A Disease Masquerading As Its Own Cure, Part II

I’d like to take a moment to salute Ms. Jacqueline Charles of McClatchy Newspapers. With all the bad economic journalism out there it’s not always easy to stand out from the crowd, but Ms. Charles has found a way to take bad reporting to a whole new level with the following article: http://www.miamiherald.com/news/americas/story/505264.html. This is a syndicated article whose title varies from paper to paper, but in The Fort Worth Star-Telegram it led with the following headline: “Haiti now paying the price for ‘cheap’ rice imports.” Can you guess where this one’s going? That’s right; Ms. Charles believes that the food crisis in Haiti (which I discussed in the previous entry) is due to the fact that the Haitian government lowered its tariffs on imported rice twenty years ago. Throughout the article, she implies that the solution to Haiti’s food problem is greater protectionism. Please take time to read the entire piece (as painful as that may be) because I’m about to dissect it.

“Haitian President Rene Preval recently announced government subsidies to cut the price of imported rice by more than 15 percent and to revive local agriculture primarily by reducing the price of fertilizer.” Hmmm….Preval is going to subsidize rice imports to lower the price. Where will he get the money to reduce the price of rice? From the Haitian taxpayer, of course. He’s going to raise Haitians’ taxes in order to lower the price they pay for rice. Even if the transaction cost of this brilliant plan were zero, its net effect would at best be…well, zero. (I’m guessing the transaction costs of Haitian tax policy are somewhat greater than zero, however).

“Once a major producer of rice, Haiti’s local market sharply decreased after Haitians became hooked on U.S. rice in the mid-1980s. Because of U.S. subsidies, the rice, even though it was imported, was cheaper than the homegrown product.” Here, Ms. Charles almost stumbles upon an actual point. U.S. subsidies do make American rice artificially cheaper, giving it an advantage over the locally grown Haitian variety. This policy is certainly harmful, but only to two specific groups – American taxpayers and Haitian rice farmers. To Haitians as a whole, however, American rice subsidies are an unalloyed benefit. They lower the price of a staple food product at someone else’s expense. This frees up what little money the average Haitian has, enabling him to buy more goods and services than he would be able to otherwise. Ms. Charles fails to mention this fact, as she is too busy trying to conflate the small number of Haitian farmers with Haitian consumers in general.

“For Preval, the long-term solution to Haiti’s hunger problem is to wean Haitians off expensive imports and revive a once thriving but now ravaged agricultural base.” That’s odd…if imports are more expensive, then surely Haitians will naturally turn to the less expensive domestic variety. No government prodding should be necessary to make people economize – particularly when those people are the poorest in the western hemisphere. The reader must struggle through almost twenty more paragraphs to have this apparent paradox explained. “’Our rice is better, but it doesn’t have any value,’ said Loremaine Descieus, 44, as she described how Haitians would rather spend almost $4 on a Marmite or 6 pounds of U.S. long-grain rice (No. 5) than$5.26 on the same quantity of Shedla and Shella Artibonite rice, which is more natural and local.” Ah, there it is. Imported rice may be more expensive than it used to be, but it is still cheaper than the local variety, and Haitian consumers are voting with their dollars (or gourdes, as the case may be). Haitian farmers are upset that Haitian consumers aren’t willing to pay 32% more for a commodity food item, so they are turning to the government to force their countrymen to fork over more of what little they have.

These are only a few of the ridiculous comments made in the article. Starting with the headline and continuing with the text of the article, the implication is that the cost of rice in Haiti is somehow higher than it “should” be because Haiti lowered its tariffs. Although Ms. Charles contradicts this implication later in the article with actual price data, she remains steadfast in the core hypothesis that the key for Haiti’s recovery lies in protectionism. In other words, she believes that the way to help poor people is to make the food they need to live even more expensive.

Throughout this little piece of anti-trade propaganda thinly disguised as news, the author commits the mistake of focusing on the concentrated benefits that would accrue to Haitian farmers if the government were to increase tariffs on imported rice again. She completely ignores the diffuse costs that would hit the Haitian consumers in the form of higher prices. Obviously only a small fraction of Haitians are rice producers, but the overwhelming majority of Haitians are rice consumers. If the Haitian government were to follow Ms. Charles’s train of thought (and by all indications, it will), the poorest people in the Americas would be hit by rising prices for both food and energy. I fail to see how that would make things better.

