Heroes of Capitalism

I enjoy many good blogs, many of which are represented on the "My Reading" list that appears on the right side of this blog page. However, I want to draw attention to a great new one I discovered, "Heroes of Capitalism." Each day this blog features a businessman who improved our lives. Actually, the last part of that sentence is redundant because a successful businessman in a capitalist economy always improves our lives by creating goods that we value and purchase from him in trade.

The businessmen cited so far range from the well-known (Henry Ford and Steve Jobs) to the obscure (James Wright and Peter Hodgson, developers of "Silly Putty"), but all of them are benefactors to man. We can all thank them and have already done so, simply by purchasing and using their products, but this website goes further by publicly acknowledging their achievements.

Men like this need to be recognized. They are the "human face" of capitalism, the social system that frees them, and all of us, to produce. If I stop to think about it, nearly every second of my life I am using one of their products and my life has been made healthier, happier, longer, and full of great enjoyable things as a result.

Thank you, businessmen, and thank you to the producers of "Heroes of Capitalism" for bringing their good work to the attention of the world.

Bush Is No Champion of the Free Market

Bush Is No Champion of the Free Market

November 14, 2008. Reprinted with permission from the Ayn Rand Institute.

Washington, D.C.—In a recent speech on the financial crisis, President Bush said, “If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way to go.”

According to Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “It’s true that free markets are the source of economic prosperity and individual liberty—but President Bush, while he may pay lip service to free markets, has been a consistent opponent of them.

“Did Bush abolish the countless regulations and controls strangling businessmen? No. But he did sign into law Sarbanes-Oxley—the largest expansion of business regulation in decades. Did Bush consistently push for free trade? No. But he did give us a new steel tariff. Did Bush attempt to roll back America’s massive welfare state? No. But he did pass the prescription drug benefit, the largest new entitlement program since Lyndon Johnson’s Great Society. Did Bush curtail government spending? Far from it. Bush presided over an unprecedented increase in the federal budget: from $1 trillion at the time he took office to more than $3 trillion today. This is to say nothing of Bush’s response to the financial crisis. He has completely evaded his administration’s responsibility for the Fed and housing policies that created the housing bubble. Instead, he has led the chorus blaming the market and calling for unprecedented handouts, bailouts, and nationalizations as the cure.

“If Bush is a friend of the free market, who needs enemies? By praising the free market while systematically undermining it, Bush has done more to discredit capitalism than any open critic could. Like a con artist who undercuts the reputation of Mercedes by selling lemon look-alikes, Bush has now led people to associate his failed policies with capitalism. That association needs to be erased. We must make it clear: Bush is no friend of free markets.”

The Obama-Nation: Nightmares from Election Night

I did not vote for Obama, but I am glad he got elected given the alternative. Yet, I fear we are becoming an Obama-Nation that is most assuredly an abomination. The Obama-Nation part is the insane cult of personality surrounding Obama, such as the Soviet-ish look of his posters, complete with Communist Red coloring.

I went to sleep early on election night but was awakened throughout the night and into the morning by the continuous sound of screaming. Throngs of Obama supporters screamed and swarmed through the streets of New York into the early hours of the morning. I cannot believe that people can scream continuously for so long. The screams gave me nightmares and in those nightmares I saw Obama's face surrounded by a red halo.

What is happening to America that people lose themselves and worship their Dear Leader? American individualism was notably absent during that election night. People became part of a great collective, and they pined for the man, their leader, who will deliver them from their fearful lives.

I will fight for American individualism, the land where each of us is free by right from our neighbors, and the government does no more than protect that right. America is far away from that now. The fight will be long and hard.

The Man Paying the Bill Gets to Determine Who's for Dinner

In this case, it is Rep. Barney Frank. Of Wall Street bonuses, he says, "There should be a moratorium on bonuses." Just who is Barney Frank to tell private American businesses how much to pay their employees?

Well, he is the spokesman for their new minority owner, the federal government. As Chairman of the House Financial Services Committee, he gets to tell these companies what to do. So does any other politically ambitious petty bureaucrat and tyrant who wants to loudly score political points at these companies' -- and the American economy's -- expense.

What unleashed these ignorant clown-bullies on America's leading corporations is their partial nationalization orchestrated by President Bush, Treasury Secretary Paulson, and endorsed by Republicans and Democrats in Congress.

The real price of the $250 billion partial nationalization of America's leading financial firms will be much larger than just this dollar amount. We are only seeing the first signs of it now. Barney Frank and his minions are just fashioning the bibs to their bellies. Their feasting on America's leading banks and investment banks -- starting with Goldman Sachs, Morgan Stanley, JP Morgan, and Citibank -- has just begun.

Barney Frank claims to pay the bill for this dinner, but it is all of us who will pick up the tab. How much will it cost, not just in money, but in terms of our freedom?

Greenspan the Pragmatist

The article below is reprinted with permission from the Ayn Rand Institute. My comments follow.

Greenspan Has No Free Market Philosophy

October 24, 2008.

Washington, D.C. --Opponents of the free market are giddy at Alan Greenspan's declaration that the financial crisis has exposed a "flaw" in his "free market ideology." Greenspan says he is "in a state of shocked disbelief" because he "looked to the self-interest of lending institutions to protect shareholder's equity"--and it didn't.

But according to Dr. Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “any belief Greenspan ever had in truly free markets was abandoned long ago. While Greenspan long ago wrote in favor of a truly free market in banking, including the gold standard that such markets always adopt, he then proceeded to work for two decades as leader and chief advocate of the Federal Reserve, which continually inflates the money supply and manipulates interest rates. Advocates of free banking understand that when the government inflates the currency, it artificially increases prices and causes booms in certain sectors of the economy, followed by inevitable busts. But not only did Greenspan lead the inflation behind the dot-com bubble and the real estate boom, he blamed the market for their treacherous collapses. Greenspan should have recognized that what he wrote in 1966 of the boom preceding the 1929 crash applied here: ‘The excess credit which the Fed pumped into the economy spilled over into the stock market--triggering a fantastic speculative boom.’ Instead, he superficially blamed ‘infectious greed.’

“Should it be any shock that Greenspan now blames the free market for today's meltdown--rather than the Fed's policies, which fueled an inflationary housing boom, which rewarded reckless lenders and borrowers from Wall Street to Main Street? Greenspan didn't mention the word ‘inflation’ once in his testimony.

“Whatever Greenspan's economic philosophy is, it is not anything resembling a free market.”

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Galileo Blogs comments:

I agree with this editorial. Greenspan's testimony on Thursday and his track record in government, particularly as Federal Reserve chief, reveal that he has abandoned a proper economic understanding of capitalism, if he ever had one to begin with. It is difficult to imagine that the man who wrote an article in the 1960s advocating gold-backed money issued by private banks entitled, "Gold and Economic Freedom," in Capitalism: The Unknown Ideal is the same man who flooded our economy with cheap money (such as 1% interest rates), and then failed to acknowledge that such cheap money is the root cause of both the Internet and the housing bubbles.

Instead, he humbly sat before a Congressional witch-hunt committee and joined the chorus in declaring that "self-interest" is the cause of the economic meltdown. What explains Greenspan's meltdown? That is what I will explore here.

Greenspan's congressional testimony and the statements in his recent autobiography show that that it is unlikely that the man who penned the article, "Gold and Economic Freedom," ever properly grasped the principles of capitalism and the moral principles that underlie it, or else he abandoned those principles long ago.

In his autobiography, Greenspan made two interesting revelations. First was the ostensive reason he gave for abandoning the edifice of Objectivism, the philosophy developed by Ayn Rand, which he also advocated in the 1960s. His reason was that he could not understand how capitalism could be financed through voluntary means, i.e., without coercive taxation. The second revelation is Greenspan's declaration that everyone is motivated by a desire for the admiration of others. I will show how both of these views of Greenspan shed light on the collapse of his legacy which reached its apotheosis in the excoriation he faced on Thursday at the House hearings on the financial crisis. To start, I will sketch some elements of Objectivism.

Objectivism is the only philosophy that provides a proper moral foundation for capitalism. That foundation consists of the morality of rational self-interest, which is based on a scientific examination of the requirements of man's survival. Underlying the approach is a commitment to reason, the method of using logic and the evidence provided by our senses to learn what is true. Reason requires the ability to think in principles. (I recommend Ayn Rand's books, The Virtue of Selfishness and Capitalism: The Unknown Ideal, for further explanation. In particular, I recommend the articles in those books entitled, "The Objectivist Ethics," "Man's Rights," "What is Capitalism?", "The Nature of Government," and for the discussion that follows below, "Government Financing in a Free Society.")

The method of thinking in principles is what Mr. Greenspan apparently failed to properly learn. A principle, once properly understood, applies to all instances of a phenomenon. A key principle in Objectivism is the right to property. Properly understood, this means that any person who trades for or creates wealth, gets to keep it. No one, including government, has the right to violate the rights of a property owner by using force against him to take or harm his property or person.

