Thursday, May 31, 2012

On The Existential Threat of Krugmanomics

[This article was originally published on the Ludwig von Mises Institute of Canada website.]

Bad ideas need a lot of marketing to make their sale possible. Good ideas, on the other hand, sell themselves. In economic terms bad ideas lead to ruin; while good ones are simply the discovery of a natural law of economics which leads to prosperity. Naturally, economically bad ideas require heavy dosages of misinformation, deception and misconstruing of facts in order to make their cases convincing to the public. This is so because at the root of an economically bad idea is an attempt to defraud one party at the expense of another in what is a negative sum game where in real terms both parties lose potential gains; and in relative terms the defrauder gains at the expense of the defrauded. Frauds and deceptions have been around in economic politics since time immemorial: their contents generally copied one off the other, repackaged and resold at a different time or place to a new audience of saps—like the moving carnival.

Our present day bears witness to a grafter who spews a dangerously ruinous economic idea in exchange for personal glory and media coverage. The peddler in question needs little introduction even to the economic layman. Faithfully embodying the legacy of his idol and Lord, John Maynard Keynes, our charlatan has made his way into popular magazines, news media, and feature film appearances, tirelessly disseminating the ideology of perpetual monetary inflation and total war as most desirable economic policies to be pursued whenever possible in the name of “economic growth” and “job creation.” Since the person at the centre of this discussion is a proponent of Big Government, it should come as little surprise that total war is something that he implicitly advocates, for as professor Ludwig Von Mises wrote:

The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom. [i]

We speak here of none other than Princeton economics professor Dr. Paul Krugman.
The subject of our present discussion recently took part in a TV debate[ii] versus Austrian economic disciple and sound money advocate, Rep. Ron Paul (R-TX). Needless to say the event became an instant classic if only for the fact that professor Krugman finally gathered the courage to face a representative of the school he has done his best to belittle in recent times; as well as for the fact that he has been mute to the debate challenge of one of its brightest stars for the past few years. We will focus the present article mostly on what professor Krugman said during the aforementioned television appearance[iii], since on the occasion he put most of his arguments succinctly within a few sentences.

Gonna Go Back In Time

Mr. Krugman never passes on an opportunity to disparage the gold standard. Remaining true to his form, at said debate he informed us that sound money advocates “are living in a world as was 150 years ago.”[iv] The professor however failed to qualify the “world as was 150 years ago,” as a good or bad thing. If we take Krugman literally, then the world as was 150 ago was far more akin to that as he prescribes, rather than Austrians and hard money types: the American Civil War was raging, producing unseen quantities of “stimulus,” and the United States of America was on a fiat currency. The world as Austrians would prefer is that of say, 160 years ago, of the Jacksonian era, or the world as was 130 years ago of specie resumption. However, for the rest of this article we shall take Krugman’s estimate of 150 years ago in a figurative sense.

I can recall being in the third grade (in Macedonia) and having a class discussion on poverty when one of my classmates presented the brilliant proposal that government should simply print money, distribute it to everyone, and alleviate all economic woes. My elementary school teacher—a much less economically educated woman than Krugman—quickly replied that an increase of the money supply was not the answer to our conundrum. I then put the same suggestion to my father—a person with no academic credentials in economics whatsoever. The answer I got was that printing more money would only cause something called “an inflation,” which was just a fancy word for increasing prices of everything. When I followed up as why this would be the case, it was explained to me that more paper money does not produce the goods and services which money is used to trade for. As a result, people would simply use the extra paper money to purchase the goods and services already on the market. Given the fact that these people would have more money at disposal than goods and services available on the market at initial prices, they would be encouraged to bid prices up. Considering that his proposal of “stimulus to the economy” by inflation is comparable to that proposed by my third grade mate, we can conclude that Mr. Krugman wants to take us back to the third grade. That is a bad thing because third graders are ignorant, dependent and trusting in authority. The world populated exclusively by third graders would quickly find itself wanting of many of the amenities humans have become accustomed to.

As a proponent of Statism, I have little doubt that Paul Krugman would have any real objection to transmuting the entire adult population into ignorant children, for in the wisdom of my father: an ignorant nation makes for a strong State[v]. Yet, we need to ask ourselves: How was it that my father and my elementary school teacher had the economic insight that economics Noble Laureate Paul Krugman seems to lack so desperately with regard to monetary inflation? Unlike Princeton University professor Krugman, who gets to enjoy the privileges of being a Court demagogue, my father and my elementary school teacher lived through perpetual inflation (and multiple revaluations) of the Yugoslav dinar and saw the devastating effects of such policies: a billion dinars one day often became a single dinar the next day. Not surprisingly Yugoslavia was never a poster child of economic prosperity. In fact, this Keynesian country[vi] is famous for only one thing: its end in the worst bloodshed in Europe since WWII[vii]. Unlike Lord Keynes and professor Krugman, my teacher and my father had the insight that there is no such thing as a “deficiency in aggregate demand;” rather that demand is omnipresent as a result of human nature and desire to constantly improve one’s own condition. On the other hand there constantly exist deficiencies or surpluses in specific demands of given goods and services which can only be discovered by market participants and can be satisfied provided that it makes economic sense to do so. Likewise, my father and my teacher, living under a Keynesian-command economy were aware that supply is hampered by the force majeure that is concentrated in the hands of central planners.

