What Would Happen Without Welfare?

Begin a thought process with me. Let's just look at medicare and medicaid. In 2010, the US government spent $793 billion on these programs. There is a lot more than medicare and medicaid to welfare, but let's just look at this. Now, imagine that instead of the government taking that money from business and people and giving it away that the money instead was left in the hands of those to whom it belongs. What then?

First and foremost, to be sure, many people would be left without health insurance. Even as the extremist libertarian that I am, I can admit that this is a bad thing. All other things being equal, people having health insurance is much better than them not having health insurance. Fortunately for libertarians, though, all other things are not equal in this case. We have to remember that money. What does this other money do? What is its purpose?

The extra money will either be spent or invested. The spent money increases profit margins and the increased investment provides the capital with which to furnish new jobs. So the people who have lost health insurance can now find new jobs because of that capital now being freed up.

But is this alternate scenario worthwhile? Is it better that the money is providing jobs instead of just directly going to pay for health insurance? From the point of view of the person who was taxed, the situation is much better, because now he is getting more for his money. From the point of view of the person who was getting the health insurance, he is now getting the money for insurance plus some spending money for himself. His situation is improved because of the change.

Yes, it is a simplistic analysis, but what do you think of it? Is this a worthwhile idea?

Did Cash for Clunkers Work?

A microcosm of the Keynesian idea of stimulating aggregate demand would have to be Cash for Clunkers. Here was an industry which experienced a tremendous crash because of the recession. The Keynesian cure would be to give people money to buy new cars. With this new demand, the auto industry would start making new cars, providing jobs, and those jobs would create demand in other industries, and so on and so on. It is the multiplier effect. Spending money prompts production prompts more spending. It is a net negative.

Of course, as with most Keynesian economic theories, it is seriously flawed. Keynesians do not understand capital markets. When a business experiences new demand, there is pressure to expand. That expansion, however, does not come from profit alone. Businesses must borrow money to meet the new demand. It would take too long to wait for profit to fund the expansion. This is where investment enters in. However, recall today that much of our capital is being used up by government. So even though interest rates are low, commodity prices are spiking. We cannot ignore scarcity; there is only so much capital to go around. Government is using all of that capital on its stimulus programs.

So in our current economic situation, what would happen when you try to stimulate demand? If it is too expensive for businesses to expand, the only result can be higher prices. This is where the example of cash for clunkers comes in. Look at what happened to the price of used cars as a result of the programs. But there was some growth in the auto industry as a result, but that has crawled to just 0.4% in the 2nd quarter.

But people might say that the benefits in this case outweigh the negatives. But alas, I did not discuss all of the negatives. The Broken Window Fallacy states that when money is spent on one thing, it is necessarily not spent on something else. Opportunity cost is a very real issue. So because consumption was driven in the auto industry, growth in other industries was necessarily stifled. These other industries, where consumers were actually demanding growth, must now comparatively shrink as compared to the situation we would have been in. We are worse off as a result since the products we demand are not produced as they can and should be. Is government intervention saving our economy? Not likely.

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Did Ron Paul Win the Debate?

Townhall says it was Michelle Bachmann and Mitt Romney.

Fox Nation Readers say it was Michelle Bachmann.

GOP Insiders say that Ron Paul has no chance.

But according to applause at the debate itself, Ron Paul won.

Notice a separation between the elite and the public? And this is all without even mentioning the fact that the popular opinion polls show Paul as the clear winner.

Ron Paul on Stossel

As a libertarian, it is always nice to try to educate people on my perspective. So, because of that, I thought this video of Ron Paul would be most enlightening. Not only does it explain my view of things, it also is a great introduction into Ron Paul's worldview. It is a great guide if you are considering to vote for him for president.

The link is on Hulu, so watch it while you still can.

How Did Suburbs Develop?

The prototypical American city during the Industrial Revolution was very crowded and very dirty. They were hubs of industry. I know that today we think mostly of central business districts like Manhattan, but these cities looked more like the wide, expansive industrial areas that are most epitomized today by parts of Los Angeles (look in Google Maps at Vernon, CA, to see what I mean).

Of course, this does not really answer the question where people lived. Sure, factories provided some housing, but apartments and other high-density dwellings also existed within the city. This close connection in cities between factories and dwellings produced an unsightly and crowded living condition. It should come as no surprise, then, that the rich tended to live outside of the cities to get away from the pollution and the people. Of course, only the rich could afford the commute. The poor, in order to work, had to live in the city.

Then came the trains. Prior to this, the ways of getting around were limited to the horse and buggy and walking. With the trains, people gained great mobility. No longer were people forced to live in extremely high density in the cities. The urban landscape started to gain a more spread out distribution as opposed to the tightly centered model of old.

