Destroying Market Mechanisms

"The welfare state destroys the market mechanisms -- it lessens free choice and willing exchange. Simultaneously creating unnatural specializations, it must, granted statism's premise, resort to welfarism; that is, it must assume the responsibility for the people's welfare: their employment, their old age, their income, and the like. As this is done, man loses his wholeness; he is dispossessed of responsibility for self, the very essence of manhood. The more dependent he becomes, the less dependable!"

Leonard E. Read (1898-1983)

Never heard of Dr. Read? Then you have probably not heard of I, Pencil. This is a fabulous, and very short, pamphlet explaining that NOBODY knows how to make a pencil. I, Pencil is written in the first person from the point of view of an Eberhard Faber pencil. The pencil details the complexity of its own creation, listing its components (cedar, lacquer, graphite, ferrule, factice, pumice, wax, glue) and the numerous people involved, down to the sweeper in the factory and the lighthouse keeper guiding the shipment into port. From the book:

"There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work."

"Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree"

"The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society's legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed"

Genius leaves the market alone. Dopes think they can manipulate it toward political ends.

Equalizing Incomes

"One of the worst features of all the plans for sharing the wealth and equalizing or guaranteeing incomes is that they, the ruling class, lose sight of the conditions and institutions that are necessary to create wealth and income in the first place."

Henry Hazlitt (1894-1993)

Prescient? Yes, because it is correct principle. Written in 1946, Dr. Hazlitt was well ahead of our current economic world. The redistribution of wealth, if even possible, is NOT a value that made the United States a great nation. Creating an entitlement society (and mentality) is NOT a value that made the United States a great nation. Federal control and income confiscation is NOT a value that made the United States a great nation. Central planning of economic markets is NOT a value that made the United States a great nation. I could go on and on. If you find any of that in any of the writings of the Founding Fathers, I will eat the pages in front of you.

Can talents be equalized? How about skills and abilities? How can desires and dreams which create drive and determination be equalized? Or the desire to learn and be educated and think for oneself? Well of course none of that can be. And therefore there will always be those who excel, and NOT at the expense of those who choose, yes choose, to lack behind. They would excel because of who they are.

If the gubment mandated tomorrow that all the wealth* in the U.S. be redistributed equally among its citizenry, each would choose a different path with what to do with that gift. Some would squander it on nonsense. Some would spend it to benefit others. Some would try to acquire "stuff" and immediate comfort. And some would invest it in ways that created more income and a secure future. A zillion paths for that redistributed wealth would be followed. And in short order, perhaps shorter than most would think, the same wealth disparities would exist as the cream rose to the top and the dregs sank back to the bottom. Anyone who thinks wealth can be redistributed as an economic policy is a dope.

* Those whose wealth was inherited (or acquired through marriage) would have NO idea how to go about creating the wealth that was given to them. Name your favorite trust-fund family. And their entitlement mentality would not get them very far... They would be the loudest squawkers about the "inequalities and unfairness" of the system!

Public Monopoly

"There is far more danger in public than in private monopoly, for when government goes into business it can always shift its losses to the taxpayer."

Thomas Edison (1847-1931)

That was said in the early 1900's when the public (read that government, or my word "gubment") was not so much involved in taking over business as it is today!

When gubment takes over the auto industry, or banking, or school loans, or mortgages, or investment banking, or "health" care, or WHATEVER the business, it is ALWAYS on the backs of the taxpayers.

Gubment produces nothing! It earns interest on nothing. It grows nothing. Anything, that is anything, it derives in any fashion, is from the taxpayers from whom it must take the money.

Loss is the common measure of gubment control of anything. Its loss, however, as Mr. Edison suggests, is hidden in fiscal policy. And in the end it doesn't work.

Who learned that lesson the hard way? One of the biggest BIG government people in history. The most notable fascist of all - Adoph Hitler.

P.s. Conservatives are NEVER fascists, in any regard. And those who throw that charge around are basically and fundamentally uninformed. As usual...

