Saturday, February 07, 2009

Taxation With No Possible Representation

Tibor R. Machan

Among the many flaws in the policy of massive bailouts few have mentioned how it violates the principle of "no taxation without representation," a principle the breach of which prompted the American Revolution. But, sadly, quoting now Anon, "Life is blighted by the tyranny of the urgent over the important.

In this case the urgent is to feel satisfied about doing something, anything, about the economic mess that mainly the government created--with its policy of making home buying easy for everyone, including for those who couldn't afford homes--and the important is to return to a more prudent way of spreading the wealth or whatever is left of it. This prudent way would be to slowly, carefully open the road to serious productivity instead of printing gobs of phony money and burdening future generations, ones not in the position to vote or voice their opinions, with fantastic amounts to debt.

Yes, Virginia, there was a time when nearly all Americans were outraged about being taxed without having their right to vote about the policy violated left and right. They were in fact so upset that they began a process of overthrowing the government that did the violating, that of George III of Great Britain. It was the beginning of the revolution which ended by declaring the governments are not sovereign but citizens are. So government must serve the people, not rule them by imposing coercive policies on them. Those Americans believed, as Jose Ortega y Gasset later put it, that "Civilization is nothing more than the effort to reduce the use of force to the last resort."

So, one thing that's dreadful about the current administration's--and the former's--policy vis-a-vis the fiscal mess is that the remedies proposed all impose massive taxation on future generations, people who haven't the ghost of a chance to speak up for themselves. It is done, in large part, in the name of a English economist, the late John Maynard Keynes, who believed that by pumping non-existing resources into the economy and creating phantom demand for goods and service, the country can be gotten back on its feet, at least economically. And the sooner and faster the better!

But as I have pointed out in previous columns, several researchers have pointed out, after researching the matter in great detail, that the Keynesian policies of FDR's New Deal did not rescue the country from the previous economic mess, the Great Depression and all of its awful side effects. To make the point again, here is what Alan Brinkley said in The New Republic (not in Reason Magazine, nor in Liberty, both of which are committed defenders of laissez-faire economics):

"Roosevelt's initiatives did not, in the end, left the country out of the Great Depression. At no time in the first eight years of the New Deal did unemployment drop below 15 percent. At no time did economic activity reach levels comparable to those of a decade earlier; and, while there were periods when the economy seemed to be recovering, none of them lasted very long. And so this bold, active, and creative moment in our history proved to be a failure at its central task. Understanding what went wrong could help us avoid making the same mistakes today..."

What's more, it appears that no one in the major media has the guts or savvy to challenge the Obama team, judging by, for example, how this matters is not brought up ever on The News Hour With Jim Lehrer, a program I watch diligently not so much because I trust them to be objective any more than say, Fox TV News but because of how it is often lauded by my liberal friends and colleagues for its journalistic integrity. Not a word about no taxation without representation, nada.

Good luck America with this current crop of leaders and the fourth estate watching them all!

Tuesday, February 03, 2009

Obama: "I take full responsibility"

Tibor R. Machan

This expressions has come mean nothing at all in Washington, nothing. As many others have pointed out, taking responsibility has to have some consequences--if you take it for something good, the consequence would be a reward or compliment or some such positive thing, while if you take it for something bad, the consequence would be a loss of some sort.

But when President Obama said he takes full responsibility for the mess with several of his nominees, especially with former House Majority Leader, Democratic ex-Senator from North Dakota, Tom Daschle, nothing at all appears to have happened in terms of adverse consequence for Mr. Obama. Did he have to resign? No. Did he have to pay a fine? Nothing happened even to the Democratic Party's reputation which should have suffered most in the eyes of voters. It seems to be all A-Okay! What on earth then does it mean for President Obama to take full responsibility?

And he of course is by no means the only one who keeps using this phrase without any seriousness at all. Many politicians do so, both Democrats and Republicans. Every time it occurs, it prompts me to wonder whether some kind of secret agreement has been made in Washington and perhaps throughout the political landscape that when some malpractice occurs, someone will stand up and say this and that's it, nothing else will happen. Taking responsibility will thus come to mean nothing and amount to nothing.

And the media appears to go along with all this since when President Obama said on ABC-TV News that he takes full responsibility for the Daschle mess, no one followed up with a question, "And what exactly will your punishment be, given that you take full responsibility?" Or perhaps they all believe that such misconduct by politicians will only come to be dealt with in the afterlife so there is no need to worry about it here.

