Sunday, December 28, 2008

The Real Chile

Many Austrian economists at the Ludwig von Mises Institute, such as George Reisman, cited the Pinochet regime in Chile between 1973 and 1982 as an example of the free market. The Chile dictator during that time, Augusto Pinochet, underwent a gradual policy called "privatization." The Pinochet administration sought to implement the "privatization" plan by working with the Chicago Boys, who studied economics at the Chicago School. Many individuals, and even some libertarians, falsely proclaim the Chicago School as a "free market" school of thought. The Chicago School, however, did not have libertarian policies, it proposes active state intervention in the macroeconomic sphere.

Contrary to the popular myth, the Pinochet administration only had started to gradually implement the neoliberal "privatization" policies only after 1975 and reversed the reforms by 1981. The "privatization," policies did not significantly decrease economic intervention.

Under the Pinochet administration, Chile still had a 20% value-added tax, 10% welfare "pension," and 10% income tax. Chile had only gradually reduced tariffs from about 35% to 15%, subsidized "private" contractors as "privatization" of state industries, and "liberalized" price controls as "deregulation." The state only cut marginal tax rates, other types of confiscation rates stayed the same and even increased. Thus, direct taxation totaled over half of the income.

While Pinochet eliminated unions, he replaced it with government imposed wage floors, indexed to inflation. Pinochet's indexation plan created the massive unemployment there, which reached 22% in 1983.

Actually, much of Chile's "growth" came after 1982, after its implementation of more Keynesian policies. Quoted from this article:
By 1982, the pyramid finance game was up. The Vial and Cruzat "Grupos" defaulted. Industry shut down, private pensions were worthless, the currency swooned. Riots and strikes by a population too hungry and desperate to fear bullets forced Pinochet to reverse course. He booted his beloved Chicago experimentalists.
The Chilean government also reintroduced intellectual "property" privileges, and increased subsidies. The Chilean state has implemented the "East Asian" model for export "growth."

The East Asian states used mercantilist policies for "export" led growth. It maintained subsidies, import tariffs, restrictions, and quotas, financial interventions, investment planning, infant industry "protections," export business subsidies, privileged loans to favored export industries, and big industry regulations. A majority of the East Asian states actually implemented an import-substitution policy, which raised tariffs on imports to protect its domestic industries.

As quoted from the above link:
That these countries’ export success was achieved with major government subsidies and interventions – and that they strictly limited imports and tightly regulated finance and investment policy – was conveniently omitted from the story.
Their success based on non-neo-liberal principles continued until rapid financial liberalization triggered the 1997 Asian Financial Crisis, which then rolled back decades of economic development progress.
Under the U.S. 1960-70's "deregulation," the government only liberalized price controls and transportation restriction for trucking, railroads and airline tickets; while keeping all of the other regulations and subsidies intact.

Generally, when speaking of "deregulation," most of these plans focused on these three points:
Liberalizing price controls as "deregulation," while keeping the price-unrelated regulations the same or higher. Examples: Liberalizing price controls for transportation, minimum wage decrease instead of elimination, and outlawing of unions and instead set up a new wage control system.

Attempts to "privatize" but resort to subsidized state contractors. Examples: "Privatizing" welfare ("Social Security") and health insurance, but instead set up forced savings accounts to subsidize contractors. This also includes education vouchers and the "privatized" No Child Left Behind policy (called the Education Reform Act 1988 in the United Kingdom), which the Adam Smith Institute endorses.

Tax cuts
Cutting marginal tax brackets as cutting "pork barrel spending," as part of the trickle-down policy. Examples: Removing marginal tax brackets, capital gains taxes, estate taxes, and marginal corporate taxes. Margaret Thatcher and the Adam Smith Institute advocated "poll tax" reformism.

Economic Stupidity Does Not Exist

Libertarians generally agree that some individuals close-mindedly reject Austrian economics due to their aversion to extreme ideologies. This motivates the libertarians to call these situations causing from "economically ignorance," or ecognorance, what Michael Wiebe calls it.

For many libertarians, some say that there exists some "economically stupid" individuals. Economic stupidity, however, does not exist. General stupidity, can exist, but the specific economic stupidity, does not. No one has economic stupidity, since, by definition, in order for one to seem stupid, he has to appear stupid at all scientific and logical realms, not only in economics. Therefore, an individual must either have economic ignorance or general stupidity, not economic stupidity, since it does not exist.

