Posts Tagged interventionism
The One Minute Case Against Consumptionism
Posted by HeroicLife in Economics on February 15th, 2009
There is a tradeoff between economic growth and consumption
Economic growth is made possible by forgoing current consumption. For example, consider the case of a teenager considering whether to save money for his future. If he spends his salary on toys and trinkets, he will never accumulate any savings. If, on the other hand, he minimizes expenses and saves money for college, he will forgo current consumption and invest in capital improvements. The same tradeoff applies to all consumers and producers: capital improvements require a sacrifice in current consumption to invest resources needed to expand future production.
Production, not consumption drives economic growth
The lack of a consumer culture is not an impediment to economic growth, as resources that are not consumed are invested into new markets and production capital. If a consumer forfeits a new car now to buy a better car at some point in the future, his savings are not lost. Instead of being directed into present consumption, his savings become the investment capital for new factories and R&D into cheaper and better cars. This is why such high economic growth is possible in “Asian tigers” such as Hong Kong and South Korea – high rates of savings support rapid technological progress and investment into industry at the cost of a much more frugal lifestyle than in the West.
Capital has structure
Politicians and the media treat GDP as a single number, but it is crucial to understand that producers face a choice between producing consumer goods and investing in intermediate goods used to create consumer goods. Those goods differ as well: a factory owner can invest in merely maintaining his factory, building a similar factory to expand production, or engaging in a long-term research and development program in a new product or production process. Thus, the goods produced by an economy can be one, two, or more level removed from consumer goods.
Capital investments require savings and stability
Economic and technological progress requires that entrepreneurs make long-term investments in intermediate production goods many levels removed from the consumer. In order for this to happen, two things are necessary: that consumers forgo current consumption to invest in future production, and that reliable long term predictions can be made about future savings rates and demand patterns.
Monetary policy disrupts economic growth
Governments control over the currency allows them to use monetary policy to achieve short-term economic goals, such as increasing GDP. But the consequences of artificially manipulating interest rates are disastrous. By expanding the money supply through manipulation of interest rates or (as is happening now) sending money directly from the printing presses to banks and other corporations, the government is devaluing savings and redirecting them into increased consumer spending. This improves the economic statistics in the short run at the cost of wiping out the resources set aside for long-term capital improvements. Furthermore, the arbitrary nature of government intervention in the economy makes long-term predictions about future savings and demand impossible.
Let the market direct savings and investment or face financial ruin
There is no single right answer to the tradeoff between current consumption and the savings available to invest in future production and increased economic growth. Every individual must choose for himself how to balance present spending with investments in his future. In a free market, the sum of individual savings rates becomes the real interest rate.
For the last few decades, America’s spending binge has been funded by foreign investment and rapid technological innovation, but ultimately, unless we drastically cut our consumption, and direct our income into savings and repaying our debts, we will find our money increasingly worthless both here and internationally. The dire consequences of hyperinflation can be seen in Zimbawbe, where life expectancy has declined from 60 to 37/34 years, unemployment is at 80%, and as much as half the surviving population has left the country.
Further Reading
- The One Minute Case for the Austrian Business Cycle Theory
- Friedrich Hayek. The Paradox of Thrift 1929
- Ludwig Lachmann. Capital and Its Structure 1956
- Israel Kirzner An Essay on Capital 1966
The One Minute Case Against “Net Neutrality”
Posted by HeroicLife in Economics, Politics on June 8th, 2007
What is “net neutrality?”
To borrow Senator Ted Stevens’s infamous analogy of the Internet to a series of tubes, imagine a network of pipes connected by switching stations. The width of a pipe (bandwidth) determines the volume of messages (packets) than can be sent through it. Packets arriving at a switching station wait in a queue until they can be forwarded to their destination. The pipe’s diameter and the volume of traffic determines the total time (latency) that messages take to reach their destination.
Advocates of “net neutrality” argue against the right of the owners of the pipes (Internet Service Providers) to discriminate between different messages or to charge recipients of messages. So for example, an ISP would not be able to favor telephone calls sent over the net over movie downloads, or charge Google extra for the traffic sent their way, or to block a business if it competes with their own services, or to block malicious or illegal websites. Implementation of such regulations would require government surveillance of Internet traffic and FCC approval of new technologies and services which might violate “neutrality.”
