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My daughter Nicole, who has spent ten months of the last three years helping orphans in Uganda, has benefited from being raised with an understanding of the free market. Nicole spends much of her time in Africa trying to teach skills needed to develop micro-businesses, which will help the poor create trade-able wealth all throughout their lives.

First, let us all agree that the most important measure of a society is how it treats its less fortunate citizens. We should all feel a moral responsibility to relieve suffering when we can, to work to ensure that all people receive food and medical care and shelter, regardless of their ability to pay.  Unfortunately, many kind and well meaning people who agree with these principles have remained somewhat skeptical of free markets in achieving this humanitarian goal.  And prior to my encountering of free market theory (and especially Austrian economics), I did too.

The common perception about the free market is that it is a callous, cannibalistic, dog-eat-dog system which favors greedy go-getters and leaves the poor and unfortunate fending for themselves, picking up scraps left over from a rigged system.

Gordon Gecko represents the typical “capitalist” in American media portrayals — a greedy, unscrupulous profiteer who never generates any wealth himself but simply defrauds, cheats, downsizes, and employs various abstruse, job-detroying financial gimmicks to expand his considerable fortune. The difference between the way the free market (and socialism) works in reality and how such schemes are presented in fiction is quite wide indeed.

I used to have a similar impression about the dangers of unrestrained market forces and certainly could not think of an intelligible reason why central planning couldn’t work. Certainly, it would seem, there was no physical principle preventing governments from effectively distributing goods and services to the poor or preventing them from effectively regulating commerce so that distribution would be more plentiful, fair and kindly. What is more, the idea of central planning and mixed economies has the support of the majority of most intelligent and well-educated people — while, by and large, it seemed that those who opposed such systems were in the pockets of Big Business and always trying to implement a callous political philosophy that appeals to all the darker sides of human nature — greed, racism, selfishness, xenophobia, paranoia, etc.  At least that is how they are portrayed publicly.

Judas, Mr. Potter, Gordon Gecko,and Scrooge-the-night-before are all capitalists.  Jesus, George Bailey, Carl Fox, and Scrooge-the-next-morning are all socialists, right?  Finally, many believe that history proves the effectiveness of big government plans. We had tried the abominable and vicious practices of the free market — like in the nineteenth century US with the Robber Barons and the greedy capitalists Jay Gould and James Fisk. That’s what you get from the “free market,” many believe. You get Dickensian London or Sinclair’s The Jungle or Stone’s Wall Street.

Still, even before I had been persuaded by Austrian economics, I always sensed a few problems with government control — problems I didn’t think about too carefully, but I couldn’t quite explain. And they pestered me. There were some rather obvious examples of a number of governments trying to control domestic trade and deliver services to the masses — China, Cuba, Russia, etc — and failing miserably. But certainly that must have been because they were corrupt and weren’t really the friends of the poor, right? They were greedy totalitarians. They could have effectively regulated commerce and redistributed goods to the poor if they had really wanted to, but they just were selfish and lacked compassion. But as one’s knowledge of 20the century history continues to expand, you begin to see failure after failure, decade after decade, no matter what the leadership: Albania, Algeria, Angola, Armenia, Azerbaijan, Benin, Bulgaria, Belorussia, China, Chile, Congo, Cuba, Czechoslovakia, East Germany, Estonia, Ethiopia, Georgia, Hungary, Kampuchea, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Mongolia, Mozambique, Nicaragua, North Korea, Poland, Russia, Romania, Senegal, Somalia, Tuva, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Venezuela, Vietnam, Yemen, Yugoslavia. All were economic disasters. All hurt the poor. Were all the leaders of all these nations always evil and unconcerned about the have-nots? Or was there something else at work?  What is more, the big government programs of all the western nations have now started to fail.  In the United States, social security, Medicare, and Medicaid are all broke and have unfunded liabilities that are threatening to overwhelm all federal spending.  The health care scheme of Canada has led to such torturous wait lines that the nation has now abandoned its hallmark system and is allowing private care.   And the recent debt-crises that have befallen countries like Greece, Portugal, Italy, Spain, France, and Great Britain have exposed the vulnerability of “European style socialism.”  And the only question is, why?

