The Final Word
Thursday, November 24, 2011 at 6:39PM We were encouraged that Ed Bugos' response to Jason Hamlin's article ("Capitalism Needs Regulation") encapsulated in "Why Max Keiser and Jason Hamlin Are Wrong" (Parts One and Two), was so well received. We were flooded with emails, mostly positive, thanking Ed for taking the time to respond to each and every one of Jason's critiques and criticisms, and questions, of the free market.
Since then Jason Hamlin has published another response, responding to both Ed Bugos' articles as well as Stefan Molyneux's video, called "Debating Solutions with Stefan Molyneux and Ed Bugos". I thank Jason for keeping the argument civil and not taking personal attacks although he accused our side of taking some shrifts and said both Ed and Stefan were acting like "they were always right".
In response to that, it is important to understand that both Stefan and Ed Bugos have been actively working and debating these concepts for years. In Ed's case decades. And I too sense that they grow weary of the same questions being asked when they have responded to them so many times in the past. You can just look through Stefan's prolific podcast and video collection (thousands of videos) in which he has responded to almost any question or attack thrown his way. So, that deep sigh you hear when they respond to your questions is not meant to be demeaning... it just means that they've been thigh-deep in this debate for a long time and wish their debaters could keep pace.
That said, I, nor Ed, are going to respond to Jason's latest article. His response has been, as has been the pattern, very bereft of hard, factual info or references and mostly speaks about the need to "create abundance". Jason has bought into the airy-fairy, marxist/religious-like "zeitgeist" movement which is mostly just another way for people who are scared of true freedom to exercise control over the world and subject us to their psychological abberations and fact-devoid voodoo. As well, Ed commented at how quickly Jason responded to his responses. Ed stated that he had included so many references in his replies that any party truly interested in debating could not respond so rapidly unless he was not looking deeper into the references and links given. Ed stated that if Jason had given ANY references or sources on any of his concepts, other than a link to a video (which Stefan Molyneux already critiqued) he would have at least given them the respect of giving them a look. Indeed, he seems oblivious to several excellent points that Stefan brought up in his debate with the Venus Project, in particular the calculation problem for central planning that Mises identified in the 1930's. The irony is that the Zeitgeisters are trying to "play market" without actually using money, just as Mises said of the socialists who didn't want to accept the economic reality that central planners cannot calculate -not just consumers' needs, but also costs, including opportunity costs.
However, I have accepted an offer to debate Jason Hamlin live at the Vancouver Investment Conference on January 22 and 23. So, any further debate will have to wait until then. (They are calling the upcoming Vancouver conference the conference of the decade. Check out this Hollywood quality trailer for the show including a cameo of myself)
In the meantime, however, one reader named Kurt K., wrote in with a number of good questions for Ed Bugos and Ed took the time to respond. I thought we'd complete this conversation by including some final insights from Ed. Here is the conversation (slightly modified to elaborate or exclude personal reference):
Kurt K. (KK): Can you provide a concise summary of how you believe statism leads to/contributes to obnoxious corporate behaviour?
Ed Bugos (EB): The state benefits certain businessmen through regulation, legislation, subsidy, favor and the set up of other institutions that tilt the playing field by restricting competition and hence transfer economic power from the consumer to the producer (in a competitive free market system resources are directed by the consumer but when you restrict competition or raise barriers to entry the existing producers gain extra market profits called rent). In the case of banks, in the US, they are all shielded from free market competition by way of the Federal Reserve Act, Bank Holding Company Act, and others, which gives the cartel – those that can get into the club – a monopoly over note issue (so no one else can issue bank notes -even better ones) and the use of the state’s coercive apparatus to enforce its legal tender laws. They are effectively a set of privileges bestowed upon the banksters by the government. They are justified and rationalized on the basis of the ideal of the state "to provide balance" (in the name of protecting the consumer...as though competition were detrimental to him), but in reality they simply transfer economic power to the evil banksters and help them sustain their inflationary booms...another example of how the concept of government as referee is an impossible ruse.
