In a world of uncertainty, waste—the destruction of value—is inevitable. Human action, which aims to replace inferior circumstances with superior circumstances, often involves laboring to transform scarce resources from a less useful form to a more useful form. For example, I transform money earned by my labor into raw beef (by using time and gasoline to drive to the supermarket and engaging in exchange), then I transform the raw beef into a medium-well hamburger through the time-consuming process of cooking. If after I eat the hamburger I wish I had done something else with the money and time (say, bought a chicken), I will regret my course of action and feel I’d wasted both.

We have all devoted time and resources to some project that we later realized was the wrong project. That’s the price of imperfect knowledge, which plagues all human beings. If we’re lucky some of the resources we used might be salvageable and put to other purposes, but the time, effort, and other resources are gone.

The same thing of course occurs in commercial production. An entrepreneur buys inputs and hires labor, thinking the finished product will bring a price that covers costs and yields a competitive return—only to find that people don’t want the product, or not badly enough to pay the anticipated price. The loss represents the destruction of value: The value of the inputs before the transformation took place turned out to be greater than the value of the finished product.

As I say, this happens because our knowledge is imperfect. It’s too bad, but perhaps not a tragedy—just a fact of life we learn to live with and minimize. The tragedy occurs when government intervention distorts price signals and induces people en masse unwittingly to make value-destroying plans. That’s part of the story told by the Austrian theory of the business cycle. In the present economic case the Federal Reserve’s low-interest-rate policy in the early 2000s and several federal agencies’ decade-long easy-housing policies induced builders to produce too many houses relative to what the demand would have been without those unsustainable policies. The result was the infamous housing boom and inevitable bust. With housing prices apparently on an unstoppable upward trajectory, and government-backed Fannie Mae and Freddie Mac—not to mention too-big-to-be-allowed-to-fail banks—willing to buy lenders’ mortgages no matter how shaky, builders and buyers were found in great abundance. Buying more house than one could afford seemed smart when one could get a low teaser rate on an adjustable-rate mortgage for a low-to-no-down-payment home and expect its price to rise significantly in six months. When the higher rate kicked in, one could refinance or sell and walk off with the equity.

But when interest rates rose, the bubble burst, and demand plummeted, this smart scheme turned sour. Houses stood unsold, and many people couldn’t pay their mortgages, refinance, or sell at a profit. Foreclosures skyrocketed and the multitude with underwater homes simply disappeared, leaving banks holding a slew of vacant houses that cost money in taxes, code violations, and so on.

As a result, banks now would rather donate the properties to government-created nonprofit land banks and pay for the demolition than hold them and hope for future sales. This is happening in Cleveland, and the Washington Post reported that similar programs were being discussed elsewhere.

How does this relate to the waste identified by the Austrian business-cycle theory? To the extent the homes were vacated and allowed to deteriorate because of the process described above, the demolitions represent destruction of value attributable to government. In the absence of the unsustainable bubble-inflating policies, some of those houses wouldn’t have been built.

In the case of older homes, fewer newly built houses would have competed with them in the real estate market. They would still be occupied and therefore would have been maintained. (There would have been no Great Recession and high unemployment.) Demolition would not have been an attractive alternative.

The tragedy is that because of government policy, demolition is the most attractive alternative. Think of the resources and labor—now seen to have been squandered—that went into making each house. Imagine what products might have been created instead. It’s worse than that: Products always summon complementary products. A housing boom stimulates the production of related shopping centers, office parks, and myriad smaller facilities and products. The resources required to make those things also would have gone elsewhere. Now all those resources, along with much labor and time, are gone because people in government thought they knew how to plan the housing market.

* * *

Georgia and Alabama have joined Arizona in enacting a tough law directed at undocumented immigrants. As Scott Beaulier, Darrick Luke, and Daniel Smith demonstrate, this is already damaging their economies.

Andrew Morriss has been to Graceland, where he found that the lap of luxury in which its fabulously wealthy late resident lived doesn’t look so luxurious today.

Conventional wisdom holds that without the welfare state, the poor would be in dire straits. But what if, as Gary Chartier suggests, government is responsible for the poor’s condition in the first place?

If public policy created the housing bubble, the bursting of which has caused so much misery, can it really be a good idea to reinflate the bubble? Richard Fulmer says that according to political logic, the answer is yes.

The more government controls the curriculum, the more inimical schooling becomes to education. Peter McAllister explains.

The eurozone is in trouble, leading Robert Murphy to explore the possibility that it was a colossal mistake in the first place.

Regulation at the national level gets the lion’s share of attention from market advocates. But let’s not overlook the planning mentality more locally. Sam Staley surveys the taxicab industry.

Here’s what our columnists have whipped up: Donald Boudreaux audits the economics textbook writers. Robert Higgs explains why there’s so little investment. John Stossel brands government a job destroyer. Charles Baird looks at the latest outrage against free speech. And Tyler Watts, bombarded with claims that we couldn’t live without FEMA, responds, “It Just Ain’t So!”

Books on libertarianism, the economy, socialism, and the threat to freedom occupy our reviewers.

—Sheldon Richman

srichman@fee.org

TV hosts of course are not authorities on economics, so when they judge Keynesianism as the only truly scientific economics, they mean two things: That is what a Keynesian taught them in school and that is what all their Keynesian friend-guests assure them is the case. Since they never invite a non-Keynesian economist on their shows, they insulate themselves against informed dissent from their faith. Who’s antiscience?

