“In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.” — Henry Hazlitt

 

Those reading may recognize this excerpt from the book Economics in One Lesson. In many cases, this book is held as one of the most popular books among libertarians whether you are an anarchist or otherwise. Building off of Bastiat’s That Which is Seen, That Which is Unseen, Henry Hazlitt takes the reader through an analysis of several government programs such as minimum wage, rent control, public utilities and so on, to reveal the unintended consequences of such programs.

 

Similar to many libertarians, this is one of my favorite books and was a gateway drug to even more. What is unique about this book to me is that prior to reading it, when I would debate those that are labeled as “statists,” I would argue from a philosophical standpoint such as self ownership, initiation of force, et al. When appropriate, those positions may have some value and sure, while many who do advocate for big government will certainly ridicule these arguments, I still believe those criticisms don’t speak to whether the positions are true or not. As Rothbard argues:

 

“For it is one of the most admirable qualities of the demagogue that he forces men to think, some for the first time in their lives. Out of the muddle of current ideas, both fashionable and unfashionable, he extracts some and pushes them to their logical conclusions, i.e. “to extremes.” He thereby forces people either to reject their loosely held views as unsound, or to find them sound and to pursue them to their logical consequences.”

 

This is something not only relevant to Rothbard’s time but even years before with thinkers such as Lysander Spooner in his tale of the highwayman, or even more recently with Ron Paul during the debates when, for instance, he was asked about heroin, and even Nozick with his Tale of the Slave so on. These allegories and points certainly get people out of their comfort zone.

 

As time went on, now influenced by Hazlitt and other economic thinkers such as Rothbard and Mises, I began to notice the arguments I put forth (as valid as I find them) seemed to be lacking, where my progression in the understanding of economics was filling in the gaps. I like to think a balanced approach in both areas can be a powerful ally.

 

Moving on, closer to the present, I read an article by Marianne Copenhaver (also known by many as “Libertarian Girl”) where she says:

 

“[…]the power of connecting on an emotional level is equally, if not more important, for successful messaging. There are times when logic isn’t enough.”

 

This was referencing reaching out to non-libertarians for the purpose of persuasion and conversion. Now, I won’t spend time critiquing this or going over what was said in detail. Rather, I aim to expand on it. While I think she is correct that connecting on an emotional level is important and I certainly do commend her for pointing that out, I would further that by saying to connect emotionally and ethically but only after economics have been discussed. That is, I do think ethics is more important, but I find economic arguments to be more persuasive, so I would argue using economics as your primary tool in reaching out to non-libertarians, and if you’re doing both of them right, they’re always in agreement.  Even if I could convince you, or attempt to connect with you on an emotional level, that X is morally wrong, if you still believe we need X to keep the world around you from descending into some Hobbesian dystopia (“X” in this case could be taxes), you may not really care if you are clueless to economics.

 

In the end of Human Action, Ludwig von Mises states:

 

“Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.”

 

I can not emphasize the importance of this enough. I stress economics in discussions with individuals because as it stands, I think it’s the best tool we’ve got for advancing liberty, by showing individuals that their favorite violent solutions don’t actually produce their favorite results. Liberals, for example, want control via the state to solve these problems (poverty, education, etc.)  means which, we as libertarians will never agree to. I find moral arguments, while significant and something not to be dismissed, to be inferior to economic arguments. I for one was impervious to moral arguments until I realized (via economics) that freedom could “work.” This seems to be true of absolutely everybody else as well. If I thought freedom would result in mass poverty or rampaging gangs of looters and rapists, I would never have come around. In terms of effectiveness, then, I think yes: economics arguments > moral arguments. This by no means is an attack on the ethical argument. Like many libertarians, I agree that taxation is theft/extortion. As a deontologist I believe that everything the state does is immoral (where other libertarians may say they prefer not to be coerced or would be better off without), since everything it does can only be done by threat of force. However, when attempting to convince non-libertarians, I prefer the economic or utilitarian approach, where everything it does produces worse results than had there been no state to begin with.

 

Let us take a look at a few basic examples of rather common things that non-libertarians advocate government involvement in and address each from an economic standpoint.

