"You either write your own script, or you become an actor in somebody else's script." -- John Taylor Gatto

Sunday, December 20, 2009

All of the Cookies are not in the Jar

Adam Smith. Karl Marx. Frederic Bastiat. John Maynard Keynes. Milton Friedman. Murray Rothbard. Paul Samuelson. No, these are not name contenders for the new family pets. These are some of the economists who have become dinner table conversation at our house this year. We discuss which ideas we like and we smile and laugh. We discuss which ones we don’t like and we boo and hiss. We talk about which ideas got used and which ones didn’t. We dream about what it would be like if we actually tried some of the better ones. We discuss which ones we are living and really shouldn’t be. So, pull up a chair and join in.

The one concept of Keynesian economics, the theory introduced by John Maynard Keynes, that has not so silently become a prevailing thought in our country is that of Agenda. Keynes said that economic ‘experts’ should determine the Agenda and Non-Agenda of our nation and then politics should be the vehicle for creating new forms to achieve the Agenda. Now, in my house when someone has an agenda and sends someone else out to create a path to achieve it, somebody is going to end up in tears. Unfortunately, it isn’t all that different in politics – only the taxpayers generally end up crying. Economists are like the big sisters who send little brother to eagerly sell the idea of cookies before dinner to the parents. This is exactly what our government LOVES about Keynesian economics. They have someone else – an economic ‘expert’ – think up a new policy or program that appears to solve some of the current problems in our economy. Then the politicians can work to sell it, implement it and take credit for it. They definitely get their cookies too.

Prevailing Keynesian economic thought holds that the best way out of a pinch in the economy is to spend. Spending will make the economy grow, and a growing economy looks great on paper. That is what the stimulus package was all about. It’s called fiscal policy. We have been practicing this idea of spending our way out of trouble for quite a few years now and what it seems to do in actuality is increase our debt. “The burden of debt is as destructive to freedom as subjugation by conquest,” (Cleon Skousen, The Five Thousand Year Leap). Adam Smith, an economist who influenced our founding generation, was a proponent of laissez-faire or ‘let it alone’ economics. He taught a sound economic principle: The way to wealth for individuals is to save and invest wisely. The way to wealth for nations is for the individuals of that nation to save and invest wisely. A government is made up of people and for the economics of the nation to be sound, the economics of the people must be sound. It doesn’t work the other way around. In other words a country cannot be wealthy unless its people are wealthy. “The highest level of prosperity occurs when there is a free-market economy and a minimum of government regulations,” (Skousen, The Five Thousand Year Leap). How does that fit with what we are choosing today? See how too many cookies before dinner can ruin your appetite?

Another Keynesian concept is that the government should be making the decisions people are not making. I don’t know about you, but last I checked ‘government’ doesn’t have a brain with which to think. What it does have is a collection of people, hopefully some with brains, who make decisions on behalf of us all. Bastiat, a French economist who fought for a free market, said that collective rights should be an extension of individual rights. The government cannot enforce a right or extend a right that does not exist for the individual. The government has the right to protect, by force, personal property because individuals have the right to protect their own property by force. By the same logic the government does not have the right to equalize property (through taxes, etc.) because individuals do not have the right to take wealth from one citizen in order to equalize the wealth and give to another. Does your daughter have the right to take away her little brother’s cookie and give it to the neighbor girl? No, of course not. It isn’t just. She can give her own cookie away, but she can’t take one from someone else and give it to another. Funny, but kids get this. They know plunder is wrong. That’s why they sneak. We voters seem to forget that just because plunder is legal, it doesn’t mean it is right.

So, if you are getting ready to spend your next stimulus check, let me give you some sound advice. Save it. It will do more good than the spending. Government isn’t its own entity. It is a collection of people, of families. If we are not saving, if we are choosing to support the policies that are prevalent in government today, we are agreeing with them. If you don’t agree with the prevailing thought. If you don’t like the idea of government agenda, of increasing debt, of the state as an entity, what are you going to do about it? My suggestion…do a little reading. Discuss it with your family because, as Ronald Reagan said, “All great change in America begins at the dinner table.” Oh, and you should probably have some cookies ready.

Saturday, December 19, 2009

Was Murray Rothbard a "quack"?