So why is any of this important? The article was buried on page 21A of The Star-Telegram, after all, and was probably read by no more than a dozen people. It’s important because it is illustrative of a growing protectionist sentiment throughout the world, characterized by the mistaken yet growing belief that prosperity lies in self-sufficiency. At first blush, self-sufficiency may be conceptually appealing, but it is a very primitive way of life that leads to poverty. Our hunter-gatherer ancestors were self-sufficient, but they were also dirt poor and miserable. Protectionists may not want to go that extreme, of course, but the principle is the same. It is only through comparative advantage, i.e. interdependency, that has enabled mankind to raise its standard of living over the past few centuries. Through their constant rants against free trade, protectionists like Ms. Charles seek to influence opinion and policy in order to constrain the benefits derived from comparative advantage. While attempting to portray themselves as the great defenders of the downtrodden, they lace their news stories with editorial comments calling for more backwards economic policies that will do nothing but further impoverish the poorest among us. And these reporters have the public’s attention. For every Walter Williams or Mary Anastasia O’Grady, there are at least one hundred Jacqueline Charleses in the media. If their ridiculous assertions go unchallenged, they could drown out the voices of reason altogether, and push us farther down the road to misery.

A Disease Masquerading As Its Own Cure

"The entire world now realizes that we're entering a crisis, that we've entered a food crisis. They're now realizing that it isn't the market that's going to solve the human drama, and now they're calling for governments to take measures to regulate the market — (even) the very World Bank." – Hugo Chavez, April 19, 2008

What a shock. Hugo Chavez claims the increases in food prices that have sparked demonstrations in Mexico and riots in Haiti represent market failure. And true to form, he wants more government intervention to fix the problem. But before we start taking economic advice from a man who still believes that the Soviet Union had it right all along, maybe we should take a closer look at the record.

Let’s start with inflation. Since a general rise in prices is only possible under a fiat monetary system (that is, a monetary system that bases its stability wholly on the restraint of honorable politicians) it seems like this should be the first place we look when trying to explain across-the-board price increases. And sure enough, when we look at the countries that have had the most difficulty keeping the lid on prices and food on store shelves – Haiti, Venezuela, and Argentina – we see double-digit inflation rates. Inflation in Haiti is estimated at 15.8%. Not to be outdone, Venezuela is inflating its money supply at a rate of 15.9%. Argentina, in contrast, looks like a paragon of economic virtue with an inflation rate of “only” 9.6%. (Source: The Heritage Foundation, 2008 Index of Economic Freedom).

And then there’s price controls. If the market price for widgets is $2/unit, but the government dictates that the selling price will be $1/unit, you can bet that widgets are going to be hard to come by. Whether the widgets in question are concert tickets or bags of rice is irrelevant - the shortages will occur regardless. Haitians, Venezuelans, and Argentineans have been learning this lesson the hard way ever since their governments implemented maximum prices on foodstuffs. The excuse for the price controls was that they were necessary to counteract the actions of greedy oligarchs, speculators, and hoarders. The reason for the price controls was to mask the effects of the inflationary policies these governments have been engaging in for years.

Inflation and price controls do enough damage on their own, but we’re not done yet. We can also thank our own Congress for deciding that there would be one and only one additive to gasoline - ethanol. The ethanol mandate, combined with the American government’s love of farm subsidies, has created an artificial demand for corn. Farmers are dedicating more land to corn production, which has reduced the land available for other farm products. As a result, the prices of agricultural goods have increased, along with all of the higher-order goods that depend on those inputs (everything from tortillas to steak to beer).

These factors should be enough to cast doubt on the official explanations offered by the likes of Chavez. How else to explain an increase in price coupled with a shortage of goods? In a free market, an increase in the price of a good acts as a signal that demand has increased, and that there is a profit opportunity to increase supply. In the current environment, the government blame game cannot possibly explain away the apparent contradiction of the worldwide food crisis. There have to be non-market forces at work.

But perhaps all of this is not enough to convince the skeptical reader that the problem rests with irrational economic policies, and not with the free market. Fine. Let’s turn our attention to those factors that are unquestionably within the control of government – taxes, import duties, and subsidies. If politicians really cared about what consumers were paying for a particular good, then surely they would lower or eliminate these three elements in order to reduce prices, right? No such luck. As Haitian president Rene Preval stated last Saturday, “The situation is difficult everywhere around the world, everyone has to make a sacrifice. We are not going to lower taxes on food.”

