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Fragile Reasoning in Nassim Taleb’s “Antifragile”: An Enlightenment Transhumanist Critique – Article by G. Stolyarov II

Fragile Reasoning in Nassim Taleb’s “Antifragile”: An Enlightenment Transhumanist Critique – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
January 10, 2013
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Never before have I set out to read a book with such high expectations, only to encounter such severe disappointment. As an admirer of Nassim Taleb’s earlier books, Fooled by Randomness and The Black Swan, I expected to find insight and wisdom along similar lines in Antifragile. While Taleb’s latest book does contain some valid observations and a few intriguing general strategies for living, the overwhelming thrust of the book is one of bitter distaste for modernity (and, to a significant extent, technological progress), as well as an abundance of insults for anyone who would disagree with not just with Taleb’s ideas, but with his personal esthetic preferences. While sensible in the realms of finance and (mostly) economics, Taleb’s prescriptions in other fields venture outside of his realms of mastery and, if embraced, would result in a relapse of the barbarisms of premodernity. Perhaps as the outcome of his own phenomenal success, Taleb has become set in his ways and has transitioned from offering some controversial, revolutionary, and genuinely insightful ideas to constructing a static, intolerant, totalistic worldview that rejects deviations in any field of life – and the persons who so deviate.

I am saddened to write this, but I am convinced that Nassim Taleb would find me to be personally repulsive. Not only am I a technology-embracing transhumanist ( a “neomaniac” per Taleb’s vocabulary), and a person who embraces the “nerdification” of society – but I am also an explicit representative and promoter of the legacies of the 18th-century Enlightenment – and a proud suit-and-tie wearer besides. Taleb seethes with contempt for the very trappings of modernity – even for modern formal wear – and repeatedly asserts that nothing valuable can be gleaned from those who wear neckties. As in many other areas, his conclusion-jumping pronouncements exclude the possibility of the world not fitting into his invented categories (with their associated normative spin). On the necktie question, he seems to rule out the very existence of persons like me, who wear neckties not out of any compulsion (my office dress code does not require them), but rather as an esthetic statement arising from sheer personal choice – including, not infrequently, on weekends.

After reading Antifragile, and finding so much of the content in need of a thorough refutation, I have vacillated between writing a book review and a more comprehensive treatise. A short review, I realized, would not do this book justice – but I also did not wish to run the risk of writing a refutation as long as the book itself. The result is this – one of my longest book reviews to date, but written as concisely as the subject matter allows. Here, I seek to comment on many of Taleb’s areas of focus in Antifragile, highlighting both the book’s strengths and its egregious errors.

Antifragile was one of the very few books I ever pre-ordered, as Taleb, until about a month ago, held a place among my most admired contemporary thinkers – along with such luminaries as Steven Pinker, Ray Kurzweil, Aubrey de Grey, Max More, and Ron Paul. Taleb’s writings on the fragility of the contemporary financial system were simply brilliant and highlighted the systemic weaknesses of a “house of cards” built upon highly sophisticated but over-optimized models that relied on the unrealistic stability of the status quo and the absence of extremely disruptive “black swan” events. I expected that Antifragile would discuss ways to survive and prosper in a black-swan-dominated world – a question that has been at the forefront of my mind since at least 2006, when I personally observed some “six-sigma” events on the stock market and – after reducing my losses to manageable levels – have refused to participate in that particular economy-wide casino since.  While Antifragile does provide skeletal discussions of some valuable approaches (such as the “barbell” strategy, on which I will comment more below), the majority of the book’s focus is negative: a harsh criticism of the institutions, ideas, and people whom Taleb considers insufficiently antifragile or “fragilizing”. One of Taleb’s favorite terms throughout the book is “fragilista” – used to describe financial modelers, politicians, and intellectuals of a rationalist frame of mind. The term – aside from creating vague and completely irrelevant associations with left-wing Nicaraguan terrorists – also poisons the metaphorical well with regard to the people and approaches criticized by Taleb.

More generally, the book is pervaded by an undercurrent of anti-intellectualism, mocking those who use structured, explicit knowledge to interpret the world. This is rather odd, because Taleb himself is clearly an intellectual and a “nerd” of the sort he derides; his philosophical and historical allusions – and his expertise in mathematical finance (despite his criticisms thereof) – give away that fact. Fat Tony of Brooklyn, Taleb’s fictional representative of the non-intellectual person who relies on “empirical” heuristics and is able to become rich by occasionally betting against “suckers,” would not have kept the company of people like Taleb. No matter how much rhetorical contempt Taleb shows for those who engage in abstract reasoning, he cannot escape being one of them – and no amount of insults directed at his own kind will get him an iota of respect from those whose character traits he glorifies.

An antifragile system or entity, per Taleb’s definition, is one that benefits from volatility instead of succumbing to it. Beyond mere robustness, which withstands volatility intact, antifragility is the derivation of advantage from volatility. The concept itself is an intriguing one, but Taleb makes a crucial error in assuming that most antifragility is normatively preferable. He does make an exception for “antifragility at others’ expense” – but only in a limited context. For instance, he is outraged at career intellectuals who do not have “skin in the game” and do not suffer for making wrong predictions or recommendations (more on this later) – but he explicitly praises the antifragility of biological evolution, a process that has resulted in the brutal deaths of most organisms and the extinction of about 99.9% of all species in history. Even within his premise that modernity contains “fragilizing” elements, Taleb presupposes that fragility is necessarily undesirable. Yet a beautiful vase is fragile – as is, for that matter, an individual organism. Fragility is no justification for dismissing or opposing an area of existence that has other intrinsic merits. Perhaps the proper response to certain kinds of fragility is extra care in the preservation of the fragile – as shown, for example, in the raising of children and small animals.

When Taleb argues that post-Enlightenment civilization is fragile, he may be partly right – at least in the sense that such civilization requires the steady, conscious application of human intellect to maintain. Every generation must master the scientific, technological, and ethical accomplishments of the generations before it and amplify these accomplishments; this is the essence of progress. This mastery of civilization entails precisely the “nerdification” (i.e., sophisticated, refined, self-aware intellectualism) that Taleb scorns in favor of “empirical” heuristics that may have arisen out of premodern superstition in as great (or greater) a proportion as out of practical wisdom passed down throughout the ages. Steven Pinker, whose magnum opus The Better Angels of Our Nature I would glowingly recommend (and whose work Taleb has unfairly maligned, though Pinker’s response to Taleb is worth reading), illustrates convincingly that not only peacefulness but virtually every other characteristic of civilized human beings has improved dramatically over the past several centuries – and most remarkably over the past several decades. Nothing suggests that this improvement is an inexorable law of history, however; it is possible for anti-civilizing influences to take hold and for humanity to degenerate into the barbarism that characterized much of its past. In that sense, civilization may be considered fragile – but so eminently worth preserving and expanding, for it makes possible the good life for good individuals.

Unfortunately, Taleb has included himself among the influences that would undo many of the essential gains that humanity has achieved since the 18th-century Enlightenment. Taleb repeatedly references the “wisdom of the ancients” (the stoic Seneca is his favorite) and conflates the “natural” (a term from which he excludes human design and technology) with the desirable. Taleb praises the heuristics he sees in traditional religious systems (e.g., elaborate Greek Orthodox fasting rituals) while completely overlooking the massive horrors many traditional (i.e., premodern) religious systems perpetrated when persecuting dissenters, inspiring bloody wars of conquest, and establishing totalitarian regimes when combined with secular authority. The Enlightenment brought about a conscious questioning of religious (and all authority-based) traditions and commandments and resulted in the adoption of rigorous scientific inquiry in the pursuit of discovery and innovation. Taleb is wary of modern medicine because of possible “iatrogenic” effects (where the treatment itself causes most of the harm), and he even questions the genuineness and desirability of massive rises in life expectancy during the 20th and early 21st centuries. While there is some merit to balancing the anticipated benefits and possible side effects of medical treatments – and while Taleb may be right that certain fields may take treatment too far, especially as regards overprescription of psychotropic drugs to children – Taleb’s discussion of “iatrogenics” is mostly anecdotal and reliant on studies from much earlier periods in medicine (e.g., the death of George Washington in 1799 and a study on children in 1930).  The virtual eradication of smallpox, polio, tuberculosis, cholera, and the bubonic plague from the Western world by scientific medicine are utterly ignored by Taleb – as are the substantial declines in cancer death rates over the past 50 years, and the accomplishments of the Green Agricultural Revolution in averting the starvation of billions, which would have occurred if only “natural” agricultural techniques (i.e., techniques employed before some arbitrary historical cutoff date) had been utilized.

