Inefficiency…the real beneficiary of trade protection

      While politicians—particularly Donald Trump—are busy promoting how protectionist trade measures will help our economy, the reality is that all of us lose when we turn our backs on free trade. Well, not all of us. There is one group that benefits…the inefficient (not to mention those politicians). And they win at the expense of everyone else.

    Inefficiency is the primary beneficiary of trade protection. [Inefficiency is defined in two ways according to 1. not efficient; unable to effect or achieve the desired result with reasonable economy of means; and 2. lacking in ability, incompetent.] However, so many of us get caught up in nationalistic sentiment to realize what is abundantly clear. The popular mantras include Americans “losing” their jobs to sweat shops and foreigners; companies “outsourcing” phone centers; or auto manufacturers shipping those poor union member’s jobs south of the border. All bunk. Let me give you an example that might help clear things up because the emotion has been removed.

     Let’s say in your town you have an intersection with two gas stations. At the QuickUp—yeah, I made that up all by myself—the employees are friendly, the facilities clean, the beer extra cold, and the pumps always give you a receipt instead of having to “see cashier” (I hate that…if I wanted to “see cashier” I would not have swiped my card!). Across the way, at the Sucks2B-N the store lives up to its namesake; the facility is filthy, the bathrooms are always closed, and the employees view you as an inconvenience to their normal texting routine.

      Now, not surprisingly, the QuickUp sells more gas and has better profits than the Sucks2B-N which is clearly unfair…right? So, to keep Joe the crackhead, Rebecca the part time meth-cooker, and Jim (the owner with a gambling problem) from losing their jobs, the local government institutes some “trade protection.” Basically, if you want to stop by the QuickUp, you have to pay a tax of 5%; that way we do not lose valuable jobs in the community, because if the Sucks2B-N closes, those three people will be unemployed, right?   After 6 months people are still going to the QuickUp—because that’s how bad the Sucks2B-N sucks to be in—prompting local government to increase it to 35% to ensure success.

     As expected, people are largely unable to afford to go to the QuickUp and a significant portion shifts to the cheaper Sucks2B-N.   Joe, Rebecca, and Jim are all better off now and have secure jobs. While the QuickUp, with a staff previously at 20, now has only 8 employees left (that means we are down 11, by the way). But, on the bright side, we get 4 jobs “back” with the addition of new employees which have been hired at the Sucks2B-N (it is easier to provide crappy service as it turns out…who knew).

      Here is the bonus though. In economics, it has been empirically proven that in the light of high tariffs (trade protection) the domestic producers raise their pricing to be more in line with foreign producers’ new pricing which includes the tax. Because Sucks2B-N follows predictably with what economics has long known, the people of your town can afford less ice cream for their families and two more jobs are lost at the parlor (11-4+2=9 jobs lost to save 3…hmmm). And that example could potentially apply to any type of good. In fact, other employers have to buy fuel at the more expensive price therefore they have less money for raises and increased benefits. In the light of reduced sales in other market segments, the local government takes in less tax revenue. In short, everybody in town has essentially paid a tax—in the form of higher prices and reduced future wages—to ensure that Joe, Rebecca, and Jim stay employed…still feeling warm and tingly inside? The “Inefficient 3” (catchy, I know) has been relieved of the consequences of inefficiently operating a gas station and you have received the bill. Both trade protection and the gas station example are, for all intents and purposes, wealth redistribution; a very costly form of redistribution at that. This kind of redistribution has much higher transaction costs than simple welfare leading to an increased magnitude in the future through the compounding effect.

       We must always keep in mind that if production of a good goes elsewhere, there is a reason and we, the consumers, have made that choice. Consumers make choices based on cost and quality that drives producers (i.e. businesses and corporations) to change their production methods and sources. And this is okay. Does this mean some people lose their jobs…certainly; but people lose their jobs all the time for inefficiency, we only seem to mind when it is to someone that is not an American citizen. Additionally, the amount of future production (read as consumption and the ability to have “stuff”) goes down making us all relatively poorer to subsidize—or benefit—a few. In fact, anyone that truly favors trade protection should thank the next fast food employee that screws up their food, or the next server that brings the appetizer after the entrée. Or the next car salesman that sells them a lemon…so on and so on. At least be consistent and support inefficiency directly in all its forms.

Welfare Recipients: Moochers or Rational Actors?

      Often, people who accept and stay on welfare are accused of being mere moochers. To some extent, they do exhibit the primary characteristic of greed: the desire for something that belongs to someone else by compulsion or collusion instead of a trade of value. However, to leave it as simply as that fuels the lack of understanding as to how to remedy the welfare state problem that exists in America today.

