The causes of the mortgage crisis

I have written elsewhere (here and in chapter 30 of my upcoming book) on this subject but here is a post committed solely to dispelling the myth “the free market” caused the crash of financial markets in 2008. I hear the lies repeated every day, even by my political economy professor: the reason the banks made such risky bets was there was no regulation and no oversight of the sector. The truth is, regulation was rampant.

Let us start with the Federal Reserve. The Fed is hardly ever mentioned as a cause of the crisis. Artificially-low interest rates (1%) encouraged artificially-high risk taking for certain sectors, including construction and lending to people who could not afford to buy homes. Fed policy increased the supply of money (look out for inflation) with the result that more dollars were created between 2000 and 2007 than had been created in the rest of the history of the United States. (It has done so again in the years since.) House prices rose.

They rose the most in California, where various laws made it impossible to develop the land, creating artificial scarcity and driving up home prices. But they rose in other localities too, in most cases because of similar restrictive building laws. 90% of the land in Nevada is owned by the federal government, so instead of a free market, the availability of land for building depends on the government’s approval of each use of it. Less than 10% of the land in the US is actually developed, but under the guise of preserving nature (a handout to environmentalists), the government protected land near residential areas and thus raised the price of it. As a result, many places saw a housing boom artificially brought on by government, whereas other places saw no boom at all. Thomas Sowell explains.

A fundamental misconception of the housing market existed both during the boom and after the bust. That misconception was that the free market failed to produce affordable housing, and that government intervention was therefore necessary in order to enable ordinary people to find a place to live that was within their means. Yet, the hard evidence points in the opposite direction. It has been precisely where there was massive government intervention, in the form of severe building restrictions, that housing prices skyrocketed. Where the market was more or less left alone, places like Houston and Dallas, for example, housing prices took a smaller share of family income than in the past. (The Housing Boom and Bust, 24)

The booms that did result, however, were, like many local problems, misperceived by an officious federal government as a national problem, requiring national-level intervention.

Easy access to housing began under the Clinton administration. Fannie Mae and Freddie Mac, government-backed but publicly-traded corporations that would be bailed out if necessary (a formula for moral hazard if ever there was one) also pushed to expand mortgage loans to people with bad credit under Bill Clinton. Bill Clinton’s Secretary of Housing and Urban Development, Andrew Cuomo

made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis…. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded ‘kickbacks’ to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.

(Here are three more people to blame, in case you are interested.)

Democratic Congresspeople were reluctant to demand any oversight of Fannie, a campaign contributor. Fannie and Freddie guaranteed loans to people who were bad credit risks. These government-sponsored enterprises held about $5 trillion in mortgages. The Fed lent money to the banks at near 0% interest because, well, it could create money without hurting the people making the decision to do so.

At least as important regarding the subprime mortgage meltdown is the fact that owning homes had become the political cause du jour. Not everyone has to own a house to live; but if people are given houses, whether or not they can afford the mortgages, they might vote for the people who made it possible. The desire to introduce coercion into a market is always for the benefit of the coercer. Sometimes it benefits the constituent, and sometimes it leads to one of the most costly financial crashes in history. The Community Reinvestment Act (CRA) was meant to eliminate racial inequality in availability of credit. If banks did not lend to minorities in high enough numbers to satisfy the authorities, they could be crushed by lawsuits. (Remember, poor people were already being stung by local land use restrictions that raised housing prices. The CRA would enable them to get credit for something they might have been able to afford in a free market.) Instead of leaving interest rates to the market, politicians found it politically expedient to help minorities buy homes. It makes sense: if one can finally buy a home, one’s standard of living appears to have risen, and rising living standards get politicians reelected. Lending standards loosened.

Bear Stearns said the mortgages were sound. The three rating agencies (a state-protected oligopoly), you remember, the ones that said the mortgage-backed securities were great when they were garbage, served to reinforce the popular lending-to-everyone policies. Tax codes encouraged overinvestment in housing. To blame lack of government oversight for the crash is to get things backwards. The banks did what the government wanted them to do: hand out more and riskier loans. Those who talk of deregulation as a cause of the crisis fail to point to a single episode of deregulation, aside from the repeal of one clause of the Glass-Steagal act, which did nothing to enable banks to make bad loans. To say the banking sector was deregulated is to ignore or misunderstand the many regulations in place that helped cause the crisis.

One study finds that federal outlays for banking regulation—the laws big banks supposedly fear so much—increased from $190m in 1960 to $1.9b in 2000 and $2.3b in 2008. The US has 115 regulatory agencies. Funding to the Securities and Exchange Commission under George W. increased sizeably, with the result that its staff increased by one quarter. The number of rules businesses needed to follow rose. There may be an ideal regulatory agency or system, but it has nothing to do with what what the agencies actually do. These ones did what the politicians wanted: encouraged banks to make home loans to people who could not afford them, and solved a problem that did not exist, namely a nationwide lack of affordable housing. The result was disaster. Either government cannot be trusted to oversee corporations because it has been corrupted by them, or else it cannot be trusted because it is so incompetent. Either the fox is guarding the henhouse or the headless rooster is. More layers of regulations added to the existing system are not likely to help the public.

Moreover, it may be a mistake to call the crash a failure of regulation. Again, the corporations did what the government told them to, and people responded to incentives that monetary and lending policies created. Whenever we consider a policy a failure, we need to question whether it is indeed a failure or whether the goals and eventual outcomes went just as planned. After all, the crisis has ended up further enriching the rich, through bailouts and stimulus.

The securities and investment industry contributed $53m to congressional and presidential campaigns in 2008. (They have not slowed down since then.) Then, they stood back with their hands out and received more than a trillion dollars for their generosity. The bailout bill was defeated at first, but legislators, in their inimitable way, searched for a new way to pass the bill. They got more Congresspeople on board by sprinkling horsetraded favours in with the bailout money. (Something similar happened when Ronald Reagan bailed out big banks in 1983.) Special interests got what they wanted, legislators got what they wanted—win-win!

The argument the government made at the time was that these firms were “too big to fail”. In other words, their failure would mean the collapse of many more firms and the economy itself; therefore, they might need to be rescued. But the fate of Lehman Brothers, with more than $600b in assets, is instructive. It seemed too big to fail; yet, when it did fail, its assets that were worth preserving were bought by other firms. Keeping firms on life support discourages investment, encourages wild risk taking and drains money from those firms who are, in fact, productive and allocates it to those who have proven they are not. Promising to bail out failed firms created the moral hazard that enabled this crash.

Along came a large (more than 400-page) bailout bill, which anyone who opposed or even wanted to debate would be labeled as wanting the economy to fail. The government now owned hundreds of billions in bad debt, which meant instead of letting the companies pay for their own foolish bets, the taxpayers would. The case of the 2008 crisis and the recession was one of socialism for the rich. And democrats, who think that they have choices, were presented with two presidential candidates who agreed on the bailout and stimulus bills.

I am not an economist, but I do recommend the book Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas E. Woods. Obviously, one book is not definitive, and all books I have read on this subject make good points. This one cogently argues the government’s role in the debacle was enormous. Its author is from the Austrian school of economics. The Austrian school predicted the crash (not to mention those of 1929 and 2000) based on evidence and basic economic principles. Either way, it is obvious that “the free market” and lack of regulation did not exist to cause this crisis. It was caused by the alliance of big business and big government, of a political system that rewards liars and thieves.

Many people, Occupy Wall Street protesters most vocally, blame the corporations for the crash. But corporations were doing what the government told them to. They blame corporations for accepting the bailout money. But if someone had trillions of dollars to give you, would you say no? That money only existed because it had been stolen from taxpayers in the first place.

And though some people—those who watch the news—think things are getting better, they are not. There will be no economic recovery, as the ruling class has already stolen it.

War, part 6: Iran

“Many in the United States have a rampant, untreated case of enemy dependency. Politicians love enemies because bashing them helps stir up public sentiment and distract attention from problems at home. The defense industry loves enemies because enemies help them make money. Pundits and their publications love enemies because enemies sell papers and lead eyeballs to cable-news food fights.” – David Rothkopf

“Here’s your enemy for this week, the government says. And some gullible Americans click their heels and salute – often without knowing who or even where the enemy of the week is.” – Charley Reese

Axis of Evil

The war drums are now beating for Iran. Politicians in the US and Israel are screaming about the need to destroy Iran’s nuclear facilities before Iran attacks the countries with the two most dangerous militaries in the world. Iran is an example of the desire to create new enemies from non-existent threats since the fall of the Soviet Union. The think tanks, the ones who said before the Iraq invasion that US troops would be treated as liberators and that the oil would pay for the war, and media commentators, the ones who did not question the government’s assessments of the threat from Iraq, are helping bring public opinion in line once again. Clarity is needed on this crucial issue.

The Islamic Republic has not always been anti-American. Those with good memories know that, before Ahmadinejad, Iran had two moderate, “reformist” presidents in power: Akbar Hashemi Rafsanjani and Seyed Mohammad Khatami. They urged cooperation with the West, reconciliation with the US and domestic freedoms. Rafsanjani spoke in July 2009 in support of Iranian pro-democracy activists; Khatami won the 2009 Global Dialogue Prize, and officially repudiated the fatwa on Salman Rushdie.

During the 1990s, Iran’s governments were interested in improving relations with the US, but the Clinton administration pushed Iran away. Iran offered the American oil firm Conoco a contract, chosen over other foreign oil companies in order to improve ties with the US, and the Clinton administration imposed sanctions on Iran in 1995.

Oil producers do not control the US government in quite the way most people imagine. War and sanctions are not in many oilmen’s interest. Sanctions prevent the development of oil fields by American companies and award them to rival companies from rival countries that do not participate in the sanctions regime. While security and stability are necessary to pump and transport oil, war produces instability. Whenever the US imposes sanctions on countries such as Iran, Iraq and Libya, or goes to war with countries like Iraq, it does so in line with some US oil interests, but counter to others. As could have been expected, Conoco’s parent company, DuPont, lobbied against hurting its business.

But the sanctions came along anyway. In fact, the sanctions on Iran came at the behest of the Israel lobby, the collection of hardline-Zionist pressure groups in the US whose actions have led to numerous strategic blunders for the US, including the subject at hand. In 1994, the US’s second most powerful lobby group, the American Israel Public Affairs Committee (AIPAC), circulated a paper called “Comprehensive US sanctions against Iran: a plan for action”. It sought to close all of the loopholes American companies squeezed through to do business with Iran. Bill Clinton, under pressure from the Israel lobby, scuttled the Conoco deal, and banned all American oil companies from helping Iran develop its oil fields.

In Autumn 2001, Iran helped facilitate the toppling of the Taliban regime and its replacement with the friendly government of Hamid Karzai. Iranians even held candlelight vigils to commemorate those who died on 9/11. President Khatami took these moves in hopes that relations with the US would improve. Instead, in 2002, George Bush placed Iran in the Axis of Evil, indicating he was keen on regime change there as well.

In 2003, after the US invaded Iraq, Bush publicly pressured Syria and Iran. Neocons and the Israel lobby, apparently under the delusion that they could rearrange the entire Middle East, began pushing for a zero tolerance policy against Iran. Neocons accused Tehran of harbouring al-Qaeda operatives, though the CIA and the State Department thought it unlikely. Norman Podhoretz, part of the Israel lobby, wrote an article for the Wall Street Journal in 2007 entitled “The Case for Bombing Iran: I hope and pray that President Bush will do it.” John Hagee of Christians United for Israel told AIPAC “it is 1938; Iran is Germany and Ahmadinejad is the new Hitler.” Retired general Wesley Clark, when asked why he was worried the US would go to war with Iran, said “[y]ou just have to read what’s in the Israeli press. The Jewish community is divided but there is so much pressure being channeled from the New York money people to the office seekers.” He was, predictably, lambasted as an anti-Semite. But as Matthew Yglesias wrote at the time, “everyone knows [what Clark said was] true.”

It was at this time that the Iranian government proposed a peace treaty to Washington. It was making a final effort, after helping with Afghanistan, to reach out. In it, the reformist government put everything on the table: support for terrorism, the nuclear program, its hostility to Israel; and in return they asked not to be attacked. They never received a reply.

Along with the Israel lobby and Pentagon hawks, heads of the influential House of Saud and other Middle Eastern governments have repeatedly urged the US government to go to war with Iran. Iran poses them no real threat, but they have no qualms about having someone else pay to wipe out a rival for dominance of the region.

George Bush said his administration was willing to go to war with Iran to protect Israel. (The Israel lobby’s leaders were quick to distance themselves from Bush’s statements, as they did not want to seem like the cause of the US’s unilateral belligerence.) All the 2008 presidential candidates echoed Bush’s remarks. While campaigning, Barack Obama said

There is no greater threat to Israel, or to the peace and stability of the region, than Iran… Let there be no doubt: I will always keep the threat of military action on the table to defend our security and our ally Israel… I will do everything in my power to prevent Iran from obtaining a nuclear weapon… everything.

Hype

In 2003, the US led an invasion of Iraq based partly on the testimony of a few exiled Iraqis and orientalist scholars who assured Americans they would be treated as liberators. Their Iranian counterparts and many of the same “experts” are providing Americans with the same lies in an attempt to lead the US into yet another foolish foreign adventure. Christopher Hitchens, for instance, who backed the invasion of Iraq, warned with his dispensable eloquence that Iran’s leaders might follow through on Ayatollah Kharrazi’s threat to establish a Greater Iran in Bahrain and the UAE. Such people have some difficulty in understanding people in other parts of the world because they are not able to put themselves in the shoes of those from other cultures. They believe that all the world’s people want democracy, which to them means political parties and a constitution. But Juan Cole, who has lived in and studied the Muslim world for many years, says in Engaging the Muslim World that among Muslims he has met, democracy means freedom from foreign oppression. (That should not be surprising, as most or all of the Muslim world has been subject to foreign occupation and humiliation for hundreds of years.) As ironic as it may seem, this revelation means that dictatorship would be viewed more favourably by Muslims than American-backed political competition. Iran, having suffered all manner of foreign intervention over its history, is no exception.

I believe it is unlikely that the Iranian government will be easily induced to give up its development of nuclear weapons (assuming, if we should, it is indeed attempting to produce them). Nukes are good for regimes who face an existential threat. It is understandable to prepare for war with a country like the US, which has started two wars with Iran’s immediate neighbours, and Israel, which publishes daily headlines that scream of the colossal threat posed by Tehran’s nuclear bomb and the necessity of preventing them from acquiring one.  Barack talked about eliminating them, presumably to shape the Iran agenda, but doing so would require extremely costly incentives (eg. lots of money and security guarantees for countries like North Korea) or disincentives (eg. war). And if possessing the bomb is the best way to win a prize, what is to stop everyone from having them?

Moreover, why would they give up the bomb for some financial inducements to make themselves more dependent on outside powers? Aid can be sneakily withdrawn by governments at any time; a nuclear weapon is the only real deterrent against invasion.

Will Iran use nuclear weapons against Israel or the US? I doubt it. If an Iranian missile landed on the US or Israel, those two countries together would walk all over Iran. Let them have a nuclear weapon. It protects against invasion.

In spite of its president’s posturing, Iran’s military budget is smaller per capita than any other state in the Gulf beside the UAE (an ally of the US). To whom does it pose a threat?

To Israel? To the Israeli Defense Forces, one of the best trained militaries in the world, with its nuclear arsenal and its ability to crush any military in the Middle East? I have discussed the infinitesimal likelihood Iran will attack Israel elsewhere. In my opinion, Israel is far more likely to use nuclear weapons on Iran than vice versa. Israel has been involved in numerous wars, large and small, since its founding in 1948. Iran has spent most of the last hundred and fifty years fighting colonialist oppression, and has not once in that time invaded a neighbour. Given their records (and the strengths of their militaries), who is more likely to fire on whom?