Suburbia, as we know it, though, could not possibly arise from this situation. Sure, it gave rise to outlying cities, but it was not enough. However, the seed had already been planted. But you still had the problem of transportation to and from the stations. Remember that up to this point all transportation was privately built and maintained. Then came the automobile. With its rise in popularity came the desire for government to control it. Parkways and then highways were built with government money and financed with a gas tax. Finally the modern suburb was born.

Why is government building of these roads such a turning point? Look at what comes along with it. Cars would not need to pay for the pollution that they create. There is no exclusion fee to the road; that is, each car contributes to traffic, yet we do not have to pay for the traffic that we create, hence traffic jams during hours of peak demand.

As for the other aspects, we still have cheap credit and government intrusion into the housing market. Fannie Mae and Freddie Mac are old institutions. But what may be most important of all is zoning laws. The situation we have today consists of a central city that is built to its bureaucratically dictated maximum, hence new development has to occur elsewhere. These other areas also have strict zoning laws, and so development keeps getting pushed further and further out. Yes, prices are expensive, but people are not offerred a choice because of zoning laws. Without zoning laws, do you think it would even be possible for the type of development that we see today? It's wildly expensive to build like this.

So yes, there are a myriad of regulations and programs that contributed to the rise of suburbia. However, they were coming along even before government artificially stimulated their creation. But the scope to which they developed during the 1950s was unprecedented and would not have been possible without a complete distortion of the transportation industry, cheap credit, and zoning laws that essentially dictated its form.

Anti-Federalist Number 1

The argument presented by "a Federalist" in this paper should seem very similar to what we know now has political unremarkabalness. The Constitution was a very contentious issue, and this essay makes the point that to sort through the document requires much time and patience so that all potential uncertainties could be sorted out. And the Constitution is a very short paper. I wonder what the implications, therefore, would be for a bill that is about 2000 pages long.

The full text of the first paper can be found here.

I am pleased to see a spirit of inquiry burst the band of constraint upon the subject of the NEW PLAN for consolidating the governments of the United States, as recommended by the late Convention.

If it is suitable to the GENIUS and HABITS of the citizens of these states, it will bear the strictest scrutiny. The PEOPLE are the grand inquest who have a RIGHT to judge of its merits. The hideous daemon of Aristocracy has hitherto had so much influence as to bar the channels of investigation, preclude the people from inquiry and extinguish every spark of liberal information of its qualities. At length the luminary of intelligence begins to beam its effulgent rays upon this important production; the deceptive mists cast before the eyes of the people by the delusive machinations of its INTERESTED advocates begins to dissipate, as darkness flies before the burning taper; and I dare venture to predict, that in spite of those mercenary dectaimers, the plan will have a candid and complete examination.

Some interesting facts come out through close scrutiny of this short passage. The first sentence shows that before the Constitution, the country ran as a loose collection of related governments rather than as a singular government. The extent to which that was true is not made clear, but it is interesting to see that there is opposition to a national government that would basically be the master of these more local, state governments.

In that second paragraph, notice the mention of the Aristocracy. The "Aristocracy" is blocking investigation, examination, and inquiry. They have clouded the vision of the people for their own sake. Now of course, the use of the word aristocracy in that time must have had an immensely negative connotation seeing as how the colonies had just freed themselves from that old social order. To call their fellow countrymen aristocrats, this writer is definitely using a scare tactic. He wants to show that this new document, in a sense, is favorable to that old social order. Now, the Constitution would not really establish the old social order, but it would be a far cry from what they had established with the Articles of Confederation.

Despite what is going on around him, the writer is still optimistic. He sees that the document is being rushed through and that people are persuaded to believe the writers, yet he thinks that the people in the end will ultimately win out. Unfortunately for his side, this does not mean abandonment of the document, but even worse would be the complete abandonment of any understanding of the limitations of the document in the present day. Federalist or anti-federalist, basically all but Alexander Hamilton would be opposed to our current political milieu.

Those furious zealots who are for cramming it down the throats of the people, without allowing them either time or opportunity to scan or weigh it in the balance of their understandings, bear the same marks in their features as those who have been long wishing to erect an aristocracy in THIS COMMONWEALTH [of Massachusetts].

Their menacing cry is for a RIGID government, it matters little to them of what kind, provided it answers THAT description. As the plan now offered comes something near their wishes, and is the most consonant to their views of any they can hope for, they come boldly forward and DEMAND its adoption.

The writer again uses his scare tactic of alluding to the old social order. In the second, the use of the word rigid again draws parallels to the action of Parliament in the decades leading to the Declaration of Independence. The writer appeals to those fearful of a strong, rigid government. In a sense, the writer is appealing to anarchy, as you will see right now.

