Economics in one short lesson

Audrey Pietrucha

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”- Henry Hazlitt

This is the one economic lesson taught in Henry Hazlitt’s aptly named classic, Economics in One Lesson. It is a lesson that has not been learned by either the ruling or the chattering classes, who continue a short-sighted, group-focused approach to economic policy in this country. The examples on our current economic landscape are myriad – repeated stimulus programs, the housing loan crisis, “Cash for Clunkers”- yet their lessons continue to be ignored even as the consequences of mistaken and harmful actions manifest themselves in an economy that refuses to improve.

Hazlitt upheld the theories of his philosophical predecessor, Frederick Bastiat. This 19th century French political economist challenged the moral and practical right of government to intervene in financial transactions between free people, as well as its effectiveness in creating prosperity. He observed that economic intervention is most commonly proposed by one group in society trying to gain for themselves at the expense of everyone else.

Bastiat also famously warned of the unintended consequences inherent in such intervention. Unintended consequences are the economic equivalent of Sir Isaac Newton's third law of motion, which states "for every action there is an equal and opposite reaction" and they abound. The “Great Society” programs were not intended to increase out-of-wedlock births and broken families nor were extended unemployment benefits meant to discourage employment searches but these are partial results nonetheless. Guaranteeing loans to banks is not supposed to make them more reckless in their lending practices but often does. Social Security was not meant to nearly eliminate personal planning for retirement but has.

“Depth in economics consists in looking for all the consequences of a policy instead of merely resting one’s gaze on those immediately visible,” Hazlitt said in his economic treatise. Bastiat put it thus: “The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

Too many of today’s economists fit Bastiat’s definition of bad, and too many of our leaders and opinion-makers rely on their incomplete prognoses. That politicians are also shortsighted is not surprising but one could wish for more depth from some of the experts who advise them as well as the media which report and comment on their doings.

That we even accept the role of government in fashioning our economy is a sad statement on how far we have strayed from the laissez-faire model under which our nation thrived during its first few decades. There is a strange belief that politicians and bureaucrats know better how to spend our money they we ourselves do and, therefore, the more of our money that ends up in their control, the better. It is as though money that avoids being deposited in government coffers disappears when, in fact, the opposite is true. Money that remains in private hands is distributed more immediately and efficiently to others through trade or philanthropy.

Keeping more of our money in the private sector might also have a positive unintended consequence: it might minimize the politicians’ proclivity to be constantly seen as doing something when often the best thing they could do is nothing at all. Perhaps congressmen and presidents would not need to prove their worth so much and would stop tinkering since they cannot possibly understand, control and anticipate all that produces a thriving economy. Maybe as they saw the American people participate in mutually beneficial financial transactions without their help and interference they would gain some much-needed humility, as well as trust in people to conduct their own lives and financial affairs.

Our current economic situation is the result of actions taken by short-sighted and narrowly-focused policymakers who came long before us and worked their dark magic over many years. It is not the fault of Barack Obama or even George W. Bush, though both have contributed and both are blamed by their political adversaries. It is the result of intervention in the free economy by progressives and industrialists, bankers and champions of social justice. Financially powerful individuals will always try use government to steer economic policies in directions beneficial to themselves while the politically powerful will always try to use government to achieve social and financial goals beneficial to their favored groups. Unfortunately, government itself is a willing player in this game.

Our leaders should learn Hazlitt’s lesson and put it in practice. Their vision should extend beyond their next self-important sound-bite on the evening news or the upcoming re-election campaign. They should have the strength of character and the wisdom to resist special interests of all stripes and make decisions that will benefit the American people over the long haul. They should admit sometimes the best decision they can make is no decision at all and let the American people be about their business. We can take it from here.

Audrey Pietrucha helps coordinate the Vermont Liberty Alliance. She can be reached at vermontliberty@gmail.com.

The Case for Christmas

Audrey Pietrucha

T’is the season for religion in general and Christianity in particular to come under attack by the not-so-tolerant anti-god folks. Having pretty much eliminated any references to Christmas in our schools and other public spaces (Holiday Trees anyone?) they can now put all their energy into the battle against nativity scenes and Tim Tebow.