There may be some merit to Taleb’s advice of avoiding medical treatment for minor conditions (where the iatrogenic effects of treatment allegedly predominate) and letting the body heal itself, while being willing to undertake radical treatments for extreme, life-threatening conditions. However, context in medical care matters too greatly to make sweeping generalizations. A fairly small skin lesion, which does not interfere with day-to-day functioning, may, after all, be the beginning of a deadly cancer, for which no self-healing mechanism exists. In medicine especially, the “empirical” heuristics championed by Taleb must give way to careful and systematic scientific study. After all, most premodern cultures relied on “traditional” heuristics for millennia, with disastrous results; such reliance can be called folk medicine. One only needs to consider the “traditional” Eastern “remedies” based on the superstition that one will become like the creature one eats – or “traditional” Western Medieval bleeding and surgical practices – to realize how much progress modern scientific medicine has actually made.

While a reader of Fooled by Randomness and The Black Swan might have inferred libertarian and individualist tendencies in Taleb’s writing, Antifragile, unfortunately, sets the record straight: Taleb opposes “too much” individual flourishing and freedom. He reserves his bitterest venom for transhumanism, which is the logical outcome of a libertarian society in which technological progress is given free rein. Taleb’s reverence for “nature” and “the ancients” trumps his skepticism of centralized regimentation – as his ideas on life extension and freedom of speech illustrate. He writes, “I felt some deep disgust – as would any ancient – at the efforts of ‘singularity’ thinkers (such as Ray Kurzweil) who believe in humans’ potential to live forever. Note that if I had to find the anti-me, the person with diametrically opposite ideas and lifestyle on the planet, it would be that Ray Kurzweil fellow. It is not just neomania. While I propose removing offensive elements from people’s diets (and lives), he works by adding, popping close to two hundred pills daily. Beyond that, these attempts at immortality leave me with deep moral revulsion.” Taleb says little of substance to support this “deep moral revulsion” – beyond repeating the same tired, hackneyed old arguments about “making room for others” by dying – as if the life of the individual had no inherent value and could be justifiably expended for an alleged greater good. Taleb does not address Kurzweil’s arguments about the exponential progress of computing and other technologies, and the logical extrapolation of such progress within the coming decades. In short, he says nothing about why he would consider Kurzweil to be mistaken, or what about Kurzweil’s lifestyle and ambitions he considers destructive. Taleb’s rudely expressed opposition to transhumanism seems to be primarily driven by emotional revulsion or, to be more charitable, a conflict of values. Additionally, Taleb does not seem to understand the movement that he criticizes. He assumes that extended longevity would be accompanied by extended frailty and senescence, whereas true radical life extension would only be possible if biological youth could be prolonged through periodic rejuvenation of the organism. Moreover, Taleb is, at heart, a collectivist who embraces the sacrifice of the individual to the tribe. He writes, “I am not here to live forever, as a sick animal. Recall that the antifragility of a system comes from the mortality of its components – and I am part of that larger population called humans. I am here to die a heroic death for the sake of the collective, to produce offspring (and prepare them for life and provide for them), or eventually, books – my information, that is, my genes, the antifragile in me, should be the ones seeking immortality, not me.”

The biggest disappointment I experienced when reading Antifragile was the realization I came to upon reading the above-quoted passage. This book was never about helping make the individual antifragile. The preservation of a human being in a volatile and uncertain world – and the attempt to equip a human being to flourish in the face of such volatility and uncertainty – were never Taleb’s key aims. Taleb’s views on antifragility are, indeed, not particularly helpful to me in my goal to discover strategies that would preserve, fortify, and enrich the individual in an often hostile, and, in many ways, fundamentally unpredictable world which lacks any manner of built-in justice outside of what humans, through their ingenuity and will, can implement. Taleb would have both of us (and everyone else) be sacrificed for the sake of an unspecified “collective” – as if some abstraction, be it “nature”, evolution, or “the whole”, has value in and of itself, apart from its constituent individuals. Yet it is precisely this sort of collectivism that enables inhuman atrocities, from mass executions of “the other” to suicide bombings for a “greater cause”. Taleb does not intend to advocate armed violence, but his rhetoric on heroism, “dying heroically”, and self-sacrifice eerily resembles the pronouncements of many a totalitarian regime, inquisitorial sect, or band of nationalistic or religious terrorists. The good life – the comfortable life of peace, productive work, and self-fulfillment – does not seem to be his objective.

In several sections devoted to having “doxastic commitment” or “soul in the game”, Taleb glorifies the idea of leaving no way out in the event of one’s failure – forgetting that much true learning is iterative and often occurs through a trial-and-error process. If one is not allowed to recover from failure and change one’s approach (without crippling personal cost), then this learning will be preempted, and the individual will be destroyed instead. Taleb glorifies, for instance, the poet Almutanabbi, who died senselessly in the attempt to realize the ideals about which he wrote. But it is far more impressive to live in furtherance of one’s ideals than to die for them – particularly since living requires one to reevaluate one’s views in light of emerging evidence and continual reflection.

Taleb is no more a friend of individual liberty than of technological progress. As a consequence of his view that intellectuals should have “skin in the game”, he insists that they should personally suffer the adverse consequences of their recommendations. Indeed, he would implement his scheme of penalties to the detriment of legal protections for freedom of speech. While criticizing the financial rating agencies’ misclassification of toxic assets as “AAA” securities, he remarks that “they benefit from the protection of free speech – the ‘First Amendment’ so ingrained in American habits. My humble proposal: one should say whatever he wants, but one’s portfolio needs to line up with it.” Elsewhere, Taleb proposes that individuals be held legally liable for the damage that their predictions and recommendations result in if followed by others. He ignores that not all individuals have the assets to even invest in a portfolio. Are the poor and middle class to be deprived of the ability to express their opinions or speculate about the economic future (even if such speculation is without much basis), simply because they do not have much “skin” to put into the “game”? Furthermore, establishing any legal liability for expression of opinion would have a chilling effect on legitimate and valuable ideas – since the very threat or prospect of a lawsuit may serve as a deterrent to publishing or even verbal expression in front of someone who disagrees. For someone so insistent on individual moral responsibility, Taleb ignores the responsibility of the recipient of ideas to actively judge and interpret them. Just as there exist sleazy marketers, so there exist peddlers of philosophical falsehoods, and sometimes those falsehoods result in personal gains for their advocates. Yet the responsibility of the sensible, rational individual is to filter out truth from falsehood using his own mind. No prohibition, no regime of penalties, no prior restraint can protect people from themselves. Such restrictions can only prevent people from cultivating the habits of autonomous thought which are the surest safeguards against charlatans and demagogues of every stripe. Taleb is too concerned about punishing the false prophets, and insufficiently concerned about elevating the general level of reasoning and discourse by means of positive persuasion, dissemination of true information, and technological innovation that alters people’s incentives and the balance of power.