 

  • Price gouging

“Price gouging” refers to a situation in which a business prices goods and commodities at a level which is considered unreasonable, unfair, or exploitative. Many would argue that “price gouging” prevents people from accessing basic needs in a crisis due to poverty and the zeal over turning a short term profit restricts access to these necessities based on wealth and government should enforce laws to prevent this. However, if we have an understanding of economics we will know this isn’t true and is extremely flawed.

 

“Price gouging” doesn’t restrict access. Prohibiting “price gouging” does. Say there’s a natural disaster or something and I happen to own a shop with quite a lot of bottled water (but not an infinite supply). I know that bottled water is in high demand. That is, at current, ordinary prices, it’s going to sell out in minutes. The profit motive impels me to raise prices, according to my estimate of the price at which it will still sell but I won’t sell out before the crisis is over, if I want to maximize profits. If my price is too high I’ll end up with more water and less money than I want, and if it’s too low I’ll sell out too soon and leave money on the table. The water goes to those willing to pay the most for it. Now, say it’s illegal for me to do this, or I’m an ideologue who thinks raising my price would be evil. The first guy to walk into my shop is going to buy all my water and create a secondary market closer to the price actually demanded by market conditions, and the only difference in the outcome is that I haven’t made any money. There’s really nothing you can do to prevent prices from emerging one way or another, and even if you did succeed at that you’d only guarantee that this crucial resource is unavailable at any price. Consider the recent hurricane and gas shortages in the northeast. There, they cracked down on “price gouging,” and as if the lines weren’t bad enough, gas stations were even running out of gas. Not exactly the outcomes you want.

 

  • Socialized higher education

Many libertarians know this proposal, and typically the arguments are that, “It’s an investment on human capital,” or, “We are creating an educated workforce.” By this rationale, an advocate for the state has justification for “free college for everyone,” right? Not so fast.

 

College costs rise faster than other prices precisely because college is substantially socialized. You see the same thing in every other semi-socialized good or service. Take health care. Prices go up and quality goes down, because the people consuming it aren’t the ones paying for it. You don’t have to produce a quality product to make money. You can raise prices without losing customers. And the value of a college education will plummet even further — the more people who have it, the less it will differentiate between them on the market.  Regarding it being an investment or creating an educated workforce: there aren’t many jobs for which college actually prepares you. In most pursuits, having a degree merely signals your capacity for work and commitment. When all the competition also has a degree, that’s no benefit. People will be getting a degree not to gain an advantage on the market, but to get rid of a conspicuous disadvantage.

 

Say making widgets is a $100k/yr job for whatever combination of reasons. Government says, “Holy cow, if we made everybody a widget-maker everybody would be very well off, let’s send everybody to widget-making school!” The price of those schools would skyrocket. The quality of its product (the education) would plummet. The market would be flooded with widget-makers. The wages of widget-makers would correspondingly plummet, and the whole rest of the market, the production of all other goods and services, would suffer as everybody stops making whatever else they might have made in pursuit of widget-making. Because it’s not ultimately about money, which is just a proxy. Real factors of production — buildings, people, supplies, equipment, etc., are being diverted from where they would otherwise have been used (see Bastiat and Hazlitt).

 

In response to these economic arguments, those who advocate these types of policies may have an objection that goes something like, “What about those who don’t go to school? They will be out-competed by those with degrees and lose out on jobs!”

 

This is certainly a valid concern, but let us look at it economically again. The value on the market of a college education corresponds with its price, which — as it should — limits the number of people who pursue it. How much of an advantage does a high school education give you? At what kind of job would you put “High School Diploma” on your resume and expect an employer’s ears to perk up?  Even now the number of taxi drivers or bartenders with degrees is astounding. That will get orders of magnitude worse under fully socialized education. For most jobs, having a degree may still confer a small advantage with other things being equal, but much less of an advantage than if you’d spent those same 4 years actually working in that field, or, in some cases, working at all.

 

Prices are set by supply and demand. Giving away “free” things drastically increases demand without any increase in supply. As the government limits the supply of education through things like accreditation and licensing of teachers, there won’t really be any increase in facilities. Such a policy leads only to ever reduced quality and ever higher prices.