More advanced nations have not managed to fare any better using fiat inflationary policies either. Throughout the 20th Century Germany, France and Austria went down the path of the sort of “economic growth” as advocated by professor Krugman. The US Federal Reserve System has been flooding the market with new dollars at an unprecedented rate since the outset of the current recession. Yet, professor Krugman says, that this is not enough. Let us then examine what sort of results we are to expect if the Princeton professor’s advice is to be further followed. Self-taught economic great Henry Hazlitt provided insight into the German hyperinflation of 1921-1923 in The Inflation Crisis And How to Resolve It. According to Hazlitt, the paper mark having been at par with the gold mark at the outset of the inflation (1918) depreciated so much that “[t]he exchange rate of the paper mark, calculated in gold marks, was 1,523,809 paper marks to one gold mark on August 28, 1923.” [viii] As the German government kept “primping the pump,” and caught itself in its own trap the mark’s value kept on plummeting to “28,809,524 on September 25, 15,476,190,475 on October 30, and was ‘stabilized’ finally at one trillion to one on November 20.”[ix]

The vivid picture of inflation’s effects on production painted by Hazlitt is alarming:

The real effect of the inflation, however, was peculiarly complex. There were violent alternations of prosperity and depression, feverish activity and disorganization. Yet there were certain dominant tendencies. Inflation directed production, trade, and employment into channels different from those they had previously taken. Production was less efficient. This was partly the result of the inflation itself, and partly of the deterioration and destruction of German plant and equipment during the war. In 1922 (the year of greatest economic expansion after the war) total production seems to have reached no more than 70 to 80 percent of the level of 1913. There was a sharp decline in farm output.[x]

Professor Krugman wants to takes us back to 1923 Germany. This is bad because it was a time of “a great decline in labor efficiency,” explained Hazlitt. These were inhumane times.

Part of this was the result of malnutrition brought about by high food prices. Bresciani-Turroni tells us: “In the acutest phase of the inflation Germany offered the grotesque, and at the same time tragic, spectacle of a people which, rather than produce food, clothes, shoes, and milk for its own babies, was exhausting its energies in the manufacture of machines or the building of factories.”[xi]

To be sure, inflationism and socialism have much in common. For one, both regimes not only neglect personal property, they violently attack it and appropriate it. Furthermore, since monetary inflation distorts the price formation process, it makes economic calculation difficult. This difficulty is directly proportional to the extent of the monetary inflation. Finally, due to its intervention in the market, government distorts the market’s natural flow, thereby directing it in ways it prefers. In a sense, inflationism is a form of socialism. Professor Ludwig von Mises discussed at length the importance of economic calculation to human prosperity in his seminal and often neglected (by the mainstream) work Economic Calculation in the Socialist Commonwealth. In this paper Mises proved in theory what has been demonstrated in practice in: that economic calculation is impossible in a socialist economy due to a lack of real monetary prices; as a result socialism can only lead to a regression of a society toward the primitive state of our early ancestors. More specifically, Mises argued that the monopolized ownership in the means of production by the state makes it impossible for the participants in an economy to properly value the soundness of their decisions. He further refined this argument to say that arbitrary assignment of prices by the economic planner could not (and in fact it did not) remedy the problem, because in the free market, prices are designated as a result of the strict causal relationships of the supply and demand of the billions upon billions of factors taking part in an economy. That is to say, prices are real rather than abstract entities. Yet government intervention into the market through monetary inflation disrupts the price formation process, thus making economic calculation close to impossible.

What Krugman really wants to take us back to the Stone Age. Professor Joseph T. Salerno explained the imperative of economic calculation in the essay “Postscript: Why a Socialist Economy is ‘Impossible’”:

Mises’s pathbreaking and central insight is that monetary calculation is the indispensable mental tool for choosing the optimum among the vast array of intricately-related production plans that are available for employing the factors of production within the framework of the social division of labor. Without recourse to calculating and comparing the benefits and costs of production using the structure of monetary prices determined at each moment on the market, the human mind is only capable of surveying, evaluating, and directing production processes whose scope is drastically restricted to the compass of the primitive household economy.[xii]

This is a bad thing because, as Salerno explained,

in the absence of monetary calculation, human economy … comes to consist of super-short and repetitive household processes utilizing minimal capital and with little scope for adjustment to new wants. The result is that time itself—in the praxeological sense of a distinction between present and future—ceases to play a role in human affairs. Men and women, in their capitalless, hand-to-mouth existence, begin to passively experience time as the brute beasts do–not actively as a tool of planning and action but passively as mere duration. Humanity as a teleological force in the universe is therefore necessarily a creation of the inextricably related phenomena of calculation and capital. In a meaningful sense, then, socialism not only exterminates economy and society but the human intellect and spirit as well.[xiii]

Shell Games

Misleading statements are a key weapon to the proponent of inflation. Krugman’s most obvious shell game is in calling himself a “liberal” so as to suggest that he propagates liberty, when he indeed propagates statist coercion. We may have to excuse his propensity to deceive, since Jörg Guido Hülsmann argues that inflation causes people to lie.  

In such an environment, people develop a more than sloppy attitude toward their language. If everything is what it is called, then it is difficult to explain the difference between truth and lie. Inflation tempts people to lie about their products, and perennial inflation encourages the habit of routine lies.[xiv]

Deception is a Keynesian favorite. Indeed, in The General Theory of Employment, Interest and Money, John Maynard Keynes explicitly spelled out that the point of inflationary policies is to deceive wage earners. According to Keynes workers are more likely to accept a higher money wage which is lower in real terms, rather than a lower money wage which is higher in real terms.[xv] We shall see below that this is not the case. Nonetheless, it is one of the key reasons why governments embark on inflationary policies. A faithful Keynesian, Paul Krugman is a master of deception. For instance, in the aforementioned TV appearance he makes the claim that he is “a believer in the market economy,”[xvi] thereby giving the layman the idea that he is a proponent of capitalism. Yet, “the theory of output as a whole,” as Keynes himself wrote in the Preface to the German Edition of his General Theory,

which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.[xvii] (Emphasis added)

When Krugman proposes that hard money advocates want to take American society “to the world as it was 150 years ago,” he only appeals to emotion: people tend to have a general attitude that as a rule the future is better than the past in every way. Murray N. Rothbard writing on the basis of a study of another inflationist, Milton Friedman, came to conclusions proving Krugman’s disparaging of the gold standard wholly unwarranted. Writing on the effects of the reintroduction of the gold standard after the American Civil War and the collapse of the fiat greenback, Rothbard found proof of the most prosperous decade in American economics: the 1880s.