Taleb even departs from the libertarian advocacy of free trade and (genuine) globalization. While he acknowledges the theoretical validity of some specialization and the law of comparative advantage, he sees the global division of labor as vulnerable to volatility in the system. He argues that a change in conditions in one part of the world now has a far greater ability to adversely impact all other parts of the world – because the division of labor is so finely tuned. This is a fair argument for redundancy in economic systems – e.g., having “backup” institutions which could supply a good or service if the original supplier is unavailable due to an unexpected disruption. However, Taleb errs when assuming that businesses pursuing their rational self-interests under a truly free arrangement of global commerce would not already attempt to implement such redundancies. Supply-chain risk, for instance, is commonly discussed by representatives of multinational businesses and their insurers, who have a stake in preventing supply disruptions. Overreliance on any one economic partnership may indeed be imprudent – but does Taleb believe that businessmen with true “skin in the game” – billions of their own dollars – would be oblivious to the need for redundancy? Taleb makes no case for why free trade – in essence, the voluntary exchange of goods and services among individuals without regard for national origins or boundaries – would create a systemic lack of redundancy. A stronger argument could be made for how the current politicized environment of trade – a mixture of freedom and elaborate controls achieved by means of treaties and retaliatory protectionism – would produce insufficient redundancy and overdependence on those precious channels of international trade that remain permitted. But the solution to this problem would be more options – more channels for foreign trade – not fewer. Autarky certainly will not do, as it brings about its own massive vulnerabilities. One only need consider the consequences of a famine in a region which is not allowed to import food from abroad. Trade creates redundancy by allowing access to goods and services from all over the world, instead of just one minor segment thereof.

The nonlinear responses to volatility described in Antifragile are valid in principle. A system responds in a concave fashion if the harm to the system from a change in conditions is more than linear relative to that change (i.e., an accelerating harm). A system responds in a convex fashion if it is able to reap benefits from volatility in a more-than-linear accumulation. Taleb proposes that it is possible for certain systems to be concave or convex in both directions – being harmed by or benefiting from a shift in conditions either way. It is also possible for systems to be convex over some regions of inputs, and concave over others – e.g., a human immune system or a body engaging in exercise. Taleb does not, however, provide many tools to actually determine the inflection points within any particular system. Although he praises “empirical” heuristics for doing so – especially heuristics passed down through the ages – he provides absolutely no support to conclude that those heuristics do not overshoot the desirable levels of any given characteristics. To use the example he provides of religious fasting customs, even if one can be generous and suppose some benefit to the fasting (of which I am not altogether convinced), what evidence is there that the specific schedule and duration of fasts is optimal? Could not scientific investigation uncover a better way, and explain its workings in a rational, evidence-based manner, without recourse to superstition or ancestral hand-waving?  Furthermore, Taleb does not consider that the “wisdom of the ancients” may not have developed through the careful evolutionary process he describes – but rather comes to us as a warped reflection of some very recent generation’s interpretation of ancient practices – which themselves were altered by numerous political authorities, ideological movements, and idiosyncratic historical events in order to fulfill some very context-specific (and not necessarily virtuous or life-affirming) aim. To get a sense of how this has happened to distort prevailing conceptions of the past, one needs only to consider the early history of Christianity – where doctrine was often promoted or suppressed based on the temporal interest of Roman and Byzantine emperors and their officials – or the extensive revisionism performed by the 19th-century Romantics with regard to the Middle Ages. Taleb himself romanticizes antiquity (including the ancient Middle East), overlooking the incessant wars, disease, filth, vulgarity, persecution, and ideological totalism that characterized many pre-Enlightenment societies (e.g., the totalitarianism of Ancient Sparta or Calvin’s Geneva – which made even the USSR seem like a paragon of liberty and progress by comparison).

Taleb’s contempt for wealth, and praise for attitudes that part with wealth lightly, betray the fact that he has never been in danger of losing his material comfort. Growing up in a prosperous , respected, and intellectual Lebanese family, Taleb moved to the United States and made a fortune as a trader, which he later magnified by selling his books. If he expresses contempt for the material well-being he sees around him, and a nostalgic longing for an idealized past, it is because he cannot truly envision what premodernity was actually like. Perhaps, because he greatly underrates the transformative effects of technological progress, Taleb’s image of premodernity is of a slightly rustic incarnation of our present world – except one in which people mostly avoid doctors and editors, walk on rocky landscapes in foot-shaped shoes, eat “paleo” diets, quote from Seneca’s dialogues, and occasionally engage in bloody contests over fine points of poetry, philosophy, and theology – just to show how much “skin in the game” they have with regard to their beliefs. Taleb neglects the possibility that only recently has life become remotely comfortable and quasi-meritocratic, while premodernity was a mostly uninterrupted stretch of miseries, cruelties, superstitions, prejudicial hatreds, and filth (punctuated by a few refined characters like Aristotle – whom Taleb maligns – and Seneca – people who were remarkable for their time and are remembered precisely because they stood out so far above their contemporaries). A small elite has always been super-wealthy (by the standards of their time) in every era and in every society, but it is an all-too-common mistake to imagine oneself in the position of a historical member of the elite (e.g., someone who would have read Seneca, or Seneca himself) rather than a common peasant or slave – which is the far more probable fate for a randomly chosen premodern person. The casual dismissal of wealth as not particularly important would not have been articulated by people toiling from sunrise to sunset in order to grow crops for their feudal overlords and be given a small fraction of the resulting harvest in order not to starve. Nor is this attitude particularly helpful to people who might have been interested in cultivating personal antifragility so as to prevent themselves from becoming poor.

The most useful personal advice in Antifragile concerns the so-called “barbell strategy” for minimizing the downside of volatility while benefiting from the upside. The strategy involves putting most of one’s resources into an ultra-safe, ultra-conservative course of action, while devoting the rest to a diversified speculation, but in such a manner that the entire speculative amount can be lost without significant harm. An example of this approach would be keeping 90% of one’s money as cash or gold, and investing the remaining 10% into five different startup companies; each startup firm could fail – and many do – but it is also possible for a startup company to succeed tremendously and bring orders of magnitude of profit. If all the startup firms fail, then one has had a 10% loss – but this does not have to be ruinous if one is not hyper-leveraged. Taleb is also correct about the highly fragilizing effects of debt and recommends avoidance of indebtedness where possible. This is sound advice, greatly needed in a country where everything from everyday consumption to the purchase of big-ticket items to intangible “investments” such as formal education is often purchased on credit. Debt introduces fragility by amplifying the financial pain of volatility. A marginal drop in income could be endured by a debt-free person with savings, but would result in a leveraged person losing everything. Taleb’s advice here may not always be perfectly realizable – as not every person can afford to invest any percentage of his assets with the ability to continue living well if those assets were lost. Furthermore, mortgage debt is extremely difficult to avoid for a person without sizable initial wealth; other debt, however, is generally avoidable.

While Antifragile has some virtues, Taleb should not have dismissed or derided his editors. If carefully confined to the realms of finance and economics, Antifragile might have been an illuminating and positive book on net. As matters stand, however, Taleb has managed to gratuitously insult practically everybody who might have been sympathetic to his previously articulated views – including the libertarians, transhumanists, and rationalist natural-law thinkers who would have found much to agree with in Fooled by Randomness and The Black Swan. Taleb even classifies Friedrich Hayek among the rationalists whom he dismisses: “We may be drawn to think that Friedrich Hayek would be in that antifragile, antirationalist category. […] But Hayek missed the notion of optionality as a substitute for the social planner. In a way, he believed in intelligence, but as a distributed or collective intelligence – not in optionality as a replacement for intelligence. […] Finally, John Gray, the contemporary political philosopher and essayist who stands against human hubris and has been fighting the prevailing ideas that the Enlightenment is a panacea – treating a certain category of thinkers as Enlightenment fundamentalists. […] Gray worked in an office next to Hayek and told me that Hayek was quite a dull fellow, lacking playfulness – hence optionality.” And there was the gratuitous insult again. Very well. We Enlightenment rationalists and technoprogressives will be happy to accept Hayek as one of us – along with Socrates, Aristotle, and Ayn Rand (for whose fan Taleb should not be mistaken, as he tells us in a footnote). Taleb can have Seneca, Almutanabbi, John Gray, and Fat Tony. We remain in good company without them.

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.

