Taking care of their own.

FEE Timely Classic
“What Big Government Is All About” by David Boaz

Later the President explained there would be a $5,000 tax credit for employing an additional worker, forgiveness of the employer’s 6.2 percent portion of Social Security payroll taxes for newly added salaries and other salary increases, an end to capital gains on investment, and continuation of rapid write-offs for new capital investment, all to be targeted to businesses with 50 or fewer workers.

Mr. Obama was right to be concerned about small businesses. According to ADP’s latest report, firms with fewer than 50 workers employed some 48 million people in December 2009; those with more than 50 had 60 million on the payroll. So America’s small businesses employ close to half the workers in the economy. But their hiring plans have been decidedly bleak.

On first hearing the President’s message, and captured by the moment, I shouted out, “Right on! Now we are getting somewhere.” According to press reports, I was not alone in my enthusiastic reaction. John Arensmeyer, CEO of Small Business Majority, happily said, “These tax credits are simple and straightforward, and will support small businesses to generate the jobs Americans so desperately need. And they’ll start doing it now.”

My response must have come from a stored-up love for small businesses that goes back more than 40 years. But after settling back in my chair, I had other thoughts on the matter. Let me explain.

For some 15 years, starting when I was still a college student in 1952, I was a part-owner of a small business enterprise, which in 1967 had about 50 employees. As corny as it may sound, I still remember what it takes to make a payroll on Friday night. I understand how hard it is to generate enough additional dependable business to add just one more employee. And I know how great it feels to bring one on and to introduce the new employee to the team members he or she will join. I also know how much it hurts everyone in the firm to cut back, to have to fire a good worker because business has fallen off. Because of the pain that goes with layoffs, I know how careful one will be before hiring another worker. In the case of small business, that person is likely to be a friend, former colleague, or family member. Also, if the firm employs ten people, which is common, adding one more amounts to a 10 percent increase in personnel. And that ain’t hay, especially in a recession when you are not sure if the next month will be your last.

I hope that some of Mr. Obama’s close advisers know these things as well as, if not better than, I do. I am betting they do.

No one in his right mind wants to bring on a new employee only to face the plight of having to pass out more pink slips. Before hiring that one person I would want to see a lot of black ink on the operating statement, not just one or two profitable months. Because of this, I don’t think a $5,000 tax credit will get the job done. What we need is some certainty.

This seemed to be a base concern when Susan Eckerly, senior vice president, federal public policy, of the National Federation of Independent Business, was asked about the Obama tax credit. She indicated that small businesses wouldn’t start hiring until earnings improved. “An employer is unlikely to hire someone just to get a $5,000 credit,” she said. When I read Eckerly’s comments I was reminded of a wise guy’s response to tax incentives that allowed a firm to “to take it off your income tax.” The response: “First off, I’ve got to have income.”

Obama wants to see one million new employees added to the ranks of America’s small businesses. I do as well. But adding just one new full-time hire when your toes can barely touch the bottom in a recession’s deep end is risky business, and for one major reason. At this point there is no way to know what really lies ahead; there is no way to distinguish between stimulus and the real economy. Too many policy boulders are being dropped in the water. One can hardly determine the effects of one before another one is thrown in the pool.

There was stimulus one. Then stimulus two. And now talk of stimulus three. There was TARP. Cash for Clunkers. Cash for Appliances. First-Time Homebuyer tax credits. Health care revision. Copenhagen. Cap and trade. Jobs programs. Financial reform. Each announced in short succession. The effects of some of these programs are so large that they are readily seen in GDP and construction data. By some counts, about half of 2009’s fourth quarter 5.7 percent GDP growth is explained by Cash for Clunkers, a program that came on like gangbusters and then faded into oblivion.

Imagine yourself as owner of a small business with 20 employees who’s trying to decide if you should build up inventories again, hire one or two people, and lease another pickup truck. Would you make your decision on the basis of the fourth-quarter GDP numbers? Would you base your plans on the explosion of existing home sales that followed the First-Time Homebuyer stimulus? Most likely not. I’ll bet you would wait so that you could get a better fix on the real economy.

Perhaps we need six months of political silence.

When I think about the situation and Mr. Obama’s proposal, I wonder if it might be better to expand the noble elements of his idea to all businesses, small and large, and do so permanently. Instead of having a complicated jobs-based tax system, why not just cut the marginal tax rate? And instead of allowing a temporary moratorium on capital gains taxes for small businesses, why not just abolish capital gains taxes for all businesses? Doing this would put an end to trying to determine what is stimulus and what is real and what may change at the end of the year.

There is a supply side to the economy that wants to spring forward. A growing economy will produce more jobs. This is the time to give a nudge and then stand back and let the real economy recover.

Total employment peaked in 2007 at 137.6 million persons on nonfarm payrolls, fell slightly in 2008, and then dropped precipitously in 2009 to 132.0 persons, for a two-year loss of 5.6 million jobs. In 2009, total employment was approximately equal to its magnitude in 2001, even though the labor force had grown substantially in the interim. The sharp recent decline in employment, which normally increases from year to year along with the labor force, has been bad enough, but when we examine the components of aggregate employment, we discover even worse news.We find that the loss of employment has occurred entirely in the private sector: employment fell from 115.4 million persons in 2007 to 109.5 million persons in 2009, a decline that took private employment back to its level at the end of the 1990s. As private employment has collapsed since 2007, however, the government payroll has actually grown slightly from 22.2 million persons in 2007 to 22.5 million persons in 2009, which puts this class of employment roughly 1.7 million persons above its magnitude in 2000. [Emphasis added.]

Read the full article here.So the alleged government “stimulus” has been a bomb. For example, it was supposed to revive the construction industry and create jobs. But…

[T]the AP looked at … [t]he more than 700 counties that got the most stimulus money per capita for road construction, and the more than 700 counties that received no money at all….There was no difference in unemployment trends between the group of counties that received the most stimulus money and the group that received none, the analysis found.