Responsibility means having been a primary cause of what one is responsible for--say you take responsibility for a car accident or the collapse of a building of which you were the building supervisor or a botched up operation where you are the chief surgeon. In all such cases if you are the responsible party and it's discovered, usually certain serious adverse consequences follow. Like a demotion, for example, in the military, or the loss of a job in a civilian line of work. But if nothing at all follows from being responsible for an adverse result, then it is really quite pointless to say someone was responsible for it. More likely, taking responsibility without such adverse consequence demeans the very idea of responsibility, renders is vacuous.

What, for example, should criminal defendants, who get convicted of a crime for which they are found to have been responsible, think of this loose use of the concept of responsibility? Why should they feel any regret, why should they accept their punishment for what they did? After all, no one is punishing the President of the United States when he proclaims to be responsible of the nomination of a tax dodger to his cabinet?

President Obama made a lot of noise during the election campaign, and even after it, about how there will be change in Washington when he gets there and specifically about how ethics will be front and center during his presidency. By failing to take real responsibility for having chosen several people for his team who have tainted legal and ethical records, his claims on this matter can be dismissed as disingenuous. His critics will have every justification for saying that he isn't trustworthy, he is no better a politician than those he and his supporters have criticized in magazines, Op Ed pieces, TV commentaries.

It would be interesting to hear former President Bush and Vice President Chaney as they witness how the righteous team of President Obama is faltering so early in the Obama presidency. I can just hear what Rush Limbaugh must be making of all this!

But more important than all of that is the fact that very likely what President Obama is experiencing is simply unavoidable in a bloated welfare state like America has become. When the government is in the business of wealth redistribution, handing out favors right and left, to various special interest groups and powerful allies, how on earth can anyone expect there to be ethically and legal spotless politicians? It is part of such a welfare state that it breeds corruption.

Monday, February 02, 2009

Whose Wealth Is It?

Tibor R. Machan

There is an application of the tragedy of the commons little discussed but worth knowing about. Public wealth, actual or borrowed, is subject to being raided by everyone who can manage to do so since nearly everyone believes the public weal is available to any member of the public who can get his or her hands on it. That's what explains the proliferation of lobbyist through the political landscape. Send in the experts who can bring home the bacon to you and yours! As one sensible commentator put it on a recent The News Hour with Jim Lehrer, the demonization of lobbyists is wrongheaded. And he was a supporter of Barack Obama!

When I was smuggled out of Hungary back in October of 1953, four adults were part of the group making its way out of the country to Austria (and then who knows were in the West). I came penniless but the four adults had thousands of Hungarian forints with them, having raided the Hungarian national motion picture assocation's treasury for which they were working. Of course, they thought they were doing nothing at all wrong--the money belonged to all the people of Hungary and they were some of those people, so what could be wrong with taking a goodly portion of it?

The tragedy of the commons is clearly evident here--people think that what is commonly owned is theirs as much as anyone else's and by now very few people believe that governments have any moral authority to decided who gets what. After all, why should those people, perfectly like us (unlike they were thought to be in feudal days), be the ones to make such important decisions?

The more American society becomes a collective community, the more the people will start thinking of the funds in the public treasury as belonging to whoever can get it dip into first. Why not? The people are said to own all the wealth, no? That is what famous political theorists are telling us now, namely that private ownership is a myth! So public ownership is the alternative and being a member of the public entitles everyone to grab some of the booty.

The point many thinkers, starting with Aristotle, saw in a system of private property rights was exactly to ration wealth according to a reasonable, ethical first come, first serve basis. Find it or make it or get it as a gift from willing others, then go ahead and keep it, use it, sell it, bequeath it, whatever. It's yours. And this applies to everyone and the government is supposed to secure your right to your property and all your other rights.

But no, dreamers of a collective utopia want to destroy this system, laid out originally by John Locke and later by jurists and political economist who refined it, and regiment us all as some kind of army of servants to the whole, to "the people." That means, of course, that some of us will have to rule the process of using the common weal and here is where all the trouble starts--who will be the rulers and why they, not you or I? Who will redistribute the wealth for various valuable purposes and who will establish what is valuable?

With the private property system, with its often chided but actually quite harmless inequality of riches, there is a simple answer: you own it and you decide what is going to be done with it. Others do not get to steal, rob, burglarize, trespass, intrude or otherwise violate your private property and other rights, and you don't get to violate theirs. And government is simply there to make sure anyone who breaches this rule doesn't get away with it.

It is this system, which is of course quite complex and nuanced but can be simply stated as above, is a moral and practical invention and now a great many utopians want to ruin it. I hope they do not get away with that plan!
Daschle--it's Simply Shocking, you think?

