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When Academia Turns into Fight Club – Article by Steven Horwitz

When Academia Turns into Fight Club – Article by Steven Horwitz

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The New Renaissance Hat
Steven Horwitz
July 14, 2017
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What do academics do for excitement over the summer, you ask? This summer many of us have been engaged in a furious debate over the new book Democracy in Chains by Duke historian Nancy MacLean.

Libertarian and conservative scholars from a variety of disciplines have raised a number of criticisms about MacLean’s sources and her accuracy about historical facts that call into question the “evidence” she has to show that economist James Buchanan and public choice theory, if not libertarianism more generally, are all tools of racist oligarchs like the Koch Brothers.

Rather than rehash all of the particular criticisms, I want to focus on the controversy that has developed over the criticisms themselves. It’s important to understand that the libertarian critics of MacLean have carefully compared passages in her book with her cited sources and showed how she has misread and quoted selectively from them, often leading her to attribute to people the exact opposite of the argument they actually held. These criticisms have been posted publicly on blogs and websites. These are not just vague accusations. They are detailed examples of poor scholarship.

But the fascinating part has been her response. And her lack thereof.

Everyone Is under Attack

MacLean has offered no substantive response to the detailed criticisms. She had one exchange with Russ Roberts over her treatment of Tyler Cowen, but even there she did not respond to the substance of Russ’s concerns. Other than that, nothing.

What she did do, however, was put up a long Facebook post that reads like a combination conspiracy theory tract and call to action for progressive activists. The short version is that she claimed she was under “attack” from a conspiracy of “Koch operatives” who were paid hacks out to destroy her book and her reputation and silence her. She claimed, then retracted when she found out it couldn’t be done, that the Kochs had bought Google results to put the critics at the top of searches. She encouraged her supporters to game the Amazon reviews by posting positive reviews and down-voting the “fake” Koch reviews.

She has continued this narrative of being “under attack” in various interviews, and most recently in a story in Inside Higher Ed, where fellow progressives echo this language.

This notion of being “attacked” is particularly fascinating to me. Let’s be clear what she means: people who know a lot about Buchanan, public choice theory, and libertarianism have taken issue with her scholarship and have patiently and carefully documented the places where she has made errors of fact or interpretation, or mangled and misused source materials and quotes. That is all that they have done.

None of this was coordinated nor was it part of a conspiracy from the Koch brothers. It was scholars doing what scholars do when they are confronted with bad scholarly work, especially when it touches on issues we know well.

None of these critics, and I am among them, have called for physical violence against her. None have contacted her employer. None have called her publisher or Amazon to have the book taken down. Contrary to her claim, the only silence in this whole episode is her own refusal to respond to legitimate scholarly criticism. We don’t want to silence her – we eagerly await her response.

So where is this language of “attack” coming from? Here is where I think the political right bears some responsibility for the current situation. And to the degree libertarians have cast their lot with “the right,” we are seen as guilty by association. Call it blowback if you will.

In the last year or two, progressive intellectuals and academics have been threatened with violence and had their employers contacted, not to mention threats made from politicians, on the basis of public statements they’ve made. Yes, some of those statements were deplorable, but that is no excuse for threatening people’s physical safety or their jobs. These are real attacks, not intellectual criticisms.

We should also not forget the anti-intellectual “Professor Watch List” put up by TurningPoint USA, which gave left-leaning faculty more reason to imagine coordinated and conspiratorial attacks.

And yes, all of this was not done by conservative or libertarian intellectuals, but they were done by activists associated with “the right,” and that is all that progressives need to find the intellectuals guilty by association.

It probably also matters, though less so, that many conservative and libertarian students have referred to themselves as “under attack” in college classrooms. In my 30 years of teaching experience, what they call “under attack” is far more often than not simply having their views strongly challenged and being expected to defend them. In other words, exactly what MacLean is experiencing.

This is not being “attacked.” It is what college classrooms and scholarly conversation are all about.

Unfortunately, the real attacks on left-wing faculty (and yes, there have been ones on right-wing ones too) have provided MacLean’s defenders with a convenient word to use to blur the difference between legitimate, but forceful, scholarly criticism, and threats of violence or silencing.

Always Take the High Road

Conservative critics of higher education should take this to heart. When you whip people into a frenzy over the crazy things that a small number of faculty say on Twitter, or because of legitimate concerns about the treatment of a small number of conservative speakers, the whipped up folks are going to do things you wish they wouldn’t. And that’s going to lead to blowback.

As a libertarian academic who frequently speaks at public events on other campuses, I do have low-level concerns about my safety. And if I were a progressive academic, I’d have similar fears given the way some of them have been treated, especially by politicians. Calling the intellectual criticisms of her book a coordinated conspiracy heads MacLean into Alex Jones territory, but given the current climate, it shouldn’t surprise us that she and her supporters feel “under attack.”

But notice the result: a book that smears libertarian and conservative ideas on the basis of shoddy scholarship gets attention because the author claims she’s under attack when she is called out in careful detail by other scholars. The real attacks on left-leaning faculty enable her to claim victimhood by association while using guilt by association to blame the conservative and libertarian intellectuals who are criticizing her work.

Once we head down the road, whether caused by the left, right, or libertarians, of turning intellectual disagreements into threats of violence, or threats to employment, or anything of that sort, the social losses are huge. Indeed, once both threats to people’s safety and employment and sharp intellectual disagreement become “attacks,” we will lose our ability to recognize the moral and intellectual difference between the two, and our disgust at the threats will weaken. And to the degree that the left largely dominates the intellectual world, conservatives and libertarians will be the biggest losers when academia turns into Fight Club.

So what to do? First, call off the dogs. Conservatives and libertarians need to consistently take the high road, as many of the intellectuals have tried to do in response to MacLean’s book. The hard part is getting right-wing media, both traditional and social media, to do the same. Those of us who care about intellectual standards have to publicly call out our own when they whip up anti-intellectual and anti-higher education frenzies.

Second, implore our left-wing friends of integrity to do the same. The most important thing that can happen to end this arms race is for scholars of integrity on the left to call out people like MacLean, both for their shoddy scholarship and their hyperbolic use of the language of conspiracy and attack. A strongly critical review of her book by a historian or economist of the center or left would go a long way to addressing the specific concerns it raises and could set a necessary example for others.

In the meantime, those of us critical of MacLean will continue to document her errors and press publicly for a response. And we’ll do so with the most proper of scholarly etiquette. I implore those sympathetic to our cause to be on their best behavior on social media as well. She and her supporters need no more ammunition.

Steven Horwitz is the Schnatter Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he also is a Fellow at the John H. Schnatter Institute for Entrepreneurship and Free Enterprise. He is the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions and is a Distinguished Fellow at the Foundation for Economic Education (FEE) and a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author. Read the original article.

Jews As the Enemies of the Enemies of Liberty – Article by Steven Horwitz

Jews As the Enemies of the Enemies of Liberty – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
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Anti-Semitism, it’s often said, is the oldest prejudice. The hatred of Jews has waxed and waned over the centuries, but appears to be back with something of a vengeance over the last few years, and especially the last few months.

