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Commentary and debate on politics, economics and culture from a libertarian perspective. To Libertarian Alliance Website >

Henderson on State Inefficiency

EconomicsPosted by Lee Waaks Wed, March 01, 2017 22:29:23

The following is a reply by David McDonagh to Robert Henderson's blog post "Public and private confusion (and, yes, there is an alternative)", in particular, section 15 on "Public service inefficiencies and politicians". It was edited by Lee Waaks.

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Robert Henderson believes that the state is inefficient owing to the irresponsible behaviour of politicians rather than to their access to taxation; and that it enables the state to rule, or govern, the people rather than to serve them, as firms set out to do. He believes that the politicians pass too many laws, or that they introduce other measures not requiring legislation, but that demand such action as the meeting of “targets”, which he thinks are simply beyond the state ever meeting. But the Libertarian Alliance [LA] case against the state is that it seeks to rule by flouting our liberty as well as using taxation to be indifferent to efficiency; but, out of the two, it is the flouting of liberty that is mainly illiberal.

There is no real incentive for politics to be efficient. The political projects even have incentives to be inefficient for if they make savings in their allowance, then they usually get less funds as a result the next financial year, so they need to spend what they have been granted every year to maintain their income. Therefore, they are rewarded to stay still and often punished by having less income for their departments for any economising. Firms, by contrast, gain funds for other things by economising. When firms fail to attract customers by serving them, they lose the money they might have earned from the customers. State projects are not automatically affected by any public neglect.

We are told that there are too many laws and he gives tax law as a prime example, as there is just too much of it for anyone to master; even the best experts know only a small part of the law relating to taxation. Many of the laws themselves are not very clear, leaving it open to cogent new innovations of interpretation that can show up bureaucrats at the Inland Revenue as incompetent or unreasonable, and that can be the case at the Customs and Excise Office too. The ordinary bureaucrats are not trained well enough to cope with the obscurely written laws as they stand, says Henderson, and he thinks this is why the state is inefficient. But the reality seems to be that the state (and politics) is fundamentally negative sum in nature and the authority to tax the public leads the state to rule rather than serve the public.

He believes the lack of consideration on the part of politicians in framing laws to be used practically is a problem and many neglected laws that should be repealed are simply left on the books. But those that are used need a great deal of common sense to enforce as literally written or they would not be practical, so they are only partly enforced.

Even then, the gaols are overcrowded owing to politicians being too careless in passing laws and those in charge of the Home Office calling for longer sentences. If they ensured gaol places beforehand, then what the politicians do might be more viable, or at least more acceptable to Henderson. But liberals will ponder that responsibility needs liberty to be fostered, so any time in gaol is highly likely to diminish responsibility, and thus social liberty; so liberals will look for a
limited use of gaol, if they allow any use at all. Weekends in gaol, with the offender remaining in his job during the week and paying for his weekend gaol stays, as well as for some compensation to the victim of his crime, is in the way of liberal thought on crime and punishment. This might allows prisons to pay for themselves or, at least, cost the general public way less. Remaining in work will also foster more responsibility in the offender.

I think Thomas Szasz was basically right in his myth of mental illness thesis. I have seen some criticism from LA members that there might be some mental illness, despite what Szasz said, but in hearing some of this criticism, especially in the talk on Szasz by David Ramsay Steele on YouTube, it did not seem to discount the fact that what Szasz said still seemed to apply to the overwhelming majority of those classified as mentally ill. The recent drive to care for those with mental illness by the political elite, over the last five years or so, is in the direction away from Szasz, and it looks like the sort of kindness that messes lives up. The earlier “care in the community” seemed to be, at least, going the right way. But Henderson seems to think that many should be locked up for life and he regrets that a few have found their way into gaol. But as Szasz repeatedly suggests in his books, that is where some of them were more fitted to than in the asylums.

Henderson gets the Community Charge, that its opponents called the Poll Tax, completely wrong. It was an attempt to foster active local government by making them responsible for the setting of the Community Charge and by competition between such areas to put it up or down as the voters saw fit. It was a long shot, as voters tend to forget to bother much at the voting polls to make an instrumental use of elections and they use them for voter loyalty instead.

Anyway, it was not given the coup de grace by a violent protest in Trafalgar Square, as we were told by Henderson; it fell only after Mrs Thatcher fell; and she fell mainly owing to her opposition to the EU, not owing to the attempt she made to foster an active local instrumental electoral system relating to the Community Charge. That was slowly settling down, after the opposition to it had been largely seen off. It took former MP Michael Heseltine about a week to think it might be good propaganda to repeal it, and then he was eulogised by many Tory MPs, who had forgotten all about it.

To truly cost the medical services in the UK, the National Health Service [NHS] would need to be privatised completely. Only then will the real anarchic price system price things. It is not practical to simulate the price system. That is to say there is no way that the state projects can get realistic prices to rival those set by the price system. Henderson errs badly if he imagines there was a time since 1948 when the NHS was trouble free. It never can deliver what it is supposed to deliver. It will always fall short of that.

Henderson imagines that schools in the UK are more than child minding centres. He believes that the educational aims have only recently been lost.



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Reply to Robert Henderson on Corporate Efficiency

EconomicsPosted by Lee Waaks Sun, February 26, 2017 19:06:58

The following is a reply by David McDonagh to a blog post by Robert Henderson. It has been edited by Lee Waaks.

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Firms do serve the public when they seek to get customers for what they produce. But maybe Robert Henderson means providing uneconomic services, like running empty buses on a regular and frequent timetable just in case a few might need them. The fact is that this sort of "public service" is clearly very wasteful. It means there is a need for taxation to subsidise it, or a high ticket price that most people might well shun. Such "services" are intrinsically inefficient, as few want the services currently provided.