Tibor R. Machan

Only those with a completely blind faith in governments would be shocked at the revelations that former Senate leader Tom Daschle, as well as some other nominees of President (change Washington) Obama, cannot manage to remain lawful even as they present themselves as public servants par excellence. These are only one whose dubious conduct has been exposed. There are hundreds and hundreds who manage to do their indiscretions under cover of public service.

Why is anyone shocked? Over twenty years ago Professor Jim Buchanan received the Noble Prize in economic science for the work he and his friend Gordon Tullock did in the sub-discipline of public choice theory. The gist of this theory, as I understand it, is that government officials in our redistributive state simply cannot avoid serving their own agenda rather than the mythical public interest. There are two reasons for this, I think. One is that whenever people work, they tend to work for their own goals, first and foremost. Now this can sometimes be reconciled with a sincere professionalism, as when a medical doctor takes the oath to serve the interest of patients because doing so will also advance his or her interest. But in government that make impossible promises all over the place there is no way to actually serve the public interest since virtually all interests are private or special ones--that of artist, educators, farmers, veterans and so on. Serving the interest of these folks isn't serving the public interest but is often mislabeled so. And one must do one's service selectively. Among all the people who voted for someone and live in a politician's district, only some can be served and guess who those will be? Usually the ones who gave the greatest backing to the politicians who went to some capital, national or state, to do service. Thus to serve the public is hardly likely--the public, in fact, has but few common interests to be served anyway, even if by some miracle a politician really tried.

One reason a case such as Tom Daschle's is so routine, why the percentage of those who are party to such illegal behavior is high, is that in reality nearly everything politicians do in office is to help out private or special parties, never really the public at large as they claim or promise they do. and when these private or special parties want to repay the favor, for most it is contributions to some fund that helps reelect or otherwise support the politician. This is not actually, only nominally, different from provide the politician with various perks. So when they receive these perks in unconventional ways, instead as contributions to a fund, for example, they can hardly see the difference. Why then pay taxes on such benefits? One need not do so when one receive political contributions!

The entire welfare state is a theater of what economist call rent seeking, getting something legally at the expense of others. Sure, there is some effort to make it fair or at least provide a cover of fairness to it all but that's all a sham. It is like hypocrisy, the compliment vice pays to virtue.

What is gratifying to me about all of this is that President Obama turns out to be just as vulnerable to the corrupt ways of Washington as all those his campaign rhetoric was aimed at, all those naughty lobbyists he was going to expel from the changed nation's capitol. He should have studied public choice and I am actually surprised that as someone who taught law at the University of Chicago, where so much of public choice theory is discussed both by economic and law professors, he wasn't properly educated in the field.

A great advantage of limited government is that it would restrict the scope of governmental operations and thus minimize the opportunity for corrupt politics. As my favorite analogy--namely refereeing competitive games--to such a government shows, if you keep the job of the professionals limited to something they can in fact do, they will not very likely go astray. Otherwise all bets are off.
More Lies at The Times

Tibor R. Machan

As a teacher of business ethics I often encounter the quip, "Isn't that an oxymoron?" It is not but what is more interesting is how readily ordinary folks give a pass to journalistic malpractice, something there's probably more of than unethical business.

Given how often people and leaders of public opinion demean money and its making, meaning of course business, it is quite contradictory of them to be so critical of business misconduct. After all, if money isn't so important in life, why is it important that its makers misbehave? Journalistic malpractice, however, should outrage people far more since many profess to admire pundits, writers, editors and others associated with the press, in print or on the air.

If one is looking for journalistic misconduct, leafing through the Sunday editions of The New York Times is likely to be a fount of treasure. I ran across several instances just the other day when writers in The Times repeatedly presented the New Deal in a thoroughly biased fashion, as if it were uniformly accepted that its policies rescued American from the Great Depression. Even some of the writers in The New Republic observed that this is hogwash--though in more polite terms. As for example Alan Brinkley noted a couple of issues ago, “....Roosevelt’s initiatives did not, in the end, lead the country out of the Great Depression. At no time in the first eight years of the New Deal did unemployment drop below 15 percent. At no time did economic activity reach levels comparable to those of a decade earlier; and, while there were periods when the economy seemed to be recovering, none of them lasted very long. And so this bold, active, and creative moment in our history proved to be a failure at its central task. Understanding what went wrong could help us avoid making the same mistakes today....”

But never mind. In The Magazine of The Times David Leonhardt states, without any reservations that "... Once [as for instance during The New Deal] governments finally decided to use the enormous resources at their disposal, they have typically been able to shock an economy back to life. They can put to work the people, money and equipment sitting idle, until the private sector is willing to begin using them again. The prescription developed almost a century ago by John Maynard Keynes does appear to work..." No dice, as has been argued in great deal and very convincingly by Amity Shleas, in her Forgotten Man: A New History of the Great Depression, and by Jim Powell in his FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression. They support Brinkley's point with extensive research.