Iran’s government is often accused of funding and supplying arms to Hamas. This support is then employed as an excuse not to talk to Iran, or Hamas as the case may be. However, former senior British diplomat Sir Jeremy Greenstock said in an interview with the BBC that Hamas is not politically tied to Iran. On a logical level, if Iran is supplying Hamas with arms, it is a sign of Iran’s weakness, not its strength. Hamas has no tanks, no aircraft, no ships, no artillery, no missiles besides Qassam rockets, which are so weak that of the nearly 10,000 fired at Israel in the past decade, just over 20 have actually killed anyone. It is well known that Iran supports Hezbollah (though that support recently came in the form of reconstruction aid, as Iran helped rebuild Lebanon after the 2006 Hezbollah-Israel war), but like Hamas, Hezbollah poses little threat to Israel’s existence.

Meanwhile, the Badr Corps, a key US ally in Iraq, was once part of Iran’s Revolutionary Guard. The US government has designated the Revolutionary Guard a terrorist organisation (even though it has never engaged in terrorism) and the Badr Corps a pillar of Iraq’s democracy. Iran probably provided money or weapons to militias that killed US soldiers in Iraq; like the acquisition of nuclear weapons, this action is rational. The idea is, given that the US invaded two of Iran’s neighbours, and that its bases surround Iran like noose, tying the military down as best it can makes it harder for the US to invade yet again.

But to listen to the mainstream media, one would think Iran’s hand is in every terrorist plot in the world. In October 2011, the FBI alleged that Iran had hired a Mexican drug gang to kill the Saudi ambassador to the US. We have strong evidence, asserted the FBI, but we can’t show it to you. Bombs went off in Thailand and the Israeli government accused Iran of attempting to kill its diplomats. Meanwhile, agents murdered an Iranian nuclear scientist and the world said “he had it coming”.

Iran might be developing a nuclear weapon (though no one seems to have any hard evidence), and its leaders will probably continue to promise violence. (Presumably, few people know that the US gave some encouragement to its ally the Shah to build a nuclear weapon back before Iran was ruled by Bad Guys.) But a look at the evidence says there is little reason to worry that Iran’s leaders’ threats are worth heeding. What are we so afraid of? Listening to an adversary? (Please do not believe that the Barack administration has extended a diplomatic hand to Iran. It has done no such thing.) Fortunately, the truth is available to all of us, waiting to be found, ready to disprove any of the fears that could warrant war with Iran.

Will it give nukes to terrorists who will use them on everyone? This is an unrealistic prospect. First, Iran wants to keep its foes on their toes, but does not want to destroy the world. Mahmoud Ahmadinejad’s rhetoric is just posturing. Men love to strut and posture and look tough. Men build big guns and missiles and hold military parades to feel good about themselves. Some men will always talk tough, even if, behind the scenes, they are actually hoping they will not have to carry through. Moreover, Ahmadinejad does not have power over the government, and certainly not over the deployment of heavy weapons. But unless one pulls back the curtain, one could be led to believe he is an imperialist warmonger.

Second, most terrorists have no ability to detonate a nuclear weapon. As John Mueller explains, a nuclear bomb is not a toy. It is very hard to assemble and use, and will not simply blow up the world if tapped with a hammer. Moreover, if Iran supplied terrorists with weapons, intelligence agencies would find out and governments would fiercely punish Iran.

Like all governments, the people running Iran want to remain in power. The idea that Iran is a “martyr state” is little more than a myth. Once-respectable historian Benny Morris said Iran is Nazi Germany. I hope such cheap, populist rhetoric destroys his reputation for thoroughgoing research, as he has clearly outgrown it.

But they continue to refer to Iran as the most dangerous country in the world. Gallup polls indicate that the percentage of Americans who believe Iran is their greatest enemy has increased every year since 2001. The reason might be that rhetoric on Iran has gone up concurrently. US and Israeli warmongerers want us to believe it to buoy support for military action. They believe that, by eliminating all enemies, they can be secure. But when we attempt to destroy all enemies, we imperil our own security most, because everyone will mistrust us, and most will defend themselves.

Have Americans already forgotten how they were duped into supporting the war against Saddam? All the same transparent words are being used: evil, irrational, radical, WMDs and so on. Have those pages of history already been rewritten? Yet, aside from interfering with American wars on its borders, a rational act given that tying down the US in Iraq and Afghanistan makes it less able to attack Iran, Iran has never attacked the US or Israel. Why would it do so now?

Are we afraid because Iran’s government is a pack of religious fanatics with an apocalyptic worldview that puts them on a collision course with civilisation? People who take this view tend also to see everyone an American newspaper might call “jihadists” in the same light: ready to kill themselves and everyone else to bring on the end of the world. The differences among these groups are significant and often ignored. Iran’s Islamic revolution was a nationalist one, and though it supports other Shia groups in the Middle East against Western interests, this has been largely in reaction to isolation and demonisation by America and Israel, not to spread holy war. It does not support groups like al-Qaeda, though I am sure that if they get desperate, the Israel lobby and neocons will fabricate evidence that they do.

Being religious does not mean being stupid. Everyone responds to carrots and sticks. Iran’s leaders have shown they can be reasonable and even friendly to foreign interests, including those of the Great Satan, and may be again. Besides, if religious fanatics could not be negotiated with, no one would ever have approached the Bush White House.

Talk of war tends to push the potential victims of that war into the hands of tough-talking governments. Shame, really, as Iranians are among the most pro-American people in the region. They may not like the US government—few around the world do—but they like the ideals the US used to stand for. Iranian-American author Hooman Majd explains that “Chants of ‘Death to America’ are meaningless–the phrase refers to US foreign policy, hegemony, and imperialism; not the American dream or the people.”

Threats

But the absence of a threat does not mean no march to war. The US and its allies are encircling Iran.

Thousands of US troops deployed to Israel recently. The Israeli military announced it as a major missile defense exercise with its ally. The reason for this “defense” preparation is the big, scary country on the other side of the Middle East. It is also being encircled by US and UK aircraft carriers.

CBS news reported the Israeli military as saying the drill had been long anticipated and was unrelated to recent events. The article explained the drill would take place “as tension between Iran and the international community escalates”, as if Iran is defiantly taking on the world, rather than being pummeled into submission. If we are still not sure who the aggressor is in this conflict, let us review the facts.

• Iran is, at present, surrounded by US military bases. If everyone in your neighbourhood were armed to the teeth and yelling about how dangerous you were, would you feel threatened?
• In recent years, the US has invaded and occupied two of those neighbours, Afghanistan and Iraq, for all the same reasons it may want to occupy Iran. Iran has oil; it is strategically located; it is a manufactured enemy; Americans do not know anything about the country except that it’s evil, and will thus give the green light to their politicians.
• Israelis have been subjected for years to media bombardment about the perils of an Ahmadinejad-led, nuclear-armed Iran. There seems to be broad consensus in the Israeli right wing and other circles that the Islamic Republic cannot wait to “wipe Israel off the map”. Again, the enemy is largely manufactured and sold by elites who want to send more people to die.

John Tirman of the MIT Center for International Studies points out the “peculiar” time for the march to war: the end of Operation Iraqi Freedom. Is it time for Operation Iranian Liberation? The foolishness with which the US stumbled into Iraq in 2003 is repeating itself.

Sanctions

The US and the EU (“the international community”) are ramping up economic sanctions unnecessarily. EU politicians have willingly endangered the European economy by moving toward choking Mediterranean countries’ oil supplies. Paul Stevens of Dundee University in Scotland says that Greece, which imports 30 percent of its oil from Iran, would be pushed off the cliff on which it is already perched. “It would utterly destroy the Greek economy.” Tough sanctions on Iran will not stop it from producing a nuclear weapon, which is, in fact, a very rational exercise for a state expecting to be attacked. (In fact, Iran has been under attack for thirty years.) They may, however, repeat the deaths of hundreds of thousands of people, as the sanctions on Iraq did to that country during the 1990s.

The sanctions have been painful, and will get worse. The price of imports and consumer goods, including food, is rising. The value of the currency is dropping, making it harder to export goods. Juan Cole calls them “the most crippling sanctions that have been placed on any country since the case of Iraq in the 1990s. It’s no longer a matter of just sanctions. I think the US is now engaged in a blockade of Iranian petroleum. It’s trying to prevent Iran from selling its major export.”

Sanctions, much like interstate wars, exemplify the punishment of civilians that inevitably results from interegovernmental disputes. The pain of sanctions is not an unintended consequence, however. The hoped-for effect is to turn locals against the regime. But the locals are not stupid. At least as many who oppose their local oppressors understand that it is foreign oppressors who are making them suffer now. The sanctions applied to Iraq during the 1990s resulted in hundreds of thousands of deaths and no uprising. Madeleine Albright, whose policy it was, continues to say those deaths were justified.

Reasons

The US has threatened India for violating the sanctions. Why? India, you see, is one of the countries that buys Iranian oil and does not use the dollar to do so. It cannot be allowed to slip out of Washington’s grip, so it will be punished.

Iran is a major oil source, and it is trying to ditch US dollars. The endless printing of money by the Federal Reserve has led to a serious devaluation of the USD. More and more countries are seeking to divest themselves of it. The US government will threaten those it can not to leave. If enough states stop using US dollars for international trade, the value of the USD drops, and the ability of the US government to print its way out of deficits goes away. It also gives the US government less leverage over foreign states, because they do not have to bow to its dictates regarding currency and foreign exchange. If the petrodollar is no longer the all-purpose medium of exchange for the oil market, the power of the US government over that market deteriorates. In September 2000, Saddam Hussein dropped the petrodollar as the currency for Iraqi oil, opting for the euro. By following the money, we can see the true nature of the desire for war with Iran. History repeats.

But fear of the evaporating petrodollar is not the only reason for aggression against Iran. It is presumed in Washington that Israel should have the monopoly on nuclear weapons in the Middle East. Though a nuclear weapon would probably never be used against Israel (and plenty of top Israeli intelligence and military men know that), one cannot attack a country with nuclear weapons. Israel wants to retain the power to attack anyone. The Israel lobby in the US and its hawkish supporters in Israel would love to see the destruction of their rival, just as some of them are (prematurely) rubbing their hands with glee at the thought of Syria’s fragmentation.

Finally, the very existence of a “national enemy” is of enormous benefit to a state. It is a distraction from local problems, which the US government has in abundance at the moment, as people rally round the flag. It is a chance to curb civil liberties and enlarge the state. It is a way to give publicly-funded handouts to pressure groups.

Needless to say, full-blown war with Iran would be devastating. The war on Iraq killed hundreds of thousands of people and rendered the country intractably unstable for a long time to come for no other reason than to please the Washington power elite. And what is the desired outcome? National security? Can national security ever be achieved by waging endless wars? No, suggest the history of Israel and the 9/11 attacks. The entire Middle East and Central Asia could be engulfed in war.

Warmakers are not merely shortsighted, though. They understand the consequences. More devastation, more instability, more religious extremism, more terrorism, more pain: these are all foreseen and desired outcomes. More instability in western Asia will mean two things that keep the powerful happy: higher oil and gas prices, and more enemies to fight and justify more military intervention. If the elites can benefit, the war with Iran will no longer be clandestine, and millions of people could die as a result.

Health

“If you think health care is expensive now, wait until you see what it costs when it’s free.” – P.J. O’Rourke

The current debate in the Supreme Court on the constitutionality of Obamacare is, like most political discourse, distracting. Does it matter anymore if something is constitutional? Is indefinite detention without trial constitutional? The real question is, do we need a top-down health care system at all?

Are we as healthy as we could be? Do we have the best health care system in the world? What would the best health care system look like? Would it look anything like the current system? This post will consider the dangers of subjecting health care to law and regulation, why we are still sick, and health freedom. This post will also outline some of the problems inherent in government, as explained with reference to government health care.

Canadians and Europeans love their health care system. It’s so great. You get decent care at a low price. What could possibly be wrong with that?

Let’s first consider the fact that, in almost every case (certainly every one I can think of) where free markets are adopted, they successfully lower prices and increase quality of services. Surely, food is more important than health care. And yet no one is starving in the streets of the developed world, even despite the higher prices caused by subsidy of large farms. The argument that something needs to be done, therefore it needs to be done by government, does not follow. Government does everything less efficiently than business because its agents are relieved of responsibility. It subjects everything to politics, meaning the amount of resources allocated to it will depend on the strength of the groups pushing hardest to control those resources. A complex top-down system is a door wide open to abuse. An anarchist’s argument is that if something needs to be done, the people will make it happen; let the people find a non-coercive way to do it themselves.

The optimal systems, from an economy to the body of an organism, are those built from the bottom up, through trial and error. They are the sum of millions of incremental steps undertaken by millions of decentralised actors. Complex systems are strong systems when they evolve through the actions of everyone that makes them up. Trial and error enables people to fail and accept responsibility, but also to reap the rewards of success. Voluntary systems are thus healthy, robust and produce the best outcomes.

The governments that give their subjects “free” health care are drowning in debt, and health care is a major liability. Yet, it is a sacred cow of statists. We have all heard the arguments: We should take care of each other; socialised medicine is the only way to ensure equality of treatment; without universal health care, who will take care of the poor? People talk about it as if the costs were irrelevant. They are always relevant. Every dollar spent on health care (and bureaucratic “administration”) is a dollar not spent on something else. Given what we know about government inefficiency, how much of that money is getting wasted?

Waste and inefficiency need to be considered, because they mean we are losing our money for no good reason. But we knew about government inefficiency already. What is less well known is that the government promotes unhealthy eating. The US government subsidises animal-fed crops, which means it is subsidising meat. Meat is not healthy, especially factory-farmed meat. (That does not stop the government from feeding it to children) We should be eating more fruit and vegetables. But meat is cheaper, thanks to the taxpayers, so people will overconsume it. Obesity and disease rates will rise. The meat producers will lobby for greater subsidies and greater legal protection of their industry, and force out competitors as best they can. (They use the state to shut down small farmers all the time.)

Health care is getting more expensive because of several factors, including ageing populations; rising costs of technology for the best care available, which everybody wants; an enormous number of laws and regulations controlling what we purchase and ingest; and the fact that whenever the government subsidises something, it rises in price. With something as important as our health, can we really risk letting the government meddle with it?

They say fearfully, “Look at the US. It’s a free market and not everyone has health care.” Sorry, did you say it’s a free market? In the US? Where the government spends trillions of dollars every year on Medicare and Medicaid? Where the American Medical Association uses the law to limit the supply of doctors, allowing them to charge more for doctor care? Where the state decides how much doctors can charge? Where doctors have a monopoly on dispensing medicine? Where the FDA allows and disallows foods and drugs based on political concerns? Where strong intellectual property rights make it impossible for cheaper, generic drugs to make it to the market? Where government regulations enable these things called health maintenance organisations to control who gets care and how much it will cost? This is your idea of a free market? (If so, please read about what a free market is here.)

And if government health care is so good, why do we have multimillion-dollar cancer societies that are actually doing something when government claims to need trillions of dollars to take care of all our ills? Organisations like the Bill and Melinda Gates Foundation are at the forefront of medical breakthroughs and governments are there taking credit for the people’s health, as if thousands of pages of regulations have ever cured anything. The US spends more than any OECD country on healthcare. How much money, how many bureaucrats and how many laws does the government need before it starts solving problems?

It is also ominously pointed out that if we didn’t have health care for literally everyone, people who couldn’t afford it would be dying in the street. Canada, the US and Europe are very prosperous societies. This supposition implies a few things for our discussion of a free market in health care. First, since health care would probably consist of various businesses competing with one another, it is likely that some or most private health care providers or insurers would compete for the business of people on the bottom of society. They would want the business of as many customers as possible. The success of the “bottom of the pyramid” model can be found all over the world, and it works in medical services and insurance. Of course, it is also possible that doctors could live in communities and focus on treating the people of their communities, start clinics that are based on paying whatever you can pay, depending who you are, something like that. Or perhaps businesses that are large enough could have hospitals and clinics just for their employees (and admit others in desperate need). Anything is possible when there is no coercion.

