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Philadelphia: Jury Nullification and Natural Rights

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In the film “Philadelphia,” Andrew Beckett was actively recruited by the Wyant and Wheeler law firm, one of the most prestigious law firms in Philadelphia. While employed for Wyant and Wheeler, Mr. Beckett contracts HIV and conceals his illness from his employers. Beckett showed great promise and was highly placed in the firm and was even placed at the head of a landmark copyright case whose outcome would have a major impact on the firm’s reputation. During the preparation for this important case, the formal complaint is lost with only minutes before the statute of limitations expires but is found “misplaced” in central filing. The firm used this as a reason to fire Mr. Beckett for incompetence. However, Mr. Beckett claims that his employer discovered that he had HIV, based on the appearance of Karposi’s Sarcoma lesions on his face. Based on this, Mr. Beckett sues the law firm in federal court for discrimination based on a handicap that did not prevent Mr. Beckett from performing the essential functions of his job with or without reasonable accommodation, which if true, would violate Title 42 U.S.C. § 12112. Mr. Beckett and his lawyer, Mr. Miller, used the Supreme Court case, School Board of Nassau County V. Arline (1987) as precedent that contagious diseases may be considered a handicap; however, employers may consider the contagious effects on others in determining the qualification of a person to perform essential functions by consulting the medical judgments of public health officials. The issue of this case is whether, in fact, Wyant and Wheeler law firm fired Andrew Beckett for incompetence or if they fired him due to their knowledge or belief that he had HIV. If the latter is found to be true, Wyant and Wheeler would need to prove that the judgments of public health officials show that Mr. Beckett is no longer qualified to perform essential functions of his job with or without reasonable accommodations.

There are two ways that I could approach this case. The more conventional approach of determining whether existing statutes and laws were adhered to would lead me to agree with the jury in the film Philadelphia, so long as the events took place after the passage of the American with Disabilities Act (ADA) in 1990. The defendants make no claim that Mr. Beckett was no longer qualified to perform the essential functions of his job at the time he was fired and the evidence suggests that their claims of incompetence are either grossly exaggerated or simply false. The events leading up to the firing shows that the firm had the highest confidence in Mr. Beckett and therefore must have had ulterior motives for his dismissal. The reason I specify the events of the case needed to place after to 1990 is because the ADA was not in existence prior to 1990 and its predecessor the Rehabilitation Act of 1973, used in the School Board of Nassau County V. Arline (1987) case, only applied to programs that received federal assistance and not to private companies. So again, if Mr. Beckett was fired after the passage of ADA and I strictly followed the letter of the law, then I would rule in favor of Mr. Beckett in agreement with the jurors in the film.

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Filed under Law
Nov 5, 2011

“Measuring” the Welfare State: The Dangers of Econometrics in Determining Policy

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In a 2003 article in the Journal called Social Forces, titled “Public Employment, Welfare Transfers, and Economic Well-Being across Local Populations: Does a Lean and Mean Government Benefit the Masses?,” Linda Lobao and Gregory Hooks set out to answer the question presented in the title of their article. They set out to examine whether “a larger public sector and more generous social welfare transfers help or harm local populations,” (519) and they use the US county level to examine statistics and make their case. They compare the decades 1970 – 1980 and 1980 – 1990 since these are two decades that are recognized as Keynesian, big government, and Post-Keynesian, minimalist government, respectively. Observing the impacts of the policies of these two decades, they argue, should provide empirical evidence as to which is most successful in promoting the “economic well-being of local populations.” However, as is always the case with econometrics and observing complex human interaction with statistical abstraction, causal factors for the trends observed are not established a priori and even the slight correlations that may be perceived in the presented data are not really strong enough to make a judgment, pro or con, regarding the authors arguments.

