The third-quarter GDP results were just announced, and they showed a 3.5% growth rate.  This has prompted Ben Bernanke to declare that, no matter what the uninformed masses standing in the ever-growing unemployment lines might think, the recession is probably over.  As if on cue, the media have been quick to parrot the Federal government’s claim that its interventions in the economy have saved us once again from capitalism.  Even I might be inclined to believe that their optimism was genuine if it weren’t for the unmistakable note of desperation in their voices, but somewhere in the background you can hear them clapping their hands and chanting, “I do believe in Obama!  I do believe in Bernanke! I do, I do, I do!” 

Despite the strained enthusiasm and suspended disbelief filling the news cycle these days, the White House is trying to manage expectations ahead of the upcoming jobs report.  It’s almost as if they understand that the GDP number erroneously considers government spending to be every bit as productive as private economic activity.  Maybe they also realize that GDP is artificially inflated because it doesn’t include the cost of borrowing all the money that was needed to finance the government’s make-work “stimulus” programs and to incentivize purchases of everything from houses to golf carts.  

All of these factors and more suggest that the 3.5% increase in GDP will have absolutely no positive effects whatsoever on the lives of most Americans, and even Obama knows it.  The official jobless rate will continue its relentless push into double-digit territory.  Since the Feds are dead-set against allowing the economy to liquidate bad debts and realign itself with actual consumer preferences, the outlook for employment will continue to be bleak in this country for the foreseeable future.  People who are out of work might hope for change, but they’re in for a long wait unless they can find an industry with serious long-term growth potential. 

The employment problem will be particularly acute for recent college graduates with little or no work experience.  When researching schools and planning one’s major, the question is always “Where will the jobs be when I graduate?”  For the students graduating in the near future, the answer is probably China.  But given the fact that relatively few Americans speak Mandarin, incoming college students will need to plan their education very carefully in order to maximize their chances of landing jobs in the few remaining fields that are still hiring.  Fortunately, we here at A Beginner’s Guide to Freedom have identified one sure-fire career path that virtually guarantees full employment, offers unlimited earnings potential, and doesn’t require relocating to Beijing.  The premier job of the future is…professional rent-seeking. 

Unfortunately, there aren’t any college-level degree programs that specialize in Professional Rent-Seeking yet.  For now, those who are interested in this growing field may find suitable coursework in most Sociology or Political Science degrees.  George Washington University seems to be a good place to start.  I don’t know if the George Washington University College Democrats were getting college credit, but from what I gathered during a recent visit to D.C. they seem to have a pretty good rent-seeking internship program going. 

For those readers who are unfamiliar with the term “rent-seeking,” don’t worry.  It won’t last.  Rent-seeking is all the rage these days, and may soon surpass baseball and monster truck rallies as the quintessential American pastime.  Rent-seeking is an economics term that refers to the use of the political process to obtain certain financial advantages that can’t be achieved through voluntary free-market transactions.  Other related terms include mercantilism, corporatism, and participatory fascism, but the important thing to remember here is that rent-seeking is a way for certain politically favored groups to get what they want without having to go through all the trouble of earning it honestly in the free market.  Nevertheless, most rent-seekers will still use free-market terminology as cover – further distorting the true meaning of capitalism in most people’s minds. 

Perhaps an example will help illustrate how rent-seeking works in practice.  Let’s say I own a corner store.  I could eke out a living selling the various and sundry products that are desired by my customers.  In order to succeed, I will have to make sure that I carry the items they want, when they want them, and at the price they want to pay, while at the same time covering all of my operating costs.  That’s the free market in action.  Sure, it’s voluntary.  And sure, it’s precisely that kind of activity that has increased the standard of living for mankind steadily over the years.  But it’s really hard work.  A much easier way for me to make money would be to find a politician who (for a price) will pass laws that protect my corner store from competition.  That way I can safely raise my prices beyond what my customers would otherwise pay, thus increasing my earnings at their expense.  An even better option (for me, anyway) would be some sort of law that would forcibly extract money from the community at large and funnel it to me whether they shop at my store or not.  Maybe some sort of tariff imposed against any stores not located on my block.  There are infinite variations, of course, but they’re all just forms of rent-seeking.  And brother, I’m here to tell you that it’s the wave of the future! 

The beauty of professional rent-seeking is that it’s both booming and bipartisan.  Whether you’re a Republican or Democrat, you will easily be able to find a business in the formerly capitalist US economy that is looking for someone with your skills to help them navigate the ever-changing Washington landscape.  For years and years companies operated under the rule that the customer was king, but those days are long gone.  From now on the government bureaucrat is king, and companies will need some help adjusting to this new reality.  

That’s where you, the professional rent-seeker, come in.  Not only will you find any number of lucrative employment opportunities in this fast-paced and exciting career, but you’ll also discover that the job itself is both easy and enjoyable.  After all, bringing a product to market is hard, but taking a Congressman to the Bahamas is easy.  

To be perfectly honest, though, I can’t say that professional rent-seeking is all fun and games.  If it were, they wouldn’t call it work.  There are a few unpleasant aspects of the job that you’ll just have to get used to.  The biggest negative, of course, is that the whole operation is highly unethical.  At first, many professional rent-seekers experience a few qualms about fleecing their neighbors in order to line their own pockets.  After a while, though, most rent-seekers become quite comfortable with the idea.  Within just a few short weeks, they manage to convince themselves and the elected representatives they work with that fleecing one’s neighbors is actually a good thing, because it funnels money and jobs to the politically connected constituency that wouldn’t otherwise have them. 

Another potential negative that the professional rent-seeker has to deal with involves some uncomfortable questions that are occasionally raised by the economically literate.  These people are the bane of the professional rent-seeker’s existence, but fortunately their numbers are dwindling so it’s becoming less of a problem (but you should probably avoid taking any calls from John Stossel, just in case).  And if you do happen to run into one of these unmutual libertarian types at some point in your career, just be sure to focus the conversation on the people who benefit from your larceny, and avoid at all costs any mention of all the other people whose money is taken from them by force to support those industries that are either unwilling or unable to support themselves.  Senator Chuck Schumer (D-New York) is a master of this technique. 

And from time to time the professional rent-seeker will have to deal with the tedious Congressional ethics probe.  But this shouldn’t dissuade anyone from pursuing a career in rent-seeking.  The results of those probes always come back negative, because Congress is immune to ethics.  

And finally, you will be the subject of scorn by those who decry the influence of “lobbyists and special interests.”  This can certainly be annoying, but this criticism completely misses the point.  As long as those in government are able and willing to dictate winners and losers in the marketplace, market actors will always seek to influence those decisions.  This is simply a matter of self-defense.  And once those market actors have influenced the government to shield them from the worst effects of the regulatory state, it is simply a matter of time before they realize that the same regulatory structure can be molded into a competitive advantage at the expense of their competitors and everyone else.  The only way to avoid this problem would be to limit the government’s power to dictate market outcomes, and no one (with the exception of a few reactionary elements who still cling to outdated notions of property rights and individual liberty) would ever seriously consider doing that. 