Giving Back

"Recipients of transfers tend to become less self-reliant and more dependent on government payments. When people can get support without exercising their own abilities to discover and respond to opportunities for earning income, those abilities atrophy. People forget - or never learn in the first place - how to help themselves, and eventually some of them simply accept their helplessness."

Robert Higgs

Necessarily, when any gubment moves to "redistribute wealth," it must take that wealth from someone who earned it and give it to someone who did not. In fact, there are those who feel entitled to other people's labor and wealth!

But what happens when wealth is so taken and so received? Those with gumption, and drive, and talent, and ability, will earn back (not take) what they had earned in the first place!* Why is that? Because they are who they are!

And those who take and wait to receive are who they are! Or have become who they have been encouraged to become... This is not a value that founded this country and made it so great and so strong.

Can such things as initiative and desire and dreams be distributed, or redistributed, equally? No.

Does this sound harsh? Is redistribution a correct or an incorrect principle? Read the Parable of the Talents! To do that you would have to look in Matthew 25 or Luke 19. But trust me, the principle is there. It might surprise you!

* These are they who are asked to "give back" to society! I disagree. They are giving! Those who should give back are the robbers and thieves, the predators, committers of fraud, the liars and general scum, those with disregard for others and their property - the law breakers! - they, THEY, are the ones who should give back. THAT is redistribution I can live with... What's that parable say again?

Individuality

"Individuality is the aim of political liberty. By leaving the citizen as much freedom of action and of being as comports with order and the rights of others, the institutions render him truly a freeman. He is left to pursue his means of happiness in his own manner."

James Fenimore Cooper (1789-1851)

One of the most important values that built this country is rugged individualism. This is something that is almost forgotten in today's entitlement society, where "gubment" (read that some other hard-working citizen) is expected to take care of another's individual needs. This entitlement is viewed by some as a "right!" Not that they can define that word...

The very purpose of the U.S. Constitution is to define and restrict the powers of government over the individual. And to allow the free exercise of rights that it maintains and we believe to be divinely endowed by God.

Interfering With Rights

"I believe that every individual is naturally entitled to do as he pleases with himself and the fruits of his labor, so far as it in no interferes with any other men's rights."

Abraham Lincoln (1809-1865)

I hear the word "right" from people who probably can't even define it. "I have the right" to do this or that. So much of what I hear is claptrap.

In this country, we believe our rights to be endowments from God, and unalienable, which means that they can't be separated and we can't pick and choose which to protect and not to. It seems to me that God is a fairly permanent fixture and a right endowed in 1776 (or 1789 when the U.S. Constitution was ratified) would still be a right today, despite some radical (read that enlightened) court definition.

True rights don't come and go. Remember the "right" to own other people? Or to be "separate but equal?" Or the "right" to be bussed to school? All those things, and more, were enlightened court definitions! But NOT rights! How come those aren't "rights" anymore?

I think that a right is something that I enjoy simultaneously with others, and my enjoyment thereof costs nobody else. My right to enjoy freedom of speech or assembly does not remove or cost anyone else's right to do so, or to have to provide for me.

The "right" to health insurance, or housing, or pharmaceuticals, or whatever other pet political trend, cannot be extended to everyone unless the money to extend that "right" to some people comes directly from other people! One person's enjoyment costs another! That's not a God-given endowment, it is a welfare program. And not a very-well administered "right" at that!

TRUE RIGHTS DON'T HAVE TO BE ADMINISTERED! Just ask Mr. Lincoln!

Serving Others

"Under capitalism everybody provides for their own needs by serving others."

Ludwig von Mises (1881-1973)

Ever consider that? That as business people we are in the business of serving others? That is the very essence of capitalism, and a definition you will never hear from those who deride it.

Capitalism is not a system of thievery, control, or monopolistic competition. It is a system where we serve our own interests by better serving the needs of other people.

That is why Adam Smith, in "The Wealth of Nations," could confidently state that the butcher, baker and beer maker do not wish to provide us our dinner for any reason other than self interest. They wish to produce the best products so that we will come back for purchase time and again. And as we do, their profits increase and they further themselves in society.

