An Obituary to Critical Thinking

[This article originally appeared on the mises.ca blog on February 7, 2013]

I miss my friend Jacob, God bless his soul. Don’t worry, he’s not dead—though he might as well be. He is, what my brother would classify as “POW: Prisoner of Woman.” Jacob’s present state prevents him from engaging in the sort of activities that we used to take up before his captivity. And we’d do the sort of things that any twentysomething bachelors would do: we’d dig trenches, go skiing, listen to music, lift weights, make wine, hike, chase girls, drink beer, barbeque pizza, and so on. Just before Jacob got captured we were in the midst of developing an exercise system which utilized used pallets. It was to be a Tony Little sort of enterprise. It was to be called “SkidFit.”

When Jacob was free, so was his mind. And while outwardly engaging in the abovementioned activities, Jacob and I would stretch each other’s minds on all sorts of topics. I would bring something up, and Jake would find the cracks in the idea, which I would have to fill with a chain of logical reasoning; and the other way around. He was, and still is a very methodical thinker. There isn’t much that one can put past him. He’ll take his time and think things through—which annoys the living you-know-what out of people. Before Jacob became a Prisoner of Woman, he was becoming a tried and true Austro-libertarian. Before he started becoming an Austro-libertarian, Jake was a left-anarchist and a NDP supporter. Not because he was a commie, but because he finds the same faults with the corporativist system than any other student of the Austrian School of Economics does. He simply never got exposed to “Austrian” insights before I introduced them to him. Now, I didn’t turn Jacob into an “Austrian.” Chris Holacher did that with his talk on money creation and monetary policy at the April Toronto Mises Meet Up.

The topic of property rights would often come up in our conversations. Invariably we’d always conclude that property rights in Canada are treated rather schizophrenically. Say you own a piece of land. The government says that it is yours, therefore, you should pay annual tribute to the government. Say you wanted to build a house on this piece of land, the government says that you have to get permission from it to do it. Say you had a building on a piece of land you owned; the government says you can use it only in ways that it deems appropriate. Say your water-main broke. Even though it’s on your property, you can’t touch it on the grounds that the City owns the water supply and distribution system. The City has to send one of its employees to turn a screw and shut the water off. On the other hand, the city will not repair the part of the system it claims that is on your property. Once the water pipe has been repaired by the property owner, the City will not turn the screw back on, until it conducts an inspection on the work done on your property, and finds the work satisfactory. Jake and I would conclude that most of the masquerade is nothing more than an effort on the City’s behalf to provide employment in the spirit of the National Recovery Administration.

Anyway, I recall an occasion when, concluding a night of stimulating the local economy through beer destruction, Jake and I ended up at a pizza joint on the outskirts of St. Catharines’ downtown core. Despite claims to the contrary, I still maintain that Strombolli’s Pizza ranks in the top two pizza places in St. Catharines. Regardless, walking into Strombolli’s that fateful night the conversation had turned to necessitate my use of that all too common phrase:

“It’s not like the guy invented the wheel!”

“Who ever did?” said Jacob. And that’s when the proverbial light bulb went off in my head.

“You’re absolutely right, Moneybags! Nobody invented the wheel.” Too bad that most people aren’t as keen observers as is my friend Jacob.

You see, the “invention” of the wheel has been celebrated by men as one of the most significant events in the history of the human civilization. But, as I made the case here, that’s just baloney! The wheel by itself is useless: it’s the axle that makes it useful. I claim this to be my greatest contribution to human thought. It is my “Broken Window Fallacy.” Except, in the “Broken Window Fallacy” Bastiat talks about that which is not seen, as the point missed by people; in my “Wheel Fallacy” I point out that people miss that which stares them in the eye! Take for instance money printing and price inflation.

Over the past couple of years Argentina had become a poster child for government intervention and monetary inflation. Argentina has been a favorite of interventionist leaning “economists” like Keynesians and MMTers as a success story of monetary inflation gone amok. Time and time again these pundits pointed out to this South American country as an example where government can heavily interfere with the market, and print money to no end without any negative repercussions. Well, as it turns out the natural laws of economics could not be broken, despite all the well wishing done by Keynesians and their ideological brethren. The news that came as no surprise to “Austrian” observers is that the Argentinean government has moved toward price freezes to in order to “halt” inflation. AP reports:

Argentina announced a two-month price freeze on supermarket products Monday in an effort to break spiraling inflation.

The price freeze applies to every product in all of the nation’s largest supermarkets — a group including Walmart, Carrefour, Coto, Jumbo, Disco and other large chains. The companies’ trade group, representing 70 percent of the Argentine market, reached the accord with Commerce Secretary Guillermo Moreno, the government’s news agency Telam reported.

The commerce ministry wants consumers to keep receipts and complain to a hotline about any price hikes they see before April 1.