He said the Haitian government could not afford to cut its revenues or it would not have enough money to pay for longer term projects that “create jobs and boost agriculture.” You read that right. Preval doesn’t believe the Haitian government can afford to cut its revenues, but he does believe starving Haitian citizens – the poorest people in the Western Hemisphere – can afford to pay more for their food.

It’s all just a transparent ploy, of course, but politicians and bureaucrats keep running it by us nonetheless. Irrational but politically expedient economic policies are imposed by governments on the free market. When the inevitable catastrophes occur, there’s always someone like Hugo Chavez to say, “Look at how the market has failed! People are hurting – but if they just give me more power, I could fix it!”

As Robert LeFevre once said, “Government is a disease, masquerading as its own cure.” No doubt he’d see the proposed “cures” for global food crisis for what they are – just another excuse to transfer more power into the hands of the same people who caused the problem in the first place.

Thou Shalt Have No Other Gods Before Me

"You go into these small towns in Pennsylvania and, like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing's replaced them. And they fell through the Clinton administration and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate, and they have not. And it's not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.”

Barack Obama, speaking before a crowd of wealthy liberal donors at the Getty home on Billionaire’s Row in San Francisco, April 6, 2008.

Obama’s rivals have been making the most out of these comments. Hillary Clinton, a Yale Law grad worth well over $100 million, has used the quote to claim that Obama is an elitist. Conservative pundits have taken his comments as proof of the left’s disdain for rural America. Despite all of the controversy that has followed the speech, I’m guessing that Obama’s audience took the comments in stride. To a crowd of uber-rich, left-coast, limousine liberals, the idea that the bumpkins in flyover country cling to religion out of bitterness over their lot in life is as common as vacation homes in Napa.

It’s no secret that, generally speaking, San Francisco liberals shelling out $2,300 per person for America’s left-most senator have a real disdain for mainstream religion. Having met more than a few during my time in California, it has been my experience that they consider themselves as enlightened, rational, and highly secular. They pride themselves on the idea that they have evolved beyond the need for religion, that opiate of the masses.

As I was considering this latest election-year dust-up, though, it struck me that these people are every bit as religious as the “hayseeds” they look down upon. The only difference is that they worship government power - their god is the State. And theirs is a jealous god, indeed.

It may sound like hyperbole at first, but consider the degree to which they imbue government with all of the characteristics of the God of the Bible. If Hillary Clinton is to be believed, the federal government has the power to heal the sick (think Hillarycare). Al Gore has created an entire industry out of the idea that government can control the weather (global warming). The US Army Corps of Engineers seemed to believe that they could, if not exactly part the Red Sea, then at least tell the Mississippi River and Lake Pontchartrain what to do (levees). Politicians of all stripes claim that government can create something out of nothing, Genesis-like, through the miracle of inflationary economic policies. Gun control advocates and drug warriors both seem to believe that politicians are like Moses; that laws written on stone tablets in Washington have the power to make all the bad things in life just go away. And all statists in good standing dogmatically believe that government can make us more moral (Sarbanes-Oxley, the War on Drugs).

So which group is really the more sophisticated? The statists on Billionaire’s Row, or the residents of rural Pennsylvania? As I have said before, faith is belief in the absence of evidence. But faith in government is belief despite all evidence to the contrary.

Tell Congress to Hang Up on the HANGUP Act

Sometimes it’s the little things that best illustrate just how far we’ve gone off the tracks. I saw the following article today on www.cellular-news.com:

US Politicans Seek to Ban Phones in Planes
Several US politicians are proposing a law to ban the use of voice communications on mobile phones within aircraft over the USA. Reps. Peter DeFazio, Jerry Costello, John Duncan and Thomas Petri (WI-06) all senior members of the Committee on Transportation and Infrastructure, and Chairman of the Committee, Rep. Oberstar, have proposed the new legislation.

The European Union recently announced that it will allow people to talk on their cell phones while a plane is in-flight on all commercial airlines. Additionally, U.S. airlines are already experimenting with in-flight Internet access.

