The true tax

 

"Keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax.

    “If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or borrowing. The thing you should keep you eye on is government spending ...”

~ Milton Friedman on Money and Inflation, Q + A [13:44]

What's humanity's greatest ever invention?

What's humanity's greatest invention? Probably voluntary exchange between free people ...

"Underlying most arguments against the free market is a lack of belief in freedom itself.”

“Indeed, a major source of objection to a free economy is precisely that it does this task so well. It gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.”

~ Milton Friedman from his 1962 book Capitalism and Freedom

Democracy wangled: why public programmes are designed to benefit the middle classes, financed by taxes paid by the rich & poor

A simple principles explains how democracy really works to benefit one group at the expense of several others — and why a Capital Gains Tax would be harder that it looks. The principle is something called Director's Law.

 "Director's Law states that the bulk of public programmes are designed primarily to benefit the middle classes, but are financed by taxes paid primarily by the upper and lower classes. The empirically derived law was first proposed by economist Aaron Director.”

Director’s Law is so-called after the delightfully named Chicago economist Aaron Director. Director’s Law states that 

“Government has coercive power, which allows it to engage in acts (above all, the taking of resources) which could not be performed by voluntary agreement of the members of a society. Any portion of the society which can secure control of the state's machinery will employ the machinery to improve its own position. Under a set of conditions to be discussed below, this dominant group will be the middle income classes.”

Milton Friedman calls it the Robin Hood Myth: “the myth that government has benefited the poor at the expense of the rich.” They key essentially is to fuck the poor and the fairly rich (we’ve never enjoyed a “very rich” here) in order to benefit the middle class. 

As Michael Cullen was to confirm for us when he designed the middle-class subsidy scheme Welfare for Working Families, this is still the logic of local democracy.

“On The Logical level you have a political system under which laws are passed by 51% of the people voting One Way against 49% of the people. Now the way to get a law passed therefore is to form a coalition covering 51% of the people. 

    “You might think that you would take the bottom 51% versus the top 49% but the more you think about it the more you realise that's not a very effective way to form a coalition. Why? Because those people who are at the bottom tend to be much less skilful in political activity for the very reasons that leave them at the bottom in the economic scale. …

   “The most effective people in political activity those of us in the middle classes. Where are the people who are literate; where are the people who write for the newspapers; where are the people who mount the hustings; where are the people who provide the candidates.    

    “Well you might say why doesn't the Coalition come from the top 51% all the way down. The answer is that those people at the top [are]a place we can get a lot of money from! And it's worth sacrificing a few votes to get a large fraction of a tax base. 

    “And therefore the logically most reasonable Coalition is sort of 51% of the people running from the lower-middle class through the upper-middle class, and leaving out both the very rich at the top and the very poor at the bottom.”

So why does that make implementing a Capital Gains Tax harder that it looks? It's very simple. Because as every astute politician knows, those people on whom it would fall are right inside your 51% of voters...

15 YEARS AGO: Now a more bigoted state

Since this blog has been going now since 2005 (which is bloody frightening) I'll occasionally head back a few years to pull out something particularly prescient to re-post. Such as this (from almost fifteen years ago), a warning that wasn't heeded about what happens to everybody when big-government thuggery demands a "crack-down" — 'cos there's nothing big government likes more than a good crack-down, like a multi-million-plus mass deportation...

Just a bigoted state [update 4]

The only honest line British Prime-Minister-in-absentia Gordon Brown has ever been heard to utter came last week when he told aides that a women who had just confided to him the alleged evils of Eastern-European immigrants was “just a bigoted woman.”

And so she was. 

Cross the Atlantic now to Arizona, where a bigoted state now requires everyone to carry around their birth certificate, just so they aren’t mistaken for someone who’s living and working in the state without big-government’s blessing. 

If Gordon Brown’s apology for his momentary rush of honesty was the shot heard still being heard around the British electorate, then Arizona’s attack on personal liberty is the shot against individual freedom that’s being heard right around the world.  It’s a reminder that it’s not just the left side of the aisle that are big-government bullies--and a reminder too that neither side has a monopoly on taking advantage of those stateless souls who leave their homes in search of a better life.Just so we’re clear, This Is What Arizona Republicans Want America to Be Like—a place where people of a certain race can be arrested dragged off to jail at the whim of a policeman for the crime of not carrying their papers.  Only Godwin’s Law precludes me from pointing out a particular police state of which that might remind you.

The police-state crackdown is bad enough.  But what it’s demonstrated all too clearly is that for many people apparently committed to individual liberty and small government are anything but.  Scratch the surface of too many small-government conservatives, and what you find there is nothing more than stinking, ill-informed authoritarian racism.  (Just one reason I’ve taken the likes of Andrew Bolt off my blog roll).

I say ill-informed, because it’s the only possible defence people like Bolt might have for being bigoted men and women themselves.