The Federal Reserve System itself works like a central bank in that it allows the private fractional reserve banking system to coordinate and sustain their inflations, effectively creating the boom bust cycle. Without a central bank to prop it up at the taxpayers expense the banks would never inflate to begin with. Of course this has never been tested because bankers have always lobbied for a central bank type back stop so they could inflate. This manipulation of money and credit through monetary policy is the very cause of economic crises and our recessions.
The doling out of licenses in the financial industry is generally a way to protect the industry from competitive forces in the name of protecting the consumer (from competition no less). The firms thus have a lot more power in directing their sales force. The bubbles never make sense to the smart guys, and they often warn clients against participating. This leaves the window open for the high rollers to rise to the top.
In a free market environment with nothing sustaining a bubble it would never inflate to the extent that it engulfs and threatens entire economies, and the high rollers (the riff raff) would have been long disciplined by the market. So what we’re saying is that the state’s involvement in the industry (in this case through monetary policy) tilts the playing field to favor corrupt nonsensical risk taking behavior.
When I left the brokerage business back in 2000 the tech bubble was just about to burst. Hardly anyone remembers it now. But when it was being inflated (by the Fed) I remember the changes I saw in the industry. Until then I was advancing my career steadily onward and upward. I was still relatively young and considered to be a rising star. But then in 1998 there was an influx of new types coming into the business. Many were young recently graduated students (my first reminder that I was getting older). Some were coming in from other careers...no kidding, I mean, like valets, cab drivers, real estate agents. I tried to tell them that markets don’t always go up. But since the Fed abandoned the Volcker paradigm in the mid nineties the markets continued to rise, year in and year out. This was not real. It was created by the Fed. But they all thought it was real. The guys who were most convinced were the ones who made the most money in commissions and fees, and deals. They often had little regard for risk. They didn’t believe in bear markets, and so on. Now, some of those ideas were revoked quickly after the 2001-02 bear market but I’m just trying to illustrate how the central bank – a government institution - can create an environment that fosters bad decision making and corrupt behavior in which the bad guys can rise to the top.
KK: It seems to me that the ideal of statism was to balance the "initiative" and collateral damage of business/entrepreneurism with the social (and other) aspects of the common good.
EB: I think you’ve been sold a bill of goods about what the state is. The state has taken on many forms. It has historically always been the source of injustice and inequality. This conception of it as a just arbiter and referee is rooted in Hobbes, and is flawed. I think we provided the link to Hoppe’s refutation of Hobbes in our essay. It is only in the last century really that the idea emerged that force wielded by a state could be used for any good whatsoever. I would say there is nothing in the common good that the state could achieve, though I realize it claims otherwise. That doesn’t mean the free market can achieve whatever you would term the “common good” either. But, in general, statism creates bads... the free market creates “goods”. I would suggest reading Rothbard’s ideas about the state, starting with its anatomy here for a scholarly analysis of the state.
KK: Over the last decades, the business/corporate agenda has been to simultaneously free itself of any kind of restrictions by the state, and to actively solicit direct support/subsidization by the state, and the direct/indirect externalization into the public of as much of their business cost as they could get away with.
EB: This is half right – the last half. In fact, the last half kind of contradicts the first sentence. Still I would challenge anyone to offer us an example of deregulation outside of the much misguided common ones – Glass-Steagall and Enron, and in Enron’s case it has been shown that it was the slow removal of crucial regulatory obstacles that led to certain instabilities... and as well, its rise was also the creation of the Fed’s inflation during the nineties. The general thrust "over the last decades" has been to continue to add regulation and legislation. Like public expenditure programs and other institutions, once they are erected they never get repealed, even when they are supposedly temporary. That is the main problem of statist societies. The other half of your sentence is precisely one of the reasons to do away with statism.
