Well first of all, tell me: Is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course, none of us are greedy, it’s only the other fellow who’s greedy. The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system.
January 27, 2017
QotD: Greed
February 16, 2016
February 14, 2016
QotD: President Herbert Hoover’s lasting economic legacy
Until March 1933, these were the years of President Herbert Hoover — the man that anti-capitalists depict as a champion of non-interventionist, laissez-faire economics.
Did Hoover really subscribe to a “hands off the economy,” free-market philosophy? His opponent in the 1932 election, Franklin Roosevelt, didn’t think so. During the campaign, Roosevelt blasted Hoover for spending and taxing too much, boosting the national debt, choking off trade, and putting millions of people on the dole. He accused the president of “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible,” and of presiding over “the greatest spending administration in peacetime in all of history.” Roosevelt’s running mate, John Nance Garner, charged that Hoover was “leading the country down the path of socialism.” Contrary to the modern myth about Hoover, Roosevelt and Garner were absolutely right.
The crowning folly of the Hoover administration was the Smoot-Hawley Tariff, passed in June 1930. It came on top of the Fordney-McCumber Tariff of 1922, which had already put American agriculture in a tailspin during the preceding decade. The most protectionist legislation in U.S. history, Smoot-Hawley virtually closed the borders to foreign goods and ignited a vicious international trade war.
Officials in the administration and in Congress believed that raising trade barriers would force Americans to buy more goods made at home, which would solve the nagging unemployment problem. They ignored an important principle of international commerce: trade is ultimately a two-way street; if foreigners cannot sell their goods here, then they cannot earn the dollars they need to buy here.
Foreign companies and their workers were flattened by Smoot-Hawley’s steep tariff rates, and foreign governments soon retaliated with trade barriers of their own. With their ability to sell in the American market severely hampered, they curtailed their purchases of American goods. American agriculture was particularly hard hit. With a stroke of the presidential pen, farmers in this country lost nearly a third of their markets. Farm prices plummeted and tens of thousands of farmers went bankrupt. With the collapse of agriculture, rural banks failed in record numbers, dragging down hundreds of thousands of their customers.
Hoover dramatically increased government spending for subsidy and relief schemes. In the space of one year alone, from 1930 to 1931, the federal government’s share of GNP increased by about one-third.
Hoover’s agricultural bureaucracy doled out hundreds of millions of dollars to wheat and cotton farmers even as the new tariffs wiped out their markets. His Reconstruction Finance Corporation ladled out billions more in business subsidies. Commenting decades later on Hoover’s administration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt’s policies of the 1930s, explained, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”
To compound the folly of high tariffs and huge subsidies, Congress then passed and Hoover signed the Revenue Act of 1932. It doubled the income tax for most Americans; the top bracket more than doubled, going from 24 percent to 63 percent. Exemptions were lowered; the earned income credit was abolished; corporate and estate taxes were raised; new gift, gasoline, and auto taxes were imposed; and postal rates were sharply hiked.
Can any serious scholar observe the Hoover administration’s massive economic intervention and, with a straight face, pronounce the inevitably deleterious effects as the fault of free markets?
Lawrence W. Reed, “The Great Depression was a Calamity of Unfettered Capitalism”, The Freeman, 2014-11-28.
November 18, 2015
Adam Smith – The Inventor of Market Economy I THE INDUSTRIAL REVOLUTION
Published on 22 Feb 2015
Adam Smith was one of the first men who explored economic connections in England and made clear, in a time when Mercantilism reigned, that the demands of the market should determine the economy and not the state. In his books Smith was a strong advocator of the free market economy. Today we give you the biography of the man behind the classic economic liberalism and how his ideas would change the world forever.
April 9, 2014
Being “pro-business” does not mean the same as being “pro-market”
It’s a common misunderstanding (especially with people who don’t know what laissez faire actually means):
For years, Republicans benefited from economic growth. So did pretty much everyone else, of course. But I have something specific in mind. Politically, when the economy is booming — or merely improving at a satisfactory clip — the distinction between being pro-business and pro-market is blurry. The distinction is also fuzzy when the economy is shrinking or imploding.
