Political Means versus Economic Means

March 30, 2018 By Gary Galles Leave a Comment

March 30 marks the anniversary of the birth of someone who introduced a crucial distinction in understanding political reality – sociologist Franz Oppenheimer. In The State, he contrasted the “political means” and the “economic means.”

There are two fundamentally opposed means whereby man…is impelled to obtain the necessary means for satisfying his desires. These are work and robbery, one’s own labor and the forcible appropriation of the labor of others…I propose…to call one’s own labor and the equivalent exchange of one’s own labor for the labor of others, the “economic means”…while the unrequited appropriation of the labor of others will be called the “political means.”

Oppenheimer directed his distinction toward developing the conquest theory of the state.

All world history…presents…a contest…between the economic and the political means…The state is an organization of the political means…forced by a victorious group of men on a defeated group, with the sole purpose of regulating the dominion of the victorious group over the vanquished.

Oppenheimer drew some very important conclusions about the relationship between the nature of society and the nature of the State

Always, in its essence, is the “State” the same. Its purpose…the political means… Its form…dominion.

Wherever opportunity offers, and man possesses the power, he prefers political to economic means.

By the “State,” I do not mean the human aggregation…as it properly should be. I mean…that summation of privileges and dominating positions which are brought in to being by extra economic power…I mean by Society…all purely natural relations and institutions between man and man…

The “state” is the fully developed political means, society the fully developed economic means…in the “freemen’s citizenship,” there will be no “state” but only “society.”

The “state” of the future will be “society” guided by self-government.

Franz Oppenheimer’s insights were particularly influential on Albert Jay Nock. Particularly in Our Enemy the State, Nock expanded on them, arguing that the State (in contrast with the voluntary arrangements people make to live together, which he called government) was based on theft, so that “the State is fundamentally anti-social.”

The State has said to society…I shall confiscate your power, and exercise it to suit myself.

The interests of the State and the interests of society…are directly opposed.

The State…has invariably, as Madison said, turned every contingency into a resource for depleting social power and enhancing State power.

There are two methods…whereby man’s needs and desires can be satisfied. One is the production and exchange of wealth…the economic means. The other is the uncompensated appropriation of wealth produced by others…the political means.

The State…is the organization of the political means…primarily a distributor of economic advantage, an arbiter of exploitation…an irresponsible and all‑powerful agency standing always ready to be put into use for the service of one set of economic interests as against another.

The State is not…a social institution administered in an anti‑social way. It is an anti‑social institution.

State power has an unbroken record of inability to do anything efficiently, economically, disinterestedly or honestly; yet when the slightest dissatisfaction arises over any exercise of social power, the aid of the agent least qualified to give aid is immediately called for.

Under a regime of actual individualism, actually free competition, actual laissez‑faire…a serious or continuous misuse of social power would be virtually impracticable.

The distinction between the economic (voluntary) means and the political (coercive) means offers individuals a powerful tool in understanding society. As Nock wrote, “as long as the State makes the seizure of wealth a matter of legalized privilege, so long will the squabble for that privilege go on.” Therefore, restraining State power is essential to society, because “The weaker the State is, the less power it has to commit crime.” Having moved far along a mistaken path, recognizing that insight grows ever more important.

Gary M. Galles is a professor of economics at Pepperdine University, an adjunct scholar at the Ludwig von Mises Institute, a research associate of the Independent Institute, a member of the FEE faculty network, and a member of the Board of Policy Advisors at the Heartland Institute. His books include “Apostle of Peace” (2013), “Faulty Premises, Faulty Policies” (2014) and “Lines of Liberty” (2016).

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Politicians routinely divert funds from where they’re promised

May 25, 2017 By Gary M. Galles 6 Comments

Money

If a person holding a handmade “homeless and hungry” sign came across your commuting path, you might have good reason to suspect that money given them would go toward something other than housing or food. One would hope that government would be more reliable, given their constantly repeated rhetoric of advancing citizens’ general welfare. However, there are reasons to think that government may not be.

California’s Proposition 56 offers one current example. It hiked cigarette taxes by $2 per pack last year, justified because, as the Los Angeles Times endorsement put it, “The bulk of the funds would go … specifically, to pay healthcare providers more to treat Medi-Cal patients.” However, Gov. Brown has allocated no money to that end, even to offset a 10 percent cut during the recession, leaving California with reimbursement rates that are 48th in the country. Similarly, in November, Oakland passed a tax on sugary beverages which was supposedly to finance health and education programs, backed by an advisory board to ensure the money was well spent. But Mayor Libby Schaaf already wants to divert $6 million of it to help fill a budget hole, and other revenue to different purposes.