What I eventually discovered through some research on the issue was the extraordinary, indeed near-miraculous advantages that the free market bestows upon its citizens. Indeed, I eventually realized that, due to a number of sophisticated reasons, it is the free market and only the free market that can provide plenty and effectively distribute goods to the masses — and, in fact, it has been successful in every case.  And all efforts to regulate and, in essence, govern the market are doomed to failure, always leading to ineffective distributions, shortages, and eventually, unnecessary suffering of the most needy.  The following are the five main reasons as to why big government schemes always fail, regardless of whether the government is trying to distribute goods itself or just use laws and regulations to “help” the market set prices and distribute items more effectively:

1) The Simple Arithmetic of Shortages:  Lack of profit for producers plus artificially inflated demand necessarily leads to scarcity and want.

The empty shelves in Soviet Union stores, the torturous wait lines for surgeries in Canada, the lack of available dentists in Great Britain are all due to the same reason:  The profits of producers are not linked to their ability to satisfy the demand of the people, and their demand has been unnaturally pumped up because the goods are “free” (i.e., paid for with taxes.)  For example, Canadian doctors make about half as much as American doctors, thus many college students in Canada decide it’s not worth years and years of study for a profession that’s overburdened and underpaid. And even when they do get trained in Canada, 1 out of 9 physicians then emigrate to the U.S. Making matters worse, since no one pays for their own health care, there is an extraordinary increase in unnecessary surgeries and doctor visits. All this has led to a self-inflicted humanitarian crisis.  The same is true for dentistry in Great Britain, in which only 49% of adults are registered with public dentists, leading many people to try DIY dentistry using pliers and alcohol.    In other words, the extraordinary demand for dentists in Great Britain has not resulted in a corresponding rise in prices and profits for dentists, which in a free market, would have strongly encouraged more people to enter the industry.  Alas, dentistry is a “right” in Great Britain, so dentists are abandoning the industry and the citizens continue to suffer.

2) The Miracle of the Pricing Mechanism (or “No one knows how to make a pencil“) Government planners lack the near miraculous, humanitarian, impossible-to-duplicate omniscience of the pricing mechanism, which instantly communicates information that is crucial to preventing shortages and gluts — and foments widespread cooperation among many different peoples to always ensure that the precise and ever changing demands of the masses are met, everywhere and at all times.  In free market systems, when demand starts out-pacing supply in a particular region — when a lot of people want something — prices (and profits) rise and this not only sends an important signal to consumers, helping curb demand, it also sends a much more important signal to potential producers.  Vigilant entrepreneurs, observing the high prices and profits, then enter the industry to help create that item.  Supply increases, prices drop, shortages are avoided, and resources have been effectively reallocated. The exact opposite occurs when supplies start exceeding demand. When prices drop, business people stop producing things that aren’t much in demand (e.g., buggy whips and ice boxes), helping reduce gluts. They then reinvest their time and resources into what people need more (e.g., cars and computers).   And it is simply impossible to out-think this process.  Indeed, when a small number of government planners, working without any rational price mechanism, try to anticipate the true needs of millions of people — all living in a wide variety of cultures, climates and ever-shifting circumstances — and then try to manage prices or coordinate production or distribution according to those inordinately variegated and always-changing desires, they simply have no chance of success. And certainly they couldn’t be efficient.  And this is particularly true when you consider how much production needs to be coordinated for the efficient production of even the simplest objects.

Friedman gives an idea of the impossibility of central planners effectively governing production and prices in the famous economic lesson first given by Leonard Read: “No one knows how to make a pencil“.  In brief, just imagine trying to coordinate all the processes required just to create pencils for a nation — the lumber industry for wood, the steel production for chain saws for the lumberjacks, the iron ore for the steel, the making of the yellow paint, the mining of compressed graphite, the making of the glue and the brass ferrule, the planting of rubber trees.  No one could actually plan the right amount of production for all the elements that comprise even the simplest items — let alone effectively distribute these elements and then the finished product.  In contrast, the pricing mechanism coordinates all such processes without a central planner, helping guide all of the potential labor and resources of a nation into vocations that most effectively produce everything desired in a particular place at a particular time. And as the needs of the people vary from region to region and change over time, this immediately results, through the pricing mechanism, in a corresponding change in production and distribution. As the great economist, F.A. Hayek wrote: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

3) Government monopolies vs. free competition

When a government controls an industry, it has a complete monopoly on that industry and collects its revenues through taxation (i.e., at gun point).  If the people don’t like the service or goods offered, they cannot take their business elsewhere or even withhold payment.  This is why in America, service at, say, the DMV is so dreadful.  They don’t have to be efficient because you can’t take your business elsewhere.  With free market systems, companies that are inefficient or produce low quality goods always fail, and their labor and resources are absorbed by more successful producers.  Failing government programs just consume more and more wealth and have no incentives to improve.

4)Top Down vs. Bottom Up: The free market urges people to work to satisfy the wants and needs of the masses: Free market systems entice the citizenry to anticipate the desires of the people around them and to meet those needs in the most efficient manner possible.  This is the only way to profit in purely free market systems.  Big government schemes necessarily suppress this urge or typically preempt it altogether.  For example, the history of the United States brims with famous inventors and revolutionary entrepreneurs for essentially every product or service — cars, telephones, cameras, computers, airplanes, etc. — except for K-12 education.  We have no Henry Ford of elementary schools, no Steve Jobs of high schools.  And the only reason for this is that the government monopolizes the industry and has taken all potential profit from it.  The only new educational ideas that can possibly be tried must come from a small group of officials in charge, and no one can strike out on his or her own and offer an innovative kind of low-cost grammar school.  In other words, the driving forces of government systems are the orders of a small group of people in charge.  The driving forces of the free market are the needs and desires of the people, enticing every potential pioneer to work for the benefit of his or her fellow citizen.

It is often said that the market system is a cruel Darwinian process, where only the fittest can survive. And to a certain extent that is true.  But the actual battlers are the businesses and corporations  — while the people get to access the rewards. It is the weakest corporations that perish, while only the fittest businesses triumph — and victory can only be achieved by meeting the needs of the masses in the most efficient manner possible. Thus, corporations and businesses compete against each other to bring food, clothing, shelter, electric appliances, etc., so that we never find ourselves in want.

5) Corruption and Favoritism.  Who gets the Penthouses and Caviar?

Despite the hopeless dreams of some, it is simply impossible to equalize completely the quality of goods and services.  Some food is more desirable than other food.  Some homes are more luxurious than other homes.  Some computers, cars, sunglasses, clothes, telephones, microwaves, refrigerators, etc., will simply be better than others.  So the question is: Who gets the good stuff?  Who gets the penthouse and the caviar?  In capitalist nations, the privileged are people like Bill Gates, Steve Jobs, Henry Ford, who can only get wealthy through voluntary trade, forcing them to create the very wealth that they earn, mass producing some particular wanted good and distributing it to the masses of the nation.  Before Gates, Jobs, Ford, etc., got rich themselves, they had to increase the material wealth of the U.S. in computers, software, smart-phones, cars, etc.  With socialism, corporatism, or crony capitalism, powerful central governments start choosing the winners and losers.  The friends of Castro get the good hospital; SEIU gets the exemption; Goldman Sachs, GM and the UAW get the bailout.  Indeed, there is no big government system, anywhere, that has escaped the corrupting influences of such a centralized accumulation of power and wealth.

Coda: Most people today who have become free marketers have followed a similar journey, only coming to their view after having first followed some other political philosophy. Indeed, I know of no one over the age of 30 who was actually raised a libertarian/free-marketer — I mean an actual market-forces, price-mechanism, Hayek-understanding libertarian — or who was even taught it as a young person in schools. So most current libertarians, like myself, must come to their views through a self-educating trek –typically occurring in their late twenties or thirties.  They must actually be exposed to and persuaded by the ideas of Friedman, von Mises, Hayek — and then they must make the lonely decision of abandoning their old sociopolitical ideas, which is to say, the ideas of their parents, peers, professors, and political icons.  This is true of even all the famous libertarians: Friedman had been a FDR/New-Deal supporter; Stossel a radically pro-regulation, consumer-advocate; Hayek a socialist.  Naturally, conversion doesn’t necessarily entail veracity, but it does mean that many people have come to accept the power of the free market through intellectual persuasion rather than emotional indoctrination.

After learning about the humanitarian nature of the free market, I finally understood why socialism has collapsed everywhere it has been tried and why the free market has always flourished. I finally understood the problems behind European-style socialism, for the wait lines in Canada, for similar problems in Great Britain, for the recent economic crises facing Greece, Portugal, Italy and Spain, for the incredible collapse of France. I also understood why, as other nations started to founder, other regions like Hong Kong and Singapore have soared. It was also nice to watch as the economic system of Hong Kong ended up fomenting free market changes in China, helping end their persistent problems with poverty and hunger. As Paul Romer correctly said on “TED,” “In a sense Britain inadvertently, through its actions [implementing the free market model] in Hong Kong has done more to reduce poverty in the world than all the aid programs we have undertaken in the last century.” It is the free market that ends poverty and produces plenty. The free market is what has reduced the suffering of the poor on this planet. So as you start to analyze this socio-political philosophical fortress built up by Smith, Mises, Hayek, Friedman; as you start to understand Say’s Law and the humanitarian consequences of the pricing mechanism; as you consider all the colossal and horrific failures of socialism and discover why they occur; as you learn about the disastrous misallocation of resources caused by the artificial inflation of demand; as you realize the impossibility of central planners adequately managing prices or matching supplies with the varied needs of a nation; as you reflect upon the inescapable sociobiological impulses that fuel free markets and realize that the poor today are fed, clothed, housed, heated exclusively by the consequences of inventions, mass production and distribution schemes developed within market systems; as you discover that government planners have, at best, only offered the poor a number of half-delivered and ultimately hurtful promises– as you find with Canadian healthcare or the government housing and schools of Detroit — or, at worst, has provided the poor with a lot of shallow graves, as you find strewn across Eastern Europe and East Asia; you begin to realize that the current fashionable view of steering economies to help the poor is completely misguided and will only increase suffering. The only way to achieve abundance and distribute goods effectively is to allow the free market, this extraordinary prosperity-machine, to operate with as few hindrances as possible. Then, and only then, are you best able to help the poor with a luxurious and silken safety net woven from the extraordinary plenty that only free societies can produce.

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Middle Easterners look at most Americans, with their expansive view of human freedom, as anti-law-and-order libertarian nutjobs, whose radical views would imperil society. Even Canadians and Western Europeans are extremely leery of our views of freedom of speech. We, in turn, see this mistrust of liberty in other nations as an unenlightened consequence of browbeaten people habituating to those oppressions. But are Americans so sure that they themselves have not grown accustomed to U.S. oppressions? Put another way, if we understand that those agitating for freedom in other nations are essentially always right, then how can we be sure they are also not right here?

In March of 2010, the often-liberal Glen Greenwald, writing for the almost-exclusively-liberal Salon.Com, wrote one of the most powerful libertarian articles of the year when he delivered a devastating critique of “The Creepy Tyranny of Canada’s hate speech laws.”  The specific focus of the piece was the  Canadian effort to bully right-winger Ann Coulter with the threat of criminal prosecution if she did not temper her upcoming speech at the University of Ottawa.  Canada, you see, doesn’t have a First Amendment, and the Vice Provost of the college, Francois Houle, sent a letter to Ms. Coulter, containing a warning to Coulter not to say anything that Houle might deem “hateful.”  What is particularly fascinating about the situation is that in the United States, Greenwald and Salon.Com are considered very progressive.  But from the viewpoint of Canadians, Houle is considered the progressive, and Greenwald is considered, well, a fringe, libertarian nutjob.  Indeed, many Canadians think of those freedom loving compatriots who advocate the repeal of laws abridging the freedom of speech as sinister and agitating. (more…)