For example, on Monday, February 27, over two dozen Jewish institutions across the country received bomb threats by anonymous phone calls. These included Jewish Community Centers, synagogues, retirement homes, day care centers, and Jewish educational institutions. These threats are part of a pattern of such threats, including multiple cemetery desecrations, that has been ongoing over the last few months. There have been 100 such threats to Jewish institutions just since the beginning of 2017.

Every time such a threat is called in, these institutions have to clear the building to determine if it is just a hoax. This means rounding up children, infants, the elderly, the infirm, and the developmentally disabled, getting them out of the building and, often, out in the cold, for the hour or two it takes to confirm all is clear. Although, thankfully, these have all turned out to be hoaxes, they still are taking a real toll on the Jewish community and the non-Jews who make use of these institutions. They are, I would argue, a form of terrorism.

The Why of Anti-Semitism

There has been much debate over why these threats have increased in recent months, and it seems plausible that the increased brazenness of the “politically incorrect,” including the rise of the alt-right, in the wake of the Trump campaign is probably one key factor. But anti-Semitism is not solely a problem on the Right. The political Left has had its own history of hatred for Jews, manifested in the present by the increased anti-Semitism of the radical Left in the context of criticism of Israel, especially through the Boycott, Divestments, and Sanctions (BDS) movement.

The sources of anti-Semitism on both Right and Left are complicated, but one element on both sides is that Jews have historically been associated with important liberal ideas such as capitalism, entrepreneurship, cosmopolitanism, and free migration. These institutions have enabled massive social, cultural, and economic change, empowering the previously powerless all over the world, and threatening the old order.

The enemies of liberalism have problems with all of these, though the Right and Left differ on which bothers them the most. But for both, Jews can be easily seen as the enemies of those who find deep flaws with the classical liberal social order. When Jews are being threatened, it is usually a good sign that the foundations of liberalism are as well.

Jewish Anti-Capitalism

One point to note up front is that Jews themselves have a history of opposition to classical liberalism. Jewish intellectuals have had a long-standing attraction to socialism, starting of course with Marx himself. In particular, a number of the architects of the Russian Revolution were Jews or of Jewish heritage.

I raise this because I am not arguing that Jews were somehow reliably classically liberal over the last few centuries. And the fact that a good number of Jews were socialist, or that a good number of socialists were Jews, certainly doesn’t justify anti-Semitism by critics of socialism.

I do think that part of the attraction of socialism to Jews was its universalist aspiration in the form of the trans-national cosmopolitan vision of classical socialism along with its desire to “heal the world” and its strong ethic of concern for the least well-off. Those aspirations were shared by 19th-century classical liberals and were also part of Jewish practice. This universalism made Jews the target of the critics of classical liberalism from the Right, as well as the right-wing critics of socialism.

Jewish Pro-Capitalism

The association of Jews with capitalism, trade, and entrepreneurship is well known. The negative stereotypes of acquisitiveness, materialism, and selfishness that have long been part of anti-Semitism grew out of the truth that Jews were more likely to be traders and financiers than were other groups. Part of this was that as a nomadic people, Jews invested in their human capital rather than the physical capital they would have had to schlep around while getting kicked out of country after country.

(This might also explain why Jews have also been disproportionately entertainers and intellectuals. The skills for telling jokes, writing stories, making music, or working in the realm of ideas are ones that don’t require much in the way of physical capital in order to be successful.)

Jews were also often middlemen as a result of their nomadic existence and familiarity with so many parts of the world. Middlemen have always been suspect to the economically ignorant as far back as Aristotle, as they appear to profit by creating nothing tangible. This is particularly true when the middlemen are in financial markets, where they are not even trading something physical.

It’s no surprise, therefore, that hatred of capitalism has been accompanied by hatred of the Jews

Right-wing anti-Semitism, however, often draws upon these capitalist tropes as part of its hatred. But in this context, Jews are not so much seen as representative of capitalist exploitation that can be ended by socialism, but rather as an example of people who place love of money and their universalist aspirations above the love of their country and its citizens.

German anti-Semitism in the 20th century had roots in the argument that Jews had been “war profiteers” in World War I and had benefitted from the economic destruction that characterized the Weimar Republic period leading up to Hitler’s ascension to power. The Nazis, and other fascist movements, saw the Jews as the sort of rootless cosmopolitans who were unable to grasp the importance of blood and soil.

The modern version of this point, and one that is also found on the Left, is the “dual loyalty” charge laid upon pro-Israel Jews: they are beholden to Israel in ways that cause them to work against the interests of the United States.

The Why of Nationalism

One way to see the “national socialism” of various fascist movements is that they objected not to socialism per se, but to socialism’s attempt to put class ahead of race or ethnicity or nationality. To the fascists, German or Italian workers shared much more with German or Italian capitalists than they did with Russian or American workers. Marxian socialism drew the wrong battle lines.

And so it is today, as “economic nationalism” is on the rise globally and Jews have again become the most obvious target for an invigorated Right. Jews have always been the symbol of the cosmopolitan, the migrant, and the “rootless” trader. If you reject market-driven globalization, whether because you dislike markets or because you are a nationalist, you are going to have reasons to see Jews as symbols of what you reject. That opposition to immigration and global trade, and the market system that is at the root of both, would go hand-in-hand with anti-Semitism is hardly surprising.

The economic nationalism of Trump and a variety of European leaders is not inherently anti-Semitic, nor does it require that the leaders of such movements be anti-Semites, but the arguments of economic nationalism can easily empower the anti-Semitism of both the Right and Left. The leaders build in plausible deniability, knowing full well the nature of the forces they are unleashing but in ways that avoid direct responsibility.

How could they not know? We have centuries of experience to draw on, back to the ancient world through the Middle Ages all the way to the ghastly slaughter of the 20th century during which anti-Semitism nearly destroyed the whole of Europe itself. The costs have been unspeakable, and hence the vow to never forget. And yet, despite this history, the tendency to forget remains. To remember would require that we think more clearly about ideology and philosophy, human rights and dignity. Many people do not want to do that. It remains easier to scapegoat than to remember.

Admittedly, we liberals have a special grudge against anti-Semitism. It broke up the greatest intellectual society of the 20th century, shattering Viennese intellectual life, flinging even Ludwig von Mises out of his home and into the abyss. His books were banned, and those of many others too. He and so many fled for their lives but bravely rebuilt them in the new world that offered protection.

A Warning Sign

It has been said that Jews are the canaries in the coal mine of a liberal society: when they are under threat, it is a warning sign. The ongoing and increasing threats to Jewish communities here in the US, as well as similar trends across Europe, should have all of us worried. A world where Jews sing out in joy together and are unafraid to fly free is one far more safe from tyranny than one in which we Jews worry about dying in our own cages, as many of us are doing as the threats to our institutions have become more frequent and more brazen in recent months.

Watch how a society treats Jews and you’ll have an indicator of its degree of openness and respect for liberty. When Jews are being threatened, so are the deepest of our liberal values. The poisonous air from coal mining that killed canaries was invisible. The threats to Jews and to liberalism are not. Citizens of liberal societies dismiss or downplay those threats at our own peril.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is spending the 2016-17 academic year as a Visiting Scholar at the John H. Schnatter Institute for Entrepreneurship and Free Enterprise at Ball State University.

He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author. Read the original article.