This is as clear cut an admission of economic policy failure as a revaluation of the currency used to be under the gold standard. Redmond Weissenberger posted a detailed analysis of the Argentinean situation here, and there has been excellent coverage of the issue on Economic Policy Journal and other “Austrian” websites, so I will refrain from repeating too much of what has already been said by commentators more competent than myself. I simply want to point out the obvious here, the proverbial axle that makes the wheel useful, as it were, which is this graph:

According to this US Federal Reserve Economic Data graph, the Argentinean authorities increased the money supply to the tune of 30 times, give or take a little, over the past decade. Here is the reason for Argentina’s raging price inflation (it must be raging, otherwise price controls would not be necessary), yet, it is the reason no mainstream economic pundit is willing to point to as the culprit of its troubles. Here’s a graph of US monetary base for the last one hundred years or so:

Notice the take off in 2010, and the near tripling of the money supply there. Paul Krugman says again that there is nothing to worry about concerning monetary and price inflation in the US. Data on Canadian monetary base seems to be not as easy to come by; but consider this: the exchange rate between the US and Canadian currencies has been pretty much level since 2006. To me this suggests that Canadian authorities have been inflating at a similar pace to that of our southern neighbors. Now think back to prices of everyday products 10 years ago and where they are today. This is an overt goal of the BoC: 2% annual target inflation. Look at real estate prices, while you’re at it too, and look at the population growth in Canada.

While CBC Radio 1 celebrated the discontinuation of the Canadian one cent piece, all I could think about was Argentina’s price freeze. The death of the penny is Canada’s overt admission of its bankruptcy; yet, it is a fact celebrated in our* media as liberation from a pestering little piece of zinc. That made me think of the liberation of Iraq by US troops; it’s the same sort of “liberation.” It also made me think of the “Wheel Fallacy,” and the fact that very few people take the time to understand the origin and purpose of money, like my friend Jacob did.

*Some of the media is “ours” since we are taxed to fund them.

Teacher Oversupply or Pupil Undersupply

[This article originally appeared on the mises.ca blog on January 31, 2013]

My high school education spanned a now unusual five years, over an even more unusual two continents and three countries. I started in the south European backwater that is Macedonia for my first two years, took my “junior year” in Florida, and finished up in Ontario with the last of the OAC regime. Despite the great differences between Macedonia and Canada, in terms of economic development, there was a connecting theme between the two places for me. It was the desperation felt among would be and new teachers. In Macedonia, if one were a certified teacher, it meant that unless his or her parent was a retiring teacher, this person would be nothing more than another addition to the unemployment statistics. I was surprised to see a shockingly similar fate for new teachers in my new home. I recall a number of young student teachers that made the rounds through my Ontario high school, hoping to get hired for the next year. I also remember the onslaught of layoffs that resulted with the discontinuation of the 13^th grade. One of these young teachers, let’s call him Mr. Gidley, got canned three years in a row, only to be recalled the following September. In my graduating year, this fellow, having got tired of the annual farewell he’d been given at the yearend assembly, asked me and a couple of buddies to join him in a bit of a prank involving the performance of Monty Python’s “The Lumberjack Song” to the unassuming audience in the school’s auditorium. He got called back the following year. He was lucky that way. It was not so for most of the others. For instance, there’s this other guy, let’s call him Mr. House. He worked as a stock boy in the nearby supermarket when he was brought in as a student teacher to my grade 12 English class. He never got hired. Eleven years later, I still run into him at the same supermarket, where he’s still a stock boy.

Coming out of high school, as kids do at that time, I was contemplating what career path to choose for myself. In Macedonia I had put myself on the path of physical education—though I never intended to make use of my degree; I just needed to attend school through the age of 18, so I chose one majoring in sport. Having seen the fates of Misters Gidley and House, and the close to a dozen other student teachers that filed through Sir Winston Secondary, I knew there was no bread for me in education. Unfortunately, many of my cohorts failed to see this. I, like probably any given twentysomething can think of about a dozen people in my social circle that are either in teacher’s college, or are on their way in or out. I have a sneaky suspicion that this came about as a direct result of the education and indoctrination these people received through the public education system that they were forced to attend through their formative years. Is there a more damning exhibit of the imbecility produced by public education than the oblivion to reality displayed by these teacher-ed novices? Many more continue to do so every year, the result of which is Ontario’s oversupply of teachers. How bad is it out there for young and budding teachers? University Affairs reports the following:

The effect of an ever-growing pool of job seekers is reflected in a 2010 survey by the Ontario College of Teachers (PDF), the provincial body that licenses teachers. Most neophyte teachers aren’t getting full-time jobs, or anything close. In 2006, 30 percent of teachers in their first year after graduation were either unemployed or underemployed. By 2010, that proportion had more than doubled, to 68 percent. Nearly one in four new teachers got no work at all, up from just three percent in 2006.

Paraphrasing the stories I relay above, Yvonne Ringles says: “It’s like your life is on hold.”

Since graduating in 2005 from Lakehead University’s one-year bachelor of education program, the 30-year-old has worked a variety of daily supply and long-term supply jobs in a school board east of Toronto and even taught overseas. But she has been unable to secure a full-time teaching position. Two of her friends are in exactly the same boat.

Life on hold, indeed. The teacher oversupply situation in Ontario represents a microcosm, a case in point if you will, of the problem with this Province’s politico-economical regime. Well, not just of this Province, but of North America in general. Jobs, and therefore, careers are in short supply as a result of the government meddling in the economy.

