We Can't Save Capitalism Unless We Denounce Its False Prophets

Being pro-business is not the same as being pro-market

By Bill Frezza

A debate is raging among free market advocates regarding the proper posture to take with respect to Too Big to Fail (TBTF) banks. This has become an increasingly important issue as the financial sector has grown to take up an unprecedented share of our economy. While cleaving to tried-and-true libertarian defenses of finance as vital to the economy, some of us fear that the machinations of the crony capitalists running the TBTF banks—in cahoots with their allies in the Treasury Department and the Federal Reserve—will result in not only another global financial collapse, but a populist anti-capitalist backlash that could destroy what’s left of our free enterprise system.

But before we can tackle this problem, we must figure out what is really going on. In all public policy debates, perceptions matter, and public perceptions are often driven by the leading narratives that gain cultural acceptance. Let’s look at what these are.

The prevailing narrative on the left is that we are locked in a two-sided conflict pitting greedy capitalists against the working man. Within this narrative noble legislators and wise regulators must accumulate power unto themselves in order to: 1) rein in the capitalists’ depredations; 2) balance the playing field to offset “market failures;” and 3) “invest in the future” to compensate for the shortsightedness of profit-seeking investors. Success requires waging a permanent campaign against corrupt political opponents doing the dirty work of the wicked 1 percent—who if left to their own devices would accumulate all the wealth leaving the 99 percent destitute.

The prevailing narrative on the right is that we are locked in a two-sided conflict pitting American business against ham-handed legislators and clueless regulators whose well-intentioned but misguided laws, regulations, taxes, and mandates threaten to kill the goose that lays the golden eggs. Within this narrative, free market advocates must fight every attempt by tree-hugging Luddites and their socialist fellow travelers to interfere in the free flow of information, goods, and services that are responsible for driving innovation and creating all the wealth the left is trying to redistribute. Failure will leave the working man unemployed, American businesses crippled, and the global economy in perpetual recession.

Both of these narratives are oversimplifications, and both contain elements of truth. How can that be? Because they both miss the key point that the battle we are in is actually a three-sided struggle. Why is this important to realize? Because attempts to defend capitalism strictly within the bounds of a two-sided dialectic can only accelerate the emergence of a populist regime that fuses the centralized economic controls of fascism with the income redistribution of socialism. We are already more than halfway there with today’s “mixed economy”—a pale shadow of the laissez faire system that serves as the libertarian ideal.

So, who are the three constituencies battling over America’s economic soul?

White House Losing Its Grip on the Middle East?

Failure in the Middle East has the potential to wreck the President’s foreign policy world wide

By WALTER RUSSELL MEAD

Secretary of State John Kerry went uncomfortably off-message yesterday in Pakistan, voicing a surprising level of support for Egypt’s military to journalists in Islamabad:

“In effect, they were restoring democracy,” Mr. Kerry said of Egypt’s military to Pakistan’s Geo News during a South Asia tour on Thursday. “The military did not take over, to the best of our judgment—so far, so far—to run the country. There’s a civilian government.”

Obama administration officials tried to walk back the remarks—”He didn’t stick to the script,” an unnamed source growled to the WSJ—but it was too late. The media pounced, the remarks were quickly torn apart on Twitter, and Team Obama is again struggling to regain its balance on Egypt, trying not to call what happened a coup while hoping that the military doesn’t get too much more blood on its hands in restoring order to Cairo and Alexandria.

Let’s get the obvious parts out of the way: No, the Egyptian military is not restoring democracy in Egypt. You can’t “restore” something that never existed, and it takes a lot more than a couple of elections to make a democracy. Democracy requires a host of institutions, tacit agreements, and social norms most of which don’t exist in Egypt. It also depends on a certain basic level of economic progress and prosperity, also not exactly likely to sprout up on the banks of the Nile anytime soon.

The army wasn’t trying to build democracy, either; it was restoring order and protecting the deep state, more or less in accordance with the will of a large number of middle class and urban Egyptians. That’s the beginning and end of it. Americans desperately want somebody to be the pro-democracy good guys. But right now at least, democracy doesn’t seem to be on the menu at the Egypt café.

We don’t want to be too hard on Secretary Kerry. Foreign policy is never easy to do in real time, and the world is in a good deal of disarray at this very moment. But his remarks do point to a deeper problem with the Obama administration’s foreign policy approach—a problem that’s finally starting to bite.

