I thought this passage from my economics textbook validated our position (the passage is about the “informal sector” (black market) vs. the “formal sector” in developing countries):

Many economists believe taxes in developing countries are so high because these countries are attempting to pay for government sectors that are as large relative to their economies as the government sector of industrial economies. Government spending in Brazil, for example, is 39 percent of measured GDP, compared to 31 percent in the United States. In the early twentieth century, when the United States was much poorer than it is today, government spending was only about 8 percent of GDP, so the tax burden on U.S. firms was much lower. In countries like Brazil, bringing firms into the formal sector from the informal sector may require reductions in government spending and taxes. In many developing countries, however, voters are reluctant to see government services reduced.

Several insights about political economy can be seen in just that paragraph. First, libertarians claim that the relative freedom from government intervention is what allowed the United States to become wealthy in the first place, while Statists will claim that “correlation” and “causation” have identical meanings and therefore that the lack of a socialistic government was a major cause of the U.S.’s relative poverty 100 years ago. Second, the consumers and businesses that operate in the black market in Brazil obviously do so because they don’t think they benefit from their government’s interventions, at least not nearly proportionally to the costs (taxes), echoing Robert Heinlein’s famous quip, “First, what is it you want us to pay taxes for? Tell me what I get and perhaps I’ll buy it.” Third, the fact that voters continue to delude themselves into voting for poverty over wealth is as sad and puzzling in the developing world as it is here.

If Brazil had lived for 50 or 100 years under the relative economic freedom that characterized the United States and western Europe after the industrial revolution, then it could afford a large government without such crushing taxes because its businesses would be more productive, its workers would be more individualist, educated, and productive, and its entire economy would most likely benefit from a culture of (relatively) honest business practices, contract enforcement, voluntary worker-rights agreements instead of centrally mandated ones, profit-seeking entrepreneurship, and healthy competition.

(I thought I successfully avoided exhibiting vulgar libertarianism or Right-conflationism by using the word “relative” when appropriate.)

However, aside from those philosophical or economic arguments, you can take the easy road and can cite the fact that everything the government touches turns to crap and that government involvement always, necessarily, invariably leads to government control and government restriction. Your politics and philosophy aside, governments only exist to regulate and control everything, and their control only spreads and strengthens over time, not recedes when it becomes unpopular or impractical. As Mises wrote, one government intervention always seems to lead to another intervention to fix the problems that the first intervention caused, et cetera ad socialism. The fact that a net neutrality debate is even necessary is solely due to prior government intervention in creating telecom monopolies and regulating them through the Federal Communications Commission, and the net neutrality legislation that we will inevitably suffer will only beget more legislation. Here’s a helpful hint for your daily life: when you hear “legislation”, think “restrictions of free choices backed by threats of violent punishment for disobedience”.

In the case of the government controls that will follow net neutrality legislation, it might not be exactly the problems caused by such legislation that lead Congress and the FCC to instate new measures to fix those problems, but rather the opportunity to control and the lust for power will simply be too great to pass up. As a rare intelligent and informed redditor put it (hat tip Mises Blag),

So let me get this straight….the government, the same government that punishes success through the tax code, prevents innovation through burdensome regulation, can’t spend within its means, bails out billionaires with working people’s money, and has created a ponzi scheme in the form of social security to threatens to bankrupt the nation, and generally screwed up everything it has ever touched, getting involved in regulating the internet, is going to help increase speech, entrepreneurship, and innovation? Pardon me for being a little skeptical.

I’ll tell you what will really happen. The first 6 months will be fine. Then, first you will see federal taxes on internet purchases, then you will see ‘fairness’ controls that will restrict the content of what you can say, then you will see political speech regulated in the name of ‘campaign finance reform’, then you will see federal business licenses required for selling goods on the internet, required encryption backdoors, required technologies, national ‘internet IDs’, mandatory content filtering, a ban on anonymizing technologies, and 1,000 other terrors that I can’t even imagine right now. Regardless of the pure intents of the people wanting to push government enforced net neutrality, this will make the internet subject to politics and big money interests.

Here is what you will really get… Boy MP3′s sure are disruptive technology, not anymore! The president just appointed the head of BMG as the ‘internet czar’ (czar=no senate approval required!), after a $5 million campaign contribution, and he just decided that MP3s only exist to facilitate copyright infringement, and therefore must be filtered by all ISPs. And you just thought it would make your netflix download faster.

