The scary parallels between Venezuela and Atlas Shrugged

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In July of 2016, I spent 3 hours conversing with a Venezuelan on the flight from Miami to New York. Despite having lived in the United States for decades, her business and relatives gave her reasons to visit her home country multiple times each year, and she remained optimistic about its future. While, in the long run, I hope she is correct in her optimism, I wonder how her perception has changed in the past year. Ironically, we were flying on American Airlines, a company which gave up operating in Venezuela shortly after our flight.

As I read through article after article about the continuing crisis in Venezuela, a number of similarities appeared between how that situation developed and what happened to Ayn Rand’s version of the United States in Atlas Shrugged. There is one major difference; the socialist movement in Venezuela was spearheaded by a populist demagogue rather than a more collective, council effort. Still, the step-by-step weakening of a market economy, coinciding with ever-increasing government authoritarianism, and the flight of the nation’s most productive citizens to greener pastures is in lock-step with what has happened in Venezuela.

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Of course, Ayn Rand based her dystopian United States on the post-Russian Revolution U.S.S.R. Hugo Chavez’s (in)famous declaration of being a Trotskyist makes the comparison between the two even stronger. After being held up as an example nation for the first part of this century, many of Chavez’s former supporters in the developed world are disturbingly silent or blaming capitalism for the current economic failures in Venezuela. Socialism isn’t working, because it really isn’t “full socialism”. Yet, the nations who get closest to such a socialist ideal (the former U.S.S.R. and current North Korea) have to go to extreme measures to keep people from flooding out of their socialist paradises. If Chavez truly knew about Trotsky, he would have realized Trotsky’s extreme socialist measures had to be almost immediately revised in order to keep the nation from starving.

Oil production in Venezuela has fallen 30% since 1998, despite having the largest oil reserves in the world. This is a perfect, real-life example of what occurs in Atlas Shrugged. The industry was increasingly regulated, price controls were implemented, and the government took greater and greater control of who got the product. In the book, the industrialists eventually started giving up and disappearing. In real life, a massive exodus of the upper and middle classes began as Chavez vilified them, following his rise to power in the late 90s. Noam Chomsky blames “export of capital” by capitalists for Venezuela’s plight, but what sane capitalist would stay in a country insisting on making it almost impossible to even bake bread? It truly is a state where every man is a criminal, because it is impossible to not break laws. Chavez’s populism relied on the upper and middle classes to be their villains. Expecting them to stay is like expecting a domestic abuse victim not to leave. Lorenzo Mendoza, owner of Empresas Polar, is the real-life version of Hank Rearden from Rand’s novel. Beleaguered and vilified, his company carries on against every government imposition, still producing better than the nationalized factories despite the assault on capitalist principles.

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It seems rather obvious now, but many in Venezuela are wishing for things to be how they were before Chavez. Despite the thriving smuggling business for getting people out of the country, one smuggler says, “I would prefer a thousand times that there was no crisis and we could live in the Venezuela from yesterday.” The sad thing is, there were plenty of problems BEFORE Chavez came to power (which is exactly why he could come to power). Populism begins by appealing to the people; a prelude to “majoritarian extremism”. It can only thrive with polarization. Unfortunately, those people who Chavez promised to help are the ones least able to leave the country he led to ruin. If there is extreme poverty in a market economy, at least there is still food in the stores. Perhaps true extreme poverty is what Chavez and Maduro have created.

As with Atlas Shrugged, every little step toward socialism led to more problems, which led to more intervention, which led to more problems, which were blamed on industrialists. As Friedrich Hayek wrote in, The Road to Serfdom, over 70 years ago, partial steps toward socialism still lead to totalitarianism, just more slowly. Venezuela’s first steps began long before Chavez, in the late 1950s, before accelerating with the nationalization of oil in 1976. Now, around 60 years later, Nicolas Maduro is being called a dictator, and the U.S. has imposed sanctions on him and top officials in his administration. His dissolution of the popularly elected legislature is in direct opposition to his constitutional authority and puts him in what John Locke would call, “a state of war with the people.”

In a sense, maybe those who say capitalism is at fault for Venezuela have a point, but not in the way they mean. Ludwig von Mises explained in his book, Liberalism in the Classical Tradition, how socialism is a “policy of capital consumption.” As Margaret Thatcher famously said, “The problem with socialism is that you eventually run out of other people’s money.” Once all the internal capital has been consumed providing “bread and circuses” for the people to keep socialists in power, the country becomes reliant on functioning market economies in other countries to provide the necessities it cannot produce. Capitalism is propping up the failed state that is Venezuela by providing buyers for Venezuelan oil and goods that get smuggled across the borders.

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I am not advocating we cut off trade with Venezuela. That would make an already horrible situation even worse for tens of millions of people, which is exactly why the sanctions so far have been against individuals, and not the country, or its oil. Perhaps the saddest part about all this is how it would be improved by simply removing limitations on markets. The government doesn’t have to borrow billions to feed people, or provide free medicine, or take over industries. All it has to do is step aside (from trying to control the economy). The beauty of a market economy is that even partial measures will have positive effects on the lives of the people. This was the case in post-WWII West Germany. It was also the case in Sweden, which is often held up as functioning democratic socialism, but has many more free market characteristics than Americans think.