But when the economy is simply limping along — not good, not disastrous — like it is now, the line is easier to see. And GOP politicians typically don’t want to admit they see it.
Just to clarify, the difference between being pro-business and pro-market is categorical. A politician who is a “friend of business” is exactly that, a guy who does favors for his friends. A politician who is pro-market is a referee who will refuse to help protect his friends (or anyone else) from competition unless the competitors have broken the rules. The friend of business supports industry-specific or even business-specific loans, grants, tariffs, or tax breaks. The pro-market referee opposes special treatment for anyone.
[…]
GOP politicians can’t have it both ways anymore. An economic system that simply doles out favors to established stakeholders becomes less dynamic and makes job growth less likely. (Most jobs are created by new businesses.) Politically, the longer we’re in a “new normal” of lousy growth, the more the focus of politics turns to wealth redistribution. That’s bad for the country and just awful politics for Republicans. In that environment, being the party of less — less entitlement spending, less redistribution — is a losing proposition.
Also, for the first time in years, there’s an organized — or mostly organized — grassroots constituency for the market. Historically, the advantage of the pro-business crowd is that its members pick up the phone and call when politicians shaft them. The market, meanwhile, was like a bad Jewish son; it never called and never wrote. Now, there’s an infrastructure of tea-party-affiliated and other free-market groups forcing Republicans to stop fudging.
A big test will be on the Export-Import Bank, which is up for reauthorization this year. A bank in name only, the taxpayer-backed agency rewards big businesses in the name of maximizing exports that often don’t need the help (hence its nickname, “Boeing’s Bank”). In 2008, even then-senator Barack Obama said it was “little more than a fund for corporate welfare.” The bank, however, has thrived on Obama’s watch. It’s even subsidizing the sale of private jets. Remember when Obama hated tax breaks for corporate jets?
July 2, 2012
What value do speculators offer?
In most newspapers, you don’t need to wait long to read some journalist beating up on evil speculators for the “damage” they do and the claimed “uselessness” of their activities. Tim Worstall points out that speculators are actually essential to smooth operation of free markets:
What is it that the speculator in food manages to achieve? They move prices through time. At the moment, there’s a drought, and so we think there will be less corn available for consumption next year, so its price goes up.
What would we like to happen? Should prices stay stable? We would all carry on using the amount of corn that we originally thought we’d get. And we’d run out — there may even be a famine. People tend to die in famines.
So what we’d actually like to happen is for people to prepare by consuming a bit less corn this year.
Some of this should come from substitution: farmers will feed wheat to animals not corn. Consumers might move from grits to weetabix for breakfast. Perhaps the fools putting corn into cars will move over to sugar cane to make ethanol from.
We would also like a supply effect: those who are currently growing corn might add a bit more fertiliser, take more care in harvesting, make sure less gets spoiled or lost in transport.
Rising prices causes both of those pretty neatly. Put up the price and people will use less, while suppliers will make more. And what is it that the speculators on the futures markets have done in response to this report of drought? They have raised prices.
June 26, 2012
The “Draft Andrew Coyne” movement
I’ve met Andrew Coyne. We had a pleasant chat about political matters a few years ago (although I was one of dozens of Toronto-area bloggers he talked with that night: I doubt he remembers me). I often agree with his writings (and even when I don’t, he’s usually quotable). But how would he fare as a candidate for the Liberal leadership? Abacus ran the numbers:
Nationally, most Canadians told us they didn’t know enough about Mr. Coyne to say whether they had a favourable or unfavourable impression of him. Sixty-four percent were not sure of their opinion while 15% said they had a favourable impression while 21% had an unfavourable impression. Unfortunately for Mr. Coyne, the percentage of respondents who had “very unfavourable” was higher than those who had a “very favourable” impression of him (9% very unfavourable vs. 3% very favourable).
Nonetheless, there are “pockets” of Coynemania out there.
- Men are slightly more likely to have a favourable impression of him than women (men 18% favourable, women 12% – women were also much more likely to be unsure).
- There was no significant age difference although older Canadians (no surprisingly) were more likely to be aware of Mr. Coyne.
- Regionally, he is more popular in Manitoba and Saskatchewan (25% favourable) than in other regions of the country. He is a tough sell in Quebec where his favourable rating is a mere 8%.