Unfortunately, the diversion of funds from where politicians promise voters they will go is a fact of political life, undermining any confidence in such promises.

Politicians routinely divert funds from where they promised. Diversions of earmarked bond revenues have been so common that citizen oversight boards are now routinely created (with limited actual effect) to convince voters of public agency trustworthiness, this time. State lottery funds promoted to supplement education have met a similar fate. Politicians, taking into account those additional funds, reduce other budgetary support, freeing up money to be spent however the state government decides, just as if the lottery proceeds went directly into its general fund. As professors Patrick Pierce and Don Miller concluded in a study of education funding, “Regardless of the state, the educational spending rate declined once a state lottery went into operation.”

Even when government spends money where they promised, the effects are often far different than advertised. For instance, food stamps (now SNAP) are largely equivalent to cash, because the vast majority would purchase more food than their food stamp allotments. That allows food stamps to replace money that recipients would have spent on food anyway, freeing it up to use however they choose. Housing, winter heating and other subsidies have similar effects, because to the extent they replace money that would have been spent on those items, earmarked funds can be diverted wherever recipients select.

Similar diversions have also often hobbled the effectiveness of humanitarian foreign aid. It frees up resources otherwise required to buy such supplies, allowing them to be spent wherever the recipient government chooses. As a result, much is lost to corruption or converted to other uses, including military spending, sometimes used to threaten citizens or neighboring countries.

If you voted for California’s Proposition 56 because it would increase Medi-Cal reimbursement rates or for Oakland’s sugary beverage tax to help health and education programs, you are probably disappointed at the deception involved. Those latest installments of the victory of hope over experience justifies anger and cynicism about government. It cannot be trusted to do what is promised. And when it does what is promised, the results are often far different than intended. Neither fact offers much assurance that government can reliably advance our general welfare. That is worth remembering, as it will not be long before the next installment of the government’s “hungry and homeless” signs will again be put on display.

Gary M. Galles is a professor of economics at Pepperdine University, an adjunct scholar at the Ludwig von Mises Institute, a research associate of the Independent Institute, a member of the FEE faculty network, and a member of the Board of Policy Advisors at the Heartland Institute. His books include “Apostle of Peace” (2013), “Faulty Premises, Faulty Policies” (2014) and “Lines of Liberty” (2016).

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Neither liberty nor justice for all

March 1, 2017 By Gary M. Galles 1 Comment

Recently, Harvard political theorist Danielle Allen wrote in the Washington Post of “The most important phrase in the Pledge of Allegiance” — “with liberty and justice for all.”

Liberty

Allen recognized that justice required “equality before the law” and that freedom exists “only when it is for everyone.” But she confused democracy, as in progressives “build[ing] a distributed majority across the country, as is needed for electoral college victory,” with liberty, which is very different. Similarly, she replaced the traditional meaning of justice (“Giving each his own,” according to Cicero) with a version of “social justice” inconsistent with it. And her two primary examples — rights to education and health care — were inconsistent with both liberty for all and justice for all.

Americans cannot have both liberty and such social justice, under whose aegis one can assert rights to be provided education and health care, not to mention food, housing, etc. Positive rights to receive such things, absent an obligation to earn them, must violate others’ liberty, because a government must take citizens’ resources without their consent to fund them. Providing such government benefits for some forcibly violates others’ rights to themselves and their property.

The only justice that can be “for all” involves defending negative rights — prohibitions laid out against others, especially the government, to prevent unwanted intrusions — not rights to be given things. Further, only such justice can be reconciled with liberty “for all.” That is why negative rights are what the Declaration of Independence and the Constitution, especially the Bill of Rights, were intended to protect. But those foundational freedoms continue to be eroded by the ongoing search to invent ever-more positive rights.

Echoing John Locke, The Declaration of Independence asserts that all have unalienable rights, including liberty, and that our government’s central purpose is to defend those negative rights. Each citizen can enjoy them without infringing on anyone else’s rights, because they impose on others only the obligation not to invade or interfere. But when the government creates new positive rights, extracting the resources to pay for them necessarily takes away others’ unalienable rights, which people recognize as theft except when the government does it.

