“We’re the country that built the intercontinental railroad,” Obama says. “So how can we now sit back and let China build the best railroads?”

I guess Obama doesn’t know that the transcontinental railroad was a Solyndra-like Big Government scandal. The railroad didn’t make economic sense at the time, so the government subsidized construction and gave the companies huge quantities of the best land on the continent. As we should expect, without market discipline—profit and loss—contractors ripped off the taxpayers. After all, if you get paid by the amount of track you lay, you’ll lay more track than necessary.

Crédit Mobilier, the first rail construction company, made enormous profits by overcharging for its work. To keep the subsidies flowing it made big contributions to congressmen.

Where have we heard that recently?

The transcontinental railroad lost tons of money. The government never covered its costs, and most rail lines that used the tracks went bankrupt or continued to be subsidized by taxpayers. The Union Pacific and Northern Pacific—all those rail lines we learned about in history class—milked the taxpayer and then went broke.

One line worked. The Great Northern never went bankrupt. It was the railroad that got no subsidies.

We need infrastructure, but the beauty of leaving most of these things to the private sector—without subsidies, bailouts, and other privileges—is that they would have to be justified by the profit-and-loss test. In a truly free market, when private companies make bad choices, investors lose their own money. This tends to make them careful.

By contrast when government loses money, it just spends more and raises your taxes, or borrows more, or inflates. Building giant government projects is no way to create jobs. When government spends on infrastructure, it takes money away from projects that consumers might think are more important. When government isn’t killing jobs by sucking money out of the private sector, it kills jobs by smothering the private sector with regulation. I talked to Peter Schiff about all this. Schiff is a good authority because he was one of the few people to warn of the housing bust. Now he’s had a run-in with the federal government over job creation.

Schiff, who operates a brokerage firm with 150 employees, recently complained to Congress that “regulations are running up the cost of doing business, and a lot of companies never even get started because they can’t overcome that regulatory hurdle.”

Schiff claims he would have hired a thousand more people but for regulations.

“I had a huge plan to expand. I wanted to open up a lot of offices. I had some capital to do it. I had investors lined up. My business was doing really well. But unfortunately, because of the regulations in the securities industry, I was not able to hire.”

People don’t appreciate the number of regulations entrepreneurs face. Schiff pays ten people just to try to figure out if his company is obeying the rules.

“Even my brokers . . . find out that maybe 20 percent, 30 percent of their day is involved in compliance-related activity, activity that is inhibiting their productivity. . . . All around the country, people are complying with regulations instead of producing, instead of investing and growing the economy. They’re trying to survive the regulations,” he said.

This is no way to create jobs or wealth. Keynesian pundits and politicians can’t understand why businesses sit on cash rather than invest and hire unemployed workers. It’s really no mystery. Government is in the way.

Was it worth it?

Yes, in many ways, says author Ann Coulter. No, says Reason magazine editor Matt Welch.

“There’s no reason at all that the bureaucratization of security is going to make us any more safe,” Welch said. “All we have to do is go on an airplane . . . to see that there’s a difference between security and security theater, between federalizing a problem and actually solving the problem.”

Coulter thinks the government got lots of things right.

“Whatever liberals screamed bloody murder about was very important on the war on terrorism,” she said. “I think Iraq was a crucial part . . . .” Welch dissented.

“We’re on the verge of bankruptcy. . . . We are at the sort of tipping point of imperial overstretch.”

Imperial overstretch? Welch has a point. Politicians talk about tight budgets, but National Defense Magazine recently ran this headline: “Homeland Security Market Is Vibrant Despite Budget Concerns.” I fear this is the military-industrial complex President Eisenhower warned us about. Military contractors collude with politicians to keep the money flowing.

I blame the politicians. The contractors just do what they’re supposed to do. The politicians are supposed to spend our money well. They don’t.

After 9/11 the Senate voted 100 to zero to federalize airport security. Then-Sen. Tom Daschle said, “You can’t professionalize if you don’t federalize.”

Nonsense. Before the TSA was created private contractors paid airport inspectors not much more than minimum wage. They weren’t very good. Now we spend five times as much, and they’re still not very good.

