There is a joke that we economists always like to tell about our field: A physicist, an engineer and an economist are shipwrecked on a desert island, and the only thing they have to eat is canned food saved from their ship. But they have no way of opening the cans. The physicist proposes that they apply a certain force to a certain point on every can to open it. The engineer designs a complicated device to open cans using rocks and twigs. The economist said, “Well, assuming we had a can opener…”
It’s a joke about how not to do economics. Bad economists engage in circular reasoning; they assume what they want to prove. If you simply assume that you always have a can opener, you will believe that opening cans is never a problem. Likewise, if you assume that markets are always perfect, you will believe that government intervention is never necessary. It’s a cheap trick, but it makes for a simple and appealing story, so it can be persuasive. Libertarians like Ron Paul and his supporters use this trick on a daily basis, and it’s important to call them out on it before they do serious damage.
The libertarian economic ideas currently in fashion, thanks to Paul, which are collectively known as the “Austrian School” because they were first invented by academics from Austria, are based on the subjective theory of value. This theory says that voluntary market exchanges benefit both parties – both the buyer and the seller – by increasing their personal happiness, or their “subjective value”.
At first, it may sound reasonable, because we can all think of situations when one person sold something to another and they both walked away satisfied. This does indeed happen many times. But then, without making it obvious, libertarians jump from “it happens sometimes” to “it happens every time.” The Austrian School assumes that every single market exchange is beneficial and makes people happier by increasing subjective value. In other words, according to the Austrian School of economics, every time something is freely bought or sold, that is a good thing. Every time. No exceptions.
If you are inclined to agree with this, take a moment to imagine all the many things that could be bought and sold, and ask yourself if such buying or selling really is a good thing every time. To help your imagination, here are some examples of free market transactions: selling hard drugs; prostitution; selling guns to warlords; selling human organs; buying forests for the purpose of clear-cutting them; selling food that may cause cancer; paying for advertisements that contain outrageous lies; paying for entire news stations to broadcast lies; selling your goods to white people only; buying up public schools to turn them into for-profit ventures; selling health care only to those who can afford it; selling insurance with the intent to deny claims; engaging in any kind of banking or financial transaction on Wall Street, including insider trading. The list goes on. If one agrees with the Austrian School that all voluntary exchange is good, then one agrees that all of the above are good. In the world of libertarian economics there is only one rule: As long as both the buyer and the seller agree to the exchange, then it improves happiness. End of story.
And this is not a conclusion borne out of any kind of experience or observation. The Austrian School actually rejects the idea of using experience to guide economics. Instead, they start with some assumptions which they declare to be true, such as “market exchange is always beneficial,” and then draw conclusions. Real-life experience doesn’t matter because, in their view, the real world is too muddled by random chance. Anything might succeed by accident or fail by accident. Did free markets lead to bad outcomes? That was an accident. Did government intervention lead to good outcomes? That was an accident too. Thus, any kind of historical experience that disproves libertarian economics can simply be dismissed as a coincidence – such as the great success of the American economy when government intervention was at an all-time high from about 1945 to 1975.
In this way, Austrian School libertarians build their own imaginary world in which they are always right by definition and nothing can ever prove them wrong. But, sadly, the list of their errors does not stop there. Libertarian theory also contradicts itself on many occasions.
Take the role of government, for example. Libertarians argue that government spending and taxes are bad because they get in the way of the market increasing subjective value. But why can’t taxes and spending increase subjective value? Suppose we increased taxes on the rich and gave the extra money to the poor. This would reduce the subjective value enjoyed by the rich, but it would increase the subjective value enjoyed by the poor. And the benefits to the poor will be greater than the losses to the rich. If Donald Trump lost $50,000, for instance, he would barely even notice it. His subjective happiness might go down, but not by much, because he has so much money that 50,000 plus or minus doesn’t make any difference. For a college student struggling to pay tuition, on the other hand, $50,000 would make a world of difference. The student’s subjective value and happiness would increase massively.
So the basic assumption of libertarian economic theory, or subjective value, leads to the conclusion that redistribution of wealth from the rich to the poor is good, and thus contradicts libertarian views on the free market. But don’t expect them to notice the irony.
Some of the other absurdities of libertarian thinking are more offensive than ironic. When they claim that the free market satisfies people’s wants and needs, they forget how a market economy actually works. In order to buy things, you must have money. If you need something but can’t afford to pay for it, your need doesn’t count in the market at all. In reality, markets don’t satisfy needs or wants, they satisfy the demands of paying customers. If you’re not a paying customer, that’s too bad – your wishes don’t matter.