Full article is here.How many truly private-sector jobs were not created because government hogged the capital?HT: Chris Coyne

With employment slumping, many would have us believe in a simplistic “bold economic recovery program.” With vast public-works projects to build and rebuild so-called infrastructure—highways, bridges, sewers—we could allegedly create jobs.

We may have neglected our infrastructure. Perhaps we would be more productive if we invested more in maintaining and expanding such basic capital. But the condition of our infrastructure commonly is not the central issue. The more immediate question is whether government spending would increase total employment.

Public-works programs clearly would directly create specific jobs. But expansion of public-works jobs is likely to cause jobs to contract elsewhere, with little net change in aggregate employment. Other employment will contract because federal expenditures on public-service jobs must somehow be financed. If the federal government is to increase spending for public works, then it must reduce other government expenditures or raise taxes or deficit-spend.

If government reduces spending for other programs, such as national defense, then fewer workers will produce guns. Or if government reduces transfer payments to selected individuals, then fewer workers will produce the butter that beneficiaries would have demanded. In either case, decreases in federal expenditures in one area to finance increases in public works will not increase total employment.

Instead of curtailing other spending in order to increase expenditures on public works, government might raise taxes and thereby curtail private consumption and investment. With private spending down and government spending up, private jobs are traded for public jobs, and total employment is not increased.

If, alternatively, government finances the expansion of public works by enlarging its already enormously swollen deficit, then it will either have to borrow existing money or create new money to pay its increased bills. If it borrowed existing money from the community, government would compete more intensely with businesses and households for financial resources. More money would then go to government and less to private firms and individuals. Government spending of borrowed funds would displace private spending of private funds. Again, some jobs are traded for others.

Finally, what if government financed its increased deficit spending by creating new money? In this instance, spending need not fall in other areas, so new public-works jobs would not reduce other employment—initially. But down the line, increased money creation, if continued fast enough long enough, will raise prices. And higher prices—a pernicious form of taxation—would threaten future productivity and employment. We would then obtain a bit more force-fed employment today at the expense of less employment and more misery tomorrow.

Inflation is not a function solely of rapidly increasing money stock, to be sure. The rate at which money is spent—the velocity of monetary circulation—also affects aggregate community expenditure. Velocity has trended downward over the last decade and fell abruptly in late 2008, which partially offset the rising amount of money. But in a period of substantial inflation, we will see both the amount of money and its rate of spending rise. When expenditure goes up faster than the production of goods—and it is vastly easier to create money than to create goods—we have inflation.

No matter how government finances it, greater spending for public works is not likely to increase the total number of jobs significantly. Economic thinking leads to this conclusion, but does history support it?

More Spending, No More Jobs

The economy is not a laboratory in which experimentation readily yields conclusive evidence. But we can look at how past government spending in general has related to total employment.

Data for the last 80 years indicate that big increases in federal spending have not typically been associated with large increases in employment. Indeed, the loose relationship that existed over those decades is quite the opposite. Faster growth of employment has been associated with slower growth of federal spending, and slower growth (or reduction) of employment was more likely when federal spending grew faster.

From 1929–33 government outlays increased by almost half—over 48 percent—while unemployment surged more than eightfold.

In the New Deal period of 1933–39, government spending rose at an annual rate of over 12 percent, doubling in just six years, while employment increased at only 2.5 percent. The unemployment rate was nearly 25 percent in 1933, and was still more than 17 percent in 1939. The then secretary of the Treasury acknowledged in 1939 the basic failure of the spending program.

In 1962–66 and in 1975–81, employment expanded at an annual average of 2.2 percent in each period, but government spending rose 6 percent in the earlier years and at more than double that rate in the later period.

From 2001 to the present, government outlays have risen at an annual rate of nearly 7 percent, while employment has expanded at a measly 0.8 percent. In the past year and a half, employment actually fell.

No one has found a significant, consistently positive relationship between government spending and total employment in the United States or any other country. The reason is simple. The money spent by government has to come from somewhere. Certainly, there are things that can be done to promote a vigorous economy. But it should be apparent that government cannot simply and surely spend us to rapidly expanding employment.

This proposal was not really all that shocking: Such a program would have been consistent enough with the advertised purpose of certain phases of American land policy from 1776 on. American governments handed out land (however acquired) for over a century to veterans, settlers, land speculators, railroads, timber corporations, mining companies, and other parties. (I’ll give you three guesses which groups made out the best). Governments did so as a source of revenue, for geostrategic reasons, to win favor with voters, or to reward a small class of typically American operators who flat-out deserved to be rich.

In a new, revolutionary, and republican society, there was of course much talk about widespread property as the bulwark of republican freedom. But the talk was so general that Federalists and Republicans could share it, while leaving themselves plenty of room in which to create a small class of owners of a disproportionate amount of the public domain. Overall—from the founding land speculators down to 1893, when the frontier allegedly ran out—American land policy resembled in both theory and practice the kind of “privatization” we see under mercantilist Republican administrations. One landmark in the process was Johnson and Graham’s Lessee v. William M’Intosh (1823). Here, Chief Justice John Marshall undertook to write a long essay on the received theory of how property previously stolen by European kings or their agents is best conveyed. As was his wont, Marshall proved entirely too much, in as clear a case of Albert Jay Nock’s “copper riveting” of narrowly focused property rights as we could want. (See my “Albert Jay Nock and Alternative History,” The Freeman, November 2008.)

Southern agrarian Andrew Lytle noted that from the settler’s point of view the whole frontier process represented an attempt to get away from would-be aristocrats and other aspiring land monopolists. Consistent republican ideologists like Thomas Skidmore and George H. Evans agitated from the 1820s into the 1840s in favor of giving homesteaders first claim on the territories. Generally speaking, other claimants prevailed, while the politics of slavery and antislavery further complicated the matter. In the bigger picture, the Homestead Act of 1862 was the exception rather than the rule, as Paul W. Gates showed in a noteworthy 1936 paper (“The Homestead Law in an Incongruous Land System,” American Historical Review).