The proposed law, H.R. 5788, the HANG UP Act, Halting Airplane Noise to Give Us Peace Act, would insure that voice communication does not happen on U.S. flights.

"The public doesn’t want to be subjected to people talking on their cell phones on an already over-packed airplane," DeFazio said. "However, with Internet access just around the corner on U.S. flights, it won’t be long before the ban on voice communications on in-flight planes is lifted. Our bill, the HANG UP Act, would ensure that financially strapped airlines don’t drive us towards this noisome disruption in search of further revenue."

"Cell phone users should not be able to disrupt the comfort of an entire airplane cabin, especially when other passengers have no choice but to sit there and listen," said Duncan. "This bill will ensure a relative amount of peace for the American public as they take to an increasingly crowded sky."

The legislation only prohibits voice communications in-flight but passengers would still be able to access the Internet, e-mail and send text messages as these technologies become available on airplanes.

Any proposed legislation would need to be carefully drafted so as to ensure that while internet access is permitted - the use of VoIP is somehow forbidden, while still permitting VoIP as a potential service for built-in telephones.

Seriously? Is this what we’ve been reduced to? Am I to understand that the only way we as a society know how to deal with rude behavior is to criminalize it? Does anyone really believe that the use of cell phones on a plane should be a federal issue? I suppose the next step will be to criminalize cell phone usage in movie theaters. After all, if rude people in planes can only be dealt with by the criminal justice system, then surely moviegoers must be protected from these psychopaths as well. We couldn’t possibly leave such a life and death decision in the hands of those who actually manage these businesses!

What do you suppose the appropriate punishment should be for a person who dares to talk on a cell phone in a plane? Fines of up to $50,000 per offense, plus 1-5 years in prison?

“What are you in for?”
“Murder. You?”
“I used my cell phone on a flight to Albuquerque. SO YOU WANNA GET LOCO WITH ME, ESSE?!!!”

Maybe a three strikes rule for repeat offenders, punishable by life in prison. Or we could simplify things and put air marshals on every flight. They could just shoot any business travelers who dare call home to say night-night to the kids.

I see that the bill is sponsored by three Democrats (DeFazio, Costello, and Oberstar) and two Republicans (Duncan and Petri). Evidently the dumber the idea, the easier it is to get bipartisan support for it. I’m not surprised when Democrats turn to the federal government to address the smallest of problems, but Republicans are supposed to know better. Are Duncan and Petri so ignorant of basic free market principles that they really think airlines cannot handle this issue on a voluntary basis? When two Republicans support such an obviously illegitimate expansion of federal regulatory power, can there be any doubt that the GOP has completely abandoned whatever limited government principles it may have once held? Pathetic.

Look, I’m a frequent flyer and to me, airplanes are just buses with wings. There is nothing enjoyable about traveling these days unless you like long delays, bad food, and surly flight attendants. As far as I’m concerned the only upside to flying is that it gives me a chance to unplug and be out of contact for a while, allowing me the opportunity to read a book or maybe watch a movie. So I’m not saying that I want people to use cell phones on a plane - quite the opposite, in fact. I would prefer an airline that did not allow passengers to make calls. But I want the airlines to have the freedom to run their businesses in the way that they see fit, and let the market decide which cell phone policy is really preferred by the traveling public. The federal government has no right, no authority, and no reason to impose a one-size-fits-all solution, particularly over such a trivial matter as this.

Representatives DeFazio, Costello, Oberstar, Duncan, and Petri should be embarrassed to have their names on such a blatant nanny-state proposal, and their constituents should fire each and every one of them this November.

Don't Cry For Me, Cry For Argentina

One of my favorite cities in the world is Buenos Aires. Or at least it was…the last time I was there was in the late nineties. Since then, Argentina has suffered a complete economic meltdown, followed by a mild recovery.

But why settle for a mild recovery when government can deliver a total catastrophe instead? That’s where Cristina Kirchner comes in. Sra. Kirchner is a more successful version of Hillary Clinton. Just as Mrs. Clinton hopes to do here in the United States, Kirchner was elected president of Argentina last year solely on the basis of her prior experience as First Lady. Given that her formative years were spent as part of the Peronista Youth movement, I suppose we shouldn’t be surprised to see her driving Argentina to economic ruin in much the same way as Juan and Evita Perón did. In order to put the scope of Argentina’s economic problems in context, in 1998 the country ranked 19th on the Heritage Foundation’s Index of Economic Freedom. Ten years later, Argentina ranks 108th. The steady increase of government control over the economy has delivered high inflation and shortages of basic goods and services, which have in turn sparked protests in the capital city.