Remembering the Man Who Turned Numbers Into Hope – Article by Steven Horwitz and Sarah Skwire

Remembering the Man Who Turned Numbers Into Hope – Article by Steven Horwitz and Sarah Skwire

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The New Renaissance HatSteven Horwitz and Sarah Skwire
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After the spate of celebrities who died in 2016, the death of a Swedish professor of international health might not seem very newsworthy. However, Hans Rosling, who died of pancreatic cancer on February 7th, was no ordinary or obscure professor.

The story of his life and career can be found both at Wikipedia and in this marvelous Nature profile. What those sources cannot quite convey is Rosling’s importance as a role model for intellectual honesty, personal warmth and charisma, and a willingness to go where the facts took him, regardless of whether those facts adhered to any simplistic political narrative of humanity’s past and future. Both Rosling’s intellectual fearlessness and the substance of his work have importance for those who care about human freedom and progress.

Intellect and Humanity

But it isn’t just the content of Rosling’s work that matters. He was an amazing rhetorician. He had a unique ability to use and present data in easy to understand and visually appealing ways that were very effective at conveying an argument. He also was able to think creatively about the linkages among the various causes of wealth and the improvements they made in human well-being. His natural storytelling ability gave him the capacity to put those complex historical factors into narratives that not only got the history right, but did so in a way that appealed to our shared humanity.

All of these skills are on display in his two most famous videos, both of which impart lessons in presenting ideas and interpretations of data that classical liberals will find very useful.

Underlying much of Rosling’s work as a public intellectual was a concern with how we enable all of humanity to share in the health and wealth that has come to characterize the Western world.

With his background in health and demographics, Rosling was interested in the factors that led to the rising health and longevity of the West. First, of course, he had to document just how much better things had become in the West, then he had to explore the causes.

Presenting the raw data about the improvement of the West was the centerpiece of his BBC video “200 Years, 200 Countries, 4 Minutes.” Using real-time data visualization techniques, he shows how every country in the world was poor and sick 200 years ago and then showed the path by which so many countries became wealthy and healthy. There is no better visualization of the progress of humanity than this one.

For those of us who work with students, this video gives us the opportunity to talk about the factors that made that growth happen, including the role of liberal institutions and the rising moral status of the individual in that process. It is a great complement to the work of Deirdre McCloskey.

The video also provides a way to talk about global inequality. What is clear from the visualization of the data is that 200 years ago, countries were far more equal than now, but they were equally poor.

It’s true that the gap between rich and poor countries is greater now than back then, but everyone has improved their absolute position. And two of the countries that have improved the most are two of the most populous: China and India. Rosling’s presentation opens up countless useful discussions of the importance of economic growth for increases in life expectancy, as well as what exactly concerns us about growing inequality.

As he concludes, the task before us now is to figure out how to bring the rest of the world up to where the West is. Though he does not discuss it, the economic evidence is clear that those countries that have experienced the most growth, and therefore the biggest increases in longevity and other demographic measures of well-being, are those that have the freest economies. By giving us the data, Rosling enables classical liberals to engage the conversation about the “why” and “how” of human betterment.

Inspirational ‘Edutainer’

But our favorite video of Rosling’s is definitely “The Magic Washing Machine.” Here Rosling uses the example of the washing machine to talk about economic growth and its ability to transform human lives for the better.

Rosling’s focus is on the way the washing machine is an indicator of a population that has grown wealthy enough not only to buy such machines, but also to provide the electricity to power them. The washing machine is a particularly valuable machine since it relieves most of the physical burden of one of the most onerous tasks of the household, and one that has historically fallen entirely to women.

No one who has seen the video can forget the story of Rosling’s grandmother pulling up a chair in front of the new washing machine for the sheer joy of sitting and watching while the clothes spin. Her excitement becomes even more poignant when one considers that this must have been the first time in her life when she was able to sit while laundry was done, instead of standing over a tub of hot water and soap.

Rosling points out, in a moment of calling his fellow progressives to task, that while many of his students are proud of biking to class instead of driving, none of them do their wash by hand. That chore, though green, is simply too onerous for most moderns to take on. He then goes on to discuss how we have to find ways to create the energy needed as billions of people cross the “wash line” and start to demand washing machines.

The video ends with him reaching into the washing machine and pulling out the thing that the machine really made possible:  books. The washing machine gave his mother time to read and to develop herself, as well as to read to young Hans and boost his education as well.

The visual image of putting clothes into a washing machine and pulling out books in exchange captures all that is good about economic growth in a succinct and unforgettable way. Rosling concludes the video with a heart-felt roll call of gratitude to industrialization and development that has been known to reduce free market economists to tears.

What Rosling does in that video is to effectively communicate what classical liberals see as the real story of economic growth. He gets us to see how economic growth, driven by markets, has enabled women to live more liberated lives. Classical liberals can talk endlessly about the data, but until we talk effectively about the way in which industrialization and markets have made it possible for women (and others) to be freed from drudgery that was literally back-breaking, we cannot win the war on the market.

Thank You

Bastiat said that “The worst thing that can happen to a good cause is, not to be skillfully attacked, but to be ineptly defended.” Hans Rosling’s work is the best possible example of the best kind of defense of a good cause. He was a model and an inspiration.

Rosling ends “The Magic Washing Machine” by saying “Thank you industrialization. Thank you steel mill. Thank you power station. And thank you chemical processing industry that gave us time to read books.”

We say, “Thank you, Dr. Rosling. Thank you, data visualization. Thank you TED talks. And thank you, Mrs. Rosling, for buying a washing machine and reading to your son.” We are richer for the work he did. We are poorer for his loss.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is spending the 2016-17 academic year as a Visiting Scholar at the John H. Schnatter Institute for Entrepreneurship and Free Enterprise at Ball State University.

He is a member of the FEE Faculty Network.

Sarah Skwire is the Literary Editor of FEE.org and a senior fellow at Liberty Fund, Inc. She is a poet and author of the writing textbook Writing with a Thesis. She is a member of the FEE Faculty Network. Email

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author. Read the original article.

Yes, We Still Make Stuff, and It Wouldn’t Matter if We Didn’t – Article by Steven Horwitz

Yes, We Still Make Stuff, and It Wouldn’t Matter if We Didn’t – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
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One of the perennial complaints about the US economy is that we don’t “make stuff” anymore. You hear this from candidates from both major parties, but especially from Donald Trump and Bernie Sanders. The argument seems to be that our manufacturing sector has collapsed and that all US workers do is to provide services, rather than manufacturing tangible goods.

It turns out that this perception is wrong, as the US manufacturing sector continues to grow and in 2014 manufacturing output was higher than at any point in US history. But even if the perception were correct, it does not matter. The measure of an economy’s health isn’t the quantity of physical stuff it produces, but rather the value that it produces. And value comes in a variety of forms.

Manufacturing is Up

The path to economic growth is not to freeze into place the US economy of the 1950s. Let’s deal with the myth of manufacturing decline first. The one piece of evidence in favor of that perception is that there are fewer manufacturing jobs today than in the past. Total manufacturing employment peaked at around 19 million jobs in the late 1970s. Today, there are about 12.5 million manufacturing jobs in the US.