Almost all of Americans’ rights laid out in the Constitution are protections against government abuse. The preamble makes that clear, as does the enumeration of the limited powers granted to the federal government. That is reinforced by explicit descriptions of some powers not given, particularly in the Bill of Rights, whose negative rights Justice Hugo Black called the “Thou Shalt Nots.” Even the Bill of Rights’ central positive right–to a jury trial–is largely to defend innocent citizens’ negative rights against being railroaded by government. And the 9th and 10th Amendments leave no doubt that all rights not expressly delegated to the federal government (including health care and education) are retained by the states or the people.

Liberty means I rule myself, protected by my negative rights, and voluntary agreements are the means of resolving conflict. In contrast, assigning positive rights to others means someone else rules over the choices and resources taken from me. But since no one has the right to rob me, they cannot delegate such a right to the government to force me to provide resources it wishes to give to others, even if by majority vote. For our government to remain within its delegated authority, reflecting the consent of the governed expressed in “the highest law of the land,” it can only enforce negative rights.

Our country was founded on unalienable rights, not rights granted by Washington. That means government has no legitimate power to take them away. However, as people have discovered ever-more things they want others to pay for, and manipulated the language of rights to create popular support, our government has increasingly turned to violating the rights it was instituted to defend. And there is no way to square such coercive “social justice” with “liberty and justice for all.”

Gary M. Galles is a Professor of Economics at Pepperdine University, a Research Fellow at the Independent Institute, an Adjunct Scholar at the Ludwig von Mises Institute and a member of the Foundation for Economic Education Faculty Network. His books include “Lines of Liberty” (2016), “Faulty Premises, Faulty Policies” (2014) and “Apostle of Peace” (2013).

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The perfect security of person and property

January 5, 2017 By Gary M Leave a Comment

Regulation and taxation impose constant government assaults on Americans’ property rights, eroding their ability to make choices for themselves. James Fenimore Cooper put it, “There is getting to be so much public right, that private right is overshadowed and lost … danger exists that the ends of liberty will be forgotten.”

jean-baptiste-sayGiven how much private property rights now overshadowed, we should return to first principles about those essential underpinnings of voluntary relationships. One person worth reconsidering is Jean Baptiste Say, particularly on the 250th anniversary of his January 5 birth.

J.B. Say was the foremost French political economist in the early 1800s. An elaborator on Adam Smith’s Wealth of Nations and a vigorous defender of economic freedom, which arises from the defense of private property rights, his Treatise on Political Economy was used as a textbook in the United States.

Say’s chapter, “Of the right of property,” remains among the wisest, though widely violated, insights into property rights available today.

The right of property … [is] the most powerful of all encouragements to the multiplication of wealth.

The legal inviolability of property is obviously a mere mockery … where possession is rendered perpetually insecure, by the intricacy of legislative enactments, and the subtleties of technical nicety. Nor can property be said to exist, where it is not matter of reality as well as of right. Then, and then only, can the sources of production … attain their utmost degree of fecundity.

Who will … deny, that the certainty of enjoying the fruits of one’s land, capital and labor, is the most powerful inducement to render them productive? Or who is dull enough to doubt, that no one knows so well as the proprietor how to make the best use of his property? Yet how often in practice is that inviolability of property disregarded … upon the most flimsy pretexts?

The property a man has in his own industry is violated, whenever he is forbidden the free exercise of his faculties and talents, except insomuch as they would interfere with the rights of third parties.

Sacred as the property in the faculties of industry is, it is constantly infringed upon. …What robber or despoiler could commit a more atrocious act of invasion upon the public security?

Nothing short of the necessity of defending [social] order from manifest danger can authorize these or similar violations of individual right.

Taxation … must be proved indispensable to the existence of social order; every step it takes beyond these limits is an actual spoliation; for taxation, even where levied by national consent, is a violation of property.

The right of property implies the free disposition of one’s own.

When public authority is not itself a spoliator, it procures to the nation the greatest of all blessings, protection from spoliation by others. Without this protection of each individual by the united force of the whole community, it is impossible to conceive any considerable development of the productive powers of man, of land, and of capital.

The poor man … is equally interested with the rich in upholding the inviolability of property. His personal services would not be available, without the aid of accumulations previously made and protected. Every obstruction to, or dissipation of these accumulations, is a material injury to his means of gaining a livelihood.

Civilized communities pursue and punish every invasion of property as a crime … the happy effects, resulting from the right of property, are more striking in proportion as that right is well guarded by political institutions.

