The Freeman | Ideas On Liberty » William H. Peterson

Free Trade: Key to Peace and Prosperity

William H. Peterson — Thu, 01 Jan 2004 08:00:00 +0000

Contributing editor William Peterson (whpeterson@ aol.com) is an adjunct scholar with the Heritage Foundation.

At a time of international tension and a so-so economy, we are fortunate that the Federal Reserve Bank of Dallas has issued its essay (online or in hard copy) “The Fruits of Free Trade.”

It comes from the Dallas Fed’s 2002 annual report, and it carries a simple strategy for peace and prosperity in two words: free trade. The freer the trade the better. The essay should be required reading for those Bush White House officials who not long ago engineered higher tariffs on foreign steel and Canadian lumber—auto and house buyers be damned. The essay, complete with 14 statistical exhibits in color, has a front cover unlike any district Federal Reserve Bank report I’ve seen in my professional career: There in living color is a photo of an enticing global fruit basket, its contents available from your supermarket (as explained in the text): apples from New Zealand, apricots from China, bananas from Ecuador, blackberries from Canada, blueberries from Chile, coconuts from the Philippines, and so on. (For the online version, see http://www.dallasfed.org/fed/annual/2002/ ar02.pdf.)

Moreover, its two authors, W. Michael Cox, senior vice president and chief economist at the Dallas Fed, and Richard Alm of the Dallas Morning News, open up their secret to garnering wealth for both the individual and society. They do it as if they were ancient Greek visitors to the Oracle at Delphi, asking her how to get rich. Study hard? Work hard? “Probably not,” they respond to their own rhetorical questions, adding: “Diligence and intelligence are strategies for improving one’s lot in life, but plenty of smart, hard-working people remain poor.”

So Cox and Alm put the Oracle’s counsel for getting wealth into just two short sentences: Do what you do best. Trade for the rest. In other words, in life they suggest that you play a pro-growth win-win positive-sum game as you trade your productivity for the productivity of others—wherever they may be located, here or abroad. So their formula works for both the individual and society, including nations and the global society. It has no truck for the common if simplistic bumper sticker (usually shown with an image of the Stars and Stripes): “Buy American. The Job You Save May Be Your Own.” Such protectionism winds up as an anti-growth win-lose zero- or even negative-sum game.

Indeed, Exhibit 1 makes the point that over the last three decades, a period of U.S. economic growth, rising living standards, and creation of 50 million new jobs, trade in goods and services (exports plus imports) increased from 11 percent to roughly 30 percent of GDP, while U.S. capital flows more than tripled. So the authors reject the idea that exports are good because they support U.S. industry while imports are bad because they steal business from domestic producers. Actually, as Cox and Alm argue (as did Adam Smith in The Wealth of Nations), we don’t produce to produce—but to consume.

Look, say the authors: Yes, exports are resources we don’t consume at home, but they are how we pay for much of what we purchase overseas. In the end, cheaper and better imported goods and services are the pay-off to America and Americans. Consumers here and abroad are the win-win winners, as world competition presses producers everywhere to keep their prices competitive and their output at the highest quality feasible.

That competitive pressure, hold the authors, causes Ford to produce cars in 17 countries, with nearly three-fourths of its production occurring outside the United States. This pressure is reflected in the 2001 Honda Civic produced here in the United States with a get-it-where-you-can 75 percent domestic content, or in the 2001 Ford Escort produced here with a 60 percent domestic content. All that pressure is of course aimed at winning sales, at wooing the sovereign consumer with his make-or-break purchases.

Exhibit 7 shows how production in open-market societies far outpaces that in controlled or planned societies, pretty much proving that economic freedom and rising per capita consumption go together like the proverbial horse and carriage. The exhibit ranks two side-by-side, nation-by-nation rating graphs by the Heritage Foundation along with the Wall Street Journal and by the Fraser Institute of Vancouver, British Columbia, in terms of the degree of state intervention and the height of related output. The point of Exhibit 7: Country by country it follows that the less trade intervention, such as tariffs and import quotas, the higher the average individual consumption and standard of living.

North versus South Korea

Cox and Alm tell a tale of two nations. One is North Korea, with about the lowest economic freedom in the world. Its per capita income averages just $950 annually, with many North Koreans trying to escape across the border into China. South Koreans, on the other hand, enjoy the bounty of a rather free-enterprise economy, with its per capita income of $11,428—or 12 times that of North Korea.

My only “but” about this remarkable and most welcome essay is its inadvertent lack of the peace-inducing implications of free trade and investment. For the nice fact is that no seller goes around shooting, bombing, or terrorizing his customers. IBM caught this implication in its old motto, “World Peace Through World Trade.” Or as the Old Testament caught it: “They shall beat their swords into plowshares, and their spears into pruninghooks.”

Robert D. McTeer, Jr., president and CEO of the Dallas Fed, in a comment on the essay, relates the observation “attributed to economist Henry George that protectionists want to do to their own country during peacetime what the country’s enemies would wish to do to it during wartime—that is, close its borders to imports.”
Hear, hear.

Leviathan: America’s Secret Challenge

William H. Peterson — Mon, 01 Jul 2002 08:00:00 +0000

How helpful of physicist S. Fred Singer, head of the Washington area-based Science and Environmental Policy Project, to restore the idea of “hormesis.” Hormesis is the principle that things beneficial to life in low doses can be fatal in high doses.

