Friday, October 28, 2011

In Response to Massimo Pigliucci

As far as criticisms of libertarianism go, I am hard-pressed to think of one quite as shallow and unconvincing as the one presented by philosopher and part-time crying opera clown Massimo Pigliucci.  I followed Massimo’s Facebook page for a while, as, despite his statist views on government, he and I share a common interest in the skepticism movement, and he is a sort of third-tier member of the New Atheist movement (he once shared a debate stage with William Lane Craig, the Christian apologist who has also debated the likes of Christopher Hitchens and Sam Harris.) 

Most of Massimo’s critique of the libertarian philosophy (which can be found here) is actually not so much a critique as an unflattering description.  He writes at length about the various obscure off-shoots of libertarianism, such as anarcho-syndicalism (which is really just updated Marxism), anarcho-capitalism and Objectivism. 

Mainstream libertarians find a great deal to disagree with in all three of these ideologies, but there are also many individual issues on which we can find agreement (just as we can with both liberals and conservatives.)  None of them make up the mainstream of libertarian thought, which is that government should hold to the three duties prescribed to it in Adam Smith’s 1776 book, Wealth of Nations:  1) The administration of jurisprudence, 2) The defense of the nation against outside enemies, and 3) The provision and maintenance of a very narrowly defined class of public goods. 

The fact that Massimo so heavily delved into the offshoot movements without having much to say about mainstream libertarianism tells me that most of his “research” was done by reading through the Wikipedia series on libertarianism. 

After describing the various tangential movements in libertarianism, Massimo goes on to fight dirty: 

“There is the dark side of things, the infamous episode of the “Chicago Boys,” a group of libertarian economists trained at the University of Chicago who provided active, and in fact crucial, assistance to the illegitimate government of Augusto Pinochet in Chile, thereby supporting a tyranny that ended up being responsible for the death of 3,000, the incarceration or torture of another 28,000, and the suspension of civil liberties in that country for a decade and a half.”

Now, it is worth mentioning here that libertarians despise infringements on personal liberties just as much as we despise infringements on economic liberties.  To try to blame government oppression on libertarianism is like trying to blame a fire on the firefighters trying to put it out. 

The influence of libertarians on Pinochet was strictly economic.  The ‘Chicago Boys’ plan laid out by Jorge Cauas, Sergio De Castro, Pablo Barahona and other Chilean economists who studied at the University of Chicago dealt with three things:  The elimination of trade barriers, the privatization of government-owned enterprises and the stabilization of inflation.  None of these have anything whatsoever to do with incarcerating or torturing innocent civilians. 

These reforms did produce a prosperous economy, known to economists as ‘the Chilean Miracle’, as Massimo goes on to admit, which ultimately led to a vibrant and politically empowered middle class, which in turn led to the expansion of political and civil freedom alongside the economic freedom, as Milton Friedman predicted it would when the ‘Chicago Boys’ reforms were implemented.  It is very rare in the course of human events that economic freedom does not go hand-in-hand with political and social freedom and Chile was no exception. 

The opposite is true of collectivist societies like the USSR or Yugoslavia.  It was impossible for those nations to maintain state-control of the economy without also using force to suppress dissent and they emerged from oppression not as the result of increased prosperity but as the result of complete economic collapse and violent turmoil. 

Rather than look for single data points to confirm his bias, I would suggest to Massimo that he look for the rule of history, and the rule has always been this:  Wherever we see an increasing degree of economic freedom, an advance in civil and political freedom soon follows. 

After slinging the mud about Pinochet, Massimo lapses into using ‘anarchism’ synonymously with libertarianism and starts punching a straw man.  He says that human nature is “still too darn selfish and greedy for [anarchy] to work.” 

Problem is, most libertarians aren’t anarchists.  We just believe the government should keep taxes as low as possible, should not tell people what they cannot eat or drink or smoke, should not invade other countries, should not take on the role of a charity, should not tell you what kind of products or services you can and cannot buy and sell and for what price, should not subsidize junk food, should not debase the currency and should not, above all else, bail out failing multi-billion dollar corporations with our tax dollars!  We’ve got no problem with a government that protects people from directly harming or lying to one another, we just believe that government’s role should be limited to that.  After all, the bumper sticker says “less government”, not “no government”. 

