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Hacking Law and Governance with Startup Cities: How Innovation Can Fix Our Social Tech – Article by Zachary Caceres

Hacking Law and Governance with Startup Cities: How Innovation Can Fix Our Social Tech – Article by Zachary Caceres

The New Renaissance Hat
Zachary Caceres
July 16, 2013
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Outside of Stockholm, vandals and vines have taken over Eastman Kodak’s massive factories. The buildings are cold metal husks, slowly falling down and surrendering to nature.  The walls are covered in colorful (and sometimes vulgar) spray paint. In the words of one graffiti artist: It’s “a Kodak moment.”

After its founding in 1888, Eastman Kodak became the uncontested champion of photography for almost a century. But in early 2012, the once $30-billion company with over 140,000 employees filed for bankruptcy.

Kodak was the victim of innovation—a process that economist Joseph Schumpeter called “the gales of creative destruction.” Kodak could dominate the market only so long as a better, stable alternative to its services didn’t exist. Once that alternative—digital photography—had been created, Kodak’s fate was sealed. The camera giant slowly lost market share to upstarts like Sony and Nikon until suddenly “everyone” needed a digital camera and Kodaks were headed to antique shows.

How does this happen? Christian Sandström, a technologist from the Ratio Institute in Sweden, argues that most major innovation follows a common path.

From Fringe Markets to the Mainstream

Disruptive technologies start in “fringe markets,” and they’re usually worse in almost every way. Early digital cameras were bulky, expensive, heavy, and made low-quality pictures. But an innovation has some advantage over the dominant technology: for digital cameras it was the convenience of avoiding film. This advantage allows the innovation to serve a niche market. A tiny group of early adopters is mostly ignored by an established firm like Kodak because the dominant technology controls the mass market.

But the new technology doesn’t remain on the fringe forever. Eventually its performance improves and suddenly it rivals the leading technology. Digital cameras already dispensed with the need to hassle with film; in time, they became capable of higher resolution than film cameras, easier to use, and cheaper. Kodak pivoted and tried to enter the digital market, but it was too late. The innovation sweeps through the market and the dominant firm drowns beneath the waves of technological change.

Disruptive innovation makes the world better by challenging monopolies like Kodak. It churns through nearly every market except for one: law and governance.

Social Technology

British Common law, parliamentary democracy, the gold standard: It may seem strange to call these “technologies.” But W. Brian Arthur, a Santa Fe Institute economist and author of The Nature of Technology, suggests that they are. “Business organizations, legal systems, monetary systems, and contracts…” he writes, “… all share the properties of technology.”

Technologies harness some phenomenon toward a purpose. Although we may feel that technologies should harness something physical, like electrons or radio waves, law and governance systems harness behavioral and social phenomena instead. So one might call British common law or Parliamentary democracy “social technologies.”

Innovation in “social tech” might still seem like a stretch. But people also once took Kodak’s near-total control of photography for granted (in some countries, the word for “camera” is “Kodak”). But after disruptive innovation occurs, it seems obvious that Kodak was inferior and that the change was good. Our legal and political systems, as technologies, are just as open to disruptive innovation. It’s easy to take our social techs for granted because the market for law and governance is so rarely disrupted by innovations.

To understand how we might create disruptive innovation in law and governance, we first need to find, like Nikon did to Kodak, an area where the dominant technologies can be improved.

Where Today’s Social Techs Fail

Around the world, law and governance systems fail to provide their markets with countless services. In many developing countries, most of the population lives outside the law.

Their businesses cannot be registered. Their contracts can’t be taken to court. They cannot get permission to build a house. Many live in constant fear and danger since their governance systems cannot even provide basic security. The ability to start a legal business, to build a home, to go school, to live in safe community—all of these “functions” of social technologies are missing for billions of people.

These failures of social technology create widespread poverty and violence. Businesses that succeed do so because they’re run by cronies of the powerful and are protected from competition by the legal system. The networks of cooperation necessary for economic growth cannot form in such restrictive environments. The poor cannot become entrepreneurs without legal tools. Innovations never reach the market. Dominant firms and technologies go unchallenged by upstarts.

Here’s our niche market.

If we could find a better way to provide one or some of these services (even if we couldn’t provide everything better than the dominant political system), we might find ourselves in the position of Nikon before Kodak’s collapse. We could leverage our niche market into something much bigger.

Hacking Law and Governance with Startup Cities

A growing movement around the world to build new communities offers ways to hack our current social tech. A host nation creates multiple, small jurisdictions with new, independent law and governance. Citizens are free to immigrate to any jurisdiction of their choosing. Like any new technology, these startup cities compete to provide new and better functions—in this case, to provide citizens with services they want and need.

One new zone hosting a startup city might pioneer different environmental law or tax policy. Another may offer a custom-tailored regulatory environment for finance or universities. Still another may try a new model for funding social services.

Startup cities are a powerful alternative to risky, difficult, and politically improbable national reform. Startup cities are like low-cost prototypes for new social techs. Good social techs pioneered by startup cities can be brought into the national system.

But if bad social techs lead a zone to fail, we don’t gamble the entire nation’s livelihood. People can easily exit a startup city—effectively putting the project “out of business.” If a nation chooses to use private capital for infrastructure or other services, taxpayers can be protected from getting stuck with the bill for someone’s bad idea. Startup cities also enhance the democratic voice of citizens by giving them the power of exit.

Looking at our niche market, a startup city in a developing nation could offer streamlined incorporation laws and credible courts for poor citizens who want to become entrepreneurs. Another project could focus on building safe places for commerce and homes by piloting police and security reform. In reality, many of these functions could (and should) be combined into a single startup city project.

Like any good tech startup, startup cities would be small and agile at first. They will not be able to rival many things that dominant law and governance systems provide. But as long as people are free to enter and exit, startup cities will grow and improve over time. What began as a small, unimpressive idea to serve a niche market can blossom into a paradigm shift in social technologies.

Several countries have already begun developing startup city projects, and many others are considering them. The early stages of this movement will almost certainly be as unimpressive as the bulky, toy-like early digital cameras. Farsighted nations will invest wisely in developing their own disruptive social techs, pioneered in startup cities. Other nations—probably rich and established ones—will ignore these “niche market reforms” around the developing world. And they just might end up like Kodak—outcompeted by new social techs developed in poor and desperate nations.

The hacker finds vulnerabilities in dominant technology and uses them to create something new. In a sense, all disruptive innovation is hacking, since it relies on a niche—a crack in the armor—of the reigning tech. Our law and governance systems are no different. Startup cities are disruptive innovation in social tech. Their future is just beginning, but one need only remember the fate of Kodak—that monolithic, unstoppable monopolist—to see a world of possibility.

Those interested in learning more about the growing startup cities movement should visit startupcities.org or contact startupcities@ufm.edu.

Zachary Caceres is CIO of Startup Cities Institute and editor of Radical Social Entrepreneurs.

This article was originally published by The Foundation for Economic Education.

The Patent Bubble and Its End – Article by Jeffrey A. Tucker

The Patent Bubble and Its End – Article by Jeffrey A. Tucker

The New Renaissance Hat
Jeffrey A. Tucker
February 3, 2013
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“Then they pop up and say, ‘Hello, surprise! Give us your money or we will shut you down!’ Screw them. Seriously, screw them. You can quote me on that.”

Those are the words of Newegg.com’s chief legal officer, Lee Cheng. He was speaking to Arstechnica.com following a landmark ruling that sided with a great business against a wicked patent troll company called Soverain.

What is a patent troll? It is a company that has acquired patents (usually through purchases on the open market) but does not use them for any productive purpose. Instead, it lives off looting good companies by blackmailing people. The trolls say, “Pay us now or get raked over the coals in court.”

