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The Dangers of the Myth of Merit

Steven Horwitz — Thu, 19 Nov 2009 05:01:30 +0000

In his various chapters and essays on the “mirage” of the concept “social justice,” F. A. Hayek makes a claim that is very often overlooked by those who support the market. He argues that markets generally do not reward “merit.” That is, the people who become wealthy in the marketplace do not do so, for the most part, because they are somehow “better” people than those who are not as wealthy. The wealthy are not necessarily more intelligent, more moral, or even harder-working than the rest of us. However meritorious we think those attributes are, they are not what the market rewards. The market rewards the creation of value in the form of providing goods and services that other people want. Period, end of sentence.

Frequently those who succeed in the market do so because they were lucky or simply in the right place at the right time with the right idea. They need not be especially smart or hard-working; rather they just need to be able to figure out what people want and to get it to them in a cost-efficient way. They also need to be able to adjust on the fly as conditions in the market change. Here, too, the typical notions of merit need not apply.

A critic of markets might respond with “Aha! If you’re right that entrepreneurs aren’t any better than the rest of us, why can’t we just replace them with government bureaucrats?” A fair question! The answer is that the effectiveness of markets does not rest mainly on the qualities of the individuals involved, but rather on the institutional environment in which people operate. Entrepreneurs are able to figure out what people want and how best to produce it not because they are especially intelligent, but because they act in the market, where signals such as prices and profits help them learn what others want and how to produce it.

It’s not that markets do things well because entrepreneurs are smart; rather, entrepreneurs are able to do things well because markets are “smart” in that they are able, through prices and profits, to make more knowledge available to entrepreneurs than political processes do to bureaucrats. This feature of markets is what Nobel Laureate Vernon Smith calls “ecological rationality.”

Forgetting this point and believing in the “myth of merit” poses two dangers for defenders of the market. First, it can seduce us into arguing for markets based on the personal characteristics of entrepreneurs versus bureaucrats. This is an argument we will lose. People are people, and there’s no necessary reason that people who become entrepreneurs are inherently better or smarter than bureaucrats. Many successful entrepreneurs have gone to work for government or have been elected to office and failed miserably. Of course, as Hayek recognized, expanding the political realm may tend to attract into it those who are less moral in the sense of respecting the rights of others, but that is due to the ecological irrationality of politics.

Second, believing the myth of merit can lead us to slide from being “pro-market” to “pro-business.” If one believes that businesspeople are somehow more deserving than bureaucrats, one might be tempted to support government policies that benefit business at the expense of markets, such as the bailouts. It’s not that the managers of GM are inherently smarter or more moral than members of the Obama administration. It’s that in the absence of distortion, the market provides them with knowledge that bureaucrats would not have and couldn’t use as well as entrepreneurs can even if they had it.

Bailing out firms cuts off the profit-and-loss learning process and makes those running the show less able to act efficiently, not to mention creating incentives for them to be more concerned about politics than products.

In days like ours, when the line between businessperson and bureaucrat gets ever more thin, maintaining the distinction between “pro-market” and “pro-business” is more important than ever. Accepting the “myth of merit” risks overlooking that distinction.

Benedict XVI on Labor Unions

Charles W. Baird — Wed, 18 Nov 2009 17:36:16 +0000

On June 29 Pope Benedict XVI issued an encyclical letter titled Caritas in Veritate (CV) in which he discusses several economic questions. There is much in the letter that suggests Benedict lacks a clear understanding of economics, such as his belief that market exchanges should involve things of equal value. However, notwithstanding absurd claims by union bosses, the encyclical cannot reasonably be read to endorse unionism as we know it. Some unionists have gone so far as to assert that CV demonstrates that Benedict supports the deceptively named Employee Free Choice Act (EFCA). The pope actually says little about unions, and there is nothing in CV to suggest that Benedict supports American-style coercive unionism, much less the efforts of union bosses to attain even more coercive power over workers through the EFCA.

In §25 of CV Benedict worries that “deregulation” of labor markets can be hazardous to the interests of workers. AFL-CIO chief John Sweeney and Service Employees International Union (SEIU) president Andy Stern interpret this as Benedictine support of regulations like the National Labor Relations Act (NLRA). However, Benedict neither cites any concrete examples of the deregulation he abhors nor endorses any specific labor regulation regimes. He is concerned that the pressures of global competition can diminish the ability of “workers associations” to protect the legitimate interests of workers. He explains:

Through the combination of social and economic change, trade union organizations experience greater difficulty in carrying out their task of representing the interests of workers, partly because Governments, for reasons of economic utility, often limit the freedom or the negotiating capacity of labour unions. . . . The repeated calls issued within the Church’s social doctrine, beginning with Rerum Novarum, for the promotion of workers’ associations that can defend their rights must therefore be honoured today even more than in the past. . . .

Of course workers should never be forbidden to join voluntary workers associations in support of worker rights. Nor should any government limit the ability of such associations to represent the interests of their members. Although Benedict did not describe workers associations as “voluntary,” his reference to Leo XIII’s 1891 Rerum Novarum (RN) makes clear that that is what he had in mind. In §54 of RN Leo warned that workers should not be forced to join labor unions that “do the utmost to get within their grasp the whole field of labor and force workingmen to join them or to starve.” A more fitting description of the EFCA, which would permit union thugs to terrorize any worker who refused to sign a union card, is hard to find.

Leo revisited the question of legitimate unions in Longinqua (1895). Such unions have “very important duties” among which are “not to touch what belongs to another; to allow everyone to be free in the management of his own affairs; [and] not to hinder any one to dispose of his services when he pleases and where he pleases” (§16). The NLRA violates each of these duties. Union security (forced dues) allows unions to touch and take what belongs to another; exclusive representation (forbidding individuals to decide on their own whether to be represented by a union) denies workers the right to manage their own affairs; and strike rules prohibit workers from disposing of their services when they please and where they please.