Because government cannot use force against its citizens, this means that it is immoral for government to forcefully expropriate property through taxation, regulation, or any other means. No society truly respects the rights of its citizens if its government employs coercive taxation.

This argument begs the question that apparently tormented Greenspan of how government can possibly finance its expenses through a voluntary means. Ayn Rand answered this question in her short essay entitled, "Government Financing in a Free Society." Ayn Rand makes the case that a government can be practically financed through voluntary means, but only if government had already been shrunk down to its legitimate functions. This means that government would only be spending money on the legitimate functions required to protect individual rights, namely the police, the courts, and the armed forces.

In the context of today's government, this means abandoning all forms of "income transfers" and welfare spending, including Social Security, food stamps, agricultural and business subsidies, "pork barrel spending," and so on. All of these programs entail violating the rights of some individuals as their property is stolen from them and then transferred to other individuals. This widespread government theft that must stop before a system of voluntary financing could even be contemplated.

The reason is not that hard to understand, and partially involves simple arithmetic. Government spending today consumes between 40% and 50% of gross domestic product. Such a heavy burden can only be financed through the expropriatory process of taxation. No voluntary system could work, nor would anyone be willing to make it work, if nearly half of his income went to fund every chiseler, con-artist, widow, orphan, sick person, and corrupt businessman around him. But if all such spending were eliminated, government expenditures would be an order of magnitude less expensive. They would probably consume just 1%-3% of gross domestic product. However, this state of affairs could only happen after a successful revolution in thinking has taken place over the span of decades, just as the original American Revolution did not happen until many decades after the first ideas underlying it were advocated.

This is the state of affairs that must exist for voluntary financing to work. Ayn Rand made this eminently clear in her article. Greenspan was part of a circle of students of Ayn Rand's in the 1960s. He spoke to her often and could have questioned her if any part of her argument was unclear.

Yet in his autobiography he blithely dismisses the edifice of Objectivism because of this single issue. His dismissal is off-handed. Unspoken but implied in his dismissal are the words, "But of course, how silly is it that anyone can take such an idea seriously." Well, anyone who has studied Ayn Rand's writings, seen or heard her speeches, or were so fortunate as to have known her in person, knows just how seriously Ayn Rand took all of her ideas.

Instead, what Greenspan reveals by his comment is that he did not take her ideas seriously, or perhaps more accurately, he did not take her ideas properly. By properly, I mean that he did not fully understand Objectivism as an integrated system of principles. The methodological essence of Objectivism (or any true body of thought), is that it is a statement of principles. Proper principles are validated by reference to facts and to each other.

Bearing that in mind, the issue of government financing is one of the last principles, i.e., the one furthest removed in time from all other aspects of her philosophy. It is almost an act of science fiction imagining at this point in time to demand that every last detail of a system of voluntary financing of government be worked out now before every other aspect of laissez-faire capitalism has been validated and put into practice.

The point is not that such a system of financing is impractical. It is practical. The philosophic case for it has been made, and the essence of its practicality is clear. For details read Ayn Rand's article, but I will just mention two points. First, with government properly confined to its legitimate roles, it would require very little money to be financed, compared with either the gargantuan level of today's government spending, or compared to the enormous productive potential of a future laissez-faire capitalist economy that would finance it. A future laissez-faire economy would be many times wealthier and more productive than today's hampered mixed-economy, and could easily provide the small amounts required to operate government's legitimate functions.

Second, Ayn Rand proposes at least one effective mechanism that would easily fund such a relatively small burden. That method is a simple fee paid for government enforcement of contracts. It would be calculated as a small percentage of the value of contracts. Enforcement of contracts is a core function provided by government in its role as protector of property rights. Such a voluntary fee, paid by those who want government to enforce their contracts, could fund all of government, including the courts and jails, and even a military.

Case made on this issue of the far future; today it is time to focus on more immediate issues such as the case for capitalism and against government intervention, which includes government manipulation of money (as discussed in Greenspan's article, "Gold and Economic Freedom") and all other interventions.

But Greenspan in his autobiography stated that he was unsatisfied with Ayn Rand's argument for voluntary financing of government, and this is the reason why he abandoned Objectivism.

Taking him at his word, this is a failure to properly understand and think in principles. If Greenspan were convinced of all the prior and more fundamental arguments for reason, and then for rational self-interest, and then how rational self-interest forms the moral base for capitalism, and then how capitalism is the only moral and practical social-economic system for man -- if he were convinced of all that, then how could he abandon it because he had reservations about Ayn Rand's thoughts regarding the voluntary financing of government, an issue that is last in this hierarchy of principles?

If Greenspan properly thought in principles, and properly understood the principles of capitalism, he would never have committed such an incredible thinking error.

Greenspan's failure to think in principles is revealed by the other comment he made in his autobiography. He said that everyone is essentially motivated by a desire for admiration by other people. Again, if he understood The Fountainhead and Atlas Shrugged, he knew that this idea is exactly what Ayn Rand denounces. Ayn Rand makes it clear that a person should be motivated solely by his evaluation of what is in his rational self-interest. Therefore, a person must have integrity for his principles. Therefore, the only admiration a person may value is that from people he himself admires, i.e., people who share his values.

But in his autobiography Greenspan states that one seeks the admiration of others, implying that the admiration of "the public" is a good thing. From which members of the public does he want his admiration, from the congressmen who grilled him at Thursday's hearing, such as Representative Henry Waxman? These are the same men who unbelievably denounced "deregulation" as the cause of the current economic crisis (which was actually caused by regulation), and who have demanded (and enacted) caps on the salaries of executives as part of the solution because "greed" and "selfishness," according to them, are the true causes of this crisis. Are these the people from whom Greenspan seeks admiration? Or is it from magazine editors, such as the Newsweek editors who placed him on the cover of their magazine as a member of "The Committee to Save the World"? Or, is it from Bob Woodward, the author of the glowing biography that calls him Maestro? Are these people, all of whom have always thought capitalism and self-interest are dirty words, the ones he wants admiration from?

Ayn Rand has colorful characters such as Peter Keating and Ellsworth Toohey in The Fountainhead, and James Taggart in Atlas Shrugged, and many others, who demonstrate in negation that a person must be of self-made soul. Just where is the soul of Greenspan?

In the final analysis, I believe that Greenspan never did properly think in principles. As a result, he allowed flawed ideas to gradually creep into his thinking so that the young man who circulated with Ayn Rand and wrote his brilliant economic essays in the book, Capitalism: The Unknown Ideal, never really grasped those ideas, and eventually allowed their opposite to germinate in his mind. The particular name of Greenspan's failure to think in principles is pragmatism.

The result of Greenspan's pragmatism was the sad spectacle of this seemingly broken 82 year old man knuckling under to the ignorant Congressional bullies. These are the same bullies who used their podium to hound many great, and not-so-great, captains of industry. They are the same bullies who hounded yesterday the man who could have been their defender. He is the man who either sold his soul, or never properly built it, and therefore gave it away in the pursuit of admiration from those who read Newsweek and vote for Representative Waxman. Yesterday, he sat crucified by these same people.

If I display contempt for Greenspan, it is only because I am jealous of someone who had such an unparalleled opportunity to learn from the great thinker Ayn Rand, and who squandered it and ultimately did worse. He sat at the foot of the congressional inquisitors and agreed with them that "self-interest" is the cause of the current crisis. In that moment, one can almost envision him holding a tattered newspaper in the rain, with a dirty boot print stamped over the face of someone he once claimed to have admired. However, instead of that being Gail Wynand holding the newspaper image of Howard Roark in the movie version of The Fountainhead, it is someone else kneeling in the rain holding a tattered newspaper. A different face appears on the front page.

One must never sell his soul, but to avoid doing that, one must build it on a foundation of properly understood principles.

The World's Tallest Buildings

Enjoy this compendium of 20 of the world's tallest buildings under construction or planned for completion over the next few years.

My favorites are these:

(1) The Burj Dubai. At half a mile in height, it bears an uncanny resemblance to Frank Lloyd Wright's "The Illinois" proposal for a mile-high skyscraper. I have a print of Frank Lloyd Wright's superb drawing for this never-built skyscraper hanging in my study.

(2) Chicago's The Spire. I heard that work on this 2,000 foot tall residential skyscraper has been temporarily suspended due to the weakened economy. I can accept that setback, but not the regulatory one that nearly knocked this building out. I look forward to the resumption of economic growth eventually propelling the Spire skyward over Chicago.

(3) This is my favorite building, Marina 101. It evokes the rugged, honest skyscrapers of Louis Sullivan in my favorite city of skyscrapers, Chicago. Bracketed by the tall buildings around it and the warmth of the ocean and marina in front of it, it stands as a tall sentinel protecting its surroundings.

The two ugliest buildings are appropriately located in Moscow and Mecca, Saudi Arabia.