      First, let me state it rather directly: people who seek out and stay on welfare for seemingly indefinite periods are rational actors. This may shock some people, baffle others, and even irritate a few; however, that does not diminish the fact it is true. A rational actor is someone who is concerned about their own prosperity and makes choices with the goal of maximizing this objective. In fact, all people are rational actors; we just do not always quantify what prosperity means in the same way as others do.

    The hazard at this point is to be side-tracked by a lengthy discussion that dispels the idea that humans are altruistic (which is the alternative to rational choice), but I will (mostly) avoid that for the time being. Instead, I will use a commonly cited example of altruism and explain briefly why it is incorrect. Fire fighters are often used as examples of altruistic actors; however, they get paid (rather well in many cases), have excellent work schedules, girls tend to like them, and society often idolizes them. Is there risk involved? Of course, but they face great risk—as we all do—by getting in their cars to drive to work. This idea that fear is a primary factor in all people’s decision-making is driven by those who place increased value on personal safety. To a person that is a natural thrill seeker or one that loves accomplishing things others may not dare, being a fire fighter is not altogether frightening or discouragingly risky. It is, instead, a rather rational choice.

       How does this relate to the welfare state? In a very important way, it highlights how people value things differently, some place great value on safety, some on personal “glory,” and others place increased value on wealth accumulation. People who accept being on welfare for extended—or indefinite—periods of time clearly have a high value on security. Additionally, it is likely they place a high value on rest or recreation. When we value recreation over wealth the ability to be free of the burden of work is much more important than having things or money. Conversely, those who value wealth are happy to trade hours of the day for success.

      Here is a scenario to illustrate why welfare recipients are rational actors. Let’s imagine a man named Jim—and his family—are on a myriad of assistance programs that net him the cash equivalent of $26,000/yr and he is offered a job making $32,000/yr. Will he take it? Let us look at the considerations that enter into this decision. First, Jim will have to take 40 hours of his week and trade it for $6,000/yr (that is $500/mth or $2.88/hr). On top of that Jim will have to pay payroll taxes and possibly (unlikely at that income level) income taxes. Would you do that? Ahhh, I can hear the ethical argument now…an argument that I fully sympathize with. So, let’s put it in different terms, if you made $30,000/yr working part time and got offered a full time job for $36,000/yr and this job entailed increased costs, would you take it? It is highly unlikely that you would, unless other considerations enter into your decision such as entry into the job of your dreams.

      People stay on welfare perpetually because they literally cannot afford to get off of it. Things like poor education, increasing minimum wages for entry level occupations, and an increasing menu of programs make this problem worse all the time. Individuals make choices based on individual circumstances, as they well should. What we must do is avoid continuing to lash out at people making a perfectly rational choice; instead, we would be much better served by actually trying to remedy the circumstances which drive these choices. Expanding the welfare state perpetuates the (relative) poverty it intends to cure and reduces the alternatives people have to staying mired in the muck of our burgeoning welfare state. And to completely answer the title question, they do qualify as moochers as well.

Like the 17th Amendment? You will love Ted Cruz’s plan for the Supreme Court, then!

Yes, it is that simple. Ted Cruz, presumably in an effort to romance the disenchanted members of his “base” following two ruling by the Supreme Court (SCOTUS), has forwarded an idea that is only outdone in its folly by the 17th Amendment we have come to know and resent. If not an attempt at romance, it serves as evidence of his inability to understand the Constitution and history.

Some might ask: “what is the 17th Amendment and why was it bad?” Well, the 17th Amendment transformed the structure of the government one step closer to the mob rule that our founders knew quite well and feared rather adamantly. It took the make-up of the Senate from being chosen by the legislatures of the several states and placed it into the hands of the populace in each state. While to many this may sound appealing, there was a very specific reason such a structure existed.

First, the Senate was to represent the state’s themselves, which is why the breakdown of Senate representation is equal amongst the states. The people as individuals, and within districts, had representation in the House of Representatives; however, to balance the potential for popular whim to dominant the law, the Senate was to represent the interests of the states directly. This structured created an overlapping, but disparate constituency structure that would frustrate attempts of any “factions” to exert control over another group of citizens.

The shift in structure by the 17th Amendment washed away a significant protection of the rule of law and preservation of the rights of individuals by subjecting all of Congress to popular impulse. With the presidency already subject to popular impulse, now two full branches of government represent the mob rule idea that is/was democracy and began to erode at the foundations of liberty that are established in limited government.

