Guest Post: Who's Afraid Of Income Inequality?

Tyler Durden's picture

Submitted by James E. Miller of the Ludwig von Mises Institute of Canada,

Through decades of research, American neurobiologist James McGaugh discovered that as humans learn information and encounter new experiences, the part of the brain known a the amygdala plays a key role in retention.  The amygadala is activated primarily by stress hormones and other emotionally arousing stimuli.  Memory consolidation, or the forming of long term memories, is typically modulated very strongly by the amygdala.  Put simply, events that invoke significant amounts of emotion make a bigger imprint on one’s brain.

Emotion, while an important element in man’s array of mental tools, can unfortunately triumph over reason in crucial matters.  Excessive anger can lead to violent confrontations.  Heartbreak can lead a person to do drastic things in order to woo back a lost lover.  In the context of simple economic reasoning, today’s intellectual establishment often disregards common sense in favor of emotional-tinged policy proposals that rely on feelings of jealously, envy, and blind patriotism for validation rather than logical deduction.  “Eat the rich” schemes such as progressive taxation and income redistribution are used by leftists who style themselves as champions of the poor.  Plucking on the emotional strings of envy makes it easier to arouse widespread support for economic intervention via the state.

In the aftermath of the financial crisis of 2008, economic growth predictably slowed down in most industrialized countries.  Many commentators on the political left have grasped onto this opportunity to point to the vast amount of income inequality which exists in the United States and reason that it played a part in causing the crash.  This argument is typically paired with a proposal to raise taxes on the rich to balance out societal incomes.  It is alleged that having government brutes step in order to play the role of Robin Hood is the best and most justified way to alleviate income inequality.

Presently, income inequality in America is at its highest peak in decades.  In 2011, a study by the Congressional Budget Office concluded that after tax income grew by 275% for the top 1% of income earners between the years of 1979 and 2007.  The top-fifth of the U.S. population saw a 10 percentage point increase in their share of total income in the same period while all other groups saw their share decrease by 2 to 3 percentage points.  The data undoubtedly shows that income inequality has been increasing over the past few decades.  New York Times columnist and economist Paul Krugman has latched onto the evidence and is suggesting that rising income inequality plays a part in causing recessions.  Economist Joseph Stiglitz, who recently wrote the book “The Price of Inequality,” has argued that without a fair share of the national income, the middle class is unable to spend enough to keep aggregate demand elevated.  Both economists see income inequality as a danger to the prosperity of a nation.   Such a message is appealing to the greater public because it plays on their perceptions that the world is unfair.  It almost seems intuitive to think that the rich posses too much wealth or that a prosperous society is one in which income is more equalized.  Comfortableness in these beliefs paves the way for income redistribution efforts by the ever-scheming political class.

With income inequality a hot topic of debate going into the fifth year of the biggest economic downturn since the Great Depression, the question remains: does income inequality have a negative impact on society as Stiglitz and Krugman suggest?  And is growing income inequality an inherit part of capitalism?

First and foremost, the idea of equality for man in physical attributes, mental fitness, and material security  is essentially anti-human.  The most appealing aspect of mankind is that every person varies from one another in a myriad of different ways.  Some are better athletes, some are quicker studies, some have outer features that make them generally more attractive.  It follows that some men and women will be more apt at producing or better attuned to the demands of the marketplace.  They will have higher incomes by virtue of their own entrepreneurship or capacity to produce.  So, in a sense, income inequality is a fact of the free market.  But it is the possibility of inequality and the ability to achieve a higher income that makes capitalism work.  Punishing those who excel at making consumers better off punishes the very market mechanism that leads to better living standards overall.  In a free society, income inequality is not good or bad; it is part of the functioning order.  Any attempt to make incomes more equal through state measures is unjustified plunder of the rightful earners of wealth.

But what of the inequality in income that exists in today’s state-corporatist economy?  Did the 1% acquire its wealth solely through hard work?  The answer is hardly in many cases.  Though there are some innovative businessmen who became rich by providing new and better products, the sharp increase in income inequality over the past two decades is due to an economic phenomenon outside of normal market operations.  Krugman and Stiglitz rightfully point out that the greatest periods of income inequality in the United States were the late 1920s and the period since the mid-1990s.  What they fail to mention is that both these periods were not defined by capitalism run amok but by massive credit expansion.  This expansion in credit, aided and abetted by the Federal Reserve’s loose money policy, is the real culprit behind vast income inequality.  Economist George Reisman explains:

the new and additional funds created in credit expansion show up very soon in the financial markets, where they drive up the prices of securities, above all, common stocks. The owners of common stock are preponderantly wealthy individuals, who now find themselves the beneficiaries of substantial capital gains. These gains are the greater the larger and more prolonged the credit expansion is and the higher it drives the prices of shares. In the process of new and additional money pouring into the financial markets, investment bankers and stock speculators are in a position to reap especially great gains.