 

Granted, education can be argued to be more important than, say, cell phones or clothes, thus “government involvement is necessary.”  Yet, isn’t education something that takes scarce resources to provide? Are there not finite amounts of school supplies? A finite number of teachers? Administrators? Facilities? If so, then economics applies. Scarcity is an immediate factor whenever anybody is foolish enough to employ intervening laws to any commodity or service. There are no solutions that can be provided by a central planner to address this. None. Economics stares the central planner in the face and forces him to adopt a solution that does not fulfill his fanciful promises.

 

  • IP (specifically patent laws)

Patents (as well as copyrights but I will be discussing the former) are a type of immaterial “property” that give owners exclusive control over the sale and production of a specific product-an invention or process of production. The claim is that protecting the inventor against competition encourages him to pursue his idea and/or come up with ideas, essentially spurring innovation, thus government should enforce them.

 

Saying patents help innovation is, of course, the oldest justification in the book. The first thing I’d say about that is that I see this class of argument all the time. The government does X for Y purpose, therefore if the government stopped doing X, Y would cease to happen.

 

Pretend for a moment that nobody had ever dreamed up patents, or that we’ve gone back to a time or  a country where they don’t exist. What would we expect? Well there’s something of a continuum of innovation. There are very trivial innovations that any idiot could have dreamed up, and probably has, which make a product ever so slightly better, or just a little less expensive to produce. These are no less patentable than any other innovation (or even if you postulate a system that doesn’t protect “trivial” innovations, the distinction is necessarily arbitrary and political), but these penny-ante “innovators” will still be granted a monopoly over the technology (and it is a monopoly protection — competitors are punished for competing with the awardee of the privilege). In a free market, such an innovator would only very briefly be able to reap monopoly profits, because competitors would quickly see his advantage and easily reproduce the improvement, enter into competition, and erode the inventor’s profits. He will have to keep on innovating if he wants to keep realizing entrepreneurial, rather than just capitalist, returns. The inventor automatically wins on a scale commensurate with his achievement, and the consumer wins as well.
Then there are revolutionary innovations, on the other end of the spectrum. These are generally either so technologically complex that they’re difficult for would-be competitors to even know how to reproduce, and/or they require enormous capital investment to physically reproduce. In either case it takes some time for competitors to enter the market, during which time our inventor is able to reap monopoly profits, establish a reputation for himself and/or his brand, further improve his product, and so on. This inventor will therefore earn much more money than the trivial innovator and likely be able to maintain high profit margins for a long time after his competitors come onto the scene.

 

Let’s look at the other side of the claim that innovation is possible only with monopoly protection. Enter Bastiat’s “unseen,” stage left. What you see is innovation happening in a world with patents. What you don’t see is the countless (indeed, mostly unobservable and uncountable) innovations that don’t happen because of a) the fear of patent litigation from competitors, whether or not their suits are valid or successful, b) the cost of filing for a patent with any hope of it being rewarded in a reasonable amount of time, and c) the impossibility of knowing for sure whether your invention infringes on any already- protected idea, at least in part because the distinction is arbitrary — in a great many cases you have to simply cross your fingers before you go into the court or hope you have the best or most corrupt lawyer. The patent system is corrosive to innovation.

 

  • Welfare programs

One of the most common misconceptions about libertarians is that we allegedly hate the poor since we are not in favor of welfare programs. Supposedly, “people will fall through the cracks,” and so on.  Now, “voluntary redistribution” I couldn’t possibly oppose. That’s just charity or markets doing their job, and while I’m hesitant of institutional giving in general, and certainly of the implicit but pervasive leftist notion that I should give until I’m just as poor as the beneficiaries of my generosity or face their righteous wrath, I’m certainly on board with voluntary giving (I almost have a hard time believing that any libertarian would go on from there to discuss involuntary giving without calling it that, of course).

 

Let’s take a basic look at how to address these arguments. As it stands, there are the poor who rely on it because they lack productive capacity — the old and infirm and so on — and there are those who rely on it because its existence creates an incentive to rely on it. Narrow it down to people who actually can’t care for themselves, and the financial burden becomes considerably smaller, much more easily handled by private givers who, by the way, are no longer being taxed half to death and told that their good deeds are therefore done. Social welfare programs significantly crowd out private charity, and even so, private charity in the US alone is in the hundreds of billions per year. And that’s just what’s tracked, not counting help from friends and family, which almost certainly exceeds even that. In 2006 this was about 300 billion dollars, enough to give $10k/yr to 10% of the population. Abolish taxes and caring for the poor is basically not even a problem that has to be thought about.

