About This Blog

Ludwig von Mises (1881-1973) was the greatest economist of my time. His greatest works can be accessed here at no charge.

Mises believed that property, freedom and peace are and should be the hallmarks of a satisfying and prosperous society. I agree. Mises proved beyond a shadow of a doubt that the prospect for general and individual prosperity is maximized, indeed, is only possible, if the principle of private property reigns supreme. What's yours is yours. What's mine is mine. When the line between yours and mine is smudged, the door to conflict opens. Without freedom (individual liberty of action) the principle of private property is neutered and the free market, which is the child of property and freedom and the mother of prosperity and satisfaction, cannot exist. Peace is the goal of a prosperous and satisfying society of free individuals, not peace which is purchased by submission to the enemies of property and freedom, but peace which results from the unyielding defense of these principles against all who challenge them.

In this blog I measure American society against the metrics of property, freedom and peace.

Wednesday, December 14, 2011

Off To See The Wizard, Part IV

This is the fourth installment of my series of posts criticizing President Obama's historic speech Tuesday, Dec. 6, in Osawatomie, Kansas. In his speech the President succeeded in clearly articulating his analysis of life in present day America and his vision for life in America in the 21st century. The entire text and a video of the President's speech is here

In my first post, I examined errors and logical inconsistencies in the President's vision. In my second post, I investigated the Marxist roots of Obama's vision and their consequences. In my third post, I showed how Obama's economic assumptions are faulty and how his vision of America is inconsistent with the vision of everyday Americans. In this post, I focus on the President's bizarre notions regarding economic theory and practice.

In his speech Tuesday President Obama succinctly summarized his understanding of free market economic theory as follows:
“The market will take care of everything,” they [the advocates of the free market] tell us. If we just cut more regulations and cut more taxes—especially for the wealthy—our economy will grow stronger. Sure, they say, there will be winners and losers. But if the winners do really well, then jobs and prosperity will eventually trickle down to everybody else. And, they argue, even if prosperity doesn’t trickle down, well, that’s the price of liberty.
The description above is at best a cartoonish caricature of free market economic theory--a compilation of worn out cliches popularized by critics of that theory. At worst, Mr. Obama's description is a lie.

The free market is nothing more or less than free individuals exchanging goods and services voluntarily amongst each other. Individuals exchange goods and services on the assumption that voluntary trade will benefit and satisfy them. Thus, it follows, that in a trade both trading partners always benefit, when considered from their own, individual point of view.

In order for such an economic system to "work" to everyone's satisfaction, theft and murder must be prohibited in the free market. This prohibition implies that private property and the right to life and, by extension, personal liberty or "freedom," are basic rights of individuals participating in the free market. 

Moreover, "free" market economic theory assumes that individuals in that market are truly "free" to trade goods and services as they wish, without third party coercion or government interference.

Those who advocate a truly "free" market do so on the grounds that an economic system which, by definition, "works" to the benefit and satisfaction of all participants, is preferable to an economic system which "works" to the benefit and satisfaction of some at the expense of the benefit and satisfaction of others. If a trade is coerced, i.e., if an individual is forced to exchange goods and services with another party against his will, it follows that the coerced party is not completely satisfied by the trade, when satisfaction is considered from his own point of view. 

If the coerced party felt he would be satisfied by the trade, coercion would be unnecessary. The coerced party would make the trade voluntarily.

This is not merely an interesting academic or philosophic point. This simple understanding, that in a voluntary trade both parties always benefit, is the essence of free market economics. Moreover, this basic tenet is logically certain. It is and must be true, regardless of time, place and circumstance.

In order to disprove this basic tenet, it is necessary to find an error in either its premise (man acts with purpose) or the reasoning which deduced it. If such an error cannot be found, then the tenet must always be true. Progressives like Mr. Obama criticize this tenet as untrue. However, they always fail to produce arguments that refute its logic. Instead, they obfuscate the issue or avoid it completely.   

Politicians, who pass laws that coercively regulate, tax or otherwise interfere with individuals who trade in the marketplace, are said to "intervene" in that free market. It should be perfectly clear that a market experiencing political intervention, by definition, cannot be a "free" market. This is a point most Progressives ignore.

Those who advocate "free" markets oppose government intervention in the marketplace on principle and without exception. They oppose all government taxes and regulations imposed by force and aimed at market participants, no matter the participants' personal wealth or social circumstance. 

In the light of this truth about free market economic theory, how is it possible for President Obama, an intelligent and well educated man, to be so mistaken about it? Books on free market economic theory are plentiful and readily available. 