In the classic shape of an ancient mausoleum, or a pedestal for human sacrifices, this new Moscow pyramid promises to rise in the capital of the new Soviet state which, in its old and new incarnation, has caused the deaths of so many people.

In the spiritual heart of the land of nihilistic belief will rise this concoction, which could only have been inspired by that great fictional architecture firm of Francon & Keating in the novel The Fountainhead.

Although some of the grandest buildings are rising in the Middle East, the semi-capitalist leaders of the world economy including America, Hong Kong, South Korea (and arguably China) are also building some of the world's tallest new buildings. I cheer them higher!

(Partial) Justice 13 Years Later... O.J. Simpson Is Guilty

A jury in Nevada convicted O.J. Simpson yesterday of armed robbery. In a poetic reminder of O.J.’s horrendous crime long ago, the verdict came in 13 years to the day that O.J. Simpson was acquitted of murdering his ex-wife, Nicole Brown Simpson, and her friend, Ron Goldman. Although overwhelming evidence confirmed O.J. Simpson’s guilt in those murders, including blood in his car and O.J.’s confessional statements, a largely black jury acquitted him.

The acquittal was unjust and shocking; the reaction to the acquittal was equally shocking. In New York City people feared racial riots before the verdict. Fearful, huddled groups of commuters stood in long bus lines in the middle of the afternoon to escape the city. Because most of the buses were scheduled for end-of-work pick-ups, there were not enough of them. People had to wait in long lines standing on the streets for hours fearing for their physical safety at every moment.

After the verdict, groups of blacks were dancing in the streets, while whites were perplexed and dismayed. Suddenly, people who had seen each other just moments before as individuals to be judged by their own, individual characters, saw each other instead as members of a racial collective. On that day, what mattered was not who you were, but the color of your skin.

That day also provided shocking evidence of how much damage the vital principle of individualism has suffered in this country. Groups of people saw justice in racial terms. For many blacks (and many whites), the essential fact in the O.J. Simpson trial was that blacks had been enslaved and persecuted in the past. Therefore, acquitting O.J. was a justifiable act of revenge for all those years of persecution.

Lost in this illogic is that O.J. Simpson is a single man, and Nicole Brown Simpson and Ron Goldman were single individuals. It was O.J. who murdered them and Simpson and Goldman who were his victims. By appealing to the false standard of “group justice,” justice was denied for each of these individuals. “Group justice” meant that O.J. Simpson would not be punished for his crime.

Collectivist thinking is not just the province of racism. Marxist collectivists also deny our individuality and see our identity solely in terms of belonging to the class of “the rich” or “the poor.” Thus, it is okay to “soak” the rich to “give” money to the poor. Isn’t that the essence of the government’s subsidy of “poor” homeowners over the years that led to our current financial crisis?

As we think not just about this financial crisis but about all matters of justice, remember that the essential unit is the individual. On that basis, I applaud yesterday’s verdict in the O.J. case and commend the prosecutor, judge, and jury. Although O.J. has not been punished for the crime he committed nearly 15 years ago, he is going to jail and that is where he belongs. Yesterday, the primacy of individual justice was affirmed. In that sense, this verdict reverses the grave injustice committed 13 years ago.

Galileo's Quick Take: Capping Pay Is Un-American

As for the denunciations of greed by John McCain, Wall Street trader Jim Cramer, and so many others, it is just so... un-American! America was founded on the principle of "life, liberty, and the pursuit of happiness." That means that each of us is free to live good, happy, and prosperous lives, to the extent of our abilities. It is no skin off anyone else's back if you or I make a lot of money. In fact, it helps other people because it means I am producing goods and services that other people want to buy.

Well, Congress wants to cap that, literally, by capping the salaries of Wall Street executives. Where does it end?

The One Minute Case for Stock Shorting

I originally wrote this for the website "The One Minute Case" here. Given that short sellers are once again a scapegoat for a declining stock market, I have decided to re-publish it:

What is stock shorting?

Stock shorting is a method of profiting from a decline in a stock’s price. It is the opposite of investing long, where the investor profits from a rise in the stock’s price. “Going long” or hoping for a gain in the stock’s price is the more familiar method of investing. However, “going short” and profiting from a decline in a stock’s price is an equally valid method of investing.

How does stock shorting work?

Shorting a stock is a little more complicated than going long where a stock is simply bought and then sold later for either a gain or loss. Shorting stock first involves borrowing it from an existing owner. The short seller pays a fee to the owner to borrow his shares. Upon borrowing it, the stock is immediately sold and the proceeds are kept in the short seller’s brokerage account. When the short seller wants to close out his position (or the shares’ owner wants them back), he buys equivalent stock in the marketplace and returns the shares he borrowed back to the owner.

If the stock has fallen in value, he makes a profit that is the difference between the price at which he borrowed the stock and the price at which he bought it back. Conversely, if the stock has risen in value, he suffers a loss since he has to buy back the stock at a higher price than he borrowed it for.

Short sellers fulfill a crucial and productive role in financial markets:

Short sellers bring to light valuable information about poorly run companies.

Short sellers have a strong incentive to uncover poorly run companies. If a short seller successfully discovers ahead of others that a company is destroying value through incompetence, bad luck or even criminal activity, he profits by shorting the stock and publicizing the information. Short sellers are similar to good investigative journalists. They make more money if they can “scoop” others with information that will drive the stock down.

It is this aspect of short selling that many company managers, regulators and others find discomforting. Yet these same managers and regulators have no problem when an investor uncovers a successful company. Why should they be opposed to someone who does the opposite, and uncovers the overvalued, incompetent, lazy or even fraudulently managed companies?

Short sellers help capital go to the best companies.

By taking financial capital away from poorly run companies, short sellers free up money that can go to the best-run companies. Short sellers are the other half of the value-creating process of financial markets whereby capital is continually re-directed to those who can put it to the most valuable use. The existence of short sellers means that capital will more quickly flee the poorly run companies and thereby become available that much faster for the better-run companies. The profit that a short seller makes is his reward for aggressively uncovering the poorly run companies.

Short selling is challenging.

Short selling is not for everyone for the simple reason that stocks generally tend to go up. During the 20th century, stocks gained 9% a year on average, although there was significant yearly variation. Stocks do not decline in value across the board for long periods of time. Because of this, short sellers must time their moves well, and attempt to short at the top of a stock’s move and then close out the position when it has hit bottom. If the short seller mis-times his moves, he will lose money. Such precision in timing is less important for long investors because stocks generally go up.

It is a misconception that short sellers can unfairly cause stock prices to go down.

This is the most common misconception about short sellers. However, short selling is only likely to be successful if companies truly have problems. If a seller shorts a strong or improving company, he will lose money. It is a misconception to think that short sellers (or long investors) can cause stock prices to deviate for meaningful time periods from their true values.

The only power a short or long investor has comes from being right. When he is right, he is rewarded for helping to bring true information to the marketplace. When he is wrong, his wealth is dissipated and his ability to invest further is diminished. If he is wrong often enough, all of his wealth will be dissipated and his ability to influence stocks will be nullified.

Conclusion: Short selling is moral and should be permitted.

Short selling creates value by making the capital markets work more efficiently. Short sellers help bring negative information about companies to the market. By doing so, short sellers provide liquidity to the market and help capital to flow away from the worst companies and toward the best companies. Without short sellers, markets would be less liquid and more volatile. Long investors would have more difficulty buying and selling their positions, and the lack of liquidity would make it more difficult for companies to raise funds in public offerings.

To restrict short selling not only harms the efficiency of the markets, but it violates the right of stock owners to freely dispose of their shares as they see fit. Because their shares belong to them, it is their property, they have the right to do what they want with them, including loan out their shares to short sellers. Conversely, short sellers have the right to borrow those shares.

A proper understanding of short selling demonstrates the valuable and productive role it plays in the financial markets.

***

9/25/08 clarification:
Added "buying and" to last sentence, third paragraph from bottom. It now reads: "Long investors would have more difficulty buying and selling their positions, and the lack of liquidity would make it more difficult for companies to raise funds in public offerings." For the reason, see my answer to J. Henry's question in the comments below.

From De Facto to De Jure: The Nationalization of Fannie Mae and Freddie Mac

The weekend nationalization of Fannie Mae and Freddie Mac is nothing new. From their creation in the 1930s, these entities were government controlled. Whether government controlled them outright or had partially privatized them, government always called the shots. Government set terms on what types of mortgages they could offer, to whom, and in what amount. Most importantly, government provided a widely understood “implicit” guarantee of the debt issued by these entities. Unlike other financial institutions, Fannie Mae and Freddie Mac could issue debt (which was then lent out to mortgage borrowers) with the backing of the U.S. Treasury and Federal Reserve. That gave Fannie and Freddie an edge over private banks in making mortgage loans, by design. Reportedly, 50% of all outstanding mortgages are guaranteed by Fannie and Freddie, and as much as 75% of all new mortgages in recent years were issued by these agencies.

