Posts tagged with: free-market

In a political climate dominated by debates about individual mandates and restrictions on religious freedoms, an issue like road privatization isn’t likely to be on the top of anyone’s list of major concerns. But the excellent post on “The Mirage of Free-Market Roads” by Timothy B. Lee, a writer with Ars Technica and the Cato Institute, is worth reading even if you don’t care about toll roads. Lee provides an intriguing example of why we need to think clearly about how we apply principles to policy:
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What does Lent, which starts today, have to do with markets and morals (and Cuba)? Sociologist Margarita Mooney explains:
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I can always find common ground with the Distributists I meet. We want to replace the government-corporate cronyism that characterizes so much of our current economic system. And we want our culture to raise up young people with the skills, virtues and freedom to accumulate productive capital and invest it in ways that promote human flourishing for themselves and others.

But then there’s the question of centralized political power in the economy. Sometimes when Distributism is described, you get the sense that Distributism and one of its leading early proponents, Hilaire Belloc, have always been committed to a largely grass roots, bottom-up strategy of change. But Belloc himself painted a different picture in An Essay on the Restoration of Property:

We must seek political and economic reforms which shall tend to distribute property more and more widely until the owners of sufficient Means of Production (land or capital or both) are numerous enough to determine the character of society…. The effort at restoring property will certainly fail if it is hampered by a superstition against the use of force as the handmaid of Justice. (P.29)

So when I have a conversation with Distributists, the first thing I like to clear up is what they mean by Distributism. Do they merely want people and companies to model best-Distributist practices voluntarily, so as to propagate Distributist ideas and behaviors in a free marketplace of ideas? Do they just want to get the federal government out of the job of picking winners and losers in the economy? Or do they also want to vote in politicians who will arrogate to the federal government expanded powers to seize and redistribute private property and keep it more evenly distributed?

Until those questions are cleared up, the opportunities for muddle and fog are just too great to bother wading in.

Hilaire Belloc, An Essay on the Restoration of Property, (Norfolk, Virginia: IHS Press, 2002).

Noted NYU law professor and free-market advocate Richard Epstein has written a provocative piece titled “How is Warren Buffett like the Pope? They are both dead wrong on economics.” Here’s the money quote:

The great advantage of competition in markets is that it exhausts all gains from trade, which thus allows individuals to attain higher levels of welfare. These win/win propositions may not reach the perfect endpoint, but they will avoid the woes that are now consuming once prosperous economies. Understanding the win/win concept would have taken the Pope away from his false condemnation of markets. It might have led him to examine more closely Spain’s profligate policies, where high guaranteed public benefits and extensive workplace regulation have led to an unholy mix of soaring public debt and an unemployment rate of 20 percent. It is a tragic irony that papal economics mimic those of the Church’s socialist opponents. The Pope’s powerful but misdirected words will only complicate the task of meaningful fiscal and regulatory reform in Spain and the rest of Europe. False claims for social justice come at a very high price.

I blogged about Pope Benedict’s comments last week, and while I don’t disagree with Epstein’s main point, I wonder if he actually means to deny the importance of ethics in economics. The Pope wasn’t saying that there should be no fiscal or regulatory reform, but that such reform must consider future, and not merely present, well-being, which is actually the impetus for policies such as liberalizing labor markets. And unlike Warren Buffett, the Pope wasn’t calling for higher taxes on the rich.

In short, the Pope was making a larger ethical argument that can certainly include the much-needed reforms Epstein cites. Since the Pope isn’t an economist and doesn’t pretend to be one, we should listen to his moral teachings and try to incorporate them with sound economics, rather than disparage them as economically damaging. It is true that while Catholic social teaching stresses the importance and necessity of profits, far too many Catholic and other religious leaders neglect how profits are actually made and distributed – which Epstein briefly and usefully describes – and in this sense, it is far too easy for moralists to pit profits versus people. It would make more sense to try to relate how profit maximization can and often does contribute to the common good, but it can’t do so without ethical men and women who won’t lie, cheat and steal.

I’d like to think that both the Pope and Richard Epstein are right.

Gas prices are beginning to come down, but for many people prices are not falling fast enough.

The pain caused by high gas prices is spread widely, but it is felt intensely on the working poor and the unemployed who are trying to find a job.