Jail bankers? Let’s start with the real villains–central bankers and their political masters

Big Government and Central Banks: The Real Criminals

By Steve Forbes

The British government has announced that it will be proposing legislation to have senior bankers face prison for “reckless” risk taking. This news item underscores two dangerous trends.

The first is the largely unremarked upon phenomenon of modern democratic governments criminalizing more and more activities. In the U.S., for example, numerous prosecutions have been successfully pursued against corporate managers for the activities of subordinates that the managers didn’t order or even know about. Isn’t it a basic tenet of law that you can’t be charged with a crime you didn’t commit?

A corollary to this is penalizing people for offenses they didn’t know they had committed. Yes, there has always been the axiom that ignorance of the law is no excuse. But that is for basic crimes like thievery, which you should know is illegal. In recent years, however, governments–especially regulators such as the EPA–have issued voluminous rules that can easily catch the unwary. The federal tax code is notorious for this. The frightening truth is that if the federal government wants to “get” you or your business, it can. There’s no way for law-abiding citizens not to get ensnared in the regulatory maw.

Noted social observer and author Charles Murray is writing a book on what he rightfully describes as the increasing lawlessness of the U.S. government. The blizzard of new rules, many of them vaguely worded, undermines the basic foundation of the rule of law: simplicity and predictability. Murray finds the phenomenon far more widespread than most people realize. The recent Inspector General’s report on extensive, deliberate IRS abuses is but the tip of the iceberg.

The Founders' Greatest Fears About Democracy Are Playing Out

Governments do not produce wealth, they only consume it

By Bill Frezza

Our Founders’ greatest fear that pure democracy would inevitably destroy itself is being played out in two distinct dramas, both headed toward the same ending.

Detroit’s bankruptcy bears witness to destruction by one-party rule. Decades of unchecked corruption and incompetent governance have come to a head, as the accumulated debts of a government willing to buy votes from the non-productive at the expense of the productive fall upon a dwindling populace too poor, dependent, or stubborn to flee.

Washington’s terminal gridlock bears witness to destruction by a dysfunctional, self-serving duopoly. Politicians representing two supposedly hostile parties fight over the frozen controls on a runaway train, even as they remain safely ensconced in gerrymandered districts. With massive entitlement spending growing on autopilot, the only thing forestalling federal bankruptcy is unlimited money printing—which will only make the day of reckoning all the more painful when it arrives.

Both tragedies are enabled by a global financial system that insists on feeding vast sums of capital into the maw of sovereign debtors under the false belief that such debts are “safe.” Yet, the only thing sustaining the belief that these debts will be repaid is the self-deluded notion that future taxpayers will make good on them—somehow.

Economics According to the EPA

The Dangerous Purveyors of Administrative Law

New EPA chief Gina McCarthy, appropriately dressed in red, plans to bequeath an unchanging climate to our descendants. Even if it costs an arm and a leg.

by Pater Tenebrarum

The climate is changing, as it has done for billions of years. Luckily, one might add, because if the climate had not changed, there would be no humans on planet Earth. Ever since Margaret Thatcher erroneously began to fund research into 'global warming' in order to muster scientific propaganda weaponry in her struggle against Arthur Scargill and his coal miners union, climate research has grown from a tiny, barely noticed scientific branch, into a major global gravy train funded unwittingly and quite involuntarily by tax payers. No other branch of science manages to generously feed so many researchers, bureaucrats, NGOs and other assorted hangers-on. The main prophets and chief bureaucrats involved travel from one conference to the next, giant retinues in tow, to think up new ways of appropriating even more funds and gaining more influence over the economy. The economic damage done by this perpetual circus has by now reached gargantuan proportions and is set to become far bigger if these people get their way.

Never mind that the original reason for the entire rigmarole, namely the fact that the planet's climate was warming ever so slightly between 1976 and 1998, no longer even exists: warming has stopped as of 1998 and is highly likely to go into reverse on account of the sunspot cycle having reached a minimum (admittedly the latter is just a hunch on our part, based on publicly available information. We don't claim to be climate scientists, we can only try to compare the various competing theories and try to interpret the known facts).

Sadly, Too Big to Fail Is Not Over

Too Big To Fail and Too Big To Succeed 

By SIMON JOHNSON

Writing in Politico earlier this week, former Senator Chris Dodd and former Representative Barney Frank contend that the Dodd-Frank financial reform legislation of 2010 ends forever the ability of the United States government to provide support to failing financial companies. “The Dodd-Frank Act is clear: Not only is there no legal authority to use public money to keep a failing entity in business, the law forbids it,” they write.

Mr. Dodd and Mr. Frank worked long and hard on financial reform in 2009-10, and there is much in their bill that is helpful, which is why regulators need to pick up the pace on completing and putting in place genuinely strong rules. But on the bigger picture – whether too-big-to-fail financial institutions still benefit from implicit government subsidies and a high probability of explicit bailouts — I respectfully disagree with them. I’m not alone — in response to recent questioning from Senator Elizabeth Warren, Democrat of Massachusetts, the Federal Reserve chairman, Ben S. Bernanke, confirmed that credit markets still believed the government stands behind big banks.

There are three issues: the powers of the Federal Reserve, the mandate of the Federal Deposit Insurance Corporation and the vulnerability of taxpayers when one or more large complex financial institutions fail. We have at least five such companies in the United States, all of which are intensely cross-border in their operations (in order of size, JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley).

The Tragedy of Isolation

A sweet-tasting poison 

By THOMAS SOWELL

In the 20th century, Western intellectuals’ two most dominant explanations of disparities in economic, educational and other achievements were innate racial differences in ability (in the early decades) and racial discrimination (in the later decades).

In neither era were the intelligentsia receptive to other explanations. In each era, they were convinced that they had the answer — and dismissed and disparaged those who offered other answers.

Differences in mental test scores among different racial and ethnic groups were taken as proof of genetic differences in innate mental ability during the Progressive era in the early 20th century. Progressives regarded the fact that the average IQ test score among whites was higher than the average among blacks as conclusive proof of genetic determinism.

A closer look at mental test data, however, shows that there were not only individual blacks with higher IQs than most whites, but also whole categories of whites who scored at or below the mental test scores of blacks.

Among American soldiers given mental tests during the First World War, for example, white soldiers from Georgia, Arkansas, Kentucky, and Mississippi scored lower on mental tests than black soldiers from Ohio, Illinois, New York, and Pennsylvania.

Among other groups of whites, those with average mental test scores no higher than the average mental test scores among blacks included those in various isolated mountain communities in the United States, those living in the Hebrides Islands off Scotland and those in isolated canal boat communities in Britain.

Syrian war reaches explosive stage

Syria's fragmentation can no longer be contained inside the country

By Victor Kotsev 
For many Syrian rebels, the unthinkable happened this week, when a key neighborhood of the centrally located city of Homs was recaptured by the army of Syrian President Bashar al-Assad. The fall of Homs, dubbed the rebel "capital," seems inevitable, and while that will not end the brutal civil war in the country, it will almost certainly usher in a new stage. 
Syria's fragmentation can no longer be contained inside the country. To the north, the Kurds are threatening autonomy and fighting viciously with al-Qaeda affiliates at the Turkish border - the Turkish army, under a partial media blackout, was also drawn into these heavy three-way exchanges. To the south, Israel is at guns drawn, and periodically launches an air strike or two into Syria proper. 
Hezbollah has directly involved Lebanon into the war, while the United States - the biggest player around, whose direct military involvement would surely transform the conflict beyond recognition - is sitting on the fence and weighing whether or not to heed the urgent rebel pleas for help. 
The moment of truth may arrive relatively soon. The administration of US President Barack clearly hopes that the rebels can "do the job" on their own, but this hope is becoming increasingly unrealistic. There are many additional obstacles to the Syrian army's progress in Homs province, and more still on the road to Aleppo, [1] but if the current trend continues, it may only be a matter of a couple of months before US and its allies will face a Gaddafi in Benghazi moment: a situation similar to that right prior to the intervention in Libya two years ago, when former Libyan dictator Muammar al-Gaddafi was threatening to reconquer his country's eastern center Benghazi. 

The Frozen City

Misguided policies keep some New Yorkers in subsidized apartments and raise costs for everyone else

by Howard Husock
It’s hard to blame New Yorkers for thinking that the city should “seek to create additional units of below–market rate affordable housing,” as 71 percent of respondents answered in a Zogby poll commissioned by the Manhattan Institute. After all, New York residents continually see evidence of a dysfunctional housing market: high rents; low vacancy rates; young adults tripled up in tiny apartments; illegal and unsafe conversions to divide old units into new ones; stratospheric prices for co-ops and condos in high-income neighborhoods. No serious political voice has argued for trying to solve these problems with anything but more subsidized construction.