The government’s purpose in forming these entities was to make mortgages more widely available. Absent Fannie and Freddie, the other way to get mortgages has always been from private, profit-seeking banks, banks that had to safeguard their credit by striving to lend their money only to creditworthy borrowers. The only way Fannie and Freddie could out-compete these banks was by doing the one thing its government backing enabled it to do: lend to less creditworthy borrowers. This is a case of the bad credit driving out the good credit. In the space of 70 years, millions of uncreditworthy borrowers got mortgages as these government agencies pushed out the more prudent private banks and gained the largest market share in the mortgage market.

Now the loans are being called. The credit and stock markets are calling these loans en masse. The sheer weight of thousands of deadbeat borrowers has created a crisis that even the implicit guarantee of Fannie and Freddie’s debt by the U.S. government cannot ameliorate. So, this weekend the implicit guarantee has been made explicit.

That should make it fully clear to everyone, if it wasn’t during the past 70 years of the “implicit” guarantee. The lender to all these deadbeat borrowers, borrowers who didn’t qualify to get loans from private banks, is you, me, and everyone else in this country. We are all on the hook for the bad loans to our neighbors. That is socialism, and now it has been made explicit.

It Doesn't Matter Who Is President

It is nearly impossible to know what a politician will do in office. I blame pragmatism for that difficulty. Nearly every politician succumbs to pragmatism, and pragmatism means that his ideas are divorced from his actions. Ideas are floating, unreal constructs to him, and actions are taken in response to range-of-the-moment considerations. As a result, any politician who proclaims certain ideals will not take those ideals seriously when he is in office. Instead, when he arrives in office, he responds to the day-to-day pressures that buffet him.

The question then becomes, what kind of pressures buffet him? When Jimmy Carter was president in the 1970s, an intellectual rebellion against regulation had arisen, led by figures such as Milton Friedman. Given the country’s economic malaise that Carter’s and his predecessors’ policies had produced and the need to “do something” new, Carter acquiesced to the de-regulationary proposals of Alfred Kahn and others. As a result, it was under Jimmy Carter’s administration, a left-wing Democrat, that airlines, trucking, and railroads were deregulated in the United States.

Consider also the example of Bill Clinton. Faced with the “swing to the Right” embodied in the 1994 elections, Bill Clinton, a conventional left-winger, relented and inaugurated partial welfare reform that reduced the future growth of welfare spending by billions of dollars.

Then consider the examples of Bush Sr. & Jr. Each Bush claimed to be for free markets. We “read the lips” of Bush Sr. on “no new taxes.” We also heard the claims of Bush Jr. to be for free markets. Yet Bush Sr. raised taxes when he was confronted by the pressure of Democrats and fellow Republicans complaining about a large budget deficit. For his part, despite his avowed “free market” stance, Bush Jr. could not resist the cries for protection from steel producers, most of whom, undoubtedly, donated large amounts of money to his election campaign. Therefore, he raised steel tariffs.

The examples I have cited show that party affiliation is a poor predictor of what a candidate will do in office. Also, his stated views have little bearing on what he will do. Rather, because of pragmatism, each candidate responded in a range-of-the-moment fashion to the general pressures around him. Carter and Clinton, although ostensibly anti-business Democrats, partially reduced regulation and the growth rate of welfare. Bush Sr. & Bush Jr., two ostensibly free market Republicans, presided over tax increases and protectionist policies, among other statist measures.

All four presidents were pragmatically responding to the “pressures of the day,” not the dictates of party or conscience.

I suggest that we try to understand what will be the “pressures of the day” tomorrow that will bear on McBama, when he is elected. I posit that those pressures will determine the policies, not the man. Moreover, I will venture that there are two sets of strong pressures that will influence him: (1) environmentalism, and (2) fear of intransigence vis-à-vis Islam. Thus, the next President, whoever he may be, will continue to enact alternative energy and anti-carbon policies, and will continue to take half-measures against the Islamists. I do not think it matters which man is President.

***

Note: This post first appeared as a response to Burgess Laughlin's comment on my prior post.

"Country First, Country First, Country First"

These words championed on Republican banners during John McCain’s acceptance speech last night mark a dangerous inversion of the moral principles America was founded upon. Consider the principles as stated in the Declaration of Independence:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.

Man has certain inalienable rights, and to secure these rights governments are instituted among men. The individual is paramount in the Founders’ vision. The individual’s right to pursue his own happiness and the rights to life, liberty and property, which are his means of achieving it, is the purpose of government. Governments exist solely as the means to secure these rights.

McCain and the new Republican principles reverse that order. For them, it is country first. Service to the state is the ideal. John McCain himself represents that ideal, the patriotic soldier who re-discovered this principle while being tortured for six years in a Hanoi dungeon. In that dungeon, he says that he learned to stop saying “me first,” and learned to say “country first.”

McCain’s new discovery is actually very old. From his earliest days, man has been sacrificing himself to the state. Whether it was embodied in the tribe and king, or the shaman and witch doctor, or the collective, man’s fate was to suffer for others, until the first free country ever clearly enunciated a different moral principle.

The American Revolution was fought to overturn the principle of individual subservience to the state, to overturn the tyranny of kings and their ilk. In America, men could proudly claim their own happiness first. Their patriotism was based on the knowledge that the government existed to protect them from the tyranny of the state and the forceful violations of their rights by their fellow men.

McCain’s old vision is not patriotic, properly understood. Carried to its logical extreme, it will reduce our status to the level of serfs. Man will return to his traditional relationship with the state, that of subservience. Men will be put back in the dungeon.

While McCain himself does not represent that sort of tyrant yet in degree, he does represent it in principle. One of McCain’s heroes is Teddy Roosevelt. Teddy Roosevelt gave us “authoritarianism lite.” Like McCain, he bashed big business. Roosevelt busted up the big trusts, including Big Oil, which McCain also despises. Roosevelt was also an environmentalist, championing the establishment of the massive Parks system.

Expect more of the same from McCain and the new-old Republican Party, for now. For a vision of our longer-term future, study the history of every society that proclaimed the state first. The party of the state is not the ally of each of us who wants to pursue his own happiness. With country first, the individual is subservient.

Adults Have the Right to Drink Alcohol

A group of 100 college presidents called the Amethyst Initiative has publicly declared its support for lowering the drinking age to 18. I agree with its statement and objective.

The legal principle of "age of majority" establishes when a child legally assumes the responsibilities and obligations of adulthood. Although children vary in their rates of maturation -- some children at 12 are more mature than others at 17 -- the law must establish a general norm at which children are recognized as adults. That age is 18 in the United States. At 18, a child legally becomes an adult and can enter into legally binding contracts governing property, money, and their bodies. Despite this legal recognition of responsibility to enter into contracts, be subject to criminal laws, and to have complete freedom to use their own bodies as they choose, our government infantilizes young adults by banning the drinking of alcohol.

In comparison to the awesome, legally-recognized freedom that comes with adulthood, the drinking of alcohol is a minor matter. To ban it is to insult the very concept of adulthood.

The signers of the Amethyst Initiative observe that the young 18-20 year-old adults routinely violate the 21-years drinking age. Young adults sense the contradiction that they have a legally-sanctioned freedom of action in every matter except one trivial area, the drinking of alcohol. On college campuses, they seek to violate this law, as they should.

The 21-years drinking age should be abolished. It is a contradiction to recognize the greater part of the freedom of adulthood and to deny adults the minor part of that freedom. The ban on under-21 drinking has done that; it infantilizes adulthood. Legally permit the drinking of alcohol and recognize that adults are responsible for their own lives.

***
Minor edit 8/20/08: Changed to "recognize" from "bestow" second sentence, last paragraph.

Property Rights and the Crisis of the Electric Grid

I am pleased to announce that the above-entitled article, written by (non-pseudonymous) me, has been published by The Objective Standard.

The article addresses what went wrong with the electric grid, and traces its problems to a critical failure to secure a vital asset in the earliest days of the industry. That failure, apparent even before Thomas Edison threw the switch to light up America's first commercial electric grid in Lower Manhattan in 1882, haunts the industry to this day. What is that vital asset? Why and how must it be secured? If it is, what kind of future becomes possible?

My answer is here.

Money Unmoored by Gold

A stockbroker friend of mine sent me this chart showing the ratio between the Dow Jones Industrial Average (and its equivalent predecessor index) and the price of gold. Notice the greater amplitude of variation in this ratio after Congress established the Federal Reserve Bank in 1913 and severed the connection between gold and money. After 1913, money could be created in arbitrary fashion by the Federal Reserve Bank. Further sundering the connection between gold and money in the 1930s, FDR's New Deal Congress outlawed the private ownership of gold, and clauses in private contracts that called for payment in gold. Finally, Richard Nixon's Congress severed the last vestige of the gold standard in the late 1960s and early 1970s by suspending the U.S. government's promise to pay in gold to settle international claims.

These moves to unmoor the dollar from gold coincided with the stock market swinging to higher highs and lower lows relative to gold. I interpret the chart as showing the effect of monetary inflation in the 1920s, 1960s, and 1990s, and then the impact of recession/Depression in the 1930s and price inflation combined with recession in the 1970s.

When the stock market was relatively high and gold low, in the 1920s, 1960s, and 1990s, the economy genuinely boomed, but that boom was artificially enhanced by easy money. That is why the ratio soared to higher highs than existed in the pre-1913 gold standard era. The result of that monetary inflation was an economic bust, as the dislocations caused by that monetary inflation harmed the economy. Inevitably, the excess money showed up in price inflation, especially evident during the 1970s "stagflation" when both recession and inflation cursed the nation.

Does this chart tell us anything about the future? The author of the chart would have us believe that we are headed for a 1930s or 1970s style economic catastrophe, as shown by the "Target Zone" marked on the chart. Certainly, the precursors for such a catastrophe have been established, and we are seeing the first signs of economic malaise of the 1970s variety. We had monetary inflation in the 1990s and 2000s, which is now manifesting itself in price inflation and incipient recession.

What is your interpretation of the historical meaning of the graph? What do the highs and lows of the various eras mean? Do you agree with my interpretation? What is your thought of the future? Are we headed to a low Dow/high gold ratio that we last saw in the 1930s and 1970s, or will such an economic disaster be averted? In other words, will our economy muddle along for awhile, or must we endure a true economic disaster before the economy improves?

I will offer my opinion later in the comments section.

A Short, Speculative Post

Congress is blaming speculators for the barreling rise in the price of oil, as of this writing $126 per barrel.

In late 1998, oil dipped briefly below $10 per barrel. Where were the speculators then? Interestingly, at that time the U.S. dollar had been appreciating for about 4 years. It had appreciated roughly 25% by then from its bottom in 1995. The dollar is not the only factor*, but it is a significant one that explains the oil price. A good deal of today's gain in the price of oil, denominated in dollars, reflects the depreciation of the dollar.

Speculators are agents that transmit fact-based expectations about future supply and consumption trends into present prices. As such, they facilitate economizing between present and future supply/consumption. If the expectation is that future consumption will be high and supplies will be constrained -- or that nominal demand expressed in dollars will be high due to dollar depreciation -- then speculators will bid up the price of oil today. That is happening now.

The opposite happened in the late 1990s, at least with regard to the purchasing power of the dollar. Expectations were that its purchasing power would strengthen relative to the world's currencies. Therefore, speculators bid down the price of oil.

In regard to the general point of whether speculators can manipulate the market, they cannot alter the long-term or fundamental course of markets. Market prices incorporate such fundamental information. If a speculator positioned himself (incorrectly) against the long-term trend, he would be bankrupted very quickly. For example, if a speculator in the mid-1990s incorrectly bet that oil would go up, he would have lost his shirt.

Blaming the speculators is a lot like blaming the gas gauge for showing that your tank is empty, except that the "speculator gas gauge" is even smarter. It accounts not just for the amount of gas in your tank right now, but also for the nearness of a gas station down the road. The "speculator gas gauge" will adjust to reflect the ease with which you can fill up your tank in the future, thus encouraging you to either consume more gas or less right now, depending on those facts.

The speculator's role is very valuable. If the government restricts it, it will make the markets work less efficiently. Ultimately, this will mean less oil availability because it will become more costly to finance oil production and refining. Capital will demand a higher premium to invest in the oil industry if financial liquidity and quality market information about future demand/supply are reduced because speculation has been diminished by law.

**********************************************

NOTE

*The key fundamental factors keeping oil prices high in real terms (not just nominal terms, which is affected by the value of the U.S. dollar) are restrictions on Western drilling and the nationalization and cartelization of oil over the past 60 years. These two factors have diminished supply by taking it out of the hands of entrepreneurial oil companies and concentrating it in the hands of a smaller number of unproductive, state-run operations.

On the demand side, large new demand from China would act to keep prices high but in the absence of the supply constraints, prices would not have to rise as much as we are seeing, or could even fall. Consider that oil prices in the United States fell for decades during most of the late 19th and 20th centuries even while U.S. economic growth and oil consumption during much of that time grew at a rate comparable to China's growth rate today.

Thoughts on Safety

A friend of mine recently renovated his apartment in New York. It was a gut job; the contractor peeled off the walls and removed the floors. After peeling off the surface layer, what did my friend find underneath? He found improperly braced sub-floors; no fire-stopping had been installed between his apartment and his neighbors; support columns were not covered with flame-resistant material; and insulation wasn’t put in around the windows, to name just a few deficiencies.

In the building he lives in, substandard pipes broke in the winter and flooded his apartment. Exterior wall coatings were improperly applied and leaked. Parapets were reinforced with interior-grade (not exterior-grade) wallboard and rotted.

There is an understandable explanation for how this happened. The developer of his building, a conversion of an existing 100 year old commercial building to residential use, went bankrupt during the recession of the early 1990s. He went bankrupt midway through the work on my friend’s building. So, in the midst of a recession and an awful real estate market, an unwilling bank had to take over and finish the job. They did a lousy job.

In a capitalist marketplace, there are bad actors. This developer clearly wasn’t a top-notch developer. He lacked the financial depth and customer base to survive the recession and went bankrupt. Good riddance. Capitalism continually cleanses out bad actors. He is not building anymore or, if he is, he is operating on the fringes.

But the question remains, where were the city inspectors during all this? Many of the conditions my friend discovered during his renovation and undoubtedly many, many more that are still hidden from view, are subject to the thousands of pages of city, state, and federal rules that govern construction. Many of the conditions my friend discovered are explicitly governed by laws designed to promote fire safety. The installation of fire-retardant material that can slow a fire’s spread between apartments, and fire-proofing support columns so that they don’t buckle under the heat of fire (as the columns of the World Trade Center buckled), are clearly within an inspector’s purview. Inspectors, by law, must regularly visit construction sites. Why didn’t they catch these potentially life-endangering failures?

My friend got a clue as to the answer. City inspectors also regularly visit renovation jobsites in New York. One day, as I happened to be in his apartment, a city electrical inspector showed up. A fat, slovenly, surly, disrespectful, and barely literate thing showed up at the door. As the new floors had just been laid down and polished, the project supervisor politely asked him if he could take off his shoes. “No, I don’t do that,” the inspector said. So, he asked, could he wear “booties” that workers wear so they don’t harm finished floors? Same answer.

So, while the slob thudded his way through the apartment to the nearly finished kitchen, he said, “You need a new outlet there.” That was that. I kept my mouth shut, because I knew that if I said anything, it would only anger the inspector and that would not help my friend who was trying to get his renovation done, on time and under budget. I almost spoke up because when I looked around the kitchen, I saw, literally, dozens of outlets. Underneath the cabinets, my friend had installed strips of outlets, spaced one foot apart. There were dozens of outlets in the kitchen, way more than could be needed to meet the minimal requirements of some construction code.

But I kept my mouth shut. So did my friend, and so did the project supervisor. All of us undoubtedly had the same thought on our minds. Keep our mouths shut, put up with this jerk, and wait for him to leave so that the real work could get done.

Now, when I think about the construction cranes that have recently fallen over in New York, I think of that city inspector. A representative of an industry association on television said that the problem is not that there are an insufficient number of inspections. The problem is that the inspectors need more training. Really? Does more training address the root of the problem?

When the city inspector left my friend’s apartment, I asked the project supervisor if he would ever hire a man like that city inspector to work as an electrician. He said that, as a rule, people who become inspectors are the bottom of the barrel. They are the unemployables that private industry would never hire. They become city inspectors because that is the only place they can get work. In fact, one employee his company had to fire became an inspector. Now he must deal with that fired, disgruntled ex-employee, who has the enforcement apparatus of the state to back up his incomprehensible (and possibly vindictive) demands. (Undoubtedly, there are some good inspectors out there, but the failure to demand good work inherent in government employment ensures that they are few and far between.)

When I think about my friend’s apartment renovation, I ask myself what is it that ensures quality and competent work. Is it the presence of city inspectors, or is it something else?

Then I consider how my friend chose his contractor. He interviewed many contractors, he got recommendations and checked references and, most importantly, he visited their work. The work of the contractor he chose spoke clearly. The way the floor boards were tightly joined together, the walls were perfectly smooth and properly finished off, the way all the details matched in a beautiful whole, and the politeness and quiet competence of the men and women he spoke with gave him the answer he needed. His careful effort in selecting the best contractor for the job paid off. The result is a beautifully renovated apartment.

My friend’s rational self-interest is what led to that good outcome. Because he wanted to live in a nice apartment, he selected a good contractor. Then it was the contractor’s good judgment that created a quality product. The pre-renovation apartment he moved into, built in the early 1990s, had been inspected, like all buildings in the city. Those inspections did not prevent a bankrupt developer and a desperate bank from doing a pitiable job finishing the building.