A recent story in the Chicago Tribune highlights Alicia Madison, a resident of the Chicago suburbs who is unemployed. Madison is looking for a job, but because of high gas prices she, at times, cannot even afford to go to an interview:

Before a recent job interview, Alicia Madison climbed into her 2001 Ford Explorer and realized her gas tank was empty, just like her bank account.

Unable to afford gas for the 25-mile round trip from her Glen Ellyn home to the Naperville business, Madison was forced to reschedule. She now relies on gas vouchers issued by a nonprofit agency to drive to interviews.

Madison, a certified nursing assistant unemployed three months, is desperate to return to work, but not desperate enough to take a job too far from home with gas prices at record highs.

“I have to be conscious of where I’m looking and how far it’s going to be,” said Madison, 23, a single mother on food stamps. “I don’t want to work just to pay for gas.”

Her dilemma underscores the problem that steep gas prices have created for the unemployed: They need income to fill their tank but can’t afford to take jobs with long commutes.

Some job seekers say they are more selective now, curtailing face-to-face networking and ignoring some opportunities based on the high transportation costs.

As the article also points out, job seekers have to decide if the pay for a potential job is enough for them to make the daily commute. Is it worth working eight or nine hours a day when a good chunk of the earnings goes toward paying for the gas needed to get to work?

The hardships for low income workers are further explained by Greg McBride, Senior Financial Analyst at Bankrate.com. According to McBride, 72 percent of Americans who make less than $50,000 are cutting their discretionary spending. While cutting discretionary spending is what is needed to be a good financial steward when money is tight, McBride explains that higher gas prices hurt economic growth because they cause a decrease in consumer spending.

As Ray Nothstine argues in “High Gas Prices Devastating to Poor”, we should do everything we can to lighten the burden on the poor and lower gas prices. This will aid everyone, but especially those who are the most adversely affected by the high gas prices. One way to lower gas prices is to look no further than the free market, which is articulated again by Nothstine:

While we are bound to labor, 17th century Bible commentator and Presbyterian minister Matthew Henry reminds us, “Let not us, by inordinate care and labor, make our punishment heavier than God has made it; but rather study to lighten our burden.”

Similarly, John Paul II declared, “Besides the earth, man’s principal resource is man himself. His intelligence enables him to discover the earth’s productive potential and the many different ways in which human needs can be satisfied.”

This is good advice. The free market helps to sort out those effective alternatives, encouraging us to drill for oil responsibly at home, and protecting us from costly utopian schemes that drive up energy prices. The market is also our best hope for developing renewable energy technologies that are economically feasible.

My commentary this week focuses on the how the rise in prices at the pump is impacting the poor. Currently, in many areas of the country a gallon of gas is now priced over $4. I also argue that we need a more coherent energy policy coming from leaders in Washington. Part of the argument against drilling in ANWR (Arctic Refuge) over a decade ago was that the oil wouldn’t hit the market for 10 years. That’s a very shortsighted way of thinking about meeting our energy needs. We need leaders in Washington to work for us not against us.

Perhaps now a forgotten event, former Senator Jesse Helms in 1982 waged a dramatic battle against a federal gasoline tax hike of five cents. The tax hike had bipartisan support, including the support of President Ronald Reagan. However, Helms fought virtually alone with only a small cadre of tax opponents. He eventually lost on the measure but as he was traveling back to North Carolina he stopped at a rural Hardees restaurant. Truckers recognized Helms and he was greeted with thunderous applause for his efforts. Helms stood up not just for business interests like the trucking industry, but the rural poor, who are hit hardest by increases in gas prices. The current federal tax on a gallon of unleaded gasoline is 18.4 cents per gallon and the mean state tax on a gallon is 26.6 cents. My commentary is printed below:

High Gas Prices Devastating to Poor

by Ray Nothstine

Religious leaders staging a fast over budget cuts on social spending have not offered to fast over higher gas prices, even though the impact on the poor is devastating. In fact, there is very little focus on the rise in energy costs, with political and religious leaders remaining largely silent. Yet, when they speak on the issue, they often do not have your best interests in mind.