The second reason people probably would not be dying in the street is the Hippocratic oath. Doctors have to give care to people who are in immediate need of it if there is no one around who is more qualified. Maybe they would be working and not in the street where someone is dying, so maybe you could take people to the hospital to see the doctor, which brings us to the third reason people would not die in the street: human sympathy.

The whole reason people believe in health care for everyone is that they believe people are valuable in and of themselves. (Well, that may be due to a sense that our compatriots should have health care; there are few proposals in Europe for paying for the health care needs of the poor in Kolkata.) People could start charities for poor people who cannot afford health insurance. We would presumably have more money to do that if we were not subsidising literally everybody, rich or poor, for their doctor’s visits. Of course, those charities already exist. There is no reason to believe that if we had more money their funding would dry up.

A system that takes care of everyone indiscriminately has lead to self-righteous discrimination. Reasonable people do not resent paying for victims of circumstance, like cancer patients who have never smoked in their lives, but question the compulsion to pay for pack-a-day people with the same ailment. As such, they tell others not to smoke, drink, eat trans fats and sit for more than a few hours. Because many statists believe in a legal approach to changing others, they have erected a nanny state that forces us to conform to the norms of what we are allowed to eat, prohibitions on driving without seatbelts, wear helmets while cycling, and so on. If healthy people were not forced to pay for the healthcare of the health-unconscious, they would have nothing to complain about. This self-righteous indignation relates to every free-rider problem. If no one were forced to pay, the free riders, from special-interest rich to state-dependent poor, would lose out. Those who produce would keep the value of what they produce and give away what they want to whom they want.

A system that treats everyone equally demands conformity. Conformity takes away individual choice and replaces it with collective choice. Like democratic elections, I am not allowed to do what I think is right, only what we think is right. I cannot opt out if a candidate I do not like was chosen; I have wasted my vote. I cannot opt out if I do not want to take other people’s money; that’s the way the system works. We are even faulted with greed or selfishness if we do not go along with the collective. Thus, we are all individual hostages to the collective will, which endorses democracy and thus legitimises everything the government does because it is in the name of “the people”, “the public” or “the greater good”. Instead, we should treat people as individuals, letting them pay their own way if they are able, and helping them out when they need a hand up.

As it stands, in Canada, Europe and the US, a patient’s health care costs are mostly borne by a third party. Rather than covering accidents, injuries that were not the fault of the patient or major operations, so-called health insurance covers everything the patient sees the doctor for. Do we not see the potential for abuse of a doctor’s time under this system? Indeed, it is abused, as patients tend to visit far more frequently than necessary, just like they eat more meat when it is subsidised.

Waiting lists in Canada and Britain are growing. Thousands are in need of various types of surgery. But why should they? Is it for lack of money? No. How would giving the same doctors more money change the fact that there are not enough of them? But wait. There are plenty of doctors in the country. Unfortunately, many of them are driving taxis (at least, so they say), and there are plenty more willing to come. Patients are not permitted to pay more for more prompt treatment, because waiting lists are based on other considerations. Physicians have no right to charge patients based on the market costs of their services and must bill the government for patient visits based on fixed-fee schedules with little regard for the depth of service provided. And since they are restricted in what they charge, they are likely to try to make money in other ways. Because they are limited in what they are offered, it is not surprising that Canadians often go to the US to escape the long waiting times. A free market would provide most or all of what people want without the government failure that characterises the current models.

If universal health care is good, why does no one talk about the Soviet model? In 1918, the Soviet Union was the first country to offer cradle-to-grave medical care for all citizens.  (Read all about it here.) Or is that ridiculous? Most people believe “we” (rather, the state) should make sure no one who cannot afford medical care should nonetheless get it. Then, they say that the only way to make that happen is by force. The conversation goes something like this (courtesy of Stefan Molyneux):

A: Medical care must be entirely privatized.

B: But it’s more expensive when the state does not run it. Look at America!

A: I don’t believe so, but what if it is? Can I tell you how much you should spend on health care? Perhaps, in a free society, people would choose to spend half their income on health care. Would you tell them they cannot?

B: But in the US, 30 million people don’t have health insurance.

A: That is the result of terrible government laws which drive the cost of insurance up, and the benefits down – but let’s say that it is purely voluntary, that many people don’t want health insurance. So what? Would you force them to take health insurance?

B: But people should have health insurance!

A: Why? What if it costs half their income, and they’re eighteen, and very healthy, and take the bus, and don’t skydive, and always cross at the light, and so on? For that person, health insurance would probably make no sense. They would be far better off getting themselves educated, or saving their money, or just taking the risk of getting sick. Health insurance is a very personal decision. I would never feel comfortable making that choice for someone else.

B: But if that eighteen year old gets sick, they have to go to a public hospital, and so they incur a social cost.

A: Yes, at present that is true, but it won’t be the case if health care is privatized.

B: So they’ll just die in the streets?

A: Would that bother you? Watching poor people die in the streets for lack of health care?

B: Of course!

A: So you would help them, right?

B: Yes, I would, but…

A: And so would just about everyone else. Everyone cares about such things. The very presence and acceptance of state-funded health care proves that people care about sick people who can’t take care of themselves. So that won’t be a problem. But even if it is – let’s say that not one person in society cares about sick poor people, and they do die in the streets. If that is so, then giving the government more power would not help them, because such apathetic citizens would never vote for politicians who would care about the poor – and the politicians themselves would not care about the poor, since no one does. So – either people care about the sick and poor, and will help them without the government, or they don’t, in which case the government won’t help them either. The entire point of privatization is that we cannot force our own preferences on other people. If you prefer for everyone to have health insurance, I think that is wonderful! You should start up an insurance company and figure out how to provide it. Or support someone else who does. Or give to charity. Or become a doctor and work two days a week for free. Or pay extra for your own insurance so that others can pay reduced rates. There are thousands of ways to help. But the government cannot morally force people to give money to the poor, or provide them with free health care, because if it’s moral to force charity, then anyone can do it. We must then grant poor people the moral right to grab guns and rob doctors and hospitals for themselves.

This conversation could replace health care with education, police, roads and so on and it would look similar.

Why would a free market for health care be worse? What are we so afraid of? A free market usually provides public goods for everyone, as services of varying price and quality are offered to different income groups, and at far lower costs than the government pays. It is possible, of course, that the quality of care the poor receive would decline, but for the considerations above. Surely, people willing to pay more money for more health care should be allowed. Well, they are not. As Pierre Lemieux puts it, “Opponents of private health care…morally oppose the idea that some individuals may use money to purchase better health care. They prefer that everybody has less, provided it is equal.” Let us look more closely at the statist system.

What are the politics of the vaunted Barack health-care bill? The bill’s history is suspicious, riddled with backroom deals with large insurance and pharmaceutical companies, and the possibility that no one who voted on it actually read it. How could they? It is 906 pages long. Instead of the efficiency that would benefit taxpayers and users, we get complexity. Though praising Barack’s attempt to give everyone health insurance, the Economist then said this.

Every hour spent treating a patient in America creates at least 30 minutes of paperwork, and often a whole hour. Next year the number of federally mandated categories of illness and injury for which hospitals may claim reimbursement will rise from 18,000 to 140,000. There are nine codes relating to injuries caused by parrots, and three relating to burns from flaming water-skis. … The government’s drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. The health-care bill included tons of favours for the pushy.

The illusion is that somehow government could work without dispensing any favours to the powerful. But how? It is beholden to special interests. Everything it bestows on the powerful makes those people more powerful, making it harder for meaningful legislation to get passed. Now, nearly all Americans will have health insurance, but at what cost?

To say that no money is too much to give everyone something is reckless. Money can always be better spent on something more efficient. Efficiency, one hallmark of a free market, is much misunderstood and maligned. Efficiency saves money that could be spent on important things. For every thousand dollars in value wasted, we take away a thousand dollars of treatment to another person. It is the same reason we should be skeptical of spending trillions of dollars to fight climate change when there are cheaper ways to tackle the problems it is likely to engender.

We simply do not know what freeing the market for health would do. Under the state system, there is no free price system. A price system gives feedback as to market prices because the people are free to choose which prices are right for which services they want, and choose another provider if they like. That is why prices tend to come down when a market is freed: competing suppliers enter the market and people have cheaper options. In a statist system, however, it is common that the law is used to create monopolies and oligopolies. Health care in the US is one example. It is a tragic waste that makes a few well-connected people richer and impoverishes everyone else.

Another reason inefficiency and waste are so prevalent in government is to benefit the state. It is erroneous to believe that the state would like to save money on its programmes. In fact, the more money the state spends, the greater number of or greater the extent people depend on the state. That is why all the wonderful proposals for how to streamline or eliminate a government department fall on deaf ears. Here is one such proposal. To cut healthcare costs, suggest the authors, “Congress and the Supreme Court would be well advised to take additional action to reform healthcare by limiting the patentability of medical processes and diagnostic methods.” But what incentive do lawmakers have to limit the patentability of something that makes a few people rich? Patent laws are strong because the elite want them to remain strong. Politicians are not interested in saving other people’s money but spending as much of it as they can to please everyone they need to to achieve their goals. Of course the Barack health plan could be cheaper than it is; but then how would he dole out billions of other people’s money to corporate lobbies?

It is often said that health care is a right. The same people might say that education, a job, a house and a cushy retirement are all rights as well. While those things may be rights of a sort, an anarchist would say that it is wrong to force everyone else to pay for and provide those things, and can point to the disastrous effects this “give it to me or I won’t vote for you” entitlement mentality have had. If you have the right to free health care, is it my obligation to pay for it? The “right” to education has led to a steady devaluing of it and a massive debt bubble; the right to a house turned into the mortgage meltdown; and the right to a pension underlies the largest and most intractable long-term government liabilities all over the rich world. I have a right to good health in the same way I have a right to walk around shouting racial slurs; either way, I should pay the price myself. Senator Bernie Sanders once said that getting the best possible health care the system can provide is a right for all Americans. I wonder how many millions of dollars per person that would cost, and how much the price of health care would rise if it were not seriously deregulated first, but I do not suggest attempting it. But Bernie derives his popularity from the entitlement mentality.

Politicians are always happy to feed the people’s illusion that it can provide them with everything they want by telling them they deserve it. So politicians come up with “ideas”, usually in the form of laws and spending increases and never dare to suggest people should take responsibility for themselves.

One idea that keeps raising its head is to increase the amount of money for Medicare and Medicaid. But Medicare and Medicaid are government-run programs. Do we really trust the government to do what’s best with our money for our health? Why do we not just let the people who get sick pay for themselves? Stop taxing people half their earnings and they might have enough to cover a lifetime of illness. The government does not exactly create economies of scale. It spends more than $100m of that money on drugs people do not need. But instead, we prefer to shovel money into bottomless pits.

Medicare and other state health care funds are going bankrupt, like all Ponzi schemes do eventually. The estimated size of unfunded liabilities in the US ranges from $50 trillion to over $100 trillion. The money is simply not there, and unless we catch a leprechaun, it is not about to appear. Problems regarding unfunded liabilities of popular programmes never get touched until it is far too late, because politicians have their own agendas and taking the initiative to solve a political problem is rarely on them. If such a problem can be put off until after the next election, it is; and when the inevitable collapse comes, it will be someone else’s fault.

You know herbs, those plants that you can take to heal yourself? Health Canada has criminalised them. (I wonder if a certain pharmaceutical lobby influenced their decision.) Dr Gabor Mate knows of a treatment for drug addiction: a traditional Amazonian tea called ayahuasca. However, because the plant is officially a “drug”, Health Canada has ordered him to stop using it. Of course, it may, in fact, be quackery; but it does not follow that we should use violence to stop it. The same may go for iboga and even LSD.

Man is a natural scientist. That is how we got all these delicious fruits and vegetables we have today. From the beginning of agriculture, farmers selected the best vegetation and bred them. Through trial and error, the testing phase of the scientific method, we ended up with foods that are tastier than those growing wild. The same is true for why we have different breeds of horses and dogs. It is called artificial selection. People have been growing plants for medicine for a long time, too. Perhaps if they had had more money and the freedom to grow whatever they wanted, we would have better medicines today. As it stands, we are prohibited from growing all kinds of things—hemp, the wonder plant with a thousand uses, leaps to mind.

If we are free to try things, we might find a cure for our problems. No freedom means no cure, or an unnecessarily expensive cure. We thus see the danger of letting any government office “regulate”, which just means using violence to prevent people from deciding on their own, any substance at all. They tell the people what they can and cannot put in their bodies, which means they own and control our bodies, which means we could not possibly consider ourselves free. And the idea that government needs that power because it knows or should decide what is right for peaceful, sentient beings is ridiculous.

The FDA, or any regulatory body, as a government agency, is beholden to the whims of politicians. If politicians say, for instance, that marijuana must remain illegal, the FDA will kowtow. It has released all manner of dangerous pharmaceuticals on to the market, while continuing to lie that marijuana has no medicinal properties. It has broad scope to stop whatever it defines as a “drug”. (That said, a different law prohibits the FDA from saying anything about “dietary supplements”, also broadly defined. More laws do not make more sense.) It should thus not be surprising to anyone that the main food safety guy at the FDA, Michael Taylor, was formerly an executive of Monsanto. Clarence Thomas was an attorney for Monsanto and now is an associate justice of the Supreme Court. Linda Fisher worked for 10 years in the Environmental Protection Agency, or EPA, next headed Monsanto’s Washington lobbying efforts, then went back to the EPA. They are not the only ones taking advantage of the revolving door. (More on the FDA here.)

The FDA does not protect anyone’s health. The idea that a government is a good judge of what is right to put in your body is a joke. In spite of all its well-documented benefits, the Supreme Court has said that the US government can prosecute people who smoke marijuana, whether for medicinal purposes, whether given them by a doctor, whether the state has decriminalised the drug, or not. The FDA kept silent on arsenic fed to chickens and consumed by Americans for some time, while sending US marshalls to raid a distributor of elderberry juice because it was an “unapproved drug”. Another feature of all bureaucracies is their unceasing need to justify their existence by issuing directives that are supposed to be good for the public. If you are still not convinced, I suggest watching The World According to Monsanto to see the symbiotic relationship between the FDA and a corporation that would be considered criminal in a healthy society. The FDA is not good for the public. If it opened up food and drug certification to competition, the FDA would be irrelevant.

What else must we do and not do? Armed troops in helmets with guns drawn recently took down Rawesome, a raw food store in California, and seized the unpasteurised milk and organic coconuts they were selling. The government of California, deeply in debt, spent taxpayer dollars protecting big agribusiness by destroying its small competitors. Plenty more have been raided since Rawesome. The government has moved beyond the business of suggesting what we should eat (with its special-interest-inspired food pyramids and its classifying of pizza as a vegetable) to forcing us to shop for food where its campaign contributors demand. The businesses we must shop from pump their food full of antibiotics in factory farms.  If the government was concerned about our safety, it would shut down those farms (or at least warn the public about the dangers). Instead, it takes away your freedom and health because it is controlled by someone who cares about your money, not your health.

Do we need to tax 100% of the people to take care of the 5 or 10% who have no one to take care of them and who cannot take care of themselves? I have friends who make $40,000 a year who say that they need socialised medicine or else how could they afford it if something went wrong. Why don’t they save up money to take care of themselves or buy insurance? You would save up and buy insurance to take care of your car. And what is the role of private charity? We humans have shown we can take care of each other—even people we will never meet—by giving or volunteering to help the less fortunate. Government  not only does not solve social problems, it tends to prolong them. Let us see how the free market would handle and handles health.