Right to Work is Part of Economic Liberty – Article by Ron Paul

Right to Work is Part of Economic Liberty – Article by Ron Paul

The New Renaissance Hat
Ron Paul
December 18, 2012
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Many observers were surprised when Michigan, historically a stronghold of union power, became the nation’s 24th “Right to Work” state. The backlash from November’s unsuccessful attempt to pass a referendum forbidding the state from adopting a right to work law was a major factor in Michigan’s rejection of compulsory unionism. The need for drastic action to improve Michigan’s economy, which is suffering from years of big-government policies, also influenced many Michigan legislators to support right to work.

Let us be clear: right to work laws simply prohibit coercion. They prevent states from forcing employers to operate as closed union shops, and thus they prevent unions from forcing individuals to join. In many cases right to work laws are the only remedy to federal laws which empower union bosses to impose union dues as a condition of employment.

Right-to-work laws do not prevent unions from bargaining collectively with employers, and they do not prevent individuals from forming or joining unions if they believe it will benefit them. Despite all the hype, right-to-work laws merely enforce the fundamental right to control one’s own labor.

States with right-to-work laws enjoy greater economic growth and a higher standard of living than states without such laws. According to the National Institute for Labor Relations Research, from 2001-2011 employment in right to work states grew by 2.4%, while employment in union states fell by 3.4%! During the same period wages rose by 12.5% in right to work states, while rising by a mere 3.1% in union states. Clearly, “Right to Work” is good for business and labor.

Workers are best served when union leaders have to earn their membership and dues by demonstrating the benefits they provide. Instead, unions use government influence and political patronage. The result is bad laws that force workers to subsidize unions and well-paid union bosses.

Of course government should not regulate internal union affairs, or interfere in labor disputes for the benefit of employers. Government should never forbid private-sector workers from striking. Employees should be free to join unions or not, and employers should be able to bargain with unions or not. Labor, like all goods and services, is best allocated by market forces rather than the heavy, restrictive hand of government.  Voluntarism works.

Federal laws forcing employees to pay union dues as a condition of getting or keeping a job are blatantly unconstitutional. Furthermore, Congress does not have the moral authority to grant a private third party the right to interfere in private employment arrangements. No wonder polls report that 80 percent of the American people believe compulsory union laws need to be changed.

Unions’ dirty little secret is that real wages cannot rise unless productivity rises. American workers cannot improve their standard of living simply by bullying employers with union tactics. Instead, employers, employees, and unions must recognize that only market mechanisms can signal employment needs and wage levels in any industry. Profits or losses from capital investment are not illusions that can be overcome by laws or regulations; they are real-world signals that directly affect wages and employment opportunities. Union advocates can choose to ignore reality, but they cannot overcome the basic laws of economics.

As always, the principle of liberty will provide the most prosperous society possible. Right-to-work laws are a positive step toward economic liberty.

Why I Prefer the “Fiscal Cliff” to the Alternative – Video by G. Stolyarov II

Why I Prefer the “Fiscal Cliff” to the Alternative – Video by G. Stolyarov II

Mr. Stolyarov expresses hope that Congress will fail in its attempt to avert the overhyped “fiscal cliff” and that this deficit-reducing package of measures will take effect. Mr. Stolyarov is no friend of tax increases, but he expects that most of those will be undone. On the other hand, reductions in planned federal spending – especially military spending – would be more difficult to undo under a “fiscal cliff” scenario, and this therefore presents an opportunity for friends of liberty to gain ground.

If the “fiscal cliff” (which is not really that bad at all) is averted, then this would send a signal to politicians that there exists no substantive strong incentive to negotiate any further deficit or debt reductions.

Remember to LIKE, FAVORITE, and SHARE this video in order to spread rational discourse on this issue.

Support these video-creation efforts by donating. (See the sidebars of the linked pages for donation options in USD and Bitcoin.)

References

– “United States fiscal cliff” – Wikipedia
– “List of countries by military expenditures” – Wikipedia

In Praise of Price Gouging – Article by Ron Paul

In Praise of Price Gouging – Article by Ron Paul

The New Renaissance Hat
Ron Paul
November 12, 2012
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As the northeastern United States continues to recover from Hurricane Sandy, we hear the usual outcry against individuals and companies who dare to charge market prices for goods such as gasoline. The normal market response of rising prices in the wake of a natural disaster and resulting supply disruptions is redefined as “price gouging.” The federal government and some state governments on the East Coast claim that price gouging is the charging of ruinous or exploitative prices for goods in short supply in the wake of a disaster and is a heinous crime  But does this reflect economic reality, or merely political posturing to capitalize on raw emotions?

In the wake of Hurricane Sandy, the supply of gasoline was greatly disrupted. Many gas stations were unable to pump gas due to a lack of electricity, thus greatly reducing the supply.  At the same time demand for gasoline spiked due to the widespread use of generators. Because gas stations were forbidden from raising their prices to meet the increased demand, miles-long lines developed and stations were forced to start limiting the amount of gasoline that individuals could purchase. New Jersey gas stations began to look like Soviet grocery stores.

Had gas stations been allowed to raise their prices to reflect the increased demand for gasoline, only those most in need of gasoline would have purchased gas, while everyone would have economized on their existing supply. But because prices remained lower than they should have been, no one sought to conserve gas.  Low prices signaled that gas was in abundant supply, while reality was exactly the opposite, and only those fortunate enough to be at the front of gas lines were able to purchase gas before it sold out.  Not surprisingly, a thriving black market developed, with gas offered for up to $20 per gallon.

With price controls in effect, supply shortages were exacerbated.  If prices had been allowed to increase to market levels, the profit opportunity would have brought in new supplies from outside the region.  As supplies increased, prices gradually would have decreased as supply and demand returned to equilibrium. But with price controls in effect, what company would want to deal with the hassle of shipping gas to a disaster-stricken area with downed power lines and flooded highways when the same profit could be made elsewhere?  So instead of gas shipments flooding into the disaster zones, what little gas supply is left is rapidly sold and consumed.

Many governments fail to understand that prices are not just random numbers. Prices perform an important role in providing information, coordinating supply and demand, and enabling economic calculation. When government interferes with the price mechanism, economic calamity ensues. Price controls on gasoline led to the infamous gas lines of the 1970s, yet politicians today repeat those same failed mistakes. Instituting price caps at a below-market price will always lead to shortages. No act of any legislature can reverse the laws of supply and demand.

History shows us that the quickest path to economic recovery is to abolish all price controls. If governments really want to aid recovery, they would abolish their “price-gouging” legislation and allow the free market to function.

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.

The Vital Importance of Property in Land: Part 3 – A Rational System of Land Ownership – Article by G. Stolyarov II

The Vital Importance of Property in Land: Part 3 – A Rational System of Land Ownership – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
November 11, 2012
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In this third installment of my short series on land and property rights (see my first and second installments), I aim to outline a rational, libertarian system of land ownership that simultaneously respects each individual’s private property and allows each individual ample opportunities to obtain land of his or her own. This is a system that allows every individual his or her inviolate sphere of action and control, while at the same time ensuring that no individual who strives to obtain land through sufficient exertion will be denied the ability to own landed property.

The rational criterion for how land may be initially appropriated from the state of nature is the first-occupier rule. The first person to transform a piece of land from the state of nature becomes that land’s rightful owner – but only if the land is substantively transformed and put to a use that can be reasonably expected not to terminate at any fixed time. In other words, a person may only initially appropriate that land which the person actually uses and does not expect to stop using entirely. The use may be sporadic and intermittent, but as long as the land is not abandoned altogether and the reasonable possibility of using it remains, the right to ownership remains with the person who first transformed it. A person can indirectly “use” the land by hiring others to work on it or manage it. As long as there exists an economic connection back to the owner, the use criterion is met. The land’s original owner may sell it to others or give the land as a gift. At that time, the new owner obtains the same prerogatives as the original owner had.