Since it’s so important, the main point just made needs to be repeated: credit expansion creates an artificial economic inequality by showing up in the stock market and driving up stock prices.

Money acts as a medium of exchange but is not neutral in its effects on receivership.  Those first receivers are able to bid up the price of goods before any other market participants.  As the newly created money flows into the economy, the general price level rises to reflect the new volume of currency.  In practice, credit expansion which brings about a reduction in interest rates also increases the amount of time businesses can go without making deductions for depreciation on their balance sheets as they purchase capital goods.  Because investment tends to go toward durable goods during periods of credit expansion, there is less funds left over to devote to labor.  Profits end up being recorded while wages sag behind.  Since credit expansion and inflationary policy go hand in hand in distorting relative prices and must eventually come to an end, the bust that occurs reveals wasteful investment.  Recession sets in shortly thereafter.

Printed money is not the same as accumulated savings which would otherwise fund sustainable lines of investment.  And it is only through adding to the economy’s pool of real savings that productive capacity is able to increase in the long term.  The wealthy have a higher propensity to save precisely because they have a higher income.  It is through their savings that new business ventures are funded and the economy is able to grow without the faux profits from government-enabled credit expansion.  This is why raising taxes on the rich is a backwards solution to income inequality.  Taxation only funnels money out of the productive, private sector and into the public sector which focuses on spending to meet political ends rather than consumer satisfaction.  All government spending boils down to wasted capital. The truth is that capital is always scarce; there is never enough of it.

Pointing out this fact is by no means corporate shilling.  Many corporations and well connected businesses lobby for tax increases in order to burden their competitors.  Currently in California, Governor Jerry Brown is campaigning for a ballot measure which would raise taxes on the state’s richest residents.  According to the Wall Street Journal, companies such as Disney, NBC, Warner Bros., Viacom, CBS, and Sony have each already pitched in $100,000 for the initiative.  Various energy companies are financially supporting the ballot measure to make sure that a 25% tax on natural gas and oil extraction isn’t next.  As the scope of government becomes all the more encompassing, big business starts seeing profit opportunity in using its forceful authority to better its own competitive position.  In their unceasing tirades over income inequality, Stiglitz and Krugman recognize the trouble rent-seeking poses to competitive markets yet both reason that the problem doesn’t lie with the state but with those politicians and bureaucrats who occupy its enforcement officesTo put it bluntly, this notion isn’t just juvenile; it rests on the fallacious assumption that government is staffed by only the most well-meaning of individuals in society.  As history and reason dictate however, good souls are not attracted to positions of absolute power.  The state, by Max Weber’s definition, holds the monopoly over force in a given area.  Practically every action taken by state officials introduces violence or the spoils from violence into an otherwise free society.  It follows that only those seeking to use state authority for their own benefit naturally gravitate toward politics.

Krugman and Stiglitz believe, as most do, that Americans should be born with the opportunity to succeed.  To create an environment of fairness, they propose a variety of government policies so that even the most impoverished individuals will have a shot at the American Dream.  Their arguments rest largely on emotion instead of reason and are aimed at inspiring reactionary protest.  What they fail to see (or refuse to acknowledge) is that the free market provides the best opportunities for someone to make a decent living by providing goods and services.  In a totally uninhibited market, profits come only to those who satisfy consumers more than their competition.  Contrary to Stiglitz’s suggestion, Henry Ford wasn’t a great businessman because he paid his workers a high wage.  He made his fortune by streamlining the process from which cars were built in order to sell them at a lower price.  The employees at Ford were able to increase their productivity, and thus wages, through the previous accumulation of capital and investment in machinery.  Ford’s massive profits didn’t last long however as domestic and foreign competition copied the mass production model and were able to attract market share of their own.  The greater the amount of cars on the market meant lower prices for all consumers in the end.