We are told that a monopoly is needed to run an uneconomic "public service", but that is not right (though it might help a bit), as competition might otherwise remove some income by cherry-picking off the parts that might be economic. But the mere monopoly would not usually bale out the universal service as a whole even with a no cherry-picking; instead it is taxation that is vital to this wasteful activity. Contrary to Henderson's claim, a monopoly cannot ensure such universal services that are often bound to be uneconomic.

We are told that "no private company would ever provide a universal one-price service without massive public subsidy", but that is false, as we can see with the usual prices of commodities, for we pay the same price for most of them whether they are in Cornwall, Warwickshire or Antrim. Most wares sell at the same price throughout the UK. The mass urban sales do allow ordinary firms to charge the same price for the same goods in largely rural areas as they do in the big cities.

The Post Office cut the second post as it wanted to cut the subsidy. Ditto, it has put the last post earlier in the day. A monopoly might ease it, but it is taxation that alone allows it to exist.

It is not clear to me what Henderson imagines is the public service aspect of the BBC. Whatever he thinks it is, he says it would ebb if the licence fee were to go and the BBC went more, or completely, state free. It would become more like the other TV channels, he says, but it looks rather like them anyway, accept that its adverts do not interrupt the programmes, but they do look abundant enough between the programmes, even if they are not commercial.

Henderson sees, or he says he sees, a clash between profit and public service in providing things like the National Health Service (NHS), but the NHS deliberately flouts economic viability in that it attempts free access paid for by taxation. A private insurance policy also might provide free access, but only for those who took such a policy out by paying for it. Such a policy might well make a profit.

If work is subcontracted out then the main contractor usually needs to see it is done to the extent that would have been the case had it not been subcontracted out. Henderson wants to deny that normality.



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Reply to Robert Henderson on Efficiency

EconomicsPosted by Lee Waaks Sun, February 26, 2017 18:23:00

This post is a response by David McDonagh to Robert Henderson's blog post on efficiency. It was edited by Lee Waaks

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Robert Henderson asks "what do we mean by efficiency?" We need to note that there are at least two vitally different but germane meanings that we need to consider here: economic and technological efficiency. These two distinct meanings produce the interesting fact that they often clash. If we have to produce what might be technically efficient, but what we cannot really afford, then that is to be saddled with what is called a white elephant. A good example of a white elephant is Concorde, the supersonic jet aircraft. It was only viable with support from tax payers and even even then most could not afford to use it.

Society is organised by firms needing to make a profit. Profits are earned by gaining the patronage of customers by competition for their customers as against all other firms. The entrepreneur attempts to guess what the customers will buy. His costs will include wages, rent, interest on any loans and other costs relating to supplying the good or ware. Anything earned by the project over and above all the costs will then be the earnings of the entrepreneur as profit, but he also risks making a loss in this competitive quest. This is the small competitive section of the market economy where entrepreneurs rival each other and it is zero sum, insofar as the total amount of customers out there only have so much at any one time to spend. The rest of the market economy is co-operative and, like all trade, it is positive sum.

The state depends on successful economic activity on the market for taxation. No state can earn its own way for politics is negative sum, and thus wasteful, from an economic point of view. But nationalists ususally look at the state as a grand collective end or consumer good. Robert Henderson is clearly a nationalist rather than a liberal.

Profit shows that what the customers want has been successfully produced by the firms that make a profit. This is a way of rejecting most of what we technically might have done but is actually very uneconomic. The range of what is rejected as uneconomic is very wide and to go down any one of those wasteful uneconomic paths would be to enter a metaphorical crushing stampede of wasteful white elephants. Profit mainly allows us to dodge that stampede but the state is always there to tax the public in order to rescue some unprofitable projects, thereby saving the odd white elephant from the metaphorical stampeding herd. Profit is a good sign of successful economy in the mass urban society.

Henderson imagines the state gives public service but the reality is that it sets out to govern the public. Profit is feedback that the customers have been served but the state never truly serves. We are told that firms merely get lucky when they make a profit, but that such luck runs out. This account is very unrealistic. It is more likely that firms ebb not owing to bad luck, but due to all who wanted the good having already purchased it, with the result that not enough new customers prevent the firm from making a loss. The firm then either produces something else that some customers will patronise, or it ebbs away to go eventually defunct. By contrast, state projects like NATO rarely go defunct, but continue to draw taxpayers money and to look around for new ways to continue their wasteful spending.

There is no general boon that allows all firms to make a profit, but Henderson tends to imagine otherwise, and he believes there are periods when profits are easy to make. The reality is that at all times firms have to provide wares or services that customers will value more than the price the firm puts on the wares. They may always prefer to spend their money on other goods.

Henderson thinks some goods are so vital that it is hard not to make large profits regularly. He gives the banks as an example. But if things were left to the market in 2008, then a lot of banks would have been replaced by new banks. He pushes the dogma that monopoly is emerging, once again, but there has been no percentage increase in monopoly since about 1800. Growing monopoly is a mere myth rather than a growing problem. For example, we are told that the march of Tesco supermarket is relentless but then we might have said the same of Mac Fisheries
supermarket in the 1960s. Only Sainsbury's amongst the 1960s rivals among the then big supermarkets has made it into the 2010s. This will most likely be the case by the 2060s, too, but which one it will be is far from clear. Tesco has certainly had a lot of trouble in the last three years, so it may not survive far into the future.

What metaphorically "destroys" firms is not their rivals but the their lack of customers. Stores that do serve the customers well can continue indefinitely. The customers always have a superabundance of other things that they can buy with their money. They never lack lots of choice in the big city but they might in a small village because it might be more costly to drive beyond other than local stores. But the Internet cuts that cost somewhat even in a village in the last decade or so.

Firms pretending to be more successful than they are does not affect the public very much. Their ebbing is largely their own private affair.