Markets satisfy peoples’ desires depending on how much money various people are willing to pay to have their desires satisfied. And since the rich have more money than the poor, their desires come first. That is why the free market gives us a world in which some people have yachts, mansions and private jets while others get kicked out of their homes or can’t afford desperately needed health care. The rich guy had the money to pay for his mansion but you didn’t have the money to pay your mortgage, so his desires came first.
To support Paul or his libertarian ideas, one must put blind faith in the absolute perfection of the free market and resist the temptation to look at the historical evidence or even just to consider the lessons of one’s own life experience. As such, it is no wonder why most of Paul’s support comes exactly from those people who have the least experience of struggling to survive in a market economy.
Mike Tudoreanu is a Collegian columnist. He can be reached at [email protected].
myth buster • Mar 31, 2016 at 6:48 pm
Except my reply is that, “I do not own my own body; God does, for He made it, and it is His temple.” Therefore the notion of, “I can do whatever I want with my body, and to hell with right and wrong,” is both Satanic and absurd. First of all, in the absence of God to whom all are accountable, there are no such things as rights. It follows then that because human beings do have rights, there are certain things that it is wrong to trade in, and therefore the government is right to prohibit absolutely. You shall not sell poison lacking medicinal value. You shall not sell body parts. You shall not deal in prostitution or human trafficking. You shall not practice simony or bribery. You shall not practice usury. You shall not exploit another’s desperation to enrich yourself. You shall not engage in retaliation against those who report wrongdoing.
myth buster • Sep 21, 2015 at 7:12 pm
I wash brains, your statement only makes sense when the transaction affects only the buyer and the seller. No one has the right to sell goods or services that violate the rights of a third party. If economics favor becoming a hit-man, then society needs to intervene to make it cost-prohibitive to be a hit-man by ruthlessly prosecuting them, and upon conviction in a fair trial, either putting them to death or confining them for life, and furthermore, disgorging them of their blood money, and imposing the same sanction on those who hire them. Because they violated another man’s right to life, their right to liberty, even their right to life, is forfeit.
As to the necessity of taxation, that depends on the resources of society. It is certainly theoretically possible to fund government entirely off of user fees and/or income generated by the commons, and indeed some oil producing nations do fund their government entirely off of oil royalties. Natural law confers a man the right to profit from his own labor and capital; it grants no such right to depleting the commons. Society therefore has an unquestionable right to assess fees to those who deplete the commons for their own profit. Those who extract resources from the commons have a right to the portion of the revenue attributable to their labor and capital, but not to the portion attributable to the land held in common. What they take from the commons is not available to the co-owners, and these co-owners must be compensated for their loss.
Regardless, the right to life precedes the right to property. Therefore, you have a right to property only to the extent that it does not infringe on another man’s right to life. For this reason, it is forbidden to kill a man merely in defense of property. The use of deadly force to stop a property crime is justified only when the crime creates a clear and present danger to persons (e.g. armed robbery or home invasion). Similarly, you forfeit your right to property to the extent that preserving it jeopardizes another man’s immediate survival. If a starving man takes a loaf of bread from you, you have the right to demand a reasonable consideration from him, in the form of either labor or some good he has but does not need for his immediate survival, but you cannot take the loaf back from him, nor demand that he mortgage his means of survival to pay for it. Likewise, any contract that holds a man’s means of survival hostage is void for duress just as if you held a gun to his head. You shall not take life as a pledge.
Michael • May 14, 2012 at 2:56 am
Everything Mr. Tudoreanu writes depends on this idea being accurate: “The Austrian School assumes that every single market exchange is beneficial and makes people happier. … Every time. No exceptions.”
But here is Rothbard, patron saint of Austrian economics, from his econ treatise, saying the exact opposite: “All his [an actor’s] actions are of necessity speculations based on his judgment of the course of future events. The omnipresence of uncertainty introduces the ever-present possibility of error in human action. The actor may find, after he has completed his action, that the means have been inappropriate to the attainment of his end.” (Man, Economy and State, p.7)
In reality, Austrian theory is obsessed with how entrepreneurship battles uncertainty in everyday life. In fact, its embrace of imperfections in market interactions is a unique feature.
It takes a lot of disinterest to be this wrong in a 2000-word column.