As Larry Sechrest noted, J.B. Say was “precise and yet as simple as possible, so that any literate, reasonably intelligent person can comprehend his meaning.” However, Americans have been governed by violators of those principles, because “agents of public authority … can enforce error and absurdity at the point of the bayonet.” And the results have been far worse than if we had followed his understanding. In Say’s words:

Of all the means by which a government can stimulate production, there is none so powerful as the perfect security of person and property, especially from the aggressions of arbitrary power. This security is itself a source of public prosperity.

Gary M. Galles is a Professor of Economics at Pepperdine University, a Research Fellow at the Independent Institute, an Adjunct Scholar at the Ludwig von Mises Institute and a member of the Foundation for Economic Education Faculty Network. His books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013).

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Violating the Constitution that created it

December 21, 2016 By Gary M. Galles Leave a Comment

The political left’s responses to Donald Trump’s surprise Electoral College victory has led to many proposed “improvements” in that institution, ironically illustrating one of the main issues determining the outcome — what philosophy would guide judicial appointments.

Trump indicated that he would appoint justices that would honor the Constitution as the supreme law of the land. That would comport with our founders, expressed in Federalist 78, that “It will be the duty of the judicial tribunals … to guard the Constitution and the rights of individuals.” That was at odds with Hillary Clinton’s intent to appoint “living Constitution” jurists, who prefer subsequent judicial interpretations they like over the Constitution itself, whenever they conflict, effectively re-writing the Constitution.

So left-leaning legal scholars have illustrated their preferred means of Constitutional redefinition to produce their desired results via Electoral College “reform” proposals.

Kenneth Jost, author of the Supreme Court Yearbook, argues, “The electoral college is enshrined in the Constitution, but that doesn’t make it constitutional.” He arrives at that internally inconsistent conclusion because “The Supreme Court established the principle — ‘one person, one vote’ — in 1964.” But that is not in the Constitution. It is a much later court invention, now being used retroactively to define part of the Constitution unconstitutional. The fact that our founders did not find that so when they wrote and adopted the Constitution is simply ignored.

University of California, Irvine, Law School Dean Erwin Chemerinsky, a leading liberal Constitutional interpreter, takes the same theme further. He argues that “the text of the Constitution is modified by its amendments,” so the Electoral College allocation of votes should be declared unconstitutional as violating the constitutional amendments [citing the 5th Amendment] that guarantee equal protection of the law.” This, despite the fact that adopters of the Bill of Rights in 1791 clearly found no unconstitutionality in the Electoral College from the 5th Amendment. Neither were earlier examples of popular vote winners who lost in the Electoral College asserted to be unconstitutional. Chemerinsky, as Jost, builds his case not on the Constitution, but upon “The Supreme Court long has held,” followed by some ruling that twists the Constitution and can now be interpreted as at odds with the Electoral College, plus the claim that the redefined constitutional meaning should now trump the Constitution.

Neither of these prominent challenges to the Electoral College relies on the Constitution. Arguments are instead grounded in previous “The Supreme Court has held” rulings that deviated from consistency with the clearly understood original meaning of the Constitution. This is, in fact, such a common approach in “living Constitution” jurisprudence that scholars have even compiled “worst of” lists, such as Robert Levy and William Mellor’s The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom.

Should America be faithful to the Constitution, and the sharply limited federal government of enumerated powers it created to protect our freedoms from abuse at its hands, as the earlier, controlling precedent, or should we accept precedents that have already warped it almost beyond recognition? If the Constitution’s meaning is to be so easily changed (but only when the left finds it amenable to their ends) that even “emanations from penumbras” around other rights can effectively rewrite it, why did our founders spell out such a difficult process for changing it? And why should we respect precedents from 1964 or others years long after America’s establishment, on the basis that the Constitution must be upheld, when those precedents distorted it rather than upheld it? Surely that Alice in Wonderland approach to constitutional meaning is too weak a reed to throw out the Electoral College as violating the Constitution that created it.

Gary M. Galles is a Professor of Economics at Pepperdine University, a Research Fellow at the Independent Institute, an Adjunct Scholar at the Ludwig von Mises Institute and a member of the Foundation for Economic Education Faculty Network. His books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013).

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Proposition 53 and Voter Power

October 28, 2016 By Gary M. Galles 1 Comment

One California ballot initiative getting far less attention than it deserves is Proposition 53. It would require statewide voter approval for revenue bonds (not now subject to voter approval) in excess of $2 billion.