Today even the TSA knows that private security is better. In one of its own tests its screeners in Los Angeles missed 75 percent of the explosives planted by inspectors. In San Francisco, one of the few cities allowed to have privately managed security, screeners missed 20 percent.

In a reasonable world the government would disband the TSA and move to a private competitive system.

But we live in a Big Government world.

The Health of the State

Randolph Bourne, who opposed U.S. entry into World War I, said, “War is the health of the state.” He meant that in war, government grows in power and prestige—and freedom shrinks. As Freeman columnist Robert Higgs of the Independent Institute documents in Crisis and Leviathan, government never recedes to its prewar dimensions.

Shortly after September 11, Sen. Charles Schumer declared that the “era of a shrinking federal government is over.” This was more nonsense. The government hadn’t been shrinking. But for politicians like Schumer 9/11 was an excuse to take more power. Price was no object.

I can’t tell you what Homeland Security does with your money. Much of its spending is secret. Certainly much is wasted. The department made a big fuss over its color-coded airport security system, then scrapped it because it provided “little practical information.” The department spent billions on things like special boats to protect a lake in Nebraska, all-terrain vehicles for a small town in Tennessee and 70 security cameras for a remote Alaskan village.

That’s what politicians do. Members of Congress say, “You want my vote? You’d better give my district some cash.” And when people are scared, they let bureaucrats spend.

This played into Osama bin Laden’s hands. In one videotaped message he talked about “bleeding America to the point of bankruptcy.”

The attacks on 9/11 were largely a failure of government. Our so-called “intelligence agencies” knew nothing about the plot. The Immigration and Naturalization Service, charged with keeping track of foreigners who overstay their visas, did not pay attention to the 19 hijackers. And as Rep. Ron Paul points out, history did not begin on September 11. Part of the failure was America’s interventionist foreign policy, which needlessly made enemies.

So government failed on 9/11, and yet the politicians’ answer to failure is always the same: Give us more money and power. And we do. When will we learn?

That famous line, attributed to many authors but apparently said by humorist Henry Wheeler Shaw (aka Josh Billings), applies to history as much as anything.

What liberates oppressed people? I was taught it’s often American power. Just the threat of our military buildup defeated the Soviet Union, and our troops in the Middle East will create islands of freedom.

Unlikely, says historian Thaddeus Russell, author of A Renegade History of the United States.

“As a matter of fact,” Russell told me, “in general American military intervention has increased anti-Americanism and hardened repressive regimes. On the other hand, American popular culture—what was often called the worst of our culture in many cases—has actually done more for liberation and our national security than anything that the 82nd Airborne could do.”

I told him that I thought that the Soviet Union collapsed because the Soviets spent so much trying to keep pace with Ronald Reagan’s military buildup.

Pop Culture Revolution

On the contrary, Russell said. “It collapsed from within. . . . People simply walked away from the ideology of communism. And that began especially when American popular culture—jazz and rock and roll—began infiltrating those countries after World War II.”

I demanded evidence.

“American soldiers brought jazz during World War II to the Eastern front. Soviet soldiers brought it back. Eastern European soldiers brought it and spread it across those countries. . . . Stalin was hysterical about this.”

The authorities were particularly concerned about young people performing and enjoying sensual music.

“Any regime at all depends on social order to maintain its power. Social order and sensuality, pleasures of the body, are often at odds. Stalin and his commissars understood that,” Russell said.

American authorities 30 years earlier also feared the sensuality of black music, said Russell, attacking jazz “as primitive jungle music that was bringing down American youth. Stalin and his commissars across Eastern Europe said exactly the same things with the same words later.”

Then rock ‘n’ roll came.

“That was even more threatening,” Russell said. “By the 1980s, disco and rock were enormously popular throughout the communist world.”

The communists realized they had to relax the rules or risk losing everything, but it was too late. One of the most amazing and significant spectacles was Bruce Springsteen’s concert in East Germany in 1988, when a crowd of 160,000 people who lived behind the Iron Curtain sang “Born in the USA.”

