Guest Post: Economic Fallacies And The Fight For Liberty

Tyler Durden's picture

Submitted by James Miller of the Ludwig von Mises Institute of Canada

Economic Fallacies And The Fight For Liberty

It’s easy to be pessimistic over the future prospects of liberty when major industrialized nations around the world are becoming increasingly rife with market intervention, police aggression, and fallacious economic reasoning.  The laissez faire ideal of a society where people should be allowed to flourish without the coercive impositions of the state is all but missing from mainstream debate.  In editorial pages and televised roundtable discussions, a government policy of “hands off” is now an unspeakable option.  It is presumed that lawmakers must step up to “do something” for the good of the people.  Thankfully, this deliberate false choice will slowly but surely bring the death of itself.   Illogical theories can only go on for so long before the push-back becomes too much to handle.  For those who desire liberty, it’s a joy that the statist economic policies of the Keynesians become even more irrational as the Great Recession drags on. The two following examples will illustrate this point.

Former Labor Secretary, public policy professor at University of California, Berkley, and political commentator Robert Reich recently offered President Obama and Mitt Romney a proposal he thinks will help American workers.  In lieu of almost 40% of workers in the U.S. not receiving paid vacation for holidays and sick days, Reich proposes that the federal government mandate every worker receive three weeks of paid time off.  Reich calls the country’s lack of a national leave policy “absurd.”  Further, he claims that imposing an increase in mandatory paid vacation would be beneficial not just for employees but employers as well.  According to the union cheerleader, paying employees for taking time off is great for productivity because they come back with batteries recharged and higher morale.  This boost in output would more than pay for the leave and for the hiring of additional labor to offset the absence.

What Reich is arguing is that by increasing the cost of labor, somehow the unemployment rate will drop.  Or that by paying employees to take time off, the extra productivity that would take place would both pay for the hiring of more workers and make up for the loss of time devoted to labor.  And finally, Reich is assuming that employers have never taken such a policy into account and are blind to the low-hanging fruit of easy profits.

To even the most unlearned observer, Reich’s proposal comes off as pure nonsense in the sense that it would not just be damaging to an economy already strangled by regulatory mandates but it would actually be beneficial on the whole.  Government intervention into the free choices of people always amounts to the picking and choosing of winners.  Left to itself, the unhampered social system of production that is a free market economy is the best state of affairs for participants to maximize their well-being.  Under interventionism, voluntary choices are replaced by dictation from the political elite.  Reich’s proposal for mandatory three weeks of paid vacation assumes that all workers, at all times, would have no issue with the requirement.  He presumes that the policy would have immediate effect so that the up-front cost of labor would automatically be offset by increased production which in reality takes time to occur and isn’t guaranteed.  Reich’s policy rests on the notion that economies can be finely tuned.  His view is that the human energy expended on production is not an extension of the individual sovereignty of men but something to control and guide.  This is general mindset of a central planner; especially one who has a high-profile academic position at a major university.

Reich is far from alone in this regard.  He is a respected commentator featured in the mainstream press.  His colleagues offer the same suggestions for policymakers in the government to follow.  In another example, recently on the Washington Post’s Wonkblog, editor Ezra Klein offered up a compelling case for how Federal Reserve Chairman Ben Bernanke could get the housing market out of its slump.  Cleverly titled “Uncle Ben’s Crazy Housing Sale,” Klein suggests that Bernanke go before the American people and announce that the Fed will begin buying mortgage-backed securities in an effort to bring 30 year mortgage rates down to 2.5% “for one year, and one year only.”  The goal is simple according to Klein:

“If you have any intention of ever buying a house, the next 12 months is the time to do it. This is Uncle Ben’s Crazy Housing Sale, and you’d be crazy to miss it.”