HG • Apr 11, 2012 at 7:53 pm
Brian, I’m sorry, but you’re wrong about the education thing. The countries that are the best in education (Finland)actually spend less than we do on education. In fact, they spend a whopping 30% less than we do. They also don’t have regular standardized tests(government standards), except for one taken when 16. All in all, they have less government intervention. I will grant you that their education system is 100% state funded, but I will then point out that they are a tiny country. I will agree with their system being egalitarian. While I may lean libertarian, I maintain that the only way to have a truly free and fair market is to get everyone to the same starting line. This means having an exceptional education system; it does not however mean welfare and socialism. There should also be limits on allowing rich kids to use their parent’s money to give them a leg up. Take Mitt Romney for instance, or George Bush. The only reason they “achieved” anything was because daddy paid for it. The only way to achieve the most equality is to take away the regulations that apply to the big companies, but only hurt the small ones; or in other words, take away the regulations and expense that mean nothing to a rich person, but everything to the poor/middle class. For instance, did you know that in order for a family farmer to sell his eggs(not his meat,etc. but only his eggs), 2000 eggs need to be sent in for extensive testing for salmonella. If you know anything about raising chickens(and I’m going to assume you don’t), you would know that 2000 eggs for a family farmer is almost an entire year’s worth. To a factory farm? A week’s, maybe. So who does that hurt the most? Also take into account the expense of the testing. Who do you think would be more likely to afford it? And while you’re at it take into account that family farmers typically raise their hens in rotationally pasture-based environments, making the appearance of salmonella in an egg next to impossible. The hens simply aren’t allowed to be in dirty environments. I hope you get the point I’m trying to make. But in case you don’t, here it is: regulations only hurt the small companies, while barely affecting the big. Why is it that small companies should be held to the same standard when typically they treat their employees better, are more invested locally, etc.? But that is exactly what socialism does–it applies the same regulations/standards to everyone. A truly capitalist economy does not. Sorry, but it’s true.
But, I just wanted to point out that you are wrong claiming that more government intervention in education is a good thing, as proven by Finland. They may be wholly substantiated by the government, but other than that, the government has no involvement.
And FYI to all the people out there claiming we are capitalist: we are not capitalist, we are corporatist. Please learn the difference. And maybe then you’ll realize that under a libertarian society, corporate intervention in government could not exist. Why? Because the only thing a libertarian government ensures is a) every individual is treated equally and fair, b) private property is protected and respected(i.e. the government has no right to tell you you can’t live in your own house because it’s “unsafe”, that should be your responsibility, etc.) and c) civil liberties are protected indefinitely. Where exactly does corporate influence fit in there? NOWHERE.
I wash brains • Apr 11, 2012 at 10:54 am
@Brian
You said “So I would say that libertarians are more guilty than anyone else of believing that the government can magically continue to exist – and protect your rights – without spending any money.”
I said, “This is why we need government, and obviously they need tax money to provide these services.”
You must not have made it all the way through my post. Thats ok, I don’t expect you to be receptive to logic as a “progressive.” You have been brainwashed by big government for so long that you don’t know which way is up any more. Why don’t you rethink your absolute faith in the righteous of the federal government, a government that has lied through false flag attacks to move public opinion behind every war since Vietnam.
TheLegume • Apr 9, 2012 at 6:46 pm
Oh, okay. So anyone who opposes libertarianism is an advocate of slavery. Makes sense to me. Thank you for showing us how reasonable and open-minded libertarians can be.
newspooner • Apr 7, 2012 at 10:14 am
It’s all about slavery. Anyone who opposes the fundamental tenets of libertarianism is in favor of slavery to some degree, up to and including total. Read the philosophical and moral basis of libertarianism, starting with “You won your own body”.
Brian • Apr 6, 2012 at 5:01 am
Perhaps the “defenders of the free market” would be less expected to offer certainty and perfection if they spent less time claiming that the market is certainly superior to government in every way. And they would do well to remember that in education, like in health care and many other things, the countries that do better than the US are precisely those countries with more government intervention.
Jeff Daiell • Apr 5, 2012 at 11:17 pm
Apparently all transactions should be approved by Mr. Tudoreanu beforehand?
No thanks. I’ll trust Liberty over condescending authoritarianism every time, thank you.
Jeff Daiell
Libertarian • Apr 5, 2012 at 12:52 pm
“It constantly amazes me that defenders of the free market are expected to offer certainty and perfection while government has only to make promises and express good intentions. Many times, for instance, I’ve heard people say, ‘A free market in education is a bad idea because some child somewhere might fall through the cracks,’ even though in today’s government school, millions of children are falling through the cracks every day” – Dr. Lawrence W. Reed
Brian • Apr 4, 2012 at 1:13 am
As for progressives, we are very much aware that everything has a cost. When we ask for something to be provided “freely to all,” of course we mean that it should be funded by taxes. Haven’t you seen us using “tax the rich” as a slogan? The super-rich are currently taxed at a MUCH lower rate than they used to be (it’s 35% today, but it used to be 50% under Reagan and a lot higher before that), and of course let’s not forget that most of their wealth doesn’t come from actual work or doing anything productive, but simply from gambling with our savings in that great casino called Wall Street. And from unearned bonuses.
If we simply raised taxes back to where they were before Reagan and cut down the bloated military budget to a more sane level, the federal government would have plenty of money for health care, education and helping the needy. The problem is, Obama and the Democrats have been completely unwilling to do that.
