Pure Capitalism would lead to Armageddon

Time to address one of the critiques laid against any promoter of freedom, any defender of capitalism, any advocate of free markets. We’ve all heard it:

What about the poor? The Sick?

“In your society the poor and weak would be exploited, forced to work for essentially no wages, have no health care, die of lung diseases at 35 because of crappy non-regulated air, and never get any education.”

Obviously, if that were the case – then yes, I finally understand the “YOU’RE A HORRIBLE PERSON” reaction to any mention of Freedom or Anarcho-Capitalism. And I’d agree: anyone who profes such a society is indeed an awful person.

Luckily, this isn’t the case. Far from it.

Just to start off with a few explanations; what happens in western Welfare States today harms the poor a lot more than the rich; inflation hurts their savings, reducing purchasing power and real value of their salaries (especially in third-world countries); VAT taxes, income taxes and payroll taxes (some 75% ofall tax sources where I come from) are predominantly payed by poor people; Corporate welfare, including bailouts, subsidies, kickbacks, regulations or tax breaks moves money from poor people to wealthy corporations and their leaders.

This is what we see today. And it hurts the poor. If you associate anything above with “Capitalism” or “Free Markets” you’re dead wrong and your hostility towards Capitalism is comprehensible. Inaccurate, of course, but comprehensible.

If you do, however - THIS IS YOUR LUCKY DAY!

All of the above are effects of government. Of Politicians. Yes, sometimes business leaders and lobbyist can distort the economy by influencing politicians enough to gain personal benefits at the expense of other groups in society - something economists call "Rent Seeking"; Luigi Zingales does a great job explaining this. But this can only occur if governments have power to do such things. In a minarchist state, for instance, such actions wouldn't have much effect - simply because the state isn't allowed to have influence over subsidies or particular regulations or tax breaks. 

This leads us to the ONE pre-requisite you’ll need to follow the reasoning below: The Broken Window Fallacy. You can ignore me, hate me, detest my ideology, horror my convictions and mock me all you want but if I can ask you one thing only, it would be to learn what the Broken Window Fallacy is. 

Explained a few hundred years ago by Federic Bastiat, it has followed economics since that day. Don’t be discouraged, though, most PhDs in Economics today are probably unfamiliar with it (Art Carden, 3 minute youtube explains the key element in terms of destruction - but it is equally applicable for any action).

"That which is seen - That which is unseen":

 Roughly explained: Whenever you do something (spend money, tax people, subsidise activities etc), we can perhaps see the effects of that. Say, if we subsidise farmers to grow crops, more crops might be grown by farmers. This we see. What we don't see (=the UNSEEN) is what that money would've done in the absense of such a subsidy: build house, buy books, produce shoes. These things we don't see, because they were never created.  Essentially, Bastiat points to the Opportunity Cost of any action.

This applies to all of the topics dealt with below: If the Government taxes some people in order to provide health care for others, we can see the health care provided but we cannot see the damage from taxation as vividly. What would have been done in the absense of such interventions? Maybe the taxed money would have gone into research, finding a cure to cancer. Maybe they'd set up a charity providing free health care to anyone... or maybe they'd produce amazing tools that reduced production costs of current health care by say 50%?

The point is that we don't know what we're losing out on. Because of taxation, regulation etc these things, inventions and productions never come into being. They constitute that which is unseen, just like the non-produced tailor services in the video above, or books or shoes in Bastiat's original example, which can be found at Bastiat.org.

(To be fair, any future description of economic realities lack for knowledge, in the very same way the spectators of ‘Broken Window Fallacy’ can’t see the unsold books, unproduced shoes etc; they simply never existed, thus cannot be seen. I cannot know exactly how people would react and organize their lives if I change major variables such as the composition of the State - but we can however make educated guesses and have a hunch.)

I have organised these to form part of a series, so every topic is dealt with in its own post. All of them can be found below and they will probably be extended whenever I find entertaining objections to other topics Enjoy!

Salaries

Housing

Education

Health Care
Banks, Funds and Starting Business

The Benevolent Agenda - Case study: Kenya

Today I had a big hectic discussion at one of our great family dinners. We're all quite decent idealistic people, who care about the poor and generally try to be as good and decent people we can, improving our lives and the lives of others.

What originated largely as a generational dispute over disciplinary rules in schools ended in a state-versus-markets and economic development debate. This, however, tells us very interesting things about the Benelovent Agenda.