The anti-Proposition 53 theme is that rather than giving citizens more power, it would reduce their power over local government. Their voter guide statement claims it “erodes your voice and the voice of your community,” allowing “voters in faraway regions the power to deny local projects your community needs.” Unfortunately, those claims, focus-grouped to trigger knee-jerk “no” votes, are deliberate distortions.

Opponents’ claims that Proposition 53 would lead local voters to lose control over local government ignore that it “does not apply to bonds sold by cities, counties, schools, community colleges, and special districts,” which involve the local issues voters care about most. And state general obligation bonds already require voter approval. What Proposition 53 focuses on are joint power agencies (JPAs) which combine different government bodies, because JPA revenue bonds do not require voter approval in California (though they do in some states).

Local voters already have very little power over JPAs, however, making the hobgoblin of lost local voter control imaginary. JPA boards include elected officials from government bodies involved (not all local) and sometimes, those in appointed government positions. Voters have no power over any appointed members. While they can vote for representatives to their local governments, those representatives will always be a minority on the board, so voters have no control over who will be selected as JPA board members. If voters are unhappy with those selected, even throwing them from office (for a generally low voter-visibility role) gives them no power over who will replace them. And while voters have very limited legal power to override JPA decisions (via an initiative within 30 days), its difficulty seldom makes it an actual option. With so little local voter power over JPAs, Proposition 53 cannot eliminate an appreciable amount of it.

High Speed RailThe Legislative Analyst’s conclusion that few projects would likely be subject to Proposition 53 similarly undercuts the lost voter power narrative. The two projects that will clearly be affected — the extraordinarily expensive bullet train and Sacramento delta water tunnel — are also instructive. Neither are really local projects, but ones that would substantially reshape California’s economic landscape, illustrating that JPAs allow policy making for state level issues, while evading the requirement of putting such bonds to a citizen vote.

If citizen control was the real issue motivating Proposition 53’s opponents, local good government and taxpayer groups would offer widespread support. But they do not. State and local taxpayer groups, in particular, favor Proposition 53, reflecting widespread belief that the projects in question can’t be justified and that citizens would be better served by Proposition 53’s securing of more voter power.

Further, virtually all the opponents of Proposition 53, supposedly on behalf of voter groups who favor it, come from groups who benefit from more government projects. Unions and their members who construct the projects (supported by other unionized government employees), those whose sales of goods and services will increase, as well as a host of consultants and lobbyists, all want more construction, regardless of whether those projects advance Californians’ well-being. Similarly, JPA board members, officials who select them, and Sacramento legislators gain power from evading voter approval requirements.

Anti-Proposition 53 attacks add other distortions, as well. Most notable is the complaint it doesn’t precisely define “project,” knowing that highlighting ambiguity will generate more “no” votes. Unfortunately, the greatest problem with such ambiguity is government’s ongoing efforts to weasel out of every constraint those it supposedly represents try to impose on it, amply illustrated by the bullet train saga. That is a problem of abusive government, which needs to be contained, not a reason to keep voters from having any effective power to defend themselves from its abuse.

Proposition 53 is an effort to improve Californians’ self-defense capabilities against government’s ability to impose harm on them. Those who will be better protected, and have seen through the subterfuges, back it by large margins, while opponents, who benefit even from projects that harm Californians, rely on focus-grouped, misleading claims to fool low-information voters. We can only hope that Proposition 53’s opponents have underestimated the gullibility of those they claim to serve.

Gary M. Galles is a professor of economics at Pepperdine University, a research fellow at the Independent Institute, adjunct scholar at the Ludwig von Mises Institute, and member of the FEE faculty network. His books include Apostle of Peace (2013), Faulty Premises, Faulty Policies (2014) and Lines of Liberty (2016).

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What you don’t know hurts more in politics than markets

October 13, 2016 By Gary M. Galles Leave a Comment

There is an old expression that “what you don’t know won’t hurt you.” Unfortunately, it is not true. Further, when it comes to economic misunderstanding, it is far more likely to harm Americans in their political choices than their market choices.

thomas-sowellThomas Sowell, in Knowledge and Decisions, laid out why. In market competition:

Economic knowledge need not be articulated to the consumer, but is conveyed — summarized — in the prices and qualities of goods. The consumer may have no idea at all — or even a wrong idea — as to why one product cost less and serves his purpose better; all he needs is that end result itself. Someone must of course have the specific knowledge of how to achieve that result. What is crucial to economic competition is that better and more accurate knowledge on the part of the producer is a decisive competitive advantage, regardless of whether the consumer shares any part of the knowledge.

