Review Questions for Amity Shlaes’s The Forgotten Man

Amity Shlaes’s book The Forgotten Man is an excellent book for a reading club. This was the first book we covered in Liberty In the Books (back when my questions weren’t very detailed). We split the reading into four monthly meetings, skipping some of the material. See also my detailedreview of the book.

Shlaes Reading I: Introduction, Chapter 1, Chapter 3

1. Who is the “forgotten man?”

2. Why is Hoover upheld by some as a an alleged champion of “laissez faire?”

3. What are some of the differences between Hoover versus Coolidge and Mellon?

4. What were the major federal policies of 1929, and what were their effects?

Shlaes Reading II: Chapters 4-6

1. What were the general Federal Reserve policies of the early 1930s, and what were their effects?

2. What was the intellectual climate during the Hoover/FDR era?

3. What was tax policy — and unemployment — by the end of Hoover’s term?

4. What were the themes of FDR’s campaign rhetoric?

5. What were the powers and consequences of the NRA and AAA?

6. What were the general trends in FDR’s monetary policy?

7. What was the basic nature of the struggle between Willkie and the TVA?

Shlaes Reading III: Chapters 7-9

[Sorry; no questions available.]

Shlaes Reading IV: Chapters 11, 13, 15, and Afterword

1. In what ways did the Federal government go after businesses and wealthy citizens?

2. What the were labor controls of the later 1930s, and what were their effects?

3. What was FDR’s response to the Supreme Court’s antipathy to some of his programs, and what was the result?

4. How did the fight between the TVA and private utilities play out?

5. What were the major themes of the 1940 election?

6. What is Shlaes’s take on the “recovery” of FDR and the results of his federal spending programs?

Liberty In the Books

With Amanda Teresi I co-moderate Denver’s Liberty In the Books, a monthly reading group that discusses free-market literature.

UPDATE: Please see the new home page for Liberty In the Books, which includes links to review questions.

I strongly recommend that others around the country start up their own free-market discussion groups. I believe that our nation is at a crossroads and that advocates of liberty need to step forward and articulate the case for economic freedom. One critical element of effective free-market activism is familiarity with relevant economic principles and history. Participants in a discussion group can help educate each other as well as offer support and encouragement for free-market activism. With that goal in mind, here I describe how the Denver group functions and what we’re reading.

Please note that I cannot personally evaluate or endorse other reading groups that might use my recommendations or discussion notes. Thus, potential participants are strongly encouraged to independently investigate any other group claiming to use discussion notes for Liberty In the Books. Amanda owns the rights to the name, “Liberty In the Books.” I own the copyright to any material I write about the group or about selected readings. Thus, whether you use the name “Liberty In the Books” is between you and Amanda. I suggest you pick a unique name for your group and perhaps say something the the effect that you follow the Liberty In the Books model, without claiming any formal ties or endorsement. Groups are free to distribute my review questions at will, so long as no claim is made that I endorse any group other than my own.

If you have an interest in starting an economic liberty reading group in your area, how should you proceed?

The first thing to do is to refine your purpose. Amanda and I decided to focus on the relationship between economic theory and history. Thus, the complete title of our group is “Liberty In the Books: Economics In Action.” I do NOT want to discuss the arcane debates between the Austrian and Chicago schools. I do NOT want to discuss the finer points of Austrian praxeology versus positivism. I do NOT want to discuss libertarian anarchism versus the minimal state. (I’ll discuss such things elsewhere, but not in this group.) Instead, the purpose of the group is to learn about the application of basic free-market principles to modern and historical political policies. It is a “political economy” group in the traditional sense of that term.

So far the Denver group has read the following works:
* Lin Zinser and Paul Hsieh, Moral Health Care vs. ‘Universal Health Care'”
* Amity Shlaes, The Forgotten Man
* Thomas Sowell, The Housing Boom and Bust
* Henry Hazlitt, Economics In One Lesson
* Alex Epstein, “Vindicating Capitalism: The Real History of the Standard Oil Company”

Later I’ll post discussion questions for works the Denver group has read. (I’ll use the blog label “Liberty In the Books.”)