Government enforced Net neutrality is a dangerous idea that only serves to open the door to the destruction of the internet at the hands of government regulators. A better way would be an industry consortium that self-regulated net-neutrality and ostracized companies that didn’t play ball. Plus, people need to vote with their dollars. Your ISP is throttling Netflix? Don’t do business with them.

Contrary to that dolt Al Franken saying that net neutrality is the most important free-speech issue of our time, net neutrality and everything else internet- and telecom-related are solely a government-control issue. We are all born with the absolute right to completely free speech, and the State can only infringe upon that right, not protect or augment it.

The Senate Judiciary Committee recently approved the Combating Online Infringement and Counterfeits Act (COICA), also known as the domain-seizure law. With this flabbergasting dismissal of basic rights to free speech, perhaps some Democrat supporters will change their tune and begin openly criticizing many in their party for being the freedom-hating fascists that they are.

[UPDATE: Ooh, it looks like Senator Ron Wyden, another Democrat, has put a hold on the bill, preventing it from being passed during this session of Congress and forcing it to be re-introduced in the next session if anyone wants it to be voted on. That is very good news for the internet and the First Amendment.]

The Senate will soon vote on the Food Safety and Modernization Act of 2010, which would give the federal government the authority to dictate food prices, growing practices, how food is transported, and which foods can be eaten, grown, sold, and traded. It would most likely give more leeway and power to producers of genetically modified foods, which, validly or not, millions of people distrust and refuse to eat. This law would be to our daily sustenance what the Federal Reserve is to our money and the Drug War is to drug consumption—think raids, imprisonment, black markets, bureaucracy, impoverishment, degradation of standards, and massive shortages. The House version is sponsored by John Dingell, a worthless specimen of sub-human scum who apparently hasn’t taken away enough freedoms, ruined enough lives, or killed enough people in his heinous, disgusting waste of a life, and who is also my representative from the 15th district of Michigan.

Confessions of a Price Controller by Joseph Antos. He explains how Medicare’s price-control system keeps prices up, which is no different from any price controls.

The Resource-Based Relative Value System (RBRVS) is founded on the simple, but incorrect, view that higher payments are justified for services that require greater inputs—ignoring the consumer side of the market.
[...]
Prices must respond to both the supply and demand sides of the market to allocate resources to their best use. Medicare ignores the market, setting prices for physician services based on an academic theory with its roots in the Soviet Union and implemented by the American Medical Association. Those prices do not reflect the value patients receive from their care, and they do not reflect shifts in the demand for particular kinds of services (such as primary care) as the population ages or as more people have health insurance.
[...]
The problem for a government price controller is that he can never know when the price structure is “right.” He can know when physicians are unhappy with their prices because they will complain, but that does not necessarily mean that those prices should be raised. He cannot know when prices are too high, because physicians benefiting from that mistaken generosity will not complain. The bias is always to raise prices, not lower them.

As good, simple, short as that column is, the last sentence struck me as some platitude that was insisted upon by an editor, which might be a good example of why the glorious world of blagging and self-publishing produces more unfiltered honesty and relevant commentary than writing for some corporate publication. Or maybe it’s just because it was published by the American Enterprise Institute. Either way, it was kind of funny and dumb: “Let’s hope a Republican Congress will have the guts to start pulling the needle out of our arms.”

UK Proposes All Paychecks Go to the State First, originally published at cnbc.com. You can’t make this stuff up.

Federal Student Aid To For-Profit Schools Has Tripled In Recent Years, The Consumerist. This is because when the State subsidizes something by taking money from people who earned it and giving it to others, there is no incentive for the prices to go down. In fact, there is incentive for the prices to go up, so they have. In other words, the demand for college in general and the demand for expensive colleges in particular have increased because price is much less of an issue now that the Imperial Federal Government will give you loans to pay for everything. Because the demand is artificially inflated, so are the prices. It is simple.

Obama argues his assassination program is a “state secret” by Glenn Greenwald. I don’t know why everyone who calls himself a “liberal” doesn’t read Glenn Greenwald regularly. I haven’t ever seen a Glenn Greenwald blag post shared by my friends on Facebook. I doubt the implementation of a state assassination program was cited in that one article, shared by at least two of my friends on Facebook, listing all the things Obama has accomplished in his first two years in office with a Democratic Congress. I wonder why they aren’t too proud of that one. I wonder how many have even heard about it.

The Cost of the TARP: One More Time from the Center for Economic and Policy Research. Money quote:

Thanks to their access to below market credit in their time of need, courtesy of the taxpayer bailouts, the Wall Street executives are still pocketing tens of millions a year and the banks are again making record profits. Had the market been allowed to work its magic, this wealth and income would have been available for the rest of society. The financial sector will continue to be a drain on the rest of the economy because the government saved it from the consequences of its own recklessness.