If Ted Cruz gets his way, the final branch of the federal government will become but an additional conduit for popular opinion which can sway to and fro like a weak sapling in a hurricane. Justices will serve at the whim of any overbearing majority which can establish itself, even temporarily. The Constitution will be relegated to the dustbin of history and rights will no longer be considered inherent nor God given; instead they will only exist until they are no longer convenient.

Don’t believe me when I say it would be (and would have been) catastrophic? I have attached a table below (click on Cruz Table in green) that lists the current members of the Court and their appointment info, winning president at their first retention vote (based on Cruz’s rule of second national election following appointment), likelihood of dismissal that first time, and subsequent retention years.

Any trust I had in Cruz’s ability to be president dissipated when I heard him make this suggestion. My skepticism was affirmed when I made the table. Clearly he lacks historical understanding of the make-up of the Court by the founders or he was so anxious to be everyone’s knight in shining armor and surrounds himself with yes-men to such a great extent that nobody caught this. Either way, I intend to distance myself from him as time moves forward.
Cruz Table

The primary factors of production: the relationship between capital and labor.

       In a capitalistic, free market economy there are, generally speaking, two basic factors of production: labor and capital.  Of course, in the US we have a “blended economy” where some of the economy is free (or relatively so) and the other portion is centrally controlled to varying degrees.  As a whole this can be either through direct ownership and operation (e.g. socialists and fascists) or through regulation and a fiat control structure (the US, etc.).  In a blended economy a third major factor of production emerges: the politician.

       However, it seems prudent to focus on the free market version for now.  Too often, labor and capital are viewed as being antagonistic to one another; this could not be further from the truth.  In fact, the two are largely compliments; however, they can at times be substitutes.  Most young, developing economies have one characteristic they all share which is an abundance of labor.  Likewise, most developed (advanced) economies share a characteristic which is an abundance of capital (although to varying degrees).  So, what are these things called capital and labor?

• Labor: Productive contributions of humans who work, involving both mental and physical activities. In other words, the things we do.
• Capital: Money, land, or assets used in the production of goods and services. In other words, the things we have done.

       One clearly begets the other.  Far too often it is assumed that capital is merely money.  Instead, it is simple tools such as a hammer, complex machines such as a tractor, or even a piece of land.  Even “human capital” represents an act or work to increase future production.  We might fairly characterize this as delayed gratification; when someone puts off current period consumption creating a surplus that can be used or leveraged to increase future production and consumption.  A great example of this might be when a small business owner “reinvests” his/her profits into the business.  They are putting off consumption until a (hopefully) later date.  The increase in the level of consumption at the later period merely represents the “interest” that delayed consumption earned.

       So, capital is the product of labor in all cases; however, not all labor results in capital—the determination is based on how the laborer spends their earnings.  If I am a fence builder and have an extra $200 over my budget and choose to spend it on personal consumption, I am less likely to increase my profits in the future without some other change in circumstance.  Conversely, if I spend it on a nail gun, I have increased the likelihood that my future profits will increase due to growth in efficiency and productivity.

       Capital is an enhancement of labor, not a diminishing factor.  Now, does increased mechanization sometimes result in a reduction of labor required to produce a given product?  Yes. However, that labor potential is not destroyed it just requires a refocus on its next best use; this is similar to the principle of comparative advantage in trade economics.  The last time I checked, the US had the second highest worker productivity in the world, behind Japan.  This is largely due to the increase in productivity caused by capital inputs like machines, etc.

       The ability for us to have the luxuries we enjoy is due in large part to that wonderful relationship between labor and capital.  It is unfortunate that cheap politics encourages the idea that one factor is subordinate to the other in all cases; thus people tend to look at owners of capital and laborers as being in a position of competition with each other.

The paradox of self-righteousness

    With both sides of the traditional political spectrum being consumed with forwarding some moral ideal, it warrants consideration whether people have any claim to freedom if they are unwilling to grant it to another. The Founders clearly intended that one person should not be able to force the actions of another, but we must also come to the realization that any legislative solution to an individual moral question is contrary to the goal of liberty; regardless the origin of any perceived “moral imperative.”

      The paradox of self-righteousness can be easily found in the first word of the phrase: self. The moral authority of one person over their own actions is clear; however, from where is the moral authority of one person over another derived? A common argument submitted to prove the existence and necessity of a list of moral tenets is murder being illegal. While, on its face, this argument would seem to hold—the reality, however, is that murder is not illegal due to a moral dilemma of killing someone. Instead, murder is illegal because it deprives the murdered of the most basic of natural rights—the right to life (which results in a loss of liberty and property as well).

