Sunday, November 16, 2008


A big difference between socialism and capitalism is the criterion upon which they judge success. Capitalism aims for being being a little better than everyone else with whom one competes for capital, while socialism shoots for being just good enough in the absence of competition.

Technological and economic progress entail risk, and mismanagement of these risks is largely responsible for the current financial difficulties. "Bailouts" exacerbate the conditions leading to such strife, because they essentially make risks irrelevant. Artificially insulating enterprises from the inherent risks of their activities simply subsidizes foolhardiness.

Socialized enterprises eventually stagnate because such systems seek to distribute risk rather than compensating individuals and organizations for taking the risks associated with progress. Socialized enterprises become risk averse paradoxically because, in order to distribute risks, they forego the incentives for talented people and organizations to run risks for proportionate rewards. Socialization loses the optimizing effects of competition, and socialized enterprises sag inevitably to lethargic mediocrity.

Thursday, November 13, 2008


President Bush today said that he supports free markets. In light of the current economic turmoil, other people think that free, as in unregulated, markets are the problem. Free markets are not really the issue. Free markets are largly unsustainable because part of the the freedom inherent in the name is the freedom to manipulate, or coerce, or rig the outcome of market activity. Eventually, the free market ceases not only to be free, but also ceases to be a market.

The attribute of being free does not imply free from government regulation; indeed government is an appropriate agent to ensure that markets are free from improper influences. The benefits of markets depend on voluntary transactions, but only if the process of those transactions is fair. "Free market" is really an inexact term for "fair market."

A fair market means that the transactions that occur there are not improperly influenced by external factors. It is the process by which the transactions occur that must be kept fair, and government regulation is a legitimate means to achieve this. Government can enforce rules regarding openness of information, anti-competetive or coerced processes. Govenment regulation can help ensure that transactions occur between two willing parties acting in their own interests.

The risk of regulation is that it is not obvious to the agents of government when the legitimate purpose of regulating a fair market transgresses into manipulation of markets in the interests of other policy concerns. A very clear example is the real estate melt-down and credit crisis, in which market dynamics were altered by the external coersion of facially well-intended government policies. Markets are inherently agnostic and non-judgmental. They do not function any better when the policies that contaminate their processes are benevolent than when they are malevolent. Whenever government regulation favors one market participant over others, for whatever reason, the market is no longer free, it is no longer fair, and the benefit of market mechanisms will be lost.

Monday, November 10, 2008


P. J. O'Rourke published some post-election thoughts in the Weekly Standard in which he commented that "the free market is just a measurement." This stimulated further discussion on The Corner blog on National Review Online. I suspect that this will be a continuing discussion as the concept of markets are criticized in the wake of the current economic turmoil and recent election. I will therefore express these preliminary thoughts, in anticipation of more in depth discussion to follow:

1.) Money is simply a representation of collective opinion on the relative values of things that people either need or desire. It serves functions relating to credit, exchange of goods and so forth, but these functions are consequences of this basic fact.

2.) A market is a forum by which exchanges tht determine relative values, i.e. set prices, occurs. Markets are an inherent reality of human interaction and economic activity.

3.) A "free market" is one that is unregulated, and for this reason does not exist anywhere. A fair market is one that functions in such a way as to make markets most useful. A fair market is one that functions free from extraneous influences on good faith transactions between dealing parties. Markets must be regulated to some degree to ensure that the process of the transactions is fair, even if the transactions themselves are not. See the post on "FAIRNESS" below.

4.) Capitalism is a process by which resources are allocated most efficiently. Fair markets provide a mechanism by which capitalism is able to provide resources for the generation of wealth, the management of risk, and the creation of economic growth. Capitalism is inherently competetive.

5.) Competition is simply a method of optimization, the most desriable outcome of which is efficiency, i.e, competition inherently favors more efficient processes over less efficient ones.

6.) Efficiency is the amount of something desirable or needed that is produced per unit of something else that is either desirable or limited.

Thursday, November 06, 2008


One of the pillars of collectivist thought is the observation that many worhtwhile things cannot be accomplished by one person alone. There are may worthwhile things that require collective effort, from building an automobile or a bridge, to performing life-saving surgery, to exploring space. The complexity of many modern endeavors requires cooperative effort, and this in fact is the reason why people self-aggregate into, corporations, clubs, guilds, political parties, and any number of groups whose members share a common purpose.

The collectivist impulse is to organize effort through the forces of government. At first glance, this seems a perfectly logical and efficient practice, since the government can tax, and promulgate rules and laws that facilitate the task at hand. But a moment's contemplation reveals that the only thing that government can uniquely contribute to any effort is coersion.

There is a reason why the liberties enjoyed by the United States political system have resulted in so many types of entrepreneurial accomplishments and progress in science, technology and quality of life. That reason is that inspiration and ingenuity are the fruits of individual volition and talent rather than the coerced products of collective effort. Thirty mediocre composers could not collectively write the works of Mozart, nor could fifty career bureaucrats produce the resolve of Churchill or Ghandi.

Collective effort is necessary to some enterprises and a hindrance to others. It is the liberty to aggregate together to accomplish the former when necessary, and the liberty to pursue one's own genius when necessary to the latter. The power of the state to coerce is a poor substitute for the creative power of a free people.

Tuesday, November 04, 2008


Emerson was wrong when he said " believe that what is true for you in your private heart is true for all men,--that is genius." To believe that what is true for you is true for all men is fanaticism, and fanaticism generally does not end well.

When fanaticism boards the ship of life, the load is lightened by jettisoning common sense. This being insufficient, the next thing to go is empathy, then reason and finally human decency.

It is quite easy to get angry at moronic public officials who suspend first graders for drawing pictures of guns, or who hug a classmate. Anyone can make fun of them. We can think of them as daffy Quixotic prigs, or officious Barney Fifes. But what is essential is that they be recognized for what they are: dangerous zealots who have long lost sight of reason.

Monday, November 03, 2008


Most everyone likes sprots analogies, but sports gives a non-threatening insight into the way things are accomplished in a free society. So, in that spirit, I offer an analogy to illustrate the proper role of government in the economy.

A football game consists of two teams managed by coaching staffs playing according to agreed upon rules, enforced by neutral officials. The rules are necessary to accomplish the purposes of the game, ensure some level of fairness, and make the game worth playing in the first place. The coaching staffs provide the management, teh skilled expertise to make their teams perform at the highest level. The better the caches perform their duties, the more competetive and therefore the more worthwhile the game. The referees perform teh role of regulators. When they do not perform impartially, the game suffers. Now, if at some point, the officials decide that the coaches are not doing their jobs, and begin to perform the duties of coach in addition that of referee, the rules of the game no longer are important. The officials are no longer impartial and the outcome of the game no longer depends on a fair competition, but on the predilection of the officials.

In our economy, the proper role of government is analogous to the role of football officials. They are regulators, and regulation is important for the proper functioning of competetive enterprise. When government also assumes the role of manager, the inherent benefits of competition, the promotion of efficiency, are lost. Government can set the rules to allow for a healthy, competetive economic activity, but when it assumes to become a player in, or micromanager of that activity, outcomes become divorced from merit, and the entire enterprises degenerates into a bureaucratic mire.