Now, what do I mean by this?
What I'd like to call the Benevolent Agenda, is the notion that if there exists a problem, the solution is the immediate alleviation of that problem. If people are starving - send them food. If we have poor people - give them money. If these poor people lack education - tax others to provide education-free-of-charge for them.
If rich people have "too much money" - tax the hell out of them. And so on.

This all has a superficial appeal to it. I mean, if people are starving, they obviously need food - let's just give it to them! Problem here is the lack of an adequate answer to the question why? (This critique can be applied to a lot of things, from financial crisis 2008 to the Welfare State).

This brings me to the case study of Kenya. My mother recently visited Kenya and among other things were witness to the immense poverty of Kibera, a big slum area of Nairobi. This, she gently pointed out, was reason enough to introduce a welfare state, state-funded education and jobs for these poor people so that they can advance from their poverty. Again, superficial appeal to such arguments.

After a deeper scrutiny, however, it falls apart. I'm gonna show three things that hinder these poor from advancing, improving their lives and making enough money to sustain themselves and their family. And more importantly how these three things are State-generated. State Failures as opposed to market failures.

#1)  Inflation
Inflation, contrary to common knowledge, is created by state interventions in the market place by artificially increasing the amount of money in the economy. Secondly, the poor are the peple most harmed by this. Why? Because in an inflationary environment, the purchasing power (=what you can actually buy for that £10 note) of your salary is steadily reduced. So, if there's inflation, you'd rather spend your money today than save some of it for tomorrow (because tomorrow it'll buy me less stuff). Conclusion: you can't save.

(Note on this: wealthier people, however, can save in such environments because they have access to financial products or investments that gives them above-inflation-rate returns. This opportunity is generally not there for the poor. Inflation rates in Kenya over the last decade have bounced between 5%-35%).

#2) Property rights to their dwellings or things
Hernando de Soto vividly explained to us how large parts of the world's poorest people live their lives predominantly in the Informal Economy. That is, they have houses and property and businesses (he calls them 'Dead Capital') but these items are not registered or accepted as Valid Claims to property largely because of #3 below. This has the effect that expanding your business, taking out loans on your house or having sufficient safety to plan over larger periods of time become essentially impossible. Conclusion: you can't raise funds to expand business, plan ahead or take advantage of the property you actually own. 

Just a quick note here. Notice how the two BIGGEST ways to acquire funds (#1 + #2) so that you can expand your cloth-weaving or production of recycled glass (as are the examples from Kenya my mother brings to the table), are closed off for these poor people. They can't take out mortgages and invest in new, bigger machines for your weaving and they can't save money on their own to buy such machines later on.

#3) Red Tape
Red tape is usually explained as bureacracy, regulations, riddiculous and difficult rules that make life hard for people. This is generally pointed out as a growing ground for corruption. It inclused restrictions on what you can lawfully do, processes to get property rights to housing, creating a business, legal protection and so on. Starting a business in Kenya takes around 32 days (not that bad, actually), but carries a charge equal to 38% of income/capita (even harder, because poor people earn even less than average income/capita).  Conclusion: regulation, bureaucracy creates obstacles for everyone, but especially the poor. It's expensive, and creates a third obstacle to the poor's prosperity.

The Benevolent Agenda

What my friends and family around the table claims is that such problems as Kenyan poverty needs to be alliviated by State Interventions; education so the poor can get better-payed jobs, Health Care so that they'll live better, and redistribution so that they won't be poor. Their intentions are good (=help the poor), but their solutions to do this are horrifically unsuited for alleviation of such problems. 

As I pointed out above, the REASON these people are poor have nothing to do with these measures my family would like to include. They are addressing symptoms rather than causes. The reason they remain poor are largely covered by what I've stated above. But all that gets lost within the solutions provided by The Benevolent Agenda. 

You're entitled to your own opinion - Not to your own facts

So, tomorrow there's this lefties conference at one of the Student Unions. Exciting! I've talked myself into going with the intention of keeping quiet and listening carefully to all the arguments and positions I will encounter. How thoughtful of me, not to ruin their conference with unconventional views!

Anyway, as a pre-runner, I'm doing some reasoning regarding freedom of opinion - your right to think whatever you want. Fundamental pillar upon which our western democracies rest. Let's go.

One of the most interesting clashes of politics is facts vs. opinion. We all, predominantly, recognize that other people are entitled to their views, just as I am entitled to mine. However, what happens when such opinions are countered with plain facts, insofar that such facts can be obtained?

First, fundamental difference:
Opinion: I like Ice-Cream
Fact: Ice-Cream contains cream (unless it's vegan, made differently, lala).