KK: I suppose if there were no state/public on which to exercise their parasitism, that "stimulus" would have been absent. I don't see how the disappearance of the state would suddenly - or ever - lead to the disappearance of corporate "bad" behaviour.
EB: Genuine competition checks this behavior. The state shields it. In my opinion, if you want to get rid of the bad guys all you have to do is let the good guys compete. The best protection consumers have from corporate bad behavior is competition. I can't understand why people can't see this.
KK: Let's look at Nike, an oft-mentioned corporate renegade. OK, so they can improve their ROI by reducing labour cost and miscelleneous govt. meddling. Had they located to some overseas sweatshop-haven and decided they could pay $1/hr or $.50 rather than $9 "back home" - some level that would offer significant benefit/prosperity to the "locals" - I could see that as a signal of reasonableness. Instead, their default operating mode has consistently been to create hellholes of dangerous working conditions with pay levels that only people in desperate poverty would reluctantly accept.
Those crappy, dangerous working conditions with pay levels that only people in desperate poverty would reluctantly accept are better than any other opportunity those poor unfortunate people have. When someone sent me a picture of a little 7 year old Asian boy wearing Nike’s a few years ago they were meaning to show me how we are exploiting him; but the first thought that came into my mind was that at least he could afford nice shoes – while other kids in the same village probably couldn’t. The problem of child labor & poor factory conditions is a red herring. It is politically and emotionally charged. In the first place it comes from people who think children are taking adult jobs. Believe it. The truth about child labor historically is not what you were taught in school. Here is a link to the truth about what you have heard about factory conditions in 19th century England. The truth is that these wretched factories were bringing thousands of people out of poverty almost on a daily basis. Their alternative was starvation.
One of the problems, beside the political one that is revealed in the essay, is that historians look back at history through the lens of modern times (conditions). Naturally, relative to current conditions or standards those factories lacked. While I’m making that argument temporally (via time), the same principle applies to an economy that hasn’t developed yet. You can’t just go from nothing to where we are overnight. It takes decades of capital accumulation. Mises pointed this out in his criticism of the popular interpretations of the industrial revolution (you know, the version taught to you at statist schools) as it applies to the third world,
"Let us stress one aspect of the matter only. Vast areas — Eastern Asia, the East Indies, Southern and Southeastern Europe, Latin America — are only superficially affected by modern capitalism. Conditions in these countries by and large do not differ from those of England on the eve of the "Industrial Revolution." There are millions and millions of people for whom there is no secure place left in the traditional economic setting. The fate of these wretched masses can be improved only by industrialization. What they need most is entrepreneurs and capitalists. As their own foolish policies have deprived these nations of the further enjoyment of the assistance imported foreign capital hitherto gave them, they must embark upon domestic capital accumulation. They must go through all the stages through which the evolution of Western industrialism had to pass. They must start with comparatively low wage rates and long hours of work. But, deluded by the doctrines prevailing in present-day Western Europe and North America, their statesmen think that they can proceed in a different way. They encourage labor-union pressure and alleged prolabor legislation. Their interventionist radicalism nips in the bud all attempts to create domestic industries."
Lastly, it is competition in the labor market that has forced those conditions to improve over time – not state decree. I hope you haven’t fallen for the myth that unions have raised living standards and are responsible for improved working conditions in modern factories! If yes, then I would recommend reading these links as well, "Redeeming the Industrial Revolution" and "The Popular Interpretation of the Industrial Revolution".
KK: How does statism figure into that? How would turning all currently public land/assets/property - anything held/controlled by the state - over to private corporations yield any result other than further concentration of assets/control/possession?
EB: One of the biggest fallacious ideas used against free-market capitalism is that the rich get richer at the expense of the poor. A lot of this is fueled by Marxist doctrines – the exploitation theory, etc – to which we’ve provided links. In the first place, if we are right and we do not currently have free-market capitalism then this concentration must be the product of statist intervention. In reality we have hampered capitalism, or in any case, not enough free competition to blame the bad results on the market economy.
