Dr. Robert P. Murphy is a senior fellow at the Mises Institute and a professor of economics at Texas Tech University. 71 Republic’s Mason Mohon sat down with Dr. Murphy to discuss economics and anarcho-capitalism. You can find Dr. Murphy on Twitter @BobMurphyEcon.
Atilla Sulker | United States
At the superficial level, libertarianism is split into two main camps regarding a moral doctrine. There is the old Aristotelian natural law tradition, sometimes referred to as deontological libertarianism, which draws some of the most passionate libertarians, including the likes of Ron Paul, Andrew Napolitano, Murray Rothbard, and Ayn Rand. And there is the consequentialist (often called utilitarianism) approach to libertarianism, advocated by many pillars of libertarianism including, Ludwig Von Mises, Milton Friedman, and David Friedman. The former group believes that libertarianism is valid because initiating force in any way is morally wrong. The latter on the other hand supports libertarianism simply because, in their minds, it leads to the greatest prosperity.
But the adherence to any form of libertarianism in America makes for a perplexing phenomenon. America has the greatest total wealth in the world and is the hallmark of the great machine that is capitalism. Surely there is some amount of freedom in America, despite the squabbles of libertarians. If not, the great works of entrepreneurial enterprise and competition would not be present to provide the average American with such goods as cars and electric ovens, products once classified as “luxury goods”.
Yet at the same time, the State tramples on the liberties of its citizens every minute. Wiretaps are initiated whenever the president feels like doing so. The state drafts young men to fight in territories unknown to them, showing how frugal its citizens are in its menacing eyes. Bureaucrats interfere with progressive efforts espoused by communities to take back control of their schools. Mandatory minimums tear apart families and lead to the mass incarceration of individuals who are supposedly detriments to society. Regardless of how you assess this claim from a moral standpoint, the argument could be strongly made that government in this day in age has become a far greater detriment to society than any drug lord.
Despite the mass regulations enforced by the state, the great bulwark of capitalism cannot be stymied. Sure, competition is slowly dying off and the Fed creates a false illusion of the growth of prosperity. But despite the destruction created by the Keynesian saga, prosperity still thrives to a much greater extent in America than most other nations around the world, further validating the extent of the notion that entrepreneurship drives the improvement in the material quality of our lives. Indeed the machine of entrepreneurship is far more powerful than the government. The great technological revolution of the late 20th century shows how the hindrances established by the government could not stop the glorious consequences of a market economy.
Now here’s a head-scratcher. Does an increase in the quality of goods in the market due to competition in the private sector necessarily signify an increase in liberty? Does a vibrant capitalist economy necessarily fall in line with a free world? Quite obviously not, as our country represents a good case study of this seemingly paradoxical phenomenon. But only superficially does it occur to be perplexing, for going beyond the layer of gloss shows that the situation is not that complicated.
A larger amount of wealth simply means a larger amount of capital for the state to exploit in its nefarious affairs. It means government simply has more wealth to steal and hence more wealth to fund the welfare-warfare state. This is evident with such tragedies as the growth of the military industrial complex and the bureaucratization of education. Lew Rockwell sums up this phenomenon:
In reality, the State is far more dangerous in a productive, capitalist society than it is in an impoverished, socialized society, simply because it has far more private resources to pillage and loot for the State’s own benefit. Availing itself of the vast fruits of private production, the State engages in self-aggrandizement, expansion, and, inevitably, imperialism.”
In retrospect, we see that much of the past imperialist adventures were supported through the exploiting of private capital, e.g. FDR’s redirecting of resources to support World War Two, or the rapid proliferation of nuclear arms during the Cold War. Indeed a capitalist economy could well be a catalyst for the expansion of the state. And more importantly, a desensitized public needs to be conditioned to express obedience. Think of the state as a block of sodium and the capitalist economy and obedience as a tub of water. Without the water, the sodium remains stable, but when put in the water, it becomes volatile. This is how the state works, it works parasitically- the more blood there is to suck, the bigger it becomes.
Comparing the United States to a garden variety third world country, we discover something interesting. While the former professes to be the beacon of the free world, it is so bloated and volatile that it tramples on the liberties of its people daily. The latter advertises itself as a monstrous entity that will drop the guillotine on any dissenters but is often so poor that it can’t actually enforce these codes.
Regardless of what a country’s government may proclaim itself to be, whether a slaughterer of masses or a liberator of worlds, to truly judge how free it is, we must focus on the actual situation of the country, i.e., the effectiveness of its means in realizing its desired ends.
