Thoughts on Freedom

The below op-ed was published in the AFR today under the title Let People be Free to Choose (need subscription).

Apparently, the only people in our society smart and responsible enough to make important life decisions are politicians and bureaucrats. They make decisions about where we should spend our money, which hobbies are appropriate, and how much risk we should accept. 

The reason for this government control is the perception that some people can’t live without help and guidance. While some liberals object to this paternalism, such sentiments are clearly popular with a majority of Australians. 

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Here’s an excellent speech by Lew Rockwell, President and founder of the Ludwig von Mises Institute.

As he says, people who detest capitalism implicitly pay homage to it by clamouring to buy the products it turns out. Everything you love – art, TVs, music, computers and so on – you owe to capitalism. The only way to find out precisely how much you owe to capitalism is to go and live in North Korea.

Ideas have consequences. When people strongly advocate something without fully understanding the consequences, people can die. Millions can die. Take Marxism for example. To take a less extreme example — people are dying right now in the USA because of the Food and Drug Administration’s slow and inefficient drug approval process.

I’m not an economist. But both my father and cousin are economists, so from my conversations with them I have picked up a respect for the power of economics to improve the world.

Economics has penetrated into law and political science. However, one particular branch of politics - international relations - continues to make decisions based on hidden assumptions. The military-industrial complex in the US, for example, has persuaded politicians that a war half-way across the world is somehow a threat to American “national interests”. Benjamin Friedman wrote a brilliant article about the problems with such an anti-empirical approach here.

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Being self-interested doesn’t necessarily mean you’re selfish. Mother Teresa was pursuing her self-interest. And so is noted philantrophist Bill Gates.

In the case of the Australian Council of Trade Unions however, they are most definitely self-interested in a selfish way.

Trade barriers are unanimously opposed by all serious economists, and for good reason. A policy of free trade was proposed at least as far back as 1776 by the father of modern economics, Adam Smith, and it has been repeatedly confirmed through empirical tests since then.

But back in the 1980s the ACTU, ever resistant to change that would harm the financial status of its members, found itself on the wrong side of the issue. The ACTU, which had members working within the automotive industry, Textiles Clothing Footwear and Whitegoods, staunchly opposed tariff cuts (on the other hand, the mining and pastoral industries, which relied upon imported goods for their own production needs, wholeheartedly supported lowering tariffs).

So they were selfish about free trade, preferring to subordinate the interests of the greater majority of individuals to their own job security. Have they changed since then? Not at all.

These days they don’t protest about free trade as much, but they have diverted their selfishness towards minimum wages. The ACTU are experts at pretending they have the interests of the average Joe at heart. Unfortunately, they have consistently taken positions directly opposed to common sense and evidence.

Lukewarm support for tariff cuts is consistent with a central contention of public choice that voters are rationally ignorant of policies that would benefit them. In a democracy, it is theorised, good policies are an underprovided good. As the costs of tariffs are spread across an entire population while the benefits concentrated in particular industries, consumers naturally have little monetary incentive to investigate government policies. For this reason, polls do not show overwhelming opposition to protectionism. The protected industries, on the other hand, are motivated to lobby the government as they stand to lose significantly from open competition.

This explains why, for much of Australia’s trading history, a mentality of mercantilism was dominant. It took 60 years from federation for politicians to begin dismantling the protective state. It wasn’t until the Tariff Board began surveying the evidence for and against free trade in a systematic manner during the 1960s, that the costs of trade barriers were de-mystified. In response to the economic ailments caused by protectionism, three major tariff cuts — in 1973, 1988 and 1991 — were implemented.  Read more »

In the early 1960s, 3% of Australians relied on the government for most of their income. By 1980 that had increased to 14%. And now, despite a decade of strong economic growth and increased employment opportunities, 17.5% of Australians rely on the government for most their income — including 5% of Australians who are apparently disabled and 5% who are carers (mostly single parents).

It is easy to sympathise with the social-democratic desire to protect the most vulnerable. But does anyone really believe that nearly one in five of Australians are vulnerable and can’t look after themselves? That is about 4 million people!

And this massive growth in government dependency has happened at the same time as we’ve seen huge increases in total wealth — where the rich have gotten richer and the poor have gotten richer. And we have also seen a consistent growth in private charity, which should mean that fewer people need government hand-outs.