I know many people who (like me) reject Keynesian economics and embrace science (while realizing that scientists are prone like the rest of us to confirmation bias and career ambitions.) But Matthews & Co. say there are no such people.

This explains their intolerance to those who refuse to agree that in a recession government spending is indispensable to raising aggregate demand and restoring economic growth.

If you point out that every dollar government spends, whether taxed or borrowed, is a dollar removed from the private sector, the Keynesian pundit might agree but point out that business is not investing (true) and consumers are not spending (false)—so what’s lost?

The pundits’ blinders keep them from a broader perspective. Since all they know is the most vulgar rendition of Keynesian economics, they have no idea that two distinct factors now prevent economic growth. First, the boom (without which there’s no bust) was created by monetary, housing, and financial policies that to a great extent still exist. Government officials are trying to resurrect the housing industry, indicating that the ruling elite still does not realize that the industry’s pre-bust condition was the artificial result of misguided interventions. Widespread malinvestments—investments unjustified by real underlying conditions—have to be liquidated before economic growth can resume. Liquidation requires the costly but necessary adaptation and transfer of resources and labor to purposes for which there is genuine demand. This correction cannot take place if political responses to the recession get in the way by, say, discouraging saving.

Second, the government has created significant new regulatory uncertainties that chill the investment climate. With so many yet-to-be-written rules coming down the pike, why would anyone risk money now? A government regulatory regime is bad enough; one that can change at any moment is far worse.

Finally, the pundits are blind to the fact that government can’t create real jobs by design. It’s not that government can’t pay people to do things. But in economic terms, a job is not merely exertion in return for a paycheck. It’s activity that transforms resources from a less valued form to a more valued form in the eyes of consumers.

Keynesian pundits insist that a stimulus program to pay workers billions of dollars to repair schools, roads, and bridges would qualify as productive because people value those things. What’s missed is that we live in a world of scarcity and tradeoffs, and that we always make choices at the margin. Repairing a school may sound good in a vacuum (Which school? How elaborate a repair?), but not so good when something more valuable must be given up in exchange.

We all make similar tradeoffs in the marketplace, and we can do so intelligently because goods and services have prices. But government-produced goods and services are not priced and sold in the market. Instead, government collects its revenues by threat of force, and politicians and bureaucrats dispose of them ostensibly in the interest of the people but more likely in the career interest of those same politicians and bureaucrats. Without prices and free exchange—without entrepreneurship—we cannot know if what government produces is worth the alternative goods and services forgone. Putting the infrastructure into the freed market would correct this defect.

The Keynesian pundits, then, are wrong. The government need not be the spender of last resort because 1) producers and consumers would spend just fine if it would get out of their way, and 2) the government can’t be relied on to create, rather than destroy, value in its use of scarce resources.

* * *

In a move reminiscent of medieval times, the government of Atlanta has told independent street vendors they now owe tribute to a new monopoly contractor. Bob Ewing describes this outrage against economic freedom.

“Infrastructure” is the magic word for those who want the government to spend ever-more amounts of the taxpayers’ money. Richard Fulmer reminds them that this is no substitute for a free economy.

The American people continue to be plagued by unemployment. What is it exactly, and where does it come from? Warren Gibson starts a two-part series this month.

People favoring a tax-hike strategy for reducing the federal deficit point to the booming Clinton years for support. Arthur Foulkes takes a closer look at those years.

Russell Conwell was well known in the late nineteenth century for his inspirational speeches about entrepreneurship and self-help. Today he’s forgotten, but Harold Jones, Jr., is trying to change that.

Fed Chairman Ben Bernanke promises to continue his near-zero-interest-rate policy for another two years. But Christopher Lingle says that would be a disaster.

Failure can be painful, but not as painful as what results from a public policy aimed at preventing failure. Jack Knych and Steven Horwitz explain.

Communitarian sociologist Amatai Etzioni has been railing against libertarianism for at least 30 years but refuses to respond to rebuttals. Aeon Skoble gives him one more chance.

Our columnists have had fun coming up with topics for their sharp observations. Lawrence Reed remembers Samuel Tilden. Donald Boudreaux finds fault with economists. Stephen Davies uses debt and taxes to gauge political failure. John Stossel looks at some historical myths. David Henderson traces the causes of the 1967 Detroit riot. And Tyler Watts, reading Paul Krugman’s appeal for more government spending because it will create jobs, responds, “It Just Ain’t So!”

Our book reviewers have been absorbed in works about the financial crisis, a champion of the freedom philosophy, libertarianism, and capitalism.

Nowhere is this more true than in government, which means we have to watch it closely. Unfortunately preconceived notions can make us impervious to events right in front of us and lead us to colossal misperceptions.

Take the Federal Reserve System. (All together now: Please!) Since the central bank controls the money supply, advocates of free markets and market-based money are understandably wary of its power to generate inflation. It’s inflated in the past and has the capacity to do so in the future. So attention naturally goes in that direction.

The problem is that while we’re watching for inflation, we might be missing the Fed’s real mischief elsewhere. In stage magic this is called misdirection.

Jeffrey Rogers Hummel, a macroeconomist at San Jose State University and a Freeman contributor (not to mention an old friend), says that’s exactly what has been happening. While inflation hawks have been busy looking for any sign, or even any word, of monetary expansion, Hummel writes, “[Fed chairman Ben] Bernanke has so expanded the Fed’s discretionary actions beyond merely controlling the money stock that it has become a gigantic, financial central planner.”