Economic historian Robert Higgs adheres to this view, and used it to make a case for leaving the United States in search of another country. In a speech he gave, Higgs said:
If I were in your position, I would consider seriously getting out of this country, not because I think any other country is a paradise by the way. But because I think no other country has the means (emphasis added) that the government of this country has to carry out these horrifying surveillance programs, and other measures of state tyranny. So, I’m going to move. I’d suggest you might consider moving somewhere else.”
Higgs himself moved to Mexico in October of 2015.
So if one proclaims himself to be a natural rights libertarian, wouldn’t he be contradicting this assertion if he continues living in the United States? Natural rights libertarians are defenders of liberty even if it leads to economically inefficient outcomes. It would then follow that if they truly hold this to be true if they are truly the bleeding heart natural rights supporter that they claim to be, they would move to another country that does not have the means to enforce such control as our own.
I don’t believe that any libertarian can be classified as fully of the natural rights tradition or fully a consequentialist. Surely a consequentialist would become inclined to believe in some sort of natural rights if the government began to kill members of his family. He wouldn’t oppose it only on the grounds that it disturbs order and leads to disutility.
Now certain issues may invoke a more natural rights based defense. Such issues may include abortion and the defense of the second amendment. It would be hard not to be rooted in the natural law tradition to an extent, yet be an ardent supporter of the second amendment or the right to life.
Based on the actions of libertarians here in America however, on the economic front, the consequentialist doctrine trumps any belief that they may have in natural rights, not fully, but to an extent that libertarians have decided to stay here rather than follow the Higgsian vision. It would be foolish to try and sit here and say that we would defend liberty even if it didn’t lead to economically sound outcomes, yet live in a country in which the means to the destruction of liberty are far greater than most any other country in the world.
It is clear that we enjoy the fruits of entrepreneurship and capitalism as present in this country. For the American libertarian, the loss of this great prosperity in exchange for a more free lifestyle is not a convincing trade-off. Let’s face it, we all enjoy the constant new innovations in technology, in medicine, etc. We wouldn’t be willing to give up our cellular devices or our polio-free bodies in exchange for a more libertarian way of going about our lives.
America can be seen as a coin, having a free side to it, and an unfree side. As Lew Rockwell explains:By way of illustration, in the US today, we have two economies, one free and one unfree. The free one has given us the great abundance of consumer goods, the widest distribution of wealth, and the fastest pace of technological innovation known in the history of man. The unfree one—characterized by the two trillion dollar federal budget and the more than one-quarter of that spent on apparatus that builds and administers weapons of mass destruction—has produced what we have been reading about in the headlines for the last two months. Military Socialism, which exists by pillaging the free economy, is responsible for a brutal and immoral war on a civilian population halfway around the world—the destruction of hospitals, churches, nursing homes, residential neighborhoods, and town squares.”
So yes, it is the prosperity in the capitalist economy that keeps us here in this country. It is the reason why we enjoy the economic freedom present in this country. The atrocities committed by our government won’t drive us away, but the market economy keeps us latched. It thus follows that the American libertarian is inherently, to an extent, a consequentialist.
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By TJ Roberts | United States
The concept of a Universal Basic Income (UBI) comes up as a potential alternative to the modern welfare state. What people don’t consider, however, are the consequences of such a system. A UBI is a system in which the state provides a certain income for all people within the polity. Also known as a Negative Income Tax, a UBI requires a heavily progressive form of taxation. All adults within a polity receive this payment regardless of their wealth and their employment status.
Many proponents see UBI as a means of securing people’s basic needs. In addition, they see this as far more efficient than the current system. This, according to a UBI proponent, alters the incentives toward a more productive incentive structure in the economy. Finally, advocates of a UBI claim that it allows for people to survive after automation eliminates the job market. While on the face level, these arguments all seem to have a point, but some basic economic analysis can show that UBI is fundamentally flawed. This article will first outline the arguments one may find in favor of a UBI. It will then refute the arguments. In addition, it will offer some other problems to a UBI.
Why People Support UBI
People support UBI for many reasons. The most frequent reason that people cite is that it guarantees people a certain quality of life. To these advocates, not all individuals are capable of finding employment, so society must provide for these individuals. In addition to the unemployed, a UBI is claimed to help the underemployed. In essence, a UBI is a living wage for everyone.
Another case that some fiscal conservatives and libertarians make in favor of a UBI is that it is more efficient than the current welfare state. With a UBI, there is no massive bureaucracy to determine who needs what. You receive the same living income as every other person. This drastically lowers administrative costs.
Another case that fiscal conservatives and libertarians make is that a UBI readjusts the incentive structures of society. Since everyone is guaranteed this money with no strings attached, says the UBI advocate, there is no poverty trap that encourages people to work less so that they do not lose their payments. This means that the UBI would replace all currently existing social welfare programs and would allow for commodities such as health insurance to be handled entirely by the private market.
