A Triumph for Tyranny

Introduction

In 1831 Alexis de Tocqueville, along with his companion Gustave de Beaumont, traveled from France to the United States for — ironically — studying the U.S. prison system. Democracy in America, the book in which he recorded his observations from his nine-month tour, has provided background for many discussions about democracy even to this day.

In Democracy in America, de Tocqueville raises the possibility of a tyranny of the majority under democratic forms of government. Although he saw a risk of that form of tyranny in the U.S., he also observed elements of the Republic structure of the United States government that might mitigate the tyranny of the majority. In fact, he entitled one of his chapters “Causes Which Mitigate the Tyranny of the Majority in the United States.”

Over the years, and particularly in the 20th century, the U.S. Government — abetted by its citizens — has swept aside the protections against the tyranny spawned by democratic forms of government. The concerns expressed by Alexis de Tocqueville and the fears of many of the founding fathers have come to pass in ways they could only imagine. We have created the tyranny of the majority of the minority over the population.

I have chosen “healthcare” legislation as an outstanding example.

Healthcare Tyranny

In 2009, with a vote on The Affordable Care Act (Obamacare), the U.S. Government Congress enacted another triumph for tyranny. Two hundred nineteen people (in essence only eight people), not even elected by most citizens, place further limits on the liberty of over 300,000,000 Americans. In the original version, they had the audacity to force people to take actions they would not have chosen on their own.

I don’t see this as an issue of Democrats versus Republicans. Both parties believe in more oppression—they want to control the lives of other people. We just got the Democrat form of oppression rather than the Republican form. I favor neither.

Contrary to popular misconception, the United States of America does not need “healthcare” reform of any sort. It requires, instead, the repeal of all existing legislation that hampers the emergence of a free market in all forms of care for the sick and needy.

To those who argue that a free-market will not care for those people I have two from responses:

First, you cannot provide any empirical evidence to support your claim. A free market for these services — or any other for that matter — has never existed in this country. Without the interference of the federal government, American citizens have traditionally stepped forward to help those in need voluntarily.

Second, in a free market, both parties win in every voluntary transaction, for every product/service. In every government controlled market, the monopoly force of government picks winners and losers. In such a system — in which winners pick the pockets of losers — we all lose in the long run. These statements apply to “healthcare” as much as any other service.

If you favor any form of legislation regarding “healthcare,” you don’t favor liberty or economic efficiency. You favor the freedom of getting what you want and the freedom of others to get what you want them to get. You favor a misguided view of economic efficiency that practices stealing from healthier and more productive people to support less healthy and less productive people. These forms of freedom and economic efficiency will eventually make you less free, less healthy, and less productive.

Conclusion

Cloaked in altruism, tyranny and oppression in the U.S. of America takes on a particularly sinister character. It creates the unseen tyranny of one citizen over another. The atrocious legislation, known as “Obamacare,” provides only one example of the many and more frequent examples of tyranny within a “democratic” form of government. Many other examples, both real and proposed, of the tyranny of the majority exist.

Minimum wage laws, consumer “protection” laws, labor laws, etc., all provide living examples of a minority of representatives restricting the freedom of all citizens. Little hope exists in the trend of this legislative tyranny. Now, many legislators — and citizens — actually support the horrendously to hear radical proposal referred to as The Green New Deal.

Don’t enslave your neighbor; set him free.

Climate, Freedom, & Money

Introduction

“Climate change” represents the crisis de jure. We have no choice but to accept that human activity has created a crisis level of change in the climate of the world. To deal with this crisis, we must implement an unprecedented level of government intervention.

The complexity of this subject boggles the mind. How do we determine the validity of this problem, and what to do about it? To reduce the complexity, I will address only a couple of questions I have about this “problem” and the proposed intervention.

The Problem

Consensus

One reason people give for why we should believe in this crisis: 97% of scientists agree on calamitous findings regarding climate change.

Now I don’t have any certified credentials in science. I do, however, know enough to know that real scientists pride themselves on believing in the principle of non-confirmation. They do not believe in “settled” science. Even as a layman I know we cannot determine facts by popular vote. Those who believe otherwise must not have heard of Einstein, Copernicus, etc. Need I continue?

Carbon Poison

I have some important questions about carbon. Much of what I hear does not make any sense to me.

Believers in the impending climate crisis want to reduce the amount of CO2 created by human activity. They talk as if CO2 were a poison. Does that make sense?