Soverain is one such company. Most companies it has sued have paid the ransom. Soverain has collected untold hundreds of millions in fines from the likes of Bloomingdale’s, J.C. Penney, J. Crew, Victoria’s Secret, Amazon, and Nordstrom.

It sounds like a criminal operation worthy of the old world of, say, southern Italy (no offense, guys!). Indeed, but this is how it works in the U.S. these days. The looting is legal. The blackmail is approved. The graft is in the open. The expropriation operates under the cover of the law. The backup penalties are inflicted by the official courts.

To be sure, the trolls may not be as bad as conventional patent practice. At least the trolls don’t try to shut you down and cartelize the economy. They just want to get their beak wet. Once that happens, you are free to go about your business. This is one reason they have been so successful.

Soverain’s plan was to loot every online company in existence for a percentage of their revenue, citing the existence of just two patents. Thousands of companies have given in, causing an unnatural and even insane increase in the price of patent bundles. Free enterprise lives in fear.

Let me add a point that Stefan Molyneux made concerning this case. The large companies are annoyed by the patent-troll pests but not entirely unhappy with their activities. The large companies can afford to pay them off. Smaller companies cannot. In this way, the trolls serve to reduce competition.

[Stefan made his comments on an edition of Adam v. The Man, in which we were both guests. you can watch the entire show here.]

When Soverain came after Newegg’s online shopping cart demanding $34 million, a lower court decided against Newegg, but only imposed a fine of $2.5 million. Newegg examined the opinion and found enough holes in the case to appeal. It was a gutsy decision, given the trends. But as Cheng told Ars Technica:

“We basically took a look at this situation and said, ‘This is bull****.’ We saw that if we paid off this patent holder, we’d have to pay off every patent holder this same amount. This is the first case we took all the way to trial. And now nobody has to pay Soverain jack squat for these patents.”

It’s true. The case not only shuts down the Soverain racket. It might have dealt a devastating blow to the whole patent hysteria and the vicious trolling that has fueled it all along.

And truly, the patent mania has become crazy. No one 10 years ago would have imagined that it would go this far.

“It’s a sign of something gone awry, not a healthy market,” attorney Neil Wilkof told Gigaom.com, with reference to the utterly insane amounts that well-heeled tech giants have been paying for patents. “I think we’re in a patent bubble in a very specific industry. It’s a distorted market and misallocation of resources.”

[Note: This entire racket is anticipated and debunked in the pioneering work on the topic. The new edition of Stephan Kinsella’s Against Intellectual Property is now available for free to Club members.]

Earlier this year, Google shelled out $12.5 billion for the acquisition of Motorola Mobility. Facebook threw down $550 million for AOL’s patents. Apple and Google spent more last year on patent purchases and litigation than on actual research and development. The smartphone industry coughed up $20 billion last year on the patent racket. A lawsuit last year against Samsung awarded Apple $1 billion in a ridiculous infringement case.

These are astronomical numbers — figures that would have been inconceivable in the past. Everyone seems to agree that the system is radically broken. What people don’t always understand is that every penny of this is unnecessary and pointless. This market is a creation of legislation, and nothing more. The companies aren’t really buying anything but the right to produce and the right not to be sued, and that is not always secure.

Let’s back up. Why are there markets in anything at all? They exist because goods have to be allocated some way. There are not enough cars, carrots, and coffee to meet all existing conceivable demand. We can fight over them or find ways to cooperate through trade. Prices are a way to settle the struggle over goods that people grow or make, or services people provide, in a peaceful way. They allow people to engage to their mutual benefit, rather than club or shoot each other.

But what is being exchanged in the patent market? It’s not real goods or services. These are government creations of a bureaucracy — an exclusive right to make something. They are tickets that make production legal. If you own one, there is no broad market for it. It has only a handful of possible buyers, and the price of your good is based entirely on how much money you think you can extract from deep pockets. Sometimes, you actually force people to buy with the threat that you will sue if they don’t.

That’s not how normal markets operate. There was a time when patents didn’t even apply to software at all. The whole industry was built by sharing ideas and the spirit of old-fashioned competition. Companies would work together when it was to their mutual advantage and hoard competitive reasons when it was not. It seemed to work fine, until legislation intervened.

Today the entire fake market for patents is sustained by the perception that courts will favor the patent holders over the victims. The Newegg case changes that perception, which is why it has been the most closely watched case in the industry. This might signal the end of the reign of terror, at least one form of it.

But, you say, don’t creators deserve compensation? My answer: If they create something people are willing to pay for, great. But that’s not what’s happening. Soverain’s bread and butter was a handful of patents that had been on the open market, changing hands through three different companies over the course of 10 years, until they landed in the laps of some extremely unscrupulous wheeler-dealers.

In other words, patents these days have little to nothing to do with the creators — any more than mortgage-backed securities at the height of the boom had anything to do with the initial lender and its risk assessments. Once a patent is issued — and they are not automatically valid, but rather have to be tested in litigation — it enters into the market and can land anywhere. The idea that the patent has anything to do with inspiring innovation is total myth. It is all about establishing and protecting monopolistic weapons with which to beat people.

Many people have been hoping for patent reform. It probably won’t happen and might not even need to happen. If this case is as significant as tech observers say, a sizeable portion of this fake industry could be smashed via a dramatic price deflation. When something is no longer worth much, people stop wanting it.

Patents date from a time when a great industrial innovation made the headlines just because it was so rare. That’s not our world. Government has no business allocating and centrally planning ideas. Here’s to Newegg: Take a bow. Someone had the guts to say no. This time, for once, it worked.

Yours,
Jeffrey Tucker

Jeffrey Tucker is the publisher and executive editor of Laissez-Faire Books, the Primus inter pares of the Laissez Faire Club, and the author of Bourbon for Breakfast: Living Outside the Statist Quo It’s a Jetsons World: Private Miracles and Public Crimes, and A Beautiful Anarchy: How to Build Your Own Civilization in the Digital Age, among thousands of articles. Click to sign up for his free daily letter. Email him: tucker@lfb.org | Facebook | Twitter | Google.

This article has been republished pursuant to a Creative Commons Attribution 3.0 License.

Review of Gary Wolfram’s “A Capitalist Manifesto” – Article by G. Stolyarov II

Review of Gary Wolfram’s “A Capitalist Manifesto” – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
January 5, 2013
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While Dr. Gary Wolfram’s A Capitalist Manifesto is more an introduction to economics and economic history than a manifesto, it communicates economic concepts in a clear and entertaining manner and does so from a market-friendly point of view. Wolfram’s strengths as an educator stand out in this book, which could serve as an excellent text for teaching basic microeconomics and political economy to all audiences. Wolfram is a professor of economics at Hillsdale College, whose course in public-choice economics I attended. The book’s narration greatly resembles my experience of Wolfram’s classroom teaching, which focuses on the essence of an idea and its real-world relevance and applications, often utilizing entertaining concrete examples.

The book begins with several chapters on introductory microeconomics – marginal analysis, supply, demand, market equilibrium, opportunity cost, and the effects of policies that artificially prevent markets from clearing. The middle of the book focuses on economic history and political economy – commenting on the development of Western markets from the autarkic, manorial system of the feudal Middle Ages, through the rise of commerce during the Early Modern period, the Industrial Revolution, the emergence of corporations, and the rise in the 20th century of economic regimentation by national governments. One of the strengths of this book is its treatment of the benefits of free trade, from its role in progress throughout history to the theoretical groundwork of Ricardian comparative advantage. Enlightening discussions of constitutionalism and the classical idea of negative liberty are also provided. Wolfram introduces the insights of Ludwig von Mises regarding the infeasibility of central planning in solving the problem of economic calculation, as well as Friedrich Hayek’s famous “knowledge problem” – the dispersion of information among all the individuals in an economy and the impossibility of a central planner assembling all the information needed to make appropriate decisions. Wolfram further articulates the key insights of Frederic Bastiat: the seen versus the unseen in economic policy, the perils of coercive redistribution of wealth, the immorality of using the law to commit acts which would have been unacceptable if done by private individuals acting alone, and the perverse incentives created by a system where the government is able to dispense special privileges to a select few.