No, it was the lack of self-interest on the part of the developer who went bankrupt that led to his actions. If he had cared for himself more, he would have run his company better, and would have survived the recession. In contrast, consider the firm that my friend chose for his renovation work. It is over 20 years old. It has survived two recessions and it has never laid off an employee. Work comes to them in good times and bad because they are good at what they do.

Capitalism is the system that rewards contractors like the one my friend chose. It is the system that unleashes self-interest to flourish. By the same token, capitalism is ruthless at weeding out the incompetent and the immoral, like the sloppy developer who went bankrupt after doing such a poor job with the building conversion in the early 1990s.

An entire army of city inspectors will never ensure safety. Yes, it will “gum up the works” by wasting the time and energies of good people like the contractors who did such a marvelous job on my friend’s apartment, but it will never ensure safety.

So what will make sure that we live in safe buildings and those disasters like the cranes toppling over in New York City are rare occurrences? More city inspectors are not the answer. There is only one answer, and no one (at least nearly no one) is talking about it.

Criminalizing Work

In an addendum to the recent federal raids on illegal immigrants around the country, 270 of them have been sentenced to five months in jail for illegally using identity documents to obtain work. The Orwellian nature of their “crime” stems from the fact that they fraudulently used those documents in the first place because of the federal law enacted several years ago requiring employers to verify that their workers are legal residents. In order to comply with the first unjust law, the workers forged or fraudulently used documents. For that they were prosecuted.

The judge stated his position very simply, “I don’t doubt for a moment that you are good, hard-working people who have done what you did to help your families.” “Unfortunately for you, you committed a violation of federal law.” So, according to the judge these people’s actions hurt no one and, in fact, helped their own families. In that sense, the actions of these immigrants were no different than anyone else who earns his living. But, all of that is irrelevant. All that matters is that they broke the law, however unjust.

The judge must enforce the law, but the promulgation of unjust laws and the brutish mentality that pursues enforcement of laws as ends in themselves is the mark of creeping fascism. A favorite tactic of a dictatorship is to promulgate so many restrictive laws that simply to live, one must break the law. That is what these (largely) Guatemalan immigrants have done. In seeking to live through work, they broke the law. For that, they are to be severely punished.

“’My family is worried in Guatemala,’ one defendant, Erick Tajtaj, entreated the federal district judge who sentenced him, Mark W. Bennett. ‘I ask that you deport us as soon as possible, that you do us that kindness so we can be together again with our families.’”

Godspeed, my Guatemalan compadres, and may you one day return to more welcoming arms.

Preservation Equals Destruction

A rather unusual, ugly building built in 1964 is to be preserved at all costs. So says the unanimous ten member board of New York City’s Landmarks Preservation Commission. In a decision yesterday, each member of the Board stood up to defend the preservation of this building and eight others that comprise the polyglot assortment of buildings of St. Vincent’s Medical Center in Greenwich Village. St. Vincent’s wants to raze their collection of old buildings and build a modern hospital and a condominium tower in their stead. By selling land to the condominium developer, they plan to offset part of the $1.6 billion cost of their hospital redevelopment.

But none of this is to be. The ten member board and their allied activists, such as Andrew Berman, who heads the Greenwich Village Society for Historic Preservation, have nearly absolute authority over real estate development in vast swaths of New York City that are designated “landmark districts.” And they use their authority, in nearly all instances to “just say no” to any development at all. Occasionally, a new building is allowed to go up, but only if it is replacing a building that has collapsed due to old age and neglect, and only if the new building is built to strictly blend in with the old buildings surrounding it. Like envious neighbors, the adjacent buildings’ height and appearance get to graft their tired, old faces onto the shape and form of any new building that goes up. If the Landmarks Commission is successful, the new building will look old; its façade will represent the state-of-the-art in building construction, as it existed 150 years ago.

None of this will suit the managers of St. Vincent’s. Their new building must be larger than the surrounding buildings. Its façade cannot hide the state-of-the-art life-saving machinery that it will house. To save human lives, St. Vincent’s new building must be large, new and modern, each attribute of which is despised by the ten members of the Commission. Like berobed priests of a dead religion, these modern-day ascetics have the power to impose their worship of the old on the rest of us. They can destroy, both the property rights of St. Vincent’s and the lives of all those who would have gained health by using the facilities of a new, modern hospital.

Preserve dead things by destroying new things and life. That should be the motto of the New York City Landmarks Preservation Commission.

Exploit-the-Earth Day

Guest column. Reprinted by permission.

On April 22, Celebrate Exploit-the-Earth Day

By Craig Biddle

Because Earth Day is intended to further the cause of environmentalism—and because environmentalism is an anti-human ideology—on April 22, those who care about human life should not celebrate Earth Day; they should celebrate Exploit-the-Earth Day.

As I wrote for The Objective Standard’s “Exploit the Earth or Die” campaign:

Either man takes the Earth’s raw materials—such as trees, petroleum, aluminum, and atoms—and transforms them into the requirements of his life, or he dies. To live, man must produce the goods on which his life depends; he must produce homes, automobiles, computers, electricity, and the like; he must seize nature and use it to his advantage. There is no escaping this fact. Even the allegedly “noble” savage must pick or perish. Indeed, even if a person produces nothing, insofar as he remains alive he indirectly exploits the Earth by parasitically surviving off the exploitative efforts of others.

Exploiting the Earth—using the raw materials of nature for one’s life-serving purposes—is a basic requirement of human life. According to environmentalism, however, man should not use nature for his needs; he should keep his hands off “the goods”; he should leave nature alone, come what may.

Environmentalism is not concerned with human health and wellbeing—neither ours nor that of generations to come. If it were, it would advocate the one social system that ensures that the Earth and its elements are used in the most productive, life-serving manner possible: capitalism.

Capitalism is the only social system that recognizes and protects each individual’s right to act in accordance with his basic means of living: the judgment of his mind. Environmentalism, of course, does not and cannot advocate capitalism, because if people are free to act on their judgment, they will strive to produce and prosper; they will transform the raw materials of nature onto the requirements of human life; they will exploit the Earth and live.

Environmentalism rejects the basic moral premise of capitalism—the idea that people should be free to act on their judgment—because it rejects a more fundamental idea on which capitalism rests: the idea that the requirements of human life constitute the standard of moral value. While the standard of value underlying capitalism is human life (meaning, that which is necessary for human beings to live and prosper), the standard of value underlying environmentalism is nature untouched by man.

The basic principle of environmentalism is that nature (i.e., “the environment”) has intrinsic value—value in and of itself, value apart from and irrespective of the requirements of human life—and that this value must be protected from its only adversary: man. Rivers must be left free to flow unimpeded by human dams, which divert natural flows, alter natural landscapes, and disrupt wildlife habitats. Glaciers must be left free to grow or shrink according to natural causes, but any human activity that might affect their size must be prohibited. Naturally generated carbon dioxide (such as that emitted by oceans and volcanoes) and naturally generated methane (such as that emitted by swamps and termites) may contribute to the greenhouse effect, but such gasses must not be produced by man. The globe may warm or cool naturally (e.g., via increases or decreases in sunspot activity), but man must not do anything to affect its temperature. And so on.

In short, according to environmentalism, if nature affects nature, the effect is good; if man affects nature, the effect is evil.

Stating the essence of environmentalism in such stark terms raises some illuminating questions: If the good is nature untouched by man, how is man to live? What is he to eat? What is he to wear? Where is he to reside? How can man do anything his life requires without altering, harming, or destroying some aspect of nature? In order to nourish himself, man must consume meats, vegetables, fruits, and the like. In order to make clothing, he must skin animals, pick cotton, manufacture polyester, and the like. In order to build a house—or even a hut—he must cut down trees, dig up clay, make fires, bake bricks, and so forth. Each and every action man takes to support or sustain his life entails the exploitation of nature. Thus, on the premise of environmentalism, man has no right to exist.

It comes down to this: Each of us has a choice to make. Will I recognize that man’s life is the standard of moral value—that the good is that which sustains and furthers human life—and thus that people have a moral right to use the Earth and its elements for their life-serving needs? Or will I accept the notion that nature has “intrinsic” value—value in and of itself, value apart from and irrespective of human needs—and thus that people have no right to exist?

There is no middle ground here. Either human life is the standard of moral value, or it is not. Either nature has intrinsic value, or it does not.

On April 22, let the world know where you stand. Don’t celebrate Earth Day; celebrate Exploit-the-Earth Day—and let your friends, family, and associates know why.

Dae Jang Geum, My Hero

[Note: This review contains spoilers. For a shorter review, without spoilers, please look here.]