Your group needs clear leadership. Amanda and I co-moderate the Denver group, and our decisions regarding the group are final. You might opt for a more democratic structure (though I think that may invite pointless and time-wasting debate). I choose the readings for our group in consultation with Amanda. (Obviously I’m open to suggestions from other members.) Another discussion group I’m in selects readings by informal, mutual agreement.

After you decide to start a group, you need to get members. You might want to start a very small group among friends. In that case, you can simply contact your interested friends and set up meeting times. Otherwise you can advertise for the group via existing activist networks in your area.

Another reading group I participate with, the Atlas Shrugged Reading Groups, successfully advertised for members with Facebook ads. You can also issue media releases and post your information on public calendars.

How should you handle membership? I’ve now participated in three Colorado discussion groups, and I’ve experienced no problem with troublesome members. Instead, I’ve really enjoyed getting to know others from the community and discussing important ideas with them. Nevertheless, I do think it’s important to have membership guidelines, just in case you need to ask a disruptive participant to leave.

I endorse the Atlas guidelines: “The goal of the group is to better understand [the reading material] in a friendly and constructive way, not to engage in acrimonious debate or proselytizing.”

Following are the guidelines I sent to the Liberty In the Books membership:

The purpose of Liberty in the Books: Economics in Action is to provide a fun forum for free-market advocates to discuss economic principles and history and their application to the important issues of the day, with the goal that members will be better able to publicly articulate the case for free markets.

Members should strive to regularly attend meetings and read the selections. Readings generally will run less than 100 pages per month and will cover various areas of policy as well as basic economic principles. Some readings will be available online, others through special reproduction rights acquired by the event’s organizers. Occasionally members will need to purchase a book, which typically will provide readings for several meetings.

In order to keep the discussions interesting and topical, members should focus their comments on the reading material, though of course they may draw upon additional information that sheds light on the readings.

The group assumes a general support of free markets, enabling members to discuss matters of history and economics in greater detail than would be possible if members fundamentally disagreed about economic liberty. While membership is open, the moderators may, at their discretion, limit discussion that falls outside the purpose of the group.

While the group will discuss economics in history and theory, discussion should not assume any prior, specialized knowledge of history, economics, or policy, other than what is provided by the selected reading material. Discussion should remain accessible to any intelligent layperson familiar with the reading material, rather than veer into highly technical issues of interest only to a few.

While the moderators welcome feedback and advice from members, the moderators’ decisions pertaining to Liberty In the Books are final. Moderators may, at their discretion, begin with a short presentation, invite outside discussion leaders, establish other parameters for discussion, ask disruptive members to leave, alter the location or time of meetings, change future reading selections, and in other ways guide the group.

Members are the guests of the club’s organizers, who will strive to make Liberty In the Books consistently fun, inspiring, and informative.

Where to meet? If you are meeting with a small group of friends, where everyone knows each other well, you can meet at someone’s home. However, if you plan to start a larger group with more open membership, I strongly encourage you to meet at a public location, such as a bookstore, library, or coffee shop. I’ve found that Borders Books is often particularly open to reading groups. The Denver group meets for two hours. Meetings of 1.5 hours also work well, and longer meetings may suit your group’s needs, though you’ll need to plan for a break.

To organize meetings, I suggest a Google group or a comparable method of communicating with members. (Make sure you get somebody’s permission to add them to a such a group.) You need to set a reliable meeting location in advance (and check on the location close to the meeting), assign the reading material, and send out review questions and any other related notes.

How should the moderator conduct the meeting? I basically serve as the moderator for the Denver group, in collaboration with Amanda. You might want to ask for volunteers to help moderate.

The moderator has two key roles: start and end the meeting on time, and keep the discussion focussed on the reading material. The moderator must use some discretion in deciding when to cut off tangents. Obviously a major goal of the group is to apply knowledge of history and economics to modern problems, so discussion is bound to stray from the reading material at times. However, a meeting that constantly veers off track into marginal (or heated) debates or unrelated topics will tend to alienate the better members.

The moderator should strive to get everyone involved in the discussion without making anyone feel pressured to talk when the person would rather just listen.

A meeting that devolves into rancorous debate between two or three participants is a disaster.

I have found that, unless a reading group consists of friends who know each other and the reading material well, discussion questions form the basis of an effective meeting.

I write the review questions for Liberty In the Books. Diana Hsieh writes excellent review questions for the Atlas groups.