Once again, we had a phenomenal expansion of American industry, production, and real output per head. Real reproducible, tangible wealth per capita rose at the decadal peak in American history in the 1880s, at 3.8 percent per annum. Real net national product rose at the rate of 3.7 percent per year from 1879 to 1897, while per-capita net national product increased by 1.5 percent per year.[xviii]

This represented a great benefit to the populace at large since,

[b]oth consumer prices and nominal wages fell by about 30 percent during the last decade of greenbacks. But from 1879–1889, while prices kept falling, wages rose 23 percent. So real wages, after taking inflation—or the lack of it—into effect, soared.[xix]

In addition, the saving and lending industry also prospered:

We stress that with consumer prices about 7 percent lower in 1889 than they had been the decade before, the real rate of return by decade’s end was well into double-digit range, a bonanza for savers and lenders.[xx]

Therefore, Krugman’s fear mongering concerning the doom and gloom that is to ensue with the reintroduction of the gold standard is wholly baseless.

Let us now compare and contrast this information with the unemployment statistics during the peak of the German inflation, December 1923, and the months that followed. Paul Krugman submits that inflation stimulates trade, employment, and production. It should follow that the higher the “stimulus” provided by inflation, the better the economy ought to fare in those terms. The statistics tell a different story, however—the peak of the inflation saw the highest unemployment numbers:
Month Total
October 1923 534,360
November 1923 954,664
December 1923 1,473,688
January 1924 1,533,495
February 1924 1,439,780
March 1924 1,167,785
April 1924 694,559
May 1924 571,783
June 1924 401,958

The dramatically different outcomes the German hyperinflation of 1921-1923 and specie resumption in the US present a self evident proof of the fallacy of professor Krugman’s call to prosperity by inflation, since, according to his theory, these outcomes ought to have been reversed.

To be sure, Krugman’s favorite disinformation is that war is the ultimate stimulus to remedy for even the worst of economic ailments. He is not ashamed to flaunt it when he writes that America’s salvation from the Great Depression was delivered in the form of WWII braking out in Europe, “and the United States—though not yet at war itself—began a large military buildup, finally providing fiscal stimulus on a scale commensurate with the depth of the slump.”[xxii]

Judging by his explanations of how to get out of the current recession we can conclude that Professor Krugman wants to take the world into another war. This is a very bad thing because untold millions are sure to die, be maimed, left parentless and traumatized. And it would be all for nothing, for as Robert Higgs[xxiii] has proved, the ”stimulus” to the American economy was not WWII itself, but the departure from New Deal policies in the aftermath of it! The danger is real, for not only is professor Krugman presented as a credible authority on economics by the media, the US economy is reaching the levels where desperate politicians eager to prolong their careers can easily take Krugman’s rationale as a selling point to a populace equally desperate to see an improvement of their lot.

The U.S., Canada and the EU have experienced unprecedented inflation over the past four years, yet we see no recovery. Professor Krugman’s excuse as to why his prescription has not worked is that there simply has not been enough inflation “commensurate” to the depth of the slump. I submit that have been lucky enough not to experience a situation comparable to that of Germany 1923 only due to the fact that a number of Third World countries have made been accepting our fiat money, thereby creating a situation much like during the 1920s where the monetary inflation could not be easily noticed due to increases in productivity.


When one listens or reads Paul Krugman’s opinions on the economy, one is left with only one conclusion: the only way to prosperity is through war and misery. Considering that the man calls himself a “liberal” and a “believer in the market economy,” that is to say “capitalism,” it is little wonder that laymen perceive capitalism to be an evil ideology. Yet, professor Krugman is to capitalism (and economics for that matter) what an alchemist is to chemistry. Whether he is aware of it or not, he is one of the most dangerous persons on the face of the planet right now.

[i] von Mises, Ludwig, Human Action (Auburn, 1998), p. 715
[iii] In a blog-post Mr. Krugman explained that he agreed to the debate in an effort to promote his new book End This Depression Now, a book which much like JM Keynes’ General Theory of Employment, Money and Interest is aiming at providing a quasi scientific justification for government intervention in the economy during a recession.
[iv] Video: Ron Paul vs. Paul Krugman on Bloomberg TV, April 30, 2012 (2:10)
[v] In fairness, the original maxim used to be that stupid people make for a strong state. However, I have altered the maxim, for stupidity, as a level of intelligence, is given by nature. Ignorance is produced by human action.
[vi] It is my hope to elaborate on this somewhat in the future. For now, it will have to suffice to say that the postulates of the Yugoslav economy were full employment (factory workers would literally spend their entire shift in the cafeteria), fiat money and perpetual inflation.
[vii] Contrary to Paul Krugman’s claims that wars provide economic stimulus, the former constituent states of Yugoslavia were left quite impoverished as a result of the wars of the 1990s.
[viii] Hazlitt, Henry, The Inflation Crisis and How to Resolve It (New York, 1978), p. 61
[ix] Ibid., p. 61
[x] Ibid., p. 62
[xi] Ibid., p. 63
[xii] von Mises, Ludwig, Economic Calculation in the Socialist Commonwealth, p.35
[xiii] Ibid., p. 38
[xv] Keynes, John Maynard The General Theory of Employment, Interest and Money, (Chapter 2)
[xvi] Video: Ron Paul vs. Paul Krugman on Bloomberg TV, April 30, 2012 (3:00)
[xvii] Keynes, John Maynard The General Theory of Employment, Interest and Money (Preface to the German Edition)
[xviii] Rothbard, Murray N., History of Money and Banking in the United States: The Colonial Era to World War II, (Auburn, 2002), p. 159
[xix] Ibid., p. 161
[xx] Ibid., p. 163
[xxi] Hazlitt, Henry, The Inflation Crisis and How to Resolve It (New York, 1978), p. 69
[xxii] Krugman, Paul, “Easy Useless Economics