As one that is far from the troubles brought on by child rearing, I was quite unpleasantly surprised to learn from my neighbor, who is not as lucky as I am, that Ontario children are by law required to report to school at the age of four. Government solution to a government created problem. Having created an oversupply of teachers through its easy access to post secondary education and loans to pay for it, the government has seen the problem: there is no teacher oversupply, there is a pupil undersupply! It’s the same at the other end of the spectrum, too, as post secondary education, which used to last four years, is now pushing an average of six. Here’s how University Affairs puts it:

Lobbying by universities’ education faculties and the Ontario College of Teachers pushed the provincial government to fund an extra 1,500 one-year teacher education spots, bringing the total number of those spaces – which make up the bulk of teacher education spaces – to 6,500 in 2003. That doesn’t include additional places contributed by the four- or five-year teacher-education programs or by three wholly new teacher-ed programs that were approved and opened at Ontario universities during the decade. When all was said and done, Ontario ended up with more than 9,000 spots for teacher-ed students in its education faculties in a given year.

And not surprisingly, there are calls for extending the length of teacher’s college:

But those at education faculties say it’s tricky to correctly predict what future needs will be. They suggest that Ontario may need to take a different perspective on the role of education faculties, and even to start discussions about a longer time to earn a BEd, upping it from one to two years, like Alberta has.

And where post secondary education was something reserved for a small percentage of the population, now it’s as common as having a driver’s license. We have university grads coming up the proverbial Ying Yang, specialized in all sorts of useless fields! Ah, another parallel between Macedonian and North American societies (not the driver’s license part, the university grads part). It’s how Marshal Tito disposed with so much unemployment in the late 1960s in Yugoslavia, the last solution to unemployment before rounding up the young and shipping them off to war—and as I was taught by the products of Tito’s educational policies, the rotten, backward capitalists of the West had no choice but to follow the predetermined course of history as prescribed by Karl Marx and join us in socialism. Boy, were they right!?

I was seven years old when I started my education. By the end of my first two grades I was fully literate in both the Cyrillic and Latin alphabets; knew how to add, subtracts, divide and multiply. On my last day of the second grade I declared to my parents that I had attained all the wisdom that formal education had to impart on me, and was ready to take up employment with the family business. “You have to finish high school; it’s the law,” they said. So I did. They were going to send me to the agricultural or trades school, where all the idiots were sent. As far as my parents were concerned, those were the only two high schools that offered anything of educational value. In grades 3 and 4 I was taught about the Basics of Nature and Society (a precursor to geography and history). Most of it turned out to have been wrong. In grades 5 through 10 I was taught some more history that was written from the point of view of the ruling Regime, so it was useless. Here I was introduced to the Marxian determinism of history. I forget how it goes exactly, but the important part went: feudalism, capitalism, chaos and destruction, followed by socialism and finally communism. I was taught this in 1994, four years after Macedonia officially abandoned socialism. I was taught physics and chemistry, too. By grade 10 I knew the Periodic Table of Elements by heart and could write chemical formulas just by being told the name of some complex substance. You name it, I could do it: Tetracholiudwhatevermajigi, Hydroxysoandsuch, Natriumperoxideidium. Don’t remember jack. Don’t need it. I also knew how plants and animals reproduced, and when, and how they came to be. Don’t remember jack. Don’t need to. All the math I was taught by grade 10 was useful only inasmuch to get me through grade 13. Practical use for the stuff I learned after grade 2: practically non-existent. In grades 11, 12 and 13 I was taught how to write essays. Finally, something I’ve put to practical use. All the history and economics I learned came through my independent study of the subjects, reading the books that textbooks are derivatives of. Actually, textbooks hardly touch the majority of these subjects. In Macedonia I was taught that the Communist uprisings against the Nazis in Yugoslavia turned the tide of World War Two decisively in the favor of the Allies. Turns out this didn’t wasn’t quite the case. In North America there was no mention of the fire bombings of Dresden. Nowhere was I taught what the phrase “History is written by the victors,” was really put to use in the schools I attended.