I remember from high school biology that CO2 provides a food source for plants. Without enough CO2, plants would die. Without plants, we would die.

I admit my years in high school occurred a really long time ago. Maybe new technology has found a poisonous property in CO2. But, don’t people who run greenhouses add CO2 to the air inside?

Does it make sense to reduce our production of plant food?

The people who believe in the risk of climate change all think the solution will require some form of economic intervention. These interventions consist of everything from taxes on the use of carbon-based fuels to complete government take over of the economy.

Before I discuss the proposed interventions, I would like to make a general review of some of our current interventions. That might give us a clue as to the most effective interventions for the future.

Existing Intervention

I will reflect on the three categories of interventions: 1) monetary policy, 2) spending, and 3) regulation.

Money

Expanding the money supply has become one of politicians favorite ways to meddle with the economy. It’s stealthy—few people notice it. It taxes citizens without the painful process of passing tax legislation. It’s easy. But it has consequences.

Artificial monetary expansion distorts price signals. This misinformation leads people to misallocate resources. People spend money on goods they cannot afford. Investors acquire producer goods they do not need.

Monetary expansion leads to inefficient burning of carbon fuels.

Spending

Government officials have adopted the euphemism “spending” for a broad range of redistributions. In general, government redistributes resources from producers to consumers. “Spending” leads to less effective, efficient use of resources.

Government “spending” leads to more use of carbon fuels than would occur without redistribution.

Regulation

Regulation forces segments of the population to engage in activities which they would not otherwise choose. They must consume resources they would not consume if left to their own choices.

Similar to spending, regulation leads to the use of more carbon fuels than would have occurred without such regulation.

Proposed Intervention

Instead of examining the current political environment, the people with deep-seated concern about climate change propose additional government intervention. I will discuss those in the reverse order.

Regulation

Instead of trusting people to clean up their personal environments, politicians, as usual, think they can achieve a better result by forcing people to change their behavior. As a result, people will engage in behaviors in which they would not otherwise engage. In doing so, they will either follow the regulations or figure a way to work around the rules.

Spending

Politicians recommend massive spending programs in order to “clean up the environment.” Somehow, magically, they think they can do that without consuming additional resources or burning additional fossil fuels.

They have not learned that the redistribution of resources by government spending always leads to less efficient use of resources.

Money

When asked how they plan to pay for it, the people promoting green projects say that should not be a problem. That amounts to code for “we’ll just have the government print money.”

This attitude indicates they have not come to grips with the connection between monetary expansion and the wasteful boom and bust cycles in the economy. The malinvestments created as a result of monetary expansion create far more pollution than actors in a free-market would create on their own.

A Solution

Examine the Science

People making disastrous predictions regarding climate change should first go back and re-examine their science. Who knows; they might be correct. But, as long as one dissenting voice exists — and there are many — the science requires re-examination.

Answer, for example, the question I posed at the beginning of this article. Why do we consider carbon dioxide (a food for life) as a poison that could kill us?

Rollback Regulation, Spending, and Monetary Expansion

Instead of adding new interventions to the already ineffective interventions, rollback those that are already contributing to the ineffective use of resources and the excessive consumption of carbon fuels.

Conclusion

When you take a close look at the people promoting “Green New Deals” and Paris Accords, you realize that the majority of them either have political power or seek political power. Whether the people advocating these programs have the science correct or not, should we allow them to take further control of our lives?

This environmental scare, when you pull back the curtain, amounts to a great power grab, whether you agree with their desired results or not.

 

Systems Thinking in Economics

Systems Thinking helps people understand more clearly the complexity of markets.

You will probably hear me make several references to “systems thinking” in the process of explaining free markets. I thought that this post would be a good way to introduce systems thinking and its relevance to economics and free markets. To start off, I want to offer a concise definition of the system:

Definition

  • “A system is an entity which maintains its existence through the mutual interaction of its parts.” by the late Austrian Biologist Ludwig von Bertalanffy.

An accurate description of free markets fits perfectly with this definition. Markets become a unified system through the interaction of individuals making exchanges and not by an elaborate design imposed upon individuals.

As part of an introduction, I have borrowed “The Laws of the Fifth Discipline” from The Fifth Discipline by Peter Senge. I will give each of the eleven “laws” and provide my own description of how they apply to free markets.

  • “Today’s problems come from yesterday’s ‘solutions.’”