   The fundamental basis of liberty is one’s own right to self-determination; or, as the Declaration of Independence states: “the pursuit of happiness.” However, happiness is not a collective idea, it is an individual one. The same is true for morality as the righteousness of a moral position can be best characterized by the individual forwarding the idea; not surprisingly, the moral code can also be best followed by (only) that same person. If one man or woman has the authority or “right” to impose a moral belief on another, where then is the limits of any other person to do the same?

    This illustrates the paradox. Imposed morality represents a two-sided problem because if the ability exists for one to impose on the others, is it not then implied that all the others have the same ability to impose their beliefs as well? This is where we stand currently. Everyone vying to use government’s monopoly on force to make others behave the way they want them to. If it is okay for conservatives to say no to gambling or drugs due to their moral code, why is it so unreasonable for progressives to wish to coerce “charity” as a moral imperative of their own? Both are premised on the idea that government can save us from a bad (or less than ideal) behavior or condition. By any one group imposing moral control on another, the door is open for the inverse to happen at a later date. A de facto standard is created whereas government becomes a weapon of majoritarian tyranny that’s use is justified as long as a moral precept and a large enough segment of the population is coupled together. Instead, when one is tempted to use government in an attempt to reform others for a personal moral end, society would benefit from them remembering the words of Bastiat: Why don’t you reform yourselves? That task would be sufficient enough.”


Is government absolution?

It has often been said that government is required to help the poor and disabled; however the evidence consistently shows that government’s involvement has not reduced poverty levels. Seeing that government has never (to my knowledge) cured a societal ill like poverty, why then does there remain so much confidence in it for future success? Could it be that support for government welfare programs stems not only from those who directly benefit from being on it, but also as a path to absolution by those who advocate for it?

So, what do I mean by absolution? First, let us discuss the idea that our government has a responsibility to the poor. Milton Friedman wisely pointed out that governments cannot have a responsibility to people…instead, only individuals can have responsibility. We often hear advocates of government welfare say that we are “our brother’s keeper,” a clear reference to the book of Genesis in the Bible; however, the verse is talking about an individual’s (Cain’s) responsibility to his own brother (Abel) and not society’s responsibility to a person or people. This is a blatant misuse of a Bible verse with the intent of misleading people who, by faith, feel an obligation to fulfill Biblical mandates (at least to some extent).

The question then is how does the brother’s keeper example contrast with government welfare and where does the concept of absolution come in? Let us assume that people do feel an innate obligation to help others; which is arguable, but for the sake of this discussion we must accept it generally. What is the easiest way for people to meet that obligation to others? One could work harder and produce more so that they may transfer (via donation) some of that excess production for the consumption of others. Or, one could spend a few minutes every couple of years voting for a group of people who will give money (that is largely not theirs) to others. Both seems to meet the goal of “helping others” yet one of the two options entails significantly less hardship on the individual choosing to vote instead of donate. It is certainly much easier to vote charity to others than it is to actually provide it. Particularly when a good segment of society pays nothing to fund these programs; the estimated percentage of people in America who file tax returns and owe $0 (or less) is 43% (as of 2013).

In the case of this group of people, a vote for welfare is not only costless and potentially beneficial, but also absolves them totally of any further responsibility to be their “brother’s keeper.” In fact, an IRS analysis of the 2012 tax year showed that the most generous states (by percentage of their income donated) were “red states” that voted for Mitt Romney. This implies that those people that believe government should not engage in coerced charity (to as great of an extent) are much more likely to give of their own money while people who see government as a reasonable and righteous source of charity (albeit at the point of a gun, a fact they often ignore) sees little reason to give of their own money when they can instead vote for “charitable” actions.

Therefore, a vote for government welfare represents a much cheaper way (for the voter) to donate largely because others pay the bill. Individuals can then fulfill their sense of obligation from the pockets of others and still gain the sense of giving that usually motivates people to actually give. This leaves people who preach an obligation to the poor and disabled from actually having any responsibility for meeting that obligation personally. Thus, the individuals that choose the voting method over the donating method have effectively been absolved of their responsibility to others. Effectively, those people do not practice what they preach; instead they demand others serve as their brother’s keeper, while they hold the moral high ground through their mere demanding of action by force.  This reminds me of the brilliant words of Ayn Rand who said:

“It stands to reason that where there’s sacrifice, there’s someone collecting sacrificial offerings. Where there’s service, there’s someone being served. The man who speaks to you of sacrifice, speaks of slaves and masters. And intends to be the master.”