At such a time it useful to consider the role religion plays in a free society and what the founders of our republic thought of its importance to a people who wished to be self-governing. It’s hard to argue that our nation’s tilt toward secularism has produced a more virtuous people so what might more personal religiosity as well as moral and ethical introspection do to improve our current situation?

While the founders differed in their personal religious beliefs, they still honored the Judeo-Christian worldview which influenced western civilization. They also recognized the need for the teaching of morality and republican values in the young American population. “Our Constitution was made only for a moral and religious people, said John Adams. “It is wholly inadequate to the government of any other.”

George Washington agreed. In his farewell address he argued that religion and morality were “indispensable supports” of the fledgling nation. “The mere Politician, equally with the pious man,” said Washington, “ought to respect and to cherish them.”

As adherents to John Locke’s philosophy of natural moral law the founders believed, in the words of Samuel Adams, that an American citizen retained the right to “worship God according to the dictates of his own conscience.” This belief was codified in the First Amendment to the Constitution which states, in part, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof . . .” Taken at face value it is hard to see how that translates into first graders being forbidden to eat cupcakes off Santa Claus paper plates at their celebrations-formerly-known-as-Christmas-parties but in my nieces’ upstate New York elementary school that is exactly how far anti-religion fervor and political correctness have been taken.

This begs the question of why religion threatens so many people. Certainly we’ve all heard the contention that evil acts committed in the name of religion outweigh the good. This is a specious argument for two reasons: first, it is impossible to know how many good and decent acts have been carried out by people of faith, especially since small daily acts of kindness rarely makes the news; but even more obviously one can argue that much more evil has been perpetrated by leaders and regimes that claimed no connection to religion whatsoever, but were in fact officially atheistic. Mao Zedong, Josef Stalin and Pol Pot were not exactly known for their piety. They were, however, officially sanctioned heads of state so should we look into abolishing government?

This actually gets a little closer to why religion threatens some. A self-governing people need less external control, which makes much of government unnecessary. When neighbors take seriously the commandment to love one another, and provide such services as meals and rides to the doctor for those in need, these state-sponsored services become unnecessary. When families care for their children and their elderly we don’t need state-sponsored daycare and seniorcare. When families form in the first place we don’t need as many poverty programs. A community of compassionate, benevolent and committed people like those often produced through adherence to a religious creed takes care of its own so the state doesn’t have to.

On an individual level these people can also be threatening because they demonstrate that there is another way to live, a way that demands more of us than we sometimes wish to demand of ourselves. The attacks on devoutly and unabashedly Christian Denver Broncos quarterback Tim Tebow illustrate this point.

Tebow has been excoriated for dropping to a knee in prayer after throwing a touchdown pass, sporting biblical verses on the paint beneath his eyes and thanking Jesus first and foremost after every game. During the off-season he participates in mission trips to third-world orphanages and generally walks the walk of which he talks. It’s a little puzzling that behavior such as this is an issue in a league where it is estimated one out of five players will be arrested at some point on charges of anything from DUI to domestic assault to murder but some commentators and players have made it so and the young man has been roundly criticized.

But Tebow also has his defenders and they are starting to include the majority of Americans. Even when we ourselves do not live up to high standards of behavior we usually admire someone who does. This coincides with our appreciation of religion and Christmas in particular. According to a recent Rasmussen poll the number of religious Americans is on the rise and eighty-eight percent of American say they celebrate Christmas. In light of these numbers a lot of us are wondering why the remaining twelve-percent get to call the shots when it comes to the upcoming holiday.

There is nothing “offensive” about a nativity scene on public property and wishing someone a “Merry Christmas” is not an attempt to convert the non-religious. Both are merely universally understood expressions of love and good will. Exposure to religious ideas and symbols does not harm psychologically healthy people but provides guidance and comfort to many.

The Judeo-Christian worldview is the foundation of many of our American values and should be accepted as such. Tolerance should go both ways.