In political competition, however:

Political knowledge is conveyed by articulation, and its accurate transmission through political competition depends upon the preexisting stock of knowledge and understanding of the receiving citizen. … In political competition, accurate knowledge has no such decisive competitive advantage.

In other words, as long as consumers can choose which suppliers’ goods better satisfy their preferences and situations, misunderstanding the processes involved does not keep them from being well-served by market competition. In contrast, voters must understand how things will actually work to evaluate politicians’ promises.

In markets, “prices convey effective knowledge of inherent constraints.” In contrast, “ballots do not … there are no constraints on my voting for … options simultaneously desired [but] unrealizable from the outset.” To make it worse, “no small part of the political art consists in misstating options and in trying to give them the appearance of simultaneously satisfying competing claims when they cannot be satisfied in reality.” Consequently, “The competition among political groups does not therefore bring to bear more accurate knowledge, as in economic competition, but promotes exaggerated hopes and fears.”

Today, for those who believe freer trade harms people rather than creating mutual gains, promises of “cracking down” or imposing higher tariffs on foreign products appears attractive. For those who believe that they earn less because “the 1 percent” earn too much, rather than that market incomes reflect added value provided to others, punitive taxation appears attractive. For those who think various workplace amenities, such as paid leave, come out of employers’ pockets, rather than from workers’ compensation packages (once there has been time to adjust), mandating those benefits appears attractive. For those who think higher minimum wages will benefit “the poor” with few other effects, rather than helping some and hurting others, including those who lose their jobs, hours worked, on-the-job training, etc., as well as all consumers in higher prices, they appear attractive. But in each of these cases, and many others, appearances are deceiving the ill-informed.

Thomas Sowell recognized that “Perhaps the greatest achievement of market economies is in economizing on the amount of knowledge needed to produce a given economic result.” However, he also recognized “That is also their greatest political vulnerability,” which we are seeing acted out before our eyes. The public, benefitting from vast and varying market arrangements without understanding them, can be lured by siren songs of something for nothing, because they don’t see how it undermines those irreplaceable voluntary arrangements which do reliably serve them.

Gary M. Galles is a professor of economics at Pepperdine University, an adjunct scholar at the Ludwig von Mises Institute, a research associate of the Independent Institute, and a member of the FEE faculty network. His books include Apostle of Peace (2013), Faulty Premises, Faulty Policies (2014) and Lines of Liberty (2016).

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Trumped-up trickle-down

September 30, 2016 By Gary M. Galles 1 Comment

 

trump-clinton-debateIn the post-debate spinning, few noted Hillary Clinton’s pride in coining “Trumped-up trickle-down” economics to accuse Donald Trump of policy malfeasance. However, it is important, because every time anyone has ever used the term “trickle-down” economics (or its rhetorical cousins, “tax cuts for the rich,” “voodoo economics,” etc.) it has been a trumped-up, intentional misrepresentation.

No supply-side economist ever promoted “trickle-down” economics. That was invented by big government opponents of market freedom, just as Marx named capitalism to make it appear harmful rather than to correctly describe it.

Trickle-down is a defamatory characterization used to misdirect attention away from how voluntary market arrangements benefit all. Its central false premise is that taxing high-income earners less, leaving them more take-home income, benefits them alone. That is abetted by the mistaken zero-sum view that more income for some must reduce others’ incomes.

When people, however rich or poor, get richer through voluntary arrangements, they do not hurt anyone except those suffering from envy. Each party is better off, as they see it, or they would not participate. But changes in the measured distribution of income distort that fact.

If I create a massively successful software program, my measured income will increase, but every buyer will also gain because they face better options than before. This holds true even if their imperfectly measured share of total income is lower because my income has risen.

Unfortunately, forcible redistribution proponents’ campaigns to punish higher income earners (given rhetorical cover as paying their “fair share,” which is always “more”) diverts debate from the central question — are others helped or hurt? Worsening the productive incentives of high-income people induces them to do less for others with their resources, harming them.

