The Right Side of Hope in Rhode Island
May 31, 2006
Calling It Like It Is: Eminent Domain Abuse
With a H/T to the Club for Growth blogsite, Donald Boudreaux says it like it is:
Editor, The New York PostTo the Editor:
The Supreme Court says that property can be seized from private citizen Smith and transferred to private citizen Jones as long as the government declares that the seizure serves a good cause ("Supreme Court Rules Cities May Seize Homes," June 24).
So let's see. If I poke a gun in my neighbor's nose and demand that he "sell" his house to me, I would be arrested. But if I get a city council to poke the gun on my behalf - in exchange for my promise to generate handsome tax revenues for the city - all's well and constitutionally okie-dokie.
Makes sense…for a nation that worships power and disdains liberty.
Sincerely,
Donald J. Boudreaux
Department of Economics
George Mason University
The Ballot Question Question
As the Projo’s Elizabeth Gudrais has reported, Governor Donald Carcieri has vetoed the bill that would terminate the right of Rhode Islanders to express themselves by voting on non-binding referenda placed on the statewide ballot by the Governor. The legislature is expected to override the veto.
Representative Peter Kilmartin (D-Pawtucket), the primary sponsor of the bill, argues that the Governor’s power to place non-binding questions on the ballot is an affront to principles of separation of powers and checks-and-balances…
The power should never have been given to the governor in the first place, Kilmartin argued, and has even less of a place in the state's political workings with the implementation of the separation-of-powers constitutional amendment voters approved in 2004.Actually, non-binding referenda are the balance. The executive’s power to place questions on the statewide ballot is a very minimal check on the legislature’s power to kill an issue in committee. In the committee process, not everyone in the state has representation. In a referenda, all of Rhode Island's voters can have a voice in the discussion of an issue."I ask you, where is the check and balance with this statute as it is?" Kilmartin, D-Pawtucket, said. "The fact is, there is none."
Particularly telling is the fact that the Democratic position goes beyond just stripping the Governor of the power to call non-binding referenda. The Democrats want to eliminate non-binding referenda in any form, revealing how little confidence they have in their ability to convince the voters of the sensibility of their policy positions.
Cape Wind and Collateral Damage in the Midwest
Today’s Chicago Tribune has an article describing how wind farms in the Midwest have been collaterally damaged by Congress’ attempt to kill the Cape Wind project …
The federal government has stopped work on more than a dozen wind farms planned across the Midwest, saying research is needed on whether the giant turbines could interfere with military radar....The Warner amendment took effect after the Federal Aviation Administration had already approved the Cape Wind project...Federal officials declined to reveal how many stop-work orders have been sent out. But developers said that at least 15 wind farm proposals in the Midwest have been shut down by the Federal Aviation Administration since the start of the year....
Most of the opposition focuses on the proposed location in a channel between Cape Cod and Martha's Vineyard, the bucolic Massachusetts vacation areas frequented by many high-profile celebrities, business executives and politicians....
The project continued to move forward until late last year, when [Senator John] Warner, chairman of the Senate Armed Services Committee, slipped an amendment into a military spending bill. The one-sentence congressional order directs the Defense Department to study whether wind towers could mask the radar signals of small aircraft.
Since then, at the Defense Department's behest, the FAA has been blocking any new wind turbines within the scope of radar systems used by the military.
Warner's amendment also appears to have reversed the government's position on the Cape Wind proposal. Both the FAA and the Air Force had previously signed off on the project, which would be located within miles of a missile defense radar system.Here’s an excerpt from the FAA memo dated April 2003 certifying that the proposed Cape Wind turbines present no threat to aircraft or to "air navigation facilties", e.g. radar stations....
The Federal Aviation Administration has completed an aeronautical study under the provisions of 49 U.S.C., Section 44718 and, if applicable, Title 14 of the Code of Federal Regulations, part 77, concerning:The Air Force was even more specific...Structure Type: Wind Turbine (A8)
Location: Nantucket Sound, MA…This aeronautical study revealed that the structure would have no substantial adverse effect on the safe and efficient utilization of the navigable airspace by aircraft or on the operation of air navigation facilities.
Our experts have reviewed the proposed locations for the Wind Power Plant near Cape Cod AFS and have determined it poses no threat to the operation of the PAVE PAWS radar at Cape Cod AFS. At the nearest proposed location, the main radar beam will clear the towers by more then 4500 feet.However, the Defense Department has offered no date for lifting its moratorium on the construction of wind farms in Illinois, Wisconsin, Minnesota, North Dakota and South Dakota...
"Until the potential effects can be quantified and possible mitigation techniques developed, it is prudent to temporarily postpone wind turbine construction in areas where the ability of these long-range radars that protect our country might be compromised," said Eileen Lainez, a Defense Department spokeswoman.Nothing is expected to change until the department's study is completed. It is unclear when that will happen, Lainez said.
Economic Thoughts, Part XI: Prices
This posting is Part XI in a series of postings about economic thoughts.
The excerpts in this posting are taken from Chapter 3 in Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and discusses prices, a key structural element in a competitive capitalistic economy.
Prices play a crucial role in determining how much of each resource gets used where. Yet this role is seldom understood by the pubic and it is often disregarded entirely by politicians.Many people see prices as simply obstacles to their getting the things they want...
Prices are like messengers conveying news...prices convey...the end results...
Prices not only guide consumers, they guide producers as well. When all is said and done, producers cannot possibly know what millions of different consumers want...
While a free market economic system is sometimes called a profit system, it is really a profit-and-loss system - and the losses are equally important for the efficiency of the economy, because they tell manufacturers what to stop producing. Without really knowing why consumers like one set of features rather than another, producers automatically produce more of what earns a profit and less of what is losing money...Although the producers are only looking out for themselves and their companies' bottom line, nevertheless from the standpoint of the economy as a whole the society is using its scarce resources more efficiently because decisions are guided by prices...
What this all means as a general principle is that the price that one producer is willing to pay for milk (or any other ingredient) is the price that other producers are forced to pay for that same ingredient. Since scarce resources have alternative uses, the value placed on one of these uses by one other individual or company becomes a cost that has to be paid by others who want to bid some of these resources away for their own use...this means that resources tend to flow to their most valued uses...
Prices coordinate the use of resources, so that only that amount is used for one thing which is equal in value to what it is worth to others in other uses...The efficient allocation of scarce resources which have alternative uses is not just an abstract notion of economists. It determines how well or how badly millions of people live...
...prices convey an underlying reality: From the standpoint of society as a whole, the "cost" of anything is the value that it has in alternative uses....
Different economic systems deal with this underlying reality in different ways and with different degrees of efficiency, but the underlying reality exists independently of whatever particular economic system is used...
The consequence was that far more resources were used to produce a given amount of output in the Soviet economy as compared to a price-coordinated economic system, such as that in the United States...
The Soviet Union did not lack for resources...What it lacked was an economic system that made efficient use of scarce resources...Soviet enterprises were not forced to economize - that is, to treat their resources as both scarce and valuable in alternative uses. While such waste cost these enterprises little or nothing, they cost the Soviet people dearly, in the form of a lower standard of living than their resources and technology were capable of producing...
While history can tell us that such things happened [in the transitional years of Communist China to a less politically controlled economy], economics helps explain why they happened - what there is about prices that allows them to accomplish what political control of an economy can seldom match. There is more to economics than prices, but understanding how prices function is the foundation for understanding much of the rest of economics.
In a society of millions of consumers, no given individual or set of government decision-makers sitting around a table can possibly know just how much these millions of consumers prefer one product to another, much less thousand of products to thousands of other products - quite aside from the problem of knowing how much of each of thousand of resources should be used to produce which products. In an economy coordinated by prices, no one has to know...
Knowledge is one of the most scarce of all resources and a pricing system economizes on its use by forcing those with the most knowledge of their own particular situation to make bids for goods and resources based on that knowledge, rather than on their ability to influence other people...
In a price-coordinated economy, employees and creditors insist on being paid, regardless of whether the managers and owners have made mistakes. This means that capitalist businesses can make only so many mistakes for so long before they have to either stop or get stopped - whether by an inability to get the labor and supplies they need or by bankruptcy...
When people try to quantify a country's "need" for this or that product or service, they are ignoring the fact that there is no fixed or objective "need." The fact that people demand more at a lower price and less at a higher price may be easy to understand, but it is also easy to forget. Seldom, if ever, is there a fixed quantity demanded...
Likewise, there is no fixed supply...