Singer mentions such things as alcohol, sunshine, iodine, sodium, iron, copper, cholesterol, and nuclear radiation (as involved in low-dose X-rays). Excessive food can kill: obesity can lead to a heart attack. The same could be said of excessive exercise. Singer similarly sees bacteria as a possibly constructive agent since a totally sterile environment could cause an unchallenged healthy immune system to deteriorate.

Well, this raises quite a question: Is not government itself hormetic?

Wasn’t Thomas Paine onto something in his Common Sense (1776) in seeing government as “a necessary evil”? Cannot excessive government be fatal to human life? Indeed. Recall the fatal regimes of Germany under Hitler, the Soviet Union under Stalin, and China under Mao in the twentieth century.

Thus America, apart from the entire West, faces a rather silent if potentially deadly challenge: Can it reverse direction from its march to a broadening “public” (read coercive) sector ever away from a shrinking private (read voluntary) sector and thereby stop courting a hormetic ending?

Look, Peterson, say my critics: Stop playing Cassandra. Go outside and enjoy the summer. Didn’t we all enjoy the 2002 Winter Olympics out of Salt Lake City? I respond with some lines from Alexander Pope:

Vice is a monster of so frightful mien,

As to be hated needs but to be seen;

But seen too oft, familiar with her face,

We first endure, then pity, then embrace.

Look. Did not the Founding Fathers, themselves close students of history, wrestle with hormetics so as to better guide us today? Hence did they not set down such things as checks and balances in government so as to limit its powers (as specified and enumerated in Article 1, Section 8, in the U.S. Constitution); provide a written constitution; a bicameral legislature; a tripartite central government of legislative, executive, and judicial branches; shared power with the states; and the Bill of Rights’ Ninth and Tenth Amendments, leaving no doubt of their limited-government aims, per:

The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

So the strangely silent challenge for America in 2002 and beyond is, I submit, to reverse course and get back to the limited-government philosophy of the Declaration of Independence of 1776, the Constitution of 1787, and the Bill of Rights of 1791. Recall the ringing libertarian language of Thomas Jefferson in the Declaration: “We hold these truths to be self-evident; that all men are created equal; that they are endowed by their Creator with certain unalienable rights; that among these are life, liberty, and the pursuit of happiness; that to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. . . .”

The rub with consent today is its relative absence. Did you consent to be enrolled in Social Security as Congress decreed in 1935? And what of the cited Ninth and Tenth Amendments? Hasn’t their impact been critically cut over time—unable to hold back a progressively “liberal” U.S. Supreme Court and its loose constitutional interpretations, especially after Franklin Roosevelt threatened to pack the Court in 1937? The threat worked. It led to reversals of stands by ex-diehard constitutionalist justices on such matters as the meaning of the “general welfare” clause in Article 1, Section 8. And so did the Court come to embrace the New Deal and the welfare state.

Today the irony is that the Constitution is said to be “living,” which may well mean that it is in fact dying.

Drop Leviathan

Peterson, you would reverse national direction? And how!

So, Americans all, drop Leviathan, embrace and practice liberty (a word bandied about but ill understood). Recall how Robert Higgs proved in his ace study, Crisis and Leviathan (1987), that the size and power of central government invariably grew, net, with each passing national crisis, in particular with the Civil War, World Wars I and II, the Great Depression, the Cold War, and the Great Society-Vietnam War, which set forth such programs as, says Higgs, “Medicare, Medicaid, environmental and occupational safety regulations, consumer-protection and anti-discrimination laws,
and the political forces to sustain all these programs.”

Now, presumably and sadly, comes the War on Terrorism with perhaps similar import and dosage.

Think how the prospects for reversing national direction are weakened by the War on Terrorism. Ponder if it is a winnable war or something of an open-ended impossibility. You cannot declare a war on terrorism. It’s like declaring a war on murder, says Roy Licklider, a political scientist at Rutgers University, as reported by Fox News Online (December 31, 2001). The war sounds Kafkaesque: Perpetual War for Perpetual Peace, or is it perchance Perpetual War for Perpetual Re-election? Or as Jacob Hornberger, head of the Future of Freedom Foundation, noted in his Freedom Daily in December 2001: It’s a general, undefined, perpetual war on terrorism that now constitutes the biggest obstacle to the achievement of a free society.

And that was before President Bush’s 2002 State of the Union Address in which he nailed North Korea, Iran, and Iraq as the “axis of evil,” a phrase his critics in America, Asia, and western Europe tag with such epithets as “simplistic,” “unilateralist,” and “provocative.”

Prophetic Orwell

Consider the juxtaposition of direction reversal and perpetual war—an idea that smacks of George Orwell’s 1984 and the motto of the Ministry of Truth, “War Is Peace.” The motto sounds less far-fetched in 2002.

Item: The New York Times lead story of February 19, 2002, charged that the Pentagon planned to broaden the scope of its recently created Office of Strategic Influence to “send [spin?] news or maybe false news [read disinformation] to even friendly lands,” a charge denied by Defense Secretary Donald Rumsfeld, yet a charge that confronts much history in which the first casualty of war is the truth. (Rumsfeld was forced to scrap the Office in the heat of the bad publicity.)

Certainly, reversal of national direction is harder when fazed House Republicans, sans guidance or leadership from a seemingly war-preoccupied White House, joined their Democrat counterparts to pass last February the flawed Shays-Meehan bill. The bill further violates the First Amendment while further securing member incumbency. Similar confusion or miscalculation was seen in GOP and Democrat versions of Keynesian-oriented “stimulus” bills designed to spur a lagging economy.

