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Tag Archives: Ludwig von Mises

Markets and Mobility

25 Thursday May 2017

Posted by pnoetx in Markets, Poverty

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Arnold Kling, Benefit Mandates, Collective Mind, Consumer Consensus, Don Boudreaux, Drug Laws, Foreign Aid, Jeffrey Tucker, Ludwig von Mises, Market Interactions, Minimum Wage, Occupational Licensing, Price Controls, Private Property, Public Aid, regulation, Wage controls, War on Poverty

Government aid programs tend to perform poorly, especially in developmental terms. In the U.S., anti-poverty programs keep the poor running in place, at best. Yes, they provide minimal income, but they seldom offer a way out and usually discourage it. Moreover, the administration of such programs diverts a significant share of funds to well-heeled civil servants and away from the intended recipients. Foreign aid programs are probably even worse, functioning as catch basins for funding corrupt officials. Progressives, in particular, persist in taking the paternalistic view that we must rely on government action to “care for” and “protect” the poor, able or not. Markets, on the other hand, are held to offer no promise in fighting poverty. In fact, the general assumption made by the progressive left is that markets exploit them.

The truth is that markets offer great promise for encouraging economic mobility. Arnold Kling offers a good conceptual construct in a recent post: while humans are often subject to irrational tendencies in their assessment of choices, their interactions in markets offer a way of smoothing irregularities and disparate bits of information, providing useful signals about the availability of resources and demands for their use. The result is a flow of information that best signals opportunity. Kling calls the process of market interactions the “collective mind”. Rather than encouraging individuals to fully participate in effective markets, free of intervention, we instead deny them the best opportunities for gain. The notion that the poor must be “protected” from markets is embedded in policies like wage and price controls, benefit mandates, overtime rules, drug laws, occupational licensing, and innumerable other harmful regulations. The poor should have the unfettered ability to avail themselves of the social efficiencies of Kling’s collective mind.

Last Thursday, Don Beaudroux’s “Quotation of the Day” was taken from an essay by Ludwig von Mises in which he characterized private property in a market economy as “property by consumer consensus”. In other words, consumers reward sellers who create value, and those rewards accumulate in the form of private property. Likewise, consumers punish poor performance, which has a cumulative negative impact on one’s ability to accumulate or hold onto private property. The benefits conferred by consumer preference do not stop with the owners of the firm. Others productively affiliated with the firm also reap gains in rewards, allowing them to accumulate private property. And of course, consumers are the beneficiaries in the first place: in their judgement the firm delivers value in excess of price. The key here is that free market rewards and penalties are deserved and based on productivity in meeting desires, and only the market can distribute property so efficiently. The able poor can certainly add value and thereby accumulate property, if only given the opportunity.

Jeffrey Tucker has stated that “Only Markets Can Win the War on Poverty” (ellipses are my edits):

“The default state of the world is grueling poverty, universal insecurity, and short lives. When governments do come along, they nearly always serve themselves first. … Capitalism made huge progress toward the conquest of poverty. For the first time in history, the productive resources of society turned from serving mainly the elites toward serving the common person. This change alone began to flip the power narrative of social evolution.

And this revolution continued for two some two-hundred years, during which time the average life span expanded dramatically, infant mortality collapsed, incomes rose, and the great project of universal ennoblement achieved an unprecedented boost. And this trend continues today wherever markets are given freedom to function, property rights are secure, and people can associate and trade without molestation by the elites. … In short, capitalism made huge progress toward the conquest of poverty.“

Markets are not harmful to the poor. To the contrary, as Tucker says, they have helped lift billions out of poverty around the globe. But government increasingly plays the role of big provider and arbiter of what can and can’t be traded, by whom, and at what price. The suspension of the market mechanism by this process denies the poor the opportunities made possible via participation in free markets, whereby Kling’s “collective mind” processes massive quantities of information and acts upon it spontaneously. But the “collective mind” concept, as a description of market interactions, is too simple: we know that individuals act on the signals provided by the market and are rewarded based on how effectively they do so. There is no doubt that the poor can do that too. It’s time to cast aside the paternalistic and destructive notion that the able poor must be insulated from markets.

