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Why Government Pollution Control Fails | Mises Wire

Posted by M. C. on July 25, 2023

As Art Carden succinctly put it, “The information needed to know whether a particular regulation ‘works’ quite literally does not exist, and the key difference between firms and governments is that firms . . . have market tests for their decisions. Governments do not.”

As we have seen, the government doesn’t have the information it would need to identify what level of pollution is efficient for an entire society, and government officials don’t have the incentives to be particularly interested in efficiency anyway.

https://mises.org/wire/why-government-pollution-control-fails

Timothy D. Terrell

In over twenty-five years of teaching undergraduate students, I have heard the same refrain countless times: free markets have many problems that government has to step in to solve. Indeed, students expect government to “step in” so much that markets occupy a peripheral role in their idealized economic system. Even students with an ideological predilection toward markets will be quick to argue that certain problems, such as pollution, require extensive government regulation and probably copious spending of tax dollars.

This is not surprising, given that college students have been bombarded by tales of government fixes for social problems from media, teachers, and parents from elementary school onward. By the time they hear about “market failure” in their first economics class, it doesn’t take much convincing that free markets are impractical at best and a weak rationale for capitalist exploitation at worst. The best-selling economics textbooks at the university level do little to counter these perceptions, and most instructors won’t deviate much from the mainstream books.

Most principles of microeconomics and intermediate microeconomics textbooks devote at least one chapter to market failure, which typically includes “market power” (think monopoly), inadequate provision of “public goods” (goods that the private sector allegedly won’t produce enough of because of an inability to make the users pay), and “externalities” (the unintended side effects of human activity on bystanders, like pollution). While textbooks usually contain some acknowledgment of the fact that governments don’t live up to idealized models of efficiency, it is rare for proportional space to be devoted to “government failure” and easy for students to conclude that government intervention is the answer to these nearly ubiquitous shortcomings of markets.

The Apologists for Environmental Regulation

The problems with monopoly theory and the errors of mainstream thinking about public goods have been dealt with elsewhere. In my experience, externalities—typically, environmental problems—have proven one of the most difficult challenges for students trying to understand markets and government. Don’t pollution problems require government intervention?

Typically, the section on externalities contains a few diagrams showing the difference between private costs (or benefits) and social costs (or benefits). The diagram for negative externalities usually looks something like figure 1, with the marginal private cost (MPC), marginal social cost (MSC), and marginal private benefit (MPB). Students are then directed to observe the difference between the optimal quantity of output (Q*) of the good that results in the negative externality and the quantity of output produced in the market (QM). Any production in excess of Q* adds more to costs than to benefits, creating a net loss labeled “deadweight loss.” The presence of this deadweight loss is deemed evidence of market failure, and the authors normally proceed to evaluate various ways government can push the market toward Q*.

Figure 1: The difference between costs and benefits of the quantity of output resulting in negative externalities

terrell_graph_1.png

Terrell Graph 1

Walter Block has argued that there are problems with the usual treatment of externalities as market failure. If the recipient of pollution is unable to collect damages or procure an injunction from a court—the typical remedy prior to around the mid-nineteenth century—then this is not market failure, but the government’s failure to uphold property rights. Once reasonably diligent in their protection of property rights, the courts began weakening these protections in the mid-1800s. An example is the 1866 case Ryan v. New York Central Railroad Co. (35 N.Y. 210), in which a railroad was not held liable for the loss of a house that had been set on fire by sparks from the railroad’s nearby woodshed, which had burned down due to the company’s negligence. Even so, court protection retained some force long after. As Jonathan Adler pointed out, in a famous 1913 case in New York, Whalen v. Union Bag and Paper Co. (208 N.Y. 1), “the state’s highest court upheld an injunction shutting down a $1 million pulp mill employing several hundred workers in order to protect the riparian rights of a single farmer.”

As court-made law to settle conflicts over nuisances like pollution has been increasingly regarded as inadequate to deal with externalities, government interventions have typically taken three forms: (1) command-and-control regulation, (2) emissions taxes, and (3) cap-and-trade (tradable permit) systems.

Command-and-control regulation is unpopular with many economists because of its tendency to require emissions reductions in ways that are inflexible and therefore likely to be more costly. It is also particularly susceptible to “crony capitalism,” since industry lobbyists can push regulatory bureaucracies to mandate technologies that keep competitors out. Far more attractive to economists are emissions taxes and tradable permits.

Emissions taxes (sometimes called Pigovian taxes after the Cambridge economist Arthur Cecil Pigou, a student of Alfred Marshall) have gained new attention as a part of climate policy. Numerous proposals for a federal carbon tax have appeared in the last several years, including the “Green New Deal,” and even some who claim to be libertarians have proposed them. Tradable permit systems have been in use in the United States for decades, notably with the Environmental Protection Agency’s Acid Rain Program that began auctioning off sulfur dioxide permits in 1993. Tradable permit systems have a superficial appeal to market-friendly economists because, after all, the permits trade in a market. Unfortunately, it’s only a quasi market, with the supply of permits dictated by regulators.

Most economists seem to favor one or the other of these policies. However, both emissions taxes and tradable permit schemes suffer from fatal problems.

The Pollution Calculation Problem

First, the government has no way to determine the costs inflicted by the pollution, whether for the purposes of setting a tax or creating a cap on emissions. Referring to the diagram in figure 1, there is no way to find the MSC, which means that the government can’t know how high to set the tax, and a tradable permit system won’t have useful information about how many permits should be created.

This calculation problem has long been recognized. James Buchanan explained the problem in Cost and Choice:

Consider, first, the determination of the amount of the corrective tax that is to be imposed. This amount should equal the external costs that others than the decision-maker suffer as a consequence of decision. These costs are experienced by persons who may evaluate their own resultant utility losses. . . . In order to estimate the size of the corrective tax, however, some objective measurement must be placed on these external costs. But the analyst has no benchmark from which plausible estimates can be made. Since the persons who bear these “costs”—those who are externally affected—do not participate in the choice that generates the “costs,” there is simply no means of determining, even indirectly, the value that they place on the utility loss that might be avoided.

As Art Carden succinctly put it, “The information needed to know whether a particular regulation ‘works’ quite literally does not exist, and the key difference between firms and governments is that firms . . . have market tests for their decisions. Governments do not.”