The moderator should be guided by the review questions without being bound by them. The goal is NOT to cover every single question and to spend the same amount of time per question. Rather, the moderator should use the questions to get the discussion started and keep it basically connected to the reading material. Some questions are more important than others, and some questions can be omitted from the discussion.

Moderating a good discussion group is an art. A good moderator is sort of like a good pilot; passengers usually only focus on what the moderator is doing when the flight gets bumpy. Your job is to keep the discussion going smoothly and to point out the nice views.

Participating in a local free-market discussion group can be enormously rewarding. You can deeply enrich your knowledge of economics and history. You can find motivation — and motivate others — to actively promote economic liberty. And you can make and maintain important friendships. If you are not already part of a reading group in your area, why not join an existing group or start one yourself?

Quillen on New Deal Make-Work

Unlike FDR’s wage and price controls, destruction of agricultural crops, and massive cartelization schemes, the New Deal’s make-work spending actually left something to show for the effort. Ed Quillen, neglecting to review the most obviously destructive aspects of the New Deal, points to the “infrastructure” projects that continue to enhance our lives. He pushes his point: “The post- World War II population growth along the Front Range couldn’t have happened without those Depression-era water projects.”

Letter writer Cora Scherma praises Quillen’s analysis and New Deal make-work: “[P]erhaps the neocons and libertarians among us should consider the following: Don’t attend concerts or religious services at Red Rocks; don’t enjoy IMAX films at Phipps Auditorium; avoid sections of the Denver Zoo lest you be tainted by big government…”

But Quillen and Scherma commit a basic economic fallacy. Henry Hazlitt explains in Economics In One Lesson:

There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to “insufficient purchasing power.” The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the “deficiency.”

An enormous literature is based on this fallacy… [A]ll government expenditures must eventually be paid out of the proceeds of taxation; that inflation itself is merely a form, and a particularly vicious form, of taxation. …

I am here concerned with public works considered as a means of “providing employment” or of adding wealth to the community that it would not otherwise have had. …

For every dollar that is spent on the bridge [or other public work] a dollar will be taken away from taxpayers. … Therefore, for every public job created by the bridge project a private job has been destroyed elsewhere. … [Consider also] the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. (1979 edition, pages 31-34)

Of course an artificial boom or bubble — such as the modern one caused by federal easy credit policies — necessarily triggers a consequent recession, which tends to generate temporary unemployment. If the government has imposed wage controls, including wage floors and union favoritism, this will dramatically exacerbate unemployment, as it did during the Great Depression clear through the late ’30s. The solution is to remove the political impediments to economic activity and allow a recovery. Federal make-work may soak up some of the unemployment, but only at the costs that Hazlitt reviews. These funds are desperately needed in the market economy; they will instead be diverted to politicized projects.

Quillen errs also in imagining that government is the only entity capable of conducting certain projects. But there is no reason to expect that a market cannot provide water as it provides so many other goods and services.

Scherma adds a double error to the above. First she suggests that the only ones to oppose federal make-work are “neocons and libertarians”; I am neither. Second she implies that, when politicians force people to fund projects, those most opposed to that use of force should also refrain from benefiting from that which they were forced to fund. But that would only add a second injustice to the first, first stripping people of their wealth, then of even any marginal benefits of it.

The seen, as Hazlitt puts the matter, consists of the projects funded by politicians with other people’s money. These projects are visible, and their use is obvious. They offer something tangible for which the politicians can take credit. The unseen are all the investments and expenditures prevented by the forced wealth transfers. Politicians can take little credit for allowing individuals to produce without their “help.” So the next time you read about New Deal spending, or federal spending under Obama, consider not only the jobs and projects created, consider also the jobs and projects prevented.

Economic Liberty Means Prosperity

Two stories from the newspapers today suggest something interesting about the attractiveness of economic liberty.

The Denver Post reports:

Rollie Heath, a Boulder Democrat elected to the [State] Senate, said that as lawmakers grapple in the coming session with cutting as much as $600 million from the budget because of declining revenues, they should also look at TABOR [the Taxpayer’s Bill of Rights], a revenue-capping provision of the state’s constitution.