The latter third of the book focuses on such areas as money, inflation, and macroeconomics – including an exposition of the Keynesian model and its assumptions. Wolfram is able to explain Keynesian economics in a more coherent and understandable manner than most Keynesians; he thoroughly understands the theories he critiques, and he presents them with fairness and objectivity. I do, however, wish that the book had delved more thoroughly into a critique of Keynesianism. The discussion therein of the Keynesian model’s questionable assumptions is a good start, and perhaps a gateway to more comprehensive critiques, such as those of Murray Rothbard and Robert Murphy. A layperson reading A Capitalist Manifesto would be able to come out with a fundamental understanding of Keynes’s central idea and its assumptions – but he would not, solely as a result of this book, necessarily be able to refute the arguments of Keynes’s contemporary followers, such as Joseph Stiglitz and Paul Krugman. Wolfram mentions critiques of Keynesianism by Milton Friedman and the monetarist school, the concept of rational expectations precipitating a move away from Keynesianism in the late 1970s, and the “supply-side” interpretations of the Keynesian model from the 1980s. However, those viewpoints are not discussed in the same level of detail as the basic Keynesian model.

More generally, my only significant critique of A Capitalist Manifesto is that it is too brief in certain respects. It offers promising introductions to a variety of economic ideas, but leaves some significant questions arising from those areas unanswered. Wolfram introduces the history and function of the corporation but does not discuss the principal-agent problem in large, publicly traded firms with highly dispersed ownership. To anticipate and answer (and perhaps partially acknowledge the validity of) criticisms of the contemporary corporate form of organization, commentary on how this problem might be overcome is essential. Wolfram explains the components and computation of Gross Domestic Product and the Consumer Price Index but devotes only a small discussion to critiques of these measures – critiques that are particularly relevant in an electronic age, when an increasing proportion of valuable content – from art to music to writing to games – is delivered online at no monetary cost to the final consumer. How can economic output and inflation be measured and meaningfully interpreted in an economy characterized partially by traditional money-for-goods/services transactions and partially by the “free” content model that is funded through external sources (e.g., donations or the creators’ independent income and wealth)? Moreover, does Wolfram’s statement that the absence of profit (sufficient to cover the opportunity cost) would result in the eventual decline of an enterprise need to be qualified to account for new models of delivering content? For instance, if an individual or firm uses one income stream to support a different activity that is not itself revenue- or profit-generating, there is a possibility for this arrangement to be sustainable in the long term if it is also justified by perceived non-monetary value.

Wolfram’s discussion of inflation is correct and forms a strong link between inflation and the quantity of money (government-issued fiat money these days) – but I would have wished to see a more thorough focus on Ludwig von Mises’s insight that new money does not enter the economy to equally raise everybody’s incomes simultaneously; rather, the distortion due to inflation comes precisely from the fact that some (the politically favored) receive the new money and can benefit from using it while prices have not yet fully adjusted. (This can be logically inferred from Wolfram’s discussion of some of the “tools” of the Federal Reserve, which directly affect the incomes of politically connected banks – but I wish the connection to Mises’s insight had been made more explicit.) Wolfram does mention that inflation can be a convenient tool for national governments to reduce their debt burdens, and he also discusses the inflationary role of fractional-reserve banking and “tools” available to central banks such as the Federal Reserve. However, Wolfram’s proposed solutions to the problems of inflation remain unclear from the text. Does he support Milton Friedman’s proposal for a fixed rate of growth in the fiat-money supply, or does he advocate a return to a classical gold standard – or perhaps to a system of market-originated competing currencies, as proposed by Hayek? It would also have been interesting to read Wolfram’s thoughts on the prospects and viability of peer-to-peer and digital currencies, such as Bitcoin, and whether these could mitigate some of the deleterious effects of central-bank-generated inflation.

Wolfram does discuss in some detail the sometimes non-meritocratic outcomes of markets – stating, for instance, that “boxers may make millions of dollars while poets make very little.” Indeed, it is possible to produce far more extreme comparisons of this sort – e.g., a popular “star” with no talent or sense earning millions of dollars for recording-studio-hackneyed “music” while genuinely talented classical musicians and composers might earn relatively little, or even have their own work remain a personal hobby pursued for enjoyment alone. To some critics of markets, this may well be the reason to oppose them and seek some manner of non-market compensation for people of merit. For a defender of the unhampered market economy, a crucial endeavor should be to demonstrate that truly free markets (unlike the heavily politicized markets of our time) can tend toward meritocracy in the long run, or at least offer people of merit a much greater range of possibilities for success than exists under any other system. Another possible avenue of exploration might be the manner in which a highly regimented political system (especially in the areas of education) might result in a “dumbed-down” culture which neglects and sometimes outright opposes intellectual and esthetic sophistication and the ethic of personal productivity which is indispensable to a culture that prizes merit. Furthermore, defenders of markets should continually seek out ways to make the existing society more meritocratic, even in the face of systemic distortions of outcomes. Technology and competition – both of which Wolfram correctly praises – should be utilized by liberty-friendly entrepreneurs to provide more opportunities for talented individuals to demonstrate their value and be rewarded thereby.

Wolfram’s engaging style and many valid and enlightening insights led me to desire more along the same lines from him. Perhaps A Capitalist Manifesto will inspire other readers to ask similar questions and seek more market-friendly answers. Wolfram provides a glossary of common economic terms and famous historical figures, as well as some helpful references to economic classics within the endnotes of each chapter.  A Capitalist Manifesto will have its most powerful impact if readers see it as the beginning of their intellectual journey and utilize the gateways it offers to other writings in economics and political economy.

Disclosure: I received a free copy of the book for the purposes of creating a review.

Libertarian Life-Extension Reforms – Video Series by G. Stolyarov II

Libertarian Life-Extension Reforms – Video Series by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
December 10, 2012
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This video series is derived from Mr. Stolyarov’s essay, “Political Priorities for Achieving Indefinite Life Extension: A Libertarian Approach“. The series highlights each of the proposed areas of pro-liberty life-extension reforms in an effort to spread these ideas and achieve their broader public consideration.

#1 – Repeal FDA Approval Requirements

Mr. Stolyarov discusses the greatest threat to research on indefinite human life extension: the  current requirement in the United States (and analogous requirements elsewhere in the Western world) that drugs or treatments may not be used, even on willing patients, unless approval for such drugs or treatments is received from the Food and Drug Administration (or an analogous national regulatory organization in other countries).

Such prohibitions on the quick development and marketing of potentially life-saving drugs are not only costly and time-consuming to overcome; they are morally unconscionable in terms of the cost in human lives.

#2 – Abolishing Medical Licensing Protectionism

There are too few doctors in the West today – not enough to deliver affordable, life-saving treatments, and certainly not enough to ensure that, when life-extending discoveries are made, they will rapidly become available to all.

Mr. Stolyarov advocates for the elimination of compulsory licensing requirements for medical professionals, and the replacement of such a system by a competing market of private certifications for various “tiers” of medical care.