Make Nikes, Not Guns

I’m skeptical. I don’t know how much effect Reagan’s military buildup had versus rock ‘n’ roll, but I bet ordinary consumer goods had an even bigger effect. People trapped behind communist lines wanted the stuff we had. When I was in Red Square before the fall of communism, I sold my Nikes and jeans to eager buyers.

People want choices, and you can’t indoctrinate that out of them.

Which leads me to the most destructive myth about history: the idea that if we are to prosper, government must make smart plans for us. I was taught that in college, and despite the failure of the Soviet Union, many government leaders still believe it.

It’s no coincidence that the countries with the least economic freedom, according to the Heritage Foundation—Cuba, Zimbabwe, North Korea—are the worst places to live. They not only lack freedom, they are also poor.

Who’s at the top of the economic freedom list? Hong Kong. (The United States is ninth.) Hong Kong has low taxes, and as I demonstrated in an ABC special years ago, the government makes it easy to become an entrepreneur. I got permission to open a business there in one day. In my hometown, New York City, it takes months.

Hong Kong doesn’t even have democracy, but because its rulers protected people’s personal safety and property and left them otherwise free, Hong Kong thrived. In 50 years it went from horrible poverty to income levels that are among the highest in world. Prosperity, thanks to economic freedom.

We should try that here.

They’re all college dropouts.

Richard Branson, Simon Cowell, and Peter Jennings?

They never went to college at all.

But today all kids are told: To succeed, you must go to college.

Hillary Clinton tells students: “Graduates from four-year colleges earn nearly twice as much as high school graduates, an estimated $1 million more.”

We hear that from people who run colleges. And it’s true. But it leaves out some important facts.

That’s why I say: For many people, college is a scam.

I spoke with Richard Vedder, author of Going Broke by Degree: Why College Costs Too Much, and Naomi Schafer Riley, who just published Faculty Lounges and Other Reasons Why You Won’t Get the College Education You Paid For.

Vedder explained why that million-dollar comparison is ridiculous:

“People that go to college are a different kind of people . . . [more] disciplined . . . smarter. They did better in high school.”

They would have made more money even if they never went to college.

Riley says some college students don’t get what they pay for because their professors have little incentive to teach.

“You think you’re paying for them to be in the classroom with you, but every hour a professor spends in the classroom, he gets paid less. The incentives are all for more research.”

The research is often on obscure topics for journals nobody reads.

Also, lots of people not suited for higher education get pushed into it. This doesn’t do them good. They feel like failures when they don’t graduate. Vedder said two out of five students entering four-year programs don’t have a bachelor’s degree after year six.

“Why do colleges accept [these students] in the first place?”

Because money comes with the student—usually government-guaranteed loans.

“There are 80,000 bartenders in the United States with bachelor’s degrees,” Vedder said. He says that 17 percent of baggage porters and bellhops have college degrees, as do 15 percent of taxi and limo drivers.

It’s hard to pay off student loans with jobs like those. These days, many students graduate with big debts.

Entrepreneur Peter Thiel, who got rich helping to build useful things like PayPal and Facebook, is so eager to wake people up to alternatives to college that he’s paying students $100,000 each if they drop out of college and do something else, like start a business.

“We’re asking nothing in return other than meetings so we make sure [they] work hard, and not be in school for two years,” said Jim O’Neill, who runs Thiel’s foundation.

For some reason this upsets the left. A Slate.com writer called Thiel’s grant a “nasty idea” that leads students into “halting their intellectual development . . . maintaining a narrow-minded focus on getting rich.”

But Darren Zhu, a grant winner who quit Yale for the $100,000, told me, “Building a start-up and learning the sort of hardships that are associated with building a company is a much better education path.”

I agree. Much better. Zhu plans to start a biotech company.

What puzzles me is why the market doesn’t punish colleges that don’t serve their customers well. The opposite has happened: Tuitions have risen four times faster than inflation.

“There’s a lot of bad information out there,” Vedder replied. “We don’t know . . . if [students] learned anything” during their college years.