The current (but by no means last) crisis in Argentina is a farmers’ strike that started in early March. The farmers are protesting recent tax increases on soybeans and sunflowers which, when coupled with retail food price controls imposed by Sra. Kirchner’s husband, are making it awfully difficult to be a farmer these days - so difficult, in fact, that farmers are blockading the roads into Buenos Aires and destroying their produce rather than bring it to market. Store shelves are empty, people are mad, and politicians are blaming capitalism for all of the ills caused by misguided government policies. (See Mary Anastasia O’Grady’s excellent piece in the March 31st issue of The Wall Street Journal for a more thorough analysis of the crisis).

Argentina’s Minister of the Economy, Martín Lousteau, was discussing the strike recently and quipped, “you can’t fool around with people’s food.” An interesting comment to be sure, and one that could be taken any number of ways. Since I had read the quote on Upside Down World, an English-language socialist website that covers news from Latin America, I thought it would be worthwhile to see how the phrase was originally delivered in Spanish. Sr. Lousteau could have said either, “No se puede jugar con la comida de la gente,” or “No se puede jugar con la comida del pueblo.”

What’s the difference? Well, the first version is what Upside Down World translated as, “You can’t fool around with people’s food.” The second version would be translated as, “You can’t fool around with the people’s food.” Amazing what a difference a definite article can make in English, no? I suspected the latter, but indeed Upside Down World got it right and made a fair translation.

I looked for other sources on the issue, however, and saw that Lousteau criticized the farmers’ use of force in their strike. As far as that goes, I agree with him. The farmers certainly have the right to refuse to sell their own produce as they see fit, but they have no right to prevent others from selling. But Sr. Lousteau and other members of the Kirchner administration very clearly do not limit their criticism to the farmers’ use of force. Instead, they refer to the striking farmers as “oligarchs,” painting them as greedy and unpatriotic for bowing to the law of supply and demand, rather than meekly accepting government mandates and the endless losses they entail.

When one looks at Lousteau’s comments in their larger context, it is easy to see the collectivist nonsense that underlies all socialist thinking. Even if he did manage to avoid the overtly Marxist phrase “the people’s food,” it is clear that the Argentine government believes that the farmers are denying poor Bonarenses meals at prices the bureaucrats deem “reasonable.” According to the Peronist view espoused by Sra. Kirchner and Sr. Lousteau, the food with which one cannot fool is obviously that of the consumer (whether he’s paid the market price for it or not). As evidenced by their policies, they have no problem fooling around with the food that is created by farmers as a product to be sold.

Indeed, the government position seems to be that farmers are somehow obligated to deliver their goods to market under any conditions whatsoever, no matter how onerous they may be. If farmers are handcuffed by government regulations designed to force them to sell their goods at below-market prices, so what? If the increased costs of production caused by higher taxes ensure that the farmers cannot possibly earn a profit, who cares? The farmers should simply absorb the losses in perpetuity and keep breaking their backs to deliver the goods.

Obviously, this is an untenable position. No one - not farmers, oil companies, pharmaceutical corporations, nor any of the other bogeymen of today’s left – can absorb losses ad infinitum and continue to produce. It is simply not possible. The production of wealth cannot be divorced from its distribution. One cannot kill the goose and expect it to continue to lay golden eggs.

This has been proven so often that one would think it obvious by now. But evidently the sad history of price controls in the U.S., Venezuela, Russia, or anywhere else they’ve been tried is not enough to keep people from falling for the same tired old trick.

Argentina was not always the Peronist train wreck with which we are so familiar. The Constitution of 1853 was modeled on the U.S. Constitution, and for a century the country followed classical liberal policies that resulted in a standard of living higher than that of Spain or Italy at the time. (See Andrés Solimano’s paper titled, “Development Cycles, Political Regimes and International Migration: Argentina in the Twentieth Century” for more detail). As long as Argentina continued down this path, it grew more prosperous. Higher wages in Argentina attracted immigrants from all over Europe. All of that changed when Juan and Evita Perón rejected the classical liberal paradigm that had driven Argentina’s success, and opted instead for the modern redistributionist policies that have stunted economic progress all over the world.