Because the facts confound the bigots. The fact is that in a free society, more people are a boon, not a burden. 

That as author Robert Heinlein suggested, successful immigrants demonstrate just by their choice and gumption in choosing a new life that they are worthy of respect. 

And as James Kilbourne says, “God damn you if the only two words you can find to put together when talking about people who leave their homelands to seek a better life for themselves and their families are ‘illegal aliens.’”

The fact is—and let me say it again just to stress the point—that in a free society, more people are a boon, not a burden. You think that’s hyperbole?  Well, it’s not.  Look at the American experience—the country’s wealth was built upon open immigration—on the melting pot that was the result of the open immigration of the nineteenth-century. But even in more oppressive times of today, the facts are clear that that the freer the country, the more immigration is a boon for everybody—and that immigrants themselves are overwhelmingly more productive and better behaved than most of the bigots are.

Just consider the litany of facts the bigots need to contend with regarding American immigration:

• The runaround needed to immigrate legally to the US is one prime reason so many do it illegally. 
• 'Illegals' are not milking the government; if anything it is the other way around. The National Research Council found for example that most immigrant families "contribute an average of $80,000 more to federal coffers than they consume over their lifetimes." 
• Immigrants generally earn more than they receive. 
• More than 60% of illegal immigrants pay income tax, and two-thirds kick in to Social Security (and most get nothing back). 
• Immigrants help sustain economic growth and cultural dynamism. 
• Immigrants "are generally less involved in crime than similarly situated groups," and crime rates in border towns "are lower than those of comparable non-border cities." 
• Crime rates in the highest-immigration states have been trending significantly downward. 
• Even economists who favour restrictive immigration policies admit low-skilled immigrants are a net plus to the economy. 
• Unemployment is low and crime is down everywhere, especially in places teeming with immigrants. 
• Immigration gives you the benefits of geniuses who were born elsewhere. Google, Yahoo! and Sun Microsystems were all founded by immigrants. 
• Immigrants are more likely than 'natives' to be self-employed. 
• Immigrants tend to create their own work -- when they're allowed to. 
• The power and reach of Spanish-language media in L.A. for example shows supply of productive people creating its own demand. 
• Immigrant labour makes work easier for all of us, and brings new skills to the table. 
• Immigrants and low-skilled American workers fill very different roles in the economy. 
• Immigrant labour makes all businesses easier to start, thus spurring 'native' creativity. 
• "Some argue that we should employ a more restrictive policy that allows in only immigrants with 'needed' skills. But this assumes the government can read economic tea leaves." - Tyler Cowen and Daniel M. Rothschild 
• New arrivals, by producing more goods and services, keep prices down across the economy -- the net gain to US from immigration is about $7 billion a year. 
• There's no reason that the North American Free Trade Agreement (or NZ's own free trade agreements) shouldn't apply equally to people as to widgets. 
• Even in the halls of Congress, economic arguments against immigration are losing their aura of truthfulness, so pro-enforcement types are focussing on “national security.” 
• "The only way to actually prevent terrorists from slipping in is to legalize as much 'illegal immigration' as possible. If one is looking for a needle in a haystack, as the saying goes, one has a hell of job. Finding that needle on a relatively clean floor, however, presents an achievable goal." - James Valliant
• Immigration is good for the immigrants themselves. . . . 

Those facts were extracted from the following articles, which provide whole magazines full of ammunition against the bigoted and the ill-informed: 

• How about a little common sense on immigration - Tony Snow 
• Immigration plus Welfare State equals Police State - George Reisman 
• Immigration and the Welfare State - the real root of the problem - Brian Doherty 
• Who's milking who? - illegal aliens pay more in taxes than they impose in costs - Shikha Dalmia 
• Don't bad-mouth unskilled immigrants - Tyler Cowen & Daniel M. Rothschild 
• Exploitation or expulsion - illegal immigrants in a double bind - Jesse Walker 
• Fighting terrorism requires legalizing immigration - James Valliant 
• Worse than a wall - Kerry Howley 
• A legacy of the unforeseen - Carolyn Lochhead 
• Breathe free, huddled masses - Cathy Young 
• Open the borders - why should citizens of NAFTA countries need visas at all - Tim Cavanagh 
• Bush's border bravado - non-militarized solutions to a non-problem - Nick Gillespie 
• Open immigration, Si! Open borders, No! - Sixth Column 
• Stand in Line . . . and Wait! – Not PC 
• Immigration and Individual Rights – Craig Biddle

And of course there are the two classic Harry Binswanger articles which are 'must-reads' for the moral and practical case behind open immigration (note, open immigration, not open borders.): 

• The solution to 'illegal immigration' - Harry Binswanger 
• Immigration Quotas vs. Individual Rights: The Moral and Practical Case for Open Immigration - Harry Binswanger 

The fact is that there is neither fact nor right on the side of the bigots.  As George Reisman explains for America:

    “The philosophy of individual rights and capitalism implies that foreigners have a right to come and to live and work here, i.e., to immigrate into the United States. The land of the United States is owned by individuals and voluntary associations of individuals, such as private business firms. It is not owned by the United States government or by the American people acting as a collective; indeed many of the owners of land in the United States are not Americans, but foreign nationals, including foreign investors.     