Again, in a truly free market the only way to maintain a rising income is to continually produce at a more efficient and more innovative rate.  In an economy plagued by the heavy hand of government, the market becomes rigged in favor of those connected to the ruling establishment.  Competition is decreased by the rising cost of adhering to regulations, innovation stagnates, and more income flows to the top.  Through central banking and credit expansion, profits are able to be recorded by the financial industry and first receivers of money before the rest of the population; which in turn leads to further evidence of income inequality.

No matter how you slice it, taxation is theft It is indiscernible from highway robbery and devoid of any moral justification.  Income inequality is a problem not because the government isn’t doing enough to combat it but because politicians and bureaucrats never tire of intervening into the private affairs of society.  With government intervention present in practically all market transactions, the solution to income inequality is to remove the intervention; not empower the state further by increasing the amount of funds at its disposal.

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dwdollar's picture

"Such a message is appealing to the greater public because it plays on their perceptions that the world is unfair."

I wonder why that is... Please do tell what part of this nightmare is free market capitalism and why those with so much wealth deserve what they have because they were so productive and never "fixed" the game.

Dr Benway's picture

What a supershitty article. I almost wish LetthemeatRand could come here and rant at this guy a bit.


"yeah ok the 1% stole all your money, but you shouldn't demand it back, rather from here on out it will be no more stealing, mmkay?"


Guess what, Ludwig Mises institute, that solution will not fly, regardless of how much your rich crony donors want it to.'s picture

You don't really believe that when politicians raise taxes on the rich that you're going to get money back, do you? And a 100% tax on the top 1% will cover only 1 month of government debt. Guess who will have to pay higher taxes to cover the other eleven months of the year?

Dr Benway's picture

What I am saying is that it is a distraction, a ruse, a ploy to make you look in the wrong place.


The left will bleat on about income inequality and the right will bleat on about excessive social security costs.


Anyone who contributes to this ruse should be called on it. Merely removing taxes or doing any of the things the author suggests would just make matters infinitely worse. Because the very system has been corrupted.

Spirit Of Truth's picture

You know....there's a reason Ayn Rand's philosophy of "objective reality" is expressed in subjective fictions.

CrazyCooter's picture

When I hit this thread, I tabulated the following in response counts:

dwdollar        1+1+1+1+1+1
daily bail        1
dr benway        1+1+1    1+1+1+1+1
Spirit Of Truth        1
jwoop66            1
Anusocracy        1



engineertheeconomy's picture

Take it UP THE ASS with "POSITIVITY" according to Bernanke in yesterday's brainwashing session

Ben Dover's picture

Like a lot of shit in books that deals with philosophy, politics or ethics it always works really well in paper. In the real world? Not so much.'s picture

Ayn Rand's injunction that individuals should develop their own talents and promote their own values rather than those of an elite but unproductive class has worked out pretty well for me. I used to be a liberal Democrat who waited for the government to fix all the real and imaginary problems in the world. That was no fun at all.

dark pools of soros's picture

Abolish the federal government but let states tax for certain agreed items. With 50 states we can have much to choose from and live in areas that one agrees with. This will also promote individuals to be more active politically. I would abolish usury as well but I'd be called anti-semetic for that

AnAnonymous's picture

With 50 states we can have much to choose from and live in areas that one agrees with.


And one does not choose for. Makes me laugh when US citizens do not include that little bit.

A meaningful segment of population will be left to live in places they are being told to, as no other places will let them in.

But US citizens are duplicitous. Since the beginning, they have chosen to advance their personal profit under the guise of freedom, justice and truth.

GetZeeGold's picture



But US citizens are duplicitous.


We're also sneaky and really don't want to take your eyes off of us even for a second.


AnAnonymous's picture

On the contrary. US citizen nature is eternal.

You'll find US citizens where you expect them, as according to their US citizen nature.

They are unable to innovate. So you can sleep at ease.

If indeed, they were able to surprise people by breaking their immutable US citizen nature, that would be something.

But it is not as their nature is eternal.

blueRidgeBoy's picture

"unable to innovate"...MDB, is that you?

TheFourthStooge-ing's picture


If indeed, they were able to surprise people by breaking their immutable US citizen nature, that would be something.

Of all people to comment on someone's immutable nature, this one takes the cake.

Is he being hypocritical or is he engaging in psychological projection of his own character flaws? I don't believe the two behaviors are mutually exclusive (in fact, they seem to go hand in hand), so in this case there is probably a significant amount of both.