The authors present two schools of thought regarding public employment, welfare transfers, and size of government: the “neoliberal school, whose inspiration is neo-classical economics and liberal political philosophy, contends that where the state offers citizens minimalist social protection from [engages in minimalist intervention against] private market forces, economic development flourishes and general incomes will be higher;” the “Marxist…radical political economy schools,” interject “that in regions and periods where the state was more interventionist on behalf of citizens, incomes were higher and income inequality lower.” (520) The authors’ “neoliberal school” closely reflect the “liberal” welfare regime (they do not argue that this school seeks to abolish the welfare state just minimize it) as described by Esping-Andersen, who attributes include: “a limited array of governmental obligations, generally modest social benefit levels, strict criteria for eligibility, a preference for targeting public money very narrowly to the “needy” rather than the citizenry at large, and active encouragement of market solutions” for achieving economic well-being. (Hicks and Esping-Andersen, 2005, 512) The competing view presented by the authors fits Esping-Andersen’s “Institutional” Welfare State “by defining the scope of public welfare responsibilities extremely broadly, by giving high priority to social equality and redistribution, by actively attempting to secure citizen’s welfare ‘from cradle to grave,’ and by striving toward universalism in coverage and eligibility. (512)

The authors, very competently, present the neoliberal argument that “private market mechanisms, even when imperfect perform better than state planning. Government [intervention] inherently distorts competitive market processes operating among populations; the market interference is at best ineffective, and at worst counterproductive.” (523) They present four reasons that neoliberals say cause the negative effects of the welfare state: reduces labor supply by employing citizens in government or by allowing them to choose leisure over work due to welfare transfers; perverts business incentives by rewarding certain businesses or by increasing the cost of business by bidding up labor costs or raising costs through other egalitarian regulations; misallocates resources “toward undeserving and under performing populations,” regions, and businesses; and finally by pitting the interests of the poor, receivers of redistributive and egalitarian policies, and the non-poor, the providers of the resources that are being redistributed. (524-526) The consequences will be lower overall income, the atrophy of cultural and familial relationships, and an ever growing state that becomes more and more unchallengeable as dependency on it grows.

When presenting the contrary schools argument, Lobao and Hooks put forward very little effort to contradict the neoliberal schools arguments a priori. They a make a few ad hoc pleas, without much evidence or reasoning, that the conclusions of the neoliberal school are misguided but they mostly argue that the goals of the radical political economy schools are simply different: equality of outcomes through redistribution and increased overall income. (527-528)

The authors then set out to statistically show through econometrics how effectively the policies of both schools achieve the welfare state goal of reducing inequality and the shared goal of increasing overall income, the neoliberal is satisfied if all classes or individuals increase their wealth and do not concern themselves if certain groups or individuals gain wealth at a faster rate, thus increasing inequality while also increasing overall income. The authors focus their study on the county level econometrics of aggregate population since both schools have both done extensive research that “extrapolate[d] from national trends to anticipate sub-national shifts” in income and inequality. (528) The authors go into great detail on their methods of viewing the data, weighting variables, and testing hypothesis in an honest and rigorous effort to validate their analysis.

The authors analysis of the data indicates that in “counties with greater federal employment and where income transfers better cover the needy population…[there is] significantly higher median family income. Higher AFDC (Aid to Family with Dependent Children) benefits and a larger public adminstrative sector have no significant relationship to median family income. Only state/local government employment is significantly related to lower family income.” (537) The authors also found that “the state’s effect on income growth and redistribution showed no strong differences between Keynesian and post-Keynesian decades.” (538)

The Weakness in Lobao and Hooks’ Argument and in Econometrics in General

In the introduction to the first edition of his book, “America’s Great Depression,” Murray Rothbard describes the inherent flaws of econometrics:

“…economic theories cannot be “tested” by historical or statistical fact. These historical facts are complex and cannot, like the controlled and isolable physical facts of the scientific laboratory, be used to test theory. There are always many causal factors impinging on each other to form historical facts. Only causal theories a priori to these facts can be used to isolate and identify causal strands.” (xxxviii)