“Do kids learn anything at Harvard? People at Harvard tell us they do. . . . They were bright when they entered Harvard, but do . . . seniors know more than freshmen? The literacy rate among college graduates is lower today than it was 15 or 20 year ago. It is kind of hard for people to respond in market fashion when you don’t have full information.”

Despite the scam, the Obama administration plans to increase the number of students getting Pell grants by 50 percent. And even a darling of conservatives, New Jersey Gov. Chris Christie, says college is a must: “Graduating from high school is just the first step.”

We need to wake people up.

Licensing, for example, prices poor people out of business.

Take taxis: in New York City, you have to buy a license, or “medallion.” New York restricts the number of medallions so tightly that getting one costs hundreds of thousands of dollars.

“There are not many black-owned taxis in New York City,” George Mason University economist (and Freeman columnist) Walter Williams told me. “But in Washington, most are owned by blacks.” Why? Because in Washington, “it takes $200 to get a license to own and operate one taxi. That makes the difference.”

Regulation hurts the people the politicians claim to help.

People once just went into business. But now, in the name of “consumer protection,” bureaucrats insist on licensing rules. Today, hundreds of occupations require expensive licenses. Tough luck for a poor person getting started.

Ask Jestina Clayton. Ten years ago she moved from Africa to Utah. She assumed she could support her children with the hair-braiding skills she learned in Sierra Leone. For four years she braided hair in her home. She made decent money. But then the government shut her down because she doesn’t have an expensive cosmetology license that requires 2,000 hours of classroom time—50 weeks of useless instruction. The Institute for Justice (IJ), the public-interest law firm that fights such outrages, says “not one of those 2,000 hours teaches African hair-braiding.”

IJ lawyer Paul Avelar explained that “the state passed a really broad law and left it to the cosmetology board to interpret.”

Guess who sits on the cosmetology board. Right: cosmetologists.

And they don’t like competition.

One day, Jestina received an email.

“The email threatened to report me to the licensing division if I continued to braid,” she told me.

This came as a shock because she had been told that what she was doing was legal. Twice, in fact.

No customers complained, but a competitor did.

One cosmetologist claimed that if she didn’t go to school she might make someone bald.

But this is nonsense—hair-braiding is just . . . braiding. If the braid is too tight, you can undo it.

The cosmetology board told Jestina that if she wanted to braid hair without paying $18,000 to get permission from the board, she should lobby the legislature. Good luck with that. Jestina actually tried, but no luck. How can poor people become entrepreneurs if they must get laws changed first?! Jestina stopped working because she can’t afford the fines.

“The first offense is $1,000,” she said. “The second offense and any subsequent offense is $2,000 each day.”

“It is not unique to Utah,” Avelar added. “There are about 10 states that explicitly require people to go get this expensive, useless license to braid hair.”

Fortunately, IJ’s efforts against such laws have succeeded in seven states. Now it’s in court fighting for Jestina, which, appropriately, means “justice” in her native language.

Once upon a time, one in 20 workers needed government permission to work in their occupation. Today, it’s one in three. We lose some freedom every day.

“Occupational licensing laws fall hardest on minorities, on poor, on elderly workers who want to start a new career or change careers,” Avelar said. “[Licensing laws] just help entrenched businesses keep out competition.”

This is not what America was supposed to be.

Yet I can think of someone who deserves very little privacy—a policeman making an arrest. Unfortunately it’s a crime in some states to make a video of a policeman doing just that. People recording police have been threatened, detained, or arrested. Some were jailed overnight.

That’s wrong. Police work for the public, they’re paid with tax money, and most importantly, they have tremendous power. They’ve got the legal right to pull guns, detain us, lock us up and, in some cases, shoot us. The potential for abuse is great. So it’s a good thing that modern video cameras are now so commonplace. Any abuse of police power in a public place is likely to be recorded. Why should that be a crime in some states?

I asked Radley Balko, an editor at Reason magazine who keeps an eye on issues like this: What’s happened to the people who were arrested for videotaping cops at work?