But as Rothbardian economist Bob Murphy aptly points out, Klein’s proposal amounts to nothing more than the deliberate creation of another bubble.  By taking potential demand that could conceivably be spread out over the next decade or so and concentrating it within the confines of one year, the intertemporal allocation of goods within the structure of production (housing in this case) becomes distorted and leads to unsustainable investment.  So once Uncle Ben’s crazy housing sale comes to an end, the demand for housing would in all likelihood plummet and the industry would be no better off.  Also of importance is Klein presupposing that 2.5% is the most desirable rate for 30 year mortgage rates by not giving an explanation as to why.  Further, he mentions that the housing market is appearing to have bottomed out and is on its way to genuine recovery.  Yet his policy proposal rejects allowing for a natural recovery and boils down to the exact same monetary policy of low interest rates that created the housing bubble of the 2000s which laid the foundation for the financial crisis.  It is the equivalent of injecting heroin into a junkie who is trying to go cold turkey.

Though these are just a few examples of flawed policy recommendation, they are largely representative of the establishment’s views.  Like Princeton economist Paul Krugman, former Treasury Secretary Lawrence Summers, and even the New York Times editorial staff, Klein and Reich believe in the sanctity of government intervention over the market process.

What passes for informed economic analysis is becoming more unhinged from reality by the day.  The very same solutions are being offered that had a hand in causing the crisis to begin with.  That is: interest rates suppressed beyond market levels, increased government spending, economic micro-management, housing market stimulus, and more accommodating monetary policy.  Getting out of the way and allowing the economy to reach sound footing is too radical of an option for the busybodies of the state.  Still, Keynesianism continues to fall short.  Intellectuals of the school keep failing to recognize the harm their theories cause.  Their policy recommendations are a rehashing of the same fundamentally pro-state theory: government needs to spend more and more money needs to be printed into circulation.

Meanwhile the average private sector or low-wage worker sees a system stacked against him.  Public sector workers receive better pay and benefits.  Politically connected banks and large financial companies are bailed out for poor business decisions.  Industries totally under government supervision such as health care and education have become terribly inefficient.  Countless lives are lost or ruined from wars based on lies.  The prices for necessities at the supermarket are always inching upward.  Privacy is trampled upon by overzealous law enforcement.  Wallets are treated like a grab bag by tax collectors.  And the solution put forth is always bigger, more intrusive government.  The false dichotomy of liberal versus conservative is played out in the West as if there is an actual difference between the two.  In short, it’s only a matter of time before the ideas ignored by the establishment are given more serious consideration by the greater public.

As the Austrian school of economics emphasizes, the bust which follows an inflationary boom is a needed cure for the built-up malinvestment.  Likewise, recessions should serve as a guide on the unintended consequences of public policy.  They challenge orthodox teachings to justify themselves as the damage of prolonged unemployment takes it toll.  Out of hardship can emerge new ideas for men to adopt and integrate.  Thought then becomes a weapon against the existing order which sees its position of authority under attack.  As Ludwig von Mises once wrote

Thoughts and ideas are not phantoms. They are real things. Although intangible and immaterial, they are factors in bringing about changes in the realm of tangible and material things.

In the course of human history ideas have been the catalyst for profound change.  The American Revolution was being fought on an intellectual battlefield before the first bullet was shot at Lexington and Concord.  Cato’s Letters, along with the writings of Thomas Paine and Adam Smith, gave the revolting colonists a vision of the natural rights of man and the prosperity free enterprise brings.  Radical pamphleteering was always a bigger threat to the British monarchy than any musket.

Today, the liberty-minded versed in sound economics face an uphill battle.  The corporatist establishment won’t let go of their government privilege easily.  Academics are too infatuated with their prestige to question the blatantly criminal syndicate that is the state.  Against such forces, the battle may be tough but it is winnable in the end.  Western governments are beyond bankrupt when it comes to unfunded liabilities.  Their existence is dependent on the unsustainable and fraudulent practice of fractional reserve banking.  Default is inevitable at this point.  The broken promises of politicians will discredit government as a virtuous institution.  The productive class, meaning those forced to fund the state and its beneficiaries, will stop sitting passively by.

To win the fight against statism and the poverty it inevitably brings, the right to one’s very humanity must be reasserted.  From the beginning, mankind has been plagued with the conflict of power versus liberty.  As libertarian author Rose Wilder Lane summarizes in her book The Discovery of Freedom:

They replace the priest by a king, the king by an oligarchy, the oligarchy by a despot, the despot by an aristocracy, the aristocrats by a majority, the majority by a tyrant, the tyrant by oligarchs, the oligarchs by aristocrats, the aristocrats by a king, the king by a parliament, the parliament by a dictator, the dictator by a king…six thousands years of it in every language.