“The private owners of land have the right to use or sell or rent their land for any peaceful purpose. This includes employing immigrants and selling them food and clothing and all other goods, and selling or renting housing to them. If individual private landowners are willing to accept the presence of immigrants on their property as employees, customers, or tenants, that should be all that is required for the immigrants to be present. Anyone else who attempts to determine the presence of absence of immigrants is simply an interfering busybody ready to use a gun or club to impose his will.

The fact remains that the only possibly human objection that well-informed people might have to open immigration is that immigration is a drain on the Welfare State. That they object to being forced to pay for people they’ve never met. This much is understandable. (That is the dark truth at the heart of the whole Welfare State—far from offering charity, it sets man against men.)   Again, George Reisman makes the argument: in summary, that Immigration Plus Welfare State Equal Police State.

    “Illegal immigrants are overwhelming the resources of the Welfare State: government–funded hospital emergency rooms are filled with them; public schools are filled with their children. On the basis of such complaints, many people are angry and want to close the border to new illegal immigrants and deport those who are already here.     “They want to keep new illegal immigrants out with fences along the border. It is not clear whether the fences would contain intermittent watchtowers with searchlights and machine guns. The illegal immigrants who are already here would be ferreted out by threatening anyone who employed them with severe penalties and making it a criminal offense not to report them.     

“This is a classic illustration of Mises’s principle that prior government intervention into the economic system breeds later intervention. Here the application of his principle is, start with the Welfare State, end with the Police State. A police state is what is required effectively to stop substantial illegal immigration that has become a major burden because of the Welfare State.”

And Tibor Machan makes a similar argument, that the biggest problem with the welfare state is not that it might lead to even greater control by government, but that in providing a pseudo-moral argument to treat other human beings like cattle, it habituates people to the sort of easy brutality seen now in Arizona, and in sundry other cases of inhumanity. 

But far from being a reason to abandon open immigration, the problems that state-enforced welfare cause for open immigration are reason instead to abandon the short-lived anti-human experiment that is the Welfare State. 

    “The philosophy of individual rights and capitalism implies that the immigrants do not have a right to be supported at public expense, which is a violation of the rights of the taxpayers. Of course, it is no less a violation of the rights of the taxpayers when native-born individuals are supported at public expense. The immigrants are singled out for criticism based on the allegation that they in particular are making the burden intolerable.
    “The implementation of the rights both of the immigrants and of the taxpayers requires the abolition of the Welfare State. Ending the Welfare State will end any problem of immigrants being a public burden.
    “Of course, ending the Welfare State is much easier said than done, and it is almost certainly not going to be eliminated even in order to avoid the environment of a police state.
     “But the burdens of the Welfare State and the consequent resentment against immigrants could at the very least be substantially reduced by means of some relatively simple, common-sense reforms in the direction of greater economic freedom. . . .”

And they could be reduced too by the simple and easily-introduced expedient of allowing existing citizens to sponsor and take financial and legal responsibility for new citizens.

But this would require a basic humanity that too many of the bigots seem to lack.

In the meantime then, you want an immediate solution to the 'problem of illegal immigration? Then here it is": 

    “The problem of ‘illegal’ immigration can be solved at the stroke of a pen: legalize immigration. Screen all you want (though I want damn little), but remove the quotas. Phase them out over a 5- or 10-year period. Grant immediate, unconditional amnesty to all ‘illegal’ immigrants.”

There endeth the problem.

UPDATE 1:  More good anti-bigoted commentary here [hat tip Thrutch]:

• THE NEW CLARION: The Rights of Man, the Privileges of Citizen
  This is the end-of-road for conservative anti-immigrationists:  the selective  degradation of the liberty to live in a particular place from a right to a “privilege”.  As a hostile commenter put it sarcastically… 

      “Nothing says freedom from government interference like ‘show me your papers.’ Of course, limited government only applies to people who are real Americans, not to Mexicans.”

  Let us examine the conservatives’ trip down the anti-immigration road, and see how it ended there — and what it means for conservatism’s purported fealty to Americanism….
  Read on to see many more anti-immigration shibboleths summarily dispatched. 

•  PAJAMAS MEDIA: Treat the Cause, Not the Symptom: Welfare State Is Draw for Illegals
  While I commiserate with Arizona voters [says Gus Van Horn] public services are the problem, not ‘illegals.’
      …SB 1070 is wrong for Arizona for reasons far beyond civil rights issues.
      SB 1070 deserves only one fundamental criticism: It would fail to protect the individual rights of American citizens — even if it hermetically sealed our borders and the police never touched a single American hair in the process of enforcing it. This is because the biggest headaches attributed to illegal immigration are not caused by it at all…

UPDATE 2: I’m starting a list.  And in ‘tribute’ to Gordon, I’m calling it “Just Some Bigoted Arseholes.”

First on the list is Blair, for this . . . 

To which you can add Silent Running, run by a New Zealand blogger advertising “strong right-wing views” on his banner, who thinks “Mexico is polluting us”; Cactus Kate, who has “sanctimonious” on her banner (and bigotry in her waters); and Crusader Rabbit, who has “liberty” on his banner, and black thoughts about Mexican crowds being “a target-rich environment” in his heart …

UPDATE 3:  Says an editorial in the Arizona Republic: 

    “We need leaders.
    “The federal government is abdicating its duty on the border.
    “Arizona politicians are pandering to public fear.
    “The result is a state law that intimidates Latinos while doing nothing to curb illegal immigration.
This represents years of failure. Years of politicians taking the easy way and allowing the debate to descend into chaos…
    “Comprehensive [immigration] reform will make the border safer. When migrant labor is channeled through the legal ports of entry, the Border Patrol can focus on catching drug smugglers and other criminals instead of chasing busboys across the desert.
    “Real leaders will have the courage to say that.”

UPDATE 4: Reason magazine, whose superb 2006 issue on immigration was the source of many of those linked articles above, has four online articles on the current melee that deserve the attention of everyone not already blinded by bigotry: 

• Immigration Isn't the Problem, David Harsanyi, May 3, 2010 
    “For the most part, the controversy we face isn't about immigration at all. It's about the systematic failure of federal government to enforce the law or offer rational policy. There's a difference…
    “The uplifting tale of the hard-boiled immigrant, dipping his or her sweaty hands into the well of the American dream, is one thing. Today we find ourselves in an unsustainable and rapidly growing welfare state. Can we afford to allow millions more to partake?
    “When Nobel Prize-winning libertarian economist Milton Friedman was asked about unlimited immigration in 1999, he stated that ‘it is one thing to have free immigration to jobs. It is another thing to have free immigration to welfare. And you cannot have both.’” 
• Mysteries of an Immigration Law, Steve Chapman, April 29, 2010 
    “The worst-case scenario is that Hispanics will face possible police harassment anytime they venture out of the house. Not to worry, says Kris Kobach, a law professor at the University of Missouri-Kansas City who helped draft the text.
    “He told The Washington Examiner that cops can ask for immigration information only when they have ‘lawful contact’ with someone—when ‘the officer is already engaged in some detention of an individual because he's violated some other law.’
    “In fact, the law doesn't define the crucial term. One of the dictionary definitions of ‘contact’ is ‘immediate proximity,’ which suggests that anytime a possible illegal immigrant comes in sight of a cop, the cop has a legal duty to check her papers.” 
• How Immigration Crackdowns Backfire, Steve Chapman, April 22, 2010 
    “It's no surprise that Arizonans resent the recent influx of unauthorized foreigners, some of them criminals. But there is less here than meets the eye.
    “The state has an estimated 460,000 illegal immigrants. But contrary to myth, they have not brought an epidemic of murder and mayhem with them. Surprise of surprises, the state has gotten safer.
    “Over the last decade, the violent crime rate has dropped by 19 percent, while property crime is down by 20 percent. Crime has also declined in the rest of the country, but not as fast as in Arizona…” 
• Don't Let Obama Touch Immigration Reform, Shikha Dalmia, April 13, 2010
  ”America's immigration system is badly broken and in desperate need of fixing. And that is precisely why President Barack Obama should not be allowed to touch it.”
• Immigration & Crime, Steve Chapman, February 22, 2010
    “From listening to the more vigorous critics of illegal immigration, our porous borders are a grave threat to safety. Not only can foreign terrorists sneak in to target us, but the most vicious criminals are free to walk in and inflict their worst on innocent Americans.
    “In xenophobic circles, this prospect induces stark terror. Fox News' Glenn Beck has decried an ‘illegal immigrant crime wave.’ A contributor to Patrick Buchanan's website asserts, ‘Every day, in the United States, thousands of illegal aliens unleash a reign of terror on Americans.’
    “Sure they do. And I'm Penelope Cruz…
    “A 2007 report by the Immigration Policy Center noted that "for every ethnic group, without exception, incarceration rates among young men are lowest for immigrants, even those who are the least educated. This holds true especially for the Mexicans, Salvadorans and Guatemalans who make up the bulk of the undocumented population…
    “[Ron] Unz points out that in the five most heavily Hispanic cities in the country, violent crime is "10 percent below the national urban average and the homicide rate 40 percent lower." In Los Angeles, which is half Hispanic and easily accessible to those sneaking over the southern border, the murder rate has plummeted to levels unseen since the tranquil years of the early 1960s.
     “This is not really hard to understand. Today, as ever, most foreigners who make the sacrifice of leaving home and starting over in a strange land do so not to mug grandmothers or molest children, but to find work that will give them a better life. Coming here illegally does not alter that basic motivation.
    “In other words, they want to become full-fledged Americans, and they're succeeding. Is there something scary about that?”