At a recent visit to a wind turbine plant, President Obama responded to one questioner’s concern about rising prices by laughing and saying, “If you’re complaining about the price of gas and you’re only getting 8 miles per gallon, you might want to think about a trade-in.” The president didn’t say which vehicle he was talking about. But a 2003 Hummer H2, rated among the worst for gas mileage, scores 10-14 miles per gallon.

But for most people a truck that is getting 8 miles per gallon is the one that delivers their food. This is true too for charitable food banks as delivery costs cut into the number of people they can feed. Food banks also depend on volunteer drivers to deliver meals to shut-ins.

Many individuals and families are already curtailing discretionary spending to save for gas. In turn, more money and jobs exit the U.S. economy for oil exporting countries.

The national average for a gallon of gas is currently $3.79. Some American cities are well over $4 per gallon. The price, up almost a $1 since last year at this time, has some experts forecasting $5 for Memorial Day.

While oil markets can be complex, free market alternatives offer better relief than heavily subsidized “green energies” propped up by government. A new study in the United Kingdom by Stuart Young Consulting and the John Muir Trust again pointed out what previous studies have found: Wind output is often less than anticipated and is an unreliable source of energy.

Likewise, electric cars are rejected by consumers shopping for fuel economy—even though they are subsidized with tax credits. Rachel Slobodien of the Heritage Foundation points out that people are instead buying more affordable super fuel economy cars with traditional engines that get upwards of 50 miles per gallon.

Some lawmakers from both parties in oil producing states are asking for more domestic drilling, more refineries, and uniform state standards on gasoline mixture requirements. All of these proposals will help lower prices and could add hundreds of thousands of American jobs.

President Obama has responded by saying an increase in domestic drilling “will help some.” He also signaled he may be willing to tap more of the Canadian oil sands, but at the same time, he wants to cut oil imports by one-third.

High prices at the pump can offer a moment to pause too and remember a spiritual truth. The price of gas not only draws attention to the Middle East, but it draws our attention back to the Garden of Eden that tradition places in that oil-rich region.

Oil itself is decayed vegetation and plankton that has seeped into the ground, forming over millions of years. At one time wildlife was abundant and forests were especially lush in the garden. In the creation story we are reminded that after the fall of man, we have to toil for resources (Genesis 3:19).

While we are bound to labor, 17th century Bible commentator and Presbyterian minister Matthew Henry reminds us, “Let not us, by inordinate care and labor, make our punishment heavier than God has made it; but rather study to lighten our burden.”

Similarly, John Paul II declared, “Besides the earth, man’s principal resource is man himself. His intelligence enables him to discover the earth’s productive potential and the many different ways in which human needs can be satisfied.”

This is good advice. The free market helps to sort out those effective alternatives, encouraging us to drill for oil responsibly at home, and protecting us from costly utopian schemes that drive up energy prices. The market is also our best hope for developing renewable energy technologies that are economically feasible.

We know too well that leaders in Washington reflect the fall of man, but they are not working to lighten our burden right now. As the price of gas approaches $5 per gallon, perhaps its rise may help us to refocus on new ways to meet the needs of those who have the most to lose from rising fuel costs.

I think that the oppression threatening democracies will not be like anything there has been in the world before….

I see an innumerable crowd of men, all alike and equal, turned in upon themselves in a restless search for those petty, vulgar pleasures with which they fill their souls….

Above these men stands an immense and protective power which alone is responsible for looking after their enjoyments and watching over their destiny. It is absolute, meticulous, ordered, provident, and kindly disposed. It would be like a fatherly authority, if, fatherlike, its aim were to prepare men for manhood, but it seeks only to keep them in perpetual childhood; it prefers its citizens to enjoy themselves provided they have only enjoyment in mind. It works readily for their happiness but it wishes to be the only provider and judge of it. It provides their security, anticipates and guarantees their needs, supplies their pleasures, directs their principal concerns, manages their industry, regulates their estates, divides their inheritances….

Thus, it reduces daily the value and frequency of the exercise of free choice; it restricts the activity of free will within a narrower range and gradually removes autonomy itself from each citizen. Equality has prepared men for all this, inclining them to tolerate all these things and often even to see them as a blessing.