When people projects that there will be a shortage...in the years ahead, they usually either ignore prices or implicitly assume that there will be a shortage at today's prices. But shortages are precisely what cause prices to rise...Price fluctuations are a way of letting a little knowledge go a long way...
There are all kind of prices. The prices of consumer goods are the most obvious examples but labor also has prices called wages or salaries, and borrowed money has a price called interest...Prices produce incentives to conserve...
...So long as people are free to spend their money for what they see fit, price changes in response to supply and demand direct resources to where they are most in demand and direct people to where their desires can be satisfied most fully by the existing supply...
To treat prices as resulting from greed implies that sellers can set prices where they wish, that prices are not determined by supply and demand...
The fact that prices fluctuate over time, and occasionally have a sharp rise or a steep drop, misleads some people into concluding that prices are deviating from their "real" values...But their usual level under usual conditions is no more real or valid than their much higher or lower levels under different conditions...
Prices not only ration existing supplies, they also act as powerful incentives to cause supplies to rise or fall in response to changing demand...
...In short, people tend to do more for their own benefit than for the benefit of others. Freely fluctuating prices can make that turn out to be beneficial to others...
Part XII to follow...
For previous postings on Economic Thoughts, refer to:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government
Part X: The Power of the Market
Economic Thoughts, Part XI: Prices
This posting is Part XI in a series of postings about economic thoughts.
The excerpts in this posting are taken from Chapter 3 in Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and discusses prices, a key structural element in a competitive capitalistic economy.
Prices play a crucial role in determining how much of each resource gets used where. Yet this role is seldom understood by the pubic and it is often disregarded entirely by politicians.Many people see prices as simply obstacles to their getting the things they want...
Prices are like messengers conveying news...prices convey...the end results...
Prices not only guide consumers, they guide producers as well. When all is said and done, producers cannot possibly know what millions of different consumers want...
While a free market economic system is sometimes called a profit system, it is really a profit-and-loss system - and the losses are equally important for the efficiency of the economy, because they tell manufacturers what to stop producing. Without really knowing why consumers like one set of features rather than another, producers automatically produce more of what earns a profit and less of what is losing money...Although the producers are only looking out for themselves and their companies' bottom line, nevertheless from the standpoint of the economy as a whole the society is using its scarce resources more efficiently because decisions are guided by prices...
What this all means as a general principle is that the price that one producer is willing to pay for milk (or any other ingredient) is the price that other producers are forced to pay for that same ingredient. Since scarce resources have alternative uses, the value placed on one of these uses by one other individual or company becomes a cost that has to be paid by others who want to bid some of these resources away for their own use...this means that resources tend to flow to their most valued uses...
Prices coordinate the use of resources, so that only that amount is used for one thing which is equal in value to what it is worth to others in other uses...The efficient allocation of scarce resources which have alternative uses is not just an abstract notion of economists. It determines how well or how badly millions of people live...
...prices convey an underlying reality: From the standpoint of society as a whole, the "cost" of anything is the value that it has in alternative uses....
Different economic systems deal with this underlying reality in different ways and with different degrees of efficiency, but the underlying reality exists independently of whatever particular economic system is used...
The consequence was that far more resources were used to produce a given amount of output in the Soviet economy as compared to a price-coordinated economic system, such as that in the United States...
The Soviet Union did not lack for resources...What it lacked was an economic system that made efficient use of scarce resources...Soviet enterprises were not forced to economize - that is, to treat their resources as both scarce and valuable in alternative uses. While such waste cost these enterprises little or nothing, they cost the Soviet people dearly, in the form of a lower standard of living than their resources and technology were capable of producing...
While history can tell us that such things happened [in the transitional years of Communist China to a less politically controlled economy], economics helps explain why they happened - what there is about prices that allows them to accomplish what political control of an economy can seldom match. There is more to economics than prices, but understanding how prices function is the foundation for understanding much of the rest of economics.
In a society of millions of consumers, no given individual or set of government decision-makers sitting around a table can possibly know just how much these millions of consumers prefer one product to another, much less thousand of products to thousands of other products - quite aside from the problem of knowing how much of each of thousand of resources should be used to produce which products. In an economy coordinated by prices, no one has to know...
Knowledge is one of the most scarce of all resources and a pricing system economizes on its use by forcing those with the most knowledge of their own particular situation to make bids for goods and resources based on that knowledge, rather than on their ability to influence other people...
In a price-coordinated economy, employees and creditors insist on being paid, regardless of whether the managers and owners have made mistakes. This means that capitalist businesses can make only so many mistakes for so long before they have to either stop or get stopped - whether by an inability to get the labor and supplies they need or by bankruptcy...
When people try to quantify a country's "need" for this or that product or service, they are ignoring the fact that there is no fixed or objective "need." The fact that people demand more at a lower price and less at a higher price may be easy to understand, but it is also easy to forget. Seldom, if ever, is there a fixed quantity demanded...
Likewise, there is no fixed supply...
When people projects that there will be a shortage...in the years ahead, they usually either ignore prices or implicitly assume that there will be a shortage at today's prices. But shortages are precisely what cause prices to rise...Price fluctuations are a way of letting a little knowledge go a long way...
There are all kind of prices. The prices of consumer goods are the most obvious examples but labor also has prices called wages or salaries, and borrowed money has a price called interest...Prices produce incentives to conserve...
...So long as people are free to spend their money for what they see fit, price changes in response to supply and demand direct resources to where they are most in demand and direct people to where their desires can be satisfied most fully by the existing supply...
To treat prices as resulting from greed implies that sellers can set prices where they wish, that prices are not determined by supply and demand...
The fact that prices fluctuate over time, and occasionally have a sharp rise or a steep drop, misleads some people into concluding that prices are deviating from their "real" values...But their usual level under usual conditions is no more real or valid than their much higher or lower levels under different conditions...
Prices not only ration existing supplies, they also act as powerful incentives to cause supplies to rise or fall in response to changing demand...
...In short, people tend to do more for their own benefit than for the benefit of others. Freely fluctuating prices can make that turn out to be beneficial to others...
Part XII to follow...
For previous postings on Economic Thoughts, refer to:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government
Part X: The Power of the Market
May 30, 2006
New England Wind Update
1. According to Kevin Dennehy of the Cape Cod Times, the Federal legislation championed by Massachusetts Senator Edward Kennedy and Massachusetts Congressman William Delahunt intended to kill the Cape Wind project has been mellowed. Cape Wind proposes constructing a set of wind turbines in Nantucket Sound capable of generating three-quarters of the electricity used by Cape Cod. Opponents of the Cape Wind project had been trying to insert an amendment into the Coast Guard appropriations bill that would allow the governor of Massachusetts to veto Cape Wind even if all other regulatory hurdles had been passed.
In the face of widespread popular support for Cape Wind, the amendment has been modified to give an additional veto over the project to the Commandant of the Coast Guard, instead of to the Governor of Massachusetts. Why any additional veto is necessary at all still remains unclear
2. The Cape Cod Times also has the details on a second wind farm project proposed for Buzzards Bay. This project would produce a little less than three-quarters of the electricity that the Cape Wind project would (300 Megawatts versus 420). The regulatory path will also likely be different, as the Cape Wind project is to be situated in Federal waters, while the Buzzards Bay wind project will be in state waters.
May 29, 2006
Economic Thoughts, Part X: The Power of the Market
This posting is Part X in a series of postings about economic thoughts.
Milton and Rose Friedman, in Chapter 1 of their 1979 book, Free to Choose: A Personal Statement, discuss the power of the market:
...we know of no society that has ever achieved prosperity and freedom, unless voluntary exchange has been its dominant principle of organization. We hasten to add that voluntary exchange is not a sufficient condition for prosperity...but...is a necessary condition...THE ROLE OF PRICES
The key insight of Adam Smith's Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.
This key insight is obvious for a simple exchange between two individuals. It is far more difficult to understand how it can enable people living all over the world to cooperate to promote their separate interests.
The price system is the mechanism that performs this task without central direction, without requiring people to speak to one another or to like one another...the price system enables people to cooperate peacefully in one phase of their life while each one goes about his own business with respect of everything else...
...It was a startling idea then, and it remains one today, that economic order can emerge as the unintended consequence of the actions of many people, each seeking his own interest.
The price system works so well, so efficiently, that we are not aware of it most of the time. We never realize how well it functions until it is prevented from functioning, and even then we seldom recognize the source of the trouble...
Prices perform three functions in organizing economic activity: first, they transmit information; second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes; third, they determine who gets how much of the product - the distribution of income. These three functions are closely interrelated...
