The heart of our economic problems is our willingness to give power to people who use the power incompetently or maliciously. People who understand this are nonetheless are trapped in false dilemma: “we must transfer power to others, if we can just get the right person in office.” Never in the history of mankind has the right person been in office. Never. There may be a reason for that. The reason is we are not suppose to give our power over to the state.
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The rationale for giving our power over to the state is to get others to fight our battles for us, an unviable plan. The powers that subsequently be use their aggregated force on their subjects, until they get so abusive the subjects escape to anarchy and another master emerges. Le Roi est mort, vive le Roi!
The project of the powers that be is to get policy right so as to extract the most with the least effort, which necessarily means bad public policy.
I talked about why bad public policy emerges. Now I’d like to look at how. As part of this series, I want to look at a specific example of bad policy being developed for the powers that be.
A short history up to the 1930s:
Free markets are the natural condition, and they reemerged in the west largely compliments of Anglo-Saxon common law. As capitalism emerged, that 800 year tradition was a stumbling block to free markets, free markets being the bane to capitalism. Some judges actually upheld the law.
If someone built a coal fired plant and dirtied mom’s laundry, in a relatively free market political economy mom could sue the coal fired plant and get an injunction to stop and damages for the laundry. The plant would have to burn anthracite and put in filters. This would make its products not too expensive, just more expensive. But there would be no pollution.
If we had stayed with that, in free markets with property rights and natural law, there would be no pollution. This is not some theory, it was the law in earlier relatively free markets. If automobiles makers found their cars stopped for pollution, cars today would simply collect all that exhaust, filter it, and there would be a solid exhaust puck you would sell when you filled up for another tank of gas (for in that form it would have some industrial use.) The old system worked, but it militated against the huge corporation. So the capitalists had to get rid of the law.
If we had stayed with that, in free markets with property rights and natural law, there would be no pollution. This is not some theory, it was the law in earlier relatively free markets. If automobiles makers found their cars stopped for pollution, cars today would simply collect all that exhaust, filter it, and there would be a solid exhaust puck you would sell when you filled up for another tank of gas (for in that form it would have some industrial use.) The old system worked, but it militated against the huge corporation. So the capitalists had to get rid of the law.
What happened over time, and you can read about this as one theme of many in Horwitz’s book, the Transformation of American Law, is judges, since they are politicians, would begin to rule for the power plant against mom, under the newly emerging utilitarian regime, that the common good for the most people is paramount. But this gave us pollution.
(Now I do know we have pollution control laws on the books for London circa 1200 having to do with smoke from cooking fires so thick that breathing got difficult. A law was passed, but industry offered charcoal which was cleaner. Smoke comes from water content and impurities, and colliers turned wood into light, clean charcoal. The law was unnecessary.)
(Now I do know we have pollution control laws on the books for London circa 1200 having to do with smoke from cooking fires so thick that breathing got difficult. A law was passed, but industry offered charcoal which was cleaner. Smoke comes from water content and impurities, and colliers turned wood into light, clean charcoal. The law was unnecessary.)
The pollution that came from industrialization was termed an externality. How to handle externalities when there was now no rational limit to pollution? Well, tax it. Note, please, that taxing it does not get rid of the pollution. It in fact allows it to continue. The progressives love cap and trade not because it ends pollution, but they get to make money trading in pollution. The progressives get to put a halo on making money harming the environment.
Pigou was the leading economics thinker up to the 1930s when Keynes took over. The Pigou economic plan of taxing externalities delighted the progressives because it gave them something to play with, public policy But taxing externalities was too inefficient and made for huge government which adds to something called transaction cost.
Pigou was the leading economics thinker up to the 1930s when Keynes took over. The Pigou economic plan of taxing externalities delighted the progressives because it gave them something to play with, public policy But taxing externalities was too inefficient and made for huge government which adds to something called transaction cost.
So how to make it easier for the powers that be to aggregate ever more power, without having the property rights holders interfering with lawsuits and the taxing of "externalities?" One evening there was a big meeting in Chicago, in which the ideas of one Ronald Coase were discussed.
Here is a description of the big Coase meet.
http://istanbulsunset.blogspot.com/2006/11/addendum-coase-friedman-story.html
Milton Friedman's son is an economist in his own right, and the work of Coase is explained by he who learned about Coase from his father.
As son of Friedman explains the key problem Coase is solving:
A court, in settling disputes involving property, or a legislature in writing a law code to be applied to such disputes, must decide just which of the rights associated with land are included in the bundle we call "ownership." Does the owner have the right to prohibit airplanes from crossing his land a mile up? How about a hundred feet? How about people extracting oil from a mile under the land? What rights does he have against neighbors whose use of their land interferes with his use of his? If he builds his recording studio next to his neighbor's factory, who is at fault? If he has a right to silence in his recording studio, does that mean that he can forbid the factory from operating, or only that he can sue to be reimbursed for his losses? It seems simple to say that we should have private property in land, but ownership of land is not a simple thing.
He is referring to the bundle of rights, the old concept of intangibles that come with property rights. All of this had been worked out over 2000 years and in place for about 800 years before the capitalists figured out a way to over come it...
Here is David Friedman's explanation of Coase's solution.