Well, is there?

There are two ways to throttle business. One is a noose thrown over them involuntarily by government — the other is the noose they put on themselves voluntarily.  One contemporary self-chosen noose is known as 'corporate self-responsibility', aka collectivism applied to corporations, explained in this guest post by Kimberlee Josephson. Corporations, she notes, have come to view themselves as social stewards for moral and social change, and are increasingly declaring that they have to "give back." But is that a good thing?

A Brief History of Corporate Social Responsibility

by Kimberlee Josephson

The phenomenon of so-called CSR (Corporate Social Responsibility) gained notoriety with Howard R. Bowen’s 1953 publication Social Responsibilities of the Businessman, and although times have since changed and CSR has taken on various forms since, a constant question remains unchanged.

What is the role of business in society?

Some claim that a greater focus on corporate social performance over corporate financial performance is now warranted, while others adhere to a more classical viewpoint, siding with Theodore Levitt’s assertion that business should simply aim to achieve material gain while operating in good faith. Levitt, a German-American economist and professor at the Harvard Business School, spoke of “The Dangers of Social Responsibility” in a 1958 Harvard Business Review article. He posited that profit maximisation over the long term should be the primary goal of business as this would have a 'spillover effect' improving the wellbeing of society. [As if business's primary goal itself is unimportant! - Ed.]

The propensity to exchange to benefit oneself as a means for societal advancement was most notably espoused in Adam Smith’s 1776 magnum opus, The Wealth of Nations. ("It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner," he declared, "but from their regard to their own interest."), but Milton Friedman later drove this message home in his seminal essay in the New York Times Magazine about how the “The Social Responsibility of Business is to Increase its Profits.”

Yet, the prioritisation of self-gain has proven to be a hard pill to swallow for a culture that seeks emotional fulfillment via altruism. As such, businesses have not only been encouraged to engage in CSR, but also to harness it and pursue a 'higher' calling.

A prominent depiction of the evolution of business interest in CSR, along with society’s expectations for business behavior, is Archie Carroll’s 'CSR Pyramid,' first published in 1991.

At the base of the pyramid is the economic responsibility for firms to be a productive element of society and contribute to the financial wellbeing of the organisation. The next level concerns the legal responsibility of a firm to abide by the ground rules and regulations within the societies they operate. Further up the pyramid concerns a firm’s ethical responsibility, since laws are not sufficient in and of themselves for maintaining order. Indeed, societies establish mores and conventions which influence culture and communal interactions. For instance, it is not illegal to cheat on one’s spouse, but it does violate the institution of marriage; and to the same extent firms are wedded to the societies they are established within and should abide by certain expectations to maintain a healthy relationship.

The top of the pyramid is designated as the discretionary responsibility of philanthropy, wherein the company “gives back,” and this responsibility was posited to be “desired” by society rather than required.

The CSR Pyramid is still widely referenced and Dr. Wayne Visser, CSR professional [sic], who attests it to be a useful framework for managerial decision making. However, over time, the expectations for the top two tiers of the pyramid have expanded, and even what constitutes ethical behaviour has evolved since Carroll’s publication.

In today’s competitive landscape, CSR constitutes a management strategy that goes beyond corporate giving and charitable networks. In fact, as defined by the United Nations, CSR is quite distinct from philanthropy given that in addition to an economic impact it takes into consideration a firm's social and environmental impact.

An emphasis on the people, planet, and profit has become par for the course, and a variety of methods and forms of assessment regarding "sustainability" have come about for companies to prove their “good” work. John Elkington, who coined the term triple bottom line (TBL) for determining the social, environmental, and economic impact of a firm, claims TBL doesn’t go far enough and the business view of CSR is too narrow. Elkington claims that firms should go beyond aiming to be the “best in the world” and instead aspire to be the “best for the world.”

What is “best,” and for whom it is best, though, is largely subjective and open to interpretation. For instance, some social issues are undebatable, such as the desire to end world hunger, but the means for addressing them are usually complex and contestable. [And corporations by their own productivity — and by focussing on their day jobs — have been doing that dramatically in recent decades with barely any applause whatsoever. — Ed.]

Nevertheless, corporations now view themselves as social stewards with a moral charge, and this is an important shift to note, particularly since it is being driven by public opinion.