#3-4 – Abolishing Medical and Software Patent Monopolies

Patents – legal grants of monopoly privilege – artificially raise the cost and the scarcity of new drugs and new software. Mr. Stolyarov recommends allowing free, open competition to apply to these products as well.

#5 – Reestablishing the Doctor-Patient Relationship

The most reliable and effective medical care occurs when both patients and doctors have full sovereignty over medical treatment and payment. A libertarian system is most likely to prolong individual lives and lead to the rapid discovery of unprecedented life-extending treatments.

Mr. Stolyarov presents the case for political reforms that maximize patient choice and free-market experimentation with various methods of payment for and provision of medical services.

#6 – Medical Research Instead of Military Spending

Mr. Stolyarov concludes his series on libertarian life-extension reforms by offering a way to reduce aggregate government spending while also increasing funding for medical research. If government funds are spent on saving and extending lives rather than destroying them, this would surely be an improvement. Thus, while Mr. Stolyarov does not support increasing aggregate government spending to fund indefinite life extension (or medical research generally), he would advocate a spending-reduction plan where vast amounts of military spending are eliminated and some fraction of such spending is replaced with spending on medical research.

Political Priorities for Achieving Indefinite Life Extension: A Libertarian Approach – Article by G. Stolyarov II

Political Priorities for Achieving Indefinite Life Extension: A Libertarian Approach – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
November 22, 2012
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While the achievement of radical human life extension is primarily a scientific and technical challenge, the political environment in which research takes place is extremely influential as to the rate of progress, as well as whether the research could even occur in the first place, and whether consumers could benefit from the fruits of such research in a sufficiently short timeframe. I, as a libertarian, do not see massive government funding of indefinite life extension as the solution – because of the numerous strings attached and the possibility of such funding distorting and even stalling the course of life-extension research by rendering it subject to pressures by anti-longevity special-interest constituencies. (I can allow an exception for increased government medical spending if it comes at the cost of major reductions in military spending; see my item 6 below for more details.) Rather, my proposed solutions focus on liberating the market, competition, and consumer choice to achieve an unprecedented rapidity of progress in life-extension treatments. This is the fastest and most reliable way to ensure that people living today will benefit from these treatments and will not be among the last generations to perish. Here, I describe six major types of libertarian reforms that could greatly accelerate progress toward indefinite human life extension.

1. Repeal of the requirement for drugs and medical treatments to obtain FDA approval before being used on willing patients. The greatest threat to research on indefinite life extension – and the availability of life-extending treatments to patients – is the current requirement in the United States (and analogous requirements elsewhere in the Western world) that drugs or treatments may not be used, even on willing patients, unless approval for such drugs or treatments is received from the Food and Drug Administration (or an analogous national regulatory organization in other countries). This is a profound violation of patient sovereignty; a person who is terminally ill is unable to choose to take a risk on an unapproved drug or treatment unless this person is fortunate enough to participate in a clinical trial. Even then, once the clinical trial ends, the treatment must be discontinued, even if it was actually successful at prolonging the person’s life. This is not only profoundly tragic, but morally unconscionable as well.

As a libertarian, I would prefer to see the FDA abolished altogether and for competing private certification agencies to take its place. But even this transformation does not need to occur in order for the worst current effects of the FDA to be greatly alleviated. The most critical reform needed is to allow unapproved drugs and treatments to be marketed and consumed. If the FDA wishes to strongly differentiate between approved and unapproved treatments, then a strongly worded warning label could be required for unapproved treatments, and patients could even be required to sign a consent form stating that they have been informed of the risks of an unapproved treatment. While this is not a perfect libertarian solution, it is a vast incremental improvement over the status quo, in that hundreds of thousands of people who would die otherwise would at least be able to take several more chances at extending their lives – and some of these attempts will succeed, even if they are pure gambles from the patient’s point of view. Thus, this reform to directly extend many lives and to redress a moral travesty should be the top political priority of advocates of indefinite life extension. Over the coming decades, its effect will be to allow cutting-edge treatments to reach a market sooner and thus to enable data about those treatments’ effects to be gathered more quickly and reliably. Because many treatments take 10-15 years to receive FDA approval, this reform could by itself speed up the real-world advent of indefinite life extension by over a decade.

2. Abolishing medical licensing protectionism. The current system for licensing doctors is highly monopolistic and protectionist – the result of efforts by the American Medical Association in the early 20th century to limit entry into the profession in order to artificially boost incomes for its members. The medical system suffers today from too few doctors and thus vastly inflated patient costs and unacceptable waiting times for appointments. Instead of prohibiting the practice of medicine by all except a select few who have completed an extremely rigorous and cost-prohibitive formal medical schooling, governments in the Western world should allow the market to determine different tiers of medical care for which competing private certifications would emerge. For the most specialized and intricate tasks, high standards of certification would continue to exist, and a practitioner’s credentials and reputation would remain absolutely essential to convincing consumers to put their lives in that practitioner’s hands. But, with regard to routine medical care (e.g., annual check-ups, vaccinations, basic wound treatment), it is not necessary to receive attention from a person with a full-fledged medical degree. Furthermore, competition among certification providers would increase quality of training and lower its price, as well as accelerate the time needed to complete the training. Such a system would allow many more young medical professionals to practice without undertaking enormous debt or serving for years (if not decades) in roles that offer very little remuneration while entailing a great deal of subservience to the hierarchy of some established institution or another. Ultimately, without sufficient doctors to affordably deliver life-extending treatments when they become available, it would not be feasible to extend these treatments to the majority of people. Would there be medical quacks under such a system of privatized certification? There are always quacks, including in the West today – and no regulatory system can prevent those quacks from exploiting willing dupes. But full consumer choice, combined with the strong reputational signals sent by the market, would ensure that the quacks would have a niche audience only and would never predominate over scientifically minded practitioners.

3. Abolishing medical patent monopolies. Medical patents – in essence, legal grants of monopoly for limited periods of time – greatly inflate the cost of drugs and other treatments. Especially in today’s world of rapidly advancing biotechnology, a patent term of 20 years essentially means that no party other than the patent holder (or someone paying royalties to the patent holder) may innovate upon the patented medicine for a generation, all while the technological potential for such innovation becomes glaringly obvious. As much innovation consists of incremental improvements on what already exists, the lack of an ability to create derivative drugs and treatments that tweak current approaches implies that the entire medical field is, for some time, stuck at the first stages of a treatment’s evolution – with all of the expense and unreliability this entails. More appallingly, many pharmaceutical companies today attempt to re-patent drugs that have already entered the public domain, simply because the drugs have been discovered to have effects on a disease different from the one for which they were originally patented. The result of this is that the price of the re-patented drug often spikes by orders of magnitude compared to the price level during the period the drug was subject to competition. Only a vibrant and competitive market, where numerous medical providers can experiment with how to improve particular treatments or create new ones, can allow for the rate of progress needed for the people alive today to benefit from radical life extension. Some may challenge this recommendation with the argument that the monopoly revenues from medical patents are necessary to recoup the sometimes enormous costs that pharmaceutical companies incur in researching and testing the drug and obtaining approval from regulatory agencies such as the FDA. But if the absolute requirement of FDA approval is removed as I recommend, then these costs will plummet dramatically, and drug developers will be able to realize revenues much more quickly than in the status quo. Furthermore, the original developer of an innovation will still always benefit from a first-mover advantage, as it takes time for competitors to catch on. If the original developer can maintain high-quality service and demonstrate the ability to sell a safe product, then the brand-name advantage alone can secure a consistent revenue stream without the need for a patent monopoly.