In other words, “Bernanke’s targeted and sterilized bailouts have altered the fundamental nature of the Federal Reserve. . . . [T]he Fed that emerged from the [housing and financial] crisis is no longer the same as the Fed before the crisis. . . . Most economists appear not to appreciate fully how drastic the changes are that Bernanke has wrought.”

Note the word “sterilized.” That means the Fed’s huge bailout program has been carried on largely without creating net new money. And that makes the Fed a menace to markets even when it’s not generating inflation! Hummel says that what we should be concerned about today with respect to the Fed is not inflation but central, nonmarket control of the allocation of scarce capital. In our obsession with inflation, we are missing an ominous leap further into corporate statism.

Hummel spells this all out with admirable clarity and detail in “Ben Bernanke versus Milton Friedman: The Federal Reserve’s Emergence as the U.S. Economy’s Central Planner,” published in Freeman columnist Robert Higgs’s great quarterly journal, The Independent Review, Spring 2011.

Bernanke’s efforts to channel capital to particular firms and sectors, including insolvent financial institutions, are breathtaking in scope. Previous Fed chairmen, notably Alan Greenspan, poured new money into the economy in response to anticipated crises, but they did not attempt to direct the money to chosen destinations. That was left to the market (however distorted). Things are different now. Bernanke directs the flow of credit—and has been doing it generally without creating new money.

How so? By selling assets to or borrowing money from banks and other institutions. Follow the money: When the Fed sells assets (T-bills, mortgage-backed securities, whatever) or borrows, it takes money out of the economy. If it turns around and lends the money to a bank, the impact on the money stock is a wash. However, the Fed has acted like a central planner of the capital market. Hummel leaves no doubt that this is what the Fed was up to before September 2008.

After that the Fed appeared to create huge amounts of new money through what has been called “quantitative easing” (QE1 and then QE2). But since 2008 it has also paid banks interest on reserves kept in their Fed accounts. “Bernanke in effect created money and then borrowed it back from the banks by paying them interest. . . . [T]he payment of interest on reserves was tantamount to borrowing back from depositories the full $800 billion increase in reserves and more. No wonder the impact of the base explosion on the broader monetary measures (except for M1) was so muted,” Hummel writes.

Summing up, Hummel says, “Helicopter Ben talks a good line about being ready to unleash quantitative easing, but this talk only imparts an aura of justification for the Fed’s incredibly expanded role in allocating the country’s scarce supply of savings. If anything, his policies were closer to a quantitative tightening. A better moniker would therefore be ‘Bailout Ben.’”

* * *

The Progressive Era’s infatuation with regulation of labor markets is typically portrayed as a humanitarian impulse. But could darker motives have been at work? Art Carden and Steven Horwitz have evidence to support that suspicion.

During last summer’s debt-ceiling controversy Fed Chairman Ben Bernanke made a remarkably anti-Keynesian concession that undercut his own monetary policies. James C. W. Ahiakpor has the scoop.

The government now will pay people—possibly a lot—to blow the whistle on the companies they work for. One need not believe that business is faultless to see the dangers in this government-created incentive. Warren Gibson spells it out.

Arthur Koestler’s classic novel about the horrors of the Soviet Union, Darkness at Noon, was published 70 years ago this year. Edward Bruce Walker has a tribute to Koestler and his unique book.

Classical liberals like Arthur A. Ekirch, Jr., and George C. Roche III, as well as Progressives, were critics of the Gilded Age. Joseph Stromberg thinks they were onto something.

One of the most influential journalists of the twentieth century was Walter Lippmann, an establishment figure who mostly took wrong positions on economic policy. But for a brief period he was struck with free-market insights about the impossibility of central planning. Harold B. Jones, Jr., has the details.

Bureaucratic central decision-making is notoriously bad because it ignores what F. A. Hayek called “the knowledge of the particular circumstances of time and place.” Paul Schwennesen applies this principle to two seemingly dissimilar cases.

Here’s what our ever-curious columnists have cooked up this issue: Lawrence Reed pays attention to the sadly neglected Samuel Smiles. Robert Higgs takes a scalpel to Lyndon Johnson’s War on Poverty. Thomas Szsaz focuses on a degraded and disfavored class of Americans. John Stossel exposes the scam of college. Charles Baird traces crony unionism in the government sector. And Arthur Foulkes, reading that claim that America can be great only through big government, responds, “It Just Ain’t So!”

Books coming under our reviewers’ microscopes cover so-called great leaders, the Mont Pelerin Society, state nullification of federal law, and the relationship between science and liberal democracy.

So how could O’Donnell permit himself to say this in a promo that ran on his network: “We can afford anything in this country. It’s just a matter of deciding what our priorities are. . . . There isn’t anything we can’t afford, if we prioritize.”

This clearly is nonsense. He seems to be saying that if we prioritize—ignore who “we” are for the moment—we have the resources to satisfy everyone’s wants. He also might mean that if we prioritize, there isn’t any particular thing we can’t afford. I doubt that’s what he has in mind because it would be far less sweeping a statement. Even so, it would still be nonsense.

We live in a world of scarcity. Individually and collectively we want more than available resources can yield. That will remain true even as the supply of resources expands. That’s how people are. Ends exceed means. Demand exceeds supply. That’s why we economize and always will. That is why human action is choosing. That is why we face tradeoffs all the time. Indeed it is why the discipline of economics exists.