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When you ask the government to take more money from Bill Gates, Warren Buffett or any of the billionaires who support his foundation, you are necessarily asking the government to take money that would have gone to help African orphans and to spend it instead on wars and special interest groups. (Pictured is my daughter Nicole who has spent 10 months out of the last three years in Uganda working for a private charity organization that focuses on improving the lives of abandoned children.)

A recent headline at NPR reads, “40 U.S. billionaires pledge half of wealth to charity.”  In reality, the headline should have read, “40 U.S. billionaires pledge half of their after-tax wealth to charity.”  The Federal and State governments, of course, first eat up more than half of the riches that these billionaires want to spend on the unfortunate, leaving far less money going to African children, AIDS prevention, cancer research, urban education programs, etc.   And what does the government then do with the money it takes from the wealthy?  Well, only a sliver of it really goes to help the poor or to foreign aid.  Consider, for example, that the Obama administration just spilled 3.5 trillion all across the U.S. in the year 2010 –and poverty somehow actually increased in the interim. This is quite astonishing given that we could wipe out poverty with a few hundred billion dollars just by giving the poor the money.  Instead, of course, the vast majority of the money that the Federal Government confiscates — most of which comes from the high-income charity-supporters — went to wars and special interests and the retired.  It went to Fannie and Freddie and AIG and Union Pensions, etc. (more…)

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Forty years ago, libertarians and young liberals used to stand hand-in-hand in opposition to state coercion, fighting against the use of armed force to control peaceful peoples. Now, progressives are the ones who are in power-- and now, many of these former hippies want to expand state control over nearly all aspects of your life, forcing you to pay into social security, forcing you to buy health insurance, stopping you from eating trans-fat, forcing you to pay for their stimulus plans, etc. And those who refuse to submit, they want jailed. Libertarians, meanwhile, still remain committed to reason, not force. Libertarians are still placing flowers in rifle barrels; it's just that today, the progressives are the ones holding the rifles.

In the 1960’s, libertarians and young activist liberals worked for many of the same causes — including ending the Vietnam War, the fight to end Jim Crow Laws, legalization of recreational drugs like marijuana, LSD, acid, etc.  And most especially, they shared an extreme distrust of state authority — a suspicious antagonism toward the armed governmental agents who symbolized the enforcement of statist laws.  Both sides were edgy and subversive and pro-freedom in all its forms.  And they all distrusted “the man” —  that emblematic, old, white patriarchal figure who represented the powers at be — whether it was LBJ or Richard Nixon.

So what happened?  Why do so many on the left now hate libertarians — when the latter still remains committed to universal toleration and still opposes state force against peaceful citizens?  Well, many of these former free spirits have now been given power, and so have started using government agents to enforce their own opinions and biases.  (more…)

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You're 85 years old, and, through scrimping and saving, have managed to amass an estate (counting home, land, stocks, etc.) worth $2.5 million. You think you really only have a few more years to live -- and you know if you don't die before Dec. 31st, the government will confiscate more than $1 million of your money from your children. What do you do?

 

As in Singapore, Hong Kong, Austria, Sweden, Australia, and New Zealand, the U.S. has no current estate tax.  But unlike these other highly productive nations, the estate tax in the US is set to jump to an extraordinary 55% for the top rate on the first tick past midnight, December 31st, 2010.  Happy New Year.