The modern leftists, in fact, have extreme economic ignorance that may sometimes display themselves as generally stupid. Yes, this may seem true at times, since they often resort to emotional fallacies. Most of the modern leftists, however, would actually understand Austrian economics if they feel more open-minded about libertarianism. This shows that the leftists can understand Austrian economics, and proves that most of them do not have "stupidity" as defined as incapability, not close-mindedness, to understand Austrian economics.

So most of the leftists can understand Austrian economics if they chose to. But why would they close-mindedly reject libertarian ideology, as a whole? This has many causes, but the primary causes include the vulgar libertarian movement, as we will explain below, and the empirical/historical fallacies that libertarians use to defend their position.

Most libertarians would likely fall into the trap to defend that the current distribution of wealth would continue to similarly exist in a free market. This defense often shows up when debating health care and welfare topics. Instead of realizing that almost everyone would possess many times more wealth and would afford health care in a free market, the libertarians, however, would often defend the current American health care system and propose a welfare system funded by private charity.

This type of argument, however, would resort to problems. The "quality of health care," for example, differs from individual to individual. While the American may arrogantly claim that socialized health care would result in "slow waiting times," the Canadian would attempt to refute his claim, revealing evidence that he, in fact, did not wait very long. When the American, again, arrogantly claim that Canadian health care has low quality, the Canadian would attempt to refute it, by defending specific scenarios when the Canadian health care performs better. This debate would go on and on, making specific claims about each others system, until the Canadian exhausted his patience, and he would never again, try to confront a libertarian anymore. No one can "objectively" appraise his own or another's health care system.

The above scenario, however, demonstrates an inherent fallacy, resting on a huge mistaken assumption. The American, in refuting Canadian "socialized health care," implied that the United States has a free market health care system. But in fact, as you all may know, that the U.S. has a corporatist system that does not, in any way, resemble the free market.

While the American may have knew that the U.S. does not have a free market, he somewhat unconsciously "defended" the U.S. health care system. By arguing that while the Canadian "socialized care" has the supposed long waiting times, he implied that the U.S. does not have socialized health care (i.e. free market health care) and has short waiting times.

The conflation of the free market with corporatism, as with the health care example, occurs too often among libertarians. In fact, this occurs in even many of the self-identified left-libertarians. For example, David Z., a left-libertarian, acted like a vulgar libertarian when he unconsciously defended the U.S. health care system by denying that U.S. already has socialized health care. Kevin Carson termed this behavior as vulgar libertarianism, which means the defense of the current economic inequality and conflation of corporatism with the free market.

The empirical/historical arguments exemplify another reason of why the health care debate fails. Because the American and the Canadian use empirical arguments to examine the quality of health care systems, and since empirical examples have a hard time to advocate or refute, it will result in a convoluted discussion. And, because no discussion of theory exists, the Canadian might "subjectively" value his system better, with no knowledge of how bureaucracies and subsidized contractors of health care services causes massive inefficiency.

But socialized health care proponents primarily defend their position from a fallacious assumption in economic inequality. They think that because a free market has an inherent tendency to have vast inequalities of wealth, the rich should subsidize health care for the poor—who would not exist in a truly free market. Not just health care, but almost all of their positions—schooling, "education" subsidies, subsidized housing, wealth redistribution, and many other "social" programs. If the libertarian refuted that a free market does not have vast inequalities of wealth, he might refute the need for all of the social programs.

Another common example bases on the supposed "privatization" and "deregulation" in the real world.

Wednesday, December 3, 2008

The Left-Libertarian Strategy

The word "left-libertarian" does not mean that libertarianism should be left-wing. It is a movement with a specific strategy.

The left-libertarians usually define left-libertarianism as an egalitarian philosophy. Actually, the terms left-wing and right-wing are meaningless. The left did not always support egalitarianism, and the right did not always support the status quo more than the left. Though the left-libertarians claim that they use the term "left-wing" to refer to the seating arrangements of the French legislature, they amazingly redefine "left-wing" as the ideology of the Civil Rights Movement. 

However, the real definition of left-libertarianism is the strategy of achieving anarchy, as advocated by the left-libertarian alliance, by making alliances with mutualists, geolibertarians, green anarchists, and anarcho-collectivists. Thus, a "left-libertarian" actually means any member of the left-libertarian alliance or one who practices such strategy. The left-libertarian strategy supports making many alliances with others, even those opposing pure free markets.