Free-market health care

It is appropriate to consider not only what is wrong with the present system, but how we could be healthier in a stateless society. I have been asked “so how would you organise health care?” The first answer that leaps to mind is that, I would not. For the same reason top-down, hierarchically-imposed solutions tend to work very poorly, it does not matter how good my own ideas are; the people can decide these things for themselves. Free markets and free people have a way of sorting things out that makes sense, which is why we do not have triangular ATM cards and DVDs, even though the government did not tell us what shape to make them. Second, if people think health care is a good idea, they will find a way to make it happen. Take away the force, give people their freedom and see what happens.

The answer is not so much a system of health care as empowering people to make their own health decisions. It is likely that, as in all relatively free markets, the market for health would develop tiers of care. The lowest tier would be for common illnesses. How will the poor get healthy? You mean aside from diet and exercise, right? Perhaps they could pay for insurance. Or is that unreasonable? Insurance is only for the rich? Perhaps low-cost healthcare will arise. Wait. It already has.

Walmart offers walk in health services by leasing store space to private clinics. It costs a flat $45 per visit, meaning there is price transparency. This competition ends the monopoly doctors once had, and they will need to lower their prices.

The (relatively) free market is helping improve our health every day. Look at what intrepid entrepreneurs are doing. They provide venture capital for healthcare startups; help people save money on doctors and dentists; provide online platforms for doctors to communicate and for people to fundraise for individual patients who need it.

A stateless society might still want something that protects the people from bad drugs and food. We should not trust a government monopoly that banks low-cost drugs and foods just because they compete with powerful corporations. We already have other people testing these things—let them publish reliable findings or damage their reputations as scientists.

It is quite possible they will want to continue to subsidise each other (after all, such health care systems are popular), though why they might choose to do it on a national level is beyond me. I would never say we have to become atoms, or isolated communities. I see little benefit in such a scheme. If you do not like business, fine. The free market is not about business but free people’s solutions. We could arrange mutual aid through health cooperatives.

Forcing others to pay for something you believe in, whether you call something a right or not, is not virtuous. Compassion is virtuous and better for your health than pills. All I think is that we should have the choice.

Ron Paul

“We endorse the idea of voluntarism, self-responsibility, family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person.” – Ron Paul

Electoral politics, despite everything I have said about it, could be a path to freedom. I might be wrong that working through the current political system to achieve a freer and more just society is unrealistic. After all, perhaps the anarchist vision of a world without artifical hierarchies backed up by force is unrealisable. Presumably that and similarly less-optimistic beliefs about what is possible are why some people reject radical ideas. But Ron Paul could represent a major new step toward that world.

Well, it’s possible. This post is why Dr Ron is the only politician I have ever seen anywhere that I would (tentatively) endorse; why his policies are the right ones; why the two biggest slanders against him are wrong; why I do not expect him to win; why he will have trouble implementing his programme even if he does win; and why I am nonetheless glad to see how far he has come.

Why Ron Paul is different

There are two reasons I believe Ron Paul is different from anyone else running for president.

-First, he has a consistent voting record. As a Congressman, Ron has always voted according to his libertarian convictions, voting against wars and the police state, for example. (The same could not have been said about Barack when he took office, as Barack had voted for spending bills funding Operation Iraqi Freedom, for instance.) That means Ron has principles, a hard quality to find in a politician, and even more important, sensible principles; we can be thankful that the voters in Ron’s district approved.

-Second, one of the biggest problems with democracy is that most politicians are swayed while in office of promises of lucrative jobs and other benefits after leaving office for pleasing special interest groups. Ron would be 82 or 86 when he retired from the presidency. Would he really need any more money? He is less corruptible than a president in his 40s or 50s. I think. I could be proven wrong, however. After all, he still accepts campaign contributions. He will need to give out some tax-funded presents if he gets to the top. Still, his policies are worth trying.

Dr Ron’s policies

Before we delve briefly into the man’s policies, bear in mind that everything I am about to say is based on his voting record and stated principles. I do not need to remind anyone reading this blog that politicians seldom keep their word when they get into office. As I say above, he is more likely to do what he says than others, but we should be careful not to fall into the trap of assuming he will or will be able to. If fewer than nine tenths of those who voted for Barack with tears of joy in their eyes are not disappointed now, they have not been paying attention. We can only hope Ron will be different.

His policies, if he truly attempted to implement them and was able to do so, would save countless lives and taxpayer money.

-He would very likely refuse to bomb Iran, or give the Israeli hawks the green light to do so they thirst for.

-He would end the War on Drugs, and all the maddening arrests, gangs, murders, destruction and seizure of property, corruption of law enforcement and governments that goes with it.

-He would end the War on Terror, the war on Afghanistan and support for corrupt dictatorships. Doing so would shrink and hobble the military-industrial complex and the surveillance state. Ending the US’s disastrous military adventurism would almost certainly reduce or even end both foreign and domestic terrorism as well. As such, we would have less need for the FBI and the CIA and all the trouble they cause as well.

-He would abolish the Federal Reserve, meaning people would be able to save their money and not see it vanish through inflation caused by the printing of money. Since the Federal Reserve was instituted in 1913, the US dollar has lost about 98% of its previous value. That means anyone holding dollars at any time in the past century has lost his or her ability to spend that money. And since the Fed printing more dollars between 2000 and 2007 than in all its previous years combined, we can expect inflation to eat away at everyone’s savings ever more rapidly in the near future. (If you think we need a central bank because inflation is a good thing, I urge you to read this.)

-He would decrease government spending, meaning lower tax and debt burdens for our and future generations. This move would encourage investment locally and from other countries.

-He would repeal (or just stop passing) laws and regulations that hold back small and medium sized businesses in favour of big ones. A freer market would bring innumerable benefits we can only begin to imagine. The greatest experiment in anarchy and free markets ever, the internet, has proven the value of creative destruction, creating new economies, new ways of communicating and access to a previously unthinkable amount of information. A free market in the US could mean something similar. Ron Paul could take the US on its first few steps in over a hundred years in that direction.

Of course, all hopes are that he can get into office, can follow his principles while in office and avoids getting blocked by special interest groups. His first obstacle is libel and slander.

What has been said about Ron Paul

-“He’s a racist.” In a move typical of politics, his opponents have been able to use the scantest evidence to turn countless lefties away from Ron Paul by branding him as the thing they hate the most. But are his policies racist? How would they affect people?

In fact, policies of freedom are policies of equality and anti-racism. They give everyone the opportunity to live the life they want. They reverse the state’s entrenchment of poverty and the entitlement mentality it has fostered for decades. Fewer people would depend on the state. Poverty would fall as people would be able more easily to start policies without endless restrictions, tax forms, regulatory requirements and licensing fees. Paying lip service to diversity, or in Barack’s case just being black, says nothing about how the man’s policies affect people. The free market would do wonders to eliminate poverty for everyone.

-“He’s an isolationist.” Nearly as emotive for the right wing as “racist” is for the left, Ron Paul has been called an “isolationist” for his foreign policy. Presumably, by isolationist his enemies want to shed light on the fact that Dr Ron disapproves of overseas military bases and interventions. Is that really such a bad thing? At a time when the US intervenes militarily in a number of countries and kills everyone in its path, its overseas prisons and bases consume billions of dollars and approval of the US around the world is in the toilet?

But isolationist implies ignoring the rest of the world, evoking the time China’s emperor ordered the destruction of all imperial boats to cut China off from the rest of the world. The word these people are looking for is non-interventionist. Non-interventionism is simply the absence of coercion on an international scale. In the absence of instability caused by war, people trade with each other. And because borders are meaningless to people who have something to offer humanity, they trade with whoever in the world has what they want. And free trade, which really means without a government-written and implemented policy backed up by a gun but the absence of one, breaks down barriers. It lets everyone benefit from a liberal economy wherever the power has not been taken away from them to do so. A Ron Paul foreign policy would likely be one of cooperation and trade, not war.

Why I don’t think he’ll win

I am not a pessimist by nature. The glimmer of hope I see is the reason I wrote this post. But I do not actually think Ron has a chance. Think of the people who oppose his policies.

-First, big business, protected by countless laws that run counter to the free market Ron may understand and believe in more than any politician in the US. The opposition of big business to Ron Paul shows up in the media conspiracy against his candidacy. As is well documented by media watchers and his supporters, the mainstream media have deliberately ignored Ron Paul every chance they can, even sneakily not mentioning his name when discussing the Republican candidates. If Ron’s supporters can continue their commendable, tireless efforts to turn heads, he will break the media blockade.

-At the same time, Ron is opposed by anti-business types who believe his free market policies benefit big business. Ron Paul or no Ron Paul, these people need to be made to understand that the owners and executives of big business do not fear regulations: they write them. At the moment, markets in the US are dominated by an effective oligopoly of large corporations who can easily afford to comply with complicated tax codes and burdensome regulations. Fewer regulations and subsidies mean new businesses can be created by anyone to challenge the big players, lowering prices and unleashing the ingenuity of the free market as a result.

-Next, the US military’s domestic constituency. Everyone who believes the US should have a big, interventionist military that invades other countries for looking at the president the wrong way have something to fear from a Ron Paul presidency. These are powerful people, represented in some very powerful interest groups.

-Any other pressure groups currently getting rich off the US taxpayer may also decide Ron Paul is not their man. All these groups can fund media campaigns to deny Ron his chance.

Since Ron wants to reduce or eliminate foreign aid, foreign governments do not want him to win, either. Think of the states who would lose military aid and protection:

-Afghanistan, Pakistan and the other Central Asian states as the AfPak war is wound down;

-Saudi Arabia and the Gulf states protected by the US military;

-Israel, Egypt, Jordan, the Palestinian Authority and so on benefiting from US government patronage;

-and even Britain, France, Germany, Italy, Japan, Turkey, Russia and China who benefit from the oil and other big business concessions they would lose when the US stops fighting wars for them. (See here.)

How they could prevent Ron’s victory is hard to say, as it would be clandestine; perhaps they would fund media campaigns; perhaps they could get him assassinated. Presumably, not all of these governments would do such a thing. But we would probably never know who it was if they did.

Why he probably would not be able to do much if he did win

It is still possible that enough voters are not fools and Ron will be elected in 2012. A major push by his supporters, along with a continued stellar performance from Ron himself, could secure a victory. But things would not be easy for him.

-The same foreign governments could find ways to oppose his actions after he was elected, from the same hypothetical disinformation campaigns to a terrorist attack that would leave the US people thirsting for blood and forcing Ron’s hand to go to war. But, of course, the hardest hurdles would be from within the US.

-Congress would not be libertarian. It would still be beholden to interest groups. It would likely block as much meaningful legislation as it could. Congress has grown in dysfunction for decades as the rewards of power have grown. A libertarian president’s greatest hurdle would probably be an irretrievably corrupt Congress.

-The people would not be libertarian, either. To make what could amount to a revolution in the US could be catastrophic if the people are not ready for Ron Paul’s ideas. To his endless credit, he has educated numerous masses on the principles of freedom, the Constitution, US history, the Federal Reserve and the realities of wars and terrorism. And many of his supporters have spread the same ideas; kudos to them, too. Winning the Republican nomination would give Ron far more time on the bully pulpit, forcing the media to pay more attention to him. My worry, however, is that, at this point in history, opposition to Ron’s policies will pour out of every corner of American society.

-Teacher strikes that would ensue if Ron eliminated the Department of Education, and they would enjoy widespread popular support. Any similar union or other interest group fearing a threat to its established legal privileges could engage in strikes or other protests. Millions of Americans depend on the state in one way or another, many of whom are very rich. Working together, they could cripple the economic growth Ron’s policies would otherwise foster.

-Moreover, there is also a distinct possibility that those predicting an imminent economic crash will be vindicated. Ron Paul would be taking the reins just as the economy and the political system are crashing. The uneducated masses will be easily led to believe libertarianism is to blame for these crashes, just as they believe the free market was to blame for the subprime and financial market crashes of 2007 and 2008. The instability caused by strikes and so on might lead the people to pine for the days of the police state.

Why I am glad he is running for president

I may not think he will win the nomination or the election, but I am nonetheless thrilled to see how many people Dr Ron has educated. He has used the bully pulpit to open countless pairs of eyes to libertarian ideas and Austrian economics. This alone makes me love his candidacy.

But until we change many more minds in the US, Ron Paul’s wonderful ideas could run into million-dollar or million-man roadblocks.

Fortunately, with or without a Ron Paul presidency, there are plenty of ways to oppose the state and achieve freedom. This blog will go into those ways in future posts (and when it becomes a book later this year).

Education

“I’ve never let schooling interfere with my education.” – Mark Twain

“The aim of public education is not to spread enlightenment at all. It is simply to reduce as many individuals as possible to the same safe level, to breed and train a standardised citizenry, to put down dissent and originality.” – H. L. Mencken

“Education is a weapon, whose effect depends on who holds it in his hands and at whom it is aimed.” – Joseph Stalin

 One more: “We don’t need no education/we don’t need no thought control.” – Roger Waters

Well, we do need a lot of education, but we could do without the thought control. Instead, we are getting the latter while hoping for the former.

Public education systems everywhere in the world do a poor job of educating us. We are entering the 21^st century, a time that proves to be full of unforseen risks, challenges and opportunities. We are getting schooled with a curriculum for the 20^th century in a system created for the 19^th century. A good education can bring out one’s true potential, but we are being held back by a lack of accountability to students and parents.

I was once asked, how would you organise education or health care without a government? I find it unfortunate that people think that I or a few people, whoever they are, are qualified to answer that question. A free market achieves the best outcomes precisely because there is not someone at the top organising and directing it, and everyone’s ideas can be put to the test. A free market for education would mean families and communities and schools working together to decide what is right for their children, learning from different schools and teachers what works and what does not, and letting education evolve with society. State education does not offer that freedom. Parents and teachers do not have those choices.

I also find it hard to understand why people believe others to be so disorganised or uncaring that they would not want to take a more active role in what government does. At the moment, they have no role. All they can do is vote for the politician who promises the kind of thing that they want. What if their politician does not win? What if he or she has some policies the person likes but some others that are bad? What if he or she does not implement any of the policies promised on the campaign trail? What if he or she tries to implement the policies but they get stymied by pressure groups or watered down by the bureaucracy? What is the voter’s recourse? And yet, we are talking about education, health care, security and where millions of dollars of a family’s money is going over the course of their lives. Do you really not think they want to be or should be involved?

The ironic tragedy of modern schooling is that the state does such a poor job of educating people that the people believe they need the state to educate them. And education is not getting any better. Accepting the New York Teacher of the Year Award in 1990, John Taylor Gatto said

The truth is that schools don’t really teach anything except how to obey orders. This is a great mystery to me because thousands of humane, caring people work in schools as teachers and aides and administrators, but the abstract logic of the institution overwhelms their individual contributions.

He might as well have been talking about 99% of schools around the world. Totalitarian regimes knew that education was the key to teaching obedience, nationalism and state ideology. Today’s democracies may not teach children to run a cultural revolution, but they are not helping the children become wise, critical-thinking masters of themselves. When governments get their hands on education policy, it becomes a tool for indoctrinating obedience. And even in sciences or physical education, government schools are failing your children. In fact, things were better off before them. Now that we have the wealth and knowledge of the 21^st century (including advances in teaching methods), many, many schools can help students understand the world around them and learn the skills for navigating that world. So why do we not have them yet? Like all problems the state causes, the root is a moral one. The initiation of force is the reason Johnny can’t read.