Interestingly, the people most hurt are the ones who do, most significantly, need the help. For the real crime is not that everyone does not have access to “assistance”; instead, the real crime lay in the reality that those who truly cannot do for themselves are left in poverty so as to satiate the majority who wishes to forgo their own personal responsibility for their own monetary gain. Simply put the absolution through government costs the absolved little, while that release from obligations is paid for dearly by those they claim to be helping. This is the danger of idealism rooted in greater good terms; for the actual good is left subjected to the eye of the beholder while the intent of actions is weighted far greater than actual outcomes. I close with the definition of absolution: “the formal release of guilt, obligation, or punishment.”

Understanding competition in different market structures.

There seems to be some surprise when different forms of competition are used in different industries and markets; however, much of this confusion can be remedied if we break the system into an array of three basic market structures and the likely competitive behavior of each.

For example, here in Florida our legislature passed a law allowing a particular form of medical marijuana, dubbed Charlotte’s Web (a non-hallucinogenic form of cannabis), to be used for the treatment of different chronic conditions. Unfortunately, in the drafting of the bill, the legislature did what government does and decided the market for this product would be best regulated by government than by market participants and consumers. This did prevent any lives from being lost to misuse of the drug, but also ensured no lives could be saved either because, after almost a year, the production of the substance has been exactly zero.   This is because the supply side has been embroiled in legal suits over who will get to produce and profit off of this new product; or, more succinctly, who will the government choose to hold monopolies over the consumer?

This circumstance prompted some to accuse the potential producers to be engaging in “greedy behavior.” Question is: is this true? No, it is most certainly false. In fact, anyone with a rudimentary understanding of economics could have predicted this very result. Instead, the problem was with the premise that government should regulate to best ensure consumer safety. Regulation has, as a matter of fact, been most successful at preventing consumer access to products, not ensuring safety (see airline deregulation).

For the sake of simplicity I will break down the market into three types: 1) free market, 2) government regulated market, and 3) black markets (where the products are illegal for sale and/or use). Within these three market types there are very predictable methods for competition between suppliers. You see, no matter the structure of the market, there is competition for market share (portion of the available consumers); it is the market structure which dictates the methods employed to compete for customers not the production side participants.

In a free market, producers are required to appeal to the consumer to sell their products; this is most commonly done through pricing and quality; although an argument could be made for the influence of advertising and endorsements in the modern market. Either way, the transaction is voluntary on both sides—the producer provides a certain good at a certain price and consumers choose from whom (and what) they will buy.

On the opposite end of the spectrum we have black markets; markets that are required to operate outside of the law and at greater risk than a traditional legal market. These markets still exist because the demand for certain illegal products exists and; with greater risk, higher levels of profits can be extracted from the consumers. Once the ratio between risk and profits become acceptable, people will enter into the market; however, it is those people with higher risk tolerance that will be induced into the market earliest.

This reality dictates that people already comfortable with high levels of risk will enter these markets. Thus, competition will take place in a very risky manner. Instead of these market participants competing with price and quality, they will instead compete with violence and intimidation. We can see this clearly illustrated in the prohibition era alcohol trade and the modern day drug trade. The contrast between those two examples also highlights how that status quo of violence ends when the legal prohibition ends; the drug trade still involves high levels of crime while alcohol involves practically none.

Finally, in a regulated market there is also competition between suppliers (and potential suppliers). This competition, however, does not take place for the benefit of the consumers; very little appeal is made to them. On the contrary, this competition takes place in the legislature and in the court room. When government determines market eligibility, the consumers are not a requisite piece of the equation; no longer is the preference of the consumers the primary concern. Bureaucrats, politicians, lobbyists, and judges become the arbiters of market share. This leads to inefficiency, cronyism, and a lack of innovation. If you have a government mandated monopoly on the distribution of a product, what is the motivation to make that product better or less expensive? There is none. Competitors are either not allowed or the obstacles to entry are so great that the likelihood of a new competitor entering is close to zero.

This is the problem with the Charlotte’s Web law. Because competition is not based on price and quality, potential suppliers must compete in the legislature or in the court room. Once these suppliers are chosen by government (and given regulatory power by their inclusion into a regulatory board) I can guarantee that it is unlikely the regulatory nature of the market for Charlotte’s Web will change. Also, we can expect supply to be relatively low, while price is disproportionately high compared to cost and value. A regulatory monopoly (or oligopoly in the case of multiple firms) is no less predatory on consumers than a natural monopoly; they just get to rest well knowing they are immune to challenge from a government that instituted the monopoly in the first place. Consumers (in this case, sick children and their families) are caught in the cooperative crossfire that exists between the suppliers and government.


The nature of black markets: why making commodities illegal is ineffective.