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Markets Aren’t about “Using” People. Markets Help People Attain Their Goals. | Mises Wire

Posted by M. C. on December 22, 2020

Some people may be fooled by hearing that, “You use others in markets; using people harms them.” But that is far less likely if you clarify which meaning of “use” you have in mind. “You utilized others’ willingly supplied services, therefore you harmed them” will convince far fewer people. So language misuse, abetted by sloppy thinking, can transform mutual benefits from uncoerced market exchanges into the fantasy of exploitation theory.

https://mises.org/wire/markets-arent-about-using-people-markets-help-people-attain-their-goals

Gary Galles

A very common rip on market arrangements is that they use people. For instance, I have come across many versions of “love people and use things rather than loving things and using people.” As Paul Heyne expressed the sense of it, “such a system seems somehow to violate our profound moral conviction that nothing is more valuable than individual persons, and that each person ought to be treated as a unique end, never as a means to some further end.”

The irony is that those who love liberty derive their endorsement of market arrangements from the primacy of individuals. As Leonard Read wrote, “An individualist…looks upon society as the upshot, outcome, effect, recapitulation incidental to what is valued above all else, namely, each distinctive individual human being.”

What Do We Mean by “Use”?

So why have “market arrangements use people” criticisms persisted, even though the central defense of such arrangements is that it benefits the individuals involved? In large part, it comes from sloppy misuse of the word “use.”

While there is widespread moral condemnation of “using” people, use has different meanings. Use can mean “utilize or employ,” with no implication of harm to others. That is what we mean when we say someone uses a hammer. It is also what happens when people voluntarily provide their services to advance others’ purposes in markets. In contrast, use can also mean “abuse or harm,” particularly as a result of force or fraud. That is what we mean when we say, “you pretended to care about me, but you were just using me.”

The first meaning is consistent with either imposing no harm on others or benefitting them (as in mutually acceptable market arrangements, which individuals would not otherwise enter into); the second meaning requires that others are harmed. And not clearly distinguishing the different meanings introduces serious confusion.

Some people may be fooled by hearing that, “You use others in markets; using people harms them.” But that is far less likely if you clarify which meaning of “use” you have in mind. “You utilized others’ willingly supplied services, therefore you harmed them” will convince far fewer people. So language misuse, abetted by sloppy thinking, can transform mutual benefits from uncoerced market exchanges into the fantasy of exploitation theory.

Ends and Means, Not Ends or Means

There is another logical problem that arises when we say we should treat people solely as ends in themselves and never as means for our purposes. It is not an “either/or” choice. Those we deal with voluntarily are both ends in themselves and the means by which we advance our ends.

What each of us offers others in voluntary arrangements is means to better advance others’ ends. But to treat goods and services others provide us voluntarily as means to our ends does not demean them as individuals; it is simply inherent in mutual benefit. To miss that distinction and so condemn such arrangements as the unethical use of others comes very close to the self-contradictory assertion that nothing mutually beneficial is allowable. Instead, we should laud rather than lambast a system that can dovetail the often incompatible plans and purposes of multitudes of different individuals, without abusing them or their rights, to expand what can actually be achieved.

Letting Others Pick How to Best Advance Their Ends

Further, when people freely choose their arrangements, we need to notice that doing so respects others as important ends in themselves in a crucial way that is absent when others dictate what is allowable. Under freedom, every individual can choose for themselves how to best use the means they have at their disposal to advance their own ends. To miss the fact that just because we primarily do this indirectly, exchanging our means for the means others control, as when I exchange my labor for your money (i.e., claims on resources), which I then use to advance the ends I choose, is to make a serious analytical error.

Mutually voluntary arrangements are those whose participants each believes best advance their ends without violating others’ similar pursuit of their ends. And what can better advance others’ ends than letting them choose how to use their current means most productively as they see it? As Phillip Wicksteed wrote in The Common Sense of Political Economy, voluntary economic relations ease “the limitations…of their own direct resources…by the very act that brings a corresponding liberation to those with whom they deal…[leaving] no room to bring against it the charge of being intrinsically sordid and degrading.”

How “Using” Others Beats Benevolence in a Complex World

Further, the hypothetical ideal of solely treating people as objects of benevolence rather than utilizing their services through mutually beneficial exchanges is unattainable. As Wicksteed put it, “The limitation of our powers would prevent our taking an equally active interest in every one’s affairs.” In any society larger than an immediate family, we simply cannot know enough to organize relationships based on benevolence. Consider the sheer number of transactions and transactors involved in our economic arrangements. Vast numbers of people are involved for even the simplest products, much less more complex ones. In such circumstances, the alternatives are not coordinating relationships via exchange (another name for persuasion) or via charity, but between coordinating relationships via exchange or coordinating them far less well, if at all, because it exceeds our knowledge and capabilities.

As Paul Heyne encapsulated the issue:

When money prices, rather than concern for each other as persons, coordinate social transactions, social cooperation becomes possible on a more extensive scale. Those who would like to force all social transactions into the personal mode do not realize how much of what they now take for granted would become wholly impossible in the world of their ideals…They are ignoring the incredible complexity of the system of social cooperation by means of which we are fed, clothed, housed, warmed, healed, transported, comforted, entertained, challenged, inspired, educated and generally served.

Conclusion

Claims that market arrangements involve the unethical “using” of others are of lengthy pedigree. But they are also of questionable merit.

They rhetorically transform the utilization of other individuals’ services in ways that benefit all parties involved into “using” others to their imagined detriment. They treat the issue as a choice between treating others as means or as ends, when people are ends in themselves and the providers of the means for others to best advance their ends. Honoring others as ends in themselves also means letting them choose which use of their means can best achieve their ends. And if we were to reject letting individuals utilize their services for others voluntarily, as they see fit, it would leave us with only benevolence as the basis of all our relationships. In a complex world, however, that would not advance the good we do for one another; it would destroy many of the forms of social cooperation that voluntary arrangements have produced so dependably that we rely on them daily.