Everything the state does is subject to politics—force, as opposed to markets. Harry Browne explains. “Whenever you turn over to the government a financial, social, medical, military, or commercial matter, it’s automatically transformed into a political issue — to be decided by those with the most political influence. And that will never be you or I. Politicians don’t weigh their votes on the basis of ideology or social good. They think in terms of political power.” (Politics in this sense has little to with elections. Election campaigns rarely hinge on issues related to education and the election goes to the one who best exploits the far more important issues of gay marriage, gays in the military and gay terrorism.) Education policy is subject to all the same lobbying as other policies. Public sector unions and business associations spend millions to induce policymakers to shape education policy the way they think it should be. These are the people who have convinced everyone that we always need more money for schools. Schools that spend more do not necessarily teach better and more important things. Schools that spend less sometimes do better by the students. And why not? Any economist or private-sector manager could tell you that competition among firms and employees generally increases everyone’s performance and improves efficiency. Why would the education sector be different? In fact, it is not. The lack of incentive in highly-regulated public and private schools to do better makes improvement almost impossible. Of course, we could ask parents and even students what they think is right, but they do not have a lobby.

Good teachers have nothing to fear from a free market in education services. They may well get paid better. It is the poor teachers, the ones paid more than they are worth, and who cannot get fired, who benefit from the status quo. At present, there is no correlation between teacher performance and teacher pay. That means the good teachers are being treated the same as the bad, there is little incentive to be a great teacher (beyond the spiritual rewards) and teachers’ unions have an incentive to fight against merit-based pay. There is no market mechanism to offer consumers (in this case, students and parents) the choice to find new and better suppliers.

Teachers’ lobbies are also vehemently opposed to closing schools. But businesses close when they do not serve their customers (or cannot afford to comply with the tens of thousands of pages of government regulations). Let schools close when they do not serve their students. Let the students go to other schools that are actually performing. Or let neighbourhoods and communities start their own learning centres and teach their own children what they think is right. Let them have full control over hiring and firing of teachers. Or do you think some bureaucrat knows and will do what is best for your children?

Then there is the university. One argument often made in favour of subsidising higher education is that education has positive knock-on effects. If you are better educated, you will contribute more to society. Well, maybe. Engineers usually contribute more to society, which is why I would consider giving money to scholarship funds for engineers. (That said, I would like to have a contract stipulating that I get that money back if they end up working for a weapons manufacturer.) But how does society benefit from having someone with tens of thousands of dollars of education in gender studies or acting class? What if I feel that a particular business programme merely reproduces the elite and does not benefit society? Shouldn’t I be allowed to withhold my funding of that programme? But if there is demand for it, the classes will exist.

What happens when we subsidise something? Consumption of it goes up. Subsidise corn, and we find high-fructose corn syrup in many of the foods we eat. It means more corn fed to animals, making animals cheaper, making meat cheaper, when we should be eating more vegetables (not just corn). Subsidise universities and guarantee student loans, and more people will attend university. But not everyone needs to go to university. The more people have a degree, the lower the value of a degree becomes. Just ask thousands of Occupiers if their degrees and average $25,250 of student loan debts have helped them find meaningful careers. The unemployment rate for college graduates is higher than it has been since 1992, when records date back to. The alternative is to return people the millions they have paid in taxes to subsidise education and let them decide what to do with it.

“How will we educate the poor?” Are we educating them so well now? Are schools in poor neighbourhoods just as good as schools in rich neighbourhoods? But even in poor places, for-profit schools have educated people. (See here and here for examples.) The same people who worry about the poor tend to think we cannot afford schools that are not run by government. But as I do not tire of pointing out, if governments did not take your money and give it to schools (and keep some for their retirement funds, and give some to their friends), we would have that much more to spend on education. There is nothing efficient about the tax-and-spend system under which we live, so any claim that government does efficiently what the private sector can do is nonsense.

It also brings up the question of why people are poor to begin with. Sticking people in bad schools and taxing them for it will not help. Poverty is not inevitable. If schools taught financial literacy, we would almost certainly have less poverty. At present the poor, who are taxed on income, consumption and savings, just like everyone else, are paying for everyone’s education (and roads). If they would prefer to become an apprentice or go to a private school; in other words, if they do not want a university education, well, they still have to pay for one. Should they not be allowed to keep their money if they do not want to get a degree? No, says the socialised-education statist, they should not. I would wager that all the money even poor people pay in income taxes, sales taxes and central bank-induced inflation would easily pay for an education for their children. And what do they think they should learn? Should they be charged to learn Latin, algebra and European history? What if they would rather learn metal shop and mechanics? They can make a better living that way than in a career as, well, whatever one does with Latin, algebra and European history.

The state’s takeover of education was, like all state ventures, clothed in language of the public good. State education would improve access and improve quality of education. It hasn’t. And yet, the unions say they need more money. What do schools need more public money for? Where would it go? Is all we need more computers in the classroom? Do teachers need more money? Why can we not let the market decide? Surely, if parents like their kids’ teachers enough to want to keep them, they will pay them well; if they think their kids are not learning, let the parents stop paying for them. Or do I not understand education?

Competition works in education, just like it works in every other market. This is not some libertarian hypothesis; it is well-documented fact. End the monopoly and give the consumers (the parents and students) the power, and quality of education rises.

What do parents think should be taught in schools? Wait, never mind: they are not consulted. It does not matter what parents think. Government mandarins will decide what should be taught. Shouldn’t we teach students their legal rights, how to manage their money, the scientific method, how to think critically, how to start a business, how to defend themselves and maybe even how to be happy? Teachers exist for all those subjects. But the political will does not. The initiation of force, with its pressure group-written laws, fails us all.

War, part 2: counting the costs

When, after many battles past,
Both, tired with blows, make peace at last,
What is it, after all, the people get?
Why! Taxes, widows, wooden legs and debt. — Samuel B. Pettengill

Your money is going toward killing people you do not know. The War on Terror, Operation Enduring Freedom, Operation Iraqi Freedom, the War on Drugs, the drone wars… Can we awaken from this nightmare yet? Can we at least stop paying for wars that are bankrupting us? Unfortunately, as with everything governments do, we do not have a choice.

The full costs are hard to count. Modern governments finance wars with debt, which means we will be paying for many years to come. When we are shown the costs of wars, we usually only see the direct budgetary costs. As such, it is widely reported that the wars in Iraq and Afghanistan have cost about $1 trillion. Though a truly enormous figure in itself, the one trillion statistic obscures the money the warmakers cannot account for, the costs of treatment and pensions for soldiers, compensation to the families of the over 6000 US troops killed (not much compensation for Iraqi or Afghani families, though) and debt financing. The war in Iraq almost definitely made oil prices rise by at least $10 a barrel. The actual figure for the costs of the war may well be over $3 trillion. Three trillion dollars. Barack’s first defense budget came to $685.1b, which means it grew, and hit $708.3b for 2011, which means it is growing. Oh, and $20b has been spent just on air conditioning, but wars in the desert will require that. It is also going toward military bands, but only to the tune of a billion dollars a year.

A keynesian might say that this money has been well spent because it has stimulated the economy. No, it hasn’t. It can’t. It has dragged down the economy with higher debt, higher oil prices, higher costs to veterans, fewer jobs, higher interest rates and trillions of dollars diverted from the productive sector of the economy to the destructive government sector. The wars exacerbated the economic crisis in which the US is still entangled. But if even keynesianism worked, how do we account for the money that is missing?

In October 2009, the Inspector General of the US Department of Defense released a report that exposed various “significant deficiencies” in Pentagon balance sheets from fiscal years 2004 to 2008. The Department of Defense has never been audited. But by examining the various internal audits that have been carried out, along with the opaque system of contracting, the report uncovered more than $1 trillion in unsupported account entries.The Senate Finance Committee wrote a report a year later that took the Pentagon to task for its “total lack of fiscal accountability” for “leaving huge sums of the taxpayers’ money vulnerable to fraud and outright theft.” Fraud and theft are typical of all governments; but not all governments can raise and waste a trillion dollars and not have to face the guillotine. And since a democracy’s only real way to hold anyone at all to account is elections, the unelected bureaucrats at the departments have little to fear.

One example of this wastage is the $6.6b in cash the Pentagon for some reason thought it wise to fly in a plane over to Iraq. It has presumably been stolen, but who knows? How could any organisation, especially one that is barely accountable to anyone, account for all the trillions of dollars it goes through? It is too big and too opaque to audit. The role of special interests in taking your money to spread war is well documented. (Here is a primer.) If you need an example of profligate handouts to war contractors, consider this: even after the scandal of the missing trillion dollars, the Pentagon requested another trillion to operate the fleet of Lockheed F-35s. Where do they get all this money from? They steal it from the private sector through taxation. Do you know how many hospitals that money could build for war victims? How many people we could educate with that money? Can the government ever stop spending and let us try?

In War Is a Racket, Major General Smedley Butler begins “[War] is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives.”

Only insiders benefit, of course, and they make big money. As such, they have a major interest in keeping wars going and lying to everyone about why they must. According to Butler, at least 21,000 new millionaires and billionaires were made in the United States during the first World War.

How many of these war millionaires shouldered a rifle? How many of them dug a trench? How many of them knew what it meant to go hungry in a rat-infested dug-out? How many of them spent sleepless, frightened nights, ducking shells and shrapnel and machine gun bullets? How many of them parried a bayonet thrust of an enemy? How many of them were wounded or killed in battle?

Out of war nations acquire additional territory, if they are victorious. They just take it. This newly acquired territory promptly is exploited by the few — the selfsame few who wrung dollars out of blood in the war. The general public shoulders the bill. And what is this bill? This bill renders a horrible accounting. Newly placed gravestones. Mangled bodies. Shattered minds. Broken hearts and homes. Economic instability. Depression and all its attendant miseries. Back-breaking taxation for generations and generations.

He goes on to outline the financial interests that guided pre-WW2 Allied policy from supporting to opposing Japan, and how the costs of war and expansion are borne by taxpayers. Foreign involvement from 1898 saw the origin of the debt crisis that the US is struggling with today. Smedley details the enormous earnings of various corporations from WW1, some of whom produced things that were never used. Aside from the probable fact that today’s wars are more costly and more groups have their hands out, little has changed.

The main imperialist powers will naturally be the richest ones. States with liberalised economies have strong economies. Oppressive states do not have free economies and thus have trouble sustaining wars. Only a state with a strong economy could afford to keep a powerful military machine going indefinitely. The US went through Vietnam and survived to learn nothing from it; the USSR lost the war in Afghanistan and collapsed.

Military powers continue to spend countless sums developing new weapons that make killing easier and more efficient. The contractors make big money, with Lockheed Martin coming out on top, pocketing $36b from the US government in 2010 alone. Though the government contracting business is a somewhat opaque process, we see big corporations making tens of billions from governments who like war as a way to suck the people’s money from them and enlarge their own budgets. They ostensibly aim at eliminating civilian casualties, but in the wars they fight, insurgents, terrorists or whoever your enemy is blend with civilians, and the proportion of civilian casualties to bad guys has not gone down. Pilots still bomb or gun down people on the ground from thousands of feet in the air and get called brave heroes by the politicians benefiting from the war.

So inside the US, the current imperial power, is very liberal, and as such its economy is strong. However, because it is able to project its power, it does so, to disastrous effect for large parts of the rest of the world. The American people believe in the freedom the US has internally and want the best for others, so they are easily won over to illiberal wars by promises to free the people of their dictator. But the differences between the countries the US (and now NATO) goes to war with are not moral ones. The rich countries simply have the power to project themselves into other people’s affairs, they can get away with it because only voting keeps them in check (and foreign policy does not hold voters’ attention), and the countries they pick on are so weak—Afghanistan, Iraq, Libya, Somalia, Yemen—they could not possibly put up a real fight.

Libya is a case in point. Barack did not ask Congress for permission to go to war, even though he is required to do so according to the Constitution. (I like the US Constitution but it does not seem to be much more than a piece of paper anymore.) Barack’s people said the war would last “days, not weeks”, and it lasted six months. The interveners’ original mandate was a no-fly zone to protect people that was soon expanded without authorisation from the Security Council to picking sides, assassination and regime change. On May 13, after nearly two months of fighting, Defense Secretary Robert Gates announced that the war had cost $750m. It doesn’t seem like a lot for an organisation that spent $3t on Iraq, but then that figure is an official government figure and probably includes only the costs of bullets, missiles and fuel, not the planes themselves, the salaries of the soldiers, the money for the rebels, the post-conflict reconstruction (if there is any), and whatever else we do not know about. And the interveners were quick to recognise the rebel forces as government, which means a) there was no consultation of the people (so at least the decision was democratic), b) the world will be expected to look away when the rebels, now the good guys, commit atrocities, and c) the rebels will be pliable to the demands of foreign governments (which will presumably mean no-bid contracts to their oil friends). Is this self-determination for the Libyan people?

That said, for the sake of fairness, the war is over and Qaddafi is gone, which might be the best outcome we could have expected, and some credit must go to NATO. Even though this post condemns war, it seems to me wise to judge events on their eventual outcomes. If Libya becomes much freer and more prosperous as a result of NATO intervention, it may have been worth it. If history is anything to go by, Libya will not be much better off after Qaddafi.

All these invasions send a clear message to states like North Korea that have or are developing nuclear weapons: keep them. Nuclear weapons are a highly rational statist enterprise. It is fundamentally out of the question to attack a country with a nuclear weapon because it might use it. So North Korea, Iran and whomever else the US and Israel talk tough about, hold on tight to your nukes if you want to hold on to your regime.

Only spending by an organisation with an unlimited budget could have produced the nuclear bomb. North Korea could never have built such a bomb from scratch. Only a democracy could. Only a democracy has the money and the ability for scientific openness, and yet the ability to appropriate billions of dollars (in 1940s money) for secret projects. And for the incalculable sum spent on research and development to gain an advantage in killing others, the advantage often does not even last until the end of the war, because another state can steal secrets or develop its own special killing machines.

You do not benefit from war. You only lose. Imperialists benefit, as they get to control more and more territory; military hardware firms benefit from generous contracts; civilians, soldiers and so on do not benefit. Unfortunately, those people are mostly sheep. Every society has a few “deep thinkers” and a large number of “sheep thinkers”. Sheep thinking not only limits our imagination; it could have enormous consequences. In Nuremberg Diary, Gustave Gilbert recounts a conversation he had with Hermann Goering, Hitler’s second in command, who revealed a deep understanding of the ability of the elites to control the sheeplike masses.

Why, of course the people don’t want war. Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece?…But after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a parliament or a communist dictatorship…. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country.

History shows innumerable examples of the public’s approval of or even pushing for war. So often the elites throw the war into the open because of some high political squabble and make everyone think they need to go to war. As the idea of war mixes and churns in political discourse, in the media and in the minds of the people, it soon becomes a given that we must go to war. After all, we are under attack.

Don’t fear the free market, part 4: Intervention, central banks and planning

We can be so clueless when it comes to what governments are capable of. Never mind that the state has only token incentive to do what its constituents want. Regarding many of their demands, it simply cannot. Citizens want governments that create wealth (or prevent its destruction). How do they think wealth is created? Governments cannot fix the economy, as if it were a motorcycle. They cannot grow the economy, as if it were a garden. An economy is a complex mass of interactions that no one person, organisation or clique could oversee with any dependability. Attempts to intervene into the economy by a few technocrats is to presume they somehow know what is right (and will actually do what is right) better than the people peforming all those interactions.

Commentators who are slightly more realistic call governments “stewards” of the economy. When they praise the stewards of the economy, they usually mean that the government’s policies have not wrecked the economy, or at least that their most deleterious effects have no yet struck enough people to give the press an obvious candidate for blame. Let us first examine inflation.

John Maynard Keynes once said “[t]he best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” Since central banks have positioned themselves as the saviours of the economy, inflation has eaten away at savings with painful results.