In a CIS publication being released tomorrow, Eugene Dubossarsky and Stephen Samild address the issue of government dependency. One of their suggestions is that people who “declare dependence” on the government are effectively admitting that they are unable to run their own lives… and consequently it makes little sense to give them a vote which lets them contribute to running other people’s lives.

Dubossarsky & Samild also point to the potentially negative dynamic that comes from having a large percentage of the population dependent on government and voting themselves more hand-outs.

Perhaps this dynamic explains the steady growth of government throughout the developed world. If so, it raises some very difficult questions about how this trend can ever be reversed.

I wrote the following as an opinion article for a general audience.

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Following the release of the Garnaut Report, it seems that everybody wants to talk about climate change.

Clearly, climate change is an important issue. Last year the International Panel on Climate Change (IPCC) said they are more than 90 per cent certain that humans are contributing to global warming. Computer models suggest a temperature increase of about 2-4 degrees over the next 100 years and many people are worried about the possible impact. But there is an important difference between having good intentions and introducing good policy.

At the moment, both major parties and most minor parties are pushing a carbon trading system and billions of dollars of subsidies towards alternative energy. This looks good, but it is bad policy. Australia would be better served by introducing a revenue-neutral carbon tax.

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The virtues and vices of America take up a disproportionate amount of the political discussion by non-Americans. This is probably because America runs the world, but also perhaps partly because America did embark on a “wacky” experiment with free-markets and limited government. While the last century has seen America embrace more mainstream social-democratic government, they continue to be held up both by supporters and detractors of the free-market as an important example.

There is plenty of reasons for people to complain about America. And unlike some of the pro-Americans, I think it is fair and appropriate to complain about the vices of America because it is effectively the centre of the world and an important example for other countries.

But it’s worth remembering some of the virtues of America. And one virtue in particular is their generosity. According to Giving USA, in 2007 Americans gave $306 billion to charity, which is a 1% increase (inflation adjusted) over 2006. On average, this is about 2.3% of disposable income.

About 75% of this comes from individuals, and about half of that went to religious charities. An increased proportion of the money has been directed to international aid, environmental and human-services groups. Donations to international charities rose the most (an increase of about 13 percent).

Americans (as distinct from the American government) are the most generous givers in the world, with charity taking up 1.7 percent of GDP. Interestingly, Great Britain is second (0.73 percent of GDP).

Free-market advocates make the point that government charity has crowded out private charity. Consequently, it is safe to assume that private charity would increase if there was a smaller government. The benefits of this are significant, because private charity tends to be targetted better, run more efficiently, more innovative, and helps to bring people together and build a sense of community.

I believe that the private charity sector is of vital importance to building a better world. I think the nature of the free-market is that it creates sufficient wealth so that people divert more of their thoughts and resources towards building civil society. And I think that the long-term consequence of this dynamic would be to build a world that might look similar to what many leftists hope for. Unfortunately, I think this sector is being undermined and devalued by a system that concentrates on government hand-outs.

Maintaining a vibrant private civil society is vital for a free world. And I think Americans deserve credit for the role they are playing in keeping that tradition alive.

I was recently asked by the convener of this blog, Sukrit Sabhlok, to write a piece on a 2007 book by George Mason University economist, Bryan Caplan, entitled The Myth of the Rational Voter: Why Democracies Choose Bad Policies (MRV). This book has been discussed at length amongst the economics profession (including on my own blogsite), and it is my great pleasure to revisit my thoughts on this landmark book - including, on this occasion, to explore some implications for libertarian thinkers and activists.

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By Robert Higgs

Well, the letter was actually addressed to me and my wife. The IRS people are great believers in family values, and my wife and I are what the tax collectors affectionately refer to as joint filers. It’s all pretty warm and fuzzy, in a creepy sort of way.

Anyhow, the letter was not nearly as bad as usual. It informed us that the government, acting under authority of the Economic Stimulus Act of 2008, would soon be sending us $1,200. Usually it’s the other way around, and the agency’s letter invites us to send it more of our money than we have already sent. Well, we understand, of course: when the government identifies someone who deserves to get our money more than we deserve to keep it, simple justice requires that we pass it along to KBR (formerly Kellogg Brown & Root), Lockheed Martin, and other widows or orphans.  Besides, if we kept the money, we’d probably just end up wasting it, whereas the Department of Defense watches every cent with an eagle eye. Ditto for Health and Human Services. We don’t call those people “public servants” for nothing; they really put their hearts into their jobs.