Thus, the ruling power, having taken each citizen one by one into its powerful grasp and having molded him to its own liking, spreads its arms over the whole of society, covering the surface of social life with a network of petty, complicated, detailed, and uniform rules through which even the most original minds and the most energetic of spirits cannot reach the light in order to rise above the crowd. It does not break men’s wills but it does soften, bend, and control them; rarely does it force men to act but it constantly opposes what actions they perform; it does not destroy the start of anything but it stands in its way; it does not tyrannize but it inhibits, represses, drains, snuffs out, dulls so much effort that finally it reduces each nation to nothing more than a flock of timid and hardworking animals with the government as shepherd.

I have always believed that this type of organized, gentle, and peaceful enslavement just described could link up more easily than imagined with some of the external forms of freedom and that it would not be impossible for it to take hold in the very shadow of the sovereignty of this people.

Alexis De Tocqueville, 1840.

Democracy in America, pp. 805-6.

Blog author: rnothstine
Monday, May 24, 2010
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At the start of Washington’s unprecedented federal interventionism into the private sector and on the heels of a Newsweek cover heralding that “We Are All Socialists Now,” there was considerable angst that free market defenders had forever lost the public. Not so, says American Enterprise Institute President and author Arthur Brooks. Brooks says “America is a 70 – 30 percent nation in favor of free enterprise,” but the forces of statism have capitalized on the financial crisis and have an entire arsenal of federal power at their disposal to advance their agenda. This is one of the overarching themes in The Battle: How the Fight Between Free Enterprise and Big Government will Shape America’s Future.

What Brooks has crafted is a spirited defense of the free market economy and a challenge to its defenders to think more holistically, to be aware of spiritual value in a free economy. To fail to do so, would only sustain the well worn narrative of defenders of markets as greedy misers and swindlers.

One of the strengths of Brooks’s new book is the ability to not only explain the financial crisis, but to offer a superb description of the government’s role in the crisis. The problems in the mortgage industry are clearly linked to the federal pressure exerted on Fannie Mae and Freddie Mac to issue high risk loans. And if the financial crisis and mortgage industry are explained well by Brooks, so too is his analysis of the new health care law. Brooks explains that the bill is about government control and redistribution saying, “Obama and many in Congress even oppose the small degree of control that would come from letting Americans shop for health care plans from out-of-state insurance companies.”

The 30 percent agenda is what Brooks is most adept at exposing. “What do they believe to be the greatest problem of poor people in America? Insufficient income. What would be evidence of a fairer society? Greater income equality,” says Brooks. He understands that money is not always the root problem but there are many deeper life issues when it comes to poverty. Brooks’s account is the kind of book that draws a line in the sand, explaining why the stakes for the future of this country are so great. He, like many Americans, laments the slide of the country towards a European style of democratic socialism.

Another strength Brooks offers is the ability to connect free market principles with the founding of this nation and our deeper culture. “Free enterprise is not simply an economic alternative. Free enterprise is about who we are as a people and who we want to be. It embodies our power as individuals and our independence from the government,” says Brooks.

Perhaps Brooks’s greatest skill is articulating the moral case for the free market. He doesn’t just offer generic platitudes but understands deeper principles of human flourishing. Brooks talks about the value of “earned success.” Earned success is the ability to create value honestly and it taps into the entrepreneurial spirit. He also defends the dignity of the human person when he talks about fairness, especially the importance of fairness of opportunity over fairness of income, which is preferred by the 30 percent coalition. The human person rather should have an inalienable right to the pursuit of happiness, and creative space protected from the whims of the state.

At the closing of the book Brooks offers an inspirational defense of the greatness of this country. He contrasts the importance of principle over political parties, bailouts, and political power. Since this book is so aggressive in its denunciations of the agenda of the 30 percent coalition, it may not change many minds, but if 70 percent already side with Brooks, we should look forward to the mobilization of their voices.

[Here is a piece by Arthur Brooks in The Washington Post related to his book titled “America’s new culture war: Free enterprise vs. government control.”]

This week’s reappointment vote for Fed Chairman Ben Bernanke has created some strange bedfellows in Washington. A muddled middle of Republicans and Democrats supports the Keynesian’s reappointment, but the real odd couples are among the opposition. For different if overlapping reasons, free market proponents and far-left figures such as democratic-socialist Bernie Sanders of Vermont are both convinced that Bernanke has done much to hurt our economy, particularly those in the bottom half of our economy.