In the second place, the statistic that shows the top 10-20% gaining wealth and the lower end losing is flawed. It confuses statistical categories with people. The categories are permanent.
When you look at who is in the top 1 or 10 percent you see that their incomes have actually been in decline over the last decade or more. What the commies don’t stress when they use this statistic is the mobility of people between these categories – obviously there is more mobility in a capitalistic society than there is in a statist society. So, the increasing concentration that you see empirically is caused by the state.
It is in socialist and caste societies that the mobility between classes or categories is restricted because the opportunities are limited – thanks to the state protecting industry after industry. It is a stretch to say the free-market creates equality; but it is definitely creates less inequality than the state.
If this is not clear to you don’t worry, I’m no great teacher. But I implore you to read more Rothbard. Get some of his texts. I would start with “Man, Economy, and State”. His analysis of the state is first rate. You will find nothing like it anywhere else. And, I thank you for your good questions!
Addendum from Ed Bugos
A lot of Kurt’s objection, much like Jason's, seems to relate to the idea that the market system is exploitive or inflicts harm on society. I dealt with that in my initial two-part response to Jason.
For those interested in the truth, my recommendations are to read the essays at the links below. The Marxists are responsible for this view of capitalism. Unfortunately, the public school systems do not provide as good a defense against it as the Austrian School of Economics. In the essays below the authors show that it is not possible to really exploit or harm workers in a voluntary society (or under free-market capitalism – same thing).
The terminology of economic warfare is misplaced because the capitalists are really increasing the workers living standards by adding physical capital to the production of various goods allowing workers to produce more with less effort. Then you get our opponents saying that we need to protect jobs that innovation loses. That’s another bunch of baloney served in a box, of course, because it assumes that there’s a limit to the goods that people want. If there is one truth easy to see based on the empirical evidence alone it is that technology creates jobs and adds wealth. Less clear is the fact that competition drives technology, something the zeitgeisters don't seem to want to grasp either. They think they can create an algorithm that solves the world's problems because they think techology has advance to that point now but in their world technology would cease to advance.
It’s just bad (protectionist) economics and if we can never educate ourselves to this we can never get out of this repeating protectionist/statist pattern. The Marxists tried to show that the capitalists steal what properly belongs to workers: their wages. But economics shows that in the pre-capitalistic era wages could not exist. Wages are paid out of profit. Before the capitalist came along to organize labor and increase its productivity laborers were self-sufficient, and hence capitalists themselves, working for their own profit and gain. There was no such thing as a wage in that situation. And, moreover, since the laborer with no capital lived hand to mouth there were no long run production processes to be had because these required savings and financial capital. Thus the capitalist basically pays laborers a wage that he gets while he is producing a good... before it gets to market. The laborer cannot afford to wait until it gets to market.
Anyway you look at it, the fact is that the relationship between the capitalists and workers is mutually beneficial, not exploitive. Even when you look at who the unions wage violence against you realize that the bulk of their animosity is aimed at the “scabs” - their competition - and not their employers. If you can shake the idea that capitalism is harmful to society – since you now know what causes recessions and economic crises as well – you can see that you don’t need a state for this phony idea of providing balance.
Reading material:
If you read all these you might well be cured of your statist indoctrination or at least well on your way to seeing over the rainbow!
Reader Comments (9)
Most people that argue for more regulation as the solution, do not seem to know 100k pages of laws are added each year and that there are 115 independent regulatory bodies for the financial markets. Do they really think 116 is going to make the difference?
More fundamentally, the idea that if some people rule some other people, it would be alright, forgets to mention what is the difference in reality between the ruler and the ruled. What makes the ruled better and more uncorruptable than the ruled? Is that something you could pick up in an FMRI scanner?
It also forgets that currently we have rulers and ruled and more of it and it failed. There solution is always to continue in the same direction:more power in the hands of fewer people. And they always claim deregulation has been going on. They ignore the facts and can only name the repeal of Glass Steagal when pressed. Anarchist can point to the fact that the ruling elites everywhere in the world are up to their eyeballs in debt and growing in power and size. Their share of GDP has been on the rise every decade and that would explain growing crisis. Elites advance their interests since they own the right to initiate violence and have a printing press for money.
