your kidneys? all. It was this notion of rights that became an impor­ Americans once understood and appreciated the tant theme of America's founding documents. It is the concept of individual rights and entertained very little only notion of rights that does not degenerate into a of this nonsense. But there is no consensus today even strife-ridden mob in which every person has his hands on what a right is, let alone which in every other person's pockets. ones we as free citizens should be free A government Millions of Americans today to exercise. believe that as long as the cause is When the Reagan administration without rules or "good," it's a duty of government. proposed abolishing subsidies to boundaries, that does They look upon government as a Amtrak, the nationalized passenger-rail fountain of happiness and material service, I was struck by a dissenter anything for anybody, goods. They have forgotten George who phrased her objection on Washington's warning, "Government national television this way: "I don't that confuses rights is not reason; it is not eloquence. It is know how those people in Washing­ with wants, will yield force. And like fire, it is a dangerous ton expect us to get around out here. servant and a fearful master." We have a right to this service." intolerable tyranny Wisdom like that prompted Wash- When Congress voted to stop ington and our other Founders to funding the printing of Playboy magazine in Braille, the write a Constitution that contained a Bill of Rights, American Council of the Blind filed suit in federal separation of powers, checks and balances, and dozens court, charging that the congressional action consti­ of "thou shalt nots" directed at government itself. They tuted censorship and the denial of a basic right. knew, unlike many Americans today, that a government without rules or boundaries, that does anything for The Cheapening of Rights anybody, that confuses rights with wants, will yield he lofty notion that individuals possess certain intolerable tyranny. Trights—definable, inalienable, and sacred—has We have tossed away the instruction book and until been cheapened and mongrelized beyond anything our we find it and give it life and meaning in our public Founders would recognize. When those gifted individ­ lives, we will drift from one intractable crisis to the next. uals asserted rights to "freedom of speech" or "freedom Something more important than any handout from the of the press" or "freedom of assembly," they did not State—namely, our liberty—hangs in the balance. (f|

5 SEPTEMBER 2008 Freedom Is Not the Issue? It Just Ain't So!

BY JAMES BOVARD

he Friends of Leviathan are once again encour­ But fascist ideas are not tolerated in the United aging people to forget about freedom. In a May States—if they are labeled fascistic. Top-ed piece in the New York Times, columnist In last May's article Brooks gushed over how British David Brooks announced, "The central political debate conservatives are placing "more emphasis on environ­ of the 20th century was over the role of government. mental issues, civility, assimilation and the moral climate." The right stood for individual freedom while the left When Brooks talks about "moral climate," he presumably stood for extending the role of the state. But the central means politicians lecturing citizens about the need to act debate of the 21st century is over quality of life. In this responsibly. Brooks ignores the fact that the greatest irre- new debate, it is necessary but insuf- sponsibility comes from politicians. ficient to talk about individual Consider his reaction to one of the freedom. Political leaders have to also When Brooks worst abuses of the Bush presidency. talk about . . . 'the whole way we live talks about "moral Brooks was a gung-ho advocate of our lives.' " invading Iraq. In the days after the Abu Brooks, the "liberal" media's climate," he presum­ Ghraib torture photos appeared in May favorite "conservative," has long ably means politicians 2004, he bewailed; "We were so sure sought to place a halo over Big Gov­ we were using our might for noble ernment. In 1996 he urged Ameri­ lecturing citizens purposes.. .. Far from being blinded by cans to forget their fears of politicians about the need to act greed, we were blinded by idealism." and embrace "national greatness." He Brooks and other pundits congratu­ proclaimed that "energetic govern­ responsibly Brooks lated themselves for having swallowed ment is good for its own sake. It raises politicians' hokum and leading their the sights of the individual. It ignores the fact that readers and the nation over a cliff. strengthens common bonds. It boosts the greatest irrespon­ His response to the torture scandal national pride. It continues the great epitomizes how he wants Americans to national project." Brooks's paean to sibility comes from view government. People are supposed government was almost indistinguish­ politicians. to believe wonderful things about it. able from a 1932 tribute by Benito Then, when government commits Mussolini, who declared, "It is the " atrocities, people are supposed to "move State which educates its citizens in civic virtue, gives along because there is nothing to see here." Instead, it is them a consciousness of their mission and welds them on to the next opportunity to put government on a into unity; harmonizing their various interests through pedestal and urge everyone to bow down to it. justice, and transmitting to future generations the men­ tal conquests of science, of art, of law, of human James Bovard ([email protected]) is the author of Attention Deficit solidarity." Democracy, Terrorism and Tyranny, Lost Rights, and other books.

THE FREEMAN: Ideas on Liberty 6 Freedom Is Not the Issue?: IT JUST AIN'T SO!

The great political issue of our times is not liberalism To call for government intervention is to demand that versus conservatism, or capitalism versus socialism, but some people be given the power to compel others to statism—the belief that government is inherently supe­ submit. But coercion is a blunt instrument that produces rior to the citizenry, that progress consists of extending many ill effects aside from the purported government the realm of compulsion, that vesting arbitrary power in goal. To rely on coercion to achieve progress is like rely­ government officials will make the people happy eventu­ ing on bulldozers and steamrollers for routine transit. The ally. What type of entity is the state? Is it a highly effi­ question is not whether a person can eventually reach a cient, purring engine, like a hovercraft sailing deftly goal driving a steamroller, but how much damage is left above the lives of ordinary citizens? Or is it a lumbering in his wake and how much faster the destination could giant bulldozer that rips open the soil and ends up clear- be reached without crushing everything along the way. cutting the lives of people it was created to help? The issue of government coercion has been taken Americans and Washington off the radar screen of politically correct thought. The any people in Washington believe that Americans more government power has grown, the more unfash­ Mare so helpless that they cannot be fulfilled unless ionable it becomes to discuss or recognize the abuses, as their rulers give them a reason to live. Brooks pro­ though it were bad form to count the dead from gov­ claimed in 1996 that "ultimately, American purpose can ernment interventions. There seems to be a gentleman's find its voice only in Washington." He did not explain agreement among many pundits and political scientists where exactly in the memos, meetings, and machina­ to pretend that government is something loftier than it tions which engross the capital that "American pur­ actually is and to wear white gloves when discussing pose" arises. Brooks warned that Americans' mental the nature of the state. health depends on the feds proclaiming a purpose for the people: "Without vigorous national vision, we are Government Without Romance plagued by anxiety and disquiet." nfortunately, individuals often are unaware of Recent opinion polls show that much of the anxiety Ugovernment's true record because the media are in this nation is the result of the follies and deceits of working hand in glove with the ruling class. the federal government. It was government and politi­ Statists rely on political arithmetic that begins by cians, not freedom, that failed Americans in the new erasing all of government's abuses from the ledger. century. It was not freedom that wrecked the U.S. dol­ Instead, people should begin by pretending that lar. It was not freedom that made federal spending Leviathan doesn't exist—and then ask what politicians explode. It was not freedom that spurred a foreign war can do to make the masses happy. that has already left tens of thousands of Americans Modern political thinking largely consists of glorify­ dead and maimed, and hundreds of thousands of ing poorly functioning political machinery—the threats, Iraqis dead. It was not freedom which announced that bribes, and legislative cattle prods by which some people the Constitution and the statute book no longer bind are made to submit to other people. It is a delusion to the president. think of the state as something loftier than all the edicts, Brooks became a media darling in part because of penalties, prison sentences, and taxes it imposes. his vehement warnings about the danger of cynicism. Like Tom Sawyer persuading his friends to pay him But it is not cynical to have more faith in freedom than for the privilege of painting his aunt's fence, modern in subjugation. It is not cynical to have more faith in politicians expect people to be grateful for the chance individuals vested with rights than in bureaucrats to pay for the fetters that government attaches to them. armed with power. It is not cynical to suspect that gov­ Even though the average family now pays more in taxes ernments which have cheated so often in the past may than it spends for housing, clothing, and food com­ not be dealing straight today. bined, tax burdens are not an issue for most American Trust no intellectual who tells you not to worry political commentators. about Leviathan. Wt)

7 SEPTEMBER 2008 Eating Disorder: How Governments Raise Food Prices

BY ARTHUR E. FOULKES

igher food prices may be frustrating Ameri­ Amartya Sen wrote recently in the NewYork Times,"The cans, but they are literally killing people in the global food problem is not being caused by a falling Hleast industrialized parts of the world. Hun­ trend in world production, or for that matter in food dreds of millions of the world's poorest people—who output per person (this is often asserted without much live close to starvation even in good years—are facing evidence). It is the result of accelerating demand." malnutrition and chronic hunger. The absolute poorest In the 1800s French economist Frederic Bastiat are facing death. observed that the "prodigiously ingenious mechanism" In the 12 months leading to March 2008, the of the free market somehow—without a central plan— United Nations Food Price Index rose fed Paris. Years before, Adam Smith more than 52 percent. Last year global wrote of the "invisible hand" that wheat prices rose 120 percent. In Hundreds of millions guides self-interested individuals to Bangladesh it now takes half-a-day's of the worlds poorest provide food and drink for others. As labor for a poor family to afford a 4.4- Smith observed, "It is not from the pound bag of rice. people—who live benevolence of the butcher, the Even in the United States food close to starvation brewer, or the baker, that we expect prices are noticeably higher. Milk our dinner, but from their regard to prices rose 19 percent in 2007, while even in good years— their own interest." cheese and bread prices rose more are facing Today's food crisis may lead us to than 10 percent. Overall, U.S. food ask whether Bastiat's "ingenious prices increased 4.9 percent last year, malnutrition and mechanism" has broken down. Has compared with 4.1 percent for prices Smith's "invisible hand" become a in general. chronic hunger. visible failure? In many poor countries higher Hardly. While some of the rise in food prices have sparked demonstrations or riots. In food prices can be traced to rising global demand or January thousands marched in a food protest in Mexico natural events, all too often the visible hand of govern­ City. In February police in Malaysia arrested more than ment, which is all thumbs, is making matters far worse 50 protesters during a demonstration against rising than they otherwise would be. food costs. Food protests or riots have also shaken Haiti, Egypt, Bangladesh, Mozambique, India, Indonesia, American Agricultural Policy Burkina Faso, Morocco, Ivory Coast, Guinea, Maurita­ overnment interventions infest agriculture mar­ nia, Cameroon, Senegal, Uzbekistan, and Yemen. Gkets like weeds and have the same choking effects. What is going on?

We can discount the usual claims that for ecological Arthur Foulkes ([email protected]) writes for the Terre Haute reasons food production is falling. As Harvard economist Tribune-Star in Indiana.

THE FREEMAN: Ideas on Liberty 8 How Governments Raise Food Prices

Some interventions, such as tariffs, quotas, and land set- All told, the cost of these interventions is staggering. asides, are designed to keep food supplies down and The International Monetary Fund estimates that end­ prices up. At the same time, other interventions, such as ing farm subsidies in the industrialized world alone price supports and other subsidies, are designed to keep would increase global income by $100 billion. marginal farmers in business. Still other interventions, Regardless of their immediate effects, all government such as food stamps and subsidized school meals, are interventions have important costs. Tariffs, quotas, and designed to offset the effects of government policies set-asides have direct and easily identified costs for con­ that make food more expensive. sumers. Yet even subsidies that encourage agricultural Interventions that reduce food supplies include tar­ production are costly. The money used for subsidies iffs, quotas, and "antidumping" laws designed to block must first be taken from those who earned it and is imports of cheaper foreign goods. Such interventions therefore diverted from other uses. Perhaps more impor­ are common in the Third World, but they exist in the tant, these subsidies distort key market signals. The mir­ United States, too. Such interventions force American acle of expanded production that emerges from the law consumers, for example, to pay at least double the of comparative advantage only works when market par­ world price for sugar and dairy products. In 2003, ticipants face the true opportunity costs of their actions. according to the Trade Partnership, antidumping regulations forced Ethanol and Biofuel Policies Americans to pay duties of 148 per­ The International s if all of this were not bad enough, cent on preserved mushrooms from Monetary Fund Athe United States and Europe now Chile and 194 percent on honey mandate the increased use of ethanol from China. estimates that ending and biofuel, which divert scarce farm­ Another intervention that cuts farm subsidies in the land away from food production. In the food supplies is the U.S. Conserva­ United States this year nearly a third of tion Reserve. This program, created industrialized world the corn crop will be turned into in 1985, pays farmers to keep envi­ alone would increase ethanol. And the energy bill signed last ronmentally sensitive land out of year by President Bush will force the production. Payments totaled around global income by doubling of ethanol production by $2 billion annually from 1995 to 2022. 2002. Last summer more than $100 billion. Adding to the ethanol drive, the 400,000 farmers were paid a total of U.S. government provides an ethanol $1.8 billion to keep 36.8 million acres idle -an area tax credit of 51 cents per gallon and imposes a tariff larger than the state of New York. of 54 cents per gallon on cheaper Brazilian ethanol. Even American food relief to poor nations has costly All this means the demand for American-made ethanol strings attached. Poor countries receiving U.S. Food for and, therefore, corn is through the roof. In mid-January Peace aid must buy from LJ.S. farmers and the aid must corn was selling near a record level of about $5 then be transported on U.S.-flagged ships. In the end, per bushel. less food gets to those who need it. Increasing the demand for corn, of course, means Unfortunately, the U.S. government is not alone in less of an incentive to grow other crops. While corn meddling in agricultural markets. In the industrialized acreage is at its highest level since 1933, last year's rice world, government support accounted for one-fourth acreage was down 3 percent, while cotton was down 18 of all farm income in 2006. In Japan, farmers get over percent and soybeans 16 percent. As the supplies of half their income from the government. The European these and other crops have fallen, their prices have Union and Mexico ban imports of genetically modified risen. Falling wheat stocks, for instance, helped con­ foods, and India, among many other interventions, bans tribute to more than a doubling of wheat prices last foreign-owned retail grocery stores. year, according to the World Bank. And although wheat