Coerced Fairness: Wronging Every Right

14 Thursday Apr 2016

Posted by pnoetx in Discrimination, Liberty, Tyranny

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Andrew Bernstein, Constitutional rights, Dan Sanchez, discrimination, Economics of Discrimination, Freedom of Association, Freedom of Expression, Jeffrey Tucker, Jim Crow Laws, Ludwig von Mises, Property Rights, Public Accomodations, Right to Privacy, Unintended Consequences

 

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A nurse says, “If I can bring myself to treat a patient tattooed with a swastika, then a baker can bake a cake for a gay wedding.” Of course, the statement ignores any differences in the values held by these individuals, their right to hold different values, or at least their right to act peacefully on those values. It makes an arbitrary presumption about what is “fair” and what is “unfair”, which is seldom well-defined when two parties hold sincere but conflicting beliefs. Yes, the baker can bake the cake, but should he be forced to do so under state compulsion? Coerced behavior is the product of aggression, but declining business for personal reasons is not an act of aggression, though the “safe-space” crowd would do its best to convince us otherwise. Sorry, hurt feelings don’t count!

Imposing the machinery of the state on private decisions about how and for whom one’s art must be practiced invites even more coercive action by the state going forward. Jeffrey Tucker addresses this in “Must a Jewish Baker Make a Nazi Cake?“, using the teachings of Ludwig von Mises on the implications of voluntary and coerced behavior.

Discrimination occurs in markets in many forms. Consumers discriminate between sellers and products based on quality, price, convenience and trust. In turn,  producers or sellers discriminate between workers based on skill, effort, wages and trust. They discriminate between local markets or areas of specialization based on profitability. They discriminate between buyers based upon ability and willingness to pay. All of these forms of discrimination are rational because they result in better value for the discriminating consumer or better profitability for the discriminating producer. In other words, these forms of discrimination align with economic self-interest.

Other forms of discrimination do not align strictly with economic self-interest, but they may be preferred by the individual based on other criteria. It’s probably not possible to justify these forms of discrimination from all perspectives. Some may be abhorrent to most observers, including me. Certainly more consensus exists on some than on others. Nevertheless, these non-economically motivated forms of discrimination are always costly to the discriminator. For example, a consumer who refuses to frequent certain establishments owned by members of an out-group will forego opportunities for more varied experiences. Also, she will tend to pay higher prices due to her lack of interest in the competitive effort made by the out-group. An employer who refuses to hire certain minorities faces a more limited labor pool. He is likely to face a higher wage bill and will get a less efficient mix of skills in his workers. A seller who discriminates against certain groups by turning them away foregoes revenue, and the action may have negative reputational consequences. Obviously, other competitors can profit from another seller’s discriminatory behavior. Almost by definition, markets impose penalties on discrimination not borne out of economic self-interest.

Anyone with doubts about the effectiveness of markets and capitalism to overcome this latter type of discrimination should look no further than the broadly integrated activity that occurs within markets every day, and at the extent to which markets have become more diverse over time. Here is a choice quote of Tucker:

“Commerce has a tendency to break down barriers, not create them. In fact, this is why Jim Crow laws came into existence, to interrupt the integrationist tendencies of the marketplace. Here is the hidden history of a range of government interventions, from zoning to labor laws to even the welfare state itself. The ruling class has always resented and resisted the market’s tendency to break down entrenched status and gradually erode tribal bias.

Indeed, commerce is the greatest fighter against bigotry and hate that humankind has ever seen. And it is precisely for this reason that a movement rooted in hate must necessarily turn to politics to get its way.“

The hypertext within the quote links to an excellent piece by Andrew Berstein on “Black Innovators and Entrepreneurs Under Capitalism”, which covers the sad history of efforts to use government to undermine black commercial success.