Dae Jang Geum ("Jang Geum the Great") is both a historical person and the title lead character in the Korean television drama series of the same name. Jang Geum was a historical figure about whom little is known in Korea during the 16th century reign of King Jungjong. What is known is that she was the first female royal court physician. She was the first -- and only -- woman to serve as the king's personal physician. She has been acknowledged in Korean history by a designation few get, and virtually no women: "The Great." With that title, she stands alongside such great Korean leaders as King Sejong the Great, who instigated the Korean Renaissance of the 15th century, and sponsored the creation of Hangul, the simplified alphabet that enabled literacy to become widespread in Korea.

Dae Jang Geum the television drama comprises 54 hour-long episodes. The author of the series, Yeong-hyeon Kim, draws on history and then fills in the gaps to tell the story of Jang Geum, who begins her life as the daughter of a noblewoman cast-out from the palace and the royal palace guard who gave up everything to be with her. They live in hiding, the father as a modest blacksmith, and the mother who keeps house and teaches young Jang Geum her secrets of cooking and medicine.

One of the early scenes in the series is of young 5-year old Jang Geum begging her parents to teach her to read. Her parents are afraid to do it, for fear that Jang Geum will give away their noble backgrounds, and put their lives in danger. But Jang Geum persists and her parents begin to teach her.

Jang Geum makes a mistake one day when some constables mistreat her father and she yells out proudly to them that her father is a royal guard and they have no right to touch him.

Her mistake sends her father to prison, and she and her mother must flee.

From this troubled beginning, young Jang Geum makes her way to the palace, where her mother once worked, and enters the court as a trainee in the royal kitchen. In the class society of ancient Korea, as an orphan Jang Geum is considered the lowliest. But despite the torments of some of her schoolmates and jealous teacher, Jang Geum persists, and she learns to cook in the top kitchen of the land.

The scenes of Jang Geum and the other "kitchen ladies" cooking are something of beauty in terms of the colors, smells (you can almost smell the food!), and the incredible dedication with which the food is made. Jang Geum is taught by her wise teacher, Lady Han, that the kitchen is not a place for palace intrigue. Nothing must compromise the integrity of the food and the meals that they prepare for the royal family.

Even as a young apprentice, Jang Geum shows a mind that works differently than her peers. She investigates everything in a methodical manner. She tests various ingredients, and even different types of water for their various food properties. She discovers the source of spoilage when vegetables mysteriously become bad. She learns how to "draw a taste," that is make tasty, healthy meals by mixing ingredients in ways that have never been tried.

Jang Geum must fight those who stand for tradition every step of the away. Yet she persists.

Eventually, through many plot twists, Jang Geum finds herself cast out of the palace. But even when she is banished to a a small island off of Korea's southern tip, she continues her pursuits with dedication.

Eventually, Jang Geum finds her way back to the palace and becomes a physician lady. The position has lower status than court kitchen lady, but it is her way back in. It is as physician lady that we see Jang Geum's mind fully at work. As a physician, she is a scientist. She conducts field trials and medical research to find out the truth. At every step of the way, she is pitted against the traditionalists, who insist on doing things a certain way because they were always done that way, or because that is how it is written down in some ancient Chinese medical texts. She is pitted against the nobles, who retained their titles by privilege. Yet she persists.

Although many oppose her, Jang Geum has loyal friends along the way, including the man she falls in love with. At the end, she defies all historical precedents and risks everything to save the life of the king.

There is so much to love in this series: Jang Geum the little girl who shows kitchen ladies decades older than her how to properly sterilize water. Jang Geum the apprentice kitchen lady who stands in for her kidnapped mentor and prepares dishes by herself for the king and queen in a food competition. Jang Geum the fighter who will not rest until she avenges those who killed her mother. Jang Geum who is loved so deeply by the court scholar who would kill an army if he had to to save her life. Jang Geum the "lowly" court physician who will risk not just her own life, but even the lives of everyone she loves, to save the king. Jang Geum the scientist (in a day when there were none) who relentlessly asks why, and looks to natural evidence for answers.

I love Jang Geum the hero, the scientist, the little girl and grown woman, in this series.

The supporting characters are also larger than life. Her buffoonish step-father, who secretly spies for her, at the risk of his life. Her fearless doctor-mentor on Jeju Island who was awed even at Jang Geum's courage. Min Jeong-Ho, the court scholar official, who cannot love her by law, and yet stands by her through every crisis. Lady Han, her mother-figure and mentor, whom Jang Geum supported and gave strength.

Even the evil characters are larger than life. Lady Choi, who will relentlessly fight to preserve her family's legacy of serving the royal kitchen. The merchant Choi, who seeks to preserve his business empire based on his monopoly of food trade with China. Choi Keum Yang, who is Jang Geum's equal in the kitchen, but tragically loves the same man Jang Geum does.

I highly recommend this series. You can watch it with English subtitles. Occasionally, the translations don't do full justice to the Korean, which is a beautiful, poetic language, although you can almost always figure out the meaning in context. If you have a Korean-speaking friend, corral him or her to watch it with you. But that is not necessary to thoroughly enjoy this Eastern treasure.

Global-Warming Authoritarianism

Reprinted with permission from the Ayn Rand Institute. My comments follow.

February 20, 2008.

Irvine, CA--Many people are calling for drastic political action to cope with climate change. But the authors of a new book, The Climate Change Challenge and the Failure of Democracy, go much further, claiming that global warming can be effectively dealt with only by "an authoritarian form of government."

In an article promoting the book, co-author David Shearman praises China's recent ban on plastic shopping bags, expressing special admiration for its authoritarian quality. "The importance of the decision," he writes, "lies in the fact that China can do it by edict and close the factories."

"Views like this reveal an ugly and ominous aspect of the political frenzy surrounding global warming," said Dr. Keith Lockitch, a resident fellow of the Ayn Rand Institute. "Though easy to dismiss as overwrought and atypical, such views expose a very real authoritarianism underlying the calls for action on climate change.

"While few global-warming activists are willing--as Shearman is--to come out in favor of openly dictatorial policies, the kinds of laws and regulations that activists do call for will hand a comparably frightening degree of control over our lives to politicians and environmentalist bureaucrats.

"In one form or another, every minute of our every day involves the emission of carbon dioxide, the primary greenhouse gas claimed to be the cause of climate change. Every moment we spend running our computers, lighting our homes, powering countless labor-saving appliances, driving to work or school or anywhere else--we are using industrial-scale energy to make our lives better.

"But global-warming activists want our use of the fossil fuels that provide the major source of that energy to be strictly controlled by the government and severely curtailed, no matter the harm that causes.

"Despite the constant assertion that global-warming science is 'settled,'" Lockitch said, "it is far from certain that we face any sort of catastrophic global emergency. But in the name of 'saving the world' from unproven threats, such activists want to impose a draconian regimen of taxes, laws, regulations and controls that would affect the minutest details of our existence. Their solution to their projected 'environmental disaster' is to impose an actual economic disaster by restricting the energy that powers our civilization and subjecting its use to severe political control.

"Let us not allow panic over the exaggerated claims of climate alarmists to deliver us into the hands of would-be carbon dictators."

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Galileo Blogs comments:

This is an excellent editorial that captures the essence of what is wrong with those who want to curtail human emissions of carbon dioxide in order to stop the alleged threat of global warming. In essence, it would create an "actual economic disaster" to stop the potential and not yet proven disaster of global warming.

Moreover, it can only do so by imposing dictatorial controls over our daily lives. This is so because "every minute of our day involves the emission of carbon dioxide." How can a government restrict our activities in such an intimate manner without assuming dictatorial powers?

This fight against global warming will enslave us and impoverish us to achieve its purported goal.

The proper image of our future, should the global warming dictators be successful, is Bangladesh, a poor and authoritarian country where thousands of people die every few years from floods. Contrast Bangladesh with Holland. Thousands of Dutch have lived below sea level for hundreds of years, yet they are safe from floods, protected today by a multi-billion dollar system of dikes, high-tech sensors and dams. However, the real protection of the Dutch against floods is their wealth. The Dutch can afford to protect themselves from floods.

Their relative freedom is what makes the Dutch wealthy. In contrast to the freedom and wealth of the Dutch, and the protection they offer against floods and other natural threats, the coming global warming dictatorship will only ensure that the entire world becomes like Bangladesh.

Where would you rather live?

Making Socialized Medicine Real

This Canadian patient of that country's system of socialized medicine offers a warning to Americans. It will happen here, unless politicians learn that Americans don't want it.



(HT: Truth, Justice and the American Way)

This Is Not Capitalism

Yesterday, Google began an effort to lobby government to forcefully prevent Microsoft from acquiring Yahoo. Over the weekend, Microsoft had announced an offer to acquire Yahoo. The offer price was a generous one, amounting to a 61% premium for holders of Yahoo stock. This is a serious, attractive offer for Yahoo shares by a serious, deep-pocketed acquiror. Yahoo investors would receive either cash or stock in the new combined company.

