Busting Myths about the State and the Libertarian Alternative

I. The Statist’s View

People

The statist perceives the state as a group of individuals who selflessly toil for the “common good,” and who have a mandate, through the electoral process, to pass legislation as these individuals see fit to force changes in behavior of those outside the state. The statist lauds “public service,” and believes that those at the state are deserving of special privileges and respect given their selflessness and the awesome power they wield. Indeed, many of the most powerful figures at the state, particularly the national leader, generate cult-like followings, where statists identify passionately with them, hang on their every word, look to them for national direction and salvation, and believe that it is not only their task to right every wrong but also that they have the ability and wisdom to do so. Even if there are a few “rotten apples” now and then at the state, this is not seen as an indictment of the notion of the state, just of those individuals. When the state makes mistakes, the statist is very forgiving, almost resigned to the fact that this is to be expected. These mistakes don’t cause the statist to question the idea of the state, but simply confirms to the statist that society needs to elect better representatives at the next election.

Contrast this with the statist’s views of those in the private sector. These people are seen as individuals who selfishly seek profits by taking unfair advantage of consumers, and who must be brought back into line and closely regulated by the state. Working in the private sector doesn’t garner anywhere near the respect that working for the state does, and the statist is constantly critical of any excesses enjoyed by those in the private sector, such as the accumulation of significant wealth. Any “rotten apples” in the private sector only confirm to the statist the wretchedness of the private sector and the need for regulation by the state. In fact, no matter how closely regulated by the state a business may be, if there is a problem that surfaces, the statist assumes that it is solely to do with the nature of the private sector itself, and that the only answer is more state regulation. When businesses make mistakes, statists are unforgiving; as consumers, they may immediately take their patronage elsewhere, often bankrupting such businesses.

The contrast between how the statist views those at the state and those in the private sector is somewhat odd. I can only fathom three reasons for this.

Perhaps statists believe in extra-terrestrials, in the sense that the beings at the state belong to a different species from the mere humans who constitute the private sector. These extra-terrestrial beings do not have any of the foibles of private-sector humans, and thus are perfectly suited to work at the state and naturally gravitate in that direction (I’ll call this the “ET Theory”).

However, that explanation wouldn’t suffice regarding those beings who move from the private sector to the state. Thus perhaps statists believe in a special type of machine known as the “Moral-ator.” When a person moves from the private sector to the state, perhaps he passes through the Moral-ator, which strips him of his private-sector foibles and converts him into a selfless public servant (I’ll call this the “Moral-ator Theory”).1

Finally, perhaps there are some humans who are completely selfless individuals. Perhaps the voters, who apparently are incompetent to manage their own lives without detailed oversight from the beings at the state, nevertheless in a single act of brilliance each election are able to find these special individuals from the broader population and elect them, and only them, into office (I’ll call this the “Voter Episodic Brilliance Theory” or “VEB Theory” for short).2

I will hereinafter call all three of these theories together, the “Tooth Fairy Theories.”

Economics

Not surprisingly, the statist subscribes to the Keynesian school of economics. This is not only because this is all that is taught to most students who take economics courses, but also because it gives a very prominent role to the state.

Keynesianism assumes that the economy is a machine, the various economic actors (firms and consumers) are simply cogs in that machine, and the individuals at the state sit poised at the levers to make sure the machine is humming along at the “right” speed, making adjustments as disturbances in the economy occur.3 It wouldn’t be too far from the truth to summarize Keynesianism’s key assumptions as follows: consumers are automatons, entrepreneurs are manic depressives, and those at the state are wise, stable, selfless souls who can ably steer the ship through stormy waters.

Fundamentally, Keynesianism is based on the belief that consumer spending creates wealth. Thus the Keynesian solution to depressed economic times is to encourage more consumption spending, and the statist believes that those at the state have the omniscience and natural right to determine when and how money should be spent in the economy.

This is demonstrably wrong on so many counts that an entire book could be written on this topic alone. I will make two quick observations here.

First, this concept reverses reality. People don’t become wealthy because they consume, rather, they consume once they become wealthy.

Second, the creation of societal wealth comes from two factors, both of which must be present: (a) the division of labor into specialties, where people do what they are comparatively best at; and (b) savings being channeled into investments in productivity-enhancing new technologies, processes, and capital equipment.

We need to consume to live, but we need to specialize, save, and invest to increase prosperity.