Lane asks the most pertinent and direct questions that are never alluded to in contemporary political discourse:  “What is the nature of man?  The only political question is: What is the nature of the institution named “Government”?  To Lane, government, or the state, is an abstract concept which does not exist.  What exists “is a man, or a few men, in power over many men.”  By the same token, the prosperity brought forth through government-financed initiatives and inflation does not exist either.  The printing of money creates no new wealth; just lowered purchasing power.  All government spending comes from resources siphoned away from the private sector.  For every dollar spent by lawmakers or bureaucrats means one less dollar devoted toward productive efforts.  In short, free lunch economics is a fairytale.

These principles, while plainly evident, cannot be stressed enough.  State officials can’t live outside the laws of economics or the laws of decent behavior.  The sham is coming to a close before our eyes.  The collapse of the Soviet Union proved that socialist regimes are incapable of rational economic calculation.  The fiat money system that brought the world the slowly splintering Eurozone will eventually run its course.  Establishment economists have resorted to outright lies to maintain the superiority of government paper money over the market’s preference for gold.

They are getting desperate because their stock answer is no longer being looked to as right by the public.  In their quest for power, the political elite are looking more like the tyrants they really are.  It’s only a matter of time before enough people are fed up and declare their right to life, liberty, and property once again.  The battle will be won in the long run no matter how perilous it appears in the short.

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A Lunatic's picture

Peak fallacies, bitchez..........

AU5K's picture

Liberal "solutions" are simply absurd.  Why are they unable to see the consequence of their proposals?  Are they mentally retarded?  

Liberals live in a ceteris parabus world in which everything is held constant, and their change has the intended effect, but people *react* to the change in their best interest.  Simple game theory.

Zero Govt's picture

the liberal mind-set has nothing to do with change, it's all about grabbing someone elses property ...theft

if ignorant idealist Karl Marx had understood enterprise he would have understood grabbing a productive persons assets doesn't mean that asset is productive (creates wealth) in an ignorant idealists hands

hence Russia crumbled, China crumbled, North Korea is crumbling and the semi-socialist States of Europe and America are on their merry way

we have neither the time nor the ability to educate the masses, it's not how society changes anyway. The way to change this rot is through small groups (small business) to shutter the cancerous institution of parasites called Govt

Stop Paying Your Taxes over

JLee2027's picture

Robert Reich...wasn't that the nutcase who wanted a 25 trillion dollar stimulus? Insanity.'s picture

Reich also says that government should take over healthcare, make young healthy workers pay more and when they get old and need services they should be left to die. But any suggestion that that would constitute a death panel is just crazy talk.

Listen to the Berkley crowd cheer as Reich says old people should die:

A Nanny Moose's picture

the liberal mind-set has nothing to do with change, it's all about grabbing someone elses property, with which to buy votes.

There....fixed it for you.

Silver Bug's picture

The elite are running into some serious trouble.

AnAnonymous's picture

Peak fallacies, bitchez..........

'Americans' deny peak fallacies. 'Americans' have only fallacies to offer to substitute for the fallacies they denounce.

The article is riddled with fallacies, fabled past, pushing forward Payne and Smith as architects of the 'American' revolution in the Americas.

With 'Americanism', it is fallacies vs fallacies.

Therefore peak does not matter...

A Lunatic's picture

The truth always wins out in the end.

Vet4RonPaul's picture

James Miller, you are an excellent and couragous writer.  Indeed you show how a pen can be mightier than a sword.  Many of us sincerely appreciate your ability to communicate complex subjects and to fearlessly inform the reader that sacrifice is necessary to acquire and keep freedom.

nah's picture

jobs closer to gubmin money do look cooshy

Bananamerican's picture

they is Nah, they is...

My brother has one...

He's a head janitor in an elementary school. Even he says he's probably overpaid $10 an hour more than the gig is worth

Michael's picture

We should try capitalism some time, instead of fascist feudalism. This is a free book online.