Desmond Lachman of The Enterprise Blog observes:

Throughout 2006, when the worst of the sub-prime lending was taking place, Bernanke was conspicuously silent in sounding the alarm about the dangers of the U.S. housing bubble. Similarly, he was painfully slow in recognizing how severe the fallout from the bursting of the housing bubble would be….

If there is one more item that should sink Bernanke’s bid for a second term it has to be his recent statement that the Federal Reserve’s extraordinarily low interest rate policy between 2001 and 2004 contributed little to the creation of the largest U.S. housing market bubble on record. The Senate would do well to ask itself whether the economy’s interests would be best served by again choosing a Fed chairman who seems to have learned so very little from the Federal Reserve’s past monumental mistakes.

A sign that Bernanke’s reappointment really may be doomed: John McCain, whom many would characterize as a member of the muddled middle, also has come out against Bernanke. Political calculations may lead others to follow. For instance, if the new senator from Massachusetts, Scott Brown, wants to reinforce his strong crossover appeal, opposition to Bernanke offers an uncommon opportunity: Both working class Democrats and limited government conservatives reject Bernanke’s vision of Uncle Sam playing wet nurse to Wall Street.

As I wrote recently, our economy would be best served by a Fed Chairman who will let the market of lenders and borrowers guide interest rates, and who understands that unproductive companies should be allowed to go bankrupt. What’s useful in those companies doesn’t disappear in a bankruptcy. The valuable assets are purchased and put to better use by more productive companies. And when interest rates are allowed to float upward to reflect the scarcity of current savings, people will be more careful what they borrow for, while others will be enticed to save more, attracted by the higher interest rates paid for bonds. This, in turn, will boost available capital for longer-term business ventures aimed at enhancing our productivity.

Consider the short depression of 1920. A decade before the Great Depression, World War I had just ended and a flood of American soldiers returned home in search of work. Meanwhile, the Federal Reserve, having roughly doubled the money supply during the war, now put the brakes on the easy money by moving interest rates closer to where they might sit if simply left to market forces. The government also largely refrained from bailing out failed businesses or trying to juice the economy with big stimulus packages.

All of this is the opposite of what the Keynesians recommend in an economic slowdown. It’s the opposite of the Keynesian strategy pursued by both FDR and Hoover during the Great Depression. And it’s the opposite of what Chairman Bernanke has sought to do.

So how did the depression of 1920 play out? The readjustment to a peacetime economy was severe. Production fell by some 20%. Unemployment shot past 11%. But then the depression quickly reversed itself.

Many companies had gone broke, but their useful assets were sold to well-run companies. During the early phase of the contraction, goods and savings were tight, but the higher interest rates signaled to people, “Hey, if you want to borrow money, you’d better have a good, productive use for the money because you’re going to have pay a premium for it” — not because of a bunch of mean old capitalists but because there wasn’t a lot of savings to loan out right then. People got the message. Money got loaned to the most productive enterprises, and before long, the economy was humming again. The unemployment rate dropped below 7% in 1922, and below 3% in 1923. The government allowed the free market to readjust itself, and it quickly did.

This is the strategy recommended by the Austrian school of economics (which incidentally has more adherents in the United States than in Austria). The Austrian school is the polar opposite of the Keynesian school. The Austrian school predicted the Great Depression when others were preaching permanent prosperity. And it predicted our current recession when Bernanke the Keynesian was saying everything was right as rain.

All of this should give the Senate pause.

Blog author: jwitt
Monday, December 7, 2009
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My essay in today’s American Spectator Online looks at why Ben Bernanke should not be confirmed to a second term as Chairman of the Federal Reserve:

Two planks in Bernanke’s recovery strategy: Expand the money supply like a banana republic dictator and throw sackfuls of cash at failed companies with a proven track record of mismanaging their assets. The justification? According to the late John Maynard Keynes, this is supposed to restore the “animal spirits” of the cowed consumer, the benighted creature who foolishly imagines that after a period of prodigality and mismanagement, maybe a country should rediscover its inner Dave Ramsey.

The full essay is here.