Reality vs Perception

Over at the Liberty Law Blog, Prof. John McGinnis has an excellent piece on legislating.  He writes (emphasis added):

A Nebraska Senator has introduced a bill to require photo identification for voting, not because voting fraud is an actual problem, but because Nebraskans perceive there to be such fraud, whether it exists or not.

If voting is a fundamental right protected by the Constitution, legislation should burden its exercise only to address actual harms, not some people’s impressions of reality.  Thus, the legality of these laws should turn on the question of actual voter fraud and the utility of voter identification in curbing it.

I agree with the good professor, and think this rule should apply not to just legal matters, but economic matters as well.  An argument I’ve heard more and more in recent months in favor of protectionism from people who are nominally free market is that, with our current trade policy, it creates the perception of unfairness; it creates the perception of China “stealing jobs”, of a “hollowing out of the manufacturing base,” of “economic stagnation.”  It doesn’t matter that the data say otherwise, but the perception is there and that’s why Trump won.  Therefore, they conclude, we need some trade barriers to keep the protectionists at bay.

This argument is very similar to the one McGinnis addresses: there is this perception, so therefore we should pass legislation to combat the perception, even if it infringes on people’s rights.  For the same reasons McGinnis rejects the argument in the link, I do so here: legislation that burdens the free exercise of a right should only address an actual harm, not a perceived harm.  Given that free exchange is a fundamental human right, the infringement of such requires the burden of proof to be on those calling for tariffs; they must demonstrate actual unique and substantial harm, not just the perception of it and demonstrate the usefulness of their proposed actions in addressing the harm.*

In short, the perception of harm is not enough to justify the infringement of the right to trade.

*Notice I said “actual unique and substantial harm,” instead of just “harm.”  The reason for this, which will be addressed in a forthcoming blog post, is because any action whatsoever can conceivably harm anyone, but that alone is not grounds for outlawing it.

Today’s Quote of the Day…

…comes from page 38 of Economic Sophisms by Frederic Bastiat (1964 Foundation for Economic Education ed., footnote omitted, original emphasis):

I confess that the wisdom and the beauty of these laws [of trade] evoke my admiration and respect.  In them I see Saint-Simonianism: To each according to his capacity; to each capacity according to its production.  In them I see communism, that is to say, the tendency of goods to become the common heritage of men; but a Saint-Simonianism, a communism, regulated by infinite foresight, and in no way abandoned to the frailty, the passions, and the tyranny of men.

JMM: I love this line because Bastiat is addressing two of his biggest critics in 1850’s France: the Saint-Simonianists (socialists) and the communists.  Is Bastiat saying the goals of the socialists or the communists are ignoble?  No.  What he objects to are their methods (central planning, or leaving economic decisions “abandoned to the frailty, the passions, and the tyranny of men”).

Those of us who argue for freedom, of markets and of people, are often accused by our critics of not caring.  Because we are not socialists, we do not care about the poor.  Because we are not communists, we don’t care about the working man.  Because we are not speech restrictions, we do not care about corruption in politics.  Etc Etc.  But nothing could be further from the truth!  We care about these things; that’s why we argue for freedom.  As Bastiat says, it is in these laws of trade and exchange (the economic laws) do we see the noble goals of communism and socialism accomplished without the ignoble aspects of frailty, passions, and tyranny that comes with socialism or communism.

On the Blessings of Liberty

Representative Steve King (R-IA) put out a tweet the other day claiming “our” civilization cannot be restored “by other people’s babies.”  To borrow a phrase from one of my favorite philosophers and writers, Johan Norberg, Rep. King is dead wrong.  Our civilization rests upon liberal* values, values such as:

“that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness,” (Declaration of Independence)

Or:

It is not true that the legislator has absolute power over our persons and property, since they pre-exist, and his work is only to secure them from injury (The Law, Frederic Bastiat)

Or:

Men being, as has been said, by nature, all free, equal and independent, no one can be put out of this estate, and subjected to the political power of another, without his own consent.

Being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions. (Second Treatise of Government, John Locke)

These, and many more represent the values of our liberal civilization.  These blessings of liberty, therefore, fall not upon any one group of people, but all groups of people.  Liberty, like her dear sister Justice, is blind and she loves those who love her.  The guardians of Liberty and Justice are not the white man, or even Western Civilization.  Indeed, if they were, they’d be terrible guardians (as early as 1850 Bastiat was warning about the legalization of plunder perverting the law).  Further, Western Civilization no more created Liberty and Justice or liberalism than did they invent fire.