In other words, due to the complexity of society and human interaction the facts of given events, and especially the facts of general periods in history, cannot be isolated to test for causal relationships. Instead causal theory must be developed by tracing the logical connections from axiomatic principles, or self-evident truths. Also, due to the complexity of historical fact, the statistics that numerically represent these facts can be interpreted many ways and manipulated, sometime unintentionally or through neglect, to present an inaccurate picture, usually biased towards whatever the presenter is advocating. Many of these pitfalls, or techniques, can be quickly perused or understood from Darrell Huff’s, “How to Lie with Statistics.” Huff and others note that biased sampling, using the best looking average (mean, median, mode, and several other techniques exist), excluding relevant data (intentionally or because its existence is unknown), the correlation vs causation and post hoc fallacies(“b” comes after “a:, therefore “a” must cause “b”), incomparable or vague measures, etc. will lead to faulty analysis and unfortunately encountering some of the aforementioned problems to some degree is inevitable in all statistics. Rothbard goes on to explain how policy formulation plays out when based on econometrics:

“Suppose a theory asserts that a certain policy will cure a depression. The government, obedient to the theory, puts the policy in effect. The depression is not cured. The critics and advocates of the theory now leap to the fore with interpretations. The critics say that failure proves the theory incorrect. The advocates say that the government erred in not pursuing the theory boldly enough, and that what is needed is stronger measures in the same direction. Now the point is that empirically there is no possible way of deciding between them. Where is the empirical “test” to resolve the debate? How can government rationally decide upon its next step? Clearly, the only possible way of resolving the issue is in the realm of pure theory—by examining the conflicting premises and chains of reasoning.” (xxxix-xl)

In the case of the data presented by Lobao and Hooks, proponents of the neoliberal school could argue that neoliberal policies were not taken far enough and that is why they did not to have much, if any, impact on overall income growth, and they would have plenty of their own statistics to back it up. For example, Tax levels, as a percent of GDP, was unchanged in the 80s compared to the 70s (Even though the income tax was reduced, social insurance taxes were increased).(www.usgovernmentrevenue.com) Federal spending actually increased from 18-20 percent of GDP in the 70s to 21-23 percent in the 80s. (www.usgovernmentspending.com) Comparatively low prime interest rates for most of the 1970s and record high prime interest rates through the first half of the 1980s could also explain the expansion and contraction of the US economy during these time periods. Economic lag of decisions made in the previous decade, such as the dissolution of the Bretton-Woods agreement, which was the dollars last attachment to the gold standard, and a many many more reasons could be provided to explain overall income or even wage inequality differences between the two sampled decades. The authors themselves declare in their conclusion that there is “no strong differences between Keynesian and post-Keynesian decades.” (538) If there is no strong difference between decades, that seems to invalidate the rest of their analysis that one policy performed better than the other based on comparing the supposedly representative decades.

Policy regarding the welfare state is best considered by elaborating on the “basic axiom of the ‘right to self-ownership,’” which “asserts the absolute right of each man, by virtue of his (or her) being a human being, to ‘own’ his or her own body…[and] since each individual must think, learn, value, and choose his or her ends and means in order to survive and flourish, the right to self-ownership gives man the right to perform these vital activities without being hampered and restricted by coercive molestation. (Rothbard, 2006, 33-34) The next logical step is that if man owns himself, to include his will and his physical body, then he must own his labor which is their result. Further, once his labor is used to transform unclaimed, or unused, resources found in nature, the product is now also owned by that individual. This is the same idea expressed by English philosopher John Locke, who was a main source of inspiration for the founding fathers of the United States:

“…every man has property in his own person….the labour of his body and the work of his hands…are properly his. Whatsoever, then, he removes out of the state that nature hath provided and left it in, he hath mixed his labour with it, and joined it to something that is his own, and thereby makes it property.” (Locke, 1948, 17-18)

If the above principles regarding “self-ownership” and basic property rights are accepted as true then there are only three ways to acquire property ethically. 1) Mix one’s labor with resources in their natural state. 2) Inheritance or gift, absent coercion. 3)Free exchange between consenting parties. Any other method would violate the basic axiom of self-ownership and the logical extensions of that axiom. The welfare state is the understood not as an answer of “Who gets what from government?” but instead as an answer to “Who gets what from whom through the coercive proxy known as government?” Government has to violate the self-ownership principle, and therefore either partially or wholly enslave individuals, in order to confiscate and then redistribute their property. This makes the welfare state and all other forms of coercion unethical simply to their assault on the natural right of self-ownership.