Transmission of Information
The price system transmits only the important information and only to the people who need to know...
A major problem in transmitting information efficiently is to make sure that everyone who can use the information gets it without clogging the "in" baskets of those who have no use for it. The price system automatically solves this problem. The people who transmit the information have an incentive to search out the people who can use it and they are in a position to do so. People who can use the information have an incentive to get it and they are in a position to do so...
The transmission of information through prices is enormously facilitated these days by organized markets and by specialized communication facilities...
Anything that prevents prices from expressing freely the conditions of demand or supply interferes with the transmission of accurate information. Private monopoly...is one example...Price controls on oil and other forms of energy by the U.S. government [are another.]...
Important as private distortions of the price system are, these days the government is the major source of interference with a free market system - through tariffs and other restraints on international trade, domestic action fixing or affecting individual prices, including wages, government regulation of specific industries, monetary and fiscal policies producing erratic inflation, and numerous other channels...
Incentives
The effective transmission of accurate information is wasted unless the relevant people have an incentive to act, and act correctly on the basis of that information...One of the beauties of a free price system is that the prices that bring the information also provide both an incentive to react to the information and the means to do so.
This function of prices is intimately connected with the third function - determining the distribution of income - and cannot be explained without bringing that function into the account...
Prices also provide an incentive to act on information not only about the demand for output but also about the most efficient way to produce a product...
We have discussed the incentive effect so far in terms of producers and consumers. But it also operates with respect to workers and owners of other productive resources...
Distribution of Income
In countries like the United States the major productive resource is personal productive capacity - what economists call "human capital." Something like three-quarters of all income generated in the United States through market transactions takes the form of the compensation of employees (wages and salaries plus supplements) and about half the rest takes the form of the income of proprietors of farm and nonfarm enterprises...
The accumulation of physical capital...has played an essential role in economic growth...
But the accumulation of human capital - in the form of increased knowledge and skills and improved health and longevity - has also played an essential role. And the two have reinforced each other. The physical capital enabled people to be far more productive by providing them with the tools to work with. And the capacity of people to invent new forms of physical capital, to learn how to use and get the most out of physical capital, and to organize the use of both physical and human capital on a larger and larger scale enabled the physical capital to be more productive. Both physical and human capital must be cared for and replaced...
The amount of each kind of resource each of us owns is partly the result of chance, partly of choice by ourselves or others...
The price that the market sets on the services of our resources is similarly affected by a bewildering mixture of chance and choice...the price we receive for the services of our resources through the market also depends on our own choices - where we choose to settle, how we choose to use those resources, to whom we choose to sell...services, and so on.
In every society, however it is organized, there is always dissatisfaction with the distribution of income...In a command system envy and dissatisfaction are directed at rulers. In a free market system they are directed at the market.
One result has been an attempt to separate this function of the price system - distributing income - from its other functions - transmitting information and providing incentives. Much government activity during recent decades...has been directed at altering the distribution of income generated by the market in order to produce a different and more equitable distribution of income...
However we might wish it otherwise, it simply is not possible to use prices to transmit information and provide an incentive to act on that information without using prices also to affect, even if not completely determine, the distribution of income. If what a person gets does not depend on the price he receives for the services of his resources, what incentive does he have to seek out information on prices or act on the basis of that information?...If prices are prevented from affecting the distribution of income, they cannot be used for other purposes. The only alternative is command. Such authority would have to decide who should produce what and how much...
A BROADER VIEW
Adam Smith's "invisible hand" is generally regarded as referring to the purchases or sales of goods or services for money. But economic activity is by no means the only area of human life in which a complex and sophisticated structure arises as an unintended consequence of a large number of individuals cooperating while each pursues his own interests.
Consider, for example, language...
How did language develop? In much the same way as an economic order develops through the market - out of the voluntary interaction of individuals...One or another meaning was attributed to a word, or words were added as the need arose. Grammatical usages developed and were later codified into rules. Two parties who want to communicate with one another both benefit from coming to a common agreement about the words they use...As a wider and wider circle of people find it advantageous to communicate with one another, a common usage spreads and is codified in dictionaries. At no point is there any coercion, any central planner who has power to command...
Another example is scientific knowledge. The structure of disciplines [within science] was not the product of a deliberate decision by anyone...
Within any discipline the growth of the subject strictly parallels the economic marketplace. Scholars cooperate with one another because they find it mutually beneficial. They accept from one another's work what they find useful. They exchange their findings...The esteem or approval of fellow scholars serves very much the same function that monetary reward does in the economic marketplace....
A society's values, its culture, its social conventions - all these develop in the same way, through voluntary exchange, spontaneous cooperation, the evolution of a complex structure through trial and error, acceptance and rejection...
The structures produced by voluntary exchange...develop a life of their own. They are capable of taking many different forms under different circumstances. Voluntary exchange can produce uniformity in some respects combined with diversity in others. It is a subtle process whose general principles of operation can fairly readily be grasped but whose detailed results can seldom be foreseen.
These examples may suggest not only the wide scope for voluntary exchange but also the broad definition that must be attached to the concept of "self-interest." Narrow preoccupation with the economic market has led to a narrow interpretation of self-interest as myopic selfishness, as exclusive concern with immediate material rewards...That is a great mistake. Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue...all are pursuing their interests, as they see them, as they judge them by their own values.
THE ROLE OF GOVERNMENT...what role should be assigned to government?
It is not easy to improve on the answer that Adam Smith gave to this question...
...According to the system of natural liberty, the sovereign has only three duties of great importance...first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.The first two duties are clear and straightforward: the protection of individuals in the society from coercion whether it comes from outside or from their fellow citizens. Unless there is such protection, we are not really free to choose...
...it is one thing to state the purpose that an institution, particularly a governmental institution, "ought" to serve; it is quite another to describe the purposes the institution actually serves. The intentions of the persons responsible for setting up the institution and of the persons who operate it often differ sharply. Equally important, the results achieved often differ widely from those intended...
A major problem in achieving and preserving a free society is precisely how to assure that coercive powers granted to government in order to preserve freedom are limited to that function and are kept from becoming a threat to freedom. The founders of our country wrestled with that problem...We have tended to neglect it.
Adam Smith's second duty goes beyond the narrow police function of protecting people from physical coercion; it includes "an exact administration of justice."...There must be some way to mediate disputes...
This role of government also includes facilitating voluntary exchanges by adopting general rules - the rules of the economic and social games that the citizens of a free society play. The most obvious example is the meaning to be attached to private property...The major way that society has come to agree on the rules of property is through the growth of common law...
Adam Smith's third duty raises the most troublesome issues. He himself regarded it as having a narrow application. It has since been used to justify an extremely wide range of government activities...
The valid element arises because of the cost of producing some goods and services through strictly voluntary exchanges...
A more subtle example involves effects on "third parties," who are not parties to the particular exchange - the classic "smoke nuisance" case...
To lapse into technical jargon, there is a "market failure" because of "external" or "neighborhood" effects for which it is not feasible to compensate or charge the people affected...
Almost everything we do has some third-party effects...In consequence, Adam Smith's third duty may at first blush appear to justify almost any proposed government measure. But there is a fallacy. Government measures also have third-party effects. "Governmental failure" no less than "market failure" arises from "external" or "neighborhood" effects. And if such effects are important for a market transaction, they are likely also to be important for government measures intended to correct the "market failure."...
If it is difficult for private parties to identify who imposes costs or benefits on whom, it is difficult for government to do so. As a result a government attempt to rectify the situation may very well end up making matters worse rather than better - imposing costs on innocent third parties or conferring benefits on lucky bystanders. To finance its activities it must collect taxes, which themselves affect what taxpayers do - still another third-party effect. In addition, every accretion of government power for whatever purpose increases the danger that government, instead of serving the great majority of its citizens, will become a means whereby some of its citizens can take advantage of others...
The lesson to be drawn from the misuse of Smith's third duty is not that government intervention is never justified, but rather that the burden of proof should be on its proponents...This [benefits/cost] course of action is recommended not only by the difficulty of assessing the hidden costs of government intervention but also by another consideration. Experience shows that once government undertakes an activity, it is seldom terminated...
A fourth duty of government that Adam Smith did not explicitly mention is the duty to protect members of the community who cannot be regarded as "responsible" individuals. Like Adam Smith's third duty, this one, too, is susceptible of great abuse. Yet it cannot be avoided.