Inflation is caused chiefly by an increase in the money supply. As the supply of money increases, demand for it falls and more money is needed to buy fewer goods. Central banks increase the money supply. Inflation is not automatic, nor is it inevitable. It is a response to a realisation that there is more money in circulation. So prices rise over time. But the people who get the money when it is first circulated will be able to spend or invest it before it trickles down and lowers the cost of money overall. In the US, because of the Federal Reserve system, the people who get the money first when the central bank prints more of it are bankers, those banks that make up the Fed. The Fed creates money but not value, which is the true measure of economic growth. Since its inception in 1913, the Federal Reserve’s inflationary policy has left the US dollar at 2 cents of its previous value. (http://mises.org/daily/5269/The-Great-Myth-of-the-Inflation-Cure) And yet, its apologists claim that the Fed fights inflation. Printing money is always done in the name of “the greater good”, that statist chimera, but really it benefits the banks who are the first recipients of the money before prices begin to rise and catch up to the money supply. When the state prints money, bankers win, and everyone else loses. (Read Murray Rothbard’s The Case against the Fed for a fuller explanation.)

Others say that inflation is good policy because if the value of people’s money is decreasing, they have an incentive to spend, which keeps the economy growing. Deflation can be a huge problem (though it is not necessarily) but a constant money supply means the value doesn’t change (or at least would probably change only very gradually). That makes it easier for everyone to know what to expect. They can allocate their resources accordingly. Central banks cannot simply control inflation, saying that it will be exactly 2%. It might get out of control, and it sometimes does. A little government intervention goes a long way–almost always in the wrong direction. How could anyone advocate consumption over savings in these days of unsustainable retirement funds? People will need to learn how to save again if they want their standards of living to rise; but saving is meaningless if inflation will consume your nest egg. But the best argument against inflation is that the government has no wisdom or right to reduce the value of your savings or tell you what to do with your money and when.

Governments also like to plan. Many statists who consider the Soviet Union a foolish project that was bound to fail nonetheless advocate some form of economic planning. Economist James K. Galbraith wrote in Harper’s a few years ago that the government needs once again to plan. “What the government needs most today is to regain an independent capacity to think. The government needs a way to imagine the future that is not dominated by lobbies or even by Congress so long as Congress is dominated by lobbies. Planning is a process: thinking, coordination, action. What is the long-term national interest? What specific targets must be met? What is the best way to do it, and who plays what role?” This argument contains several questionable premises. First, it makes the old assumption that government information and wisdom is superior to that of people on the ground, you know, the ones actually doing the work. But the performance of state-run businesses and strict regulations before the 1980s was a joke compared to that of the private sector after privatisation and deregulation. Prices fell, innovations rose, and the taxpayer was no longer on the hook for failed government corporations. We can only imagine how people’s potential would be liberated in a free market.

Second, governments have no capacity to escape the clutches of lobbies. Not only do they provide the money politicians need to get elected, and are thus heavily rewarded after the election, but many lobbyists become politicians and vice versa. Lobbies are not just in bed with the government; they are the government. That means that any appearance of detachment from lobbies will be an illusion, until a revolution occurs.

Third, we need to get beyond this thinking about “the national interest”. There is no national interest, because every nation is made up of people who disagree about the right policies, who will all be affected differently by them. All policies produce winners and losers, with special interests taking home most of the prizes. We do not need nations, or national economies, or national governments. These things are inventions that only benefit those who exploit nationalism for their own gain. All people have self interest, which could easily be at odds with national interest, that they are not allowed to pursue if their money and labour is going toward the national interest. The national interest is in fact a codeword for the national government’s interest, which could easily be at odds with that of the people themselves. The people might want to spend their money on a wide array of electronic devices, the treatment of a variety of diseases, and their startup businesses. What if the government says we should be spending it on desktop PCs, AIDS and state-run monopolies? It will take away people’s money to pay for those things, then take away their freedom to get what they really want. If you don’t like the plan, you still have to follow and pay for it. How could that be right?

Planning is fine on a low level. We each have specific knowledge that we can use to make our lives richer. A free market permits prices to emerge from the sum of people’s localised knowledge. Government does not have that knowledge, so it cannot take personal situations into account when planning. Planning thus sacrifices the individual on the altar of “progress” or “the public good”. Many small plans work, and one big one does not. Trying to steer markets would only work if those on the bottom were not individuals with individual ideas and plans for their own lives. It would also be necessary to predict changes. That was hard enough during the Great Depression; now the pace of change and the number of black swans out there is unprecedented.

Families, kibbutzes and monasteries live according to “from him according to his abilities to each according to her needs”. Many cooperatives do so to a lesser extent as well. Planning can work when it is done voluntarily. Forced equality, or coercive communism, like in the USSR, does not work. It is not the communal nature of things that fails but the coercive side. And all government is coercive.

Finally, government “investment”, or deficit spending, is meant to kickstart a lethargic economy. Does it really work that way? Keynesians seem to believe that whatever enormous spending the government undertakes is investment, which is superior to consumption, at least if done strategically. But if the people have their own money, they can consume and invest, and consumption itself is buying from people who invest. Why is government investment better than private investment? Government spending is so terribly inefficient that I am surprised there are any Keynesians left in the world. One reason it is so inefficient is moral hazard: I don’t care what happens to money that isn’t mine. Private investors, on the other hand, are scrupulously careful with their money because it is theirs.

Paul Krugman is an interesting example of such thinking. I tend to agree with his analysis of the problems he discusses, but do not understand his prescriptions. They seem naïve, as if he is not listening to himself. For instance, when he argued in May that foolish and self-interested elites caused the economic problems we have with us now, he seems to believe that we need better elites on the ballot paper. How would that help? The new elites would have the same incentives and pressure groups because they would occupy the same seats. What we need is not new elites, or more people voting for them (I do not understand what difference that would make), but a complete overhaul of the system. If no one has coercive power over the entire economy, there will be no one to wreak havoc on it, only people working in their own spheres of influence, who generally help economies grow by acting in their self interest.

One problem with modern economies is that the people are so used to government intervention, to calling for help every time things go downhill, which of course can mean painful losses of jobs, savings, houses, and so on, they will call on the government to save them. The government persuades them that it is the economy itself that needs saving, which might mean bailing out banks and automakers; they know nothing about economics and take the bait. But government intervention into large, modern economies tends to enrich the already-rich by paying off special interest groups, and future generations are saddled with ever-more debt. When the time comes to wean the people off government life support, such as in economies experiencing hyperinflation or post-communist states, the most effective method is “shock therapy”, the forcing of discipline on a government so that it cannot borrow or print more money. But people are impatient, and the immediate effects of shock therapy are painful. Such is the way, too, when someone living beyond his means finds out he cannot pay his credit cards.

If Keynesians had their way, the government would spend and spend until it created the next bubble, because “in the long term we are all dead”. Unfortunately, there is no logic in this statement, as our children and their children will either benefit from our wisdom or pay for our mistakes. Bubbles have much to do with government manipulation of interest rates and printing money, and the boom bust cycle is nearly always exacerbated by government intervention.

What are some of these “public goods” that we need central planning and massive investment for? Do you think universities and libraries could not exist without government? Tell that to Andrew Carnegie, a private industrialist who, after single-handedly reducing the price of steel by nearly 90%, donated millions of dollars of his own money to universities and libraries. Tell it to John D. Rockefeller who, after reducing the price of heating oil by nearly 90%, established colleges in the American South for freed slaves, and donated money for public health, science and the arts. James J. Hill and Cornelius Vanderbilt not only built railroads all over the US but reduced fares considerably, and Henry Ford reduced the price of automobiles enormously. (These people all contributed to a period of deflationary expansion, which some uneducated anticapitalists will tell you is impossible.) These and many more such men are known today as the robber barons, while people who take your money without asking are called democratically-elected leaders. Look up the philanthropy of Bill Gates, Warren Buffett and the Waltons, too, and then tell me they are bad people.

But even so, why is it inconceivable that we should pay market prices for universities and libraries? We do for a lot of other government services, like recreational facilities, which by the way can and do operate for profit too. I mean, don’t people understand that, if you get back the money in taxes you used to pay for these things, you can pay for them? And at least then we would have the choice. And sure, we are not completely rational actors, but free markets tend to provide us with enough choices that prices go down and quality goes up. If it is true of food, clothing, housing and other essentials, why is it inconceivable for health care, education and security?

We do not need government intervention into the economy. Freeing markets entirely of the encumbrances of laws designed either to help the poor or benefit interest groups will free the people’s creative energies and their potential in ways we can only begin to imagine.

Don’t fear the free market, part 2: Government knowledge is not superior knowledge

The government has done good things, right? Well, how do we know what would have got done if the people paying for those things had not had all that money? Sure, we wouldn’t have as many space ships or nuclear weapons as we do today, but we might have found cures for various diseases, new technologies that consume less energy, and other things people want. Nearly all discoveries and innovations that have helped ordinary people have come from private individuals, usually working without government subsidy. The computer was developed by the state, but no one would have one today except the government had it not been allowed to trickle down to the private sector. The enormous innovations that have improved every aspect of the computer, including lowering its prices, would not have come about to anything like the same extent without the private sector. Modern science is often cited as an outcome of government funding, but a mere glance at history reveals governments prosecuting scientists like Galileo with controversial views and scientists since the beginning of science working without government support. There seems to be a modern belief that the reason for all progress since the beginning of the state system is the state, and that we could not have evolved the good life without it. But that proposition begs the question, assuming that the progress society has made is the right kind of progress, and relies on the counterfactual that there would have been less “progress”, however defined, without the state. Let us challenge those beliefs in this post.

Some statists seem to expect government to protect them from any and all dangers. Never mind that it cannot; it will not even try. Take the issue of child car seats. As Steven Levitt explains, the facts on child car seats were available, but government did what was popular and would feed a special interest—creating a law forcing children under 2 to use car seats—instead of reading them. How many children died for votes?

Another example of the backfiring of the call for government to save the day (the Nanny State) relates to the law governing the use of cell phones when driving. The law said that cell phones could not be used while driving unless using a hands-free device. But as Chabris and Simons explain in the Invisible Gorilla, the problem is not with our hands. Studies found that people talking on the phone while driving were far more likely to have crashes than those who were not, regardless of where their hands were. The problem is that any talking on a phone (as distinct from talking to someone else in the car) is a major distraction. Now, we have a law that does not protect anyone except the people who make hands-free devices, a new special interest group that will fight like stray dogs to keep the law in place.

And protection of big business is the only reason I can conceive why the US government would outlaw the sale of raw milk. (See some amazing stuff about it here.) Government protects corporations far more than it protects you from them. Democrats who call for legal action against companies like Monsanto do not seem to understand how many laws there are behind Monsanto already. If you want government action to take down big corporations, how about getting rid of the intellectual property laws that create monopolies? Intellectual property enables the owner to mark prices up far beyond what they would be were they subjected to competition. Today, we even have corporations owning strains of rice! How ridiculous. This is a perfect example of the bankruptcy of the argument that corporations are too powerful because the government is too weak. Governments could easily break this monopoly if they wanted to. They have a monopoly on the legal use of force. Patenting rice is impossible without the collusion of government.

How many people will die because a “free trade” agreement between India and the EU hobbles Indian firms developing generic drugs? This law, this distortion of the free market masquerading as free trade, will render almost impossible the buying of cheap drugs for diseases such as HIV for those most vulnerable to them. Kevin Carson explains that drug patents are unnecessary to recoup expenses and developing the most effective drugs.

First of all, there has been a dramatic shift away from fundamentally new kinds of blockbuster drugs, because it’s much more cost-effective to put money into tweaking the formulas of drugs whose patents are about to expire just enough to qualify for repatenting them — so-called ‘me, too drugs.’  Second, a great deal of the basic research on which drug development is based is carried out at government expense in publicly funded universities.  Around half of the overall cost of drug R&D is taxpayer-funded.  And in the United States, under the terms of legislation passed in the 1980s, the patents on drugs developed entirely at taxpayer expense are given away — free of charge — to the drug companies that produce and market them.  Third, most of the actual R&D cost for developing drugs comes, not from testing the version of a drug actually marketed, but from securing patent lockdown on all the other major possible variants.

Generic drugs do not get developed because they are illegal, because they are competition. The poor people who need them most do not get them. Intellectual property, Carson concludes, is murder.

I wonder if politicians ever read the legislation they vote on or the reports written for them by bureaucrats, or if they just consult interest groups they are courting to make laws. How could they read all that, anyway? They would need a hundred hours a day of reading to make informed decisions on everything they vote on. Commenting on the renewal of the appalling USA PATRIOT Act, Julian Sanchez of the Cato Institute says, “at most they might get a ten- or fifteen-minute briefing, with no notes and no staff, the idea that they meaningfully understand what is being done much better than the rest of us is actually wishful thinking.”

When the government promises to protect consumers, watch out. There are already laws and market mechanisms to deal with things like collusion and price gouging. If the government or the free market were doing their jobs, we wouldn’t need extra government “protection”. When the government promises it will tackle these things, it uses vague language to widen its scope and take arbitrary actions. Economics professor Gary Galles describes this dangerous situation.

Effective social cooperation can only be built upon clear rules that constrain government arbitrariness as well as abuses by others. But potential government prosecution for violating an essentially undefined law leaves every decision’s legality subject to the whim of a judge or executive-agency functionary, exercised after the fact. No one can know what actions are safe from prosecution. And combining arbitrariness with huge potential punishments is an open invitation to government abuse.

It can then selectively punish businesses, and is unlikely to find any of its campaign contributors guilty. “Why would the president make a public show of toughness using an approach and terms that fail basic standards of logic, fairness, and constitutionality? Because it gives him power without responsibility.” How could oil companies counter the accusation that they are charging too much? How could the government prove that oil companies’ prices are “too high”? The tough stance on the supposed Big Oil robber barons buys votes from citizens who think that gas prices are high because oil companies are gouging them. Oil prices are influenced by many factors, including the wars in Iraq and Libya, the OPEC cartel (governments of oil-producing countries colluding to limit supply and thus raise prices), government restrictions on oil exploration and drilling, conflict between parasitic national governments and indigenous people in the Niger Delta, rising consumption and the expectation of even more, inflation that pushes down the exchange value of the dollar and thus raises the price of imported oil, and not least gas taxes. But when Ben Bernanke and Barack Obama blame others (“speculators” and the evil Arab are often the culprits), consumers eat it up.

We do not need government to protect us from corporations when free markets provide the best incentive to behave responsibly. The example of the Tylenol recall of 1982 is instructive to any business hoping to remain successful over time. Someone had laced some bottles of Tylenol with potassium cyanide, killing seven people. Johnson and Johnson, the parent company of the manufacturer, had a very clear belief system, the main component of which was that customers came first. There was no debate in the office, no need to weigh short-term gain against customers’ dying. Johnson and Johnson spent $100m recalling and replacing all Extra-Strength Tylenol. They have been profitable since then. Where was government? Not only was it superfluous, it never found out who spiked the pills. It is good that we have some kind of organisation that examines food and drugs to keep the public safe, but why does it have to be governmental? There are no medical researchers and consumer watchdogs anymore? Why does there have to be only one, controlled by the fickle hand of government? What if they miss something, accidentally or deliberately?

It is wrong to believe that corporations do literally anything they can to increase their bottom lines. They do what their shareholders want, and shareholders can and do introduce policies, voted on at shareholder meetings, that curb the power of the corporation to, say, pollute the environment. At least as importantly, corporations have to do what their customers want. If customers want the corporation to stop polluting, and boycott the corporation until it does, the corporation will either change or lose business, and maybe go out of business. Consumer activism works. Corporations have got the message already, which is why many of them are far more ethical than the simplistic picture painted by anti-corporate activists. I have friends who believe in the stereotype that big corporations are evil, but they own laptops, fly in planes, use Google 50 times a day, drink Bacardi and Coke and wash with ten different Procter and Gamble products. What, specifically, is evil about any of the huge companies that provide you with the services you live by? Corporations provide what people want, and they create wealth. If people who buy from them think they are evil, they should stop buying. Have a complaint? Tell Consumer Reports and RipoffReport.com. Get the word out. Buy from their competitors. But don’t resort to the violence of the state to take down a corporation whose actions you disagree with. If corporations get away with murder, it is only because unprincipled consumers do not know or do not care.

