Tag Archives: capitalism

The Politics of Need

Out of all the comforts and joys we reap in life, none are more crucial to the attainment of our wellbeing than the satisfaction of our basic physical human needs. Human health is so important that without maintaining it, all other desired states—whether social, economic, spiritual, and mental—become unreachable. It is impossible to ponder the nebulous teachings of science and philosophy, for example, when the growls of your empty stomach incessantly drown out the voice of your own mind.

Our preoccupation with satisfying basic human needs, albeit a noble one, has spurred the implementation of markedly ignoble redistributionist public policies. We used to hold capitalism in high regard as a system for alleviating human need, but the massive economic growth it caused, ironically, seems only to have ballooned our intellectual bankruptcy. Alas, the extra time and comfort with which capitalism endowed us has yielded few intellectual rewards besides the various rationales for undermining it (e.g., Marxism, progressivism, social democracy, etc.). As Walter Williams once noted,

“Free enterprise is threatened today in our country not because of its failure—it’s threatened because of its success. That is, capitalism has been so successful in eliminating the traditional problems of mankind, such as disease, pestilence, hunger, and gross poverty, that all other human problems appear to us, to be at once, inexcusable and unbearable. The desire by many Americans to eliminate these so called ‘unbearable and inexcusable’ problems has led us away from the basic ideals and principles upon which our prosperous nation was built.”

The desire to eliminate “unbearable and inexcusable” problems underlies almost every American redistributionist policy, from free/reduced school lunches for children to Medicare and Medicaid. It is exceedingly difficult to fight against this rationale, as the advocates of these policies invariably label any contenders as uncompassionate brutes vying to deny their fellow man of food and medicine. A libertarian would generally respond that supporting or opposing the government provision of a good or service is unrelated to whether or not that good or service is provided at all. But then the question becomes not whether a particular good or service is needed, but whether one thinks human need justifies the use of force to obtain it. Before we can answer that question, however, we must first explore the concept of need itself.

The Emergency Medical Treatment and Active Labor Act (EMTALA) gives an illustrative exposé of how Americans view “need.” Enacted in 1986, EMTALA forces hospital workers to provide emergency screening for anyone who requests it—regardless of that person’s ability to pay—and then either treat that person or transfer him to a proper treatment facility. The rationale for this law is the familiar argument from human necessity, that it is the responsibility of a compassionate people to provide for the basic needs of other humans, despite any and all costs incurred in meeting that obligation.

Setting aside momentarily any arguments from morality or efficiency, we can already see one obvious problem with the politics of need: Before you can claim that humans require a thing to live, you must first define what that thing is. For the purposes of political expediency, it has in this case been defined as emergency care provided by anyone working within a hospital, but there have been many kinds of health care other than purely the services of professionals within hospitals. Comprehensive freshwater and sewer systems, healthy diets, good hygiene, abstaining from alcohol and tobacco, regular exercise, animal therapy, and even feng shui can all be considered forms of health care—and those are just examples of physical health care! There are also many forms of mental health care, such as study, meditation, and reading, which the law doesn’t deal with. If health care is such an amorphous concept that it could encompass just about every aspect of life, then is there anything that we as a society cannot demand from individuals with such “health”-related resources and expertise? There can be no logical limit to the sense of entitlement on which the law is based.

Claiming that health care is required to live also requires defining what it means to live. This is not some mere esoteric quibble. The treatments for some incurable diseases do nothing more than marginally improve the quality of life for the afflicted, blurring the boundary between life-saving health care and quality-of-life health care. Equally obscure is the boundary separating quality-of-life health care and other quality-of-life items that we would not normally consider tools of health care, such as therapy furniture or pets. If the former can be demanded on the basis of improving quality of life, cannot the latter also be demanded on the same basis?

The inconsistencies in these concepts are not only frustrating, but also ultimately exploitative and immoral. Forcing private individuals or hospitals to provide for someone’s health care without compensation destroys any and every notion of individual property rights we have. I imagine that the proponents of EMTALA would balk at this assertion; they would emphatically reject, for example, the forced redistribution of jewelry or leaf-blowers—“individuals still have the right not to provide those to the poor” they would say—but then they are just being inconsistent. As health and nutrition gradually improve in this country (despite our government social safety net; not because of it), and as our “unbearable and inexcusable” problems fade into the distance, we will see the emergence of new problems to take their place. The “[X] is a necessity” rationale can theoretically, with enough logical finagling and patience, be applied to any good and service, such as education, housing, clothing, or even automobiles, and we can expect to see the politics of need envelop these as well, until there is ultimately no good or service to which anyone can justifiably deny provision to another. We used to call those without any rights to their property “slaves.” Now we call them “well-off.”

EMTALA needs to be repealed because of its immorality and its inconsistency. Moreover, we should abandon any sense of entitlement based on notions of necessity, and re-employ the concepts of property rights that gave us the societal wealth we have, and that will propel us into the next age of prosperity.

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Capitalism, Environmentalism, and Waste

One of the most common criticisms of capitalism is that it promotes not only mere apathy, but hostility toward the environment. Specifically, it drive a materialistic consumerism which requires an accelerating depletion of Earth’s natural resources. We burn fossil fuels, deplete our soil, and clear-cut vast swaths of forest, all causing glacial melt, rising oceans, and desert expansion. Ultimately, it goes, Earth will be transformed into a desolate wasteland.

These dramatic images beget dramatic reactions, such as the rise of the environmentalist movement. Originally a personal lifestyle focused on preserving natural resources, environmentalism has morphed into a powerful political movement concerned with shaping the behavior of others. However, the often drastic lifestyle changes required by environmentalism seldom resonate with its skeptics, which has led to numerous controversies and conflicts. We therefore cannot prudently abstain from questioning environmentalism’s central cause: Is it noble to preserve natural resources at the expense of enjoying certain lifestyles, and is the state necessary or even helpful to achieve this goal?

One of the most common responses is that we have in our interest the perpetuation of our own species, and that certain methods of utilizing natural resources are better or worse for doing so. To state that differently, environmentalism’s purpose is to prevent the wasting of resources so that their use may be prolonged.

This assertion requires that we first agree on a definition of waste. Unfortunately, too many use their personal preferences to determine whether or not waste has occurred. Let us consider a hypothetical example: I have some unwanted leftovers in the fridge, and I am trying to decide what to do with them. They are no longer exceedingly appetizing, and upon reflection, I probably should have bought less food to start. Nevertheless, I have no intention of eating them, and I decide to throw them away.

If you were to ask the average bystander, he would probably say that I was wasteful in this scenario. “There were a hundred other uses you could have chosen for the leftovers,” he might say, “You could have given them away, composted them, or even burned them as fuel. The mere fact that you did not simply eat them increases your future demand for food, spurring producers to further deplete our natural resources.” This sentiment is orthodoxy in environmentalist circles, but it indicates a narrow, lopsided perspective.

It is true that I have given up the leftovers, but the average bystander mistakenly assumes that the leftover food is the only resource involved in the equation. However, instead of unappetizing leftovers, I now have refrigerator space—also a resource—in which I can place newer, more appetizing food. I value the space in the fridge more than the leftovers, and from my point of view, keeping the leftovers would have been a waste of that space. Does it make me a wasteful person that, upon choosing between those two resources, some people disagree with my particular preference? If so, it would mean that waste is itself a purely subjective concept, and utterly useless for developing sustainable lifestyles.

Fortunately, a different concept of waste can still be useful—one which prioritizes not human preferences, but the methods we have for achieving those preferences. Values are subjective, but the methods we have for achieving our values can be objectively compared as more or less efficient. For example, crude oil can be easily extracted on Earth, but it is also possible that oil may be extracted from other planets. Per the amount of crude oil we need to extract, it is obvious that the expense of time, exploration and research, capital equipment, and labor to extract it from another planet is an enormous waste, given that one could extract oil much more cheaply on Earth.

Unfortunately, it is often difficult to know which methods of resource utilization are most efficient, so we must first have an economic system that best facilitates their discovery and development.

Capitalism, with its built-in profit motive, fulfills that very purpose. In a free market, firms earn profits when the revenue they receive for selling a good or service outweighs the inputs—land, labor, and capital—required to provide that good or service. There are only two ways for a firm to maximize its profits: It can either raise prices or cut costs. Because competition usually bars firms from the former option, it becomes within their financial interest to opt for the latter, which means using fewer inputs. This is how capitalism provides a financial incentive for using the fewest raw materials while still satisfying customers.

When the profit motive is dampened or removed, as is the case in subsidized or nationalized industries, the incentive for a firm to cut costs is also removed. If the success of a firm is no longer dependent on profit and consumer demand, a firm may continue to produce a good which is not needed, unnecessarily depleting natural resources.

While environmentalists may concede these arguments, they may still point out that Earth’s natural resources are finite, and that their depletion is inevitable, even if our efficient use of them causes it to occur more slowly. Therefore, renewable resources must be developed.

But even this is only partially true: While resources are finite, it is unlikely that any will ever be truly depleted. As a resource becomes scarcer, the cost of extracting it increases to the point where further extraction becomes prohibitively expensive and/or to the point where the cost of extracting an alternative resource becomes competitive. Also, by this very same principle, space exploration/colonization is inevitable, presenting us with a potentially limitless supply of resources.

Could socialism do any better in striking a balance between decadence and sustainability? In socialist economies, the preferences of individuals, and the methods by which they go about satisfying those preferences (the means of production), are all controlled by the state. Political incentives, rather than economic incentives, drive the different methods of resource utilization. There is neither an automatic mechanism to promote efficiency in the use of raw materials, nor one to spur the exploration of alternative resources in the event that extracting one grows costly. Even if political and economic incentives become coincidentally aligned—a rare occurrence—history has shown the state to be slow and clumsy in performing the same allocative functions as a market.

While environmentalists’ intentions may be good, their methods are not. Choosing between lifestyles of abundance and deprivation is a false choice. The best way to preserve resources is not to impose subjective behavioral changes upon individuals, but to promote freedom so that individuals will be incentivized to avoid waste in pursuing their happiness.

Reflections on Free Markets

In contemporary debates on economics, the main contentions usually involve how much government intervention is necessary in the economy. On one side of the debate are the socialists, advocating complete government intervention in the economy, and on the other side are the proponents of free markets, advocating the opposite. Where we find ourselves on that spectrum should depend on an honest discussion about the basic nature of markets.

First, what is a market? Basically, it is a collection of exchanges between people. Markets are most commonly associated with exchanges of goods and services, but they can also exist within other frameworks (e.g., immigration as an exchange of cultures, and universities as exchanges of ideas). In particular, a free market is characterized by voluntary transactions between people. Conversely, when transactions between people are forced or hindered by outside actors, be they governments or other individuals, the market is not free.

In my experience, most criticisms levied against free markets are based on faulty premises. Now that we have some idea of what a free market is, let us take time to address a few examples of what it isn’t:

Free markets and capitalism are not exactly synonymous.

While “capitalism” does traditionally denote a system in which the means of production are owned privately by individuals, that definition does not necessarily provide real insight into the nature of common market transactions. To capitalize merely means acting advantageously upon a situation or opportunity; it is an expression of the innate human desire to maximize personal success. This occurs as much within socialism as it does a free-market, but the differences lie in the particular mode of capitalization used: Maximizing personal success will look different in a socialist economy than in a free market. Nevertheless, it is false to assume that the differences between economic systems will cause differences in human nature.

A free market is also not the same as pure capitalism because pure capitalism involves individuals using any means necessary to advance themselves, including coercive acts, usually referred to as crimes, which abridge other peoples’ natural rights. A free market is, by definition, devoid of coercion (transactions must be voluntary), and is therefore incompatible with pure capitalism. Socialism, on the other hand, has no appreciation for individual rights, so pure capitalism actually comports more nicely with socialism than with a free market!

The free market is not fascism.

I’m not exactly sure where this association comes from, so it’s really hard for me to understand its rational. Fascism is a political philosophy on the left of the political spectrum. Proponents of fascism are hyper-nationalistic and seek to use a powerful government to promote their desires. Much like the other leftist philosophies, such as communism, feudalism, totalitarianism, or monarchism, fascism rejects individual natural rights, and therefore cannot allow the operation of a free market–of goods and services, cultures, or ideas.

The failure of a firm does not denote the failure of a market.