YuropeanImbecille's picture

Well with a government that works for the middle class not AGAINST it, things would look up. Sadly we the middle class are stupid cunts and elect idiots and charlatans like Obama/Romney whoever who just squeezes the living shit out of us.

Here in Europe the middle class is the cash cow for the zionist-satanists, we pay for our own destruction and ultimatley our own death!

Some rules that would enable a more healthy society.


1. Corporations are not allowed to donate to political parties and/or candidates.

2. Foodstams/wellfare for those that have never worked shall be cut to 0, immediately.

To be eligable for welfare you need to have worked full time at least 18 months prior to the fact.

3. Income tax shall be capped at a maximum total of 22.5% of anyones income.

4. Sales tax will be banned across the board.

5. Forbid the government to engage in any business like activity. Including "ear marked" stacks of cash to their pals in different corporations.

6. The government/state/Federal can only engage in infrastructure, defense and emergency services kind of service.

7. repeat offenders will be sentenced to a minimum of 25 years hard labor, doing infrastructure works. regardless of their crime.

8. Lethal violence may be used to defend any property or human life.

9. Financial fraud/crime shall be punished by execution of not only the defendant, but also his/her entire family tree shall be eradicated.

10. The promotion of Socialism/Unions/religion/zionism and similar will be punished with instant execution in an federally provided execution bus.

11. 45% trader tariffs on anything deemed a threat to the internal production of similar goods/services.

AnAnonymous's picture

An 'American' government always works for the middle class. Hallmark of US citizen governments.

An 'American' government can rob resources to be bestowed to its middle class. 'American' governments have done this lavishly.

What they can not do, is create resources in a finite world.
At the moment, resources are lacking to maintain US citizen middle class in their lavish way of life.

Too many US citizens, not enough Indians.

monad's picture

You know... she also wrote alot of dry, logical books, articles and speeches.

Perhaps if you use the internet for something other than demonstrating that you are not as knowledgable as you think, and that you don't check the facts about such things before you make claims like this one, I'll stop thinking that all sheople get what they deserve and deserve what they get.

Diversely talented, she also wrote good fiction. I undersand she was pretty fun in bed, too. Her books are still worldwide best sellers today, which says alot more than you impune. She is the second most read author in the world, after that most absurd piece of subjective fiction, the Bible.

And... and Ayn Rand was JEWISH! OMFG!!! Be afraid! Its a Jewish conspiracy, to make people think and respect hard working, honest, high acheivers, and to take responsibility for themselves! What a mean thing to do! The horror... the horror...

AnAnonymous's picture

Respect hard working, honest, high achievers?

Ummm, what she provides is more like cover for hard working, high achieving thiefs, as she wrote for an audience of 'Americans'.

Post theft economy thinker. Unable to deal with reality, propagandist and fantasist.

TheFourthStooge-ing's picture


Unable to deal with reality, propagandist and fantasist.

You know, that sounds remarkably like the guy that scurried away like a frightened little mouse from this comment thread:

AnAnonymous's picture

Frightened of what?

The points were made.

It boiled down to this: in order to discuss reality, you threw in fantasy.

I called the trick out.

You kept to the trick, and were unable to provide a new one.

Do you want to read endlessly that 'Americans' are the only ones to vouch for 'Americanism'?

TheFourthStooge-ing's picture


Frightened of what?

The points were made.

It boiled down to this: in order to discuss reality, you threw in fantasy.

It's there for anyone to see, and yet you still deny, you still lie, you still refuse to accept reality. Reality is what frightens you, which is why you cling to lies and denial.

You're a sick puppy.

Do you want to read endlessly that 'Americans' are the only ones to vouch for 'Americanism'?

No, although your endless repetition of it has shown no signs of abatement. Too bad it's the only thing that gives meaning to your sad little existence.

monad's picture

Sorry Kato. You are mistaking Ayn Rand for The Simpsons. When we teach FOBs the language we mess with you. And thats not a B-A-N-K, thats a C-A-S-I-N-O. Don't give them your money. You are supposed to demand your money and if they don't give it to you, say "This is a stick up!" That always worked. Don't tell anyone, its a secret. 

earleflorida's picture

insufferable  compassion in a myopic world through the narcissistic eyes of solipsistic entropy - a stark reality that randy ayn, would not, could not accept!'s picture

Taxation supports the system which was corrupt from its inception. Higher taxes will only give that corrupt system nore support. Increasing the power of corruption is certainly no cure for corruption. Reducing the power of the corrupt system has a much more reasonable chance of improving the situation.