4. Abolishing software patent monopolies. With the rapid growth of computing power and the Internet, much more medical research is becoming dependent on computation. In some fields such as genome sequencing, the price per computation is declining at a rate even far exceeding that of Moore’s Law. At the same time, ordinary individuals have an unprecedented opportunity to participate in medical research by donating their computer time to distributed computing projects. Software, however, remains artificially scarce because of patent monopolies that have increasingly been utilized by established companies to crush innovation (witness the massively expensive and wasteful patent wars over smartphone and tablet technology). Because most software is not cost-prohibitive even today, the most pernicious effect of software patents is not on price, but on the existence of innovation per se. Because there exist tens of thousands of software patents (many held defensively and not actually utilized to market anything), any inventor of a program that assists in medical, biotechnological, or nanotechnological computations must proceed with extreme caution, lest he run afoul of some obscure patent that is held for the specific purpose of suing people like him out of existence once his product is made known. The predatory nature of the patent litigation system serves to deter many potential innovators from even trying, resulting in numerous foregone discoveries that could further accelerate the rate at which computation could facilitate medical progress. Ideally, all software patents (and all patents generally) should be abolished, and free-market competition should be allowed to reign. But even under a patent system, massive incremental improvements could be made. First, non-commercial uses of a patent should be rendered immune to liability. This would open up a lot of ground for non-profit medical research using distributed computing. Second, for commercial use of patents, a system of legislatively fixed maximum royalties could emerge – where the patent holder would be obligated to allow a competitor to use a particular patented product, provided that a certain price is paid to the patent holder – and litigation would be permanently barred. This approach would continue to give a revenue stream to patent holders while ensuring that the existence of a patent does not prevent a product from coming to market or result in highly uncertain and variable litigation costs.

5. Reestablishing the two-party doctor-patient relationship. The most reliable and effective medical care occurs when the person receiving it has full discretion over the level of treatment to be pursued, while the person delivering it has full discretion over the execution (subject to the wishes of the consumer). When a third party – whether private or governmental – pays the bills, it also assumes the position of being able to dictate the treatment and limit patient choice. Third-party payment systems do not preclude medical progress altogether, but they do limit and distort it in significant ways. They also result in the “rationing” of medical care based on the third party’s resources, rather than those of the patient. Perversely enough, third-party payment systems also discourage charity on the part of doctors. For instance, Medicare in the United States prohibits doctors who accept its reimbursements from treating patients free of charge. Mandates to utilize private health insurance in the United States and governmental health “insurance” elsewhere in the Western world have had the effect of forcing patients to be restricted by powerful third parties in this way. While private third-party payment systems should not be prohibited, all political incentives for third-party medical payment systems should be repealed. In the United States, the pernicious health-insurance mandate of the Affordable Care Act (a.k.a. Obamacare) should be abolished, as should all requirements and political incentives for employers to provide health insurance. Health insurance should become a product whose purchase is purely discretionary on a free market. This reform would have many beneficial effects. First, by decoupling insurance from employment, it would ensure that those who do rely on third-party payments for medical care will not have those payments discontinued simply because they lose their jobs. Second, insurance companies would be encouraged to become more consumer-friendly, since they will need to deal with consumers directly, rather than enticing employers – whose interests in an insurance product may be different from those of their employees. Third, insurance companies would be entirely subject to market forces – including the most powerful consumer protection imaginable: the right of a consumer to exit from a market entirely. Fourth and most importantly, the cost of medical care would decline dramatically, since it would become subject to direct negotiation between doctors and patients, while doctors would be subject to far less of the costly administrative bureaucracy associated with managing third-party payments.

In countries where government is the third-party payer, the most important reform is to render participation in the government system voluntary. The worst systems of government healthcare are those where private alternatives are prohibited, and such private competition should be permitted immediately, with no strings attached. Better yet, patients should be permitted to opt out of the government systems altogether by being allowed to save on their taxes if they renounce the benefits from such systems and opt for a competing private system instead. Over time, the government systems would shrink to basic “safety nets” for the poorest and least able, while standards of living and medical care would rise to the level that ever fewer people would find themselves in need of such “safety nets”. Eventually, with a sufficiently high level of prosperity and technological advancement, the government healthcare systems could be phased out altogether without adverse health consequences to anyone.

6. Replacement of military spending with medical research. While, as a libertarian, I do not consider medical research to be the proper province of government, there are many worse ways for a government to spend its money – for instance, by actively killing people in wasteful, expensive, and immoral wars. If government funds are spent on saving and extending lives rather than destroying them, this would surely be an improvement. Thus, while I do not support increasing aggregate government spending to fund indefinite life extension (or medical research generally), I would advocate a spending-reduction plan where vast amounts of military spending are eliminated and some fraction of such spending is replaced with spending on medical research. Ideally, this research should be as free from “strings attached” as possible and could be funded through outright unconditional grants to organizations working on indefinite life extension. However, in practice it is virtually impossible to avoid elements of politicization and conditionality in government medical funding. Therefore, this plan should be implemented with the utmost caution. Its effectiveness could be improved by the passage of legislation to expressly prohibit the government from dictating the methods, outcomes, or applications of the research it funds, as well as to prohibit non-researchers from acting as lobbyists for medical research. An alternative to this plan could be to simply lower taxes across the board by the amount of reduction in military spending. This would have the effect of returning wealth to the general public, some of which would be spent on medical research, while another portion of these returned funds would increase consumers’ bargaining power in the medical system, resulting in improved treatments and more patient sovereignty.

Rejecting the Purveyors of Pull: The Lessons of “Atlas Shrugged: Part II” – Article by G. Stolyarov II

Rejecting the Purveyors of Pull: The Lessons of “Atlas Shrugged: Part II” – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
October 13, 2012
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Atlas Shrugged: Part II is a worthy successor to last year’s Part I, and I am hopeful for its commercial success so that John Aglialoro and Harmon Kaslow will be able to release a full trilogy and achieve the decades-long dream of bringing the entire story of Ayn Rand’s Atlas Shrugged to the movie screen. The film is enjoyable and well-paced, and it highlights important lessons for the discerning viewer. The film’s release in the month preceding the US Presidential elections, however, may give some the wrong impression: that either of the two major parties can offer anything close to a Randian alternative to the status quo. Those viewers who are also thinkers, however, will see that the film’s logical implication is that both of these false “alternatives” – Barack Obama and Mitt Romney – should be rejected decisively.

While the cast has been replaced entirely, I find the acting to have been an improvement over Part I, with the actors portraying their respective characters with more believability and emotional engagement. Samantha Mathis, in the role of Dagny Taggart, showed clearly the distress of a competent woman who is ultimately unable to keep the world from falling apart. Esai Morales aptly portrayed Francisco d’Anconia’s passion for ideas and his charisma. Jason Beghe also performed well as Hank Rearden – the embattled man of integrity struggling to hold on to his business and creations to the last.

The film emphasizes strongly the distinction between earned success – success through merit and creation – and “success” gained by means of pull. The scene in which two trains collide in the Taggart Tunnel is particularly illustrative in this respect. Kip Chalmers, the politician on his way to a pro-nationalization stump speech, attempts to get the train moving through angry phone calls to “the right people,” thinking that all will be well if he just pulls the proper strings. But the laws of reality – of physics, chemistry, and economics – are unyielding to the mere say-so of the powerful, and the mystique of pull collapses on top of the passengers.

As the world falls apart, the film depicts protesters demanding their “fair share,” holding up signs reminiscent of the “Occupy” movement of 2011 – “We are the 99.98%” is a clear allusion. Yet once the draconian Directive 10-289 is implemented, the protests turn in the other direction, away from the freedom-stifling, creativity-crushing regimentation. Perhaps the protesters are not the same people as those who called for their “fair share”  – but the film suggests that the people should be careful about the policies they ask for at the ballot box, lest they be sorely disappointed upon getting them. This caution should apply especially to those who think that Barack Obama’s administration parallels the falling-apart of the world in Atlas Shrugged – and that Mitt Romney’s election would somehow “save” America. Nothing could be further from the truth.

