Thursday, December 30, 2010

"Should I Stay or Should I Go?"

Robert Higgs (senior fellow at the Independent Institute, phenomenal economic historian, chronicler of the economics of warfare states & originator of the term "leviathan") & I were having a chat on a mutual friend David's post on Facebook a few moments ago... and now I'm depressed.

The initial post was to an article talking about the GOP already backing down from their campaign promises to overhaul Fannie Mae & Freddie Mac. David's commentary was basically my first thought:
"The Republican Wing of the Socialist Party reassures us it is hopelessly unprincipled: "Many Republicans now concede that a speedy exit may not be practical, because Fannie Mae and Freddie Mac have such a dominant position in the nation's housing market.""
My admittedly snarky response:
"I'm SHOCKED. Shocked, I tell you!"
Then Dr. Higgs more seriously pointed out that of course we shouldn't be surprised that the whole FNMA, FDMC, FDIC, HUD, and other alphabet soup organizations that push for lower lending standards and back endless credit expansions with tax-payer cash isn't likely to go anywhere, largely because the real-estate & related lobbies have been living off that fat for long enough to become bloated, powerful, rich & well-connected.

Can't say I disagree in the slightest...

Regulatory capture is one of those funny aspects of "mixed economies" (read: corporatism/socialism), along with rent-seeking, that seem to go endlessly ignored by sycophants of the state, but they are remarkably serious problems... And they really turn the notion that "more regulation" is always needed right upside down!

Why? Well... Because instead of accomplishing the desired effect of reigning in some aspect of business that people don't like - for example, the risky lending behaviors & excessive leveraging of banks that contributed to the symptoms of the housing bubble & financial crisis - the increased regulations usually wind up doing the opposite. They typically wind up providing even more protections to big business.

Way back in 1913, (bad) President Woodrow Wilson said:
"If the government is to tell big business men how to run their business, then don't you see that big business men have to get closer to the government even than they are now? Don't you see that they must capture the government, in order not to be restrained too much by it? Must capture the government? They have already captured it."
Uh... Duh!

Befitting the further contents of this post, I can even toss in a fabulous quote from Robert Higgs himself in his 1987 book, "Crisis & Leviathan":
“The government’s regulatory agencies have created or sustained private monopoly power more often than they have precluded or reduced it.  This result was exactly what  many interested parties desired from government regulation, though they would have been impolitic to have said so in public.”
Regulatory capture happens constantly (it's happening in the area of "Net Neutrality" at this very second, in fact) and is the biggest problem among the most heavily regulated industries - in part because the intense government involvement in those sectors of the markets has so much power to make or break a company's success, and in part because of the revolving-door effect where the regulators themselves either come from the biggest players, or find jobs with them as lobbyists once they leave government.

The incentives are simple though.

If government has the power to regulate your company out of existence, then you spend as much effort as you can making damn sure that the power is used to destroy your competitor instead. Big companies are the best at this, and wind up either colluding directly or just by the nature of having similar incentives argue for an environment which puts everybody else but them out of business. Then, once government & business are thoroughly intertwined, the businesses no longer become traders profiting by providing services & goods to consumers - but rather off of the rents they take directly from government coffers or from the restricted market that the well-intended regulations produced.

The housing industry largely operates this way.

The massive amount of subsidies, credits, and government guarantees going to people who purchase homes keep lenders and more importantly, developers & real estate companies fat and happy. Thus, it comes as no surprise that when incoming politicians start talking about maybe reforming those organizations the people who benefit from the status quo come out strong in opposition to any kind of reform - even though the way the current system works is incredibly devastating to the economy at large and contributed massively to the misallocation of resources in America. Side effects include grossly inflated housing valuations,

So the question is; what do you do? Dr. Higgs suggests getting out of the country:
Robert Higgs Emigration? This one is at least doable, for the time being. 
Sean Malone Where do you suggest, Dr. Higgs? 
Robert Higgs Sean, the best destination depends on the person -- his preferences, his wealth, his family situation, and so forth. I have selected a remote village in Mexico, but it would not be a good choice for everyone -- and if everyone were to select it, it would no longer be a good choice for me, either! 
Sean Malone So you're just going for the escape and personal preference in living standards. I can appreciate that... But then, I worry that all the places I'd do that with would go down the same path the US has followed. That said, you certainly deserve the respite :) 
Robert Higgs No perfect refuge exists, Sean. One must make the best of a bad situation. If a huge number of Americans bailed out, the U.S. government might feel compelled to back away from its current police-statism. However, it might also -- probably more likely -- put restrictions on emigration, as East Germany did when faced with a large emigration. After all, fences can keep people in as well as out. 
Sean Malone I fear that you are just being prophetic :(

We shall see, I suppose. I have, presumably, a lot of life ahead of me though and honestly - it would be pretty cool if I didn't have to spend all of it fighting the leviathan. I'm sure you can understand... 
Robert Higgs Young people have the most the gain from emigration, because they have the greatest expected number of years remaining to live. Better to live free, or at least freer. I foresee nothing but worsening of the U.S. police state; frankly, I cannot imagine anything that would turn it around at this point.
Oi... Depressing.

I hesitate to say anything so extreme as "nothing" could turn the illiberal path America is on around, but the general sentiment is well taken, and honestly, Robert Higgs is someone worth taking very seriously on these matters. But it is definitely a depressing thought.

Can we reverse the intrusions and abuses of the state? I don't know. I do know, as I wrote to Bob Higgs, that I'd really rather not spend my entire life fighting it. Some of my life - definitely... It's a battle worth fighting. But... "All" of it? That just sounds exhausting (albeit, in some ways rewarding as well)!

The fact remains that the best way to be free to live your life as you choose is to become materially prosperous. And the best way for the majority of people to become materially prosperous is economic liberty - which, almost by definition, expands the possibilities for economic opportunity and rewards people who successfully produce goods & services of value to their fellow man. The reason I tend to focus on economic liberty is because it has the best hope of profoundly effecting average people's lives for the better.

So-called "political" or "social" liberty is undoubtedly important (though I would generally assert that liberty is liberty, and is not divided into categories like that), but firstly, controlling the economy is a major means of controlling society, and secondly, a rich, economically free society isn't all that controllable anyway...

Consider that even in a theocracy, it would never (or at least; rarely) be the wealthy man who is executed for atheism or homosexuality. It's the poor. It's always the poor... And when you look at the catastrophic effects of natural disasters like earthquakes or tsunamis... Who's hurt the most? It's not (currently) Americans! It's the impoverished people of places like Haiti. Also think about the fact that Chinese dissidents are thrown in jail for saying the wrong things - 2010 Nobel Peace Prize winner, Liu Xiaobo, for instance. But as the people of China become more prosperous, more of them are going to be able to buy intellectual security in the form of reliable software, internet proxies and other tools that can allow them to publish their "dangerous" ideas anonymously.

Understanding how to generate prosperity is key though. There are so many incorrect theories about conquest, control of "resources" or capital, imperialism, exploitation of labor and the like floating around that it's no wonder so many people are confused.

As long as America remains on the path it's on, the worse off and more materially poor we all become in the long term - and that puts us at higher risk of unexpected catastrophe in all sorts of ways, puts us at the mercy of our "rulers", and it seriously inhibits our abilities to select the lives we want.

I want the life I want... Don't you?

Mass exodus from America does seem unlikely; so for now, my goal is to make the best of it and try as hard as I can to get people to understand what the real problems are and why it's important to choose freedom.

But of course, assuming I do at some point decide to leave... The question remains: Where to?

No comments: