Libertarianism is More Important than Democracy

It is my view that the most important determinant of a country's success is how libertarian that society is.  When I say libertarian, I mean voluntary exchange.  Those countries that allow the most voluntary exchange flourish the most.  It is not democracy that is the main factor.  A democracy that restricts voluntary exchange will fail and a dictatorship that allows voluntary exchange will succeed.

Democracies have a tendency to become less libertarian over time.  First, politicians want to buy votes.  They do this by giving free money to as many people as possible: students, the homeless, single mothers, the poor, the elderly.  All of these special interest groups will only continue to vote for those politicians that promise to continue or increase the free money.  Much of this money is taken from the producers in society.  As the producers are taxed more, they produce less, leave to freer lands, or work in the black market and society as a whole becomes poorer.  As the poor are subsidized, they become more numerous.  Thus, the bankruptcy of the government is set in motion.

Why I am a Libertarian

I wanted to take some time to talk about why I am a libertarian.  First, what is libertarianism?  Libertarianism is a political philosophy.  It does not tell you how to live you life.  It only defines how people should interact with each other in political or economic situations.  It does deal with the best way a person should lead his or her life.

The essential principle of libertarianism is that all interactions between people should be voluntary.  No coercive interactions between people are allowed.  The consequence of this principle is that all private invasions of persons and property are not allowed.  Thus, all theft and rape and murder are against libertarian principles.  Most people are in agreement with libertarians on this point.  However, this principle is also anti-government.  All government interaction involves some form of violence.  Taxes are the use of force to take private property.  Regulations restrict free exchange between private individuals.  Many individuals believe that government should have the ability to impose taxes and regulations.

What is interesting about libertarianism is that it is based on principles - it is not a utilitarian philosophy.  While there are many utilitarian reasons to support libertarianism, the core principle is one of nonviolence and voluntary action.  True libertarians would believe in libertarian principles even if they would result in a poorer society (although we argue that they make society richer).  For example, if A has a factory and is producing cars for B, but in the process causes air pollution on C, under libertarian law, A would be required to full compensate C or stop polluting.  With the government, the pollution is allowed, but the factory needs to pay the government a tax to do it.  Libertarianism treats all people equally: all of their property rights are equally protected.  With the government, the factory is permitted to invade other people's property with air pollution so long as it pays the government a tax, and thus it does not protect all people's property rights equally. 

Why Conservatives Should Not Vote for Romney

I wanted to list the reasons why I believe people who believe in a conservative ideology should not support Romney in the coming election.

- Romney supports the bailouts of wall street in 2008.  Romney believe that bailing out large financial corporations that took huge risks and made fortunes for themselves should be given taxpayer money when those risks blew up.  A conservative believes in the free market, and one of the most important aspects of a free market is that companies that fail must be liquidated.  The liquidation process transfers assets from the incompetent to the competent.  It punishes those that make poor use of resources.  Bailouts create moral hazard where corporations take on more risk than they would otherwise and leads to an overall more unstable equilibrium.

- Romney supports the Federal Reserve.  Conservatives should believe in the free market and the free market says that the market should determine prices, not the government.  When the government sets prices, the result is either a surplus or a shortage.  The most important price in the economy is the interest rate.  The FED directly sets the short term interest rate through the Federal Funds Rate, and it can strongly influence the long term interest rate through purchasing treasury bonds.  Lowering the interest rate and printing money to buy bonds has two negative consequences.  First, it causes higher prices which hurt the poor the most.  Second, it causes the business cycle.  All of the newly printed money flows into the economy and distorts the structure of production, which will eventually need to be corrected in a future recession.

Is Theoretical Economics Like a Religion

I have heard the complaint that theoretical Economics is similar to a religion.  Theoretical Economics is making arguments based on a priori knowledge, which is knowledge that is true without empirical evidence.  It is argued to be true based on logical reasoning alone.  In math the argument: if A > B and B > C, then A > C.  This doesn't require statistical samplings and running regressions for us to know it is true.  Much of math is built on a priori ideas.  In Economics, an a priori argument could be the marginal utility of an object declines the more you have of it.  The marginal utility is how much enjoyment you receive out a given unit of objects.  Thus, a person may get a great deal of utility from having one computer.  However, the amount of utility a person gets from a second computer will be necessarily smaller than the first.  It is possible for the utility to be the same, but it will never be greater.  Surfing the net, checking email and so forth can be done on the first computer.  The second one can be used to run a web server, or do some kind of processing, but it will not add as much utility to the person as the first computer.  It is not necessary to conduct a survey and determine if the utility actually falls with the second computer.  Just through logic, we can know that utility will be smaller, and from there construct the demand curve.