They brand with infamy every man who is not as determined and zealous in its favor as themselves.

They cry aloud the whole must be swallowed or none at all, thinking thereby to preclude any amendment; they are afraid of having it abated of its present RIGID aspect.

They have strived to overawe or seduce printers to stifle and obstruct a free discussion, and have endeavored to hasten it to a decision before the people can duty reflect upon its properties. In order to deceive them, they incessantly declare that none can discover any defect in the system but bankrupts who wish no government, and officers of the present government who fear to lose a part of their power.

Does the label "patriotic," ring a bell? Not to say that every use of the word is just about something like this, but it has been abused, no doubt. The writer, though, does show that at least his side got some concessions by entering the Bill of Rights into the document.

This third paragraph is especially amusing to me. The writer is describing how people who oppose the Constitution are basically stigmatized as anarchists. We all know those dastardly anarchists. What a crazy system, right? Well anyway, the derision and scorn given to these opponents of the document is unjustified, and it is inhibitory to a good discussion about the document. Or, to put it in online debate-speak, the Federalists were using personal attacks and avoiding the heart of the issue.

These zealous partisans may injure their own cause, and endanger the public tranquility by impeding a proper inquiry; the people may suspect the WHOLE to be a dangerous plan, from such COVERED and DESIGNING schemes to enforce it upon them. Compulsive or treacherous measures to establish any government whatever, will always excite jealousy among a free people: better remain single and alone, than blindly adopt whatever a few individuals shall demand, be they ever so wise. I had rather be a free citizen of the small republic of Massachusetts, than an oppressed subject of the great American empire. Let all act understandingly or not at all. If we can confederate upon terms that wilt secure to us our liberties, it is an object highly desirable, because of its additional security to the whole. If the proposed plan proves such an one, I hope it will be adopted, but if it will endanger our liberties as it stands, let it be amended; in order to which it must and ought to be open to inspection and free inquiry.

The writer of this first paper is not even necessarily against adoption of the Constitution. His complaint is first and foremost about the debate that is going on. Sure, the writer has his sympathies with smaller government and a desire for more liberty, but he is not yet sure whether the Constitution secures or infringes upon that. His desire is for a free and open debate. What words of wisdom this is for the political world that we live in today.

The essay then goes on making the same point, but pays special attention to the lawyers who are all for adopting this (lawyers love complicated laws as it makes business for them), and again alludes to aristocracy.

This first essay, more than just describing the state of debate at the time before the Constitution, I believe is a great first post in a live read of the anti-federalist papers. It reminds us to not hold sacred cows and to avoid personal attacks. The path toward wisdom is along the road of open debate. Let us keep that in mind when we go through posts that are sure to ruffle more than a few feathers.

A Few Updates

I'll make this short, sweet, and to the point, so I can get back to posting what I presume to be great content.

• I will be doing a live blog of the anti-federalist papers. I provided a quote from #1 yesterday and today intend to go through all of the first paper today.
• The market failure challenge is still going on. I'll answer the contention soon of "insufficient aggregate demand." If you don't know what that is all about, it is basically the assumption that justifies the use of stimulus.

Cramming Legislation Down Our Throats

Sorry I haven't been around much this past week. The quarter just ended and I am busy grading papers and also had my graduation. I will get back to posting regularly soon. In the meantime, though, I will provide this quote from the anti-federalist papers #1. In case you are unaware, the anti-federalists were those who were opposed to the ratification of the Constitution.

Those furious zealots who are for cramming it down the throats of the people, without allowing them either time or opportunity to scan or weigh it in the balance of their understandings, bear the same marks in their features as those who have been long wishing to erect an aristocracy in THIS COMMONWEALTH [of Massachusetts].

Does that sound familiar to anyone?

Do we Need Government to Pay for Scientific Research?

One of the major arguments for taxing and spending is government research. Universities throughout the country host research labs that get all or most of their funding from the National Institute of Health, which gets its budget from the United States governments, which gets all of its money from taxation. This research searches for cures for cancer, treatments for heart disease, sources of complex diseases, etc. This scientific research is very good and is instrumental in our life expectancy today, but do we need government to pay for it?

Tax proponents always ask if government will not pay for it, then who will pay? Scientific research costs too much and the profits that would come from it would take too long to make the investment worthwhile. Look at cancer research. Most of the research does not pay off and even if it does who is to say that the profit gained from selling the treatment will offset the cost of researching the drug?