Freedom is a tenable objective only for responsible individuals...We must somehow draw a line between responsible individuals and others, yet doing so introduces a fundamental ambiguity into our ultimate objective of freedom. We cannot categorically reject paternalism for those whom we consider as not responsible...
LIMITED GOVERNMENT IN PRACTICE
In today's world big government seems pervasive. We may well ask whether there exist any contemporaneous examples of societies that rely primarily on voluntary exchange through the market to organize their economic activity and in which government is limited to our four duties.
Perhaps the best example is Hong Kong [pre-1997 takeover by Communist China]...
Hong Kong has no tariffs of other restraints on international trade...It has no government direction of economic activity, no minimum wage laws, no fixing of prices. The residents are free to buy from whom they want, to sell to whom they want, to invest however they want, to hire whom they want, to work for whom they want.
Government plays an important role that is limited primarily to our four duties interpreted rather narrowly. It enforces law and order, provides a means for formulating the rules of conduct, adjudicates disputes, facilitates transportation and communication, and supervises the issuance of currency. It has provided public housing for arriving refuges from China...[taxes] remain among the lowest in the world...low taxes preserve incentives. Businessmen can reap the benefits of their success but must also bear the costs of their mistakes...
Though Hong Kong is an excellent current example, it is by no means the most important example of limited government and free market societies in practice...
The United States is another striking example...A myth has grown up about the United States that paints the nineteenth century as the era of the robber baron, of rugged, unrestrained individualism...
The reality was very different. Immigrants kept coming...The early ones might have been fooled, but it is inconceivable that millions kept coming to the United States decade after decade to be exploited. They came because the hopes of those who had preceded them were largely realized...The newcomers spread from east to west. As they spread, cities sprang up, ever more land was brought into cultivation. The country grew more prosperous and more productive, and the immigrants shared in the prosperity...
...the flowering of charitable activity in the United States in the nineteenth century: Privately financed schools and colleges multiplied; foreign missionary activity exploded; nonprofit hospitals, orphanages, and numerous other institutions sprang up like weeks. Almost every charitable or public service organization from the Society for the Prevention of Cruelty to Animals to the YMCA and YWCA, from the Indian Rights Association to the Salvation Army, dates from that period. Voluntary cooperation is no less effective in organizing charitable activity than in organizing production for profit.
The charitable activity was matched by a burst of cultural activity - art museums, opera houses, symphonies, museums, public libraries arose in big cities and frontier towns alike.
The size of government spending is one measure of government's role. Major wars aside, government spending from 1800 to 1929 did not exceed about 12 percent of the national income. Two-thirds of that was spent by state and local governments, mostly for schools and roads. As late as 1928, federal government spending amounted to about 3 percent of the national income...
It is often maintained that while a let-alone, limited government policy was feasible in sparsely populated nineteenth-century America, government must play a far larger, indeed dominant, role in a modern urbanized and industrial society. One hour in Hong Kong will dispose of that view.
Our society is what we make it...none prevents us, if we will, from building a society that relies primarily on voluntary cooperation to organize both economic and other activity, a society that preserves and expands human freedom, that keeps government in its place, keeping it our servant and not letting it become our master.
Part XI to follow...
For previous postings on Economic Thoughts, refer to:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government
Economic Thoughts, Part X: The Power of the Market
This posting is Part X in a series of postings about economic thoughts.
Milton and Rose Friedman, in Chapter 1 of their 1979 book, Free to Choose: A Personal Statement, discuss the power of the market:
...we know of no society that has ever achieved prosperity and freedom, unless voluntary exchange has been its dominant principle of organization. We hasten to add that voluntary exchange is not a sufficient condition for prosperity...but...is a necessary condition...THE ROLE OF PRICES
The key insight of Adam Smith's Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.
This key insight is obvious for a simple exchange between two individuals. It is far more difficult to understand how it can enable people living all over the world to cooperate to promote their separate interests.
The price system is the mechanism that performs this task without central direction, without requiring people to speak to one another or to like one another...the price system enables people to cooperate peacefully in one phase of their life while each one goes about his own business with respect of everything else...
...It was a startling idea then, and it remains one today, that economic order can emerge as the unintended consequence of the actions of many people, each seeking his own interest.
The price system works so well, so efficiently, that we are not aware of it most of the time. We never realize how well it functions until it is prevented from functioning, and even then we seldom recognize the source of the trouble...
Prices perform three functions in organizing economic activity: first, they transmit information; second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes; third, they determine who gets how much of the product - the distribution of income. These three functions are closely interrelated...
Transmission of Information
The price system transmits only the important information and only to the people who need to know...
A major problem in transmitting information efficiently is to make sure that everyone who can use the information gets it without clogging the "in" baskets of those who have no use for it. The price system automatically solves this problem. The people who transmit the information have an incentive to search out the people who can use it and they are in a position to do so. People who can use the information have an incentive to get it and they are in a position to do so...
The transmission of information through prices is enormously facilitated these days by organized markets and by specialized communication facilities...
Anything that prevents prices from expressing freely the conditions of demand or supply interferes with the transmission of accurate information. Private monopoly...is one example...Price controls on oil and other forms of energy by the U.S. government [are another.]...
Important as private distortions of the price system are, these days the government is the major source of interference with a free market system - through tariffs and other restraints on international trade, domestic action fixing or affecting individual prices, including wages, government regulation of specific industries, monetary and fiscal policies producing erratic inflation, and numerous other channels...
Incentives
The effective transmission of accurate information is wasted unless the relevant people have an incentive to act, and act correctly on the basis of that information...One of the beauties of a free price system is that the prices that bring the information also provide both an incentive to react to the information and the means to do so.
This function of prices is intimately connected with the third function - determining the distribution of income - and cannot be explained without bringing that function into the account...
Prices also provide an incentive to act on information not only about the demand for output but also about the most efficient way to produce a product...
We have discussed the incentive effect so far in terms of producers and consumers. But it also operates with respect to workers and owners of other productive resources...
Distribution of Income
In countries like the United States the major productive resource is personal productive capacity - what economists call "human capital." Something like three-quarters of all income generated in the United States through market transactions takes the form of the compensation of employees (wages and salaries plus supplements) and about half the rest takes the form of the income of proprietors of farm and nonfarm enterprises...
The accumulation of physical capital...has played an essential role in economic growth...
But the accumulation of human capital - in the form of increased knowledge and skills and improved health and longevity - has also played an essential role. And the two have reinforced each other. The physical capital enabled people to be far more productive by providing them with the tools to work with. And the capacity of people to invent new forms of physical capital, to learn how to use and get the most out of physical capital, and to organize the use of both physical and human capital on a larger and larger scale enabled the physical capital to be more productive. Both physical and human capital must be cared for and replaced...
The amount of each kind of resource each of us owns is partly the result of chance, partly of choice by ourselves or others...
The price that the market sets on the services of our resources is similarly affected by a bewildering mixture of chance and choice...the price we receive for the services of our resources through the market also depends on our own choices - where we choose to settle, how we choose to use those resources, to whom we choose to sell...services, and so on.
In every society, however it is organized, there is always dissatisfaction with the distribution of income...In a command system envy and dissatisfaction are directed at rulers. In a free market system they are directed at the market.
One result has been an attempt to separate this function of the price system - distributing income - from its other functions - transmitting information and providing incentives. Much government activity during recent decades...has been directed at altering the distribution of income generated by the market in order to produce a different and more equitable distribution of income...
However we might wish it otherwise, it simply is not possible to use prices to transmit information and provide an incentive to act on that information without using prices also to affect, even if not completely determine, the distribution of income. If what a person gets does not depend on the price he receives for the services of his resources, what incentive does he have to seek out information on prices or act on the basis of that information?...If prices are prevented from affecting the distribution of income, they cannot be used for other purposes. The only alternative is command. Such authority would have to decide who should produce what and how much...
A BROADER VIEW
Adam Smith's "invisible hand" is generally regarded as referring to the purchases or sales of goods or services for money. But economic activity is by no means the only area of human life in which a complex and sophisticated structure arises as an unintended consequence of a large number of individuals cooperating while each pursues his own interests.
Consider, for example, language...
How did language develop? In much the same way as an economic order develops through the market - out of the voluntary interaction of individuals...One or another meaning was attributed to a word, or words were added as the need arose. Grammatical usages developed and were later codified into rules. Two parties who want to communicate with one another both benefit from coming to a common agreement about the words they use...As a wider and wider circle of people find it advantageous to communicate with one another, a common usage spreads and is codified in dictionaries. At no point is there any coercion, any central planner who has power to command...