One might wonder why any of this should be relevant to a reader in the United States. After all, we’re not dealing with a bunch of farmers on strike, and the government isn’t putting price controls on food. While that may be true, the differences between the economic policies of Argentina and those of the United States are really just a matter of degree. Argentina produced tremendous wealth by following classical liberal, laissez-faire policies. So did the United States. Argentina then threw those policies overboard in favor of the politically expedient but economically damaging concepts of wealth redistribution and positive rights. So did the United States. Today the issue in Argentina is food. In the U.S., it’s health insurance. Hillary Clinton, America’s own Evita, has been working tirelessly to convince us that we have a right to force other people to pay for our health care. Others want us to believe that we have a right to cheap gasoline and low mortgage rates.

The positive rights philosophy is nothing more than the idea that one individual has a right to a good or service that must be provided by someone else. What that good or service happens to be at any given time is not important. What is important is the fact that all policies based on this concept are doomed to failure, and will cause needless suffering wherever they are implemented.

Ryan's Law

CNN recently ran a story about Lorri Unumb, the mother of an autistic boy in South Carolina who, in true David vs. Goliath fashion, took on the evil health insurance industry and won. When her son was diagnosed with autism, she learned that most policies don’t cover the kind of therapy that was required. Although Mrs. Unumb is fortunate that her family is able to pay for the treatment, they knew that very few others could afford the $80,000 a year needed to cover the cost.

As reported by CNN’s Justine Redman:

"As a lawyer and a law professor, Unumb decided to do something about it, to
force insurance companies in South Carolina to cover autism. She wrote a bill,
recruited other parents to help her lobby state legislators, and two years
later, got the bill passed. Known as Ryan's Bill, it will go into effect as
Ryan's Law in July. Ryan's Law mandates that insurance companies provide up to $50,000 a year for behavioral therapy up to the age of 16. It also prohibits insurers from refusing other medical care to children because of their autism. It doesn't, however, apply to people or companies who are self-insured, such as the Unumbs."

How about that? Ryan’s Law won’t apply to the Unumb family, who are self-insured, but as a result of Lorri Unumb’s noble efforts, other parents of autistic children will now be able to force insurance companies in the great state of South Carolina to fork over $50K a year so that their kids will get the treatment they so desperately need. It’s a touching story, and as clear case of good versus evil as you’re likely to find in real life. I can already see Julia Roberts starring as Lorri Unumb in the movie, Ryan’s Law.

Well, I suppose that’s the beauty of modern journalism. All one has to do is focus on what is seen, and avoid what is unseen. Play up the tear-jerk angle whenever possible, because it is so much easier to feel than to think. Here at A Beginner’s Guide to Freedom, however, we take a different approach. We look beyond the obvious benefits that accrue to the few, and examine the hidden costs that are imposed upon the many. We consider the means, and not just the ends.

As the father of an 18-month old boy, I can only imagine what those families must be going through. Although I sympathize with their plight, I still have to look at the broader issues involved here. In the case at hand, we can see the obvious benefit for parents of autistic children in South Carolina and other states with similar mandates. They will now be able to afford the treatment their children need. But if we look closer, we can also recognize the hidden costs. As a result of this new mandate, those families and individuals who do not have autistic children will see their premiums go up. Every mandate imposes a cost on business that must be covered one way or the other. Either the cost will be spread across other customers whose health care needs may not include treatment for autism, or the companies will have to reduce supply, which will force the marginal customers out of the market for insurance entirely.

And all this at a time when most people in this country are up in arms about the cost of health insurance. What do they think is going to happen? Are we to believe that further government mandates will make the cost of insurance go down? Of course not. Government mandates are one of the primary cost drivers in health insurance today. In fact, if it weren’t for all these impositions placed on normal market operations, health insurance in this country might actually be true insurance, much like car insurance. You don’t file a claim with your car insurance provider every time you change the oil or fill up the tank, so why should health insurance cover simple expenses like prescription drugs, annual physicals, runny noses, or headaches? Ideally, health insurance should be a way of hedging against the risk of catastrophic medical issues (such as autism), rather than our current system of pre-paid health care that covers everything from a hangnail to cancer.