If we look at the above quotes, we see there are no demarcations between who gets natural rights and who does not, who have the right to “life, liberty, and the pursuit of happiness,” and who do not.  Locke said “all men,” not “only Englishmen” or “only men” or “only Christians.”  The US Constitution promises, though the Bill of Rights, protection from government for all people, not just citizens (citizens get certain other political rights, yes, but that is not the topic of discussion here).  Bastiat discusses that the blessings of liberty pre-exist for all people and come not from the legislator.

My message to Rep. King of Iowa is simple: liberty is the birthright of all people, and liberty will bless all people who love and protect her, regardless of their gender, their skin color, their intelligence level, their national origin (or that of their parents), etc.  Those who would deny a person their blessings for reasons of characteristics are no friend to liberty.

Our civilization belongs to all those who love the ideals of Liberty and Justice, who support the rule of law, free markets, and freedom.  Those who seek to destroy those values, including those within the civilization itself, have no claim to the civilization.  Liberty is not inherited by skin color or national heritage.

*Standard disclaimer about meaning “liberal” here in the classical sense

Today’s Quote of the Day…

…is from pages 5-6 of Frederic Bastiat’s 1850 essay The Law (Mises Inst. Edition):

But [man] may live and enjoy, by seizing and appropriating the productions of the faculties of his fellow men.  This is the origin of plunder.

Now, labor being in itself a pain, and man being naturally included to avoid pain, it follows, and history proves it, that wherever plunder is less burdensome than labor, it prevails; and neither religion nor morality can, in this case, prevent it from prevailing.

When does plunder cease, then?  When it becomes more burdensome and more dangerous than labor.

As with anything, people will choose the least-costly option for their actions, in this case in the trade off between labor and plunder (Bastiat uses the phrase “plunder” here meaning the legal appropriation of one’s property by the state to transfer to another person).  As the cost of labor rises (or the cost of plunder drops), the attractiveness of plunder increases.  Things like occupational licenses, tariffs, and even progressive taxation all increase the costs of labor, and thus make plunder more attractive, which in turn leads to more lobbying and resources spent to get a share of the plunder.

Respect for the law cannot long be preserved when the law becomes a tool for plunder rather than preventing it.

In Defense of the Law

The great French economist and philosopher Frederic Bastiat wrote in The Law:

The mission of law is not to oppress persons and plunder them of their property, even thought the law may be acting in a philanthropic spirit. Its mission is to protect property.

The law is justice — simple and clear, precise and bounded. Every eye can see it, and every mind can grasp it; for justice is measurable, immutable, and unchangeable. Justice is neither more than this nor less than this. If you exceed this proper limit — if you attempt to make the law religious, fraternal, equalizing, philanthropic, industrial, literary, or artistic — you will then be lost in an uncharted territory, in vagueness and uncertainty, in a forced utopia or, even worse, in a multitude of utopias, each striving to seize the law and impose it upon you. This is true because fraternity and philanthropy, unlike justice, do not have precise limits. Once started, where will you stop? And where will the law stop itself?

Bastiat’s point, that the law exists to serve justice and nothing more, is the essence of the rule of law.  The rule of law is the idea that no one is above the law, but also no one is beneath the law.  Many people remember the first part, but conveniently forget the second.

Over the past few years, and especially since the election of Donald Trump, the law has come under attack, both by those on the Left and the Right.  Both want to carve out exceptions to the law, either by eliminating protections under the law for disliked groups (the Left for the alt-right, the Right for immigrants and Muslims) or by giving themselves greater share of “legal plunder” (tariffs, welfare, subsidies, etc etc).  As a classical liberal, it disheartens me to see my country, one founded on (if not always practiced) the ideals of justice, liberty, and the rule of law so willingly and vehemently attack these very ideals for the sake of political virtue-signalling or simple spite.

Justice is blind.  That means she sees not the devils nor the angels of our nature.  She hears only the circumstances, and defends the wronged party.  Whether that party is black, white, Hispanic, Republican, Democrat, Christian, atheist, Muslim, of the “right” mind, of the “wrong” mind, it doesn’t matter.  Justice defends them all.  This must mean that, yes, we must give the Devil himself the benefit of the law for the sake of justice.

A couple of examples.  First, here is a NYT story explaining the jubilation many had after Richard Spencer (the notorious neo-Nazi) was attacked.  Second, this story from Reason responding to the Republican (and sometimes right-libertarian) argument that immigration should be restricted because immigrants tend to vote Democrat.  In both cases, we have an ‘in-group’ trying to carve out exceptions to the law (in the first case freedom of speech, in the second case freedom of migration and protection under the law) for an ‘out-group’ who thinks differently from the in-group.  In both cases, the in-groups are making a mockery of the law.