Another example is scientific knowledge. The structure of disciplines [within science] was not the product of a deliberate decision by anyone...
Within any discipline the growth of the subject strictly parallels the economic marketplace. Scholars cooperate with one another because they find it mutually beneficial. They accept from one another's work what they find useful. They exchange their findings...The esteem or approval of fellow scholars serves very much the same function that monetary reward does in the economic marketplace....
A society's values, its culture, its social conventions - all these develop in the same way, through voluntary exchange, spontaneous cooperation, the evolution of a complex structure through trial and error, acceptance and rejection...
The structures produced by voluntary exchange...develop a life of their own. They are capable of taking many different forms under different circumstances. Voluntary exchange can produce uniformity in some respects combined with diversity in others. It is a subtle process whose general principles of operation can fairly readily be grasped but whose detailed results can seldom be foreseen.
These examples may suggest not only the wide scope for voluntary exchange but also the broad definition that must be attached to the concept of "self-interest." Narrow preoccupation with the economic market has led to a narrow interpretation of self-interest as myopic selfishness, as exclusive concern with immediate material rewards...That is a great mistake. Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue...all are pursuing their interests, as they see them, as they judge them by their own values.
THE ROLE OF GOVERNMENT...what role should be assigned to government?
It is not easy to improve on the answer that Adam Smith gave to this question...
...According to the system of natural liberty, the sovereign has only three duties of great importance...first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.The first two duties are clear and straightforward: the protection of individuals in the society from coercion whether it comes from outside or from their fellow citizens. Unless there is such protection, we are not really free to choose...
...it is one thing to state the purpose that an institution, particularly a governmental institution, "ought" to serve; it is quite another to describe the purposes the institution actually serves. The intentions of the persons responsible for setting up the institution and of the persons who operate it often differ sharply. Equally important, the results achieved often differ widely from those intended...
A major problem in achieving and preserving a free society is precisely how to assure that coercive powers granted to government in order to preserve freedom are limited to that function and are kept from becoming a threat to freedom. The founders of our country wrestled with that problem...We have tended to neglect it.
Adam Smith's second duty goes beyond the narrow police function of protecting people from physical coercion; it includes "an exact administration of justice."...There must be some way to mediate disputes...
This role of government also includes facilitating voluntary exchanges by adopting general rules - the rules of the economic and social games that the citizens of a free society play. The most obvious example is the meaning to be attached to private property...The major way that society has come to agree on the rules of property is through the growth of common law...
Adam Smith's third duty raises the most troublesome issues. He himself regarded it as having a narrow application. It has since been used to justify an extremely wide range of government activities...
The valid element arises because of the cost of producing some goods and services through strictly voluntary exchanges...
A more subtle example involves effects on "third parties," who are not parties to the particular exchange - the classic "smoke nuisance" case...
To lapse into technical jargon, there is a "market failure" because of "external" or "neighborhood" effects for which it is not feasible to compensate or charge the people affected...
Almost everything we do has some third-party effects...In consequence, Adam Smith's third duty may at first blush appear to justify almost any proposed government measure. But there is a fallacy. Government measures also have third-party effects. "Governmental failure" no less than "market failure" arises from "external" or "neighborhood" effects. And if such effects are important for a market transaction, they are likely also to be important for government measures intended to correct the "market failure."...
If it is difficult for private parties to identify who imposes costs or benefits on whom, it is difficult for government to do so. As a result a government attempt to rectify the situation may very well end up making matters worse rather than better - imposing costs on innocent third parties or conferring benefits on lucky bystanders. To finance its activities it must collect taxes, which themselves affect what taxpayers do - still another third-party effect. In addition, every accretion of government power for whatever purpose increases the danger that government, instead of serving the great majority of its citizens, will become a means whereby some of its citizens can take advantage of others...
The lesson to be drawn from the misuse of Smith's third duty is not that government intervention is never justified, but rather that the burden of proof should be on its proponents...This [benefits/cost] course of action is recommended not only by the difficulty of assessing the hidden costs of government intervention but also by another consideration. Experience shows that once government undertakes an activity, it is seldom terminated...
A fourth duty of government that Adam Smith did not explicitly mention is the duty to protect members of the community who cannot be regarded as "responsible" individuals. Like Adam Smith's third duty, this one, too, is susceptible of great abuse. Yet it cannot be avoided.
Freedom is a tenable objective only for responsible individuals...We must somehow draw a line between responsible individuals and others, yet doing so introduces a fundamental ambiguity into our ultimate objective of freedom. We cannot categorically reject paternalism for those whom we consider as not responsible...
LIMITED GOVERNMENT IN PRACTICE
In today's world big government seems pervasive. We may well ask whether there exist any contemporaneous examples of societies that rely primarily on voluntary exchange through the market to organize their economic activity and in which government is limited to our four duties.
Perhaps the best example is Hong Kong [pre-1997 takeover by Communist China]...
Hong Kong has no tariffs of other restraints on international trade...It has no government direction of economic activity, no minimum wage laws, no fixing of prices. The residents are free to buy from whom they want, to sell to whom they want, to invest however they want, to hire whom they want, to work for whom they want.
Government plays an important role that is limited primarily to our four duties interpreted rather narrowly. It enforces law and order, provides a means for formulating the rules of conduct, adjudicates disputes, facilitates transportation and communication, and supervises the issuance of currency. It has provided public housing for arriving refuges from China...[taxes] remain among the lowest in the world...low taxes preserve incentives. Businessmen can reap the benefits of their success but must also bear the costs of their mistakes...
Though Hong Kong is an excellent current example, it is by no means the most important example of limited government and free market societies in practice...
The United States is another striking example...A myth has grown up about the United States that paints the nineteenth century as the era of the robber baron, of rugged, unrestrained individualism...
The reality was very different. Immigrants kept coming...The early ones might have been fooled, but it is inconceivable that millions kept coming to the United States decade after decade to be exploited. They came because the hopes of those who had preceded them were largely realized...The newcomers spread from east to west. As they spread, cities sprang up, ever more land was brought into cultivation. The country grew more prosperous and more productive, and the immigrants shared in the prosperity...
...the flowering of charitable activity in the United States in the nineteenth century: Privately financed schools and colleges multiplied; foreign missionary activity exploded; nonprofit hospitals, orphanages, and numerous other institutions sprang up like weeks. Almost every charitable or public service organization from the Society for the Prevention of Cruelty to Animals to the YMCA and YWCA, from the Indian Rights Association to the Salvation Army, dates from that period. Voluntary cooperation is no less effective in organizing charitable activity than in organizing production for profit.
The charitable activity was matched by a burst of cultural activity - art museums, opera houses, symphonies, museums, public libraries arose in big cities and frontier towns alike.
The size of government spending is one measure of government's role. Major wars aside, government spending from 1800 to 1929 did not exceed about 12 percent of the national income. Two-thirds of that was spent by state and local governments, mostly for schools and roads. As late as 1928, federal government spending amounted to about 3 percent of the national income...
It is often maintained that while a let-alone, limited government policy was feasible in sparsely populated nineteenth-century America, government must play a far larger, indeed dominant, role in a modern urbanized and industrial society. One hour in Hong Kong will dispose of that view.
Our society is what we make it...none prevents us, if we will, from building a society that relies primarily on voluntary cooperation to organize both economic and other activity, a society that preserves and expands human freedom, that keeps government in its place, keeping it our servant and not letting it become our master.
Part XI to follow...
For previous postings on Economic Thoughts, refer to:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government
More Thoughts on the Senate Immigration Bill
The editors at the National Review have written a stellar piece on the Senate immigration bill entitled Temporary Madness:
The Senate isn’t serious about enforcing the nation’s immigration laws. It is bad enough that the bill that 39 Democrats and 23 Republicans just voted to pass provides an amnesty to illegal immigrants already here. There might be an argument for doing that if there were any evidence of a commitment to enforce the immigration laws in the future. But the bill actually prohibits local police from enforcing civil violations of immigration laws—which in practice, given the byzantine rules distinguishing between civil and criminal violations of those laws, will get local police out of the enforcement business altogether. No serious effort is being made to make the bureaucracy capable of the enforcement tasks that will now be asked of them, such as performing background checks on the illegal population.The bill forbids the federal government to use any information included in an application for amnesty in national-security or criminal investigations. Any federal agent who does use that information would be fined $10,000—which is five times more than an illegal alien would have to pay to get the amnesty. The Senate, on a tie vote, defeated John Cornyn’s (R., Tex.) attempt to rectify these provisions.