A 2018 study reported that 78 percent of Americans believe companies must have a positive societal impact beyond their productive purpose, and 77 percent of Americans “feel a stronger emotional connection” to purpose-driven corporations. Companies are responding to public sentiments and reinforcing such expectations through cause-related marketing campaigns and social labelling schemes, and this is a worrisome matter given the potential to compound the issues at hand.

Unlike the stages of the CSR Pyramid, which tended to be industry oriented, firms stretching beyond their domain of competence to prove themselves as worthy contributors to society at large (rather than streamlining efforts toward core stakeholders) is disconcerting for shareholders and distracting for budding entrepreneurs.

The spearheading of virtuous ventures and advocacy advertising show no sign of slowing down—and it won’t, until social pressure shifts back to value rather than virtue.

[Kimberlee's post first appeared at FEE.Org. Hat tip Loiuse Lamontagne and Thomas Miovas Jr]

REMINDER: The Four Ways to Spend Money

There are four ways you can spend money:

1) “You can spend your own money on yourself. When you do that, you really watch out what you’re doing, and you try to get the most for your money.” (This is the way middle-aged men haggle with Porsche dealers.)

2) “Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.” (This is why children get underwear at Christmas.)

3) “Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!” (The second wives who ride around with the middle-aged men in the Porsches do this kind of spending at Gucci and Louis Vuitton stores.)

4) “Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40 percent of our national income.”

    ~ Milton Friedman (as expanded upon by PJ O'Rourke)

The Fairytale of Hegemonic Neoliberalism

One of the great untold stories of the 20th century political left is how they lost the debate on economic issues within the economics profession. So they moved over into the English department (and other humanities) instead, and resumed teaching discredited economics there. This might explain, explains Phil Magness in this guest post, why many of the humanities adopt an explicitly conspiracist epistemology when they talk about economics as a discipline — and why their graduates adopt an explicitly conspiracist approach to opposing political ideas. As examples, you can see the recent "scare" over the Atlas Network, and the long-running scare story about how the world is being taken over by something called "neoliberalism."

What is "neoliberalism"? As Magness explains, "neoliberalism" is essentially an intentionally imprecise stand-in term for free-market economics or for economic sciences in general; for conservatism, or for libertarians and anarchists; for authoritarianism and for militarism; for advocates of the practice of commodification, for centre-left or market-oriented progressivism; for globalism and for welfare-state social democracies, for being in favour of or against increased immigration; for celebrating rocketing house prices or promoting policies to make them fall; for favouring trade and globalisation or opposing the same; or for really any set of political beliefs that happen to be disliked by the person(s) using the term. In short, it's a fairy-tale used to describe any kind of "dragon" of which a certain type of person is against. But dragons don't exist....

The Fairytale of Hegemonic Neoliberalism

by Phil Magness

Nobel laureate economist Joseph Stiglitz recently made waves in academic circles with a book declaring the end of something called “neoliberalism” and outlining the contours of a suitable replacement.

“That question has come to define the current era,” Stiglitz explained. After describing the allegedly dying paradigm with a series of vague economic concepts that include tax cuts, deregulation, and global finance, he declared “the neoliberal experiment” a “spectacular failure.”

His prognostication received a celebratory response from political commentators, many of whom have similarly proclaimed the concept’s demise in anticipation of a more progressive replacement paradigm. Obituaries of this type are now a weekly feature of political and academic commentary. Stiglitz himself also previously announced the “death” of neoliberalism several times to similar fanfare in 2019, in 2016 — and in 2008 before that.

Curiously, among all the cries that the neoliberalism wolf is dead or dying, little attention has been given to a more fundamental question: Does that wolf even exist? And did it ever exist?

Origins

I’ve examined the origins of the term “neoliberalism” before, tracing it back to 1920s Germany, when it served as a favourite term of disparagement for laissez-faire economics used by Marxists and fascists alike. So clearly it has an earlier use. But pejorative terminology originating in discredited extremist ideologies from interwar Germany is a grossly deficient basis on which to establish that the maligned object is anything other than a caricature.

“Neoliberalism” has certainly become a favoured academic buzzword used since that time, although common notice of it in the scholarly literature dates no earlier than the mid-1980s, when attention was drawn to it by the French philosopher Michel Foucault. Even then the term did not achieve widespread academic use until the late 1990s [popularised here in EnZed by the likes of Jane Kelsey], and it has only supplanted another favourite bugbear of the activist world, “globalisation,” in the last decade or so — globalisation having having now become a scare-word for the other side of the political spectrum!

Still, this usage pattern remains exceedingly strange for an ideological paradigm that is commonly alleged to have dominated  economic policy right up to the present day. Conventional depictions of “neoliberalism” routinely assert that this paradigm captured the economic policy-making apparatus of the United States, and eventually the world, starting around 50 to 70 years ago. The dating alone necessarily entails that the alleged neoliberal takeover took place before the vast majority of the world even knew that neoliberalism existed, let alone what neoliberalism was. Which poses an obvious question ...

