Waging War on Work

This article was originally published at Mises.org on February 11, 2013.

Employment law is a mainstay of state economic policy. Few question its efficacy as a means to correct “market failures”—like unlivable wages for meaningful work—that would leave society in shambles. In fact, no serious debate exists among American policymakers about the benefits of such laws. Their utility is simply assumed.

But laws that restrict or stipulate the terms of voluntary employment contracts stifle economic progress and make life harder for everyone—even those for whom the laws were designed to aid.

Minimum wage is the most basic example of such a law. By outlawing employment below a certain wage-rate, the state ensures that no one works for less than what its officials consider a “living wage.” The first federal minimum wage legislation was the Fair Labor Standards Act.[1] Since its passage in 1938, the bill has been amended many times—usually to adjust the minimum wage to account for inflation. Today, the federal minimum wage is $7.25 per hour.

In the act, Congress determines that “the existence … of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers” causes inequity, burdens commerce and “the free flow of goods in commerce,” and leads to labor disputes that further hamper free commerce.[2] Minimum wage is their solution to this problem.

But what Congress did not know (or chose to ignore) was that employers cannot pay an employee more than that employee’s discounted marginal revenue product—their contribution to the employer’s firm’s revenues. For example, if an employee generates $10 of revenue for their employer every hour, their employer will not pay them more than $10 per hour. Otherwise, their contributions to the firm would amount to net loss. Employers cannot simply raise every employee’s wages without regard for the employee’s marginal revenue product.

The unseen effect of minimum wage is now made clear: all workers who are unable to generate more revenue per hour for their employer than the legal minimum hourly wage are laid off. As Murray Rothbard writes,

If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to dis-employ, permanently, those who would have been hired at rates in between these two rates. Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that labor, this means that the people who will be dis-employed and devastated by this prohibition will be precisely the ‘marginal’ (lowest wage) workers … the very workers whom the advocates of the minimum wage are claiming to foster and protect.

The “marginal” workers Rothbard describes often include inexperienced teenagers, immigrants, and the disabled. For these people, employment is legally impossible under a minimum wage law. They are permanently dis-employed. To deny this effect, according to Ludwig von Mises, is “tantamount to a complete disavowal of any regularity in the sequence and interconnectedness of market phenomena.”

Why, then, do so many continue to advocate minimum wage as a means to subsidize the working class?

The fact is, many such advocates choose to ignore economic reality in favor of more “nuanced” arguments. Consider attorney and writer Carolyn Rosenblatt. In a Forbes.com column published last winter advocating minimum wage for home care workers, she writes,

For anyone who might think [extending minimum wage to home care workers] is not a good idea or that it puts too much burden on the small business employer who has to pay more now to the worker, think about this: would you want your aging loved one to stay in his or her home as long as possible? Are you willing to do all the physical chores of care-giving yourself?

For Rosenblatt, economic law, small business, and market forces are not important. What matters for her (and her intellectual allies) is cognitive resonance—feeling like home care workers are paid as much as she thinks they deserve, all the while refusing to acknowledge that wages are market prices determined by supply and demand.

Arguments like this are all too common among proponents of the minimum wage. They acknowledge the economic problems with their ideas yet advocate them anyway. There is no other explanation. While Rosenblatt and those like her may have the best of intentions, their willful ignorance of economic reality is blatant and hardly forgivable.

Of course, not all advocates of minimum wage are ignorant. Unions, for example, have a strong interest in supporting minimum wage. By doing so, they eliminate competition from those willing to do their work for less. Racists and prejudiced people also benefit from minimum wage. If employers must pay a minimum wage to whomever they hire, they can disregard the wage-demands of potential employees and simply ignore applications from those they hate. This was the reasoning behind the predominantly white Mine Workers’ Union of South Africa when they wrote regarding the application of minimum wage equally to both whites and blacks,

The real point on is that whites have been ousted by coloured labour. It is not because a man is white or coloured, but owing to the fact that the latter is cheap … when that [minimum wage] is introduced we believe that most of the difficulties in regard to the coloured question will automatically drop out.

Minimum wage, then, is hardly the innocent idea its supporters suspect it to be. Like all other forms of market intervention, it is hijacked by those with evil intent—those who seek to use the violence of the law to serve their own ends.

Needless to say, the harms of minimum wage are hardly a mystery to economists—especially those of the Austrian bent. So why bring this up now?