Consequently, careful thinking, not cowed or manipulated by misleading arguments, should lead us to reject the “market arrangements use people” criticism. If we accept the premise that individuals and their development are our ultimate ends, the voluntary arrangements they evolve are, as Friedrich Hayek pointed out, among society’s greatest creations, not its nemesis. Author:

Gary Galles

Gary M. Galles is a Professor of Economics at Pepperdine University and an adjunct scholar at the Ludwig von Mises Institute. His research focuses on public finance, public choice, economic education, organization of firms, antitrust, urban economics, liberty, and the problems that undermine effective public policy. In addition to his most recent book, Pathways to Policy Failures (2020), his books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).

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Erie Times E-Edition Article-How some regulation can help markets function better

Posted by M. C. on September 12, 2020

When there are information asymmetries, market participants need some minimum level of assurances – provided and enforced by a credibly independent arbiter, such as the government…

Credibility=government – Catherine Rampell is either delusional or someone’s hack. I suspect the latter.

The only reason companies demand government regulation is to make competition too complex and expensive for smaller companies, or labs in this case.

There is a reason car companies don’t complain about emissions requirements and multiple crash tests from every direction for new car designs.
https://erietimes-pa-app.newsmemory.com/?publink=0f7598765

Regulate us – please. That’s what big pharmaceutical companies are implicitly begging the Trump administration to do, because of a public crisis of confidence in any forthcoming COVID19 vaccine. The plea is surprising on its face. It also rebuts the GOP’s entire understanding of regulation – specifically, that regulation is necessarily bad for businesses, consumers and economic growth.

Since the spring, the administration has hyped miracle cures for COVID19, regardless of what’s known about their efficacy or risks: hydroxychloroquine, bleach, convalescent plasma, whatever that MyPillow guy is hawking lately. Recently, President Donald Trump suggested that a vaccine could, conveniently, come to market just before Election Day.

Meanwhile, his Food and Drug Administration commissioner said he was prepared to authorize a vaccine early.

Americans are understandably apprehensive.

Six in 10 Americans worry political pressure from the administration will lead the FDA to rush vaccine approval before confirming it’s safe and effective, the Kaiser Family Foundation has found. And only about four in 10 would get the vaccine, even if it were free, if the FDA approved it before the election.

Fearful that these suspicions might reduce the market for a drug tremendous resources have gone into developing, Big Pharma took an unusual step Tuesday.

The chief executives of nine drug companies publicly pledged to ‘make the safety and well-being of vaccinated individuals the top priority in development of the first COVID19 vaccines.’ Moreover, they vowed not to seek FDA approval before vaccine safety and efficacy had been established in Phase 3 trials – the industry standard – implying that they would do this even if the Trump administration allowed (or encouraged) them to cut corners.

This pledge reflects several notable developments.

One is how much damage Trump has inflicted upon the perceived credibility of public health institutions, as he has upon the National Weather Service, Census Bureau and other independent agencies.

Another is that drug companies – which historically have sought fewer restrictions and faster approval from the FDA – once complained that the bar for bringing new drugs to market was too high. Now they worry that bar appears too low.

This is not the first time the Trump administration has sought to lower the regulatory bar in the name of helping industry and boosting economic growth even when industry objected. See, for example, its rollback of rules regulating methane emissions, automotive fuel-efficiency standards and mercury pollution. These actions were opposed by companies the administration claimed to be helping.

Recent vaccine regulatory jockeying underscores the flaw in the GOP narrative that regulation and economic activity are inversely related – that is, less regulation always means more economic growth.

When there are information asymmetries, market participants need some minimum level of assurances – provided and enforced by a credibly independent arbiter, such as the government – for markets to function. If you don’t trust the party on the other side of a transaction not to cheat or otherwise harm you, you’ll be less likely to engage in the transaction. (This observation is not original to me; an economics Nobel was awarded for it two decades ago.) Regulation, in other words, can be pro-market. It can facilitate the trust necessary for more economic activity to occur. After all, it would be virtually impossible for consumers to independently assess whether the beef at their local grocery store is untainted; whether a used car is fatally defective; or whether their local bank will keep their deposits safe. Yelp stars alone are no substitute for capital requirements.

Alas, the administration’s response to the pandemic has included rolling back more rules and relaxing enforcement of rules still on the books – including those related to public health. Lax government oversight threatens to hold back not just the market for vaccines but other industries affected by the pandemic, too. For instance, airlines say they’re requiring masks aboard. But absent a governmentenforced mandate, customers who see, say, viral photos of disobedient passengers might question whether the policy is actually enforced. And they might just stay home.

There’s a libertarianfriendly alternative to this worldview, one that also happened to win a Nobel Prize: Rather than using strict regulations to ensure honorable behavior, strong property rights and the frictionless ability to sue over those rights could theoretically achieve the same end.

That is, if companies know consumers will win redress for fraud or injury, that threat should sufficiently incentivize quality and safety.

Presumably, Mitch McConnell and Trump believe such policies help the economy. But the fewer consumers who trust either government or corporations to ‘do the right thing,’ the longer it will take for public health – and the economy – to recover. Catherine Rampell is a Washington Post columnist. Email her at crampell@washpost.com.

Catherine Rampell

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Europe’s Communists Are Trying to Blame COVID-19 on Markets and “Neoliberalism” | Mises Wire

Posted by M. C. on May 9, 2020

What they consider as capitalism’s flaws—globalization and laissez-faire—are indeed its strong points. And what they accuse capitalism of—a lack of solidarity and forsaking disadvantaged people—relies upon incorrect theoretical and historical analysis. Don’t trust them and their fallacious narratives.

https://mises.org/wire/europes-communists-are-trying-blame-covid-19-markets-and-neoliberalism?utm_source=Mises+Institute+Subscriptions&utm_campaign=15be745cdc-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-15be745cdc-228343965

As the COVID-19 pandemic is taking place worldwide, many leftist pundits and communist politicians are blaming its spread on the alleged inborn flaws of neoliberalism—which they identify with globalization, laissez-faire, the absence of solidarity and greater inequality. However, all their claims and theories are either factually wrong or deductively and praxeologically nonsensical.

Globalization Is Enhanced Social Cooperation

First of all, antiglobalization leftists and communists do not seem to clearly understand what globalization really is—i.e., an economic and institutional framework wherein both economic products (consumers’ goods and services) and factors of production (commodities, labor, and capital) can move and circulate worldwide with relative freedom.