Regulation stifles innovation
The limitations of the original Internet protocols became apparent as it transitioned from a monopoly network designed for government use to a competitive and decentralized marketplace. One limitation is the lack of ability to prioritize certain kinds of traffic. Different kinds of communications have different bandwidth requirements. Watching movies over the web is bandwidth-intensive, but not time-critical. Teleconferences are both bandwidth intensive and time critical. Some applications like remote surgery and other time-critical services are simply impossible over the public Internet with current technology.
Advances in technology are beginning to allow traffic to be analyzed in the process of transmission, so certain traffic, such as real-time video can be prioritized, while other traffic such as file sharing or spam can be given a lower priority or dropped. Along with dramatic increases in speed and performance, technological innovation is making entirely new kinds of services possible.
Net neutrality advocates want the government to regulate how ISP’s may and may not route traffic. Pressure groups such as consumer activist groups, major websites, small ISPs, and Internet backbone providers are fighting for controls that favor them. Once the precedent of regulation is established, competition will shift to passing the most favorable legislation rather than providing the best technology and service.
Regulations breed more regulations
While communications technology has experienced exponential growth, heavily regulated and monopolized consumer phone and cable providers have been slower to improve services. Consumers fed up with expensive cable and DSL services are demanding more government controls over the pricing and behavior of their ISP’s. They argue that regulations are necessary because telecommunications companies receive monopoly privileges and other benefits from the government. But the lesson they should learn is the opposite – regulations create the need for more regulations. The solution is to abolish coercive monopolies for cable and phone service providers and allow free and open competition.
The Internet is possible because many private networks find it in their mutual self-interest to cooperate and share traffic loads. When inequalities arise, networks compensate each other for the extra load. “Neutrality” regulations force companies to act against their self-interest, inevitably leading them to complain to Congress to impose ever more detailed controls to maintain “fairness.”
The Internet is private property
The Internet is not public property. Telecommunications companies have spent billions of dollars on network infrastructure all over the world. They did so in the hope of selling communications services to customers willing to pay for them. The government has no right to effectively nationalize ISP’s by telling them how run their networks.
Proponents of net neutrality love to invent hypothetical scenarios of ways companies could abuse customers. It is true that a free society gives people the freedom to be stupid, wrong, and even malicious. The great thing about capitalism is that it also gives people the freedom to decide whom they want to do business with. A socialized Internet takes away that freedom and turn it over to politicians and lobbyists. Why do “net neutrality” advocates ridicule politicians for comparing the Internet to a “series of tubes,” and then trust them to regulate it?
Further reading:
- “Net Neutrality: Toward a Stupid Internet” by Raymond C. Niles
- “A rational debate on Net Neutrality” by George Ou
- “Who Owns the Internet?” by Tim Swanson
- HandsOff.org: Hands Off the Internet
- NetCompetition: Debunking Net Neutrality Myths: A Series of One-Pagers
The One Minute Case Against Mandatory Seatbelt Laws
Posted by HeroicLife in Politics on May 21st, 2007
Driver safety is not a special prerogative of the state
Seat belt laws are enforced “for our own good.” But traffic accidents are not leading causes of injury and death, nor is buckling seatbelts the most beneficial thing you can do for your health. Daily exercise, nutritious meals, intellectual enrichment, and regular sexual activity have all been shown to have a positive impact on mind and body. The issue is not whether seatbelts are beneficial, but whether the state has the right to coerce us for our own good.
You own yourself
The Thirteenth Amendment to the United States Constitution officially prohibited the ownership of another human being. To own something is to exclusively control and use it for one’s own purposes. We recognize that control is ownership, even when property nominally belongs to another party. Thus, under the regime of the National Socialist German Workers Party, industry belonged neither to the original owners, nor to the workers, but to the Nazi party, and in the Soviet Union it belonged to the Communist Party, not “the people.” Joseph Goebbels, Hitler’s chief propagandist, explained it thus: “To be a socialist, is to submit the I to the thou; socialism is sacrificing the individual to the whole.” If the state controls every aspect of the individual’s life for the “common good,” then individuals become property of the state.