Massimo goes on to argue for a state-run economy by saying that “modern societies are made of millions, often hundreds of millions, of individuals, and on that scale a society simply cannot exist without a functional government.”  But this argument works both ways—the bigger a society gets, the more difficult central planning of its economy becomes.  A small village may be easily run by a central planner.  A medium-sized town would be more difficult.  A nation of hundreds of millions?  Why don’t you ask the people who would wait hours in line for bread in the Soviet Union how well their central planners did? 

A free market economy is organized by people trading the goods and services they can produce most efficiently for the goods and services they desire the most.  No central organization is needed because it is organized from the ground up.  For someone who consistently argues that the complexities of the global ecosystem emerged without any intelligent designer guiding the process, Massimo displays a surprising lack of faith in the idea of naturally emergent order. 

Finally, Massimo comes to what he believes is a knock-down argument—the idea of property rights.  He is right that most libertarians consider property rights to be of paramount importance.  This is a very simple progression:  1) no other person can have a claim to your mind and your body, 2) property is produced by your mind and your body, either through direct invention/cultivation or through trade, 3) no other person can have a claim to your property that supersedes your own.   

In other words, since your property is the product of your mind and your body, to say someone else has a claim to your property that overrides your own is to say that they have a claim to use your mind and body that overrides your own.  Even simpler, if someone else can claim your property without your consent, you are a slave. 

Massimo thinks that need somehow overrides self-ownership as an epistemological origin of property rights.  He cites a hypothetical situation where someone is dying of thirst in front of a man who owns some water.  The weak point in the libertarian philosophy, Massimo claims, is that it does not allow for the parched man to have a justifiable right to the water that the other man owns.  Massimo dismisses the idea out of hand that the water-owner will voluntarily give the parched man a drink because that, in Massimo’s opinion, is an unrealistic view of human nature (I don’t exactly know where he developed this view of human nature, but remind me never to go to this guy’s house when I’m collecting money for the local soup kitchen!)

But what are the practical implications of Massimo’s idea that need, and not production, justifies ownership?  Well, parched and starving people are not just the province of hypothetical stories told by philosophy professors.  Believe it or not, they actually exist!  And according to Massimo, they are entitled to your stuff.  No, you don’t just have an ethical responsibility or a charitable impulse to help them.  Just like the parched man is allowed to take the water from the man who (I imagine) dug a well, so too do starving people have a right to take your food (or, by extension, anything you have earned that they can use to trade for food.)  This is why Massimo Pigliucci has given all of his worldly possessions to Child Fund and promised to contribute 100% of his future earnings to feed starving children (or at least I assume he has, judging from his positions on the issue.)

It is very easy to see the libertarian basis for property rights—you own your body and mind, therefore you own whatever your body and mind produces, or whatever you get from trading what you produce.  But what basis does Massimo offer for need replacing production as the faculty that justifies ownership?  Well, and I’m not kidding here, his only justification for this is that thinking otherwise makes you “end up looking mean and uncaring”.  Now, I want you to take a second and remember that THIS IS COMING FROM A PROFESSIONAL PHILOSOPHER!

Okay, so maybe the crying philosopher-clown didn’t really devote much time to his critique of libertarianism.  Maybe he thought it was not an influential enough ideology to spend much time thinking about.  That’s giving him the benefit of the doubt, but I’m willing to do it. 

Next time, Massimo, try putting a little effort into it. 

Tuesday, October 25, 2011

Heartless Liberals Want to Make People Homeless

Okay, the title to this post was a bit of fun.  I know liberals don’t want to make people homeless.  But they are certainly acting like it. 

President Obama recently began a campaign called “We Can’t Wait”, which is basically a justification for the excessive use of executive order to legislate from the White House.  Particularly, he is using the executive order—a power that is supposed to be used for mundane activities like directing the positions of troops in wartime—to enact parts of his jobs plan that were too unpopular to be passed by Congress. 

One executive order the president has issued instituted price controls on mortgage refinancing and nullified certain provisions in mortgage contracts preventing borrowers from refinancing in certain circumstances. 