So aside from these relatively minor drawbacks, most people find the world of rent-seeking to be quite rewarding and varied.  Most major industries these days have a real need for people who can lobby politicians on their behalf to ensure that they get a bigger piece of everyone else’s pie.  Let’s look at a few examples, industry by industry. 

Healthcare

It goes without saying that healthcare represents the single largest opportunity for professional rent-seekers these days, and it will continue to offer lucrative employment for years to come.  The Obama administration is determined to handcuff this industry with ever-increasing government regulations.  This, of course, will simply exacerbate the problems that have been caused by all of the previous government interventions, thus ensuring that rent-seekers will always be in demand, no matter what part of the industry is involved.  You can rent-seek for pharmaceutical companies, the American Medical Association, insurance companies, or for anyone else even remotely associated with socialized medicine.  The sky’s the limit. 

Environmentalism

After healthcare, environmentalism may represent the next-largest field for rent-seeking.  Al Gore, the Bill Gates of rent-seeking, is a pioneer in this field, and it’s paid off for him in a big way.  Al has convinced his buddies in Congress that they should funnel $560 million of your money to Mr. Gore’s company, whether you wanted whatever it is he’s selling or not.  This, in part, allows Mr. Gore to live in a mansion that burns more fossil fuels in a month than you or I will burn in our lifetimes.  The lesson here is clear – you can make a lot of green by forcing other people to go green. 

Not everyone can be Al Gore, of course.  Some professional rent-seekers may just have to settle for being the next T. Boone Pickens, who’s so convinced his windmills are the best thing since sliced bread and sunshine that he doesn’t want to risk the deal by trying to persuade others to invest voluntarily.  He just wants government to take their land, thus forcing them to shoulder a considerable part of the cost of his project. 

Financial Services

No shortage of opportunities here.  In fact, the worse your financial services business is run the more money you can make through government bailouts.  The only downside that I can see here is that your pay may be capped for PR purposes by some Washington czar, but on the whole it’s still a lot easier than working long hours trying to please your customers.  The key for the professional rent-seeker in the financial sector is to convince some Senator that you’re too big to fail.  Shouldn’t be too hard. 

Manufacturing

Maybe you’re a steel-toed boots, lunch pail kind of guy.  No problem.  You, too, will find a wealth of opportunities for professional rent-seeking in the manufacturing sector.  I’d suggest focusing on the UAW, Chrysler, or GM.  And the steel industry’s rent-seeking roots stretch all the way back to the Lincoln administration.  

Agriculture

Do you enjoy being outdoors, working with the land?  No problem.  The agricultural sector may be the longest-running rent-seeking game going.  Farmers have been using Congress to reach into your pocket longer than anyone else, and as competitive pressure from foreign producers makes food more and more affordable, the professional rent-seeker’s services are needed now more than ever.  If this is an area that interests you, you’ll find most of the opportunities around the offices of Congressmen from the Midwest, such as Charles Grassley (R-Iowa), who sees absolutely no downside to corn subsidies and ethanol mandates.  

Sports

Are you a big sports fan?  Then maybe you should consider a career in sports and entertainment rent-seeking.  Here, you can hobnob with quarterbacks and major-league sluggers while you lobby local governments to steal other people’s land for your new multi-gazillion dollar stadium.  Jerry Jones could be a useful mentor in this “arena.”  

These days the government seems determined to choke the life right out of the private sector.  This trend shows no sign of letting up, so it will become harder and harder to find honest work in the private sector.  But professional rent-seekers will find their services are in ever-greater demand because, as P.J. O’Rourke once said, “When the legislature controls what is bought and sold the first thing that is bought and sold is legislators.”

Note:  I’m a big fan of The Daily Reckoning, and they have been kind enough to allow me to reprint some of their material here.  The following piece was written by Bill Bonner.  If you like this article, be sure to check out their site – there’s a lot more where this came from.

“He who goes a-borrowing, goes a-sorrowing.” 

The quote comes from Ben Franklin. But it was recalled to us neither by America’s president, nor Britain’s Prime Minister. Instead, the Telegraph in London reported it from the mouth of Cheng Siwei, a “top member of the Communist hierarchy.” 

What goes around comes around. The Anglo-Saxons have forgotten what makes a successful economy. The Chinese have remembered. 

Just look up Warren Harding on Wikipedia. The first entry you will find is not the 29th president of the United States of America, but a rock climber with the same name. But what do you expect? History is nothing but a long list of disasters in chronological order. Historians love calamity. And they reserve their highest accolades for those who cause them. The same is true in financial history. Those who make it big are those who make it worse.

It is safe to assume that no one working at the Federal Reserve or at the White House has a picture of Warren Gamaliel Harding over his desk. Yet, if American presidents were ranked on the basis of how well they faced up to financial disaster, Warren G. Harding might be somebody. His handsome face would be carved on Rushmore. His likeness would grace the $100 bill. Harding was the last American president to deal honestly with a major financial crisis. Every president since has tried to scam his way out of it. 

By the time Harding took office in ’21 the Panic of 1920 was taking the unemployment rate from 4% to nearly 12%. GDP fell 17%. Then, as now, the president’s subordinates urged him to intervene. Secretary of Commerce Herbert Hoover wanted to meddle – as he would 10 years later. But Harding resisted. No bailouts. No stimulus. No monetary policy. No fiscal policy. Harding had a better approach; he cut government spending and went out to play poker: 

“We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity…it will be an example to stimulate thrift and economy in private life. 

“Let us call…for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic.” 

Within a decade, Harding’s views were collectibles. But in 1921, he still saw the economic world as a moral world ordered not by man, but by God. This was not the result of long study or deep reflection on his part. He was probably the dummy everybody said he was. As Keynes pointed out, politicians are always in thrall of some dead economist. At least Harding was in thrall to the good ones. 

“No statute enacted by man can repeal the inexorable laws of nature,” he announced. “Our most dangerous tendency is to expect too much of government…” 

Harding was not the first to see the economy as a ‘natural’ order…one that you disturbed at your peril. A Taoist named Zhuangzi, who lived about the same time as Alexander, observed: “Good order results spontaneously when things are let alone.” 

Later, economists of the Scottish enlightenment, notably Adam Smith and Adam Ferguson elaborated. Smith, like Harding, saw the economy ordered by the invisible hand of God. Ferguson saw markets as a ‘spontaneous order,’ which were the “result of human action, but not the execution of any human design”. 