I cannot discuss here what an ideal policy based on “mixing one’s labor” with resources might have looked like. Suffice it to say that sales of thousands and tens of thousands of acres to individuals, land companies, and corporations were not especially consistent with any genuine republican ideal. The disappearance of most of the best land in California into the hands of a half-dozen individuals in a few decades comes to mind. But large-scale buyers had mixed their money with federal land officers, and that no doubt counts for something.

Meanwhile, the judiciary—state and federal—busily remodeled the common law and shifted the burdens of industrialization onto third parties, extensively modifying the older law of nuisance. Harry Scheiber finds that “law was often, if not to say usually, mobilized to provide effective subsidies and immunities to heavily-capitalized special interests [under] either ‘instrumentalist’ or ‘formalist’ doctrine.” Even existing doctrines of “public rights” and eminent domain came to serve business interests. Finally, federal judges’ discovery in the 1880s of corporate “personhood” in the Fourteenth Amendment perfected the Federalist Party’s original mercantilist program. All these changes importantly influenced just who would benefit from the American State-system of land tenure (to use Nock’s phrase) and its attendant modes of preemption and exploitation.

Land and Independence

Many writers have seen a special relationship between landownership and personal independence. And here we hit on what is perhaps the truest insight of republican theory—one taken up by many classical liberals. Briefly, this holds that a broad “middle class” of property owners is essential to the maintenance of free societies. The point is as old as Aristotle. On the negative side, in decrying the social effects of England’s fabled land monopoly, radical liberals like Percy Bysshe Shelley, Thomas Paine, Thomas Hodgskin, and John Bright implicitly affirmed the republican axiom.

A typical nineteenth-century American “self-help” book aimed at young men did not say, “Get a job working for wages within an increasingly intricate division of labor so as to enjoy a greater variety of consumer goods.” Instead, it said, “Get yourself a competency”—a vision fraught with republican implications suitably modernized. Working for wages, if one did it at all, was a temporary stage—to be endured while learning a skill or trade and abandoned later in favor of real or potential independence. This independence, derided in our time as “illusory,” left one free (within limits) not just from state interference but also from nineteenth-century employers. And if independence is illusory in our time, it is at least partly because the political activities of well-connected elites long since removed the preconditions of independence deliberately and systematically.

One key (but not the only one) to this much-sought-after independence was access to land, a theme taken up by Catholic writers Hilaire Belloc and G. K. Chesterton in early twentieth-century England. Sociologist Robert Nisbet commented that never, after reading Belloc, did he “imagine that there could be genuine individual liberty apart from individual ownership of property.” In any case, as historian Christopher Lasch put it, “Americans took it as axiomatic that freedom had to rest on the broad distribution of property ownership.” Perhaps Americans were wrong to believe such a thing. But let us examine the matter a bit more.

This American axiom receives support from those political economists who believed that the land/labor ratio importantly determines social structure. Edward Gibbon Wakefield somewhat gave the game away in the 1830s by opposing easy access to land in Australia, lest potential wage-earners try for self-sufficiency before spending “enough” years working for others. Marx chided Wakefield for letting this “bourgeois secret” out and was in turn chided by Franz Oppenheimer, Achille Loria, and Nock for not learning the right lesson from Wakefield’s recommendations on rigging the market.

H. J. Nieboer argued (1900) that where resources are “open,” few will work for big enterprises, and the latter will (if they can) institute some form of slavery. Evsey Domar writes (1970) that one never finds “free land, free peasants, and non-working owners” together. Why? Because where political leverage allows, aspiring lords and (literal) rent-seekers will eliminate the free land, the free peasants, or both.

Colonial Policies

With this theorem in view, let us survey some colonial evidence. Enterprisers in colonies have always wanted regular supplies of cheap labor for their projects. Although there is no evidence in favor of a “right” to such a thing, these prospective employers were never discouraged. Aided by colonial administrators with the same assumptions, they gradually overcame native economic independence. Land was the key, and neither the colonizers nor the natives doubted it. No matter how hard natives worked on their holdings, colonialists decried their “idleness”—and their uncivilized failure to work for wages.

We may therefore give the overworked English Enclosures time off (for now) and look at some other cases. Consider the Japanese colonial administrator in Okinawa who complained in 1899 that the typical Okinawan held land and therefore had low expenses and few wants. For these reasons, the native saw “no need to undertake any other business, nor to save money.” Since native lands were held informally, they could not be capitalized. Such people and properties did little for the great cause of development and, shortly, the Japanese government (!) denounced Okinawans’ customary arrangements as “feudal” and set out to modernize the island. American occupation later perfected this anti-agrarian revolution. Doubtless, however, much “employment” was created in the post-World War II Okinawan service economy dominated by the U.S. military.

Turning to English colonies in the Caribbean and Africa, we find comparable phenomena. England abolished slavery in the colonies in the 1830s. (Never mind that, as historian Eric Foner comments, “Through a regressive tax system, the British working classes paid the bill for abolition.”) By this time, English policymakers had embraced Adam Smith’s view that positive incentives motivated labor better than fear of starvation or draconian punishments did. But an ocean made all the difference, Foner observes, and new peasantries made up of former slaves were “seen in London, as in the Caribbean, as a threat not simply to the economic well-being of the islands, but to civilization itself.” John Stuart Mill’s famous defense of peasant proprietors “did not extend to the blacks of the Caribbean; their desire to escape plantation labor and acquire land was perceived as incorrigible idleness.”

And so Britain’s former slave colonies put vagrancy and other laws to work and crafted taxes aimed at restricting “the freedmen’s access to land.” As Foner puts it, “Taxation has always been the state’s weapon of last resort in the effort to promote market relations within peasant societies”—that is, to force people into markets in which they were not eager to participate. In Kenya the problem was one of “dispossessing a peasantry with a preexisting stake in the soil,” but colonial legislation proved up to the task. Foner concludes that in “the Caribbean and southern and eastern Africa . . . the free market [was] conspicuous by its absence”—its workings restricted “as far as possible” in the interest of the well-off and powerful.