However, manufacturing output has never been higher. The real value of US manufacturing output in 2014 was over $2 trillion. The real story of the US manufacturing sector is that we have become so much more efficient, that we can produce more and more manufactured goods with less and less labor. These efficiency gains are largely the result of computer technology and automation, especially in the last fifteen years.

The labor that we no longer need in order to produce an ever-increasing amount of stuff is now available to produce a whole variety of other things we value, from phone apps to entertainment to the expanded number and variety of grocery stores and restaurants, to the data analyses that makes all of this growth possible.

Just as the workers in those factories we are so nostalgic for were labor freed from growing food thanks to the growth in agricultural productivity, so are today’s web designers, chefs at the newest hipster café, and digital editors in Hollywood the labor that has been freed from producing “stuff” thanks to greater technological productivity.

Or, put differently: those agricultural, industrial, and computer revolutions collectively have enabled us to have more food, more stuff, and more entertainment, apps, services, and cage-free chicken salads served with kale. The list of human wants is endless, and the less labor we use to satisfy some of them, the more we have to start working on other ones.

But notice something: all of the things that we produce have something in common. Whether it’s food or footwear, or automobiles or apps, or manicures or massages, the point of production is to rearrange capital and labor in ways that better satisfy wants. In the language of economics, the point of production (and exchange) is to increase utility.

When we produce more cars that people wish to buy, it increases utility. When we open a new Asian fusion street food taco stand, it increases utility. When Uber more effectively uses the existing stock of cars, it increases utility. When we exchange dollars for manicures, it increases utility.

Adam Smith helped us to understand that the wealth of nations is not measured by how much gold a country possesses. Modern economics helps us understand that such wealth is not measured by how much physical stuff we manufacture. Increases in wealth happen because we arrange the physical world in ways that people value more.

Neither producing cars nor providing manicures changes the number of atoms in the universe. Both activities just rearrange existing matter in ways that people value more. That is what economic growth is about.

Misplaced Nostalgia

We’re richer because we have allowed markets to produce with fewer workers. When we are fooled into believing that “growth” is synonymous with “stuff,” we are likely to make two serious errors. First, we ignore the fact that the production of services is value-creating and therefore adds to wealth.

Second, we can easily believe that we need to “protect” manufacturing jobs. We don’t. And if we try to do so, we will not only stifle economic growth and thereby impoverish the citizenry, we will be engaging in precisely the sort of special-interest politics that those who buy the myth of manufacturing often rightly complain about in other sectors.

The path to economic growth is not to freeze into place the US economy of the 1950s. We are far richer today than we were back then, and that’s due to the remaining dynamism of an economy that can still shed jobs it no longer needs and create new ones to meet the ever-changing wants of the consumer.

The US still makes plenty of stuff, but we’re richer precisely because we have allowed markets to do so with fewer workers, freeing those people to provide us a whole cornucopia of new things to improve our lives in endless ways. We can only hope that the forces of misplaced nostalgia do not win out over the forces of progress.

Steven_Horwitz

Steven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions.

He is a member of the FEE Faculty Network.

This article was originally published on FEE.org. Read the original article.

Trump and Sanders Are Both Conservatives – Article by Steven Horwitz

Trump and Sanders Are Both Conservatives – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
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Shared Visions of Fear, Force, and Collectivism

Those of us who reject the conventional left-right political spectrum often see things that those working within it cannot. For example, in “Why the Candidates Keep Giving Us Reasons to Use the ‘F’ Word” (Freeman, Winter 2015), I argue that Donald Trump and Bernie Sanders, seen by many as occupying opposite ends of the ideological spectrum, both embrace the thinking of economic nationalism, if not fascism.

They also share a different political tradition. It may seem to contradict their shared fascist pedigree, but Trump and Sanders are both, in a meaningful sense, conservatives.

Trump, of course, has been lambasted by many self-described conservatives precisely because they believe he is not a conservative. And Sanders, the self-described “democratic socialist,” hardly fits our usual conception of a conservative. What exactly am I arguing, then?

They are both conservatives from the perspective of classical liberalism. More specifically, they are conservatives in the sense that F.A. Hayek used the term in 1960 when he wrote the postscript to The Constitution of Liberty titled “Why I Am Not a Conservative.” There he said of conservatives,

They typically lack the courage to welcome the same undesigned change from which new tools of human endeavors will emerge.… This fear of trusting uncontrolled social forces is closely related to two other characteristics of conservatism: its fondness for authority and its lack of understanding of economic forces.… The conservative does not object to coercion or arbitrary power so long as it is used for what he regards as the right purposes. He believes that if government is in the hands of decent men, it ought not to be too much restricted by rigid rules.

That description would seem to apply to both Trump and Sanders. They share a fear of uncontrolled and undesigned change, especially in the economy. This is most obvious in Trump’s bluster about how America never “wins” and his desire to raise tariffs on Chinese imports and close the flow of immigrants, especially from Mexico. Economic globalization is a terrific example of uncontrolled change, and using foreign workers and producers as scapegoats for that change — especially when those changes have largely benefited most Americans — is a good example of this fear of the uncontrolled.

Those policies also show the much-discussed economic ignorance of Trump and his supporters, as shutting off trade and migration would impoverish the very people Trump claims to care about — those who are, in fact, supporting him. International trade and the free migration of labor drive down costs and leave US consumers with more money in their pockets with which to buy new and different goods. They also improve living standards for our trade partners, but Trump and his followers wrongly perceive their gains as necessitating American losses.

The same concerns are echoed in Sanders’s criticisms of free trade and in his claim that immigration is undermining good jobs for the native-born. Trump’s rhetoric might be more about how the US needs to “beat” the Chinese, and Sanders might focus more on the effects on working class Americans, especially union workers, but both fear the uncontrolled change of globalized markets, seeing commerce as a zero-sum game. (See “Why Trump and Sanders See Losers Everywhere,” FEE.org, January 20, 2016.)

For Sanders, fear of change also bubbles up in his criticisms of Uber — even though he uses the service all the time. Part of Hayek’s description was the fear of change producing “new tools of human endeavor.” The new economy emerging from the reduction of transaction costs will continue to threaten labor unions and the old economic understanding of employment and the firm. Sanders’s view of the economy is very much a conservative one as he tries to save the institutions of an economy that no longer exists because it no longer best serves human wants.

In addition, both Trump and Sanders are more than willing to use coercion and arbitrary power to attempt to resist that change. These similarities manifest in different ways, as Trump sees himself as the CEO of America, bossing people and moving resources around as if it were one of his own (frequently bankrupt) companies. CEOs are not bound by constitutional constraints and are used to issuing orders to all who they oversee. This is clearly Trump’s perspective, and many of his followers apparently see him as Hayek’s “decent man” who should not be too constrained by rules.

The same is true of Sanders, though he and his supporters would deny it. One need only consider his more extreme taxation proposals as well as the trillions in new spending he would authorize to see that he will also not be bound by constraints and will happily use coercion to achieve his ends. This is also clear in his policies on trade and immigration, which, like Trump’s, would require a large and intrusive bureaucracy to enforce. As we already know from current immigration restrictions, such bureaucracies are nothing if not arbitrary and coercive. Both Trump and Sanders believe that with the right people in charge, there’s no need for rule-based constraints on political power.