The same basic insight led Irving Fisher – the greatest economist of the 1920s – to come up with his debt-deflation theory of depressions. After people had borrowed, they needed to pay back. Busts followed booms; there was no getting around it. 

Warren Harding may never have been the brightest bulb on the White House porch, but intuitively he understood that proper macro-economic policies were more the product of virtue than of genius. Debt led to trouble; that’s all he needed to know. 

Keynes came along a few years later. Keynes was a genius; everybody said so. And he had an answer for everything. Nature? Government could do better. Debt? Don’t worry about it, he said. Why not just let capitalism sort itself out? Without government intervention, it will only get worse, said Keynes. 

But Harding had already proved him wrong. Harding did the very opposite of what Keynes recommended. Instead of increasing government spending, he reduced it. He cut the budget almost in half. He slashed taxes too…and cut the national debt by a third. 

Japan at the time struggled with the same downturn. But it had no Harding at the helm. Instead, its masters prefigured Keynes, trying to stay the correction using price controls and other interventions. The result was a long-drawn-out affair that lasted until 1927 and ended in a bank crisis. In America, meanwhile, by 1922 unemployment was back down to 6.7%. By 1923 it was down further – to 2.4%. 

This lesson was entirely lost on the world’s economists. When the next crisis hit a decade later, they turned to Keynes. Of course, it turned out to be a moral world after all. They got what they deserved. 

Regards,

Bill Bonner,
The Daily Reckoning

Macro for Dummies originally appeared in the Daily Reckoning.  Reprinted with permission.

My daughter is bouncing up and down with excitement.  This afternoon she lost another baby tooth (her third to date) and she knows that the tooth fairy will visit her tonight and leave her some money.  I remember the feeling.  As a kid, whenever I lost a tooth I could look forward to finding a shiny new quarter under my pillow the next morning.  

Times have changed. 

These days the tooth fairy is a dollar skeptic.  I know this because instead of putting a quarter under the pillow, the tooth fairy now leaves an American Eagle for each tooth lost.  By the time my daughter’s adult teeth have all come in, she’ll be sitting on two pounds of silver (and unlike her father, she won’t be able to blow all her tooth fairy loot on Donkey Kong).

Perhaps the tooth fairy has been reading the recent financial news.  The Independent reports that Japan, France, Russia, China, and the Gulf Arab states have realized that the American dollar really is backed by the full faith and credit of the US government, and they’d prefer a reliable guarantee instead.  The US government’s debt is expected to reach 100% of GDP within the next two years, and “Helicopter” Ben Bernanke has created trillions of new dollars in the past year alone.  Given the astronomical amounts of money some of these foreign central banks have loaned the Feds to cover their wild-eyed bipartisan spending spree, one can understand why they might not appreciate being paid back with a rapidly depreciating currency like the US greenback.  This may explain in part the recent uptick in the price of gold, which has been mentioned as a possible replacement for the dollar in international transactions. 

It’s as if foreign central banks (and the rest of us, for that matter) are locked in an international game of musical chairs.  When the music stops, the last one holding dollars loses.  It won’t be easy for the countries that are sitting on trillions of US dollar reserves to divest themselves of their holdings without accelerating the currency’s demise, but for my part I hope they figure it out soon – and that they let me know how to do it, too.  I think I hear the music winding down, and I’m all out of baby teeth to leave under the pillow.

(Tooth Fairy painting by Jenedy Paige).

 “No one should die because they cannot afford health care, and no one should go broke because they get sick.  If you agree, please post this as your status for the rest of the day.” 

Facebook users will no doubt recognize the above quote, which was recently posted as a “wave” by some supporters of socialized medicine.  Evidently they just wanted everyone to know how deeply they care about the plight of the less fortunate who, for whatever reason, cannot afford health insurance.  I have no doubt that all those who posted the aforementioned status update to their Facebook page also contacted their favorite health-related charity that very same day to make a sizable donation.  Otherwise the more cynical among us might have thought that their public display of concern for the downtrodden was really nothing but a shallow demand for the government to spend everyone else’s money.  

Granted, scanning my friends’ Facebook pages is not exactly a scientific survey, but it does at least offer an opportunity to see what some of the people in my network are thinking.  As health care seems to be the one and only issue being discussed in the media these days, it is naturally a hot topic on social networking sites as well.  In addition to the pro-government medicine wave, there are also various Facebook polls concerning health insurance, such as the one that asks, “Should health care be considered a basic human right?”  At the time of this writing, the results were 72% Yes, 28% No. 

As sad a commentary as those results are, the poll question itself reveals how poorly most people understand fundamental concepts.  Rights, in the classical liberal tradition upon which the US government was founded, derive from our nature as human beings.  The Facebook poll question, however, asks whether health care should be a right or not – the implication being that what is or is not a right is subject to change at any given time, like the menu down at the corner deli.  

As libertarians and a few others understand, however, something is either a right or it is not.  “Should” doesn’t enter into the equation.  In a recent episode of his online show “Freedom Watch,” Judge Andrew Napolitano stated (correctly) that “health care is not a right, it is a good.”  Many people (at least 72% of Facebook respondents, anyway) would obviously take issue with Judge Napolitano’s position, but I suspect the disagreement is primarily a semantic one.  Perhaps we should define our terms – especially fundamental terms like “rights” – before getting bogged down in the details of any particular proposal.  Only then will we be able to make some progress in the national health care debate.  

In the modern vernacular, the term “right” seems to mean “anything I might like to have.”  Health care is (or for those of you on Facebook, should be) a right because everyone wants it, or needs it, or thinks it’s really nifty.  The same goes for education, a minimum wage, a three-bedroom house with a view, or whatever else people want to throw on the government wish list at any given time. 

The fallacy underlying this popular definition of rights shouldn’t be too hard to disprove.  And when it comes to the issue of universal health care, it would behoove the liberty-minded individual to do so as quickly as possible.  If the popular definition goes unchallenged, the proponents of socialized medicine will inevitably claim that health care is a basic human right, and will consider that to be the end of the argument – their “get out of the debate free card,” if you will.  As the concept of rights in the traditional American sense is now so poorly understood, you may have to work a bit to educate those who haven’t been exposed to the foundational principles of our fair republic.  Nevertheless, it’s an important task that should help clarify the issues at stake.  What follows are a couple of strategies that may help illustrate the difference between the legitimate rights of the Lockean tradition and the illegitimate positive rights that seem to dominate the discussion these days.  No doubt the reader knows of other approaches that are equally effective. 

When confronted with the claim that X, Y, or Z is a “right,” the first question we should ask is, “Does everyone have the same rights, or do different people have different rights?”  If we can agree that all people have the same rights, then we can probably move forward with the discussion.  If our opponents claim that some people have more rights than others, then we should probably just back away slowly and not make any sudden moves until we have reached a minimum safe distance.  Life’s too short to argue with pinheads. 