As much as the Venezuelan situation seems a good opportunity for proponents of classical liberalism to gloat over yet another failure of socialism, Marian Tupy made the poignant statement, “I cannot rejoice, for I know that Venezuela’s descent into chaos…will not be the last time we hear of a collapsing socialist economy. More countries will refuse to learn from history and give socialism a go.” There is a pattern to socialism as described by von Mises. The printing presses and upper classes provide (willingly or not) the funds for social programs, then rising prices lead to price controls, shortages of goods follow, foreign investment collapses, and the domestic businesses are left paralyzed.

So, as we debate if an international rescue effort is a good idea, or ponder how much more valuable World of Warcraft gold is than the bolivar, my only hope is that, a year from now, the woman I shared a flight with in 2016 will have many more reasons to be optimistic about Venezuela’s future.

Fountain Notes Volumes Referenced:

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How can Infinite Jest help unite people?

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The problem with long books is they develop a reputation of being…long. War and Peace? Long. Les Miserables? Long. Infinite Jest? Long. Being me, I didn’t spend 28 hours listening to a book just for entertainment (The file is 56 hours, but I listen at 2x). David Foster Wallace created a satirical future from the perspective of someone writing in the mid-90s (Here is the wiki page). While we have safely passed the time period he envisioned, there remain some lessons that can benefit us all.

In my book list, I classify Infinite Jest as social commentary. While it may center around a tennis academy and a halfway house, the fictional world is filled with wheel chair-bound assassins, a toxic waste dead zone covering three states, a united superstate comprised of the U.S., Mexico, and Canada, corporately-sponsored years, and a form of entertainment that is so pleasurable that it paralyzes its viewers. What can we use from Wallace’s magnum opus on the quest to unite people?

My favorite quote from the book is hidden in a lengthy inner monologue by the main protagonist, “You become way less concerned with what other people think of you, when you realize how seldom they do.” Life often mimics those high school dances where each person is thinking about what other people are thinking about him or her, leaving no one to actually think about anyone except himself or herself. This situation does not necessarily advocate a “don’t care what anyone else thinks” philosophy, but will hopefully free those of us constrained in some way by worries about a judgmental social circle.

Hal Incandenza continues his monologue, eventually noting, “That everybody is identical in their deep down secret belief that they are different from everyone else.” As someone who looks for common denominators and unifying factors, this excites me. We are identical in that we think we are different. It doesn’t even matter if we each truly are different as long as there exists some thought that we are. I am no philosopher, but it seems possible there simultaneously exist forces driving each of us to want to be the same and to want to be different from those around us. One force can manifest to a greater extent than the other, but the other is always present. Here is one of the great advantages of protecting an individual’s right to life, liberty, and property. Yes, we can unify, but it will be as individuals. Each individual acting in his own best interest improves the condition of the whole, as long as there are no violations of life, liberty, or property within the group. There is no artificial imposition to be the same.

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It is no coincidence that, later in the book, a cross-dressing agent for the Office of Unspecified Services (think CIA) explains to a wheel chair-bound, French-Canadian secessionist, “That each American seeking to pursue his maximum good, results together in maximizing everyone’s good.” They proceed to discuss the merits and contradictions of individual maximum pleasure versus the maximum pleasure for all Americans. The quote alone does not make it true, or even suggest the author agrees, just that a government agent thinks of it as the national philosophy. “The United States, a community of sacred individuals, which reveres the sacredness of individual choice.” Using a single-serving cup of Canadian pea soup in an example, the two eventually touch on a necessary caveat: If desires compete, one individual may not tread on the rights of another in order to satisfy his pursuit of maximum good. This is the basis for rule of law.

David Foster Wallace is fatalistic, but it stems from a complete disregard for influential factors coming before and after chance events. His narrator declares, “An individual person [has] a basic powerlessness over the really meaningful events in his life. That is, almost nothing important that ever happens to you happens because you engineer it.” The example given is the best NFL punter in the Infinite Jest world started playing football in college, after while walking dejected from a tryout, having never kicked a ball in his life, the team’s punter had a freak injury, and the ball landed at his feet, so he kicked a perfect, booming spiral back. Even if this had happened in real life, all the events following that chance event WERE engineered by him. He went to practices, he played in games, and he kept away from career-ending mistakes. Positive and negative chance events are a part of life, but our responses to those events are far more influential than the events themselves. This is such an important concept, because self-determination is a cornerstone of both healthy social order and healthy economies.

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Speaking to this supposed powerlessness, later on, a recovering drug addict who has switched addictions from substance abuse to killing street animals, agrees with a line he reads, “The more basically powerless an individual feels, the more the likelihood for the propensity for violent acting out.” If true, this makes self-determination a near must for peaceful societies. Imagine a world full of fatalistic individuals, with “no control” over what happens, violently acting out because they “can’t control” it and nothing they do “matters”. I far prefer the option where people feel empowered, and this certainly applies to the political system.

In keeping with the Captain Planet era it was written in, Wallace’s future had a Clean U.S. Party (CUSP) raise a former entertainer and environmentalist to the presidency as a discontented populous finally grew tired of Republican and Democratic political ideologies, and extremists from both sides joined to support the third party. With the lack of a clear external enemy, the country then withdrew from intercontinental affairs, favoring nationalism and isolationism, while also strong-arming Mexico and Canada into a unified superstate (the Organization of North American Nations). It is hard to talk about globalization without incurring a knee-jerk negative response, but the truth is the more interconnected the world becomes, the better for all of us. If one thinks of global history over the past 200 years, adding isolated economies into the world economy helped every party involved (e.g. Japan in the 1860s, or more recently with China adopting capitalism). Conversely, promoting nationalism and withdrawal from the world economy led to wars. Capitalism, classical liberalism, and their free market ideology all aim toward peace, because economic cooperation and rule of law are the most effective means to prosperity.