Hayek also said of conservatives that they are characterized by a

hostility to internationalism and [a] proneness to a strident nationalism.… [It is] this nationalistic bias which frequently provides the bridge from conservatism to collectivism: to think in terms of “our” industry or resource is only a short step away from demanding that these national assets be directed in the national interest.

As noted, Sanders and Trump share exactly this hostility and proneness. And despite being seen as political opposites, their distinct views converge in the idea that resources are “ours” as a nation and that it is the president’s job (and the state’s more generally) to direct them in the national interest. For Trump, that interest is “making America great again” and making sure we “beat” the Chinese. For Sanders, that interest is the attempt to protect “the working class” against the predation of two different enemies: the 1 percent and foreign firms and workers, all of whom are destroying our industries and human resources.

All of this fear of uncontrolled change and economic nationalism is in sharp contrast with the position of what Hayek calls “liberalism” or what we might call “classical liberalism” or “libertarianism.” In that same essay, Hayek said of classical liberalism, “The liberal position is based on courage and confidence, on a preparedness to let change run its course even if we cannot predict where it will lead.”

This is why classical liberalism rejects the idea that the path toward progress entails electing the right people (the “decent men”) and the cult of personality that frequently accompanies that idea, as we’ve seen with Trump and Sanders. Classical liberalism understands how, under the right rules and institutions, progress for all is the unintended outcome of allowing each to pursue their own values and ends with an equal respect for others to do the same, regardless of which side of an artificial political boundary they reside on.

If we want to live in peace, prosperity, and cooperation, we need to recognize that progress is a product of unpredictable, uncontrolled, and uncontrollable change.

Trump and Sanders can stand on their porches telling us to get off their lawn, but we’re going to do it in an Uber imported from Asia and driven by a nonunionized immigrant, because we classical liberals welcome the change they fear.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

A Libertarian Defense of Tenure – Article by Aeon Skoble and Steven Horwitz

A Libertarian Defense of Tenure – Article by Aeon Skoble and Steven Horwitz

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The New Renaissance HatAeon Skoble and Steven Horwitz
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Tenure protects the right to be unpopular

Libertarians are understandably frustrated with the state of higher education today. Libertarian ideas often do not get covered, or are covered unfairly. Faculty are overwhelmingly left-of-center, and government subsidies have driven up costs, leading to higher student debt.

These are legitimate concerns of course. However, the solution to these problem is not to abolish the institution of tenure. Tenure is not anti-liberty, and it provides important protections for those who are libertarians (and conservatives) in academia. In addition, it has some efficiency properties that explain why it has survived and might well do so even in a world where the state had no role in higher ed.

There are many potential objections to tenure. For some, the idea that a tenured professor cannot be fired strikes them as a rejection of the free market. Others believe that tenure is a way of protecting leftist faculty, even if their ideas are wrong-headed, and students don’t wish to hear them. In that way, tenure is a kind of monopoly protection for bad ideas. Finally, people across the political spectrum believe that tenure creates so-called “deadwood” faculty who, once they are tenured, no longer have to care about their teaching or research.

First, let’s dispatch a common misconception: it is not true that tenured professors cannot be fired.  Tenured professors can be fired for a variety of reasons.  What tenure does is limit what counts as a valid reason for dismissal in order to protect academic freedom. A tenured professor can be fired if caught plagiarizing, or found guilty of sexual or other forms of harassment, or convicted of violent crime. But if she can be fired for writing an article that the dean disapproves of, she cannot perform her job. And that is where tenure comes in.

Understanding why tenure is a desirable institution requires us to remember the purpose of a university. Universities are, ideally, institutional arrangements that enable scholars to engage in the activities of seeking the truth and then sharing the fruits of our scholarship with students, other scholars, and perhaps the general public.

Essential to that project is that scholars are free to seek the truth as we see it, without interference by others who have different goals. Of course, scholars must play by some very simple rules of the game: do not lie or cheat; do not distort your data or the arguments of your sources; be transparent about conflicts of interest; do not engage in personal attacks or the use of force, among others.

If this sounds familiar, that’s because the search for truth is a discovery process analogous to the market. Just as entrepreneurs in a market require the freedom to discover value where their best judgment takes them, subject to rules against force and fraud, so do scholars in a university require the freedom to discover truth where our best judgment takes us.

Tenure protects scholars like us from interference with our attempts to discover truth. Scholars cannot engage in truth-seeking if we’re facing retaliation from people who don’t like where our research leads. A university cannot be a university without robust protection of the open exchange of ideas and the freedom of each scholar to research in his or her field without intimidation.

By ruling out the possibility of firing a professor simply for the content of her beliefs, tenure ensures that the university will be what Michael Polanyi called “a republic of science,” in which truth-seeking is the highest standard.

Skeptics might argue that even if tenure were abolished, faculty still wouldn’t leave their current jobs because they would find it difficult to get hired elsewhere. But that’s not the point. The point is that we cannot do our jobs without a credible guarantee of academic freedom, and tenure is one way to secure that.

Tenure protects academic freedom in three distinct ways. First, when we engage in research and publishing, we can’t be worried that some administrator, trustee, politician, or even a student activist will find our work offensive and retaliate against us. This will have a chilling effect on our ability to seek the truth, which is our job as college professors. There are numerous examples of libertarian and conservative faculty facing just these sorts of threats, and tenure is the primary reason those threats are empty.

Second, when we construct and teach our curricula, we can’t worry that any of the usual suspects will take offense, or try to substitute their judgment for ours. Finally, when participating in institutional decision making about academic matters, we can’t be afraid to call shenanigans on various administrator-driven fads (of which there are many) that would undermine our ability to engage in research and teaching.

Although we are open to alternative institutional processes if they could be shown to adequately protect academic freedom, abolishing tenure in their absence is a dicey proposition. Absent tenure, it is libertarians and conservatives who would be the first to be persecuted, censored, or silenced.

Politically correct ideas don’t need the protection of tenure because they are popular; tenure protects ideas that are not. Abolishing it would give still more power to the activists and administrators who seek to create an ideologically uniform academy.

Given those concerns, how big is the downside to tenure? If the complaint is that some faculty’s research productivity declines after tenure, then an easy fix is to have continued productivity tied to merit raises.  Nothing about the institution of tenure precludes post-tenure reviews and merit pay. And even if some faculty slack off as publishers, so what? As long as they’re good teachers, mentors, and colleagues, it’s not necessary that all college faculty be active publishers their whole careers.

Tenure offers a beneficial set of incentives for many universities. Faculty want the protections we have outlined above, and universities want to encourage faculty to develop university-specific human capital to better serve their educational vision and the type of students they attract. Faculty don’t necessarily want to make those specific investments if the opportunity cost may be enhancing their publication record so as to make them more attractive in the job market.

Tenure is a commitment by the institution to maintain a faculty member’s employment in return for abiding by some basic rules and demonstrating during the tenure process that they have acquired that institution-specific human capital. The faculty member gets enhanced, but not total, job security, and the institution gets someone committed to its particular needs. In this way, tenure is like marriage: we bind ourselves to an arrangement with high exit costs in order to incentivize ourselves to commit to the relationship. Just as marriage is compatible with a free society, so is tenure.