Assuming we do agree that all people have the same rights, then it follows that rights must be universal.  That is, they must apply equally to all people, at all places, at all times.  This is merely a restatement of the already agreed-upon proposition.  One way to determine whether something meets the universality constraint is to use the “desert island” test. 

Let’s imagine that I’ve been shipwrecked on a desert island.  After I wash up on shore, do I have a right to my life?  Yes.  Do I have a right to whatever property I have with me, or am able to create using the resources available to me on the island?  Yes.  Would I have these rights no matter when I got stranded on the desert island, be it the year 1609, 2009, or 3709?  Yes.  Would I have these rights without regard to my race, color, national origin, religion or creed, gender, sexual orientation, age, or disability?  Yes.  So it seems that these rights – life and property – satisfy the universality constraint.  They apply equally to everyone, at all places, at all times. 

Now let’s continue the test.  If I’m stranded on a desert island, do I have a right to health care?  If no one is around to provide health care to me, then how can I have a right to it?  Would I have the right, as some claim, to health care regardless of when I wash up on shore?  Would I have the right, for example, to a CAT scan if I were shipwrecked in the year 1609?  Clearly, health care fails the universality criteria for basic human rights.  It cannot apply equally to all people, at all places, at all times. 

Another way to conceptualize the distinction is to describe a right as something for which one would be morally justified in using force to obtain.  I have the right to use force against someone who is trying to kill me because I have a right to my own life.  I do not have a right to anyone else’s life, and therefore I would not be morally justified in using force against those who do not attempt to harm me first.  Hopefully most people would agree to that proposition without the aid of any long, drawn-out logical proofs.  

Let’s imagine that Joe is trying to kill Frank for no other reason than the voices in his head told him to.  In this example, Frank would be justified in shooting Joe if need be because Frank has the right to his own life.  

Now let’s say that Joe is not trying to kill Frank.  Instead, Joe is sitting at home, minding his own business.  If Frank falls ill, would he be morally justified in shooting Joe if Joe doesn’t pay for Frank’s medical treatment?  Most sane people would say no.  Nevertheless, if the proponents of socialized medicine who claim that health care is a basic human right wish to be logically consistent, they would have to say that Frank would be within his rights to use force against Joe in this case.  To my knowledge, few proponents of Obamacare have been quite so forthright. 

There are many things in this life that are necessary for mankind to survive and flourish, and health care is certainly one of them – along with food and water, clothing, shelter, and countless other goods and services.  People have the right to desire whatever they want (an Aston Martin, cable TV, sunshine and puppy dogs), but this does not grant them a right to the thing itself, no matter how much they may want or even need it.  To suggest that we have a right to the goods and services that others must provide us is to claim that we can legitimately impose contractual obligations on those other people with or without their consent.  There’s a term for that kind of forced labor, and as far as I know, slavery is still considered très déclassé. 

As important as this semantic discussion of rights may be, I don’t imagine for a second that it will halt the drive toward universal health care in this country, even if we are successful in restoring the true meaning of the term.  Most people just want what they want, and they’re not going to let some egg-headed notions of rights and ethics stand in the way.  But at least it would help to strip away the false virtue that proponents of socialized health care have used to cloud the debate.  Perhaps then more people would see Obamacare for what it really is – gun-run medicine.  

If you agree, please post this as your status for the rest of the day… 

(Desert island photograph from here).

“God grant me the serenity to accept the things I cannot change; Courage to change the things I can; And wisdom to know the difference.” 

Perhaps libertarianism would be more popular if it weren’t such a humbling philosophy.  One of the key insights of libertarian thought, particularly as it relates to economics, is that the collective wisdom of the market is always superior to the grand designs of a small group of people, no matter how competent or well-intentioned they may be.  Many free-market thinkers such as Leonard Read (I, Pencil) and Ludwig Von Mises (Economic Calculation in the Socialist Commonwealth) have expanded upon this concept, but F.A. Hayek (The Fatal Conceit) may have put it best when he said, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”   

None of these writers ever claimed that the market was perfect.  They did, however, show how the market’s price mechanism transmits vital information throughout the economy far more efficiently than any government planners ever could.  In addition, they demonstrated how the market’s system of profit and loss rewards desirable behavior and punishes undesirable behavior far more effectively than the comparatively weak feedback mechanism of voting that supposedly constrains representative governments. 

This concept, as important as it is, doesn’t seem to translate very well into the political arena.  Voters expect politicians to have a central plan to run every aspect of human existence, and politicians never fail to come up with one.  It’s a shame that so few people have read Hayek’s The Use of Knowledge in Society.  If more people understood the ramifications of his work, we wouldn’t have to suffer through agonizing speeches like the one President Obama gave before Congress last week.  

In a speech of about 5,600 words (none of which happened to be “Constitution”), President Obama attempted to make the case that, under his wise and benevolent rule, the federal government could provide health insurance more efficiently, more affordably, and more universally than the market can.  In addition, he claimed that the changes he has in store for the health insurance industry will have no ill effects whatsoever for the 90% of Americans who already have insurance. 

Not everyone in the audience was convinced.  At one point during the speech, Republican Joe Wilson of South Carolina shouted out, “You lie!”  I won’t go as far in this post as Representative Wilson did in maligning President Obama’s intentions (I already did that in a previous post).  For now, let’s simply accept at face value that the President’s deep and abiding faith in the inherent efficiency and virtue of the federal government truly leads him to believe his own propaganda about universal health care.  In that case he’s not technically lying – he’s just horribly, horribly wrong. 

Exhibiting the “fatal conceit” described by Hayek, President Obama made a number of statements that were meant to assuage the concerns some have about a federal takeover of health insurance.  In making these claims, Obama described the changes his plans would impose on the industry, but studiously avoided mentioning how the market would react to those changes. 

Let’s examine each of the elements highlighted by President Obama in his speech.  His first claim was that, “…if you are among the hundreds of millions of Americans who already have health insurance through your job, or Medicare, or Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have.  Let me repeat this: nothing in our plan requires you to change what you have.” 

As I mentioned in an earlier post, President Obama is technically correct when he states that none of the various bills floating around Congress at the moment contain a requirement for Americans to change their existing coverage.  He is patently wrong, however, when he implies that this will not be the inevitable result of his policy.  The changes being proposed will drive up costs and crowd out private insurance.  Employers will respond to the increases in premiums and will soon drop health insurance from their benefit plans altogether, which will force most people into the government option just as surely as if the bill had required it from the start. 

Continuing, Obama claimed that “What this plan will do is make the insurance you have work better for you. Under this plan, it will be against the law for insurance companies to deny you coverage because of a pre-existing condition.” 