For America to reverse direction, then, is most challenging. The revolution was. The center cannot hold. So what, say many Americans who embrace—and vote for—the welfare state? Thus is America cursed by what Milton Friedman calls “the tyranny of the status quo.” So the center has shifted—and continues to shift—toward statism.

The national silence, including academe and the media, on this ongoing shift is deafening. Consider. The State is hormetic, and its current dosage, already high with the federal budget alone at more than $2 trillion, grows still and accelerates more with an open-ended War on Terrorism—growth hardly benign but, frankly, dangerous. Stay tuned.

Even so, the challenge to America is to work to win back the future as the Founders saw it, to roll back the size and power of government, to reinvigorate individual rights, private property rights, and the rule of law, all while preserving security, all while reclaiming the American Dream. A tall order, I agree, but please tell me if there is any other workable answer.

Contributing editor William Peterson is an adjunct scholar at the Heritage Foundation.

In Defense of Scalping

William H. Peterson — Fri, 01 Feb 2002 08:00:00 +0000

I submit that it’s not disingenuous for the Broadway producers of The Producers to say they’re trying to "strike a blow at the heart of the scalping operation" by setting aside at least 50 seats for each performance and charging a cool $480 a ticket.

That price is almost five times the $100 charged for its best seats, itself a Broadway record-yet one still too low, I further submit, as evidenced by the long lines at the box office. So this move is simply smart entrepreneurship, a service to the theater public, who may be relieved of coping with the box office or dealing with scalpers, a kind of reduction in transaction costs, in the jargon of Nobel economist Ronald Coase.

Good then that Rocco Landesman, a producer of the show, is up front, saying the scalpers’ money will now go to "the people who created the show." Good too that the move wins a nod from New York State Attorney General Eliot L. Spitzer, who favors repeal of New York’s anti-scalping laws to "let the market function." Yet, pray, apart from possible scalper payoffs, or "ice," to some theater operators, box-office employees, and theater agents to breach, sub rosa, their contracts, what’s wrong with scalping?

Nothing really. It’s simply an aspect of our market, or voluntary-exchange system. A hit’s a hit, and The Producers is a super hit. Supply and demand are at work, with here a daily fixed supply of tickets at set prices. It’s that fixed supply and those set prices that change things. Prices ration goods and services, as almost everybody knows. When demand is off, producers can cut prices, as attested by that same-day discount ticket pavilion in the middle of Times Square. But when demand is red-hot, as with The Producers, in come, at least until recently, the scalpers to collect what the market-that is, the buyers-will bear. They perform a service by saving time for those anxious to see the show without standing in long lines to do so. For isn’t the scalper but a middleman performing a valued service, despite his putdown name and often illegal but not necessarily evil status? Scalpers convert time cost into money cost for those who buy tickets from them. Outlawing scalping favors those with time to spare over those with money to spare. Why should the government take sides?

Peaceful Action

Don’t scalpers deserve their day in the court of public opinion? Aren’t they, like the rest of us, simply responding to supply and demand in one way or another. Don’t their activities come under FEE founder Leonard Read’s rubric, "anything that’s peaceful"? For isn’t this, broadly, how the New York Stock Exchange itself works-without set stock prices? Or the Chicago commodity futures market without set commodity prices? Or art and antique auctions mostly without set or "minimum" prices but with their free-bid prices? Or even your local gas station, albeit with "set" pump prices but ones subject to frequent ups or downs? Or soft realty markets, where asking prices drift down as demand eases?

Meanwhile, how nice to see ticket sales to New York theater and sporting events move onto the Internet or into Connecticut or New Jersey where scalping is legal. Let competition work its wonders. To be sure, critics cry "shame" on those who baldly cater to the well-to-do or who don’t make the theater more available to those of lesser means. Well, for the latter there are other alternatives, such as movie houses and even "free" TV.

Besides, what’s wrong with being or striving to be well-to-do? Isn’t that an economic incentive, a part of human nature, a way of the free market too?

Contributing editor William Peterson is an adjunct scholar with the Heritage Foundation.

Book Review ~ Its Getting Better All the Time: 100 Greatest Trends in the Last 100 Years by Stephen Moore and Julian L. Simon

William H. Peterson — Tue, 01 Jan 2002 08:00:00 +0000

Cato Institute • 2000 • 312 pages • $14.95 paperback

Reviewed by William H. Peterson

It’s not for nothing that economics is tagged “the dismal science.” Part of that reputation traces to its realistic no-pie-in-the-sky nature, but another part goes to the ongoing influence of thinkers like Thomas Malthus, who saw population outracing food output; Karl Marx, who saw evil capital crushing the rising working class; and John Maynard Keynes, who saw government demand-management as the only way to beat unemployment and the business cycle. (For the record, David Levy has shown that Thomas Carlyle coined the term “the dismal science” not for reasons such as those, but because the practitioners of economic science opposed racial slavery. See Ideas on Liberty, March 2000.)

More recently, noneconomists like biologist Paul Ehrlich of Stanford University, Lester Brown of the World Watch Institute, and presidential candidates Ralph Nader of the Green Party and Pat Buchanan of the Reform Party have jumped on the World-Is-Going-To-Hell bandwagon.