Buckaroo Banzai's picture

Flush out your headgear, new guy. Did you even read the fucking essay? The author explained very clearly why the system has been corrupted, but apparently you are not able to read for comprehension.

Dr Benway's picture

Look moron, we have a system where the rich have perverted every aspect, including those of lawmaking and enforcement.

They openly now commit crimes to gain further wealth. Cutting their taxes won't help, OK?


Libertarianism is an adolescent way of thought, as extreme and unrealistic as communism. It never addresses key problems that leads to its breakdown, like how big money inevitably seizes power of a very unregulated society. Great on paper, though.

Town Crier's picture

This story reveals an important insight: that the EXTREMELY wealthy seek to burden with taxation/regulation the comparatively moderate "wealthy" and vilify them by populist rhetoric as a way avoiding potential competition.  The EXTREMELY wealthy can survive the burdens but the standard "wealthy" cannot.'s picture


how big money inevitably seizes power of a very unregulated society.


No. Big money seizes power in a regulated society. A regulated society has levers of power which are available to those who obtain power which they use to manipulate others within the system and maintain their power without actually being productive. In a system unregulated by a government with disproportionate and corruptible power all individuals are forced to provide goods or services which people actually want in order to obtain wealth. A free market has no mechanism with which to compel others to give up their money or their freedom against their will but can provide security and adjudicative services to protect against fraud, theft and acts of violence.

Dr Benway's picture

hahaha, you sound like fucking Tom Cruise talking scientology!


What you are spewing is religion, not reason.


And the big money use your ilk as pawns in think tanks, to provide the intellectual backing for their theft's picture

It is not religious to believe that an individual with first hand knowledge of his own situation is in the best position to make decisions for himself. It is religious to believe that man is a too flawed to master his own fate and so must appeal to an elite class with esoteric knowledge for cradle to grave decision making.

Bohm Squad's picture

^^^That, my thirsty friends, is how you win an argument.


dark pools of soros's picture

If you believe in Utopias and ignore that whole history of the human condition.

BigJim's picture

 If you believe in Utopias and ignore that whole history of the human condition.

The whole history of the human condition being that all governments get hijacked by monied interests and then usurp state power for illegitimate ends?

ie, that if the people don't keep their governments on a tight leash, the guardians will eventually indulge in worse predation then the predators they were appointed to guard against?

odatruf's picture

I belive you've nailed dark pool's thought exactly.  Or at least my own.

AnAnonymous's picture

It is not religious


It is similar to religious to keep clinging to a set of beliefs while dismissing obvious counterpoints that invalidate the set of beliefs.

It is the hallmark of religious faith: reality can not be accepted as it invalidates the set of beliefs.

This is what libertarians do.

BigJim's picture

Shouldn't you be off spreading some Han citizenism and shooting Tibetan dissidents?

nmewn's picture

Just as soon as he gets done with his chinese citizenism art project. The winner gets an extra bowl of rice per day for a month.

AnAnonymous's picture

Nope. US citizens growing in China do that job much better than anyone. No one can beat 'Americans' to this kind of games. And it frees time for the others.

I am taking a lesson studying that 'American' who shot Sikhs. Always something to learn for the world masters, US citizens. 'Americans' are a lecture for humility, they humble all the extorters of the weak, farmers of the poor human history has provided.

TheFourthStooge-ing's picture


It is similar to religious to keep clinging to a set of beliefs while dismissing obvious counterpoints that invalidate the set of beliefs.

Funny you should mention that. Just a few days ago there was a guy in the comment thread for another article that was doing the same sort of clinging to a set of beliefs. He was even dismissing obvious counterpoints that invalidated his set of beliefs. Here, take a look and let me know what you think:

It is the hallmark of religious faith: reality can not be accepted as it invalidates the set of beliefs.

That's pretty much the same thing I told him, except for it being the hallmark of his mental disorder.

He couldn't accept reality, so he cowered and ran away.

AnAnonymous's picture

What reality are you talking about?

Your starting point was fantasy:

For the sake of argument, pretend that you are a US citizen that does not support the politicians, believes they are breaking the law, and wants to begin arresting them. What would you do?