Insurance is a way to hedge against future uncertainty.  There is no way to hedge against a risk that has already occurred.  The effect of prohibiting insurance companies from denying coverage to those with pre-existing conditions will be to insulate people from the risks of not carrying insurance, which will incentivize them to eschew health insurance altogether until after they become sick.  Since insurance companies must receive more in premiums than they pay out in claims in order to stay in business, the pre-existing condition requirement will serve only to crowd out private insurers in favor of the government alternative.  The only way around this inevitable outcome is the individual mandate, which threatens “free” citizens with fines and imprisonment if they choose not to buy health insurance.  The individual mandate is part of the Obama plan as well.  The mandate may serve to minimize the damage caused by the plan’s pre-existing condition constraint, but it has no place in a free society. 

President Obama also stated that, “As soon as I sign this bill, it will be against the law for insurance companies to drop your coverage when you get sick or water it down when you need it the most.” 

I thought this was an odd selling point for a government-run plan.  According to the Lockean theory of natural rights upon which the US federal government was based, the purpose of government is to protect individuals from acts of aggression by other individuals.  Fraud is an act of aggression, and there are already plenty of laws on the books to deal with it.  If, as President Obama wishes us to believe, insurance companies are routinely violating the terms of their contracts as soon as their customers get sick, then surely the government is failing in its primary role as the enforcer of those agreements.  This leads one to wonder why the government, which is so demonstrably incompetent in fulfilling its primary mission, should be granted additional power to manage health insurance. 

The President then went on to assure us that, “They will no longer be able to place some arbitrary cap on the amount of coverage you can receive in a given year or in a lifetime.  We will place a limit on how much you can be charged for out-of- pocket expenses, because in the United States of America, no one should go broke because they get sick.” 

There are both ethical and pragmatic problems with this feature of Obamacare (and with all its other features as well).  Ethically, why shouldn’t people be allowed to negotiate the terms of a contract as they see fit?  If I promise to pay you X dollars – but not a penny more – in the event of illness or injury, and you accept the terms of that agreement, why should we be prevented from making that deal?  Pragmatically, how can I be expected to make a profit out of such an arrangement if the government imposes limitless liability on me for each and every one of my customers?   Obviously I cannot run a business this way, and will eventually be forced out of the industry altogether. 

One of the President’s last key points was, that “…insurance companies will be required to cover, with no extra charge, routine checkups and preventive care, like mammograms and colonoscopies.” 

There’s a reason that oil changes and tire rotations are not covered under your auto insurance.  These are foreseeable costs of car ownership, and including them under insurance plans would not only run counter to the purpose of insurance, but would also drive up the cost of that insurance.  Covering routine check-ups under a health insurance plan will likelwise drive up the costs associated with that plan as individuals are encouraged to over-consume those services.  Preventing insurance companies from offsetting those increased costs through higher premiums will simply push marginal players from the market, reducing the supply of private health insurance and further reinforcing the crowding-out effect of public investment in the industry. 

None of these obvious and predictable consequences will in any way dissuade those in Washington from continuing down the destructive path they’re on.  And why should they?  Although President Obama stated on “60 Minutes” that he has “every reason to get [health care] right,” nothing could be further from the truth.  The number of Americans who can identify the impacts of allegedly unintended consequences of government policy on market functions amounts to little more than a rounding error.  Barack Obama will be out of office long before the disastrous effects of his policies are felt in the health care field.  And when they are, the American people will lay the blame for their dissatisfaction not with President Obama and the political class that foisted this monstrosity upon us, but rather on the so-called “free market” that has been so handcuffed by government regulation that it can no longer function at all.  When that happens, yet another opportunistic politician will step in with some grand plan to fix the problems caused by all the other opportunistic politicians who came before him.  At no point will he advocate that the government step aside and simply allow the market to function.  That would require a Hayekian understanding of one’s own limitations, which is something very few politicians seem to possess.  

It’s hard to be humble, after all.

My little girl started first grade last week at the public school here in our neighborhood. We sent her to a private pre-school for the two years prior to kindergarten in the hope that we would be able to keep her in private school for the duration of her academic career. As everyone knows, though, private school is expensive and unfortunately for us the cost soon proved prohibitive, especially now that we have two kids to educate.

It wasn’t always like this, however. Once upon a time private schools were affordable for just about everyone. Indeed, private education was the norm in the colonial and early post-revolutionary periods in the United States. Though there were certainly exceptions to the rule, generally speaking early American education followed a broadly free-market approach. This model led to a wide variety of specialized schools, such as religious institutions, college preparatory academies, charity schools, and private tutors. In the period following the American Revolution until the 1830s, academies were the standard form of education in the United States. These were usually corporations that were financed through private endowments and private tuition.

As Barry Poulson wrote in Education and the Family During the Industrial Revolution, “Private education was widely demanded in the late eighteenth and nineteenth centuries in Great Britain and America. The private supply of education was highly responsive to that demand, with the consequence that large numbers of children from all classes of society received several years of education.” During this same period, literacy rates increased from 75% to 97% in the north, and from 50% to 81% in the south.

Beginning in the early 19th century, however, something changed. Statists of various stripes began looking to Europe, particularly Prussia, where government control of education was all the rage. In 1817, a group in Boston petitioned for a system of government schools and the gradual abolition of private schools. They claimed this was necessary to ensure the education of those children who had fallen through the cracks of the private education system. 96% of all Boston children were enrolled in a private school of some sort, but the remaining 4% supposedly justified a government takeover of the entire system.

The initial calls for complete government control of education failed, so its proponents changed tactics. Instead of an outright takeover of the private schools, supporters of state-run education pushed for more gradual changes. By focusing on the four percent of children who weren’t attending school, and ignoring the ninety-six percent of children who were, the “reformers” were able to increase the number of taxpayer-funded schools. In the modern vernacular, we might say that they were calling for a “public option” in education to “compete” with the private sector.

Advocates of government education, such as Horace Mann, continued to expand state control to include everything from primary school through university. In the period following the Civil War, taxpayer-funded schools had become the norm. This was indeed a sea change from the laissez-faire approach of the early years of the Republic, but such was the hope and change attitude of the times, and public statements from important public officials reflected the new collectivist mindset. As John Davis Pierce, Michigan’s first Superintendent of Public Instruction, stated, “If children, as is generally conceded, belong to the republic, then it is obviously the duty of the state to see to it that they are properly trained, instructed, educated.” [Italics mine.]

Predictably, the public option advocated by Mann, Pierce, and others crowded out the private provision of education that had been the standard for so long. Today the only remaining private institutions, for the most part, are those that cater to the high-end market in education. This is not surprising, as most of the people in the low and middle ranges of the market cannot afford to pay for the same service twice – once from their taxes, and again in the form of private tuition. Their demand has been wholly absorbed by the public schools, and private schools cannot possibly compete with the subsidized public option.