Works Cited

Lobao, Linda. (2003). Public Employment, Welfare Transfers, and Economic Well-Being across Local Populations: Does a Lean and Mean Government Benefit the Masses?. Social Forces, 82(2), 519-556.

Locke, John. (1948). An Essay Concerning the True Original Extent and End of Civil Government. In E. Barker (Ed.), Social Contract (17-18). New York: Oxford University Press.

Hicks, Alexander & Esping-Andersen, Gosta. (2005). Regimes and Contention. In T.A. Janoski, A.M.
Hicks, & M.A. Schwartz (Eds.), Handbook of Political Sociology: States, Civil Societies, and Globalization (509-525). Cambridge, UK: Cambridge University Press.

Huff, Darrell. (1993). How to Lie with Statistics. New York: Norton and Company, Inc.

Rothbard, Murray N. (2005). America’s Great Depression. (5th ed.) Auburn, Alabama: Ludwig von Mises Institute.

Rothbad, Murray N. (2006). For a New Liberty: The Libertarian Manifesto (2nd Ed.) Auburn, Alabama: Ludwig von Mises Institute.

Filed under Economics, Politics
Apr 29, 2011

Monopoly and Competition: Government Intervention and its Effects on the Free Market

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One of the roles of government, debated even among those of a libertarian or small government perspective, is that of regulating monopolies and ensuring competition. On a larger political scale, the debate may focus on how free or how socialized should a market be, but among those that believe the markets should be as free as possible there is still concern over monopoly practices and how the government could be used as a tool to respond to them. The first step in understanding and forming conclusions in this debate is to determine a definition of monopoly. The three offered here are: One seller or producer of a good or service; the establishment of a monopoly price; and a firm or corporation that has been granted market power and special status by the government, either directly or indirectly. Also, the requirements for competition must be established, which economic textbooks may point to as: many small buyers and sellers; standardized product; and no barriers to entry or exit.1 After close inspection of the definitions of monopoly and the textbook requirements for competition, I hope to demonstrate that “barriers to entry or exit” are the only true requirement to competition and that all barriers are due to coercion, either from government or criminal activity among businesses and individuals.

The first definition of monopoly is that of one seller or producer of a good or service. This is the most literal definition (“monos” means “only and “polein” means “to sell”) and the most common understanding of the word monopoly. While this is a very clear cut and precise definition of monopoly its application is much less so and its use to justify government intervention is even more hazy. The application of this definition becomes difficult when one has to determine what constitutes a single product or service. Since there will be some sort of differentiation between every product offered by different people one could rationally claim that everyone is a monopolist. For example, while Hershey’s Chocolate company may not be a monopolist of chocolate they are monopolists of “Hershey’s Kisses” and John’s doctor is a monopolist of medical services to John. This is further complicated if we accept that fact that the point that the differentiation is substantial to lead to a product being categorized by a different product is solely in the mind of the consumer and can not be defined by any specific attributes or by committee. The second flaw with the use of this definition is when it is used to justify government intervention in the markets based on misconceptions of individual rights and freedom. While individuals do have the freedom to act on available choices they are not entitled to any certain number of choices. If there truly was only the choice of purchasing a product or service from one producer or not purchasing it at all then the individual is free to act on that choice, not require more choices be made available to him. Murray Rothbard uses the example of “Crusoe and Friday bargaining on a desert island” where they “have very little range or power of choice; their power of substitution is limited. Yet if neither man interferes with the other’s person or property, each one is absolutely free. To argue otherwise is to adopt the fallacy of confusing freedom with abundance or range of choice. No individual producer is or can be responsible for other people’s power to substitute.”2