“In most of these cases, the people aren’t actually prosecuted,” Balko said. “The charges tend to get dropped before these cases get to trial—I think because the people prosecuting these cases and the people who make the laws don’t want the laws to actually get challenged. But it’s a night in jail.”

On what charge?

“In states that have these two-party consent laws, they rely on the old wiretapping laws. The claim is that police officers have a right to privacy while they’re on the job in public exercising some pretty powerful responsibilities that we give them. I think that claim is ridiculous.”

He says some authorities now claim that people who record the police while being arrested are “interfering with arrest or . . . refusing to obey a lawful order, if they tell you to turn the camera off and you don’t.”

How does it interfere with the arrest?

“It’s a ridiculous argument. But here’s the thing: You may not go to jail for these charges. But they’re going to take your camera, going to arrest you, you’re going to be handcuffed, put in the back of a squad car. And nothing is going to happen to the police officers who illegally arrest you—usually.”

Occasionally a cop caught abusing his power is arrested or fired. But that’s rare.

In Maryland, motorcyclist Tony Graber got in trouble for recording a cop who pulled him over for speeding. Graber didn’t know it was a cop. He was just a guy in plain clothes with a gun. The cop eventually identified himself.

“Graber didn’t get arrested until he posted that video on YouTube,” Balko explained. “Once he posted it . . . the state police raided his home—came into his home early in the morning, guns drawn—confiscated a bunch of computer equipment, held him and his parents at gunpoint, arrested him. He spent several nights in jail. He had felony charges hanging over his head until the case finally got to court.”

Fortunately, a state judge threw out the charges and wrote a strong opinion:

“Those of us who are public officials and are entrusted with the power of the state should not expect our actions to be shielded from public observation.”

He ended by asking, “Who watches the watchmen?”—a question Plato raised in The Republic. Good for the judge. But Balko points out that no one punished the authorities who abused their power.

“The prosecutor who charged him, the cops who raided him and arrested him—they were all wrong about the law and did real harm to him, and none of them are going to suffer any consequences.”

New York City released its list recently at the New York Times’ request. It included “dozens of boldface names and public figures: prominent business leaders, elected officials, celebrities, journalists, judges and lawyers,” the Times reported. It then named names.

People who want the lists made public say the disclosure is necessary to ensure that government doesn’t issue permits to felons. They point to an AP report that gun permits were given to hundreds of felons in Florida, Tennessee, and Indiana. So because government is not competent enough to obey its own rules, the rest of us must have our privacy compromised?

I don’t buy it.

As Richard Pearson of the Illinois State Rifle Association says: “There is no legitimate reason for anyone to have access to the information. The safety of real people is at stake here. Once this information is released, it will be distributed to street gangs and gun-control groups, who will use the data to target gun owners for crime and harassment.”

Good point. One nice thing about concealed weapons is that even people who don’t carry guns are safer because the muggers can’t tell who is armed and who isn’t. Releasing the list of permit-holders undermines that benefit. It’s not unusual for a woman who has been threatened by an ex-husband or boyfriend to obtain a gun and a carry permit for self-protection. Why should the threatening male get to find out if the woman is armed?

The anti-gun lobby downplays this danger as though it were inconceivable that someone would get names off a list in order to commit violence. However, we know of cases where people named on sex-offender registries were murdered.

We also know that lawful gun owners in New Orleans had their guns confiscated by government authorities after Hurricane Katrina.

No one should be soothed by assurances that publication of those lists poses no threat to law-abiding gun owners.

The only reason that governments have lists of gun owners is that they require licenses or concealed-carry permits. The right to self-defense, and therefore the right to buy and carry a handgun (the most effective means of self-defense), should require no one’s permission. It is a natural right. The Second Amendment didn’t invent the right to own guns. It merely recognized it: “[T]he right of the people to keep and bear arms shall not be infringed.” It doesn’t say, “The people shall have the right to keep and bear arms.”

Unfortunately, the Supreme Court, while striking down outright bans on handguns, left room for permits. But it’s hard to see how that is consistent with the natural right of self-defense.