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The Kantian Triangle

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Health care: Nothing good in sight

This is my longest, meatiest, and most important post to date. Dive in at your own risk, but for those of you short on time, here are the main points:

  • The interventionist system that has led to the ACA and the AHCA leaves much room for improvement (to say the least).
  • Despite disagreements about how, almost all of us want the best attainable medical outcomes for the greatest number of people possible.
  • Socialized medicine is tempting, but it is unsustainable, violates the rights of individuals, and is not superior to the free market in attaining the above goal.
  • A free market healthcare system is probably not what you had imagined and would best serve the most people, while preserving the right to life, liberty, and property.

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As is too often the case in modern politics, when the U.S. Congress actually manages to pass a piece of legislation, it also succeeds in pissing off at least half the country, while simultaneously leaving the other half unsatisfied . When the Affordable Care Act (ACA/Obamacare) passed in 2010, much of the country was in an uproar about death panels, government overreach, and socialism, while many others lamented the government mandate to buy a product (health insurance) without providing a public option or wanted to completely socialize health care.

We should begin with a couple assumptions so that we are all on the same page. One can disagree with these assumptions, but that may affect the conclusions reached later on.

  1. Individuals have a right to life, liberty, and property with the caveat that each person may not violate the life, liberty, or property of another person.
  2. If a person has an issue that health care can help, it is a desirable goal that he or she receive that help, as long as doing so does not violate Assumption #1.
  3. There are certain treatable medical conditions that exist despite no fault of the afflicted individual.
  4. There is an immeasurable benefit to each individual living in a healthier society versus a less healthy one (Due to fewer sick days improving productivity/education, less disturbance on family units from deaths/severe illnesses/changes to schedules, etc.).

The American Health Care Act (AHCA/Trumpcare) recently passed the U.S. House of Representatives and is making its way to the Senate for tweaking and an eventual vote. While even Democrats admit that Obamacare is far from perfect, the AHCA takes poor legislation and replaces it with something worse, instead of just getting rid of it all. The left is already threatening lawsuits if Trumpcare becomes law, on the basis that the AHCA will slash funding for government-supported health care services to New Yorkers. Trade groups have come out against the bill, and House Republicans were in such a rush that the Congressional Budget Office hadn’t scored the final version. I don’t think any of us are surprised.

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The current health care/health insurance situation in the United States is so far removed from the necessary solutions that one can be forgiven for thinking it near-futile to talk about them. This is the result of more than 100 years of government interference and industry collusion with the coercive power of government, so overnight solutions are rather unrealistic.

As we search for alternatives, let’s begin with a look at three situations that happened to me in three different health care systems:

  1. Copenhagen, Denmark, 1997 – I came down with excruciating abdominal pain near the end of a Nordic cruise. The ship’s doctor was confident enough that it wasn’t apendicitis, but I had to get checked out once we got to port. As U.S. citizens, my father and I walked into a Danish hospital, I was signed in, seen by a doctor, and had some non-invasive tests. After my Fifth Disease diagnosis, I signed out. Denmark’s socialized medicine covered the expense. There was no bill.
  2. Connecticut, USA, 2013 – My dogs did not always get along as well as they do now. During the adjustment period after adopting Maynard, there were a number of fights I had to get in the middle of to stop. One morning, they started a fight while I was sleeping, and in my dazed state, I put an arm between their mouths as they lunged at each other. Long story short, I got a saline solution cleaning, two separate stitches in my arm, and bandages on my thumb and arm, to go along with a prescription for antibiotics. The prescription cost $40 or so, the contracted ER doctor’s bill was $400, and the ER itself billed me an additional $2,900. This was without health insurance, but that makes the third situation even more telling.
  3. Tela, Honduras, 2016 – I have made it almost four years in Honduras without needing to see a doctor or go to a hospital, but I do have some experience with a dentist and an optometrist. My time living in the U.S. has me so conditioned that medical care is expensive, that I put off going for a dental cleaning until finding out it only costs about $21, done by a dentist (versus $75-200 by a dental hygienist in the U.S.). If you choose to have x-rays, they are $12 each, and when I needed resin-based fillings, each tooth cost another $21 (versus $135-240 in the U.S.). I decided to get contacts a year ago, and the optometrist eye checkup cost all of $6. These prices are all WITHOUT insurance.

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Socialized Medicine/Universal Health Care

From a surface view, it is hard to beat the allure of socialized medicine. Of course, we understand it is not “free”. It is included in the tax burden. Had my father and I been Danish citizens in the above example, he would have been paying a 57% income tax rate to support the various social services (I was still a minor). Even as foreigners, we still paid the 25% VAT on any goods we purchased while in the country. If enough people step outside a classical liberalism understanding of the Law, and instead agree the majority in a society may force a minority to give up their property (i.e. the lower and middle classes electing representatives who in turn set higher tax rates on the rich – in Denmark’s case, anyone making over $70k/yr), then this society could function for a time. However, even if every member of the society voluntarily agreed to the tax burden required to fund socialized medicine, would it be a sustainable health care option?