The greatest benefit I received from my years in education was my learning the English language. But, this didn’t happen through the government educational system. I took courses at a private institution, and supplemented that with exposure to the English language through movies and travel—all of it paid for by my parents. All that I could use from my government sanctioned education was my familiarity with the Latin alphabet. By the time I was done grade 4 I spoke English well enough to be sent to England for a month-long excursion. By grade 5, when English was introduced in the curriculum in my elementary school I was correcting my teacher. She was not impressed. I never figured out why. Now, I also wanted to take private music lessons, but my parents said “no.” It wasn’t because they couldn’t afford it, it was simply because they could tell how unmusical I was. They were right: I can’t even keep a beat. It would be a waste of my time and their money. I was better off playing in the street with my friends. My parents didn’t believe in the notion of gaining a degree or education for the sake having it. They needed me to learn English so that we could expand our business toward the West. In the meanwhile, there were opportunities for my brother and I to make a quick buck interpreting for my dad when he had business associates visit—or when CNN broadcasted the First Gulf War, live. He had to pay us under the table, of course, due to child labour laws. My parents never cared about my grades at school, or in my private English class. They simply laid out the opportunity which would be useless to me if I had not grasped the English language as well as I had to. I guess what I’m trying to say is that there was a purpose to my learning the English language, which is why it turned out not to be a malinvestment. Pretty much all of the rest of my formal education, which, unlike my English education, was paid for through tax coercion has been more or less useless—which is what a malinvestment is. Human action is purposeful; its purpose is to substitute a present unease with a more desirable outcome. The government fueled production of thousands upon thousands of university and college grads unnecessary to the market flies in the face of the axiom of human action, which is why North America is following in the footsteps of Macedonia, and not the other way around. Our budding politicians tell us that “we” are “investing” in “our” future through education paid for through coercion. But, a malinvestment, is a malinvestment; so was the case with Tito’s educational system, with Saddam Hussein’s Republican Army (reputed to be the 5^th best, or most vicious, or biggest in the world—or whatever they measure themselves by), with the tech and housing bubbles in the US, and so on.

Now, I’m not positive, but, I’m pretty sure that kids in North America aren’t fully literate in one alphabet after two years of schooling, let alone two; nor are they competent in the basic functions of math. That’s not the point of their being in school anyway. The point of any child’s “education” within a government sanctioned system is to create jobs and perpetuate the myths of the ruling regime—no matter what country we are talking about.

Oh, and by the way. The Macedonian government recently figured out the reason for their economic woes. They are happy to report that economic restrictions, high taxation, regime uncertainty, and a lack of security concerning private property were not among the culprits. Turns out Macedonians aren’t reproducing themselves enough. Wouldn’t you know it, Ontarians aren’t either. So we have an oversupply of teachers. And so, us Ontarians need not worry about the fact that the reason why we have the most educated cab drivers in the world, imported from raging bastions of capitalism, like Pakistan, Eastern Europe, Somalia, etc., is the same reason for which we now have the most educated bartenders, servers and cooks: central planing of education. If government could only come up with a plan for population expansion, now that would be capital!

Toronto Casino Is Not A Political Issue

[This article originally appeared on the mises.ca blog on January 23, 2013]

The idea of a casino in Canada’s largest city has been discussed on and off for the past few years, and the topic seems to have picked up ground in recent months. This week National Post, owned by Postmedia, whose president and CEO, Paul Godfrey is also chair of the Ontario Lottery and Gaming Corporation*, came out with another poll suggesting a “significant lead” (of 52-54% for vs. 42% against and 6% undecided) for the construction of a Toronto based casino. The National Post poll and ensuing article, as most other treatments of the issue within media, are centered on the “social cost” (gambling addiction, environmental impact, related industries, such as the sex industry, etc.) versus “social benefit” (jobs, tax revenues) argument. Yet, from a free market point of view, the arguments which have come to dominate the issue are completely irrelevant.

In the Province of Ontario gambling is socialized and cartelized. This means that the Provincial government possesses a licensing monopoly over all major forms of gambling. Similar to the case of alcohol, we are told that governmental restriction on gambling is for the public good; likewise, proceeds generated from gambling, just like proceeds from sales of alcohol, are used to finance the multitudes of social programs that operate with ongoing losses. It is the opinion of this writer that the latter reason is far more important to governments when it comes to deciding whether to liberalize the sale of alcohol and gambling. Much like in the case of alcohol, where government restrictions have not eradicated alcoholism; restrictions on gambling have not stopped certain persons from losing their shirts at government licensed casinos.

Ludwig von Mises argued against governmental prohibition of goods and services, as a gateway to the prohibition of thought:

The problems involved in direct government interference with consumption are not catallactic problems. They go far beyond the scope of catallactics and concern the fundamental issues of human life and social organization. If it is true that government derives its authority from God and is entrusted by Providence to act as the guardian of the ignorant and stupid populace, then it is certainly its task to regiment every aspect of the subject’s conduct. The God-sent ruler knows better what is good for his wards than they do themselves. It is his duty to guard them against the harm they would inflict upon themselves if left alone. … And why limit the government’s benevolent providence to the protection of the individual’s body only? Is not the harm a man can inflict on his mind and soul even more disastrous than any bodily evils? Why not prevent him from reading bad books and seeing bad plays, from looking at bad paintings and statues and from hearing bad music? The mischief done by bad ideologies, surely, is much more pernicious, both for the individual and for the whole society, than that done by narcotic drugs. (Human Action, p-p 728-729)

Gambling is a marketable product. It has appeal to some—as represented by a portion of the 52-54% in the NP poll; but not to all—the 42% + 6% of the same poll. In this respect gambling is not unlike exercise and fitness, professional sports, or even fast food: there is a market out there for it, but it consists of only a portion of the population. And just like with fitness and exercise, professional sports and fast food, some are occasional participants, while others live and die by it. Granted, there are voices arguing for the regulation of fast food, as well as regimentation of all aspects of life. These experiments were tried and tragically failed in the USSR, North Korea and Cambodia, to list a few.