If you now turn to The Times' Sunday book review you will read the following from Debby Applegate: "Werth [an author whose book she is reviewing] is a gifted writer, and his subject is especially important in our current economic crisis, as Americans are reassessing their belief that social progress will grow naturally out of unfettered free-market economics." Americans believe this? Maybe four or five thousand of them but the other millions are completely captive to the governmental habit--they vote for more and more special favors from Washington, they elect as their president by a wide margin someone who champions government wealth redistribution, their colleges and universities are filled to the rim with professors of government, history, political science and the rest who favor a bloated welfare state on the model of Europe's Sweden and France. They belong to labor unions that keep asking for protectionism galore, their farmers have the same agenda, their artists want government to subsidize the arts, and so on and so forth. Yes, this evidence clearly shows that American are committed to the principles of free-market economics. Give me a break.

Oh, perhaps Ms. Applegate is just ignorant and innocently states her untruth! No chance. She is writing for a publication that has never supported free market economics, not at least for the last hundred years. Yet that same publication has reported, back on September 30, 1999, under Stephen A. Holmes' byline, that "Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits..." So the current economic crisis appears to have been prompted mainly by the expansive credit policies of the Clinton Administration which urged both Fanny Mae and Freddy Mack to lend money at very low interest so as to satisfy thoroughly anti free-market objectives, namely, to provide everyone with loans that hardly cost them anything!

Lies and more lies coming from the pages of a prominent newspaper but does anyone complain? Well, no since such complaints usually get published in newspapers and other media and just as with most professions, these folks stand shoulder to shoulder in defense of their colleagues regardless. There are, of course, some exceptions--I work for some of those publications, ones that conscientiously eschew lying and prevaricating. But not the leader of the gang, The New York Times.
You Should Belong to Washington!

Tibor R. Machan

Back in the times of feudalism, a system the American Revolution was supposed to have overthrown, people belonged to government. The king owned everyone and all the wealth in the country. People were subjects, at the disposal of the will of the monarch not to their own. Decisions about everyone's life was made by the head of state. It was government that was sovereign, self-governing, not citizens!

All of this was what the American revolution managed to abolish, at very great cost. That event put on record the declaration that all human beings have unalienable rights to their lives. And while practical reality took a good while to catch up with this declaration--African Americans did not manage to get their basic right to life recognized until after the Civil War--the principle took root firmly enough so that much of the legal system in time adjusted to it.

It's about time for all this to be over, according to a very prominent and long article in The New York Times Magazine, Sunday February 1, 2009. The author, David Leonhardt, states without reservations that "... Once [e. g., during The New Deal] governments finally decided to use the enormous resources at their disposal, they have typically been able to shock an economy back to life. They can put to work the people, money and equipment sitting idle, until the private sector is willing to begin using them again. The prescription developed almost a century ago by John Maynard Keynes does appear to work..." ("The Big Fix," The New York Times Magazine, Sunday, February 1st, p. 23). Read it carefully--you are to be a government resource according to Mr. Leonhardt, along with everything else in the country, a resource the government "can put to work."

This would be a most revolting development in the supposedly freest country in human history, the leader of the free world. Yet that it is a philosophy Mr. Leonhardt is eagerly urging upon the new administration of President Barack Obama, which is also a great irony. It was, after all, black Americans who continued to belong not to themselves but others, with full sanction from the governments of Southern states. And Mr. Obama's ascent to the American presidency has been hailed as the final step in the long march out of that bondage only to have the current crop of statist intellectuals, such as Mr. Leonhardt, writing in perhaps the most prestigious newspaper in the nation, urge the reversal of the trend and return the country to its pre-revolutionary time when everyone belonged to the government.

All this is advocated, of course, for the laudable cause of reviving the American economy. That kind of supreme objective is exactly what the Soviet government used to justify its disastrous Five Year Plans and what all tyrants use to excuse their system of subjugation. Never mind. These current, American cheerleaders of the reactionary policies of George III, and of mercantilism in general, have no care for individual rights, for the hard won liberties of Americans. All they want is to be in on a phony rescue mission the ultimate result of which is most likely to be a full scale dictatorship in which people and the wealth of the country will be "put to work," like it or not.