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There’s been a bit of to and fro over the LDP’s 30/30 policy at Catallaxy, Skepticlawyer and Club Troppo. Ken Parish has now written the mother of all critiques over at Troppo. I think he’s underestimated some of the research that John put into developing the policy, but not being John, I don’t have all that info at my fingertips. Moral of the story: get over there and discuss the policy, people - what do you make of Ken’s arguments?

Marx thought socialism was a good idea, and one part of that good idea was ”from each according to their ability, and to each according to their need”.

Raul Castro (the new leader of Cuba) also thinks socialism is a good idea… but he has a slightly different criteria. According to Castro, Cuba will now follow:

“the socialist principle of distribution, wherein each person receives according to his or her contribution, that is: pay for quantity and quality”

Castro has introduced capitalist “new-socialist” reform in Cuba, to replace the equal-pay system with performance-based salary (with no upper limit). Apparently this is supposed to boost efficiency and productivity. Indeed. Hand that man a cigar.

This is good news for Cubans and another nail in the coffin of soviet-style socialism. If Cuba is really on a reform path towards markets then that leaves only Nth Korea in the dog-house. Perhaps the US can relax their stupid sanctions now.

But what is the deal with the murder of semantics? Cuba is following the trend set by China and Vietnam in introducing market reform and calling it socialism. That is like curing cancer, and calling outcome “new cancer”. The great minds of China, Vietnam & Cuba seem to think that the definition of socialism is “have good intentions” and the definition of capitalism is “have bad intentions”. So as long as they introduce market reforms with good intentions, they are still socialists.

Of course, their understanding of political philosophy is retarded. But who cares. They can call themselves Britney Spears if they really want. What matters is the action — and the action is towards capitalism.

Protectionism is back:

Toyota will receive $35 million from the Federal Government in return for building a new hybrid car in Victoria from 2010.

The headline: “Toyota hybrid gets $35m aid”.  I wasn’t aware Toyota was in such dire straits as to require aid… Come on people, dig deep and give generously - there are starving corporations out there.

The $35 million comes from the $500 million green car innovation fund that Mr Rudd promised before the election.

That’s a relief - for a moment, I was worried it came from my taxes.

I guess Rudd considers this good politics.  He manages to suck up to unions, greenies and the Japanese in one go.

UPDATE:  With Victorian state government kicking some cash in too, they’re actually getting $70m.

UPDATE 2:  A lot more from Andrew Bolt.

UPDATE 3:  Seems Rudd is again ignoring a Productivity Commission report:

That report said the economy would be almost $600million a year better off if Labor proceeded with the former government’s plan to halve tariffs and get rid of car industry assistance, and that Rudd’s proudly touted $500million “green car fund” was essentially an expensive waste of time.

And it’s all the tip of the iceberg, I’m afraid:

Industry Minister Kim Carr (could we be about to have a Carr car plan?) leaves next week for talks with Ford chief executive Allan Mulally and GM chairman Rick Wagner about their possible Australian investments, with incentives from the green car fund.

In an earlier post I noted the unwillingness of Australian academics to engage with the best libertarian literature in the world, i.e. from the Cato Institute, the Ludwig von Mises Institute, the Independent Institute & the economics faculty at Chicago University and George Mason University. I gave the example of John Quiggin’s off-hand dismissal of libertarian ideas in an opinion piece. He responded in comments, with words to the effect that: (1) there are numerous practical problems with libertarian ideas; (2) it has already been debated to death; and (3) the public is not ready for it yet.

I have now searched through Quiggin’s (impressive) publications record and found his article engaging with public choice theory. So while I was wrong to say that Professor Quiggin is ignorant of the literature, he seems to have concluded that libertarianism has been “proved…[not] workable”. I find this an astoundingly inaccurate claim, given the sheer number of libertarian ideas that have been successfully adopted here and overseas (not to mention the libertarian Nobel Prize winners who have contributed to the mainstream body of thought).

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If published, this paper by Robert Murphy would be the first peer-reviewed work to criticise “the basic premise” of carbon pricing:

Economists have almost uniformly treated anthropogenic greenhouse gas emissions as a market failure, requiring government measures to counterbalance the negative externality. William Nordhaus, a pioneer and leader in the field, uses the latest calibration of his DICE model to determine the “optimal” time-indexed carbon tax, starting at $42 per ton (of carbon, not ton of CO2) in 2015 and rising to $217 per ton in the year 2105. In the present paper, I document several weaknesses in Nordhaus’ standard case for a carbon tax, including his unduly pessimistic estimates and the dangers of a poorly implemented policy. I conclude that economists should reexamine several key issues before rushing to judgment on the need for government measures to combat global warming.