I leave aside whether a felon who has served his sentence should be deprived of the means of self-defense because there’s a more practical point: Gun laws have no effect on people who plan to break other, more serious laws. Guns are the tools of the criminal trade. If people in that business can’t get them legally, they’ll get them in the black market. And where there is prohibition, there has always been a black market.

The law of supply and demand is as reliable as the law of gravity.

You’d probably say, “We need regulation—skating stoplights, speed limits, turn signals—and a rink director to police the skaters. You can’t expect skaters to navigate the rink on their own.”

And yet they do. They spontaneously create their own order.

At last January’s State of the Union, President Obama said America needs more passenger trains. How does he know? For years, politicians have promised that more of us will want to commute by train, but it doesn’t happen. People like their cars. Some subsidized trains cost so much per commuter that it would be cheaper to buy them taxi rides.

The grand schemes of the politicians fail and fail again.

By contrast, the private sector, despite harassment from government, gives us better stuff for less money—without central planning. It’s called a spontaneous order.

Lawrence Reed, president of FEE, explains it this way:

“Spontaneous order is what happens when you leave people alone—when entrepreneurs . . . see the desires of people . . . and then provide for them.

“They respond to market signals, to prices. Prices tell them what’s needed and how urgently and where. And it’s infinitely better and more productive than relying on a handful of elites in some distant bureaucracy.”

This idea is not intuitive. Good things will happen if we leave people alone? Some of us are stupid—Obama and his advisers are smart. It’s intuitive to think they should make decisions for the wider group.

“No,” Reed responded. “In a market society, the bits of information that are needed to make things work—to result in the production of things that people want—are interspersed throughout the economy. What brings them together are forces of supply and demand, of changing prices.”

The personal-computer revolution is a great example of spontaneous order.

“No politician, no bureaucrat, no central planner, no academic sat behind a desk before that happened, before Silicon Valley emerged and planned it,” Reed added. “It happened because of private entrepreneurs responding to market opportunities. And one of the great virtues of that is if they don’t get it right, they lose their shirts. The market sends a signal to do something else. When politicians get it wrong, you and I pay the price.

“We have this ingrained habit of thinking that if somebody plans it, if somebody lays down the law and writes the rules, order will follow,” he continued.

“And the absence of those things will somehow lead to chaos. But what you often get when you try to enforce mandates and restrictions from a distant bureaucracy is planned chaos, as the great economist Ludwig on Mises once said. We have to rely more upon what emerges spontaneously because it represents individuals’ personal tastes and choices, not those of distant politicians.”

But recently some college kids started drinking pre-mixed combos of alcohol and caffeine with names like Four Loko and Moonshot ’69. Moonshot ’69 is a pilsner beer with less than a coffee cup’s worth of caffeine. Until recently, Four Loko contained 12 percent alcohol—about the same as wine—and as much caffeine as a cup of coffee. A few students, after drinking Four Loko, landed in the hospital with alcohol poisoning. Naturally, hysterical news reports followed.

A new bogeyman was born: caffeinated alcoholic beverages.

As night follows day, the Food and Drug Administration in November ordered beverage companies to lose the caffeine or shut down. The FDA called caffeine an “unsafe food additive.” Phusion Products says it will now produce only noncaffeinated Four Loko. Moonshot ‘69 is off the market for now, which is bad news for Rhonda Kallman, who founded the company that makes it, New Century Brewing.

“There is nothing new about adults combining caffeine and alcohol,” Kallman writes on her company website. “Who hasn’t enjoyed a rum and Coke, Irish coffee, Kahlua or espresso martini? . . . Moonshot ‘69 is a beer for beer drinkers that has been enjoyed by craft-beer lovers since 2004.”

Her online petition states: “We the undersigned support the right of responsible adults to choose the beer of their choice. We support Moonshot ‘69 and the rights of craft brewers across the country to produce new and innovative offerings for the beer drinking public. . . . We call on the federal government to adhere to responsible regulation of alcoholic beverages that allows adults to enjoy the beer of their choice.”