Wednesday, May 16, 2012

Ron Paul Official Spokesman Makes Clarification

Jack Hunter, RP campaign RP guy, speaks out in response to the news that Rep. Ron Paul has suspended his campaign:

Friday, May 11, 2012

The Immorality and Inefficiency of Immigration Restrictions

[This article was originally published on]

Ottawa types try to make themselves look busy with “immigration reform” every now and again, so as to convince the voting public that they look out for their safety, money and future. In the twelve years since I landed in Canada I can recall at least three or four such cycles of alleged attempts to remove application backlog and elevate the “quality” of immigrants by improving the selection process. Despite the tugging and rumbling, one thing never changes: the result. Presently we find ourselves in the midst of one of these non-events. Yet, the fact that immigration reform never brings authentic change should not deceive the reader into believing that there is nothing wrong with Canada’s immigration policy. The present article will attempt to point out but a few of these shortcomings and offer remedy. In fact, the immigration system is an immoral regime that only serves to perpetuate the Welfare State while keeping wages artificially high by barring potentially useful and cheaper labor to enter. The system provides a series of negative incentives which turn off the most desirable potential immigrants, while encouraging bureaucratically inclined, proponents of Statism.

The Immigration Process in a Nutshell

Non-Canadians are required to obtain residency and working permits through Citizenship and Immigration Canada (CIC). This is a typical bureaucratic agency, thus, the immigration process is long, expensive and intrusive. The CIC regime is absolutely unnecessary, for “officialism is stupid,” wrote Herbert Spencer. Individuals can judge whether to immigrate or not based on their successes or failures, since,

[u]nder the natural course of things each citizen tends towards his fittest function. Those who are competent to the kind of work they undertake, succeed, and, in the average of cases, are advanced in proportion to their efficiency; while the incompetent, society soon finds out, ceases to employ, forces to try something easier, and eventually turns to use. (The Man Versus The State, p.138)

The nature of the process vis-à-vis the agency gives advantage to bureaucratically inclined, rather than people of initiative. In normal cases it takes two to three, and often up to five years from the filing of an application with Citizenship and Immigration Canada to the approval of a Permanent Resident Visa, at which point candidates are allowed to land in Canada, having bestowed upon them the right to work, access to public education and healthcare, and every other social program. The application process is conducted over mail correspondence and through immigration lawyers based in Canada, which the applicants engage with from their home countries.

Most contemporary immigrants come from the less developed regions of Eastern Europe, Asia and Africa, i.e. poor countries. As a result of Canada’s tough visa regimes with countries where immigrants come from, very few get an opportunity to visit Canada before making their decision to apply for immigrant visas. Persons visiting Canada on visitor visas are positively discouraged from indefinitely extending their stay if they find a career opportunity. Rather, they are forced to exit Canada and commence an application process from their home country. Thus, a large percentage of those who choose to immigrate do it either with only anecdotal knowledge of Canada or are the sort of persons who make rash decisions. Applicants are submitted to a series of health and language proficiency examinations, and asked very personal questions relating to income, wealth and family ties. In addition, and unbeknownst to them, applicants even get “checked out” by Embassy personnel hired by the Canadian government. Actually, this is standard procedure in any type of visa request.

The Canadian public is assured, however, that the army of bureaucrats employed in the CIC supplies them only with the best and most urgently needed “new Canadians.” In an earnest embodiment of bureaucratic hubris, Immigration Minister Jason Kenney often expresses his belief in his Ministry’s employees’ “ability to focus on new applicants with skills and talents that our economy needs today.” One is left befuddled as to how it is that bureaucrats far removed from the actual labor marketplace get to learn of its ever-changing needs so as to anticipate these needs through a process that lasts at least 24 months.

The CIC’s website boasts several different categories under which applicants can enter themselves. One of these categories—The Federal Skilled Worker Program—is at the center of the current “reform.”  A brief description explains that

skilled workers are selected as permanent residents based on their education, work experience, knowledge of English and/or French, and other criteria that have been shown to help them become economically established in Canada.

However, no indication is given as to how the CIC has come to reach its conclusions on which criteria produce the best immigrants, versus which qualities are undesirable. It is beyond doubt, however, that the skills and talents needed by our economy today are different than those which were needed yesterday, and very probably different than those that will be in need tomorrow. Any notion that bureaucrats can anticipate these needs years in advance is nothing more than a myth. If CIC personnel could indeed make the sort of forecasting that Minister Kenney claims that they do, these folks would not be staffing a government agency, instead they would be the most capable of entrepreneurs on the market.

Immoral Institution

As immigration barriers maintain a jurisdiction underpopulated, they serve the purpose of artificially keeping wages up. This is the reason why the labor unions were instrumental in the cessation of open immigration policies in North America in the peak of the Progressive Era. North America’s “working class” united in the ultimate act of hypocrisy in preventing their workers of the world brethren to join them in success. Those “on the inside” lack a moral right to prevent others from getting the same opportunity previously given them. If people seek to relocate into a different country, they only aim to pursue the best opportunities for their given set of skills. If a new person arrives in a country, he is not owed anything he will not earn with his labor or purchase for money previously earned.