There are many problems with contemporary higher education, but tenure isn’t one of them. Ending tenure would exacerbate many of those issues while also creating new ones. And in an institutional setting where the opponents of liberty hold most of the cards, getting rid of one of the most important institutions that protects dissent and the ability to seek the truth will only silence the friends of liberty.

Aeon J. Skoble is Professor of Philosophy at Bridgewater State University.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Why Trump and Sanders See Losers Everywhere – Article by Steven Horwitz

Why Trump and Sanders See Losers Everywhere – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
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Competition and the Zero-Sum Fallacy

Donald Trump, Bernie Sanders, many political actors, too many intellectuals, and much of the general public share a false and destructive belief about the nature of exchange: that economic activity is something akin to a battle or a full-fledged war in which the goal is for one group to “defeat” another. We see this mentality across the political spectrum.

Zero-Sum Losers

Think of the ways Trump and others on the political right talk about international trade. The basic framework is to see other countries as enemies in competition with us. The goal of trade policy is somehow to “beat” them, because if they are “winning” by selling us a lot of stuff, we must be losing. The result is mistaken policies such as Trump’s proposed 45 percent tariff on Chinese imports.

We see the same us-and-them thinking on the left, where progressives perceive a persistent battle between capital and labor, each trying to defeat the other. For leftists, capital is always the winner and labor is always the loser — unless the government intervenes. The appropriate policy response, from this perspective, is either to limit capital’s gains or, if you’re a bit more radical, to help labor vanquish capital once and for all. One of the related beliefs on the left is that the wealth of capital comes at the expense of labor. That is, capital’s gains come from labor’s losses.

Both arguments share the underlying belief that the winners’ gains must come at the losers’ expense. Economic activity, and specifically wealth creation, is at best seen as what economists would call a “zero-sum game.”

In zero-sum games, the winners’ gains do, in fact, come at the losers’ expense. Think of a poker game where each person buys $100 worth of chips. If there are five players, there is $500 to be apportioned out. If the game ends with me having $250, then the remaining $250 will be split among the other four players. My gain of $150 comes from others’ losses. Playing the game creates winners and losers because it simply reallocates fixed wealth around the group.

Positive-Sum Winners

Market economies, however, are not zero-sum games. Consider the profits of entrepreneurs like Steve Jobs or Bill Gates or Mark Zuckerberg or any of thousands of lesser-known inventors who have become fabulously wealthy by providing us with products and services that we value. Their gains are not our losses. To the contrary: markets are what we call positive-sum games. Entrepreneurs make huge profits, but they can only do so by providing us with products and services we value more than what we give up to obtain them.

Every time you get something yummy from a food truck, for example, you demonstrate the mutual benefit of trade: the truck owner gets your money and you get something delicious to eat. You both gave up something you valued less than the thing you acquired. Trade is made of win.

So when people complain that the United States is “losing to China,” presumably because we have a trade deficit with them, they are falling for the zero-sum fallacy. A trade deficit simply means that we are buying more of their goods and services than they are of ours. This doesn’t mean “they” are winning. First, there’s no “they.” The winners are individual Chinese sellers and the people they employ on one side, and individual US consumers on the other. Portraying trade as a contest between countries is deceptive: trade is always among specific individuals and groups.

Second, both sides are winning. Chinese sellers get US dollars and US consumers get products they like at low prices, which frees up income to buy other goods and services, creating jobs in other sectors of the US economy. Those US dollars, it is worth noting, make their way back to the US as Chinese firms invest in US assets, funding everything from private-sector construction to a small part of our government debt. The dollars we spend on Chinese goods do not just disappear; they come back as investments in US capital goods.

It would be more accurate to see what’s happening here as Chinese sellers arriving at the US border with boatloads of cheap goods for us to buy. Under what logic are we made worse off by the “gift” of lower priced goods?

Misunderstanding “Competition”

I suspect that much of the zero-sum thinking we see with trade is based on a misplaced application of the idea of “competition.” Competition in the market does share a number of features with the sorts of competition that people are more familiar with: sports, games, and war.

All are what F.A. Hayek called “discovery procedures.” We play games as a way to discover which individual or team is best. There’s no way to know who the best hockey team is without the discovery process of the Stanley Cup playoffs. We can’t know the answer just by looking at statistics, as every major upset in sports history demonstrates. In markets, we discover who is producing the best product at the best price by letting sellers and buyers compete. One might say the same about war.

Despite these similarities, however, there’s a critical difference: athletic competition and war are zero-sum and negative-sum games, respectively. In sports, one team wins and the other loses, or there’s a tie. Both of those outcomes are zero-sum. War destroys human and physical capital, and even when one country “wins,” everyone is worse off, making it negative-sum.

Market competition, by contrast, is positive-sum. When sellers compete with other sellers to keep prices low, it’s true that some sellers will win and others will lose, but in that process, all of the buyers win, too, not to mention the other people who will receive more income because the buyers who are paying less for the original product can now buy their products. Wealth is not redistributed, as in a poker game, and there is not an offsetting loser for each winner, as in sports. Instead, additional wealth is created. That makes it a positive-sum game.

Seeing the Bigger Picture

CEOs are used to seeing this process from the narrow perspective of their firms, which often do lose in competition with other firms, leading them to believe the same principles apply between countries, or for the economy as a whole. This may explain why Donald Trump thinks he can “defeat” China in the same way he might outcompete another firm. It also explains why Sanders can believe that we are in a competition to preserve jobs. By focusing on the growth in manufacturing jobs in China, Sanders sees trade as “stealing” US jobs rather than being part of the larger competitive process responsible for the overall growth in US jobs and wealth.

Yes, markets share much with other forms of competition, but the key difference is the one that matters. Markets are positive-sum games, and they are not about one country, one group, or one class defeating another. Competition and trade are the way we produce cooperation and mutual benefit. Failing to understand this important difference easily opens the door to demagogues on both the right and the left.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

3 Kinds of Economic Ignorance – Article by Steven Horwitz

3 Kinds of Economic Ignorance – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
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Do you know what you don’t know?

Nothing gets me going more than overt economic ignorance.

I know I’m not alone. Consider the justified roasting that Bernie Sanders got on social media for wondering why student loans come with interest rates of 6 or 8 or 10 percent while a mortgage can be taken out for only 3 percent. (The answer, of course, is that a mortgage has collateral in the form of a house, so it is a lower-risk loan to the lender than a student loan, which has no collateral and therefore requires a higher interest rate to cover the higher risk.)

When it comes to economic ignorance, libertarians are quick to repeat Murray Rothbard’s famous observation on the subject:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Economic ignorance comes in different forms, and some types of economic ignorance are less excusable than others. But the most important implication of Rothbard’s point is that the worst sort of economic ignorance is ignorance about your economic ignorance. There are varying degrees of blameworthiness for not knowing certain things about economics, but what is always unacceptable is not to recognize that you may not know enough to be speaking with authority, nor to understand the limits of economic knowledge.

Let’s explore three different types of economic ignorance before we return to the pervasive problem of not knowing what you don’t know.

1. What Isn’t Debated

Let’s start with the least excusable type of economic ignorance: not knowing agreed-upon theories or results in economics. There may not be a lot of these, but there are more than nonspecialists sometimes believe. Bernie Sanders’s inability to understand why uncollateralized loans have higher interest rates would fall into this category, as this is an agreed-upon claim in financial economics. Donald Trump’s bashing of free trade (and Sanders’s, too) would be another example, as the idea that free trade benefits the trading countries on the whole and over time is another strongly agreed-upon result in economics.