Any economic system other than that will necessarily collapse under its own weight. It hasn't worked anywhere for very long because it can't.

Self Interest and Self Esteem

"Capitalism is based on self interest and self esteem, it holds integrity and trustworthiness as cardinal virtues, not vices. It is this superlative moral system that the welfare statists propose to improve upon by means of preventative law, snooping bureaucrats and the chronic goad of fear."

Alan Greenspan

And "statists" are everywhere in our current gubment today! They who propose their soft tyranny in the form of crushing bureaucracy, regulation, licensing, control and power over the individual are everywhere in our current gubment, from the top down.

Capitalism, better said, free-market economics, cannot thrive in such an environment. Innovation is stultified, risk is not taken, business growth cannot happen, confidence is shattered and everything slows down. And THAT is the environment we find ourselves in now.

Integrity and trustworthiness CANNOT thrive in any arena other than capitalism! Is that found anywhere in the world, or throughout world history, in any other economic structure? Is a burgeoning, growing, contributing economy found anywhere that is not based on the voluntary and free exchange found in a capitalist system? It is not! Why not? For without those things people will not return for your good or service. Your business will not thrive, you will not profit, you will not invent, you will not grow, and you will not stay in business if you try to employ any form of soft tyranny in your market. In a free-market economy, there is always someone else consumers can turn to instead.

When goods and services are forced upon a populace by its government, and there is no where else to turn, those goods and services necessarily, necessarily, become more expensive and of lesser quality. Their administration necessarily, necessarily, becomes more bloated and less efficient, until eventually, necessarily, necessarily, those goods and services collapse under their own weight. And the populace necessarily, necessarily, becomes more dependent, under greater control, and LESS FREE. Show me otherwise!

Health care anyone?*

* Pick your gubment "service" ...

Not An Idler

"There is no place in civilization for the idler. None of us has any right to ease."

Henry Ford (1863-1947)

If there was anyone in life who was not an idler, it was Henry Ford. He was a bona fide tinkerer. Not so much an inventor, but he was always tinkering with something.

His objective was to produce! And produce he did. His production process relied on two things: 1. good people, whom he paid very well to encourage them to stay with him, and 2. the assembly line.

Ford did not invent the assembly line. People think he did! No, he improved it! He certainly didn't invent the car. People think he did! No, he improved it!

He read in a book, written by one Adam Smith, called "The Wealth of Nations" (not the entire title), about the division of labor. Smith said, "The specialisation and concentration of the workers on their single subtasks often leads to greater skill and greater productivity on their particular subtasks than would be achieved by the same number of workers each carrying out the original broad task." Smith's example used a pin! He imagined one person making the head, and another the body, each with his own special skill and machinery. In Smith's thinking, better, and more specialized, machinery would improve productivity. And remember, productivity is defined as output per man hour.

Ford caught hold of that division of labor thought, took the assembly line invented by someone else, and the rest is history, as they say. Ford's assembly line actually moved, and he could create cars quicker and more cheaply hiring people with specialized skills operating specialized machinery. That's productivity!

Who invented the assembly line? One Ransom E. Olds. Ever heard of the OLDSMOBILE? That's him! He is credited with creating the first, mass-produced car.

Then who invented the car? One J. Frank Duryea, in Springfield, Massachusetts. His first car was the BUGGYAUT. He rolled out his gasoline-fueled, buggyaut in 1893, driving it around town. He even raced it in the first car race in 1895. It was an 80-mile race from Chicago to Waukegan and back. He won the race in 10 hours, 23 minutes, averaging 5.25 miles per hour. This was before Ford's first car.

When did Ford put out his first car? Not until 1896. He was tinkering with what he called the QUADRICYCLE in a small workshop he rented behind his house. It used four bicycle wheels!

The 32 year old Ford worked on it for some time.

When he finally completed it he decided to test drive it.