This puts some people who think they will be facing death within the next few years into an agonizing position, recently pointed out by Adam Fisher in Time Magazine.  Either die by December 31st so you can leave all that you have saved (after taxes) to your children and grandchildren or have the current administration confiscate 55% of your fortune just so you can live a little bit longer.  This has posed a serious dilemma to a number of people. Quoting Fisher: “One CPA in San Francisco, who requested that we not identify him by name, has a client he suspects is planning a tax-related suicide. ‘She keeps asking me over and over to recalculate the tax savings and talking about joining her husband in heaven,’ says the CPA. ‘I’m really worried. I’m not trained for this, and I don’t know what to do.'”
The article also cites economic analyses of other nations that linked changes in the estate tax to statistically significant changes in the death rates — particularly within the last week or so of the new law taking effect.  Using these figures, one analyst quoted in the paper predicts that near the end of 2010, “perhaps 20 to 30 people will hasten their own deaths for the sake of their heirs.”

Numerous articles have pointed out the unfairness and inefficiency of the death tax, noting that while it destroys numerous family farms and businesses, the super-wealthy like Warren Buffet still manage to beat it.  But Fisher’s article, I think, more so than others, really manages to emphasize the cruelty behind it.  But, hey, Fannie and Freddie can’t bail themselves out, right?

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Charlie Rangel has now become one of the more well known Weasel Donkeys, but he still didn't rate as Weasel Donkey of the year. Make sure to continue reading to find out who won the coveted title.

One of the most devastating shots fired by the left at certain conservatives is the epithet, “Chicken Hawk.”  The phrase denotes a hypocritical politician or commentator who is hawkish on war but who had actively avoided service when he had the chance to fight.  The term is as fitting as it is ruinous, and Dick Cheney, George W. Bush, and Dan Quayle are three of the more famous Republicans who found it hard to shake the label.

But what of those wealthy, tax-raising Democrats, who always champion higher taxes for the sake of important governmental services, but then actively avoid paying taxes themselves?  What should we call them? I’ve thought long and hard about this, and I think I’m going with “Weasel-Donkey.”

Sen. John Kerry, while obviously no Chicken Hawk, is a bit more hypocritical when it comes to paying the taxes he supports.

Continue reading to see who wins Weasel Donkey of the year

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Just as most of us oppose the government initiation of force to ban racist books, libertarians also oppose the government initiation of force to close racist restaurants -- and for precisely the same reasons.

[What Rand Paul should have said:] “I appreciate the question, Rachel, and the opportunity to explain.  As with the Bill of Rights, the Civil Rights Act, by and large, is one of the most significant libertarian documents in history.  More than 90% of it comprises important examples of libertarian deregulation, stopping states from enforcing racist segregation laws — the “Jim Crow Laws” — and granting a significant segment of our population freedom from state-coerced racism.  Racist laws and regulations were really the problem because private southern businesses were already responding to peaceful libertarian methods of persuasion and becoming desegregated even before the Civil Rights Act.  Rosa Parks, after all, was not arrested because she offended the sensibilities of a racist bus owner but because she violated a racist Alabama law — a law based on the notion that states have a right to control private businesses and force them to behave certain ways, like maintain segregated buses.

Rosa Parks was not arrested at the whim of a racist business owner but because she violated a racist Alabama law -- a law based on the notion that states have a right to control private business practices (in this case, forcing privately owned buses to be segregated.) Once this law was struck down in 1956, Alabama bus-lines immediately desegregated their buses (mostly due to Dr. King's peaceful boycott) eight years before the Civil Rights Act.

Once this law was properly declared unconstitutional in 1956, bus-lines immediately became desegregated due to pressure put on them by Martin Luther King Jr.’s peaceful Montgomery bus boycott.  This desegregation of the Alabama buses occurred in 1956, eight years before the Civil Rights Act.  And the combination of striking down the law, combined with King’s stunningly effective boycott, represents one of the most significant libertarian advances of the 20th century — and it was achieved through peaceful means and through the limiting of state power.  This is what makes the Civil Rights Act so significant.  The Act immediately nullified all state laws that forced segregation in public institutions and private businesses, allowing for peaceful social change of the type advocated by Martin Luther King, Jr., in his bus boycott. (more…)

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