Historian Colin Bundy has studied the economic rise and political-economic fall of a class of independent African farmers in the Eastern Cape Colony and other parts of South Africa. Various Cape Location Acts (1869, 1876, and 1884) sought to lessen “the numbers of ‘idle squatters’ (i.e., rent-paying tenants economically active on their own behalf) on white-owned lands.” Such peasant farming “conferred . . . a degree of economic ‘independence’: an ability to withhold, if he so preferred, his labour from white landowners or other employers.” Further: “Both the farmer and the mine-owner perceived . . . the need to apply extra-economic pressures . . . to break down the peasant’s ‘independence,’ increase his wants, and to induce him to part more abundantly with his labour, but at no increased price.” In their view, “Africans had no right to continue as self-sufficient and independent farmers if this conflicted with white interests.”

Bundy observes that “Social engineering on this scale took time and effort, but the incentives were powerful.” By way of a “one man one lot” rule under the Glenn Grey Act of 1894, legislators sought to keep African farming within “certain acceptable bounds.” (Here, finally, was a use for John Locke’s famous “proviso” about leaving enough resources for others!) Evictions increased after the Anglo-Boer War (1899-1903). Rents rose (Enclosure defenders, take note), and former tenants stayed on as laborers. Tax pressure on African farmers increased. This “employers’ offensive” from 1890 to 1913 ended successfully in the South African Natives Land Act of 1913, which effectively outlawed the practices under which a particular African peasantry had shown much success.

One supposes, in standard libertarian fashion, that agricultural employment increased thereafter along with land values. But that was the whole point: to proletarianize independent peasants by leaving them no option but to work for wages for Boers and Brits on farms, in mines, and elsewhere. Whether more “employment” was good in itself seems unclear. We can, at least, impute the outcome back to specific political intentions and levers. So much for the colonies, then—and all this without even mentioning the two greatest monuments to England’s defense of free markets: Ireland and India.

Telescopic Land Reform

Colonial bureaucrats and employers saw a definite connection between small-scale landownership and independence, and resolved to cut that independence short. By now we begin to see that “the subsidy of history”—to use Kevin Carson’s useful term—has been very large indeed. A number of libertarians have understood the problem at hand in pretty much these terms. They have tended, however, to dwell on instances far away from our own shores, writing about land reform in Latin America, South Africa, Asia, and other places. In the mid-1970s Murray Rothbard, Roy Childs, and others addressed the matter.

Rothbard wrote that “free-market economists . . . go to Asia and Latin America and urge the people to adopt the free market and private property rights” while ignoring “the suppression of the genuine private property of the peasants by the exactions of quasi-feudal landlords. . . .” In this vacuum, only the local communists appeared to support “the peasants’ struggle for their property. . . .” And so libertarians “allowed themselves to become supporters of feudal landlords and land monopolists in the name of ‘private property.’”

Decades earlier, that very conservative German liberal economist Wilhelm Röpke wrote that German history would have gone better had Prussia undergone “a radical agrarian reform breaking up the great estates and putting peasant farms in their place.” He adds: “Influential Social Democratic leaders opposed the transformation of the great estates in Prussia into peasant holdings . . . as a ‘retrograde step.’” Röpke called for freeing Germany from “agrarian and industrial feudalism” and the ills “of proletarization, of concentration and overorganization, of the agglomeration of industrial power and the destruction of the individuality of labor. . . .” In his view, the typical proletarianized worker or clerk wanted “a small house of his own with a garden and a goat shed, an undisturbed family life without training courses, mass meetings, processions, and political flag days; dignity and pleasure in his work, an independent if modest existence. . . .”

Why Go Abroad?

For Enclosure-like pressures on small-holders closer to home, we need look no farther than states like Kentucky, where courts vigorously enforced the full feudal rigor of the “broad form deed,” thereby ensuring the strip mining of many a mountaineer out of productive existence down to the early 1990s. With the system so long stacked in favor of big landholders and bankers, well subsidized by history, one begins to understand the popularity of those New Deal programs that promoted individual home ownership.

Economist Michael Perelman has confirmed a direct relationship between rural labor without independent means of support and the applied politics of English classical economists. The latter preached a great gospel of “work,” mainly for others, who ought to be doing this work. Except for a narrow class of Dissenting Protestant factory owners, those most vigorously espousing this gospel were not themselves noted for doing a lot of work. Together, however, owners and economists said in effect, “Work for us, join the armed forces, or emigrate, ye doughty Angles, Saxons, Jutes, and Scots.” And emigrate they did, leaving us with an American folk wisdom in which old times in England, Scotland, and Ireland were not that great. (This folk memory may have at least as much heuristic value as latter-day econometric claims that everyone became better off in the new division of labor.)

And so we return to Henry George’s problem: How did Americans manage as a society to seize so much land, incur whatever moral guilt goes with the seizures, and then not bloody have any of it? The chief mechanism was precisely the political means to wealth that Oppenheimer and Nock analyzed. The reason Brisco County Jr.’s “Robber Barons” struck the right note is that there were such individuals. California was a laboratory case, as George well knew, of the successful primitive accumulation of land by a microscopically small class of state-made men. As with ontogeny and phylogeny, Western accumulation recapitulated Eastern accumulation. From such causes arose the famous “end” of the frontier circa 1893. But open land did not so much disappear naturally as succumb to preemption. And then, with perfect timing, the conservation movement put enormous quantities of land beyond the reach of actual settlers.

As for those Americans who currently own property, they typically own it after 20 or more years of bank payments. Is land so genuinely scarce that a bank must always be in the middle? This remains our central question. Certainly, nineteenth-century allocations played a lasting role, and later political interventions added to concentrated property ownership.

