Thursday, February 12, 2009

Troubles with Economics

Tibor R. Machan

The social science of economics became distinct when several French intellectuals and the Scottish moral philosopher Adam Smith isolated the field for special study. From a long time thereafter certain assumptions underpinned the discipline, mostly about human behavior. These assumptions arose from the work of the English philosopher Thomas Hobbes who believed that all people, not just market agents, are motivated to act so as to seek power over their environment. The reason Hobbes held this view is that he considered human behavior just a manifestation of the behavior of all material things that populate reality. (For him reality had nothing but material content and was ruled by the laws of classical physics.)

Even the contemporary idea that everyone is a profit or utility maximizer, taught in most introductory economics courses, derives from this basic notion, one that is credible even apart from Hobbes' use of it because the goal of prosperity is quite normal for most people. Of course, there are now different schools of economics and they each have modified the assumption somewhat but the basic idea is still very prominent, namely, that people have an innate drive to seek wealth or some other form of satisfaction. This is something they cannot help--it’s part of the psychology of every human being. The assumption is used to explain what happens in the market place--if the market is free, unimpeded by government or criminals, market agents will move ahead, quite predictably, to seek to enrich themselves and prosperity will result. The role of law is merely to make sure that these market agents do not intrude on each other by theft, robbery, and other violations of people’s rights. It is all a bit like a marathon race--everyone will move forward provided they aren’t permitted to trip up each other.

The race in the market place, however, is endless. If something stops or interrupts it, the overall economy is going to suffer. So many economists who support free markets dislike government intervention, think it mostly means trouble, rarely helps. But there are a whole lot of other type of economists, too, like those who have been influenced by Karl Marx or John Maynard Keynes. These tend to believe in a decisive role of government in economic affairs. They think the unregulated, free market is cruel, ruthless, and destructive of many human values. So they favor regulating market agents even if those agents haven’t harmed anyone--in a sense they believe in something that is often rejected in the legal system of a free country, namely, prior restraint. And the support for the authority to regulate comes from democratic theory, although it resembles, also, the older economic tradition of mercantilism (wherein the agents of the king saw themselves as authorized to meddle in the economic lives of their subjects).

In today’s fiasco there is a lot consternation about whether the free or the regulated market produced the mess. But there has not been a free market in place anywhere for many decades and even before then it has had only a limited scope in the economies of most countries. Politicians always took it for granted that they may manipulate the market, regiment market agents, both in small localities where they passed blue laws and curfews, and in the larger community where they passed protectionist laws and subsidies for faltering industries.

Many other examples could be listed but the main point is that no free market has ever existed, not under Lincoln, nor Wilson, nor Hoover, certainly not FDR, or Eisenhower, Regan or Bush. And it certainly isn’t likely to exist under Barack Obama.

When politicians and bureaucrats intrude on the work of market agents they cause serious distortions but market agents will most often adjust to these and try to profit from them. They will anticipate such intrusions and bank on them, invest accordingly, at least in a country where striving to prosper is something quite acceptable if not outright admirable. And this leads to even great distortions.

Many market agents do not bother supporting a fully free market but simply work with the regulated market in which they find themselves. But because this does involve serious distortions on how a genuine free market is supposed to operate, their behavior will often come off as excessively greedy, oblivious to principles of proper market conduct. They tend to go with the flow, for example, by aligning themselves with various political interests.

One thing is certain. The idea that the mess we are facing now was produced by the free market is preposterous and those economists and politicians who make that claim are almost certainly engaging in demagoguery. They wish to gain power from the fiasco by discrediting a system that some may support in theory but which is only spottily included in the country’s actual economy, one that requires politicians to stay out of economics just as they must stay out of religion and journalism.

Monday, February 09, 2009

A Yes and a No

Tibor R. Machan

President Obama made two important points during his Monday evening news conference, the first of his presidency. One was when he observed that old habits are very hard to shed. How true that is and how his own policies vis-a-vis the economic calamity demonstrates it. After all, one of the oldest and worst habits human beings find nearly impossible to be rid of is the governmental habit, that of turning to government as if it could perform miracles, superhuman deeds. This idolatry about government and its officials as a terrible habit and needs to be tossed ASAP.

