Power & Market

“Government is that great fiction, through which everybody seeks to live at the expense of everyone else.”

~ Frederic Bastiat

If everyone was irrational all of the time we would be in big trouble. You’d never know when someone was suddenly going to swerve off the road for no apparent reason and drive into a building, or start babbling to you in tongues over the phone when all you wanted to do was order a pizza.

(I will define, for our purposes, rational as: having and acting upon beliefs that are in accordance with reality.)1

That being said – people are irrational enough of the time, that behavioral economists are never done telling us that they are not suitable for a market economy and need regulations to “nudge” them in the right direction. They illustrate the point with examples such as the fact that if you want to motivate someone to run you are better off giving them $105 dollars a week and fining them $15 a day every day they don’t run, than rewarding them with $15 a day every day they do run — even though these things essentially amount to the same thing. So, naturally, we need policymakers to save us from ourselves and make us do the right thing. The irony of this position is that it presupposes that people are rational enough to respond to the incentives the behavioral economists want to mete out to them. Meanwhile, entrepreneurs have been going more to devise apps that interphase with human psychology and help them adopt better habits than governments ever have! After all, it was the market that gave us Fitbit, mindfulness apps, nicotine gum, calendar apps with built-in alarms to make sure we don’t forget appointments; the list goes on and is ever increasing.

The Market Rewards Rationality

Meanwhile, for the main part, the market defends us against the consequences of the irrationality of others.  If someone was irrational at all times in all respects, they could not meet the demands of life or sustain themselves, therefore they would either be dead, under the care of others, in a mental institution, or in prison. So, while no one is rational all the time, most people are apparently at least rational enough of the time to exist within a society.

The great thing about the market is, as far as we are concerned, others only need to be rational upon the basis we deal with them. My mechanic might be a raving lunatic who drives his wife up the wall (no pun intended) with his crazy theories about the flat earth and interdimensional big foot people when he is at home, but so long as he is rational when it comes to the operations of fixing my car, it need not be any concern of mine. The pizza delivery guy could have views on race that most people find abhorrent, and I would never even know so long as he delivered it on time! The architect hired to design a bridge for a new highway might be a fanatical communist who thinks all property should be publicly owned, but as long as he is rational enough to follow the laws of physics when it comes to the blueprints, the bridge won’t be built upside down and will not collapse under the weight of the vehicles crossing over it. No one is remunerated on the market for doing irrational things, for example, bringing Squid Waffles to market. No one is interested in buying or eating Squid Waffles. Therefore, they don’t exist.

Political Institutions, Unlike Markets, Reward Irrationality

Now, need I point out, that none of this is the case when it comes to the alternative to the market, which is the political process. All of a sudden everyone’s crazy, irrational views that were none of my business become very real problems to me, because they are going to entre the voting booth and try and model a society that is fashioned based upon them. Someone might even lobby for a government subsidy to open up the first ever Squid Waffles diner! Sound crazy? Well how come the government both subsidizes and taxes tobacco at the same time? This is seemingly “irrational” but it makes sense when you understand that one lobbying block wants tobacco farmers to remain in business, and another wants people to smoke less.

While people’s performance on the market is tied to their rationality, ie., the fact that their views conform to reality and therefore they can deliver the desired results, there is no such failsafe at the ballot box. In fact, as the public choice theorists have been pointing out to us, it’s rational for voters to be ignorant about abstract topics like economics, political science, sociology, statecraft and basically anything necessary to cast a good vote, because learning the facts is time consuming and costly with very few payoffs.2

Typically, when you go into the world with irrational views that affect your day-to-day life you will be met with negative consequences. If you have irrational views about eating, you will get sick; if you have irrational views about how to treat your spouse, you will have unpleasant arguments or even a divorce; if you have irrational views about how to run a business, you will soon go bankrupt. In other words – reality provides a corrective against irrational views, or at least tries to!

The dirty secret about government is that replacing the market with its “democratic” control – be it public institutions or regulations – ends up removing this corrective mechanism and encouraging irrational behavior. No one wants to suffer the negative consequences of their own irrational behavior, whether it be an illness resulting from not having taken care of their health, or having a child they can’t support, or setting up a business to sell a line of products for which there is no demand. But democracy is inherently a system where people can make bad decisions and then vote to expropriate the consequences of those decisions to everyone else via the tax system. Those people who conform to reality by building products and providing services that meet the real needs of other people will essentially be punished for good behavior when the tax man comes around to expropriate their gains to pay for rent seekers and vagrants. This creates a tendency towards more costly, irrational behavior and less beneficial, rational behavior in society relative to what there would be on a free market. Over the long term, everyone will be disadvantaged on the whole, including those who seemingly profit from exporting the negative economic consequences of their actions to the body politic because the society they live in will be far less prosperous.

• 1. I note that some economists, following Ludwig von Mises, take the position that people are always rational. What they mean by that is that all human behavior is goal-directed behavior and that when someone makes a choice they are choosing what they think will make them achieve that goal. (Mises: “A historian can say... In invading Poland Hitler and the Nazis made a mistake... All that another man can say about it is: I would have made a different choice.” – Theory and History) In my view that is a very specialized usage of the world rational, so I am going with the more commonly used understanding of the term. 
• 2. See, for example, Caplan, B. (2007) “The Myth of the Rational Voter.”

Political correctness is the hottest topic of the season, but few pause to ponder its costs. Exposing the idiocy of political correctness manifested by the venom of cancel culture offers short-term enjoyment without bestowing intellectual insight. Readers may celebrate the trenchant critiques of identity politics penned by James Lindsay and other thinkers, and yet fail to recognize that if political correctness had not succeeded in infesting powerful institutions astute thinkers would be compelled to produce illuminating works relevant to their academic interests.

Instead of assailing the ills of political correctness, James Lindsay for instance, could be writing on mathematical theories. Of note is that in an interview with this author, Michael Rectenwald admitted that identity politics distracts scholars from pursuing more worthwhile projects. Explored from an economic angle political correctness is a classic case of the broken windows fallacy. When entertained by erudite rebukes of political correctness, readers earnestly consume their witty retorts, though remaining incapable of recognizing the unseen costs of not delivering superior literature.

There is no comparison between ridiculing cancel culture and articulating elegant theories in mathematics and philosophy. When academics compose articles excoriating the inanity of cancel culture this is time not spent exploring new frontiers in research. Ultimately, the deadweight costs of critiquing political correctness impose a negative externality on society because fewer resources are expended on communicating complex ideas to the public.

Although, readers think that the intellectual enemies of political correctness are advocating their plight – they are demonstrating false consciousness. Some intellectuals may genuinely oppose political correctness, yet many leverage the hysteria of cancel culture to rebrand themselves as dissident academics. Cancel culture is propped up by thinkers on the right because it creates a platform for some to advertise themselves as underdogs fighting the establishment.

By projecting this image of the underdog, they appear relatable to ordinary people who are inspired to endorse their platforms. Unfortunately, the average Joe is not a partner in a cerebral clash of ideas, but rather a connoisseur of cheap gimmicks. Intellectuals are aware that denouncing the evils of cancel culture, wokeness, and identity politics is becoming stale, however, attacking these villains is profitable. One can easily make a name for himself by “Owning the Left.”

Undoubtedly, rebuking Robin Diangelo is a more profitable venture for the enterprising intellectual than fashioning a new sociological theory. Hence contemporary intellectuals thrive on entertainment since ordinary people willingly reward sensational output. Therefore, cancel culture will remain a permanent fixture in Western societies because it is a lucrative business for intellectuals on the right and the left.

Right-wingers consistently rehash the horrors of cancel culture to expand their platforms and leftists employ it to reinvent themselves as diversity consultants and anti-racism professionals by arguing that the existence of cancel culture indicates that institutions require remodelling to foster equality and cultural awareness. For leftists, cancelling public figures is evidence that society is plagued by institutional racism. Even if the reasons for cancel culture are fallacious the fact that someone was cancelled is sufficient justification for the assertion that racism permeates society.