This is another common misconception about free markets. Contrary to popular belief, the failure of a firm is an example of when free markets works best. If a firm is unfit to compete in a market, it goes out of business and its assets are liquidated. This way, markets work out inefficiencies in the system, and the surviving, successful firms are those better equipped to serve the needs of society. Think of markets as an ecosystem, inherent to which is the natural selection for and against competing firms. By removing the weak from the market, the economy evolves and progresses. When government steps in to regulate or hinder this process is when the free market truly fails. The most prominent modern example of this is the recent Wall St. bank bailout. The massive economic bailout for these banks prevented their failure, allowing non-competitive banks to stay in business, insinuating major economic collapse down the road, and all at the taxpayers’ expense.

Now that we’ve defined our terms, the issue resolves to whether or not free markets are beneficial. The propriety of an economic system in which people are able to voluntarily trade with others would seem self-evident, but there are a couple of pertinent criticisms of true free markets which should be addressed.

Externalities

Externalities are a real problem for markets. Externalities are the costs which buyers and sellers within a private transaction unintentionally pass on to the rest of society (e.g, pollution, or traffic congestion). Most economists would concede that externalities are mitigated by institutionalizing these social costs—that is, reintroducing these costs into the immediate transaction and forcing the transaction’s assenting parties to incur it themselves–not society.

Unfortunately, leftists then naïvely assume that government is the best agent, or is the only agent capable of performing this task. They believe that government should tax or regulate businesses and consumers. This will transform the social cost of producing or using a particular product into a direct economic cost incurred by the buyer or the seller, which will decrease either the supply or the demand for the product, and will in turn decrease the product’s social cost.

There are other mechanisms, however, for institutionalizing social costs that don’t require government intervention in the form of confiscatory taxes or regulations. The first mechanism that comes to mind is market self-regulation: If consumers become knowledgeable about the social costs imposed by their demand for a product, they may decide that the benefit derived from a low price is not worth the cost they impose upon the outside world. Firms which self-institutionalize social costs, such as coal power companies investing in scrubbers, or car companies investing in better crash safety technology, may have an easier time marketing their products to the public, as the public may enjoy moral gratification from supporting these companies. As Milton Friedman explains in the video below, tort law and social customs also counteract and guard against market failures.

Monopolies

This is probably the most common honest criticism of markets. The argument goes like this: Every once in a while a firm becomes so large and its operations become so efficient, that it is able to out-compete virtually every other firm in the market. Take Walmart as an example. Walmart is often cited as undercutting the prices of its competitors, taking a short term loss merely to drive its competitors out of business. As the evolutionary processes of the market remove the weak and inefficient firms from the economy, one could expect, in the long run, that only one firm would remain. Logically, it would follow that, in the absence of competition, it would be in the best interest of the one remaining firm to jack up its prices as much as possible, bleeding the consumers dry.

But looking empirically at the issue, this logic simply hasn’t panned out. There is, again, a mechanism built into free markets that protects against this type of occurrence. If Walmart became a monopoly and decided to raise its prices over night, it would make the profitability of potential new firms wanting to enter the market near infinite. As a result, very few monopolies have ever arisen as a result of pure, market-driven forces, and endured for long periods of time. As Milton Friedman explains, most monopolies have endured only because government has intervened on their behalf.

The only two notable examples Friedman mentions of monopolies which have endured without government intervention–the New York Stock Exchange from Reconstruction to the Great Depression, and the De Beers diamond company from the early twentieth century until 2000–both lost their monopolistic status due to the introduction of international competitors. If we are to prevent the emergence and endurance of private monopolies, we must ensure that government policies do not make prohibitive the cost of market entry for competitors, which is exactly what did not happen in the television, steel, labor, railroad, and trucking markets.

Conclusion

Free markets are a fact of life–they are not implemented, but rather exist by default. Free markets are imperfect, though, because people are imperfect, and no private or public system comprised of people will ever be without flaw. However, a free market is the most efficient economic system ever known to mankind. Even with the presence of externalities and occasional monopolies, free markets succeed in producing the greatest amount of wealth for the greatest number of people. Most importantly, free markets reflect human nature, and the cause to better oneself. They are an expression of individual natural rights, and they yield a net benefit for society as a whole.