In §63 of CV Benedict writes that part of the definition of “decent work” is “work that permits the workers to organize themselves freely, and to make their voices heard.” Yet exclusive representation prohibits free organization and overrides individual voices. Individual choice in affiliation is overridden by mandatory submission of a numerical minority to the will of a numerical majority. Individuals are forbidden to represent themselves. Individuals are forbidden to discuss terms and conditions of employment with their employers without union permission. Employers are forbidden to reward individual workers for meritorious performance without union permission. Individuals have no voice. Only unions may speak.

Again in §63 Benedict writes, “The global context in which work takes place also demands that national labour unions, which tend to limit themselves to defending the interests of their registered members, should turn their attention to those outside their membership, and in particular to workers in developing countries where social rights are often violated.” Neither Sweeney nor Stern assents to this idea. They vigorously oppose even the Colombian Free Trade Agreement, which would abolish Colombian tariffs on U.S. goods in exchange for the U.S. continuing not to impose tariffs on Colombian goods. Free trade and the economic development that goes along with it are dependable means to foster the rights of workers in developing countries.

In §64 of CV Benedict reminds his readers, “The Church’s traditional teaching makes a valid distinction between the respective roles and functions of trade unions and politics.” In this he follows John Paul II in §20 of Laborem Exercens (1981): “[T]he role of unions is not to ‘play politics’ in the sense that the expression is commonly understood today. . . . [T]hey should not be subjected to the decision of political parties or have too close links with them. In fact, in such a situation they easily lose contact with their specific role, which is to secure the just rights of workers within the framework of the common good of the whole of society.”

The AFL-CIO and the SEIU, along with most other unions, especially those representing government workers, are deeply immersed in American politics. Stern brags that “We spent a fortune to elect Barack Obama—$60.7 million to be exact—and we’re proud of it.” It pays off. For example, Obama appointed Hilda Solis, the SEIU’s “top choice,” secretary of labor. Solis was a four-term member of Congress thanks in part to over $900,000 of campaign contributions from unions. And it is not just money. For example, on August 6 purple-shirted enforcers from the SEIU allegedly assaulted Kenneth Gladney at a town-hall meeting in St. Louis for passing out “Don’t Tread On Me” flags in opposition to ObamaCare. Unions and the American politicians they have bought need each other to survive.

In sum, Pope Benedict does not ally himself with the likes of Sweeney and Stern. In keeping with papal teaching on labor unions since Leo XIII, he is more in tune with Samuel Gompers, who founded the American Federation of Labor (AFL) in 1886. In the April 1916 issue of the American Federationist, the official AFL newsletter, Gompers wrote, “The workers of America adhere to voluntary institutions in preference to compulsory systems which are held to be not only impractical but a menace to their rights, welfare and their liberty.” He carried this belief through to the end of his life. In his last address as president of the AFL at its 1924 convention, shortly before he died, he said: “Men and women of our American trade union movement . . . I want to urge devotion to the fundamentals of human liberty—the principles of voluntarism. No lasting gain has ever come from compulsion. If we seek to force, we but tear apart that which, united, is invincible.”

Benedict XVI doesn’t, and Samuel Gompers wouldn’t, approve of the coercive features of the NLRA and the EFCA.

Ten Reasons Not to Abolish Slavery

Robert Higgs — Wed, 18 Nov 2009 17:35:55 +0000

Slavery existed for thousands of years, in all sorts of societies and all parts of the world. To imagine human social life without it required an extraordinary effort. Yet, from time to time, eccentrics emerged to oppose it, most of them arguing that slavery is a moral monstrosity and therefore people should get rid of it. Such advocates generally elicited reactions ranging from gentle amusement to harsh scorn and even violent assault.

When people bothered to give reasons for opposing the proposed abolition, they advanced various ideas. Here are ten such ideas I have encountered in my reading.

1. Slavery is natural. People differ, and we must expect that those who are superior in a certain way—for example, in intelligence, morality, knowledge, technological prowess, or capacity for fighting—will make themselves the masters of those who are inferior in this regard. Abraham Lincoln expressed this idea in one of his famous 1858 debates with Senator Stephen Douglas: “[T]here is a physical difference between the white and black races which I believe will forever forbid the two races living together on terms of social and political equality. And inasmuch as they cannot so live, while they do remain together there must be the position of superior and inferior, and I as much as any other man am in favor of having the superior position assigned to the white race.”

2. Slavery has always existed. This reason exemplifies the logical fallacy argumentum ad antiquitatem (the argument to antiquity or tradition). Nevertheless, it often persuaded people, especially those of conservative bent. Even nonconservatives might give it weight on the quasi-Hayekian ground that although we do not understand why a social institution persists, its persistence may nonetheless be well grounded in a logic we have yet to understand.

3. Every society on earth has slavery. The unspoken corollary is that every society must have slavery. The pervasiveness of an institution seems to many people to constitute compelling proof of its necessity. Perhaps, as one variant maintains, every society has slavery because certain kinds of work are so difficult or degrading that no free person will do them, and therefore unless we have slaves to do these jobs, they will not get done. Someone, as the saying went in the Old South, has to be the mud sill, and free people will not tolerate serving in this capacity.

4. The slaves are not capable of taking care of themselves. This idea was popular in the United States in the late eighteenth and early nineteenth centuries among people, such as George Washington and Thomas Jefferson, who regarded slavery as morally reprehensible yet continued to hold slaves and to obtain personal services from them and income from the products these “servants” (as they preferred to call them) were compelled to produce. It would be cruel to set free people who would then, at best, fall into destitution and suffering.

5. Without masters, the slaves will die off. This idea is the preceding one pushed to its extreme. Even after slavery was abolished in the United States in 1865, many people continued to voice this idea. Northern journalists traveling in the South immediately after the war reported that, indeed, the blacks were in the process of becoming extinct because of their high death rate, low birth rate, and miserable economic condition. Sad but true, some observers declared, the freed people really were too incompetent, lazy, or immoral to behave in ways consistent with their own group survival. (See my 1977 book Competition and Coercion: Blacks in the American Economy, 1865–1914.)

6. Where the common people are free, they are even worse off than slaves. This argument became popular in the South in the decades before the War Between the States. Its leading exponent was the proslavery writer George Fitzhugh, whose book titles speak for themselves: Sociology for the South, or, the Failure of Free Society (1854) and Cannibals All!, or, Slaves Without Masters (1857). Fitzhugh seems to have taken many of his ideas from the reactionary, racist, Scottish writer Thomas Carlyle. The expression “wage slave” still echoes this antebellum outlook. True to his sociological theories, Fitzhugh wanted to extend slavery in the United States to working-class white people, for their own good!

7. Getting rid of slavery would occasion great bloodshed and other evils. In the United States many people assumed that the slaveholders would never permit the termination of the slave system without an all-out fight to preserve it. Sure enough, when the Confederacy and the Union went to war—set aside that the immediate issue was not the abolition of slavery, but the secession of eleven Southern states—great bloodshed and other evils did ensue. These tragic events seemed, in many people’s minds, to validate the reason they had given for opposing abolition. (They evidently overlooked that, except in Haiti, slavery was abolished everywhere else in the Western Hemisphere without large-scale violence.)

8. Without slavery the former slaves would run amuck, stealing, raping, killing, and generally causing mayhem. Preservation of social order therefore rules out the abolition of slavery. Southerners lived in dread of slave uprisings. Northerners in the mid-nineteenth century found the situation in their own region already sufficiently intolerable, owing to the massive influx of drunken, brawling Irishmen into the country in the 1840s and 1850s. Throwing free blacks, whom the Irish generally disliked, into the mix would well-nigh guarantee social chaos.

9. Trying to get rid of slavery is foolishly utopian and impractical; only a fuzzy-headed dreamer would advance such a cockamamie proposal. Serious people cannot afford to waste their time considering such farfetched ideas.

10. Forget abolition. A far better plan is to keep the slaves sufficiently well fed, clothed, housed, and occasionally entertained and to take their minds off their exploitation by encouraging them to focus on the better life that awaits them in the hereafter. We cannot expect fairness or justice in this life, but all of us, including the slaves, can aspire to a life of ease and joy in Paradise.

At one time, countless people found one or more of the foregoing reasons adequate grounds on which to oppose the abolition of slavery. Yet in retrospect, these reasons seem shabby—more rationalizations than reasons.

Today these reasons or very similar ones are used by opponents of a different form of abolitionism: the proposal that government as we know it—monopolistic, individually nonconsensual rule by an armed group that demands obedience and payment of taxes—be abolished. I leave it as an exercise for the reader to decide whether the foregoing reasons are more compelling in this regard than they were in regard to the proposed abolition of slavery.

The Shame of Medicine: Conviction by Psychiatry

Thomas Szasz — Wed, 18 Nov 2009 17:34:31 +0000

In the predawn hours of June 5, 2002, Brian David Mitchell entered the bedroom of 14-year-old Elizabeth Smart and her nine-year-old sister Mary Katherine and left the house with Elizabeth. They walked to a camp site four miles behind her wealthy parents’ spacious Salt Lake City home where they joined Wanda Barzee, Mitchell’s wife. Nine months later—after spending months at the campsite, traveling to California, and returning to Utah with her alleged captors—Elizabeth was discovered in nearby Sandy. Charged with aggravated kidnapping, aggravated sexual assault, and aggravated burglary, Mitchell and Barzee disappeared into America’s psychiatric Gulag.

The bare facts of the story, as reported in the press, are as follows. For nine months the trio hid in plain sight, made frequent trips to the city, was seen at a grocery store and a restaurant, and for about a week lived one block from the Salt Lake City police headquarters. A freelance photographer has a picture of the trio dressed in white robes.

In March 2003, when the police found her, Elizabeth was wearing a gray wig and dark glasses, and her head and face were covered. Approached by officers, Elizabeth identified herself as Augustine, claiming to be Mitchell’s daughter. “We took her aside,” one of the officers related. “She kind of just blurted out, I know who you think I am. You guys think I’m that Elizabeth Smart girl who ran away [sic].” When the officers insisted that she was Elizabeth Smart, she replied, “Thou sayest” and “showed concern only for their [Mitchell’s and Barzee’s] welfare, not her own.”

Mitchell, a devout Mormon, was no stranger to the Smarts. In 2001 Elizabeth’s father, Edward Smart, employed him as a handyman. “He was astonished,” the press reported, “at Mr. Mitchell’s mastery of deception. ‘When I was up there on the roof with him, I never could have guessed. He was so soft-spoken; he was so quiet. I never would have guessed that such an animal would have existed behind such a person.’’’

All that was more than six years ago. Mitchell and Barzee have still not been tried, and we still have no idea about what actually happened to Elizabeth Smart. While mental health professionals prevented the defendants from defending themselves in court, the Smarts convicted Mitchell and Barzee in the media as “sexual predators.”

Defenseless Defendants

Actually, there was no hard evidence that Elizabeth had been kidnapped, much less raped. Eccentric and poor, the defendants inspired no one to protect their constitutional right to trial. That would have required Elizabeth to be cross-examined and testify under oath about why she made no attempt to escape her alleged captors and why she lied to the police about who she was and referred to herself as “the girl who ran away”—not “was kidnapped.”

Elizabeth’s parents, Edward and Lois Smart, rushed into print with a book, titled “Bringing Elizabeth Home: A Journey of Faith and Hope,” a boring protestation of their Mormon faith and belief in “miracles.” “If you want just the straight story, as I did,” comments a reader on Amazon.com, “you’ve come to the wrong place. . . . The excruciating details of the family’s faith were belabored and preached and whined about until I wanted to scream and I couldn’t finish the book.” The Smarts’ book was used as the basis of the television movie The Elizabeth Smart Story, aired on CBS on November 9, 2003.

On March 9, 2006, Elizabeth Smart went to Congress to support sexual predator legislation. In 2008 she contributed to a pamphlet sponsored by the U.S. Department of Justice, titled “You’re Not Alone: The Journey from Abduction to Empowerment”: “Like you, I am also a survivor. . . . Do not feel obligated to tell people your experience. . . . [J]ust because they ask, or do something nice for you, does not give them the right to know what you went through. What happened is your story, which you can choose to share or to keep private.” Should a person allegedly kidnapped and raped be able to choose to keep silent while her silence is used to indefinitely incarcerate the persons accused of the crime?

Early in 2004 Mitchell was declared competent to stand trial and answered “not guilty” to six different charges related to the kidnapping of Elizabeth Smart. After he began singing the Christmas hymn “Oh come, oh come, Emmanuel” at the hearing, he was ordered to submit to a new competency evaluation. (Emmanuel is the name Mitchell used as a street preacher.)

In January 2005 attorneys for Mitchell requested Elizabeth’s school and medical records. Attorneys for the Smart family refused on the ground that “efforts to obtain the records are merely a ploy to get the family to agree to a lenient plea agreement.” Edward Smart declared that he would rather see prosecutors make a plea bargain with Mitchell “than having his family go through the trauma of a trial.”

In July 2006, TV pundit and victims’ rights advocate Nancy Grace interviewed Elizabeth Smart and repeatedly asked her for information about her experience. Elizabeth asked Grace to stop and stated, “I really am here to support the bill and not to go into what—you know, what happened to me.” Grace persisted, asking Elizabeth what it was like to see out of the burqa she was wearing. Elizabeth replied, “I’m really not going to talk about this at this time.”

Mitchell continued to play the part of a Mormon prophet, interrupting one of his 2005 competency hearings “by singing religious songs, the third time he has done so.” A defense expert testified that Mitchell is incompetent to stand trial “because he is consumed by ‘messianic delusions’ and wants to be crucified.”

The psychiatrists “treating” Mitchell, confined in a Utah state mental hospital, sought to drug him to restore his competence. He refused and the courts were unwilling to authorize forced drugging. This prompted U.S. Attorney Brett Tolman, in October 2008, to announce his intention to prosecute Mitchell in federal court. A competency hearing for Mitchell was scheduled to begin in November. As a prelude to it, Elizabeth Smart testified in court for the first time—in a hearing ostensibly about Mitchell’s mental competence to stand trial—about being raped by Mitchell “three or four times a day.” According to the press, “Smart testified early because she is going on a religious mission for the Mormon church in Paris.” She was not cross-examined and Mitchell—whose physical appearance belies the sexual prowess attributed to him by Smart—was excluded from the proceedings.

My brief remarks in this column are intended to call attention to still another case of the psychiatric denial of the right to trial of socially embarrassing defendants. Despite their publicity, such stories make no dent in dispelling the widely held belief that no American accused of a crime is deprived of liberty indefinitely without trial. The canard that psychiatry is a “helping profession” is even more impregnable.

From 1944 to Nineteen Eighty-Four

Sheldon Richman — Wed, 18 Nov 2009 17:33:28 +0000

A longer version of this article appears at the FEE website: www.tinyurl.com/npxxet.

I’m inclined to think of George Orwell and F. A. Hayek at the same time. Both showed great courage in writing the truth, undaunted by the consequences. Both valued freedom, though they understood it differently.

Orwell, a man of the “left,” could not remain silent in the face of the horrors of Stalinism. Twice—during the Spanish Civil War and again at the dawn of the Cold War—he refused to permit his comrades to blind themselves to where their collectivism had led and could lead again. For his favor he was called a conscious tool of fascism, a stinging accusation considering he had gone to Spain to fight fascism. (But for a few inches, the bullet that penetrated Orwell’s neck in Spain would have denied us the latter warnings, Animal Farm and Nineteen Eighty-Four.)

Hayek, a man of the “right,” risked ostracism and worse in 1944 by publishing The Road to Serfdom. Writing in England at the height of World War II, this Austrian-turned-Briton warned that central economic planning would, if pursued seriously, end in a totalitarianism indistinguishable from the Nazi enemy. That couldn’t have been easy to write at that time and place—central planning was much in vogue among the intelligentsia. While a good deal of the reception was serious and respectful, a good deal of it was not. Herbert Finer, in Road to Reaction, called Hayek’s book “the most sinister offensive against democracy to emerge from a democratic country for many decades”; it expressed “the thoroughly Hitlerian contempt for the democratic man.”

Not surprisingly, The Road to Serfdom brought Orwell and Hayek together in print. Orwell briefly reviewed the book along with Konni Zilliacus’s The Mirror of the Past in the April 9, 1944, issue of The Observer. The man who would publish Animal Farm a year later and Nineteen Eighty-Four five years later found much to agree with in Hayek’s work: “In the negative part of Professor Hayek’s thesis there is a great deal of truth. It cannot be said too often—at any rate, it is not being said nearly often enough—that collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitors never dreamed of.”

But true to his left state-socialism, Orwell could not endorse Hayek’s positive program:

[H]e does not see, or will not admit, that a return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State. The trouble with competitions is that somebody wins them. Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led, and since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter.

It’s disappointing to see Orwell give such short shrift to Hayek’s positive thesis. He is glib and dogmatic, which is unbecoming a serious intellectual such as Orwell. His ignorance of economics leaps from the page.

“[A] return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State.” It’s hard to believe that someone so familiar with Stalinism could have written that. Even without knowing much economics, could he really have thought that what goes on in market-oriented societies, even during depressions, could be worse than the famine Stalin inflicted on the Ukrainians, the show trials and executions, or the labor camps in Siberia?

“The trouble with competitions is that somebody wins them.” In a market producers compete to better serve consumers. The losers in that competition are not exiled or executed. They find other ways to serve consumers, just as producers are trying to serve them.

“Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led. . . .” Where has monopoly arisen without the aid of the State? We find no market-generated monopoly in England or the United States. There, major business interests actively promoted protectionism and other interventions precisely to tamp down competition and protect their market shares.

“[T]he vast majority of people would far rather have State regimentation than slumps and unemployment. . . .” But that’s a false choice. Slumps and unemployment, as Hayek and his mentor Ludwig von Mises taught, are products of central-bank manipulation of money and interest rates—that is, of government, not of the free market.

I must pause here to focus on Orwell’s disgraceful use of the word “regimentation.” I say “disgraceful” because he committed the sin he himself so eloquently condemned in his justly famous essay “Politics and the English Language”: the sin of euphemism. Regimentation is the least of the State’s crimes.

One wonders how Orwell avoided despair. He misidentified the free market with state capitalism and rejected it, and he saw the totalitarian tendencies of socialism up close. Yet he could write, “There is no way out of this unless a planned economy can somehow be combined with the freedom of the intellect, which can only happen if the concept of right and wrong is restored to politics” (emphasis added).

Hadn’t he just read chapter 11 of The Road to Serfdom, “The End of Truth,” in which Hayek described how a serious commitment to central planning must produce “contempt for intellectual liberty”?

“The word ‘truth,’” Hayek wrote, “itself ceases to have its old meaning. It describes no longer something to be found, with the individual conscience as the sole arbiter of whether in any particular instance the evidence (or the standing of those proclaiming it) warrants a belief; it becomes something to be laid down by authority, which has to be believed in the interest of unity of the organized effort and which may have to be altered as the exigencies of this organized effort require it.

“The general intellectual climate which this produces, the spirit of complete cynicism as regards truth which it engenders, the loss of the sense of even the meaning of truth, the disappearance of the spirit of independent inquiry and of the belief in the power of rational conviction, the way in which differences of opinion in every branch of knowledge become political issues to be decided by authority, are all things which one must personally experience—no short description can convey their extent.”

But of course Orwell had experienced those things in Spain and knew how it was in Russia. He certainly put a heavy burden on that word “somehow.” How restoring the concept of right and wrong to politics would make central planning either decent or practical is a mystery no one has solved. Mises had shown long before that socialism could not be practical because without prices arising out of the exchange of privately owned means of production, the socialist planner could not make rational calculations with respect to what should be produced, in what manner, and in what quantities. As for decency, Hayek addressed that in chapter 10, “Why the Worst Get on Top.”

Big Business Goes Big for Health Care Reform

John Stossel — Wed, 18 Nov 2009 17:32:59 +0000

“What disturbs Americans of all ideological persuasions is the fear that almost everything, not just government, is fixed or manipulated by some powerful hidden hand,” Frank Rich wrote in the New York Times a few months ago.

That manipulation should disturb us. But contrary to Rich, it is not the work of “corporatists” who have sprung up to attack Progressive reforms proposed by Obama and the Democratic majority. Manipulation is what we got many years ago when we traded a more or less free market for the “Progressive” interventionist state. When government is big, the well-connected always have an advantage over the rest of us in influencing public policy.

Observe: Although President Obama and big-government activists demonize health-insurance companies, the companies “are still mostly on board with the president’s effort to overhaul the U.S. health-care system,” the Wall Street Journal reports.

And even though the activists criticize Big Pharma, “The drug industry has already contributed millions of dollars to advertising campaigns for the healthcare overhaul through advocacy groups like Healthy Economies Now and Families USA. It has spent about $1 million on similar advertisements under its own name,” the Times reports.

Big Business, Big Pharma, and Big Insurance

Big Pharma and Big Insurance want Obama-style healthcare reform?

It’s not so hard to understand. “The drug makers stand to gain millions of new customers,” the Times said. And from the Journal: “If health legislation succeeds, the [insurance] industry would likely get a fresh batch of new customers. In particular, many young and healthy people who currently forgo coverage would be forced to sign up.” No wonder insurers are willing to stop “discriminating” against sick people. (Forget that the essence of insurance is discrimination according to risk.)

Not that Big Pharma and Big Insurance like every detail of the Democratic plan. Drug companies don’t want Medicare negotiating drug prices—for good reason. If it forces drug prices down, research and development will be discouraged. (Depending on whom you believe, Obama may or may not have agreed with the drug companies on this point.)

As for the insurance companies, they worry—legitimately—that a government insurance company—the so-called public option—would drive them out of business. This isn’t alarmism. It’s economics. The public option would have no bottom line to worry about and therefore could engage in “predatory pricing” against the private insurers.

But despite these differences, the biggest companies in these two industries are on board with “reform.”

Horwitz’s First Law In Action

It illustrates economist Steven Horwitz’s First Law of Political Economy: “No one hates capitalism more than capitalists.” In this case, big business wants to shape—and profit from—what inevitably will be an interventionist healthcare “reform.” Can you think of the last time a major business supported a truly free market in anything?

In light of all this, it was funny to watch Democrats and their activist allies panic over the protests at the August congressional town meetings around the country. Tools of the corporate interests! they cry. But anyone opposing “socialized medicine” can’t be a mouthpiece for big business because, as we’ve seen, big business supports government control. Conservative groups may be encouraging people to vent their anger at congressmen who pass burdensome legislation without even bothering to read it, but that’s no reason to insult the protestors as pawns. What’s wrong with organizations helping like-minded people to voice their opinions? Why do Democrats, such as Speaker Nancy Pelosi, dismiss citizen participation as “AstroTurf”—not real grassroots—only when citizens oppose the kind of big government they favor?

They weren’t so dismissive when George W. Bush was president and people protested—appropriately—his accumulation of executive powers.

“When handfuls of Code Pink ladies disrupted congressional hearings or speeches by Bush administration officials,” Glenn Reynolds wrote, “it was taken as evidence that the administration’s policies were unpopular, and that the thinking parts of the populace were rising up in true democratic fashion. . . . But when it happens to Democrats, it’s something different: A threat to democracy, a sign of incipient fascism. . . . House Speaker Nancy Pelosi calls the ‘Tea Party’ protesters Nazis. . . . So when lefties do it, it’s called “community organizing.”

When conservatives and libertarians do it, it’s “AstroTurf.”

Give me a break.

The Sound of Freedom

Lawrence W. Reed — Wed, 18 Nov 2009 17:31:36 +0000

When I have the chance, I often pose this question to people who have become advocates for liberty: “What was it that first turned you on to these ideas?”

It’s an important question that always produces revealing answers and sometimes some fascinating stories. Liberty, keep in mind, is not automatic or guaranteed. Few people who have lived have actually possessed it; most have been serfs, slaves, or “subjects” of one sort or another. It’s not exactly a message that rolls off the tongues of most university professors, government school teachers, or media personalities these days. It takes a lot of work to get the message out. Like the seeds in the New Testament parable about the sower, ideas don’t always fall on fertile ground.

I’ve heard plenty of answers over the years: parents, a book, instinct, an article, a friend. And yes, on occasion, even a teacher or a professor. Maybe I’m unusual (I’ve been accused of much worse!) but for me it was a movie. Here’s my story.

My family never showed much interest in politics or philosophy. I don’t know of anybody on either my mother’s side (English and German) or my father’s side (Scot-Irish) who ran for office, wrote a book, or raised a public fuss of any kind. As far as I know, going back more than a century, my relatives were mostly farmers and small shopkeepers who worked hard, kept quiet, and minded their own business. The only time I can recall my dad making a political statement during my childhood was when the school principal called to tell him he couldn’t take me out of school for a week to visit relatives in Florida. He told the principal, “He’s my son, not yours, and he’s going to Florida. Don’t call here again!” Click.

In the summer of 1965, as I was nearing my 12th birthday, my mother announced one day that she was taking my younger sister and me to a theater in Pittsburgh, 40 miles from our home, to see a new film called The Sound of Music. I knew nothing of it other than that a lot of singing was involved. To my mind, that was a good enough reason to stay home. I went reluctantly—and was enthralled. The music and the scenery were memorable, but it was the plot and message that changed my life. I think it must have been the first time I really had to think about the fact that the freedom I took for granted was not the norm in the world.

The movie quickly became the box office king of 1965. An American movie aimed primarily at an American audience, it loosely told the story of the von Trapps of Austria and how the family escaped Hitler’s grasp. The beauty of the Alpine mountains and the village of Salzburg spurred a pilgrimage of American tourists to Austria that continues to this day. Todd S. Purdum of the New York Times refers to the film as “the last picture show of its kind, a triumph of craftsmanship and the apogee of the studio system that produced the kind of entertainment that dominated mid-20th-century mass culture.”

For me, The Sound of Music was a rude awakening. This wasn’t a school telling me that I couldn’t take a vacation. This was a foreign regime absorbing a peaceful, neighboring country and a father facing orders to abandon his family and serve in its military. Something sparked inside me, and it has stayed lit ever since. I wanted to know more about the history of that period, and I began reading everything I could get my hands on, including William L. Shirer’s classic The Rise and Fall of the Third Reich. Stories of people yearning for freedom and going to great lengths to secure it captivated me. Socialism, communism, fascism, and all the collectivist isms became anathema. They reduced to A pushing B around because A thinks he’s got a good idea.

Then came the “Prague Spring” of early 1968. It wasn’t Austria, but it was right next door. The news of the stirrings of liberty in communist Czechoslovakia dominated the newspapers and television. I cheered as the Czechs boldly rattled their Soviet cage. When Moscow crushed Czech liberties with troops and tanks, I was outraged and eager to say so. Within days, a blurb in the local newspaper mentioned that an organization called Young Americans for Freedom would be holding a rally in Mellon Square in downtown Pittsburgh to protest the invasion. I bought my first bus ticket. We burned a Soviet flag and carried placards calling for the liberation of Czechoslovakia.

In those days, YAF provided its new recruits with a wealth of books, magazines, and articles—most notably for me, F. A. Hayek’s The Road to Serfdom, Henry Grady Weaver’s The Mainspring of Human Progress, Henry Hazlitt’s Economics in One Lesson, and a subscription to The Freeman. The message was simple: If you want to be an effective anticommunist, you had better know something about philosophy and economics.

Reading all that material taught me some critically important things:

• Ideas rule the world. Tyranny rests on bad ideas; freedom depends on good ones, such as personal responsibility and limited government.

• Freedom is never automatic. You have to work at it, endure setbacks and assaults, and resist the temptation to let somebody else fight freedom’s battles for you.

• Government unchecked is freedom’s greatest enemy. Expecting too much from government and too little from ourselves is the surest path to tyranny, even though the government’s promises of welfare and security may sound attractive.

Those ideas, and many of their corollaries, led me to pursue an economics degree at a place that teaches the values of liberty: Grove City College in Pennsylvania. From there I went on to be a teacher myself, first at Northwood University and then as president of the Mackinac Center for Public Policy. Liberty has been a common theme of my political thought through all those years.

If my mother had not insisted on making the trek to Pittsburgh to see The Sound of Music, maybe I would have become a promoter of freedom by some other route. But in hindsight, I have my doubts. It seems more likely that I’d be a photographer or a veterinarian today. Those are respectable and fulfilling professions, to be sure, but they’re not what I chose.

So I owe much of my last 40 years to a couple of hours in front of the big screen. Some say The Sound of Music was corny, but for me it was an epiphany. It’s my favorite film, and it always will be.

Too Big to Fail?

William L. Anderson — Wed, 18 Nov 2009 05:01:59 +0000

The New York Times declares that the Obama administration wants to “rein in” those businesses “too big to fail.” The story says:

Congress and the Obama administration are about to take up one of the most fundamental issues stemming from the near collapse of the financial system last year — how to deal with institutions that are so big that the government has no choice but to rescue them when they get in trouble.

That sentence represents the sort of ignorance of economics that helped lead to the current crisis. Unfortunately, it seems that the government is bent on pushing through legislation and regulations that might seem on the surface to be an “answer to the problem,” but actually will make things worse.

However, I think I should note that for all of the “novel” and “innovating” things we have seen from the government and the Federal Reserve System over the past two years since the crisis began, what we really are observing is Washington doing today what Washington was doing during the 1930s. We know how that turned out.

So far the government has trotted out ideas like increasing reserve requirements for large financial institutions to actually breaking them up via government force so that if one fails, it will not likely “threaten the financial system.” The Times notes:

Some economists believe the mammoth size of some institutions is a threat to the financial system at large. Because these companies know the government could not allow them to fail, the argument goes, they are more inclined to take big risks.

This is a non sequitur, and it certainly does not follow logically that the very size of a firm is what will lead its managers to take large risks. Instead, as we have seen throughout the meltdown, firms took huge risks because (1) the Federal Reserve System made a number of both explicit and implicit guarantees that it would “provide liquidity” if problems arose, and (2) the government and the Bush administration’s ill-fated “Ownership Society” initiative pushed home sales. At the government’s insistence, financial firms lowered their underwriting standards, creating a hollow “subprime” market that ultimately imploded, taking down a lot of firms in the process.

As for other firms like General Motors and Chrysler, the notion that their failures would force a never-ending downward spiral is not based in sound economics but rather politics. Both firms were in such sorry financial shape earlier this year that to permit them to go out of business and sell all their assets would have had a positive effect on the U.S. economy. That is because forcing taxpayers to throw money into the bottomless pit of GM and Chrysler ultimately made people poorer not wealthier.

The notion that governments can determine the “optimal size of the firm” is beyond laughable, yet the socialist U.S. Senator Bernie Sanders has introduced a law that does just that, and it is being taken seriously. As Murray Rothbard noted in his classic Man, Economy, and State, the “optimal” size of a firm is determined by the ability of its principals to engage in the necessary economic calculation that will permit the firm to prosper. It is a market, not a government, issue.

The demise of GM and Chrysler had nothing to do with their size; it had everything to do with wrongheaded decisions made by managers who gave into the United Autoworkers, which raised company costs while contributing to productivity declines. These firms operated in imaginary worlds that should have come to an end in bankruptcy court.

Unfortunately, the last thing the U.S. economy needs are bloated firms that are making “profits” only because taxpayers are forced to make themselves poorer by transferring their money from their own accounts to these unprofitable behemoths in order to prop up ridiculous labor agreements that never could survive in a free market. And, of course, the final irony is that the greatest behemoth of them all, the U.S. government, supposedly has the wisdom to impose the rules for “optimal” size of firms. Good luck.

A Health-Insurance Criminal Pleads His Case

James L. Payne — Mon, 16 Nov 2009 13:43:27 +0000

If mandatory health insurance goes through, it will turn me into a criminal. I don’t have health insurance. I don’t want it. And I will refuse to buy it even though I can afford it. Before they lead me to the cells, perhaps the prisoner may be allowed to say a few words in his defense.

It’s understandable that politicians are eager to eliminate the medically uninsured. For years they’ve been told that we are the flies in the ointment of health care policy. It is said we are either a) wrecking the system by using services we don’t pay for, or b) we are deprived of needed medical care and therefore objects of pity and subsidy.

These points may apply to some uninsured but not to all. Some of us belong in what might be called the “successfully uninsured” category. We are not freeloaders. We believe we have an obligation to pay for the medical care we receive, and we always pay for it. I put no financial burden on doctors, hospitals, or taxpayers, and politicians are wrong to assume I am part of the country’s health care problem.

Politicians are also wrong to assume that I am an object of pity. Like many Americans, I have significant savings and can afford medical expenses out of pocket. (Census Bureau figures for 2000 show that over 18 million households had assets in excess of $250,000). Our savings make it possible for my wife and me to decline both private insurance and Medicare (we are 70). Those without savings are in a different situation: They probably need insurance, or a subsidy, or charitable help. My point is that if you can handle your own medical bills through savings and personal responsibility, this is a sound approach. Politicians should encourage this state of self-reliance, not make it a crime.

There are many advantages to being insurance-free. The first is flexibility. Several years ago, my wife had a serious bout with cancer. The successful treatment involved surgery and local radiation therapy. After much study she refused the more massive radiation treatment recommended by the doctor and pursued alternative therapies, including acupuncture, nutritional therapy, massage, and naturopathic medicine. Every decision was made in terms of what seemed best to treat this illness. We were not drawn into using inappropriate therapies because they were “free,” nor did we pass up desirable therapies because they were “not covered.”

The second advantage of being insurance-free is we avoid bureaucracy. We don’t fill out insurance forms; we don’t make phone calls trying to find out what’s covered; and we don’t play games (with the collusion of doctors) trying to get things we need paid for by someone else. If an aching back suggests the need for a different mattress, we go out and buy one and don’t waste time and money trying to prove to some clerk that it’s covered. When the government offered a new piñata of benefits in the form of prescription drug coverage, we entirely escaped the frustration of figuring out how to deal with its staggering confusion. While other seniors were closeted with lawyers and sons-in-law trying to decide what to sign up for, we went hiking.

How Much Health Care is Enough?

Refusing health insurance may have advantages, but what will happen if I face a medical problem that requires more than my savings? To understand my answer, consider a parallel question about some other commodity, say, housing. I announce that I believe in paying for housing from my own financial resources. Someone points out there might be a house I want that costs more than I can afford. That’s just too bad: I don’t get to buy it. I limit my housing consumption according to my resources.