By the way, if you search for news articles on this story, isn’t it depressing how strongly and confidently many (liberal socialist) authors proclaim that this is what will happen if Democrats don’t run our lives and this is what would happen in a Tea-Party Republican version of America? Liberals should be ashamed to be even peripherally associated with such monumental ignorance, and especially to contribute to it.

China is doing moon shots. Yes, that’s plural. When I say “moon shots” I mean big, multibillion-dollar, 25-year-horizon, game-changing investments. China has at least four going now: one is building a network of ultramodern airports; another is building a web of high-speed trains connecting major cities; a third is in bioscience, where the Beijing Genomics Institute this year ordered 128 DNA sequencers — from America — giving China the largest number in the world in one institute to launch its own stem cell/genetic engineering industry; and, finally, Beijing just announced that it was providing $15 billion in seed money for the country’s leading auto and battery companies to create an electric car industry, starting in 20 pilot cities. In essence, China Inc. just named its dream team of 16-state-owned enterprises to move China off oil and into the next industrial growth engine: electric cars.

Not to worry. America today also has its own multibillion-dollar, 25-year-horizon, game-changing moon shot: fixing Afghanistan.

This contrast is not good.

No, it isn’t. This brings two important points to my mind. First is Thomas Friedman’s conclusion: the Imperial Federal Government wastes an almost unimaginable sum of its subjects’ wealth. A lot of people, like Republocrats and, especially, Tea Partiers, like to cite America’s lower taxes and fewer regulations and generally more free economy as reasons for our superior quality of life (in some ways). Of course, many also wisely rail against the increasing taxes and over-regulation, etc., as stifling economic growth, and this is as important a subject as any in our modern political discourse. However, an underappreciated facet of that discussion is that the Imperial Federal Government does do a lot of things wrong that most governments don’t. It certainly wastes more money on the military and bloated programs like NASA than other countries. I have the impression that it also favors large corporate interests and is more “corporatist” than most other (e.g., European) governments. We are not more free, less regulated, or less screwed over than other developed countries in any meaningful way. That’s a complete myth. The military is by far the primary reason for this. If most of that money were spent on something useful or productive, our financial quality of life and therefore the strength of our families and communities would grow like we’ve never seen.

The main reason I bring up that link is what it means for China: they’re on the path to the same type of centrally planned bloat that afflicts all societies after they experience some affluence and start becoming complacent and arrogant. I figured it would take a long time for the NIH/NASA/HUD/green-subsidizing type of bloat to replace the corrupt Communist oppression that has characterized that country for so long. Maybe it still will be a while. But from my perspective, they’re ahead of the curve in over-spending and over-regulating themselves into poverty. This might sound kind of stupid because that’s exactly what their Communist government has done for three generations. Maybe it is. Either way, it isn’t a good sign.

According to many people, this 25-year plan looks good for China. In fact, it probably will help the Chinese people in many ways. Many of these things might have been done in a free China. They certainly seem to need some kind of environmentally friendly changes in their cities. But it doesn’t matter how good the ideas are, how well they are managed, how many people they employ, or how much better its government is than it was last century. Central planning cannot allocate resources as efficiently as the free decisions of free people using the price system. Governments can only make decisions politically, which cannot enrich a population as well as decisions that are made economically.

In the end, this means China will have tens of thousands of people conducting basic research that will not help people in proportion to the amount of wealth expended in conducting the research. (If it did, how could we ever tell? How could people decide for themselves what was worth their money and what wasn’t? How could the ineffective expenses be replaced with more economically efficient ones?) They will have unnecessarily expensive, fancy airports that will inevitably be managed by corrupt bureaucrats who couldn’t flip burgers in a free country. (Not that this changes anything.) They will have politically protected, over-funded, deteriorating railways that need subsidies to survive. (At least, that’s the way it happened in the United States, another large country with widely spaced population centers.) They will go through a green bubble like the one Barack Obama is creating over here and be left with companies, products, and R&D departments that exist because of political correctness and not necessarily because of scientific correctness or economic worth.

Better central planning is still central planning. If China had a 25-year plan to get rid of dozens of government agencies/offices and fire hundreds of thousands of government employees (as if that would actually hold up through multiple changes of leadership), that would be real change.