Perhaps even more important than the economics of the issue are the ethics. Mrs. Unumb’s efforts are held up by CNN as heroic. But are they? Insurance companies offer a service. They promise to cover certain ailments in return for a price, and their customers may choose to business with them or not. In the CNN story, there is no indication whatsoever that the insurance companies were not performing the services for which they were contracted. The accusation is simply that the insurance companies were not performing services that were not agreed to in the first place. There is no violation of the customers’ rights whatsoever in this scenario.

Nevertheless, Mrs. Unumb turned to the government in order to force the insurers to do something that they were not interesting in doing. Let’s imagine the following hypothetical situation: Mr. Jones hires a neighborhood kid to mow his lawn for $25. Once the kid finishes mowing the lawn, Mr. Jones tells him he now has to weed the flower bed, too. The boy refuses, saying all he signed up for was mowing the lawn. So what does Mr. Jones do? He calls the cops, who come by and tell the kid to get busy pulling up those weeds.

Most of us would sympathize with the kid in this example, but when functionally the same thing happens to an insurance company (or any other business for that matter), our sympathies naturally lie with the person who initiates the force, and not with the one who is coerced. Why the double-standard? Is it simply a case of our natural sympathies for any parents of children with serious medical conditions blinding us to the broader ethical issues involved? Or is it yet another example of latent Marxism clouding our judgment, leading us to believe that people operating in a corporate environment are naturally evil and cruel, whereas people who use force to compel business to act in a certain way are automatically in the right?

It’s not easy to look critically upon the actions taken by people who are dealing with heartbreaking problems such as autism, but these are still important issues to consider because they go directly to the concepts of justice and peaceful interaction within society. Until we learn to reject the notion that it is noble or even permissible to use force against those who have not initiated force against us, our Hobbesian war of all against all in the political and legal arenas will continue. Although certain groups may get what they want from time to time, the ongoing use of force to achieve desired results will reduce the overall well-being of society as a whole. It’s a zero-sum game, with winners and losers determined by whichever group is able to sway lawmakers to see things their way. Voluntary solutions, on the other hand, create win-win results that increase the benefits for everyone involved and should always be preferred over coercion.

Beware of Predatory Lenders!

We’ve been hearing a lot lately about the subprime mortgage crisis and the anticipated expansion of the Fed’s regulatory powers in response to it. Some people may be concerned about government overreach and the negative effects it may have on our economic liberty, but right now it’s much more important to focus on the dangers posed by a new breed of criminal that preys on the weakest amongst us. I’m referring, of course, to predatory lenders.

For those of you who may not have heard of predatory lenders until now, I can tell you that they’re particularly shady individuals, usually recognizable by their professional attire and reams of paperwork under their arms. They are often found in office complexes during regular business hours, but the real threat comes when they prowl the city streets searching for unsuspecting victims. When they find their target (known as “borrowers”), they leap out, shove the helpless person into the back of a blacked-out conversion van, and then force them to accept low-interest loans! It’s a crime that may go unreported for months or even years, only after the victim of this crime finally realizes he can no longer make the payments he agreed to under obvious duress. But the truly sad part of the whole ordeal is that some victims don’t even know they’ve been victimized! They delude themselves into believing that nothing is wrong, paying their mortgages month after month according to the heinous terms imposed upon them against their will, and they never even consider turning to the government for the help they so desperately need!

I feel very strongly about this issue because, you see, I was almost the victim of a predatory lender myself. A few years ago, having just moved to Texas, I was walking around my apartment complex, minding my own business, when all of a sudden a man in a suit and tie came out of nowhere and pushed me into his Ford Taurus. He then drove me to a well-furnished office where he served me coffee and tried to force me to take out an interest-only loan, adjustable after three years to prime plus SEVEN PERCENT! Fortunately, I’ve had some martial arts training and was able to fight back, managing to escape his hellish corner office with only minor injuries and a thirty-year fixed mortgage at 5.75%. I was lucky, but millions of other people in this country have not been so fortunate, and that is why I’m speaking out today. Someone has to fight for those who cannot fight for themselves!

So please take some time to discuss this problem with your friends and loved ones. Be aware of your surroundings at all times, and keep your eyes open for suspicious looking individuals who attempt to lend you money. If we can save just one person from the predatory lenders who plague our nation, it will all be worth it.