The use criterion prevents arbitrary claims over un-transformed land and also minimizes the possibility of conflict by reference to a criterion that relies on an ongoing state of use of the land. If a piece of land becomes completely abandoned by its owner, in the sense that the owner does not himself, or through the employment of others, perform or intend to realistically perform any physical actions on or pertaining to the land, then this land reverts to the state of nature and legitimately may be claimed by any subsequent first occupant. The use criterion distinguishes the libertarian view of land ownership from certain arbitrary legal precedents in many parts of the world – e.g., the “right” of kings in various Medieval and Early Modern European countries to all of the prime forests of those countries, which denied their subjects the ability to obtain any of the produce of the forests without special permission, or the “right” of certain Latin American potentates to vast tracts of completely undeveloped land, on which thousands of people have lived for generations as “squatters” who possess the land de facto but not de jure. The use criterion suggests that it may be the case that laws treat as private property land which should, in fact, be considered a part of the state of nature and opened to be claimed by future first occupants in substance.  This could, in practice, result in considerable upward economic mobility and improvements in standards of living for many people.

In an ideal libertarian system, owned land is truly owned – i.e., it is free of any encumbrances that the owner has not voluntarily entered into. The owner has the complete right to utilize the property as he sees fit, as long as he does not infringe on others’ rights to life, liberty, and property. There may be some role for the law to restrict the use of certain activities that necessarily infringe on others’ rights, such as spilling sewage into a river that runs adjacent to numerous owned plots of land – or emitting disease-causing chemicals into the air. These activities with negative external effects may be permissible in some cases if the affected other individuals consented to their conduct (with their consent possibly accompanied by compensation from the person engaging in the negative-externality-causing activity). Furthermore, the first occupier of a region has a greater prerogative to engage in such activities if the adversely affected neighbors voluntarily move in after the activity was known to be underway. (In other words, the neighbors could have avoided the adverse effects by going elsewhere, but they knowingly chose to move in anyway.)

An ideal libertarian system would have no property taxes or any other taxes that depend on one’s present wealth in any way. Irrespective of what other taxes may exist (and I have elsewhere argued for a system that can fund the government without relying on compulsory taxation at all), the concept of ownership should not be tied with any ongoing payment, unless the property was purchased by means of assuming a debt obligation. Even with regard to debt obligations, foreclosure on a property should be prohibited until the purchaser’s equity has been reduced to zero by an accumulation of amounts equal to the sum of delinquent payments, plus interest at the agreed-upon loan rates.

An owner of land may agree to an easement on the land in the form – for instance – of allowing a utility to place its infrastructure there, or allowing public traffic through a portion of the land. This easement should be entirely voluntary on the part of the owner, and it is legitimate for the owner to request compensation for granting the easement if he wishes. Likewise, the owner may rent the property to others at a mutually agreed-upon price, or, at his discretion, allow others to use or live on the property at no cost. A contractually conferred easement or tenancy may limit the owner’s subsequent ability to deny certain prerogatives to the tenants or parties using the easement, and a free market would facilitate the evolution of contracts that allow such parties the ability to use the land, subject to certain basic conditions, without fear of unilateral or arbitrary cessation of an arrangement on which they rely.

How would roads be built in such a world? How would utility lines be laid? Perhaps a contractually irrevocable perpetual easement might be the way to facilitate such arrangements while fully respecting private property. Instead of being bullied by eminent-domain legislation to sell the land or grant the easement, the owner may be enticed to collect a perpetual stream of income from the private road company or private utility. The road easement would be priced at prevailing market rates – not through a judicial fiat determining “fair market value,” but rather through negotiations based on millions of data points regarding what owners of similar land used for roads have been willing to accept without any compulsion.

As Roderick Long points out, it is also possible for a libertarian view to accommodate a type of “common” land which is neither private nor governmentally owned. This category of commons could be created by means of a private owner opening his land to common use in perpetuity – as in a landowner designating his property a public park or thoroughfare. Such common land does not revert to the state of nature, because it continues to be used regularly – e.g., by means of moving through it. The latest private owner retains a certain degree of rights to the land, in the sense that his designation for how the land may be used must be respected. However, as long as this designation’s terms are obeyed, the latest owner has surrendered his discretion over any particular instance of the common land’s use. The ability of common land to arise could be facilitated by the formation of voluntary cooperatives that purchase private land and declare it to be common. These cooperatives could then also supply services to keep the land in proper order for the purpose to which it is intended to be put. An example of this might be a group of shop owners in a busy urban area deciding to render the street adjacent to the shops to be common, so that any person could approach the shops without paying fees to any party, or being otherwise restricted. The shop owners could form a cooperative to purchase the land constituting the street. The cooperative would then declare such land to be common and would provide maintenance and security services to ensure that the street remains clean and accessible, and that no one significantly obstructs passage.

A true libertarian system would likely lead to the creation of numerous common spaces that would give people without substantial wealth the ability to use land for certain purposes which may bring them economic benefit and enrichment. For instance, it is conceivable that a common working area could be established, where individuals may bring their tools and utilize certain space for the period of their presence – on a first-come, first-served basis.

A legitimate question may arise as to how far up and down a right to legitimately acquired land extends. Again, the boundaries of such ownership should be circumscribed by considerations of use, as well as considerations of personal safety. It is reasonable to conclude that one’s owned airspace does not extend 10,000 meters into the air – which would have restricted the ability of airplanes to pass overhead. However, it is also reasonable to conclude that airplanes should be prohibited from flying at 50 meters above a residential area – even if they do not directly damage any property during a particular flight – because the risk of such damage is too great. The precise amount of owned airspace cannot be given a priori through philosophical argument – but use and safety do set some minimum bounds for the owner to rely on, and a rational legal system would work out the implications of these principles for various types of situations and technological possibilities.

Similarly, to what extent could a land owner lay claim to resources underneath the land? Clearly, one owns the land on which one’s house stands, to a depth that is sufficient to ensure that the house would not subside into the earth. However, does a land owner have the right to a mineral deposit 5 kilometers underneath the land? Perhaps so, if extracting the mineral would require transformation at the surface of the land. However, if a vast underground cave network leads to the mineral deposit from an entrance external to the land’s surface – or if such an access route can be created without any risk to the land on the surface (or the health, safety, or comfort of the owner), then does the owner still have a property right to the mineral – particularly if the owner does not intend to do anything with it and lacks the technical skills in any event? This is again a question that can only be addressed fully by considering the technological possibilities at hand, as well as the circumstances of a particular case. The general principles of use and safety would, however, result in the land owner receiving some claim to most underground resources in most real-world situations.

A libertarian system would penalize violations of others’ private property using Murray Rothbard’s “two teeth for a tooth” rule. In other words, a person who has infringed on another’s rights to property owes the victim twice the amount of the economic harm inflicted. A person who steals a television owes the victim two televisions (or the market value thereof). A person who breaks a window owes the cost of replacing two windows. This treatment both fully compensates the victim and punishes the violator by having the violator forfeit an equivalent item to the item of which the rightful owner was unjustly deprived. Monetary compensation may often be an appropriate way to address this when the property damaged could not easily be conceived of as a discrete unit.  It is important for the punishments for violations of property rights to be proportionate and only directed toward true violators. In other words, there are limits to the kind and degree of force that a property owner may wield to protect his property – depending on the circumstances and the nature of the threat. However, deadly force may be used if the property owner has justifiable reason to believe that his life or the lives of others on his property are threatened. When only inanimate property is threatened, incapacitation of the violator should be pursued instead of deadly force.

The great opportunity-promoting effects of a true libertarian system of land ownership would arise from the absence of any zoning laws and building restrictions – or restrictions of any sort on land use that does not pose negative externalities. Even private associations that attempt to foist such restrictions would be limited by law from prohibiting non-coercive, non-damaging uses of unencumbered property, over which the owner would remain sovereign. Thus, the tyranny of zoning and the tyranny of homeowners’ associations would both be absent in a libertarian system. Rapid economic growth and a flowering of individual expression on private property would result. Furthermore, more convenient economic arrangements  would arise – such as the pre-zoning-era practice of a store owner living with his family on the second floor above the store he owns on the first.  A libertarian system of true private land ownership would result in many more “mixed-use” areas arising, where functions of life and business are not artificially segmented from one another, but rather occur together in such a manner as is most convenient to the residents. Travel times to one’s place of employment would be greatly reduced, resulting in immense savings on transportation costs and improvements in personal safety. More rapid construction would occur, as building permits would not be required.