As a classical liberal, I will defend the rights of both out-groups, indeed all out-groups, because Justice cares not whether one is in or out, and the law shouldn’t either.  I will defend them, not because of any sympathies to neo-nazis (of which I have none) or particular love of immigrants but for my own safety’s sake.  If we weaken the protection of the law for out-groups, what happens when we find ourselves the out-group?  To borrow the language from A Man For All Seasons, if we cut down every law to apprehend the Devil, what will protect us when the Devil turns on us?  Yes, I would give the Devil the benefit of the law for my own safety’s sake!

Tyrants rarely run roughshod over the law, but rather use precedence set by those before them (this precedence, although itself a mockery of the law, gives the illusion that the tyrant’s actions are lawful).  Exceptions to the law, granted by angles to pursue angelic ends, then become the tools of the devil to pursue devilish ends.  Vast presidential powers, handed over by Congress to the Executive Branch, now lay in the hands of Trump.  A vast regulatory government, once in the hands of relatively moderates now exists in the hands of an ignorant, egomaniac populist.  When the moderates were in power and wanted more and more leeway, the classical liberals objected; like More in the clip above, we refused to cut down the law to pursue the Devil for the exact reason that now is in our face: the Devil has turned ’round upon us and many laws have been cut down.

We must defend the rule of law and its protections for all people, including the Devil himself.  Once the door is opened that people who have “wrong” opinions do not deserve the same protections and liberties as people with “right” opinions, then it’s damn near impossible to close that door.

Markets Make Mistakes. That’s A Good Thing

Free markets are not perfect.  In fact, they are anything but (a topic I have spilled lots of digital ink in discussing, for example here).  Markets may end up in inefficient allocation of resources, may give rise to monopolies, or any number of other non-perfect competition outcomes.  However, the fact markets aren’t perfect, that people make mistakes, is a feature, not a bug, of markets.

When a market imperfection (or “market failure”) arises, it indicates that there is some “surplus” (that is, welfare) not being captured.  It’s being lost.  This signals a profit can be made for anyone willing to exploit this failure and correct it.  If, for example, the price of Good X is “too high” because of monopoly power, it encourages people to look for ways to enter the market to capture some of that profit.  This, in turn, brings more of Good X to the market which helps lower the price of Good X.*  The market mechanism helps fix the misallocation.

Of course, enticing others into production is not the only way the market can “heal” itself.  Relatively high prices also cause people to search or create substitutes.  A good example of this is what Mark Perry highlights at Carpe Diem: synthetic diamonds created to combat the cartel power of diamond miners. In fact, the failure or missteps of markets is a major driver of innovation!

However, the profit motive is itself not perfect.  When dealing with public goods or poorly defined property rights, the profit motive may break down.  There is a lot of discussion to be had on that topic, and thus I will avoid it for now.  Rather, I want to focus on the larger message: markets stumble, but they also have mechanisms built in to correct those stumbles.**

The market has failed.  Long live the market.

*This example assumes no government barriers protecting the monopoly.  Other barriers, such as geographical or technological, that help create a monopoly can be broken down eventually.  Government barriers, not so much.

**I’m hesitant to use this language as it may cause the reader to conclude, incorrectly, that markets are machines that can be designed.  I hope readers know markets are organic and not mechanical.

Can a Trade War Create Free Markets?

Craig Walenta’s comment on this blog post at Cafe Hayek got me thinking.  Craig says:

“Well they’re [tariffs] also a way to maybe compel a foreign country to cease its protectionist activities they’re engaging in.”

Craig makes a common (at least among some free market supporters) argument for tariffs on the grounds of promoting free markets, but I’m not quite sure it’s a likely outcome.  The reason is incentives.

Governments tend to like tariffs for multiple reasons, and among those are: 1) they’re vote-getters, 2) they generate tax revenues.  If we assume governments, like all organizations and people, are self-interested and rational, then the case for tariffs becomes obvious: it’s a relatively cheap (in terms of political effort) method of promoting one’s political power.  It is not in the interest of the government to reduce tariffs.  Reduction in tariffs would either mean an increase in other, perhaps less politically safe, taxes or cutback in spending (assuming this to be revenue neutral) and the politician himself would need to look elsewhere for votes.  When a foreign nation enacts protectionist measures against a country, it is unlikely they would respond to removing their tariffs because they face the same incentives as the host nation.  Further, the host nation has no incentive to reduce tariffs even if it “wins” the trade war.

In short, I strongly suspect an “arms race” will develop among the competing nations, one which will only lead to higher tariffs and lower standards of living.  Just as war cannot promote peace, a protectionist trade war cannot promote free markets.