As it can be easily understood, such freedom of circulation and movement is nothing different from enhanced social cooperation. In fact, the fewer the constraints on resources’ allocation (both consumers’ and producers’ goods), the greater the efficiency (with respect to producers’ goods allocation, cost minimization, and profit maximization) and the satisfaction (in terms of variety of consumption goods and cost saving) that producers and consumers can enjoy.

In fact, as we all know, social cooperation is the only means whereby human societies can progress and provide better living conditions for all their members. As Mises ([1949] 1998) stated in Human Action,

Every step by which an individual substitutes concerted action for isolated action results in an immediate and recognizable improvement in his conditions. The advantages derived from peaceful cooperation and division of labor are universal. (p. 146, emphasis added)

Provided that globalization means nothing more than international peaceful cooperation and division of labor, it is clear that it would (and actually does) deliver better economic and welfare conditions than isolationism and autarky could possibly do. This fact can be praxeologically deduced (as we have briefly done so far) or empirically proven—by innumerable historical examples of disasters, misery and famine brought upon innocent people by autarkic and isolationist policies.

Laissez-Faire Is Trial-and-Error Learning

Secondly, communist politicians and leftist pundits get totally wrong what laissez-faire really is, what it entails, and how beneficial (or, even better, fundamental and indispensable) it is for the correct functioning of capitalism—which is the only social cooperation framework (both historically and praxeologically) suitable to bettering human beings’ material conditions.

Unfettered laissez-faire is the only institutional scenario wherein economic agents (consumers and producers) can freely and promptly adjust their choices and behaviors to the changes occurring within the free market—which is the ultimate display and epitome of social cooperation. Whenever laissez-faire is impaired by government intervention, social cooperation performs worse and society loses something in terms of efficiency in resource allocation.

Moreover, laissez-faire is indispensable in a capitalistic framework spoiled by fractional reserve banking and government fiat money. In fact, as Austrian business cycle theory teaches, the faculty to create “money out of thin air” (fiduciary media) that commercial banks are legally granted brings about divergences between savings (resources whose consumption agents are willing to forego today) and investments (means of production shifted toward higher orders of production so as to yield increased consumption tomorrow). In Mises’s ([1949] 1998) own words,

The inference to be drawn from the monetary cycle theory by those who want to prevent the recurrence of booms and of the subsequent depressions is…that they [banks] should abstain from credit expansion. (p. 789n5​, emphasis added)

However, since reforming the fractional reserve banking and government fiat money system we live in does not seem to be feasible (at least not in the short run), letting agents free to correct the mistakes they make in resource allocation seems to be the only way to cope with the credit-induced boom-and-bust cycles we experience.

In this respect, laissez-faire and globalization are intertwined. What the COVID-19 economic shock is teaching us—besides the questionability of indiscriminate economic shutdowns—is that, perhaps, entrepreneurs underestimated the pandemic risk while engineering the global value chain we all benefit from.

But this does not mean that laissez-faire and globalization were the wrong option: they are tools, nothing more. And through these tools a capitalistic society can adjust its productive structure and perform better in the future, learning from previous mistakes. Were the Western world to have a socialist central planner instead of freely choosing entrepreneurs, this corrective process of improvement could not possibly occur.

Neoliberalism: Greater Inequality and Lower Solidarity?

Lastly, laissez-faire does not imply rejection of the social protection we enjoy in Western world. This can be briefly shown both theoretically and empirically.

The critics of capitalism and neoliberalism blame markets for a system that is—allegedly—inevitably converging an toward ever more unequal distribution of resources. However, even if this were true (intertemporal changes in inequality are complex and challenging to measure), the egalitarian alternative is evidently worse.

Consider two possible social welfare functions (i.e., two possible quantifications of people’s well-being in a given society): the egalitarian one and the “Rawlsian” one. The first one postulates that society is better off the more equal agents’ utilities (i.e., states of well-being) are, whereas the second one postulates that society’s welfare depends upon the condition of its less affluent members.

As Figure 1 shows, you can have a more unequal society wherein, nonetheless, every single member is better off than in the previously more equal scenario: this is what is involved with the movement from scenario 1 to scenario 2, and it is what globalization entails. Notice that, from an egalitarian viewpoint, society would be better off in 1, when it was “more equal,” than in 2, where both agents A and B enjoy greater (even though less equal) utilities.

Figure 1: Individual Well-Being and Social Welfare Functions

Individual and Social Welfare Functions

This simple sketch provides valuable insights about communism and utopian ideologies: hoping to achieve scenario 3, where everybody would be better off and society more equal, which might not be feasible under production and technological constraints, communists and utopians prefer to force upon us scenario 1, where we are all poorer and worse off—but, hey, we have defeated inequality! Moreover, accepting scenario 2 (i.e., following a “Rawlsian” approach) is exactly what modern capitalistic welfare states are designed for: nobody is left behind if truly disadvantaged—no libertarian free marketer argues against that. However, taking care of disadvantaged people does not mean embracing an egalitarian viewpoint.

Also, historically we observe that the level of solidarity in Western world has increased—not decreasing, as modern anticapitalists contend—as markets and globalization have asserted themselves. Even using the Left’s own measures of “solidarity”—such as social spending—public social spending has been increasing in OECD (Organisation for Economic Co-operation and Development) countries from the 1980s onwards and is higher today—even after the Great Recession—than it was back then.1

Figure 2: Social Public Spending, Percentage of GDP, 1980–2018

Social Public Spending GDP
Source: OECD, https://data.oecd.org/socialexp/social-spending.htm.

Conclusion

Even if leftists and antiglobalists were correct (and I believe they are not) in blaming capitalism and its various facets for the current pandemic, they are utterly wrong in downplaying capitalism’s ability to heal and correct its path.

What they consider as capitalism’s flaws—globalization and laissez-faire—are indeed its strong points. And what they accuse capitalism of—a lack of solidarity and forsaking disadvantaged people—relies upon incorrect theoretical and historical analysis. Don’t trust them and their fallacious narratives.

  • 1. That social spending is a useful measure of solidarity is a dubious assertion, but this is nonetheless a metric that anticapitalists use.

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Politicians Have Destroyed Markets and Ignored Human Rights with Alarming Enthusiasm | Mises Wire

Posted by M. C. on May 6, 2020

This raises a question: Why the enormous and extreme reactions to the virus from Western politicians, bringing the entire economy to its knees and severely curtailing the fundamental individual freedoms of millions of citizens? Of course, there is the usual incompetence and herd behavior in the political leadership of many countries to be reckoned with. But other reasons exist for this disastrous and irresponsible behavior. Here are some.