The other important point, which was, however, completely wrong, is that the policy of stimulating the American economy by means of enormous spending programs is not opposed by economists around the country. This is false and it is difficult to imagine that President Obama doesn't know it to be false. And if he does, then we have here the same old, same old Washington practice of lying to the American people. The enormity of the falsehood is best noted by listing all the economists around the country who consider the stimulus the wrong approach to dealing with the crisis. The Cato Institute of Washington, DC, has published a list of those economists, several of them Nobel Laureates, and I will simply reproduce their names and affiliations here:

BURTON ABRAMS, Univ. of Delaware
DOUGLAS ADIE, Ohio University
LEE ADKINS, Oklahoma State University
RYAN AMACHER, Univ. of Texas at Arlington
J.J.ARIAS, Georgia College & State University
HOWARD BAETJER, JR., Towson University
CHARLES BAIRD, California State University, East Bay
STACIE BECK, Univ. of Delaware
DON BELLANTE, Univ. of South Florida
JAMES BENNETT, George Mason University
BRUCE BENSON, Florida State University
SANJAI BHAGAT, Univ. of Colorado at Boulder
MARK BILS, Univ. of Rochester
ALBERTO BISIN, New York University
WALTER BLOCK, Loyola University New Orleans
CECIL BOHANON, Ball State University
MICHELE BOLDRIN, Washington University in St. Louis
DONALD BOOTH, Chapman University
MICHAEL BORDO, Rutgers University
SAMUEL BOSTAPH, Univ. of Dallas
DONALD BOUDREAUX, George Mason University
SCOTT BRADFORD, Brigham Young University
GENEVIEVE BRIAND, Eastern Washington University
IVAN BRICK, Rutgers University
GEORGE BROWER, Moravian College
PHILLIP BRYSON, Brigham Young University
JAMES BUCHANAN, Nobel laureate
RICHARD BURDEKIN, Claremont McKenna College
RICHARD BURKHAUSER, Cornell University
EDWIN T. BURTON, Univ. of Virginia
JIM BUTKIEWICZ, Univ. of Delaware
HENRY BUTLER, Northwestern University
WILLIAM BUTOS, Trinity College
PETER CALCAGNO, College of Charleston
BRYAN CAPLAN, George Mason University
ART CARDEN, Rhodes College
JAMES CARDON, Brigham Young University
DUSTIN CHAMBERS, Salisbury University
V.V. CHARI, Univ. of Minnesota
BARRY CHISWICK, Univ. of Illinois at Chicago
LAWRENCE CIMA, John Carroll University
J.R. CLARK, Univ. of Tennessee at Chattanooga
GIAN LUCA CLEMENTI, New York University
R.MORRIS COATS, Nicholls State University
JOHN COCHRAN, Metropolitan State College at Denver
JOHN COCHRANE, Univ. of Chicago
JOHN COGAN, Hoover Institution, Stanford University
LLOYD COHEN, George Mason University
JOHN COLEMAN, Duke University
BOYD COLLIER, Tarleton State University
ROBERT COLLINGE, Univ. of Texas at San Antonio
PETER COLWELL, Univ. of Illinois at Urbana-Champaign
LEE COPPOCK, Univ. of Virginia
MARIO CRUCINI, Vanderbilt University
CHRISTOPHER CULP, Univ. of Chicago
KIRBY CUNDIFF, Northeastern State University
ANTONY DAVIES, Duquesne University
JOHN DAWSON, Appalachian State University
A. EDWARD DAY, Univ. of Texas at Dallas
CLARENCE DEITSCH, Ball State University
ALLAN DESERPA, Arizona State University
WILLIAM DEWALD, Ohio State University
ARTHUR DIAMOND, JR., Univ. of Nebraska at Omaha
