How Economic Regulation Causes Cronyism and “Regulatory Capture”

Kronies action figures - They're Konnected!I’m very much pro-capitalism. However, I agree with Bernie Sanders and many of his allies on the American Left about something. I agree that cronyism is a serious problem in the US. Businesses should not get special favors and money from the government that they didn’t earn. But where Bernie and friends seem to think the solution to cronyism is more government regulation and control, I think cronyism is a symptom of too much government regulation and control. I think the solution is purer capitalism, which means freer markets. In this essay, I’ll explain why I think this, and how I think government regulation of the economy causes cronyism, lobbying and “regulatory capture.”

Let’s start by observing a correlation: Cronyism and lobbying tend to show up in the most regulated industries, not the least regulated. Finance in the US is heavily regulated–by no fewer than eight federal agencies–and the government protects and bails out big banks. Pharmaceuticals are controlled by the FDA, and the FDA often keeps smaller competitors out of the market. Whether a sports team can build a stadium is practically controlled by the city government, and team owners typically get a bonanza of special deals and subsidies from the city. Cronyism was virtually non-existent in the less-regulated tech sector, until the government pursued the anti-trust case against Microsoft. Now, Microsoft has a division in Washington D.C. for lobbying purposes. (Apple and Google now both lobby, too.) In general, retail stores are not very heavily regulated, and there’s not a significant issue of cronyism in that field.

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What BioShock Gets Wrong About Ayn Rand’s Objectivism

The bust of Andrew Ryan at the start of BioShock: "No gods or kings. Only Man."The original BioShock was a game released in 2007 by 2K Games. The main antagonist was Andrew Ryan, a “business magnate” who founded an underwater city, called Rapture. He was supposed to be guided by the same philosophy that Ayn Rand advocated in her novels and non-fiction books. Ayn Rand called this philosophy “Objectivism.”

I have played through the original BioShock and found all the recordings in the game that tell the backstory. I have also studied Ayn Rand’s philosophy of Objectivism for over 15 years, so I’m well qualified to comment on how accurately the game represents the philosophy.

The remastered version of the BioShock series was recently released, so I decided to take this moment to comment.

I find that BioShock seriously misrepresents Objectivism. One way it gets Objectivism wrong is in Andrew Ryan’s attitude toward morality. In his introductory speech in the game, Andrew Ryan says,

I chose… Rapture. A city where the artist would not fear the censor; where the scientist would not be bound by petty morality; where the great would not be constrained by the small!

Here Ryan dismisses morality as petty and insignificant. This was most definitely not Ayn Rand’s attitude toward morality. She was very concerned with morality, and morality is a central part of Objectivism as a philosophy. Any person who seriously agrees with her philosophy also takes morality very seriously, because it’s an extremely important guide to life. Objectivism has a whole code of values and virtues that it says people need to follow to achieve a good life and genuine happiness. (You can find out more about Ayn Rand’s ethics starting here and here.)

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What I’d Like to See Gary Johnson Say to Bernie Sanders Supporters

Gary Johnson - Let Gary Debate - #letgarydebateWhat I want to see presidential candidate, Gary Johnson, say to those who supported Bernie Sanders in the Democratic primary:

So Bernie Sanders and I mostly agree on what are generally called “social issues.” We both support gay marriage, drug decriminalization, the right of a woman to choose abortion, etc. Where we differ is in what is generally called “economic policy.” Bernie wants more taxes and regulations on “millionaires and billionaires.” He says that large gaps in income and wealth are “wrong, immoral, and not what America should be about.” But why? When someone makes more money than I do, and he does it honestly, without stealing and without government favoritism, I say “Good for him” or “Good for her,” not “How dare that person be rich; I’m gonna cut that bastard down to size with taxes and regulations.”

But high inequality is inherently bad economically, you say? It contributes to stagnation? There’s no good reason to think so.

Studies that supposedly show that higher inequality reduces growth generally find tentative results that are very susceptible to the authors’ biases. They generally tend to ignore the fact that there are different kinds of economic inequality that there is strong theoretical reason to believe have very different impacts on growth. For example, there is the sort of inequality that results from government favoritism, as in the Saudi royal family and the Russian “oligarchs,” and the sort of inequality that results from free and voluntary trade, as in the case of Steve Jobs and Bill Gates.

When we look at the big picture, we find that many countries that have high wealth inequality also have high GDP per capita and high economic growth. If we look at West Germany and East Germany in the 1970s and ’80s, we see two very culturally and geographically similar societies. West Germany was a relatively free market with relatively high wealth inequality, while East Germany was a society where the government tried to enforce wealth equality. West Germany was clearly better off than East Germany, economically.