But the strongest pressure on governments probably comes from the media, in particular in the current times of pervasive internet and social media. Politicians are now constantly scrutinized and held responsible in a way that just a generation ago they were not.

https://mises.org/wire/politicians-have-destroyed-markets-and-ignored-human-rights-alarming-enthusiasm?utm_source=Mises+Institute+Subscriptions&utm_campaign=7781636caf-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-7781636caf-228343965

An economic cataclysm has been unleashed upon the world by Western politicians and bureaucrats. Unbelievably, economic activity in the West has slowed to a creep, as entire populations have been confined to their homes for weeks, if not months. As a result, millions have had their lives turned upside down. Most entrepreneurs and self-employed persons have had their livelihoods jeopardized.

The EU economy may shrink by 5 percent according to the European Central Bank (ECB), and similar figures have been forecast for the US. The economic devastation wrecked upon Western economies by governments will have consequences for many years to come. It will inevitably lower European and US citizens’ quality of life for a long time, impacting their health as well.

It is important to understand that this disaster is not the result of the coronavirus pandemic, which is a public health problem, but of overzealous government officials reacting to the pandemic. A growing number of researchers and health professionals are suggesting that the total number of cases is far higher than previously thought, which means that COVID-19 is far less deadly than the media and government advisors insist. If correct, these revised death rates put COVID-19 in many places at a case fatality rate similar to that of the flu, which kills hundreds of thousands of people every single year globally, without provoking any notably large political reaction.

This raises a question: Why the enormous and extreme reactions to the virus from Western politicians, bringing the entire economy to its knees and severely curtailing the fundamental individual freedoms of millions of citizens? Of course, there is the usual incompetence and herd behavior in the political leadership of many countries to be reckoned with. But other reasons exist for this disastrous and irresponsible behavior. Here are some.

First, politicians have generally little understanding of how markets work. Steeped in administrative and policy thinking, most politicians have never worked in the private sector or studied market economics. They neither understand nor appreciate the complexity of markets which make our high standard of living possible. This complexity includes an unfathomable number of daily exchanges, myriad commercial relations, and never-ending adaptation to surrounding conditions. The logic of politics, however, dictates that politicians cannot be seen as “doing nothing,” so they seek always intervention in markets. This is not new; it has always been a typical trait of politicians and bureaucrats. The political reactions to the coronavirus pandemic have just dramatically confirmed this truth yet again.

Secondly, politicians naturally make political calculations. Having reelection constantly in mind, they do not want to be held responsible for anything that goes wrong. In a crisis, they always prefer to act than not to act—all else being equal, to show that they tried something. At least then—in their minds—they cannot be accused of idleness, negligence, shortsightedness, or callousness. However deleterious their actions, politicians generally are not held accountable and can present themselves as heroically standing firm in dangerous times, acting forcefully and with determination. President Roosevelt’s harmful economic policies during the Great Depression and World War II are an example of this.

Thirdly, politicians sometimes rely too much on scientists, who generally have no training in social matters at all. Even more so than politicians, scientists often have great difficulty in grasping the concept of the spontaneous order of the market, not surprising given that they are followers of the rigorous scientific process. Albert Einstein’s frankly embarrassing economic proposals are a famous example. Whereas the politician is at least fully aware of the subtle gray shades in policymaking and the fine balancing act of satisfying various stakeholders, the scientist generally means well but sees the world in black and white.

Thus, if a scientist is asked how to stop the spread of a pandemic, he or she would probably answer that the best and most efficient way is to order the strict confinement of the entire population to their homes for weeks. This is what the France’s influential “Conseil Scientifique” has recommended, and it may well be true from a purely scientific point of view (although that is open to debate now). The problem arises when politicians enthusiastically follow such opinions without considering them in the light of their political and economic consequences. The first two reasons mentioned above may explain why politicians tend to place excessive trust in scientists: politicians are not familiar enough with market economics to fully grasp the consequences of acting on purely scientific advice, and it may be in their interest to act on such advice, since to do something—anything—is key.

A fourth reason why politicians have acted so recklessly to counter the spread of COVID-19 is certainly the political pressure that they are under. In times of (perceived) crisis, they are looked up to for guidance, if not for orders to follow, by an unwitting and politically uneducated electorate. But the pressure comes not only from the people, which perhaps is normal in a democracy, but also from foreign politicians. No leader wants to be outdone by his foreign colleagues and be left with the weakest plan to address the crisis. In this case, the UK‘s Boris Johnson reversed his policies, and Sweden‘s Stefan Löfvén has been slowly bowing to precisely this external pressure to act.

But the strongest pressure on governments probably comes from the media, in particular in the current times of pervasive internet and social media. Politicians are now constantly scrutinized and held responsible in a way that just a generation ago they were not. Further, mass media is prone to dramatize and exaggerate events, as this makes for better ratings, but also because journalists are not virologists. Mainstream media often tends to misinterpret and simplify the facts, inadvertently or not. An example of this is the mortality rate of COVID-19, which is constantly reported to be much higher than it is, because only declared cases are used (case fatality rate (CFR)). More generally, the prevailing attitude from the media is that everything must be done to save a small minority of the entire population today, even if that comes at the price of future economic pain for tens of millions of people. This is the classic socialist and interventionist dilemma: Where does it stop? In a world of scarce resources, how much taxpayer money should the state spend to save one life?

Finally, it is necessary to entertain a darker and more cynical explanation for the political reaction to the pandemic: power in a time of crisis. The state never misses a chance to increase its power. Crises are considered great political opportunities, and have thus been used countless times in history by rulers. This was the case during and after World War I and World War II, as well as after 9/11, with the passage in Congress of the PATRIOT Act (Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act). But this is also true of smaller crises, such as the current panic. The economic stimulus packages that are now being proposed will again benefit corporatist bankers, as happened during the financial crisis. This is why the big banks have been the first to call for and cheer more “economic stimulus.” They stand to immediately benefit from such “government aid.”