Now, it should be clarified that not all of the 54% of the respondents to the National Post poll find gambling appealing, nor does it suggest that these 54% are the same persons that would frequent the eventual casino. The 54% represent a portion of the public that 1) like this author find no appeal in gambling, but feel that individuals ought to be left alone in making decisions as to how to spend their time and money; 2) find the idea of “job creation” appealing; 3) appreciate the additional entertainment that casinos bring; 4) are compulsive gamblers; 5) are occasional gamblers; 6) welcome the contributions to municipal, provincial and federal budgets brought on by the casino; etc. Likewise, some of the 42% + 6% include persons who, like the present author, are against the idea of a government sanctioned casino; i.e. that are against the idea as a public works project. In this respect, the NP poll, much like any other on the topic, is completely irrelevant. Such is the political approach to market issues.

The fact that gambling is socialized necessitates the anti-market approach employed in the case of the Toronto casino, where political factions face off against each other in deciding over what is fundamentally a market issue. The market approach is to know if there is enough of a market in a given geographical location to warrant an investment. If gambling were free of government interference as it should be, then there would be no need to spend “public” money to conduct surveys and propaganda for or against the issue. Private entrepreneurs would put their own money on the line according to their own forecasts of the profitability of the possible undertaking. The market has a very simple solution for any contentious issue: those who find a product or service unappealing are free to abstain, while their money cannot be used to finance an investment that they don’t approve of. The political system denies dissenters to walk away from something they stand against. Under the political system pro-lifers are forced to pay for abortions; opponents of war are coerced into financing it; anti-casino advocates have no choice but to fund it.

But, if the government restricts gambling due to its deleterious effects on society, isn’t it morally wrong for it to fill its own budgetary deficits through gambling? If the government’s argument that gambling is addictive and exploits character flaws is correct, then isn’t it immoral for it to prey on these weaknesses of its “own people”? Clearly there is some disconnect between the stated goal and reality—the same disconnect that is present in all “sin taxes.” As with all “sin taxes,” governments claim that a good or service must be prohibited due to its negative effect on society; yet they happily designs ways to increase the sales of these goods or services due to the fact that tax revenues collected from these activities allow them to fund vote-buying programs such as socialized healthcare, daycare, education, etc.

*Surely there is no connection here!

Increasing Number of Canadians Can’t Afford to Invest

[This article originally appeared on the mises.ca blog on January 16, 2013]

Yahoo! Canada reports something that comes as no surprise at all to Austro-libertarians:

More Canadians say they simply can’t afford to invest, making it tougher to build a retirement nest eggs [sic.], according to a poll released on Tuesday by Scotiabank.
In the bank’s annual investment poll, 64 per cent of Canadians said affordability continues to be a high barrier to investing more — a trend that has been growing over the past couple of years — as the March 1 registered retirement savings plan (RRSP) deadline looms, up from 59 per cent in 2011.

As usual the problem, and thus the solution, is sought after in all the wrong places. The suggestion is that investments are too expensive in absolute, rather than relative terms:

“The key is to get a solid financial plan in place to help overcome affordability issues,” says Mike Henry, Scotiabank’s senior vice president and head of retail payments, deposits and lending.

“Austrian” insights suggest otherwise: taxes in all their various forms are too high, which results in an inability to save. Investment would not be too expensive if people had the money for it. Here’s what Henry Hazlitt had to say about the power of taxation concerning production and investment:

There is a still further factor which makes it improbable that the wealth created by government spending will fully compensate for the wealth destroyed by the taxes imposed to pay for that spending. It is not a simple question, as so often supposed, of taking something out of the nation’s right-hand pocket to put it into its left-hand pocket. … This is to talk as if the country were the same sort of unit of pooled resources as a huge corporation, and as if all that were involved were a mere bookkeeping transaction. The government spenders forget that they are taking the money from A in order to pay it to B. Or rather, they know this very well; but try to dilate upon all the benefits of the process to B, and the wonderful things he will have which he would not have had if the money had not been transferred to him, they forget the effects of the transaction on A. B is seen; A is forgotten. (Economics In One Lesson, pp. 24-25)

Who is “A” and who is “B”? “A” is the producer—the earner; while “B” is the consumer: here we have a re-distribution of incomes. “A” is the person who is being disabled to save his own earnings in order to invest. But it’s worse than that. The recipient of government’s spending of “A’s” money, “B,” does not save what he receives either, for the simple reason that there is not enough to pay left over after his immediate consumption. Furthermore, “B” is given a signal that he need not worry about saving and investment (i.e. the future), since there will always be more of “A’s” money forthcoming.

In our modern world there is never the same percentage of income tax levied on everybody. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only 60 cents of every dollar it gains, and when it cannot offset its years of losses against its years of gains, or when it cannot do so adequately, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum risk. People who recognize this situation are deterred from starting new enterprises. Thus old employers do not give more employment, or as much more as they might have, and others decide not to become employers at all. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. The result in the long run is that consumers are prevented from getting better and cheaper products, and that real wages are held down. (Economics In One Lesson, pp. 25-26)

And low real wages make investment too expensive.
 