The state is in a timeout from TABOR’s tax-revenue limits, but that timeout expires in 2010, when Colorado will have to begin refunding to taxpayers any revenue it collects over TABOR’s prescribed limit. …

Sen. Shawn Mitchell, R-Broomfield, who also is a member of the Committee on Job Creation and Economic Growth, shuddered at the idea.

“When did job creation become about maximizing the government’s budget?” Mitchell said, “TABOR isn’t constricting state revenues at all right now. When TABOR resumes, it won’t cut anything…. If someone thinks that’s a chokehold, they have emphysema.”

It’s good to see that some Republicans continue to take seriously the virtues of economic liberty.

The second story comes from the Rocky Mountain News:

Colorado may not be booming these days, but it remains among the fastest-growing states in the nation, placing third, along with Texas and North Carolina, with population growth of 2 percent.

Utah outstripped Colorado for the No. 1 spot nationwide, growing at 2.5 percent, while Arizona came in second, with growth of 2.3 percent between July 2007 and July 2008.

Still, Colorado gained 96,686 people, according to the U.S. Census Bureau, with total population reaching 4.9 million, up from 4.8 million in July 2007.

Unlike Utah, where much of the growth comes from natural births, Colorado’s surge in head count is due largely to an influx of 52,398 migrants from other states and countries, according to Robert Bernstein, a spokesman for the U.S. Census in Washington, D.C.

Is it merely coincidence that people like to move toward economic liberty? No. True, Colorado is attractive for a variety of other reasons, particularly the mountains. Yet, accounting for other variables, people tend to move toward economic liberty and away from economic political controls.

The U.S. Economic Freedom Index: 2008 Report explains the connection. The summary states:

The net migration rate for the 20 freest states was 27.36 people per 1,000, while it was a low 1.17 people per 1,000 for the 20 most economically oppressed states. “People are moving to the freest states and fleeing the least free states as our market-based migration metric of economic freedom predicts,” said Lawrence J. McQuillan, Ph.D., director of Business and Economic Studies at PRI and director of the project. “By measuring economic freedom and studying its effects, people will gain a fuller appreciation of the important imprint it makes on the economic and political fabric of America and will encourage new state legislation that advances economic liberty.” …

South Dakota, Idaho, Colorado, Utah, Wyoming, Nevada, and Oklahoma rank among the top 10 most economically free states in the nation.

Unfortunately, none of the states is very free, and all suffer from a bloated federal government. So Colorado is freer only on a relative scale. But liberty ought not be graded on a curve. Individual rights deserve respect all of the time, not merely sometimes. What Colorado needs is more economic liberty and less political control of the economy.

Denver Post’s Crack Economic Team Strikes Again

Let us say that, out of fifty people, Ethan has a cold. In a health evaluation, Ethan ranks well in cardiovascular health, blood pressure, body weight, muscle tone, and general attractiveness. Overall, he is ranked the fifth-healthiest person of the group. What would you think of a newspaper that praised colds as the cause of Ethan’s good health? Perhaps you’d think the newspaper is about as idiotic as The Denver Post.

Here’s what the Post claimed in an editorial today:

CNBC has just ranked Colorado as the fifth-best state for doing business — the first time our state has finished in the coveted top five.

The biggest reason for Colorado’s leap up the charts, according to CNBC analysts, is that it “has been actively courting what it calls the New Energy Economy — wind and solar. The effort has paid off in jobs, and a big jump in our business friendliness category, finishing fifth this year, from number 12 in 2007.”

First of all, who are these “CNBC analysts,” and why should we believe any of their opinions about the economy?

Second, the Post misquotes CNBC, which notably does not claim that the “New Energy Economy” is the “biggest” reason for Colorado’s leap. Instead, here’s what CNBC actually claims:

Colorado, among the first states to be hit by the housing crisis, has been actively courting what it calls the New Energy Economy — wind and solar. The effort has paid off in jobs, and a big jump in our Business Friendliness category, finishing fifth this year, from number 12 in 2007.

Note that CNBC does not make any claim whatsoever about the effect of the so-called “New Energy Economy” on Colorado’s success, other than to say that it has “paid off.” Really? How much has it paid off? Where’s the evidence that it has paid off? CNBC does not offer any evidence.