Mr. Obama says free market theory favors the "wealthy." This is clearly untrue. As I've written, all traders in the free market have the right to be free of government intervention. If certain traders in the free market could be considered "wealthy," then it is the patronage of the other traders, voluntarily given, that made them so.

Mr. Obama contends that the advocates of free market economic theory preach that "our economy will grow stronger" if regulations and taxes are cut. Yet free market theory does not employ value-laden and absolutist terms like "stronger." Free market theory teaches that value is subjective, and that, if all individual trades are voluntary, then each individual trader will benefit and be satisfied to the greatest extent possible, when "benefit" and "satisfaction" are considered from each trader's individual point of view. 

Moreover, coercive regulations and taxes constitute government intervention and, as such, by definition have no legitimate part to play in a free market. 

So why does President Obama obfuscate the issue by saying that advocates of the free market want to "cut more regulations and cut more taxes--especially for the wealthy?"

Mr. Obama insists that free markets pick "winners and losers," and that "prosperity will eventually trickle down" from the winners and, if it doesn't, "well, that's the price of liberty."

How can any reasonable and honorable man draw such bizarre conclusions from the tenets of free market economic theory as I've described them? 

It should be clear to anyone, based on what I've written so far, that the "free market" is not a thing. Neither is "prosperity" a thing that rains down on the favored "winners" and from there "trickles down" to the unfortunate "losers," as if the economy of the United States was nothing more than a leach field with thinking, purposeful Americans imbedded helplessly within it.
The President is smart enough to know that the "free market" is an abstraction, a description of an economic system in which all individuals trade with each other as they wish. In doing so, each trader attains his own level of prosperity as he subjectively understands that word. Thus, the free market cannot and does not mechanically prevent some individuals from becoming prosperous. Neither can the free market objectively judge which traders are prosperous and which are not. Nor can the free market shrug its shoulders and deem the plight of unprosperous traders the "price of liberty." 

The President makes such claims out of either ignorance or arrogance...or the desire to pander to a particular, political constituency. 

The only rules of the free market are prohibitions against murder and theft. There is no rule which outlaws sympathy, compassion, neighborliness, goodwill and charity among market participants. Traders are no more greedy, selfish, callous or human in the free market than they are in any other economic system. The difference is that if a particular trader in the free market complains he is not getting a fair shake, his complaint is voiced directly to his peers--his fellow traders--who have the freedom to believe him and act accordingly, or doubt him and do nothing. There is no politically motivated bureaucrat empowered to act as judge, jury and executioner as in other economic systems, .   

For the President to imply that poverty is the "price of liberty" is absurd. He might as well allege that poverty is the price of free will or the human capacity to reason and make moral judgements. 

Think about it. In the end, isn't this the gist of what the President said in Osawatomie? Mr. Obama distrusts the free market because he distrusts the free will and voluntary moral judgements and actions of ordinary, God-fearing Americans. Mr. Obama believes that if Americans are free to act in their own best interests, i.e., if they are left to their own devices on the free market, these loutish clingers will engage in " a race to the bottom that we can’t win." In other words, only Mr. Obama and his elite Washington advisers are wise enough to decide what is in the best interests of the masses. Mr. Obama and company will decide the goals we shoot for. Our only job is to obey, and work, and strive, and achieve the goals set for us--like good, little cookie-cutter citizens, like mindless hamsters on an endless treadmill.

A school boy, with a basic understanding of reasoning and logic, could read and understand my explanation of what the free market is, how it works and how the President's characterization of it is completely mistaken. So why does the President obfuscate and confuse?

Decide for yourself.

After presenting an absolutely false and deceptive description of the free market economic system, the President on Tuesday was then brazen enough to claim that such a system "doesn't work."
It has never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible postwar booms of the ‘50s and ‘60s. And it didn’t work when we tried it during the last decade. I mean, understand, it’s not as if we haven’t tried this theory.
By now, every reader should be shouting to Mr. Obama at the top of his lungs: "Mr. President! I respectfully beg to differ! What you described, what hasn't worked, is not free market capitalism. We have never had a true free market in this country...ever!"

What economic theory have we tried?


What is Keynesianism? Here is a reasonable summary from Wikipedia:

Keynesian economics (play /ˈknziən/ kayn-zee-ən; also called Keynesianism and Keynesian theory) is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.

Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.[1] The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936. The interpretations of Keynes are contentious and several schools of thought claim his legacy.