Feudalism aka American Capitalism
by David F.

Feudalism: control by an entrenched minority esp. for its own benefit : social, political, or economic oligarchy.

You are reading this online, so I won't waste your time.

The aim of the book is to provide enough shocking facts about the manipulative practices of America's power elite, that readers will be motivated (i.e., made angry enough) to take part in efforts to bring the richest 1% under control, ...before they impoverish the planet and destroy the biosphere.
The book presents overwhelming evidence that masquerading behind a democratic facade, an economic elite comprising less than 1% of the population is quietly and cunningly ruling America. Their immense wealth and power enable them to exercise so much control over the governmental process, that they effectively operate the country as a Feudal oligarchy. The book will leave little doubt that Government has been serving as a tool to subsidize and legitimize their exploitation of national and international resources, while legislative tax changes have left the nation with a Feudal wealth distribution system.

Presenting the evidence to substantiate this argument is not the main reason the book was written. Documenting the methods used by the elite to manipulate, control and exploit those with less money or power is the real purpose. At least 80% of the book is devoted to documenting their very effective methodology.

While it is evident that most people are somewhat aware that government appears to cater to corporations and influential lobby groups, the average taxpayer is practically oblivious to the extent to which the wealthiest 1% directly and purposely control and manipulate the lives and destinies of everyone else on the planet.

For those who have been brought up on a steady diet of the American Dream, but notice that today's reality and the American Dream seem to be growing further and further apart, it may be worth keeping in mind that if a frog is placed in a pan full of cold water, and the heat is turned up gradually enough, the frog will fail to sense the danger, and instead of jumping to safety, it could quite unknowingly allow itself to be cooked. In a similar fashion, the media continues to be used to desensitize and/or misinform the general public into repeatedly accepting domestic and foreign policies that are very often diametrically opposed to the best interest of the majority.

While the average American does have "a vague idea" that corporations (as well as the economic elite) use plenty of techniques for avoiding taxation; how many know that the proportion of Federal Income tax derived from Corporate income tax declined steadily from 32% in 1952; to 23% in 1960; to 17% in 1970; to a low of 9% in 1985? Without vital knowledge such as this, the public will remain in the dark as to what is really causing the decline in most Americans' standard of living. .

Although the growing deficit and the near trillion dollar banking industry losses will inevitably lead to continuing cuts in the standard of living for present and future generations, most Americans feel powerless to alter their deteriorating economic conditions, and simply take consolation in the belief that everyone else is also feeling the pinch.

Nothing could be further from the truth !

Michael's picture

I give you a major component of the solution going cold turkey;

Dump every GSE owned Fanny and Freddy foreclosed property on the market all at once, offered to first time home buyers and people who don't own any property, with a Dutch auction.  Limit one per customer.

It's that easy.

Thank me.

Michael's picture

401k is just another casino gambling game of chance.

How much money did the majority of 401k investors individually earn, compared the the amount of money they invested from their pay checks, since the inception of the 401k?


Michael's picture

I approve of private sector unions, not public sector unions, because public sector unions are a conflict of interest with the public.

F.I.S.T (1978) Trailer

Michael's picture

A gold like standard and the US Constitution strictly abided by, are fair for everyone rules of the game that should not be breached for the benefit of a few, ever!
Because it spirals out of control and makes it unfair for the 99%!

It's that simple folks.

Michael's picture

Got Guns & Ammo?

I should make this my signature line.

I just made this up.  It's like that Got Popcorn? (meme)

People should make bumper stickers out of this saying.

People should make T-Shirts with "Got Guns & Ammo? on the front and "Good." on the back.

I give this to you for free.  Have at it.

AnAnonymous's picture

Feudalism is a creation of 'Americans' to decry the previous social orders.

When looking at what 'Americans' call feudalism, one can easily find out that it refers to so many things, that are different in substance, it can not be labelled under one standard perception.

But hey, this trick is widely used by 'Americans' so it is no surprise.

'Americans' are extorters and farmers at heart, so lumping large groups of people together is good as it always extortion and farming on large scale...

Colonial Intent's picture

Have you not yet noticed that capitalism inevitibly leads to fascist feudalism?