Under a libertarian system along the lines described above, much land currently in the state of nature would be converted to useful purposes, including the construction of residences for people who find the currently available stock of housing to be too expensive. The massive increase in the supply of housing would cause prices to fall to truly affordable levels for most. Furthermore, the freedom to build would result in an increased and accelerating rate of technological and design innovation – since no third party would be permitted to prohibit a structure for employing unusual esthetic elements or a method of construction that differs from what prevails in the area. More generally, esthetic criteria would never justify coercive prohibition of property use in a libertarian system; only physical harm to other persons would. Ultimately, the result of recognizing a genuine, rational regime of property rights would vastly enhance individuals’ standards of living not just through increased material prosperity, but through the improved satisfaction of living as a true master of one’s own sphere of life and activity.

The Vital Importance of Property in Land: Part 2 – An Analysis of the Georgist Land-Value Tax – Article by G. Stolyarov II

The Vital Importance of Property in Land: Part 2 – An Analysis of the Georgist Land-Value Tax – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
October 16, 2012
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In this second installment of my short series on land and property rights (see my first installment here), I begin to respond to “We Can Have It All: The Beauty of Value Capture” by Edward Miller. In particular, I focus on the idea of the single tax on the value of land, as originated by Henry George. Mr. Miller, a contemporary representative of the Georgist position, states that “We can eliminate taxes and debt, poverty and special privilege. Contrary to the dour pronouncements from the curators of the dismal science, we can have it all.” Mr. Miller advocates doing this by advocating the elimination of “no-strings-attached sovereignty” over land and replacing it with what he calls “Value Capture” and which many others would call a land-value tax. Mr. Miller states that this “is a tax only in the sense that Pigovian ‘Taxes’ are. It is not a tax on production, and thus there is nothing objectionable about it from the perspective of classical liberalism. Indeed, I’d argue that without it, classical liberalism is a cruel joke. Value capture is simply a reconceptualization of who owns the value of the access rights over the Earth.” In this installment, I will focus on the Pigovian/Georgist land-value tax idea in particular. In subsequent installments, I will address what I consider to be a more desirable approach to land in a free-market, classically liberal manner that seeks to facilitate economic growth and the continual improvement of living standards.

I am not a supporter of a land-value tax (however it may be termed) or of Pigovian taxation in general. The idea of a Pigovian tax (however called) seems to me rather contrived, in that it assumes a perfect knowledge on the part of the taxing authority of not just which activities create negative externalities, but also the precise extent to which a particular instance of such activities creates those externalities – and, correspondingly, the precise extent of taxation needed to take the “social cost” of these activities into account. The economic distortions of taxation, relative to a tax-free free-market situation, cannot be avoided in practice, no matter what form the tax takes – though, admittedly, it can be said that some types of taxes produce greater distortions or different kinds of distortions than others. Furthermore, the idea of a Pigovian tax is unworkable in practice, because political incentives and the influence of special-interest pressure groups would surely distort the incidence of the tax to benefit those with lobbying clout. In other words, even if the exact “social cost” of every activity could be calculated, the influence of lobbyists on elected officials would result in the incidence of the tax departing from a proper reflection of that “social cost.”

The elimination of all other possible taxes would be a definite advantage of the Georgist system, though – in practice – attempts to introduce a new type of tax have seldom supplanted existing taxes but have merely resulted in yet another kind of tax alongside all others. In fact, in the United States today, we might consider the current system of property taxation to be a partially Georgist system – but the property taxes are paid alongside income, sales, excise, gift, estate, fuel, and numerous other taxes – not to mention a myriad of fees to fund specific government services.

However, let us assume that it is politically feasible to enact a single land-value tax that supplants all other taxes. Perhaps an added advantage of this simplified approach would be the reduction in the overall cost of administering tax determination and collection – which the most benevolent conceivable government would entirely pass on to the people in the form of a lower tax rate. Even in this ideal situation, why might a land-value tax still be less favorable than other possible taxes?

Consider that certain kinds of taxes can be avoided by a property-owning individual entirely. He only needs to pay an income tax if he earns taxable income. He only needs to pay a sales tax if he purchases taxable goods. He can avoid gift taxes by not giving gifts (beyond the tax-exempt amounts). If he has enough money saved up to live on, grows/produces all of his own goods, and keeps his property largely to himself, he can avoid all such taxes in theory (even though, in practice, he would admittedly be part of a small minority of the population). The similarity among these taxes (no matter their other flaws, of which there are many) is that they do not reduce current wealth kept for personal use. Property taxes are different in that they are able to actually diminish a person’s stock of wealth without that person undertaking any positive action. As long as a person owns a house, or a commercial building, or even a stretch of land for recreational use, he cannot avoid the diminution of his wealth through taxation solely due to the passage of time. An income tax only reduces one’s potential earning opportunities. A sales tax only reduces one’s potential purchasing power if one chooses to make purchases. A property tax, however, reduces one’s existing stock of wealth, no matter what one chooses to do. Thus, with all other things (including the total tax collected) being equal, a property tax is more adverse to an individual because it compels him to engage in positive actions in order to maintain his present wealth, rather than merely discouraging the individual from undertaking certain additional activities that might be taxed to a greater extent than he might prefer.

A Georgist land-value tax is different from the current American property tax in that it taxes the land only and not the manmade improvements on that land. In this respect, the land-value tax is superior. It would probably encourage significant vertical building by landowners/occupants in order to increase the amount of improvements per unit of land. However, it would also probably result in large stretches of land being unoccupied and unused, because there would be a sub-optimal level of interest in developing that land, as the owners/occupants would be responsible for paying tax. This may make the unfortunate phenomenon of urban congestion common even in less populated areas.

Furthermore, one can conceive of a supremely sub-optimal outcome of the single land-value tax, which would be the result of a perverse incentive indeed. This is the scenario where most individuals decide that it is not worth the trouble to own land (or partially own it or “rent” it from the community – however this might be described legally). Instead, large landholding corporations would emerge and purchase most or all of the land. Their owners (probably a lot of dispersed shareholders beholden to an entrenched management and thereby subject to numerous principal-agent problems) would be willing to absorb the costs of the land-value tax in exchange for collecting rents from everyone else who lives and works on that land. Many ordinary people might think that they are getting a good deal by avoiding all legal incidence of taxation – but in reality, the amount of rent they would pay to the landholding corporations would be higher to reflect the taxes those corporations have to pay. In other words, the cost of the land-value tax would be at least partially passed on to the renters/majority of people in the community by the landholding corporations. Economically, this is identical to the scenario that the Georgist proposal seeks to avoid – the situation where (whether or not this is indeed the case) it is alleged that most of people are beholden to a minority of landowners or lienholders by means of payment of rent or repayment of expensive mortgages.

One significant downside of this scenario, relative to the status quo, is that the possibility of “free and clear” ownership of property would be more definitively off-limits to everybody – even in theory. Another even greater concern is that the landholding corporations would essentially behave like supercharged homeowners’ associations – with even more power to micromanage people’s lives and impose arbitrary restraints on the use of personal property and the improvement of land. They would be able to conduct this abuse with impunity, because there would be fewer of them in any given geographical area, compared to today’s homeowners’ associations. This would give the landholding corporations the oligopoly (and sometimes monopoly) power that enables many similar entities to disregard consumer preferences and extract large amounts of unearned money.