I hear you scratching your head already.  “If people with underwater mortgages can refinance more easily now,” you may be asking, “how is that making more people homeless?  Surely it means fewer people will have their homes foreclosed upon.” 

Sure, on the surface it seems that way.  But remember, in economics we have to look for both the seen and the unseen.  What is seen is that many mortgages get refinanced and that difference in cost may be enough to keep some marginal home owners in their homes.  What is unseen is the shaken confidence of mortgage lenders, who now know that the government can come in and rewrite their contracts with borrowers at will. 

To compensate for the potential losses that could result from such third party interference with what are usually assumed to be binding contracts, lenders will have to charge more initially for mortgages (in either closing costs or slightly higher interest rates.)  These higher costs will prevent marginal homebuyers from purchasing homes and force them to rent instead.  The increased demand for rental homes, consequently, will drive up rents and cause marginal renters to become homeless. 

And as a result of trying to help underwater homeowners, President Obama will have callously thrown poor renters out of their homes and onto the streets.  Or, in other words, heartless liberals want to make people homeless.

Okay, I realize no one wants to make people homeless.  Liberals aren’t trying to kick people out of their homes because they are cruel and capricious—they are doing it because they are economically illiterate.  But whenever this topic comes up in the news or in the blogosphere, liberals always like to frame the debate as those on the left want to help people who are in trouble, and those on the right don’t care about people losing their homes. 

In actual fact, the debate is between which of two policies causes the least amount of damage—the one where we rewrite a few contracts in order to save a few homeowners from foreclosure, or the one where we respect contracts and thereby keep prices on homes down for everyone.  Neither side wants people to be homeless; one side just understands that indirect help can often be better than direct help. 

The Problem with Gold

Okay, so I fully expect to annoy fellow libertarians with this post, but, as a natural-born contrarian that does not bother me as much as it probably should.  Let me start by saying that this is in no way intended to be an endorsement of our current Federal Reserve system or of fiat currency in general.  I think that our current monetary policy is responsible for the exacerbated business cycles we have experienced since the days of Jimmy Carter, and that it is an upwardly redistributive system that allows for direct transfers of wealth from the middle and working classes to big businesses and banking institutions. 

Many libertarians suppose that a gold standard would be an excellent replacement for our current system.  I agree that the Federal Reserve system should be eliminated and that a gold standard would be a vast improvement.  However, a gold system presents problems of its own, and those problems should not be ignored. 

The main problem I see is that switching to a gold standard would greatly expand the gold-mining industry and transform it from a productive, value-adding industry into a value-destroying industry. 

Currently, gold has several industrial applications in addition to its ornamental value.  Hence, extracting gold is an endeavor that adds value to society and makes everyone richer as a result.  But would this continue to be the case if gold was used as currency?  Probably not. 

To see what I mean, perhaps it would be useful to revisit how wealth is created in a free market system.  If I manufacture motorcycles, I am creating wealth for society.  I am taking parts and raw materials and assembling them into something that has more value than all of the parts and materials have individually.  If I were not adding value by assembling them into a motorcycle, I would not be able to stay in business very long, because the parts and materials would cost me more than I would be able to sell the motorcycle for.  If my time and the materials I use cost me $5,000 and I sell the motorcycle for $10,000, I am $5000 wealthier.  If the buyer of one of my motorcycles gets $15,000 of value out of the motorcycle, he has also become $5,000 wealthier.  Society, then, has become $10,000 wealthier as the result of my actions.  Although I only have regard for my own self-interest, I have been guided by the invisible hand of the market to make society better off. 

Now let’s say that a gold-standard is re-instituted and I decide I can make more money by becoming a gold miner than by making motorcycles.  I buy a track of land, some equipment and begin mining gold.  Every ounce of gold I pull from the earth makes me one ounce of gold richer (assuming I have no employees to pay.)  But how does this affect society as a whole? 

Well, since the gold is used as currency, it does not make anyone else better off.  It simply makes everyone else’s gold worth less than it was before.  The value of their gold has been diluted by my extra ounce of gold.  A gold miner cannot make society richer by pulling gold out of the ground any more than the Federal Reserve can make society richer by printing more money.  I have simply inflated the money supply through my actions, and so I have made myself richer only by making everyone else in the country incrementally poorer. 