The second definition, achieving monopoly price is explained best by Ludwig von Mises: “If conditions are such that the monopolist can secure higher net proceeds by selling a smaller quantity of his product at a higher price than by selling a greater quantity of his supply at a lower price, there emerges a monopoly price higher than the potential market price would have been in the absence of monopoly.”3 The concerns raised by the proponents of this defintion are that a single producer or a cartel made up of a few producers will restrict supply in order to gain increased profit margins at a higher price point on the supply-demand curve. However, this will only be profitable for products or services whose prices are inelastic above the “theoretical” competitive price. The flaw in this defintion is determining “competitive price” versus “monopoly price.” Since in the free, or unhampered, market every seller will “absolute control…over the price he will attempt to charge for any particular good…the question is whether he can find any buyer at that price. Similarly,…any buyer can set any price at which he will purchase a certain good; the question is whther he can find a seller at that price.”4 Naturally, sellers will seek the highest price and consumers will seek the lowest price and whatever price they agree on, absent coercion, is the competitive price. Along the same line, how would one determine if the producer was moving from a “sub competitive price” to the competitive price for their goods as opposed to moving from the competitive price to a monopoly price. The “demand curve is not simply ‘given’ to a producer, but must be estimated and discovered” and any restriction may simply be a correction of past supply to demand errors by the producer.5 These flaws lead to the conclusion that there can be no definable monopoly price on the free market since all prices are based on free-exchange between buyer and seller and whatever terms they come to are by definition the competitive price.

The third definition of monopoly is the original definition of government granted, direct or indirect, market power or protected status. Lord Coke, a definitive source of Common Law in 17th Century England, defined monopoly as “an institution or allowance by the king, by his grant, commission, or otherwise . . . to any person or persons, bodies politic or corporate, for the sole buying, selling, making, working, or using of anything, whereby any person or persons, bodies politic or corporate, are sought to be restrained of any freedom or liberty that they had before, or hindered in their lawful trade.”6 The formation of monopolies and the negative consequences of monopoly power is made possible only due to government intervention and it is therefore ironic that one of the few areas where limited government advocates tolerate government intervention is in the regulation of monopolies. Monopolies are created through barriers to entry into their market and government is the creator of these barriers, which include explicit grants of monopoly status, in industries deemed “public utilities” or “natural monopolies”, patents, license requirements, and economies of scale.7 Another barrier is the entire system of corporatism, the alliance between big business and government to create regulations and other burdens on new entrants into the market in order to hamper competition.

The most obvious, and accepted as necessary by some, way the government creates monopolies is by granting exclusive franchises to industries deemed “public utilities.” Some common examples have been energy providers (gas and electric), telephone service providers, and cable tv. The rationalization used is that certain industries, due to high fixed costs, economies of scale, and land usage limitations, are better served by having a single provider. The conclusion is that government should choose a single provider and protect them from competition while at the same time heavily regulating the selected monopoly to prevent monopoly pricing and pass the savings of the increased efficiency on to the customer. However, history does not seem to support this theory. Many industries that claim they are “public utilities” were competitive in the past or became competitive after time spent with protected monopoly status and the customer did not see great advantage in the monopoly years, especially when taxes used to subsidize the utilities are taken into account and other government intervention is not present in the competitive years. “In one of the first statistical studies of the effects of rate regulation in the electric utilities industry, published in 1962, George Stigler and Claire Friedland found no significant differences in prices and profits of utilities with and without regulatory commissions from 1917 to 1932.”8 Also, substitutes or alternative technology prevents the formation of “natural monopolies” on the free market. For example, when three competing gas companies tried to merge in 1888, an inventor named Thomas Edison “introduced the electric light which threatened the existence of all gas companies” and while all had “heavy fixed costs which led to economies of scale…no free-market or ‘natural’ monopoly ever materialized.”9 In 1940, economist Horace M. Gray noted that “public utility status was to be the haven of refuge for all aspiring monopolists,” to include, “radio, real estate, milk, air transport, coal, oil, and agricultural industries…who found it too difficult, too costly, or too precarious” otherwise. The label of “public utility” is arbitrary and history has shown that government designated monopolies to do serve the public well and stifle innovation and technological progress as well as violate the rights of entrepreneurs who wish to enter protected industries.