Happy 101st birthday, Milton Friedman

Quotes by Milton Friedman

By Mark J. Perry

Milton Friedman was born on this day, July 31, in 1912, and he would have been 101 years old today. Unfortunately, Milton died on November 16, 2006 when he was 94 years old. In an editorial in the Wall Street Journal following Friedman’s death, they reported his loss with the same tribute Milton used when Ronald Reagan died, saying “few people in human history have contributed more to the achievement of human freedom.” In honor of his legacy and birthday, here are some of my favorite Milton Friedman quotes:

1. There is nothing as permanent as a temporary government program.

2. Inflation is always and everywhere a monetary phenomenon.

3. Inflation is caused by too much money chasing after too few goods.

4. Sloppy writing reflects sloppy thinking.

Fourth revolutionary wave to engulf Egypt

Εverything in Egypt must now be performed by the mob, for the mob, in full view of everyone

By Nicola Nasser 
A fourth wave of the Egyptian revolution seems inevitable, until the revolution changes the regime or the regime emerges victorious, with another revolution waiting in the wings. 

The revolution that removed the former president Hosni Mubarak from power on January 25, 2011 and, in its second wave, overwhelmed the first anniversary of his elected successor Mohammad Morsi on June 30, 2013 - with millions of anti-Muslim Brotherhood protesters venting anger until the military intervened to remove him three days later - is now entering its third stage without being completed, fulfilled or finished. 

In a statement issued on July 27, 2013, US Secretary of State John Kerry grasped the fact that the revolution has not yet run its course. "Its final verdict is not yet decided," he said, "but it will be forever impacted by what happens right now." He described the situation as a "pivotal moment for Egypt." 

In 1981, John C Campbell, writing in Foreign Policy, described the Middle East as "a house of containment built on shifting sands," from the perspective of the United States. His description still applies today, no better than to the current state of affairs in Egypt, where the state has become more like a house of cards on shifting sands. 

So far, Egypt's revolution has been more like a regime exchange than a regime change.The old pro-US market economy centers of power has merely rotated power among the liberal "remnants" of the Mubarak regime and the conservatives of his opposition led by the Muslim Brotherhood, with the military playing the role of the arbiter. For example, the Sawiris family billionaires who were milking them are now coming back after they were replaced by the billionaire and MB leader Khairat al-Shater and his ilks during the Morsi era. They were thus far successful in derailing and containing the revolution, which has changed nothing of the old regime, neither internally nor externally.

Middle-of-the-Road Policy Leads to Socialism

Mises vs. Mises: The Death of Socialism

by Gary North

The most influential thing that Ludwig von Mises (1881-1973) ever wrote was a brief article in 1920 on socialist economic calculation.

He argued that socialist central planning is impossible, because without a system of free markets, nobody knows what anything costs, and therefore nobody knows what anything is worth.

That argument convinced a whole generation of young men to abandon socialism. F. A. Hayek was one of them. Wilhelm Roepke was another. There were dozens of them, and for a time they became pioneers of Austrian school economics. But, one by one, they abandoned the position. There were various reasons, but none of the recruits of the early 1920s remained a supporter by 1950. Hayek stuck with more of it than most of them did and so did Roepke. They ceased to be Austrian school economists.

In 1950, Mises gave a lecture, and that lecture became an article. The article was widely read in Misesean in circles, which were outside of academia. It was a great article. It had a great title. In fact, it probably was best title he ever came up with. It was even a great marketing title. Here was the title: “Middle-of-the-Road Policy Leads to Socialism.”

The article was published in a collection of articles written by Mises and collected by Mises: Planning for Freedom. It was published in 1952. It was the most effective book Mises ever wrote in terms of getting his ideas across to laymen. The lectures were easy to understand, and the book sold pretty well. I am not saying it was his greatest book, but I think it is probably the best book for somebody with no training in economics to be introduced to Austrian school economics. The Mises Institute makes available both the book and the article.