And it is why we prioritize, that is: “arrange or deal with in order of importance.” Since resources and time are limited, we have to rank our ends so 1) we don’t expend resources achieving a less important end at the expense of more important ends, and 2) we don’t achieve a less urgent end at the expense of a more urgent end.

If we literally could afford everything in terms of resources and time, we would have no need to prioritize. But prioritizing doesn’t prevent us from running out of resources.

I assume that Lawrence O’Donnell knows all this. To be fair, tucked in between the two sentences I quoted is this: “If we want [fair and decent health care] we can afford that. It may mean that we have to cut back on something else somewhere else. But we can do it.” But then he immediately forgot he had said this.

I’d guess it was just a demagogic strike at those who think we can’t afford a government that spends close to $4 trillion a year. He apparently wants to say that anyone who believes this is just a stingy bastard, especially when it comes to the poor, the elderly, and the sick.

As a subscriber to the principle of charity, I tried hard to make sense of O’Donnell’s statement. Maybe he really means we can afford everything he thinks is worthwhile. I doubt that’s true, but it takes us into another area of discussion.

Who is “we”? Of course O’Donnell means the taxpayers. It’s quite remarkable how some people sit around casually spending other people’s money. You’d think our incomes were public property. By that logic the government budget isn’t $3.8 trillion. It’s something over $14 trillion—the entire GDP. The 73 percent of our income not taxed is actually a form of government spending because some government could have spent the money some other way but chose not to.

People who think like that (or whose premises logically commit them to think like that) no doubt assure themselves that it’s all for the good of the country. But they can’t escape the fact that their schemes merely empower an elite whose real priority is keeping the corporate state intact. The benefits handed to people outside the governing clique are intended at best to consolidate and maintain power.

* * *

We take the conveniences of modern life for granted, so it is worthwhile reminding ourselves what they are and what makes them possible. Warren Gibson has a go at it.

One grievance of the American revolutionaries was that King George III “erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance.” Paul Schwennesen offers two vignettes to illustrate the continuing relevance of the complaint.

For many years most Africans have suffered oppression and poverty under centrally run economies. But deeper in Africa’s history—before Western colonization and modern independence—one finds decentralization, markets, and trade. George Ayittey has the story of Africa’s original liberalism.

This month marks the 130th anniversary of the birth of Ludwig von Mises, the great Austrian economist, political philosopher, and prophet. We commemorate this occasion with a selection of his Freeman writings.

If the Progressive Era stood for anything, it was the proposition that experts know best about everything. What is unappreciated is how widely this principle was applied. Kevin Carson has the details.

To hear most politicians and pundits tell it, the way to solve a problem is to manipulate its indicators. Why worry about the real cause? Richard Fulmer tells why.

Freeing the market will take more than just scraping off a thin layer of government intervention. It will require going down to the roots of government economic distortion and exploitation. Charles Johnson elaborates.

Provocative insights pour from our columnists’ word processors. Lawrence Reed says government should not subsidize the arts. Donald Boudreaux discusses the causes of the Industrial Revolution. Burton Folsom assesses competing strategies for ending the Great Depression. John Stossel indicts occupational licensing. Walter Williams examines the concepts monopoly and collusion. And David Boaz, confronting the claim that drug decriminalization has failed, responds, “It Just Ain’t So!”

Books on the ruling class, neoconservatism, Lysander Spooner, and limited government have kept our reviewers occupied.

Let’s concede for argument’s sake there is something unattractive about viewing patients as consumers. Krugman writes, “Medical care, after all, is an area in which crucial decisions—life and death decisions—must be made. Yet making such decisions intelligently requires a vast amount of specialized knowledge.”

All true, but not necessarily decisive in answering Krugman’s question—because if we reject the patient-as-consumer model, we must then ask: What’s the alternative?

I believe the answer is this: If the patient is not a consumer he or she will be a ward of the State or a government-empowered insurance company. If the choice is between consumer and ward of the State, consumer doesn’t look so bad after all.

To see what ward status means, ponder Krugman’s thoughts on the Independent Payment Advisory Board, Obamacare’s Medicare cost-cutting apparatus:

“About that advisory board: We have to do something about health care costs, which means that we have to find a way to start saying no. In particular, given continuing medical innovation, we can’t maintain a system in which Medicare essentially pays for anything a doctor recommends. . . .

“And the point is that choices must be made; one way or another, government spending on health care must be limited” (emphasis added).

Much of what Krugman says here is correct. Resources are finite. Choices must be made. No matter how medical care is paid for, spending will be limited—regardless of what demagogues imply. But under Krugman’s patient-not-as-consumer model (which is largely in effect today), government experts make all the important decisions. Bureaucrats will have a global budget for medical spending, and it will be their job to stick to that budget. They will not be the patients’ agents. Advocates of this scheme insist the quality of medical care will not be cut along with costs. They assure us they will prohibit only “unnecessary” and “wasteful” procedures. But how objective are those categories? And why should we trust unaccountable bureaucrats and “experts” to make the right decisions, as though there were one-size-fits-all answers in medicine?

The upshot is that anyone who has his or her medical bills paid by the taxpayers will ultimately be at the government’s mercy. If you’re not a consumer you’re a ward of the State.