Henderson thinks it is debatable whether profit is a good yardstick of efficiency in any case, but even if it true in some cases, he still believes it is not true in all cases. He believes universal public services need a lot of unprofitable work to be done. But in what sense are such things efficient in any sense whatsoever? He says the Post Office makes a loss on delivering posts to rural areas because it charges the same price as those posted within the city. But this means rural service is aided by taxation. However, universal prices can be achieved by the market (e.g. Mars bars) without state aid from taxation. In such cases, city buyers pay the costs of transportation to rural areas in order for firms to maintain a cheap universal price. We are told the state aids private firms by its Post Office prices because, they too, pay the universal price. But this is hyperbole, as firms can charge customers for delivery.

Henderson thinks that two criteria can replace profit as a sign of efficiency: "(1) is the service being delivered to all who need it? and (2) is the cost reasonable in comparison with equivalent operations in other countries?" But neither criteria indicate any economic efficiency whatsoever, as (1) allows no economy at all because it cuts out germane input from the needy; and (2) other nations are not likely to be efficient in state projects because they are bound to be wasteful, as all the state does is negative sum. Judging by his criteria, Henderson thinks the National Health Service (NHS) looks efficient. However, since 1970 the NHS has been a hospital closing programme and it is no more clear that the 1940s fad of nationalisation has done better there than elsewhere, such as the railways or in coal mining. People love the NHS only as they fear free trade in health care. But that is public fear and corruption rather than a sign of any actual economic efficiency. The NHS exists only owing to general taxation.







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Robert Henderson on Free Trade

PoliticsPosted by Lee Waaks Sun, February 26, 2017 17:11:57

The following is a response by David McDonagh to blog post by Robert Henderson on the Libertarian Alliance (not to be confused with this blog of the same name). Because Mr. McDonagh's response strictly follows the outline of Mr. Henderson's post, there is some repitition. The context of the reply can usually be gleaned from the comment, but it may be useful to read Mr. Henderson's post first. (Mr. McDonagh's response was casually edited by Lee Waaks.)
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The politically correct [PC] ideal of equality and democracy, like politics and the state itself, has never been popular with the masses; and they haply never will be either.

Free trade boosts all incomes by boosting greater output than we would otherwise have.

The Navigation Acts held progress back, as politics and the state always does.

Liberal ideas are hardly unquestioned but then Henderson seems to get nearly everything wrong about liberalism.

While the state exists, the market will never quite be free. The state needs to tax the market just to exist.

Adam Smith hardly needed his metaphor of the invisible hand for the division of labour, as, clearly, it gears self-interest to serve others by specialisation, or by learning a trade. Almost any job requires some expertise.

Socialists are just statist Tories. Fascists are also Tories. Bolsheviks are Russian Tories. Collectivists are Tories. Liberalism is anti-politics, so it is against democracy and the state.
The state is anti-social. Its aims usually tend to mess up society.

Henderson is not wise to call the liberals dishonest. I think he is very ignorant and thoughtless, but he is most likely not dishonest. He loves the state so much that he cannot credit that it is sincerely rejected by the liberals.

Monopoly is almost impossible to obtain, as it is not easy to stop new firms from entering any market. But the idea that the market ends in a monopoly is a long-standing folk dogma, and the main hope of Marxism, but the idea is way older than Karl Marx. However, monopoly did not increase in Marx’s lifetime, nor has it increased since his death.

Liberalism is about repealing laws not passing them; not on monopoly or on anything else.

Free markets are what emerge when the state has been totally rolled back to non-existence, or to anarchy. Liberals are against the state, not monopoly per se. Henderson loves the state so much that he doubts that there are some that hate it. But, yes, the state is the only institution that can enforce a monopoly, but that is not why the liberals reject it.

The market is not natural, but it is anarchic. It does not need the state.

The liberal idea of no state is not empty-headed. Politics is anti-social and negative sum, i.e. wasteful. It is what looks like support for what is wasteful that is nearer to being empty-headed but, presumably, it is down to mere ignorance.

The market fits humans as they are, though they prefer to be consumers rather than producers. But the state is at odds with humanity, as people do not like being bossed bout.

Protectionism is no more natural than is smuggling (black markets) that, nearly always, flout it.

No one owns markets. It is just where people freely trade with each other.

Lower prices are clearly better for the customer.

The mass urban society gives rise to potential jobs being infinite. A village often lacks jobs, but never does a big city. Employment becomes a function of pricing ourselves into work rather than there being a lack of jobs in the big city.
Society is polycentric, and it is never a whole. If you hear the bell toll, then it tolls for another person. Economic interest groups related to the factors of production are as mythical as the supposed inexorable movement of free trade to monopoly theorized by Marxism, and both are clearly bogus. The idea of the class struggle is about as unrealistically Romantic as one can get. There never was anything like it in the past, which is why E.P.Thompson's 1963 book, The Making of the English Working Class, mentioned not even one example of it in more than 900 pages of his book.

Liberals claim that any trader gains, in his own estimation, from trade. The liberals do not postulate society, as a person, or as a quasi-person, who gains from trade. Both the consumer and producer surplus resulting from any trade is subjective to each trader. Trade is a positive sum transaction.

Liberalism is anti-politics, not a recipe for a type of politics. The anarcho-liberals that make up most of the active Libertarian Alliance [LA] are never happy with any state activity; none whatsoever. But the alliance in the LA is with minimal statists, who do accept a vital need for the state.

Liability is going to be limited in any case. The 1862 Act just spared a bit to settle for what traders chose to risk. Having all at risk would not be much more actual liability, in most cases. Limiting what is put at risk, to what we freely want to put at risk is not, somehow, unfree in some way. To say that only a claim to all a person owns must be involved if ever one is to invest is not more free, or more honest, but just a sheer stupidity.

A free market is the market free of the state. Yes, that means no taxation, no state money, indeed, no politics whatsoever.