9 SEPTEMBER 2008 Arthur E. Foulkes prices have fallen recently, this spring they remained khstan, and China, for example, have recently imposed more than twice their 2006 level. restrictions on grain exports, while Vietnam and India Higher corn prices have also made livestock feed have announced future curbs on rice exports. Russia, more expensive. The National Chicken Council meanwhile, is expected to place a 40 percent tax on recently said higher corn prices have driven up the cost exports of wheat, and China has imposed price controls of feeding chickens by 40 percent. The U.S. Depart­ on grains, edible oils, and dairy products such as milk ment of Agriculture, in a report published last year, and eggs. Meanwhile, the French government is urging said higher corn prices—thanks to ethanol produc­ nations in Africa and Latin America to adopt self-suffi­ tion—have meant higher consumer prices for beef, ciency in agriculture policies. pork, and chicken. Fortunately, not all government responses have been In all, the IMF and the International Food Policy bad.The U.S. Congress is considering a small reduction Research Institute estimate biofuels have contributed in the subsidy for ethanol. India may reduce tariffs on between 20 and 30 percent to higher food costs, while imported food, and Mexico may end its ban on genet­ other organizations, such as the UN Food and Agricul­ ically modified agricultural products. Each of these ture Organization and the American modest steps would be in the right Farm Bureau, say the figure is closer to direction. 15 percent. Either way, it's clear that Despite the current crisis, hunger biofuel mandates are having a signifi­ is clearly not the problem it once cant impact on global food prices. was. In 1970 around 37 percent of the population of the developing Other Reasons for Price Increases world was hungry. Today that per­ here are certainly also nongovern­ centage is closer to 17 percent, Tmental reasons food prices are despite an 83 percent increase in presently higher. Demand for food world population during the same around the world is rising rapidly as the period. Thanks to investment in bet­ people of China and India, which ter production methods, real food together make up 40 percent of the prices have fallen 75 percent world's population, become wealthier. since 1950. The International Herald Tribune reports Even in the United States the that per capita meat consumption in food picture has changed dramati­ China has more than doubled since cally in less than a single lifetime. Workers harvesting rice in northern Iran 1985 to 110 pounds annually. By some Mostafa Saeednejad, licensed under Creative Commons In 1950 Americans spent 21 percent Attribution 2.0 estimates, people in developing coun­ of their income on food; today, that tries will consume 25 percent more poultry and 50 figure is just 9 percent. percent more pork by 2016. Still, for these dramatic improvements to continue, Weather has also played a role. A drought in Australia private property rights must be protected and market has caused supplies of wheat to fall and has contributed forces must be free to work. The proper response to the to higher dairy prices as well. And a rising world popu­ current food crisis is to dismantle not just some but all lation, increasing around 1.1 percent annually, also government interventions that currently do so much means greater demand for food of all sorts. harm. Only a free market will guarantee that Bastiat's Still, there is much that governments have done to "prodigiously ingenious mechanism" will supply food make matters far worse than they would otherwise be. to the masses of the world. And only economic free­ And many government responses to the current crisis dom will enable Smith's invisible hand to lift food into will only add to the suffering. Egypt, Argentina, Kaza- hungry mouths. (S)

THE FREEMAN: Ideas on Liberty 10 Inflation 101: Cause Versus Transmission

BY HOWARD BAETJER, JR.

t's always a pleasure for a teacher to receive a note Let's first clarify the underlying cause of all inflation. from a former student showing that he or she has The single most important principle with respect to I taken key lessons to heart. I had such a pleasure last inflation is Milton Friedman's now-famous aphorism: winter when Joey, who had taken Money and Banking "Inflation is always and everywhere a monetary phe­ with me last fall, sent me a good question about an arti­ nomenon," he wrote in Money Mischief. Central cle in the Washington Post. bankers, economists, and economic journalists should The Post article (January 21) stated, "Many . . . econ­ use this as their screensavers. "Inflation occurs," Fried­ omists think ... an inflationary spiral is unlikely because man continued, "when the quantity of money rises a slowing economy would mean less appreciably more rapidly than output, upward pressure on prices." and the more rapid the rise in the Joey asked: "If our economy is With inflation in the quantity of money per unit of output, slowing, yet we are still printing United States rising the greater the rate of inflation." This money, won't that only increase infla­ can occur either by actually printing tion even more? After all, we will have and a recession money or by "the magic of the book­ more money in circulation with less perhaps already in keeper's pen"—creating new deposits being produced; that sounds on the banks' books. like the grounds for inflation to me. progress, now is a To understand Friedman's apho­ Am I missing something?" good time to sort rism, consider this thought experi­ Joey zeroes in on the difference ment (which I proposed last year in between the primary, underlying out these issues The Freeman): Suppose that tonight, as cause of inflation and secondary fac­ we sleep, Harry Potter flies across the tors that can influence not whether, once again. country and waves his magic wand in but when, how, and how fast inflation a money-doubling charm. The charm occurs. In particular he implies that "printing money" is has no effect on the amounts of goods and services; it the essential cause of inflation and challenges the affects only money. Every nickel becomes a dime, every notion that recessionary forces necessarily reduce infla­ quarter becomes a 50-cent piece, every dollar becomes tion. He is correct on both counts. (For the record, in two, every ten-dollar bill becomes a twenty, every earlier usage, inflation is printing money, with rising checking account doubles its balance. What would we prices the effect.) expect to happen to prices over the next day or two? With inflation in the United States rising and a Even if no one knew that everybody else's money recession perhaps already in progress, now is a good holdings had also increased, we would expect to see time to sort out these issues once again. What causes prices rise substantially over the next weeks and months inflation? Who or what is responsible? Do recessions Howard Baetjer,Jr. ([email protected]) is a lecturer in economics at slow inflation? Towson University.

11 SEPTEMBER 2008 Howard Baetjer, Jr. as sellers discover that they can charge more for their ratio and the required and excess reserve ratios influ­ goods than they could yesterday Picture automobile ence the quantity of money a little. But their effect is dealerships: as people perceived an apparent sudden trivial compared to the Fed's control of what is known increase in "wealth"—-it's not wealth, it's just money, but as the monetary base. The difference is analogous to they don't know that yet—many of them would head that between the tide and other factors in determining out excitedly to buy a new car. The dealerships would the water level in a bay: while wind-caused waves and see many more customers than before, willing to pay boat wakes alter the water level a little over short peri­ much more than before. Very quickly the dealers would ods of time, the level is fundamentally determined by raise their prices, realizing that they can charge more for the tide. Furthermore, historical changes in the cur­ the cars on their lots (which are no more numerous than rency and excess reserve ratios have largely been a before). A similar process would occur at every store, response to changes in the monetary base; they have market, online retailer, and real-estate agency in the land, not come about independently.) and very quickly prices of just about everything would Friedman wrote poetically about the Fed's power: approximately double. After all, with the same amount of stuff to buy but It's simple to state how the money twice the money to buy it with, what Rising consumer supply is so centrally controlled. It's else would we expect? demand or wage hard to believe. . . . [TJwelve people Inflation is always and everywhere out of nineteen—none of whom a monetary phenomenon. That means demands can transmit have been elected by the public—sit­ that if inflation is occurring, the quan­ inflation into the ting around a table in a magnificent tity of money must be (or have been) Greek temple on Constitution increasing. Correspondingly, if the economy, but not Avenue in Washington have the awe­ quantity of money is increasing (more some legal power to double or to rapidly than output), then inflation cause it. The cause is halve the total quantity of money in must surely result. an increase in the the country. . . . [T]hey and they alone have the arbitrary power to Increasing the Money Supply quantity of money, determine the quantity of what ext, what increases the quantity and the Fed controls economists call base or high-powered Nof money and how? money.. .. And the entire structure of In the United States, the Federal the quantity of liquid assets, including bank deposits, Reserve System—and only the Fed— money money-market funds, bonds, and so controls the quantity of money. Therefore on, constitutes an inverted pyramid the Fed—and only the Fed—is responsi­ resting on the quantity of high-pow­ ble for any inflation that occurs in the United States. ered money at the apex and dependent upon it. Some readers may remember discussions in their macroeconomics courses of "demand-pull inflation" or Just how does the Fed control the monetary base? It "cost-push inflation," which suggest that inflation can does so through "open market operations." It buys or be caused by too much consumer demand or excessive sells government securities (U.S. Treasury bills and wage agreements with unions. This is mistaken. Rising bonds) on the open market, where banks, insurance consumer demand or wage demands can transmit infla­ companies, and investors of all sorts buy and sell those tion into the economy, but not cause it. The cause is an securities, too. When the Fed buys U.S. Treasury bonds increase in the quantity of money, and the Fed controls or bills from banks it gives the banks money in the quantity of money. exchange—new money. This money goes into the (It is true that the Fed's control over the quantity of banks' reserves and thereby increases the monetary base money is not total; other factors such as the currency (of which bank reserves are part).

THE FREEMAN: Ideas on Liberty 12 Inflation 101: Cause Versus Transmission

Conversely, when the Fed sells government securi­ funds market, and its interest rate has become more ties (from its vast holdings of them) to banks, they pay important since the Fed began using it as its operating with existing money from their reserves. As they do so, target in 1995. that money leaves the monetary base and disappears. On September 18, 2007, the Fed dropped its target I find it helpful to think of the Fed as a kind of a black for this interest rate from 5.25 to 4.75 percent. Since hole at the edge of the economy that sometimes draws then it has lowered it steadily, reaching 2 percent last money out of the economy and makes it disappear, April 30. That means the Fed intends to influence sup­ and at other times disgorges money from itself into ply in the fed funds market so that the interest rate hits the economy. the targeted rate. This intention is clear from the page It is really that simple. The Fed controls the quantity of the Fed's website where it describes its open-market of base money by buying and selling Treasury securities. operations. The table there is labeled "Intended federal funds rate" (http://tinyurl.com/6g4yq3). They manage Open-Market Operations and Interest Rates to hit very close to their target most days. ow let's turn to the relationship between the Fed's How does the Fed influence supply in the fed funds Ncontrol of the monetary base through open-mar­ market so as to hit its interest-rate target? It does so by ket operations and its influence on interest rates. After open-market operations, which it carries out daily, all, when we read of the Fed's actions, we do not read of sometimes two or three times daily. When the Fed aims its increasing or decreasing the to influence the fed funds rate monetary base but of its "raising downward, it buys Treasury or lowering interest rates." Based securities from banks. The on what we read in the financial money initially goes into the news, we might think that the banks' reserves. The rest of the Fed alters or sets interest rates process must be carried out by directly. But it doesn't. Interest the banks. rates are a kind of price, and like What banks do with these all prices they are determined by new reserves depends on the the interactions of demanders and particular situation of each suppliers. In markets for loanable bank, of course. Those that funds, where the "price" is the were previously short on interest rate, the demanders are reserves will hold on to the borrowers and the suppliers new money. But if the Open lenders; their interactions deter­ Market Committee has judged mine (and continuously alter) correctly, many banks that interest rates. What the Fed does "[T]welve people out of nineteen . . . sitting around a table receive the new money will in a magnificent Greek temple on Constitution Avenue in is to affect interest rates by its Washington have the awesome legal power find themselves with excess to double or to halve the total quantity of money in the influence on the supply of money. country." reserves (more than they need Sebastien Bertrand, licensed under Creative Commons Attribution 2.0 Its influence is indirect. to keep on hand) and will seek Consider, for example, what the Fed does when it to lend it out at interest. One market in which they "lowers interest rates." It actually lowers its target for an will lend the money is the fed funds market; that is, important interest rate called the federal funds rate (or they will offer to lend reserves to other banks. To fed funds rate). This is the interest rate at which banks induce other banks to borrow the money, they must lend and borrow reserves to and from one another reduce slightly the interest rate they charge, thereby overnight, as normal business fluctuations push their bidding down the fed funds rate. If the Fed has judged reserves higher or lower than the quantity they correctly, that downward movement will be just would like to hold. This market is called the federal enough to hit its target.

13 SEPTEMBER 2008 Howard Baetjer, Jr.

Linking the Fed to Inflation notice and therefore don't expect inflation, the central t last we are able to link this discussion back to bank can speed up its increase in the money supply for a Ainflation. For the Fed to hold the interest rate while, with no immediate effect on overall prices. down, it must create new money. If it does so too rap­ (Indeed, if the monetary authority withdraws newly idly or for too long, it causes inflation (a general price created money from the economy relatively soon rise). Recall Friedman's words: "Inflation occurs when after it's created, price levels overall may not rise at the quantity of money rises appreciably more rapidly all.) The faster price increases that must result from than output, and the more rapid the rise in the quantity a sustained speeding up of money growth will occur of money per unit of output, the greater the rate of only after a lag during which people gradually adjust inflation." This is what Joey had in mind with his per­ their pricing to this unexpected change. Hence rates of ceptive question: "If our economy is slowing, yet we are price changes tend to lag behind the higher rates of still printing money, won't that only increase inflation money growth. even more?" This seems to be the scenario the "many econo­ Money growth will always and everywhere underlie mists" in Joey's article consider us to be in at present. In inflation over any long period of time. But in the the short run a slowing economy would lead people to shorter periods that make up that long term, people's raise prices less than they otherwise would, until and expectations will greatly influence unless they start to worry about getting behind an inflation. If how promptly the underlying cause ~ they are not worried about infla­ of inflation—growth of the money tion—if they don't expect it—then supply more rapid than the growth of Money growth will during a recession many businesses output—brings about its inevitable may lower prices to boost lagging effect of rising prices. always and every­ sales, and some employees may hold Recall the passage that made Joey where underlie off on asking for raises until business scratch his head: "Many other econo­ improves. mists think such an inflationary spiral inflation over any The problem scenario—when we worry is unlikely because a slowing econ­ long period of time. about rising inflation. But the central omy would mean less upward pres­ bank cannot long accelerate the sure on prices." A slowing economy growth rate of the money supply might mean less upward pressure on without driving up prices. Eventually prices, but it might not. That will depend largely on people holding the new money do bid up prices; other people's expectations. Let's distinguish three scenarios people start to notice that prices in general are increas­ in which inflation becomes progressively higher. ing; and everyone starts to expect further increases. When people start to worry that the prices they receive Three Scenarios (their wages and salaries, or prices for what they sell) he unperceived-problem scenario—when we don't expect are not rising as fast as the prices they pay (for food and T inflation to rise. When the money supply grows clothing, or for labor and supplies), then they all start to only a little faster than output, most people don't notice push up the prices they charge in order to keep up. that prices in general are rising. Prices of most things are Consumers ask for pay increases, and businesses increase constantly rising or falling a little due to changing mar­ the prices they charge. The rate of price changes tends ket conditions, so very small general price increases to catch up to the higher rates of money growth. caused by excessive money growth are obscured from Of course our salaries and wages are input costs to view by normal price fluctuations. The new excess the businesses that pay us, so when we demand higher money pushes prices up, but slowly and only after a lag. pay to keep up with rising prices, we increase our A central bank can take advantage of people's employers' costs, motivating them to increase their ignoring such small inflation. As long as they don't prices to keep pace. This is the dreaded inflationary spi-

THE FREEMAN: Ideas on Liberty 14 Inflation 101: Cause Versus Transmission ral. Once it begins, it can be hard for the monetary their money's loss of value as prices rise, they strive to authority to convince any of us to slow it down. No change the prices and wages they receive in anticipation one wants to be the first to risk falling behind. of future inflation. When expectations are like this, rates It was this scenario in which the U.S. economy of price changes can outrun rates of money growth. found itself in the 1970s, when we had "stagflation": a The slowing of the economy that must certainly result long recession, yet with high inflation. Here, too, the from a bad inflation such as this will do nothing to slow slowing of the economy might keep inflation rates a bit that inflation. lower than they otherwise would be, but it certainly Presumably the "many other economists" referred would not stop inflation. In fact, another current of to in the Washington Post article believe that we are causation runs the other way. One of the inevitable still in the unperceived-problem scenario. Perhaps we consequences of inflation is to degrade the price sys­ are. But if Fed chairman Ben S. Bernanke and his col­ tem's function of coordinating people's efforts and leagues on the Open Market Committee create too enterprises. By impairing that coordination, inflation much money, we'll surely switch into the problem slows economic growth. scenario. If we do, Bernanke will be embarrassed, The big-problem scenario—when we all try to get ahead of because he subscribes to Milton Friedman's famous increasing inflation. When people get concerned about principle. @

Economic Sophisms ECONOMIC By Frederic Bastiat SOPHISMS Introduction by Henry Hazlitt

Although written 150 years ago, Bastiat's devastatingly accurate attacks on the illogical, self-serving arguments of protectionists remain both relevant and entertaining. Among the gems in Sophisms are "The Negative Rail­ road," "Petition of the Candlemakers," and "The Physiology of Plunder."