Trump and Sanders, and plenty of others, who make claims about economics, but who remain ignorant of basic teachings such as these, should be seen as highly blameworthy for that ignorance. But the deeper failing of many who make such errors is that they are ignorant of their ignorance. Often, they don’t even know that there are agreed-upon results in economics of which they are unaware.

2. Interpreting the Data

A second type of economic ignorance that is, in my view, less blameworthy is ignorance of economic data. As Rothbard observed, economics is a specialized discipline, and nonspecialists can’t be expected to know all the relevant theories and facts. There are a lot of economic data out there to be searched through, and often those data require careful statistical interpretation to be easily applied to questions of public policy. Economic data sources also require theoretical interpretation. Data do not speak for themselves — they must be integrated into a story of cause and effect through the framework of economic theory.

That said, in the world of the Internet, a lot of basic economic data are available and not that hard to find. The problem is that many people believe that certain empirical facts are true and don’t see the need to verify them by actually checking the data. For example, Bernie Sanders recently claimed that Americans are routinely working 50- and 60-hour workweeks. No doubt some Americans are, but the long-term direction of the average workweek is down, with the current average being about 34 hours per week. Longer lives and fewer working years between school and retirement have also meant a reduction in lifetime working hours and an increase in leisure time for the average American. These data are easily available at a variety of websites.

The problem of statistical interpretation can be seen with data on economic inequality, where people wrongly take static snapshots of the shares of national income held by the rich and poor to be evidence of the decline of the poor’s standard of living or their ability to move up and out of poverty.

People who wish to opine on such matters can, again, be forgiven for not knowing all the data in a specialized discipline, but if they choose to engage with the topic, they should be aware of their own limitations, including their ability to interpret the data they are discussing.

3. Different Schools of Thought

The third type of economic ignorance, and the least blameworthy, is ignorance of the multiple perspectives within the discipline of economics. There are multiple schools of thought in economics, and many empirical questions and historical facts have a variety of explanations. So a movie like The Big Short that clearly suggests that the financial crisis and Great Recession were caused by a lack of regulation might be persuasive to people who have never heard an alternative explanation that blames the combination of Federal Reserve policy and misguided government intervention in the housing market for the problems. One can make similar points about the Great Depression and the difference between Hayekian and Keynesian explanations of business cycles more generally.

These issues involving schools of thought are excellent examples of Rothbard’s point about the specialized nature of economics and what the nonspecialist can and cannot be expected to know. It is, in fact, unrealistic to expect nonexperts to know all of the arguments by the various schools of thought.

Combining Ignorance and Arrogance

What is missing from all of these types of economic ignorance — and what is often missing from knowledgeable economists themselves — is what we might call “epistemic humility,” or a willingness to admit how little we know. Noneconomists are often unable to recognize how little they know about economics, and economists are often unable to admit how little they know about the economy.

Real economic “expertise” is not just mastery of theories and facts. It is a deeper understanding of the variety of interpretations of those theories and facts and humility in the face of our limits in applying that knowledge in attempting to manage an economy. The smartest economists are the ones who know the limits of economic expertise.

Commentators with opinions on economic matters, whether presidential candidates or Facebook friends, could, at the very least, indicate that they may have biases or blind spots that lead to uses of data or interpretive frameworks with which experts might disagree.

The worst type of economic ignorance is the type of ignorance that is the worst in all fields: being ignorant of your own ignorance.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Why Is the Middle Class Shrinking? – Article by Steven Horwitz

Why Is the Middle Class Shrinking? – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
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Two Arguments in Favor of Economic Inequality

Economic inequality continues to be a major political issue even as the headlines scream about terrorism and climate change. Bernie Sanders has made it a centerpiece of his presidential campaign, and other candidates have addressed it along the way. And a recent study by the Pew Research Center has added new, though misplaced, fuel to the fire of those concerned about inequality.

The Pew study has been discussed in the media, and one key point has been grossly misunderstood. Among other things, the study found that the American middle class is shrinking and is now just under half of the population. Commentators quickly began to refer to the “hollowing out” of the middle class and to tie this study to the concerns about growing inequality.

However, a close look at the data shows that the middle class has shrunk since 1971 because more members of the middle class have moved up the income ladder than down it.

Don’t believe me? Look for yourself at the terrific graphic that the Financial Times created to illustrate the data:

ft2015inequalitygraphYou can watch as the folks on the left slowly slide to the right over 44 years. When you compare the 1971 distribution with the 2015 one, what do you see? A growth in households earning around $80,000 or above, adjusted for inflation, since 1971 and a significant decline in those making less than that amount (with the exception of the folks right around $0). It’s true that there’s not a fat middle class anymore, but why should that trouble us if there are more high-income households and fewer low-income households overall?

The funny part of this is that if you read the story in the Financial Times that accompanies this graphic, it’s as if they never actually looked at the graphic they produced. Their narrative is at odds with it, as the narrative proclaims the doom-and-gloom story that the graphic actually refutes. As they say, never let the facts get in the way of a good story.

This growth in household income may, to some extent, be a by-product of the same economic processes that have produced the concerns about inequality, illustrated in this graphic by the significant growth of the ultra-rich.

There are far more very rich people today than there were 44 years ago, but the growth of the upper class has gone hand in hand with the enrichment of a large number of less-well-off households. Are there ways in which economic inequality is good, then? I think the answer to that question is yes. If so, then, what are they? Here are two defenses of economic inequality that proponents of the free market could make.

First is the more obvious one: growing inequality is good because it might be a consequence of economic institutions that produce all kinds of results that we think are desirable. For example, if competitive markets lead to peace and rising prosperity for all but also create inequality along the way by allowing some folks to get very rich, then we should at least tolerate that inequality because the things that produce it also produce other things we like.

This is the usual defense libertarians invoke, and it’s a good argument. The critic, however, might say that even if the defense is true, it doesn’t prove that inequality is necessary for that result. There’s a difference between saying, “Good economic institutions will produce inequality while creating good economic outcomes for all,” and saying, “Good economic outcomes for all can’t be produced without inequality.” The critic would likely ask how reducing the inequality that markets produce will harm their ability to produce those good results.

And here is where we come back to the Pew study and get a second defense of inequality. One way the middle class (and all of us) has become richer in the last generation is that the cost of so many goods and services has dropped in terms of the number of hours we have to work at the average wage in order to purchase them. The lower price of basic goods has enabled more and more people to afford things like large TVs, smartphones, and new, cheaper medications.

One thing that has made this process happen is inequality. In The Constitution of Liberty, F.A. Hayek argued,

A large part of the expenditure of the rich, though not intended for that end, thus serves to defray the cost of the experimentation with the new things that, as a result, can later be made available to the poor.… Even the poorest today owe their relative material well-being to the results of past inequality.

Having a group of very rich people is what enables yesterday’s luxuries to become today’s basics.

There are two parts to this process: cost bearing and discovery. The very rich are able to afford the high prices of new technologies, thereby providing an incentive for firms to market new and expensive products. Once the rich pay the high initial price and cover the fixed costs of research and development, sellers can begin to price closer to the much lower marginal cost of producing additional units, making the good much more affordable to more people.