One of the first industries to be deemed a “natural monopoly” or “public utility” was the telecommunications industry, led by AT&T. Initially the monopoly was due to patents that Alexander Graham Bell held from 1876 to 1894. During this time period AT&T held between 85-100 percent of the market power for telephone systems and adoption was slow with average daily calls per 1,000 people increasing from 4.8 in 1880 to only 37 in 1895; the number of telephones per 1,000 people also increased slowly from 1.1 in 1880 to 4.8 in 1895. However, after the patents expired and competition was able to set in daily calls per 1,000 jumped from 37 in 1895 to 391.4 in 1910 and telephones per 1,000 people also increased much more rapidly, going from 4.8 in 1895 to 82 in 1910.10 The government, however, did not see this competition and rapid expansion of services and options as a good thing, instead they saw it as “duplicative,” “destructive,” and “wasteful” and during a Senate Commerce Committee hearing in 1921 it was stated that “telephoning is a natural monopoly.”11 This was in spite of the apparent boom in competitors and service. AT&T lobbied for this “natural” monopolization and put itself “squarely behind government regulation, as the quid pro quo for avoiding competition.”12

From the AT&T case we can see that it was able to form its original monopoly, before the government explicitly granted it monopoly status, through another government barrier to competition, patents. Patents are probably the most common and most accepted, among capitalists, form of government barriers to competition since they supposedly protect the innovations of individuals and allow them to reap the benefits of research, investment and ingenuity without someone else profiting from an idea they did not share the costs in discovering. However, there is strong evidence that patents are unnecessary and in fact stifle innovation instead of promoting it as intended. The telephone industry demonstrated this earlier but another example would be in the field of steam engines and steam power. In 1768, James Watts patented the steam engine and used his political clout to extend the patents until 1800. He aggressively pursued his competitors with patent violations and prevented many innovations from taking place in the area of steam power or improvements in the steam engine. As a result, “during the period of Watt’s patents, the United Kingdom added about 750 horsepower of steam engines per year. In the thirty years following Watt’s patents, additional horsepower was added at a rate of more than 4,000 per year. Moreover, the fuel efficiency of steam engines changed little during the period of Watt’s patent; however between 1810 and 1835 it is estimated to have increased by a factor of five.”13 The book, Against Intellectual Monopoly, documents many examples like this in almost all fields. Without patents, the original innovators will still find advantage since people are only likely to imitate successful innovations that would mean the original innovators would have time to establish themselves and gain market power and brand name recognition before competitors really started entering the market.

The requirement of Licenses to conduct a particular type of business or to work in a particular field are another widely accepted form of government intervention that creates a barrier to entry for potential competition. One of the reasons for this is that licenses are not sold to the public as protection for existing businesses from potential competitors or as a restriction on the supply of labor to artificially raise wages above market level for favored professions, but instead is billed as a means to protect the consumer by ensuring quality service. However, just like the other barriers to competition, licenses, when required by law, do more harm to the consumer by reducing available options when there is a strict quota on the number of licenses available or when smaller competitors can not afford licensing fees; monopoly pricing due to cartelization since “the governmental administration of licensing is almost invariably in the hands of members of the trade”14 who have an obvious interest in limiting entry into their field to individuals who are of similar mind to keep prices higher.