That most Western governments have now decided to emulate the Chinese dictatorship in imposing a severe lockdown of society should be a wake-up call for those innocent souls who still think, even after the show trial of Julian Assange, that the West still protects individual freedom. A dangerous and frightening political evolution is on the way in an already fragile political and economic system. The political consequences of the generalized confinement of millions of people in Europe will be of long-lasting consequence to the balance of power between state and society. Though the Western “liberal democratic” order was never really one except in name, it is clear that a decisive step has now been taken away from it.

This politically triggered economic crisis could then also lead, hopefully, to a clearer understanding among the population that constitutional changes are due in many countries, in order to limit the powers of executive branches everywhere. Let us hope that this will be the lesson learned by the millions confined to their homes by the arbitrary will of the state.

 

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What libertarianism has become and will become — State Capacity Libertarianism

Posted by M. C. on March 25, 2020

The comments in the linked article are as enlightening or in the case of the post itself-entertaining- as the post.

https://marginalrevolution.com/marginalrevolution/2020/01/what-libertarianism-has-become-and-will-become-state-capacity-libertarianism.html

by  Tyler Cowen

Having tracked the libertarian “movement” for much of my life, I believe it is now pretty much hollowed out, at least in terms of flow.  One branch split off into Ron Paul-ism and less savory alt right directions, and another, more establishment branch remains out there in force but not really commanding new adherents.  For one thing, it doesn’t seem that old-style libertarianism can solve or even very well address a number of major problems, most significantly climate change.  For another, smart people are on the internet, and the internet seems to encourage synthetic and eclectic views, at least among the smart and curious.  Unlike the mass culture of the 1970s, it does not tend to breed “capital L Libertarianism.”  On top of all that, the out-migration from narrowly libertarian views has been severe, most of all from educated women.

There is also the word “classical liberal,” but what is “classical” supposed to mean that is not question-begging?  The classical liberalism of its time focused on 19th century problems — appropriate for the 19th century of course — but from WWII onwards it has been a very different ballgame.

Along the way, I believe the smart classical liberals and libertarians have, as if guided by an invisible hand, evolved into a view that I dub with the entirely non-sticky name of State Capacity Libertarianism.  I define State Capacity Libertarianism in terms of a number of propositions:

1. Markets and capitalism are very powerful, give them their due.

2. Earlier in history, a strong state was necessary to back the formation of capitalism and also to protect individual rights (do read Koyama and Johnson on state capacity).  Strong states remain necessary to maintain and extend capitalism and markets.  This includes keeping China at bay abroad and keeping elections free from foreign interference, as well as developing effective laws and regulations for intangible capital, intellectual property, and the new world of the internet.  (If you’ve read my other works, you will know this is not a call for massive regulation of Big Tech.)

3. A strong state is distinct from a very large or tyrannical state.  A good strong state should see the maintenance and extension of capitalism as one of its primary duties, in many cases its #1 duty.

4. Rapid increases in state capacity can be very dangerous (earlier Japan, Germany), but high levels of state capacity are not inherently tyrannical.  Denmark should in fact have a smaller government, but it is still one of the freer and more secure places in the world, at least for Danish citizens albeit not for everybody.

5. Many of the failures of today’s America are failures of excess regulation, but many others are failures of state capacity.  Our governments cannot address climate change, much improve K-12 education, fix traffic congestion, or improve the quality of their discretionary spending.  Much of our physical infrastructure is stagnant or declining in quality.  I favor much more immigration, nonetheless I think our government needs clear standards for who cannot get in, who will be forced to leave, and a workable court system to back all that up and today we do not have that either.

Those problems require state capacity — albeit to boost markets — in a way that classical libertarianism is poorly suited to deal with.  Furthermore, libertarianism is parasitic upon State Capacity Libertarianism to some degree.  For instance, even if you favor education privatization, in the shorter run we still need to make the current system much better.  That would even make privatization easier, if that is your goal.

6. I will cite again the philosophical framework of my book Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals.

7. The fundamental growth experience of recent decades has been the rise of capitalism, markets, and high living standards in East Asia, and State Capacity Libertarianism has no problem or embarrassment in endorsing those developments.  It remains the case that such progress (or better) could have been made with more markets and less government.  Still, state capacity had to grow in those countries and indeed it did.  Public health improvements are another major success story of our time, and those have relied heavily on state capacity — let’s just admit it.

8. The major problem areas of our time have been Africa and South Asia.  They are both lacking in markets and also in state capacity.

9. State Capacity Libertarians are more likely to have positive views of infrastructure, science subsidies, nuclear power (requires state support!), and space programs than are mainstream libertarians or modern Democrats.  Modern Democrats often claim to favor those items, and sincerely in my view, but de facto they are very willing to sacrifice them for redistribution, egalitarian and fairness concerns, mood affiliation, and serving traditional Democratic interest groups.  For instance, modern Democrats have run New York for some time now, and they’ve done a terrible job building and fixing things.  Nor are Democrats doing much to boost nuclear power as a partial solution to climate change, if anything the contrary.

10. State Capacity Libertarianism has no problem endorsing higher quality government and governance, whereas traditional libertarianism is more likely to embrace or at least be wishy-washy toward small, corrupt regimes, due to some of the residual liberties they leave behind.

11. State Capacity Libertarianism is not non-interventionist in foreign policy, as it believes in strong alliances with other relatively free nations, when feasible.  That said, the usual libertarian “problems of intervention because government makes a lot of mistakes” bar still should be applied to specific military actions.  But the alliances can be hugely beneficial, as illustrated by much of 20th century foreign policy and today much of Asia — which still relies on Pax Americana.