Let me summarize it for you. Mises argued that state intervention distorts the free market economy. These distortions lead to public complaints by voters that the economy is not working properly. The voters pressure the government to fix it, so the government passes another law. Law by law, distortion by distortion, the economy gets worse. The society does not start out on a path to socialism, but the interventions of the market expand the state’s power, so the result is ultimately the establishment of a socialist economy. He wrote: “The middle-of-the-road policy is not an economic system that can last. It is a method for the realization of socialism by installments.”

In the last section, he denied that socialism is inevitable. But his article offered only evidence to the contrary. He lamented:

Even in this country which owes to a century of “rugged individualism” the highest standard of living ever attained by any nation, public opinion condemns laissez-faire. In the last fifty years thousands of books have been published to indict capitalism and to advocate radical interventionism, the welfare state and socialism. The few books which tried to explain adequately the working of the free market economy were hardly noticed by the public.

He ended the essay with this:

The impact of this state of affairs is that practically very little is done to preserve the system of private enterprise. There are only middle-of-the-roaders who think they have been successful when they have delayed for some time an especially ruinous measure. They are always in retreat. They put up today with measures which only ten or twenty years ago they would have considered as undiscussable. They will in a few years acquiesce in other measures which they today consider as simply out of the question. What can prevent the coming of totalitarian socialism is only a thorough change in ideologies. What we need is neither anti-socialism nor anti-communism but an open positive endorsement of that system to which we owe all the wealth that distinguishes our age from the comparatively straitened conditions of ages gone by.

Detroit’s death by democracy

When there is no penalty for failure, failures proliferate

By George F. Will

In 1860, an uneasy Charles Darwin confided in a letter to a friend: “I had no intention to write atheistically” but “I cannot persuade myself that a beneficent and omnipotent God would have designedly created the Ichneumonidae with the express intention of their feeding within the living bodies of caterpillars.” What appalled him had fascinated entomologist William Kirby (1759-1850): The ichneumon fly inserts an egg in a caterpillar, and the larva hatched from the egg, he said, “gnaws the inside of the caterpillar, and though at last it has devoured almost every part of it except the skin and intestines, carefully all this time avoids injuring the vital organs, as if aware that its own existence depends on that of the insect on which it preys!”

Government employees’ unions living parasitically on Detroit have been less aware than ichneumon larvae. About them, and their collaborators in the political class, the question is: What. Were. They. Thinking? Well, how did Bernie Madoff or the Enron executives convince themselves their houses of cards would never collapse?

Here, where cattle could graze in vast swaths of this depopulated city, democracy ratified a double delusion: Magic would rescue the city (consult the Bible, the bit about the multiplication of the loaves and fishes), or Washington would deem Detroit, as it recently did some banks and two of the three Detroit-based automobile companies, “too big to fail.” But Detroit failed long ago. And not even Washington, whose recklessness is almost limitless, is oblivious to the minefield of moral hazard it would stride into if it rescued this city and, then inevitably, others that are buckling beneath the weight of their cumulative follies. It is axiomatic: When there is no penalty for failure, failures proliferate.

This bedraggled city’s decay poses no theological conundrum of the sort that troubled Darwin, but it does pose worrisome questions about the viability of democracy in jurisdictions where big government and its unionized employees collaborate in pillaging taxpayers. Self-government has failed in what once was America’s fourth-­largest city and now is smaller than Charlotte.

Competing Currencies in Somalia

The Great Debate

by Finbar Feehan-Fitzgerald

For years a debate has raged in monetary economics over the credibility of the theory that a more stable monetary system would emerge were the system to allow for concurrent currencies operating under no legal restrictions.

One side of the debate, represented most prominently by Milton Friedman, believes that the emergence and acceptance of a new currency would be hindered — and its ability to supplant an incumbent currency all but eliminated — by network effects and/or switching costs.

In general, a network effect results when the desirability of an item depends upon the number of others using it. Since money is demanded due to its acceptability among others for future payment, money would appear to have network effects.

The other side of the debate, represented most notably by Friedrich Hayek, blames legal restrictions for preventing people from switching currencies during times of poor monetary management in the incumbent money.

In Hayek’s ideal system there was no contractual obligation on the part of the money issuers to redeem their notes with some underlying commodity. The unbacked, irredeemable notes then trade against each other and other commodities at fluctuating exchange rates on the open market.

It was Hayek’s belief that competition for customers would force issuers of particular currencies to maintain a stable exchange rate and desist from engaging in reckless monetary practices.