The presence of feedbacks represents one of the distinctive characteristics of systems. Many of the processes in systems create information that, when fed back into the system, change the input to the next iteration. Feedback becomes particularly crucial in human systems — i.e., systems that include humans as an element. For example, the system that includes both car and driver provides feedback to the driver so that he knows when to speed up, swerve, or brake.

The solutions that we apply to today’s problems simply shift the problem to a different time or space. The people who inherit the “new problem” frequently don’t recognize it as the return of an old problem.

This explains why many market interventions seem to address problems for which solutions have already been applied.

  • “The harder you push, the harder the system pushes back.”

Because systems contain “compensating feedback,” well-intentioned interventions frequently stimulate responses from the system that offset the benefits of the original interventions.

The higher lawmakers raise minimum wages, the higher the resulting unemployment.

The more lawmakers attempt to regulate segments of the market, the more frequent the occurrence of black markets or illegal activities.

  • “Behavior grows better before it grows worse.”

Any success at overcoming structural influence will only last for a short while. We find simple, “easy,” interventions enticing because they seem to work — in the short term. Then, again, compensating feedback takes over and things get even worse.

Economic stimulus gets people to spend more money. This causes a nominal increase in GDP. It also causes a lack of savings and investment resulting in a cutback in employment and reduced availability of goods in the future.

  • “The easy way out usually leads back in.”

Familiar solutions to apparently similar problems usually keep us mired in the same problem.

Adjusting tax rates to cure the “Social Security” problem eventually leads us back into the difficulty caused by the structure of this unsustainable “Ponzi” scheme.

Making significant structural changes to a poorly designed system will have more effect on eliminating recurring problems than making small changes to processes that only address symptoms.

  • “The cure can be worse than the disease.”

When we don’t account for the feedback from changes we make, we sometimes don’t see the full impact of our actions. Our central banking system increases the money supply to stimulate the seemingly slow economy. The misinformation sent by this artificial cure causes malinvestment, which leads to a depression worse than the apparent, but natural, slow down.

Sometimes the easy, familiar, solutions have no effect. Indeed, sometimes they become addictive and dangerous. By misguiding market players, monetary expansion creates an addictive dependence that eats away at healthy productive investment.

  • “Faster is slower.”

Remember the tortoise and the hare. Systems operate at the pace allowed by their structure. Pushing them too fast will cause delay or breakdown.

In our persistent efforts to create economic growth, we forget that the economy has a natural rate of growth. Rapid rates of business growth, brought on by market intervention, frequently outrun the capability of businesses to generate capital to support that growth. High rates of broader economic growth have the same effect. High rates of consumption eat away at capital growth, which slows future consumption.

  • “Cause and effect are not closely related in time and space.”

People intervening in market systems frequently commit the error of equating proximity of events with cause and effect. Human systems share the fundamental characteristic that cause and effect do not occur closely in time and space. We may not see the results of the actions we take today either in the same time or the same place. What appears like a sound expenditure now, may prove catastrophic when the effect finally reaches the market.

  • “Small changes can produce big results—but the areas of highest leverage are often least obvious.”

Chaos theoreticians speak of the “butterfly effect” in which a butterfly flaps its wings in some distant location causing a local storm in the future. Although this so-called “butterfly effect” serves mostly as a metaphor, it does give a sense of the importance of small events.

Frequently, the most obvious solutions either don’t work or make matters worse. Small, targeted, actions, however, can often produce significant and enduring changes. These high leverage actions do not seem apparent to the participants in the system. A one percentage point increase in the rate of saving might, through increased investment, improve long-term consumption by more than 15 percent.

  • “You can have your cake and eat it too—but not at once.”

Sometimes dilemmas only appear as opposing choices. For example, the false choice between “low cost” and “high-quality.” The short-term cost of higher quality may lead to both lower cost and higher quality in the long run.

The “low cost” bidding process employed by government frequently leads to the early crumbling of vital infrastructure.

  • “Dividing an elephant in half does not produce two elephants.”

As logical as it may seem, dividing a problem into smaller problems seldom works. If you have a big problem, you must treat it as such. You may have to take sequential steps to the solution, but you must coordinate these steps to solve the single problem.

The integrated, holistic, nature of living systems requires that they must remain intact to realize their full benefit. The whole equals more than the sum of its parts.

Governments build their reputations on promising half an elephant as if it were one elephant. Treating government spending and taxation as independent issues amounts to dividing the government interventionist elephant.

  • “There is no blame.”