But won’t private medical coverage also have restrictions? The difference is that if medical coverage were offered in a freed market—no privileges, no licenses, no protectionism—the environment would be competitive. When government is in charge competition disappears or is vastly constrained to the point where it hardly matters. In a competitive environment entrepreneurs seek to discover what services best satisfy their customers’ requirements. Note well: This environment includes nonprofit solutions, such as mutual-aid societies, which through “lodge practice” managed to provide decent medical coverage to people of modest means in earlier times (tinyurl.com/cjca68).

Competition is a discovery process (Hayek). Government is the habitat of bureaucrats who pretend they know it all already.

Krugman cautions, “[B]ear in mind that we’re not talking about limits on what health care you’re allowed to buy with your own (or your insurance company’s) money. We’re talking only about what will be paid for with taxpayers’ money.” This is disingenuous.

After being taxed all their lives, how many elderly people are in a position to forgo Medicare in favor of private insurance? Government creates dependence, then exploits that dependence to justify its power.

* * *

Even if the flawed Consumer Price Index isn’t quite showing it yet, there is talk of inflation in the air. What exactly is going on? One of our sharp economy watchers, Warren Gibson, doesn’t like what he sees.

Advocates of government expansion have not found the Constitution a terribly formidable barrier. Could a better-written preamble have helped? James Payne thinks perhaps it would have.

Schools run by state and local governments are bad enough, but how about a single national school system run from Washington, D.C.? The best-kept secret these days is the Obama administration’s moves toward a national curriculum. Neal McCluskey has the unpleasant details.

H. L. Mencken famously suggested that fear among the people is the government’s best friend. James Bovard finds ample empirical evidence for Mencken’s thesis.

Why are markets, despite their palpable benefits, morally tainted in so many people’s eyes? F. A. Hayek thought it’s because markets don’t embody the nurturing morality of the family that we first learn as children. Dwight Lee endorses Hayek’s explanation and points out that we wouldn’t like the results if great societies were run like families.

After a natural disaster the high-profile first response leaves the impression that no alternative to a centrally planned recovery is available. Peter Boettke says that’s a failure to look more closely.

Labor unions continue to be at the center of controversy. Despite appearances, Wendy McElroy writes, government-backed unions limit workers’ ability to organize in their own interest.

Just because two things are called by the same name is no reason to assume they are actually the same. Take the case of private-sector and government investment. Adam Summers does just that.

Our columnists’ inquiring minds have produced a smorgasbord of provocative fare: Thomas Szasz ponders the legal status of suicide. Stephen Davies looks at Japanese commercial virtues. John Stossel thinks police making arrests have no right to privacy. David Henderson says no particular person can say how much manufacturing Americans should engage in. And Gary Chartier, encountering a newspaper columnist’s claim that opposing military intervention indicates indifference to suffering, responds, “It Just Ain’t So!”

Books on the mistreatment of taxpayers, economics, and an infamous automobile catch the fancy of our reviewers.

Imagine how upset the ruling elite will be when it can spend money on nothing but so-called entitlements and interest? That would leave nothing for the military-industrial complex, nothing for business and farm subsidies, nothing for all the ways that politicians buy off constituents so they can be reelected over and over. If they try to keep spending on everything, total government expenditures would have to rise to half or even three-quarters of GDP.

Thus the ruling elite’s concern and the various reform fantasies. But the elite has few good options. Default on the debt would mean no more borrowing. Inflation won’t work. Raising taxes won’t do it either. Revenues as a percentage of GDP have been virtually constant since World War II regardless of tax rates, indicating that people adjust to the tax environment. (Revenues are historically low now because of the recession.)

Why couldn’t the politicians dramatically cut spending? The political system doesn’t typically reward spending cutters. People say they want government to spend less—on the things they don’t depend on. Among the biggest-ticket items are Social Security and Medicare (with tens of trillions in unfunded promises). Elderly people, made dependent on the State, vote in high numbers, and they will vote defensively. The special interests that live off a trillion dollars in annual “defense/security” spending—another big item—won’t let go easily either.

Let us then acknowledge the debt of gratitude due every politician who put us in this predicament. Each spending vote dug the hole deeper and made it harder to get out.

But aren’t the voters ultimately to blame? In a way, yes, but there’s more to the story. People are left no choice but to pay taxes, so when virtually every politician promises “benefits” in return for those coerced payments, what will most people do? The political establishment has implicitly sold the system as a big mutual-aid society. Most people don’t realize that government’s forced transfers are as much acts of robbery as those that occur in dark alleys. Nor do they understand the harm done or the opportunities forgone when government distributes the money. The well-heeled, well-organized, and well-connected have no trouble securing their subsidies and tax preferences, while sundry “benefits” are bestowed on others in return for their acquiescence in the corrupt process.

Some now call for spending cuts—modest in the scheme of things—while others would rather see higher taxes on the rich coupled with even more modest spending reductions. In its own way, each side seeks to preserve the welfare-warfare state. Several objections leap forth regarding the case for higher taxes: It’s not the politicians’ money, so taking it is immoral; hiking tax rates won’t raise as much money as they think (people adjust); the politicians can’t be trusted with the money anyway; and leaving it in the private economy would yield general benefits.