And what of the promotion of “easy” home ownership in recent years? It is a product of 1) the widespread delusion, in the wake of Lyndon Johnson’s and Richard Nixon’s inflationary financing of the Vietnam War, that real estate constitutes the ultimate inflation hedge, and 2) the specific dynamics of the expansionist fractional-reserve banking under new rules (“deregulation”) increasing moral hazards for bankers.

There is also the unhappy fact of property taxes—our chief surviving feudal due. Fail to pay those, and the state enrolls a new owner on your former property. This reduces somewhat the fact of private property in land.

Independence, Republicanism, and Liberty

Some classical liberals and libertarians downgrade personal independence. Better to participate in the going order and enjoy a wider array of comforts, they say. But socialists and corporate liberals can play the same game—and have for over a century. It seems to me that those libertarians who join in this refrain rather willfully misconstrue a very simple point: They hail the joys of the division of labor, the higher degree of civilization (that is, more stuff) to be gained from dependence, interdependence, and sundry trickles of income and utility down and up. But already in 1936, Southern agrarian John Crowe Ransom noticed a flaw in this reasoning, writing, “[I]ncome is not enough, and the distribution of income is not enough. If those blessings sufficed, we might as well come to collectivism at once; for that is probably the quickest way to get them.” If greater choice among consumer goods makes up for lost independence, then the case for socialism (or X) would be clinched, provided socialism (or X) could deliver the economic goods (where “X” stands for any political ideology offering us the same stuff/independence tradeoff.)

I doubt we are necessarily “better off” merely because of employment. We need to know more, including why particular sets of choices exist in the first place. Back in the ’60s, Selective Service used to “channel” us into the “right” occupations by threatening to draft us. Given the parameters, our choices were “free.” If it’s that easy, then we are always free, no matter the historical and institutional constraints. Similarly, “To Hell or Connaught” was a choice, and never mind that Oliver Cromwell and his army arbitrarily created this particular prisoner’s dilemma. But perhaps I have leapt from choices among goods to choices between ways of life. Why? Let us look into this.

What if proletarianization is not the ideal form of human life? What if a complex division of labor is merely useful or convenient, but not a moral imperative? What if most of us are hirelings, well paid or otherwise, and then we learn what that status amounts to? The post-Marxist socialist André Gorz writes, “Capitalism owes its political stability to the fact that, in return for the dispossession and growing constraints experienced at work, individuals enjoy the possibility of building an apparently growing sphere of individual autonomy outside of work.” Our interest here is the “autonomy” mentioned, which sounds like a near cousin of “independence.” The sentiment seems sound enough, and the partial convergence of Röpke and Gorz is eye-opening.

Now in the view of Quentin Skinner (a modern republican theorist of note), unfreedom arises both from direct, forcible coercion and from institutional arrangements that make people dependent, since the latter always contain the possibility (realized or not) of arbitrary interference and coercion. Such discussions usually center on the form of state. Utilitarian liberals like Henry Sidgwick did not care about forms. If the Sublime Porte, Tsar, or King of England leaves us substantially alone, we are “free,” and that is that. In Skinner’s view, if those worthies can on their own motion change their policy of leaving us alone, we are not free, no matter what they are doing right now. Freedom requires that we not be menaced by latent unknown powers.

Freedom in this sense is liberty—a shared civic or public good. Like many real public goods it is not provided by the state, indeed the state may be its chief enemy. Law and settled custom may provide this public good, and consumer goods—the people’s pottage—do not compensate for abandoning such an order, where it exists. Today, people often work long hours to buy some independence. In another time, they began with some independence, and then chose how hard to work. Now we see, perhaps, the difference between choices among economic goods and past choices between systems structuring our choices.

Widespread landownership long supported a kind of liberal-republican independence. Perhaps we should reexamine the nexus and ask ourselves how, in Donald Davidson’s words, we “let the freehold pass,” and whether that was really for the best.

But wait. Only 3.5 million jobs? Why so few? It’s not like creating jobs is difficult.

Egypt built more than 100 pyramids beginning sometime in the third millennium B.C. to house the corpses of the pharaohs and their significant others. Think of all the jobs that project created. I’ll bet the unemployment rate was something any pharaoh could have proudly campaigned for reelection on—if he faced election, that is. Pyramid-building is one heck of a public-works project.

Pyramids, Earthquakes, Wars

Its economic significance was not lost on that great advocate of full employment through public works, John Maynard Keynes. The British economist, so in vogue today, famously wrote in The General Theory on Employment, Interest, and Money (1936), “Pyramid-building, earthquakes, even wars may serve to increase wealth.”

In fact, pyramids are even better than the usual government project. Keynes said: “Two pyramids . . . are twice as good as one; but not so two railways from London to York.”

Ancient Egypt’s success has many applications today. We could have full employment overnight if the government simply outlawed machines. Today’s 8 percent unemployment rate would vanish.

Again, we find an endorsement in Keynes’s General Theory: “‘To dig holes in the ground,’ paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services.”

Exhibit B is Franklin Delano Roosevelt. I don’t mean his public-works projects, like the Civilian Conservation Corps. I’m talking about his most serious job-creating operation: the draft.

If You Can’t Employ ‘Em, Draft ‘Em

In September 1940 Roosevelt signed the Selective Service Act, which ordered all males 21–35 to register for military service. “Of the 16 million persons who served in the armed forces at some time during the war, 10 million were conscripted, and many of those who volunteered did so only to avoid the draft. . . .” writes Robert Higgs in Depression, War and Cold War.

The draft marked the beginning of the end to the double-digit unemployment that had plagued America for a decade. Two years earlier, Roosevelt’s treasury secretary, Henry Morgenthau, lamented, “[A]fter eight years of this administration we have just as much unemployment as when we started.” The draft was the answer they had sought all that time.

So creating jobs is not difficult for government. What is difficult for government is creating jobs that produce wealth. Pyramids, holes in the ground and war do not produce wealth. They destroy wealth. They take valuable resources and convert them into something less valuable.

Instead of iPods, great art, cures for diseases and machines that replace back-breaking work, we get the equivalent of digging holes and filling them up.