If there is any character in Atlas Shrugged who most resembles Mitt Romney, it is not John Galt. Rather, it is James Taggart – the businessman of pull – the sleek charlatan who will take any position, support any policy, speak any lines in order to advance his influence and power. Patrick Fabian conveyed the essence of James Taggart well – a man who succeeds based on image and not on substance, a man who has a certain polished charisma and an ability to pull the strings of politics – for a while. James Taggart is the essence of the corporatist businessman, a creature who thrives on special political privileges and barriers to entry placed in front of more capable competitors. He can buy elections and political offices – and he can, for a while, delude people by creating a magic pseudo-reality with his words. But words cannot suspend the laws of logic or economics. Ultimately the forces of intellectual and moral decay unleashed by corporatist maneuvering inexorably push the world into a condition that even the purveyors of pull would have preferred to avoid. As Ludwig von Mises pointed out, the consequences of economic interventionism are often undesirable even from the standpoint of those who advocated the interventions in the first place. James Taggart is ultimately pushed into accepting Directive 10-289, though his initial plans were much more modest – mostly, a desire to hang onto leadership in the railroad business despite his obvious lack of qualifications for the position. Mitt Romney, by advocating James Taggart’s exact sort of crony corporatism, may well usher in a similar overarching totalitarianism – not because he supports it now (in the sense that Mitt Romney can be said to support anything), but because totalitarianism will be the logical outcome of his policies.

Because, in some respects, Ayn Rand wrote during a gentler time with respect to civil liberties, and the film endeavors to consistently reflect Rand’s emphasis on economic regimentation, there is little focus on the kinds of draconian civil-liberties violations that Americans face today. The real-world version of Directive 10-289 is not a single innovation-stopping decree, but an agglomeration of routine humiliations and outright exercises of violence. The groping and virtual strip-searching by the Transportation Security Administration, the War on Drugs and its accompanying no-knock raids, the paranoid surveillance apparatus of large-scale wiretaps and data interception, and the looming threat of controls over the Internet and indefinite detention without charge – these perils are as damaging as an overarching economic central plan, and they are with us today. While not even the most socialistic or fascistic politicians today would issue a ban on all new technology or a comprehensive freeze of prices and wages, they certainly can and will try to humiliate and physically threaten millions of completely peaceful, innocent Americans who try to innovate and earn an honest living. Obama’s administration has engaged in this sort of mass demoralization ever since the foiled “underwear” bomb plot during Christmas 2009 – but Romney would do more of the same, and perhaps worse. Unlike Obama, who must contend with the pro-civil-liberties wing of his constituency, Romney’s attempts to violate personal freedoms will only be cheered on by the militaristic, jingoistic, security-obsessed faction that is increasingly coming to control the discourse of the Republican Party. There can be no hope for freedom, or for the dignity of an ordinary traveler, employee, or thinker, if Romney is elected.

I encourage the viewers of the film to seriously consider the question, “Who is John Galt?” He is not a Republican. If any man comes close, it is Gary Johnson, a principled libertarian who has shown in practice (not just in rhetoric) his ability and willingness to cut wasteful interventions, balance budgets, and protect civil liberties during two terms as Governor of New Mexico. He staunchly champions personal freedoms, tax reduction, foreign-policy non-interventionism, and a sound currency free of the Federal Reserve system. Gary Johnson was, in fact, a businessman of the Randian ethos – who started as a door-to-door handyman and grew from scratch an enterprise with revenues of $38 million.  And, on top of it all, he is a triathlete and ultramarathon runner who climbed Mount Everest in 2003 – clearly demonstrating a degree of ambition, drive, and pride in achievement worthy of a hero of Atlas Shrugged.

Ayn Rand never meant the strike in Atlas Shrugged to be an actual recommendation for how to address the world’s problems. Rather, the strike was an illustration of what would happen if the world was deprived of its best and brightest – the creators and innovators who, despite all obstacles, pursue the path of merit and achievement rather than pull and artificial privilege. Today, it is necessary for each of us to work to keep the motor of the world going by not allowing the purveyors of pull to gain any additional ground. Voting for Mitt Romney will do just the opposite – as Atlas Shrugged: Part II artfully suggests to the discerning viewer.

The Importance of Subjectivism in Economics – Article by Sheldon Richman

The Importance of Subjectivism in Economics – Article by Sheldon Richman

The New Renaissance Hat
Sheldon Richman
October 3, 2012
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After many years, Frédéric Bastiat remains a hero to libertarians. No mystery there. He made the case for freedom and punctured the arguments for socialism with clarity and imagination. He spoke to lay readers with great effect.

Bastiat loved the market economy, and badly wanted it to blossom in full—in France and everywhere else. When he described the blessings of freedom, his benevolence shined forth. Free markets can raise living standards and enable everyone to have better lives; therefore stifling freedom is unjust and tragic. The reverse of Bastiat’s benevolence is his indignation at the deprivation that results from interference with the market process.

He begins his book Economic Harmonies (available at the FEE store) by pointing out the economic benefits of living in society:

It is impossible not to be struck by the disproportion, truly incommensurable, that exists between the satisfactions [a] man derives from society and the satisfactions that he could provide for himself if he were reduced to his own resources. I make bold to say that in one day he consumes more things than he could produce himself in ten centuries. What makes the phenomenon stranger still is that the same thing holds true for all other men. Every one of the members of society has consumed a million times more than he could have produced; yet no one has robbed anyone else.

The Existence of Privilege

Bastiat was not naïve. He knew he was not in a fully free market. He was well aware of the existence of privilege: “Privilege implies someone to profit from it and someone to pay for it,” he wrote. Those who pay are worse off than they would be in the free market. “I trust that the reader will not conclude from the preceding remarks that we are insensible to the social suffering of our fellow men. Although the suffering is less in the present imperfect state of our society than in the state of isolation, it does not follow that we do not seek wholeheartedly for further progress to make it less and less.”

He wished to emphasize the importance of free exchange for human flourishing. In chapter four he wrote,

Exchange is political economy. It is society itself, for it is impossible to conceive of society without exchange, or exchange without society. …For man, isolation means death….

By means of exchange, men attain the same satisfaction with less effort, because the mutual services they render one another yield them a larger proportion of gratuitous utility.

Therefore, the fewer obstacles an exchange encounters, the less effort it requires, the more readily men exchange.

How does trade deliver its benefits?

Exchange produces two phenomena: the joining of men’s forces and the diversification of their occupations, or the division of labor.

It is very clear that in many cases the combined force of several men is superior to the sum of their individual separate forces.…

Now, the joining of men’s forces implies exchange. To gain their co-operation, they must have good reason to anticipate sharing in the satisfaction to be obtained. Each one by his efforts benefits the others and in turn benefits by their efforts according to the terms of the bargain, which is exchange.

But isn’t something missing from this account?

Austrian Insight

Indeed, there is: the subjectivist Austrian insight that individuals gain from trade per se. For an exchange to take place, the two parties must assess the items traded differently, with each party preferring what he is to receive to what he is to give up. If that condition did not hold, no exchange would occur. There must be what Murray Rothbard called a double inequality of value. It’s in the logic of human action–which Ludwig von Mises christened praxeology. Bastiat, like his classical forebears Smith and Ricardo, erroneously believed (at least explicitly) that people trade equal values and that something is wrong when unequal values are exchanged.