It’s hard to be optimistic. Until there is a deep rethinking of government, the public will not accept the drastic near-term budget cutting required to head off a fiscal crisis, much less the longer-term structural steps needed to prevent a repetition of what we’ve been through. People will need to learn that while the wish for “social security” in an uncertain world is entirely reasonable, the route to it is not Medicare, Medicaid, and Social Security—which tether people to the political class—but freed markets and voluntary mutual aid.

The fiscal problems have more than a fiscal solution. People would be less attracted to government succor if the barriers that raise the cost of initiative and independence were removed and individuals were freed to live without having to kowtow to power and privilege.

* * *

Commodity prices are rising worldwide but the Federal Reserve chief claims he’s not responsible. Gerald O’Driscoll says Ben Bernanke shouldn’t be let off the hook.

Economic hardship engenders xenophobia, and the most popular target right now is China. Robert Murphy examines the charge that Americans are harmed by Chinese currency manipulation.

Patents and copyrights are often defended in terms of liberty, but they began as State privileges and have never been anything else. Stephan Kinsella explains.

Women have played key roles throughout the history of the struggle for liberty. Sarah and Angelina Grimké are prime examples. John Blundell tells their story.

A good deal of what the U.S. government does abroad these days comes under the rubric of “nation-building.” Is that something we should expect government to be good at? Steven Horwitz says no.

Whenever the government wants to do you a favor, watch out. The more it meddled with beef cattle and meatpacking, for instance, the more consolidated those industries became. Paul Schwennesen speaks from personal experience.

Jury nullification—the principle that lets jurors acquit defendants when they find the law unjust—has been a popular cause with libertarians. Wendy McElroy sees the appeal but she also sees some risks.

Here’s what our columnists have come up with: Lawrence Reed celebrates the power of ideas. Donald Boudreaux critiques the interventionists of all parties. Robert Higgs dissects the political economy of the Great Society. John Stossel says gun owners have a right to privacy, too. Charles Baird skewers crony unionism. And George Leef, seeing Paul Krugman’s call for “shared prosperity,” retorts, “It Just Ain’t So!”

Books coming under scrutiny focus on European social democracy, the drug war abroad, political illusions, and happiness research.

Capital Letters asks the question: Must formal law precede prosperity?

Is the governor’s proposal really an assault on human rights, as advocates of the Wisconsin state employees allege? (Their raucous protests at the state capitol were compared to rebellions in the Middle East.)

A few basics: In a freed market—meaning no privileges, no bailouts, no legal barriers to competition (domestic or foreign), no patents, no protected banking cartel, no regulatory impediments to self-employment, no vast tracts of government-held land—workers would be free to form voluntary associations called unions and business owners would be free to deal with them or not. If not, workers would be free to use nonviolent methods to gain recognition for their unions, including strike threats, boycotts, and sympathy strikes, as well as lesser measures. Violence by any party against any peaceful person would be illegitimate. Freedom of association would be complete, and coerced association would be beyond the pale.

Under such circumstances, everyone’s demands would be tempered by two powerful factors: freedom and competition. Pay workers too little, and they would be bid away by rivals or take up self-employment. Pay them too much, and rivals would attract customers with lower prices. Demand too high a wage, and risk losing out to someone else willing to work for less. Market rivalry would protect everyone from abuse, which is why competition—endless hosannas to it notwithstanding—is usually the target of government intervention.

Regarding government workers, it is a grave mistake to treat so-called public employment like other employment. Governments are monopolies that get their revenue by force, not through voluntary exchange. Thus they don’t face the market test of free competition, and they lack key price information with which to engage in economic calculation. The consequences of this difference are considerable.

As Freeman columnist Charles Baird notes, when government negotiates terms with employees, the parties are coconspirators in the looting of captive taxpayers. (Government employees aren’t taxpayers; they are tax-consumers.) Fundamentally they are not rivals but rather accomplices with a harmony of interests contrary to those of the taxpayers. This is aggravated by the fact that those unions are powerful political actors and rich sources of campaign contributions (the ultimate source of which is the taxpayers) and manpower. A politician negotiating with a government union whose election support he seeks is unlikely to have the taxpayers’ interest uppermost in mind.

Would the working conditions of state workers become intolerable if their unions were restricted? Not likely. But if they did, would it really be so bad if state governments had trouble finding employees?

So, does this mean that free-market advocates should side with the governor of Wisconsin? Actually, no.

State governments are in trouble because they spent profligately when revenues were rolling in and now can’t meet the pension and other obligations they’ve imposed on the taxpayers. As a result, they face a crisis of legitimacy. Some governors realize this and are trying to save the discredited system by trimming spending (for now) and making political hay by resisting the unions. The fiscal hawks even tout cutbacks as ways to produce more revenue in the future. Rarely do you hear a governor call for the shedding and demonopolization of functions like education. So this is largely a fight over how to preserve and divide the tax spoils.

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What’s the Federal Reserve up to? The business news is abuzz with insider lingo like QE2, but what does it all mean? Ivan Pongracic, Jr., has been keeping close watch on what we like to call the Bureau of Counterfeiting.

Many people think the Fed is a private bank owned by the country’s bankers, who use it to profit off the American people. Hold on, Warren Gibson says. The Fed is bad enough without making up stories about it.

Imagine an honest child running a lemonade stand. Now imagine a bully who’s constantly proclaiming his good intentions as he puts the screws to the first child. Roger Koopman thinks this describes much of the U.S. economy.

Believing that government can manage an economy is like believing in leprechauns and unicorns, yet despite overwhelming evidence, people continue to do it. James Payne tries to figure out why.