Under President Obama’s “stimulus” plan, jobs will be created to weatherize buildings, construct schools and wind turbines, and repair roads and bridges. But outside the market process, there is no way to know whether those are better uses of scarce capital than whatever would have been produced had it been left in the private economy.

Since government services are paid for through the compulsion of taxes, they have no market price. But without market prices, we have no way of knowing the importance that free people would place on those services versus other things they want.

So although we’ll see the government putting people to work and even some new schools and bridges, we won’t be able to calculate how much wealth we’ve lost because scarce resources were misallocated by the politicians.

Nevertheless, we can be sure we will have lost. If the government’s projects were truly worthwhile, they would be undertaken by private efforts, and in their quest for profits, entrepreneurs would handle them more efficiently.

Remember this when President Obama begins to boast about how successful his stimulus plan is.

Candidates and others who are set on securing the Mexican border—the Canadian border seems of less concern—and expelling those who had the audacity to come to the land of the free without permission mainly rely on two arguments: jobs and welfare. If those are the best arguments they’ve got, they don’t have much.

The first is easily dismissed. Any free-market advocate knows that what is in short supply is not work but workers—if government does not interfere with individual freedom. This is not news, but just another way of saying that we live in a world of scarcity. Free people can loosen the bonds of scarcity, but can never eliminate them. This will be true as long as a quantity of resources put to one purpose can’t simultaneously be put to some other purpose. Under freedom long-term involuntary unemployment is impossible. If tomorrow we need only half the number of people it takes today to make a steady supply of some product, we’ll be able to afford things we can’t afford today and our living standard will rise.

To be sure, we live in a society blanketed by government intrusion that ossifies labor and other markets in a variety of ways: taxes, minimum-wage laws, occupational licensing, anticompetitive favors to business, union laws, and more. Such interventions may make it tougher for unskilled or low-skilled workers to find new jobs if the old ones are lost to someone willing to work for less. The wrong way to address that problem, though, is to go after immigrants who are “taking jobs from Americans.” The moral claim to freedom, including the freedom to deal with those who have jobs to offer, should not be a function of where one was born. It’s a function of being human, no matter the birthplace. Let’s free the markets rather than restrict the freedom of individuals.

A similar point applies to welfare. I don’t know what percentage of immigrants, “legal” and otherwise, take benefits provided by the state. Everyone can cite a study to support his intuitions on the matter. Such cherry-picking of data always makes me uncomfortable.

Fortunately, we don’t need data on an issue like this. If you don’t want people taking welfare benefits, go after the dispenser of the benefits, not the people who simply accept what is offered. If you fear that immigrants will strain the government’s schools and hospitals, ask why government is in education and health in the first place. I don’t hear Wal-Mart and other private retailers complaining about new customers.

To listen to some immigration opponents, you’d think the worst thing that can possibly happen is for a foreign-born person—especially one without government papers—to take a welfare benefit. Why it matters where a welfare recipient was born, I can’t say. After all, independent migrants pay taxes, so why are they less entitled than American citizens? No one should be eligible, but if immigrants are to be singled out, shouldn’t they be tax-exempt too? That’s not a bad deal.

At any rate, I can think of worse things than “illegal aliens” taking welfare:

1. Native-born Americans’ taking welfare. After all, they were born in the “land of the free.” Shouldn’t they know better?
2. Police-state tactics designed to prevent immigration or to catch people who made it through. Those tactics include storm-trooper raids at workplaces, witch hunts of employers who take the idea of free enterprise seriously and hire whomever they please, and ominous national-identification devices.
3. The routine exploitation of people who are vulnerable to thugs and cheats because of their “illegal” status.

I like what Freeman contributor Charles Johnson (blogger at Rad Geek People’s Daily, http://radgeek.com/) wrote online about this: “As for the welfare state, they [“illegals”] are welcome to milk it dry, as far as I’m concerned. The sooner the damn thing is on the brink of collapse, the better. Besides which, receipt of government benefits is not ipso facto a violation of anyone’s rights—it’s the funding that’s the problem, but illegal immigrants aren’t complicit in the existence of taxation—and insofar as they are able to receive some minimal payouts from the State, that may as well count as partial restitution for the daily threats, terror, and violence that the state and federal governments routinely inflict against the property and liberty of all undocumented immigrants.”

It’s really time we got our priorities straight.

* * *

The destructive wildfires in California last fall were tragic enough. Must they be turned into a crusade for more government power? Steven Greenhut pulls aside the curtain.

According to the standard political framework, no one person should be against imperial wars and for free-market money. But as Steven Horwitz shows, historically these two positions were a staple of the freedom philosophy.

New York City’s mayor wants to charge people to drive into Manhattan. Known as “congestion pricing,” any resemblance the idea has to the free market is purely coincidental. Becky Akers explains.

Over the last couple of years the power of prosecutors to ruin innocent people’s lives has become too obvious to ignore. Wendy McElroy discusses the infamous Duke “rape” case.

Politics is portrayed as a noble endeavor, but if you scratch the surface you find some people trying to force other people to pay for their pet projects. George Leef applies this principle to so-called historic preservation.

Government wrecked the railroads in Britain, but voluntary efforts are bringing them back. Does this mean there’s an alternative to providing services either through force or love of money? James Payne takes up the question.

Here’s what our columnists’ deliberations have yielded: Richard Ebeling considers the nature of interventionism. Donald Boudreaux unveils the real reason Prohibition was repealed. Burton Folsom revisits a time when presidents actually vetoed spending bills they thought were unconstitutional. John Stossel warns against expecting the government to be able to cool down the planet. Walter Williams emphasizes the economic role of property rights. And Robert Murphy, reading the claim that the Federal Reserve isn’t really bailing out big mortgage lenders, protests, “It Just Ain’t So!”

Our reviewers have the skinny on books about health care, Native Americans, Wal-Mart, and Adam Smith.
    —Sheldon Richman
      srichman@fee.org

Since early last century relations between employers and workers in Australian workplaces have been subjected to “awards” by a quasi-judicial body, the Australian Industrial Relations Commission (AIRC). Collective bargaining as we know it in the United States did not exist at least until the late 1980s.The AIRC’s awards, not agreements, determined the terms and conditions of employment. Employees and employers were regarded as insufficiently knowledgeable to come to sensible agreements, even collective agreements, at the enterprise level. Employees were assumed to have far less bargaining power than employers, so any agreements between them had to harm workers. Only the anointed wise men of the AIRC could know what was proper and just.

While there were some baby-step reforms in the late 1980s and the 1990s, the awards system still dominates industrial relations in Australia. A union or a group of unions representing workers in an industry or sector of the economy presents its demands to the AIRC, and an employers’ organization representing employers in that industry or sector takes the other side of the “dispute.” The AIRC grants a detailed, prescriptive award in the dispute that, by force of law, is imposed as a minimum standard throughout the industry or sector. The unions and employers’ organizations are assumed, respectively, to represent all workers and all employers in the industry or sector. Before 1996 individual workers and employers were not permitted to opt out of either the representation or the awards.

Opting out is still difficult. Because the AIRC accepts the hoary bargaining-power disadvantage myth as an article of faith, unions exert much greater influence on awards than employer organizations, which often feel impelled to make concessions. This tripartite arrangement, not dissimilar to that of fascist Italy, is known in Australia as the “industrial relations club.”

Awards are typically hundreds of pages long and they prescribe in infinite detail what can and cannot happen in covered industries and sectors. In addition to wages and salaries, all rules for work, breaks, leaves, promotions, demotions, transfers, layoffs, terminations, holidays, and even jury duty are prescribed. Once an award is made, a union has a right of entry into workplaces, even where none of its members are employed, and even in union-free workplaces, to ensure the award is being applied. Once the AIRC imposes an award it may adjust other awards in other industries and sectors to preserve appropriate “wage justice and fair relativity.” Before the late 1980s the high prices for labor that emerged from this system were supported by tariffs and other barriers to competition in product and services markets. Except in the underground economy, market considerations were irrelevant.

In the 1980s, because of increasing globalization of commerce and competition, it became clearer that this dirigiste arrangement harmed almost all consumers, employees, and employers, not to mention the unemployed and the underemployed. Like their neighbors in New Zealand, Australians implemented liberalizing reforms in financial, product, and services markets, but only very marginal ones in labor markets. The myth of labor’s bargaining-power disadvantage held even the reformers in its thrall. New Zealanders cast the myth aside in 1991 when they enacted the Employment Contracts Act (ECA), which almost completely liberalized their labor markets.

Australia legalized union-based collective bargaining at the enterprise level in 1988 and union-free collective bargaining at the enterprise level in 1993. Individual agreements between an employer and an employee were still banned, and collective agreements were subject to a “no disadvantage test” with respect to comparable awards. That is, the agreements had, in the eyes of the AIRC, to provide compensation and other employment conditions that overall made workers at least as well off as workers covered by traditional comparable awards.

Attempt at Reform

In 1996 a coalition of the Liberal and National Parties took control of the lower house of the Australian Parliament from the Labor Party. John Howard, a Liberal MP who had promised to move toward greater liberalization of labor markets, became prime minister. That year Parliament enacted the Workplace Relations Act (WRA), which is still the law today. The principal stated intention of the WRA is to move Australia away from centralized awards toward decentralized enterprise-level agreements. It also permits individual bargaining for individual employment contracts called Australian Workplace Agreements (AWA), although the Office of Employment Advocate (OEA) is required to check whether they pass the no-disadvantage test.

By any reasonable measure the WRA has not accomplished its principal goal. While there are now many collective and individual decentralized workplace agreements in place, they all must comply with the centralized AIRC awards. The AIRC, not Parliament, sets legal minimum wages in Australia, and it does not impose one legal minimum wage at a time as Congress does in the United States. It imposes literally thousands of them in its awards. The AIRC is made up almost exclusively of people who have a vested interest in preserving the old union-dominated awards system. They take advantage of every actual ambiguity, and invent ambiguities that do not exist, in the WRA to try to preserve the old dirigiste system.

The fecklessness of the WRA is largely due to the fact that in 1996 the Howard government controlled only the lower house of Parliament. The Labor Party controlled the Senate. While the lower house elects the prime minister, both houses have to agree on legislation before it is enacted, so the liberal reformers were forced to compromise with defenders of the status quo. The result was a law of over 500 pages of incredible complexity consisting of confusing, contradictory, and often ambiguous language that makes it possible for the members of the AIRC to interpret it according to their own predilections.

The 2004 election gave Howard a fourth term as prime minister; the coalition won continued control of the lower house as well as eventual control of the Senate. Australian liberals thought that it might at last be possible to enact substantial labor-market liberalizations, perhaps even going so far as New Zealand did in 1991. Alas, those hopes have been dashed.

In May 2005 the Howard government announced an outline of measures it would try to enact after the change of control of the Senate in July 2005. The no-disadvantage test would be dropped. The AIRC would lose its powers to set minimum wage rates and to approve enterprise collective agreements. Its role would be reduced to resolving industrial disputes and simplifying existing awards. However, a new bureaucracy, the Australian Fair Pay Commission (AFPC), would set minimum wage rates no worse than existing awards, which would be new awards in everything but name. The OEA would approve enterprise collective agreements and continue to approve individual AWAs. The AFPC and OEA would be instructed to take economic factors into consideration when making their decisions. (Imagine that!) A special task force would be charged with reviewing existing awards. Hopefully, to the extent there would be new decision-makers, they would be less wed than the AIRC to the old regime.

Compared to New Zealand’s ECA, the Howard government’s proposals look more like a sellout to the industrial-relations club than meaningful labor-relations reform. A golden opportunity has been lost for want of moral clarity and political courage.