Perhaps the best recommendation for Sophisms comes from renowned journalist and FEE founding trustee Henry Hazlitt. In his introduction to the book, Hazlitt declares:

We could use more Bastiats today. We have, in fact, desperate need of them. But we do, thank Heaven, have Bastiat himself, . . . and the reader of these pages will not only still find them, as Cobden did, "as amusing as a novel," but astonishingly modern, for the sophisms he answers are still making their appearance, in the same form and almost in the same words, in nearly every issue of today's newspa­ pers.

Published by the Foundation for Economic Education 328 pages, paperback $11.00

To order, visit our online store at www.fee.org, or call 866-766-9440. Please add $3.00 per copy for standard postage and handling.

15 SEPTEMBER 2008 Thoughts on Freedom

Sad Democracy

BY DONALD J. BOUDREAUX

uring this presidential election year, it's com­ of candidates pandering to voters have all the appeal, to monplace to sing paeans to the wonders of me at least, of watching washed-up celebrities on late- Ddemocracy. I, though, have never been able to night television making obviously phony pitches for join in this chorus.The principal reason is that I put no reverse mortgages and magical mattresses. intrinsic value on democracy; what I value intrinsically But there's this difference: relatively few people— is individual liberty. Democracy might have instrumen­ even those who fall for the pitches—regard the celebri­ tal value if it is part of an array of social institutions that ties as anything more than paid mouthpieces. In politics, promote liberty (although, as the works of my col­ though, the Barack Obamas, Hillary Clintons, George leagues James Buchanan and Gordon Tullock make Bushes, John McCains, and Ronald Reagans are too clear, that case is far from obvious), but democracy as an often treated as selfless divines, secular faith healers end in itself has always left me cold. whose will and touch will cure incur­ This confession often brings harsh able problems. reactions. A typical response is, My criticizing the How else to explain the ever- "What?! Don't you think that people use of democracy for present reaching out of hands by are capable of choosing wisely for crowds of people who long for just a themselves?" (The unstated subtext is the vast majority of touch of the president? How else to that I am either an elitist or that issues to which it is explain the thunderous applause that I have sympathies for Robert typically erupts from audiences Mugabe-like tyrants.) And my answer today applied is a whenever a famous politician pro­ is always the same: "Of course I think nounces the most banal platitude? that people are capable of choosing defense of personal How else to understand the wide­ wisely for themselves—which is why I ability and spread desire for the president to want to minimize the subjection of appear personally at disaster scenes individuals to any outside force, responsibility and to hug (for the cameras!) a hand­ including the majority." ful of victims' relatives? I trust my neighbor to know what size toilet tank is best for him and his family. I trust my neighbor to Political Delusion know whether or not he should smoke cigarettes (or recently got an unexpected glimpse into the abyss of pot); to wisely choose how much to save for his retire­ I political delirium after an article of mine was pub­ ment; to decide if the car made in Korea is a better deal lished in the May 24 edition of the Wall Street Journal. for him than is the car made in Detroit; to educate his In that article, I pointed out what struck me as an obvi­ children. For these and countless other decisions my ous contradiction in Hillary Clinton's campaign rheto­ neighbor does not need the forced "assistance" of me ric—namely, I argued that Senator Clinton's complaint and others. My criticizing the use of democracy for the that her bid for the Democratic nomination was vast majority of issues to which it is today applied is a defense of personal ability and responsibility. Donald Boudreaux ([email protected]) is chairman of the economics Another reason democracy leaves me uninspired is department at George Mason University, a former FEE president, and the that it is aesthetically grotesque. The sights and sounds author of Globalization.

THE FREEMAN: Ideas on Liberty 16 Sad Democracy thwarted by sexism is at odds with her insistence that Sir, and I say "Sir" with great reservation as I believe she would be a stronger candidate than Barack Obama the homeless person on the street deserves more in the general election. respect than you. I can only wonder what the men I expressed no preference for Senator Obama or for in other countries think of the male attitude in this Senator Clinton; nor did I offer a plug for or against one. It's attitudes like yours that contributes to bat­ the GOP candidate, John McCain. My point was a log­ tered women. I keep thinking it will change, but ical one. It was political only insofar as exposing any until we manage to elect a President like Hillary, it candidate's inconsistencies helps to reveal the true likely will not happen. nature of politics. But my oh my! Within 48 hours my e-mail inbox Rise Hillary Rise!!!!!!!! was filled with over 300 responses from strangers. All but one was nega­ tive. (I didn't think that this outcome It is sad that so very Biases of Politics was statistically feasible, but, well, I many people seek cannot read such things without was wrong.) What follows are just I!experiencin g profound sadness—for four of the responses—and only ones salvation through it is sad that many people avoid chal­ that are fit for inclusion in a family- politics and refuse to lenging an argument on its own mer­ friendly publication: its and, instead, treat any perceived understand that many lack of enthusiasm for their favorite Your educational background is in individuals, myself candidate as a sign of either intellec­ economics. So I have to tell you, tual failure or moral turpitude. It is sad your opinions in this area should included, want that so many people believe that secu­ have never seen the light of day. neither to be saved lar salvation is possible through the You want to comment on this election of a particular man or woman topic, have a sex change operation, nor persecuted by to political office. It is sad that so and live in this world for 10 years. many people still believe that collec­ Then, and maybe then, I will lis­ the state. tive interests exist for all persons who ten to your opinion. In the mean happen to share the same kinds of time, please shut up. genitalia or who happen to share the same skin color— and that men have interests fundamentally opposed to One of the biggest tactics of sexists is to dismiss a those of women and that "whites" have interests funda­ woman's point of view and that is just what you are mentally opposed to those of "blacks." trying to do. . . .You should look more deeply into It 15 sad—extraordinarily and searingly sad—that so yourself and ask yourself "what is so threatening to very many people seek salvation through politics and me about a woman in power that I have to try to refuse to understand that many individuals, myself diminish her and her concerns?" Be a real man and included, want neither to be saved nor persecuted by be honest with your fears of powerful women and the state. We just want to be left alone by busybodies so maybe this world can move a little step closer to that we can be part of building a great spontaneous equity for all. order of free and prosperous people. @

17 SEPTEMBER 2008 Dry-Cleaning Economics in One Lesson

BY E. FRANK STEPHENSON

nother day, another news story about economic cratese is the press release's "antidumping duty" clause. wackiness. Gas prices rise, the dollar sinks, and Prompted by a complaint from M&B Metal Products Astores are limiting rice sales. What could be Company of Leeds, Alabama, the only domestic metal- next? Clothes hangers. hanger manufacturer, Commerce analyzed prices Yes, clothes hangers. Marie Sledge, co-owner of charged by Chinese hanger producers to determine if Rome (Georgia) Cleaners, states, "Hangers last year at they were below "fair value." Calling anything other this time were $28 a box, where now they are $56." than a price arrived at through voluntary exchange News reports indicate that cleaners in Springfield, between the buyer and seller "fair value" is perverse. But Missouri; Birmingham, Alabama; and Harlem are also the U.S. government, in its infinite wisdom, has defined encountering doubling hanger prices. In response, "unfair value" as the price charged by foreign firms sell­ many cleaners are posting signs in their shops encour­ ing below their cost of production or below the price aging customers to return used hangers. they charge in their domestic markets. Hangers can't, even if combined with government In any event, economist Russell Roberts, in The subsidies, be converted into biofuels. Choice, describes Commerce's process So what is causing the rapid increase as "arbitrary" (hardly surprising, given in hanger prices? Government, of the slipperiness of "fair value") and course, though in this case it's the What is causing the reports that between 1986 and 1992 trade bureaucrats at the Department rapid increase in Commerce found dumping in 97 per­ of Commerce rather than the folks cent of the 251 cases it investigated. In behind other debacles in the news hanger prices? a 2002 paper, Cato Institute scholars these days. Brink Lindsey and Dan Ikenson elabo­ In a March 19 news release the rated: "In a depressingly wide variety of Department of Commerce "announced its affirmative circumstances, a foreign producer can charge prices in preliminary determination in the antidumping duty the United States that are identical to or even higher investigation on imports of steel wire garment hangers than its home-market prices and still be found guilty of from the People's Republic of China." Translation: The dumping." It therefore comes as no surprise that Com­ government will now impose tariffs on hangers merce determined that Chinese producers have been imported from China. The tariffs vary by supplier, rang­ dumping their hangers on the United States market. ing from a lightly starched 33 percent to a truly stiff The notion of dumping, even without arbitrariness 221 percent. With hanger prices potentially tripling by Commerce apparatchiks, is suspect. Since the raison because of tariffs, it's easy to understand the disruption facing dry cleaners. Frank Stephenson ([email protected]) chairs the economics Why would the Commerce Department impose department at Berry College in Rome, Georgia. He blogs at • such taxes on imported hangers? The key bit of bureau- www. divisionoflabour. com.

THE FREEMAN: Ideas on Liberty 18 Dry-Cleaning Economics in One Lesson

The fear is that the alleged dumping is a scheme to bankrupt domestic producers, shut them down, and leave U.S. consumers vulnerable to large price hikes. Anthony Easton. Licensed under Creative Commons Attribution 2.0. d'etre of firms is to make profits for their owners, there Although firms might rationally choose to sell an should be a strong presumption that firms will not sell item at lower prices in foreign markets, there's strong below cost, regardless of the Commerce Department's reason to doubt Chinese hanger manufacturers would Byzantine calculations. And if, glory be, some foreign do so. Transportation costs for weighty and bulky items firm does choose to sell below its production cost, like hangers are not trivial. Moreover, one might expect we should welcome the gift rather than ensnare the price-discriminating firms to charge lower prices in givers in a thicket of questionnaires, documents, and poor countries, but not in wealthier ones such as the legal mumbo jumbo. United States (as is done with pharmaceuticals). But as In the case at hand, it's unlikely that the Chinese I said about the Chinese selling at a loss, glory be if they firms were selling below cost. M&B president Milton are willing to price-discriminate to our benefit. Magnus states, "The price [Chinese firms] pay for wire Of course, the fear is that the alleged dumping is a is about 30 percent less than what we pay, [and] scheme to bankrupt domestic producers, shut them [tjhey're paying workers 83 cents per hour." (M&B's ire down, and leave U.S. consumers vulnerable to large about competition from cheap foreign labor seems price hikes that will recoup the losses incurred by sell­ rather selective because, according to American ing below cost. Among the many conceptual problems Drydeaner, it operates a hanger-manufacturing plant with such a notion is that it would be easy for U.S. cus­ in Piedras Negras, Mexico.) If true, the Chinese tomers to find alternative international suppliers or for firms might well be able to charge a much lower price firms in the United States to restart their production than M&B and still not be selling below their cost when the predatory Chinese firms jacked up their of production. prices. In the case of the Chinese hangers, the Depart-

19 SEPTEMBER 2008 E. Frank Stephenson merit of Commerce indicates that there are more than a goods and services may reduce employment in those dozen Chinese hanger manufacturers, so it is hardly a occupations. given that, even if they desired to do so, they could suf­ Another possible result of the hanger tariff is that ficiently coordinate their activities to cartelize the cleaners will earn less profit rather than raise their international hanger market. prices or reduce workers' hours or wages. Again, there would be unseen job losses since it is now the cleaners' Overlooking the Unseen owners who would have less income available to spend he department defends antidumping duties as on other goods and services. Of course, if the dry Tbeing necessary to protect American jobs. Indeed, cleaners in an area do not pass along the higher costs, news reports indicate that M&B has hired about 50 any marginally profitable firms will close, eliminating new workers and may double its workforce over the jobs for all their employees. next two years. Alas, as is so often the case, such thinking ignores Henry The Costs of Intervention Hazlitt's admonition in Economics in Another possible randon Fuller, writing May 21 One Lesson to "trac[e] the conse­ result of the hanger B:o n the Aplia Econ blog quences of [a] policy not merely for (http://tinyurl.com/6dk67x), pro­ one group but for all groups." In the tariff is that cleaners vides a back-of-the-envelope calcula­ case of the great hanger crisis of 2008, will earn less profit tion of the cost of the antidumping other groups lose jobs in response to hanger tariff. Multiplying the $4,000 the protectionism that enriches M&B rather than raise per-firm cost by the 30,000 dry- and its employees. cleaning firms in the country yields a News reports indicate that higher their prices or cost of $120 million. To put the $120 hanger prices will cost cleaners $4,000 reduce workers' million figure in perspective, the tariff or more per year. Suppose that clean­ is expected to cost some $212,765 for ers try to pass the increased cost of hours or wages. each of the 564 jobs saved. hangers along to their customers. The lesson is that the misguided Charging an extra, say, 10 cents per item will cause at attempt to save jobs for domestic hanger manufacturers least a few customers to reduce the number of items comes at the expense of other domestic employment. they send out for cleaning. If so, cleaners will need fewer Failure to base policy on Hazlitt's wisdom has led to the employees, and M&B's jobs will have come at the substitution of political competition and bureaucratic fiat expense of cleaners' employees. (Similar logic would for the market process. Not only has M&B enriched apply if cleaners reduced their workers' hours or wages itself by using the political process to stifle competition in response to higher hanger prices.) from foreign firms, it has also taken advantage of the Even if customers grudgingly pay the extra dime reduced competition by raising its price by more than 10 without reducing their cleaning, they will have less to percent. (See Stan Diel, "Hanger Costs Belt Dry Clean­ spend elsewhere. Although that may seem like a trivial ers," Times-Picayune, April 15, 2008, http://tinyurl.com/ amount, the cumulative impact of many consumers 63nhbs.) having perhaps a dollar per week less to spend on other Talk about being taken to the cleaners.

THE FREEMAN: Ideas on Liberty 20 The "Risk" of Liberty: Criminal Law in the Welfare State

BY MICHAEL N. GIULIANO

he word crime has come to include an ever- The legal dangers are not limited to those working increasing assortment of activities that do not in a managerial capacity. Bartending is everywhere a Tfit the intuitive meaning of the word. The law hazardous activity not solely because of unruly patrons, has criminalized behavior deemed risky or undesirable but because bartenders are under the imminent threat and actions or status having only vague relationships of arrest for the sale of alcohol to minors. The location to undefined harms. The lawmaking process under of a particular night's sting operation is the only deter­ our welfare state is gripped by an incessant need to minant of which bartender faces the inevitable criminal eliminate risk. This forecloses the possibility of signifi­ charge. The purchaser's use of fake identification may, in cant liberty. some circumstances, be a defense Within hours of that daily en masse The lawmaking for the accused, although he or she recitation by schoolchildren that refer­ might shoulder the burden of proof. ences "liberty and justice for all," a cer­ process under Two bartenders at different tain public dissonance was revealed in our welfare state is establishments, including a 69-year- Alaska in 1994, when railroad project old woman, were charged in Old manager Edward Hanousek found him­ gripped by an Forge, New York, in 2006 after a self under arrest and facing criminal 20-year-old man they had served charges and a prison term. The offense incessant need to later died in a snowmobile accident. putting him in that predicament took eliminate risk. This These legal actions reflect the gov­ place at his worksite while he was off ernmental view that another person duty. It was only later he would learn forecloses the must be ruined for any disaster to he had become a criminal because possibility of be complete. petroleum was accidentally discharged A corporate executive is simi­ after a backhoe operator working for a significant liberty. larly liable to prosecution at any contractor on a railroad rock-quarry moment for "crimes" requiring no project had inadvertently damaged a pipeline. guilty mental state and where even prosecutors are Because Hanousek managed the project, he was held unsure of what evidence legally establishes liability for criminally liable for the accident. He was convicted of the particular offense. Ambitious prosecutors are often negligently discharging a pollutant and punished with a successful at making a name for themselves by extend­ six-month prison term, six months in a halfway house, ing the reach of the criminal law. We saw then-U.S. and six months of supervised release. The Supreme Attorney Rudy Giuliani's infamous staged handcuffing Court refused to consider his appeal, with only Justice and arrest of three investment bankers he accused of Clarence Thomas and Justice Sandra Day O'Connor believing there was a due-process issue meriting the Michael Giuliano ([email protected]) is an attorney editor at Court's attention. Thomson Reuters.