(Hat tip: Henry Blodget)

Remember the CEO of Toyota standing in front of Congress and, in broken English, apologizing profusely and practically begging for America to give them another chance and believe in Toyota again? And how some congressmen, I don’t remember which, berated him and his company and basically tried to start a nationwide smear campaign against them? We won’t be hearing any apologies from them, nor can they undo the damage they helped cause to a perfectly responsible company that makes cars that are apparently about as safe any other company’s.

I think it’s safe to say that, in the minds of many senators, congressmen, and bureaucrats, the desire to bolster American car companies at the expense of the suddenly vulnerable Toyota played no small part in their attacks on Toyota before any solid evidence was available. Do you doubt that such favoritism will become commonplace and even more shameless as the Imperial Federal Government gains more influence, control, and eventually ownership of nominally private businesses? Of course government agents will make decisions based on politics and not necessarily economics, justice, good business sense, or even common sense. This kind of dishonesty, this disregard for the facts, the complete lack of importance placed on efficiency or fairness are characteristic of government-run economies when decision-making is political, so we can expect a lot more of this in the future, not less.

An ever more elaborate system of ‘workers’ rights’ was promoted until the labour code grew to several thousand pages—a happy hunting ground for labour lawyers, a minefield for enterprises. Trade union power came to be based, not on workers recognising that union membership may serve their interests, but on legislation, government sponsorship and the patronage afforded by the immense administrative machinery of the various social insurance schemes.
[...]
The future historian of these apparent triumphs over economic reality will very likely single out two phenomena that loomed more and more ominously and in fact began to signal that no matter how the battles went, the war was beginning to be lost. One was the growing severity of job protection policies that made firing employees so difficult and expensive that employers were frightened away from hiring them in the first place. New job creation fell to levels last seen in the Great Depression, for offering employment except on short-term contracts has become an act of reckless audacity. (One small but significant breach in job protection came just the other day when the highest French court of appeal ruled that terminating employees may be permitted not only when the enterprise is making losses threatening its survival, but also when terminating employees is necessary to prevent such losses).

The other ominous phenomenon was that the high level of unemployment, which would have seemed abnormal a decade ago, has come to be seen as a fact of life. It has resisted the multitude of attempted therapies governments of both Right and Left tried to apply to it. The diminishing band of diehard defenders of the ‘European social model’ still mutter that unemployment is high because the model is not ‘social’ enough, or not European enough, and all will be well when it is made more social and more ‘harmoniously’ European. Meanwhile, it is starting to be noticed that chronically high unemployment has almost wholly drained away the bargaining power of labour in the private sector. Union militancy is now confined to the public sector—essentially, to public transport workers, teachers and government clerks. Thirty-odd years of socialist economic policies have reduced the mythical, red flag waving ‘working class’ to passive impotence.

An anecdote bears eloquent witness to how workers ‘benefiting’ from the ‘special model’ now stand compared to those who are exposed to the ‘caprice of the market’. Two years ago Toyota set up a car assembly plant in the industrially derelict region of Northeast France. More recently, the president of Toyota visited the plant, expressed his satisfaction and explained that the company has chosen to locate in France rather than in England (which was the runner-up candidate location) because ‘English workers can afford to talk back, but French workers cannot’.

I wish Anthony de Jasay was a more active, or at least more high-profile, writer or even blagger today because his magnum opus The State is so good that more people need to read about him. He still writes articles for the Library of Economics and Liberty, so I guess I should actually read them regularly and accept that as good enough for an 85-year-old.

The most complex factor in the study of economics is time. Because liberal and statist economic theory does not properly account for the fourth dimension, it rarely predicts economic development accurately.
[...]
Banks and credit-card companies invest hard capital at a substantial risk of default, to earn money in the future through interest and fees. If they believe their ability to profit from this risk and expense is threatened, and they’ve been demonized to the point where they have no effective means to influence politics to their advantage, the only logical move is to reduce risk, and increase the price of the loans they feel confident in making. This hurts new businesses and low-income consumers the most, because they have the least impressive credit ratings.

As David Z. predicted a year ago and I predicted a couple times in the past year, the bailout money taken/inflated from the American public and given to Chrysler and GM will not be repaid. “Oh, but it’s not a bailout; it’s a LOAN!” Eat crow, you accessories to robbery.

But, at least we only lost $30 billion in this venture instead of the possible maximum of $44 billion.

The $30 billion isn’t the end of it because this is the way Obamanomics works. It’s the same way Bushonomics and every other socialist, dirigiste economy works: the rich and well-connected benefit at the expense of the common people, who don’t get bailouts and are impoverished by inflation.

Hat tip: David Z. at …no third solution