The Vaccine Debate and Dr. Sears

I prefer to concentrate on economic matters. Unfortunately, I spent the past month reading a great deal about vaccines because my son Justin is about to start his vaccine schedule and I want to do what is best for him. The hospital where he was born wanted to give him a Hepatitis B shot the day after he was born. I did some quick research and declined. Eventually I came across a good book - Dr. Robert W. Sears' The Vaccine Book. I wanted to share some of what I think are the most important points I learned while reading this book.

What is at stake? Currently, 1 in 88 children in America are diagnosed with autism. 1 in 52 boys are diagnosed with autism. In addition to autism there is ADD, learning disorders, neurological problems, allergic disorders, asthema, and autoimmune diseases. These have all increased substantially in the U.S. in the past 30 years.

The most important point is:

"Perhaps the single most important factor that creates uncertainty in the minds of concerned parents is that the right type of research has not yet been done. I'm talking about prospective, randomized, placebo-controlled, double-blind, large-scale research on vaccination and autism as a whole (not just on the MMR and mercury)..." (page 226)

Why Liberals Should Not Vote For Obama

Obama's term as president could be accurately described as Bush's 3rd term. There have been no significant changes from the Bush administration in economic or foreign policy.

Obama has criticized Bush for invading Iraq which was not involved in 9/11. Yet Obama has no problem waging war in Libya. He also seems to be starting a war in Syria. Bush claimed that the war in Iraq helped free the people from an oppressor, and Obama makes the same excuse for his wars. Also similar to Bush - Obama did not get a formal declaration of war from Congress.

Obama signed the NDAA allowing indefinite military detention.

Obama, like Bush, continues to support oppressive dictatorships around the world including Egypt and Saudi Arabia.

Obama continued the patriot act and continued Bush's war on the rights of American citizens.

Obama has assassinated American citizens abroad without a trial.

Karl Marx and the Labor Theory of Value

In the early to mid-19th century, it was popular to believe that there are objective answers to great questions. This idea was destroyed by the idea of subjectivity in field after field. Albert Einstein introduced the idea of relatively even to Physics - the laws of Physics actually change depending on where you are in the Universe. In Economics, Adam Smith developed the Labor Theory of Value - the idea that what gives something value is the amount of labor that is put into creating that object. Karl Marx took this idea from Adam Smith and stated that since labor produces all value, owners of capital (such as factory owners) do not provide any service to economic production. The owners of capital (capitalists) steal the wealth from the true creators of value - the workers.

The Austrian economist Eugen Böhm von Bawerk made the point that if labor determines value, then businesses that are more labor intensive should produce greater profits. What we find empirically however, is that profit is equal among all industries given the risk. This makes sense because capital will flow from less profitable enterprises to more profitable until the returns are equal. This critique was actually presented during Marx's time, and Marx was unable to solve the problem.

Why I Like to Invest in Gold

Investing in gold is controversial. The reason I prefer gold as an investment is that it is a reliable counter against inflation. Many argue that inflation is not a problem, especially during a recession, but I believe inflation can still be a problem during economic downturns. A second counter is that the federal reserve will not inflate. I believe that the FED will inflate. A third counter is that gold is not a good inflation hedge. While there are times in the recent past when gold did not perform well, I believe times have currently changed for the better for gold (and for the worse for our economy).

The first objection is that inflation is not a problem during a recession. The argument is that during an economic downturn, aggregate demand falls which puts downward pressure on prices. Empirical evidence points to falling prices during the Great Depression. To a certain extent I agree with this analysis. I believe that the overall level of prices is determined by the supply and demand for money. Let's assume that the supply of money is fixed. During a recession, private consumption falls and private savings increases. Part of the increase in savings constitutes physical money and thus during a recession the demand for money increases. An increase in the demand for money increases the value (or the price) of money which means that the price of everything else falls relative to money. Thus, I would agree that prices fall during a recession, assuming that the supply of money is constant.

The important premise is that the supply of money is constant. I do not believe that the government will stand idly by and keep the money supply constant while the economy falls into recession. Milton Friedman wrote that the Great Depression was caused because the FED allowed the money supply to fall, which reduced prices and the reduction in prices caused the economic downturn (I'll write another blog about this idea later). Thus, mainstream economists believe that expanding the money supply to offset the fall in prices helps an economy out of an economic downturn. The newly printed money can be used to buy things which stimulates aggregate demand. The increase in money supply can cause prices to stop falling, and if enough money is printed, to rise. The rise in prices is expected to help the economy by reducing the demand for money which will increase the demand for goods and services. Also, there is a belief among economists that a weak currency helps economic growth by stimulating exports and reducing imports. In my other blog (economyandpolicyreport.blogspot.com) I have written against this idea, but it is generally held.