Finally, advocates of a UBI claim that it is the only logical means of continuing human existence in the age of automation. People fear that AI and new technology will make low-level employment obsolete, and will, therefore, knock so many people out of work that they will not be able to afford to live without a UBI.
Why the UBI is Wrong
These arguments, however, all fall when one considers economic theory and empirical reality. To start, a UBI would not adequately guarantee that everyone receives an adequate quality of life. This is because a UBI would lead to overwhelming price inflation. If everyone is guaranteed a living income, then more people will be able to consume products. Because more people can afford more goods and services, businesses will be inclined to increase prices whereas this surge in the number of willing customers is an external stimulus to the economy caused by outside intervention.
If a landlord knows that their clients are now receiving a monthly check, the landlord then has an incentive to increase rent to take advantage of the new wealth. As prices rise, people become less capable of providing for themselves, so they spend less. When people spend less, businesses will decrease production, which leads to businesses having to lay off workers. These newly unemployed workers then lose the ability to spend as much as they did when they had a job. This leads to an endless cycle of increasing prices and decreasing employment.
To add insult to injury, since the money supply is increasing, the money becomes less capable of holding value. The value of the dollar would tank under this system. This inflationary trap would compound, ending in a society in which most people are jobless, most businesses can’t afford to produce, and those who are employed have a money that is so worthless that they cannot afford anything. Such an inflationary policy overturns all the progress the market has achieved for this world.
Right now, the needs of more people are being met than ever before around the world, and no UBI caused this. Rather, it is decreasing prices that has allowed for the cost of living to drop in such a way that extreme poverty is disappearing from this world. Our World in Data illustrates this point beautifully in this slideshow. Declining prices are benefiting the worst off especially; the countries with the highest poverty rates are currently experiencing the fastest growth rates. A UBI and the inevitable price increases that follow would only harm this progress. We need more production, not redistribution.
We Cannot Afford a UBI
In terms of efficiency, while a UBI admittedly leads to cheaper administrative costs, the nominal costs make a UBI far more expensive than the status quo. Suppose the US implemented a plan that guarantees a living salary to all adults based on the cost of living in their area. According to MIT, the average living wage in the United States is $15.12 per hour. According to the US Census Bureau, there are 247,813,910 adults living in the United States. If one does the math, the cost of providing this basic income to every adult in the United States is $7,793,648,343,936 per year (this does not account for inflation and administrative costs). This is nearly $8 trillion. Given that the US spent $4.094 trillion dollars in Fiscal Year 2018, The United States would have to end every government program and more than double taxes in order to pay for this program alone.
UBI Perpetuates Poverty
While UBI may seem to eliminate the poverty trap, this is not the case. First, consider the inflationary effects of a UBI. If prices increase so dramatically that goods become unaffordable, then poverty increases. Also, the UBI does eliminate the incentive not to work that some means-tested welfare programs do have, but it also has negative incentives of its own. UBI gives businesses an incentive to slash wages.
If everyone working for a business is guaranteed a living salary, then businesses feel empowered to slash wages and keep the profits. UBI is just another form of corporate welfare. It allows for businesses to outsource the cost of having employees to the taxpayers. This makes it more likely for people to be content with what they are receiving from their guaranteed income and not pursue work at all.
In Defense of Automation
Automation is happening. But this is a good thing. Automation does not cause unemployment. Rather, it frees people to pursue other forms of work that individuals are more passionate about. The entire purpose of work is to satisfy humanity’s endless wants and needs. Since people are still poor in this world, it is clear that there are inefficiencies in the status quo. Automation allows for labor to become far more efficient. In the same way that the strides in efficiency that humanity accomplished in the industrial revolution of the 18th and 19th centuries did not eliminate the ability of regular people to find work, so too the automation revolution of the 21st century will not eliminate the need for work. Rather, it provides even more opportunities.
This is not to say that everyone will keep the jobs that they have right now. Some people will lose their jobs as automation makes the labor more efficient. But let’s consider what happens to people who lose their jobs due to automation. First of all, no one starved to death as a result of the milkman becoming obsolete in the late 20th century. People that worked as a milkman simply found other means of employment. They adapted to their times. They moved to new jobs that met consumer demand and often made these workers more prosperous
Automation Creates Jobs
But let us consider why someone would lose their job to automation. Resources are finite, but human desires are virtually unlimited. While at the face level, someone might lose their job in one area, that is because the consumer demand is being met more easily through automated processes that decrease prices and the cost of production. Automation brings prices down. This is why the cost of living has dropped so significantly that most Americans can afford something as complex as a smartphone. If people can produce more for less, prices go down.