Of course, if a rich person or a rich politician gets richer by rigging the political process, that is objectionable. But it is not a market failure, requiring a government solution. It is a government failure, which undermines the benefits competitive markets provide for all, whose solution requires removing government from the theft-and-transfer business, not expanding its role in it.

Supply-siders have always focused on improving productive incentives, and trying to make those improvements as durable as possible. That is why they focus on permanently reducing tax rates and rolling back regulatory burdens where their burdens are most adverse, because that is where it improves productive incentives most. The immediate measured benefits in financial markets will, it is true, go to those who currently own the assets affected by those changes. But treating that as solely a “tax giveaway to the rich” ignores that what is primarily rewarded is using the resources at one’s disposal to do more of what others value, and spending less time and effort trying to minimize unjustifiable burdens.

Improved supply-side incentives will increase labor supply by increasing take-home wages. It will increase rewards for acquiring new skills, for added capital investments to increase worker productivity, for secondary workers to enter the labor force, for in-migration of productive people from less-friendly tax and regulatory climates (or reduced out-migration) and for productive risk-taking. They will also reduce incentives for tax evasion, for tax cheating, and for buying things people desire less because of the distortion of tax deductibility. Each of those changes will benefit Americans. Doing the opposite, which criticisms of “trickle-down” economics are the rationalization for, harms Americans.

There is no reason to add “Trumped-up” to “trickle-down economics.” Such assaults have always been trumped-up distortions, trying to get people to look at incomes others have earned, and envy them, forgetting that, in competitive markets, they were earned by making others better off. And the pretend solutions not only violate Cicero’s millennia-old definition of justice as “giving every man his due,” they harm the very people whose votes they are trying to buy with the imagery of soaking the rich.

Gary M. Galles is a professor of economics at Pepperdine University, an adjunct scholar at the Ludwig von Mises Institute, a research associate of the Independent Institute, and a member of the FEE faculty network. His books include Apostle of Peace (2013) Faulty Premises, Faulty Policies (2014) and Lines of Liberty (2016).

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Proposition 54 and the “We Can Do Whatever We Want Act”

September 22, 2016 By Gary Galles 4 Comments

TransparencyAmid the ballot initiatives gifting Californians with a 200-plus page voter guide is at least one sensible idea. Proposition 54 targets “gut and amend” (Ganda) bills, which are diametrically opposed to responsible legislative deliberation.

Ganda legislation takes “how a bill becomes law” civics book descriptions, then adds “not” at the beginning. In the race to beat the legislative end-of-session deadline, power brokers take bills that have cleared most legislative hurdles and replace them with completely different bills. Then they rush them through the minimal scrutiny of the last-minute frenzy (e.g., with multiple committee hearings in a single room in an hour).

This year’s appropriation of nearly $1 billion in pollution fee money is one example. Earlier illustrations include transforming a Silverlake Reservoir bill into requiring that gun buyback programs test weapons for criminal involvement (2014), California Environmental Quality Act exemptions for housing projects into increased alternative vehicle technology funding (2013), and pension reform into a fire prevention fee repeal (2012). The last three weeks of 2011’s session included 48 Ganda bills (my favorite: morphing a measure allowing tuberculosis information disclosure into one preventing local government bans of project labor agreements).

Unfortunately, bills sensible enough to command sufficient consensus can pass in daylight. Only legislation failing that test requires Ganda evasions.

That is what Proposition 54 addresses. It would require any bill to be both in print and available on the internet 72 hours before it could be enacted (with a ‘public emergency” escape clause). It would also intensify the sunlight on the sausage-making by mandatory videotaping of all public meetings, to be posted online within 24 hours, and by allowing any citizen to record any public meeting and use it without restriction.

Despite Proposition 54’s potential to protect Californians from legislative back-room bullying, it has opponents, particularly among power brokers. One rebuttal is, in essence, that despite missing deadlines or failing to get approval, sometimes legislatures “just need to act.” But that is not a reason; it simply assumes its conclusion — the powerful must be allowed to circumvent the rules whenever they decide it is necessary. That is why the Democratic Party opposes Proposition 54 with a preposterous rhetorical Ganda, twisting its protections against unwarranted legislative abuses into a claim that it would better allow “special interests” (i.e., those targeted for harm to fund legislative presents for others) to “block timely legislative action.”

The core problem is that for Ganda bills to benefit Californians requires several false things to be true.

The bill would have to be the Legislature’s business. Unfortunately, despite injecting itself everywhere, very little legislation can actually advance our general welfare. Benefiting some at others’ expense is another matter, but such bills deserve destruction, not greasing through.