Where Have All the Neoliberals Gone?

When one probes this strange usage pattern a little further, it quickly becomes apparent that the term’s anachronistic deployment is only the beginning of its problems as a suitable descriptor. The term’s very definition is, to put it mildly, fluid and notoriously imprecise. As Jason Brennan and I note in our book Cracks in the Ivory Tower, neoliberalism is essentially an intentionally imprecise stand-in term for

free market economics, for economic sciences in general, for conservatism, for libertarians and anarchists, for authoritarianism and militarism, for advocates of the practice of commodification, for center-left or market-oriented progressivism, for globalism and welfare state social democracies, for being in favour of or against increased immigration, for favouring trade and globalisation or opposing the same, or for really any set of political beliefs that happen to be disliked by the person(s) using the term.

The “neoliberal” designation has been applied to an array of political and economic beliefs, including internally contradictory ones. In the political-candidate space, it purports to describe everything from Hillary Clinton to Donald Trump. To those who use it with regularity, the only recurring certainty is that neoliberalism is bad. Or to quote left-wing columnist George Monbiot, neoliberalism is “the ideology at the root of all our problems.”

Except there’s also another problem beyond the term’s fluid definition. When investigating the seemingly obvious question of who actually espouses neoliberalism, one quickly finds that almost nobody actually subscribes to this supposedly dominant paradigm. There are almost no actual people who call themselves “neoliberal” — who advocate, adopt, or seek to impose “neoliberalism” on the economy. Nor have there ever been.

Some readers might respond that the term was batted about between the 1938 Walter Lippmann Colloquium and the mid-’50s as a way to rebrand classical liberalism. This is nominally correct. But the adoption of this name was contested from the outset in 1938, and never really stuck on the free market or laissez-faire side of that internal debate, its supposed home in both the interwar German uses and in the academic discussion between 1990 and today.

At best, the self-described “neoliberals” of the midcentury drifted into an attempted melding of (1) international free market liberalism in matters of trade, regulation, and commerce with (2) a robust and fiscally solvent European-style welfare state. Not only does this latter half of this equation meet with approval on the progressive left, but it’s a much more difficult case to maintain that the modern American economy is a derivative of the eventual product of that midcentury discussion, the German Ordoliberal school.

There are also a handful of recent attempts by free market thinkers to re-appropriate the “neoliberalism” label for themselves. But this movement is entirely a response to the term becoming academically trendy in the past decade, not any intellectual continuum to a laissez-faire past. Commendable as the effort to change the word’s overwhelmingly pejorative use into a positive may be, its current adherents probably number in the hundreds. They both postdate the claimed “neoliberal” takeover and remain far removed from the instruments of power that it supposedly wields — and has wielded for over 50 years.

So practically speaking, the total number of people in the world today who would identify themselves with the allegedly dominant ideology of the last half-century is negligible. In fact, the number of academics on the left who devote their lives to decrying “neoliberalism’s” supposed stranglehold over the American and global economies exponentially exceeds the total number of self-described adherents of neoliberal ideology today or at any time in the past.

Taking Neoliberalism Seriously

Neoliberalism, we are constantly told, still runs the show, has run the show for over half a century, and is on the verge of being replaced by a progressive alternative on account of its “failures.” So what happens then if we take this cliché at face value? What happens if we try to actually identify where and how specific neoliberals came to control American economic policy after World War II?

The term’s modern use has exceptionally strong association with Ludwig von Mises — one of the economists who rebuffed the moniker at the aforementioned 1938 colloquium — and with Milton Friedman, who preferred to call himself a classical liberal. As much as we may value their respective economic contributions, neither Mises nor Friedman ever enjoyed anywhere close to the widespread control over economic policy that is often ascribed to them.

Both wrote in an age when Keynesianism was ascendant in economics, and particularly when Keynes’s American expositor Paul Samuelson enjoyed nearly complete saturation in economic education due to the popularity of his college textbook and associated political prescriptions.

Mises articulated a sweeping case against economic interventionism on both philosophical and practical grounds, including a recurring observation that central planning was both inherently susceptible to graft and impossible to implement without disastrous misallocation. Briefly stated, the entire premise of the central planner undercuts the signaling mechanism of prices, which in turn renders him incapable of allocating goods and services to functionally meet even basic consumer wants and needs. Yet Mises remained an outsider to the halls of political influence until his death in 1973, and only found wider vindication after the fall of the Soviet Union validated his longstanding critique of their economic model. [SEE: 'Mises Against the Neoliberals']

Friedman is a somewhat similar case in that his best-known policy work, Capitalism and Freedom (1962), was an outsider’s critique of the entire New Deal order and subsequent welfare state. His monetary theories did acquire some policy salience in the 1970s, but only after stagflation revealed systemic faults in the dominant Samuelsonian approach to central banking that had taken hold in the previous two decades.