When Sen. Johnny Isakson (R., Ga.) offered an amendment to require that enforcement be proven to have succeeded before the amnesty or guest-worker provisions could take effect, he was voted down, 55-40. For most senators, enforcement is just boob bait for the voters. They are not willing to demand it before getting what they, for various reasons, really want: an amnesty and a massive increase in legal immigration.Sen. Jeff Sessions (R., Ala.) wanted to deny illegal immigrants the earned income tax credit. It is one thing to legalize them, went the argument, and another to subsidize them. He, too, was voted down, with Sen. John McCain (R., Ariz.) flippantly suggesting that the amendment was akin to requiring illegals to ride in the back of the bus. (No, senator: They’re in the front of the line, at least for legal residency in the U.S.)
The “temporary” guest-workers will be eligible for citizenship. If they overstay their welcome, there is no guarantee they will be deported—especially when Congress will have signaled, by passing this bill, its view that deportation is draconian. So these “temporary” workers will permanently change America. Robert Rector of the Heritage Foundation estimates that the bill would make for an inflow of 66 million immigrants over the next 20 years. Since much of this inflow would consist of poor and relatively uneducated people, one result would be, he says, the largest expansion of the welfare state in 35 years. (And he’s not accounting for the likely effects of these people’s votes.) Another very likely result would be the increased balkanization of America, as this massive inflow slows both economic and cultural assimilation.
If supporters of the Senate bill were serious about securing the border, they would have considered following a strategy of attrition—of stepping up enforcement of the immigration laws so as to shrink the illegal-immigrant population over time—and, if they ultimately rejected that strategy, explained why. Implicit in their arguments for amnesty and a guest-worker program is one possible objection to the attrition strategy: that the American economy needs more cheap, unskilled labor. Proponents of mass immigration boast that immigration brings a net benefit of $10 billion to the American economy. But this amount is, in the context of our $13 trillion economy, trivial. Reduced immigration would lead to some increased outsourcing, some substitution of machines for labor, some increased wages, and some higher prices. The economy would survive.
So will Republicans, if they reject this bill (as most Senate Republicans did). They are being told that they need to pass a bill, even if they dislike many of its provisions, to be seen as “doing something” about the border. But the voters who care the most about this issue know that the Senate bill does something they heartily detest. They know that the only way to get any enforcement of our immigration laws—at the border or the workplace—is to keep all of the interests that want increased immigration from getting what they want until enforcement is achieved. The Senate should stand down in favor of the House’s enforcement-first approach, not the other way around. But it would be much better to enact no bill than to enact the Senate bill.
Additional readings on illegal immigration include:
Mickey Kaus on I'll Believe the MSM Is Fair When...the Senate gets pressed to cave on immigration., where he notes:
Does the just-passed Senate immigration bill really only require illegal immigrants to pay back taxes for 3 of the past 5 years? It looks that way. I'll take that deal!...
Mary Ann Glendon on Principled Immigration
Mark Steyn on Undocumented Status for All!
Washington Times on 'Amnesty' jams compromise bill
Washington Times on House chief say 'no' to amnesty bill
Washington Times on Mexico aims to maintain easy flow over border
For more readings on the illegal immigration bill, there have been twelve recent postings on Anchor Rising about immigration:
Identifying Four Core Issues Underlying the Immigration Debate
More Misguided Thinking From RIFuture & State Legislators on Illegal Immigration
Why is Congress Discriminating Against Educated Legal Immigrants?
More Links on Immigration Issue
Senate Rejects Securing the Borders while Supporting Increased Presidential Power
Senator Reed Votes For Open Borders
Jennifer Roback Morse: Further Clarifying What is at Stake in the Illegal Immigration Debate
Senator Grassley's Top 10 Flaws in Immigration Bill
Senator Sessions' Senate Floor Speech on Illegal Immigration Bill
The Senate Passes an Illegal Immigration Amnesty Bill, But Lacks The Courage To Call It What It Is
In addition, another series of previous postings contain information about recent events in the public debate about illegal immigration and can be found in Parts I, II, III, IV, V, and VI.
"They represent the highest form of the citizen"
Honor Roll of Soldiers Killed in Afghanistan
Honor Roll of Soldiers Killed in Iraq
They represent the highest form of the citizen, and every man and woman among them was a volunteer. This plain statement requires no further rhetoric.-- Christopher Hitchens, in OpinionJournal, Today
May 28, 2006
President George W. Bush Discusses the War on Terror, Freedom & Democracy
President George W. Bush gave the West Point commencement address this weekend, where he again addressed the serious issues of the War on Terror.
All of his prior speeches on the War on Terror and the great themes of freedom and democracy - along with some commentary - are presented below (as previously highlighted in an earlier posting):
1. September 20, 2001 initial speech about War on Terror
2. October 7, 2001 Afghanistan speech
3. January 29, 2002 State of the Union speech
4. June 1, 2002 West Point graduation speech
5. January 20, 2005 Inaugural speech
6. March 8, 2005 National Defense University speech
7. May 7, 2005 speech in Latvia on freedom and democracy
8. May 10, 2005 speech in Georgia on freedom and democracy
9. October 6, 2005 National Endowment for Democracy speech about War on Terror
10. October 25, 2005 speech to Joint Armed Forces Officers' Wives' Luncheon
11. November 11, 2005 Veterans' Day speech about War on Terror
12. November 16, 2005 speech in Kyoto, Japan on freedom and democracy
James Q. Wilson wishes Bush would give this speech.
Norman Pohoretz asks Who is Lying About Iraq?
Rich Lowry comments that If Bush lied, it stands to reason that Democrats who followed are all naifs, foolishly drawn to the seductions of a charlatan.
Michelle Malkin writes about Bush's Veterans' Day speech in Bush Battles Back and provides links to other reactions in the blogging community.
Other commentaries about the claim that Bush misled the nation about going to war by Instapundit, J.D. Johannes, Mark Goldblatt, Power Line, Christopher Hitchens, Power Line, Power Line, Joel Engel, Stephen Hayes, Instapundit, Instapundit, Power Line, and Captain's Quarters.
Read the links in this posting to remind yourself how Cindy Sheehan is wacky beyond words.
The Wall Street Journal comments on Bush's speeches in Latvia and Georgia.
Duncan Curries comments on Bush's speech in Japan.
ADDITIONAL INFORMATION:
President Bush gives additional major speeches:
13. November 30, 2005 Naval Academy speech on the strategy for victory in Iraq
Marc highlights commentary on the speech by Mac Owens and Rich Lowry and links to the National Strategy for Victory in Iraq report.
14. December 7, 2005 Council on Foreign Relations speech on War on Terror and Rebuilding Iraq
16. December 14, 2005 Woodrow Wilson Center speech on Iraqi Elections, Victory in the War on Terror
Peggy Noonan has these thoughts.
ADDITIONAL INFORMATION II:
In a separate commentary, Peggy Noonan has some questions.
Angela Codevilla offers a counter-argument:
In 2005, the U.S. government's "war on terror," as well as its operations in Iraq, were entwined in the same tortuous logic by which they had been conceived. After redefining the mission in Iraq from finding Weapons of Mass Destruction, to building democracy, to eliminating terrorists, to enabling the Iraqis to fight for themselves—and not being serious about any of these—the Bush Administration was arguing that to withdraw would be to admit defeat. But what would victory look like?In December, pressed from all parts of America to address that question, President George W. Bush spoke, surrounded by banners that read, "The Strategy for Victory." Yet the speech, as well as the seven-point, 35-page White House document that accompanied it, simply reiterated hopes for a united, democratic Iraq and the beneficial influence this might have. It described efforts to bolster Iraqi armed forces, foster national reconciliation, and build up the country's infrastructure. None of this amounted to a strategy any more than it ever had, because wishes are a poor substitute for explaining why anyone should expect these actions to produce those outcomes. In short, the Bush Administration never attempted logically to balance ends and means, the things it desired with the things it was doing...
Harry Jaffa discusses Human Equality and Democracy in the Middle East - and in America.
Economic Thoughts, Part IX: More on the Coercive Role of Government
This posting is Part IX in a series of postings about economic thoughts.