Henderson seems not to know that the LA is against the state. The active LA members hold that the state has no business at all but, indeed, that it is immoral. The LA most of all opposes taxation, which the LA has often called theft. But Henderson imagines the LA endorses taxation and that it is only really against monopoly (or something else). Liberals do not care much about monopoly as such, for most of them hold that the market can sort it out by new firms starting up to exploit the monopoly price that the big firms might charge. Liberals only essentially hate the state and taxation -- taxation because it aids the illiberal state activity.
Liberalism is not particularly fussed about monopoly, but we might still note that the daft dogma that competition leads to it is clearly false. It is clear that it is not easy to keep new firms out of most trades, especially if the big firms are charging high prices. Henderson believes roads are an exception, but they have substitutes like air, rail and sea travel. In any case, there can be efforts to buy up particular roads on the market.

No, there is haply not fewer firms in the car industry than there were 40 years ago. British firms have declined but Japanese firms have emerged since then. Chinese firms are now emerging.

No, free-trade liberals do not want a single market but only no states. The market will never be a whole and there will never be “a level playing field” (to cite a statist metaphor from sport), but liberals, as such, do not seem to care much about that. The economists recommended the statists to allow free trade to exploit comparative advantage, which thrives on inequality and any unequal advantage that we might find. However, the state cannot completely indulge free trade, as freedom needs to be trade free of the state, ipso facto.

The EU aims at being a super-state, not a free-trade area. It seeks power and influence in the world. It aims to be the number one state no less.
What classical liberal ever complains about dumping? I have seen no pristine liberal complain against cheap goods.

Henderson says free trade does not mean free immigration, as, logically speaking, trade is made for humans, rather than humans for trade. But free trade usually does tend to mean a free flow of immigration too.

Henderson claims we can exchange goods and services without allowing free immigration if society does not want to, but there is no such person called society. However, in a liberal society no one needs to accept immigrants, to give them jobs, lodgings, etc. if they do not wish to do so, as social liberty is liberty on both sides. Society cannot decide but any person can decide for himself.

Yes, taxation scotches free trade, as does any state.

Democracy is not liberal but an attempt to govern: voting is illiberal, gratuitous, coercion against others.

Henderson says that comparative advantage has little reality to it. But it is very clear that some parts of the world (e.g., South America) grow bananas, say, way more easily and more cheaply than can be grown at other places, say, Northern Europe. They expoit the uneven playing field. He believes that as this may change, so it does not matter, but that is not germane, not even one iota. Every person does what he does best at any one time. That the comparative advantage can change, in some cases, hardly means it is not important at any one time.

Higher tax regimes and higher welfare provision tend to lower real wages, but Henderson writes as if he thinks they can boost them. Only greater output can do that and the state hampers output by taxing it to pay for services that no one wants but the rulers think is vital to civilisation. So, for example, we have the spectacle of subsidised, often empty, buses circulating around UK towns and cities to maintain an alleged social service on a regular timetable.

As we have had the modern state since the rise of the modern market, we have never had completely free trade. Henderson believes it was reckless to go in for freer trade in the nineteenth century. He believes industrial dominance, primitive transport
levels, and the slow industrialisation of the USA and other European lands, allowed the UK to dodge the hazards. But after 1870, that was not the case any longer and the British market was then flooded with food and wool. Many states then went protectionist, but Britain failed to do so. It paid the price for this folly of freer trade, he argues, as the industrial predominance it had once enjoyed was soon lost. The UK's agricultural markets were destroyed and new industries (e.g., chemicals) soon arose that left the UK behind. In contrast, Henderson argues, the protectionist policy of the USA and Germany enabled both states to exceed the UK’s GNP. But there was no need for the UK to retain the lead in any industry. The fact that other places were catching up and then overtaking the UK boosted wages even in the UK. Henderson seems to think the object is for the UK to forever lead the world in this or that sector, but the objective of economic activity is to boost the standard of living, not to dominate the world. He overlooks that state protectionism is very wasteful and seems to think that there is a clash of interests on the world division of labour, but very little of the market is in competition. Firms compete for customers but most of the market, as Alfred Marshall pointed out in 1890, is the result of cooperation. Even the competition, he noted, was within a cooperative framework.
Bismarck seemed to overlook the wastefulness of protectionism and of politics in general.
What he thought was wrong is hardly anything to do with the truth. Trade is to do with firms, not nations; still less to do with the wasteful state. Trade aids both a producer and a consumer surplus, so both sides gain by trade but taxation is negative sum, so we all lose out, on the whole, from any political action; and maybe both sides do too; though the
politicians act as if they gain from what they do.

It was not protectionism that made the first industrial “revolution” but the flourishing of science, technology and business. Henderson overestimates bias to home trade and he writes as if the EU and the WTO aid free trade rather than hindering it, ipso facto, by their very existence. The idea that free trade needs to be mitigated is on par with the idea that economic growth or increased income needs to be mitigated. Henderson also overrates the British Empire in trade, even though he is explicitly cautious about that. He believes free trade was a risk in 1850 for Britain, and that it is for all nations now, but he
overlooks that it is the best way that firms can do well. Politics is wasteful, by contrast, but Henderson believes that the state is a boon. He tells of free trade as idiocy, but it is clearly politics that is perversely negative sum and thereby clearly wasteful idiocy.

It is not clear that Henderson fully understands free trade, let alone the history of it, but he loves the state and the state-imposed wasteful problem of defence, that he believes the nineteenth century liberals were careful about, but the truth is that the liberals hated warmongering. Liberals, like Richard Cobden, were out to stop the backward state courting war. But it is true that the pristine liberals of the LA are more against the state than the Manchester School ever was.

Henderson postulates that complete free trade today would be dangerous for the West. He believes no firm can compete with low wages around the world. But this wage gap with what they call the "Third World" was caused by the backward rejection of free trade after 1914 and after the war that ended in 1918. Why would the wage rates on the other side of the world affect most of the trade in Britain? Could it affect local plumbers, carpenters and the like? Most trade will remain local but given free trade, then international wages will soon even up around the world anyway owing to the export of capital.