We tend to blame outside influences. “Systems thinking shows us that there is no outside; that you and the cause of your problems are part of a single system. The cure lies in your relationship with your ‘enemy.’” (Senge page 67.) Don’t blame the people when they do the best they can within the system in which they operate.

When you encounter a surly government employee, remember they work for a system that does not recognize you as the customer. They owe their allegiance to other bureaucrats and politicians, not to you. You have no influence on a system that you do not pay directly.

Conclusion

Many the characteristics of systems seem counterintuitive, until you think about them. Human systems, such as markets, add a higher level of complexity. These systems reflect on the results of their own behavior and adjusted their behavior to achieve different results. In other words, they learn.

Interventionists simply cannot outsmart markets.

Reference

Senge, Peter M., The Fifth Discipline (New York: Doubleday), 1990

 

Value: Summary

Before I move on to describe market exchanges in a bit more depth I would like to summarize the previous comments on value—in part because I encountered a bit of delay since my last post.

Understanding value provides a foundation for understanding all other economic concepts. In order to distribute resources effectively and efficiently the system must have a source of value and a way to measure value. Without a consistent source and measure of value the effective, efficient, allocation of resources would prove virtually impossible.

The Source of Value

Individuals provide the only uniformly consistent source of values. We might use gravity as an analogy for values. Although every discrete body in the universe exerts a different force of gravity, this attracting force always exists between bodies of mass throughout the universe. In a similar fashion, although each individual assigns value differently, value always emanates from individuals. As we will discuss later, only the actions of individuals reveal relative values.

No objective value exists apart from the subjective values of individuals. No intrinsic value exists as a part, or characteristic, of any economic good.

The Measurement of Value

Since the individual always assigns value to economic goods, the individual also determines the measure of that value. The method of valuation remains consistent amongst all individuals. They simply assign an ordinal ranking to all economic goods. Of course that ranking generally only applies to the goods with which they engage in exchange.

No definitive measure of value exists apart from the preferences of individuals.

Value Revealed by Exchange

I have included the first part of the discussion of exchange in my discussion of value because it is through exchange that economic actors reveal relative values. Before an exchange occurs economic actors and observers have no real clue as to the relative values of various economic goods. After an exchange occurs, however, we can say with certainty that each party to the exchange values what they got more than what they gave.

We have no way of assigning a unit to the degree with which they value one thing over another, but we do have objective evidence of the relative preferences. That evidence appears in the form of a price, which we will discuss in depth later.

Individuals and Value

Because value lies at the core of economic activity and individuals provide the source and measurement of value, individuals play a central role in all economic activity. It could be said that economics represents the study of exchanges that fulfill the values of individuals.

I will begin to discuss exchanges in a bit more detail in later posts.


Next, I will begin a discussion of the Conflicting Value Theories.

Flocking Markets

What does a flock of birds have to do with markets?

Probably not a whole lot.

But, they do have a lot to teach us about the behavior of markets and other complex living systems, e.g. individual humans, neighborhoods, markets and a flock of birds.

Flocks of birds, like the one in this video, consist of ten, hundreds, and maybe thousands of bird, each acting individually without external controls. Yet, they perform these amazing, intricate, maneuvers without crashing into one another. Does that mean that these bird-brains study massive instruction manuals full of rules? Do they have flight controllers in a tree near by, guiding their every move with broadcast signals?

It seems that very simple rules can guide these complex systems. Students of complex systems have built computer models that emulate the flocking behavior. Without the benefit of interviewing the participating birds, modelers have succeeded in building models that behave very much like flocking birds with only a few simple rules. One such model uses only three rules:

1. Separation – avoid crowding neighbors (short range repulsion)
2. Alignment – steer towards average heading of neighbors
3. Cohesion – steer towards average position of neighbors (long range attraction)

See description of Flocking Behavior.

Might the people who believe that markets require extensive regulation and supervision — to prevent crashes and collisions — have it all wrong? Could markets — composed of large numbers of individuals acting in their own self-interest, just like the birds — operate far more efficiently than the highly regulated markets we have today.

Consider three possible rules:

1. Live your life and allow others to live theirs.
2. Exercise your liberty by taking responsibility for your actions and expect others to do the same.
3. Do what you want with your own property and leave other people’s property alone.

Oh, of course, that would not work. People all have such self-destructive tendencies. Markets require outside intervention — and lots of it. After all, the market participants don’t have the mental capacity of birds.