When prices go down, consumers spend less on what they buy. When consumers spend less, they have more money. This allows for consumers to buy even more products. Since consumers can buy more, businesses have to produce more. This means that businesses need to hire more people in order to produce. Automation does not directly cause unemployment. Rather, it makes it easier for displaced workers to find new work.
Automation Creates Entrepreneurship
Another benefit of automation is that as prices go down and people become capable of affording more, people have more resources which allows them to engage in entrepreneurship. As people develop new industries (some of these industries will come directly from automation), new employees will be needed. As technology grows, the ability to acquire the means of learning new skills that improve your standing on the job market (take Skill Share as an example of this).
Automation enriches the labor force, allows for workers to find new and better jobs, allows workers to learn how to boost their resume, and brings new innovation that will create more prosperity at a lower price which especially benefits the poor. Automation does not justify a UBI. Rather, it shows why we need to avoid a UBI by any means necessary: the price increases caused by a UBI will offset the gains in human prosperity automation is causing.
How a UBI Takes Your Power Away
The greatest harm that a UBI causes is that it rips power away from the common person in the market. In a system with a UBI, people are capable of ignoring the law of supply and demand and pursue their own interests without regard for its marketability and at the detriment of those pursuing profitable work. Once again, someone has to pay for the UBI. If person X chooses to create products that they are passionate about but no one else is willing to buy, they still get the UBI and other people are forced into subsidizing their illegitimate industry.
In a truly unhampered market, person X would realize that their entrepreneurial effort is yielding no fruit and would therefore adjust their strategy to meet consumer demand. Under a UBI, the incentive to do this greatly diminishes. This is another proof that UBI is another form of corporate welfare. There is no sense in propping up industries that consumers do not want. Doing so only encourages behavior that sucks resources away from those who have an eye for what people desire. This is theft from the market and from all of us.
The Road to Hell is Paved With Good Intentions
On the surface level, Universal Basic Income comes across as an alternative to the welfare state that would make the world a more productive and prosperous place. But when one considers basic economic theory, UBI collapses under its own weight. UBI increases prices, decreases wages, and decreases productivity. This system undos the progress we have made in eliminating world poverty and causes runaway inflation that would make the current living standard unaffordable.
This article was originally published in LIFE.
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By Manuel Martin | United States
Income inequality is broader today than it has ever been. Moreover, corporate CEO pay exceeds average employee pay by a wider margin than ever before. Owning a home was once the American dream. But, with home prices reaching 2006 record highs, it now appears to be a luxury of the wealthy few.
Income inequality may seem more prevalent than ever, and many believe it needs coercive governmental solving. However, there will always some who make more than most. This is simply because someone is always the best at what they do, which is good for everybody.
Income inequality benefits everyone, especially the poor. Inequality allows those, rich or poor, to work hard, push past the average, and earn huge financial rewards for their risk and hard work.
Advancement and Innovation
People applying their skills and resources to push past the status quo is how society advances. When the public wanted a faster horse, Karl Benz created the first car. When this still was not enough, the path to commercial airplane travel began. In both situations, someone got a lot of money for being the best at something and helping society.
These advances in travel lead to substantial financial rewards for the entrepreneur, and a better quality of life for all. Today, people travel much faster and more comfortably than they did in times of horses. Without the incentive of money, entrepreneurs would not have a reason to invent. The promise of unequal income strives the forward motion of society.
Income Inequality and the Poor
Many may argue that income inequality hurts the poor, but in reality, the opposite is true. In a free market, income inequality greatly benefits the poor.
A place where individuals are free from political rules and regulations, a free market allows low-income workers to find creative forms of earning money. Free markets create opportunities for even the most unskilled to find work and build marketable skills. Sadly, that free market does not exist today. In today’s world of regulation, many of these avenues are illegal, despite being entirely harmless. Trying to prop up society’s lower class by raising the minimum wage makes it harder for low-skilled workers to find employment, build their work history and advance their earnings potential.
Minimum wage laws create artificial barriers for employers who want employees to do simple tasks. These laws make previously cheap labor expensive. Thus, it incentives entrepreneurs to invest in machines to do the work instead. Though automation occurs regardless, minimum wage speeds this process up. As a result, the low-skilled workers have less time to find a new job before a machine takes it.
A Building Block of Society
Income inequality is the foundation of everyone’s career. Almost everyone starts their career by earning much less than when they finish their career. Ultimately, this is a good thing too, as it gives an incentive to continue working and improve work quality.