21 SEPTEMBER 2008 Michael N. Giuliano insider trading. Former New York attorney general magnifies risk. Today the effects that criminal legislation Eliot Spitzer bullied and prosecuted anyone who might seeks to ameliorate are more remote and uncertain. serve as public-relations fodder for his quest for politi­ They indicate something other than malice on the part cal power. (After becoming governor, he was caught of the actor, while they intrude into the realm of per­ patronizing a prostitution ring and had to resign.) sonal decisions one could plausibly justify if freedom Business transgressions are routinely treated as crim­ were an ideal. inal acts if not by statute, then by practice and interpre­ The history of our own civilization reveals the tation. As Nicole Gelinas of the Manhattan Institute notion of criminal law born of the "passion of resent­ points out, jurors sitting in judgment of Kenneth Lay ment at injury or voluntary wrong," Professor Ian later admitted their ignorance of the legal standard Simpson Ross writes. True to form, under the old required for his conviction on fraud charges. They Anglo-Saxon law, government was not a central force used a standard of negligence when the actual standard in the criminal process; vindication was left to the for fraud is, at the least, some minimal knowledge and aggrieved party. Restitution became the accepted pun- intent. ishment in most cases. Of course, not For another illustration, dare we The law's traditional all criminals were able or willing to consider the predicament of a pain pay or otherwise compensate. In these sufferer when his doctor fails to ade­ requirement of mens cases, as former British judge quately relieve suffering because he rea, or an evil mind, Anthony Babington tells us, the law fears criminal prosecution for reck­ served no further restraint and lessly prescribing narcotics? As for was the legal allowed that the perpetrator might those who seek painkillers but who simply be "slain like a wild animal." may not wish to see a doctor or foundation of an (The principle of proportionality was receive traditional medical assistance, a act's criminality. lacking.) charge of criminal possession awaits. One of the defining characteristics Drug prohibition becomes a capitula­ The corollary to this of Anglo-American law was its indi­ tion to the totalitarian impulse. It may is the necessity of an vidualistic focus. This is an internal safely be said that liberty has ceased to focus that revolves around the crimi­ exist under a criminal framework overt act, or actus nal's malicious act. The disappearance such as this. reus, comprising the of the notion of a crime as a private wrong involving genuine malice is American Criminal Law and evil deed. central to the developments in mod- "Risk Administration" ern law. In modern times crime is ur criminal law has descended into a system of viewed as an offense against society. The government Opunishing risks instead of the malicious acts prosecutor is deemed to represent "The People," despite toward others that fit within the common understand­ the oddity that juries, far more representative of the ing of what a crime is. In the twentieth century, people than prosecutors, are allowed little substantive criminal law became "risk administration," says law power in the process. "The People," in reality, becomes professor Markus Dubber. This system is a creature of a propaganda term. the welfare state. The law's traditional requirement of mens rea, or an Changing values are reflected in a changed legal evil mind, was the legal foundation of an act's criminal­ code. As late as the end of the eighteenth century, crime ity. The corollary to this is the necessity of an overt act, and sin were coterminous in the public mind, writes or actus reus, comprising the evil deed. The criminal- legal historian J. A. Sharpe. Risk-based lawmaking and lawmaking mindset today legislates toward an external the "nanny state" now construct the 21st-century standard that judges results and not internal malice. The equivalent of sin. Actions are seen through a lens that concept of negligence and the motivations underlying

THE FREEMAN: Ideas on Liberty 22 The "Risk" of Liberty: Criminal Law in the Welfare State its use in tort law have bled into the criminal law. Free­ coercion. The law's reach under the utilitarian mental­ dom is greatly diminished when individually blameless, ity is predicated on the belief that the ends justify the private, and nonmalicious conduct is so routinely pun­ means.This belief, as FA. Hayek wrote, is "in individu­ ished rather than subjected to civil remedies. alist ethics regarded as the denial of all morals. In col- lectivist ethics it becomes necessarily the supreme rule." Utilitarianism and Its Effects Criminal-law collectivism accompanies the economic ith the growth of secularism, sin and crime were collectivism of the welfare state. Wno longer fused in the public mind, but the util­ Bentham would forcefully argue the benefits of a itarian rationale for public policy became the predomi­ public prosecutor, further weakening the notion of nant molding influence. The main component of crime as a wrong engendering resentment in a victim­ utilitarianism holds that the Tightness or wrongness of ized party. Without a public prosecutor, a great many of an action is determined purely by its consequences. In the overreaching laws existent today would be impossi­ some variants of the philosophy, the "right" conse­ ble; there would be no resentful private party to bring quences must be maximized by coerc- the victimless criminal into court. ing, if necessary, the behavior that will J. A. Sharpe has shown that in bring them to fruition. Bentham s happiness England most felony prosecutions Classical utilitarianism stands in principle expands the were once brought by the victim or contrast to the traditional theory of a family member. inherent moral rights and obligations, conception of harm The public prosecutor in Eng­ Professor Raymond G. Frey writes. and therefore the land was seen by certain citizens as Actions are construed not as being portending the advent of a new legal right or wrong the moment the actor's need for government regime; some suspicion sprung up intent is formed and action com­ due to its implicit threat to freedom mences, but by what are often remote coercion. The law s and the association of public pros­ and potential consequences of the reach under the ecution with the institutions of behavior. Modern policy analysis fre­ authoritarian regimes. As related quently serves as justification for utilitarian mentality is by Professor Randall McGowen, sweeping laws based on the policies' predicated on the "[Pjrivate prosecutions were seen as general societal effects without regard important safeguards of English to any limiting principle. belief that the ends freedom." This consequentialism is the justify the means. Under the strict letter of the law residue of utilitarianism on criminal as it now operates, the true risk of law. An act is criminalized because of a an action is never determined. slightly elevated risk the behavior creates and the par­ Behavior is made criminal because in the lawmaker's ticular political causes of the moment. The great utili­ view it may in some instances lead to a certain injury. A tarian Jeremy Bentham posited that the good is the person, for example, might be charged with possessing "greatest happiness of the greatest number." Morality a weapon regardless of the fact that there is no resulting becomes that which the government must ensure injury, the violator's intentions were innocent, and the through its manipulation of "aggregate happiness." actions were cautious and reasonable under the circum­ Morality is thus defined by results, and the significance stances. The potential-risk offense does not require the of human freedom and conscience is erased. The wel­ prosecutor to prove any particular recklessness in the fare state's raison d'etre then requires the regulation of same way that a personal-injury plaintiff must prove the everything. defendant's negligent conduct. Bentham s happiness principle expands the concep­ A sibling of the potential-risk offense is the so-called tion of harm and therefore the need for government public-welfare crime, a crime of the sort that ensnared

23 SEPTEMBER 2008 Michael N. Giuliano

Edward Hanousek. Here, there is an injury of a sort ior, has expunged the distinction between the pure (the environmental contamination in that case), but the accident of tort and criminal malice. The misfortune of violator displays no "vicious" or grossly negligent state those such as Hanousek who are punished for accidents of mind. These crimes are based on strict liability; the or the millions of those punished for arbitrarily defined lack of fault is no defense. and victimless crimes highlight the very real absence of Occasionally there is a certain ambivalence on dis­ any evil intention on the part of so many violators and play within the legal system over the confused role of "criminals." negligence in the criminal law and its implications. It John Stuart Mill devised the "harm principle" as took several years and a ruling from New York's highest a limitation on what the government may rightly court to overturn the conviction of a 17-year-old prohibit. The principle is problematic, though, as charged with criminally negligent homicide for three legal philosopher Joel Feinberg pointed out, because fatalities resulting from a car accident caused by the "the harm principle may be taken to invite state inter­ excessive speed at which he was driving. The teenager, ference without limit" as no action is without some driving to a lake with other teens in the same vehicle, possible negative effect. When any risk itself is to be exceeded 70 miles per hour on a twisting stretch of punished, this "harm principle" becomes irrelevant. road that had a speed limit of 55 miles per hour. He lost control of the vehicle Using the concept of "Social Perfection" in the on one of the turns. Early Twentieth Century The Court of Appeals, in People v. negligence to simply f we wanted some explanation Cabrera, vacated the conviction, finding shift the monetary I!fo r the development of these that speeding, without anything else, laws, the early twentieth century's did not constitute the "morally blame­ costs to the party peculiar Utopian ideologies and worthy" conduct and mens rea required with deeper pockets, movements seem to be a reasonable for such a serious felony conviction. Of start. Rooted in "science" and a course, as negligence involves conduct as often occurs in desire for social perfection—with a that, as Justice Oliver Wendell Holmes personal-injury suits, focus on vice, public health, eugen­ observed, is by definition not truly ics, drugs, and alcohol—these blameworthy, it is unclear how courts, is far removed from movements used law to invade the attorneys, and the police could ever private sphere in the name of the consistently enforce or interpret such its use to impose a public good. vague and nondescript offenses. criminal sanction. The origin of such law is in Using the concept of negligence to the American tradition of searching simply shift the monetary costs to the party with for a "holy Utopia," writes Freeman columnist Thomas deeper pockets, as often occurs in personal-injury suits, Szasz. The American passion for moral reform, com­ is far removed from its use to impose a criminal sanc­ bined with the "medicalization of morals," leads to the tion. Wrote Supreme Court Justice Frank Murphy, dis­ modern "crusades against disease." Early twentieth-cen­ senting in U.S. v. Dotterweich: "It is a fundamental tury preachers of the progressive, scientific mindset principle of Anglo-Saxon jurisprudence that guilt ... is would remind their parishioners of their duty to not lightly to be imputed to a citizen who . . . has no improve the human race. Improving it, as one might evil intention or consciousness of wrongdoing." Simi­ expect, meant criminalizing more actions and impris­ larly, English jurist William Blackstone declared that for oning more people. an act to be considered a crime, there must be a As author Christine Rosen has detailed, the "social "vicious will." Nevertheless, the consequentialist influ­ gospel" of the period would push the legislatures to ence, promoting the idea that indirect and unlikely tackle all of the impurity of the times, including prosti- consequences should determine the legality of behav- tution, gambling, and drug and alcohol use. Rev. Walter

THE FREEMAN: Ideas on Liberty 24 The "Risk" of Liberty: Criminal Law in the Welfare State

Taylor Sumner of Chicago excoriated rampant prosti­ Within the English and American legal and consti­ tution, drug use, and "dance halls," and would extol to tutional tradition, there are assumed to exist personal other progressive-minded clergymen the benefits of liberties that either preexist or supersede government "eugenic marriage." These concerns led to unfortunate power. The "greatest happiness of the greatest number" undertakings that Carrie Buck, whose forced steriliza­ rule is, in contrast, a principle declaring that the ends tion was made infamous by the Supreme Court's deci­ justify the means. This elevates a consequentialism that sion in Buck v. Bell, experienced all too well. invents responsibility for attenuated effects and thus The intolerance of risk and vice that the consequen- removes all limitation on the scope of law's coercive tialist dogma imposed left us crimes reach. The trek toward greater utili­ that punish status as an indicator of A better alternative is tarianism was in avowed opposition risk. One of the crimes the movement to the natural rights that, in the words enshrined as a law-enforcement prior­ the principle that of legal scholar Edward Corwin, once ity is the drug offense. In 2006 these every crime should "morally* exonerated the humblest offenses incapacitated over 343,000 citizen in defiance of the highest people within "corrections" facilities, require as one of its authority." according to the Bureau of Justice elements some As historian Carl Ludwig von Bar Statistics. Driving under the influence wrote, a remote effect on society is another. Such an offense requires no malicious, knowingly should not serve as a basis for crimi­ injury to create liability, and no partic­ injurious conduct nal liability. What principle should ular negligence need be proven. limit the scope of criminal law? A Blood-alcohol content becomes the toward an identifiable requirement of harm clearly serves as determinant of what is deemed crim­ a weak restraint on lawmakers. A bet­ inal behavior. The actual recklessness victim that would ter alternative is the principle that or criminality involved in the behav­ prompt a desire for every crime should require as one of ior is not determined. These laws are its elements some malicious, know­ an end-run around the law of per­ retribution. ingly injurious conduct toward an sonal injury, property damage, and identifiable victim that would prompt manslaughter. a desire for retribution. It must reject outright offenses The lawmaker's call to ensure welfare and safety by that vitiate personal conscience and intrude on privacy. means of coercion is never long silenced. Imagine Con­ With this limiting principle as guide, perhaps a new gress and the federal agencies making no new laws or framework for the penal law will shrink its inflated regulations in 2009. The horror of it, of course, repels boundaries back within the perimeters necessary for a the conscience. free society. (M

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25 SEPTEMBER 2008 Equality, Markets, and Morality

BY BURTON F0LS0M, JR

he subject of "equality" is the source of much achieve. We are all born with different family advan­ political debate. Ever since the founding era, tages (or disadvantages), with different abilities, and in Tfree-market thinkers have argued for equality different neighborhoods with varying levels of oppor­ of opportunity in the economic order. Equality, in tunity. As socialist playwright George Bernard Shaw other words, is a framework, not a result. In modern said on the subject, "Give your son a fountain pen and terms the goal is a level playing field. Government is a a ream of paper and tell him that he now has an equal referee that enforces property rights, laws, and contracts opportunity with me of writing plays and see what he equally for all individuals. says to you." What the free-market view means in policy terms is What the Progressives miss is that their cure is worse no (or few) tariffs for business, no subsidies for farmers, than the illness. Any attempt to correct imbalances in and no racism written into law. Also, successful busi­ family, ability, and neighborhood will produce other nessmen will not be subject to special taxes or the inequalities that may be worse than the original ones. seizure of property. Thomas Sowell writes, "[Ajttempts to In America this view of equality is equalize economic results lead to greater—and enshrined in the Declaration of Indepen­ more dangerous—inequality in political dence ("all men are created equal and are power." Or, as Milton Friedman concluded, endowed by their creator with certain "A society that puts equality—in the sense inalienable rights") and the Constitution of equality of outcome—ahead of freedom ("imposts and excises shall be uniform will end up with neither equality nor free­ throughout the United States" and "equal dom. The use of force to achieve equality protection of the laws"). Much of America's will destroy freedom, and the force, intro­ first century as a nation was devoted to end­ duced for good purposes, will end up in the ing slavery, extending voting rights, and rnon,dS Sowhi1 hands of people who use it to promote their securing property and inheritance rights for own interests." women—fulfilling the Founders' goal of equal oppor­ tunity for all citizens. Failure During the New Deal Progressives and modern critics of equality of owell's and Friedman's point is illuminated by the opportunity have launched two significant criticisms Sfailed efforts of the federal government to reduce against the Founders' view. First, that equality of oppor­ inequalities during the New Deal. In the early 1930s tunity is impossible to achieve. Second, to the extent the United States had massive unemployment (some­ that equality of opportunity has been tried, it has times over 20 percent). In 1932 President Herbert resulted in a gigantic inequality of outcomes. Equality Hoover supported the nation's first relief program: $300 of outcome, in the Progressive view, is desirable and can million was distributed to states. This was not a transfer only be achieved by massive government intervention. from richer states to poorer states but a political grab by Let's study both of these objections. most state governors to secure all they could. Illinois To some extent, of course, the Progressives have a Burton Folsom,Jr. ([email protected]) is a professor of history at valid point—equality of opportunity is, at an individual Hdhdale College and author of New Deal or Raw Deal?, to be level (as opposed to an institutional level) hard to published by Simon & Schuster this year.