I was a big fan of Michael Moore’s Sicko when it came out. I bought the DVD and watched it over the years with some unknown number of family, friends, and ladies I was dating. In it, Moore compares and contrasts socialized medicine in Canada, England, France, and Cuba with the pre-Obamacare U.S. medical system. Years later, when Bernie Sanders made Medicare for All one of the foundations of his presidential campaign, it appealed to my humanistic side and ultimate desire that the greatest number of people possible be happy and productive in their lives. Even today, as diametrically opposite as the two positions may seem, I feel that socialized medicine is the second best option to a free market health care system, and much better than the current, bastardized U.S. system.

The conservative arguments against socialized medicine center around taxation/funding, government rationing of care, and the general ineptitude of government to respond to market demands. Going back to Assumptions 1 & 2 from earlier, we each have a right to life, liberty, and property, and we may decide to give part of that property (in taxes) to support the health care of others. It is, however, fallacious to assume that because you and your friends are ok with this, that everyone in a country of 326 million people agrees with you. Call them heartless bastards all you like, it is their right to refuse to share their property. Similarly, we each have the right to walk past a beggar on the street without giving him a donation.

While the 2010 worries about “death panels” were predictably exaggerated, there are documented cases of rationed care and extraordinary wait times in countries with socialized medicine. I don’t consider it overly alarmist to ask, how would you feel if a government court determined that your child had to come off life support, regardless of the fact that you raised private money to fly to the U.S. for non-socialized treatment? The rather obvious solution is to have parallel systems, a public option that provides an alternative to the private system. Australia has this, as does Honduras. The Canadian government is in a protracted court battle to prevent private health care from competing with the socialized system.

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Whether universal health care or a public option is the desired end, think about some of the large operations run by government: public education, the postal service (rebuttal), the interstate highway system, and various federal agencies. Do you really want national health care to be run by this same system? We are all privy to the lack of funding for public education and the deteriorating status of our national infrastructure. I cannot imagine a nationalized health care system in the United States being any different in execution to those examples, even if it drastically cut the current cost of health care ($3.2 trillion annually). The public system in Honduras is both underfunded and the victim of corrupt officials stealing from the funds. I joke that tax evasion is almost as popular here as football (soccer), and that takes away from both the relatively low income tax of 10-20% and the 15% VAT. The resulting I.H.S.S. health care is plagued by a lack of supplies, unreasonably long wait times, and unhappy employees. I don’t mean to imply a public option in the United States would be equally bad to what Honduras has, but this is an example of much of what can go wrong.

Interventionism (ACA/AHCA)

The term economist Ludwig von Mises would use for what has gone on with health care in the U.S. for the past 50+ years is interventionism. While proponents of socialized medicine often claim that we have been using a free market system, I have already linked above to a lengthy article describing the 113-year history of government impediments on free market health care. One result of those interventions was a dramatic rise in health care (and insurance) prices. When Obamacare took on the admirable goal of getting more Americans covered by health insurance, it did so within the Frankenstein system, and therefore had to both force some people to buy a product they didn’t want (or pay a penalty tax) and force insurance companies to cover un-insurable conditions.

So, when we experience problems with the interventionist health care system, it is easy to blame “big business”, but these issues are not due to market failure, and drug prices and shortages are a response to interventionist policies. Rather, a free market healthcare system is the solution to, not cause of, the current situation.

Free Market (Sustainable) Health Care

The aims of classical liberalism and socialism coincide in the sense that both are seeking the best possible outcome for the greatest number of people. The differences stem from the means necessary in order to achieve that end. Of all the available options, only free market health care provides a sustainable way to help every member of the society, with the bonus of not infringing on the life, liberty, or property or those individuals.

The usual objections to trying such a system are that monopolies will form, treatments will prioritize creating consumers instead of treating a condition, and that profit has no place where lives are at stake. It is an unfortunate truth that the American healthcare system currently has groups acting to monopolize various aspects, but those cases are due to government power providing them the position to do so. Without a limit on medical school acceptances, “proof of need” laws for new medical facilities, or 20-year patents on drugs, the supply of medical care would ebb and flow with demand. Big hospital groups would exist, but only if consumers were preferring them for their services and prices. Any attempts at monopoly prices would lead to smaller competitors rising up to claim market share as disillusioned customers sought alternatives.

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With all due respect to my favorite comedian, Chris Rock, he overlooked a basic principle of capitalism when he said, “There’s no money in the cure. The money’s in the medicine.” As tempting as it is to believe big bad pharma corporations and HMOs just want to create customers for life and make sure we are sick as often as possible, market forces make this extremely unlikely in an interventionist system (now), and impossible with free market health care. Here’s why: in any situation where every company is only providing a temporary/string-you-along/live-with-it solution, the first company to offer a cure will reap an incredible financial reward and potentially wipe out their competitors. People want cures, the faster the better. Do you think a “works within 7 days” cold remedy could survive in a free market next to a shelf of 24-hour cold relief? A friend of mine mentioned that the companies could act according to the Nash equilibrium, and thus all keep providing only temporary solutions, since the long-term payout would be greater. The reason collusion in that form doesn’t last is there will always be one (or many) companies willing to take the short-term payout to create an advantage over competitors. In a similar dynamic, most lottery winners take the lump sum over the annuity payments. It may not be rational to you, but it is rational to them.

Is there a problem with profit being part of the healthcare system? While I can understand the reactive response, “yes”, the true answer is that not only is it not a problem, profit is actually one of the best ways to make sure the system works well. In capitalism, businesses thrive or flounder based entirely on how well they satisfy the needs of the consumers. Pharma companies that produce ineffective drugs, drugs that kill people, or price their drugs irrationally will go out of business. Hospitals in poor condition or with bad results will go out of business. Doctors who treat patients and staff like garbage or fail to continue learning about the advances in medicine will go out of business. While errors and poor service do happen in a free market system, the self-correcting mechanism inherent to capitalism is the fastest and most accurate in existence, because it takes place on a transaction by transaction level.