Furthermore, as professor Ludwig von Mises concluded in Omnipotent Government, by preventing newcomers to enter our market, we only hamper the potential improvement of our own standard of living.

The free mobility of labor tends toward an equalization of the productivity of labor and thereby of wage rates all over the world. If the workers of the comparatively underpopulated countries seek to preserve their higher standard of living by immigration barriers, they cannot avoid hurting the interests of the workers of the comparatively overpopulated areas. (In the long run, moreover, they hurt their own interests also.) (p.284)

As Canadian companies are forced to pay higher wages due to underpopulation, they become less competitive on the market. In turn this leads to the lowering of Canadians’ standard of living.

The immorality of this system is further exposed in the manner the immigration process dehumanizes the applicants by treating them like inert objects whose entire beings can be put down on a few pages of standardized forms. Even animals in this country are seen as deserving of “human rights,” and of having personality characteristics; yet, actual human beings who were unfortunate enough to be born outside its borders are treated as having fewer human traits than do house pets. Furthermore, Adam Smith ascertained that “[t]he property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable.” Thus, to prevent people from exploiting their own labor for the purpose of improving their own condition by means of imposing rules requiring work permits is surely as immoral as depriving them of their liberty—which in and of itself is equal to depriving a person of their life.

No person should have the sort of decision making power over the fate of another as that given to immigration officers the world over. The principles of liberty and equality in rights forbid such constructs. The absurdity of the immigration regime is all the greater when one realizes that the bureaucrat decides on the matter of who gets to enjoy that which he had no part in creating: the abundance of the market, which operates despite of him, not because of him! “[T]he socialist is no different from the millions of bureaucrats who now infest the social order; the bureaucrat is, like the socialist, a ruler by natural selection,” wrote Frank Chodorov. He went into detail, exposing the true nature of the opponent of the free market, the socialist in the official role of a bureaucrat, thereby explaining why bureaucratic processes are as they are:

I have never met a dedicated socialist who did not consider himself a leader—if not at the top of the revolution, then at least as commissar of toothpicks in the ninth ward. He is not a replaceable part of the thing called society but was destined, at birth, to be a regulator of this thing. This desire for power is quite common, even among nonsocialists, but while others seem willing to win their spurs according to the rules of the market place, the socialist claims the scepter because he has a mission. He is of the anointed.

Perpetuation of the Welfare State

The immigration system perpetuates the Welfare State in two elementary ways. One is the employment of vast armies of immigrations officers who are not needed by the market. In fact, they hamper the market threefold: (1) by consuming taxes; (2) by barring potentially necessary laborers to enter the country, thereby prohibiting the natural progression of the division of labor; and (3) by discouraging self-deportation, which leads to more consumption of taxes.

Government expenditures are a coerced transfer of resources from private producers to the uses preferred by government officials. It is customary to classify government spending into two categories: resource-using, and transfer. Resource-using expenditures frankly shift resources from private persons in society to the use of government: this may take the form of hiring bureaucrats to work for government—which shifts labor resources directly—or of buying products from business firms. … After all, when a bureaucrat receives his government salary, this payment is in the same sense a “transfer payment” from the taxpayers, and the bureaucrat is also free to decide how further to allocate the income at his command. In both cases, money and resources are shifted from producers to nonproducers, who consume or otherwise use them. (Man, Economy and The State p. 938-939)

The consumption of tax dollars by this system is formidable as the CIC alone employs approximately 5,000 personnel, who in addition to pay, need to be placed in offices, supplied with computers, internet and telephone connections, stationary etc. In addition, there is the never ending waste that goes into its paperwork, as well as the wasteful pomp of swearing-in ceremonies.

Furthermore, Canada’s welfare system is world famous. Easy access to government doles makes immigration to Canada an attractive proposition to many in the underdeveloped world who lack work ethic, yet are well trained in subsiding on the State. This provides the other prong of the Welfare State perpetuation fork. I landed in Canada as an asylum seeker, and as such did not have all the privileges of residency available to me. However, I found it shocking that I became eligible for welfare payments, access to healthcare and education many months before I became eligible for work. Those who land in Canada with immigrant visas have access to every bit of the Welfare State from the minute they step on Canadian soil. In addition, there are in place settlement assistance agencies, funded by CIC, which list the following services:
  • Interpretation and translation of documents, or help to arrange these services
  • Help filling out forms and applications
  • English as a Second Language (ESL) classes
  • Help finding a job or training
  • Information about other community services, schools and health care
Since the CIC boasts that it selects candidates who meet “criteria that have been shown to help them become economically established in Canada” “based on their education, work experience, knowledge of English and/or French, and other criteria,” the existence of settlement assistance agencies which perform the listed services seem to suggest that either the CIC’s selections actually do not meet the criteria it claims that they do, or the settlement assistance agencies themselves are unnecessary.

In any case the process itself is misleading to the applicants. The CIC, by making the claim that it selects candidates “with skills and talents that our economy needs today” gives them the impression that little or no initiative is required from them once selected. Moreover, the “new Canadians” are led to believe that in Canada the economy works in something of an automatic fashion, whereby all that is necessary is the correct filling out of an application. Others still are incorrectly led to believe that their post secondary credentials earned overseas will be valued on par by Canadian employers, when in reality this is seldom the case. Likewise many experienced doctors find themselves disappointed to learn that the government granted monopoly to the provincial colleges of doctors bar them from practicing medicine. Finally those misled newcomers who were led to believe that they would quickly find employment because their skills are in demand, having come to realize that they were deceived by CIC turn to government subsidized re-education programs, and other forms of welfare.