The Coasian answer to this set of problems is that the law should define property in such a way as to minimize the costs associated with the sorts of incompatible uses we have been discussing--factories and recording studios, or steel mills and resorts.
So, change the definition of property and old protections no longer apply to the new situations, situations that are not new, just open to a new approach by virtue of a change in definitions. If we pull all the aggrieved together and work out a solution in which everyone makes more money, then that is the solution we need. There is a reason these people are also called monetarists. One problem is to be aggrieved, you have to be a money-maker. Mom and her laundry don't count.
It took all night for the crew at Chicago, brilliant minds all, to realize this was the answer for overthrowing 800 years of anglo saxon law. Now the best part is Coase’ s ideas were like stem cells, extremely basic and undeveloped. Most of his ideas were actually developed by others claiming to be following Coase. Coase never developed the Coase theorem, a follower did. Why would anyone credit Coase with their own ideas? Coase ran the Law and Economics journal at U Chicago and attended academic conferences and advised people on what to write to get into the journal. In academia, it is perish or publish. Not only did he drive the content, his contributors were liberal with their credit to Coase.
These ideas got their blank slate to test in Chile after Allende. Based on Chile, their ideas went global. I've spoken with a Congolese priest who quoted Friedman, the good results are so well known. The victors write the history.
With the Allende coup we had murder, deaths squads, etc and USA favoritism. No telling what would have happened without the Allende coup, but we do know what happened with the Allende coup. It will not serve to say "under socialism, Chile would have suffered" because we will never know what would have happened under socialism in Chile, because they never got socialism in Chile. Perhaps under socialism, like under communism, Valparaiso would have become the Hong Kong of the East Pacific. And we do know Allende was elected peacefully. The trouble started when the capitalists grumbled, not when Allende was elected.
With the Allende coup we had murder, deaths squads, etc and USA favoritism. No telling what would have happened without the Allende coup, but we do know what happened with the Allende coup. It will not serve to say "under socialism, Chile would have suffered" because we will never know what would have happened under socialism in Chile, because they never got socialism in Chile. Perhaps under socialism, like under communism, Valparaiso would have become the Hong Kong of the East Pacific. And we do know Allende was elected peacefully. The trouble started when the capitalists grumbled, not when Allende was elected.
We also know plenty of places where the economy improved without a coup, murder, deaths squads, etc and USA favoritism. And Chile is now rather tightly woven with USA's fate.
I prefer the ideas that have economic advancement without murder, coup, death squads, disappearances... every country has problem people. The economies who advance without the violence and accommodate the disaffected are the ones whose systems interest me.
Every plan people come up with requires that people change or some people need be eliminated or it is limited to the some how elite: religion, philosophy or intelligence. No one’s plan for change has yet worked. Any plan must be what has already worked.
The trick is not find a way to change human nature, the trick is to withdraw the consent for the state to aggregate power. As I pointed out 1 Samuel 8 is the first of many instances where people clamor for oppression for themselves. Part of our work is to undue the damage done. We can take heart observing places like Switzerland, Hong Kong, Andorra, Singapore, San Marino, Iceland, the Vatican, etc, where the state is nearly nonexistent and in that measure malefactors find little purchase from which to leverage their evil. And where the state is nearly nonexistent, self-government flourishes.
It all there... under the wreckage of capitalism. No matter what you urge or idea to help others, or yourself, the first step is to withdraw your Consent to be governed by the state.
2 comments:
Dear John
As a chilean, I can tell you that there were violations to the human rights during Pinochet´s regime. Nevertheless Allende intended to transform Chile into a communist country even by the use of force.
There are videos where Allende himself stated that they would use force if needed. (there´s even a case where tons of weapons were seized by the military)
A Hong Kong in Chile would have been impossible first. There wasn´t a foreign colony in Chile unlike British Hong Kong in China. So it is pretty likely that my country would ended up like Cuba if Allende stayed in office.
Second there were terrorist leftist movements sponsored by the socialist government of Allende also Allend had the support of both the USSR and Cuba.
tons of weapondry were seized by the chilean army (Pinochet) was weapons were aimed to armed a milician army. So the "pacific" and "romantic" non-violent Allende is nothing more that a manufacture of some leftist sectors of Chilean politic.
It is hard to say but many of economic growth made by Chile was indeed thanks to Augusto Pinochet´s regime. So good was that 20 years of the so called socialist "Concertacion" did nothing to change the things the military goverment did. They actually administrate it!
By the way. You might not read this in history books but many chilean even ask the coup de etat! even political sectors like the "Democracia Cristiana" (DC)
Allende won the election. No doubt he intended to do all you say. But that is not to say he would have succeeded.
In any event, he and his supporters never got the chance. There was murder.
We know what happened. But we do not know what would have happened without murder. Perhaps Chile would have become like Cuba. My point is, what business is that of USA? Certainly, Chile is not to be used as an experiment for a school of economics. Chile is Chilean business, not USA business.
There is not an example of a South American country getting independence without USA intervention, so we do not have counter-examples.
When the People's Action Party took over in Singapore 7 years before Allende took over in Chile, everyone expected Singapore to be a socialist country, another Cuba. It did not work out that way.
I like examples where there is peaceful change and prosperity. Violent change and prosperity is not good enough for me. WE have many examples around the world of peaceful change and prosperity.
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