Unfortunately, Kallman tries to separate her product from higher-alcohol FDA targets, but Nick Gillespie of Reason magazine argues that the FDA has no business limiting the sale of any of the alcohol/caffeine combos.

“This has been going on for as long as there have been colleges and universities,” he said. “You can go back to the Middle Ages, and booze and students go together like, I guess, beer and caffeine.”

Forced Underground

Aren’t some drinks more dangerous than others?

“I don’t think so. But when we raised the drinking age to 21 . . . we told young people . . . you can vote, you can enter a contract, you can go to war, you can die for your country, but if you want to drink and you’re going to college, you better go off campus into a basement apartment somewhere and chug like there’s no tomorrow because you don’t know when you’re going to be able to get drunk again.”

He points out that by forbidding pre-21 adults from drinking openly around their elders, we deny them the chance to be exposed to responsible drinking.

About the ban on caffeinated alcoholic drinks, he added, “You can’t minimize the overreach by the FDA.”

I asked the FDA why Moonshot ’69 is included on the ban list when it’s not marketed to pre-21 adults and it contains less alcohol than more sugary drinks. They replied that Moonshot was referred to the agency by state attorneys general concerned about alcohol and caffeine. The FDA asked New Century Brewing for data indicating the legal standard for safety had been met, but no data was provided.

Kallman points out that the FDA “didn’t fully research it either. So they put the onus on the small entrepreneur to have a scientist. But at the end of the day, it’s 5 percent alcohol by volume and less than a half a cup of coffee of natural caffeine. Where will they stop?”

Never. Government never stops.

Gillespie added, “What we should be having instead of bans [of] beverages that people like and . . . consume responsibly is . . . a national conversation about how, after a couple of hundred years of the American experiment, we can get past the prohibitionist mindset and teach people how to drink responsibly like they do in France, Italy, Spain and many other parts of the world.”

I first met de Soto maybe 15 years ago. It was at one of those lunches where people sit around wondering how to end poverty.

I go, but I’m skeptical. There sits de Soto, president of the Institute for Liberty and Democracy in Peru, and he starts pulling pictures out showing slum dwellings built on top of each other. I wondered what they meant.

As de Soto explained, “These pictures show that roughly 4 billion people in the world actually build their homes and own their businesses outside the legal system. . . . Because of the lack of rule of law [and] the definition of who owns what, and because they don’t have addresses, they can’t get credit [for investment loans].”

They don’t have addresses?

“To get an address, somebody’s got to recognize that that’s where you live. That means . . . you’ve got a mailing address. . . . When you make a deal with someone, you can be identified. But until property is defined by law, people can’t . . . specialize and create wealth. The day they get title [is] the day that the businesses in their homes, the sewing machines, the cotton gins, the car repair shop finally gets recognized. They can start expanding.”

That’s the road to prosperity. But first they need to be recognized by someone in local authority who says, “This is yours.” They need the rule of law. But many places in the developing world barely have law. So enterprising people take a risk. They work a deal with the guy on the first floor, and they build their house on the second floor.

“Probably the guy on the first floor, who had the guts to squat and make a deal with somebody from government who decided to look the other way, has got an invisible property right. It’s not very different from when you Americans started going west, [but] Americans at that time were absolutely conscious of what the rule of law was about,” de Soto said.

Americans marked off property, courts recognized that property, and the people got deeds that meant everyone knew their property was theirs. They could then buy and sell and borrow against it as they saw fit.

This idea of a deed protecting property seems simple, but it’s powerful. Commerce between total strangers wouldn’t happen otherwise. It applies to more than just skyscrapers and factories. It applies to stock markets, which only work because of deed-like paperwork that we trust because we have the rule of law.

Is de Soto saying that if the developing world had the rule of law it could become as rich as we are?

“Oh, yes. Of course. But let me tell you, bringing in the rule of law is no easy thing.”

De Soto says we’ve forgotten what made us prosperous. “But [leaders in the developing world] see that they’re pot-poor relative to your wealth.” They are beginning to grasp the importance of private property.

Let’s hope we haven’t forgotten what they are beginning to learn.