The Fraser Institute recently produced a study which concluded that

in the fiscal year 2005/06 the immigrants on average received an excess of $6,051 in benefits over taxes paid. Depending on assumptions about the number of recent immigrants in Canada, the fiscal burden in that year is estimated to be between $23.6 billion and $16.3 billion. These estimates are not changed by the consideration of other alleged benefits brought by immigrants.

Therefore, the institute proposed that the selection process of candidates be improved.

To curtail this growing fiscal burden from immigration, the study proposes that temporary work visas be granted to applicants who have a valid offer for employment from employers, in occupations and at pay levels specified by the federal government and determined in cooperation with private-sector employers. Immediate dependents may accompany successful applicants.
The temporary visas are renewable and lead to landed immigrant status if certain specified employment criteria are met.

What the Fraser Institute proposes is more government intervention in an area where government intervention has already proven to be the root of the problem. There cannot be a “better selection process,” for, immigrants are people, and each person is a unique being. No truth concerning how a person will fare in future events can be extrapolated through a bureaucratic process, regardless of how much the selection process allegedly gets improved. For that matter no definite truth regarding how a person will act in an environment different from the one he has heretofore acted in, can be distilled out of applications, letters or even interviews. Since individuals interact with their surroundings, their accomplishments are to a degree—a degree which cannot be determined—a result of that interaction with their environment. Would, say, Bill Gates have created Microsoft had he been living in Turkmenistan? We can never know.

No bureaucratic system can be developed which will be able to forecast how a person will behave in an environment different than the one he hails from, no matter what their past credentials. Just as a scoop of vanilla ice-cream to be enjoyed at one’s home is not a homogenous good with an identical scoop of vanilla ice-cream in an ice-cream parlor down the street: so too a person in one environment cannot be considered homogenous to the same person in another environment. Any notion of a supposedly improved selection process is only bound to be more misleading to potential immigrants in reinforcing the false perception of automation of Canadian society. No scientific equation which will deduce how a person would turn out in an uncertain future, in an environment of nothing but variables can be produced. “In physics, an experimentally determined law may be assumed to be constant for other identical situations;” wrote Murray Rothbard in Man, Economy and The State (p.863) “in human action, historical situations are never the same, and therefore there are no quantitative constants! Conditions and valuations could change at any time, and the ‘stable’ relationship altered.” To believe otherwise is to believe in soothsaying. Yet fortunetelling is widely ridiculed as gobbledygook, except within governmental forecasting!

Furthermore, the Fraser Institute’s proposals have the preservation of the Welfare State in mind, for they do not address the essential cause; rather they aim to aggrandize it. Immigrants are only a “fiscal burden” due to the existence of extensive social security programs. To that point, the question is how much of a fiscal burden “the average Canadian”?

Restricted movement of population is not a trait of a free society, while the lack of freedom stifles economic and intellectual development. Similarly calls to prohibit parents of immigrants from entering Canada are shortsighted, as many newcomers, in a display of division of labor, use their parents as caretakers for their children and homes. In such a way newcomers enable themselves to spend more hours in income producing work. Thus, newcomers are not the problem, the Welfare State is. Therefore, the solution to Canada’s immigration problem is twofold: (1) abolition of the Welfare State; and (2) abolition of immigration barriers. For as Herbert Spencer recognized that there are

general truths which the citizen, and still more the legislator, ought to contemplate until they become wrought into his intellectual fabric, are disclosed when we ask how social activities are produced; and when we recognize the obvious answer that they are the aggregate results of the desires of individuals who are severally seeking satisfactions, and ordinarily pursuing the ways which, with their preexisting habits and thoughts, seem the easiest-following the lines of least resistance: the truths of political economy being so many sequences. … And that the right interpretation of social phenomena is to be found in the co-operation of these factors from generation to generation, follows inevitably. Such an interpretation soon brings us to the inference that among men’s desires seeking gratifications, those which have prompted their private activities and their spontaneous co-operations, have done much more towards social development than those which have worked through governmental agencies. That abundant crops now grow where once only wild berries could be gathered, is due to the pursuit of individual satisfactions through many centuries. (p.102, The Man Versus The State; The Sins of Legislators)

Having an immigrations system in place only works toward producing a stationary society. Potential new laborers, entrepreneurs and investors are either held back for a given time or barred permanently from moving into Canada’s market based on decisions made by bureaucrats. The decision makers in this process have only paperwork to go by when passing judgment on real people, who have unique personalities and traits that cannot be expressed in an application. Furthermore, each country is unique, and different regions and cities within any given country give rise to all sorts of variables in upbringing, customs, work ethic etc. The bureaucrat passes judgment on whether a person they have never met would fit in well within any one Canada’s ten Provinces, hundreds of Regional Municipalities and thousands of towns, among over 30 million other people. Surely the folly of this system now becomes obvious.

People seeking to immigrate to Canada are only hampered or misled by the actions of government bureaucrats. And when they are indeed misled, and Canada does not present them with the opportunity they envisioned, having spent the two, three or five years of their lives, and thousands of dollars in fees in obtaining the permanent residency and work permit, they find it too expensive and impractical to reverse the course. In the absence of the restrictionist and expensive immigration regime, they would have the flexibility to move to Canada years sooner, when perhaps whatever opportunity that attracted them to Canada is still available. Likewise, rather than become “burdens on the system,” leaving Canada, for “greener pastures” in an act of self-deportation, would be all the more attractive were they not to suffer the psychic loss related to the obtaining of the immigrant visa.