Brian • Apr 4, 2012 at 1:02 am
I-wash-brains, I’ve lost track of how many times I’ve heard libertarians say that the government should protect individual rights while at the same time claiming that taxes are a form of theft which should be abolished. So I would say that libertarians are more guilty than anyone else of believing that the government can magically continue to exist – and protect your rights – without spending any money.
hmm • Apr 3, 2012 at 4:26 pm
i for one appreciated some kind of counter-balance to the heavily right-leaning free market screeds one usually finds in the DC.
I wash brains • Apr 3, 2012 at 12:46 pm
@Jamie K
——“then will you agree that sometimes free markets cause bad outcomes and therefore the government needs to step in to regulate, tax, subsidize, or freely provide things?
No? You don’t agree?” ——
Come on dude, while libertarians obviously want less government, they never claim to want no government at all. Far from it.
We believe that government is absolutely necessary to protect and preserve individual rights. That means that markets need to be regulated to some degree (albeit a minor one) in order to keep one party from robbing the other (Banks should not be allowed to take risky bets for a quick buck with customer money, Insurance companies need to provide clear and accurate description of fee’s, Butcher’s shouldn’t be allowed to sell rancid meat, ect..) This is why we need government, and obviously they need tax money to provide these services.
The government should not provide subsidies to businesses – these only serve falsely inflate the value of a company and run competitors without subsidies out of business. This type of thinking promotes inefficiency and financial insolubility.
Lastly, the government can not provide anything for “free”. If you get something for nothing, that means that someone else is paying for it. Welfare recipients get money from the upper and middle class families while not paying into the system themselves. Im not saying we should necessarily abolish welfare (unrealistic in current political world), but the concept holds true. Every dollar the government has is taken from tax payers. Nothing is free. Somebody always has to foot the bill – it just may not be obvious who that is.
Look who's talking • Apr 3, 2012 at 7:26 am
“I guess what they really mean is that THEY get to make all the value judgments, THEY get to decide what is morally right or wrong, and the rest of us should feel ashamed for daring to talk about ….. morality.”
Value Judge’s conclusion is exactly what everyone outside of Western Massachusetts thinks of progressives. You can’t eat that, you can’t smoke that here, you need to recycle that, you need to give everyone your money. Wah, wah, wah.
Value Judge • Apr 2, 2012 at 6:18 pm
Spot the contradiction in the libertarian responses:
–
Exibit A:
“In your 5th paragraph you seem to discard basic economic theory in favor of value based judgements.”
“You use the word in a way that suggests you feel the types of transactions mentioned (drugs, prostitution, ect) are morally wrong, but who are you to make this judgement?”
“Societies view on morality is irrelevant in the context of economics.”
–
Exibit B:
“If Trump earned his money honestly, then no person or institution can forcibly make him give his money to others.”
“Libertarians would argue that government spending is theft.”
“Responsibility is the most important part of a free society.”
–
So, on the one hand libertarians claim that value judgments and issues of morality (like saying that something is right or wrong) have no place in economics. On the other hand, they insist that Donald Trump has a right to keep all his billions of dollars, they claim that government spending is theft (meaning it is immoral), and they praise the value of responsibility.
I guess what they really mean is that THEY get to make all the value judgments, THEY get to decide what is morally right or wrong, and the rest of us should feel ashamed for daring to talk about non-libertarian morality.
reason • Apr 2, 2012 at 5:56 pm
I’ll address your second post first just to clear the air. If you automatically assume that I agree with unwarranted wars, capital punishment, or our overpopulated prison system, you sir, are extremely ignorant. I suppose you support taking everybody’s money, putting it in a government account and disbursing evenly to each member of society, right? That’s the assumption I get from your argument, but I’m not ignorant enough to believe you can be that close-minded.
I’m not sure I missed the point. So, to Jamie’s point, yes, I agree not all market exchanges are good. However, what makes everyone think all government action is better? Also, I stated that since we don’t have a truly free market, we cannot truly know whether or not it is better for society. All I’ve seen in this country from very early on is a government-big business partnership. That is not a free market. He also asked if there is a place for government and I said yes, albeit it a minimal role. I just happen to disagree with excessive taxation, subsidization, over-regulation and the like. You can blame under-regulation and taxation and ignore the fact that our government has never spent so much money. They spend it to maintain their world empire and to keep everyone dependent on the next handout, be it Medicare, a grant for school, a tax break for owning a home. Maybe companies don’t have to worry about a free market because the government will bail them out when they fail. The government and large corporations care about the status quo and this will never change. I think more government is not the solution. I think a completely free market might be better but who really has the answer?
So you can point out your ideal world and ridicule my opinion, or you can actually just accept the fact that in the real world, many people do not agree with what the “99%” is fighting for nor do they believe that a truly capitalistic society is the right way. As long as the economy is doing well, most people are content with what we have.
You clearly don’t see eye to eye with me and I definitely don’t agree with your assumption that all government action is altruistic. It’s nice to have a taxpayer funded education, healthcare, etc. but the fact is only some countries can actually afford it. In many others, like Greece, Portugal, Spain, when a government spends more than it takes it, it will eventually crumble. Unfortunately, I have no hope that this country will ever figure out how to actually balance a budget again. As for the socialized medicine, education, etc., it’s simply not what this country is about. If you want a free lunch, move to Sweden. This stuff will never fly in an affordable manner in this country. On the whole in this country, people prefer lower taxes and less government when possible. If you want to tax the rich at 100% you still wouldn’t even eliminate half of our current deficit. That sounds like a budget that’s ready for “free” education and healthcare to me.
Sorry if I come off as condescending, it’s not my intention. I just want you to see where I’m coming from.
P.S. I hate war, capital punishment and our prison system as much as you probably do 😀
Dan • Apr 2, 2012 at 3:03 pm
Oh, and I love how you agree that the government has a role in society, but you think it should only do the things you like (i.e. shooting people, putting people in prison, and fighting wars) and stay away from doing the things you don’t like (i.e. helping people in any way).
Dan • Apr 2, 2012 at 3:00 pm
“Reason”, congratulations for completely missing the point. You talk as if our only choices are (a) the economy we have right now, or (b) a completely free market. As if the only possible economic policies in the world are those of Obama or those of Ron Paul. That is one of the most ridiculous and close-minded things I’ve ever heard.
Why not consider the economic system of Sweden? Or Germany? Both of them have FAR more government intervention and FAR higher taxes than America under Obama, and both of them make their people far better off. How about we get single-payer health care, tax-funded and free at the point of use? Canada and the UK have it. How about free university education? Germany and France have it. How about better environmental regulations, how about higher taxes on the rich, how about re-regulating the banks?
You pointed out that what we have right now isn’t good. Well, duh. That doesn’t mean we should go for more free markets. The reason we’re in this mess in the first place is because we listened to libertarians too much, deregulated the banks, cut taxes, and allowed corporations to grow large enough to buy our politicians wholesale.
just one thing • Apr 2, 2012 at 1:26 pm
@reason: yes, the government interventions we’ve seen lately have indeed been a disaster. what else should we expect from a centrist capitalist government?
Omar • Apr 2, 2012 at 12:48 pm
Austrian Economics says nothing about every voluntary exchange being good. It states that both parties benefit. This is very different wording.
reason • Apr 2, 2012 at 10:10 am
@commonsense, @Jamie K
Yeah, because the magic of government prevented the financial meltdown and brought us into prosperity. I’m still waiting for the government to pull millions of people out of unemployment and put them on the path to fiscal security. So, it took the stimulus package four years to bring us to 8% unemployment? No wait, I think that it prevented us from having 25% unemployment, right? All the stimulus did was redistribute wealth to big banks, unions, defense contractors and other friendly Republicrat donors. One flaw with modern collectivists is they assume that we live in a completely unfettered market economy. This could not be further from the truth! The largest corporations benefit from regulations that keep smaller competitors out. They also receive enormous subsidies that are taken directly out of the pockets of the middle class. It sounds counter-intuitive, but the largest corporations love costly regulations that can keep smaller competitors in the red. Less competitors mean higher prices and larger profits. Big oil got you down? Enormous tax breaks allow them to function without great competition from proven alternatives like nuclear energy. Nuclear energy is so badly stigmatized that the government rarely approves any new projects. This balloons the already inflated cost it takes entrepreneurs to research, develop, license, zone, and build nuclear reactors which provide clean and cheap energy (but that’s for another debate). Our government also subsidizes huge failures like Solyndra. Picking winners and losers is clearly not the government’s strong point. Basically, we have a government that will bail out companies that should be allowed to go bankrupt, subsidize crumbling and inefficient ideas, and regulate small businesses out of existence. That sounds like the invisible hand to me, too.
So basically, yes, I think a free market can cause bad outcomes, but only when the government assumes a large role in trying to “fix” the excesses of capitalism. I guess you can’t really call this a free market then.
I’m pretty sure it’s been firmly established by nearly every poster on this comment thread that the government has a role in society: to protect contracts, prevent fraud, and protect private property. You ignore the fact that our government already taxes, regulates, subsidizes and does provide things (although I wouldn’t consider the provision of goods free if it comes from someone else). You also conveniently ignore the fact that we do not have a completely free and unfettered market, yet we have enormous fiscal and economic problems that our government neither prevented nor solved. So yeah, maybe if we had a completely free market, we’d all be better off. There would still be rich and poor but that isn’t a stretch from what we have now and I guarantee we’d have a happier populace on the whole.
commonsense • Apr 1, 2012 at 10:50 pm
Great article! Unfortunately most of the comments have no foundations. Believing in the wonders of the free market is analogous to believing in magic. Let’s get over with the invisible hand myth!