These energy schemes have been “successful” only because they have forcibly redirected money from elsewhere in the economy. As Environment Colorado reminds us, Colorado law requires an eventual 20 percent of energy to be produced in “alternative” ways. Obviously, this is more costly. If it weren’t, it wouldn’t have to be forced by legislation. This drives up people’s energy bills. This results in less money available for people to spend with other businesses.

Sure, there are more jobs in the “New Energy” sector. But this comes at the expense of jobs elsewhere. As I wrote last year:

If the environmentalists and their supporting politicians actually took their own claims seriously, they would not stop at forcing a mere 20 percent “renewable” energy. They would require a full 100 percent. After all, if generating “more jobs” to produce energy is good, if that makes Colorado “open for business,” then let’s really open up for business by requiring that all energy used in Colorado must be “renewable.” And why wait till 2020? Think of all the additional jobs that could be generated if we moved up the schedule, say to 2010. Just think of all the people who could be producing windmill blades!

Why, then, is Colorado’s economy relatively healthy? Despite Democratic rule, Colorado still benefits by the Taxpayer’s Bill of Rights, though the Democrats are currently trying to gut that. Colorado’s Democrats have been less rabidly left-wing than Democrats elsewhere, due to the demographics in which they rule. They haven’t been successful in pushing through their worst socialist schemes, such as government-controlled health care. Colorado attracts a lot of out-of-state talent because of our relatively business-friendly climate, the existence of established tech firms, good colleges (which are mostly privately funded, by the way), and beautiful climate and landscape. And, notably, despite Democratic efforts to hobble the oil and gas industry, Colorado and Wyoming have experienced booms in those industries. If you want to look at Colorado’s economic success, oil has a lot more to do with it than windmills.

I don’t know to what extent Colorado’s “alternative” energy companies get national subsidies. If these subsidies are large, then Colorado is benefiting at the expense of people elsewhere. But I don’t think letting politically-correct corporations steal from people in other states is necessarily something to crow about. Of course, these same corporate-welfare takers, along with leftist politicians, tax-funded bureaucrats, and environmentalist zealots provide the original sources for claims that robbing Peter to pay Paul somehow helps the economy.

Just another day at the mighty Denver Post.

Rational Endowment

Recently The Economist published an article about the endowment effect: “[O]nce someone owns something, he places a higher value on it than he did when he acquired it — an observation first called ‘the endowment effect’ about 28 years ago by Richard Thaler, who these days works at the University of Chicago.”

The magazine calls this “a squishy, irrational bit of human behaviour.” One experiment “found that students were surprisingly reluctant to trade a coffee mug they had been given for a bar of chocolate, even though they did not prefer coffee mugs to chocolate when given a straight choice between the two.”

I propose that the endowment effect is perfectly rational for three main reasons.

1. When we acquire an object, we perform mental work to figure out how we’ll use it and what it’s good for. True, we do much of this work before we purchase an item. Yet I routinely find that, after I acquire something, I think of more ways to integrate it into my life. To take a simple example, all of my usual mugs are currently in storage, so I just acquired two new ones. As soon as I did, I thought, “These would fit perfectly on that short shelf in the kitchen, where nothing else fits well.” An object that we’ve spent mental energy figuring out how to better utilize is more valuable to us.

2. Automated habits are very valuable. As soon as we acquire something new, we start to work it into our regular routines. We develop habits for a reason; they’re necessary time-savers. Granted, this point has force only after we’ve had an object for some (often short) period of time.

3. We reasonably avoid risk. Once we get the mug, we can look it over and make sure it isn’t cracked or have any other unanticipated problem. (Before getting the two new mugs, I looked at a mug that I discovered has an irregular surface inside, making it difficult to clean; I ditched that mug.) Meanwhile, I’ve had the experience of opening a chocolate bar and finding that it has turned white and flakey — yuck. Recently I also purchased some chocolate bars that didn’t taste as good as I anticipated, relative to other chocolate I like. Though I might equally prefer a shelved mug and a shelved chocolate bar, a mug in the fist is better than a chocolate bar on the shelf.

The Economist closes:

Other “irrational” phenomena include confirmation bias (searching for or interpreting information in a way that confirms one’s preconceptions), the bandwagon effect (doing things because others do them) and framing problems (when the conclusion reached depends on the way the data are presented). All in all, the rational conclusion is that humans are irrational animals.