Finance Minister Lindsay Tanner has admitted that the government has run out of ideas on how to cut spending. Round 2 is up to you, dear readers. Let’s rise up to the challenge laid down by Mr. Tanner,

‘We would welcome any suggestions or savings proposals from anybody in the general community’.

As a reminder, here’s a paper from the Treasury on how the government managed to piss $272 billion up against the wall this year. They also note with concern that real spending has increased by a whopping 50% in the past ten years despite ten years of strong economic growth and that ‘all other things being the same, higher government spending will reduce economic growth.’

Social security and welfare……$96.5bn

Health……………………………….$43bn

General ……………………………..$32bn

Defence …………………………….$20bn

Education ………………………….$18bn

Transport & Infrastructure ……$10bn

Industry …………………………….$10bn

Culture ……………………………..$6bn

GST payments to States………..$36bn

Total ………………………………..$272bn

Send in your finest proposals, we’ll put the best ones up for a vote and then mail them direct to Mr. Tanner.

I owe David Leyonhjelm for bringing this to my attention. There appears to be significant change afoot in Libya, and not the usual ‘Oh shit’ change, but real change for the better. This is not only in the economic area, but also to a limited degree socially.

 Since December 2003, when Libya announced that it had agreed to reveal and end its programs to develop weapons of mass destruction and to renounce terrorism, relations with the West have improved to the point where relatively normal relations exist with them. Come to think about it, it seems kind of odd not having Gadhafi making a bloody nuisance of himself.

 Gadhafi will never be acceptable in polite society owing to some of the extremes he went to during his pariah years, but will probably get along with governments just fine. I am willing to give him the benefit of the doubt as far as the reform to his character but his past will always make him thoroughly reprehensible.

 Free market style reforms will do a great deal to improve the economy as it has done in a number of countries in the past. The massive oil revenues of Libya will of course be used by the left as a smokescreen to excuse themselves from having to make any embarrassing admissions. Read more »

I’m on the opposite side of the world at the moment (Jerusalem — great city) and mostly out of touch with the political & economic debates of Australia. But the budget still gets me curious, so today I had a quick flick through the budget papers. A few things worth commenting on…

Big government? The Liberals are claiming that this is a big-government budget. The ALP are claiming that it’s better than what the Liberals did. Both are right. At first I thought this budget had actually cut tax & spending, albeit modestly. However, on closer inspection it seems that the ALP has actually increased tax and spending a bit.

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Tomorrow we will finally discover what the ALP are all about. No more symbolic gestures but concrete action with both winners and losers.

Treasurer, Wayne Swan, is clear who will be the main beneficiaries.

“They are the focus in the budget, low- and middle-income earners who go to work day in day out, cook the tea, go to work again the next day, do a long commute. We’ve got to value those, so we will be providing our increased support in this Budget to those people - which is why we’re so committed to the tax cuts, so committed to the increased child care relief.”

Opposition Treasury spokesperson, Malcolm Turnbull, is determined to maintain middle class welfare in the form of Family Tax Benefits and not means-testing the baby bonus. He also sees no need for spending cuts and is not worried by inflation. Andrew Norton highlights the enormous increase in middle class welfare under Howard that Turnbull wishes to maintain. 

Despite playing the politics of envy over a ‘luxury car tax’ and increasing the Medicare threshold which will further strain health care funding, the ALP is so far making more economic sense.

The increasingly belligerent Turnbull, the useless Nelson and the paternalistic Tony Abbott are a shambles. What is the point of the Liberals?

Whenever rent control laws have been enforced in Australia, there have been long queues for those seeking housing. As the government artificially creates low rents below market equilibrium, this induces increased demand. Yet supply does not expand to meet the rising demand because of the low government mandated rents. The result is a shortage of housing. As Thomas Sowell observes in his book Basic Economics, “Nine years after the end of World War II, not a single new building had been built in Melbourne…because of rent control laws there which made buildings unprofitable” (p. 26).

Given that most economists — whatever their ideological disposition — agree that price controls are a bad thing, I was surprised to learn that rent control still exists in Victoria under the Landlord and Tenant Act 1958. To find out how extensive the rent control program is, someone will need to go through the regulations passed under the Act, a time-consuming and tedious process. Research for someone else to do!