D. W. MacKenzie wrote in the October 2002 issue of The Freeman: Ideas on Liberty, the monthly publication of the Foundation for Economic Education, about the coercive role of government:
I am government...Coercion is both my vocation and my avocation; it is in my very nature to compel others to do that which they otherwise would not do. My nature should then be of great concern to you as I impinge on your liberty. My nature affects your life profoundly. Indeed, there is little in your life that escapes my grasp. I am also a mystery to many. Some see me as benevolent, though I murdered 119 million people in the twentieth century. Some see me as omniscient, though I face an insurmountable knowledge problem in trying to comprehend the society I seek to control. Some see me as an absolute necessity, though people have lived in societies without me. But those whom I use seldom recognize any of this. These naive convictions grant me an unwarranted place in society. These misconceptions have imposed great hardships on ordinary people, though they have served an elite of rulers well...
I benefit few at the expense of the many. Small groups organize easily, and large ones do not. Hence if I serve any interests other than those of actual rulers, I serve narrow interests. I grant monopoly privileges to influential industrialists and trade associations. I do this with tariffs and import restrictions that hobble foreign competitors. I do this with regulations that place burdens on new businesses. I do this with licensing laws that restrict access to professions. Of course, these interests pay me to get what they want. Sometimes they pay me simply to leave them alone.
My form is difficult to comprehend as well. I am vast and complex. No one can fathom me in all my complexity. I comprise a gargantuan array of agencies, statutes and regulations, and discretionary policies. No one would have the time or the intellectual capacity to know me fully even if he were to try. There is little point in trying anyway. One person can do nothing to me. No significant election has ever turned on a single vote, so voters have no obvious incentive to learn about me...
I am responsible for all the worst unnatural tragedies and unnecessary burdens that mankind has endured. Yet it seems that no one knows how to stop me. How can this be? My true nature is not easy to discern. When tragedy strikes, I am called into action. If I raise taxes to fund the effort to deal with crises, all can see my costs clearly. If I instead expand my authority to conscript resources, I hide my true costs, thus causing many to overestimate the net benefit of my actions. This instills unduly favorable beliefs about me in many minds.
...There have been successful efforts to restrain me for extended periods of time...In such places, people have prospered. But I have often succeeded in making strong comebacks. Some seek to limit my power with constitutional rules. However, there are strong reasons to doubt the efficacy of these rules. Persons who have power to enforce constitutional rules also have the power to flout them.
Why then do I ever fail?...There must be an answer, because I do sometimes falter...my failures are relatively uncommon. As difficult as the issues here are, they are vitally important to you because the continued success of free societies hinges on them. What is more important to you than that?
Part X to follow...
For previous postings on Economic Thoughts, refer to:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Economic Thoughts, Part IX: More on the Coercive Role of Government
This posting is Part IX in a series of postings about economic thoughts.
D. W. MacKenzie wrote in the October 2002 issue of The Freeman: Ideas on Liberty, the monthly publication of the Foundation for Economic Education, about the coercive role of government:
I am government...Coercion is both my vocation and my avocation; it is in my very nature to compel others to do that which they otherwise would not do. My nature should then be of great concern to you as I impinge on your liberty. My nature affects your life profoundly. Indeed, there is little in your life that escapes my grasp. I am also a mystery to many. Some see me as benevolent, though I murdered 119 million people in the twentieth century. Some see me as omniscient, though I face an insurmountable knowledge problem in trying to comprehend the society I seek to control. Some see me as an absolute necessity, though people have lived in societies without me. But those whom I use seldom recognize any of this. These naive convictions grant me an unwarranted place in society. These misconceptions have imposed great hardships on ordinary people, though they have served an elite of rulers well...
I benefit few at the expense of the many. Small groups organize easily, and large ones do not. Hence if I serve any interests other than those of actual rulers, I serve narrow interests. I grant monopoly privileges to influential industrialists and trade associations. I do this with tariffs and import restrictions that hobble foreign competitors. I do this with regulations that place burdens on new businesses. I do this with licensing laws that restrict access to professions. Of course, these interests pay me to get what they want. Sometimes they pay me simply to leave them alone.
My form is difficult to comprehend as well. I am vast and complex. No one can fathom me in all my complexity. I comprise a gargantuan array of agencies, statutes and regulations, and discretionary policies. No one would have the time or the intellectual capacity to know me fully even if he were to try. There is little point in trying anyway. One person can do nothing to me. No significant election has ever turned on a single vote, so voters have no obvious incentive to learn about me...
I am responsible for all the worst unnatural tragedies and unnecessary burdens that mankind has endured. Yet it seems that no one knows how to stop me. How can this be? My true nature is not easy to discern. When tragedy strikes, I am called into action. If I raise taxes to fund the effort to deal with crises, all can see my costs clearly. If I instead expand my authority to conscript resources, I hide my true costs, thus causing many to overestimate the net benefit of my actions. This instills unduly favorable beliefs about me in many minds.
...There have been successful efforts to restrain me for extended periods of time...In such places, people have prospered. But I have often succeeded in making strong comebacks. Some seek to limit my power with constitutional rules. However, there are strong reasons to doubt the efficacy of these rules. Persons who have power to enforce constitutional rules also have the power to flout them.
Why then do I ever fail?...There must be an answer, because I do sometimes falter...my failures are relatively uncommon. As difficult as the issues here are, they are vitally important to you because the continued success of free societies hinges on them. What is more important to you than that?
Part X to follow...
For previous postings on Economic Thoughts, refer to:
Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Ain't We All So Open-Minded
Mike of RightRI (to whose specific post I can't find a way to link) points to a Charles Bakst column that I'd missed. Bakst:
At the recent South Kingstown financial town meeting, Nan Hirst glanced at the proposed budget and noticed a $500 appropriation for the Boy Scouts. ...Hirst turned to her husband, George, and daughter, Courtney LeClaire-Conway, and said she'd move to delete the item. "I remember telling Courtney that my motion had little chance of passing but that I could not not do it." ...
I say: Good for her, because she was right, and because she took a stand.
I admire individuals who demonstrate courage of convictions -- even if I disagree with the convictions.
Frankly, I don't see anything in the action or the column that indicates a requirement of courage. Here's Mrs. Hirst on her motivation:
We have to stand up so that others know that it's okay to stand up, that it's safe.
Doing things that are safe is not courageous. Safe actions may be right, or they may be wrong, but courage is evident in the risk taken. And in this case, veteran reporter Charles Bakst apparently had a difficult time finding anybody to disagree with the action: even David Preston, Rhode Island Boy Scout organization spokesman, whisps up his hands and says (paraphrasing), "Hey, that's democracy!" Bakst goes so far as to track down Matthew Lutynski, a grown Boy Scout who once disinvited Jack Reed from his Eagle Scout ceremony because of the then-representative's views on abortion, and Matt takes the line that he doesn't agree with the Scouts' policy but doesn't have any control over it.
For his part, RightRI Mike focuses on the fact that the $500 was intended for scholarships for underprivileged kids, but even he writes:
My purpose is not to argue with Hirst’s position. I believe a group like the Scouts, that claims to be an organization rooted in the Christian faith, should have the right to exclude leaders whose behavior does not exemplify their moral beliefs.Whether a government, local or otherwise, should budget funds for such an organization is another issue.
And his first commenter adds:
... good for the people of South Kingstown for standing up and saying that their government should not, indeed cannot, condone discrimination by giving money to the Scouts. I was at the meeting, and I was somewhat torn about Mrs. Hirst's motion due to the concerns you have raised; but I voted with Mrs. Hirst because what it comes down to is that the Town simply cannot give money to an organization that openly discriminates against gays, even if the money is to be used to send kids to summer camp.
I'm not suggesting that the people of South Kingstown are not within their rights to withhold funds from any particular organization, but let's be honest about it: the town is discriminating against the Boy Scouts on the behalf of homosexuals. An ideological side has been chosen. If we were truly dealing with an objective principle, here, consistency would require that a town not give money to the Boy Scouts for discriminating against Satanists. (Maybe we shouldn't laugh at that.)
The general implication that government bodies — even local ones — cannot allocate funds for the activities of their Christian citizens is pernicious and, properly understood, unconstitutional. In this case, that legal convolution appears to have been a cover for some to take the easy way out (given the local atmosphere).
According to Bakst, "Hirst didn't even know what the Scouts would do with the money." For all she knew, the Scouts were acting as a funnel for funds to give one of the group's juvenile members a heart transplant. Mike is correct to point out the obvious: that, to Hirst and to the voters, the "political statement was more important." As with Catholic adoption services in Massachusetts, forcing social views on religious citizens trumps whatever good those citizens might be doing in the society.
So hooray for the people of South Kingstown for proving that ideology can leverage political abstractions in order to exclude citizens not merely from some private organization, but from their very own government.