Thus, if you do have a problem with a company, try a boycott. A boycott is a market mechanism for action against businesses if ever there was one. And there are plenty of success stories. Other forms of activism can accompany boycotts. One might try to blacklist someone who owns, works for or buys from a corporation that we do not like; in other words, do not let them in your store. Segregation in the southern US was exposed as immoral not when the national guard was called in, but before that, when students in Nashville sat quietly at segregated lunch counters where they were not allowed. The violence perpetrated against them by racist bystanders and the state worked in their favour, and they captured enough hearts and minds to win desegregation. Simple acts of civil disobedience can frequently go much further than calling on the state to impose our goals on others by force.

The government has no role in a free market. Economist Dani Rodrik argues “Modern markets need an infrastructure of transport, logistics, and communication, much of it the result of public investments. They need systems of contract enforcement and property-rights protection. They need regulations to ensure that consumers make informed decisions, externalities are internalised, and market power is not abused. They need central banks and fiscal institutions to avert financial panics and moderate business cycles. They need social protections and safety nets to legitimise distributional outcomes.” But let us consider what he seems to take as given. Some public investments have been made in infrastructure, but now investors and businesses are large enough that they do not need governments to invest in those things anymore. Do we really need government logistics companies when there are a dozen large and many more small international logistics companies? Contracts and property rights might be better protected by private law. Regulations do not ensure that consumers make informed decisions, that externalities are internalised and that market power is not abused. Consumer information does not come from government: it comes from consumers’ own research, sharing of information through forums like RipoffReport.com and word of mouth. That is how it has always spread, and there is no reason to believe government knowledge of the current state and future direction of a market are superior to those of the people on the ground. Central banks and other fiscal institutions (Freddie and Fannie perhaps?) obviously do not avert financial panics and moderate business cycles; in fact, they probably contributed significantly to the most recent market meltdown (see part 1), and to most of the previous ones as well. Governments create moral hazard by being the lender of last resort to everyone from people who cannot pay their mortgage, who should not have bought a house in the first place, to the biggest banks in the system, which received hundreds of billions in tax dollars (and whose executives still got their bonuses) because they were well connected. And I don’t know what it means to “legitimise distributional outcomes”, but if people were not taxed so much they could create their own safety nets. Then Rodrik says that democracies “are still our best safeguard against arbitrary rule.” Democracy does not protect against arbitrary rule: all government is arbitrary rule. The best way to avoid arbitrary rule by others is to avoid government.

Other economists predicted the current financial downturn (Austrian economists prominent among them), and governments did not. The same governments who think digging deeper into the same hole will get you out of it do not listen to the Austrian school however, the school that predicted not only the 2008 meltdown but the Dotcom and 1929 crashes as well (see here and here). Why would they not listen to them? Because governments do not seek wisdom; they seek shovels.

Don’t fear the free market, part 1: What it is and what it isn’t

Many people are certain of what crashed the economy in 2008. They call this culprit “the free market”. But what do they think the free market is? How do they think it made the economy collapse? Well, these people will tell you, it’s deregulation. If they say that, ask them to point to specific instances of deregulation of the financial sector. In fact, the banking sector was and is highly regulated. They may not be very good regulations, and of course big banks are largely to blame for the meltdown, but there was no free market. Given actions like the pressure from the 1990s from the federal government to expand mortgage loans to people of lower income, which contributed to the crash and the massive US household debt, what do they think the government should do? Did these same anti-free market people applaud the trillion-dollar bailouts and stimulus packages because they though the government would rescue them and make everything better? Do they think the government will ever rescue them and make everything better? These are people who need to learn what the free market is.

The free market is when there is no force in the economy. Laws and taxes are force: things you must do if you want to avoid violence. A free market might be likened to a bazaar: people trading for what they want however they decide, going by uncomplicated rules that everyone already agrees on.

A truly free market would have no regulations that threaten violence against people who do not comply with rules. It would have no licenses that could be denied without fees or bribes to bureaucrats. It would have no minimum wages that prevent unskilled workers from finding employment. It means no laws protecting corporations, so that business operators could not hide behind legal shields. And it means no backing up of patents or intellectual property by courts. Many statists find the idea of a free market frightening. They see it as a ticket to monopolies, crashes, the concentration of wealth and the spread of poverty. This section explains why the free market works better than government intervention to help the poor and create a more equal society, why it eliminates monopolies and minimises crashes, and why believing a government can fix an economy, or even make a decent pencil, is mistaken.

Walter Block describes the free market as “the concatenation of all voluntary acts in the economy.” In the words of the Centre for a Stateless Society’s David D’Amato, free markets

divide and moderate market power by denying special protection and privilege and opening competition to a wide assortment of both entrants and methods. Only where potential threats to corporate monopolization are precluded by force of law — through, among other impediments, ‘safety’ and ‘consumer protection’ standards — can today’s ‘captains of industry’ ascend to market dominance.

Speaking on high food prices, he continues,

It is too often assumed that the behemoth conglomerates populating the landscape of corporate capitalism wince at regulations supposedly aimed at health and safety. These rules, however, routinely function to outlaw the farm stand down the street, the small, local producer who can’t afford to jump through the arbitrary and unjustified hoops put up by the political class.

Why does it work? Here is Professor Edward Wayne Younkins:

Progress requires the use of information that exists only as widely dispersed knowledge that each person has with respect to his own circumstances, conditions, and preferences. Such tacit, locationally specific knowledge is only useful if people are free to act upon it. A free market permits prices to emerge from the use of people’s localized knowledge. These prices contain more and better information and result in better decisions than what can be achieved under a regime of central planners. Limited government and decentralized markets permit more freedom and foster more prosperity than do state-dominated and centralized bureaucracies.

The free market is superior to central planning regarding the uses of localized information and in combining those uses into an efficient system of production and consumption. Markets spread ideas, encourage the constant search for improvements, and evolve through trial and error, experimentation, and feedback. Markets produce a positive, emergent order.

And why is it better than government intervention? Adam Smith’s invisible hand is about the virtue of human action not to design a better world, not to make the poor better off, not to solve environmental problems, but action that is selfish, but produces outcomes that do build a better world and make the poor better off and solve environmental problems. Harry Browne, former leader of the Libertarian Party of the US, said “the free market will give the best minds in the world an incentive to devise profitable methods (that we can’t even imagine today) by which the free market can perform functions we might think now can be performed only by government. That isn’t a ‘vague anarchism’; it’s a reasonable belief that free human beings are much more creative, productive, and efficient than government.”

Let us take this time to address some of the myths about the free market. Critics say that the free market leads to monopolies. The fact is, however, that a free market abhors monopolies. In 1879, when John D. Rockefeller’s Standard Oil controlled 90% of the US’s refineries (all purchased through more or less ethical means), the remaining oil producers attempted to avoid working with Standard Oil by constructing the first long-distance pipeline. Rockefeller’s dream of controlling oil supplies by controlling the railroads did not work, and gave birth to a useful, monopoly-busting innovation. Admittedly, Standard Oil bought a small stake in the pipeline and continued to control most oil transport in the region. Customers did not complain much, however, as Standard Oil kept prices low and quality high. If it had not, oil would not have been the cheap, alternative fuel of its day that it was. After all, another rule of the free market is that overcharging by any firm gives rise to competitors or substitutes. (Perhaps that is why international competitors soon emerged and began to ship oil more economically to Russian and European markets.) The antitrust suit against Standard Oil was not brought by its customers or a concerned public but by its competitors. (Read more here.) The rhetoric that alleged a criminal conspiracy worked in the end, but the unethical business practices did not take place on the free market but when competitors demanded the state strongarm a successful business.

Competition from other parts of the world (and other parts of the US) arose when oil was discovered outside Pennsylvania. To break Standard Oil’s stranglehold, the new oil men, bankrolled by financiers who knew the venture could be profitable, developed a new, safer type of oil tanker. Because of the risk of spills and explosions, the Suez Canal had been closed to oil tankers. However, with this new innovation, oil could be safely transported around the world, and prices could remain low.

Alternatives to oil exist. We just need more time to understand better how to exploit them. Take the electric car, another great example of a monopoly-breaking innovation that promised to end (well, reduce) dependence on oil, but which was ended by a powerful lobby group and a pliable government. Monopolies are made possible when government steps in to protect business. If business is left to itself, anyone else can and will enter the market. Look at Microsoft. It was charged with attempting to monopolise the software industry. Such charges seem irrelevant (and hilarious) today: no one could monopolise the software industry. (Find more on monoplies here.)

If new entrants can provide something cheaper, or something better, or just something different, the company might get established and might undercut the larger corporations and might thrive in doing so. As far as I know, it has always worked that way in the past when there have been no government-imposed barriers to entry and one firm has tried to monopolise.

Government subsidies are more protection and are unnecessary to those with good business sense. James J. Hill grew up in poverty but used his entrepreneurial skill to make the Great Northern Railroad. In 1893, when the government-subsidized railroads went bankrupt, Hill’s line was able both to cut rates and turn a substantial profit.

After the government of New York had granted Robert Livingston and Robert Fulton a monopoly on steamboat traffic for thirty years in 1798, Cornelius Vanderbilt ran a steamboat between New Jersey and Manhattan in defiance of that monopoly, undercutting the monopolists by charging only one-quarter the fare. After the steamboat monopoly law was overturned, fares dropped across the board. (See here.)

During the early days of capitalism, big business and government were comfortably in bed with one another. Laws favoured privately-owned monopolies. Obviously, this was not a free market. But Marx and others began to complain about what they called a free market anyway. I don’t know why they thought state coercion made markets free, but that was their mistake. Activists began to argue that government should be used to curb the power of corporations. Let’s have more laws, they said, laws that give governments a greater hand in the economy. But the marriage of big business and government did not end. New regulations continued to be written by corporate elites. In 1935, economist and later United States senator Paul Douglas observed, “Public regulation has proved most ineffective. Instead of the regulatory commissions controlling the private utilities, the utilities have largely controlled the regulatory commissions.” (Find references to the large amount of research on the subject here.)

Let us jump forward in time. What are the causes of the more recent crisis? Risk taking? Speculation? Greed? Do these explanations actually explain anything? We can be a bit more specific. The Federal Reserve is hardly ever mentioned as a cause of the crisis. Artificially low interest rates (1%) encouraged artifically high risk taking for certain sectors, including construction and lending to people who could not afford to buy homes. Fed policy increased the supply of money (look out for inflation) with the result that more dollars were created between 2000 and 2007 than had been created in the rest of the history of the United States. House prices rose. Fannie Mae and Freddie Mac, government-backed corporations that would be bailed out if necessary (a formula for moral hazard if ever there was one) also pushed to expand mortgage loans to people with bad credit under Bill Clinton. Democratic congresspeople were reluctant to demand any oversight of Fannie, a campaign contributor.

-They rose the most in California, where various laws made it impossible to develop the land, creating artificial scarcity and driving up home prices. But they rose in other localities too, in most cases because of similar restrictive building laws. 90% of the land in Nevada is owned by the federal government, so instead of a free market, the availability of land for building depends on the government’s approval of each use of it. Less than 10% of the land in the US is actually developed, but under the guise of preserving nature (a handout to environmental protesters), the government protected the land and thus raised the price of it. As a result, many places saw a housing boom artificially brought on by government, whereas other places saw no boom at all. Thomas Sowell explains.

A fundamental misconception of the housing market existed both during the boom and after the bust. That misconception was that the free market failed to produce affordable housing, and that government intervention was therefore necessary in order to enable ordinary people to find a place to live that was within their means. Yet, the hard evidence points in the opposite direction. It has been precisely where there was massive government intervention, in the form of severe building restrictions, that housing prices skyrocketed. Where the market was more or less left alone, places like Houston and Dallas, for example, housing prices took a smaller share of family income than in the past. (Thomas Sowell, The Housing Boom and Bust.)

The booms that did result, however, were, like many local problems, misperceived by an officious federal government as a national problem, requiring national-level intervention.

Here are some more reasons for the recent financial crisis. The Community Reinvestment Act was meant to eliminate racial inequality in availability of credit. If banks did not lend to minorities in high enough numbers to satisfy the authorities, they could be crushed by lawsuits. Lending standards loosened.

Bear Stearns said the mortgages were sound. Government-approved rating agencies, you remember, the ones that said the mortgage-backed securities were great when they were garbage, were protected from competition by government regulations, and they served to reinforce the popular lending-to-everyone policies alive. Tax codes encouraged overinvestment in housing. To blame lack of government oversight for the crash is to get things backwards. The banks did what the government wanted them to do: hand out more and riskier loans.

One study finds that federal outlays for banking regulation—the laws big banks supposedly fear so much—increased from $190m in 1960 to $1.9b in 2000 and $2.3b in 2008. The US has 115 regulatory agencies. Funding to the Securities and Exchange Commission under George W. increased sizeably, with the result that its staff increased by one quarter. The number of rules businesses need to follow rose. There may be an ideal regulatory agency or system, but it has nothing to do with what what the agencies actually do. These ones did what the politicians wanted: encouraged banks to make home loans to people who could not afford them, and solved a problem that did not exist, namely a nationwide lack of affordable housing. The result was disaster. Either government cannot be trusted to oversee corporations because it has been corrupted by them, or else it cannot be trusted because it is so incompetent. Either the fox is guarding the henhouse or the headless rooster is. More regulations are not likely to help the public.

Moreover, it may be a mistake to call the crash a failure of regulation. Again, the corporations did what the government told them to, and people responded to incentives that monetary and lending policies created. Whenever we consider a policy a failure, we need to question whether it is indeed a failure or whether the goals and eventual outcomes went just as planned. After all, the crisis has ended up further enriching the rich, through bailouts and stimulus.

(I am not an economist, but I do suggest the book Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas E. Woods. Obviously, one book is not definitive, and all books I have read on this subject make good points. This one simply argues very cogently the government’s role in the debacle was enormous. Either way, it is obvious that “the free market” and lack of regulation did not exist to cause this crisis.)

The securities and investment industry contributed $53m to congressional and presidential campaigns in 2008. (They have not slowed down since then.) Then, they stood back with their hands out and received more than a trillion dollars for their generosity. The bailout bill was defeated at first, and legislators, in their inimitable way, searched for a new way to pass the bill. They got more congresspeople on board by sprinkling horsetraded favours in with the bailout money. Special interests got what they wanted, legislators got what they wanted—win-win!

The argument the government made at the time was that these firms were “too big to fail”. In other words, their failure would mean the collapse of many more firms and the economy itself. But the fate of Lehman Brothers, with more than $600b in assets, is instructive. It seemed too big to fail; yet, when it did fail, its assets that were worth preserving were bought by other firms. Keeping firms on life support discourages investment, encourages wild risk taking and drains money from those firms who are, in fact, productive and allocates it to those who have proven they are not.

Along came an enormous (more than 400-page) bailout bill, that anyone who opposed or even wanted to debate would be labeled as wanting the economy to fail. The government now owned hundreds of billions in bad debt, which means that, instead of letting the companies pay for their own foolish bets, the taxpayers would. Thank you, our wise protectors. The case of the 2008 crisis and the recession that followed has nothing to do with a free market. There was no free market. There was only socialism for the rich. And democrats, who think that they have choices, were presented with two presidential candidates who agreed on the bailout and stimulus bills.

So why would we think the free market brought on all these troubles? How could anyone think we live in a free market? Mainly because everyone says we do. It is the same reason we believe the government represents the collective will of the people: because they say they do.