The questionable value of experts

By Audrey Pietrucha

At the beginning of April of this year some of us were wondering if the baseball season was worth playing or if we should just go straight to the World Series. The experts had conducted their deep, thoughtful analysis and concluded, quite adamantly, it would be the Phillies and the Red Sox in the world championship games with the actual title somewhat up for grabs.
It’s a good thing the St. Louis Cardinals didn’t listen to the experts, only two of whom even put them in the post-season. It was the Cards, after all, who knocked the Phillies out in the first playoff round on their way to winning their eleventh World Series championship. As for the Red Sox, baseball fans will not soon forget that September night when they came within one strike of winning the AL wildcard slot only to lose the last game of the regular season – and their chance for post-season play – to the lowly Baltimore Orioles, a team that had nothing to play for except the satisfaction of being spoilers.

Fortunately, the experts at ESPN rebounded in October, offering spot-on predictions for the World Series with 22 out of 26 pundits forecasting a championship for the Texas Rangers. Oops – foiled again by that pesky element called human action.

Expert predictions influence many of our decisions as individuals and as a society. Predictions about who will win the Superbowl or take home an Academy Award are fairly innocuous – whether wrong or right, the outcomes of these predictions have little effect on the majority of Americans. Predictions in areas such as economics, and, however, can have far-reaching and often negative effects. This is especially concerning when we realize how often the so-called “experts” are actually wrong.

About twenty years ago research psychologist Philip Tetlock undertook one of the largest empirical studies ever conducted on the value of predictions. He concentrated on predictions regarding political outcomes and included 300 highly regarded political observers – college professors, media pundits, and policy makers – in his study. After Tetlock analyzed the accuracy of 80,000 predictions, he came to the conclusion that the “experts” thought they knew a whole lot more than they actually did. In fact, he found the accuracy of the professionals was no better than that of the well-read layman.

Two factors influenced the accuracy of predictions in Tetlock’s study. Dogmatism, the inability to adjust conclusions to new evidence, was one. The other was the complicated nature of some of the realms in which predictions are attempted. Linear predictions such as the amount of time it will take someone to drive from point A to point B are fairly easy to make accurately. But predictions about complex structures, whether they be weather systems, NCAA basketball or the economy, are difficult, if not impossible, to make accurately. With human systems it seems the more people involved the more likely the “experts” are to be wrong in their prognostications.

Knowing this is important as we evaluate our societal problem-solving strategy. If we begin to value reasonable study, experience and common sense as much as, if not more, than unproven theories, we may find the solutions to our problems are fairly straightforward.

A case in point is the strange romance politicians have with the idea of stimulus as a way to bring our nation to economic health. Any reasonable American would conclude that curtailing purchases and saving rather than spending money would restore economic soundness to a household but our politicians stand that common sense approach on its head. Instead, both Congress and our president pursue a course of increased borrowing and spending. In this they cite economic “experts” such as John Maynard Keynes, a man who seemed to discount the important influence of individual rather than institutional action on economic systems. It is telling, though, that even Keynes’ advice, as welcome as it is, is only considered to a point. While Keynes advocated government spending as a way to stimulate a sluggish economy, he also advised saving in preparation for economic downturns. Somehow, that part was overlooked.

This is the major drawback to public policy dictated by experts. First experts themselves are chosen according to how well their advice fits with what policy makers want to do in the first place. Then that advice is sorted through like a box of chocolates, with the caramels and raspberry creams being picked out while the mint jellies grow stale in their wrappers.

The founders of our nation expected the citizenry to be actively engaged in the cause of governance. Much of that engagement was supposed to take place within our communities, where we could solve small problems before they grew into statewide or national concerns. Certainly, they never expected us to abandon our birthright as Americans to “experts” whose solutions are not necessarily any wiser or effective than the ones we ourselves can find. Serious, responsible and thoughtful citizens are ultimately the only experts worth consulting.

Strange Bedfellows?

The nationwide Occupy Wall Street protests (OWS) have also occupied much of the news and discussion this past month. What has gone largely unacknowledged, though, is how many concerns OWS shares with the Tea Party, which itself began as a reaction to the Wall Street bailouts and the U.S. government’s use of taxpayer money to intervene in the financial system.