THE FREEMAN: Ideas on Liberty 26 Equality, Markets, and Morality played this game well and secured over $55 million, comes is not necessarily morally justified. In other more than New York, California, and Texas combined. words, some people—through luck or inheritance— Massachusetts, with almost as many people as Illi­ become incredibly rich and others, who may have nois, received zero federal money. Massachusetts had worked harder and more diligently, end up barely earn­ much poverty and distress, but Governor Joseph Ely ing a living. Rewards, as F. A. Hayek, among others, has believed states should try to supply their own needs and noted, are "based only partly on achievements and not rush to Washington to gain funds at someone else's partly on mere chance." Societies are more prosperous expense. Ely therefore promoted a variety of fundrais- under free markets, but individual success and failure ing events throughout his state to help those in need. can occur independently of ability and hard work. "Whatever the justification for [federal] relief," Ely noted, "the fact remains that the way in which Progressive Claims in Light of History it has been used makes it the greatest political asset hat the historical record does seem to demon­ on the practical side of party politics ever held by w:strat e is that the richest men in American his­ any administration." tory have been creative entrepreneurs who have In 1935 President Franklin Roosevelt confirmed improved the lives of millions of Americans and have Ely's beliefs by turning the Works achieved remarkable upward mobil­ Progress Administration (WPA), which Societies are more ity doing so. For example, the first he had established, into a gigantic American to be worth $10 million political machine to transfer money to prosperous under was John Jacob Astor, a German key states and congressional districts to immigrant and a son of a butcher. secure votes. Roosevelt and his cohorts free markets, but Astor founded the largest fur com­ used the rhetoric of removing inequal­ individual success pany in the United States, trans­ ities as a political cover to gain power. forming tastes and lowering costs Reporter Thomas Stokes won a and failure can occur in clothing for people all over Pulitzer Prize for his investigative independently of the world. research that exposed the WPA for John D. Rockefeller, the first using federal funds to buy votes. ability and hard work. American to be worth $1 billion, The use of tax dollars, then, to mit- was the son of an itinerant peddler. igate inequality failed because—whatever the good Yet Rockefeller, with little education or training, went intentions—the funds quickly became politicized. into the business of refining oil and did it better than Presidential (and congressional) authority to tax and anyone in the world. As a result, he sold the affordable to transfer funds from one group to another also proved kerosene that lit up most homes in the world. (He had to be a dangerous centralization of power. Taxation a 60 percent world market share in the late 1800s.) increased both in size and complexity. The IRS thus Henry Ford, the son of a struggling farmer, was the became a weapon a president could use against those second American billionaire. He used the cheap oil sold who resisted him. "My father," Elliott Roosevelt by Rockefeller and cheap steel that was introduced by observed of his famous parent, "may have been the immigrant Andrew Carnegie to make cars affordable originator of the concept of employing the IRS as a for most American families. The most recent wealthiest weapon of political retribution." men in the United States—Sam Walton and Bill Gates Sowell and Friedman indeed recognized that efforts —both came from middle-class households and both to remove inequalities would create new inequalities, added much value for most American consumers. perhaps just as severe, and would also dangerously con­ Free markets may yield odd results and certainly centrate power in the hands of politicians and bureau­ unequal outcomes, but the greater opportunities and crats. But Sowell and Friedman have readily conceded prosperity have made the tradeoff worthwhile for that when markets are left free, the inequality of out­ American society. @

27 SEPTEMBER 2008 "Free Market" Reforms and the Reduction of Statism

BY KEVIN CARSON

bjectivist scholar Chris Sciabarra, in his The single greatest work I'm aware of on libertarian brilliant book Total Freedom, called for a class theory is Roderick Long's article, "Toward a Lib­ O"dialectical libertarianism." By dialectical ertarian Theory of Class" (Social Philosophy & Policy, analysis, Sciabarra means to "grasp the nature of a part Summer 1998). Long categorizes ruling-class theories by viewing it systemically—that is, as an extension of as either "statocratic" or "plutocratic," based on the the system within which it is embedded." Individual respective emphasis they place on the state apparatus parts receive their character from the whole of and the plutocracy (the wealthy "private-sector" bene­ which they are a part, and from their function within ficiaries of government intervention) as components of that whole. the ruling class. This means it is a mistake to consider any particular The default tendency in mainstream libertarianism form of state intervention in isola- is a high degree of statocracy, to the tion, without regard to the role point not only of (quite properly) it plays in the overall system. (See It is a mistake to emphasizing the necessary role of state Sciabarra's "Dialectics and Liberty, consider any coercion in enabling "legal plunder" The Freeman, September 2005, (Frederic Bastiat's term) by the plutoc­ http://tinyurl.com/6pa6pg.) particular form of racy, but of downplaying the signifi­ Another libertarian, blogger state intervention in cance of the plutocracy even as Arthur Silber, contrasts dialectical beneficiaries of statism. This means treat­ libertarianism with what he calls isolation, without ing the class interests associated with "atomistic libertarianism," whose regard to the role the state as ad hoc and fortuitous. approach is to "focus on the basic Although statocratic theory treats the principles involved, but with scant it plays in the state (in Franz Oppenheimer's phrase) (or no) attention paid to the overall as the organized political means to context in which the principles are overall system. wealth, it still tends to view govern­ being analyzed. In this manner, this ment as merely serving the exploitative approach treats principles like Plato's Forms... ."Atom­ interests of whatever assortment of political factions istic libertarians argue "as if the society in which one happens to control it at any given time. This picture of lives is completely irrelevant to an analysis of any how the state works does not require any organic rela­ problem at all." tion between the various interest groups controlling it To determine the function a particular form of at any time, or between them and the state. It might be state intervention serves in the structure of state power, we must first ask what has been the historical objective Kevin Carson ([email protected]) is the author of of the state. This is where libertarian class analysis Studies in Mutualist Political Economy. He blogs at Mutualist Blog: comes in. Free Market Anti-Capitalism.

THE FREEMAN: Ideas on Liberty 28 Free Market" Reforms and the Reduction of Statism them and the state. It might be controlled by a dis­ Given this perspective, it doesn't make much sense parate array of interest groups, including licensed pro­ to consider particular proposals for deregulating or cut­ fessionals, rent-seeking corporations, farmers, ting taxes without regard to the role the taxes and reg­ regulated utilities, and big labor; the only thing they ulations play in the overall structure of state capitalism. have in common is that they happen to be currently That's especially true considering that most mainstream the best at latching onto the state. proposals for "free market reform" are generated by the Murray Rothbard's position was far different. Roth- very class interests that benefit from the corporate state. bard, Long argues, saw the state as controlled by "a pri­ No politico-economic system has ever approxi­ mary group that has achieved a position of structural mated total statism, in the sense that "everything not hegemony, a group central to class consolidation and forbidden is compulsory." In every system there is a crisis in contemporary political economy. Rothbard's mixture of compulsory and discretionary behavior. The approach to this problem is, in fact, highly dialectical in ruling class allows some amount of voluntary market its comprehension of the historical, exchange within the interstices of a sys­ political, economic, and social tem whose overall structure is defined dynamics of class." It doesn't make much by coercive state intervention. The I have argued in the past that choice of what areas to leave to volun­ the corporate economy is so closely sense to consider tary exchange, just as much as of what bound up with the power of the particular proposals to subject to compulsory regulation, state, that it makes more sense to reflects the overall strategic picture of think of the corporate ruling class for deregulating or the ruling class. The total mixture of as a component of the state, in the cutting taxes without statism and market activity will be cho­ same way that landlords were a sen as most likely, in the estimation of component of the state under regard to the role the the ruling class, to maximize net the Old Regime. Blogger Brad taxes and regulations exploitation by the political means. Spangler used the analogy of a gunman and bagman to illustrate play in the overall Primary and Secondary the relationship: Interventions structure of state ome forms of state intervention are Let's postulate two sorts of capitalism. Sprimary. They involve the privileges, robbery scenarios. . subsidies, and other structural bases of In one, a lone robber points a economic exploitation through the gun at you and takes your cash. All libertarians political system. This has been the primary purpose of would recognize this as a micro-example of any the state: the organized political means to wealth, exer­ kind of government at work, resembling most cised by and for a particular class of people. Some forms closely State Socialism. of intervention, however, are secondary. Their purpose In the second, depicting State Capitalism, one is stabilizing, or ameliorative. They include welfare-state robber (the literal apparatus of government) keeps measures, Keynesian demand management, and the like, you covered with a pistol while the second (repre­ whose purpose is to limit the most destabilizing side- senting State allied corporations) just holds the bag effects of privilege and to secure the long-term survival that you have to drop your wristwatch, wallet and of the system. car keys in. To say that your interaction with the Unfortunately, the typical "free market reform" issu­ bagman was a "voluntary transaction" is an absurdity. ing from corporate interests involves eliminating only Such nonsense should be condemned by all liber­ the ameliorative or regulatory forms of intervention, tarians. Both gunman and bagman together are while leaving intact the primary structure of privilege the true State. and exploitation.

29 SEPTEMBER 2008 Kevin Carson

The strategic priorities of principled libertarians The major point is a very simple one: the phar­ should be just the opposite: first to dismantle the fun­ macy profession is a state-enforced monopoly. In other damental, structural forms of state intervention, whose words: the consumer and the pharmacist are not primary effect is to enable exploitation, and only then equal competitors on the playing field. The state has to dismantle the secondary, ameliorative forms of inter­ placed its thumb firmly on the scales—and on one vention that serve to make life bearable for the average side only. That is the crucial point, from which all person living under a system of state-enabled exploita­ further analysis must flow. . . . tion. As blogger Jim Henley put it, remove the shackles . . . [T]he state has created a government- before the crutches. enforced monopoly for licensed pharmacists. Given To welcome the typical "free market" proposals as that central fact, the least the state can do is ensure "steps in the right direction," without regard to their that everyone has access to the drugs they require— effect on the overall functioning of the system, is com­ and whether a particular pill is of life and death parable to the Romans welcoming the withdrawal of importance is for the individual who wants it to the Punic center at Cannae as "a step in the right direc­ decide, not the pharmacist and most certainly not tion." Hannibal's battle formation was not the first step the government. in a general Carthaginian withdrawal from Italy, and you can be sure the piecemeal "priva- When the state confers a special tizations," "deregulations," and "tax privilege on an occupation, a business cuts" proposed are not intended to Moreover, regula­ firm, or an industry, and then sets reg­ reduce the amount of wealth tions that limit and ulatory limits on the use of that priv­ extracted by the political means. ilege, the regulation is not a new constrain the exer­ intrusion of statism into a free mar­ Regulations and Increasing ket. It is, rather, the state's limitation Statism cise of privilege do and qualification of its own underly­ oreover, regulations that limit not involve, properly ing statism. The secondary regulation M and constrain the exercise of is not a net increase, but a net reduc­ privilege do not involve, properly speaking, a net tion in statism. speaking, a net increase in statism at increase in statism On the other hand, repeal of the all. They are simply the corporate secondary regulation, without an state's stabilizing restrictions on its at all. accompanying repeal of the primary own more fundamental forms of privilege, would be a net increase in intervention. statism. Since the beneficiaries of privilege are a de Silber illustrated the dialectical nature of such facto branch of the state, the elimination of regulatory restrictions with reference to the question of whether constraints on their abuse of privilege has the same pharmacists ought to be able to refuse to sell items practical effect as repealing a constitutional restriction (such as "morning after" pills) that violate their con­ on the state's exercise of its own powers. science. The atomistic-libertarian response is, "Of To expand Spangler's bagman analogy, a great deal of course. The right to sell, or not sell, is a fundamental alleged statism amounts to the gunman telling the bag­ free-market liberty." The implicit assumption here, as man, after the victim has handed his wallet over at gun­ Silber pointed out, is "that this dispute arises in a soci­ point, to give the victim back enough money for cab ety which is essentially free." But pharmacists are in fact fare so he can get safely back home and keep on earn­ direct beneficiaries of compulsory occupational licens­ ing money to be robbed of. ing, a statist racket whose central purpose is to restrict When the state is controlled by "legal plunderers" competition and enable them to charge a monopoly and every decision for or against state intervention in a price for their services. Silber wrote: particular circumstance reflects their strategic assess-

THE FREEMAN: Ideas on Liberty 30 Free Market" Reforms and the Reduction of Statism ment of the ideal mixture of intervention and non­ Enclosures on a global scale, stealing enormous intervention, it's a mistake for a genuine anti-state amounts of land from native populations and convert­ movement to allow the priorities for "free market ing it to cash crops for the imperial market. The com­ reform" to be set by the plunderers' estimation of what manding position of British capital was the direct result forms of intervention no longer serve their purpose. If of past mercantilism; having established this command­ the corporate representatives in government are pro­ ing position, it could afford "free trade." posing a particular "free market reform," you can bet The so-called "free trade" movement in the contem­ your bottom dollar it's because they believe it will porary United States follows the same pattern. A cen­ increase the net political extraction of wealth. tury ago, high tariff barriers served the interests of The corporate ruling class's American political capitalists. Today, approach to "free market reform" is a If the corporate when the dominant corporate inter­ sort of mirror-image of "lemon ests in America are transnational, tar­ socialism." Under lemon socialism, representatives in iffs are no longer useful to them. They the political capitalists (acting government are actually impede the transfer of goods through the state) choose to nation­ and partially finished products alize those industries that corporate proposing a particular between the national subdivisions of a capital will most benefit from having "free market reform," single global corporation. taken off its hands, and to socialize On the other hand, so-called those functions the cost of which you can bet your "intellectual property" today serves capital would most prefer the state to exactly the same protectionist func­ bear. They shift functions from the bottom dollar it's tion for transnational corporations private to the state sector when they because they believe that tariffs used to serve for the old are perceived as necessary for the national corporations a century ago. functioning of the system, but not it will increase the So the political capitalists promote a sufficiently profitable to justify the net political version of "free trade" that involves bother of running them under "pri­ doing away with outmoded tariff bar­ vate sector" auspices. Under "lemon extraction of wealth. riers while greatly strengthening the market reform," on the other hand, new protectionism of "intellectual the political capitalists liquidate interventionist poli­ property" law. cies after they have squeezed all the benefit out of We must remember that the measure of statism state action. inheres in the functioning of the overall system, not in A good example: British industrialists felt it was safe the formal statism of its separate parts. A reduction in to adopt "free trade" in the mid-nineteenth century, the formal statism of some separate parts, chosen in after mercantilism had served its purpose. Half the accordance with the strategic priorities of the statists, world had been hammered into a unified market by may actually result in a net increase in the overall level of British force of arms and was held together by a British statism. Our strategic agenda as libertarians, in disman­ merchant fleet. Britain had stamped out competing tling the state, must reflect our understanding of the industry in the colonial world. It had reenacted the overall nature of the system.