We are told by Henderson that experience tells us that industrialisation is best achieved by protection but that is wasteful, ipso facto, as all politics is. He overlooks that, or, more likely, he has never yet quite realised it.

Henderson tells us “the most lethal ammunition to discharge at free traders is the fact that no country in the history of the world has industrialised successfully without very strong protectionist measures being in place”, but this is a mere fallacy of post hoc; ergo propter hoc and it overlooks the cost of such protectionism in every case. The point is a brutum fulmen. However, it haply is about the best any protectionist can do.
The spread of British capital overseas would have haply stopped the "Third World” from arising, thereby dodging the current problem of mass immigration to where the capital, and thus the higher wages, are to be had. Nationalist measures “distort” the world division of labour. Free trade (or freer trade) did/does aid economic development everywhere, including in pre-1913 Germany. Henderson should note that the protectionism imposed after 1914 created the main problem that seems to concern him today, viz. the existence of lower wages in the Third World that threaten to pull down wages in the First World. Athough an increase in world production would likely lead to higher real wages for the First World, his protectionist “solution” would not remove this problem, but rather prolong it. As previously mentioned, freer trade was evening up wages around the world before 1914.

Protectionism did not aid the UK to recover after 1931. Henderson fails to explain this beyond his aforementioned post hoc fallacy, as there is nothing to aid economic development in protectionism. It simply allows firms to be free from competition from abroad. As free trade is basic economics, there is no need to call it a "secular religion", as there is nothing whatsoever religious about it. Firms need to keep up to date with all other firms under free trade, but they can become stagnant with protectionism. There is always free trade within a nation, and as the EU was attempting to become a super-state (or a new nation), then there would be free trade within the nations it was attempting to make mere provinces.

Protectionism always taxes the economy. Henderson argues that free trade is not necessary for rapid economic growth; that state regulation of the domestic market and international trade is not a recipe for disaster; and that being a “free trader” when the rest of the world is not reciprocating is a mug’s game. But some liberty is vital to economic growth and politics taxes the public, so even when it dodges being a total disaster, the state never dodges imposing extra costs. Anyway, one-way free trade is fine as there is no need at all to respond to tariffs of others with those of your own, as that will only increase the dysfunctional politics. Contrary to Henderson, it is politics that is the mug’s game, as it is always negative sum. Trade, by contrast, is always economic, so it is always positive sum. Henderson imagines we do not know whether protectionism is dysfunctional or not, but it always costs extra taxation; thus, it is always uneconomic or negative sum. So we do know that it is wasteful.

Free trade is the same as the free market. In the colleges since about 1900, they have attempted to define laissez-faire as trade within the state's domain and free trade as between states, but this distinction is not very realistic because states do not trade, only firms and customers.

Governments are not the natural suppliers of health care; or, indeed, of any good.

Trade results in gains to the customer and producer immediately, not later. The gains may not be uniform but they are immediate surpluses to both traders. In what way do the later generations thereby lose out? As for politicians, they live off taxation, thus they make the public poorer to the extent that they tax them.

The fact that many lands are poor today is the result of the interruption of free trade by the 1914 war, which Henderson argues was a distortion of domestic trade. But this idea that domestic trade should be separate from the worldwide division of labour is an arbitrary idea. Free trade would soon iron out the Third World, such that there would be soon no longer a massive advantage in mass immigration to seek jobs elsewhere, though some competition in a more even world would continue. The capital would go to the workers rather than the workers emmigrating for better pay.

Most of the jobs out there need no skills. Former Prime Minister Tony Blair was utterly deluded with his “education, education, education” idea, viz. the popular idea that education was investment rather than being just sheer consumption, as it usually is. But increased output from successful new capital investment (including human capital -- but that is usually mustered by on the job learing rather than at college) means all wages are higher as a result of extra innovation that, if successful, increases total output.

Henderson believes that nitpicking over how exact are measurements of wealth might aid his case against liberalism. But the fact that the "poor" today are rich in absolute terms is clear no matter how useless the means of wealth measurement are.

Why does Henderson call council housing “social housing” when it is clear enough that it is very anti-social and, indeed, that it is a recipe for thugs? The popular press in the UK calls council housing "CHAVs", i.e. council house and violence.

What is called the welfare state is a public menace. That it has been rolled back a little bit since the 1960s is a social boon.
Why was unemployment so low till about 1970? It was obviously owing to the cleared labour market, but the media, falsely, held that to be a thing of the past in the 1970s and since. But we can always clear the labour market whenever the price, or the wage levels, are right. In the 1960s, the dole was taboo, as only a few workers, when exchanging jobs, would ever go there; it was a sign that a worker did not really want a job. By the
1970s, however, many thought that full-employment and the cleared labour market had naturally broken down, so from then on many accepted the need for the dole. The story put out by the media obfuscated the fact that only the dole allowed mass unemployment to ever be mustered in the mass urban society.

In absolute terms, it is easier than ever to support a family on a single wage today. But people want to do all the other things too. It is false that the mother does better for the family by taking a job. It is also false to say there is no choice involved. We do not need to conform to social norms.

A bigger state clearly needs to tax more.

Most people never did think much of state provision, falsely called social provision, although Henderson ignores the fact that it is anti-social. It is very clear that most in the UK are better off than in 1960, especially the poorest third, who are today fairly rich, with all the modern conveniences. In 1960, most households did not have running hot water, phones, or most other modern conveniences. The market, which needs to be free to some extent, and was so even within the late USSR, is alone responsible for progress since 1750. At no time has the state done other than impose a cost. Henderson does not seem to grasp that fact; he thinks it is something to do with elite ideology.

If people buy things then they usually want them more than they want the money they need to pay to obtain them.

People often fail to provide many things in computers and elsewhere.

Few things are truly necessities.

Brainwashing is a mere myth.

Henderson absurdly says people do not really want computers, but then he tells us why they want them. He says we all need computers today; so we want them as a means. As Thomas Hobbes said, we choose to do all we do, either as a means to an end, or as an end in itself.