Perhaps I am too hard on Bastiat. After all, he was writing before 1850. Carl Menger did not publish Principles of Economics until 1871. Yet the Austrians were not the first to look at exchange strictly through subjectivist spectacles, that is, from the economic actors points of view. The French philosopher Étienne Bonnot de Condillac (1715-1780) did so a hundred years before Bastiat wrote:

The very fact that an exchange takes place is proof that there must necessarily be profit in it for both the contracting parties; otherwise it would not be made. Hence, every exchange represents two gains for humanity.

Bastiat Unaware?

Well, perhaps Bastiat was unaware of Condillac’s argument. That is not the case. He reprints the quote above in his book and responds:

The explanation we owe to Condillac seems to me entirely insufficient and empirical, or rather it fails to explain anything at all. . . .

The exchange represents two gains, you say. The question is: Why and how? It results from the very fact that it takes place. But why does it take place? What motives have induced the two men to make it take place? Does the exchange have in it a mysterious virtue, inherently beneficial and incapable of explanation?

We see how exchange . . . adds to our satisfactions. . . . [T]here is no trace of . . . the double and empirical profit alleged by Condillac.

This is perplexing. Clearly, the necessary double inequality of value is not empirical or contingent. Contra Bastiat, the double inequality explains quite a lot, and his questions all have easy answers.

Yet more perplexing still is Bastiat’s statement in the same chapter: “The profit of the one is the profit of the other.” This seems to imply what he just denied.

Consequential Failure

Bastiat’s failure to grasp this point had consequences for his debates with other economists. For example, he and his fellow “left-free-market” advocate Pierre-Joseph Proudhon engaged in a lengthy debate over whether interest on loans would exist in the free market or whether it was a privilege bestowed when government suppresses competition. Unfortunately, the debate suffers because neither Bastiat nor Proudhon fully and explicitly grasped the Condillac/Austrian point about the double inequality of value. As Roderick Long explains in his priceless commentary on the exchange,

[E]ach one trips up his defense of his own position through an inconsistent grasp of the Austrian principle of the “double inequality of value”; Proudhon embraces it, but fails to apply it consistently, while Bastiat implicitly relies on it, but explicitly rejects it. . . .

Proudhon’s case against interest seems to depend crucially on his claim that all exchange must be of equivalent values; so pointing out the incoherence of this notion would be a telling reply. But Bastiat cannot officially give this reply (though he comes tantalisingly close over and over throughout the debate) because elsewhere–in his Economic Harmonies–Bastiat explicitly rejects the doctrine of double inequality of value.

How frustrating! Bastiat has so much to teach. But here is one blind spot that kept him from being even better.

Sheldon Richman is the editor of The Freeman and TheFreemanOnline.org, and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America’s Families.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Are We Destroying the Earth? – Article by Sanford Ikeda

Are We Destroying the Earth? – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
October 3, 2012
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People often complain that mankind is destroying the earth: that insatiable consumption and relentless production have laid waste to irreplaceable swaths of our planet, and that these activities have to stop or someday it will all be gone.

Which raises the question: What does it means to “destroy” something?

When you burn a log, the log is destroyed but heat, light, smoke, and ashes remain.  It’s in that sense that physics tells us that matter is neither created nor destroyed.  Similarly, cutting down a forest destroys the forest but in its place are houses and furniture and suburbs.

The real question is: Is it worth it?

Value Can Be Both Created and Destroyed

What people usually mean when they say mankind is destroying the earth is that human action causes a change they don’t like.  It sounds odd to say that my wife, by eating a piece of toast for breakfast, is “destroying” the toast.  But if I wanted that toast for myself, I might well regard her action as destructive.  Same action, but the interpretation depends on purpose and context.

When a missile obliterates a building and kills the people in it, it may serve a political purpose even though the friends and family of those killed and the owners of the building are harmed.  The perpetrator’s gain is the victim’s loss.  In the political realm, one person’s gain is necessarily another person’s loss.  You rob Peter to pay Paul; you kill Jack to appease Jill.  It’s a “zero-sum game.”

In the economic realm, however, a thing is destroyed to the extent that it loses its usefulness to somebody for doing something.  Someone may want to bulldoze my lovely home just for fun.  If she pays me enough I may let her do it and be glad she did.  When not physically coerced, a trade won’t happen unless each side expects to gain.  If it does happen, and if the people who traded are right, then all do in fact gain.  Each is better off than before. The trade has created something–value.  If they are wrong they destroy value and suffer a loss, which gives them an incentive to avoid making mistakes.

Profits and Losses Help to Minimize the Destruction of Value

In free markets gains manifest themselves in profit, either monetary or psychic.  (In the short run, of course, you can sustain a monetary loss if you think there’s a worthwhile nonmonetary aspect to the trade that will preserve the profit.)  Now, the free market is not perfect, despite what some economics professors say about the benefits of so-called “perfect competition.”  People don’t have complete or perfect knowledge and so they make mistakes.  They trade when they shouldn’t, or they don’t trade when they should.  Fortunately, profits and losses serve as feedback to guide their decisions.

There’s another source of market imperfection.  People may be capable of making good decisions but they don’t trade, or trade too much, because the property rights to the things they would like to trade aren’t well-defined or aren’t effectively enforced.  In such cases their actions or inactions create costs they don’t bear or benefits they don’t receive.  The result is that their decisions end up destroying value.

If I free-ride off the oceans, if for example I don’t pay for dumping garbage into it, then the oceans will become more polluted than they should be.  If there is a cleaner, more efficient source of energy than fossil fuels, but no one can profitably use it because the national government prevents anyone from doing so (for example by prohibitions or excessive taxation), then again the value that would have been created will never appear.

Aesthetics or Economics?

Our esthetic sense of beauty is part of what makes us human.  If we wish to protect a lake or a valley from development because we think it beautiful, how do we do that?

To some extent it’s possible to do what the Nature Conservancy does, and purchase the land that we want to protect.  But that’s not always possible, especially when the land is controlled not by private persons but by the national government, which makes special deals with crony capitalists in so-called public-private developments.  In any case, even the free market is not perfect.  Economic development and material well-being mean that some beautiful landscapes and irreplaceable resources will be changed in ways not everyone will approve.

Remember, though, that economics teaches us that an action is always taken by someone for something.  There are no disembodied costs, benefits, and values.  In a world of scarcity, John believes saving rain forests is more important than saving the whales.  Mary believes the opposite.  If we are to get past disagreements on esthetics–essentially differences of opinion–that can turn into violent conflict, we need to find some way to settle our differences peacefully, some way to transform them into value-creating interactions.

Imperfect though it may be, the free market has so far been the most effective method we know of for doing that.

Sanford Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Gold is Good Money – Article by Ron Paul

Gold is Good Money – Article by Ron Paul

The New Renaissance Hat
Ron Paul
October 1, 2012
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Last year the Chairman of the Federal Reserve told me that gold is not money, a position which central banks, national governments, and mainstream economists have claimed is the consensus for decades.  But lately there have been some high-profile defections from that consensus.  As Forbes recently reported, the president of the Bundesbank (Germany’s central bank) and two highly respected analysts at Deutsche Bank have praised gold as good money.

Why is gold good money?  Because it possesses all the monetary properties that the market demands: it is divisible, portable, recognizable and, most importantly, scarce – making it a stable store of value. It is all things the market needs good money to be and has been recognized as such throughout history.  Gold rose to nearly $1800 an ounce after the Fed’s most recent round of quantitative easing because the people know that gold is money when fiat money fails.

Central bankers recognize this too, even if they officially deny it.  Some analysts have speculated that the International Monetary Fund’s real clout is due to its large holdings of gold.  And central banks around the world have increased their gold holdings over the last year, especially in emerging market economies trying to protect themselves from the collapse of Western fiat currencies.