- Considering his occupation and the audience likely to read and watch him, it is no surprise that respondents with a university degree were most aware and favourable to Mr. Coyne. 24% of those with a bachelor’s degree and 29% of those with a post-graduate degree had a favourable impression of the National Post columnist.
- He is also more likely to be viewed favourably by those who live in urban communities (urban 18% favourable, suburban 13% favourable, rural 12% favourable).
- Mr. Coyne is also viewed more favourable by those who own stocks, bonds, or mutual funds: 20% favourable vs. 10% among those who don’t own those kinds of investments.
- Finally, there isn’t a significant partisan difference. Those who voted Liberal in 2011 are only slightly more likely to view him positively than NDP and CPC voters but the differences are marginal. He is a post-partisan candidate!
I don’t know if he’s actually interested in a political career, but he’d at least be a different kind of candidate than the Liberals have had in decades. I’ve never voted Liberal in my life, but I could imagine voting for a Liberal if Andrew Coyne was the Liberal leader. He appears to actually believe in smaller government and free markets — which is why he’d never be able to run as a Conservative. He’s on the record as being almost libertarian in his views on individual rights (especially on Nanny State issues) — which is why he couldn’t run as a New Democrat.
It’s not clear whether there are any members of today’s Liberal Party of Canada who could cope with a classical liberal as leader. But it would create a viable third choice in federal politics: that’s worth a lot in my books.
Update: There’s a Twitter hashtag for the movement: #coyne4lpc, and Jesse Helmer points out that there’s a Facebook group, too:
@nrusson you may want to check out http://t.co/HeQMo71H. Started by Liberals, so there's certainly some who support the idea.
— Jesse Helmer (@jesse_helmer) June 26, 2012
Update, the second: Apparently Andrew Coyne is getting into the swing of being a big-time politician, having already fired his first campaign manager:
Can't believe the way @acoyne callously sacked campaign manager @NPSteve. Will hurt him with the prized cartoon-reading-illiterate demo.
— Colby Cosh (@colbycosh) June 26, 2012
June 19, 2012
Big business loves regulation: it keeps competition at bay
Jan Boucek at the Adam Smith Institute blog, with a couple of examples of big business welcoming additional government intervention in their markets:
First out of the trap was Barclays CEO Bob Diamond. In an interview Wednesday with Bloomberg, he reprised his long-standing mantra that “strong banks, like Barclays, want strong regulation.”
This sounds good in our current age of finger-pointing and bank-bashing but serves Barclays well if high barriers to entry keep out more competition from Diamond’s industry.
Then in an interview Friday with The Financial Times, the outgoing head of retail at Royal Bank of Scotland Brian Hartzer suggested regulators should forcibly end free current accounts. He smoothly phrased it in terms that chime with today’s sentiment: “Regulatory intervention might be helpful in forcing banks to the table” and “A large proportion of customers are being cross subsidised — we think that’s unfair.”
Of course, what Hartzer proposes means banks no longer having to compete on price for their most basic product.
Both these sweetly melodious proposals for more regulation need to be treated with Adam Smith’s “most scrupulous” and “most suspicious attention” because they’re music to the ears of our discordant political maestros.
The closer big business and government become, the stricter the regulations against individuals and firms trying to compete with the big businesses. Small firms are almost always disproportionally impacted by industry-wide regulations (and that’s by design), which makes them less able to compete with the established firms. Regulators are more help to big companies than clever advertising, innovative product development, or good customer relations.
QotD: The mottos of “High Liberalism”
The story is, in a few brief mottos to stand for a rich intellectual tradition since the 1880s: Modern life is complicated, and so we need government to regulate. Government can do so well, and will not be regularly corrupted. Since markets fail very frequently the government should step in to fix them. Without a big government we cannot do certain noble things (Hoover Dam, the Interstates, NASA). Antitrust works. Businesses will exploit workers if government regulation and union contracts do not intervene. Unions got us the 40-hour week. Poor people are better off chiefly because of big government and unions. The USA was never laissez faire. Internal improvements were a good idea, and governmental from the start. Profit is not a good guide. Consumers are usually misled. Advertising is bad.