Google wants to step in between this pending marriage-by-choice between Microsoft and Yahoo's shareholders. How do they intend to do it? Are they going to offer a higher price? Are they going to attempt to persuade Yahoo's shareholders that the deal is not in their interest?

No.

Google's first stop wasn't to its bankers to make a better offer to Yahoo shareholders or to its public relations experts to make the case to shareholders why the acquisition was not in their interest.

Google's first stop was to Washington. Google immediately instructed its lobbyists to concoct arguments against the merger that would persuade congressmen and regulators to scuttle the deal. This type of "persuasion" hardly costs Google anything. For the price of some hundreds of thousands of dollars in lobbyists' fees, fees that legally bribe congressmen in the form of campaign contributions, wine-and-dine them over dinners and soirees at expensive restaurants or through more nefarious contributions to designated "charities" and honoraria for "speaking engagements," Google can scuttle the potential Microsoft-Yahoo deal on the cheap. Certainly for a lot less money than having to top Microsoft's $42 billion offer for Yahoo.

Google will wrap all of this in some sort of argument about how a Microsoft-Yahoo combination will hurt "the public." That argument is expensive hogwash concocted by mercenary economists and lawyers. Even if Microsoft and Yahoo merged, their combined market share in Internet search would be a fraction of Google's. Google is the big gorilla in Internet search (a position they did earn legitimately) and they would remain the big gorilla even after a Microsoft-Yahoo merger. (Actually, it doesn't matter what Microsoft-Yahoo's market share would be. Even if it would far exceed Google's, it represents no harm to anyone. Such market share was earned in the marketplace and would have to be defended in the marketplace.)

Google earned its impressive leadership in Internet search and advertising by aggressively offering a more valuable service than its competitors. I use Google everyday and I marvel at the elegance and power of how they make the Internet useful to me. Google earned their position, but instead of keeping it through further entrepreneurship, they will use the same method the Mafia uses to keep its "market share": the pointed end of a gun.

The fact that this gun is legally held by the chairman of the Federal Trade Commission or by the Speaker of the House does not change its nature.

Capitalism is the system based on the opposite principle to the Google principle used against Microsoft and Yahoo. Capitalism is not based on force, but on voluntary trade. It is based on a person's right to his own life and the corollary of that right, his right to property. No one has the right to violate another's rights through the use of force.

That is exactly what Google wants to do. It wants to use the government's policing power to violate the rights of Microsoft's and Yahoo's shareholders to associate or not as they see fit.

Remember that Google's actions, in their essence, are no different than a Mafia chieftain who hires a street gang to tear up and destroy businesses that refuse to pay him protection money.

This is not capitalism; this is hooliganism.

Ignorant Billionaire Fashions Noose

Karl Marx once said, “The last capitalist we hang shall be the one who sold us the rope.” Bill Gates has been selling long stretches of that rope lately. In his speech today at the World Economic Forum, a gathering of leading businessmen, politicians and aid officials, Bill Gates said, “We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well.” He went on to exhort fellow business leaders to devote their personal time and energy to finding ways of helping the poor.

Admittedly, Gates calls on executives to serve “a twin mission” of “making profits” while simultaneously “improving the lives of those who don’t benefit from market forces.” Just how businessmen are to make profits in regions, such as the Third World, that have essentially outlawed market forces is not explained.

Gates’ premise in these statements is that capitalism serves only the rich. Moreover, capitalism, on its own, is incapable of benefiting the poor.

This premise is dangerously wrong. A clear-headed reading of economic history, a clear understanding of economic science and, most importantly, a proper understanding of philosophy, will prove the correct point. Economic history tells us that capitalism is the only system that radically lifted the standard of living of the poor, such that today’s poor in Western, industrialized, semi-capitalistic countries are far wealthier than even the rich of the Middle Ages or ancient times. Their lifespans have more than doubled, they have comforts such as air conditioning and heat and entertainments such as television and the Internet that no one could have imagined in ancient times. These advances did not materialize out of thin air. Rather, they were the result of capitalists who made billions by inventing and selling the life-enhancing and labor-saving devices that improved human lives, such as vaccines, mass-produced automobiles and food, and electricity. High on this list is the benefit of mass-scale, low-cost computing that Bill Gates himself helped to pioneer.

Economics tells us that all wealth must be created by profit-seeking businessmen, or at the very least by self-interested individuals pursuing their own benefit. Without profits, businessmen lack both the incentive and the means to create. Factories are not built out of thin air, nor are salaries paid out of thin air. The accumulated capital borne of profits pays for the creation of factories and the goods those factories produce.

Bill Gates is also ignorant of philosophy. Philosophy teaches us that certain conditions are required for men to exert the effort required to produce goods. Specifically, production depends on having secure property rights, which means the right to make an unlimited profit. Together, philosophy and economics teach us that one man’s gain is another man’s gain, if everyone deals with each other through the principle of trade. This means that no one can use force to steal the wealth of another. Underpinning the right to property and the principle of trade is every person’s right to his own life, which means the right to use his own mind to produce the things he needs, without interference from others.

Bill Gates is not explicitly calling for stealing the wealth of the rich in order to give it to the poor. He hopes, somehow, that businessmen can serve “a twin mission” of “making profits” while simultaneously “improving the lives of those who don’t benefit from market forces.” But isn’t that what businessmen already do today, at least to the degree to which countries respect property rights and allow them to earn a profit?

What Bill Gates is calling for, without explicitly naming it, is for businessmen to give away their wealth and personal energy the way he has to corrupt Third World countries where it is all but impossible to earn a profit. Where businessmen can serve the twin masters of making a profit and helping the poor, they are doing it already. They do it simply by selling their goods for a profit. Isn’t that what Coca-Cola or McDonald’s or Microsoft (to name three products widely enjoyed by both the poor and rich in Western societies) are already doing in Europe, the United States and Japan?

Capitalists are not selling products in Africa because they are subject to the arbitrary vagaries of dictatorial governments that will steal their wealth at every opportunity. They will steal their wealth through arbitrary and confiscatory taxation, nationalizations, inflation and, endemic throughout the Third World, Mafia-style extortion and bribery demanded to do business. Property rights are an unheard-of concept in the Third World. They are violated every day, egregiously, with one consistent result: massive poverty and frequent episodes of death due to disease, starvation and mass murder.

The only cure for all this is one thing: capitalism. But capitalism is what Bill Gates is setting out to destroy whether he intended to or not. Bill Gates is destroying capitalism by smearing it with the Marxist falsehood that it only serves the rich and does not help the poor. Bill Gates cited a laundry list of books that have influenced him, some of which are quite good, such as the writings of the economists Adam Smith, Julian Simon and Hernando de Soto. However, the one author who best explains the roots of capitalism, and therefore the roots of prosperity, is the one not mentioned: philosopher/novelist Ayn Rand. I would commend to him, at a minimum, her novel Atlas Shrugged, and her collection of essays, Capitalism: The Unknown Ideal, if he wishes to learn what it truly takes for individuals and societies to become wealthy.

What Bill Gates doesn’t get is that wealth is only created through the productive efforts of businessmen. Businessmen and everyone who benefits from their products – i.e., all of us -- need capitalism, the system based on the recognition of the right to property and its root, a man’s right to his own life. Bill Gates just doesn’t get it, and the world is poorer as a result.

Bush Bulbs

Back after a holiday hiatus, I will comment on Bush Bulbs. Hat tip to Gus Van Horn for coining the phrase to refer to the anything-but-incandescent bulbs that we must legally use after incandescent bulbs become illegal in 2014 under the energy bill just signed by President Bush.

I will leave aside reference to the utter lack of moral principle that Bush, a man who at one time opposed the Kyoto Treaty on global warming, displays now that he embraces the environmentalist agenda and enacts legislation that begins to make our lives just a little bit (at first) more nasty, brutish and short.

I will not dwell on the violation of my property rights, my freedom to spend my money as I want to on the things that I value, that is represented by Bush Bulbs.

I will mention just how lousy these bulbs are.

They do not work in dimmer fixtures, which I recently installed throughout my apartment.

They do not turn on quickly.

Their spiral shape is ugly.

Their light is cold and disturbing, reminding me of a sterile office. This is not the feeling I want when I am in my home.

They are extremely expensive.

Their light flickers.

It causes headaches in some people.

The bottom line is that I don't want them.

I tried them once, way before legislation was passed to make them obligatory. That is when I discovered most of these unpleasant characteristics. I am not alone in my opinion, as evidenced by their paltry market share.

But, even if everything about them was great, what is most disturbing about Bush Bulbs is that I am forced to use them.

It is in a shower of small infringements of my freedom such as this one that I will find myself one day drowning in a society that is not free. The American Revolution was fought over stamp taxes and tea duties. But was it really? Our forefathers understood that a government that has the power to dictate even the smallest part of our lives has the power to direct all of our lives.

Bush Bulbs mean not just lights out for incandescent bulbs. Bush Bulbs mean lights out for freedom.