The healthcare providers and insurers who best serve the consumers (people who need medical care) will reap the most profits, they will grow, and they will be able to help more people with that level of service. Simultaneously, the system will allow for high-end, state of the art facilities concurrently with cheaper, more widespread facilities. Not everyone needs Cadillac-level care. Often, when Honda-level care will suffice, it is a waste of precious resources to choose the former. The pricing system naturally controls the use of limited resources, and capitalism allows the full spectrum of quality and price options. If we had free market health care when I was bitten by my dogs, I would have had the option of going to a top-of-the-line hospital and maybe even paying the $3,000 I was charged in real life (Though I presume the actual price of even the best two stitches in the world would cost less in a free market). However, I would also have had the option of going to a “Kia” hospital, and getting treatment 95% as good for $21 (The actual price of what it would cost me at a private ER in Honduras). $3,000 versus $21, and I would be free to choose. Ladies and gentlemen, the beauty of capitalism.

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While socialized medicine seems like the ideal (“We all chip in, and everyone can have great healthcare!”), and its ability to temporarily help the entire population puts it as my second place option despite infringing on individual’s rights, mounting evidence (123) brings into doubt the sustainability of universal healthcare systems. It appears the way to make one work the longest is to preserve as many free market aspects as possible (a la Singapore). By now, that shouldn’t surprise you.

With free market healthcare, not only does everyone have access to medical care, but it is available at a wide range of price points, without any tax burden (Currently, about 10-20% of your gross income goes in taxes to support healthcare programs even if you don’t use any medical care at all. You would get to keep that instead.), and at prices much lower than current levels due to a more competitive market and to supply finally adjusting to meet demand. Free market health care is not a panacea, but its implementation would result in the greatest possible outcomes for the most people, and that is what we are searching for.

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Star Wars: The economics are with you

Not surprisingly, some of my fellow geeks have already examined the economics of the fictional Star Wars galaxy. I found four posts, with varying levels of detail, scope, and focus (1, 2, 3, 4). That said, I couldn’t resist adding my own perspective on the topic as we celebrate May the 4th Be With You 2017.

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Smuggling

It is no wonder that the most popular Star Wars protagonist is a law-breaking, self-employed, tough guy who takes orders from only one person: himself. I should point out that the laws Han Solo breaks are all perversions of law outside a classical liberalism understanding of The Law. For smuggling to exist, there must also exist tariffs and/or illegal products that the smugglers try to get past the governing authority.

Tariffs mean protectionism, which means some planetary body conspiring to aid an industry on that planet by making it harder to get a cheaper product from another planet. For instance, the fact that people have to farm moisture on Tatooine either means that the cost of transporting water from water-rich planets is prohibitive, or the moisture farmers have won government protection of their product by a tariff placed on imported water. Neither is likely, but this is fiction after all. In reality, all the sand on Tatooine would be a valuable commodity to certain other planets, the solar energy from twin suns would be harnessed and sold to planets with insufficient energy, and the resulting profits would transport plenty of water in return.

Illegal products mean that the Empire or Republic is violating personal liberties by telling its citizens what they can and can’t use. There is a possible exception if Han smuggles slaves, since being enslaved is a violation of the personal liberty. However, per Adam Smith, slavery cannot compete in a free market, and therefore, only existed in Star Wars because governments on certain outer rim planets prevented free laborers from holding types of jobs that slaves performed, or because George Lucas didn’t know any better.

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Taxes and Regulations on Mining

One can assume that Lando Calrissian tried so hard to avoid Imperial oversight due to added costs he would incur. The Galactic Empire was not a completely socialist or fascist economy, since there was no threat by Vader to nationalize…err…galacticize(?) Bespin, only a threat to leave a garrison there. Still, Lando must have been evading various corporate income taxes, galactic tibanna gas regulations, and maybe even a galactic labor minimum wage. Otherwise, he would have had every incentive to INCLUDE the Empire as a potential customer instead of shying away from it.

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Space Stations the Size of Small Moons

The second article I linked to above references a thesis by Zachary Feinstein in which he speculates the destruction of two death stars in four years would lead to a galactic depression of “astronomical proportions”. The 10-page paper is fun in a geeky way and demonstrates his command of economic models, but I think it misses a couple factors.

Feinstein uses a modern aircraft carrier (materials) and the Manhattan Project (R & D) as the basis for his cost predictions. He is then very generous in assuming the R & D costs have been paid off at the time of destruction, but only 50% of DS1 and none of DS2 materials have been paid for. The rest remains outstanding as government bonds. Now, imagine, in a horrible tragedy, two United States aircraft carriers run into each other tomorrow. One sinks to the bottom of the Pacific, and the other is so badly damaged, it will cost 50% of the cost of a new one to repair it. Does our economy go into a depression requiring a 15% GDP bailout? Does the stock market even lose more than a couple percentage points? Do more than a handful of people put up special Facebook profile pictures?

