Wednesday, October 19, 2005

Column on Financial Paternalism

Paternalism at Yale and The Times

Tibor R. Machan

This, folks, really takes the cake for me: David F. Swensen, chief
investment officer at Yale University, has penned an Op Ed for The New
York Times, in defense of rank financial paternalism. As he puts it, ?what
began as a reasonable opportunity for sophisticated investors has become a
killing ground for naïve trend-followers, with scandals and frauds
prompting predictable calls for increased regulation of hedge funds. But
if Congress and the Securities and Exchange Commission really want to
protect individual investors, they should prohibit unsophisticated players
from participating in hedge funds.?

It doesn?t surprise me a bit that this Op Ed appeared in The New York
Times, that venerable member of the fourth estate that has become an
unrestrained cheerleader for paternalism on nearly every front of human
social life. It is rather typical: an organ promoting a political agenda
of egalitarianism?let?s treat everyone with equal respect?then turns right
around and asserts shameless elitism. I, the amateur, should be barred
from the hedge fund markets. You the expert, get a pass.

Let?s just assume that what Swensen says about this issue is true. Here
are some more of his thoughts: ?Less informed investors rely on an
intermediary (often a fund that invests in a variety of hedge funds) to
make fund choices. Again, the principle of adverse selection applies. The
best fund managers avoid these ?funds of funds,? which operate with
shorter time horizons, in favor of a direct relationship with big
long-term investors. Of course, the funds of funds add more fees to the
already overburdened hedge fund investor, further reducing chances for

And, of course, there is more of this. But none of it addresses one of
the vital issues: how some governmental body is going to differentiate
between sophisticated and unsophisticated investors, what tests will be
given and, most importantly, how dare they meddle in all this in the first
place. Nor does it address an even more vital topic: How dare anyone
propose banning anyone else from doing something entirely peaceful?
Perhaps, however, it?s no wonder this sophistication comes from one of the
Ivy League universities. Those are places that foster one of the most
outrageous inequalities in the country as they refuse to voluntarily share
their enormous endowments with less fortunate colleges and universities
(even as their professors and other spokespeople preach egalitarianism and
paternalism left and right).

If I were a joshing sort of guy, say a P. J. O?Rourke or a Dave Barry, I
might propose that ?if Congress and the Securities and Exchange Commission
really want to protect [us,] they should prohibit unsophisticated players
from? writing Op Ed pieces of the sort that Mr. Swensen penned for The New
York Times. How might one be able to tell the difference between a
sophisticated and an unsophisticated pundit? The first thing I would
consider is whether he or she is championing paternalistic government

Since America has flatly rejected the monarchical system of
government?wherein the king or queen is ?the keeper of the realm? and
supposedly has God-given powers of making sure all the subjects carry on
properly in their lives?Mr. Swensen?s advice about how to deal with
unsophisticated investors clearly lacks sophistication, that is,
sufficient learnedness. His ideas are obsolete; they belong in the
pre-Revolutionary era, not in a society that is supposed to treat us as
sovereign citizens instead of subservient subjects. Alas, my type of humor
is different. I don?t do well at being ironic and I am afraid to offer a
reductio ad absurdum so as to make my point lest some of these
unsophisticated blokes take me seriously and abolish the First Amendment
to the US Constitution.

If, however, the First Amendment?s philosophy is sound and anyone may say
anything at all, anywhere he or she can find a forum, never mind how
unsophisticated the person is, then so is the free market philosophy which
proposes that no one?not Congress, not the SEC, not anyone?ought to have
the legal power to ban people from investing as they choose. Just as the
philosophy of the First Amendment presupposes that free men and women are
capable of obtaining good advice on matters they read in The New York
Times, should they be so unsophisticated as to need such advice, a free
market presupposes that free men and women will be able to find good
advice about how to invest their resources prudently.

There is really no difference between the two philosophies?that of the
First Amendment and that of the free market. They both rest on the idea
that adult men and women are normally capable of protecting themselves
from bad ideas about any subject whatsoever.

Monday, October 17, 2005

Column on Entitlements versus Rights

Entitlements versus Rights

Tibor R. Machan

These days there is much consternation about entitlements. But what
exactly are they?

Having title means that within the law one has come to own something?a
home, a car, etc. To be entitled to something then means that one has a
proper legal claim to it. Being entitled to a minimum wage, for example,
means that when one works the law will require one not to be paid less
than that wage.

But does an entitlement signify a right? In a limited sense yes?the legal
authorities have established one?s legal right in whatever one is entitled
to. So here ?legal right? and ?entitlement? amount to the same thing.

But in the American political tradition what the legal authorities may
affirm as one?s right is limited by a system of basic, non-legal, natural
individual rights. These are laid out in the Declaration of Independence.

Since, according to that statement of basic political principles,
everyone has a basic right to his or her life, liberty, and pursuit of
happiness, no entitlements may be established by law that violates these
basic rights. So, for example, being entitled to a minimum wage is
actually unjustified, even if the law affirms it, because it violates the
rights of individuals to trade freely?one of the implications of their
right to liberty. If people freely enter into an employment relationship
that specifies certain work provided for a certain wage, this isn?t
something the law may void since it is their right to do so; the minimum
wage law violates this right.