MeelionDollerBogus's picture

never noticed such a thing, no. So far every event of fascist feudalism I've seen comes from oligarchy and monarchy combined with banking. So far every capitalist event I've seen has produced the opposite then when the people are too loving of peace, not armed to the teeth, the bankers and queens and kings come in to rob everyone using guns, tanks and now drones and guided missiles.

You didn't notice this?

Conrad Murray's picture

Stop fighting these commie pigs. Let them have everything they want. Promote it and bask in it. Ride the gravy train until the wheels fall off, then mercilessly slaughter every last one of them.

Dr. Engali's picture

The problem with that theory is once the free stuff stops coming you have to deal with the golden horde. And there are more of them than there are of us. Sure they will take each other out too , but there will be a lot left over.

A Lunatic's picture

There's also the problem of guilt by association...........

surf0766's picture

So you are a communist? 

Zap Powerz's picture

This looks good on paper, doesnt work in reality.

prains's picture

sure academics don't make good policy wonks, yawn

what about the complete and utter capture of policy making by corporate entities that are calling all the shots

there's no policy in the world that solves a short hair squeeze

so who gives a fuck about policy its all wonked out to the monied crowd anyway

A Nanny Moose's picture

Their only power is our sanction. Once the host refuses the parasite....good night Irene.

prains's picture

thanks dare



that was a joke numbnuts

Cabreado's picture

Don't mean to be a curmudgeon, but the theme of Principle vs Oppression is a simple one.

Why all the words to reiterate such a simple message?

dexter_morgan's picture


"Lane asks the most pertinent and direct questions that are never alluded to in contemporary political discourse:  “What is the nature of man?  The only political question is: What is the nature of the institution named “Government”?  To Lane, government, or the state, is an abstract concept which does not exist.  What exists “is a man, or a few men, in power over many men.” "


Hmmm... those questions were debated a lot in the late 18th century and likely thought to be answered, but then killed in the mid 19th and ignored most of the 20th. Can they be revived again somehow? Hopefully

Michael's picture

Human nature has not changed in ten thousand years, and never will. That's why we need to strictly follow the US Constitution.'s picture

What are you going to do, chase the garbage truck?

Anusocracy's picture

But it has changed.

Liberals have different morality than conservatives and and libertarians are different than either of the two.

Colonial Intent's picture

Nearly right,

liberals have morals

conservatives have greed

libertarians have fear

Each tries to use its point of view to gain more followers.


A Lunatic's picture

If you truly wish to be free, there's nothing stopping you. For everyone else, there's MasterCard.

janchup's picture

 Ezra Klein is a 20+ something Progressive moron with no experience outside partisan journalism. He should take his suggestions and shove them up his ass where the 40%  of his shit resides that's not 60% composing his head.

surf0766's picture

Well there is at least one other progressive moron out there.

Colonial Intent's picture

They're all corporate shrills, the very people who got us into this fucking mess thru their greed and immorality now do guest articles on ZH telling us its all because of a muslim socialist who is more right wing than any head of state in europe.

Funniest shit i ever saw if it werent for the fact you have nukes and keep losing em or attaching em to b2's and losing them.

11 points of failure in your process for tracking a nuke and you claim it was incompetence, not intentional.


Zero Govt's picture

Great read Mr Miller, don't think i had issue with a single sentence which is epic for my critical single brain cell.

You've detailed the problems succinctly just left us hanging with the solution. See if you can find a better one to Govt than this (bet ya can't)...

Stop Paying Taxes ...starve the f'n parasites

czarangelus's picture

Sorry, but this seems excessively optimistic. After all, the Bolsheviks managed to impose a century of tyranny and economic hardship on the Russian people.

Zero Govt's picture

with respect to the Bolsheviks they were peasants and easily bullied by the threat of a standing army

we are eductaed, opinionated and connected and won't stand for too much crap before we spit our dummies out

imbtween's picture

If capital is free to set the terms of employment in a laissez-faire system, labor must be free to organize or it is not a free system.

Labor unions served a useful purpose for a long time - the preclusion of offshoring of jobs. Pity it took a liberal to sell us out to the global marketfarce.