However, the mutualists, geolibertarians, green anarchists, and other anarcho-collectivists, even though they support free markets, are, however, economically ignorant. For instance, the mutualists and geolibertarians advocate redistribution of capital goods and land, not because the current system is unfair, but because they believe that a strict propertarian free market will intrinsically result in an uneven distribution of wealth. Thus, the mutualists advocate the continuous redistribution of capital goods by their "use and occupancy" laws and the geolibertarians advocate a tax on land and "unproductive" use of resources.

While the Rothbardian privatization strategy of worker's homesteading the state-owned factories and land does not seem to violate the non-aggression principle because state ownership is illegitimate, and that many corporations are extensions of the state; the left-libertarians, unlike the Rothbardian philosophy once-only redistribution, advocate continuous redistribution of land. This is based on the fallacious belief that in a strict propertarian free market, income inequality will increase without redistribution of capital goods or land.

The income inequality fallacy of the free market is also believed by the contemporary social democrats. Thus, the mutualists and geolibertarians have the same economic ignorance as the contemporary social democrats, all three believing that large disparities of wealth is inherent in the market without redistribution of wealth, capital or land.

Another fallacy based on the income equality fallacy is the mutualistic position on abandonment. Because the mutualist thinks that income distribution is inherent in a propertarian free market, they think that the rich, who are non-existent in a free market, would abandon their useless property rather than to make a profit by selling it.

The left-libertarian strategy involves making as many allies as possible. Because the left-libertarians, by definition, ally with the mutualists and other economically ignorant libertarians, left-libertarians are thus forced to oppose capitalism. The left-libertarians, also, are forced to defend mutualism and anarcho-collectivism, since they ally with them. Making too much allies with others will degenerate the purity of libertarianism, into a philosophy of reformism, redistribution of capital and land, and end in an endless debate between the alliance members.

The left-libertarians are divided on strategy. On one side, they advocate a reformist strategy and "thick" libertarianism. These left-libertarians include Charles Johnson, Roderick T. Long and Kevin Carson. On the other side, there are left-libertarians who see agorism as more effective than "thick" libertarian propaganda, such as BrainPolice, FSK and David Z. The latter three individuals explicitly oppose labor unions and anarcho-syndicalism as a strategy, as they see it as "working within the system."

Anarcho-capitalists who advocate political reform is functionally a classical liberal, since they do the same thing. Similarly, a market-anarchist who supports syndicalism is functionally an anarcho-syndicalist. An agorist who only sells prohibited drugs is functionally the same to all of the other non-libertarian workers in the black market. Non-straightforward ways of promoting libertarianism are thus highly inefficient. Promoting or package-dealing some other values other than the core libertarianism philosophy destroys the purity of libertarianism. The only way to effectively promote libertarianism is by straightforward, non-propagandistic education.

While some kinds of counter-economic propaganda may, indeed, make others more open-minded about libertarianism, utilizing pure agorism, without spending on education, will fail to achieve anarchy.

By straightforward, non-propagandistic education, we mean by not making alliances that are incompatible with libertarianism (such as the "left-libertarian" alliance); not promoting a specific candidate or criticizing specific state policies such as Social Security, school privatization, etc.; and not advocating political compromises. We mean, is, to educate others about the free market, without any empirical arguments.

Prominent left-libertarians:

Tuesday, December 2, 2008

The Trend Towards Self-Employment

While I support the labor theory of value as an accurate explanation of prices in a static economy, find it contradictory to support both self-employment and the labor theory of value at the same time. Self-employment will only be profitable when the agency costs or risks exceed the economies of scale.  In more technological or creative industries, the agency costs of employing workers are very high, because it's hard for employers to determine the compensation for the workers. In creative jobs, such as software development, web design, composition, engineering, and the arts, managers would find it hard to set the salaries for the workers, due to too many variables, so the individuals working in these sectors would more likely to work be self-employed instead of working as an employee for others, due to agency costs. Also, in more creative areas, the worker's ability vary greatly. For instance, the top 10% of the best computer programmers are 100 times more productive than the average programmer. Therefore, all of the computer programmers would find self-employment better than working for an employer. A fortiori, the "labor theory of value" does not fit in more creative jobs.  However, in our current technological trend, the agency costs and risks becomes larger, due to the overhead costs of compensating workers. An employer does not have the ability to judge one's creative works or methods, thus does not have the ability to find good salary rates for the workers. In labor-intensive industries, however, the agency costs are smaller. Due to the low agency costs in these sectors, the economies of scale are more important. Therefore, sectors involving intensive labor would have larger and more hierarchical firms. The physical ability of the workers in labor-intensive industries do not vary much, so it's easy for managers to estimate an hourly wage. However, in more creative jobs, it's hard to estimate an hourly wage because it's possible, unlike physical strength, for workers to have huge mental differences. This is why in some of the "service sectors," employers would offer "salary compensation" instead of constant wage-rates. But in even more creative jobs, employers would not have the ability to estimate the salaries, since there are too many variables and greater risk. Sharing profits are less likely in more creative sectors, since individuals have different abilities. This is another reason of why the economies of scale will not influence the creative sector as much. Knowledge is abundant. So individuals would specialize in knowledge. It is therefore impossible for employers to know all of the knowledge including his employees, and this raises the principal-agency costs. In the knowledge economy, information, such as software, is available for re-use, so workers do not have to laboriously retype all of his code. This encourages creativity instead of labor. The availability to re-use information would make individuals focus on creating more specialized information. This increased specialization of knowledge will make it even more harder for employers to accurate compensate his workers, since he lacks knowledge which has similar effects of asymmetrical information. Also, because labor intensive industries are not creative, the workers would not find any reason to complain "I know how to do this better than my boss." (At least compared to the more creative sectors.) Contrarily, in the more creative jobs, the workers would always complain to their boss if they work for an employer. For example, since there are many different ways to how to write a computer program or design something, the workers would dispute against their employers, so they would rather work in self-employment to avoid these disputes. Additionally, creativity involves risk. Suppose I want to invest a portion of my wealth in labor intensive industries involving capital goods. The risk is very small, since labor intensive industries produce a constant rate of return. However, if I invest the same amount of wealth to develop an invention, this would be very risky, because the invention might not develop. Therefore, in more creative jobs, people would find it very risky for an entrepreneur to borrow money in order to invest in an invention (since the invention might not develop). Thus, the time-preference distinctions are less important. The distinction between the capital-holders (having long time-preferences) and workers in the creative sector will diminish. Thus, there is an increasing trend towards self-employment in more creative jobs, due to risk. Due to the inelastic demand for creative works compared to labor-intensive capital industries, this increases the risk of creative jobs, thus may cause a moral hazard if creative workers work for an employer. A third reason of why economies of scale are ineffective in creative sectors is because, unlike getting a constant and secure profit from the return on capital from labor-intensive industries; in more creative sectors, capital is very insignificant in determining the successfulness because creativity marginalizes it. In the increasing competitiveness of creativity, workers will be more motivated to innovate under self-employment rather than innovate under employment for others. This is because the agency and overhead costs of estimating compensation for creative inventions are very subjective; self-employed workers will have the opportunity to reap all of the profits of their invention instead of sharing his profit with his employer; and inventing under self-employment would make workers have a greater incentive to keep a trade secret, instead of disclosing it to his employer. In this way, in the creative sector, self-employment would outcompete employment. In the creative sector, workers are all entrepreneurs. Inventors, artists, graphic designers, software developers, and composers, are all taking high risks, since creativity does not depend on labor. Working a hundred times longer or even a thousand times longer in the creative sector, unlike working in non-creative laborious jobs, does not guarantee more profit than working for one hour. Thus, while I do not find supporting either the labor theory of value or self-employment as contradictory, I find that supporting both of these positions as contradictory. Only primitivists would advocate both self-employment and the labor theory of value at the same time. (That is, it is impossible to advocate both the labor theory of value (that is implicitly advocating labor-intensive employment) *and* self-employment at the same time, unless you want to go back to the stone age where there are no economies of scale or division of labor.) Mutualists do not appear to even understand the marginal utility theory.  I find the increasing trend of self-employment as a positive thing, as it signifies increasing technological development and more creative, less tedious, jobs. There is also a decreasing trend of the amount of labor that determines the value, as creativity does not depend on labor. So in the age of technological development and the emerging knowledge economy, the labor theory value as a sound explanation of the economy will be obsolete.