This simply shows that a great many entitlements actually violate basic
rights?entitlements to health care (provided at others? involuntary
expense), to subsidies (again extracted form others without their free
consent), to regulations imposed on professionals (coercing them to suffer
a kind of prior restraint), etc. Nearly everything Franklin D. Roosevelt
called a ?right? amounts to such violation of basic individual rights
since to provide people with what he thought they were entitled or had a
right to, the basic rights of others have to be violated.

Now there are those who believe that rights do not exist as a matter of
our human nature but because governments grant them. This is what was
believed of monarchies?kings are superior people who could, by God?s
authority, grant or withdraw rights to others. Nowadays the story is that
rights are granted by governments by means of the democratic method. So if
by this method entitlements are established, then they do not violate
basic rights.

But this is to get things completely backwards. You see, the democratic
method itself rests on natural rights?no one had to grant us the right to
be participants in the political process. Simply being human beings in our
communities establishes this right. Otherwise the very right to take part
in the democratic process?the right to vote, for example?would be
vulnerable to being voided democratically.

So rights come before democracy and they also limit democracy to certain
issues on which voting is OK. But no one may vote to deprive others of
their basic rights! (Indeed, that is what motivated the inclusion of the
Bill of Rights in the US Constitution!)

Natural individual rights are basic principles for organizing human
community life. Legislation and the common law can elaborate them, apply
them to novel areas. But it may never violate them. Sure, there is always
the power to violate them?just as criminals can have the power to violate
one?s rights all over the place. But it is wrong to do so and having a
great many people agree to something that is wrong does not make it right.

So a great many entitlements people now have by law can be seen to be
wrong whenever they involve the violation of our basic rights. Sadly,
making such violations legal does encourage the unthinking belief that
they are OK. It also encourages the growth of a population that?s come to
be dependent on government?s violation of our basic rights.

In time, however, it will become evident that this is a very bad
development, for example, by way of enormous deficits and police actions
against innocent people who simply wish to hold on to what is theirs or do
what they freely choose to do. And we are beginning to witness such
developments around the country and the world.

Sunday, October 16, 2005

Column on Backlash against Pets?

Backlash against Pets?

Tibor R. Machan

I cannot recall when I have not had pets. Now, perhaps, is the first
time. My gorgeous black cat Vegas was felled by some kind of heart ailment
and I haven?t invited a new kitty into my home since then.

One reason is simply that pets get to be almost one?s friend and friends
cannot simply be replaced. But it?s been a long time now.

The other reason I hesitate is PETA and all the animal rights/liberation
fanatics. I am scared they will get enough political clout to sic the
government on pet owners everywhere. With all those phony rights these
zealots insist animals possess, animals may gain extensive intrusive
?protection? from the gendarmes soon, so they might be coming around
uninvited so as to inspect just how you are treating yours. They do this
already with commercial animal farms.

One thing human freedom desperately requires is firm respect for property
rights. What?s mine is mine and others would need to gain my permission to
mess with it?that is how it ought to be. Not unless there is evidence of
my violating another?s rights may anyone interfere with what is mine.

But not so in our current legal atmosphere. Meddlesome, intrusive, and
regulating governments at all levels?federal, state, county, or
municipal?have the power granted to them by legislatures and courts to
snoop and intrude on us for all sorts of reasons. Maybe you grow plants
they don?t like; or have de-clawed your kitty; or have some medicine in
your cabinet they don?t want you to have, etc., and so forth.

The famous saying by William Pitt, Earl of Chatham, made in 1763, that
served so well to define how property is to be treated in a free
society?namely, that ?The poorest man may in his cottage bid defiance to
all the forces of the Crown. It may be frail?its roof may shake?the wind
may blow through it?the storm may enter?the rain may enter?but the King of
England cannot enter; all his forces dare not cross the threshold of that
ruined tenement??isn?t even widely respected, let alone enshrined in law.
Yes, the Fourth Amendment to the U. S. Constitution states, unambiguously,
that ?The right of the people to be secure in their persons, houses,
papers, and effects, against unreasonable searches and seizures, shall not
be violated.? However, government, including the courts, have managed to
violate the idea all over the place.

So, in order to reduce the likelihood of them coming to mine to flex
their muscles, I will not get a pet. Or not likely?I may break down
because I?d like to have one. As I said, I?ve had cats, dogs, rabbits,
horses, parakeets, gerbils, fish and the lot. But I do not want some
eager-beaver officer, installed by the likes of PETA so as to ?protect?
pets, to come and lord it over me and my home.

Why, you might ask? Because the distrust PETA & Co. show toward ordinary
human beings?by insisting that the way to make sure animals are treated
decently, humanely, is to ascribe to them the kind of basic rights human
beings have?is insulting, intrusive, and very irksome. The fact is that
animals, though different from rocks and trees, are subject to ownership
by humans. But once the right to private property is abolished in law,
people no longer enjoy the protection of their property rights and eager
beaver zealots then have no legal barriers standing in their way to invade
your home or estate. Sure, tradition would still discourage abusive
trespass but gradually it will be overcome by the new attitude and soon a
guardian class of paternalists and their enforcers will be intruding
anywhere they want to make sure we all behave the way they think we ought

So, for the time, I am resisting bringing into my house any pet whose
?rights? could induce the local animal police to hassle me. I suspect some
other folks are beginning to think this way as well, slowly unleashing a
backlash against the animal ?rights? crowd.