To be sure one cannot be a “burden on the system” if there is no system to burden. Thus, the removal of the “safety net” provided by the Welfare State would serve to ensure that only the most work ready immigrate; while the abolition of the CIC would ensure that the needs of the market are satisfied timely. A practice of open immigration would be sure to match the most compatible persons with the work they are most inclined to. The assumption that government can produce a successful policy through intervention fails to understand the essential difference between human action which is hampered by intervention and that which is the result of the decisions of free persons acting reasonably. Rothbard understood that

intervention will have direct, immediate consequences on the utilities of those participating. On the one hand, when the society is free and there is no intervention, everyone will always act in the way that he believes will maximize his utility, i.e., will raise him to the highest possible position on his value scale. In short, everyone’s utility ex ante will be “maximized” (provided we take care not to interpret “utility” in a cardinal manner). Any exchange on the free market, indeed any action in the free society, occurs because it is expected to benefit each party concerned. If we may use the term “society” to depict the pattern, the array, of all individual exchanges, then we may say that the free market maximizes social utility, since everyone gains in utility from his free actions. (Man, Economy and The State, p. 878)

There is only one thing the Canadian government can do to improve the immigrant selection process: it can get out of the business of immigration and let the natural processes of the free market make their choices. 

Wednesday, May 9, 2012

The Creation of the Bureaucrat

By Jefferey A. Tucker 

[Originally published on August 29, 2003]

During the airport-security reform debate of 2001, Congress had the option of permitting the airlines more discretion in securing themselves from the threat of hijacking. Airline security had been imperfect—Federal Aviation Administration regulations prohibited commercial pilots from carrying guns, for example—but airlines themselves were capable of improving, and had every incentive to do so.

With the experience of September 11, airlines learned that the old wisdom concerning hijacking (calm the hijacker down and get him to land the plane) no longer applied. Instead, pilots needed the ability to protect person and property. Airlines discovered the dangers that might lurk in luggage and passenger carry-on bags. They were ready to screen passenger lists more carefully. Consumers, meanwhile, were more alert to security issues, and the airlines would have had to compete on the basis of the most superior security, in addition to the usual considerations of price, reliability, and comfort. The industry could have responded to real threats without creating unnecessary passenger inconvenience.

But instead, Congress, with the blessing of the White House, short circuited the market process. Paid by government, working for government, and identifying with its interests, the bulk of political decision makers naturally see government as the answer to every major problem. They view the “market” as uncertain and untrustworthy, something to be granted liberality on unessential matters but to be restricted and restrained in all essentials.

Hence, the laws regulating airline security were not liberalized. Instead, Congress created a new bureaucracy, the Transportation Security Administration, to be put in charge of airline security. A National Screening Force was established to examine all bags. Not only that: the government decided to charge consumers a fee (who could object?) for the right to enjoy its newly provided security. This is after taxpayers had already shelled out trillions of dollars to the government to provide defense against terrorism, only to discover that there really was no security against suicidal militants carrying box cutters.

At the time when airport security was nationalized, John McCain said: “This, I think, with the president’s signature, will give Americans confidence that their government and their Congress and their president are doing everything possible to improve airport security as rapidly as possible.”

But doing everything that the government finds possible isn’t the same thing as doing what is necessary according to the assessment of the owners of the airlines and the customers who use them. The TSA has no connection at all to owners and customers. As a result, it is now common for people who fly to return with amazing stories of humiliating and unwarranted intrusions, harassment, and bureaucratic delays. As to whether security has actually been enhanced, it’s anyone’s guess.

Most pilots are still unarmed. Those that are had to face a thicket of red tape, including an intimidating psychological evaluation, in the course of a government training program undertaken on their own time. Once they are given the right to protect plane and passengers, pilots must still carry their firearm in a lockbox. Meanwhile, federal flight marshals are still rare.

Average passengers, who have borne the brunt of the costs of security guidelines, must obey a codified list of items that can and cannot be carried on planes. Box cutters are outlawed for politically understandable reasons—given government’s propensity to protect us all from past threats. Why are people allowed to carry cigar cutters but not razor blades, knitting needles but not ice picks, and nail files but not tiny scissors is anyone’s guess.

What makes the people who drew up the list, as versus the airlines themselves, any greater experts on the likelihood that these objects will or will not be used in terrorism? A person who intends to do harm in the sky isn’t likely to be deterred by having his cuticle scissors confiscated. Remember too that any object that can be used for terrorism can also be used to protect against terrorism; stripping passengers of anything that could be used as an offensive weapon also takes away items that could be used for defensive purposes.

As for bureaucrats now running airport security, they are obeying orders from above, not responding to market needs. They face no competition, have no access to a feedback mechanism of profit and loss, and they lack every incentive to actually make good managerial judgments that would lead to enhanced security. They are not owners but rather outsiders to the market process, blind to the needs of consumers, inattentive to the interests of the airlines, and disregarding of the various tradeoffs associated with choosing one method over another.

All of these results could be known in advance, and critics of the program warned that this would be the result. But it is still something remarkable to observe in real life, as I did on a recent flight. Upon entering the airport, confusion was everywhere. No effort was made to make the system transparent to regular people. There were huge scanning contraptions with bags sitting on the conveyor belt (who owns the contract for those and how did they get it?) but it wasn’t clear whether one’s own bags were supposed to be placed on them or what would happen to them after. What was clear, given the employee badges and demeanor, is that passengers would be in lots of trouble if they did the wrong thing.

The bags took an age to go through, and anything suspicious would prompt the federal employees to open up the bag and wipe a tiny cloth on the contents inside, in four different places. I suppose this is to check for explosives. They then examined the cloth to observe any discoloring. The whole process had the appearance of silly ritual, not an actual security check. What was especially striking was the speed of the operation. The entire airport had passengers and airline employees bustling about here and there. But the federal employees seemed to work outside of time itself, completely oblivious to the tempo around them. They lacked any sign of vigor or initiative.