I think it is important to characterize the commodity in very a generalized manner—at least for now—therefore we will refer to our commodity in question as a widget. Now, it is of no consequence what a widget is because, when analyzing the effects of a black market, the only relevant factor is that widgets were made illegal by lawmakers. It is important to begin with a basic definition of a black market:

“A black market or underground economy is the market in which goods or services are traded illegally. The key distinction of a black market trade is that the transaction itself is illegal. The goods or services may or may not themselves be illegal to own, or to trade through other, legal channels.”

It is important to note that the definition also identifies that the goods (in our example widgets) need not be illegal to own. This refers to situations where taxation or regulations are used to limit, control, or inhibit the trade of a good or service (i.e. high cigarette taxes). However valid this discussion is, it will not be the focus of this conversation as we are assuming our commodity has been made illegal for the sake of simplicity.

Black markets develop because making a product illegal does not cause people to stop using it; instead, it merely marginalizes consumption, the production, and the distribution to those who are willing to accept and operate under greater degrees of risk. I know this may sound a little confusing which is why I created a graphic that illustrates the levels of acceptable risk for different groups of society:

Risk flow chart

In this graphic we can observe that the lower two segments (5 & 6) are those people who enjoy or are comfortable with greater risk levels; next (segments 3&4) we can observe the greatest amount of people as the average level of risk takers which would be generally averse to great risk, but partaking in some low/moderate risk; finally, in our upper two segments (1 & 2) we can see a portion of the population who range from mostly risk averse to almost exclusively averse to risk. This understanding of risk tolerance is important in the realization that making commodities illegal only serves to focus use and production on the risk loving segments which are most likely to partake in other risky behaviors (e.g. crime, violence, etc.) regardless of their use of a certain commodity. This reality is why the argument of illegality for the purpose of public safety is largely invalid.

Let us return to our concept of widgets again. If widgets are made illegal then we have some serious problems: 1) people are still demanding this product (although demand is now almost exclusively coming from groups 5&6 and a small part of group 4) so new producers will enter the market to meet this demand and receive the greater profits now offered by an illegal trade operating at monopoly pricing. 2) By compressing consumption to the risk loving segments we create a self-fulfilling prophesy – that the people using the widget will also be breaking other laws [don’t believe me?…look at why prohibition did not work for alcohol].

We can see a new and growing market segment dominated by those who are more predisposed to risky (read: criminal) behavior. Also, we have reduced competition in the production of widgets which would generally (particularly in a highly criminalized black market) lead to the production of “crappier” products at higher prices. Therefore, the risk factors of our widgets become even greater due to the lower quality. Additionally, in this market with limited competition, lower quality requirements, and huge profit margins we will observe more criminal (mob-like) activities in the production and distribution of our widget. In essence, criminal producers compete with force instead of with price or quality (or both) to gain customers; this has many negative effects on the communities in which these suppliers operate.

We are also presented with a consumption level distortion. The new consumer group—which is also isolated to higher risk tolerances—engages in the same activities they would have likely done anyway; however, now our widgets are given the credit (blame) for these activities. This creates somewhat of a paradox in that the results of prohibition become the best argument for prohibition because the correlation between widget use and other risky/criminal behavior increases due to us arbitrarily slicing segments 1, 2, 3, and most of 4 off of the consumer base. We have not eliminated any undesirable by-products of consuming widgets; we have merely magnified the (rudimentary) perception of the widgets’ effect on producing these negative by-products.

Why is this important? First, there are little to no positive effects of making products illegal beyond people making themselves feel better that they may have coerced others into not engaging in an activity this other person condemns [think Michael Bloomberg and soft drink sizes]. Second, by isolating supply to risk loving individuals we fuel illegitimate activities and isolate supply into the hands of people willing to exercise the most risk. Not only have we criminalized users, we have laid the foundation to launch a whole new and highly profitable enterprise that relies on criminal activity and violence as the primary means to restricting market entry. This incorporation excludes traditional competitive means (product differentiation and price) in favor of force, violence, intimidation, and a new criminal recruitment system resulting in social problems in these communities as well as losses in property values, tax revenues, and legitimate employment opportunities.

Gun rights advocates make this argument quite accurately and succinctly when they state that: “making guns illegal would only keep them out of the hands of the law abiding population who do not commit crimes anyhow.” This is a very astute observation. Unfortunately, this same group often fails to realize that the same is true for our widget example, or drugs, or prostitution, and was found empirically to be true with alcohol. Making any of those things illegal did not eliminate the use of them; it merely marginalized use and created a criminal enterprise where one did not previously exist. Does prohibition result in decreased use?…only a little because, if the product is inherently risky, a vast majority of the population will avoid it anyway. Does prohibition make society safer? No, in fact the evidence would indicate the opposite.

