Video: Mises on Liberty and Economics

For the weekend edition: a lengthy and worthwhile video on Mises and the vital connection between freedom and economics.  This is adds to the subject of the last Chalk Talk nicely:

"Nobody Knows"

Barney Frank is right. It was "dumb" to believe a handful of people could predict the unemployment rate. (Click here for the video of the entire interview. The "dumb" remark begins at the 3:20 mark)

If only the chairman of the House Financial Services Committee would exercise that bit of economic humility every time he and his colleagues attempt, and continue to attempt, to legislate the economy into the image of their choosing.

"In the first place, nobody knows..." (Emphasis added.) Now that Mr. Frank realizes the futility of predicting unemployment rates, let's hope he realizes the futility of controlling the economy in general.

Historians and economists who take history and the lessons of basic economics seriously take considerable time trying to convince us that "nobody knows" enough information to command and control economies. The lesson of history is this: Since there has never been a person or group of experts endowed with both the intellectual powers and angelic nature it would require to wisely and justly plan the choices before millions of people seeking to buy, produce, and create wealth, the market is better left unplanned by central authorities, politicians, and bureaucrats.

When politicians take it upon themselves to order the economy through excessive regulation and historically short-sighted legislation, consumers and producers in society (the rest of us) become less free to interact in our respective self-interests. When this happens the overall productivity and dynamics of the market suffer because the capital in the market is not efficiently directed where it should be.

Thomas Sowell reminds us: "The efficient allocation of scarce resources which have alternative uses is not just an abstract notion of economists. It determines how well or how badly millions of people live." (Basic Economics: A Citizen's Guide To The Economy)

Who, then, "knows"? Who is capable of making these decisions that determine the material welfare of millions of people?

You know. You neighbor knows.  That cousin whose name you cannot remember when you see him every seven years at a family reunion knows. We, the market, know best.

When politicians express no confidence in the "private sector" or "the market" and attempt to regulate the economy in the direction of their choosing, they are presuming to have the knowledge it requires to do so; they are distrusting We The People of The Market with the freedom it requires to function a diverse market economy.

True, "nobody knows" what the unemployment rate will be in six months, but somebody does know how to run the market. And that somebody is us, uncoordinated and pursuing our respective self interests, not a group of preening economic divines inside the Beltway.

In his classic work, The Road To Serfdom,  F.A. Hayek carefully explains that the central characteristic of the authoritarian regimes of twentieth-century Europe was an outright rejection of the unplanned, free market activities of nineteenth-century classical liberalism.  This authoritarianism resulted from the desire to move all decision-making of the market to government central planning boards.

(Hayek also wrote a book devoted solely to the fallacy of central planning by a group of elites, properly titled, The Fatal Conceit) 

In chapter 5, Planning and Democracy, Hayek explains:

“That our present society lacks such ‘conscious’ direction toward a single aim, that its activities are guided by the whims and fancies of irresponsible individuals, has always been one of the main complaints of its socialist critics.”

The more our "whims and fancies"--freedom, that is---annoys the elites in Washington, the better.  The more they act on their annoyance, the worse off we become, materially and politically.

The more of the economy that is diminished by government control, the less free we are as the market to determine our respective welfare. And the less free we are individually, the less prosperous we become as a society.

This much history tells us, and this much we know.  Acting contrary to this knowledge would be just plain "dumb."

D is for "Drive"?

President Obama is fond of using (and abusing) an analogy for Democrat economic policy as opposed to Republican economic policy. In his recent trip to Texas, he repeated the analogy again::

“If you have a car and you want to go forward, what do you do? You put it in 'D,'” Obama said. “When you want to go backwards, what do you do? You put it in 'R.' I'm just saying -- that’s no coincidence. We are not going to give them the keys back."  (Click here for full article.)

That line gets a hearty chuckle from politically-empathetic crowds, but the larger historical record of leftist economic policy tells a different story.

In the introduction to his book, Capitalism and Freedom (click here for Book Reports), Milton Friedman explains how the modern-day "liberal" has come to favor a resurrection of the paternalistic state policies of seventeenth-century mercantilism 

against which proponents of classical liberalism---free market capitalism, that is---fought:

"In the very act of turning the clock back to seventeenth-century mercantilism, he is fond of casting true liberals as reactionary!"

Free market capitalism was a tremendous leap forward out of the economic doldrums of the past.  The more people were free to exchange goods and services, the faster the standard of living rose for untold millions of people.  When societies fostered freedom in their markets, they set the course of their lives and the lives of their posterity forward into greater prosperity.

As Ludwig von Mises noted in chapter one of The Anticapitalistic Mentality (click here for Book Reports):

"Capitalism deproletarianized the 'common man' and elevated him to the rank of 'bourgeois'...Those underlings who in all the preceding ages of history had formed the herds of slaves and serfs, of paupers and beggars, became the buying public, for whose favor the businessmen canvass." 