All of the barriers mentioned so far and others have become part of the system of corporatism that is actually the dominant force in US and western markets, not capitalism. The high fixed price that leads to economies of scale and prevents smaller businesses from competing is government. “It is no surprise, then, that throughout U.S. history corporations have been overwhelmingly hostile to the free market. Indeed, most of the existing regulatory apparatus–including those regulations widely misperceived as restraints on corporate power–were vigorously supported, lobbied for, and in some cases even drafted by the corporate elite.”15 In this essay we have mostly focused on the direct barriers to competition placed by the government but there are also many less obvious ways that government intervention helps favored corporations such as inflationary credit expansion, where the first to receive the new dollars will get to use them before the inflationary effects kick in and corporate law itself that allows the individuals who act, or make decisions, in a business to separate themselves from the liabilities involved with those decisions causing a serious accountability issue in our markets today. A “corporation is an artificial being, invisible, intangible, and existing only in contemplation of the law.”16 This arbitrary grant of artificial personhood status to businesses is yet another barrier to free competition and a fraud is committed when corporate law is presented as part of capitalism and the free market or as advantageous to consumers.

In conclusion, monopolies, oligopolies, unnaturally high market concentrations all stem from government intervention into the free market placing various barriers to the entry and exit of competing businesses. This is done in the guise of regulating or promoting capitalism but is actually within a system of corporatism, the alliance of big business and big government. Big business works with big government to “socialize costs in exchange for a share of profits.”17 Big business also likes big government because “it has a competitive advantage over small business in doing business with it and negotiating favors. Big government, in turn, likes big business because it is manageable; it does what it is told.”18 This alliance has distorted our markets and increased the power of both partners at the expense of competition, consumers, and citizens.

1Jacqueline Brux, Economics Issues and Policy Fourth Edition, (Ohio: Cengage Learning, 2008), 246.

2Murray Rothbard, Man, Economy, and State: A Treatise on Economic Principles (Alabama: Ludwing von Mises Institute, 2004), 653.

3Ludwig von Mises, Human Action: A Treatise on Economics (Alabama: Ludwig von Mises Institute, 2008), 278

4Murray Rothbard, Man, Economy, and State: A Treatise on Economic Principles (Alabama: Ludwing von Mises Institute, 2004), 662.

5Ibid., 690

6 Quoted in Richard T. Ely and others, Outlines of Economics (3rd ed.; New York: Macmillan & Co., 1917), pp. 190–91.

7Jacqueline Brux, Economics Issues and Policy Fourth Edition, (Ohio: Cengage Learning, 2008), 251-253.

8Thomas DiLorenzo, “The Myth of Natural Monopoly”, The Review of Austrian Economics Vol.9, No.2 (1996), 49-50.

9Ibid., 48

10Adam Thierer, “Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly”, The Cato Journal Vol. 14 No. 2 (Fall, 1994)

11Ibid.

12Ibid.

13Michele Boldrin, David Levine, Against Intellectual Monopoly (New York: Cambridge University Press, 2008), 1.

14Murray Rothbard, Man, Economy, and State: A Treatise on Economic Principles (Alabama: Ludwing von Mises Institute, 2004), 1095.

15Roderick Long, “Corporations Versus the Market; Or, Whip Conflation Now”, Cato Unbound, 10 November 2008.

16Frank van Dun, “Is the Corporation a Free-Market Institution?,” Ideas on Liberty, March 2003.

17Robert Locke, “What is American Corporatism?,”, Front Page Magazine, 13 September 2002.

18Ibid.

Mar 29, 2010

Conservative Problems with “Big Government” Exclude Security and Defense

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This afternoon while driving home I was listening to talk radio, some of you may already be judging but hear me out, and I heard the conservative them for bashing government run health care, “If the government can run the DMV, screws up this simple program, makes this stupid mistake, etc…then why would we entrust it with 1/6th of economy and let it run health care.”  This is a very valid point.  The question I have is why this isn’t consistently applied to defense and security.  If we can not trust government run health care or hand out drivers licenses, then how can we trust government to a true monopoly on protecting our individual rights, defending our property and lives, and running an industry that directly cost nearly 10 percent of US GDP in 2009.  The defense industry is riddled with just as much corruption, inefficiency, bureaucracy, and all other issues that are symptomatic of a government run program that lacks internalized costs for those making the decisions.