A few reforms OWS has called for with which the Tea Party could agree include: limiting the influence of lobbyists on Congress, including the odious practice of lobbyists writing much of the legislation that actually ends up on the floor of Congress; passage of “Revolving Door Legislation,” which would prevent government regulators from going to work for the companies they once regulated; and full investigations and prosecutions of all who criminally contributed to the 2008 financial crisis. While OWS concentrates on Wall Street financiers here, the Tea Party would include bureaucrats, members of congress and administration officials who were also responsible for the corrupt circumstances under which our financial system imploded.

Yet the reaction to OWS from both establishment media and politicians has been quite different from what greeted the Tea Party. It has also been predictably partisan. The biggest shock the Tea Party movement withstood (and continues to deal with) was the treatment it received from the press. Here was a large group of average citizens finally disgusted enough with the state of the nation to get off their couches and get involved. While most didn’t expect actual support from a media that tends to cozy up to the very people upon whom it should be exercising scrutiny, namely politicians, they expected to at least be taken seriously and allowed a fair hearing of their grievances.

Instead, many of the pundits who are praising OWS for moving the nation out of its complacency couldn’t think fast enough of names to call the Tea Party when it attempted to do the same. Favorites, of course, included “racists” and “tea baggers,” but there was also the penchant for pointing out that “most” TP activists (a slightly larger group within the group) were “old white men,” as if this somehow made their concerns less valid. In a rational universe the opinions of a group of people who has spent the past four or five decades raising families, building businesses, paying taxes and fighting America’s wars might carry more weight than those of a bunch of kids who haven’t really contributed much yet on either a personal or societal level. But the world of the establishment media is not rational and in this case ageism and sexism were perfectly acceptable reasons to dismiss out of hand an entire group of concerned American citizens.

Of course there are a number of the usual multi-millionaire Hollywood suspects jumping on the “we hate rich people” bandwagon. One is actor Alec Baldwin – the same Alec Baldwin who has been all over television lately touting the Capital One Venture Card. Baldwin is actually partnering with Capital One to support private foundations which promote the arts, a worthy cause and a model of how arts funding should be provided. It is interesting, though, that Baldwin would choose to partner with a bank rather than, say, the National Endowment for the Arts. Perhaps corporations have their uses after all.

And then there are the politicians. Former House Speaker Nancy Pelosi went so far as to invoke deity when she gushed “God bless them for their spontaneity . . . it’s young, it’s spontaneous, it’s focused and it’s going to be effective.” This is the same woman who called the Tea Party “dangerous,” compared its members to violent radicals and hinted that their free speech rights should be curtailed because she feared some of the rhetoric being used by the Tea Party could lead to violence. Exactly what about “Follow the Constitution” and “Give Us Liberty, not Debt!” frightened Mrs. Pelosi so much?
Meanwhile, President Barack Obama’s profound expression of empathy and understanding toward the Occupy crowds was not received very graciously. One member of the occupywallst.org forum recently posted “We are doomed. President Obama today praised OccupyWallStreet. How can we have a proper rebellion if one of our nation's leaders praises us? Time to join forces with the Tea Party - they were vilified.”
At least someone at OWS recognizes truth and his comment may be the most honest and helpful to date. First it recognizes that, too often, we the people are turned against each other and attention is deflected from the real culprits. It also nails the current media paradigm through which a few powerful media outlets hold the power to shape public opinion for or against a movement. OWS is now in the same precarious position the Tea Party once held - when the powers- that-be decide the movement’s fifteen-minutes of fame and respectability are up, reasonable and articulate spokespersons will be ignored in favor of fringe participants and their extreme statements and behaviors. Then OWS will know the same vilification from which the Tea Party has suffered.
These two groups should be talking to each other rather than the media. OWS might bring the Tea Party’s focus back to the economic issues around which it formed and Tea Party representatives could help OWS protesters understand liberty-oriented solutions to the problems created by the unconstitutional confluence of big business and government. If they could form an alliance, so can we.

Audrey Pietrucha helps coordinate the Vermont Liberty Alliance. She can be reached at vermontliberty@gmail.com.