Adam Smith is famous for his “invisible hand” metaphor, but he mentions it only once in each of his books—strangely, right about in the middle of each. Is there any significance to this? Mark Skousen thinks so.

Egyptians drove a dictator from power last winter, inspiring oppressed people throughout the Middle East and North Africa. What accounts for the sudden uprising after 30 years of subjugation? Nouh El Harmouzi traces its roots.

China is growing economically but not politically. The economy has been liberalized, but the country is still in the grip of a central government run by the Chinese Communist Party. James Dorn discusses China’s future in light of this contradiction.

When world trade revived after the fall of the Roman Empire, merchants from diverse cultures and countries needed a common legal system to peacefully resolve their contract disputes. What did they do? They generated their own—without government. Peter Leeson and Daniel Smith analyze the Law Merchant.

No one wants tainted food, but what’s the best way to prevent it: competition or government regulation? Speaking from experience, Paul Schwennesen makes the case for competition.

A lawsuit against Walmart could dramatically and unreasonably expand the number of class-action suits unless reversed by the U.S. Supreme Court. Wendy McElroy has the details.

Our columnists provide a cornucopia of keen insights. Lawrence Reed elaborates the benefits of competition. Donald Boudreaux debunks vulgar Keynesianism. Thomas Szasz undermines the psychiatric explanation for the attempted murder of a congresswoman. Burton Folsom, Jr., reviews the history of the income tax. John Stossel celebrates spontaneous order. Walter Williams scrutinizes poverty. And Aeon Skoble, reading the claim that war and taxes make America great, protests, “It Just Ain’t So!”

Our reviewers report on books covering the financial crisis, traffic jams, secular religions, and regulation.

The war damaged the country forever, as I suggested in Tethered Citizens (Future of Freedom Foundation, 2001). Here’s an excerpt:

“While early America always had its advocates of activist government, that view becomes more prominent after the Civil War. . . .

“The Civil War itself and its militaristic effect on American society had important consequences for the nationalist collectivization of America that occurred in the following decades: It encouraged collectivist intellectuals to vigorously promote their reform visions, and it won thinkers to a collectivist cause. It even convinced some individualists that the world had changed, making their worldview outdated.

“The war’s military collectivization of society profoundly impressed some Northern intellectuals, giving them visions of a new world. The war effort devalued the individualism that had characterized the earlier Jeffersonian America. Service to the Union became the reigning ideal. Order, explicit planning, and regimentation rose in value. Independent thought seemed more a liability than an asset.

“The war, wrote the historian Allan Nevins, ‘transformed an inchoate nation, individualistic in temper and wedded to improvisation, into a shaped and disciplined nation, increasingly aware of the importance of plan and control.’

“A symbol of that change in mindset is Ralph Waldo Emerson, the transcendentalist author of Self-Reliance, who before the war represented a distinctively American cantankerous individualism opposed to institutions and their impositions on the person. When the war came along, Emerson expressed approval that it imposed obligations on everyone. He hoped no one would be exempt from ‘the public duty.’ In a 180-degree turn, he assigned government and civilization priority over ‘the private man.’ In ‘American Civilization,’ written in 1862, he was willing to grant government ‘the absolute power of a dictator’ in a crisis. ‘Emerson’s characteristic emphasis on individualism and anarchism disappeared.’ [George M. Frederickson, The Inner Civil War: Northern Intellectuals and the Crisis of the Union.]

“In Emerson’s words, ‘War organizes [and] forces individuals and states to combine and act with larger views.’ Self-reliance was now replaced by service and obedience, particularly in the military. His new views influenced his outlook on culture, as evidenced by his support for a State-created National Academy of Literature and Art. A new era required new thinking.

“After the war, intellectuals were more interested in a strong central government and nationalism. Jeffersonian decentralization and individual liberty were seen as a part of the old ways, made obsolete in the new postwar America. The Declaration of Independence became old-fashioned. . . .

“Unlike poetry before the war, poetry now rhapsodized on the glory of the nation. Herman Melville wrote about empire, not freedom. The crushing of the Southern secession demonstrated the need for strong government and citizen compliance with the State. . . .

“The collectivist intellectuals believed that the Civil War held important lessons for the new America. It wasn’t war itself that they valued, but the things that war brought. John W. Draper, for example, wrote that war taught subordination and stimulated an appreciation of order. Men, said Draper, ‘love to obey’ those they believe are their intellectual superiors. ‘In military life they learn to practice that obedience openly,’ he said, adding that individualism was to blame for the war.

“What intellectuals such as Francis A. Walker, Charles Francis Adams Jr., and future U.S. Supreme Court Justice Oliver Wendell Holmes Jr. wished for was, in [George] Frederickson’s words, a ‘continuance . . . of the crisis mentality of war.’ That mentality would maintain the sense of duty to society that was palpable during the war. While those men wanted conservative objectives served, others, such as John Wesley Powell, had ‘humanitarian ends’ in mind.

“The problem for these thinkers was that peacetime did not inspire service and sacrifice. People became centered on their own lives, their families, and immediate communities. But war was a call to duty and the ‘strenuous life.’ If only a substitute for war could be found, a call to duty that did not involve bloodshed. ‘There is one thing I do not doubt,’ said Holmes, ‘and that is that the faith is true and adorable which leads a soldier to throw away his life in obedience to a blindly accepted duty, in a cause which he little understands, in a plan of campaign of which he has no notion, under tactics of which he does not see the use.’”