Here’s how Newsweek reported on “Global 2000,” a 1980 multimillion-dollar U.S. government study authorized by President Jimmy Carter: “The year: 2000. The place: Earth, a desolate planet slowly dying of its own accumulating follies. Half the forests are gone; sand dunes spread where fertile lands once lay. Nearly 2 million species of plants, birds, insects, and animals have vanished. Yet man is propagating so fast that. . . .” Well, you get the flavor of “Global 2000”; it was caught in a bumper sticker of that day: “Stop the Planet! I Want to Get Off!”

Pessimist Ehrlich has been especially wrongheaded. In 1969, on the very eve of the Green Revolution of zooming farm productivity, he foresaw that hundreds of millions of people “will starve to death,” including tens of millions in the United States. Somehow he won a MacArthur Foundation “genius” award.

Enter optimist—and realist—Julian Simon (1932–1998). Economist Simon had the annoying habit of confronting the doomers and gloomers with hard facts. He concluded that population literature was wrong, that there is no “population bomb,” that we are not running out of resources, that human beings are not only consumers but producers, and that they are indeed our “ultimate resource.”

In 1980 Simon made a famous bet with Ehrlich that the prices of any five natural resources would fall ten years hence. Ehrlich leaped at the chance—and in 1990 had to pay up.

Enter too, Stephen Moore, long a research associate of Julian Simon, and today a brilliant young economist and thinker in his own right. He prevailed on the Cato Institute to complete and publish Simon’s unfinished manuscript. The two authors set the central premise that there was likely more improvement in the human condition in the twentieth century than in all previous centuries combined.

Through more than 100 color data charts, each supported by about a page of text, they maintain that compared to previous generations, we Americans are in the great majority healthier; live longer; are richer; can afford to buy far more things; have better jobs; earn higher pay; have more time for recreation, travel, sports, and the arts; have bigger and better homes; are at much less risk from catastrophic accidents; and breathe cleaner air and drink safer water. They also show that black Americans have shared in the prosperity and that the income gap between blacks and whites is closing, as is the income gap between men and women. The authors note that at the start of the twentieth century almost no women went to college; today women are more likely to attend college than are men.

And so on and on go the upbeat trends, a welcome breath of fresh air in the dark ruminations on the dismal science. For opinion polls show that many Americans still fret about the human prospect. They regard technological change as a net negative development, worry that the income gap between the rich and the poor is wider than 100 years ago (not so), and fear that the environment is worse mainly because of the automobile (forgetting that the horse pulling a buggy or wagon was a far greater polluter than the auto). Ben Wattenberg titled his 1984 book The Good News Is The Bad News Is Wrong, and Moore and Simon succeed in proving that that really is the case.

Yes, there are also some unfavorable trends, found where government policy holds sway. Social indicators such as divorce and out-of-wedlock births are grim. Taxes are higher and government much bigger. Educational quantity is way up, but its quality is way down. Rita Simon, Julian’s widow, a faculty member at American University and author of the foreword to the book, notes that the twentieth century saw the rise of Nazism, Stalinism, and Maoism but also their fall; that in side-by-side comparisons, South Korea has been far more prosperous than North Korea, West Germany than East Germany, and Taiwan than mainland China. Government control, so often prescribed by the gloom-and-doom set, has been a dismal failure.

Maybe market economics should be renamed “the enriching science.”

William Peterson, an adjunct scholar at the Heritage Foundation, is a contributing editor to Ideas on Liberty.

Book Review ~ The Ten Things You Cant Say in America by Larry Elder

William H. Peterson — Mon, 01 Oct 2001 08:00:00 +0000

St. Martin’s Press · 2000 · 367 pages · $23.95 cloth; $14.95 paperback

Reviewed by William H. Peterson

There is hope yet for America. Larry Elder is a host of a successful talk show on KABC Radio in Los Angeles and a nationally syndicated columnist who wins the imprimatur of a major book publisher to carry a big message. As a black libertarian, he is also a breath of fresh air in his courage and plain speaking.

Elder is even something of a firebrand. Here he daringly takes on the Fortress America of Political Correctness on and off the campus, in and out of the mainline media, from and to the church pulpit. And so he assails ten supposedly unassailable yet monumentally politically correct paradigms.

Here are his topics:

Blacks Are More Racist than Whites;
White Condescension Is as Bad as Black Racism;
The Media Bias: It’s Real, It’s Widespread, It’s Destructive;
The Glass Ceiling—Full of Holes;
America’s Greatest Problem: Not Crime, Racism, or Bad Schools—It’s Illegitimacy;
There Is No Health-Care “Crisis”;
America’s Welfare State: The Tyranny of the Statist Quo;
Republicans Versus Democrats: Maybe a Dime’s Worth of Difference;
The War Against Drugs Is Vietnam II: We’re Losing This One, Too;
Gun Control Advocates: Good Guys with Blood on Their Hands.

Those are indeed things that can’t be said in most circles, but Elder argues his points with great assurance. He says out loud what Americans only whisper at the kitchen table, on the shop floor, or at the water cooler. Something has gone wrong.

We have become, he maintains, a nation of whimpering people who won’t take responsibility for our own actions, but furiously rage that the problem is always someone or something else.

Here’s a choice cut of Elder’s rhetoric: “We’ve become a nation of ‘victicrats’. . . . The glass ceiling? Nonsense. Hate crimes? All crimes are hateful. O.J. Simpson? He did it, and his defense team shamelessly used the black victicrat mentality to escape conviction.”