Jamie K. • Apr 1, 2012 at 8:00 pm
I can make it even simpler: can you name ONE market exchange that you believe is bad and should be stopped? No? Then the article is right, you DO think that all market exchanges are good.
Jamie K. • Apr 1, 2012 at 7:58 pm
Hey libertarians, answer me this:
If the author’s arguments in this article are just straw men, and if the Austrian School “does not think that “all” free market exchanges are necessarily good”, like you say… then will you agree that sometimes free markets cause bad outcomes and therefore the government needs to step in to regulate, tax, subsidize, or freely provide things?
No? You don’t agree? You don’t believe that government intervention is sometimes necessary? Then, for all intents and purposes, you DO believe that free markets are perfect. You DO believe that market exchanges are always good.
Jennifer S • Apr 1, 2012 at 9:31 am
Your article is based on false premise. No one said any system is “perfect” and that things won’t go wrong. In a free market if an individual does not to the research, then they may make a bad choice, and will suffer with that. Responsibility is the most important part of a free society. Fraud is and always should be illegal. So an ad that is based on lies should not go unpunished. When a corporation hurts the environment that should NOT go unpunished. The government is here to protect our rights though, not take them away. When government makes a bad choice for us now, we suffer no matter what and they never seem to be held accountable.
matt t • Mar 31, 2012 at 11:01 pm
We Austrians like to tell this joke: what is the difference between a dead baby and a bike?
A: I don’t have a bike in my attic…My joke demonstrates the point that my humor is superior to yours and therefor, so are my economics.
Kris • Mar 31, 2012 at 5:32 pm
We get it… you’re a socialist. Write something new?
Pete • Mar 30, 2012 at 5:59 pm
Bad things exist, assume government is a good solution. PROBLEM SOLVED!!!!
vafa • Mar 30, 2012 at 5:31 pm
I believe Ron Paul and his supporters advocate a free market where all relevant information is available to both buyer and seller.Therefore, your examples of deceptive practices enticing one into a transaction are, well, deceptive. Your faith in this benevolent entity known as “government” is extremely misplaced, and was not at all shared by any of the founders, except maybe Hamilton. I suppose if YOU were in charge of the government, and designed the extent of its influence in market transactions then it would indeed be benevolent to all, but human nature being what it is, I believe your friends, or those with access to you, would somehow be in a better economic position. Either by promulgating regulations to discourage market entry by competitors etc.
Additionally, your argument presupposes that most market participants lack the intellectual wherewithal to decide the value of a commodity as it relates to their particular circumstance. After all, you would be willing to pay $1000 for a 25 cent pack of gum if it could be used to plug a hole that would sink your million dollar ship, in the absence of an alternative. are you suggesting that the government should somehow interfere in that transaction and decide what the “value” of the gum really is? In that case, I believe your ship would just sink, just as your argument does. by the way, government is the only one right now that sells guns to warlords, and singlehandedly assures the misery of billions of people on this planet by supporting “friendly” tyrants.
jerome • Mar 30, 2012 at 5:30 pm
I see you have immersed yourself in the works of Mises, Hayek, and all the other Austrian economists. Also, kudos to you not for not engaging in any straw-man logical fallacies whatsoever.
Ryan • Mar 30, 2012 at 5:21 pm
Well, despite your glaringly obvious strawmen, I’ll bite on this. Let me give you this scenario. If someone breaks into your house and robs you of your TV, even though you hardly even watch it, and then gives it to someone who doesn’t have a TV, is it justified? That is basically what you are saying with your Trump analogy. Theft, no matter how big or small, is still theft.
And I don’t understand what the problem is with voluntary exchange. I’d rather have freedom than be a victim of coercion and force. As long as I’m not intruding on the rights of others, why should anyone intrude upon mine?
Mike Ruff • Mar 30, 2012 at 5:16 pm
Go to Wikipedia, and look up “Straw Man.”
Learn from your errors.
I wash brains • Mar 30, 2012 at 12:04 pm
I have many problems with your reasoning here Mike but I don’t have time to address them all. Ill do my best.
In your 5th paragraph you seem to discard basic economic theory in favor of value based judgements. You use the word “good” in a way that suggests you feel the types of transactions mentioned (drugs, prostitution, ect) are morally wrong, but who are you to make this judgement? If I were to buy drugs, the drug dealer and I would view this transaction as “good” because it satisfies a need that we each have – my need for drugs and his for money. Societies view on morality is irrelevant in the context of economics. There will always be a demand for drugs and prostitution, no amount of government intervention will prevent this. It should be accepted just as the purchase of cigarettes or even luxury goods for that matter. As long as there is a demand for a good or service, a merchant should have the right to do provide that good no matter the perceived morality surrounding it. They will do so one way or another and there is no getting around it.