So, why does our society struggle with this idea? Because liberty is scary to so many people! Of course, liberty—like so many other things—is really only a good idea for ourselves, not for others. The false premise that one group of people has the responsibility or authority to try and save others is preposterous and, I would argue, excludes the people who hold that idea from having any real profound understanding of the concept of Natural Rights or the ideas that our founders held so dear in creating this greatest of countries. The land of the free has become the land of the busybodies, intent on utilizing their votes to gain access to the force that government wields to make individuals “mind” them. I do not wish to have a nanny state economically nor do I wish to have one for individual choices. Incidentally, one thing everyone should keep in mind, you do not get one of those without the other.

Unions are cartels that should be subject to anti-trust laws

        Most people are familiar with the general idea of anti-trust laws and proceedings; but, as with many things the devil is in the details. A major problem that underscores this greater issue is a lack of understanding of the exact nature of labor. People often think of labor and capital as having a protagonist/antagonist relationship and this misconception is quite profitable to labor leaders and their political allies. However, the pervasiveness of this misconception does great harm to those who directly control labor—individuals; particularly those individuals who have the lowest skill levels which are most often the poor, minorities, and young people. People see laborers as having no leverage in the business relationship and thus assign laborers a more limited value.

        First of all, there are two primary factors of production: labor and capital. Labor is the efforts of people in producing goods and services for trade. Capital describes the accumulation of machinery and tools (often thought of monetarily) that are used in the production process. Neither factor holds a distinctive advantage over the other as a general rule, but differing circumstances can tip the scales of control to one or the other.

        This can be seen throughout history and even today. For example, there was a period in time when labor was so highly demanded (thus, labor held the advantage) that employers would wait outside of prisons to hire people as they were released. In the modern day, people who hold strong skills in computer programming or web design (etc.) can command significant salaries and benefits. These are not the instances that the media and politicians focus on; instead they choose to highlight the false narrative of the minimum wage and the “plight” of entry-level, low wage workers. This misses the reality of the damage done by labor unions by creating a sleight of hand, parlor trick.

         We—rightly—prosecute the collusion (cartelization) of business (owners of capital) if they join together to fix prices or production levels in a manner to extract much higher profits from the market than the competitive (more often the monopolistically competitive) value of their outputs. However, when it comes to labor unions, who collude openly on a national scale and across industry sectors (e.g. SEIU and AFL-CIO), we see that not as being an extortion of the consumer as we do in the capital example. Instead, we see labor unions—simply groups of individuals colluding to monopolize and thus increase their market power artificially—as merely protecting their members from an otherwise predatory institution. This is not the reality when it comes to mega-unions. The reality is that they are utilizing their control of one of the two primary factors of production in the same way businesses do when they collude; therefore consumers pay significantly higher prices which would resemble monopoly level pricing.

     Furthermore, just as other monopolies who do not enjoy regulatory protection by government which controls market entry, they induce others to enter the market and capture their market share by offering superior products at lower prices [note: natural monopolies that do not rely on regulatory control of market entry do exist; however, they are quite rare]. The effects of the monopoly, outside of government intervention, are often limited in their scope. We can see the results of this in the automobile market where, as trade restrictions relaxed (which is good for the US consumer), the foreign car producers began to rapidly grow against the domestic ones which were plagued by higher than natural equilibrium labor costs and diminishing relative quality (as a way to fight costs) versus the competition. The eventual result was that all those people who owned and controlled the labor factor of production in the car market and enjoyed higher than appropriate levels of profits (pay and benefits) ended up dropping their long run incomes to zero as new competitors entered and captured market share. From a labor perspective, these new market participants would include southern state workers who drew in production facilities as well as foreign workers (via outsourcing).

      Additionally, areas densely populated with people who enjoyed this monopoly level pricing for their labors collapsed as the monopoly structure of their labor force declined. Their government, bloated on the excess of extracting unrealistic levels of profits in their labor force from other areas in the country, could not sustain the drop in tax revenues and have essentially become ghost towns (Detroit’s population in 1950 was 1.8 million and is approximately 700,000 today). Also, the greater than equilibrium labor cost overall in markets like Detroit due to unionization of the auto industry crowded out other industries making Detroit perilously dependent on one industry.