Let’s focus on just two of his “ten things.” First, take his argument that the War On Drugs amounts to Vietnam II—that we’re mired in a bloody and foolish conflict that can’t be won. Why, he asks, is it all right for his next-door neighbor to come home and have a martini—but a serious criminal offense to come home and smoke a joint?

Drugs, he admits, can kill, but so can alcohol. And so does tobacco, in far larger numbers. Ditto for overeating. The moral question is who is accountable to whom? Who should take responsibility—the individual or the Nanny State? Elder, of course, can’t abide the latter.

Second, what about those “holier than thou” gun controllers? For all their talk about child safety locks and “sensible” gun registration and licensing requirements, Elder asks if their ultimate aim isn’t the confiscation of privately owned weapons.

Bare fists or mace won’t do when an attacker has a gun. Elder believes you have the right to decide what sort of personal defense to own and use while the controllers think they are entitled to make that choice for you. He notes that New York has issued concealed weapons permits to Donald Trump, Laurence Rockefeller, and Howard Stern. Well, what about the baker in Queens? Or for that matter, women anywhere who are worried about violence?

Books by talk-show hosts tend to be unscholarly, but not this one. Elder has done his homework. Ten Things You Can’t Say in America is heavily documented, with many graphs and tables.

Larry Elder’s book is a triumph of common sense, with enough nerve to shake up the dreary statist quo. It is a passionate plea for limited government and personal responsibility. Let us hope to hear more from him.

Contributing editor William Peterson is an adjunct scholar at the Heritage Foundation.

Book Review ~ U.S. by the Numbers: Figuring Whats Left, Right, and Wrong with America State by State by Raymond J. Keating and Thomas N. Edmonds

William H. Peterson — Fri, 01 Jun 2001 08:00:00 +0000

Capital Books • 2000 • 960 pages • $35.00

An Entrepreneurial Revolution. This is the watchword-guidepost here of Mr. Keating, chief economist of the Washington D.C.-based Small Business Survival Committee, and Mr. Edmonds, a political media consultant and coauthor with Mr. Keating of their successful 1995 book, D.C. by the Numbers: A State of Failure.

To be sure, the Entrepreneurial Revolution sought by the authors has not been exactly dormant in America over the years, with the United States enjoying the world’s highest gross domestic product per capita. But entrepreneurship is certainly in a beleaguered state today as the country continues to grapple with the inner contradictions of the welfare state. It is those contradictions—a power struggle between the public and private sectors—that are confronted and tracked numerically by the Keating-Edmonds team both for the nation (in 71 pages) and for each of the 50 states and the District of Columbia (in 865 pages).

Nationally, the authors note a trend of government-spending increases that far outpace population growth. In other words, they see the public sector—the coercive government sector—swelling, while the voluntary sector of society shrinks, at least relatively. To wit:

From 1960 to 1997, total real government revenues—federal, state, and local—increased by 289 percent, so that government in the United States eats up today more than 31 percent of the GDP.

From 1960 to 1999, real federal payrolltax revenues increased by an estimated 614 percent.

From 1960 to 1999, real federal revenues increased by an estimated 236 percent, accounting for about two-thirds of the total government take, including some $250 billion in annual federal grants to state and localities.

Those grants are usually on a 50-50 cost-sharing basis for projects favored by Washington, a trend that does not bode well for federalism or whatever is left of states’ rights.

For example, the authors observe that in America’s welfare state (and because of welfare-state support of unwed mothers?) the portion of live births to unmarried mothers climbed from 3.5 percent in 1940 to 5.3 percent in 1960 to 18.4 percent in 1980 and to 32.4 percent in 1997. Rising illegitimacy of course adversely affects crime, health, housing, work, education, and other social and economic trends in America.

To get from here to there, to a reinvigorated Entrepreneurial Revolution, our authors suggest that federal policy abandon Keynesian-Phillips Curve inflation-employment tradeoff thinking, as well as talk of macroeconomic “aggregate demand.” “Coming from a Randian/Austrian economics background,” they write, “[Fed Chairman Alan] Green-span should know better.”

On fiscal and regulatory policy, they call for sharply lower government spending and taxation. Keating and Edmonds argue that the best capital gains tax policy is not to tax capital gains at all. They also advocate the repeal of death taxes and do not take kindly to the minimum wage, holding that it deflects hiring and on-the-job training from those who need it most.

The authors’ data on the states (including D.C.) demonstrate the acuity of their pro-market vision.

California, for example, imposes a capital gains tax rate of 9.3 percent, the highest in the country; its personal income tax rate, also 9.3 percent, is the third highest; and its corporate income tax rate of 8.84 percent is the 12th highest, an “antigrowth tax system,” charge the authors. Still, California boasts of Silicon Valley employing a million people, a healthy inflow of immigrants, and good trade access to the Pacific Rim. All in all, California is rated as having a so-so investment environment—and that’s before its current electricity imbroglio.

The book is a gold mine of data, charts, and trends that lay out a comparative competitive analysis of the United States in a global economy and of each state struggling for investment dollars and economic growth. It should prove to be an invaluable reference work for bankers, entrepreneurs, newspaper and TV-radio editors, academic and business economists, land developers, and legislators.

Contributing editor William Peterson is an adjunct scholar at the Heritage Foundation.

May Day: Classlessness and Mr. Marx

William H. Peterson — Tue, 01 May 2001 08:00:00 +0000

Contributing editor William Peterson is an adjunct scholar with the Heritage Foundation.

May Day is a signal to radical labor groups and parties the world over to take to the streets, make fiery speeches, parade, protest, demonstrate, and carry an increasingly common if bizarre placard, “Capitalism Kills.” So the holiday, set by the Second Socialist Internationale in 1889, comes to hail socialism, resurrect Karl Marx, and make way for what it has long shown itself to be: the pursuit of an idle dream—a classless society.

To be sure, Eurocommunism from East Germany to the Soviet Union collapsed in 1989-1991 and with it its “temporary dictatorship of the proletariat.” But as Nobel economist James Buchanan of George Mason University notes: “Socialism is dead; Leviathan lives.”^[1]

How so? It lives on in what British Labor Prime Minister Tony Blair tags the Third Way, in what the West accepts as the welfare state—a costly set of “social safety nets” in which state interventionism and undesignated, yet privileged state classes have become a way of life, as we’ll see.

Recall the opening thought in the Communist Manifesto by Karl Marx and Friedrich Engels (1848): “The history of all hitherto existing society is the history of class struggles. Freeman and slave, patrician and plebeian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed . . . .” But as economist Ludwig von Mises and historian Ralph Raico noted, these opposed pairs become on examination, either wholly or in part, not economic but legal classifications, a vital distinction.^[2]

Marx blamed the condition of an emerging working class on capitalism. But Marx would have been a lot sharper had he seen that that condition came not by capitalism but by its lack, that the state had already asserted its supremacy over the economy by what Adam Smith and others called mercantilism—what we now call state interventionism with its mess of attendant state-dependent classes.

Such interventionism is an assault on private property and a free society. The centrality of private property in the communist brief can be gauged from a line in the Manifesto: “The theory of the Communists can be summed up in the single sentence: Abolition of private property.”

While that abolition was largely attained under Eurocommunism and Mao’s China, a classless society somehow was not. The “temporary dictatorship of the proletariat” proved to be anything but temporary. The state did not wither away. It was at once solidified and oppressive. For Soviet recalcitrants, Siberia was both a threat and a reality. The latent Soviet class struggle—the state versus citizen—hung on for 74 years.

But what about the West and in particular the United States? Marx put forth the idea that the first step is to raise the working class “to the position of the ruling class, to win the battle of democracy.”^[3]

Win the battle of democracy? See here a slew of voter-bribing subsidies or privileges including Social Security for seniors, “public education” for youth, crop subsidies for farmers, subsidized college loans for students or targeted tax breaks for their parents, cheap federal flood insurance for farmers and landowners near the Mississippi and other waters prone to flood their banks, and Medicare, Medicaid, and employer tax-deductible health maintenance organizations (that is, third-party payers “freeing” consumers from health costs and thereby hiking medical prices).

Marx also urged the proletariat in each land to use its political supremacy to “wrest, by degrees, all capital from the bourgeoisie, to centralize all instruments of production in the hands of the State.” He put forth ten ways to bring this state of affairs about:^[4]

1. Abolition of property in land and application of all rents on land to public purposes. The federal government alone owns around one-third of the land mass of the United States. In an executive order last January, departing President Clinton banned road construction and most commercial logging from 58.5 million acres of U.S. forestland.

2. A heavy or progressive income tax. Goal accomplished, thanks to the Sixteenth Amendment to the Constitution, adopted in 1913.

3. Abolition of all right of inheritance. With the top graduated estate, or death, tax at 55 percent, apart from such state taxes and a federal exemption currently at $675,000 ($1,350,000 for husband and wife), inheritance is under less threat today than earlier—but is still under threat.

4. Confiscation of the property of all emigrants and rebels. Unaccomplished.

5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly. Witness the Federal Reserve System with its enormous power over the money supply and its potential for mischief.

6. Centralization of the means of communication and transport in the hands of the state. The Federal Communications Commission has tight licensing control over the nation’s radio-TV spectrum and cable systems. Regulation and taxation of the Internet are distinct threats.

7. Extension of factories and instruments of production owned by the state; the bringing into cultivation of waste lands and the improvement of the soil generally in accordance with a common plan. Planning seems involved in the Tennessee Valley Authority, Hoover Dam, Grand Coulee Authority, U.S. Postal Service, Rural Electrification Service, and different programs of the U.S. Department of Agriculture.

8. Establishment of industrial armies, especially for agriculture. This goal has been advanced with the minimum wage, affirmative action, equal pay, parental leave, maximum hours, ergonomic regulations, and compulsory union laws (save in 21 Taft-Hartley right-to-work states).

9. Combination of agriculture with manufacturing industries and gradual abolition of the distinction between town and country by a more “equitable” distribution of the population over the country. Rent control, zoning laws, and now anti-sprawl agitation and legislation have moved America toward this goal.

10. Free education for all children in public schools and abolition of child factory labor. The word “free” here is a bit fanciful; but “public schools” are government schools that render null and void individual choice, consent, contract, and competition. School propagandizing and erosion of individualism are further problems.

Law of Nature?

Marx believed that “with the inexorability of a law of nature” capitalism is doomed, that the system had become “a fetter on the forces of production.” He was 100 percent wrong. Mises, in a 1920 essay, “Economic Calculation in the Socialist Commonwealth,” held that a socialist economy was a contradiction in terms, that it was inherently unable to economize, especially in trying to optimize the allocation of capital. He wrote: “As soon as one gives up the conception of a freely established monetary price for goods of a higher order, rational production becomes completely impossible,” with the central planners “groping in the dark” in a constant state of confusion and ignorance.^[5]

May Day 2001. Is it a day to celebrate Karl Marx and his supposed historical inevitability of classless socialism with the wind-up slogan of the Communist Manifesto: “Working men of all countries, unite!”^[6]?