But those other things are simply logical errors. (However, joining a bandwagon is not always irrational, absent additional information.) They are problems that can be avoided with careful methods and checks. The fact that we know about these problems, and can take steps to solve them, demonstrates that we are fundamentally rational, not irrational, at least in capacity.

The endowment effect is not a logical fallacy; it is a perfectly sensible preference of the integrated, the habituated, and the known to the unfamiliar, the awkward, and the untested.

Politics Imposes External Harms

The following article originally was published on May 12, 2008, by Grand Junction’s Free Press.

Politics imposes external harms

by Linn and Ari Armstrong

In our last article, we pointed out that a tax-funded recreation center unfairly charges people who don’t use the center and pushes out competing voluntary services. We argued that, if a recreation center is a good idea, “then it will be profitable on a free market. Those who want the center can… pay for it all by charging their customers (or collecting voluntary donations).”

Keith J. Pritchard sent a reply to FreeColorado.com, your younger author’s web page. Pritchard argued that we’re “missing an important economic concept — beneficial externalities.” We supposedly aren’t “considering the marginal social benefit. For example, it could provide a nurturing environment for youth who might otherwise be on the street experimenting with drugs. If the center kept these youth out of trouble with the law and out of prison (paid for by taxpayers), that is a beneficial externality.”

How silly of us: we didn’t realize that the only two choices in life are going to a tax-funded recreation center or doing drugs and going to prison.

There is a little problem with Pritchard’s case: every recreational activity offers an external benefit. Children who attend Boy or Girl Scouts are not “on the street experimenting with drugs.” Other alternatives include going to the movies, reading a book, joining 4H, dancing, martial arts, skiing, going out to eat, cooking a family meal at home, playing games, and so on. All the money forcibly redirected to the recreation center is not available for all the other goods and services that people otherwise would buy.

What is an externality? It is any benefit not funded by the beneficiaries or any harm not funded by the party causing the harm. The problem is that “beneficial externalities” are ubiquitous. If the government should subsidize every activity that offers external benefits, then the government should subsidize nearly everything.

Pritchard has no way of knowing that the external benefits of a recreation center exceed the external benefits of the recreational activities that would otherwise be funded. Thus, by his logic, government should also subsidize theaters, dance studios, restaurants, board games, camping stores, and so on. Not a single provider of recreation should be excluded from the tax trough.

But why stop with recreation? Children need good shoes so that they can walk to and around school. They need cool shoes so that they can have good self-esteem. Obviously, then, the government should subsidize all shoe makers and stores. Children need food so they can develop their minds and get good jobs, so perhaps Fruita should open up a tax-funded grocery store. Books provide all sorts of positive externalities, so clearly government needs to run the book stores.

But let’s not stop with businesses! Attractive people walking down the street offer an external benefit to those who appreciate their appearance. What’s needed, by Pritchard’s logic, is a subsidy for good-looking people and a tax on ugly people. We also need an Attractiveness Index, so that the best looking people get the most tax subsidies while the ugliest pay the highest fees. (Your authors could be in trouble.)

If the government is going to be in the business of subsidizing positive externalities and taxing negative ones, the government should control not only the entire economy but all of our personal choices. Pritchard cannot point to a single human activity for which we cannot show some externality.

Pritchard is “missing an important economic concept” himself, the concept of Public Choice, the branch of economics popularized by Gordon Tullock and James Buchanan (who won a Nobel for his efforts). One of the many interesting implications of Public Choice economics is that politics is a gigantic source of negative externalities.

In the name of “fixing” externalities, politicians impose high taxes, slow the rate of economic growth, hamper the flow of economic information by distorting market prices, create tax-sucking bureaucracies and commissions, impose protectionism, waste funds, and subject our paychecks to special-interest warfare.

The alternative is a free market in which government’s only role is to protect individual rights by preventing violence and preserving private property. With rights consistently protected, people are best able to apply their reason to the problems of living and enter into voluntary, mutually-beneficial exchanges.

A system of individual rights is best able to handle externalities. Negative externalities such as pollution of specific properties are resolved through the courts. Social negative externalities, such as rudeness and body odor, are solved by such measures as social pressure, the property holder’s right of invitation, and soap commercials. Positive externalities are captured by private businesses and philanthropies.