The World of Tomorrow Demands Private Property of the Means of Production

[This article originally appeared on the mises.ca blog on January 13, 2013]

For all their love of technology and science, people (mostly those comprising the middle class) have morbid fears that someday technology will make them obsolete and thus, jobless. It is one of those economic paradoxes which prevail in mainstream economics, such as the notion that currency debasement and the destructive power of war lead to prosperity. In the same fashion, technology—the very thing that gave rise to the middle class through inventions such as the assembly line—is seen as the eventual tool of its demise. Understandably enough, the image of smart machines and robots manning every job imaginable can be a scary prospect to the average person who sees himself outcompeted by tireless, inert chunks of steel. There is no room for the non-capitalist in a world where he cannot rent his services for a wage. To make things worse for the average person, mainstream economists tend to support this view.

Since the onset of the Great Depression cranks in what then became and remained the orthodox view of this science have spoken of a “mature economy,” and blamed the speed of technological progress for most downturns and recessions, which inevitably lead to spikes in unemployment. A recent example is given us by Paul Krugman, citing a certain Robert Gordon of Northwestern University, who

created a stir by arguing that economic growth is likely to slow sharply — indeed, that the age of growth that began in the 18^th century may well be drawing to an end. … Mr. Gordon points out that long-term economic growth hasn’t been a steady process; it has been driven by several discrete “industrial revolutions,” each based on a particular set of technologies. The first industrial revolution, based largely on the steam engine, drove growth in the late-18^th and early-19^th centuries. The second, made possible, in large part, by the application of science to technologies such as electrification, internal combustion and chemical engineering, began circa 1870 and drove growth into the 1960s. The third, centered around information technology, defines our current era.

There is much wrong with the orthodox view, starting from the fact that the mainstream view tends to see recessions as a result of unemployment, when in reality it is the other way around. Likewise, and “Austrian” economists keep repeating this, technological progress is not to be feared but to be embraced, for it brings efficiency and releases labor and capital to be employed in other, less developed fields. In doing so, technological progress brings prosperity—not just subsistence—to an increasing number of people. However, there is truth in the notion that there will be no room left for the non-capitalist in the completely or mostly computerized world toward which technological progress invariably tends.
Let us illustrate the Keynesian view on technological progress by quoting the most prominent of all Keynesians of our day.

The long-term projections produced by official agencies, like the Congressional Budget Office, generally make two big assumptions. One is that economic growth over the next few decades will resemble growth over the past few decades. … On the other side, however, these projections generally assume that income inequality, which soared over the past three decades, will increase only modestly looking forward. On the other hand, if income inequality continues to soar, we’re looking at a dystopian, class-warfare future — not the kind of thing government agencies want to contemplate. … So machines may soon be ready to perform many tasks that currently require large amounts of human labor. This will mean rapid productivity growth and, therefore, high overall economic growth. But — and this is the crucial question — who will benefit from that growth? Unfortunately, it’s all too easy to make the case that most Americans will be left behind, because smart machines will end up devaluing the contribution of workers, including highly skilled workers whose skills suddenly become redundant. [Emphasis added]

That technological progress is necessary for economic progress is evident wherever one turns: a forklift manned by a single person loads a truck in a quarter hour, where it may take a dozen people an hour to do the same job; computers allow accountants to enter values into matrices and get results within seconds, where it may take them the better part of the day to complete these tasks manually; motorized vehicles get people from place to place, not only faster, but also allow those previously unable to make long trips by foot or on horseback to comfortably complete these journeys. Technology also allows for more egalitarianism in the workplace: where in the past only strong men at the peak of their physical fitness could, say, dig ditches, today a physically unfit man or woman long past their prime can operate a bulldozer and outperform Adonis-like men by the scores. One can go on listing examples indefinitely.
Yet, while fully embracing these benefits, politicians, mainstream economists and other cranks turn around and blame the sources of these benefits for the plight of the unemployed. To the politician and the Keynesian economist jobs are a means in and of themselves, not a means to an end. According to them technology has already “destroyed” countless jobs, many of which the government has had to reproduce in the public sector; and the move to full robotization is sure to create a post apocalyptic world where only a handful of individuals—the wealthy—will have everything while the working classes, nothing. Continuing with this projection, income inequality will only increase, rather than decrease. However, if this were true, there would be no working classes altogether. They would be eradicated; extinct like the dodo, for if left jobless and without property, how are these people supposed to feed themselves? Thus, in the final analysis, rather than bringing further income inequality, the future dystopian world of full computerization is sure to bring no income inequality i.e. to completely eradicate the wealth “gap” that leftists worry so much about.
That technological progress does not itself represent an obstacle to human welfare is self evident. Yet, by saying that, we are not addressing the issue of income inequality raised by Professor Krugman, nor do we solve the problem posed by a world of constantly decreasing workplaces. Certainly staying the course of currency debasement and the confiscation of income and inheritance, presently taken by nearly every government in the world, is more likely to lead to Krugman’s dystopian future than to any other alternative. Let us discuss these issues in turn and present some alternative possibilities.
To be sure, because people’s abilities, needs and wants differ from person to person, incomes will never be totally equal in a free society. All things equal a janitor employed by Princeton University will never be able to make an income equal to that of a professor hired by the same university, simply because the services of the janitor are less valuable and can be performed by more or less any person. A professor has specific skills that not every person possesses. Would Professor Krugman not object to equalizing his own salary with that of a janitor by having their annual incomes combined and divided by two? One is inclined to believe that the Professor would not be motivated to perform all the duties his job requires (teaching, grading, upgrading his knowledge, adding to his credentials, etc.) if he were able to make the same income by simply sweeping floors. At the same time there is nothing that the janitor could add to the value of his product, even if his income doubled. His marginal value productivity remains the same. Inequality in incomes gives impetus to people to seek out better jobs, which in turn means self improvement, as well as more and better goods and services on the market. Thus, we see that income equality is a utopian idea no sound economic policy can aspire to achieve. Yet, by reaching this conclusion we do not address the worry of the future fully computerized, mostly jobless society which Professor Krugman has us worried about.
We stated above that in the world of full (or almost full) automation, toward which the progress of technology tends, there will be less and less room for the non-capitalist. Most futurists tend to depict the society of the future as completely communistic, but “Austrians” have the insight that economic calculation is impossible in a socialist commonwealth. Thus, a communistic society will tend to move backward technologically, as the history of Soviet “War Communism” (1918-1921) has demonstrated. And since full automation does not necessarily mean entry into an era of post-scarcity, economic calculation will still be essential even in the highly automated world that we are imagining will one day become reality. Thus, the question that needs to be answered is: How is the average person who is not inclined to entrepreneurship to become a capitalist?
In discussions on currency debasement through inflation, Professor Mises pointed out that in the modern economy the bulk of lenders does not consist of the wealthy, but of the middle classes. In discussions on entrepreneurship, Mises pointed out that:

The moneylender is always an entrepreneur. Every grant of credit is a speculative entrepreneurial venture, the success or failure of which is uncertain. The lender is always faced with the possibility that he may lose a part or the whole of the principal lent. His appraisal of this danger determines his conduct in bargaining with the prospective debtor about the terms of the contract. (Human Action, p. 536)

Thus, currency debasement, as it harms savers and lenders, combined with taxation ends up harming the (working) middle classes at the expense of borrowers—which in our time mostly consist of the banking sector and the government. Likewise, progressive taxation works predominantly to prevent persons who currently own little capital to accumulate more. Indeed, progressive income taxation is perhaps the biggest obstacle a person needs to overcome if he is to move up along the wealth ladder. These policies result in low and middle class individuals being prevented from accumulating enough savings to turn into meaningful investment, and push income and wealth gaps wider rather than closer.
Keynesian doctrine, to which Krugman subscribes, recommends borrowing and spending, which one presumes is to lead to the above discussed socialization of the means of production. That is to say, that as job disappear, governments begin to confiscate more and more of the privately held enterprises that are profitable; or allow these enterprises to remain privately owned, but drastically increase the rate of taxation upon the producers. But here we are met with more or less the same problem as in a proper socialist commonwealth.

In contrast, the “Austrian” prescription is simple: full privatization of the means of production by saving and investment. Average persons who lack entrepreneurial acumen still have the opportunity to become capitalists by investing their savings through the purchase of shares in ongoing or startup businesses. Presently many do, and as jobs become scarcer for humans, the most obvious way for people to earn incomes appears to be through the incomes derived from the work of machines. In fact, this is already how many people derive part or all of their incomes. For instance the owner of a trucking company derives income from the work performed by the driver, and the work performed by the truck; likewise the owner-operator of a digital print-shop derives income from the work performed by the printer.
Furthermore, the stock markets play a key role in the transformation of non-capitalists into capitalists. Here is an opportunity for all to become owners of the means of production. In doing so, the problem of economic calculation that exists under socialism is to be evaded. While every investment is a speculation, the nature of the stock market is misrepresented when it is referred to as a gambling institution. Writing about the nature of stock markets, Mises explained how investors direct companies toward profitability:

Even financial writers fail to realize that stock exchange transactions produce neither profits nor losses, but are only the consummation of profits and losses arising in trading and manufacturing. These profits and losses, the outgrowth of the buying public’s approval or disapproval of the investments effected in the past, are made visible by the stock market. The turnover on the stock market does not affect the public. It is, on the contrary, the public’s reaction to the mode in which investors arranged production activities that determines the price structure of the securities market. It is ultimately the consumers’ attitude that makes some stocks rise, others drop. Those not saving and investing neither profit nor lose on account of fluctuations in stock exchange quotations. The trade on the securities market merely decides which investors shall earn profits and which shall suffer losses. (Human Action, p. 517)

Among other things, the world of tomorrow will require deregulation of business, and the stock markets in particular. New stock markets will need to emerge and entry in them will need to be free from government interference. Yet, increasing government regulation of the stock markets, which decreases the number of participants and increases the cost of doing business through these institutions, make it more difficult for persons to enter them. This way middle class non-capitalists are prevented from taking the necessary steps that the going trend of technological progress requires them to take: to become capitalists.