Should your primary care physician earn as much as a heart surgeon? Should a pre-school janitor earn as much as a civil engineer? I think we can all agree that income inequality, in these situations, is both fair and just.
Humans pick careers for many reasons, one of the most important reasons being monetary compensation. When the state takes from those who earn more, fewer people will choose such careers. Why should they, if their harder work and more expensive schooling doesn’t lead to higher income? These people, such as doctors and professors, provide great services to society and deserve compensation for such. Society doesn’t need more hamburger flippers, and should not encourage this profession with equal pay for it. However, we can always use another doctor; greater monetary reward will send more people down that path.
Heart surgeons earn more than primary care physicians because they provide more value. Removing the financial rewards for them will lead to fewer people becoming heart surgeons. As a result, the overall quality of life will drop. If heart surgeons get no reward for saving lives, who will save lives?
These principles apply to all people and all careers. In general, those who earn more provide more value to others; removing their incentive to earn more removes their incentive to provide more value. Of course, this is not universally true, but more often than not is. In a free market, resources tend to go to those who efficiently provide valuable goods and services that consumers want and need.
Wealth Redistribution Hurts the Economy
If almond farmer Jack can afford to bid $3,000 for a plot of land, and almond farmer Bob can only bid $2,000 for the same plot, Jack will win the property. Jack can afford to outbid Bob: he likely produces more almonds per acre for almond consumers. Therefore we can assume he earns more profit per acre than Bob and can afford to outbid him. As a result, Jack will continue to provide a more efficient product for society’s betterment.
What would happen if the State used the law to redistribute money or land from Jack to Bob? Well, Bob, the less efficient farmer, would produce fewer almonds with the new land. Jack, for his efficiency, receives a punishment of not being allowed to fairly buy land. The consumers? Well, they don’t have as many almonds on the market, because Bob did not produce as many as Jack would have. When quantity decreases, price increases. So, because of this policy, the consumer ends up paying more for almonds. Though Bob gets his land, everyone else, Jack included, suffers for Jack’s success. This wealth redistributionist policy is how you regress society.
Free markets lead to the efficient allocation of resources, which advances society and drives up our standard of living. Wealth redistribution simply cannot vouch for this.
Double Inequality of Value
The above average standard of living that Americans have come to rely on is produced by entrepreneurs creating goods and services that people like you value and are willing to pay for. This exchange of value leads to both parties advancing their wellbeing. The company values the money more than keeping the good or service, so it sells. Likewise, the customer values the good or service more than keeping the money, so he or she buys. This double inequality of value is true for every instance of free trade. For any free trade to occur, both parties must benefit.
To advocate for policies that will punish success is punishing people for improving lives. Few policies can as regressive as taking away the incentive for people to create value for customers. Ironically, many modern-day “progressives” actually support such ideas. In effect, they only regress the quality of life. Clearly, wealth redistribution is really what hurts the hard-working many in support of the few.
Wealth inequality is essential to society. Only it can reward the creator of the next lifesaving drug or 200 MPG car for improving lives.
As Unequal as Possible
Inequality drives innovation. Henry Ford didn’t revolutionize the auto industry to make his company equal to the competition; he wanted to be as unequal as possible. By creating more value for his customers, he earned an unequal amount of profit. Should the government have restrained this inequality to protect the horse and buggy industry? Of course not.
Here is the secret when it comes to inequality: it’s your fault. No, this does not single out anyone in particular. Rather, it merely shows the desires of all consumers.
The fact is, you decide to go to your favorite restaurant because you think it’s the best. The other restaurants simply do not deserve an equal amount of money from you. They may have worked hard, but your favorite gets the reward for best satisfying your desires. You watch a movie because you think it’s the best. By buying one over another, you create income inequality. Do you buy a car at random? No, you buy the best one you can afford, denying other car manufactures of income. Making an informed purchase creates income inequality, but is not bad for anyone. No car dealership is entitled to your money. Individual preferences and income equality cannot exist on the same plane.
Freedom of Interaction
Libertarians are often accused of being naïve and ignorant for believing people should be free to interact without the State. However, advocating for equality policies without fully grasping what drives inequality is the real naïve idea.
You drive inequality by your desire to consume the best music, food, houses, cars, and phones. Every single time you choose one product over another, you reward the company. As a reward for giving you what you see as the best, they receive your money. You cannot get rid of income inequality without also getting rid of the system of financial incentive that drives progress.
On the other hand, using the State’s force will only create a form of inequality that is actually harmful. When the State has a right to take from one to give to another, they have a lot more power than the people. Thus, such a solution only creates new, worse tiers of inequality than what existed before.
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