I have heard it claimed that the recently deceased Nobel laureate economist Paul Samuelson called fellow economist Murray Rothbard a “quack.” At first I scoffed at the idea. How could someone like M. Rothbard, so versed in logic and deductive reasoning, be a “quack”? I love how Rothbard, in his economic treatise “Man, Economy, and State”, uses logical deduction to build up his economic theories and axioms step by step. I was happy to see an answer to the question of “where does price come from?” that is exactly the opposite to what I had been taught in my microeconomic courses at Oregon State University. I had been taught that the price of consumer goods is determined by the costs of land, labor, capital, etc. Rothbard explains logically how those costs are actually determined by what consumers will pay for the product. In other words, the consumers ultimately determine the price of goods! I believe Rothbard’s logic to be accurate. So, what about the “quack” comment? I tried to understand what would cause Samuelson to say such a thing. As I continued deeper into the treatise, my disregard of the comment began to weaken as I read more of Rothbard’s refutations of his own critics. I found that his arguments in his own defense were sounding strikingly similar.

First, a clarification: Paul Samuelson is a “Keynesian” economist, one who believes in implementing fiscal policies at a national level in order to keep the economy humming. These policies are supposed to smooth out the business cycles of boom and bust. Murray Rothbard is an “Austrian” economist, staunch believers in a free market and minimal government intervention into economic decisions.

When detractors like Samuelson attack the Austrian economic pillars of a free market system, Murray Rothbard can only point to the underlying logical principles of the free market to prove that it works. There is a dearth of case studies or real world examples for him to draw from. For example, when critics claim that a free market system is disruptive to society because it necessarily advances too many product innovations that threaten the peace of society, Rothbard cries out that, logically, in a free market, entrepreneurial foresight will be utilized and taken advantage of as much as is possible and desired by consumers. When critics claim that a free market system slows down innovation due to capitalist resistance stemming from a desire of a return on their previously invested capital, Rothbard declares that by logical reasoning, in a free market system, producers of goods will allocate the various factors of production in the most efficient manner possible. In other words, the free market naturally and logically has forces working that are always moving toward efficiency and customer satisfaction. I agree with these logical deductions and, like Von Mises and Bastiat before him, I am a proponent of a laissez-faire economic system with as little government intervention as possible.

But this logically constructed world of Rothbard’s does not exist, and that’s the rub.

There was no major economic system during Rothbard’s time that adhered to the principles he was advocating. There still is not today. There is no proving ground for his theories other than the written word and the adept use of logical arguments. As long as Rothbard can condemn Alfred Marshall’s use of mathematical equations as nonsensical and devoid of meaning due to Marshall’s assumptions being overly simplified and based on the concept of a “long run” economy that never actually exists in the real market, critics will be able to point to Rothbard’s theories and axioms that are based on a world that is not actually in existence, and claim he is a “quack.” My sympathies are growing for the accuser, although I am not in his camp. He seems to be saying that there is something missing from Rothbard’s analysis, and I am beginning to agree. I understand that Murray Rothbard’s free market world is loaded with idealisms that he doesn’t explicitly state; he doesn’t take his discussion of requirements for the ideal market into the political realm. Yet I also understand that by making a treatise of this magnitude, with its very foundation based on political and free market ideals, he is tacitly proposing them. Hear, hear! I applaud the effort and the proposition.

However, until and unless a society will adopt the principles he proposes and becomes more like Rothbard’s ideal free market system, there will be something patently missing from his treatise. I don’t believe he needs to go so far as to develop his own eschatology or raison d’ĂȘtre for mankind. I agree with Rothbard that that work should be left for religion and philosophy. But a greater emphasis needs to be put on how to implement his ideas in the real world: how and what needs to be done to correct our current economic crises? If interest rates are really supposed to be dependent upon how much people save and invest – as Rothbard explains logically – what are specific steps he would take to remediate our reliance on a central bank that artificially adjusts the market interest rates to low levels even when saving is non-existent? How would he purport to demonstrate to Americans that an elevated demand to consume leads to lower wages because it causes capitalists to discount to a greater degree the marginal value of the products that the workers are producing? And since the marginal value of a product is directly linked to the payment of labor (wages), high demand to consume is detrimental to their pay?

Rothbard’s treatise is great. I especially love it for its clear and methodical explanation of how an economy would work on a desert island and inside an evenly rotating economy where all uncertainty is removed. Once we see how an economy would work in these imaginary examples, he adds uncertainty and constant change in order to demonstrate how a modern economy will work within a truly free market. But it needs to be followed up with practicalities that can make a difference in the world in which we live, not only in imaginary ones – because the truly free market Rothbard posits is just as imaginary as his desert island or his evenly rotating economy.