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Following is Burton W. Folsom, Jr.’s assessment of the economic costs of the war.

Next, Bradley Birzer documents another sort of cost: the sacrifice of republican principles through the Reconstruction.

Joseph Stromberg then examines the political economy that arose during and emerged from the Civil War, with particular attention to the ensuing Gilded Age.

Finally, Hummel returns to look at the issue of slavery in order to sort out the reasons for secession and war.

Warren Gibson concludes his two-part series on gold and money.

Our columnists have also been hard at work. Lawrence Reed warns that rising gasoline prices can be counted on to bring out the political opportunists. Stephen Davies explains how maps serve the interests of power. John Stossel reports on another assault by the prohibitionists. David Henderson reminds us that war is a government program. And Fred Foldvary, confronting a claim that central banking is superior to free banking, responds, “It Just Ain’t So!”

Books on domestic surveillance, the financial crisis, Marxism, and private roads occupy our reviewers.

What prompted the compromise was the looming increase in everyone’s income tax rates on January 1 and Obama’s inability to maintain the middle-class rates while letting the rate on the top 2 percent of income earners rise, as he had promised to do during his campaign.

The first thing to note is that the media and other participants in the discussion have been sloppy (at best) in calling this a debate about tax cuts. Preventing a tax increase—even one set on automatic—is not a cut. Under the bill passed the tax rates in effect on December 31 were the same as those in effect on January 1. How is that a cut?

More important, all players in the game have revealed themselves to be interventionists. Regardless of party, they see the economy as something to fix by turning a knob here, pulling a lever there, and stepping on a pedal over yonder in order to get the desired performance: higher consumer spending, lower unemployment, and increased investment. It’s as though the economy were a machine. But an economy is not a machine. It’s a network of people engaged in myriad exchanges of goods and services—pursuing end-oriented activities informed by subjective values and expectations. Such information is largely unavailable to politicians, bureaucrats, and their economic advisers. That’s why politically managed economies are chronically problem-ridden.

With unemployment at press time officially at 9.4 percent, the economy indeed remains in the doldrums. None of the palliatives that George W. Bush or Obama tried has worked, but instead of realizing that government and its corporate-state policies are the obstacles to a flourishing economy, the ruling elite remains committed to the managed economy. So it’s decided not to raise taxes—for two years—and to reduce the employee payroll tax—for one year. These expiration dates are signs of political management. Understanding the necessity of a freed market would lead one to call for permanent—not temporary—government retrenchment.

Some questions were apparently overlooked. If tax rates may go up in two years, why make tax-sensitive long-term plans? If the payroll tax is to be two points lower in 2011, that implies it will most likely be two points higher in 2012. Will people spend the extra money next year or save it in anticipation of the tax increase to come? In any event, they will need to make an unpleasant adjustment in their household economies on January 1, 2012. People do think long-term, even if politicians don’t.

Of course, there was scarcely an acknowledgment during the debate that money subject to taxation belongs to someone and not the State. You’d think it magically appears in a common pot and the government’s job is to ladle it out effectively and fairly.

In objecting to politicians’ taking money through taxation, I am not unmindful that in America much money is made through what sociologist Franz Oppenheimer called “the political means” (as opposed to the economic means: voluntary exchange). The plutocracy is real, thanks to the centralizing effect of much government intervention and the nature of politics. But the way to prevent accumulations of wealth via the political means is not taxation but elimination of privilege—that is, all competition-stifling interventions, including barriers to self-employment. The answer to government power can never be more government power. All that gets you is bigger government.

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In 1950 FEE founder Leonard E. Read faced a hostile congressional committee. Those were the days when advocates of individual liberty were subpoenaed by government investigators because of their views. David Beito tells the story.

Regardless of what selected statistics indicate, for many people the Great Recession goes on. Angel Martín Oro discusses the various theoretical explanations of what’s happening.

Newsweek has declared the U.S. presidency an impossible job. Did it therefore recommend shrinking the size and scope of government? Richard Fulmer analyzes the mainstream news magazine’s solution.

Though expelled from the monetary system long ago, gold refuses to go away. Why does it have such an allure, and will it make a comeback? Warren Gibson begins a two-part series on what some call real money and Keynes called the “barbarous relic.”

When the United States was demoted from “totally free” to “mostly free” in a recent measure of economic freedom, Kevin Carson wondered when it was “totally free.” That depends on whose freedom matters to the measurers, he explains.

Advocates of freedom constantly look for an effective strategy to roll back the power of government. What about establishing freedom outside government’s reach on the high seas? Patri Friedman and Brad Taylor see promise in that approach.

Much of the impetus for government stimulus of the economy comes from the notion of “underutilized resources.” Private spending is insufficient to put labor and capital to work fully, so government spending will have to do it. Tyler Watts exposes the bad economic theory within.

Our columnists have these enlightening offerings: Thomas Szasz explores how psychiatry thinks about coercion. Robert Higgs revisits Lyndon Johnson’s Great Society. John Stossel asks why some people in the world are stuck in poverty. Charles Baird warns of union card check by nonlegislative means, while Art Carden and Steven Horwitz, having been bombarded with the message that the TSA keeps us safe, respond, “It Just Ain’t So!”

Books on liberty, too-big-to-fail, economic self-interest, and intellectuals have occupied our reviewers.