Free trade ebbs power, so all lose power whenever trade gets freer. But then power is a certain evil and, as Lord Acton famously said, it tends to corrupt.

The poor are not subordinated to the rich on the market. The market lacks any power as, qua market, it is free.

I have never met anyone who loves equality and I tend to think that no one does. It is a silly, unexamined, school teacher dogma, worthy only of contempt.

The gains of trade are immediate; they do not trickle down.

No society is truly more than economic relationships. That is a mere misunderstanding of economics. Any desire for certainty will be for an aspect of the standard of living.
There has never been a working class. That is a myth of college sociology and politics departments. The Labour Party would win every election, hands down, if there were a UK working class interest, but rather than see the plain truth of very diverse economic interests, the backward academics hold those who voteTory are fooled in some way. But the workers are not the only ones who cannot see this purely imaginary proletarian economic class interests, for the sociologists cannot see it either.
People rarely notice where things are made.

It is no absurdity that free trade tends to crowd out war. Firms cannot afford to fight wars and the state can only afford to fight them owing to taxation.

Yes, the illiberal coercion of crass democracy is hostile to free trade, as it is an attempt at government, thus it is against liberty.

Henderson imagines democracy is a boon to the masses, but it never was. Nor was it ever popular. Protectionism is credited with this and that, but no explanation of how it does what he imagines it to do is attempted. Similarly, he gives no detailed charge against free trade apart from his fallacy of post hoc.

Similarly, he assumes a movement towards monopoly but he seems not to know this dogma was around before Marx was born in 1818 and it is not greater today than it was, say, in 1800.

The actual reality of things is that total output determines what wages can buy and, thus, their value.
Immigrants may destroy a nation by destroying the idea that it is a large family, thereby making many natives no longer feel they have a homeland. Nevertheless, immigrants do, boost output, which leads to rising real wages. The same is true for “exporting jobs”, which also boosts real wages. But Henderson thinks the value of wages are lowered thereby and he adds:

“Those whose jobs opportunities have been degraded have suffered a form of theft. Had mass immigration and the export of jobs been prevented, the wages for the jobs taken by immigrants would have been higher than they are when subjected to the additional competition of immigrant labour and the exported jobs would not have been exported, which in itself would have tightened the labour market. In societies of rising aspiration, this could result in jobs considered menial being better rewarded than those which enjoy high status under 'free trade' circumstances. It might be necessary to pay a sewage worker as much as a doctor. Doubtless many would throw their hands up at this. But there is no logic to such a response, because in a society with a large private enterprise component a wage is simply a response to the value the market puts on a job. Unskilled workers may not earn as much as the average doctor or lawyer at present, but skilled tradesmen such as plumbers and builders often do.”

But workers can only be paid from total output and that would be way lower in the set-up that Henderson imagines here. But it is true that supply and demand (i.e. free trade) tends to equalize wages and salaries. Free trade would end aristocracy rather than fostering it, as Henderson imagines. “Class” is just a bogus idea of the PC religion of Sociology. Anyone who talks class thereby talks crass stupidity. Democracy never did give the masses any control and the masses hate voting anyway. Participation is a waste of their time. It is boring at best and they want to be free of it. As the saying goes: “Committees take minutes but waste hours”.

Henderson repeatedly imagines that there is something social about the state, but the plain fact is that the state is intrinsically anti-social.

Democracy was an elite fashion, not something the masses ever wanted or needed; it thrived only on elite thoughtlessness. But Henderson tells us that, in fact, it was originally oligarchy, not true democracy. But then he absurdly adds that it nevertheless brought with it a lot of control by the masses. His contradiction is self-refuting. The true half of the contradiction is that it was oligarchy; the false half is the claim that democracy brought any real control by the masses.

The urge towards the EU was one for a successful warmongering super-state not a stand against democracy. It was for power and influence in the world. There is no effective democracy to oppose. Nor is it going to be more popular in the future, and ditto politics and religion. They never were popular but the acme of what little popularity they
ever had is, now, well in the past.

Henderson imagines this class interest of the elite is unconscious! It all arises from psychological and sociological forces; forces arising from PC religion, or from the anti-social sciences or the unnatural sciences.
A lot of wastage in any nation is owing to measures taken just in case of war, and the whole lot tend to foster war rather than to deter it. Free trade tends to crowd war out. But Henderson seems to welcome war. It is silly to call free trade a religion, but a bit less silly to call liberalism one, as it is a creed rather than mere phenomena. But state worship seems to have something nearer to the God worship of many religions, so religion is more to do with the immoral state.

Henderson is a fine one to write about the ignorance of others.

Smith was not quite right to say that the state was needed to do certain things. As the economist Milton Friedman said, anything the state can do the market can do better, but he overlooked that war was an exception.





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Justice for the 1%!

EconomicsPosted by Lee Waaks Wed, April 09, 2014 14:07:20

One of the many tired arguments left-wing intellectuals have been making for well over 100 years (including the uneducated man in the street) is based on the idea that the entire capital of the wealthy 1% (or 10%) is available for redistribution to the poor and middle-classes. All that need be done is to leave just enough money for the capitalists so that the incentives are calibrated to induce them to produce at (close to) the same rate as before. But this view is quite false, as explained below.

The wealthiest man in the world is Bill Gates, who is worth about $76 billion dollars. He consumes a small fraction of his fortune in the form of dividends (a lot of his consumption is charity). Let's imagine he decided to become a monk tomorrow and chooses to give away his entire fortune. To do this, he would need to liquidate all his investments -- funds that are currently being used to purchase labor and/or factors of production -- and distribute those funds to various charitable causes. Assuming nothing was saved, the recipients of the money would spend 100% of the funds on various goods and services. (And there is the additional factor that in order to liquidate his funds, someone must lower his/her cash holdings, or liquidate his/her investments, in order to purchase Bill Gates' stocks/bonds/real estate, etc.)