It is interesting to contrast State Capacity Libertarianism to liberaltarianism, another offshoot of libertarianism.  On most substantive issues, the liberaltarians might be very close to State Capacity Libertarians.  But emphasis and focus really matter, and I would offer this (partial) list of differences:

a. The liberaltarian starts by assuring “the left” that they favor lots of government transfer programs.  The State Capacity Libertarian recognizes that demands of mercy are never ending, that economic growth can benefit people more than transfers, and, within the governmental sphere, it is willing to emphasize an analytical, “cold-hearted” comparison between government discretionary spending and transfer spending.  Discretionary spending might well win out at many margins.

b. The “polarizing Left” is explicitly opposed to a lot of capitalism, and de facto standing in opposition to state capacity, due to the polarization, which tends to thwart problem-solving.  The polarizing Left is thus a bigger villain for State Capacity Libertarianism than it is for liberaltarianism.  For the liberaltarians, temporary alliances with the polarizing Left are possible because both oppose Trump and other bad elements of the right wing.  It is easy — maybe too easy — to market liberaltarianism to the Left as a critique and revision of libertarians and conservatives.

c. Liberaltarian Will Wilkinson made the mistake of expressing enthusiasm for Elizabeth Warren.  It is hard to imagine a State Capacity Libertarian making this same mistake, since so much of Warren’s energy is directed toward tearing down American business.  Ban fracking? Really?  Send money to Russia, Saudi Arabia, lose American jobs, and make climate change worse, all at the same time?  Nope.

d. State Capacity Libertarianism is more likely to make a mistake of say endorsing high-speed rail from LA to Sf (if indeed that is a mistake), and decrying the ability of U.S. governments to get such a thing done.  “Which mistakes they are most likely to commit” is an underrated way of assessing political philosophies.

You will note the influence of Peter Thiel on State Capacity Libertarianism, though I have never heard him frame the issues in this way.

Furthermore, “which ideas survive well in internet debate” has been an important filter on the evolution of the doctrine.  That point is under-discussed, for all sorts of issues, and it may get a blog post of its own.

Here is my earlier essay on the paradox of libertarianism, relevant for background.

Happy New Year everyone!

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Markets Rely on Accurate and Honest Information — But Governments Want the Opposite | Mises Wire

Posted by M. C. on October 6, 2019

In contrast, when governments displace voluntary arrangements with coercive impositions, lies displace truth in two ways. Not only is the competition to get political power based largely on misrepresentations, but government’s coercive impositions also replace the truth revealed in voluntary market behavior with lies. What is the effect on society? It isn’t pretty.

https://mises.org/wire/markets-rely-accurate-and-honest-information-%E2%80%94-governments-want-opposite

…The reason people don’t always communicate truthfully is that our reason serves our self-interest. Sometimes we perceive a strategic advantage at other people’s expense from intentionally deceiving them. Our words are also often ex post rationalizations to ourselves and others of why whatever we chose or did was a good idea. But that often makes what people say a frail reed to rely upon. And when political power is involved, the incentives for such deception and self-delusion are put on steroids, because the payoffs are far greater when backed by government’s coercive power.

As a consequence, accurate information about the issues most important to our ability to co-operate with others is often among the scarcest and most valuable of goods. Making it worse, the unknowably vast amount of potentially useful information—the infinite permutations of who, what, when, where, why and how–exceeds any individual or group’s ability to comprehend and integrate it. But voluntary market arrangements based on private property rights provide a powerful mechanism of cutting that problem down to manageable size.

Most of the time, we don’t really want to know all the details that might affect our productive interactions with others. We mainly want to know “how much”–what are the tradeoffs others are willing to make between goods, services, current versus future consumption, labor versus leisure, etc. The reason is that, regardless of their specific determinants, others’ willing tradeoffs determine our possibilities and constraints in any society that honors members’ self-ownership.

Expanding the mutually beneficial arrangements that are possible by accurately revealing such information is a central aspect of effective social coordination, as the seminal works of Ludwig von Mises and Friedrich Hayek have made clear. No central planners knows the tradeoffs each individual would make; only the individuals involved know that information. That requires a process to honestly reveal that information to those who will make choices regarding it, or the information will be effectively thrown away, along with the societal wealth creation it would enable.

Markets provide that honest information. While what people say may often be misleading to themselves and others, people reveal the truth about the tradeoffs they are willing to make when they engage in un-coerced exchange. What you do is often far more truthful than what you say.

Regardless of your words, if you actually buy a product for $10 out of your pocket, you reveal that you believe it is worth at least $10 to you; similarly, if you sell a product for $10, you reveal that what the money could purchase was worth more to you than the product. And those choices reveal valuable information about the real alternatives available to those who might choose to deal with you. In contrast, since politics is based on what people say rather than what they actually do, it often short-circuits our central mechanism for discovering the truth to better enable our cooperative potential.

In fact, a vast array of government interference in individuals’ voluntary exchange relationships substitutes lies for the truth that would otherwise be revealed. And in a world where relative scarcities are frequently the primary things we want to know from others, to combine with our more intimate knowledge of ourselves and our situations, the harm is massive.

Consider price ceilings, like rent controls. In their absence, market rents tell you the prices at which you can find apartments, reflecting the opportunity costs landlords face. But rent controls impose a price divorced from landlords’ opportunity costs, and at which many will often be unable to successfully rent an apartment. That is, it misinforms people that the opportunity costs are cheaper than they really are, and in the process makes knowledge of the terms at which apartments can generally be successfully rented largely disappear.

Price floors, like minimum wages, act in a parallel manner. In their absence, market wages tell you the prices at which you can generally find jobs. But a minimum wage dictates a price divorced from prospective workers’ opportunity costs, and at which many will often be unable to successfully get jobs. That is, it misinforms people that unskilled labor’s opportunity costs are higher than they really are, and in the process makes the knowledge of the terms at which jobs can generally successfully be gotten largely disappear.

Taxes, which are the price of the artificial input, “government permission to produce and sell,” reflecting coercively imposed government burdens rather than opportunity costs of inherently scarce goods and services, tell buyers that products are scarcer than they really are. The same is true of import restrictions, like tariffs and quotas, which raise prices above opportunity costs. The burdens of government regulations and mandates also act like taxes. Government barriers to entry and operation in markets similarly raise prices above what relative scarcity would dictate. All of these result in artificially higher prices, underuse and waste, compared to free markets.

Subsidies act in a parallel manner to taxes, but in the opposite direction. They communicate to prospective buyers that products are less scarce than they really are, leading to artificially low prices to consumers, overuse and waste, compared to free markets.

Not only do voluntary market interactions better reveal the truth about relative scarcities through pricing, they allow more accurate evaluation of other aspects of trading, such as product and service quality, than government.

The key (though often ignored) factor is repeat business. The usual scare stories to justify the “need” for government regulation involve one-time interactions, in which others can gain by “cheating” on what they promise. But the relevant question is not whether they can, but whether it is in their interest to do so. We don’t need government protection against things people will choose not to do, even if they could. And since almost everyone we deal with economically wishes to continue in business, effects on future business (directly, as when current customers refuse to deal with such suppliers in the future, and indirectly, through reputation effects on other current and prospective trading partners) act as a performance bond against misbehavior, leading to far better outcomes than the scare stories imply. As students of game theory recognize, repeated games generate very different strategies than one-shot games.