The quadricycle was a 500 pound, 2 cylinder, 2 speed (no reverse), ethanol-powered, 49" wheel base and 39" wide beauty. He could hardly wait to get it out on the street!

Looking up he realized the width of the car was wider than the door! Taking a sledge hammer he broke the brick walls beside the rear door, creating an opening he could drive through. That's called planning ahead... well, maybe not.

SO, WHAT DID HENRY FORD INVENT? THE FIRST GARAGE DOOR!

When Henry Ford said that nobody had a right to be idle, he meant it. It seems he never idled a minute of his life. Ford loved barbecues! But even when he was having barbecues with his cousin and friends, Thomas Edison, Harvey Firestone and Charles Lindbergh, he was busy. His cousin noticed that Ford's factory was creating a lot of burned wood and charcoal. Together Ford and his cousin thought they could make the wood more completely into charcoal in a special room, and then press that charcoal into briquettes for their grill.

A new industry was born! Oh, what was his cousin's name? KINGSFORD!

Now you know the rest of the story.

Insanity On Parade

"This year in world history class, we will learn from history that we learn nothing from history."

Dr. Caudle

That was the first thing I heard in the first class I had in my first year of college.

I was shocked and did not believe her.

Of course we learn from history!

Well, apparently not! Why do we keep doing the same stuff over and over and expect different results?

(Einstein called that the definition of insanity, but I digress)

The cartoon above appeared in one of my college economics textbooks. It was first published in the Chicago Tribune, April 1936, the depth of the Great Depression.

I DID NOT UNDERSTAND IT IN COLLEGE!

I do now.

Notice Leon Trotsky in the lower left corner. If you don't know who he is, look him up! Essentially he was Lenin's economic adviser.

Look at his sign! Sound familiar?

Are we repeating history?

Let's see, how did the Great Depression start? With a president named Hoover. As the economy began a slide into a recession, what did he propose? THE HOOVER NEW DEAL.

Oh, you thought Roosevelt started the New Deal? Sorry. How did the Hoover New Deal work? It began with the banks - with serious banking rules and gubment oversight changes, but also making it easier to loan money! Federal bank bail outs. Bailing out states. Public works projects (we hear that as "infrastructure improvement and shovel-ready jobs"). Reforming bankruptcy laws. Increasing corporate taxes and tariffs. Increased gubment involvement in housing. Ruining competition in favor of gubment control of and involvement in business. Tax cuts that weren't tax cuts. The creation of a multiplicity gubment agencies and departments. The Fed becoming more important in banking and lending. A HUGE tax increase! Gubment expenditures out the roof!

SOUND FAMILIAR?

What did Roosevelt do? He actually only started a couple of programs to add to Hoover's. BUT ROOSEVELT THOUGHT WE HAD NOT DONE ENOUGH! SO HE DID NOT JUST DOUBLE DOWN ON IT ALL, HE QUADRUPLED DOWN!

SOUND FAMILIAR?

What was the result? A basic recession was turned into a 15 year depression!! Some excellent studies have come out about this. My favorite is by two UCLA econ profs who lay it out pretty clearly using Econ 101 stuff. But, who's listening?

So, a "president" gets back from a Martha's Vineyard vacation to present a "jobs bill." That's in September 2010.
So, a "president" gets back from a Martha's Vineyard vacation to present a "jobs bill." That's in September 2011.

Am I in a freaking dream? Is history repeating itself?

YES! WHAT DOES HE PROPOSE? THE SAME STUFF HE PROPOSED LAST TIME, AND HAS PROPOSED AND PASSED IN THE LAST THREE YEARS! WE ARE AT DEPRESSION LEVELS IN UNEMPLOYMENT (don't believe the 9.1%, that's contrived, statistical poop - it is closer to 20%), HOUSING FORECLOSURE RATES, HOUSING OWNERSHIP RATES, STRUCTURAL DESTRUCTION OF PRODUCTION AND JOBS, HISTORICAL NUMBERS LIVING BELOW THE POVERTY LEVEL, A HISTORICAL LACK OF CONFIDENCE - I COULD GO DOWN THE LIST!!