In fact, private education has been so thoroughly crowded out by the public option that very few people today can even conceptualize that the free market could provide affordable education options at all socio-economic levels. No matter how many historical examples you give, no matter how many case studies of private education in third-world nations you cite, no matter how many for-profit educational institutions you point to, most people simply will not accept the idea that education can be separated from government.

I suspect the early supporters of public education often made claims like, “If you like your private school, you’ll be able to keep it.” Today we hear the same thing from President Obama regarding his plans for our health insurance. He assures us that his efforts to increase government control over the health care and health insurance industries will have absolutely no effect on the overwhelming majority of people who have health insurance plans they like. He just wants a public “option” to “compete” with private insurance providers (the funding for his public option will not be optional so much as it will be mandatory, however).

And, just like the advocates of public education in the 19th century, Obama and his supporters point to the “46 million uninsured” as a justification for increasing government involvement in the health insurance industry, which has no problem providing coverage for the other 260 million people in the US. Granted, the 46 million number includes 18 million people who make over $50,000 a year, 14 million people who are already eligible for other government health insurance programs, and 10 million illegal immigrants whom Obama claims won’t be covered in his plan to cover all 46 million people, but if we were to factor out all those elements, we’d be left with a much less scary number.

And just to be fair to the President, I searched the 1400-page House bill thoroughly and he is correct that the phrase “eliminate private insurers” is nowhere to be found. Nevertheless, the crowding out effect is as predictable in health insurance as it should have been in education. Once Congress passes the bill, the days of affordable private insurance are numbered – at least for those who can’t afford to pay twice for it. And you can bet that President Obama and the members of Congress have the means to opt out of public health insurance in the same way that they routinely opt out of public education.

The rest of us, however, will find that a public option will leave us with far fewer options. And within a generation or two the crowding-out effect will be so complete that no one will even be able to imagine how a free market could possibly provide affordable, high-quality health care.
(Source for history of early American education: Matthew J. Brouillette, The Mackinac Center for Public Policy, School Choice in Michigan: A Primer for Freedom in Education.)

So now Treasury Secretary Timothy Geithner wants Congress to raise the national debt ceiling.  The debt ceiling is the statutory limit that Congress imposes on the federal government’s debt.  Of course, whenever the government’s debt approaches the maximum amount allowed by law, they simply raise the limit rather than doing anything nutty like cutting spending.  In this respect Congress is a lot like the alcoholic who goes to a bar and promises himself that he’ll only have two drinks and not a drop more.  But before he finishes that second drink, he decides that his self-imposed limit isn’t really a “limit” in the strictest sense of the word, but really more of a guideline – a well-intentioned, if ultimately unrealistic, suggestion. 

And when it comes to the federal debt, we’re talking about a lot more than your typical bar tab.  The last time I checked, the debt was $11.7 trillion and climbing.  That means that every man, woman, and child in the United States owes approximately $39,000.  Not to worry, though.  The latest income numbers show that Americans make $39,751 a year, so if we all just pull together and give every penny we make this year to Uncle Sam, we can pay off the debt and still have $750 left over for things like food and shelter.  Of course, these figures don’t include this year’s federal deficit, which should come to just under $2 trillion.  But hey, what’s a couple trillion dollars among friends? 

In light of these sobering numbers (sobering at least to those of us living outside the beltway), Geithner wants to raise the debt ceiling to some unspecified point above the current $12.1 trillion mark.  When one considers that the entire US gross domestic product is somewhere around $14 trillion, a $12.1 trillion debt load seems pretty weighty already, but Geithner reckons he’ll need just a few trillion more to set things straight.  To put his latest request into perspective, imagine someone who earns $50,000 a year and carries credit card debt totaling $43,000 – and then applies for more credit cards so he can spend his way into solvency.  That’s basically the Geithner plan in a nutshell.  

But it’s important to note that the “official” numbers only tell part of the story.  Keep in mind that the federal government doesn’t hold itself to the same accounting practices it demands of the private sector.  Companies have to recognize expenses at the time they’re incurred, even if the payment will be made later.  The federal government doesn’t.  Promises to pay for entitlement programs like Social Security and Medicare don’t show up on the government’s balance sheet in the same way they would if a private business had incurred similar debt obligations.  The unfunded liabilities of Social Security and Medicare now amount to almost $100 trillion.  Obama’s socialized medicine plan will only cause health care costs to skyrocket further, making Medicare’s current financial mess look like a drop in the bucket.  But that’s the kind of crushing debt burden Obama and Geithner wish to impose on us and our descendants.  

Exhibiting the kind of detachment from reality that can only come from spending way too much time in government, Geithner claimed that taking on more debt is actually the fiscally responsible thing to do.  In his letter to Congress he stated, “It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations.”  

How would that line of reasoning work with your bank?  “As I’m sure you’re aware, sir, I’m deeply in debt with no visible means of support.  Given the circumstances, I’m sure you’ll agree that you need to increase the credit limit on my Visa card so that I can reassure you and all the other people I owe money to that I will be able to meet my obligations.  We wouldn’t anyone to panic, now would we?” 

This is madness and there’s simply no way the Feds can pay for it all, at least not honestly.  I can only assume that they will resort to any number of tactics, such as raising taxes, monetizing the debt, reducing promised benefits, rationing services, raising age requirements, or whatever else they can think of to avoid an Argentina-style default.  Some would say that they’re already doing many of these things already.  According to the Fed’s own published research, the money supply has literally doubled in the past year alone, and bank reserves have gone from about $50 billion to $900 billion in the same period.  

In The Wealth of Nations, Adam Smith wrote, “What is prudence in the conduct of every private family can scarcely be folly in that of a great kingdom.”  The flipside is also true – that what is folly in the conduct of every private family can scarcely be prudence in that of a great kingdom.  If it’s a bad idea for an individual to incur more debt than he can possibly pay off in a lifetime, it’s also a bad idea for the government to do the same thing.  And yet that is precisely what Geithner is proposing.

Senator Chuck Schumer recently introduced S1542, the “Milk Import Tariff Equity Act.”  If signed into law, the bill will impose quotas and increase tariffs on imported milk protein concentrate, or MPC.  MPC is not currently subjected to the same degree of protectionism as other dairy products, and food producers have naturally shifted to MPC as a substitute for the relatively more expensive domestic dairy alternatives. 