Social justice activists argue that the state has a compelling interest in ending all discrimination, but the courts have followed a circuitous path in thrashing out whether (and what parts of) the U.S. Constitution might protect individuals or groups against private discrimination. But my interest is in what happens when the state endeavors to end discrimination in markets that are otherwise self-regulating: the state infringes on other rights that are clearly and definitively enshrined in the Constitution, and it arrigates power to itself that far exceeds the limits defined there. It may compromise the freedom of association, the freedom of religion, the right to private property, and the right to privacy. I believe the government has a compelling interest in protecting those rights, which apply to all individuals. It is also worth noting the absence of a limiting principle in defining what counts as fairness or discrimination. The Left finds it easy to denigrate and dismiss these as selfish concerns, proving how little regard they have for individual liberty. Establishing government control over the extent of those rights represents the end of our Constitutional Republic and is a prescription for tyranny.

Consider the ways in which government often attempts or is asked to create accommodations for marginalized groups, through laws on hate speech, compulsory service, hiring quotas, admission quotas, lending fairness, pricing equity, wage laws, work rules, mandatory facilities and the forced transfer of income. Tucker argues that this complex web of resource manipulation and mandatory and proscribed behaviors has several “unintended” consequences. I already mentioned the obvious abridgment of freedoms. Another negative consequence is that this approach does not promote unity; it breeds resentment and is likely to end in greater disunity. Furthermore, self-sufficiency is undermined by policies that hamper economic growth, and all of the general measures just mentioned redound to the detriment of that objective. Finally, many of these “fairness” policies run directly counter to the interests of the marginalized, such as wage floors that eliminate employment opportunities for the least-skilled, and means testing that discourages labor market effort through income “cliff” incentives.

The most menacing aspect of the effort to stamp out all forms of discrimination is a state with power to impose its own rules of legal “fair” treatment. Tucker appeals to Mises’ views on this point:

“[Mises] said that a policy that forces people against their will creates the very conditions that lead to legal discrimination. In his view, even speaking as someone victimized by invidious discrimination, it is better to retain freedom than build a bureaucracy that overrides human choice. …

Sacrificing principle for the sake of marginalized groups is short-sighted. If you accept the infringement of human rights as an acceptable political weapon, that weapon will eventually be turned on the very people you want to help. As Dan Sanchez has written, ‘Authoritarian restriction is a game much better suited for the mighty than for the marginalized.’“

Proponents of legal, compensatory  handicapping by the state in favor of those pressing any and all grievances ask us to compromise basic constitutional rights, including the rights of association, free expression, privacy and private property. A corresponding effect is to grant the state more complete coercive power in almost every aspect of life. The unavoidable focus of such policies is not unity, but group identity, a divisive result that should give us pause. The power granted to the state in this context is as arbitrary as the currently fashionable definition of “fairness”, and it cannot be rolled back easily. Furthermore, economic vitality is not easy to restore once basic institutions and freedoms have been destroyed. This is evident from the sad history of socialism throughout the world. Ultimately, the coercive power granted to the state can be used in ways that should horrify today’s proponents of social and economic redress for every real or imagined inequity.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Addendum: Just over a year ago, I made a qualified defense of the right of a business to refuse service based on religious principles in my post “Suit Me, Or Face a Lawsuit: Adventures In Litigationland“. There, I made a distinction between “public accommodations” versus work for which a business-person must use her art, which is a form of expression, to provide customized service to a potential customer. I had the baker in mind, or the photographer asked to work a gay wedding. As I have in this post, I maintained that if a business-person finds some aspect of a request objectionable for any reason, she has the right to discriminate by refusing the business as a matter of freedom of expression.

I left a huge loose end in the argument I made in the earlier post. It had to do with the presumed requirement to serve all potential customers through the “public accommodations” of a private business. However, if the baker creates a beautiful “love cake” for sale to the general public, why can’t he refuse to sell it to a gay couple for their wedding as a matter of freedom of expression? After all, it involves the baker’s art. If a stationer has created an artful collection of cards for sale to the public, why can’t she refuse to sell them to a gay couple for their wedding invitations on account of her religious convictions? And what about the nurse? If he is in private practice, can’t he refuse to practice his art of healing on the “swastikaner” as a matter of free expression? I believe that’s a constitutional absolute, though professional oaths may dictate that care be delivered. An emergency room nurse would not have any choice but to deliver care under federal law, but it is not clear whether the law would withstand a constitutional challenge by a private hospital on these grounds. As things stand, the nurse can only refuse employment or resign if the rules are not to his liking.

 

 

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