I look at medical care the same way: If something costs too much, I do without. This position, so obvious and sensible in other areas, is considered untenable when it comes to medical care. In this realm the prevailing assumption is that everyone is entitled to all the health services he needs or wants.

It’s one thing to announce this entitlement as an ideal, but quite another to make it work. In the real world medical resources are limited, and therefore all approaches to healthcare funding employ rationing.

In tax-based systems administrators establish waiting lists so that some patients die before their opportunity for treatment comes up. They ban the use of expensive treatments and alternative therapies. And, without exactly saying so, they underfund medical facilities, so that patients wait in the halls of emergency wards, for example. In commercial insurance plans rationing is implemented by restricting coverage to specific procedures and specific doctors — and by setting upper limits to coverage.

Paying your own medical bills is simply another way of limiting consumption: If a treatment costs too much, you don’t buy it. The advantage of self-rationing is it is frank and open, and thus avoids the whining and blaming that characterize bureaucratic systems.

Paying your own medical bills also lets you see that there are more socially constructive ways to use funds than spending on health care. Suppose that to fix your limping gait requires complicated care costing hundreds of thousands of dollars. If others pay for this care, you might accept it. But suppose you are paying for it with your own savings. Now you might think twice about spending the money on yourself. You might know of a school for autistic children that could put the money to good use. Or you might have a grandchild who needs the money to start a business.

Such decisions are indeed difficult, but we need to face them if we are to make sensible choices about health care. Today we are not facing them. We are hiding behind the confusion of a tangled government/corporate system that pretends we can have all the medical care we want.

Spending my own money on health care helps me set a rational limit to medical spending, even on spending to preserve my life. Not buying health insurance and not allowing politicians to force others to fund my needs helps me keep my consumption of medical resources within fitting bounds.

This way of looking at health insurance may be old fashioned, but should it be a crime?

How Dense Can They Get?

Richard W. Fulmer — Thu, 12 Nov 2009 14:03:39 +0000

When it comes to power, density is the key. Energy density. The reason that solar power, wind power, and ethanol are so expensive is that they are derived from very diffuse energy sources. It takes a lot of energy collectors such as solar cells, wind turbines, or corn stalks covering many square miles to produce the same amount of power that traditional coal, natural gas, or nuclear plants can on just a few acres.

Each of these alternative energy sources is based on mature technology. Agriculture and fermentation have their roots in prehistory; windmills date back at least to 65 B.C.; the photovoltaic effect was discovered in 1839. Yet in nowhere in the world are these technologies serving as primary energy sources without significant government subsidies. While incremental improvements can be expected, what is needed for them to become viable is an order-of-magnitude increase in productivity. As old and as well-researched as the technologies are, such improvements are possible but unlikely. As significant future energy sources, these technologies are dead ends, which is why the government, and not the private sector, is funding them.

Industry is more than willing to risk research dollars on technologies that show real promise, but it is not willing to flush shareholder money down a rat hole. Politicians, however, operate from different incentives. When a crisis, real or imagined, makes headlines, they want voters to see them doing “something” about it, and they must move quickly because election cycles and constituent attention spans are short. Funding long-term research in promising technologies is not sufficient to meet politicians’ needs. Solar panels, wind turbines, and ethanol refineries are all current technology and can be erected quickly with fanfare and photo-ops. By the time these alternative power sources prove to be financial and, possibly, environmental busts, the politicians will have been reelected and voters’ attention will have shifted to the next crisis.

Another benefit of subsidizing “shovel ready” solutions is that existing technologies have existing supporters who can provide campaign funds. Such supporters, however, constitute a well-financed “status quo” that will make government funding, once started, difficult to end. For example, even though corn-based ethanol has driven up food and fuel prices, increased auto emissions, raised atmospheric carbon dioxide concentrations (by causing additional acreage to be tilled), and possibly resulted in net energy losses, the government is still subsidizing the industry and still requiring that the fuel be added to gasoline.

Wind energy, for its part, has been “just a few years away” from being economically competitive with conventional power for at least the last 25 years, and this will not change any time soon. The Energy Information Agency predicts that in 2016 wind power will still be 49 percent to 77 percent more expensive than electricity from either coal or natural gas. Furthermore, because wind turbines work only when the wind blows, wind farms cannot replace conventional plants. Backup power from conventional sources, usually gas turbines, must be ready to come on line the moment the wind fails. Despite these fundamental problems, subsidies continue to flow thanks to an entrenched lobby.

By contrast, consider the significant oil-industry investments in researching biofuels made from algae. Unlike ethanol, biofuels are chemically similar to fuel made from petroleum and, like petroleum-based fuels, have a significantly higher energy content than does ethanol. Biofuels can also be handled by current fuel distribution systems and can be burned in today’s vehicles.

Algae can be grown in brackish water on desert land and, with today’s technology, can produce over 2,000 gallons of fuel per acre each year. This compares favorably with the approximately 250 gallons of ethanol that can be produced from an acre of corn – a ratio of 8 to 1. Accounting for the differences in BTU content, the ratio jumps to over 12 to 1. It may even be possible to boost productivity to 100,000 gallons per acre per year, raising algae’s potential to over 600 times that of corn-based ethanol!

Source	Gallons of fuel per acre per yr	BTUs per gallon	Million BTUs per acre per year
Algae	2,000	128,520	257
Corn	250	84,262	21
Sugar Cane	450	84,262	38

Biofuels are carbon-neutral because the carbon dioxide released when they are burned is first extracted from the atmosphere by the algae. Unlike burning petroleum-based fuels, then, burning biofuels will not result in a net increase in atmospheric CO₂ levels.

With algae’s vast potential, it is easy to understand why private industry is interested and why no government subsidies are needed to encourage investment. Moreover, if algae-based fuels do not prove viable, the companies now researching them will have no “status quo” problems with ending their investments and shifting scarce resources to more promising technologies – where “promise” is measured in density.

Editor’s Note: The author has corrected this article, removing erroneous information about bird kills from wind turbines.