JOHN DOBRA, Univ. of Nevada, Reno
JAMES DORN, Towson University
CHRISTOPHER DOUGLAS, Univ. of Michigan, Flint
FLOYD DUNCAN, Virginia Military Institute
FRANCIS EGAN, Trinity College
JOHN EGGER, Towson University
KENNETH ELZINGA, Univ. of Virginia
PAUL EVANS, Ohio State University
FRANK FALERO, California State University, Bakersfield
EUGENE FAMA, Univ. of Chicago
W. KEN FARR, Georgia College & State University
DANIEL FEENBERG, National Bureau
of Economic Research
HARTMUT FISCHER, Univ. of San Francisco
ERIC FISHER, California State Polytechnic University
FRED FOLDVARY, Santa Clara University
MURRAY FRANK, Univ. of Minnesota
PETER FRANK, Wingate University
TIMOTHY FUERST, Bowling Green State University
B. DELWORTH GARDNER, Brigham Young University
JOHN GAREN, Univ. of Kentucky
RICK GEDDES, Cornell University
AARON GELLMAN, Northwestern University
WILLIAM GERDES, Clarke College
JOSEPH GIACALONE, St. John’s University
MICHAEL GIBBS, Univ. of Chicago
OTIS GILLEY, Louisiana Tech University
STEPHAN GOHMANN, Univ. of Louisville
RODOLFO GONZALEZ, San Jose State University
RICHARD GORDON, Penn State University
PETER GORDON, Univ. of Southern California
ERNIE GOSS, Creighton University
PAUL GREGORY, Univ. of Houston
EARL GRINOLS, Baylor University
DANIEL GROPPER, Auburn University
R.W. HAFER, Southern Illinois University, Edwardsville
ARTHUR HALL, Univ. of Kansas
STEVE HANKE, Johns Hopkins University
STEPHEN HAPPEL, Arizona State University
RICHARD HART, Miami University
THOMAS HAZLETT, George Mason University
FRANK HEFNER, College of Charleston
SCOTT HEIN, Texas Tech University
RONALD HEINER, George Mason University
DAVID HENDERSON, Hoover Institution,
Stanford University
ROBERT HERREN, North Dakota State University
GAILEN HITE, Columbia University
STEVEN HORWITZ, St. Lawrence University
DANIEL HOUSER, George Mason University
JOHN HOWE, Univ. of Missouri, Columbia
JEFFREY HUMMEL, San Jose State University
BRUCE HUTCHINSON, Univ. of Tennessee at Chattanooga
BRIAN JACOBSEN,Wisconsin Lutheran College
SHERRY JARRELL,Wake Forest University
JASON JOHNSTON, Univ. of Pennsylvania
BOYAN JOVANOVIC, New York University
JONATHAN KARPOFF, Univ. of Washington
BARRY KEATING, Univ. of Notre Dame
NAVEEN KHANNA, Michigan State University
NICHOLAS KIEFER, Cornell University
DANIEL KLEIN, George Mason University
PAUL KOCH, Univ. of Kansas
MAREK KOLAR, Delta College
ROGER KOPPL, Fairleigh Dickinson University
State College of Denver
GEORGE LANGELETT, South Dakota State University
JAMES LARRIVIERE, Spring Hill College
ROBERT LAWSON, Auburn University
JOHN LEVENDIS, Loyola University New Orleans
DAVID LEVINE, Washington University in St. Louis
PETER LEWIN, Univ. of Texas at Dallas
W. CRIS LEWIS, Utah State University
DEAN LILLARD, Cornell University
ZHENG LIU, Emory University
ALAN LOCKARD, Binghampton University
EDWARD LOPEZ, San Jose State University
JOHN R. LOTT, Jr., Univ. of Maryland
JOHN LUNN, Hope College
University in St. Louis
HENRY MANNE, George Mason University
Polytechnic State University
DERYL MARTIN, Tennessee Tech University
DALE MATCHECK, Northwood University
JOHN MATSUSAKA, Univ. of Southern California
THOMAS MAYOR, Univ. of Houston
DEIRDRE MCCLOSKEY, University of Illinois at Chicago