I wish the farcical tale I just described was simply a bad April Fool’s Day joke, but apparently this is what we’re supposed to believe is the cause of the current subprime mortgage crisis. John McCain summed up the problem in his recent speech to the Hispanic Small Business Council in Orange County, California,

“A bubble occurs when prices are driven up too quickly, speculators move
into markets, and these players begin to suspend the normal rules of risk and
assume that prices can only move up – but never down. We’ve seen this kind of bubble before – in the late 1990s, we had the technology bubble, when money poured into technology stocks and people assumed that those stock values would rise indefinitely. Between 2001 and 2006, housing prices rose by nearly 15 percent every year. The normal market forces of people buying and selling their homes were overwhelmed by rampant speculation. Our system of market checks and balances did not correct this until the bubble burst.

A sustained period of rising home prices made many home lenders complacent, giving them a false sense of security and causing them to lower their lending standards. They stopped asking basic questions of their borrowers like, ‘Can you afford this home? Can you put a reasonable amount of money down?’ Lenders ended up violating the basic rule of banking: don’t lend people money who can’t pay it back.”

Well, at least he avoided using the term “economic royalists.” Nevertheless, his explanation betrays a profound misunderstanding of the problem, and a deep mistrust of capitalism. This seems to be a recurring theme with Senator McCain, and one that should trouble anyone who still believes that Republicans are staunch defenders of the free market.

Not that there are too many people in the public sphere who are doing any better at grappling with this problem. The media’s analysis of Secretary Paulson’s recommendation to greatly expand the scope of the Fed’s powers is limited to the question of whether the new regulations will “go far enough.” Secretary Paulson and Fed Chairman Bernanke are busy doing everything in their power to convince us that these bubbles just happen, like the weather, with no discernable cause.

I heard an analogy (from Stefan Molyneux, I believe) that sums up the confusion pretty well. If you see a single fish floating belly-up in the water, you probably won’t give it much thought. But if you see all the fish go belly-up in a lake, you instantly think that there must be something in the water. Even though individual fish die every day, fish as a species are pretty good at surviving, so we immediately look for an environmental explanation when the entire group suddenly dies.

Yet for some reason no one in the media or the government can apply this simple principle to the realm of economics. No one wants to ask the fundamental question, “Why?” Why would millions of mortgage lenders and borrowers across the country all get stupid in unison? And why would that stupidity be limited to the geographic boundaries of the United States? Sure, from time to time individuals make poor decisions, and even major corporations sometimes make bad choices and go bankrupt. But generally speaking, people are pretty good at forecasting and managing their businesses - it’s kind of what they do for eight to ten hours a day, after all. But when entire schools of mortgage lenders and financial institutions go belly-up at the same time, no one looks for the obvious answer - that there must be something in the water.

That something is the inflationary policy of the Fed, which has been increasing the money supply ever since its inception in 1913. When the money supply increases at a vastly greater rate than productivity, as it has over the past several decades, the newly created money has to find a home somewhere. Most recently it landed in the real estate sector. The real estate bubble was not driven primarily by solid fundamentals in the sector, but rather by artificially low interest rates. Those interest rates were determined not by natural market forces, but by the Fed’s manipulation of the overnight rate and the money supply. When interest rates are pushed below their natural levels, they make investment projects look more favorable than they really are. Money flows into these malinvestments, and bubbles are created. But once reality reasserts itself, as it must, the bubble pops and people lose money and property.

And then what happens? Do we get people screaming at the politicians to stop their manipulation of the market? No. We just hear endless demands for more regulation and government interference of the kind that caused the problem in the first place. The media sit on the sidelines and cheer the “Nordic-style nationalization” of the financial markets, which they hail as the most sweeping regulatory changes since the Great Depression. Talk about damning with faint praise! As Jim Powell and others have shown, the Great Depression would have been nothing but a brief slump had FDR not used the stock market crash as an excuse to remake the US economy in Mussolini’s image.

The politicians, of course, are more than happy to use the hysteria generated by the crisis their own policies caused as an excuse to expand their power further, and to obliterate any traces of economic freedom that may still remain in this country.

How many more Fed-induced crises will we have to endure before we recognize that the real problem lies in centrally-planned manipulation of interest rates and the money supply? How many more industries will have to go belly-up, and how much wealth and productivity will be destroyed in the process? How long before we stop pouring more poison in the water?