In all fairness, the progressives have come up with a very good argument. Unlike their other arguments about fairness and equality, this one has some merit. However, an analysis of the situation will show that private funding of research would be more targeted, more efficient, and quicker than our current system. In the current system, researchers vie for funding by submitting proposals to the NIH. The people who decide on these proposals see whose names are on the proposal and decide whether or not to fund the research. Besides the obvious potential for corruption, this system does not ensure efficiency. Once the money is gone, it is gone forever. There are no assurances that the money will not be wasted. The money cannot be taken back once it has already been disbursed.

The current practical problem is a serious one, but would the private alternative be any better? What about the claim that research would not pay off? That argument is bogus. As we have seen from oil companies who explore for oil, they will wait for decades to search for new sources of oil. Offshore oil platforms take many years to build and even more years to finally get the newly drilled oil on the market. If oil companies can wait years to find oil, then pharmaceutical companies can also wait years for treatments of diseases and discoveries of new technologies. The reason that they do not right now is because government is paying for all the research. Furthermore, this research would be more efficient and faster because the company funding the research would ensure that the money is not wasted. The government has no means of doing it, and even if it did it would be subject to corruption.

Now this is not all to disparage researchers. I myself hope to be one in the future as I see it as a way to affect many lives positively. The problem is not with the researchers, it is with the corrupt system that does not have any guarantees on the money that it disburses; our money that the government steals from us. Private companies have shown that they will invest in projects that will take years to pay off (and it is not just oil companies who do this, by the way), so why do we need government funding this? They have proven themselves to be slow and inefficient. The time has come to let private hands control the future of health and technology.

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The Double Dip is Upon Us

As you know, for a while I have been very doubtful about this recovery. The government figures were great. Unemployment was finally starting to fall and home prices were at least starting to steady. But then came the news yesterday that home prices in major metropolitan areas were starting to fall again, and today the news came that employment numbers were bleak. This double dip is on.

But how could this be? Stimulus and TARP were supposed to be the answers. Without TARP, our economy would have fallen to shambles, and without the stimulus programs, spending would have fallen and destroyed the economy. Let us not even imagine what would have happened had we allowed devaluation to prosper and did not engage in quantitative easing.

The only reasonable conclusion is that the public was swindled. TARP was not necessary. Stimulus was not necessary. Quantitative easing was not necessary. Even Cash for Clunkers was not necessary. Speaking of Cash for Clunkers, look at what has gone on in the used car market. Mises.org has posted about this problem many times. This post I believe explains the problem most clearly.

And if it happened to Cash for Clunkers, should we not expect the same things to have happened for these other programs? Is it any surprise that the price of gas is starting to rise? Is it at least possible that trying to stimulate demand and devalue the currency resulted in higher prices for most goods? We raised demand and provided a greater supply of money. Why should any of us be shocked by this?

This recession has been going on for years now, and it looks like it is only going to get worse. Stimulus and TARP and quantitative easing propped up those businesses that should have failed. We have capital being squandered by companies that have no right to be holding onto it. By giving money to those that ran their businesses into the ground, we effectively hurt those businesses that knew what they were doing. The housing market should have shrank. Instead we lent it more money and tried to get it to grow. We are not allowing our economy to correct to the demand of consumers. Until that happens, how can we ever expect to grow and see employment rise? Until we stop trying to fix the problem, the problem will not be fixed.

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The Market Failure Challenge: Day 5

The challenge is on and attackers are coming from left and right. The last post has 24 comments on it and rising. This has become a fairly popular challenge, and yet I feel that a good argument has not been leveled.

The interventionists have so far centered on the argument of rising prices. Specifically, they say that rising prices are an example of market failure and that speculation is unnecessary and extraneous to the market.

But obviously, this is nonsense. Rising prices are a hallmark of the free market; without rising prices we would have no way of conserving resources. This system works best when the currency is not manipulated. What happens when the currency is devalued is that the price of all goods goes up in general. Furthermore, investors begin to speculate about the actions of the currency manipulators. This action tries to help conserve resources, but we would be better off without the currency manipulation. Investors stabilize the price of goods, and this is a great thing for all of us. The best example of this would be crops.

Without investors, we would have produce priced very low when they are in season and priced very high when they are not in season. Investors come by and conserve some resources so that we have a steady price level year-round (at least compared to the situation without investors). But people bemoan the actions of investors. They say that they just hold goods from the market to raise prices and sell for a profit. What a mischaracterization! Producers do the exact same thing. Imagine if water was priced as low as possible during the spring. We would be left with no water the rest of the year! Because the prices are higher during the spring, it guarantees that we have water until the next spring. And this is a bad thing because they make a profit?

"It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest." Let's not be angry that people make profits. Without those profits, what would be the point of those companies conserving resources for us all?