According to Mr. Leonhardt and the political economist he lines up in support of this dangerous agenda, namely Stanford University's professor Paul Romer, "The choices that determine a country's growth rate 'dwarf all other economic-policy concerns'." Because of the distorted history of the New Deal accepted by Mr. Leonhardt--and, probably, Professor Romer, a "history" that has been refuted over and over again by the recent work of such researchers as for example Amity Shleas in her Forgotten Man: A New History of the Great Depression, and by Jim Powell in his FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression--the country's most fundamental principles are to be cast aside and its population is to be returned to the status of serfdom--which is what comes to being an economic resource.

It is going to be difficult to counter all this enthusiasm for old style, mercantilist statism--the hunger for power in these times is enormous. Leonhardt mentions the late economist Mancur Olson who observed many years ago that the time for serious change in a country is when it experiences an upheaval like the one that's threatening American now. And of course Leonhardt urges his statist pals to seize the day.

If Olson was right, it is vital that these enemies of human liberty meet with total failure, that they do not get to seize the day in favor of a regimented, top-down planned American economy. For that a widespread and effective counter movement needs to be sustained.
That Myth of the Stimulus

Tibor R. Machan

Don't get me wrong--it is possible, though not very likely, that some of the huge sums the government plans to steer toward the market place will actually help generate creative, produdctive employment and, thereby, revive some measure of economic growth. But it isn't very likely because of politics.

If you look at the details of the stimulus package--some $800 billion borrowed against future taxes no one knows will be forthcoming and from foreign countries that need to be paid back at some point--a great deal of it amounts to pork, funds directed toward projects that put money into the pockets of the voters in the districts of the politicians who are shaping the stimulus and who feel the need to satisfy those who voted and are expected to vote for them.

This is where the theories of the famous early 20th century economist John Maynard Keynes go astray--he believed that when the economy is faltering it requires substantial and maybe even massive government spending to revive it. Which gave the idea of such spending a boost. President Nixon said once, "We are all Keynesians now!"

But Keynes did not specify in detail how the money is to be infused into the economy--mostly he believed that doing it through funding public works will do the trick. But his current followers are changing Keynes' recommendations. They want the government funds to be given specific direction and believe, moreover, that the folks in Washington, D.C., are able and willing to figure out where such funds will do the most good, how the funds will have what economists of this school of thought call the multiplier effect. This is the supposed phenomenon of getting blood out of a turnip--or repeatedly increasing the investment the government makes by its being reinvested over and over again, never mind that those receiving the money doing the investment have no initiative, no entrepreneurial motivation, to create or produce anything, only to spend the funds. I get funds from Uncle Sam and spend it on a car and the dealer then takes that money and buys furniture for himself and then the furniture store owner and workers spend what they have made from this to improve the shop and support their families, and so on and so forth--as if the money remained the same all through the chain and as if this alone served to actually increase, not only circulate, wealth.

Also, the money does not remain the same amount--at each step some of it becomes a sunk cost, a lost amount consumed by those involved in the transactions. Yes, some of the consumption does generate some income for yet others but not all. If one buys food, for instance, the store and the farmer do gain an income but some of that goes to goods and services that cannot be recovered. The bread and butter or apple I eat are gone, although I will use some of it to supply me with the energy needed to go to work tomorrow. And some people may actually use some funds for a creative purposes, to invent some new, labor saving gadget. But by no means all of it because the funds were not theirs and they didn't think up anything creative, like a new investment, to use the money "to stimulate" anyone.

But this isn't really the worst of it--if it were only this, then the benefits might be greater then the costs. But because these projects the government picks aren't usually what you and I and the rest of the consuming public would have picked, the "investment" is not actually productive. It's sham, like the art works that were produced with the funds the government spent on artists, back under the New Deal. Very little of those works were wanted by anyone. Hardly any fetched a price so the artists could then spend it on further creative works.

The most important thing the Keynesians overlook is that despite the propaganda about how the government's support will go to truly productive undertakings, a great deal of those funds support unproductive adventures, those referred to as earmarks the politicians include in the bills that provide the funds. Of course that is what politicians will do since their reelection depends on it and also, frankly, they are pretty much devoted to helping those who voted for them, never mind whether that help will enhance economic growth.

This is one of the findings of public choice theorists, findings that old and new Keynesians ignore. (In a recent very long essay praising Keynes to high heaven in The New Republic not a word addressed public choice theory, even though it is a direct challenge of Keynes' policy recommendations for which the architect of the theory, Professor James Buchanan, received the Nobel Prize in economics.)

Bottom line is that government ought to get out of the business of investing in various ventures and leave that to citizens, with no special support for any kind of project in any area of the economy. Like referees at a game, government isn't there to get into the game! The players are far better at figuring out what to do on their own initiative.