Those who invoke the theory of externalities to rationalize tax subsidies for their pet projects in fact sanction the greatest contributer of negative externalities, the political process of robbing Peter to pay Paul. The system of individual rights provides justice as well as the best framework for solving economic problems.

Linn is a local political activist and firearms instructor with the Grand Valley Training Club. His son Ari edits FreeColorado.com from the Denver area.

Presidential Candidates Play Zero-Sum Games

The following article originally was published by Grand Junction’s Free Press on April 14, 2008.

Presidential candidates play zero-sum games

by Linn and Ari Armstrong

When you walk into any store and trade your money for a product, often both you and the clerk will say, “Thank you.” The reason for this is that, in a voluntary exchange, both parties benefit. The same is true at your job. Employers value the labor of employees and pay for it, while employees value the paycheck and other benefits enough to do the work.

In a free-market system that bars fraud, stops the initiation of force, and protects people’s property rights, one person’s gain is another person’s gain. And when people can count on the legal protection of their property, they invest in new skills, machines, factories, technologies, and other capital. Over time, this raises people’s productivity and real wages, leading to a growing economy.

A thief rejects mutually-beneficial exchange. If a hold-up man takes $100 from you by force, then the thief is better off financially for the moment, but you are worse off by the same amount. Such a situation is sometimes called a “zero-sum game.” Some people gain at the expense of others.

When a society becomes plagued by zero-sum interactions, the result is economic destruction. To the extent that people fear that the fruits of their labor will be taken from them by force, they stop producing, trading, and investing. For example, look at much of Africa.

Unfortunately, while the United States was founded on the ideals of liberty, government limited to the protection of rights, and secure property, today’s presidential candidates actively promote the zero-sum games of political controls.

In his famous speech on race, Barack Obama worried that, for many working people, “opportunity comes to be seen as a zero sum game, in which your dreams come at my expense.” He added, “the path to a more perfect union… requires all Americans to realize that your dreams do not have to come at the expense of my dreams; that investing in the health, welfare, and education of black and brown and white children will ultimately help all of America prosper.”

But by “investing” Obama does not mean that individuals should be free to invest in their children’s education or a company, or even to donate voluntarily to charity. Americans don’t need Obama to tell them that getting an education, contracting for quality health care, and saving for the future are good ideas.

No, what Obama means by “investing” is that he wants to take more of your money by force and give it to others, of course with a huge chunk taken out to pay the salaries of bureaucrats.

For example, Obama wants to socialize medicine. That means that you will have to pay through the nose in taxes in order to wait in line to get “free” health care that sucks. (For some of the problems that other countries are experiencing with health care, see Michael Tanner’s recent Cato paper, “The Grass is Not Always Greener.”)

Forced welfare, as opposed to voluntary charity, tends to promote dependency and irresponsible behaviors. And tax-funded “investment” in jobs means siphoning money out of the productive economy to reward special interests.

In other words, most of Obama’s policies promote zero-sum games, in which some gain at the expense of others.

But it’s not like John McCain is much better. Last November, Matt Welch wrote for the Los Angeles Times, “McCain… wants to restore your faith in the U.S. government by any means necessary, even if that requires thousands of more military deaths, national service for civilians and federal micromanaging of innumerable private transactions. He’ll kick down the doors of boardroom and bedroom, mixing Democrats’ nanny-state regulations with the GOP’s red-meat paternalism in a dangerous brew of government activism.”

To pick out one of those examples, forcing people to “serve” others (a practice we thought was outlawed in the United States) fails to recognize the benefits of liberty and mutually-beneficial exchanges. In a free society, people are free to give of their time and money to others. But the choice is left to them, and people are not free to forcibly give away the time or money that belongs to somebody else.

McCain asks you to “sacrifice your life” to “a cause greater than yourself.” In general, we’re opposed to human sacrifices, but especially when a political leader defines how and for what you are to sacrifice yourself. Didn’t we already do the century in which political leaders asked their countrymen to sacrifice their lives to the state?

Given McCain’s guiding principle of sacrifice, we expect him to be a fair-weather friend — at best — to voluntary, mutually-beneficial, free-market exchanges, despite his occasionally market-friendly rhetoric.

We don’t know who will become the next president. But we fear that whoever wins will do his or her damnedest to make sure that the rest of us lose.