31 SEPTEMBER 2008 A Property-Rights Theory of Mass Murder

BY STEPHEN W. CARSON

n the study of mass murder by governments, R. J. In this article I present an alternative theoretical Rummel stands tall. His theory, which focuses on approach, a property-rights theory, for understanding how I the role of the state, is a giant step forward from governments came to slaughter unarmed civilians by previous theories that examined "cultural-ethnic differ­ the millions and tens of millions. The questions that ences, outgroup conflict, misperception, frustration- Rummel and I are trying to answer are: First, how does aggression, relative deprivation, ideological imperatives, a government gain the capability to murder millions of dehumanization, resource competition, etc." Oversim­ civilians? And second, what, if anything, can be done to plifying somewhat for now, I characterize his theory as prevent such monstrous crimes? a regime-type theory: at one extreme, totalitarian dictator­ Rummel concentrates on the structure of govern­ ships are the most deadly; authoritar­ ment, pointing to the centralization ian regimes are still deadly but less so; I present an alterna­ of power in an authoritarian or dicta­ and, at the other extreme, democra­ torial ruler as the primary problem cies are the least deadly. tive theoretical and to "political freedom" and decen­ Besides presenting a theory that approach, a property- tralization of power through democ­ puts the state at center stage, Rummel racy as the solutions. The property- has also made two other major con­ rights theory, for rights approach, by contrast, points to tributions to this area of study. First, understanding how systematic invasions of private- he has attempted to make the first full property rights as the primary accounting of twentieth-century mass governments came enabling acts and to defense of those murder. No earlier investigators, for rights as the solution. My proposed example, had tried to come up with a to slaughter approach implies that, contra Rum­ number for total Nazi mass-murder unarmed civilians by mel, democracy is not part of the solu­ victims because they had focused on tion, but rather part of the problem, particular groups—-Jews, Gypsies, and the millions and tens because both democratic ideology and so forth. His most recent estimate is of millions. democratic practice undermine pri- that 262 million civilians were killed vate-property rights. by governments in the twentieth century. What stands out about democide in the twentieth Second, using what he learned about the number century is not the discrete "crimes of passion," such as of government killings, he has emphasized the impor­ tance of understanding democide (his term for mass Stephen Carson, a software engineer, writes independently from St. Louis. murder of civilians by government) by pointing out This article is condensed from "Killing and Stealing: A Property-Rights Theory of Mass Murder," which first appeared in The Independent that as horrendous as combat deaths were in the twen­ Review, Winter 2007, and was reprinted in Opposing the Crusader tieth century, the truth is that many more noncombat- State: Alternatives to Global Interventionism, edited by Robert Higgs ants were murdered. and Carl P. Close (The Independent Institute).

THE FREEMAN: Ideas on Liberty 32 A Property-Rights Theory of Mass Murder the killings in Tiananmen Square, but the systematic bureaucratic killing that took place over years. Not only is this aspect of state murder horrifying to contemplate, but it also explains how the killing occurred on such a stupendous scale: Killing millions of people took a long time. This aspect of democide seems especially amenable to economic—or, more precisely, praxeologi- cal—analysis because the systematic killing took place over time, used resources, and even involved something like capital investment (for example, to build concen­ tration camps). But mass killing is not a market phe­ nomenon, so rather than turning to the familiar praxeology of cooperation, which starts with the mutual gains realized in peaceful exchange, we must turn to the analysis of the dark side of human action: the praxeology of aggression. Tiananmen Square, Beijing, June 4, 1989.

Aggression Against Property and its democide are loss of the ability to protect oneself, as Praxeological Effects when one's guns or other means of self-defense are ystematic aggression against property changes the taken, and loss of the ability to be productive and hence Stime horizon for individuals. Because incentives for to command resources for consumption. producing for the future are reduced, future income Third, a successful expropriation empowers the and consumption are also reduced, which results in a aggressor. Owing to control of the property acquired rise in time preference. Furthermore, taxation discour­ through aggression, he will probably have enhanced ages time-consuming but productive efforts to earn capability to perpetrate even more violence. income and encourages instead short time-horizon Fourth, a successful theft may reduce the incentive methods, including stealing or legally seizing goods to acquire new property because the victim perceives through politics. Thus aggressions against external such accumulation as pointless—the property will just property are problematic in several ways. be taken as before. First, such aggressions constitute a violent attack on Systematic stealing disarms victims and empowers a person through the things the person owns. When aggressors. By "disarms," I mean not only that it takes they are "legal," then a property owner's resistance to weapons away, but also, and perhaps more important, them will result in official violence directly against his that it takes away the resources used to sustain and person. This point deserves emphasis because political defend their lives. attacks on private-property rights have been widely glorified as idealistic and socially minded for more than Precursor to Democide a hundred years. Much as rape needs to be viewed pri­ ggression against external property usually precedes marily as a violent act rather than as a sex act, so aggres­ Aaggression against persons. Moreover, aggression sion against property needs to be viewed primarily as a against external property enables aggression against per­ violent act rather than as a manifestation of idealism if sons by transferring resources from victim to aggressor, we are to understand its role in mass murder. lowering the time preference of both, creating conflict Second, successful aggression against private- where there was harmony, and so forth. Because demo­ property rights removes the use of the property from cide usually takes place over long periods, the victims the rightful owner's control. Loss of property has must be prevented from running away and from effec­ numerous consequences, but those most relevant to tively defending themselves. Thus attacks on property

33 SEPTEMBER 2008 Stephen W. Carson are essential to a successful democide—to keep the vic­ Hermann Hoppe explains that just as socialized capital tims helpless and foreclose their alternatives. is depleted, so also socialized labor receives "lowered In the case of communism the attack is mounted investment, misallocation, and overutilization." Labor is not simply on external property in general—the sort of misallocated because of the lack of a competitive mar­ attack illustrated by a bandit raid or by income taxa­ ket for it and the consequent absence of market prices tion—but on the means of production in particular. because independent entrepreneurs are eliminated. Ludwig von Mises's socialist-calculation argument One pictures the schoolteachers and skilled craftsmen demonstrates that where capital is socialized, economic working in the killing fields under the watchful eyes calculation will become chaotic. To the extent that the and guns of the Khmer Rouge. Labor is overutilized free-market price system is undermined, buyers and because with the workers' income largely subject to the sellers find it more difficult to compare the benefits caretakers' control, these partial, temporary owners they expect to gain from trade with their perceived have an incentive to use up the labor without regard for opportunity costs. As this difficulty increases, economic the long-term consequences. In public slavery, the planning by individuals and business owners, and the worker has no resale value. In the extreme, laborers are coordination of their plans by the economic system, is worked to death, as many millions were in the weakened. At the extreme, the economy will break twentieth century. down altogether, and the advantages of the division of labor will be lost for The Historical Role of the most part. This consequence alone Take away people s Gun Control may be enough to account for the means of defense and n Death by "Gun Control," Aaron murderous famines that invariably I Zelman and Richard Stevens accompany all concerted efforts to their ability to argue that gun control has preceded socialize. acquire another all the mass murders of the twentieth An attack on people's ability to century. They summarize their thesis produce differs from merely stealing means of defense, and in what they call the "Genocide for­ someone's output for the day. A person mula": "Hatred + Government + who has lost his productive capacity they are left truly Disarmed Civilians — Genocide." As has lost the ability to demand con­ defenseless before the they explain further, "When the sumer goods on the market—another firearms are confiscated and the reason why socialism has been deadly power of the state. defense-minded people gone, only on such a huge scale. Socialism's vic­ the defenseless unarmed people tims are left without the means to draw goods to them­ remain. The third element of the Genocide formula selves to meet their basic needs. They become entirely —the only one that the people can directly control—is dependent on bureaucratic distribution, which, as the in place." calculation argument suggests, will be ineffective even This important argument fits very well into a prop­ if the regime intends to feed them. If the regime erty-rights approach to democide. I would emphasize, decides to starve them, however, it can do so with however, that stealing the means of production is per­ deadly effectiveness. haps even deadlier. People who still can demand goods Another aspect of the socialization of the means of on the market, owing to their ability to produce, can production is that everyone becomes an "employee" of procure new means of defense. the state. What jobs they may take, whether they work, The deadliest combination is gun control and their rewards and punishments—all are determined by socialization. Take away people's means of defense government functionaries. and their ability to acquire another means of defense, The people become slaves in fact, if not officially, and they are left truly defenseless before the power but they become slaves of an unusual sort. Hans- of the state.

THE FREEMAN: Ideas on Liberty 34 A Property-Rights Theory of Mass Murder

How does a regime that ultimately rests on popular Bourne pointed out: The state gains strength, and the opinion get away with such horrendous actions? people who are subject to it become correspondingly Ideology holds the key. weaker. During wartime we are likely to see the warfare Ideology's role in democide must be considered state, swollen with stolen men and goods, commit carefully, however. Violators of external property rights genocide against "foreigners." "Given his natural do not always embrace an explicitly anti-property ide­ human aggressiveness," Hoppe asks, "is it not obvious ology, as the communists did. They were especially that [the state ruler] will be more brazen and aggressive deadly, though, because they precisely and consciously in his conduct toward foreigners if he can externalize aimed their attacks at property rights. As we examine the cost of such behavior onto others?" ideologies with elements of socialization, we should I have criticized Rummel's theory here for putting expect to find some of this same lethal effect, though so much stress on the way the government is struc­ not as much as in outright socialism. tured (as a dictatorial, authoritarian, or democratic sys­ Attacks on property also go by other names besides tem) rather than on what the government actually communism and socialism. Militarism, which includes the does (specifically to private-property rights).Yet in his subordination of private-property 1983 paper "Libertarianism and rights to the state's military machine, International Violence," he puts great played a deadly role not only in the weight on economic freedom as a Nazi regime, but also, we are learn­ Ideologies that contributor to avoiding violence. In ing, in Mao's regime. Mao was will­ announce their his 1997 book Power Kills, however, ing to take food from the mouths of he places heavy stress on democracy the Chinese people for this purpose, devotion to the race, ("political freedom") and makes little and he often did so. Ideologies that the nation, and even or no mention of the role of property announce their devotion to the race, rights or economic freedom. Rum­ the nation, and even freedom and freedom and democ­ mel's enthusiastic endorsement of democracy can also result in attacks democracy leaves little room in par­ on private-property rights. racy can also result ticular for understanding, as I see it, The property-rights approach to in attacks on private- how democracy actually contributes democide gains credibility when we to the deadly move toward the mas­ recognize that the twentieth century, a property rights. sive invasion of property rights. time of such colossal mass murders, was What does the property-rights the­ also a time of ideological rejection of ory offer that can supplement or classical liberalism's strong devotion to the protection of amend Rummel's regime-type theory? private-property rights—an ideological rejection, it should be noted, that was popular in all regimes by the Supplementing the Regime-Type Theory middle of the century, even in those that were nominally irst, focusing on the regime type is not helpful in committed to "freedom." It is no coincidence, however, Funderstanding cycles of mass murder under the that the century's deadliest regimes were explicitly social­ same regime type—for example, the peaks and valleys ist and featured an announced ideology of enmity toward of mass murder by the government of the USSR, a private-property rights. totalitarian dictatorship from beginning to end. A According to Rummel, "Most democides occur property-rights approach, however, not only suggests under the cover of war, revolution, or guerilla war, or in that a totalitarian regime would be murderous but also their aftermath." From the perspective of the property- shows where the peaks and valleys of killing will be: the rights approach to democide, war plays a causal role in peaks would correspond to determined efforts to col­ empowering a regime and in compromising property lectivize (that is, to massive assaults on private-property rights. "War is the health of the state," as Randolph rights) and the valleys would correspond to retreats

35 SEPTEMBER 2008 Stephen W. Carson from collectivization (for example, to Lenin's New Imperialism: The property-rights theory helps us Economic Policy period in the USSR). to understand how the same type of regime can Similarly, in the case of China a focus on regime behave one way at home and another way abroad. At structure would merely indicate that it has been under home the regime may face resistance at every turn a communist dictatorship for more than 50 years. A from long-established property-rights traditions. property-rights approach, in contrast, calls our attention Abroad, the regime does not face these constraints to the significant changes in property rights in China in in dealing with the "natives." recent years and predicts that large-scale democide is Democracy: Where the regime-type theory holds unlikely, despite the regime type's being nominally the up democracy as the solution to mass murder, war, same as the one during the Great Leap Forward. and other types of regime violence, the property- A property-rights approach gives us more insight rights theory argues that because the principle of into the dynamic of how a state gains murderous democracy (at least in the modern sense) has strength and the people become weak, so that the state nothing to do with the protection of private- can kill so many people. If a devil asked property rights and in practice Rummel, "How do I murder tens of undermines such rights, it promotes millions of people?" Rummel would A property-rights such violence. have to answer, "Establish a totalitarian Regime Change:The regime-type dictatorship." To which the devil would approach gives us theory has been used to justify respond, "Fine, but how can I put more insight into the "regime change," a policy of sanc­ myself in a position to do so?" The tions, military invasion and occupa­ property-rights theory then explains dynamic of how a tion, and other means intended to that the path to mass murder and the change an undemocratic regime path to a powerful centralized state are state gains murderous into a more democratic one. The the same and that the key is to attack strength and the reasoning is all too familiar: "you private-property rights. have to break some eggs to make an people become omelet." In this case, the omelet is Applying the Theory weak, so that the democracy, which it is hoped will et's see how the property-rights the­ result in less democide and a more Lory sheds light on a few matters. state can kill so peaceful regime, thus justifying in many people. the long run all the short-term Socialism: From the perspective of "collateral damage" and other the property-rights theory, it seems ~ destruction. clear why the greatest mass murderers were avowed socialists instead of, say, right-wing military dictators The property-rights theory encourages instead an such as Francisco Franco. Attacks on private-prop­ increase in justice—that is, an increased respect for erty rights in socialist regimes were not a side effect private-property rights—or, to put it another way, of another goal, such as defending the country, sup­ a decrease in robbery. Nothing in this perspective pressing a dissident religious group, or attacking a suggests that a wave of injustice, such as "liberating" particular race. Such attacks expressed the socialists' a country's population by means of "shock and awe" explicit and avowed ideological aim. It comes as no aerial bombardments, can serve as the path to justice. surprise then that the revolutionary socialists (social­ In pointing out this advantage of the property-rights ists who really meant business) attacked private- theory, I do not mean to be topical in a frivolous way. property rights repeatedly in deadly waves of A theory of decreasing mass murder that encourages "collectivization," "de-kulakization," "Great Leaps mass murder has a serious defect. W Forward," and so forth.

THE FREEMAN: Ideas on Liberty 36 A Property-Rights Theory of Mass Murder

Bibliography , Human Action. Scholars Edition, Ludwig von Mises Institute, [1949] 1998. Jung Chang and Jon Halliday, Mao: The Unknown Story, R. J. Rummel, "Libertarianism and International Vio­ Knopf, 2005. lence," Journal of Conflict Resolution, March 1983. Hans-Hermann Hoppe, Democracy: The God That Failed, , Lethal Politics: Soviet Genocide and Mass Murder Transaction, 2001. since 1917, Transaction, 1990. , The Economics and Ethics of Private Property, 2d , Death by Government, Transaction, [1994] 1997. ed., Ludwig von Mises Institute, 2006. , Power Kills: Democracy as a Method of Nonvio­ Ludwig von Mises, "Economic Calculation in the lence, Transaction, 1997. Socialist Commonwealth," in Collective Economic Aaron Zelman and Richard W. Stevens, Death by "Gun Planning, edited by Friedrich A. Hayek, Kelley, [1920] Control": The Human Cost of Victim Disarmament, 1975. Mazel Freedom Press, 2001.

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37 SEPTEMBER 2008 Give Me a Break!

Government Stifles the Wisdom of Crowds

BY JOHN STOSSEL

ho will be our next president? If you want hottest on record?—or on whether Eliot Spitzer will be an accurate guess, don't ask the pundits. Go indicted or on whether there will be a massive earth­ Wwhere people put their money where their quake before the end of this year. mouths are. But most bets concern presidential politics. People Intrade.com, for example. have made lots of money predicting unlikely events, It's a prediction market, basically a futures market such as John McCain's comeback. like those where people bet on the future price of oil, So isn't this a form of gambling, and isn't gambling gold, and pork bellies. But at Intrade, people bet mostly illegal in America? Intrade is located in Ireland, and on politics. CEO John Delaney told me he's afraid to come to The prices on Intrade have been America because, "I don't look good highly accurate predictors of the future. in an orange jumpsuit." On TV, political "experts" make pro­ The prices on Intrade nouncements on what they think will have been highly Prediction or Gambling? happen, but crowds of bettors on sites e has reason to worry. Congres­ like Intrade are right more often. accurate predictors of Hsional Republicans added a pro­ In 2004 TV experts like James the future. On TV, vision cracking down on online Carville said John Kerry would win gambling to a port-security bill in the presidency. In 2006, they said the political "experts" 2006. Republicans would keep control of Most banks stopped dealing with Congress. But the crowds on Intrade make pronouncements sites like Intrade after that, but some bet against Kerry, and in 2006, "the on what they think continued, including one called bettors at Intrade collectively called Neteller. Its Canadian cofounders every single race in the Senate right," will happen, but were arrested on a trip to the United James Surowiecki, author of The Wis­ crowds of bettors on States in 2007. Now they face up to dom of Crowds, told me on "20/20." five years in prison. That seems like an Wisdom of Crowds? When I think sites like Intrade are odd way to treat people who make of crowds, I think of mobs. But, right more often. financial activities between consent­ Surowiecki says, "[C]rowds of people ing adults possible—while providing can be incredibly intelligent. . . . [I]f useful information about the future. the crowd is big enough and diverse enough, you have Horse racing, fantasy sports, and online lotteries access to so much more knowledge." were given exemptions in the 2006 bill. It's OK to bet The first computerized political market was created if you have influence in Washington. Ironically, the U.S. at the University of Iowa. "That market outperformed Navy and Federal Reserve use Intrade's data. polls three-quarters of the time, and its election-eve That Iowa prediction market begged for special per- forecasts were better than any pundit's and better than any poll," says Surowiecki. John Stossel is co-anchor of ABC News' "20/20" and the author of Myths, Lies, and Downright Stupidity: Get Out the Shovel—Why Intrade takes bets on more than politics.You can bet Everything You Know is Wrong, now in paperback. Copyright 2008 by on global warming—will this year be one of the five JFS Productions, Inc. Distributed by Creators Syndicate, Inc.

THE FREEMAN: Ideas on Liberty 38 Government Stifles the Wisdom of Crowds mission from the government and got a waiver that "this betting parlor on the Internet." Senator Ron limits bets to $500. "That makes them less accurate," Wyden said a terrorism futures market "is ridiculous says Surowiecki. "Real money is what makes it work." . . . grotesque." America's anti-gambling laws are thoroughly hypo­ Surowiecki says, "These are potentially tremen­ critical. States run lotteries—one of the worst forms of dously useful tools for improving our national security. gambling since no skill is involved and the odds are so It's much more egregious not to use them than to use bad—while prediction markets, a powerful forecasting them." tool, are stifled. What does Intrade predict now? As I write this, The Department of Defense once considered setting Barack Obama is favored to win the presidency. You up a market to predict where the next terrorist attack can buy McCain for about 37 cents, indicating a 37 might occur. The idea died when some politicians percent chance of winning. But Obama is valued at shouted it down. Senator Byron Dorgan sneered at 56 cents (http://tinyurl.com/4npyt). @)

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1, ill Coming in the October 2008

• 1 THE

iSSue of FREEMAN I

Let's Not Be Energy Independent by David R. Henderson |: •i

Politicians Eye the Oil Market by Robert P. Murphy \

Language, Loyalty, and Liberty by Becky Akers il The Great Escape from the Great Depression by Robert Higgs j 511

39 SEPTEMBER 2008 Capital Letters

Are Corporations Islands of not yet operate "in a manner quite similar to the bureaucracy of a socialist state." "Calculational Chaos"? According to Kevin Carson ("Hierarchy or the —BETTINA BIEN GREAVES Market," The Freeman, April 2008), a private business Hickory, North Carolina corporation is in effect "an island of calculational chaos in the market economy." . . . Carson writes, "Those at the top make decisions concerning a production Kevin Carson replies: process about which they likely know as little as did, Most of the issues Mrs. Greaves raises were addressed say, the chief of an old Soviet industrial ministry." But in my June 2007 Freeman article, "Economic Calcula­ that is not true with respect to modern corporations. tion in the Corporate Commonwealth." I refer her to They operate in an economy with private property, pri­ it, since I cannot do her arguments justice in the con­ vately owned businesses, and a market for goods and straints of a letter. services in which prices develop. Thus a corporation is I would dispute Mrs. Greaves's contention that a not similar to a socialist state; it has market prices to genuine price system operates within the large corpo­ guide it. ration, either as an effective mechanism for assigning Carson mentions F. A. Hayek's "The Use of Knowl­ values to production inputs or for aggregating dispersed edge in Society," which explains that the knowledge knowledge. Corporate internal-transfer pricing, in the corporations need to plan their operations is widely case of goods for which there is no external market, are dispersed among countless individuals. But Carson fails essentially what Murray Rothbard denounced, in Man, to note that Hayek explained how this information Economy and State, as play-acting, directly comparable to becomes available to businessmen through market the pricing Oskar Lange proposed under his market prices. . . . socialism. Peter Klein expounded on this at much Businessmen make calculations on the basis of greater length in "Economic Calculation and the Lim­ market prices not only when exchanging with other its of Organization" (The Review of Austrian Economics, businesses but also when shifting goods and workers vol. 9, no. 2, 1996). Rothbard and Klein probably internally from one department to another. Almost underestimated the extent of the problem. The majority every day, newspapers report some example of entre­ of intermediate goods to which internal-transfer prices preneurs making plans on the basis of market prices are assigned are product-specific components for which and using bookkeeping to determine income and no external market exists. outgo. . . . The phenomenon Mrs. Greaves describes, of corpo­ It is true, as Carson points out, that government rate management using external market prices as a interventions—regulations, taxes, and subsidies—dis­ guide to internal-transfer pricing, is just the kind of tort prices and the pattern of production, so that estimation Ludwig von Mises argued state-socialist today's prices are not truly free-market prices. Never­ central planners would have to resort to in assign­ theless, even such not-truly-free-market prices . . . ing prices to inputs in their domestic economies. make available to businessmen widely dispersed infor­ Mises, it goes without saying, regarded this as highly mation and enable them to calculate fairly accurately, unsatisfactory. formulate plans, estimate costs and income, and antic­ Pricing based on the available supply and the valua­ ipate profits and losses. Thanks to market prices and tion of purchasers under the spot conditions of the modern bookkeeping methods, our corporations do market may lead to irrational allocations given different

THE FREEMAN: Ideas on Liberty 40 Capital Letters conditions of supply and valuation within the firm. . . . every reason (and opportunity) to take advantage of his But if all that matters is that some external market con­ private knowledge to the disadvantage of the principal. tinue to exist, no matter how unrepresentative of con­ Management is insulated from effective external con­ ditions within the firm, then a state-planned economy trol by its use of retained earnings for most new invest­ ought also to work just fine with implicit pricing based ment and its ability to rig the internal rules of on foreign markets, so long as some market exists any­ corporate governance to thwart hostile takeovers and where in the world. proxy fights. To address Mrs. Greaves's other major point, on dis­ In American corporate culture, despite manage­ tributed knowledge, the source of the trouble is the ment's ostensible role as agent, its normal practice is moral hazard resulting from the separation of "owner­ that of an Ottoman tax farmer: gutting long-term pro­ ship" from control, and of labor from management. ductive capabilities in order to maximize short-term Management's attempts to aggregate knowledge in a profits and game its own bonuses and stock options. . . . hierarchy are limited by the agent's unique knowledge. Double-entry bookkeeping is a doubtful instrument for Unless the agent is a residual claimant, who fully inter­ controlling an agent when the agent is keeping nalizes the costs and benefits of his own actions, he has the books. ($)

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Selected Essays on Political Economy 1\">l.ITJCAL By Frederic Bastiat ECONOMY Introduction by F.A. Hayek Frederic Bastiat (1801—1850) was the most uncompromising advocate of laissez faire in the nineteenth century—and arguably the most quotable! Here, in a single volume, are Bastiat's most brilliant contributions to the controversies of his age. Although written over 150 years ago, these masterpieces of eloquent argumen­ tation are still relevant to the issues of our own day: communism, labor union­ ism, protectionism, government subsidies for the arts, colonialism, the welfare . J/>ttJ,tt/ state, the right to employment, and the unseen consequences of government interference with free exchange. This collection includes his immortal classics "The Law," "The State," and "What Is Seen and What Is Not Seen." Published by the Foundation for Economic Education 352 pages, paperback $11.00 To order, visit our online store at www.fee.org, or call 866-766-9440. Please add $3.00 per copy for standard postage and handling.

41 SEPTEMBER 2008 widely believed that child labor was a black mark Book Reviews against capitalism, showing its cruelty. Surely govern­ ment intervention, even though coercive, was a good thing, since it ended the terrible exploitation of chil­ dren—right? Murphy shows that this idea is mistaken, The Politically Incorrect Guide to Capitalism writing that capitalism's "vast expansion in production by Robert P. Murphy allowed more and more families the luxury of keeping Regnery • 2007 • 194 pages • $19.95 their children out of the labor force." He then points out that during the Industrial Revolution, infant Reviewed by George C. Leef mortality fell dramatically and life expectancy for nee Regnery had begun its everyone rose. o "Politically Incorrect Guide" Murphy never concedes an inch to capitalism's series, it was inevitable that the opponents.You'll look in vain for even a single sentence publisher would eventually get beginning like this: "Although capitalism is generally around to a book on capitalism. beneficial, we have to keep in mind that. . . ."The book The books in the series have been never apologizes or "leaks." broadside attacks on the mistaken Here are just a few controversies in which many views that Americans have on such writers would backpedal. Aren't athletes and corporate topics as American history and the Constitution— CEOs paid too much compared to, say, teachers? views that reflect the prevalent hostility to individual Murphy carefully explains why the great differences in liberty and strictly limited government. Robert Mur­ compensation under capitalism are both necessary phy's contribution is a superlative effort, debunking a and justified. large number of common myths about capitalism and Don't labor unions help the worker to get more of explaining to the reader why market processes always what he deserves by offsetting the "bargaining power" work better than government coercion. of business owners? Where some writers would agree, Murphy's 16 chapters cover the waterfront. He but then add that unions sometimes go too far, Murphy begins by providing the reader with a straightforward explains that the apparent union gains for some work­ definition of his subject. "Capitalism," he writes, "is the ers come at the expense of others. system in which people are free to use their private Isn't it a good thing that we have antidiscrimination property without outside interference." That freedom laws to keep capitalists from shutting out minorities allows individuals to choose what to do (and not do) from a chance at good jobs, housing, and so forth? with their lives: what jobs they want, what goods and Murphy stands firm against antidiscrimination laws, services they prefer, how much to save, where to invest, which necessarily involve coercive interference with and so on. All alternative systems, he points out, depend freedom of contract. He explains that capitalists have a on coercion, with people in authority dictating some or strong incentive to hire the most competent workers most aspects of other people's lives to them.That's the they can and pay them wages set by competition. way to get people's thinking on the right track! The book also includes many attacks on the suppos­ Murphy makes clear that capitalism isn't just one of edly benign motives of those who advocate govern­ many competing economic systems, but is unique in ment economic intervention. For instance, Murphy that it's the only one that works without coercion. shows that the so-called "prevailing wage" law passed This is a key point, and I wish that Murphy had devel­ by Congress was motivated by nothing other than a oped it more fully. But in a short book some sacrifices desire by white construction workers and their political must be made. allies to prevent black workers from underbidding them Page after page debunks erroneous ideas that are on lucrative government construction projects. Bravo! commonly held about capitalism. For example, it is Most people are willing to take at face value govern-

THE FREEMAN: Ideas on Liberty 42 Book Reviews

ment pronouncements on the alleged need to interfere and ship-breaking, is not news to economists—it has with capitalism. Murphy does his best to get his readers been decades since Paul Samuelson elegantly conceded to look skeptically at government actions and dig for this point to Joan Robinson—but may be news to the the real reasons behind them. general reader of history. Another feature of the book I like is its numerous On the negative side, the book lacks a strong theme: references to other books that have made the case for it is a compendium of facts with no analysis or conclu­ capitalism. Readers are encouraged to expand their sion. This isn't just the reaction of an economist to a understanding with the inclusion of little "A book historian. Nobody would accuse historian William you're not supposed to read" features. For example, McNeill of failing to analyze. What, for example, are we when discussing the fallacies regarding international to make of the fact that each year 100 million bicycles trade, Murphy recommends Douglas Irwin's Free Trade are produced, but only 40 million automobiles? On Under Fire, and when disabusing readers of the myths what scale does one bicycle equal one automobile? about the Great Depression, he recommends Jim Pow­ What if I said "more children's toy cars are produced ell's FDR's Folly. That's more effective than a bibliogra­ than automobiles"? What would that signify? Insofar as phy tucked away at the end. the book has a theme, it is that old technologies still Murphy's book is an excellent choice if you want to matter. But so what? introduce a young person to the case for capitalism. It's More important is the discussion of "Creole" tech­ thorough, clearly written, and enjoyable to read. Veter­ nologies; that is, technologies that are adapted to local ans of the battle for freedom will also benefit from circumstances. Examples in the automobile industry Murphy's many sharp insights. I hope we will be hear­ include the Ambassador in India, and the VW Beetle in ing more from him soon. @ Mexico and Brazil (Edgerton seems to have missed the Ford Falcon in Argentina), produced long after they George Leef ([email protected]) is book review editor o/The Freeman. were supplanted elsewhere. The other leading example given is the use of small-scale production in 1950—70s China. The Shock of the Old: What would analysis show about these examples? Technology and Global History Since 1900 They were all bad things and all driven by trade restric­ by David Edgerton tions—testaments to what happens in the absence of free markets. It isn't that people in Brazil wanted to buy Oxford University Press • 2006 • 288 pages • $26.00 decades-old automobiles or couldn't afford nice new Reviewed by David K. Levine Japanese models. Their government simply didn't allow he Shock of the Old chronicles them to buy the nice new ones. Edgerton does not find T the recent history of technol­ this worthy of notice. Indeed, he seems to put the pri­ ogy. It is not about famous inven­ vate sector on the same level as government when it tions, but about technologies that comes to foolish adoption of technology. Yet the only have proven useful over time—a evidence of private-sector failure (against numerous '""l^^S*^'''"'^" good meme that I looked forward examples of public-sector failure) is this: "Following the to learning about. The book is easy privatisation of British Railways in the 1990s, existing reading; who would think that maintenance regimes were disrupted, with the conse­ *^«y«sr«r*' learning about corrugated iron quences that essential maintenance procedures were no could be fun? And it nicely high­ longer followed, resulting in serious accidents." Inter­ lights the importance of several such lesser-known estingly, while Edgerton says that "the present does not technologies. seem radically innovative," it took me less than 30 sec­ Edgerton's other theme, the disappearance and onds using that present innovation, the Internet, to reappearance of technologies such as condoms, oxen, establish that this is not true.