The free market boogeyman is always blamed for economic ills, when, as Austrian school economists (most of whom predicted the 1929 stock market crash, the bursting of the dotcom bubble and the subprime mortgage meltdown) can tell you, crashes become more likely when government meddling in the economy runs wild. The free market should be given a chance before it can be blamed for anything. When something goes wrong, like a stockmarket crash, the people, who do not understand its causes, make the following equation. Something happened. Something must be done. The government understands what happened. The government will do what needs to be done. After all, they work for us. This thinking is obviously riddled with logical fallacies. Take the Sarbanes-Oxley Act, passed in the wake of the Enron accounting scandal and failure. The Act made accounting more complicated. Implementing it costs a firm millions of dollars. Millions of dollars is pocket change for a big corporation, but prohibitively expensive for new and small businesses that could otherwise rival them. As a result, fewer businesses are created, and wealth and power are concentrated in the larger firms. Government regulation almost always favours the big players because the big players have the government in their back pocket. Like voters, small businesses have no leverage over governments.

(Find more myths about the free market crushed here, here and here.)

There are also many myths around deregulation. When libertarians talk about deregulation, they do not mean what I have heard the Skeptical Libertarian call “the Republican method of rearranging the chairs on the Titanic.” Deregulation should mean ending government monopolies, including on the making and enforcement of rules, because it tends to concentrate wealth rather than redistribute it, which in turn creates elites that can control the government. It is sad that so many people view regulations as largely good when they usually prevent healthy competition, block people’s freedom to trade with each other and raise prices. The airlines are but one example. Until 1978, the Civil Aeronautics Board controlled entry, exit and prices in the airline industry. Prices were high, and flights were less efficient in the sense that fewer seats were being filled. Now that airlines can compete on price, and new airlines can enter the market, fares are much lower and more seats are filled on each flight. (Find more here.) That is true deregulation: taking the power away from a few big corporations and giving it to the market. There are still many regulations standing in the way of a free market for air travel, such as barriers to foreign competition, protection of Boeing and Airbus and laws that govern how much airports can charge. But the process that began in the late 1970s has made it possible for the rigid and inefficient controlled market to give way to improvements in several areas of the industry, with consumers benefiting most.

Then there is market failure. Market failure is basically when the free market produces inefficiencies in the allocation of goods and services. Market failure is usually followed by public overreaction and a call for government to intervene, again, to “do something”. Politicians see every such incidence as a way to win votes by appearing to do something big, while not necessarily addressing the root of the problem, and provide a handout to a special interest group or two. Because government responses are usually far more inefficient than market failures, they are government failures (though they are frequently disguised as market failures). But even when government could do something about a problem, it is wrong to assume that the private sector could not. In fact, a lot of market failure is government failure, as many supposed market failures such as externalities and non-competitive markets could be solved by a reduction in government regulation. Many economists see market failure as an untapped market. Plastic bags are bad for the environment? How could you make money off that? The potential is usually there with a little imagination and a less realistic ceding of government power.

There is still no free market. Like before the crash, the government is interfering with the economy in all kinds of ways, and is of course not bringing about the recovery it promises to. I do not know if constant intervention into every area of economic life is simply a way to reward the big players who contribute the most money to political campaigns, or if it is based on delusions that people like Ben Bernanke have that they can somehow save the economy. There is no evidence they can.

Political risk holds back investment. The term was once used only for places like Africa and Latin America where it was feared that a wayward government would nationalise or seize the assets of foreign investors, or just arbitrarily raise corporate taxes by 50%. But with its enormous debt, its trillion-dollar handouts to giant corporations and its seemingly arbitrary regulations, the US has become a political risk. Lee Doren of How the World Works suggests that the reason why businesses are not investing and hiring right now is that “they are scared. They have no idea what politicians in Washington are going to do. They are treating the economy like a little kid’s chemistry set.” (Here is an example of a small business owner holding back because of uncertainty—a little sentimental, but telling nonetheless.)  Most businesses benefit most from stable political climates where the government’s moves are predictable.

-But politicians love to make themselves feel important while finding a way to please a special interest. That is why, instead of surrounding themselves with Austrian or even Chicagoan economists, they find people like Paul Krugman and Joseph Stiglitz, people who ignore the enormous government hand in the financial crisis and have the nerve to fault the free market. Such people, like government scientists, are essential to the modern state, because they clothe the actions of the state in jargon about multiplier effects and quantitative easing, making economic growth seem more complicated than it is, and concealing the truth from the average person.

These are the experts who tell politicians to stimulate the economy through massive spending, so that politicians can decide whom, across the whole country, to give hundreds of billions of dollars to. I question the thinking behind that, not only because I do not trust a politician to fix the economy, not only since every time they give money to well-connected interest groups they make the playing field less level, but mainly because governments at the moment are so far in debt they are beginning to collapse under its weight.

They suggest controling interest rates, instead of letting the market do so. Then, they tinker with the rules of the economy by introducing all kinds of new laws to make it more competitive or more equal or smarter or whatever promises central planners think they can fulfill toward an economy that no small group of elites could possibly run. They might make things more complicated or more expensive, which could be fatal to a new business. If they want to help small businesses, lawmakers should reduce  the size of the tax code and eliminate operating licenses and license fees. (See some of the more ridiculous ones here.) They are a government’s way of retaining the power to deny a business, any business, from operating without a fee, or as it is called in a dictatorship, a bribe. More importantly, though, they keep small businesses out of markets where they could pose a threat to the big businesses that provide generous retirement funds for politicians, bureaucrats and lobbyists.

There is no such thing as “too big to fail”. The trillion-dollar bank and insurance bailouts of 2008 and onward indefinitely are justified by the excuse that, if the banks fail, credit markets freeze and no one will be able to borrow to invest. That is unlikely. Banks are merely intermediaries between those who have money to lend and those who want to borrow. There is always some other way to get money if you need it, such as venture capitalists and angel investors. And letting big companies fail does not send markets into turmoil: Enron’s collapse sent barely a ripple through the stockmarket.

The legal corporation is itself a product of government, a legal fiction, like government itself. One of the greatest threats to a free market is the legal treating of a corporation as a person. It is not a person; it is made up of people. If a CEO orders a person that works for him to dump chemicals into a river, the people harmed by that dumping should have the right to defend themselves against the person who made the order. Law does not have to end without a state; it can be made better. People like the idea of putting sanctions on people who commit crimes, so there is no reason to believe it would not happen without a state. As it stands, they cannot stop the behaviour. They can only hope the government will make the corporation pay. But when corporations pay, whose pocket is lighter? The employees might be forced to accept lower salaries, the customers higher prices. The CEO barely feels a thing. The legal corporation is thus a shield, a way for people to avoid responsibility for their crimes. Corporate personhood protects people who should not be protected. It should end.

We can also safely abolish the Federal Reserve System. Not only has it contributed to most of the bubbles and financial crises of the past century, it is the basic cause of inflation. Its origins should tip us off as to whom benefits from its existence. The Fed was created in 1913 behind closed doors by bankers and their political sponsors. It has, ever since, served to enrich bankers and impoverish the people. How does it impoverish the people? A central bank cannot create value, or goods that are worth buying, but it can print paper, which goes first to bankers. The bankers now have more money to spend. When they spend it, the wider economy gradually adjusts to the greater supply of dollars and inflation sets in. Inflation eats away at savings. Now that your dollars are worth less than they were, you feel forced to spend. Some people say that is good because spending keeps the economy going. I say you should be allowed to decide when to spend your own money.

We are so afraid of deflation that we are willing to put up with inflation as a lesser evil. And yet, falling prices can just as easily be a sign of prosperity. Prices fell in the US between its independence from Britain and the Federal Reserve Act of 1913, for instance, when the economy went from agrarian to the greatest industrial power in the world.

Laws and regulations are not usually good for the economy or for consumers. Most of them benefit the few at the cost of the many. We have seen how above. In extreme cases, government intervention kills. What are the effects of laws on the free market? Well, what is the difference between a legal business and a criminal organisation? Just one law. Both are filling a demand. But one is forced into the violent underground, and reaps big profits, because what they supply is illegal. For some reason, be it a naïve belief that prohibiting something means ending demand for it, or a favour to an interested party such as a rival producer, lawmakers have created an enormous black market comprising 15 to 20% of world GDP no one can control without a huge number of guns. And the more they try to fight suppliers, if demand does not change, they will spend more public money and kill more people. Find more on black markets on my other blog.

We need to stop being afraid of profit. Profit is the incentive that starts and grows businesses. When people profit, they create goods and services we like, they create jobs, they bring themselves out of poverty and into wealth. People who make their money, however many billions, by giving us what we want do not have an obligation to “give back”, as they have already given. There is nothing greedy or immoral about profit. It is only immoral if you take it without the consent of the other party (like taxes). Starting a business is hard, hard work, and the risk of failure is high. And yet, the wonderful people who succeed are the people who have given us all the wonderful things we take for granted. Entrepreneurs are vastly unappreciated and overpunished in our world.

Furthermore, it is because businesses need to profit that the most powerful check against corporations is the power of the dollar. If you believe that a corporation is bad, you do not have to buy from it. When enough people stop buying from a business, either it changes or it goes bankrupt. The government, on the other hand, is a monopoly you are forced to obey. It cannot go out of business because it does not rely on market forces but violent forces. If government were a business operating in a free market, it would have been hurled out of business long ago by firms that do what their customers want (security, jobs, environmental protection, you name it) more effectively and efficiently.

I laugh when I hear someone say that, of the largest “economies” in the world, half or more are corporations. Corporate power is very different from those of government. Corporations cannot take your money; they can only ask for it. Corporations are often blamed for suckering you out of your money, but one might argue that anyone who gladly pays taxes has been suckered; and at least with a business, you are allowed to resist. What could big business do without the power of government behind it? The reason big business is problematic is because it can corrupt the state and lobby to use laws to force unethical behaviour.

Some people fear that corporations, as they too have lots of money, would develop their own weapons. But why would they? There is no instance in history of a corporation whose product is legal growing in size and taking on the coercive properties of a state, only ones where it has used existing state apparatus of violence to coerce. Business cannot use force. It can only persuade. And of course, no organisation or social system could ever completely do away with fraud, trickery and stealing. But the government not only allows those things to continue, it engages in them on a massive scale. I think we are better off without its protection.

Somalia

The ultimate straw man for a statist to use against an anarchist is Somalia. “If you don’t like the government, go to Somalia! You can be a pirate!” And then they laugh, as if that was a clever trump card. I don’t think so. First, no anarchist who knows what he is talking about advocates an immediate or violent implosion of government, like what happened to Siad Barre’s government in 1991. Anarchism is also called voluntarism or voluntaryism, because anarchists want to see voluntary institutions arise over time to replace the coercive ones of government. Life was not good, or voluntary, under Siad Barre.

Second, the violence in Somalia is committed by groups fighting each other in order to form the government and control the levers of power. This violence has been exacerbated by well-meaning westerners who think they know which group should rule the country. Anarchists believe that the initiation of force is wrong, which is why government is wrong, and no one should be allowed to form the government. A variety of warlords fighting for control of the people is hardly a voluntary society. Ethiopia’s 2006 invasion of Somalia to shore up its proxy army there did not help much either.

Besides, many countries with governments are worse off than Somalia, so government is obviously not the answer. To say the reason places like Canada and Australia and Germany are peaceful is purely because of the existence of government is simplistic because it is divorced from history. Among other reasons, one could point to the political culture. A lot of our rules come from people’s simply deciding that certain things are right and wrong. Some rules are in place because government put them there, though many of those rules are based on natural laws like no killing or enforcing contracts. If those rules, if the government superstructure went away over time, would we stop following all rules? Of course not. We already believe that certain rules are right. For example, one day when I was living in Canada, the traffic lights near my house broke down. What do you think happened? Do you think everyone started racing through the intersection, and there were dozens of fatal accidents? Actually, there were no accidents. Everyone simply behaved as if there were a stop sign there instead. The stop sign rule was one they were all already familiar with and agreed with. It was a custom, and we adhere to customs unthinkingly. They didn’t need a traffic light there, just like they didn’t need a policeman handing out tickets to enforce compliance.

But back to the Horn of Africa. Under Siad Barre, Somalia did not have rules accepted by the people; it had rule by one man (so kind of like a majority government in Canada). Siad Barre killed and tortured thousands of people. There was no civil society because everything was forced from the top down. How could they have expected the collapse of his government to have led to a voluntary society? Anyway, Somalia outside Mogadishu is not as bad as people seem to think. After 1991, things began to grow more peaceful, and by the late 1990s, most of Somalia was at peace. There is sporadic  fighting among rival gangs, but there is not so much violence against civilians. (1) (Sounds a bit like Los Angeles.) There is no question a humanitarian crisis afflicts Somalia (given that some of the refugees I teach in Cairo come from Somalia, I would have to be blind not to know that), though violence is not the only factor. The militant group al-Shabab, styling itself as government, has decided to prevent food aid to millions of Somalis. Nevertheless, the people are more healthy and prosperous, and obviously far more free, than they were under Siad Barre (2), which means that they are better off now than they were. (That is partly due to the existence of humanitarian aid groups, who were not allowed during Siad Barre’s time.) Telecommunications have improved as well. A variety of companies are operating with no government regulation, and as a result, Somalia has more phone lines and internet access than most of the rest of Africa. (3) Water and electricity are provided by the private sector, and social insurance comes from remittances and the expansive clan-based family structure. Somalis have access to private healthcare at low costs. Somalia now has universities it didn’t have under statism. Somalia has made decent economic progress since Siad Barre, and some major multinationals like Coca-Cola, DHL and affiliates of General Motors and British Airways have investments in the country. Somalia’s financial sector is doing well, and Somalis lend and borrow a lot of money. Because there is no central bank, inflation is low. Somalis have access to the latest electronic gadgets, too, thanks in large part to the Somali diaspora. (4) In fact, even in Mogadishu things are a lot better. Rapid construction of hotels and restaurants and a light manufacturing industry are developing. (5) If you think things are as bad as they were during the disastrous US “Black Hawk Down” intervention, you might find there is more to Somalia than meets the eye that hasn’t done its research. Of course, if you are going to compare Somalia to Canada and Australia and Germany, fine, it is far worse, but that can hardly be a fair comparison, can it?

Civil society crept back after Siad Barre, and with it returned Xeer [ħeːr], the traditional Somali legal system. Xeer is a functioning legal system that nonetheless has no single authority. Rather than a body that endlessly makes laws to regulate every aspect of life like we have and change with the whims of the powerful, elders mediate disputes based largely on natural human rights. Dispute resolution is a lot faster and cheaper than the average national justice system. (6) Waddaya know? There can still be law and order, even when there is no national government.

Then people talk about piracy as some kind of inevitable consequence of Somalia’s lawless society. However, anyone who reads beyond the headlines knows that the real reason some—not as many as you might think—Somalis have turned to piracy is that rich-country fishermen, with no respect for Somali property rights, went there, poached all the fish they could, dumped their waste and destroyed the fishing industry. Piracy is not only understandable but also, in effect, payback.

Unfortunately, attempts by outsiders (Barack, I’m looking at you) to battle the small al-Qaeda presence in Somalia are likely to lead to the deterioration of a country doggedly building itself up from the bottom. It certainly did not help the first time. Perhaps they should just leave Somalis alone to figure things out for themselves, which seems in fact to have been working so far, and stop trying to impose their statist dreams on everyone.

(1) http://www.peterleeson.com/Better_Off_Stateless.pdf

(2) http://reason.com/blog/2006/12/27/the-anarchy-advantage-in-somal

(3) http://www.independent.org/newsroom/article.asp?id=1880

(4) http://www.bbc.co.uk/news/world-africa-12278628

(5) http://www.independent.org/pdf/working_papers/64_somalia.pdf

(6) http://en.wikipedia.org/wiki/Xeer