JOHN MCDERMOTT, Univ. of South Carolina
JOSEPH MCGARRITY, Univ. of Central Arkansas
ROGER MEINERS, Univ. of Texas at Arlington
ALLAN MELTZER, Carnegie Mellon University
JOHN MERRIFIELD, Univ. of Texas at San Antonio
JAMES MILLER III, George Mason University
JEFFREY MIRON, Harvard University
THOMAS MOELLER, Texas Christian University
JOHN MOORHOUSE,Wake Forest University
ANDREA MORO, Vanderbilt University
ANDREW MORRISS, Univ. of Illinois
at Urbana-Champaign
MICHAEL MUNGER, Duke University
KEVIN MURPHY, Univ. of Southern California
DAVID MUSTARD, Univ. of Georgia
RICHARD MUTH, Emory University
CHARLES NELSON, Univ. of Washington
SETH NORTON, Wheaton College
LYDIA ORTEGA, San Jose State University
EVAN OSBORNE, Wright State University
RANDALL PARKER, East Carolina University
ALLEN PARKMAN, Univ. of New Mexico
DONALD PARSONS, George Washington University
SAM PELTZMAN, Univ. of Chicago
TIMOTHY PERRI, Appalachian State University
MARK PERRY, Univ. of Michigan, Flint
CHRISTOPHER PHELAN, Univ. of Minnesota
GORDON PHILLIPS, Univ. of Maryland
MICHAEL PIPPENGER, Univ. of Alaska, Fairbanks
TOMASZ PISKORSKI, Columbia University
BRENNAN PLATT, Brigham Young University
JOSEPH POMYKALA, Towson University
WILLIAM POOLE, Univ. of Delaware
BARRY POULSON, Univ. of Colorado at Boulder
BENJAMIN POWELL, Suffolk University
EDWARD PRESCOTT, Nobel laureate
GARY QUINLIVAN, Saint Vincent College
REZA RAMAZANI, Saint Michael’s College
ADRIANO RAMPINI, Duke University
ERIC RASMUSEN, Indiana University
MARIO RIZZO, New York University
NANCY ROBERTS, Arizona State University
ROBERT ROSSANA, Wayne State University
JAMES ROUMASSET, Univ. of Hawaii at Manoa
JOHN ROWE, Univ. of South Florida
CHARLES ROWLEY, George Mason University
ROY RUFFIN, Univ. of Houston
KEVIN SALYER, Univ. of California, Davis
THOMAS SAVING, Texas A&M University
PAVEL SAVOR, Univ. of Pennsylvania
RONALD SCHMIDT, Univ. of Rochester
CARLOS SEIGLIE, Rutgers University
ALAN SHAPIRO, Univ. of Southern California
WILLIAM SHUGHART II, Univ. of Mississippi
JAMES SMITH, Western Carolina University
VERNON SMITH, Nobel laureate, Chapman University
DEAN STANSEL, Florida Gulf Coast University
HOUSTON STOKES, Univ. of Illinois at Chicago
BRIAN STROW, Western Kentucky University
SHIRLEY SVORNY, California State
University, Northridge
JOHN TATOM, Indiana State University
WADE THOMAS, State University
of New York at Oneonta
HENRY THOMPSON, Auburn University
ALEX TOKAREV, The King’s College
EDWARD TOWER, Duke University
LEO TROY, Rutgers University
WILLIAM TRUMBULL, West Virginia University
DAVID TUERCK, Suffolk University
CHARLOTTE TWIGHT, Boise State University
KAMAL UPADHYAYA, Univ. of New Haven
CHARLES UPTON, Kent State University
T. NORMANVAN COTT, Ball State University
RICHARDVEDDER, Ohio University
RICHARDWAGNER, George Mason University
DOUGLAS M.WALKER, College of Charleston
DOUGLAS O.WALKER, Regent University
MARCWEIDENMIER, Claremont McKenna College
State University
ROBERTWHAPLES, Wake Forest University
LAWRENCEWHITE, Univ. of Missouri at St. Louis
WALTERWILLIAMS, George Mason University
DOUGWILLS, Univ. of Washington Tacoma
DENNISWILSON, Western Kentucky University
GARYWOLFRAM, Hillsdale College
HUIZHONG ZHOU, Western Michigan University