Fiat money is not good money because it can be issued without limit and therefore cannot act as a stable store of value. A fiat monetary system gives complete discretion to those who run the printing press, allowing national governments to spend money without having to suffer the political consequences of raising taxes.  Fiat money benefits those who create it and receive it first, enriching national governments and their cronies.  And the negative effects of fiat money are disguised so that people do not realize that money the Fed creates today is the reason for the busts, rising prices and unemployment, and diminished standard of living tomorrow.

This is why it is so important to allow people the freedom to choose stable money.  Earlier this Congress I introduced the Free Competition in Currency Act (H.R. 1098) to permit people to use gold as money again. By eliminating taxes on gold and other precious metals and repealing legal tender laws, people are given the option between using good money or fiat money. If the federal government persists in debasing the dollar – as money monopolists have always done – then the people would be able to protect themselves by using alternatives such as gold that are both sound and stable.

As the fiat money pyramid crumbles, gold retains its luster.  Rather than being the barbarous relic Keynesians have tried to lead us to believe it is, gold is, as the Bundesbank president put it, “a timeless classic.”  The defamation of gold wrought by central banks and national governments is because gold exposes the devaluation of fiat currencies and the flawed policies of the national government.  National governments hate gold because the people cannot be fooled by it.

Representative Ron Paul (R – TX), MD, was a three-time Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

I’ve Got Olympic Fever – and the Only Cure is More Nationalism! – Article by Bradley Doucet

I’ve Got Olympic Fever – and the Only Cure is More Nationalism! – Article by Bradley Doucet

The New Renaissance Hat
Bradley Doucet
August 17, 2012
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Once again, the Olympics have come and gone. Some of the best athletes from around the world competed to see who could run, swim, row, dive, jump, kick, shoot, spike, spin, flip, and twist faster or higher or more artfully than their opponents. And that part of it was great. Well, some of it was dull as dirt, but some of it was genuinely thrilling and even beautiful.The part of it that I don’t get is where I’m supposed to cheer for the guys and gals who are “representing” Canada. I’m supposed to feel disappointed when these fine young men and women fail to live up to expectations, and I’m supposed to be happy, even proud, when they make it to the podium. And people from other nations are supposed to feel these emotions for the athletes “representing” them. Well, not only do I not feel anything special for Canadian athletes, but I would go so far as to say that such seemingly innocuous nationalistic sentiments are a big part of what’s wrong with the world.Nationalism by Any Other Name

For my money, foul-mouthed stand-up comedian Doug Stanhope put it best: “Nationalism does nothing but teach you how to hate people that you never met, and all of a sudden you take pride in accomplishments you had no part in whatsoever…” Now granted, the Olympics are not so big on the hate. But why should I, simply because I’m Canadian, take pride in the fact that Canada hauled in 18 medals? And should I feel a little less proud because only one of them was a gold? Of course, strictly speaking, “Canada” did not win 18 medals. Rather, Canadian athletes won 18 medals. But why should “we” care one way or the other, much less feel vicarious pride? We didn’t build that.

To be clear, I’m not against sporting events per se. I actually like sports, both playing them and watching them. I like watching basketball and American football, and I even root for certain teams (the Celtics and the Patriots). I enjoy watching my fellow human beings perform incredible feats of strength and agility, and struggle to summon extra energy or settle frazzled nerves. Watching tennis star Na Li rally from a 1-5 deficit in the deciding third set of her semi-finals match at the Rogers Cup in Montreal this weekend to win six straight games and take it 7-5 was both exciting and inspiring. I like the way Na Li plays—I refuse on principle to place her family name first, regardless of what is done in her nation—and she’s got a pretty quick wit, too, judging from the times I’ve heard her speak. Why should I give a damn what her nationality is?

I did watch some Olympic tennis, including the record-breaking third set of the match between Milos Raonic and Jo-Wilfried Tsonga that took 48 service games to decide. I was impressed that Raonic could give Tsonga such a run for his money, but the fact that we are countrymen was the furthest thing from my mind. In fact, I was happy that Tsonga finally won the match. I enjoy his style of play, and he’s actually my favourite player on the men’s tour at the moment. Different nationality, different mother tongue, different skin colour? I literally could not care less.

The Hosts with the Most

What about the host country? In an article in the Globe and Mail, Doug Saunders wrote of the “mood of national euphoria” in England following the closing ceremonies, and of the “ineffable value of having organized a very large, very happy event with virtually no flaws, and having looked very good before the world—something that Britain once took for granted, and is likely to enjoy remembering for some time.” The implication is that Britain should feel proud of the great job it did hosting the Games.

But again, did “Britain” host the Games? Did “the British people” host the Games? No. Some small subset of specific individuals organized the event, for better or for worse. Why would every Brit deserve credit for that? Now, British taxpayers did foot the bill, whether they wanted to or not. And what a bill it was, totalling some $14.5 billion. (You can forget about any economic stimulus from hosting the Games, by the way. As Saunders tells it, the prospect of daily Olympic crowds of 100,000 kept at least 300,000 non-Olympic tourists away.)

Similarly, as a Canadian taxpayer, I financed some tiny fraction of the training of the Canadian athletes participating at these Games, who were subsidized to the tune of $96 million over the last four years. (For those of you keeping track at home, that’s five million and change per Canadian medal.) The thing is, paying taxes is not really something a person does; it’s something that is done to a person. I cannot therefore reasonably feel proud of what is done with those dollars once they are taken out of my account against my will, and neither should the British taxpayer.

For Love of Country

On a trip to Ottawa a few years ago, I saw a bumper sticker that captured my feelings about Canada: “I love my country, but I’m afraid of my government.” Canada is a fine place with many fine people who continue to enjoy the echoes of a strong classical liberal tradition. But those “representing” us (there’s that word again) in the halls of power are not generally speaking the finest of those fine people.

For one thing, they all seem to be nationalists of one stripe or another. I suppose it wasn’t surprising to see Pauline Marois, leader of the separatist Parti Québécois, celebrate the fact that Canada’s first four medals were won by Quebecers. Rather more disappointing was how all three major provincial party leaders were competing to oppose the purchase of homegrown Rona by US rival Lowe’s. The race for gold in the “economic nationalism” event was too close to call.

Someone is surely going to argue that the Olympics are all about the nations of the world coming together in friendship. Well first of all, at the risk of beating a dead dressage horse, “nations” cannot be friends. Only people can be friends, and some of the Olympians probably made some new connections. But do the Olympics help people from different parts of the world adopt friendlier attitudes toward one another? An American basketball team packed with NBA superstars rolling roughshod over every other team tells a different tale, as does the rash of below-the-belt punching in the quest for basketball gold. And how about those bad calls against the Canadian women’s soccer team, denying them a chance to play for gold? That really promotes friendly international relations.

One parting shot: I’ll take the human achievement of the Mars landing over the nationalistic achievements of the Olympics any day. And although again, the taxpayer funds used to pay for it rub me the wrong way, at $2.5 billion, the price tag was roughly 1/6 as large as the Olympic tab.

Some kind of reverence for imaginary lines on a map seems to be deeply ingrained in most people, but to me, honestly, winning a medal “for your country” is only slightly less creepy than winning one for your Dear Leader. I prefer the humanist sentiment of elation of one Western writer (I’ve tried in vain to relocate his name) who, upon seeing the Great Wall of China for the first time, exclaimed, “My people built that.” Human beings can do great things, which should be a source of encouragement and inspiration for us all, regardless of the colours of our passports.

Bradley Doucet is Le Quebecois Libré‘s English Editor. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also writes for The New Individualist, an Objectivist magazine published by The Atlas Society, and sings.