Regardless of my opinion about what Ice-Cream contains, or my right to excercise that opinion, it doesn't change the fact that cream is a component of Ice-Cream - thus, it renders my opinion ridiculous, superfluous and straight out silly.

So, what happens when opinions are based on or fully rely on facts? That is, what happens when the relation between the two are established?

Let me give you an example. Consider a fairly easy statement, "Cats are the best animals!"
An opinion, easy enough, and a very subjective statement. How is "best" to be defined, or even measured? We can't do anything about it, and the freedom of opinion applies fully.

If we add the next layer: "Cats are the best animals, because they have most legs!"
Now we've established a relation to measurable fact, and the person has also implied the indicator for how "best" is to be measured: the amount of legs.

But here facts come in: There are a number of other animals with more legs than cats, say spiders or ants. Applying the person's own measure for why cats are the best animals (namely amount of legs), his/her opinion is invalidated. Cats simply are not the best animals, regardless of this person's view or opinion. He or she is wrong. Not from my point of view, but from any point of view.

How is all of this relevant for a Leftie Conference?

I tend to encounter socialists or people on the left that carry certain ideas and believes that I find preposterous. Fair enough, we're all entitled to opinions, which is a major criticism I get when I say they're wrong or should change their views: "We're all entitled to our own opinions, why don't you let me have mine?"

Well, insofar as
1) an indicator for measuring that opinion is provided,
2) facts for that indicator can be obtained, and
3) there's a straight relationship between the indicator and the opinion, i.e you use that indicator to say why exactly your opinion is prefered,
then your opinion can be made as useless and incorrect as the one about cats above.

That is, if I can prove to you, within these three conditions, that your ideology is incorrect, your statements invalid and your facts wrong - then no, you're no longer entitled to have that opinion.

This is, I think, essentially why I wanna go tomorrow. If I can prove to lefties that their perception or ideas are factually incorrect, they are obliged to change their position, those perceptions and ultimately their entire ideology.

Seems easy enough, why do we still have socialists around?

Fundamental Rights - On Glasgow, Edward Snowden and the Inconsistency

Last week the Student body of Glasgow surprised everyone by electing Edward Snowden as University Rector, a notion subject to a number of jokes, including my personal favourite "The most important feature of a rector is the ability to leave Russia".

I'd like to add an interesting inconsistency with this entire debate, about surveillence, personal liberty, integrity etc. Snowden said the following in an interview given to the Guardian:

"If we do not contest the violation of the fundamental right of free people to be left unmolested in their thoughts, associations and communications - to be free from suspicion without cause - we will have lost the foundation in our thinking society." - Edward Snowden

Key points here are unmolested in their [...] associations. Most people would agree right.

Let's now apply that to other areas, say economic ones. Tax rates, for instance, or even food regulation laws. Where does that leave us?

How is any rate of taxes consistent with "unmolested in their associations"? Politicians decide to take some percentage of anything you make/sell/earn, add VAT to anything you buy, and also take chunks of a large bit out of corporative profits. If anything could come close to "MOLESTING", this would be it.

Ok, let's go with food regulations. In my native country, the rules that apply to retailers of food, producers, restaurants, café or anything connected to food, are extensive and the Government even has its own authority to give permits, inspect and decide upon what you can or cannot do in the food business. Likewise the UK, Germany, France (not to mention EU standards) have regulations for how such business is to be made. Yet again, how can anything be more in line with "molesting free people in their associations"? If I enter into a transaction of, say, disgusting and rotten food, that's my responsibility. Not to mention the obvious point of WHY I would enter such a transaction? (and, if food contains whatever substance I can't inspect on my own and that makes me sick, I say it's safe to assume that neither me nor anyone I know would buy from that company again - i.e, incentives align to produce good-quality food).

Point is, our Socialist Governments (including those labelling themselves as Liberal, Conservative etc) are filled with regulations, tax rates, fees, distortions to freedom - all of which represents "violation to the fundamental rights of free people to be left unmolested in [...] their associations".

Now tell me, if integrity, personal freedom and "Freedom to be left unmolested" are such virtues in terms of tele-communications, surveillence - how come they're NOT virtues in the fields that actually matter? THat is, taxes, price-levels, regulations to people and business and virtually all parts of British society?

Inconsistency. Hypocracy. Lousy. If freedom and integrity are good enough reasons to sanctify Edward Snowden, why are they not good enough reasons to reduce taxes, remove regulation and increase real freedom? Stuff that actually matter.

If you seriously want to embrace freedom, I'll be the first to congratulate you. But until then, stop pretending you're a supporter of freedom only because you agree with Snowden. Get real.