But the rich are also an economic canary in the coal mine that informs producers whether they are getting it right.

For example, a critic of inequality might complain that no one “really needs” a $100,000 luxury car with all kinds of new high-tech gadgets on it. But the fact that some can afford it and want to buy it helps the car companies figure out which new features might be popular. Rear-view cameras were once only available on top-end cars, but they have slowly become a standard feature. The same may soon be true of collision warning systems now available on high-end models of some cars.

In fact, everything we think of as basics today was once the province of only the well-off. The first microwaves were expensive and bought mostly by the rich. I can remember my parents paying about $900 for a VCR in the late 1970s. VCRs, of course, fetch a price close to zero these days. The rich who bought the early LCD TVs helped manufacturers defray the fixed production costs and figure out what people wanted, and now these TVs are in the vast majority of houses at a more affordable price.

The inequality at any point in time is a key part of the process that creates wealth for the rest of society over the years to follow. The very rich enable producers to experiment and cover their costs, and that makes more goods more affordable for the rest of us, from fun toys to life-saving necessities.

The inequality produced by the market is a key part of how the market moves forward, enriching all of us in the process. And that’s why the middle class is shrinking: the rich, through the competitive market, have helped make the middle class richer.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is a member of the FEE Faculty Network.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Why the Candidates Keep Giving Us Reasons to Use the “F” Word – The Electoral Clown Car Is Full of Nationalistic Socialists – Article by Steven Horwitz

Why the Candidates Keep Giving Us Reasons to Use the “F” Word – The Electoral Clown Car Is Full of Nationalistic Socialists – Article by Steven Horwitz

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The New Renaissance HatSteven Horwitz
August 6, 2015
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“There are far too many candidates,” writes Dana Milbank at the Washington Post. “And to gain attention they are juggling, tooting horns and blowing slide whistles like so many painted performers emerging from a clown car.” The two clowns making the most noise in recent weeks are Bernie Sanders and Donald Trump.

At first glance, it would seem they couldn’t be more different: a Democrat and a Republican, a friend of the unions and a CEO, a man of relatively modest means by congressional standards and one of the wealthiest men in the United States. But a closer look reveals some interesting similarities and teaches us an important lesson about the history of ideas. What Sanders and Trump have in common is no laughing matter.

Recent articles by libertarians on both candidates have suggested that they are both strongly nationalist. Dan Bier tore apart Sanders for his views on immigration, and both Jeff Tucker and Jason Kuznicki have associated Trump with nationalism and perhaps even a variant of fascism. I think they are all on to something: Sanders and Trump have a lot more in common than many think. But before I get there, we need to take a detour into the history of socialism and fascism.

In its original conception, Marxian socialism was strongly internationalist. Marx’s theory was based on the idea of class struggle and the disparity in power between those who owned the means of production (the capitalists) and those who did not (the proletariat).

Marxism has nothing to do with nationality. It’s all about class, defined as whether or not one owns capital. For true Marxists, a German worker has much more in common with a Russian worker or an Italian worker than he or she does with a German capitalist. Marxism did not give any importance to national borders.

For many in the early 20th century, this was a problem with Marxism, especially in the aftermath of World War I. Much like today, people were looking for a “third way” between capitalism and socialism. For many of those people, that third way was fascism.

Today we use the word fascism as an epithet, especially for bossy people. We associate it with dictatorships, and especially with Nazism. It turns out that fascism was a fairly well-worked-out theory of how to organize a society, and in its original form was not about racism or anti-Semitism directly. Fascism was an attempt to combine what people saw as the best parts of capitalism and socialism, and then to do so in the context of putting nationality before class.

The most extensive writing about how fascism would work came from the Italians in the 1920s and 1930s, and interested readers should find a copy of Luigi Villari’s The Economics of Fascism to see the details. (You can find a nice summary of those ideas in Sheldon Richman’s entry on fascism in the online Concise Encyclopedia of Economics.)

The fascists argued that the whole notion of class conflict was the problem. Instead of pitting class against class and tearing nations apart, why not bring all the parties together and give them the chance to cooperate with each other rather than struggle their way to socialism? The fascist economy was built around a series of cartels where the state, the nominal owners of the means of production, and the workers (represented by labor unions) would get together and figure out what to produce, how to produce it, what to charge, and how much profit would be “allowed.”

The fascists agreed with socialism’s desire not to leave markets to spontaneous ordering forces, but they thought the nation-state should direct the economy, not the workers. Both capitalism and socialism involved conflict, not cooperation. The same third-way thinking, and some of the same structures, were present in the first two years of the New Deal in the United States. The cartels of the National Recovery Administration were modeled after Italian fascism, and FDR and Mussolini were mutual admirers.

You can see how fascism took elements of both capitalism and socialism, then added nationalism. The idea was to look out for the welfare of the nation-state first. The Italian capitalist and the Italian worker were both Italians first and foremost, and that should be the first call on their allegiance. Lashing socialism to the glorification of the nation-state gives us fascism, and you can see why anyone who represented a threat to national identity would quickly become a problem.

This is one reason why the German version of fascism so easily linked up with a long history of German anti-Semitism. The Nazis were undoubtedly socialist (recall that Nazi is short for National Socialist German Workers Party), as even a quick glance at their 1920 platform will tell you. They were also, even at that date, fiercely nationalist. In Hitler’s hands, that national pride quickly became a desire to glorify the Aryan race.

Plus, recall that Jews were disproportionately both capitalists and supporters of the Marxist revolution in Russia — not to mention the symbol of the cosmopolitan, rootless nomad for centuries. Many of those who wanted to reject both capitalism and Marxian socialism saw the Jews as the symbol of both.

So what does this have to do with Bernie Sanders and Donald Trump?

I would argue that they are both “nationalist socialists.” That is, they both embody key elements of fascism. They both think the nation comes first, and they both think the United States is an organization (not a spontaneous order) that should be under someone’s control.

The difference is that Sanders sees both the problems and the solutions from the workers’ perspective, so he’s focusing on both the exploitation by capitalists and keeping immigrants out to protect the wages of US workers. The losses to US workers matter more than the large gains to foreign-born workers coming here.

Trump sees all of this from the CEO/owner/capitalist perspective. He thinks the United States is, or should be, like a big firm where we all work together for a common goal. He envisions himself as the CEO, negotiating deals with other countries as if they, too, were just big corporate firms. But nations are not firms — they are spontaneous orders.

As I argued in an earlier column, “Socialism Is War and War Is Socialism,” this desire to turn spontaneous orders into hierarchies is characteristic of both war and socialism. It is also deeply embedded in fascism, and Sanders and Trump exemplify that tendency among the presidential candidates, though they do so with different emphases and rhetoric.

Their commonalities are also why our conventional binary left-right political spectrum makes no sense. That one candidate is perceived as far to the left and the other as (to some degree) a right-wing capitalist shows the depth of our failure to understand history. They have both rejected the spontaneous order of the market as well as the cosmopolitanism of liberalism and socialism. They are fascist brothers under the skin.

That both are getting the attention and support of so many Americans should be a matter of grave concern. After all, some clowns are far more scary than funny.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.