        The real long-run winners in the equation have been the labor unions themselves (not their members) and the politicians who have enjoyed control of their votes and contributions for many years. The losers in the short run were workers that did not gain entry into those industries and, in the long run, all the people of areas once dominated by big labor production. People often say that unions were once a good thing and that somehow is supposed to justify the existence of mega union entities; however, I find that logic to be severely flawed. Instead, I argue that unions are still positive things when they are constrained to plant (or perhaps firm) level entities. This reduces large scale collusion while granting the owners of labor a more even position in the negotiating process without giving them unfettered control of the production of certain markets completely. Owners of a particular firm control all of the capital for that firm, but no single laborer controls all of the labor for a firm; therefore, an alliance of firm level labor can be positive without being punitive to consumers or damaging to the industry sector. Also, compulsory inclusion in unions should not exist because this removes the competitive nature of markets which allow a fair blend of profits to capital and labor simultaneously, while ensuring maximum marginal value to the consumers.

Recent Middle East events prove we must stop ignoring reality…

        Here we stand, once again faced with abhorrent violence in the Middle East.  Violence which we are to believe is random, spontaneous, and to some extent – justified(?).  Through the blinding light of our own ignorance; the impediment to logic which is idealism; and paralyzed by the ongoing evidence that we may never be adored globally, we stand as a nation with leadership that is prepared to do…nothing to change the status quo.  This is the unfortunate position that America’s post-Cold War foreign policy has placed our nation in.  Reject reality, we say!  Instead, let’s hope the thousands of years of human nature are going to change overnight because…well, it just ought to.

       So, what is the goal of American foreign policy you might ask?  A form of idealism aimed at showing strength towards allies, passivity towards foes, and demoralizing our own people in the process.  Idealistic foreign policy is derived from the “progressive” notion that all nations will gather ‘round the fire, cook some smores, tell some ghost stories, and generally frolic together like a group of girl scouts after a successful cookie drive.  This is a complete shift in policy since the end of the Cold War in which we now attempt to get all nations to rise above their own national interests and become part of the global family.  Plus, at some point we have determined if nations do not like us, it is not their people nor their traditions, only their despotic leaders that do not like us.  Easy remedy, right, depose Hussein and the Taliban and the people of Iraq and Afghanistan will welcome us with open arms because of their newly instituted, American-style democracy…Yet another miscalculation of the “democracy builders” on the left and the right.

    So, how is it we miss the point so bad?  We have unrealistic expectations of people we largely do not understand; and when we do understand them, we try to insert our own, more favorable version of reality in the hopes that they too might embrace this alternate reality.  So, instead of the rioters in Libya or Egypt merely hating us, we are told they just did not like a movie.  There are plenty of movies I do not like, but I have easily refrained from killing anyone over them [note on Napoleon Dynamite…I would love to have those couple of hours of my life back].  Now, just how do we begin to fix it?

     The first remedy would be to incorporate a little bit of cultural relativism into our foreign policy.  Cultural relativism reminds us not to view other cultures through our own eyes to best understand them, but to consider their practices through their own worldview.  This is an important detail, not for some ill-fated pursuit of political correctness, but because understanding the other culture provides us information as to how they will act in the future and what potential impact our foreign policy may (or may not) have on them.  Our actions must be measured, but must not be measured arbitrarily through the lens of our own moral authority, regardless of how relevant that authority may be.

      Second, act on those things which we know to be true.  Understand that, as unfortunate as it may be, reality is just as advertised and no matter how much hope we engage in, we cannot change reality.  Example:  if we know that nation-building has a low probability of changing a group of peoples’ attitude towards the U.S., let’s save the money and move along (Iraq and Afghanistan).  We must act in our own national security interest!  This may seem conceited, but if we engage in trying to make the world what we wish it were, we will likely be ambushed by that which it certainly is.  We are not the teacher of some global kindergarten class in which our will can be imposed through idealistic efforts and frequent use of “time-out” (does that really even work in kindergarten anyway?).  Instead, we must realize that we stand as the only remaining superpower in a world which largely believes that it no longer has a requirement for one.

Additionally, appeasing terrorists, tyrants, and despots is ineffective foreign policy (see: pre-WWII French and British policy towards Hitler—then “Google” The Holocaust).  Furthermore, there is a reason we have a policy of not negotiating with terrorists because, if we did it once, we would be doing it all the time.  And, lest we forget that having a Bill of Rights and individual liberty does make us better than everyone else!   If we continue down the path of excusing inexcusable behavior and apologizing for our own global superiority, we will only perpetuate and encourage behavior like we are seeing once again throughout the Middle East.  We mortgage our future for the unattainable goal of popularity, but must wake up to realize this is most certainly not a high school prom court; in reality, we live in a world riddled with danger where we stand as the biggest prize for those who wish to prove something.