Or is it a day to celebrate Adam Smith and his splendid concept of the “invisible hand,” which harnesses innate self-interest to the public interest, per his famous line in The Wealth of Nations, “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest”?

Or is it a day to honor Ludwig von Mises for seeing consumer sovereignty in a fluid market society? As he said in Human Action, in the market, consumers make “poor people rich and rich people poor . . . . To be rich, in a pure market economy, is the outcome of success in filling best the demands of the consumers. A wealthy man can preserve his wealth only by continuing to serve the consumers in the most efficient manner.”^[7]

Or is May Day a time to toast U.S. Senator John C. Calhoun? Calhoun said, in an 1836 speech: “A power has risen up in the government greater than the people themselves, consisting of many and various and powerful interests.” In his Disquisition on Government (posthumous, 1854), Calhoun drew attention to the state taxing power, which necessarily divides society into two great classes, the “taxpayers and tax-consumers. But the effect of this is to place them in antagonistic relations.”^[8]

“Capitalism Kills.” Ha! I conclude that unhampered capitalism, or a market society, enhances and extends life, and is as close to a classless society as America and the West will see.

Happy May Day.

Notes

James Buchanan, “Socialism Is Dead; Leviathan Lives,” Wall Street Journal, editorial page, July 18, 1990.
Ralph Raico, “Classical Liberal Roots of the Marxist Doctrine of Classes,” in Yuri Maltsev, ed., Requiem for Marx (Auburn, Ala.: Ludwig von Mises Institute, 1993), p. 190.
Karl Marx and Friedrich Engels, The Communist Manifesto (New York: Penguin Books, 1967), p. 104.
Ibid., pp. 104-105.
Quoted in Maltsev, p. 11.
Ibid., p. 121.
Human Action: A Treatise on Economics (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 4th revised ed., 1996 [1949]), pp. 270-71.
Quoted by Ralph Raico in Maltsev, p. 218.

Book Review ~ A Cure Worse Than The Disease: Fighting Discrimination Through Government Control by M. Lester OShea

William H. Peterson — Fri, 01 Dec 2000 08:00:00 +0000

Hallberg Publishing • 1999 • 279 pages • $24.95

“America’s constant curse.”

So the British weekly The Economist brands racism long after the appearance of “affirmative action,” the official policy unleashed by the Civil Rights Act of 1964 and designed to “correct” historical injustices by instituting preferences for members of certain “protected classes.” This law and its legal embellishments blithely ignore the First Amendment guarantee of freedom of assembly, while outlawing discrimination on grounds of race, gender, age, disability, sexual preference, religion, or national origin. Far from eradicating racism, the government’s policy actually reinforces it.

The goals sound lofty, but many writers have remarked on the impossibility of righting old wrongs when neither those who perpetrated them nor the victims are around. And even if the ends were good, are the means acceptable? That question is at the heart of this book, a tour de force of solid reasoning, honesty, and courage.

Lester O’Shea, a California entrepreneur and lawyer, contends that it is counterproductive to bring the full might of the state crashing down on people, business firms, or other institutions that ostensibly “victimize” blacks, women, the aged, the disabled, Latinos, gays, lesbians, and a host of other categories. Anti-discrimination laws necessarily mean substituting government power for individual judgment, and the result is unending litigation and bitterness.

In his foreword to the book, Professor Walter E. Williams sees government antidiscrimination laws and regulations as a zero-sum game that has bred a vast “multi-billion-dollar-a-year race industry . . . involving armies of lawyers, consultants, bureaucratic enforcers and compliance workers,” one that “has divided the country and harmed the ostensible beneficiaries by spreading defeatism, dependency and resentment.” O’Shea proceeds to make that indictment stick.

Consider, for example, the ludicrous 1970 U.S. Supreme Court decision that set the basis of racial quotas, Griggs v. Duke Power. The company had used racially neutral standards for employment qualification. For many jobs in the company, a high school diploma was a requirement. The plaintiffs complained that the high school diploma requirement was racially discriminatory because a higher percentage of blacks than whites had not finished high school. The High Court rewrote clear statutory law and held that racial discrimination could arise from unintended statistical differences between racial groupings in the Duke Power employment force. Duke Power was guilty of employment discrimination. With that decision, the idea that an employer had the right to set his own employment standards was eviscerated and “civil rights” lawyers went on a rampage looking for statistical disparities everywhere.

As a result of Griggs, many firms and government agencies have taken to hiring to fill quotas with little or no regard to qualifications. While the demagogues of racial politics call it “progress,” O’Shea is disturbed by the implications of lowering job standards just so we can say that minority group members are “rising” and we are becoming “more equal.”

O’Shea is especially good at exposing the verbal and statistical trickery in affirmative action proceedings and behind such bugaboos as “institutional racism,” “environmental racism,” “mortgage lending bias,” and “glass ceilings.” It is vital to the affirmative action industry that it continually find new cases to fan the flames of resentment and make itself look important. Therefore, complaints are conjured up out of thin air.

Life is unfair, O’Shea acknowledges, but affirmative action only makes it unfairer still. He quotes Shakespeare’s Hamlet, who protested “the whips and scorns of time/ The oppressor’s wrong, the proud man’s contumely . . . .”