Yes, this money would find its way back into the economy, thereby generating some new jobs to "replace" the lost jobs, but it wouldn't change the fact that the public had consumed $76 billion in capital funds -- funds that would have been invested in new technologies, leading to expanded production and increased real wages. This expended capital would be gone forever (unless recycled -- but always at a cost of more expended capital).

The middle-class and poor obviously wants higher real wages in the form of more and better goods and services. Capital, in the form of machines/factors of production, is what is used to create these goods and services. However -- and this is the crucial point -- it is not the goods and services in themselves. The error of confusing the money value of capital with the actual goods and services allegedly "available" for redistribution has terrible consequences. Redistributing capital does not put more goods and services into the hands of the middle-class or poor; on the contrary, consuming capital, as Ludwig von Mises argued, is essentially equivalent to burning your furniture to heat your house.

When the left presents statistics (true or otherwise) about how the profits/incomes of the wealthy have increased in the past few decades, this is an implicit call for capital consumption. They want the rich to "share" (sound of gun cocking) more of their income with the poor but confuse their capital with their consumption (about 10% of their capital). But this "sharing" is really only capital consumption and this is a disaster for the economy.

An additional error relates to the fact that the left seems to be comparing the rich with the poor in a sort of mental "one-to-one" comparison. Of course, in this artificial scenario it looks like every rich person could easily boost the incomes of every poor person. But the left is forgetting their own propaganda: the rich only comprise 1% (10%?) of society. How can the tiny fraction of income consumed by the rich be distributed to benefit the 99% in any significant way? The answer is that it can't.

Many on the left will attempt to counter points like these by pointing out that the Nordic countries have massive welfare states with (allegedly) no ill effects. However, the Nordic countries (apparently) do not consume their capital at the level of the e.g. U.S. In fact, taxes fall much more heavily on consumption. And this is reflected in the fact that the Nordic countries have lower levels of consumption than the U.S. Robbing Peter to pay Peter is no great feat. The capitalist engine powers the welfare state in the Nordic countries (and Europe).

It should also be pointed out that the Nordic countries have taken in far fewer immigrants than the U.S. Since its founding, the U.S. has literally rescued millions of immigrants from poverty in their native lands. Naturally, this makes the U.S. appear to be more unequal compared to the Nordic countries because many fresh immigrants, not surprisingly, do not start out as middle-class. But this is hardly a valid criticism of capitalism. The welfare states of the Nordic countries would likely collapse if they took in vast numbers of immigrants. So they don't. Should we really celebrate how well they take care of their own poor when they choose to leave millions of Third World people wallowing in poverty? Were it not for Godwin's Law that states that those who are the first to invoke Hitler automatically lose the argument, I might be tempted to make an invidious comparison here.

What is also forgotten by the left is that it is the capital (including increased profits) of the wealthy that is employed to create nearly all the goods and services available to the poor. Without entrepreneurs who save and then put their capital at risk there would be stark poverty. This is one reason libertarians see entrepreneurs as heroes to be celebrated -- as opposed to how the left sees them: cash cows. Of course, entrepreneurs are typically motivated by self-interest but this doesn't diminish the fact that most of us have escaped wretched poverty due to their efforts. As libertarian philosopher Jan Lester argues, "The failure to grasp that intentions do not matter is the pons asinorum of all social theory".

When I was a teenager I watched Norma Rae (1979), a movie based on a real-life union organizer (starring Sally Field). I haven't seen the movie in years but I do recall that the standard of living she enjoyed was far above the factory conditions documented by Karl Marx in Das Kapital. Nevertheless, is it fair, even in the face of a dramatic rise in real wages, that millions of workers "struggle to get by" while factory owners live lives of grand opulence? No, it's just plain ol' bad luck. Furthermore, there is no "exploitation" (or even bad luck) involved when someone who would have likely lived at the level of an 14th. Century farmer/field hand in the absence of capitalism is now living better than kings and queens of that era. Most of us living under capitalism today were born with stainless steel spoons in our mouths.

Unfortunately, even Austrian and other free-market economists have perpetuated the myth of "exploitation" by teaching that interest is "deducted" from workers' wages, i.e. the "discounted marginal productivity" doctrine -- the theory that wealthy savers receive interest as a "reward" for advancing workers their wages out of savings -- as if workers would be entitled to all profits from sales in the absence of an act of abstention by savers. Although it is true that time preference plays a part, the implication that interest is deducted from wages has been an intellectual disaster for free market ideology. (For a more complete explication and criticism of this view, see George Reisman's Capitalism, pp. 484ff. and pp.666ff., available free online.)

Wages are funded out of savings and these saving are derived from prior sales, or from wages earned by workers who later become entrepreneurs, which means that profits are analytically prior to wages. Profits would be "infinite" in the absence of costs (this strange outcome results from dividing the profit numerator by zero costs in the denominator). In other words, wages are deducted from profits, not the other way round. Therefore, the income of the capitalist is derived from consuming his capital in the form of mansions, Jaguars, caviar, etc., not from the workers' wages. Were it not for capitalists, there would be no significant division of labor and, therefore, no surplus value to squeeze out of the workers (as Marx alleged). Egalitarianism is really just a cry for the wealthy to provide more of what they have already made possible.

Of course, few if any capitalist undertakings could take place without the help of workers, but the capitalists are the ones who provide the capital, take the risks, and provide the labor of direction. They are workers too! Perhaps we could argue it is the workers who are "exploiting" the capitalists who, as a class, consume so little relative to the capital they contribute to the workers. And what about the externalities resulting from so many benefiting from so few? I demand justice for the 1%! Market failure indeed.

For the left, the existence of virtually any (even relative) poverty is an indictment of capitalism in and of itself, even though real wages have climbed dramatically over the last 100 years. But no free-market economist has ever argued that capitalism would cure all poverty overnight. It takes time. But there is no other solution. Socialism does not work unless you like the equality of poverty. Ironically, the redistributionist schemes of the left, because they involve massive capital consumption, have actually led to either a (relative) decline in real wages or, at the very least, drastically slowed economic progress.