It's simple. If you want to improve an economy, create jobs, lower inflation, improve housing, create manufacturing, raise confidence - you name it - if you want to do those things you MUST CREATE WEALTH. What employs people? WEALTH. Wealth also improves the economy, lowers inflation, improves housing, raises confidence - whatever!

Can the gubment create wealth? NO. Can it get out of the way and allow a free-market environment to do what it does best? YES. What do free markets do best? Create wealth.

Will this group? NO. That is not a part of their template! So watch the media twist and turn and try, try, try to make things look rosy and how great and strong and visionary this "president" appears. But in the end, nothing will change. The "president" will continue to blame something or someone else. (No leader blames something else)

And history will continue to repeat itself.

"This year in world history class, we will learn from history that we learn nothing from history."

Insanity on parade.

Insidious Encroachment

"The greatest dangers to liberty lurk in the insidious encroachment by men of zeal, well meaning but without understanding."

Louis Brandeis

A Supreme Court Justice from 1916 - 1939, Justice Brandeis was branded "dangerous because he is incorruptible" by the FDR administration. Well, no wonder! Doing so much damage to the country outside the framework of the Constitution, Roosevelt had to stack the court to get his "agenda" through. And we have paid for that zeal without understanding since.

Now we are "lead" by a whole group of zeal without ANY understanding. Or at least without real-world experience that demonstrates understanding. Or perhaps they DO have understanding of the damages to liberty they are doing and continue on their path. THAT is the very definition of "insidious." It means to do something gradually, subtly and with harmful effect. It comes from the Latin word "insidiosus," which means "cunning." Well, THAT certainly describes what is in place now!

Broken Window Fallacy - Still Alive And Well

One of Frederic Bastiat's famous parables is called "The Fallacy of the Broken Window." It describes a shop keeper whose young son breaks a window. He is forced to employ a glazier to repair it. It conveys his thoughts on economics and the circulation of money. It goes like this:

" Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass?
If you had been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation— 'It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?'
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, 'Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.'
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented. "

WHAT IS THE FALLACY?   IN ALL OF THIS ECONOMIC ACTIVITY, IT IS FORGOTTEN THAT IT COST THE SHOPKEEPER TO REPAIR THE WINDOW! HAD IT NOT BROKEN, HIS SIX FRANCS COULD HAVE INSTEAD BEEN SPENT ON SHOES, IN WHICH CASE HE WOULD HAVE HAD A WINDOW AND A NEW PAIR OF SHOES.

An economy can be broken by taxes. While it is certain that money paid in taxes does flow through the macro economy generally, had it been retained by the populace it would have been spent on other things.

That benefit flows through the macro economy to a much greater degree.

This is called the accelerator principle or the multiplier effect. It has been calculated that $1 left in the economy creates as much as $24 in economic activity. And $1 paid in taxes will create only $3, and that depending on what it is spent!

On The Taxpayers' Backs

"There is far more danger in public than in private monopoly, for when government goes into business it can always shift its losses to the taxpayer."

Thomas Edison

That was said in the early 1900's when the public (read that government, or my word "gubment") was not so much involved in taking over business as it is today!

When gubment takes over the auto industry, or banking, or school loans, or mortgages, or investment banking, or "health" care, or WHATEVER the business, it is ALWAYS on the backs of the taxpayers.

Gubment produces nothing! It earns interest on nothing. It grows nothing. Anything, that is anything, it derives in any fashion, is from the taxpayers from whom it must take the money.

Loss is the common measure of gubment control of anything. Its loss, however, as Mr. Edison suggests, is hidden in fiscal policy. And in the end it doesn't work.

Who learned that lesson the hard way? One of the biggest BIG government people in history. The most notable fascist of all - Adoph Hitler.

P.s. Conservatives are NEVER fascists, in any regard. And those who throw that charge around are basically and fundamentally uninformed. As usual...