Fortunately for dairy farmers, Chuck Schumer is not inclined to sit back and just let consumers spend their own money as they see fit.  Foreign MPC products are eroding what New York dairy farmers see as “their” (captured) market share and the Milk Import Tariff Equity Act is Schumer’s attempt to do something about it.  After all, it’s not easy being a dairy farmer these days.  With the cost of inputs like feed and fuel on the rise, dairy farmers are discovering that the Federal government’s Milk Marketing Order, Milk Price Support Program, Milk Income Loss Program, Dairy Export Incentive Program, and import barriers are just not enough to support them in the style to which they have become accustomed since 1937 when the Soviet-style price fixing scheme for dairy products was first put into place.  They obviously need more help from the Federal government at the consumers’ expense, and by God, Chuck Schumer is going to do everything he can to take it from you and give it to them.  And as if S1542 weren’t enough “help,” on Tuesday the Senate approved a $350 million increase in the milk price support program.

Referring to bill S1542 Schumer said, “It’s time we closed the loophole and gave New York dairy farmers a chance to compete.  Instead of New York milk in our dairy products, we end up with imported MPC.  This bill is widely supported by dairy farmers.”

Really, Chuck?  Dairy farmers support forcing domestic consumers to subsidize their business model so they don’t have to compete?  Who’d have thought?  Next you’ll be telling me that Paul really doesn’t mind if you rob Peter to pay him.

The Milk Import Tariff Equity Act is just another sad example of the lengths to which government will go in order to prevent us from obtaining the goods and services we need at the lowest possible cost.  The protectionist fallacy that making things more expensive somehow helps society as a whole simply will not go away – a fact that works to the advantage of politicians like Schumer.  They can simply point to what is seen (the obvious benefit that accrues to the politically favored few), and ignore what is not seen (the hidden costs that are spread across the rest of society).  In the case of government milk supports, Schumer speaks only of the assistance that the dairy farmers receive, but studiously avoids mentioning the artificially high costs that must be borne by consumers.  And these hidden costs are not insignificant.  The OECD estimates that the various government milk programs equate to an implicit tax of 26% on dairy products sold in the United States.

Milk is by no means the only food product that is subject to these ridiculous government distortions.  The honey industry is also suffering from the perhaps unintended but all-too-predictable consequences of protectionist policies.  Late last year, for example, a dozen armed DHS and ICE agents raided Pure Foods Inc., a honey producer and importer in Washington state.  The reason?  The company was suspected of importing “counterfeit” honey.  And by “counterfeit,” they don’t mean that it’s not real honey.  They mean that it’s mislabeled, which is reason enough to put someone behind bars these days.

The fact that possession of honey with intent to distribute is now literally a Federal offense comes from government efforts to protect domestic honey producers from “unfair” (i.e., cheaper) foreign competitors, especially those from China.  Chinese honey is subject to a higher import duty than honey from other countries.  This has incentivized some nefarious Chinese producers to transship their honey and to label it as the produce of those other countries in order to avoid the high tariff.  And all the wheels of law enforcement are then set into motion to combat the scourge of honey smuggling.

And what is the ultimate purpose of all of these import tariffs, quotas, price supports, and Homeland Security raids?  To prevent people from paying too little for something they want, and to provide certain groups (such as domestic milk and honey producers) with an unearned advantage over their rivals in the marketplace.  Perhaps Murray Rothbard said it best when he wrote, “Protectionism is simply a plea that consumers, as well as general prosperity, be hurt so as to confer permanent special privilege upon groups of less efficient producers, at the expense of more competent firms and of consumers.”

It’s a bizarre yet pervasive pathology, and we’re made all the poorer for it.

According to the US government, I am overweight.  I’m 5’8” tall and this morning I weighed in at 187 pounds, which gives me a body mass index (BMI) of 28.4.  That’s pushing the upper limits of the “overweight” category, trending toward the dreaded “obese” label.  I have resolved to lose weight, not only for personal health reasons but also because I don’t want to be defined as obese by the government.  I’ve seen what the nanny state’s health bureaucrats have done to smokers, and it’s clear that overweight people are next on their hit list.  I’d prefer to avoid their wrath if at all possible. 

I don’t overeat, and I don’t really eat much junk food.  I get moderate amounts of exercise, though I could certainly stand to spend some more time in the gym.  In fact, my only real health-related vice is that I drink way too much Coca-Cola.  I’ve tried to cut back, but it hasn’t been easy and I’ve fallen off the wagon several times.  So I know without a doubt that the single most important step I could take to improve my overall health would be to give up soft drinks.  After all, those empty calories do add up – not only in terms of extra pounds around the midsection, but also in terms of extra dollars in the federal budget.  It seems overweight soda drinkers like me (as well as those who are significantly larger than I) are going to be a real drain on the government’s resources now that the Feds have decided to nationalize the health care industry.  Recent estimates indicate that spending on obesity-related medical care represents 9% of all the health care dollars spent, and obese people spend $1400 more per year on average than their svelter compatriots (of course, that’s private spending and not public spending, but let’s move on quickly before anyone notices).  

The CDC has suggested that taxing soda drinkers could help lower health care costs.  Drinking soda causes obesity, obese people spend more each year on health care than thin people, and the government plans to take on that spending whether we like it or not.  Ipso facto, the government must dissuade people from drinking soda.     

Of course I would suggest that if the government really wanted to save money it would simply stop looking for new ways to spend it.  It seems to me that those people who want or need to consume relatively more health care services should either pay for it themselves or negotiate a mutually beneficial arrangement with private insurance providers or charities, but clearly I am out of step with the hope-and-change zeitgeist that’s all the rage these days.  And I suppose that my attitude misses a larger point – Caesar has decreed that soda is bad, and therefore if we wish to indulge in such a politically incorrect vice we must pay Caesar for the privilege. 

And far be it from me to try to defend the health benefits of soft drinks.  To my knowledge, there aren’t any.  Carbonated soft drinks are bad for you.  Perhaps even really bad.  But it seems to me that an important question is going unasked in the current debate (if one may call it that).  The question is, “Why does soda cause obesity?”  Or to put it more precisely, “Why does soda cause obesity now relative to the previous hundred-plus years it’s been around?”  Coca-Cola and Dr. Pepper were invented in 1885, and Pepsi was introduced in 1898, but I don’t recall hearing any stories about the soft-drink fueled “obesity epidemic” at any time during the early- to mid-20^th century.  So what changed?

No doubt there are a number of factors involved here.  It could be that we’re more affluent than earlier generations, and maybe we spend a greater portion of our disposable income on soft drinks.  Perhaps that affluence also means we’re not getting as much exercise as previous generations, or that our overall caloric intake is higher.  All of these factors and many others besides could be contributing to the problem.  But there has been at least one change to the product itself that is closely correlated to the upswing in obesity rates.  Whereas the original Coke, Dr. Pepper, and Pepsi used sugar as the principal sweetener, today’s soft drinks use high-fructose corn syrup (HFCS) instead. 