Your concept of subjective value fails to take into account one key point – forcibly taking money from the rich and giving to the poor is in no way a free market, or even a market at all. Subjective value only applies within the context of markets – removing it from that context is misrepresentative and misleading.
That was tiring, I am done for now
Will • Mar 30, 2012 at 11:54 am
@Mike Tudoreanu, what books by an Austrian Economist have you read? Wikipedia doesn’t count, neither does one of Paul Krugman’s NYT articles.
Jeremy • Mar 30, 2012 at 11:23 am
Prior to writing an such as this, it would help to actually understand Austrian economics instead of simply conjuring up your own definition and explanations.
Evan Rogers • Mar 30, 2012 at 11:03 am
Your article makes a few assumptions itself.
Libertarians wouldn’t argue that government spending doesn’t increase subject value/wealth, they would argue that government spending is theft.
I suppose that both are intertwined, however. If a government can only pay for things through theft (a true statement that is impossible to deny), then for every dollar stolen from one person (“minus one subjective value”) the dollar is given to someone else (“plus one subjective value”). Thus, at most, things are evened out.
In order for your argument to be true, you have to assume that the richer person would spend the money in a way that would increase his/her own subjective value LESS than the way the poor person spends. This is a BIG assumption to make, and is likely inaccurate — after all, the poor person apparently doesn’t know how to spend value as well as a richer person, otherwise they would be richer/poorer (respectively).
But why stop at this single assumption (a big one, at that). Now we have to talk about HOW the money is relocated. If we take one dollar from a rich person in our current democratic republic, we need to hire someone to pass the law (the Congressman), someone to sign the law, and people to enforce the law. These people would not work for free.
Thus, for every dollar we take from someone to give to another, a fraction – perhaps just 2% – has to spent on the actual logistics of moving that dollar around. Thus, IN REALITY, we are stealing $1 from a rich person, and giving only 98 cents to a poor person.
But why stop there? Bastiat’s “the seen vs the unseen” does not end here! People have to be wooed to the logistics jobs: thus, now people who WOULD go into real productive fields (science, production, anything other than politics) are being stolen from production and put into the job of stealth.
With this in mind, let’s assume that the cost of the theft goes up one more cent (since you are demanding that we talk about a ‘measurement’ of subjective value, let’s just use pennies). Thus we’re stealing 1 dollar, and giving 97 (in reality, this penny would likely be an increase of prices throughout the entire economy, but let’s just put it onto this dollar we’re stealing).
But we can’t even stop there! The rich people are seeing their wealth stolen. They have a smaller incentive to produce. In fact, with more of their wealth being stolen, they will try to find ways hide their wealth from government. This will lead to corruption in government (another penny) them wasting their time with wealth-hiding (another penny of lost production), and with them actually hiding their wealth (another penny in lost government revenue).
So now we’re talking about 94 cents per dollar.
But on top of that, we’re subsidizing poverty. Thus, those on some sort of form of welfare will be more encouraged to continue their life-style (another penny), some will be encouraged to give up their job that only pay a bit over welfare (another penny), some will simply choose to work illegally and collect welfare on the side (another penny).
Now we’ve stolen $1 and lost about 10% of it.
ON TOP OF ALL OF THIS, our society now condones the use of theft to reallocate resources. This leads to a loss of freedom and future infringements of property (another penny), hesitation to invest in the future (another penny), and many other long-reading results that I alone can’t predict.
With all of this taken into consideration, we find that using some sort of measurable subjective value, 10% of wealth is lost using such practices.
Your ONLY response is “the poor need the 90 cents more than the rich need the dollar”. But this isn’t necessarily the best usage of resources. It’s impossible to know.
Assumptions were made on your part.
Dirk Nowitzki • Mar 30, 2012 at 9:54 am
Austrian economists do not simply assume what they are trying to prove. That is just a smear on your part. Yes, Austrians believe in something called praxeology that is a priori and does not depend on models or statistics. But the key assumption or, as Austrians would say, axiom of praxeology is “humans act in order to achieve a certain end”, not “the free market is always good”.
Your example about subjective value misses the point. Libertarians reject any kind of coercion. If Trump earned his money honestly, then no person or institution can forcibly make him give his money to others. Also, since peoples tastes and preferences are subjective, there can be no wise overlord who can decide what will make society better off. Voluntary exchange means the two parties do the exchange because each feel it will be better off. It doesn’t necessarily mean that each will actually be better off.