You were unable after being pointing out at many times to accept that the question in reality address 'Americans' and is not about what non proponents of 'Americanism' should do but about what 'Americans' are doing in regard with what 'Americanism' allows them and calls them to do.

It is how reality is.

Hammering a fictional point with the hope it substitutes reality is another hallmark of religious faith.

Maybe harsh, but even with the lack of corrections, reality stays the same.

'Americans' vouch for 'Americanism'. No one else.

TheFourthStooge-ing's picture

He still evades such a simple question. If he tried to answer it, it would undercut the conclusion he arrived at, exposing his entire thesis as fraudulent.

Evasion, denial, lying, and avoidance of reality are his hallmarks. They help him to protect his most treasured possession: his hatred for humanity.

odatruf's picture

I can't for the life of me follow the circular referances to Americans and US Citizen(ism).  I've tried to follow it a few times in the past, as I generally think most people are worth trying to understand, but I can never get a clear sense of what AnAnon's point is.

Ricky Bobby's picture

Dr Moron HA HA you sound like fucking Sean Penn

Cosimo de Medici's picture

By pissing on their fantasy you risk losing your visa to Galt's Gulch, where they will all be productive owners of coin shops and ammo reloaders, where there will be no need for even a Better Business Bureau because the natural honesty and integrity of the human species will reign supreme, where the harsh reality of ten thousand years of human behavior is ignored, and where George Orwell was dead before he had a chance to have a go at doing to Ayn Rand and her childish naive pablum what he did to Marx and Engels.

If Genghis Khan hadn't been born under a strong central authority where his raping and pillaging was pre-approved by a democratically elected Parliament, he never would have been able to subjugate most of the known world.  It was all that regulation in the Steppes that made his mayhem possible.  Notice that like Hitler and Switzerland, Genghis never took Galt's Gulch.  Q.E.D.

dark pools of soros's picture

The unregulated driving with no cops does sound appealling

Btw your bit about a free market bothering to pay to provide protection against fraud is the most laughable comment of the year's picture


Roads Gone Wild



Monderman is one of the leaders of a new breed of traffic engineer - equal parts urban designer, social scientist, civil engineer, and psychologist. The approach is radically counterintuitive: Build roads that seem dangerous, and they'll be safer.

Monderman and I are tooling around the rural two-lane roads of northern Holland, where he works as a road designer. He wants to show me a favorite intersection he designed. It's a busy junction that doesn't contain a single traffic signal, road sign, or directional marker, an approach that turns eight decades of traditional traffic thinking on its head.

Wearing a striped tie and crisp blue blazer with shiny gold buttons, Monderman looks like the sort of stout, reliable fellow you'd see on a package of pipe tobacco. He's worked as a civil engineer and traffic specialist for more than 30 years and, for a time, ran his own driving school. Droll and reserved, he's easy to underestimate - but his ideas on road design, safety, and city planning are being adopted from Scandinavia to the Sunshine State.

Riding in his green Saab, we glide into Drachten, a 17th-century village that has grown into a bustling town of more than 40,000. We pass by the performing arts center, and suddenly, there it is: the Intersection. It's the confluence of two busy two-lane roads that handle 20,000 cars a day, plus thousands of bicyclists and pedestrians. Several years ago, Monderman ripped out all the traditional instruments used by traffic engineers to influence driver behavior - traffic lights, road markings, and some pedestrian crossings - and in their place created a roundabout, or traffic circle. The circle is remarkable for what it doesn't contain: signs or signals telling drivers how fast to go, who has the right-of-way, or how to behave. There are no lane markers or curbs separating street and sidewalk, so it's unclear exactly where the car zone ends and the pedestrian zone begins. To an approaching driver, the intersection is utterly ambiguous - and that's the point.

Monderman and I stand in silence by the side of the road a few minutes, watching the stream of motorists, cyclists, and pedestrians make their way through the circle, a giant concrete mixing bowl of transport. Somehow it all works. The drivers slow to gauge the intentions of crossing bicyclists and walkers. Negotiations over right-of-way are made through fleeting eye contact. Remarkably, traffic moves smoothly around the circle with hardly a brake screeching, horn honking, or obscene gesture. "I love it!" Monderman says at last. "Pedestrians and cyclists used to avoid this place, but now, as you see, the cars look out for the cyclists, the cyclists look out for the pedestrians, and everyone looks out for each other. You can't expect traffic signs and street markings to encourage that sort of behavior. You have to build it into the design of the road."