US continues slide down economic freedom scale

Audrey Pietrucha

If economic and political liberties are necessarily linked, as many believe, then the United States’ reputation as the land of the free slipped a little further this week as documented in Economic Freedom of the World 2011 Annual Report.

The 15th edition of the report, as compiled by the Cato Institute, the Frasier Institute of Canada and more than 70 think tanks from throughout the world, ranks 141 nations for 2009, the most recent year for which data are available. Hong Kong and Singapore led the way as nations offering the most economic freedom while Australia, Switzerland and New Zealand filled out the top five. The tiny African island nation of Mauritius took the number nine spot ahead of the United States, which just squeaked into the top ten.

The report designates the basis of economic freedom as voluntary exchange, personal choice, security of private property and the freedom to compete and measures the extent to which a nation’s policies and institutions provide a foundation for these pillars. More than forty data points are used to summarize and measure economic freedom in five broad areas. These areas include the size and scope of government as well as its impact on the private economy through expenditures and taxes; legal structure, especially as it relates to property rights; sound monetary policies; free international trade and regulation of credit, labor and business.

The report attributes the United States’ decline over the last ten years partly to lower scores in legal structure and property rights, but the bulk of the problem comes from higher government spending and borrowing. Considering this report is based on data from 2009 and does not include the last few bloated budgets delivered by Washington there is reason to believe next year’s findings will be even more discouraging.

A fascinating finding of the report is the extent to which economically free nations outperform non-free nations in terms of the well-being of their populations. For instance, the average per-capita GDP of nations in the top quarter of the index was more than six times that of nations in the bottom quarter. The average income of the poorest ten percent of the freer nations’ populations was more than eight times higher than that of the poorest inhabitants of unfree nations. In fact, the poorest members of economically freer nations were almost twice as rich as the average citizen of the economically least-free countries with the $8,735 average income of the poorest members of the top quarter almost double the $4,545 overall income per capita in the bottom quarter. Poverty rates influence wellness, of course, so it is not surprising that life expectancy in the top quartile is almost nineteen years longer than that in the bottom quartile, 79.4 years compared to 60.7 years.

An interesting finding of this year’s report was a comparison of policies that promote freedom over entitlement in relation to economic development. Jean-Pierre Chauffour, lead economist with the World Bank, Middle East and North Africa Region, studied the balance between coerced economic decisions and free choices and concluded that nations which emphasize free choice in the form of economic, civil and political liberties over entitlement rights are likely to achieve higher sustainable economic growth. In contrast, pursuing entitlement rights through greater coercion by the state is likely to be self-defeating in the long run. This is important information for developed countries to consider as they pursue reform of the welfare state and even more important for developing nations as demands for political freedom spur the creation of new social contracts with citizens.

The African experience is important evidence of this finding. Post-colonial Africa turned almost exclusively toward socialism and authoritarian rule. Two notable exceptions were top-ten contender Mauritius and Botswana, which ranked 68 on the economic freedom scale. Sadly, eight of the ten least-free nations were African including bottom dwellers Angola and Zimbabwe. The South American nation of Venezuela and the Asian nation of Myanmar were the only non-African nations to so dubiously distinguish themselves.

The message is clear – societies that embrace economic and political freedom thrive while those whose people are not given choices in how they live their lives and spend their money fail. As we continue the discussion in our own nation about the proper balance between private and public economic behavior let’s err on the side of freedom and at least give Mauritius a run for her money.

Audrey Pietrucha helps coordinate the Vermont Liberty Alliance. She can be reached at vermontliberty@gmail.com.

My musings for July 4th

My yearly ritual of reading the Declaration of Independence with slide show.

New daily Blog on Liberty

I have started a daily video blog entitled "Gadfly's Buzz" which is focussed on daily topics from the news. They are short (five minutes) takes on events and ideas I encounter each day. Check it out. I am currently working on a longer "Gadfly's Musings" which will be 15 minute weekly blogs discussing libertarian topics and ideas. So check out my channel VermontGadfly on youtube and let me know what you think.