Only the Legislature must be competent to deal with the issue. Where people can work things out for themselves, no legislation is needed, except repeal of what prevents voluntary private solutions. Those lauded by politicians for their wisdom during campaigns deserve the power to use it in their own affairs.

The problem must be too urgent to wait for ensuing terms. The sponsor must know how to implement an efficient and equitable solution. It must also come as a sudden surprise. But it is laughable to think of our legislators quickly developing real solutions to serious problems unrecognized just weeks before, and still needing to sneak them through.

Gut and amend survives only because it lets urgency insulate legislators from accountability. Capitol power brokers may “need” it for their purposes, but it harms citizens. That is why eliminating Ganda is important and also why all such legislative attempts have been killed. Proposition 54, which the legislature would morph into the “We Can Do Whatever We Want Act” at the last minute, given the chance, deserves support, in order to take such chances away.

Gary M. Galles is a professor of economics at Pepperdine University, a research fellow at the Independent Institute, adjunct scholar at the Ludwig von Mises Institute, and member of the FEE faculty network. His most recent books are Faulty Premises, Faulty Policies (2014) and Lines of Liberty (2016) 

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Don’t bet the house against the law of demand

September 13, 2016 By Gary Galles Leave a Comment

Unions22016’s edition of Labor Day followed a well-established tradition — unions claiming credit for every worker gain. Among their most common assertions, often incorporated in attributing negative wage trends to eroding union power, was that unions raise all workers’ wages. Unfortunately, unions retard rather than raise others’ real earning power.

Unions leverage special government-granted powers (e.g., unique exemption from antitrust laws) allowing current employees to prevent competition from others willing to do the same work for less, a form of collusion that, done by any business, would be legally prosecuted.

The higher union wages that result are then credited for raising all workers’ wages because they supposedly force up other employers’ wages to keep their workers from leaving for those better-paying alternatives. However, their claim cannot be true without violating the law of demand.

Higher wages from unions’ government-imposed monopoly power would push up others’ wages only if it increased the number of such high paying jobs. The reason is that employers need only outbid employees’ actual options to retain them. But by artificially forcing up the cost of hiring their workers, unions reduce rather than increase the number of such jobs offered by employers, reflecting the reduced output consumers will buy at the higher costs and prices that result. Instead of improving the alternatives available to non-union workers, they are worsened, as the displaced workers are forced into competition with others for non-union jobs.

Those displaced workers increase the labor supply for non-union employment. That pushes wages for all workers in those jobs down, not up. Consequently, union wage premiums do not benefit all workers, but come primarily from other workers’ pockets.

With only about 7 percent of America’s private sector workforce remaining unionized, union power therefore cuts the real incomes of 13 out of 14 workers. And since unions also hike government service costs directly, as well as through other cost-increasing policies (e.g., the Davis-Bacon Act and Project Labor Agreements) which big labor’s political clout has pushed through, all other workers are also harmed as taxpayers.

Unions have also used the same “big lie” technique of constantly repeating the opposite of the truth as fact in other areas. For example, aware that their monopoly power to exclude competing workers stops at the border, unions have long been the core backers of protectionism. They focus their attention on those getting special protection, then assert that their benefits will also spread throughout the economy to benefit others. But they ignore protectionism’s much larger harms — to all other workers who would have gained from expanded exports; to all other workers who, as consumers, have their access to lower cost and superior imports (and domestic production forced to compete with it) restricted; and to all other workers adversely affected by the reduction in real wealth and income produced by domestic protectionism and induced foreign protectionist responses.

Given that Labor Day has been considered the traditional start of “serious” presidential campaigning, it is an appropriate time to remember just how damaging unions’ “big lie” strategy is. Its illogical twist can derail accurate understanding of the harm unions impose on almost all Americans, offering a sobering reminder that “It ain’t ignorance that does the most damage; its knowing so derned much that ain’t so.” After all, when people know they are ignorant of important variables that bear on their decisions, they usually don’t bet the house on them, but when they think they know what is false to be true, they often lose the house. And a lot of American houses are on the line this November.

Gary M. Galles is a professor of economics at Pepperdine University, an adjunct scholar at the Ludwig von Mises Institute, a research associate of the Independent Institute, and a member of the FEE faculty network. His most books are Faulty Premises, Faulty Policies (2014) and Lines of Liberty (2016).

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