Keynesian economics advocates a mixed economy — predominantly private sector, but with a significant role of government and public sector — and served as the economic model during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the stagflation of the 1970s. The advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought.[2]
If you read the above description carefully, you cannot help but come to the conclusion that the economic system the President criticized in his Osawatomie speech as unworkable is Keynesianism, not free market capitalism.

Keynesianism hasn't worked in the 20th century, but it is Keynesianism President Obama yearns for in the 21st century.

By now It should also be clear to every discerning reader that Keynesianism and free market capitalism are mutually exclusive. You can't have and not have government intervention. Either the government taxes and regulates or it doesn't. Just as it is impossible for a woman to be half pregnant, so it is impossible for an economy to be half Keynesian and half free market. The fabled "mixed economy" is a damnable myth.

I compiled the following list of government laws, policies and regulations off the top of my head. The entries are from Wikipedia. This list of government interventions into the economy over the past two hundred years barely scratches the surface. Liberals and conservatives, Republicans and Democrats have argued whether or not these government actions were sound policy. But no one can say that these government interventions are part and parcel of a free market. These government actions constitute Keynesian interventionism.

Keeping in mind that President Obama not only supported many of these interventions when he was a Senator (most notably the TARP intervention), but that he also initiated and championed many of them as President, I ask you, dear reader--dear honest and honorable reader, examine this list and decide for yourself who is telling the truth about free market capitalism: the President in Osawatomie, or your humble servant in this blog post?