The Somali Shilling

Most economists have come to accept Friedman’s position. There has, however, until recently, been no empirical illustrations of the validity of each opposing view. Any example of poor monetary management in the past has been marred by significant legal restrictions on the use of other currencies.

The Hayek versus Friedman debate cannot be solved empirically; however, a real-life example of concurrent currencies circulating absent any legal restrictions would contain some heuristic value.

The real-life example is Somalia. The collapse of Mohamed Siad Barre’s Democratic Republic of Somalia in 1991 gave us the unique opportunity to observe concurrent currencies absent any legal restrictions in practice.

Leisure, The Basis of Culture

How Much Should We Work?

by MARK SKOUSEN

“How inscrutable is the civilization where men toil and work and worry their hair gray to get a living and forget to play!” —Lin Yutang¹

Ever since moving to the Bahamas in 1984, I have been intrigued by the idea of leisure—shedding the workaholic rat race to be “free and easy” and “letting oneself go,” to quote the German philosopher Josef Pieper. To Pieper, leisure is more than merely getting off work at the end of the day or taking a vacation; rather “the soul of leisure lies in celebration” of nature, life, and the divine in perfect calm and relaxation.²

During my two-year sojourn in the “island of June,”³ I picked up a copy of Bertrand Russell’s celebrated book In Praise of Idleness. Russell, author of more than 60 books, was never idle—what he really meant was leisure time to pursue one’s own loves and goals rather than working for someone else’s objectives. In typical contemptuous style, Russell lambasted the Western penchant for hard labor: “The morality of work is the morality of slaves, and the modern world has no need of slavery.” Furthermore, “The wise use of leisure . . . is a product of civilization and education. A man who has worked long hours all his life will be bored if he becomes suddenly idle. But without a considerable amount of leisure a man is cut off from many of the best things. . . . We attach too little importance to enjoyment and simple happiness.” Russell believed that ideally man should work only four hours and spend the rest of the time engaged in playful activities, not passive activities like watching sports or television, but intellectual and scientific pursuits.⁴

Work Ethics: The East Versus the West

The Judeo-Christian West has always emphasized a strong work ethic, but what about the East? Lin Yutang, the celebrated Chinese libertarian philosopher, insisted that the American virtues of efficiency, punctuality, and goal-setting are actually “vices.” “From the Chinese point of view,” declared Lin, “the man who is wisely idle is the most cultured man. . . . Those who are wise won’t be busy, and those who are too busy can’t be wise.” Referring to Western business practices, Lin ruminated, “Americans have now come to such a sad state that they are booked up not only for the following day, or the following week, but even for the following month. An appointment three weeks ahead of time is a thing unknown in China.”⁵

Lin wrote his essay on loafing in 1937. Today Lin would be aghast at the degree in which the East has adopted the West’s working patterns, and even surpassed them. Anyone who has been to Hong Kong, Japan, or Korea would laugh at any suggestion that Americans are overworked.

Is Overwork an Inherent Defect in Capitalism?

Yet that is precisely what Harvard economist Juliet Schor claims in her bestseller, The Overworked American, first written in the early 1990s. Critics of the market complain that the capitalist system inherently promotes overwork and discourages leisure. According to Schor, the constant demands of the consumer society and global competition are mandating more work hours and exploding consumer debt. Leisure time is on the decline, she says. Eight million Americans are holding two or more jobs, the highest figure since data were first collected 25 years ago. Schor writes that U.S. manufacturing employees work 320 more hours per year than their German or French counterparts. She proposes, among other things, a government-mandated three-week paid vacation for all U.S. employees.⁶

The Price Is Right

The Ongoing Folly of Just Price Theory

by ANDREW HAINES

If you want a veneer of moralism on your economic policy, send in the bishops. 

In recent testimony given to the U.S. Senate Committee on Health, Employment, Labor and Pensions the Bishop of Stockton, California, Stephen E. Blaire, argued for an increase in the minimum wage on the grounds that a just wage is necessary to promote and protect human dignity.

“Work has an inherent dignity,” said Bishop Blaire, “so just wages gained from work support that dignity. Insufficient wages violate it.”  

His words jibe with the teachings of medieval philosopher St. Thomas Aquinas. Aquinas believed that goods held an objective value, and selling a good for more than that objective value would be unjust. So the theory of just price holds that a good or service has, well, an objectively just price. Purchasing or selling a good for anything but the established just price violates justice. 