I expected to disagree with President Obama on a number of substantive matters but I really didn't expect--didn't think to expect--outright deception from him. That, to me, is very sad and confirms the suspicion that despite his claim that he is going to bring change to the nation's capital, no significance change is going to be forthcoming, certainly not about whether politicians will now be honest.
Saying No to FDR's Version of Liberty

Tibor R. Machan

One of my colleagues at Chapman University reported to me how much he favors the following sentiment expressed by FDR: "I am not for a return to that definition of liberty under which for many years a free people were gradually regimented into the service of the privileged few." What kind of liberty was FDR talking about? Presumably the kind of liberty that would prohibit anyone from interfering with the actions of others unless those others endeavored to coerce their fellows, unless they violated their basic rights to life, liberty, and property. Such as system does make it possible for some to rise above others, provided they do not use force or fraud in the process.

A system wherein such rights are diligently protected is often attacked on the grounds that some people might be employed by other people who then could give them directions, who could "regiment them." Remember that whenever you hire someone who willingly accepts your terms of employment and whose terms you accept, you can given them directions or "regiment" them. Think of your gardener, barber, auto mechanic, house cleaner, employee at your firm, cashier at your grocery store, etc., and so forth. All these people voluntarily accept being directed by you as to what they will do to satisfy their terms of employment.

And, yes, among them there will be some who accept your terms reluctantly, believing that the terms could be different, more favorable to them, less favorable to you and so forth. And some of them will be unable to act on their reluctance because they lack resources just yet needed for them to gain different, more favorable employment.

I certainly recall when I was a new refugee in the USA and took my first job as a movie house usher in Philadelphia where I worked daily in that capacity, pretty much not liking what I did (e.g., watching the same movie fifty times or so before a new one took its place while telling people to quiet down and helping them find a seat in the crowded theater). Then I was a short order cook, not the greatest job one could have, then a bus boy, and then, once I acquired some skills, a draftsman at a famous air conditioning company, etc., etc., until I finally reached the kind of work I found fulfilling, namely, teaching philosophy. Many, many folks I know and millions I don't have gone through a roughly similar process in order to get to do the work they preferred doing, for folks they wanted to work for or, perhaps, to establish a firm they could run and where they would employ others who found the work they could do there promising.

By FDR's edict, all these folks, including I, would need to abandon their liberty to work for others, "the privileged few," who may themselves have risen through the ranks akin to the way I and millions of others did. Sure, some people are born with a silver spoon in their mouths but to keep the spoon there they, too, needed to find work that others wanted from them--if they were heads of huge companies, they needed to steer the firm successfully (unless they got protection from the government against competitors!).

The bottom line is that FDR's sentiments are utopian and fascistic on top of that--he would probably want to be the one who would rearrange the economy so that the privileged few would get demoted and some others would take their place. Or if he aimed to eliminate all privileges and inequalities of economic status, he would have to employ a humongous police force to make sure that no one rises above anyone else--no basketball player better his or her fellow players in the eyes of the paying public, no movie star manages to rake in more income than another, no professor would get his books published by a house that's better than those that publish his or her fellow academics'. This would be a police state! That is just what it appears FDR favored, seeing that he admired, of all people, Mussolini!

So thanks but no thanks to FDR for his revised--actually perverted--idea of human liberty. The privileges that are objectionable have always tended to come from governments favoring some firms with protection against competition, domestic or foreign, starting with the monarchs who bestowed limited liability upon companies they permitted to be formed so they could gain taxes from them even as they acted destructively. So, yes, some firms need to have their privileges discontinued and they need to enter the free market place where they would compete on the basis of their achievements instead of of being the darlings of politicians and bureaucrats. That kind of reform is justified. But FDR's proposal is perverse and unbecoming of a genuine free country.