Consider an example. I can cheat you today by providing lower than claimed quality, and doing so would generate $1 million in increased profits for me. If it would leave my future business relationships unchanged, I have an incentive to do so. However, what if I expect the resulting damage to my reputation will lose me more than $1 in future discounted profits? I can cheat you, but I won’t because I have no incentive to. The problem in this case is solved by markets’ reputation mechanisms. Even if the future losses don’t completely eliminate my incentives to cheat, they sharply reduce them, letting much of the air out of the “we need government regulation to protect you” balloon.

This mechanism, while ignored by “nothing can be done if the state doesn’t do it” acolytes, is far from new. For instance, the famous Maghribi traders of Northern Africa relied on reputations to deal with problems in international trade in the 11th century…

In contrast, when governments displace voluntary arrangements with coercive impositions, lies displace truth in two ways. Not only is the competition to get political power based largely on misrepresentations, but government’s coercive impositions also replace the truth revealed in voluntary market behavior with lies. What is the effect on society? It isn’t pretty. And even though it is an essential aspect of government intrusion into citizens’ affairs, not a single moral or ethical system endorses lying. Lies will not set you free. Not only does the truth set us free, but freedom in our cooperative endeavors reveals truths we have no other way of knowing.

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Thomas Sowell Quote: “Government central planning means ...

 

 

 

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On the American Ideology – LewRockwell

Posted by M. C. on April 30, 2019

Now, I tell you no secret when I admit that I hold this for a massive pile of rubbish…

https://www.lewrockwell.com/2019/04/hans-hermann-hoppe/on-the-american-ideology-and-its-proponents-and-beneficiaries/

By

Translated from German by Ohad Osterreicher[1]

“We paint the world to ourselves as we like – until everything breaks down and no longer holds.”

We live in the age of the American Empire. It can be that this empire will someday crumble. In the foreseeable future, however, it is here to stay, not on account of its military strength but first and foremost because of its ideological power. For the American empire has achieved something truly remarkable: the internalization of its core belief system as an intellectual taboo into the minds of most people.

Granted, all states rest upon aggressive violence, and the USA is no exception. The United States as well do not hesitate to annihilate everyone who opposes their legislative despotism. Though the USA had thus far employed little actual violence to have its orders submissively followed because the overwhelming majority of the population and especially of the opinion-forming intellectuals have accepted the system of values and convictions which makes up the American empire.

According to the official, USA approved belief system, we are all equally intelligent and reasonable people, who are confronted with the same “harsh reality” and are bound to the same facts and truths. Of course, it is true, that even in the age of the American empire, in the USA, people do not live in the best of all worlds. There are many more problems to be solved. Though with the American system of a democratic state, humanity has found the perfect institutional framework which makes the next step in the direction of a perfect world possible; and if only would the American system of democracy takeover worldwide, would the way to perfection be clear, smooth and free.

The single legitimate form of government is democracy. All other forms of government are worse, and any government is better than none. Democratic states like the USA are of the people, by the people and for the people. In democracies no one rules over the other; instead, the people rule over themselves and are thus free. Taxes in democratic states are therefore contributions and payments for governmentally provided services; accordingly, tax avoiders are thieves, who take without paying. To provide shelter for fleeing thieves is thus an act of aggression against the people, from whom they are trying to escape.

Though there are still other forms of governments around the world. There are monarchies, dictatorships, theocracies, and there are feudal landowners, tribes, and warlords. And for this reason, democratic states often must necessarily deal with non-democratic states. Eventually, all states must be converted to the American ideal, because only democracy allows for a peaceful and continual change for the better.

Democratic states like the USA and its European allies are inherently peaceful and do not wage war against each other. If they must fight any wars all at, then these are preventive wars of defense and liberation against aggressive and undemocratic states, that is, just wars. All countries and territories that are presently in war with or occupied by American troops or its European allies – Afghanistan, Pakistan, Iraq, Libyan, Syrian, Sudan, Somalia and Yemen – were therefore guilty of aggression and their war waging and occupation on behalf of the democratic West were an act of self-defense and liberation. However, there is still much to be done. Especially Russia and China still pose a huge threat and must be liberated, in order to make the world finally safe.

Private property, markets, and profits are useful institutions, but a democratic state must ensure that with the appropriate legislation, private property and profits are acquired and used in a socially responsible manner and that markets function efficiently. Moreover, markets and profit-seeking entrepreneurs cannot produce public goods and are thus incapable of satisfying any social needs. And they cannot take care of the truly needy. Only the state can take care of social needs and the less fortunate. The state alone can, through the finance of public goods and aid to the poor, increase the public welfare, and diminish poverty and the number of the needy, if completely not eliminate.

Especially the state has to put the private vice of greed of the pursuit of profit under control. Greed and the pursuit of profit were the leading causes of the most recent large financial crisis. Reckless financiers generated an irrational exuberance among the public, which ultimately had to crash into reality. The market was wrecked, and only the state stood ready to save the day. Only the state, through appropriate regulation and supervision of the banking industry and financial markets, can prevent such a thing from happening again. Banks and companies went bankrupt, yet the state and its central banks held ground and protected the money and jobs of the workers.

Advised by the leading and best-paid economists in the world, states and especially the USA have discovered the causes of economic crises and realized that in order to get out of an economic mess, the people must simultaneously consume more as well as invest more. Every cent under the mattress is a cent withheld from consumption and investment, which in turn impairs future consumption and investment expenditure. In a recession, spending must first of all and under all circumstances be increased; and when the people do not spend enough of their own money, the state has to do it instead. Prudently, states have this option, for their central banks can produce any necessary liquidity. If billions of Dollars or Euros are not enough, then trillions will do; and if trillions do not meet the goal, then surely quadrillions will. Only massive state expenditure can prevent an otherwise unavoidable economic meltdown. In particular, unemployment is the result of low consumption: people who do not have enough money to buy consumer goods; this problem must be remedied by providing them with higher wages or higher unemployment benefits. Read the rest of this entry »

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