I’ve seen a number of articles (here and here, for example) that state that HFCS is less expensive than sugar, and that soft drink manufacturers made the switch to improve their bottom lines.  Of course, the authors of these articles never manage to ask the question “Why is HFCS less expensive?”

You and I know the answer, of course.  HFCS is a derivative of corn, which is heavily subsidized by the US government.  Similarly, the US government levies high protectionist tariffs on imported sugar, which means Americans (and American manufacturers) pay about five times the world market price for sugar.  So government policy makes sugar artificially expensive, and HFCS artificially cheap.  Under these circumstances, the switch to HFCS was inevitable.  But here’s where all of this ties into the obesity problem – researchers have shown that HFCS turns off the body’s chemical switch that tells the brain when it’s full.  This means that now we can drink more soda at one sitting, taking in more calories from soft drinks than we did in the past (and let’s not lose sight of the fact that HFCS is found in a lot more than just soft drinks). 

The proposed soda tax brings to mind once again Robert LeFevre’s adage that “government is a disease masquerading as its own cure.”  Politicians first introduce distortions into the agricultural market, and now they propose to tax us for the ill effects caused by those distortions.  This is typical, I suppose, but it also shows that the real purpose here is not to fight obesity or to defray the costs associated with it.  If that were the case, the government could be a lot more effective by simply eliminating the problems it created through these tariffs and subsidies, and by halting its drive toward socialized medicine.  But then again, that would require bureaucrats to take responsibility for their own actions, and we all know that will never happen. 

So soda may soon take the place of cigarettes as public health enemy number one.  In addition to the new tax imposed on soft drinks, I suppose we’ll also be subjected to endless public service announcements highlighting the evils of “Demon Soda.”  Perhaps we’ll see a 21^st century Carrie Nation taking an axe to Coke machines across the land.  I wonder if Rachel Leigh Cook is still available… 

***Many thanks once again to Gardner Goldsmith of Liberty Conspiracy for bringing this subject to my attention. 

I just finished reading The Return of the Idiot (El Regreso del Idiota), by Plinio Apuleyo Mendoza, Carlos Alberto Montaner, and Alvaro Vargas Llosa.  This book is the 2007 follow-up to Guide to the Perfect Latin American Idiot (El Manual del Perfecto Idiota Latinoamericano) written six years earlier.  The two volumes examine the reasons for and the results of Latin America’s lurch left over the past several years.  

In Return, the authors distinguish between the “carnivorous” left of Hugo Chavez, Evo Morales, Rafael Correa, Nestor and Cristina Kirchner, Andres Manuel Lopez Obrador, and Ollanta Humala, and the “vegetarian” left of Chile’s Michelle Bachelet and Brazil’s Lula da Silva.  The authors have nothing but contempt for the former group, and point out the disastrous consequences of the carnivorous left’s economic policies in each country.  On the other hand, the authors describe how the governments of the vegetarian left have resisted the urge to run their countries into the ground, adopting broadly pro-market policies that have left their carnivorous counterparts in the dust. 

As I’ve mentioned before, the goings-on in Latin America are of interest to me for both personal and professional reasons.  My wife is from Bolivia, so I have spent a great deal of time in La Paz with the in-laws over the years.  My career has almost always been focused on Latin American operations, so I’ve worked in Mexico, Brazil, and Argentina.  And of course, I have friends from virtually every country south of the Rio Grande, so it pains me to see the countries of the carnivorous left (to use the authors’ terminology) shoot themselves in the foot, reload, and keep firing. 

Though Mendoza, Montaner, and Llosa certainly do a good job at picking apart their political opponents, their critique strikes me as more standard right-wing than libertarian, so there are a number of points in the book with which I disagree.  Nevertheless, I thought it was a good overview of the region’s political landscape.  And throughout The Return of the Idiot I discovered passages that apply just as well to the current political climate of the United States as to any of the Latin American countries surveyed, providing almost as much value for North American readers as for those in Mexico, Central, or South America.  

Since Return has not yet been translated into English (to my knowledge, at least), I thought I’d share a couple of key passages here (the translation is mine, as are any errors associated with it).  The first passage covers the rise and recurrence of populism in Argentina, but the US is certainly no stranger to these same tendencies.  

“Aside from the Kirchner case, the nightmarish recurrence of populist cycles in Argentina demands attention.  Why would a country that has suffered the consequences of populism and to a large degree owes its decline over the course of the 20^th century to this perversion of our political life continually repeat its errors? 

The periodic resurgence of populism has provoked instability and uncertainty each time, making it very difficult for economic agents to plan and invest over the medium and long terms.  Another consequence has been the difficulty in accumulating first-rate human capital.  This is seen not only in terms of education, but also in its effect on republican values, which seem to enjoy less and less consensus among Argentineans – the values through which people understand that tolerance and respect for rules are indispensable for progress and civilization. 

One way of understanding the recurrence of populism has to do with that ‘distributive struggle’ – as it is called in some studies from the Rosario Liberty Foundation, headed by Gerardo Bongiovanni – that is born of the parasitic role played by the country’s special interest groups. 

At the start of the 20^th century, Argentina was one of the twelve leading nations.  By 1985, it was relatively poor, with an average income that equated to something less than 70% of that of the rich countries.  Where did the ‘distributive struggle’ begin that changed the country’s tendency, placing emphasis on the distribution, rather than the creation, of wealth? 

In reality, it started timidly in the 1920s (some would say even before that) and it continued into the 1930s, in part as the result of the movement of the rural population into the cities, which involved the meeting of somewhat different cultures and increased the number of urban actors who were ready to make their political might felt.  With Juan Domingo Peron, who was at once the expression of and the impetus for this phenomenon, populism reached its height in the 1940s and 50s.  This entire period is marked, for example, by salary increases that were greater than the increases in productivity.  More is distributed, but less is produced.  Less and less cake with more and more gluttons.” 

Another passage that stands out describes the Latin American left’s anti-market mentality, but could just as easily describe the Obama administration’s takeover of certain activities that Americans once believed rightly belonged to the private sector (car manufacturing, banking, health care, etc.): 

“The nationalists also propose the ‘nationalization’ of the economy, although, in tune with the euphemistic language of the postmodern left, they assure us that they do not want state control of businesses.  With that, what they mean to say is that it’s enough for the State to declare itself owner of the resources, charge confiscatory taxes, determine prices, and control a percentage of the property of the companies that invest in natural resources, especially those in the mining sector.  The gringos – a practical people, all in all – have a saying: ‘If it walks like a duck and quacks like a duck, it must be a duck.’  The same holds true in the political sphere: if he takes over businesses like a statist, he must be a statist.” 

These and many other passages in The Return of the Idiot make the book worthwhile.  Not only does the reader come away with a better understanding of the political landscape in Latin America today, but US readers also get a cautionary tale for their own country at no additional charge.