 Increasing government intervention and influence in our lives and liberties in not setting the car that is our society in "Drive."  With every increase in the central control of our market and therefore economic lives, the government currently controlled by the Ds are heading in Reverse, turning the clock back to the mercantilistic policies that stalled societal adavance and the elevation of millions from hand-to-mouth existences.   Fannie and Freddie control of home mortgages, taking over GM, bank bailouts, and centralizing our health care into the hands of a bureaucratic Leviathan is most certainly putting the car in reverse.

In so far as any of the Rs agree to go along with these backward, regressive economic policies, the president is correct, they are putting the car in reverse.  But the ones putting the car in Reverse are hopping along for a ride with you, Mr. President.

Suppressing Your Vote, Economic Vote That Is

One thing Americans take seriously is the privilege of voting. We do it, encourage others to do so, and will not tolerate any infringement of it. We've passed monumental civil rights legislation to ensure all eligible citizens are not barred from voting. As the ongoing New Black Panther Party/Justice Department controversy illustrates, to this day the slightest restriction on voting attracts our attention and ire.

Through voting we assert our sovereignty as citizens. We just won't abide being disenfranchised from the political process.

Oh, that we were just a vigilant in protecting our voting privileges in our economic democracy, the market place.

Every time we make a purchase we are voting with our dollars. For whom are we voting? Those people who best serve our wants and needs, who deliver goods and services to us in the most efficient and cost-effective manner. Businesses large and small compete on a daily basis for our votes. If they ask us too much money, offer products insufficient to our needs and wants, we vote for someone else.

Unlike political elections every two and four years, elections in the market place occur every day and millions of times a day. From the moment we wake and put hot coffee (or tea, or orange juice, or some herbal libation) to our lips, to the moment we put our heads on our down pillows (or foam, or orphopedic), we truly vote early and vote often.

Each of us are what Ludwig von Mises calls the "sovereign consumers" in the "economic democracy of the market." This process first occurred when free market capitalism introduced into the static, hand-to-mouth societies of old a new and dynamic approach to elevating the living standards of the masses:

"Those underlings who in all the preceding ages of history had formed the herds of slaves and serfs, of paupers and beggars, became the buying public, for whose favor the businessmen canvass. They are the customers who are 'always right,' the patrons who have the power to make poor suppliers rich and rich suppliers poor."

As with political elections, those looking for our economic votes--dollars-- look where most votes can be found: the majority. The criticism of capitalism that it favors the few at the cost of the many denies the economic fact that the consumer is sovereign. Businesses that seek profit (how redundant is that?!) seek as many votes as possible. The majority represents volume, not a niche market. As Walter E. Williams puts it, who made more money, the founder of Rolls Royce or Henry Ford?

How, then, can we be disenfranchised in our economic democracy? What would limit or infringe our privilege of voting with our dollars?

Two things: Excessive taxation and excessive government intervention in the market.

Income taxation strips us of the fruits of our labor and leaves us with less of our own property. This confiscation of our property leaves us with less money. Few dollars means fewer votes to cast in the market.

More taxes on goods and services reduces the amount of goods and services Americans can afford. The less we can afford means fewer trips to the cash register, the ballot box of the market.

We have a pending tax increase looming at the turn of the year. This tax increase will deprive us of many economic votes in 2011, in the midst of a dogged recession.

Excessive government intervention in the market is the more prevalent, but less visible, way in which we are disenfranchised in the market.

With each non-essential regulation of economic transactions, government imposes new terms by which the consumers and producers must abide. These new third party terms corrupt what normally would be two parties exchanging money for goods on mutually-beneficial terms. As Thomas Sowell explains in Economic Facts and Fallacies,

"...these new terms preclude some terms that would otherwise be mutally acceptable to the parties themselves. With fewer terms available for making transactions, fewer transactions are likely to be made."

Having fewer available terms for basic economic transactions equates to limiting our range of voting privileges in the marketplace. We are less free to vote for the best possible products and services, therefore more confined to the status quo.

With 2,000+ page legislation on health care, finance reform, and, possibly, cap and trade, there are hundreds of regulatory powers and agencies, and inevitable new taxes, coming our way. With this additional bureaucratic anchor on the economy, there will be a lot of voter suppression and fraud taking place. We will be disenfranchised from the private economic process of bettering our lives.

How outraged will we sovereign consumers be?

Perhaps if we start taking our voting privileges more seriously, we will demand new voting rights legislation and protection from the Justice Department. Maybe we can call it the Sovereign Voters in the Economic Democracy and Freedom in The Market Act.