The trouble is, the only true just price is determined by the desires of buyers and sellers. Not the priest. Not the statesman.

In other words, the theory of a just price prompts the question, “Who decides what price is just?” Economics outgrew the theory of a just price during the Enlightenment and again in the late nineteenth century. Economists William Stanley Jevons, Léon Walras, and Carl Menger all revolutionized economics by focusing upon subjective valuations. All people have different preferences. For example, Joe wants to buy a candy bar with his dollar while Mary wants to buy a Coke with hers. 

All people have the inherent ability to rank their preferences in order of satisfaction. Scarcity, being a fact of nature, forces us to make such preference rankings. Since we cannot satisfy all of our desires, we must choose some over others. The very act of choosing one preference over another implies a ranking and reveals which good or service is more satisfying to the individual. 

If value is subjective, then each person values goods differently. Any one person or group of people cannot establish a “just price”—and matters don’t change in the case of labor. The natural interaction between the buyer who wants to get the most for the cheapest price, and the seller who wants to sell the least amount for the highest price, will form a happy median called equilibrium. Equilibrium assumes there are multiple buyers and multiple sellers, all of whom are having that same set of natural interactions. Equilibrium serves as the price determined by simple supply and demand. 

Apply this logic to wages. Arguing for just wages is the same as arguing for just prices. In that line of thinking lays the idea that someone’s labor has a defined value. Many potential employees value and rank their time the same way they rank everything else. Some people value their time more than others. Those who do not value their time highly will be willing to work for less than those who do. The wage is simply the price established between the buyer of labor (the employer) and the seller of labor (the employee). Wages cannot be established by fiat—nor by any other method than the agreement struck between the employer and employee—without running afoul of each party’s preferences. The ethicist must surely have something to say about the “justice” of tossing out the preferences of two parties to an agreement.

A judicial coup d’état in Britain

In a democracy, parliament, not the judiciary, must have the last word on policy

by Jon Holbrook

This week has been an important one for welfare benefit reform in the UK. Which is strange, given that the House of Commons is in recess and the Welfare Reform Act received royal assent in March 2012.

The reason for this is that, having been unable to prevent the Welfare Reform Act from clearing its democratic hurdles, a number of campaigners and their lawyers have been busy seeking to hinder the act’s implementation by undemocratic means: an appeal to the judiciary. In addition to Tuesday’s failed judicial reviewsagainst the bedroom tax, other legal challenges against the benefit cap, whereby no household may receive more than £500 of benefits each week, are currently working their way through the corridors of the Royal Courts of Justice.

The problem of judicial involvement is not limited to government policy on welfare benefits. On Monday, the High Court gave the trade union Unison permission to challenge government policy that now requires applicants to pay fees before issuing claims in the Employment Tribunal. In fact, since the failed legal challenge to the coalition budget in June 2010, the government has faced a succession of judicial challenges to its policies. Local authorities have also faced regular judicial reviews on policy issues, particularly on budget cuts.

Most of these judicial challenges fail, but some succeed, such as the Burnip casewhere a different aspect of the government’s housing benefit policy was declared unlawful by the Court of Appeal in 2012. However, focusing on whether the claimants win or lose misses the point. And that point is: individuals and organisations are challenging policies in the courts that have been made by our elected representatives in central and local government.

It doesn’t matter that judges often spell out the limited ambit of their jurisdiction to intervene. Lord Justice Laws stressed this point in the recent bedroom-tax cases, when noting that secretary of state for work and pensions, Iain Duncan Smith, enjoyed a broad margin of discretion on the formulation of policy. Note, however, that this is not an unfettered margin of discretion with boundaries set only by parliament; no, it’s a margin of discretion with boundaries set by the courts.

More chilling are dicta from the House of Lords in another welfare benefit case (Carson, 2005), which assert how the courts will set limits on the extent of parliament’s discretion: ‘The essential question for the court is whether the alleged discrimination… can withstand scrutiny.’ Unless the answer is plain, ‘the court’s scrutiny may best be directed at considering whether the differentiation has a legitimate aim and whether the means chosen to achieve the aim is appropriate and not disproportionate in its adverse impact’.