The reality is that the market always seeks to correct for economic distortions that are the result of confiscatory or redistributive policies. The correction is always imperfect, because real wealth is in fact appropriated through taxation. However, changing the tax structure cannot, by itself, solve the whole distortion – without addressing how much wealth is kept by private citizens and what they are legally able to do with that wealth. There may, however, be a valid argument for changing a tax structure if this inherently results in a lower total proportion of tax collected, relative to the wealth that exists among the general population. This, of course, depends on the real rates of tax selected for each alternative under consideration. For instance, I would wholeheartedly support (as an unambiguous directional improvement relative to the status quo) a single land-value tax whose entire collections would be a mere 0.5% of the Gross Domestic Product. Irrespective of any concerns about the incentive effects of the tax, those would be dwarfed by the sheer amount of wealth that individuals would be able to keep compared to today’s tax regime. In this situation, though, I would still strongly prefer that the legal concept of full ownership of land be retained and that the land-value tax be administered similarly to today’s property taxes – as opposed to treating the occupant of the land as a “tenant” who owes a “rent” to “the community.”

There may also be a valid argument for changing a tax structure if doing so results in more wealth-generating behavior and increased productivity. However, I cannot find a system that allows for the diminution of current wealth through taxation to be more encouraging of productivity than a system that merely takes a share of future active production or consumption. If one cannot be guaranteed the peaceful and total enjoyment of the wealth one has already earned, then earning more seems less attractive from a psychological (in addition to a purely economic) perspective. Productivity is simply not as enjoyable if one views it as a chore to be done in order to remain in one’s present situation and prevent a decline – rather than an ambitious endeavor of self-improvement and possible enrichment.

Next, I will address how land might properly be approached from a libertarian/classical liberal standpoint, with beneficial practical consequences to most and the avoidance of effects that might stifle economic growth or decrease individual opportunities.

The Vital Importance of Property in Land: Part 1 – Arguments for Land as Property – Article by G. Stolyarov II

The Vital Importance of Property in Land: Part 1 – Arguments for Land as Property – Article by G. Stolyarov II

The New Renaissance Hat
G. Stolyarov II
October 14, 2012
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In this small series on land and private property, I hope to counter the claims of Henry George and his contemporary followers, who generally support a libertarian view with respect to all property except land – which they do not consider to be legitimate property. I, on the contrary, see the ability to own property in land (based on a true Lockean understanding of “mixing one’s labor” with rightfully owned land, or legitimately acquiring it from those who did) as indispensable to the existence of other property rights – as well as, more generally, to the expression of human individuality and the improvement of the human condition.

Why is property in land essential for the exercise of all other property rights? In this first installment, I provide six arguments.

Argument 1: Use of Personal Property: If there is no property in land, one cannot be guaranteed the ability to set one’s personal property in any location for its use and enjoyment. This means, ultimately, the use and enjoyment of one’s personal property is always at the discretion – and with the permission – of whichever governing authority or collective decision-making would supplant the right of private property in land. This is not liberty; the best that it can be is a kind of benign neglect from the persons or committees who have the power to dispose of the land and what is on it.

Argument 2: Complete Ownership: If there is no property in land, then there is never an ability – even in theory – to enjoy the use of land “free and clear” – without paying some sort of rent or “usage fee” to someone. Ignoring property taxes (whose absence is wholly conceivable and would be tremendously beneficial – even if other types of taxes are kept in place), it is possible today for people to pay off any mortgages and liens on their property and to enjoy it outright, without fear of losing the property if they do not pay a continuous stream of money to a third party.  The greatest value of private property comes about precisely when the ownership of that property is absolute – not contingent upon future services or payments rendered to other people.

Argument 3: Opportunity to Choose Leisure or Work: If there is no property in land, and one must continuously and inescapably pay a stream of money to a third party in order to avoid losing the property, then this means that one must continuously earn a sizable income to support that stream of payments. The ability to lead a life of leisure (after having made adequate provision for one’s other needs) is forever closed off to most people (unless they are beneficiaries of trust funds or a fortuitous investment strategy). Whatever the relative merits of work versus leisure might be in any particular situation, a libertarian would hold that the choice to pursue either (or any combination of each) should be up to the individual. Restrictive institutions should not permanently foreclose individuals (in multiple senses of that word) from pursuing one of these alternatives or the other. My own ambition, for instance, is to pay off the mortgage on my house while I am still relatively young. I would continue to engage in paid employment (and hopefully earn decent money) for many decades thereafter, but a lot of the economic pressure would be removed by getting rid of the largest recurring expense, and the same amount of earnings could achieve a much higher standard of living in other respects.

 Argument 4: Incentives for Improvement: If there is no property in land, then there is little incentive (other than sheer benevolence) for the occupant to improve the land by the addition of permanent fixtures, for someone else (or “the community at large”) would capture the values of the improvements, while the occupant would spend his personal resources on the improvements. This is the classic case of a “positive externality” not being realized – or, alternatively, a “tragedy of the commons” situation arising from the community laying claim to a resource that becomes over-exploited and insufficiently maintained. If one wishes for private residential lots to begin to resemble the public roads of a large city in appearance, then doing away with land ownership is an excellent means to that dubious goal.

Argument 5: Individuality: Only through the exercise of the right of private property can a person truly actualize his individual aspirations and distinctive esthetic. True private property enables an individual to act within his own realm as he pleases, as long as he does not infringe on the identical prerogatives of all others with their property. Only private property in land can give an individual the unfettered ability to paint a house with the colors and patterns of one’s choice, to determine the surrounding landscaping, to select the appliances and amenities therein, and to decorate it (which is a right that should not be undervalued, lest we lose it in the age of draconian busybody “homeowners’ associations”). An individual who owns land can truly turn the land and the improvements on it into reflections of himself, rather than just another barren, drab, or cookie-cutter plot (though any of those are within his prerogative as well, if he wishes to be unimaginative). True innovators are always in the minority and always unconventional. If they do not have a sphere where they can act unfettered, then many of their creations may never come to be.

Argument 6: Owned Land versus Land in the State of Nature: While I do not support arbitrary claims of ownership to undeveloped land, I do hold to the Lockean view that a person comes to own land by mixing his labor with it as the first occupant – and only to the extent that he does so. Locke himself argued that a person’s legitimate claim to land extends only to whatever land this person (or others acting on his behalf, through the voluntary exchange or offering of their services) was able to transform with his labor and put to use. Any other (undeveloped) land remains in the state of nature, free for others to claim. This is why Locke opposed arbitrary claims of the King of England to all of the prime forests of that country as the King’s “hunting grounds”. Likewise, one might question whether a Lockean view of property rights would allow national governments today to lay claim to vast undeveloped territories and to preclude development thereon (or sell “development rights” or “resource rights” to those territories). A fully libertarian system of property law would recognize the right of the first occupant and user of a property to be its owner, but only with respect to the land which is truly inextricably involved with such occupancy or use – i.e., land that has been improved and transformed. This is a consistent and universalizable standard for legitimate ownership, and it is a standard that follows directly from the desire to use and transform objects in nature for the improvement of human well-being. Such improvement and transformation are precisely what differentiates owned land from land in the state of nature. Owned land is much more usable and often dedicated to specific purposes, whereas land in the state of nature remains to be adapted to human needs. In practice, the two would look quite different and would enable natural demarcations of private land holdings.

Ending the War on Kidneys – Article by Sanford Ikeda

Ending the War on Kidneys – Article by Sanford Ikeda

The New Renaissance Hat
Sanford Ikeda
October 13, 2012
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The war on drugs can be dated to 1914, although the phrase “war on drugs” was coined in 1972 during the presidency of Richard Nixon.  The war on kidneys began in 1984.

It’s an oft told tale how drug prohibition has led to the promotion of organized crime, skyrocketing violence here and abroad, and a simultaneous increase in potency and decrease in safety.  (See here and here for examples.)  The solution to these perhaps unintended but predictable negative consequences is legalization.  So it is, too, with the sale of organs–kidneys in particular.

Meanwhile in Iran…

Since 1984, under the leadership of Senator Al Gore, the United States government has made it illegal to buy or sell kidneys and in so doing has effectively launched a “war on kidneys.”  Again, the consequences, unintended but predictable, are mostly if not wholly bad.