I'm not a bumper sticker kinda guy, but that would make a good one.
It goes like this:
"People are bad."
"So, we need other people to make sure people behave."
Not ONCE have I EVER heard a statist reconcile this conundrum.
If people are "bad"...how can "good" rulers be appointed from amongst them?
If people can't handle their OWN affairs...how can they appoint OTHERS who will handle EVERYONE'S better?
Statism makes absolutely zero sense...
I listen to what they offer, and then I state that I don't want to live in a system like they offer, and I want to be exploited and I want to sign a contract to sell myself into slavery. I then ask them if their system allows me to do it or will I be murdered. If they lie, few more targeting questions easily show their willingness to murder. The only way they claim out of this argument sinkhole is by allowing freedom, which automatically destroys everything they have been planning, because none of their plans are built on free choice.
In the case of K.K., I would ask if it is going to be OK if I am a child and I want to work for 30 cents an hour, 12 hours a day, and I want to operate a band saw. He will have to admit it is not one of my freedoms. What if I insist? He will admit they will have to murder me. In order to protect me.
He will probably also attempts to lie that I am harming other children by working a dangerous job for so little. Let him explain how, let him go about his winded arguments, and arrive nowhere.
In my world, I would say, you do have the freedom of living in communist agreement with anyone. I don't care. You can have a communist farm, and capitalism easily allows you that. In your world, socialism will never allow a capitalist village, because everyone will immediately move in there, meaning they do not want the socialism.
I believe this way of arguing is the cornerstone. Because, it emphasizes the whole point - my freedom to do myself wrong, but not to the others. Anything else you discuss is pointless, because you end up arguing the ways to organize the society, but without agreeing first on the inherent right of each individual to freedom.
You must first make your opponent to agree that yes, he recognizes your inherent freedom to do anything you want, as long as you do not harm others.
Once agreed, then the only society organization that will allow for such freedom will progressively be the capitalism, minarchism, anarchism.
The fear of going against ones oppressors is very deeply rooted and your arguments will uproot this fear and they will feel like they suddenly see their arm is missing and a rational explanation is put on that stump like a plaster.
But, I have thought about the bright ones, and I think you would agree that to be bright, yet to not realize the evil of your ways is to be evil. In such case, the person already knows he is evil, and is not looking for the truth. He simply is not willing to be proven wrong publicly. I do not want to convert him, do you? He is gone.
I am not sure yet, but I have these thoughts that the whole struggle should properly be framed in this context.
Currently, libertarians are not doing this, they argue the details, like who is going to administer this and that and how. If I was totalitarian, I could not wish for a better enemy. For this make it very easy, since the public in general is not and will never be ready to see the deception in every detail. All I would need to do to win against the Libertarian argument is to keep complicating my offers, keep drowning the simpletons in details and emotions.
If we frame our main quest in terms of grotesque stated question: Do we have the right to harm ourselves or not? Then they will have to answer this or risk to appear to be withdrawing from answering it. If they answer it negatively, then they will have that much more freedom to organize their society in a way that would destroy them even faster than before! This is good for us, because this makes them lose by way of example, and every ruin of their experiment creates blood enemies of their ideology (such as myself). If they answer positively, then they will have to allow freedom of association and that would immediately suck them dry of converts.
After all, this is our main question, because we already know that in the eyes of a bureaucrat, we are harming ourselves by not following his stupid plan. Since, there will always going to be simpletons ready to believe another plan, we do not need to prove the plan to be wrong, we just need to get the permission to opt-out, for us, and everyone else.
It would not be wise for us to spend another thousand years proving every one of their thousand routes to be wrong. We just need the right to depart on the one we know is right.
We might have to start the religion for this to be accepted...