The quest for power and status also explains why leftists lobby social media entities to deplatform controversial users. By exaggerating the sins of their opponents, they manipulate others into perceiving their deeds as virtuous. And unfortunately for consumers social media companies waste time exploring hate speech policies, instead of working to enhance the user experience. However, mainstream intellectuals are not the only people benefiting from the puritanical ethos of contemporary culture. Publications, irrespective of ideology, use such stories to elicit traction from readers by articulating the details to suit narrow agendas.

But despite enjoying critiques penned by intellectuals, ordinary Joes are failing to capitalize on political correctness and could become more delusional in the process. The truth is that cancel culture is a problem in some quarters, but it is being weaponized by the left and right for financial gains. As such, they should limit consumption of this narrative since in the long term they are only wasting valuable time.

The main reason we are seemingly so accepting of lockdowns and vaccine mandates is that we have been conditioned to view a pandemic or an epidemic as a war being waged on our society. 

In wartime we naturally expect civil liberties to be suspended. Likewise, the reasoning goes, during a pandemic we need to act in a unified way under some central command to fight this viral existential threat. Individual rights and freedoms must be curtailed for the sake of the greater good. 

But that’s a false analogy. A pandemic is not a war. It’s a natural disaster. (Granted, SARS-CoV-2 may not be so “natural,” but still, the virus is not an “enemy” waging a war on us.) 

A natural disaster doesn’t intend to subjugate cities and countryside, take natural resources and wealth, rape women, or enslave men. The virus doesn’t intend any of this. It has no intentions whatsoever. Heck, it is not even alive.

The only similarity between a war and a pandemic, then, is that oftentimes many lives are lost in both cases. I say “oftentimes” because it is actually not the case that lives are always lost during war, even if the war itself is lost. The enemy may be so powerful as to take over the country without a shot being fired. In fact, war rarely aims to kill citizens for the sake of killing. Deaths are usually the consequence of one state trying to control another. Once control is achieved, the killing usually stops. 

But not so with the virus. So far as we know, it just kills individuals mindlessly. It has neither the intention nor the capability of taking over the country or subjugating the people. Therefore, it is not a threat to the common good, only to many individual goods.

And that’s a major difference. It’s for the sake of the common good that, in wartime, we accept the sacrifice of the individual good. And, particularly if it’s a “just war,” the sacrifice is actually embraced by the individual. The hero may regret leaving behind wife and children but he is propelled to move to the front by the greater attraction of safeguarding the greater good.

Granted, human nature being what it is, wars are rarely just and individuals are rarely heroes, so the sacrifice often involves forced conscription. But still, we can have a sense of how things are supposed to be in time of a “good” war when all citizens are “good” and ready to enlist.

But a pandemic is clearly not like war. It does not bring forth the same motivations of heroic self-sacrifice and reactions of solidarity that a just war brings. If a heroic action takes place during a pandemic (and clearly such action does take place from the ranks of frontline workers) it is a self-sacrifice aimed at saving the lives of particular individuals and is therefore indistinguishable from peacetime heroic action, as when a person jumps into a torrent to save a drowning baby. It is motivated by the love of neighbor, not love of country (i.e., common good love), precisely because it is not the country nor its common good that is under threat.

This is particularly true of this covid pandemic which attacks individuals with such discrimination, generally sparing the young and healthy while slamming the old or those with metabolic or immune vulnerabilities. But discriminate destruction is, in fact, typical of natural disasters: It is the Gulf Coast, Florida, and the Eastern Seaboard that are the target of the hurricane while the earthquake shakes California; Vesuvius was fatal for Pompeii, but hardly for the rest of Campania or for Naples; the flood affects those living on the plain, not the mountain dwellers; etc. It is not the common good that is undermined by the disaster, but only many individual material properties and many individual lives. War, on the other hand, aims at controlling the whole land.

That’s why lockdowns and vaccine mandates are so wrong. They are a kind of collective action that would be justified in wartime but is applied in actual peacetime. 

And it’s easy to see the difference in effect: when the state mobilizes factories to build weapons to defend from the invasion, the good that results benefits everyone, since the threat itself is collective. But when the state shuts down restaurants and churches allegedly to save hospitals, while the Zoomocracy thrives, it has pitted one part of the nation against another, thus manufacturing winners and losers from within its own people.