Dec 9, 2009

Corporate Welfare and Corporatism

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Corporations are firms or companies (private, publicly traded, for profit, and/or non-profit) that agree to be regulated by certain rules, corporate law, that regulates the relationships and interactions of corporate management, shareholders/owners, employees, creditors and the government. Companies agree to these rules because they provided limited liabilities to all actual persons who are a part of the corporation by creating an artificial “person hood” status for the corporation and limiting the liabilities to that entity. The government also uses its state power to protect, from competition through tariffs and regulation, and subsidize these entities. In return, the government is able to manipulate the economy through few points, they can regulate the significantly fewer large corporations easier than they could coordinate and regulate different stores on every corner, and they will be working with voluntary and cooperative participants who want the continued benefits of state power. Understanding “corporate welfare” is a bit more complex since no one wants to claim to support such measures but nearly all political parties and platforms do in some form or another. In fact, the entire concept of the “corporation” is a form of corporate welfare, or redistributing wealth or interfering in the market on behalf of companies or firms. Support for corporate welfare is never described as such but almost the entire political class does support it in its more overt forms or it’s more subtle indirect forms. Libertarians, on the other hand, oppose all forms of corporate welfare when they are not being negligent or inconsistent with their principles.

The left supports several types of corporate welfare. The recent “Kelo” case involving eminent domain gave private lands to corporate interests and was decided by liberal judges. Also, many of the regulations that are supposedly done to restrict corporate actions are supported by the corporations themselves because it makes it more difficult for new competitors to enter the market. Roderick T. Long in an essay written for the Cato Institute, “Corporations versus the Market” wrote that , “the ability of colossal firms to exploit economies of scale is also limited in a free market…unless the state enables them to socialize these costs by immunizing them from competition- e.g., by imposing fees, licensure requirements, capitalisation requirements, and other regulatory burdens that disproportionately impact newer, poorer entrants as opposed to richer, more established firms.” (1)

The right also supports several types of corporate welfare, but they may be more dangerous since they shroud their policies in the cloak of the free market. For example, they advocate tax breaks for certain businesses or industries but “when a firm is exempted from taxes to which its competitors are subject, it becomes the beneficiary of state coercion directed against others, and to that extent owes its success to government intervention rather than market forces.” (1) The right’s use of privatization is often of a similar nature. In free market terminology privatization would be the removal of government and its influence from an industry but the right often uses it to mean a transfer of monopoly status over an industry to some contracted firm or corporation. Thus the monopoly status is maintained and the governments involvement and influence is still present.

The right and left both justify the more overt types of corporate welfare that they end up supporting, such as TARP and the bailouts of the auto and financial industry, as necessary evils. However, necessary evil is a contradiction as if something is necessary than it must be good and not evil. Here we can apply one of Ayn Rand’s famous quotes “Contradictions do not exist. Whenever you think you are facing a contradiction, check your premises. You will find that one of them is wrong.” In this case, either the bailouts were necessary and good, having a positive effect, while the principle that labeled them evil must be ill founded or the principle that makes such bailouts evil is correct and they were not in fact necessary. The contradiction should force us to check the two premises “necessary” and “evil” and see which one is wrong.

Libertarians, and the position I support, holds that all corporate welfare is wrong. The current “conflation” of corporatism and capitalism is especially dangerous since it rallies and multiplies the opponents of free markets who somehow see them tied to pro-corporate policies and also allows statist policies to be sold under the mantle of the free market. The current failures of “capitalism” and the “free market” are really only failures of the current system which is often labeled capitalism but is only one step away from socialism. In socialism, the state owns industry but in our current system, often labeled capitalism, the State offers privatized profits and socialized costs in exchange for regulation and willing “subjects” to form an alliance between government and industry; this corporatism should not be confused with real capitalism or free markets.

1. http://www.cato-unbound.org/2008/11/10/roderick-long/corporations-versus-the-market-or-whip-conflation-now/

Another good article I read while doing my research, but did not have room to include in my post was:
http://97.74.65.51/readArticle.aspx?ARTID=22594
An article in FrontPageMag.com

Nov 27, 2009