Thursday, May 24, 2012

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.

Sunday, May 20, 2012

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. 

Saturday, May 12, 2012

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.

Wednesday, May 9, 2012

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.