And likewise with these horrendous vaccine mandates that overtly do violence to the unvaccinated who are plainly innocent of any wrongdoing. By coercing vaccination on one group to “protect” another group from the virus, state mandates treat some people as human shields for the benefit of others. Yet all are within the same commonwealth!

Our preconditioned way of thinking about pandemics in martial terms may unfortunately turn into reality. The virus may eventually recede but many common goods may not survive the response to the pandemic.

After it was announced that the administration would decree a nationwide vaccine mandate that could affect 100 million people, the Babylon Bee immediately put up a headline “Joe Biden Announces Civil War.” 

It wasn’t fake news. Unfortunately it was not satire either.

Judy Shelton and Stephanie Kelton; one was denied a congressional appointment to the Federal Reserve because she asked questions, the other found reward by telling the establishment exactly what they wanted to hear. Last week Judy Shelton published an article in the Wall Street Journal that was nothing short of honest, aptly titled: Congress Needs to Rein In a Too-Powerful Federal Reserve.

Opening with a mention to banks, money managers, and other investors who hang on to every speech from the Fed, looking for clues as to what their actions mean for their portfolios. She quickly answers the question: What about everyone else?

But for people who live off paychecks rather than portfolios, the game of deciphering Fed officials’ intentions is a sideshow that leaves them further behind. This is no way to run monetary policy. Our nation’s central bank has become too prominent, too political and too powerful.

It doesn’t require a PhD to understand. When the Fed unleashes trillions of dollars into the market and holds interest rates low, the benefit goes to those who are able to get this new money first. This goes into the bond, housing, and stock market pushing prices up. The Fed has never clearly explained how they think this helps people working outside of the financial industry.

Shelton confirms the influence on assets and interest rates:

The Fed’s ability to purchase massive quantities of U.S. Treasury securities is the dominant factor influencing interest rates across the board and thus the valuation of financial assets… What would that benchmark yield reveal if Fed purchases weren’t distorting the market?

Her technical acumen is always impressive:

The Fed’s prominence not only undermines supply-and-demand interactions for accurately pricing the cost of investment capital; it also compromises the relationship between fiscal and monetary policy.

For a long time, the relationship between fiscal and monetary policy has been blurred. With Congress unveiling multi-trillion loans every few months, spending amounts well over tax revenues, there is no question that the Fed funds the nations’ fiscal policy through asset purchases.

She notes:

Meanwhile, the Fed continues to accumulate those assets—its current $8.33 trillion balance sheet total equals 37% of U.S. gross domestic product.

What resonated most was when she discussed lower income workers and minorities. All too often the Fed mentions them as a talking point, noting their existence, but little else about the financial problems they face. Whereas Shelton gives the answer:

…Mr. Powell laments that “joblessness continues to fall disproportionately on lower-wage workers in the service sector and on African-Americans and Hispanics” …the Fed’s solution of buying Treasury debt and agency mortgage-backed securities seems ill-suited to the problem. It hardly improves the financial prospects of those not invested in rising equity markets. It doesn’t make today’s median-priced $374,900 home more affordable, even with rock-bottom mortgage rates.

Unfortunately, Shelton had her shot… But Republicans like Mitt Romney and Susan Collins voted against her appointment. She never had enough votes and was not appointed to the Fed’s Board of Governors.

Reading the quotes above, could anyone confidently stand up and say that they disagree with her ideas?

Of course, there is Stephanie Kelton. Ironic as just a few days after the Wall Street Journal article, Kelton was named as “One of the Most Creative People in Business” by Fast Company. This is a magazine which caters to “progressive business leaders.” Her university published the article, where they discussed the Covid spending bills. Kelton noted the relief efforts of:

…$5 trillion with no problem and no tax increase.

In the article, Stephanie Kelton likened herself to an eye doctor who corrects people’s vision:

If I’m an optometrist, my job is to fix your vision… I just fix your eyes. That’s how I think of my role as an educator.

Makes sense. But where does one go when the doctor suffers from severe myopia of both economic history and reality?