God's Chosen People

In the greatest movie ever made, named “Chariots of Fire”, five young British men are chronicled through their university years on their way to Olympic glory. Four of the men met and became friends at Cambridge University in post-WWI England. One of these young men, a Hebrew, won a race against an old courtyard clock that had not been won by any man in 800 years. Upon learning of the feat accomplished by this freshman Hebrew student, one University Master said to another, “perhaps they truly are God’s chosen people.” It has been said multitudes of times throughout the ages that the Hebrews are the “chosen people of God.” But why? What made them God’s chosen people, and what does it mean to be the chosen people of God?

To understand this, we must return to the days of Abram and Sarai in the Torah. In Genesis we read that Abram left the home of his father in Ur, and traveled to Canaan. Abram chose to live a righteous life among wicked and idolatrous people in this land. His new neighbors on one side, the Amorites, were a wicked people. His other neighbors, the kingdoms of Sodom and Gomorrah, were so wicked that not 20 righteous people could be found within the walls of these cities. Abram’s nephew, Lot, and his family went to live among them, but Abram kept himself separate in order to keep his household righteous and obedient to the commandments of God.

After being in Canaan some years, the neighboring peoples had a fight. A group of kings attacked the area near where Abram lived, and carried away many people, flocks, and riches, including Abram’s nephew. Abram went and defeated the army, but he cited his obedience to God as his reason for refusing to engage in plunder. He further displayed his decision to be righteous by paying tithing to the King of Salem on what he did keep for the sustenance of his men. These are outward displays of Abram’s righteousness. But Abram was also a wealthy man, and many people say it is easier to be righteous when one is wealthy and everything is going your way. But not everything was going well for Abram.

Abram’s wife, Sarai, was barren. As a couple, they were getting along in years, and I’m sure the lack of children weighed on them greatly. In spite of being old, childless, and stricken in years, Abram believed the Lord’s promise of seed as numerous as the stars. (Gen 15) He remained faithful to God even though it must have been difficult if not impossible to understand how this promise would be fulfilled given their age. When Isaac was finally born to Sarai and Abram, I imagine the joy was overwhelming. But then Abram – now Abraham (Gen 17) – was tested in the ultimate test a man can bear: he was commanded to sacrifice his son. Throughout all of these experiences Abraham remained righteous and obedient, and this is the reason God made His covenant with him. This is why Abraham became “chosen” of God. His son Isaac and grandson Jacob followed in his footsteps and the Lord renewed the covenant with them – also due to their righteousness and obedience.

When the seed of Abraham, Isaac and Jacob escaped from Egypt in the 2nd book of the Torah, the covenant was renewed with them. Exodus and Deuteronomy are the most amazing books of the Torah for me because God clearly lays out the covenant, His expectations, and the blessings that will come to his chosen people if they will be righteous and obey his commands. (Exodus 20, Deut 28-29) The Lord also explains the curses that will come upon them if they do not obey Him. He then prophesies that due to unrighteousness the Hebrews will reap the curses and not the promised blessings; and that when the time finally comes around – presumably many years later because of the years of sorrow and curses will take place – when the seed of Abraham, Isaac and Jacob returns again to God in righteousness and obedience, they will be accepted, again, as the chosen people of God. (Deut 30)

But why? Why will they still be God’s chosen people? It is because God promised in the Torah that if they will return to obedience and righteousness they can become so. So who can become the chosen people of God? Those who righteously obey His commandments. That is why Abraham was chosen. That is why the covenant was renewed with Isaac and Jacob. Disobedience and wickedness lost the children of Israel these same great blessings, and brought a calamitous curse upon their nation – and their promised blessings were given to others in stead. The founders of the United States of America believed that America is the re-incarnation of ancient Israel and that America is reaping the blessings that ancient Israel lost through disobedience. I agree with this belief, although I also believe it is not just one people or nation on earth that is somehow “chosen” of God as though it is their birthright. Rather, it is the righteous and obedient to God’s laws and commands that become His chosen people. Lest we forget, Jesus himself said that God could raise up seed unto Abraham from stones if he needed to. (Matt 3:9) This statement applies to modern Americans just as much as it did to the ancient Israelites.