Any of the discussion about the New Republic having to cover depositor’s insurance claims as the Galactic Empire defaults on governments bonds fails to account for the New Republic’s option to guarantee all former Galactic Empire debt. Furthermore, the Empire was not destroyed at Endor, only its leader, one fleet, and a major weapon. No means of production were destroyed. No valuable resources were seized. Of course, the rebellion would have been raiding the Empire throughout the war, but without any apparent crippling effect. There is certainly massive economic destabilization to follow the “terrorist attack” and assassination (Feinstein theorizes a 20% stock market crash), but two major conflicts (the battles of Yavin and Endor), both far from industrial centers, are nowhere near the drain on an economy that the total wars of the 20th century were. Germany and Japan had to essentially start from scratch in rebuilding their cities, industries, and fighting-age male populations after World War II. Honestly, one can imagine the destruction of the thriving and populous economy on Alderaan was much worse for the Star Wars economy than losing two death stars.

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Paying for a Rebellion

An interesting fact about rebellions is that (pretty much) everyone fighting in one has chosen to be a part of it, but the desire to win rights supersedes the free market demand for their labor. Theoretically, it is possible the small groups of rebels on Yavin and Hoth were functioning as temporary communes. As long as the Alliance continued plundering resources from the Empire, their secret base economies could internally function with division of spoils and a barter system, if members suppressed any desire for improved standards of living until after the war.

Still, historical examples suggest that a rebellion lasting for more than a few years probably had some pay structure and capitalist economy. The continental army was paid during the American Revolution. Martin Luther King Jr. had income from books, speeches, his job as a minister, and a Nobel Prize award during his fight for civil rights. Maybe Mon Mothma would publish a book or two about the struggle for liberty from an oppressive empire. I have no idea if ISIS/ISIL pays its members, but we do know that its government-controlled economy is in ruins. It is doubtful Fidel Castro and his revolutionaries were drawing salaries, but they were supported by donations of food, shelter, and materials from the locals. This is another possibility for the Rebel Alliance: a socially supported military force and leadership council, backed by capitalist economies on friendly worlds.

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That’s all for this year. Lock s-foils in attack position and beware the revenge of the 5th!

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Luddites and the battle for workers’ rights

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I never studied the Luddites, so this article by Michael Coren for Quartz was a good excuse to learn about them. However, he and Clive Thompson draw off-the-mark conclusions from the Luddite rebellion (Thompson’s article in Smithsonian). It appears that before Marx espoused seizing the means of production, Luddites settled for destroying the means of production. Talk about cutting off your nose to spite your face.

Coren and Thompson make the valuable distinction that Luddites wanted to maintain their lifestyle as technology encroached on their trade rather than simply hating technology. It wasn’t the fact that the loom existed, it was that the loom existing meant fewer people were need to do the same amount of textile work, and the simplicity of the machine meant more people were capable of doing the labor (lowering wages as more people competed for the job). They wanted to use minimum wages, minimum prices for goods, and phased introduction of production-improving technology to retard the free market and protect their jobs for the simple reason that it had been their trade for a long time.

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While one can sympathize with people wanting to protect their livelihoods, here are a couple analogous situations to show how ridiculous allowing the Luddites to do this would have been:

  • Horse and buggy manufactures destroying car factories, because cars put them out of business.
  • Camera makers petitioning the government to slowly phase in cameras to smartphones, because not enough people would buy cameras.
  • Telephone switchboard operators wanting to tax any company who switched to an automatic system of connecting calls.
  • A minimum wage enforced for people mowing lawns with mechanical push mowers, because the people with gas mowers have “an unfair advantage”.

The articles then pivot into standard criticisms of the industrial revolution including, “factory workers got paid less to produce more”, “factory conditions were dirty and dangerous”, and the old standby, “the factory owners kept an unfair amount of the profit”. This is a complicated issue, but as long as people were free to choose to work in those factories, they were actually benefiting much more than by taking the Luddite approach. In essence, the Luddites were just mad that all of a sudden they had to compete with a better (lower cost / more efficient) way of doing what they did. If some foreigners had come along who could hand weave 4x as fast as the Luddites, the only possible assumption is that they would have conspired to kill those foreigners. It wasn’t the machines, it was the competition!

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Now, let’s examine the economics of the industrial revolution, with my standard disclaimer that I am not an economist, though I have read a number of books on the subject.

Did textile factory workers get paid less than the Luddites were making for the same level of production? Without even looking up the numbers, there are two ways of knowing the answer is yes. First, the more skill required to do a job, the fewer people can do it, so the price a person can charge for doing that job is higher. A simple example is the salaries of a paramedic, a nurse, a general practitioner, an internal medicine specialist, and a spinal surgeon. As the level of skill required increases, so does the price a person with that skill can charge. Second, the factory owners did not employ the Luddites. If the Luddites had wanted wages equal to whatever the factory workers got, there would not have been any Luddites, just former hand weavers absorbed into the new method of production.

Now, are those lower wages a “bad thing”? The short answer is NO. Every person in society benefited from lower prices of textile products due in part to factory workers being paid less to produce more. In much the same way, every person in society is hurt by protectionist policies (tariffs, minimum prices, licenses to practice), because they result in higher prices for every consumer of that product. Again, without looking it up, I can guarantee the price of a mass-produced t-shirt is less than the price of a hand loom-spun t-shirt. That improves my quality of life and the lives of everyone else, because I can get a t-shirt and still have all the money I didn’t have to spend on a hand loom shirt, which I will then spend on something else.