Poor insights into economic truths have prevented Man from maximizing the potential of his technological state. Technology has, much like the market system (capitalism), been unjustly blamed for the outcomes brought upon by government intervention, and economic cranks like Krugman are only perpetuating these misconceptions. Time and time again the free market in a system of private property of the means of production has proven to be not the best, but the only means toward progress and sustainable prosperity. So it has been, and so it shall be for as long as there is a state of scarcity.

On the Economic Calculation of “Fair Share”

[This article originally appeared on the mises.ca blog, on January 6, 2013]

When one speaks of a concept it is important that it is properly qualified so as to be correctly understood. Failure to accomplish that makes impossible for either the problem to be identified or a desired solution to be found. Perhaps this is why politicians have a tendency to speak of ill-defined and oft muddled concepts, like “social justice,” “a living wage” or “fair share.” These concepts are impossible to define in a way consistent with how they are represented, since their proponents represent them as definite, rather than abstract matters. In our time the demand for “the rich” to pay their “fair share” trough higher taxes has become a standard war cry broadcast from every public and crony source of media. Yet, there is no objective means of defining either what constitutes “the rich” or “fair share.” Politicians and demagogues alike may debate these issues for as long or as short as they may desire, but whatever level they agree on is sure to be arbitrary, save for the only objective conclusion that such concepts are impossible to qualify.

Given a communistic ownership of schools, roads, streets, parks, healthcare institutions, libraries, schools and universities, how is one to be able to calculate each person’s use—“fair share”—of each? What share of a road belongs to a particular taxpayer? What usage is “fair share”? How many books in any given library belong to a specific person and which specific books? Who owns the walls and who owns the library’s carpets? Does the person paying more in taxes own more of the roads, libraries or schools than the person who pays less? What of the person who pays no tax at all? What of the person who desires to use his claim on a gymnasium, and of nothing else? Does the state university graduate owe a particular service to the taxpayer that subsidized or paid for the operation of the university? A typical example of who “fair share” proponents see the world is given to us by US Sen. Elizabeth Warren:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for.

As communistic concepts go, the idea of the “fair share” is simply a reiteration of the “from each according to his abilities, to each according to his needs” idea. The first question that poses itself is who is “the rest of us,” and how much did each of “the rest of us” contribute to the end of providing the goods and services Warren talks about? Furthermore, how are we to know that “the rest of us” get a market return on their investment in the public roads, schools, police and firefighting forces? In presenting the issue like that, we discover that we are unable to perform the critical task of economic calculation.
We will not even try to right everything that is wrong with Mrs. Warren’s statement and reasoning, just some of it. (Here we will ignore that fact that the majority of taxes in the US and Canada are paid by a very small percentage of the population.) According to Warren’s logic, a shovel making entrepreneur who never attended a university, and built up his business through his own work, acumen and sacrifice, saving and wise investment, still reaps the benefits of the university he never attended, by virtue of the fact that someone who did can now be employed by the shovel maker as an accountant. While true that the shovel maker reaps the benefits of the accountant’s services, if he is hiring the accountant, it must follow that the entrepreneur is paying for those services. Once the shovel maker puts the university graduate under his employ, the first pays the second for the services he performs for him.

Despite their outward dissimilarity in how they accumulated their abilities, the university graduate is no different from the shovel maker who learned his trade outside the educational system. The university graduate went to school for four years and accumulated knowledge. The shovel maker paid for his training either through the process of apprenticeship or through trial and error, or perhaps even attended a shovel making school. Either way, the shovel maker gave up some of his own savings or earnings in order to find more efficient ways of producing a more marketable product.

If the graduate was paid to be educated by virtue of taxpayer subsidies, and then paid to dispense his knowledge, he is investing nothing and gaining everything. Who owes what to whom here? Is the shovel maker—a taxpayer—part of “the rest of us” or is it the tax consuming university graduate? If the goods and services listed by Warren are paid for by taxes, then contributing to the tax revenues of a jurisdiction makes one a member of “the rest of us”—the body of people that paid for the goods and services in question. Yet, still we cannot calculate to what extent the shovel maker’s taxes paid for the accountant’s education, and what portion of the shovel maker’s taxes contributed to road construction.
What is the “fair share” that the university graduate owes to the shovel maker? Here we need to extend the scope, and ask “What is the ‘fair share’ that the shovel maker owes to the baker for the construction of the roads?”; “Why not have shovel maker pay the baker for the use of the road?”; “What is the ‘fair share’ that an obese alcoholic owes to a health-nut?” and so on. While it is possible to calculate the university graduate’s marginal value product in his function as an accountant employed by the shovel maker, it is not possible to calculate how much this shovel maker contributed to the training and education of this particular university graduate. The same principle can be applied to roads, libraries, police and fire departments and any other “public” good or service. It follows that the “fair share” doctrine is an indefinable political tool intended to be used as needed, when needed, by office seekers. It is not a policy to be sought in order to bring equality under the law or economic prosperity, as it is a concept that runs against the principle of private property.