  • In July 1862, during the Civil War, President Abraham Lincoln and Congress created the office of Commissioner of Internal Revenue and enacted an income tax to pay war expenses (see Revenue Act of 1862). The position of Commissioner exists today as the head of the Internal Revenue Service...The IRS is responsible for collecting taxes and the interpretation and enforcement of the Internal Revenue Code.
  • The Interstate Commerce Commission (ICC) was a regulatory body in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads (and later trucking) to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers, including interstate bus lines and telephone companies. The agency was abolished in 1995, and its remaining functions were transferred to the Surface Transportation Board.
  • The United States Department of Commerce is the Cabinet department of the United States government concerned with promoting economic growth. It was originally created as the United States Department of Commerce and Labor on February 14, 1903. It was subsequently renamed to the Department of Commerce on March 4, 1913, and its bureaus and agencies specializing in labor were transferred to the new Department of Labor.
  • The United States Department of Labor is a Cabinet department of the United States government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, re-employment services, and some economic statistics. Many U.S. states also have such departments....President William Howard Taft signed the March 4, 1913, bill establishing the Department of Labor as a Cabinet-level Department
  • In 1913, the Sixteenth Amendment to the United States Constitution made the income tax a permanent fixture in the U.S. tax system.
  • The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act...
  • The National Housing Act of 1934, Pub.L. 84-345, 48 Stat. 847, enacted June 28, 1934, also called the Capehart Act, was part of the New Deal passed during the Great Depression in order to make housing and home mortgages more affordable.[1] It created the Federal Housing Administration (FHA) and the Federal Savings and Loan Insurance Corporation.[2] It was designed to stop the tide of bank foreclosures on family homes. Both the FHA and the Federal Savings and Loan Insurance Corporation worked to create the backbone of the mortgage and homebuilding industries.[2]
  • The Social Security Act was drafted during Roosevelt's first term by the President's Committee on Economic Security, under Frances Perkins, and passed by Congress as part of the New Deal. The act was an attempt to limit what were seen as dangers in the modern American life, including old age, poverty, unemployment, and the burdens of widows and fatherless children. By signing this act on August 14, 1935, President Roosevelt became the first president to advocate federal assistance for the elderly.[2]
  • The National Labor Relations Board (NLRB) is an independent agency of the United States government charged with conducting elections for labor union representation and with investigating and remedying unfair labor practices. Unfair labor practices may involve union-related situations or instances of protected concerted activity
  • The Works Progress Administration (renamed during 1939 as the Work Projects Administration; WPA) was the largest and most ambitious New Deal agency, employing millions of unskilled workers to carry out public works projects,[1] including the construction of public buildings and roads, and operated large arts, drama, media, and literacy projects.[2] It fed children and redistributed food, clothing, and housing. Almost every community in the United States had a park, bridge or school constructed by the agency, which especially benefited rural and Western areas. The budget at the outset of the WPA in 1935 was $1.4 billion a year (about 6.7 percent of the 1935 GDP), and in total it spent $13.4 billion.
  • Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other special criteria. Medicare in the United States somewhat resembles a single-payer health care system, but is not. Before Medicare, only 51% of people aged 65 and older had health care coverage, and nearly 30% lived below the federal poverty level. "Original Medicare" plans (when Medicare Advantage has not been elected) cover 80% of the Medicare-approved amount of any given medical cost; the remaining 20% of cost must be paid by either a Medicare Supplement plan, which is a "supplemental insurance" from a private health insurance company (normally requiring a monthly insurance premium paid to that company by the holder), or out-of-pocket via the patient's own personal funds (check, money order, cash, etc.). Medicare Advantage plans are not Medicare Supplements, but take the place of "Original Medicare". In return for a premium, these plans share costs and cap out of pocket expenses.
  • Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states.[1] People served by Medicaid are U.S. citizens or legal permanent residents, including low-income adults, their children, and people with certain disabilities. Poverty alone does not necessarily qualify someone for Medicaid. Medicaid is the largest source of funding for medical and health-related services for people with limited income in the United States.
  • The United States Department of Housing and Urban Development, also known as HUD, is a Cabinet department in the Executive branch of the United States federal government. Although its beginnings were in the House and Home Financing Agency, it was founded as a Cabinet department in 1965, as part of the "Great Society" program of President Lyndon Johnson, to develop and execute policies on housing and metropolises.
  • To stabilize the economy and combat the 1970 inflation rate of 5.84%,[3] on August 15, 1971, President Nixon imposed a 90-day wage and price freeze, a 10 percent import surcharge, and, most importantly, "closed the gold window", ending convertibility between US dollars and gold.
  • The United States Department of Energy (DOE) is a Cabinet-level department of the United States government concerned with the United States' policies regarding energy and safety in handling nuclear material. Its responsibilities include the nation's nuclear weapons program, nuclear reactor production for the United States Navy, energy conservation, energy-related research, radioactive waste disposal, and domestic energy production. DOE also sponsors more basic and applied scientific research than any other US federal agency; most of this is funded through its system of United States Department of Energy National Laboratories.
  • The Community Reinvestment Act (CRA, Pub.L. 95-128, title VIII of the Housing and Community Development Act of 1977, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.[1][2][3] Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.[4][5] The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802.) To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions (Section 804.)[6]
  • The United States Department of Education, also referred to as ED or the ED for (the) Education Department, is a Cabinet-level department of the United States government. Recreated by the Department of Education Organization Act (Public Law 96-88) and signed into law by President Jimmy Carter on October 17, 1979, it began operating on May 16, 1980.[2]
  • The Department of Education Organization Act divided the Department of Health, Education, and Welfare into the Department of Education and the Department of Health and Human Services. The Department of Education is administered by the United States Secretary of Education.
  • It is by far the smallest Cabinet-level department, with about 5,000 employees.
  • The United States Department of Health and Human Services (HHS) is a Cabinet department of the United States government with the goal of protecting the health of all Americans and providing essential human services. Its motto is "Improving the health, safety, and well-being of America". Before the separate federal Department of Education was created in 1979, it was called the Department of Health, Education, and Welfare (HEW).
  •  The Medicare Prescription Drug, Improvement, and Modernization Act[1] (also called the Medicare Modernization Act or MMA) is a federal law of the United States, enacted in 2003.[2] It produced the largest overhaul of Medicare in the public health program's 38-year history.
  • The MMA was signed by President George W. Bush on December 8, 2003, after passing in Congress by a close margin.[3]
  • The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.S. President George W. Bush on October 3, 2008. It was a component of the government's measures in 2008 to address the subprime mortgage crisis.
  • The American Recovery and Reinvestment Act of 2009, abbreviated ARRA (Pub.L. 111-5) and commonly referred to as the Stimulus or The Recovery Act, is an economic stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack Obama. To respond to the late-2000s recession, the primary objective for ARRA was to save and create jobs almost immediately. Secondary objectives were to provide temporary relief programs for those most impacted by the recession and invest in infrastructure, education, health, and ‘green’ energy. The approximate cost of the economic stimulus package was estimated to be $787 billion at the time of passage.
  • The Patient Protection and Affordable Care Act (PPACA)[1][2] is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law (along with the Health Care and Education Reconciliation Act of 2010) is the principal health care reform legislation of the 111th United States Congress. PPACA reforms certain aspects of the private health insurance industry and public health insurance programs, increases insurance coverage of pre-existing conditions, expands access to insurance to over 30 million Americans,[3][4] and increases projected national medical spending[5][6] despite lowering projected Medicare spending under previous law.[7]

More to come.

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