While Friedman’s brand of monetarism is frequently credited in the “neoliberalism” literature for the aggressive interest rate “shock” policies of Paul Volcker at the Federal Reserve (1979-87) in a quest to tame inflation, this common account conveniently neglects that Friedman himself was harshly critical of the Fed throughout the same period that it was supposedly under his philosophical guidance. Near the end of the Volcker term, Friedman went so far as to denounce the Fed’s record as an erratic and politically manipulated succession of missteps that openly rejected a stable monetarist rule even while speaking in nominally monetarist rhetoric.

Note that even here one can still legitimately debate the extent to which a Friedmanite policy undergirded these events, but the record points to a messy implementation at best and one that forced him into confrontation with the blunderous obstacles of political execution. It did not, however, entail a “neoliberal” takeover of even monetary policy either before or since that moment, let alone the entire economic paradigm.

Neoliberalism and Political Influence

Far from signifying its validity, Mises and Friedman are actually illustrative of a central defect in the “neoliberalism” literature. Their prescriptive approaches to economic policy — typically calling for a deeply constrained or rule-based form of economic intervention in Friedman’s case, and broad adherence to economic non-intervention in Mises’s framing — have been eschewed for politically entrenched alternatives that favour proactive government intrusions into most economic matters.

Even more so, the main political instruments of economic policy making reveal a conspicuous absence of supposedly “neoliberal” figures throughout this period.

As my friend Peter Boettke recently remarked, there was never a Treasury Department operating under the guidance of James M. Buchanan; never a Friedman Fed; never a Hayekian Council of Economic Advisors.

Instead, the more common norm for political appointments to key economic positions is (1) traditional Keynesians, (2) liberal and conservative New Keynesians, and (3) technocratic empiricists of both the center-left and progressive variety. Instead of “neoliberals,” we find these roles populated in the more progressive moments by Samuelson, or Robert Solow, or James Tobin, or Walter Heller, or Arthur Okun, or Alan Krueger, or — yes — Joseph Stiglitz (chair of the CEA, 1995-97) himself. In more conservative moments such as the George W. Bush administration, key economic policy appointments have typically gone to New Keynesians such as Ben Bernanke and Gregory Mankiw.

One could extend this observation to international bodies that allegedly represent the “neoliberal” era as well.

Although some recent works have attempted to write Mises and Friedrich Hayek into the deep genealogy of the World Trade Organization, the World Bank, the IMF, and similar institutions, the evidence for such paths of influence resembles more of a “six degrees from Kevin Bacon” game than any meaningful shaping of policy.

Key “neoliberals,” at least of the Misesian free market non-interventionist type, are always noticeably missing from the formative political events of these institutions, such as the Bretton Woods conference of 1944 (attended by Keynes himself, along with an assortment of New Dealers) and the key rounds of the General Agreement on Trade and Tariffs (1948) that eventually produced the WTO in 1995. [SEE ALSO: 'Why Austrians are Not Neoliberals']

And when one looks to the modern political leadership of these allegedly “neoliberal” institutions, they do not find laissez-faire theorists or Friedmanites or Hayekians or Misesians. Instead, one is more likely to find their leadership roles populated by political and economic figures hailing from the left of centre and favouring varying degrees of interventionist technocracy. These institutions routinely attract career politicians such as Dominique Strauss-Kahn and Pascal Lamy, left-of-center New Keynesians such as Lawrence Summers, or — once again — progressives such as Joseph Stiglitz (World Bank chief economist, 1997-2000) himself.

Given these and other recurring patterns of political appointments that chafe with the notion of a politically dominant “neoliberalism” paradigm, it becomes entirely reasonable to question the utility of the entire “neoliberalism” literature. Far from fighting to supplant a prevailing ideology for our age, “neoliberalism’s” critics appear to be battling a phantasm of their own imagining.

And conveniently, that phantasm also serves as an intellectually unsophisticated and pejoratively deployed stand-in for any and all things the same people dislike about free market economics without having to actually engage free-market arguments.

* * * * * 

Phillip Magness is an economic historian specialising in the 19th century United States. He is the author of numerous works on the political and economic dimensions of slavery, the history of taxation, and the history of economic thought. 

Dr Magness spent over a decade teaching public policy, economics, and international trade at institutions including American University, George Mason University, and Berry College. His work has appeared in scholarly outlets including the Journal of Political Economy, the Economic Journal, Economic Inquiry, and the Journal of Business Ethics. In addition to his scholarship, Magness’s popular writings have appeared in numerous venues including the Wall Street Journal, the New York Times, Newsweek, Politico, Reason, National Review, and the Chronicle of Higher Education.

His post first appeared at the American Institute of Economic Research.