“such as the great success of the American economy when government intervention was at an all-time high from about 1945 to 1975.”
Really? Government intervention was higher in this time period than during the Great Depression/New Deal?
D • Mar 30, 2012 at 9:50 am
You should look up the definition of “subjective.”
Antonio • Mar 30, 2012 at 9:45 am
“As long as both the buyer and the seller agree to the exchange, then it improves happiness. End of story.”
You are misunderstanding and therefore misrepresenting the point the Austrian is making. It doesn’t improve happiness. It’s that it is the prefered choice for that individual at that time. It can’t be debated. It’s an observation. Not a value judgement. The choice made is that which has the highest value to that individual at that moment. If they didn’t value X over Y (and their analysis of the outcome of doing so) they by definition would not have performed that action. Purposeful action is just that… purposeful. Noone ever said it always leads to increased happiness in some absolute sense. Only that it is preceived to decrease uneaseness relative to all conceived alternatives at that time.
Due to your initial misunderstanding of praxeology the rest of your article is off as well.
I invite you to read up on praxeology (or at least watch the videos at praxeology.tv) and write a followup.
Walt • Mar 30, 2012 at 9:32 am
Libertarians don’t expect perfection. Rather we believe minimizing governmental coercion will lead to better outcomes.
It’s those statists (and other thugs) who think that people need threats and constraints to get along peacefully.
Am3rican Girl • Mar 30, 2012 at 8:33 am
I’d rather put my faith in the individual than in government bureaucrats.!
Further, my dear author, how many countries have you actually lived in? I have lived and worked in 32. I have yet to find an uncorrupt government — ANYWHERE. Are you seriously arguing that a corrupt government entity can better manage MY money? I think not.
Considering most of Ron Paul’s supporters, according to the polls, make less than $50,000, I would say they know exactly what it’s like to struggle in THIS economy — perhaps it’s time to give the free market a try.
Bob • Mar 30, 2012 at 7:16 am
I think you’re misunderstanding exactly how satisfaction works. In the cases of your cited examples, there is a level of satisfaction to each party–the buyer and the seller. The buyer gets a good or service, the seller gets an agreed-upon sum of money. But allowing such transactions to take place does not mean that you endorse their actions–I don’t endorse forced pasteurization or homogenization of milk, but even though I value raw milk I refuse to ban the alternative–which is that very same pasteurized & homogenized milk.
Many of the issues you highlighted above should not be the domain of the federal government. Local communities should have the right to choose if they want a public school and even how to run it or whether to close it. Selling a forest for timber and farmland is the same–it’s far more dangerous when the government is “in bed”–selling land it seizes and paying the inhabitants a fraction of what their property is worth.
Real Life and business decisions are not purely by chance. Read strategic business management books–like those by Jim Collins–for studies on real companies that did well and qualifying factors. While luck certainly has its place (since there are a near-infinite number of variables that are difficult or impossible to understand), it’s the guiding principles that build the boat. If you have poor principles, you have a poor boat that’s likely to capsize and sink.
I could go on and on refuting your individual points, but I think those cover the main areas. Ultimately, I’m more afraid of “corporatism” and economic interference by government and government-protected entities.
Tanner • Mar 30, 2012 at 6:14 am
The straw man just took a tremendous beating, to be sure, but little was said in this column that actually attacks Austrian economics.
No economist of any school supposes it’s a good thing if, as the author asserts, insurance policies are issued with the intent of denying claims. And quite simply, Austrians do not think that “all” free market exchanges are necessarily good. The author successfully attacks only an absurdity, but not his target.
What is true is that, absent force or fraud, both parties to a free exchange entered into it because they wanted to. But this fact does not, as the author claims, mean that Austrian economics should logically support policies (e.g., wealth redistribution) that are based upon our read of people’s subjective happiness. To say so is simply an error in reasoning.
If Ron Paul or others have made statements that sound blindly supportive of the free market, the author would do well to focus on those. Austrians, like everyone else, believe markets function best when participants have access to information and protection from force or fraud.
Matthew • Mar 30, 2012 at 1:31 am
Do you mean, by blind faith, stop spending as much on military spending and giving control back to the states where the constitution (that’s the law by the way) says it should be, then you need to do a little more thinking about what you are saying.
Brian • Mar 30, 2012 at 12:09 am
Whoops, the libertarians just got burned. Again. It’s amazing how easy it is to point out the insanity of their “economic theory” (I use the term loosely) when you just scratch a little bit under the surface and start thinking for yourself. Free markets gave us child labor, urban slums, all-powerful robber barons hiring private armies to shoot striking workers, and, of course, the Great Depression. And after all that, somehow it’s still possible to find idiots willing to lap up discredited libertarian ideology if you just run a slick internet marketing campaign. Sad.