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Furthermore, the people accepting those factory jobs were IMPROVING their standard of living. It didn’t matter if the place was dirty or dangerous, it was a better option than what they had before. The Luddites were not just angry at the factory owners, they were also angry that the people “below” them on the socioeconomic ladder could now do what they had been doing. Let’s imagine that tomorrow morning, we all wake up and are genius stock market analysts. The hedge funds, mutual funds, ETF managers, and brokers would all throw a fit. They would have to devalue their services, but each of us suddenly able to play the stock market wisely or buy broker services at a fraction of the current price would benefit. Society would adjust, and we would carry on.

Regarding the objection about profits, the only “unfair” profit is that which is won via forced labor or government-protected monopoly prices. If workers were willing to work for $1/hour, 12 hours/day, 6 days/week, despite dirty and sometimes dangerous factories, that was fair (note: arbitrary numbers). It would be UNFAIR to force them to work for no less than $2/hours if that takes away the incentive of the factory owner to keep the business open, take the risks necessary to grow, or results in some of them being laid off. It would be UNFAIR to tell someone, “You cannot have this job, because these other people don’t want to compete with you.” If a business owner tried to artificially depress wages, his competitors would quickly steal his best employees. Working the other way, an owner might voluntarily raise wages (a la Henry Ford) in order to create more customers for his product.

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Corporate profits are NOT personal income. This is why the corporate income tax is double taxation (when paired with a personal income tax or capital gains tax). Major corporations are easy targets, because they seem rich and far away, amorphous concepts ripe to attack. In reality, while companies may keep cash reserves for rainy days, they are constantly distributing and reinvesting any profit. There are no Scrooge McDuck pools of money collecting “just because”. The worst part about claiming “unfair” profits is that it opens the Pandora’s box of who decides what is and isn’t unfair. The free market, that collection of individual and voluntary transactions, that invisible hand, does a much better job of determining fairness, because it factors in each of our choices into an infinitely complex system better than any fallible government fairness tribunal ever could.

So, if you want to compare the advances of A.I. and robotics to the incorporation of machines and techniques that sparked the industrial revolution and the most rapid improvement in the human condition ever, be wary of championing the Luddites. Many of our current jobs will not exist in 100 years, but to hastily conclude that is a bad thing is as dangerous as it is short-sighted.

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Supply and demand versus peak resources

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I am going to start by admitting I got sucked into the peak oil worries about a decade ago. I even bought my father a book about it one Christmas so we could discuss how screwed everyone was. Needless to say, here we are 10 years later with no shortage of oil in sight.

Much of what I missed in my rationale is discussed in a recent post on Reason.com. It’s worth a read, but the main points are:

  • If supply really does dwindle, this will force up prices, leading to development of alternative materials.
  • The producers/miners/refiners of those materials have little incentive to look for beyond 30-40 years of reserves. As time goes on, and they need to find more, they search more thoroughly.
  • Technology is continually advancing, making reserve predictions low, due to all the material now available with the new techniques.
  • Materials that are very important today, will not necessarily be very important in the future. Whale blubber, anyone?

I saw variations of this meme going around on Earth Day:

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Yes, theoretically, the Earth can run out of finite resources, but long before that happens, the market will force a switch to other resources, improvements in technology, and sourcing from other celestial bodies (moons, planets, asteroids, etc.). Don’t fall for the “peak everything!” prophets like I did.

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How can Bastiat’s The Law help unite people?

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This is the shortest audiobook in my Audible library (it was originally published as a pamphlet in 1850), but it packs quite a punch, with me saving 23 bookmarks during the 126 minutes of audio. I listened to this immediately after Plato’s Republic, and it more than made up for the disappointment I felt from that work. So, how can The Law (Audible, Amazon) help us unite people?

Frederic Bastiat falls squarely in the classical liberalism camp. Building on John Locke‘s “life, liberty, and property”, Bastiat defined early in the book that law is “the collective organization of the individual right to lawful defense” of that life, liberty, and property. If we agree each person has those rights, then it follows that government, which by definition has coercive power to enforce the law, would not be able to do anything an individual could not, excepting for terms of scale.

In that respect, any action by the government violating the life, liberty, and property of individuals (who have not infringed on the life, liberty, or property of others) is a perversion of the law. For clarity, let’s take a look at a partial list of government functions under Bastiat’s version of the law. These are not all mentioned in the book, but are drawn from its principles.

Some things government CAN do:

  • Protect its citizens from physical harm done by other individuals
  • Create and run a judicial branch
  • Punish those found guilty of harming its citizens
  • Protect its citizens from involuntary servitude
  • Protect the right to free speech
  • Protect freedom of choice as long as it does not infringe on the rights of others
  • Punish those found violating the liberty of an individual or group
  • Protect the country from invasion
  • Protect individual property from seizure
  • Punish theft
  • Adjudicate contract disputes
  • Collect funding for the above functions

Some things government CANNOT do:

  • Order killing for territorial gain or preemptive reasons
  • Compel citizens to fight (and potentially die) via the draft
  • Censor ideas in any form
  • Force one individual to help another
  • Deny an individual the ability to buy/sell a product
  • Force a redistribution of wealth
  • Seize property for the “public good” (even if compensating the owner)
  • Own property not necessary to carry out the functions from the first list
  • Use taxpayer money or deficit spending to support a failing business
  • Mandate a certification or license to practice a profession

Right now, the libertarians among you are nodding in agreement, while the rest are unhappy to a varying degree. My goal, as always, is to show how certain ideas can help unite us, but only if they are the best options for you and those you love. Libertarians generally do a good job of explaining all the parts of government that need to go, but a very poor job of saying what the (in the United States) 22 million public sector employees and 52 million people receiving government assistance are going to do that will end up making their lives better, not worse. Yeah yeah, the free market will provide, but that is a very amorphous concept compared to actual money currently going in their pockets.