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Why Moral Theory is Needed in the Fight for Liberty, Not Just Economics and the Non-Aggression Principle

The Statue of Liberty. Lady Liberty needs moral theory for support.Many libertarians will tell you that moral theories have relatively little to do with their advocacy of libertarianism. They think that liberty is morally neutral. Their thinking for why this is so is basically that liberty enables people to live by all sorts of different moral ideas. It doesn’t favor any morality over others, they think, so liberty itself must be morally neutral.

To the extent that some libertarians think that morality is involved, it’s usually just conventional ideas that you shouldn’t harm others, steal from others, etc. So they think that all one has to do in arguing for liberty is to talk about something like the Golden Rule or the Non-Aggression Principle, and show that liberty has good economic consequences.

Or, if they’re doctrinaire students of Austrian economics, they may think that the need of liberty can effectively be derived from praxeology–a “purely descriptive discipline” studying human action–without any need to resort to moral ideas.

But in this essay, I will argue that a controversial moral theory is deeply involved in any advocacy of freedom, and that in order to be persuasive on a cultural scale and achieve a lasting victory, advocates of liberty must make a deliberate break with today’s conventional morality. They must advocate for a full moral theory based on reasoning, not just the “conventional wisdom” that’s widely accepted without thought.

Statists are Guided by Moral Ideas, not Economic Ones

The argument from “good economics” is a very common one among libertarians: Free market policies lead to economic prosperity, and therefore we should enact those policies.

But what if the people you’re arguing with don’t really value economic prosperity? What if they value other things above prosperity? Whatever lip service the political left gives to economics and prosperity, the fact is that they don’t value it–not really. What they actually value are things like “fairness,” “equality,” and “social justice.” To see evidence of this, pay attention to what they talk about first, what they get passionate and angry about. Watch virtually any Bernie Sanders campaign speech, and you’ll find that his main focus is on wealth inequality and “social justice.” In virtually every speech, he will say that large wealth inequality is wrong, immoral, and not what America should be about. He links inequality to economic problems, but his economic arguments are shaky. They don’t really support the use of the government to “equalize” wealth, and most of them have been refuted. (See Equal is Unfair for details on how the arguments against wealth inequality fail.)

Bernie Sanders and many other leftists keep pushing for a higher minimum wage, even though it is very well known among economists that it is bad economic policy and will cause unemployment among the very people it’s supposed to help. (Paul Krugman is an economist who used to know better, yet he has flip-flopped to say that minimum wages should be raised.) Leftists keep trying to implement greater degrees of socialism, even though socialism has been tried countless different ways and has failed to produce economic prosperity again and again. There’s a clear correlation between economic freedom (with property rights protection) and economic prosperity, and the Left has been working against economic freedom and property rights for centuries.

Leftists–for the most part–are not complete idiots, and they’re not insane. So there’s one conclusion left as to why they have kept pushing for policies that destroy economic prosperity: they’re not really after economic prosperity. What are they really after? Take Bernie Sanders’ speeches as a clue: a more moral governmental system.

And what about social conservatives who want to legislate against “sins” and what you can do with your body in private? Well of course, this is even more obviously guided by morality.

Libertarians’ Political Ideas Depend on Controversial Moral Ideas

So deep down, statists, both left and right, are focused on morality. But should we be, as advocates of liberty? Should we try to get statists to forget about morality and focus on economics? Well, it turns out that ideas about “good economics”–as well as every other governmental policy capitalists might advocate–ultimately presuppose and depend on moral ideas, whether people are aware of it or not. So moral issues cannot be escaped in political advocacy.

Case in point: What do capitalists mean when we advocate “good economic policies?” Do we mean policies that encourage suffering and famine like in Soviet Russia? No, we mean the policies that will enable people to achieve economic prosperity. And what do we mean by “economic prosperity?” We mean the material conditions that lead to the sustenance and flourishing of human life in this world.

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Socialism is Not “Worker Control of the Means of Production”

"There is only one way to shorten and ease the convulsions of the old society and the bloody birth pangs of the new - revolutionary terror." --Karl Marx

Karl Marx – The man who has influenced the thinking of socialists around the world more than any other.

I often hear socialists say that socialism is “democratic worker control of the means of production.” But is it really? In this essay, I’ll explain why it’s not, and why the issue of socialism vs. capitalism is a moral and political issue of property rights, rather than an economic issue of “modes of production.” Obfuscation and confusion aside, this ultimately holds true whether the socialism under consideration is classic Marxist socialism, “libertarian socialism,” or whatever other sort of socialism you want to name.