43 SEPTEMBER 2008 Book Reviews

The book places a great deal of emphasis on the Illiberal Justice: John Rawls vs. the American importance of maintenance of capital investments. It Political Tradition claims that large centralized organizations are needed to by David Lewis Schaefer oversee maintenance, then goes on to provide over­ University of Missouri Press • 2007 • 367 pages • $49.95 cloth; $24.95 paperback whelming evidence that centralized governments do a poor job of providing maintenance and that decentral­ Reviewed by Tibor R. Machan ized free markets do a good job. (Except, of course, for the railway non-fact above.) lliberal Justice is a book that Edgerton then examines how imitation "with low I administers a philosophical R&D expenditures" is generally more effective than drubbing to the late Harvard true innovation. This is a point frequently made in the political theorist John Rawls. economics literature. Again, the role of government is Rawls's egalitarian ideas, espe­ not well discussed: The conclusion from the fact that cially that inequalities can only be the USSR spent a lot of money on R&D and got very justified if they can be shown to little useful innovation seems obvious. help the poorest people, have Free-market competition is the key to innovation. *Scfe««/

THE FREEMAN: Ideas on Liberty 44 Book Reviews vehicle for conservative "soulcraft" (to use George There are many fine nuggets of criticism in this Will's phrase). book. I wish Schaefer had contained himself and stuck Underneath all the complaints about Rawls's bad to his announced project to "challenge the claims that arguments and ideas we find a stern, even angry, insis­ [Rawls's work] is a proper model of philosophical tence that governments need to keep us on the straight inquiry and that its effects on the American constitu­ and narrow and that we must not succumb to the tional order promise to be salutary." While Illiberal Jus­ appeal of a strict reading of the Founders. Schaefer tice performs a solid job of demolition as far as Rawls's means a libertarian reading—one that denies that it is efforts are concerned, the more positive parts of the the task of government to deal with whatever moral book are seriously wanting. (f| problems exist in society. While he often contrasts Tiber Machan ([email protected]) holds the R.C. Hoiles Chair in Rawls's highly abstract contractual analysis of justice Business Ethics and Free Enterprise at Chapman University and is the and what kind of polity it suggests with the Founders' author of, among other books, Individuals and Their Rights. Lockean natural-rights approach, Schaefer doesn't give us a good idea of how he reads Locke or the Declara­ Leaving Women Behind: tion of Independence. What is having "unalienable" Modern Families, Outdated Laws rights to our lives and liberties supposed to mean if by Kimberly A. Strassel, Celeste Colgan, and John C. Goodman majorities and elite representatives may play fast and Rowman & Littlefield • 2007 • 215 pages • loose with them? $16.95 paperback For me, the wildest feature of Illiberal Justice is the Reviewed by Karen Y. Palasek author's insistence that Rawls is a libertarian. I suppose this is a ploy to fend off any suggestion that what is eavtng Women Behind: Modern wrong with Rawls is that he fails to appreciate and L:(Families, Outdated Laws makes a defend the classical-liberal school of political thought, a convincing case that tax and labor law school Straussians such as Schaefer support with reluc­ has been disadvantageous to women tance. He pursues this line through thick and thin, and w mvn —especially married women and it seems to be motivated by the desire to rebut an inter­ married women with children—as pretation of the American Founders as libertarians. compared to men. The authors iden­ Heaven help us if we were to take seriously the Decla­ tify a host of specific areas in which ration's idea that everyone has an unalienable, individ­ this is true, but some readers may think the accompa­ ual right to life, liberty, and the pursuit of happiness! nying remedies rely too much on government and not That would bar legislation against gays, something that enough on the market. appears to stand first and foremost on Schaefer's public- The book takes as its premise that working women, policy agenda. particularly working women with children, need fed­ At one point Schaefer lashes out at the Supreme eral relief from outdated laws that favor single-income Court for daring to "rewrite the Bill of Rights into a families and penalize working mothers—laws such as vehicle of moral libertarianism." His ignorance is show­ the 1938 Fair Labor Standards Act that creates what the ing here since libertarianism is not a moral but a polit­ authors call "the 40-hour straight]acket." The law sim­ ical doctrine, concerned with the principles that govern ply does not reflect current labor-market realities. The human interaction and the administrators of law and authors cite the significant increase in labor-force par­ public policy, not a system of standards distinguishing ticipation by working women with children since right from wrong in all spheres. 1950. Unfortunately, to their detriment, the legal envi­ It's also worth noting that Schaefer repeatedly links ronment has remained static. Rawls with Robert Nozick, despite the fact that the The argument that existing law penalizes women two were adversaries on numerous crucial fronts, espe­ with families is persuasively developed in light of the cially on the scope of equality in community life. treatment of child-care expenses, rigidities in the

45 SEPTEMBER 2008 Book Reviews employment contract, and a host of other concerns. authors' suggested reforms. The chapter on "Women as The authors also bring to light the hefty regulatory Workers," for example, discusses part-time work and onus attached to at-home work, including the tax flexible schedules. Those discussions do a fairly good treatment of savings and investment, retirement funds, job of identifying problems and possible solutions, but Social Security and survivors' benefits, and health-care fail to identify many important or likely sources of coverage. opposition to reform. The book would have been In examining the problems facing working women, strengthened if the authors had spent some time con­ the book points out that labor regulations have been sidering the likely objections to reform from labor written with full-time workers and single-earner unions and taxing authorities, and how coalitions might households in mind. Removing obstacles to part-time be built to overcome them. work (which would benefit many women, but also I have a few other reservations. The authors don't some men) will require regulatory change. The authors specify whether their reforms would require employers suggest, for example, allowing employers to offer wage to offer flexible work and benefits schedules, or compensation in lieu of mandatory (and possibly whether these would be a matter of market choice and redundant) fringe benefits like health coverage. That competitive employment behavior. I wish that they had would improve the attractiveness of part-time work. stated that all their reforms should be to permit The need for such deregulation to improve flexibility increased flexibility, but not mandate any changes. Also, in labor negotiations is an important theme of the because family demands cause women to enter and exit book. the work force far more frequently than do men, For retired, divorced, or widowed women, the cur­ another flexibility reform would call for privatized rent tax treatment of retirement and spousal benefits is unemployment insurance (UI), tailored to avoid the especially problematic. The chief issues involve low benefits penalty now facing working women. Not returns for Social Security to the second (usually dealing with the problems created by our mandatory female) income earner, the loss of Social Security ben­ UI system is a significant oversight. In fact, the authors efits for some divorced women, and the fact that tax advocate changes to make it easier for part-time incentives cause workers to underinsure for old age and workers to qualify for unemployment benefits, but we overinsure for the present. (This last problem is not the ought to be moving away from the redistributive UI exclusive province of working women.) Those prob­ system and into voluntary mechanisms to handle lems reinforce the book's main argument that current income interruptions. law favors single-earner households and should be Despite recognizable obstacles to implementing its changed for both fairness and efficiency. various reform plans, Leaving Women Behind takes an The remedies proposed in this volume would erase optimistic view. Government regulation has made a ter­ many of the inequities faced by women. But equally rible mess of the labor market, and working women are important—and this is a point not emphasized in the the main (but certainly not the only) losers. The book text—these tax and regulatory changes would usually presents an informative and appealing, if incomplete, benefit the entire family as well. case for a deregulatory agenda. (|| Leaving Women Behind presents each chapter as a Karen Palasek ([email protected]) is director of academic programs at stand-alone summary of a single issue, followed by the the John Locke Foundation.

THE FREEMAN: Ideas on Liberty 46 The Pursuit of Happiness

Unpleasant Economists

BY WALTER E. WILLIAMS

conomists are not the most pleasant people to anti-terrorism expenditures there in 2007 totaled have around when others are delightfully prais­ $6,673,910. The benefits of such expenditures are that E ing the benefits of this or that public policy. We they might prevent Wyoming from being attacked and acknowledge the existence of scarcity, the fact that to if attacked, ameliorate some of the consequences. enjoy more of one thing requires having less of There's no precise way to determine Wyoming's risk another, which in turn forces us into bringing up the of a terrorist attack and its cost, but simple reasoning unpleasant topic of costs. Let's look at how unpleasant suggests that too little or too much can be spent. The economists and their subject can be. costs of spending too little might result in a devastating The Energy Independence and Security Act of 2007 terrorist attack that could have been prevented. The mandated that oil companies increase the amount of costs of spending too much are less obvious because ethanol mixed with gasoline. The the victims are invisible. For example, argued benefits were that it would the price for dump trucks for snow decrease our dependence on foreign oil The victims of and ice removal ranges between and provide a more environmentally $140,000 and $160,000. How many friendly fuel. Anyone with an ounce of benefits-oriented Wyoming lives could have been saved brains would have realized that divert­ policies, such as those had some of the anti-terrorism ing crops from food to fuel would raise expenditures been spent on addi­ the prices of a host of corn-related of the Energy tional dump trucks to clear streets foods, such as corn-fed meat and dairy Independence and and roads of snow and ice? Those products. A Purdue University study victims are invisible. found that the ethanol program has cost Security Act of 2007, U.S. consumers $15 billion in higher are visible, but for Environmentalism food costs in 2007, and it will be con­ nvironmentalists have been very siderably higher in 2008. Higher food many other policies E active and successful in Califor- prices, as a result of the biofuels indus­ the victims and the nia in getting huge tracts of land set try, have had international conse­ aside as "open space," on which noth­ quences as seen in the food riots that costs are invisible. ing can be built, and enacting "smart have broken out in Egypt, Haiti,Yemen, growth" policies severely restricting Bangladesh, Mexico, and other nations. residential and business construction. Open space and smart growth are seen as benefits. The Anti-Terrorism Spending cost is skyrocketing housing prices at some multiple of he victims of benefits-oriented policies, such as housing prices nationwide, whereas before the 1970s Tthose of the Energy Independence and Security they were similar. Dr. Thomas Sowell wrote, "One of Act of 2007, are visible, but for many other policies the the ways of coping with high housing costs is with 'cre­ victims and the costs are invisible. That is the case with ative'—and risky—financing. Roughly two-thirds of anti-terrorism expenditures. Take Wyoming with its the home mortgages in the San Francisco Bay area are two major cities: Cheyenne (population 53,000) and Walter Williams is the John M. Olin Distinguished Professor of Economics Casper (50,000). Federal and state homeland security at George Mason University.

47 SEPTEMBER 2008 Walter E. Williams

interest-only mortgages. Theoretically, you could make Beta Blockers: Beta blockers regulate hyperten­ mortgage payments forever without acquiring a cent of sion and heart problems. The FDA held up approval equity in your home. ... In reality, the interest-only of beta blockers for eight years because it believed mortgage payments apply for only a limited number of they caused cancer. In the meantime, according to years—three to five years in most cases—after which Dr. Louis Lasagna of the Tufts University Center the payments rise, so as to contribute something toward for the Study of Drug Development, 119,000 the payment of the principal. People who expect their people died who might have been helped by that incomes to rise significantly in a few years assume that medication. they will be able to handle the higher payments then. Of course that assumption can turn out to be wrong Clozaril: First approved and used in 1970 in and the house can be lost" ("Froth in Frisco?" Wall Europe, Clozaril's ability to treat schizophrenics who Street Journal, May 26, 2005). Such practices have con­ did not respond to other medicines became known tributed to the subprime crisis we now face. in 1979. Yet the drug was not approved in the There's another cost. According to Census estimates, United States until 1990 because companies the number of black residents in San Francisco has believed the FDA would reject it on the grounds shrunk from 13.4 percent of the population in 1970 to that 1 percent of all patients who take the drug con­ just 6.5 percent in 2005—the steepest decline in any tract a blood disease. As an article in the New Eng­ major American city. Guess what. San Francisco Mayor land Journal of Medicine marveled . . . : "What is Gavin Newsom appointed a task force to study how to remarkable is that [Clozaril] has a beneficial effect reverse decades of policies that black leaders say have on a substantial proportion [30 to 50 percent] of fueled the flight. He made no mention of environmen­ patients who have an inadequate response to other talist policies that have driven the cost of housing . . . drugs." FDA delay therefore meant that nearly beyond the reach of many blacks. 250,000 people with schizophrenia suffered need­ lessly, when relief was at hand. FDA he Food and Drug Administration's (FDA) benefi­ Mevacor: Mevacor is a cholesterol-lowering drug Tcent mission is to ensure the safety and effective­ that has been linked to reduction in death due ness of pharmaceuticals. FDA officials can make two to heart attacks. It was available in Europe in 1989 types of errors: approving a drug that has unanticipated but did not become available in the United States dangerous side effects, or disapproving and delaying a until 1992. Studies confirm what doctors saw drug that is both safe and effective. An FDA official has to be the case: taking the drug reduced death due to unequal incentives to avoid these two types of errors. heart disease by about 55 percent. During that Making the first error, erring on the side of under- three-year period as many as a thousand people caution, the victims are visible and he is directly a year died from heart disease because of the accountable. Erring on the side of over-caution, the FDA delay. cost and the victims are invisible and there is no accountability. Victims die never knowing why. The economist's bottom-line message is that for the In an article in Regulation magazine, Robert M. sake of human compassion and efficiency, any discus­ Goldberg examined some examples of the costs of sion of benefits from this or that public policy should FDA delay: entail an explicit acknowledgment of costs.

THE FREEMAN: Ideas on Liberty 48