 

If I purchase a good or service, I am taking money earned through voluntary exchange and using it for my chosen purpose. When government spends money on a good or service, it is using money gained through involuntary exchange towards its chosen goal. Government in and of itself is a disruption of natural resource distribution processes in the market. There is not much that government does for the people’s benefit that they wouldn’t choose to do themselves. Welfare programs are a misallocation of resources. You’re stripping resources from those that create wealth, thus negatively impacting their ability to create wealth. The creation of wealth means an increased carrying capacity for jobs. If institutionalized unemployment is your goal, there is no greater way to achieve that goal.

 

While these examples may be seen as simplistic, they were used as a means to illustrate a different route to those who argue strictly from a philosophic position (“taxation is theft”, etc.). Again, those arguments do have their place, however, I would urge those who use these arguments as their foundation to hold onto those arguments. Reason being is that those who aren’t libertarian don’t really seem to respond well to, Taxation is theft,when it will be translated as, “Everybody may starve to death, but at least it’s not immoral!” Got to address the economic fallacies first. “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance”, said Rothbard. Very true. The average Joe doesn’t think he/she cares about economic theory, but the same individual won’t hesitate to tell you all about the consequences of a given policy change. Most people have most of the same goals in terms of economic policy — we want fewer poor people, we want the remaining poor to be better off, and so on. We generally only disagree about means, and that’s what economics is for.  People only support, i.e., social welfare programs because they erroneously believe, according to flawed economic theories they probably don’t even realize they’re using, that those are the best or only ways the poor and disadvantaged can be helped.

 

Economics aims to explain how economic actions of individuals affect the incentives and actions of others.  Economics can’t tell you anything is “wrong,” however it can tell you about the consequences of a given action or policy.  Economics does not tell you, for instance, that unemployment is “bad”; it just points out the inevitable consequences of, say, a minimum wage law. Economics explains how the world works, not how it ought to be (whether your liberal or neo-conservative counterpart likes it or not). Economics is a study of what is, not of what someone likes or how someone thinks things should be.  Saying, “I believe these people have X rights, and I say this would happen under X conditions” is not economics, it is just describing an ideology. It is important to distinguish between the two. Using an example from above, economics says: “This is what will happen if you cut welfare programs” and “this is what will happen if you don’t.”  So, economics can and does say that if your goal is to help more poor people, you probably don’t want welfare as the final and ongoing solution. Or in the case of the other  examples, if you don’t want shortages or higher costs of education and goods, then you may not want government involvement in those places either. Therefore, with economics — at that point — others may be more amenable to the idea that there might be some underlying moral principles involved.

 

This is one of the objectives of economics, to describe the world as it really is, or more specifically, the world as it can only be due to basic laws, just as physics does. Economics consistently exposes the unintended consequences of a given policy, and shows that the goals of prosperity shared by almost everyone would be better served without that policy. What economics finds is that policies, regulations, subsidies, and so on create the majority of the so-called problems and issues. With economics, you can become aware of the unintended consequences of policies ostensibly designed to solve this or that problem, and as such be also aware that in most (if not all) of those cases the problem itself is a consequence of a previous intervention. Thus, you can consistently find that government intervention doesn’t bring about its (intended) desired results, and that as human beings we dislike most of the actual results, so we find ourselves objecting to those interventions on humanitarian grounds: By starting with individual human action in a free market, a baseline against which to examine the effects of, say, political interference with that system. Economics – as distinct from finance or being an entrepreneur, and so on – in day-to-day decisions isn’t especially useful, and probably wouldn’t be useful at all in a free market. I study and discuss it (and hope you do too) in hopes of persuading individuals to look beyond politics for the solutions to social problems, and economics is a great tool in achieving this end.

Further reading:

Man, Economy, and State by Murray Rothbard

-Lessons for the Young Economist by Robert Murphy

-Economic Controversies by Murray Rothbard

-Basic Economics: A Common Sense Guide to the Economy by Thomas Sowell

For,

Jean Marie.

Special thanks to Matthew Tanous, Daniel Brackins, Natalie Danelishen, Rocco Stanzione, Joseph Prism, Tony Mx, Thomas J. Michie VII who have consistently helped in my progression economically.