These words make clear that it is not for parliament to decide if a policy has a legitimate aim. Rather, it is the courts which have the final say on both the aim and the means of achieving it. If judges find the aim illegitimate, or the means disproportionate, then they can declare a policy unlawful.

The Childless City

It’s hip, it’s entertaining—but where are the families?

by Joel Kotkin and Ali Modarres

What is a city for? Ever since cities first emerged thousands of years ago, they have been places where families could congregate and flourish. The family hearth formed the core of the ancient Greek and Roman city, observed the nineteenth-century French historian Fustel de Coulanges. Family was likewise the foundation of the great ancient cities of China and the Middle East. As for modern European cities, the historian Philippe Ariès argued that the contemporary “concept of the family” itself originated in the urbanizing northern Europe shown in Rembrandt’s paintings of bourgeois life. Another historian, Simon Schama, described the seventeenth-century Dutch city as “the Republic of Children.” European immigrants carried the institution of the family-oriented city across the Atlantic to America. In the American city until the 1950s, urbanist Sam Bass Warner observed, the “basic custom” was “commitment to familialism.”

But more recently, we have embarked on an experiment to rid our cities of children. In the 1960s, sociologist Herbert Gans identified a growing chasm between family-oriented suburbanites and people who favored city life—“the rich, the poor, the non-white as well as the unmarried and childless middle class.” Families abandoned cities for the suburbs, driven away by policies that failed to keep streets safe, allowed decent schools to decline, and made living spaces unaffordable. Even the partial rebirth of American cities since then hasn’t been enough to lure families back. The much-ballyhooed and self-celebrating “creative class”—a demographic group that includes not only single professionals but also well-heeled childless couples, empty nesters, and college students—occupies much of the urban space once filled by families. Increasingly, our great American cities, from New York and Chicago to Los Angeles and Seattle, are evolving into playgrounds for the rich, traps for the poor, and way stations for the ambitious young en route eventually to less congested places. The middle-class family has been pushed to the margins, breaking dramatically with urban history. The development raises at least two important questions: Are cities without children sustainable? And are they desirable?

Best-selling urban booster Richard Florida, a pied piper for today’s city developers and planners, barely mentions families in his books, which focus instead on younger, primarily single populations. Eric Klinenberg, a New York University professor and author of the widely touted Going Solo, celebrates the fact that “cities create the conditions that make living alone a more social experience.” But perhaps the most cogent formulation of the post-family city comes from the sociologists Richard Lloyd and Terry Nichols Clark, who see the city, and particularly the urban core, as an “entertainment machine.” In their view, city residents “can experience their own urban location as if tourists, emphasizing aesthetic concerns.” Schools, churches, and neighborhood associations no longer form the city’s foundation. Instead, the city revolves around recreation, arts, culture, and restaurants—a system built for the newly liberated individual.

The Financial System Doesn't Just Enable Theft, It Is Theft

The first panacea for a mismanaged nation is inflation of the currency; the second is war.

by Charles Hugh-Smith

It's not just inflation that is theft.

It is painfully self-evident that our financial system doesn't just enable theft, it is theft by nature and design. If you doubt this, please follow along.

Inflation is theft, but we accept inflation because we've been persuaded it benefits us. Here's the basic story: our financial system creates new credit money (i.e. debt) in quantities that are only limited by the appetites of borrowers and the value of assets they buy with freshly borrowed money.

If this expansion of credit money exceeds the actual growth rate of the real economy, inflation results.

Since our economy is ultimately based on expanding debt in every sector (government, corporations, households), inflation is a good thing because it enables borrowers to pay back old debt with cheaper money.

For example, if J.Q. Citizen makes $50,000 a year and owes $50,000 on his fixed-rate mortgage, what happens if inflation jumps 100%? Assuming J.Q.'s wages rise along with prices, his earnings jump to $100,000 while mortgage remains at $50,000. Though prices of everything else have also doubled, the debt remains fixed, making it much easier for J.Q. to service the mortgage. Before inflation, it might have taken ten days of earnings to make enough money to pay the mortgage payment; after inflation, it only takes five days' wages to make the payment.

This apparent benefit evaporates if wages do not rise along with the price of goods and services. If earned income stagnates during inflation, the purchasing power of wages declines. If it took two days' earning to pay for groceries and gasoline before inflation, now it takes three days' wages. The wage earner is measurably poorer thanks to inflation. How much poorer? Take a look: (chart by Doug Short)