According to the Human Resources and Services Administration there are currently over 93,000 persons in the United States on the waiting list for a donated kidney.  Another source estimates that the list grows by 3,000 to 4,000 candidates a year.  Between 1988 and 2008 yet another source reports that the number of kidney transplants performed in the United States has ranged from 8,873 (in 1988) to a high of 17,091 (in 2006) for an average of about 13,847 per year.  While that may indicate a dwindling list of candidates, the reality is that the number who die each year still runs into the thousands.

The United States Department of Health and Human Services, for instance, claims that 18 people die each day waiting for a kidney donor.  That’s 6,570 deaths a year, and though their figure for the waiting list is considerably higher than the HRSA’s, they are in the same ballpark.

Kidney sales are legal in Iran, which offers a mix of private and government financing for kidney transplants.  Not surprisingly, waiting lists there are practically nonexistent (because of a larger supply), and so is the number of people dying while waiting for one.

Moreover, the incidence of black markets and of “medical tourism”—in which relatively wealthy foreigners travel to relatively poor countries to buy local kidneys or have other procedures performed at lower cost than in the United States—would probably fall, much as legalization of alcohol after Prohibition saw the downfall of speakeasies and bathtub booze.

What’s the Downside?

And although some estimate that the cost of a kidney may be as high as $100,000—which would make the total cost of the transplant procedure around $350,000—keep in mind that in addition to the value of the lives saved, the savings from unnecessary kidney dialysis is about $70,000 per person per year.  (See also this article from The Economist.)

Some argue that only the rich would get organs and only the poor would die giving them up.  Existing black markets and medical tourism already reinforce any such tendency by keeping prices high.  Would a free market in organs mean that the relatively poor would supply the relatively rich?  Perhaps.  More generally, would abuses occur?  Yes, they would, just as they do in other aspects of organ transplantation—such as in shabby hospitals or lousy medical care. Nobody suggests banning hospitals or doctors because some hospitals and some doctors occasionally screw up.  The cure lies largely in greater competition, the prerequisite of which is making organ sales legal.

Some are put off by the very idea of a market in kidneys, and many who aren’t might have some reservations about extending the list to other parts of our bodies.  Some of this can be attributed to a socio-ethical resistance to “commoditizing the human body.”  Perhaps this is a valid concern.  Interestingly, there is a legal market for cadavers, so it seems to be OK to pay for bodies but not for organs.

What about other organs or body parts?  The thing about kidneys—or eyes, ears, hands, and feet—is that removing them from our bodies does not entail death or, in the case of kidneys, any significant decline in the quality of life to the donor.  But what about selling something vital such as a heart, which would spell certain death?  That’s a difficult question that we may not have to settle just yet.  Let’s start with kidneys.

The Moral Alternative

I confess to being uncomfortable with the thought of selling off body parts. In the same way, I would never recommend to anyone, including myself, taking cocaine for fun.  But I would stop short of banning cocaine, and my qualms about selling body parts doesn’t keep me from staunchly supporting legalization, especially when a strong case can be made (as in this video by Professor James Stacey Taylor) that banning it would itself be immoral.  Selling body parts for money should be no more illegal than letting people make a living fishing for crabs on the high seas or give up their lives for a cause they believe in.  I may disapprove of a practice that harms the practitioner, but that by itself doesn’t give me the right to stop it, especially if it harms no one else.

Finally, today it’s considered perfectly legal and moral to allow husband A to give up his kidney to his wife B without compensation.  Or, if A’s kidney is not a match for B, it’s okay for A to donate to C, whose husband D could then donate to B.  That is like trading a goat to Jack to get a pile of bricks to trade to Jill for a sack of grain, which is what you wanted for your goat in the first place.  While the Internet and creative websites have made organ bartering of this kind easier than in the past, humans long ago developed another institution that gets the job done much more easily:  buying and selling for money.

Crimalizing activities—whether  drugs, prostitution, or organ sales—typically generates consequences that are usually unintended but, with the aid of some basic economic knowledge, mostly predictable.  After decades and over a trillion dollars spent and countless lives ruined, a summit of Latin-American politicians earlier this year declared that “the war on drugs has failed,” a sentiment echoed around the world.

It’s time that our government ended the war on kidneys, too.

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.

Organic Shmorganic – Article by Charles N. Steele

Organic Shmorganic – Article by Charles N. Steele

The New Renaissance Hat
Charles N. Steele
October 6, 2012
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A study by researchers from Stanford University of “organic” food was unable to find any health benefits, prompting a rant from NYT’s Roger Cohen against organic food.  Finally, finally, finally!  Cohen on track, rather than off the rails!Many years ago I heard Bruce Ames, a cancer researcher and head of College of Public Health at Stanford give a lecture in which he discredited the health claims of the “organic” movement and warned that it would raise costs without returning corresponding benefits.  His main fear was that this would lead people to eat fewer vegetables rather than more.  The second most important thing people can do to avoid cancer is eat more vegetables, he explained (stopping smoking is  number 1).  He based this in part on his own research with with carcinogenic properties of manmade pesticides and naturally occurring ones; the naturally occurring ones were every bit as bad and as prevalent in vegetables, and neither posed a meaningful risk in his research.  (Obviously misuse of pesticides could be a different matter.)  The new Stanford study was unable to find the superior health benefits attributed to “organic” foods, corroborating Ames’ argument.

I’ve also heard agriculture experts discuss the alleged environmental harmfulness of “non-organic” agriculture, something not covered in the Stanford study.  Again, the alleged environmental benefits of “organic” are mostly hype, and in some cases it can be worse.  Chemical fertilizers in particular deserve none of the slander that’s directed at them.  (Again, use them incorrectly and you can poison things… but that’s also true with “organic”.)

I’ve been putting “organic” in quotation marks, because the word itself always meant something different: it refers to carbon-based compounds.  That is, that’s what it meant until the word was grabbed by – let’s be honest – hippie food faddists.  “Organic” was changed to mean “simple, healthful, close to ‘nature,'” (another doubtful word), all utterly unsubstantiated claims.  Next yuppies and similar types jumped on the bandwagon, because it made them feel good about themselves “saving the planet and eating healthier and sidestepping ‘corporate agriculture,’ etc.”

This is a great example of the fundamental role of subjective utility in economic value.  Belief in “organic” is essentially religious faith, unfounded in evidence.  What makes “organic” more valuable is consumer demand, based on perceived, imagined characteristics, not some physical measurable properties.  That’s why big food corporations got into the act. They were slow to enter, and when they did, they were entirely responding to demand.  They would prefer not to produce this way, because it is costlier, but so long as consumers demand it, you give them what they want, or you lose market share.  There’s quite an irony here. Anti-capitalists frequently accuse “big business” of manufacturing consumer preferences in order to manipulate people and reap profits, yet the whole “organic” movement was manufactured by a motley collection of  anticapitalist  mystics from both left and right.

I heard NPR cover this story, and the  reporter concluded that the whole “organic” thing must have been a conspiracy by “big agriculture” (another dubious concept) to hoodwink us and get our money… a completely backwards argument, as most farmers, big or little, would prefer less costly, easier, more productive modern agricultural methods.  It’s quite common to be producing “organic” crops, meat, etc. and have some small step go wrong and have the “organic” label be lost – and even though the stuff is perfectly good, it now can’t be sold for enough to cover costs.  I’ve had farmers tell me about this, and have read of many more examples.

“Organic shmorganic” indeed!

Dr. Charles N. Steele is the Herman and Suzanne Dettwiler Chair in Economics and Associate Professor at Hillsdale College in Hillsdale, Michigan. His research interests include economics of transition and institutional change, economics of uncertainty, and health economics.  He received his Ph.D. from New York University in 1997, and has subsequently taught economics at the graduate and undergraduate levels in China, the Russian Federation, Ukraine, and the United States.  He has also worked as a private consultant in insurance design and review.

Dr. Steele also maintains a blog, Unforeseen Contingencies.