Safety regulations lead to reckless behavior
Common sense indicates that individuals are more likely to be concerned with their safety than politicians. Even when they aren’t, safety laws may have a counterproductive effect. According to studies cited by the Independence Institute,
When subjects who normally did not wear seat belts were asked to do so, they were observed to drive faster, followed more closely, and braked later. In other words, people who are naturally cautious voluntarily choose to wear seat belts, and voluntarily drive safely. When reckless people are forced to wear seat belts, they “compensate” for the increased safety by driving more recklessly. Furthermore, no jurisdiction that has passed a seat belt law has shown evidence of a reduction in road accident death.
Externalized healthcare costs are only a problem under socialism
Those who support outlawing risky behavior argue about the “social costs” of medical treatment for accidents. But this is only a problem for a socialist state. In a free society, a person is injured due to their own recklessness is responsible for their own treatment. However, in a socialist economy, everyone is responsible for paying for everyone else’s health. It’s not a coincidence that advocates of seatbelt laws are supporters of socialized healthcare as well.
“Click it or Ticket” is a step towards totalitarianism
There is no logical end to laws that replace individual judgment with politically-mandated notions of what risks we are and are not allowed to take. If it desirable to the state to control individuals while driving, eating, working, and seeing the doctor, it follows that the state should regulate every other aspect of their lives as well. Without a principled and uncompromising defense of the individual’s right to own his life, we are reduced to being property of the omnipotent State, being permitted to live only at the mercy of a bureaucrat’s decision that we contribute to the “common good.”
Further reading:
The One Minute Case Against Antitrust
Posted by Galileo Blogs in Economics, Politics on May 17th, 2007
Antitrust punishes the best companies
The list of antitrust targets reads like a Who’s Who of American business success stories. Standard Oil Company, Alcoa Aluminum Company, IBM, and Microsoft, are just a few. These companies were pioneers in developing new and beneficial products. Who doesn’t benefit from cheaper gasoline using methods pioneered by Rockefeller, the aluminum foil and light-weight aluminum parts invented by Alcoa, or the computer revolution, first in mainframes by IBM, and then in personal computing by Microsoft? These companies pioneered new industries and offered new products that were widely demanded by customers. The huge demand for their products and their large marketshare was a sign of how successful these companies were in selling products that many people wanted. Yet, that market share became the basis for antitrust lawsuits.
Antitrust is used by unscrupulous companies against their competitors
An honest businessman competes by selling a better product. It is not a coincidence that it is usually second and third-tier companies who use antitrust to hammer a more successful competitor. What does it say about the competitive spirit of a company that must cry to “mother” (i.e., the Federal Trade Commission) when the competition gets too tough? Antitrust is used by less successful businessmen to stifle competition.
Antitrust is arbitrary and non-objective; it is bad law
A good law is easy to understand and apply, so that one clearly knows in advance what is a crime and what is not a crime. Antitrust laws make it impossible to know whether one is committing a crime. Under antitrust, it can be illegal to charge less than your competitor (that is considered “price gouging” or “dumping”), to charge the same price as a competitor (that could be “collusion” or “oligarchy”), or to charge a higher price than your competitor (that could be “monopolistic behavior” or “destroying consumer surplus”). Thousands of lawyers and regulators extract hundreds of millions of dollars out of the economy wrestling with these questions. No one should be subject to such arbitrary law.
Capitalism doesn’t need antitrust
The great successes in business were achieved by companies that began small, and became large through innovation and lower prices. Antitrust did not make those successes happen. On the contrary, antitrust is poised like a guillotine at the throats of every businessman who has the foresight, perseverance and pluck to become successful. His very success, his large market share, puts a target on his back for unscrupulous competitors and eager bureaucrats.
Further reading
- Antitrust and Monopoly: Anatomy of a Policy Failure by Dominick Armentano
- “Antitrust” in Capitalism: The Unknown Ideal by Ayn Rand
- The Abolition of Antitrust, edited by Gary Hull
- Death by Antitrust: Mountain Health Care, R.I.P. by by S.M. Oliva
- Persecution of Microsoft is Immoral by Richard Salsman
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