Yet Keynesianism discourages savings in favor of consumption. This is because Keynesians don’t recognize that the capital funds and freed-up real resources to make investments can only come from individuals deferring consumption by saving some of their income. Savings become investment through the capital markets directing the saved funds to businesses, and simultaneously release real scarce resources (natural resources, labor, and capital equipment) from having to serve consumption ends so as to be available to serve investment ends. While Keynesians will criticize the wealthy because they don’t consume as large a proportion of their income as the less well-off, it is this deferral of consumption by the wealthy that makes capital funds available for investments to make the least productive workers more productive, and thus enhances their ability to earn higher real wages.

Keynesians also believe that if more money is pumped into the economy—money newly created by or with the backing of the central bank—then this will create economic activity and thus prosperity. However, to survive and flourish, humans cannot consume money; they can only consume real goods. To create those real goods, what matters is the amount of real resources available and how they are used. The amount or velocity of money in circulation cannot increase the amount of real resources; rather, money is just a means to enable exchange of such resources.4 Indeed, if increasing the amount of money in circulation were the means to attain prosperity, why would there be any poor countries in the world? Their central banks could just print up endless amounts of money!

Further, Keynesians believe that economics as a science comprises two distinct sub-disciplines: micro-economics and macro-economics. Whereas the former deals with the laws of economics, which describe how individuals act in a world with scarce resources, the latter attempts to describe, model, and predict how “the economy” behaves. In other words, Keynesians regard “the economy” as a creature distinct from the individuals who compose it. The reality, of course, is that “the economy” is nothing more than the aggregation of all individuals transacting with one another, which we can appreciate through the use of a thought experiment. Imagine taking each person out of “the economy,” one at a time; when you have extracted that last person, would there still be a thing called “the economy” remaining?

One key consequence of considering macro-economics a separate sub-discipline is that statists believe that the laws of economics which govern individual behavior are not necessarily applicable to economy-level policies.

So, for instance, while statists accept that it is beneficial for individual consumers to pay lower prices for goods (i.e., that price deflation is a positive trend), when the state wants to finance its programs through the injection of new money into the economy, thereby causing price inflation—which is essentially a hidden tax—we are told that economy-wide price deflation is something to fear and that, as a country, we must subscribe to “inflation targets.”

Or, while statists accept that it is prudent for each individual to save a portion of his income, i.e., defer some consumption, statists believe that the aggregation of all individual savings can be a major problem for “the economy,” because it leads to so-called “under-consumption” which, as noted above, statists believe causes economic downturns, the remedy for which is state action to discourage savings and encourage consumption.

As one more example, while statists accept that an individual can maximize his prosperity by not being self-sufficient—meaning that it is highly beneficial for an individual to freely trade with others, producing what he is best at and exchanging this for goods that others are best at producing—this benefit is questionable when the individuals on the other side of such exchanges are residents of a separate state. Statists believe that it could make economic sense for the state to restrict citizens’ ability to trade with foreigners, because statists take an “our economy vs. their economy” approach (never mind that national borders are artificially drawn up by the individuals at the state in the first place).5

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The statist’s views on personnel and economics articulated above are consistent themes that permeate the way the statist thinks about the wonders of the state and the depredations of the free market. In the remainder of this book, I will show why these views are specious and hence why we should never settle for the state.

• 1All references to the “state” in this book include all arms of the state: the legislature, executive, judiciary, bureaucracy, agencies, etc. While they each have different functions, substantively they are all funded in the same manner, they all have the same inherent characteristics, and they are all responsible for appointing one another and/or working together. The differences between these different arms of the state are trivial compared with the differences between how the state acts and how private citizens act, which is one of the key points of this book.
• 2In this book, when I talk about “moral acts” and “morality,” I am referring only to an evaluation of inter-personal behavior, and not to the evaluation of any actions only involving oneself, which might be better described as “virtues” and “vices.”
• 3I still believe that there is a role for utilitarian analysis, but not the one that is usually cited. If economists believe that a particular outcome would lead to greater benefits (however defined) than the outcome that would result from individuals acting based on their own preferences, then these economists should publicize their analysis and use it to try to persuade individuals to change their decision-making processes. The real problem with utilitarian analysis is that it is used by statists to justify forcing individuals to make different decisions, instead of merely trying to persuade them.
• 4The last term refers to Murray Rothbard, who was the libertarian historian, economist, and philosopher who really ignited modern libertarianism in the 20th century.
• 5Just checking that you were paying attention.