Thus Anderson: “Externalities, asymmetrical information, and other collective action problems are … pervasive in economic life. Countless ways of conducting business reap gains for some while imposing unjust costs on others. Create a cartel. Stuff rat feces in sausages.” Thus Freeman: “It is a truism to say that in order to achieve the benefits of an efficient market economy (increasing productivity, greater economic output, increasing productive capital, etc.), the basic rules of property, contract, and exchange must be structured [by government] to realize efficient market relations.”
No. The master narrative of High Liberalism is mistaken factually. Externalities do not imply that a government can do better. Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers. Efficiency is not the chief merit of a market economy: innovation is. Rules arose in merchant courts and Quaker fixed prices long before governments started enforcing them.
I know such replies will be met with indignation. But think it possible you may be mistaken, and that merely because an historical or economic premise is embedded in front page stories in the New York Times does not make them sound as social science. It seems to me that a political philosophy based on fairy tales about what happened in history or what humans are like is going to be less than useless. It is going to be mischievous.
Dierdre McCloskey, “Factual Free-Market Fairness”, Bleeding Heart Libertarians, 2012-06-16
May 27, 2012
Ron Paul’s Ten Principles of a Free Society
From Ron Paul’s book Liberty Defined, posted at The Daily Paul:
- Rights belong to individuals, not groups; they derive from our nature and can neither be granted nor taken away by government.
- All peaceful, voluntary economic and social associations are permitted; consent is the basis of the social and economic order.
- Justly acquired property is privately owned by individuals and voluntary groups, and this ownership cannot be arbitrarily voided by governments.
- Government may not redistribute private wealth or grant special privileges to any individual or group.
- Individuals are responsible for their own actions; government cannot and should not protect us from ourselves.
- Government may not claim the monopoly over a people’s money and governments must never engage in official counterfeiting, even in the name of macroeconomic stability.
- Aggressive wars, even when called preventative, and even when they pertain only to trade relations, are forbidden.
- Jury nullification, that is, the right of jurors to judge the law as well as the facts, is a right of the people and the courtroom norm.
- All forms of involuntary servitude are prohibited, not only slavery but also conscription, forced association, and forced welfare distribution.
- Government must obey the law that it expects other people to obey and thereby must never use force to mold behavior, manipulate social outcomes, manage the economy, or tell other countries how to behave.
May 25, 2012
Herbert Hoover, far from a poster boy for laissez faire government
Steven Horwitz in The Freeman debunks the “high school history” notion that President Hoover was a proponent of laissez faire capitalism which caused the Great Depression. They’ve got the right culprit, but the wrong crime:
One of the most pernicious myths in the economic history of the twentieth century is the belief that the Great Depression was caused, or at least worsened, by Herbert Hoover’s dogmatic commitment to a “do nothing” laissez-faire policy in the aftermath of the stock market crash. This argument is part and parcel of the set of beliefs about the Great Depression that I have dubbed the “high school history” version of that event. (It includes the claims that laissez faire caused it, Hoover’s inaction worsened it, the New Deal did wonders, and World War II got us all the way out.) This claim about Hoover’s dedication to laissez faire is, as I have suggested, utterly false.
In fact Herbert Hoover was long known as a Progressive who favored much more government intervention in the economy. From his days with the U.S. Food Administration in World War I through his time in the 1920s as secretary of commerce, Hoover constantly pushed his beliefs that laissez faire did not work and that government must take a more active role. When the economy went south during his first year as president, it came as no surprise that he put those beliefs into action.
Hoover not only signed the Smoot-Hawley Tariff, as everyone knows, he also encouraged businessmen to keep wages up, expanded the real amount of government spending, reduced immigration to near zero, set up all manner of government lending facilities, and increased the budget deficit. Along with the Federal Reserve System’s failure to do its job, resulting in a 30 percent drop in the money supply, these Hoover interventions were responsible for turning what might have been a severe, but short recession into a Great Depression. So the “high school history” story is right to blame Hoover — but it does so for exactly the wrong reasons.
But it’s been a great way to tarnish free market advocates and effortlessly refute their arguments, because “everybody knows” that laissez faire doesn’t work. Our high school teachers wouldn’t have mislead us all about that, would they?