The author’s solution is far from the timid tinkering with affirmative action that is the norm among politicians: He would repeal the anti-discrimination laws altogether. If people want to pursue a “more equal” society, let them do so through non-coercive means.

So I wish America would move with all deliberate speed into a new era of a colorblind society in which Americans, to quote from Martin Luther King, Jr.’s speech at the 1963 Civil Rights March on Washington, “will not be judged by the color of their skin but by the content of their character.” After reading Lester O’Shea’s book, you will understand why getting there requires that we do away with the assault on freedom known as “affirmative action.” []

William Peterson, adjunct scholar at the Heritage Foundation, is the Distinguished Lundy Professor Emeritus of Business Philosophy at Campbell University in North Carolina.

Book Review ~ A Cure Worse Than The Disease: Fighting Discrimination Through Government Control by M. Lester OShea

William H. Peterson — Sun, 01 Oct 2000 08:00:00 +0000

Hallberg Publishing • 1999 • 279 pages • $24.95

“America’s constant curse.”

William Peterson, adjunct scholar at the Heritage Foundation, is the Distinguished Lundy Professor Emeritus of Business Philosophy at Campbell University in North Carolina.

Book Review ~ Our Founders Knew This Well by Walter E. Williams

William H. Peterson — Tue, 01 Aug 2000 08:00:00 +0000

Hoover Press • 1999 • 278 pages • $18.95 paperback

Statist “liberals,” take cover. Your sacred cows are fair game in this hard-hitting work by a witty, insightful, and even radical hunter of wrongheaded conventional wisdom somehow mesmerizing the mainline media, clergy, Congress, academe, and other purveyors of mulish political correctness.

Did I say Congress? Well, hear the author, professor of economics at George Mason University and nationally syndicated columnist—some of whose recent columns make up this work—on the vexing subject of unconstitutional activity by Congress: “Today, little that Congress does is authorized by our Constitution. Even a casual observer would conclude that Congress has exceeded its authority by a wide margin.”

Walter Williams notes that what Congress may do is bounded by the Constitution, in particular by Article I, Section 8, which details the purposes for which Congress is permitted to tax and spend money. Yet despite the fact that the oath of office taken by each member of Congress specifies upholding that Constitution, some two-thirds of the budget is expended on education, housing, farm and corporate subsidies, Social Security, and various other domestic and foreign welfare programs that lack constitutional sanction.

Those outlays not only lack constitutional authority, says Williams, they run into overt interventionism—improper intrusion into private or nonfederal matters. And virtually all of them incur the law of unintended consequences, making matters worse.

Congress and the Supreme Court take refuge in the “general welfare” clause of Article I. But Williams cites James Madison, the acknowledged architect of the Constitution, as saying: “I cannot undertake to lay my finger on that article in the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents . . . . With respect to the words ‘general welfare,’ I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.”

Nevertheless, unconstitutional laws and outlays go on. Why? Williams blames Congress; but he also faults the American people who, though seduced, toast what they perceive to be “free money,” free lunches, free schools, free highways, and so on—as they view Uncle Sam as Santa Claus. Do the recipients of federal largess care that their goodies are ill-gotten? Of course not.

While many of his selections deal with government and that classic oxymoron, political science, Williams also applies his economic scalpel to such matters as race and sex discrimination, health and the environment, lower and higher education, and various international issues.

Take race discrimination. Though he himself came out of a Philadelphia public housing project, Williams holds that most of the social pathology that characterizes the black community today has little to do with discrimination. When he was young, black neighborhoods were safer, had greater family stability, more labor force participation, more upward mobility, and a lot less illegitimacy. Now, after generations of federal programs, those neighborhoods are known for fraudulent education, rampant crime, family breakdown, high illegitimacy—factors surely transcending rank race “discrimination.”

Or consider sex discrimination. Williams wonders about the notion of physical equality between the sexes. He questions the wisdom of women serving as firefighters, police officers, or military combatants, all under reduced performance standards, all in places where physical strength, aggressiveness, and other male characteristics are important. He cites the findings that at Parris Island 45 percent of female Marines couldn’t heave a hand grenade far enough to avoid blowing themselves up and that U.S. Navy Lieutenant Kara Hultgreen, killed in trying to land her F-14 on an aircraft carrier at sea, had been given “preferential” flight training standards. Such double standards not only hurt morale but are, says Williams, “life-threatening.” Point made.

Another point made is that America’s prohibitionists wage a War on Tobacco using official propaganda to dupe the nation into accepting more and more control over what ought to be free choices of a free people. Tobacco firms are hence hit by outrageous tort liabilities that boomerang against, among others, the smokers themselves, most of whom are in low-income brackets and have to pay for those liabilities with steeper prices for cigarettes.

Curiously, cigarette packages clearly carry a warning from the Surgeon General that smoking is dangerous to health. So Williams asks, in blaming tobacco firms, whatever happened to personal responsibility as a value in America? He provides an apt quotation on personal responsibility from philosopher-lawyer Lysander Spooner: “Each man shall do, towards every other, all that justice requires him to do; as, for example, that he shall pay his debts, that he shall return borrowed or stolen property to its owner, and that he shall make reparation for any injury he may have done to the person or property of another.” Not bad.

All in all, this book adds up to a healthy dose of uncommon common sense.

Dr. Peterson, adjunct scholar at the Heritage Foundation in Washington, is Distinguished Lundy Professor Emeritus of Business Philosophy at Campbell University in North Carolina.