In a mostly capitalist country, like the US in the 1880s, there are many different kinds of business organizations: There are for-profit corporations, non-profit corporations, sole proprietorships, partnerships, credit unions, retailers’ cooperatives, consumers’ cooperatives, and employee cooperatives. That’s right, worker cooperatives can and do exist in what Karl Marx would call a “capitalist society.” Examples of consumers’ cooperatives include REI in the US and “The Co-op” in the UK. Examples of employee cooperatives include the Cheese Board Collective in Berkeley, California, the Rainbow Grocery Cooperative in San Francisco, and the Citybikes Workers’ Cooperative in Portland, Oregon. These latter three are companies where employees own and control the means of production in their company, democratically.

If “socialism” meant “worker control of the means of production,” as in a co-op, then people are perfectly free to have “socialist companies” under a laissez-faire capitalist government that protects private property rights.

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Bernie Sanders and the Injustice of “Democratic Socialism”

This essay is Part 3 of a three-part series on socialism:

Bernie Sanders Talking

Bernie Sanders

In the first essay of this series, I took socialism, as defined by the Oxford English Dictionary, and showed why it is immoral (unjust) in theory and in its “purest” practice. Then, in the second essay, I explained why, in the real world, attempts to approach pure socialism have always resulted in oppressive, dictatorial governments with high degrees of corruption. (Again, as explained in the second essay, worker-owned cooperatives cannot generally be called “socialism.”)

In this essay, I’ll discuss partial socialism, as it presents itself in the Scandinavian countries of Europe, (like Sweden,) in the US, and in the 2016 presidential campaign of Bernie Sanders. Some people will say that pure socialism is impractical and/or inconsistent with human nature, but still think that there should be a “balanced” mixture of socialism and capitalism. Capitalism, they think, mustn’t be “unfettered,” but rather must be reigned in by government regulation and welfare programs. This they will often call “democratic socialism” or “social democracy.”

I’ll explain why partial socialism and welfare programs are unjust and destructive of people’s well-being.

Socialism Lite

Once again, from the Oxford English Dictionary, socialism is defined as:

A political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.

But “the community as a whole” is not a single entity, and does not think with a single mind. There is not even a single, definite organization encompassing “the community as a whole.” So it can’t really do anything or own anything. In socialist practice, “the community as a whole” is taken to be represented by government. (And as I explained in Part 2, the logic of socialism means that this government doesn’t even have to be “democratic,” in the way that term is often understood. At least in the Marxist version, it can also be represented by an informal government, consisting of organized gangs of proletarian thugs with guns–this is Marx’s “revolutionary terror.”)

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Why Socialism is Always Oppressive, Dictatorial and Corrupt

This essay is Part 2 of a three-part series on socialism:

Communists: Marx, Engels, Lenin, Stalin, Mao

Theorists and socialist leaders in the Communist ideological tradition.

In the first essay in this series, I gave the definition of socialism offered in the Oxford English Dictionary and explained why the essential idea of socialism is immoral. Even in it’s “purest” and most democratic form, socialism is inherently unjust and will lead to mass poverty.

In this essay, I will explain why many historical examples of countries that called themselves “socialist,” such as the Soviet Union and China, were in fact socialist, (contrary to the protestations of many of today’s socialists) and explore why the more consistent implementations of socialism have always resulted in dictatorship, oppression and corruption.

Again from the Oxford English Dictionary, socialism is defined as:

A political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.

First, let’s look at what this definition does not say: It does not say that everyone must have equal wealth or income. It does not say that money must be abolished. It does not say that the state or political leadership must be abolished. (The abolition of money, the state and political leadership were supposed to be features of Marx’s communist utopia that would arise out of socialism.)

A key part of what the definition does say, that gives us a clue to the basic idea underlying socialism, is the last part: “owned or regulated by the community as a whole.” Socialism is based on the idea that the community as a whole has interests apart from individual interests, and at least in some cases, community interests override individual interests. A community as a whole can allegedly make decisions that protect or further those interests. This forms the basis for why socialist ideologies believe that the community as a whole has the right to own and regulate property.

The idea that the community as a whole, (or any other group) has interests, rights, and the ability to make decisions, apart from individuals, is called collectivism. Collectivism treats the group–in this case, the community–as though it were a single living organism, with individuals as parts or cells of its body. Under this view, the individuals are inherently dependent on the whole for everything in their life. Individuals’ choices are entirely determined by their circumstances and place in the community, and separation from the community means a loss of personal purpose and rapid death for an individual. Thus, the community, as the agent responsible for everything an individual is, has the right to determine how goods and services will be produced and distributed.

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