As a side note, Bastiat makes an interesting point about the right to vote. When he was writing, in mid-19th century France, black men had regained the right to vote, but women of all races were almost a century away from winning that right. His point, however, is that the right to vote is incomparably more important when government violates his definition of the law than when it remains within the definition. People want the right to vote so that they can elect people to pass policies that will benefit them (often at the expense of others). Try to imagine a government that acted solely as a defender of the life, liberty, and property of its citizens. The vote in that case is just a check on government power so it does not move beyond those specified limits. There is no incentive to vote for a candidate who promises to take money from others and give it to you, slap tariffs on your competitors, pass subsidies for your industry, or outlaw people who you don’t like, because none of those things are functions of this government. That said, I hope we agree that universal suffrage for non-imprisoned adults is a good thing, because it allows people to have a say in something that affects them. Moving on…

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A major point Bastiat covers is the rise of legal plunder. Whereas the law originated as protection from illegal plunder (attack, enslavement, theft, etc.), that same coercive power of the government can be turned into a means for legalized plunder once the law steps outside Bastiat’s boundaries. It is an interesting use of words, as one realizes that taxation to cover the essential functions of government is necessary, but taxation to support government beyond those functions is legalized plunder. Citizens are required under threat of force to pay a percentage of their legal property for programs they may not wish to support. I’ll give some examples from across the political spectrum in hopes that all of you are annoyed by at least some of these uses of money forcibly taken from you:

  • 98% of Americans paying for farm subsidies so the 2% who are farmers can have an advantage against international farmers, keep prices of your food higher, and hurt competition within the country.
  • Subsidies to various fossil fuel companies, making them more competitive than they would otherwise be versus renewable energy sources and giving workers in those industries an incentive to stay put instead of finding a job in an expanding industry.
  • 1% of Americans paying half of annual income taxes while 45% of Americans pay no income tax.
  • Military spending is 54% of federal discretionary spending and about 16% of the annual federal budget, meaning that each American (including children) “pays” about $1,900 per year to support the military.
  • About 39% of the federal budget ($1.5 trillion) pays for social security and medicare, with fewer and fewer workers having to pay for more and more recipients (Though note, in fairness, the pay structure for social security means that the current recipients paid for the benefits they are now receiving, but those paying now are not guaranteed benefits in the future).

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One could point out how, perhaps not every program aligns with your views, but it is a give and take. Furthermore, since our elected representatives created these programs, we in some way agreed to this “legalized plunder”. An even better point is, for those of us living in a democracy, if enough of us vote for representatives who will do away with these programs, it will happen, no matter how entrenched the old way is. Those of you who protest, “But the DNC rigged the primaries!” or “Russian fake news convinced some people to vote for Trump!” or “Obama only won because he promised people free stuff!” all miss the point that, to reference a Dan Carlin analogy, entrenched powers putting their thumb on the scale only matters in close elections. Democracy is not dead, and your vote, when pooled with enough votes from others, matters as much as ever.

Enforcing fraternity will destroy liberty. Can one even call it fraternity when it is being forced? Surely, charity is no longer charity when it is done under the threat of force. People who believe in limiting the law to protection of life, liberty, and property are not anti-association or anti-society. They are only in opposition to forced association. Bastiat wrote that justice is an innate condition. It is injustice that is active. “The purpose of the law is to prevent injustice from reigning.” If we can protect and punish unjust acts, what remains is justice.

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There is a large portion of The Law dedicated to refuting the (then infant) ideas of socialism. I am going to save most of that discussion for a dedicated socialism post, but it is interesting to note how we the people are seen as nothing but clay for an omniscient socialist government to mold. We are supposedly right, wise, and powerful, yet must then relinquish all decision making, because we may not choose “correctly”. We must be protected from ourselves by patriarcal legislators who decide what is in our “best interests” or for “the common good”. Once the coercive power of government infringes of the rights of individuals, we tread on a slippery slope toward, “the inertness of mankind, the omnipotence of the law, and the infallibility of the legislator.”

My philosophy is “us versus them” does not exist, because there is no “them”. People talk about “the government” as if it were separate from “the people”, when in reality, government IS the people. It is an extension of our needs and desires. The government’s job is to protect our rights to life, liberty, and property. The more things we make government responsible for, the more things we will blame on government as it strains to perform functions it was never designed to do. Do farmers blame the government if it doesn’t rain enough? Do you blame your neighbor if the price of gas goes up? Do I call the power company when I run low on food? No, because none of those entities is responsible for what happened or how to fix it!

The expansion of government power pits people against each other. It creates the illusion of “us versus them”. As people jockey for the benefits of legal plunder, petition the coercive power of government to impede their competitors, and try to exclude people who don’t think like them, we become fragmented. True fraternity comes when we work together, because it benefits each of us to do so, not because we are compelled to: People engaging in voluntary interactions, with individuals giving and receiving at an agreed upon price. For people to voluntarily unite, they must retain their individual rights, working within the society because it benefits them best, while remaining free to leave at any time. The simplicity of the concept belies the complexity of its execution, but it remains a worthy goal.

**Addendum 8/5/17: Fountain Notes Vol. 012 – The Law is now available for purchase in the Fountain of Chris store.**

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