These federal employees seemed to be vaguely in charge of all things between the time the passengers entered the airport and when they did the final pass beyond the last X-ray machine. They seemed disparaging of the needs of passengers, stationing five employees in a spot where it should take one, and assigning one employee to do a job that should take five. They were probably all nice people but they acted like caricatures of government bureaucrats: at once belligerent and ignorant, threatening and uninterested, detached and intrusive. Their main job seemed to be to muck up the system, and revel in the fact that they were in charge. This was Martin van Creveld’s “impersonal state” at work.

Security is a service like any another. When the market is in charge, it is something provided when, how, and to what extent it is needed. Risk assessment is crucial. There is no sense in wasting resources on nonexistent threats. Those contracted to provide security must be in a position to respond to the needs of the moment, change their tactics, and outwit the threat. Those who do the job best are rewarded and those who fail are weeded out of the market. Competitive pressures lead to constant improvements in methods and continually falling costs.

The bureau in charge of federal security today bears none of these traits. This isn’t because of culpable negligence or incompetence, though surely these factors play a role. It is because they stand outside the market system and are not thus responding to the needs of producers and consumers. Though it is a new bureaucracy, its employees already fit the classic description as given by Ludwig von Mises: “they shun innovations and improvements. They look on every project for reform as a disturbance of their quiet.” The absence of market mechanisms “creates insoluble problems. It kills ambition, destroys initiative and the incentive to do more than the minimum required. It makes the bureaucrat look at instructions, not at material and real success.” (Bureaucracy, 1944, pp. 60–61).

Sullen and incompetent employees are a feature of the private sector too, of course. The crucial difference is that in the market economy, forces are at work to systematically punish the bureaucratic impulse and replace it with something more spectacular: vigor, innovation, and genuine public service to others. In the private sector, failure is punished with losses. After 9-11, we saw what happens when government-provided security fails: government grows.

The success or failure of the Transportation Security Administration will come up for review in a couple of years. We already know what will happen. Plenty of failures will be spotted, as well as many imagined successes.

Regardless of the record, the bureaucracy won’t be abolished. It will be “reformed,” especially given that a huge new lobbying force now has every reason to push Congress to retain the system. The one reform that the system most needs—namely, to be subjected to the competitive pressures of the market—is not possible in the current framework. The only real solution is the one that Congress rejected back when it had the chance for real reform: total privatization.

Republished with the author's consent.

Sunday, May 6, 2012

Education Cannot Be Free Like Air; Water Never Was Free!

Among the many misguided postulates of the "Occupy Wall Street" movement is the view that education is a "right, not a privilege", and should therefore be "free as air and water." (NPR

I would like to address a fallacy in the analogy that education should be "free as air and water." Namely, only one of those things claimed free is truly free: air; water is not. Yet, as professor Rothbard laboriously repeated time and time again: air is not an economic good, it is a condition of human welfare. While one can get air just by inhaling and doing absolutely nothing else; to get water, one needs to actually do something more than opening their mouth. Water does fall freely from the sky, but it needs to be captured in a receptacle in order for it to be of any use; while to draw water from a well, a pond or a river one needs to get to the body of water, and again a receptacle is necessary if that water is to be taken away. Getting to the water costs energy, transport, opportunity cost, etc.—things that are not free. Of course, if the "Occupiers" paid their household bills, they would know that municipal water is one of the utility charges any family pays. Those charges pay for the cost of getting the water to the users, so people do not have to actually go to the ponds and wells to get it. So, while water itself may be "free", getting it in usable form is not. In that respect the call that education should be "free as air and water", is in itself a contradiction.

It is an old adage that knowledge is power. To gain knowledge one needs to invest time and resources—the process of education. In the past university education was reserved for the aristocracies and upper classes, while the masses used to get educated in the trades. Thanks to the rise of democracy and the leveling of the classes, education became equally attainable to everyone in North American society. In more distant times, some of the youth of the middle class could afford to attain a post-secondary education as long as their parents saved up to pay for it, and the young person had the prospect of excelling. If the second condition was not satisfied, there was no economic sense for the money to be spent on a prospect that was sure to end in failure. Above that, the limited spots available to be filled made sure that students competed to get in respectable institutions which offered a return on the investment made by the student's family. To those that were academically inclined, but lacked the finances, scholarships and bursaries were made available, because the institutions investing the money in these students saw a potential return: the school's reputation of academic excellence could be upheld, thereby justifying high tuition fees. Likewise, thanks to the rise in democracy and equality among people, humanity has experienced an unprecedented period of progress. These events are without a shadow of a doubt related in a causal relationship.

In more recent times, however, post-secondary education has become a standard experience for almost all middle class and even most lower class youths. Loose credit has replaced parental prudence; while diminishing academic requirements for admission have made entry available to anyone who wishes to go through a post-secondary institution. As a result, the relative qualitative differences among schools have disappeared. Contrary to popular claims that the price-tag of a post-secondary education is too high, the level of attendance proves that it is in fact too low. Whether students value the money spent on their education by being diligent and attentive in class is perhaps beyond the scope of this article. However, the fact that so many students spend class-time socializing or attending socialistic protests where they make demands that they ought to know are against the laws of logic, suggest that perhaps there is a case to be made for a claim that the recipients of post-secondary education do not value the opportunity given to them.

As already stated, knowledge is power, and since education provides a person with knowledge, it equips that person with power not possessed by the person that does not obtain that knowledge. In theory, this knowledge/power allows the person who possesses it to gain a better life through higher pay. It has been proven time and again that this theory does in fact hold: people with higher education do indeed earn more money that their lower educated counterparts. Since education does provide the recipient with a tangible advantage, there is no ground that it ought to be given for free.
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