As we can see, the left's worldview is rife with major intellectual errors.



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David Steele Debates Praxeology

EconomicsPosted by Lee Waaks Fri, March 07, 2014 08:19:28
As Libertarian Alliance member and blog contributor David Ramsay Steele is one of my favorite intellectuals/writers, I was excited to learn of an online debate on praxeology and Misesian apriorism (an economic methodology developed by Ludwig von Mises) between him and Robert Taylor, director of Praxeology.tv (watch the debate here: http://iloapp.la-articles.org.uk/blog/blog?Home&post=14).

Prior to reading Steele's book From Marx to Mises (1992), I assumed praxeology was correct. To tell the truth, I didn't really think about it much; it just seemed so plausible. For example, Mises' argument that economic calculation is essential for a flourishing economy is still utterly convincing to me. And because it was so convincing at the time -- and involved virtually no empirical data -- it led me to believe that economics could be done from an armchair. Mises did it right before my very eyes! However, after reading Steele's book many years ago, in particular the brief passages devoted to apriorism, I became very confused about this topic and have remained so ever since; hence, my enthusiasm about the debate.

Having now watched the debate (I think Steele won easily), I am fairly convinced that economics is an empirical science, as opposed to a purely deductive one, as Taylor and his fellow Misesians claim (although I do have a few questions for Steele -- see below). However, if there is a case to be made for apriorism, I don't think it is going to be made by Taylor, who seems quite out of his depth. But in his defense, he is not an economist and I am thankful to him for enticing Steele to join him for a good-natured, debate -- and for creating/posting the video. It was helpful to me and may be helpful to many others who are confused about these issues.

I believe that many libertarians who are influenced by Mises (and his student/acolyte Murray Rothbard) are very attracted to the idea that economic science, as claimed by Mises, offers "apodictic" truths. What better way to defeat socialists of all stripes, or those who deny the existence of economic laws, than with the sword of apodictic truth? (This is similar to the way the non-aggression principle [NAP] is used by libertarians as another (alleged) "knock-down" argument in their anti-socialist arsenal). Therefore, if praxeology proves that economic laws exist, and that all interventions are doomed to fail, all libertarians need ever do is hammer home the truths of praxeology and socialists will be forced to surrender. Those who refuse to assent to the truth of praxeology are simply obtuse or dogmatic. Undoubtedly, this why the possibility of apodictic economic laws was, and still remains, attractive to me.

Steele agrees with Taylor that you must first have a theory to know what to test, but argues this is the beginning, not the end, of economic science, because your theories must be tested to be sure your assumptions are not falsified by the data. Steele uses the example of minimum wage laws to good effect. Many economists believe these laws cause unemployment due to the fact that increased labor costs lead to a decreased demand for labor. This follows from the fact that employers are typically very cost conscious and will only employ their capital in a business enterprise if the return is at least equal to, or better than, other profit opportunities. Although these theories are derived from various intuitions ("quasi-praxeological" [FMTM]) and/or prior empirical tests/observations, Steele argues our theories should still be tested due to the possibility of error in our initial reasoning. Hence, economics is an empirical science, albeit one guided by praxeological-type reasoning.

Contrary to empirical economists, Misesians argue that we can derive economic axioms with the use of introspection and/or empirical observations about human nature (in the case of minimum wages, employers, ceteris paribus, prefer more wealth to less; therefore, they purchase fewer units of labor), so there is no need to test the theory if the economic logic is correct. However, if I understand Steele correctly, the aprioristic methodology is false, not because praxeology does not contain important truths (quite the contrary: see FMTM); or is not a useful compass for economic inquiry, but because economic policies and predictions cannot be deduced from millions of daily interactions between ignorant, often erratic, human beings. How far apart our theories are from the real world is what empirical testing can help to determine.

My guess is that Misesians are reluctant to abandon praxeology, not just because it allegedly refutes those who claim there are no economic laws, but because it really does appear to be amazingly fruitful for economic analysis without the use of difficult econometrics or empirical data, which can be unreliable and/or hard to come by. This view may be due to the fact that, as Robert Taylor says during the debate, Misesians believe -- if we are rigorous enough -- a "logical chain of deduction" can be formed by utilizing various praxeological axioms -- and when combined with various bits of empirical data about the past or our current economic landscape -- we can arrive at an apodictic conclusion about e.g. the cause of the trade cycle. But, if I'm still following Steele correctly, this belief is false because there are only a few axioms, and given that each one is nearly barren of any empirical content, they do not lend themselves to this type of extrapolation. Again, it doesn't mean praxeology isn't useful; it's just shouldn't be your only tool in your economic toolkit.

My questions for Steele (or anyone) are:

1. During the debate Steele argues that Mises' aprioristic methodology undercut his persuasiveness during the economic calculation debate with socialists in the 1920s/30s. However, if the empirical approach is allegedly more persuasive, is this argument falsified by the fact that many economists, including several Nobel award winners, support minimum wage laws in spite of the empirical data offered by those who oppose it? Also, if Mises had adopted an empirical approach, how might he have used empirical data (and what kind?) to show that socialism was unworkable?

2. As economist and apriorist Walter Block pointed out, when Card/Krueger famously challenged the view that minimum wage laws cause unemployment, many economists rushed to find the empirical errors rather than simply surrender to their conclusions. Was he wrong to argue that for many economists, praxeology is at least their tacit methodological approach?

3. If economics is an empirical science, is it reasonable to speak of "economic laws"?

4. In the case of empirical testing of minimum wage laws, how would economists know when they had controlled for enough variables or what length of time is appropriate to test for?

5. In order to test, are economists really just "smuggling" apriorism in the back door, so to speak, in order to know what data to include/exclude?



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