Of course, barring the discovery of a heretofore unknown massive mountain of gold on some corner of the Earth, the actions of individual gold miners will never be able to inflate the money supply as rapidly as the Federal Reserve can, as evidenced by the recent quantitative easing programs.  So the natural scarcity of gold acts as a sort of hedge or limit on inflation.  This is one of the key advantages that a gold standard has over the Federal Reserve system. 

However, there is also a significant disadvantage, and that is the attraction of otherwise productive labor to the gold-mining industry.  Remember in my example above that prior to the institution of the gold standard, I was productively working as a motorcycle manufacturer, adding value to society.  When the gold standard was instituted, I decided to divert my labor to the mining of gold.  As a result, society will not just be poorer because of the presence of more gold, but it will be poorer again because of the absence of my motorcycles.  As Frederic Bastiat might say, we have to look for both the seen and the unseen.  The seen is the inflated gold supply, the unseen is the motorcycles that go unmade. 

Now, in a more realistic setting, it will probably not be motorcycle manufacturers who become gold miners.  But the miners of other materials that have important industrial applications may well be attracted to the gold-mining industry.  We can expect the prices of other metals and minerals to increase incrementally, as miners are attracted away from those productive endeavors.  The public will pay more for all of the products that include those affected raw materials and will have less money to spend on other things.  Hence, in at least one way, we will be poorer. 

Is this any reason to think that a reinstitution of the gold standard will be disastrous?  No.  Again, it will be a huge improvement.  On net, the gold standard is much better than what we have.  However, we cannot be deluded into thinking a gold standard is perfect.  It is far from perfect, and we should acknowledge those imperfections. 

Monday, October 24, 2011

Fluctuation Means Competition

Every now and then, someone says something silly about economics to me that makes me cringe a little.  A few weeks ago, my mother did exactly this. 

We were watching the news and a reporter said that an impending hurricane had caused a rise in oil prices.  My mother, frustrated that she would now have to pay more for gas, exclaimed that, “They’ll use any excuse to charge more.”  She seemed to think that there was a monopoly or cartel of some kind that controlled the price of oil and would raise it whenever they could. 

This is actually not  an uncommon misconception.  There are always plenty of people seeing evidence of collusion amongst oil companies whenever oil or gas prices spike.  Accusations of “price-gouging” were rampant a few years ago when gas prices jumped quickly and the price of oil increased by nearly 600% in only a few years*.

Fluctuating prices for a commodity as important as fuel is a cause for concern and should be addressed (the question of whether it should be addressed by the innovators in the free market or bureaucrats in the government is another topic entirely.)  But while fluctuating prices may be a cause for concern, they are most certainly not evidence for collusion.  In fact, they are strong evidence against collusion. 

A monopolist seeks to extract the maximum amount of profit from the service or product they control.  For the nonexistent oil monopolist, this means keeping prices just below the level at which people stop finding it profitable to travel places by car. 

More importantly, it means keeping prices at this level consistently.  Raising them above this level would mean that the monopolist would see lower sales, and therefore less profit.  Allowing them to fall below this level would mean losing potential profits unnecessarily.  Neither action makes sense.

Therefore, the one thing we can count on a monopolist to do is to keep prices steady.  Granted, they will be exorbitant, but at least they will be steady.  When we see prices fluctuating widely, that means other forces are at play. 

In the case of oil, these other forces are the increasing demand for gasoline and plastic products in the developing world, war and turmoil in oil producing nations and the falling value of the dollar.  Another factor at play might be that we are closing in on the point in time when the maximum rate of global petroleum extraction has been reached—an idea known as “peak oil”—but this remains a mostly unsubstantiated concern. 

What we do know is that monopolists do not raise prices sporadically or, for that matter, seasonally.  They raise them up to the highest possible level that they can without losing customers and keep them there.  So, the next time someone tries to tell you that high summer gas prices are evidence of an avaricious monopolist, ask him what accounts for the relatively low winter gas prices—an altruistic monopolist perhaps?