May 27, 2006
Affording Rhode Island
Perhaps I take rhetoric such as Bernie Beaudreau's in the Providence Journal a bit too personally:
Low-income Rhode Islanders register little in the present tax debate, except for the false promise that there is a connection between tax breaks for the rich and more bread for the poor. "The flat tax will reduce poverty," we're told.They offer no proof for this assertion. The tax proposal does indeed promise to take tens of millions of dollars out of state revenues at a time of budget deficits and when investments are needed to meet the basic food, health and shelter needs of our people. That's just plain wrong.
As a matter of decency, we all should recognize that everyone in our community should at least have enough to eat, a place to sleep at night and health care before we choose to further enrich the relatively few who live already abundantly. This is a fundamental principle of our great nation.
I am no stranger to the choice between writing checks for housing or for food. At several key points of my life, when doing no more nor less than looking for work, the state of Rhode Island has let me down: out of college, when no longer able to stand the commute to Framingham, Massachusetts, when children required me to work additional hours, and when only partially employed for a year. Mr. Beaudreau complains of Rhode Island's poor having to work two jobs, well, depending on how the term is defined, I've worked between three and five jobs for the past fourteen months, and largely because of the accumulating debt by which I've survived in this state for almost a decade, if I can't maintain 80+ hour workweeks for the foreseeable future, I'll have no choice but to leave, tearing my children from their large extended family.
For all his lamentations about others' lack of proof, Beaudreau offers not a single economic fact himself. Instead, he tosses around his own class-warfare assertions and gives absolutely no indication of empathy for those who are struggling to stay out of his food lines. Come to think of it, I don't think I've heard a single member of the charity industry spare a word of understanding for anybody who is feeling the crunch of this state's economy, but has not yet been crushed by it.
Well, to Mr. Beaudreau and all of his fellow singers in the choir of Give'em Gimme, I suggest that, before they ask where the plight of the rich leaves "the rest of us," they ponder to whom they're speaking and what changes to the local government might answer our needs. Cheap lines about "year-round golf" are certain to yield diminishing returns.
Surely a man pulling upwards of $90,000 a year has the time and wherewithal to research economics for himself. Perhaps he can devote his next vacation (a privilege that I haven't enjoyed for just about seven years) to a search for a bottomless well, and if he doesn't find one, maybe he can come back home and ask "the rest of us" how our lives can be enriched.
A Curious Title?
I'm sure I'm not alone among Anchor Rising writers in feeling a glimmer of hope when such letters as Melbourne Fisher's appear in the paying press:
Columnists Bob Kerr and Charlie Bakst get plenty of ink, and the "loyal opposition" gets an occasional letter to the editor. Keep Bob and Charlie; just get another writer who gives your socially conservative readers a column to read.
But the title that the Projo gives the letter (at least online) reads a bit more like a response to, than a summary of, Fisher's complaint: "Conservatives need not apply."
May 26, 2006
Economic Thoughts, Part VIII: The Unspoken, But Very Real, Incentives Which Drive Governmental Action
This posting is Part VIII in a series of postings about economic thoughts.
This posting contains excerpts from a previous posting that addressed the often unspoken, but very real and deeply influential, incentives that drive government behavior - and how they compare unfavorably with the incentives that drive behaviors in a competitive capitalism system:
In the book entitled Government Failure: A Primer in Public Choice, Arthur Seldon writes:
Many economics writers and teachers still present economic systems of exchange between private individuals or firms as "imperfect" and requiring "correction" by government. Most teachers of politics, politicians, and political journalists still present government as well-meaning and able to remove such "imperfections."
In spite of this view of government, Seldon notes:
Economic systems based on exchange between individuals and on selling and buying between firms usually correct themselves in time if they are free to adapt themselves to changing conditions of supply and demand. Government "cures" usually do more harm than good in the long run because of three stubborn and too-long neglected excesses of government: their "cures" are begun too soon, they do too much, and they are continued for too long.
Gordon Tullock, writing in the same book, explains the evolution of public choice theory:
Throughout the 19th and well into the 20th century, economists assumed that individuals were primarily concerned with their own interest and worked out the consequences of that assumption. In contrast, during this same period political science largely assumed that political actors are mainly concerned with the public interest. Thus individuals who enter a supermarket and purchase items of their choice are assumed, when they enter the voting booth, to vote not for the politicians and laws that will benefit themselves, but for politicians and laws that will benefit the nation as a whole. People in the supermarket mainly buy the food and other goods that are, granted the price, found to benefit themselves and their families. However, when individuals become politicians, a transformation is assumed to occur so that a broader perspective guides them to make morally correct decisions rather than follow the course of behavior that pleases the interest groups that supported them or the policies that may lead to reelection.Economists changed this bifurcated view of human behavior by developing the theory of public choice...
We must accept that in government, as in any form of commerce, people will pursue their private interests, and they will achieve goals reasonably closely related to those of company stockholders or of citizens only if it is in their private interest to do so...
Jane Shaw, in her article entitled Public Choice Theory, offers a more detailed explanation of how there is such a mismatch between our expectations of government and the actual performance by government:
...Economists who study behavior in the private marketplace assume that people are motivated mainly by self-interest...Public choice economists make the same assumption�that although people acting in the political marketplace have some concern for others, their main motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest. In [Nobel Laureate James] Buchanan's words the theory "replaces... romantic and illusory... notions about the workings of governments [with]... notions that embody more skepticism."In the past many economists have argued that the way to rein in "market failures" such as monopolies is to introduce government action. But public choice economists point out that there also is such a thing as "government failure."...
One of the chief underpinnings of public choice theory is the lack of incentives for voters to monitor government effectively...the voter is largely ignorant of political issues and that this ignorance is rational. Even though the result of an election may be very important, an individual's vote rarely decides an election. Thus, the direct impact of casting a well-informed vote is almost nil; the voter has virtually no chance to determine the outcome of the election. So spending time following the issues is not personally worthwhile for the voter...
Public choice economists point out that this incentive to be ignorant is rare in the private sector...he or she pays only for the [purchased item] chosen. If the choice is wise, the buyer will benefit; if it is unwise, the buyer will suffer directly. Voting lacks that kind of direct result...
Public choice economists also examine the actions of legislators. Although legislators are expected to pursue the "public interest," they make decisions on how to use other people's resources, not their own. Furthermore, these resources must be provided by taxpayers and by those hurt by regulations whether they want to provide them or not...Efficient decisions, however, will neither save their own money nor give them any proportion of the wealth they save for citizens. There is no direct reward for fighting powerful interest groups in order to confer benefits on a public that is not even aware of the benefits or of who conferred them. Thus, the incentives for good management in the public interest are weak. In contrast, interest groups are organized by people with very strong gains to be made from governmental action. They provide politicians with campaign funds and campaign workers. In return they receive at least the "ear" of the politician and often gain support for their goals.
In other words, because legislators have the power to tax and to extract resources in other coercive ways, and because voters monitor their behavior poorly, legislators behave in ways that are costly to citizens. One technique analyzed by public choice is log rolling, or vote trading. An urban legislator votes to subsidize a rural water project in order to win another legislator's vote for a city housing subsidy. The two projects may be part of a single spending bill. Through such log rolling both legislators get what they want. And even though neither project uses resources efficiently, local voters know that their representative got something for them. They may not know that they are paying a pro-rata share of a bundle of inefficient projects! And the total expenditures may well be more than individual taxpayers would be willing to authorize if they were fully aware of what is going on.
...bureaucrats in government...incentives explain why many regulatory agencies appear to be "captured" by special interests...Capture occurs because bureaucrats do not have a profit goal to guide their behavior. Instead, they usually are in government because they have a goal or mission. They rely on Congress for their budgets, and often the people who will benefit from their mission can influence Congress to provide more funds. Thus interest groups...become important to them. Such interrelationships can lead to bureaucrats being captured by interest groups.
Although public choice economists have focused mostly on analyzing government failure, they also have suggested ways to correct problems. For example, they argue that if government action is required, it should take place at the local level whenever possible. Because there are many local governments, and because people "vote with their feet," there is competition among local governments, as well as some experimentation. To streamline bureaucracies, Gordon Tullock and William Niskanen have recommended allowing several bureaus to supply the same service on the grounds that the resulting competition will improve efficiency...
From the previously mentioned book, Tullock continues by explaining how public choice theory impacts public policy expectations and the broad question of what role should be played by government:
But the different attitude toward government that arises from public choice does have major effects on our views of what policies government should undertake or can carry out. In particular, it makes us much less ambitious about relying on government to provide certain services...A deep-s