If the number of people seeking work had actually been growing faster than the number of jobs they are willing and able to fill, then the U.S. unemployment rate would have been rising. Yet the unemployment rate fell from 6.3 percent in June 2003 to 5 percent in July 2005. The author’s emphasis on “American workers” seems particularly misplaced, since unemployment in April was 10.2 percent in France and 11.8 percent in Germany.

Herbert then changes the subject, bemoaning the long-term decline in teenage employment rates—that is, the declining percentage of young people who work rather than attend high school: “A recent report from the Center for Labor Market Studies at Northeastern University in Boston tells us that the employment rate for the nation’s teenagers in the first 11 months of 2004—just 36.3 percent—was the lowest it has ever been since the federal government began tracking teenage employment in 1948. . . . ‘Younger workers,’ said Andrew Sum, the center’s director, ‘have just been crushed.’”

The main reason a smaller percentage of American teenagers are employed than in the past, however, is that many more are attending school and far fewer are employed on the family farm. At the time of the April 1947 census, only 27.7 percent of those aged 18-19 were enrolled in school. By 1950, only 34.3 percent of Americans over the age of 25 had finished high school, compared with more than 85 percent today. A September 2002 report from the Bureau of Labor Statistics (BLS) noted that the labor-force participation rate for teenagers has been falling for years because of “an increasing rate of school enrollment during the summer.” The percentage of those aged 16 or 17 enrolled in school during the month of July rose from 21.4 percent in 1994 to 31.1 percent in 2000, while the percent in the labor force simultaneously declined from 57 to 51.2 percent.

The percentage of those aged 20-24 enrolled in college rather than working has likewise been rising. From 2000 to 2004 the number of adults who said they were not in the labor force because they were attending college increased by 750,000. Herbert views this as evidence that young adults are “faring poorly.”

Given his anxiety about young people being in school rather than at work, it is ironic that he complains that “workers can’t even get a modest increase in the national minimum wage.” The BLS reports that only 520,000 workers were paid the minimum wage in 2004 and a third of those were teenagers. Although 168,000 teens were paid the minimum wage, however, nearly twice as many (329,000) were paid less than the minimum wage. Whenever the minimum wage has increased, the percentage of workers displaced into even lower-paying jobs has grown larger.

Herbert frequently compares employment figures for 2004 with the cyclical peak of 2000, as though unemployment during the third year of recovery from the recession of 2001 should be expected to be just as low as it was during the ninth year of the preceding boom. In fact, the teenage unemployment rate in 2004 was lower than it was in the third year of two previous recoveries—17 percent in 2004 compared with 18.6 percent in 1985 and 17.6 percent in 1994.

Although the monthly unemployment rate among teenagers is always higher than among mature adults, spells of teenage unemployment are typically brief. Of those aged 16-19 who were unemployed at some point in 2004, nearly 45 percent were out of work less than five weeks, and an additional 32 percent were out of work less than 14 weeks.

Herbert attributes to Andrew Sum the belief that “Gains among recently arrived immigrants seem to have accounted for the entire net increase in jobs from 2000 through 2004.” That is surely false, regardless how creatively “net increase” may be defined.

Immigrants accounted for half the increase in the labor force so they would be expected to have accounted for no more than half the increase in employment unless unemployment declined more dramatically among recent immigrants than among natives. On the contrary, the Census Bureau estimates the unemployment rate in 2003 was 10.9 percent among immigrants who arrived since 2000 and 7.7 percent among those who arrived in the nineties, compared with 6.2 percent among native-born citizens.

“Workers have been so cowed by an environment in which they are so obviously dispensable,” writes Herbert,“ that they have been afraid to ask for the raises they deserve. . . . The wages of those who are employed are not even keeping up with inflation. ”The common misperception that wages have fallen in real terms results from a badly flawed average of aggregate earnings divided by hours among “production and nonsupervisory” workers—a series the BLS is about to discontinue. That flawed series was also badly adjusted for inflation by an archaic measure (CPI-W). If benefits and salaries are properly included, and deflated with a properly chain-weighted measure of inflation, then real compensation per hour among nonfarm businesses rose 3.9 percent between the first quarters of 2004 and 2005.

Herbert nonetheless writes of “an entire generation of essentially powerless workers largely at the mercy of employers,” and claims that “very little has gone to the typical worker.’’ Yet his examples are not about typical or median workers, but about such atypical groups as teenage dropouts in certain regions. “In Illinois,” he writes, “fewer than one in every three teenage high school dropouts are working.” But this too is a problem that has been diminishing over time.

The misnamed “dropout rate” measures the percentage of young adults aged 16-24 at the time of a census survey who were not enrolled in a high-school program and had not received a high-school diploma. It fell from 21.3 percent in 1972 to 10.5 percent for young black Americans and from 14.6 to 6.5 percent for non-Hispanic whites. The figure for Hispanics appears much higher (25.7 percent in 2002), but the Pew Hispanic Center found that half of those counted as U.S. dropouts were actually young immigrants who “quit school before coming to this country,” and thus did not drop out of U.S. schools.

Squeeze on the Young?

Citing Andrew Sum, Bob Herbert also claims, “The squeeze on the younger generation of workers is so tight that in many cases the young men and women of today are faring less well than their parents’ generation did at a similar age.”

Since most of Herbert’s concerns are about nonworking teenagers, it is difficult to make much sense of comparing their living standard with that of their parents “at a similar age.” Most of them are now supported by their parents, sharing the family’s living standard.

Three days after Herbert’s column appeared, on May 15, the New York Times launched a series on “Class in America” that I subsequently critiqued in the Wall Street Journal. Yet that article included a useful Times poll that specifically asked, “Compared with your parents when they were the age you are now is your standard of living” better or worse? It turns out that 39 percent said their standard of living was much better and another 27 percent said it was somewhat better. That is scarcely surprising, since real disposable income per person rose from $15,094 in 1974 (in 2000 dollars) to $27,281 in 2004—an increase of more than 80 percent.