Because despite the liberty movement’s success in undermining the intellectual foundations of state interventionism, the most basic economic truths have yet to be absorbed into public opinion. In fact, just two years ago the Public Religion Research Institute found that two-thirds of Americans support raising the minimum wage to $10 per hour. Among these supporters are 41 percent of self-described Tea Partiers and 43 percent of “Americans who most trust Fox News”—those who claim to be advocates of economic liberty.

No doubt, libertarians have come a long way. Austrian economics is more popular now than ever. Even on Capitol Hill, the ideas of sound money, financial austerity, and economic liberty have become impossible to ignore. But if two-thirds of the American people maintain support for the flawed idea of minimum wage, libertarians still have a long way to go.

Self-Interest: A Powerful Force for Good and Evil

This article was originally published at ValuesandCapitalism.com on February 7, 2013.

Economists are confusing. They often disagree about the most basic of ideas. But one thing no serious economist rejects is the important role of self-interest in promoting economic growth.

In fact, this idea has been a mainstay of economic theory for centuries. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,” wrote Adam Smith in 1776, “but from their regard for their own interest.”

Today, the importance of self-interest is all but taken for granted. Schools use grades to encourage students to learn. Employers offer bonuses for high-performing employees. Governments offer tax credit for environmentally friendly choices. Today, doubting self-interest’s role as a catalyst for economic growth is almost unheard of.

But unfortunately, pursuing self-interest can go too far.

In the introduction to his book “Economics as Religion,” Robert H. Nelson defines two types of self-interest. “Legitimate” self-interest, he says, is expressed through market processes: as people seek their own benefit, they produce and exchange in conjunction with others in order to build wealth. This is the same kind of self-interest Adam Smith described.

“Illegitimate” self-interest, on the other hand, is expressed in the form of deceit, coercion and violence—seeking their own benefit, people enrich themselves at the expense of those around them. This type of self-interest is usually condemned, and often illegal.

But while illegitimate self-interest may be rare in the United States on a large scale, this is not the case in many parts of the world. Political violence is common in east Africa. Government transparency is deficient in communist China. Police corruption is rampant in places like Sudan, Mexico and Afghanistan.

Americans often analyze these disadvantaged nations and blame certain public figures or features of regional economies like the presence of oil, drugs or famines. But what we often forget is that the same drive for success that fuels our own economic success creates economic disaster when unaccompanied by strong moral values.

This is because self-interest is the most powerful force in the world. It fuels profit-making and charitable enterprises alike. It drives technological progress and entrepreneurial innovation. Yet without strong social pressure to restrain self-interest, economic mayhem results—regardless of financial conditions. As Nelson shows, the nation of Zambia was for years one of the largest recipients of foreign aid in Africa, yet the Zambian economy actually worsened during this same period. Much of this aid, he argues, went straight into the hands of oppressive political rulers who used it to serve their own ends without regard for the rights of their countrymen.

What Zambia lacked was a social system that upheld the values required for economic growth—values that encourage self-interest in the market yet condemn it as a way to harm others. Until these values exist, no amount of investment or aid will do any good. Self-interest will rule, as it always does, but only through the violence of those whose self-interest overcomes their respect for the rights of those around them.

Self-interest is the fount of economic growth. It is the catalyst for innovation and production. But it can also be the prime mover behind violence and corruption. Needless to say, values and capitalism go hand in hand. If either is left without the other, the economic blessings of self-interest will never be known.

Read the article at ValuesandCapitalism.com.

The Young and the Economically Illiterate

Occupy_London_banner[1]This article was originally published at ValuesandCapitalism.com on January 23, 2013.

Earlier this month, the Higher Education Research Institute reported that today’s young people are more narcissistic than ever. Our drive to succeed surpasses that of our parents. We expect a great future for our generation. Our intellectual, leadership and social self-confidence are at all-time highs.

Exciting, right? Doesn’t personal ambition drive innovation and progress? Isn’t self-interest the fount of the invisible hand’s innumerable blessings?

Under the right circumstances, yes—unwillingness to settle for one’s current state of affairs is a healthy incentive for entrepreneurial innovation. “The mark of the creative mind,” economist Ludwig von Mises wrote, “is that it defies a part of what it has learned or, at least, adds something new to it.”

But considering the economic beliefs of the average American young person, this news couldn’t be worse.

The fact is, most of today’s young people are economically illiterate. Most don’t understand how the economy works, or what drives economic progress. Most have no commitment to the notion of earned success. This was demonstrated by a recent paper by University of Pennsylvania economists Bhattacharjee, Dana and Baron in a 2010 paper. Citing multiple surveys of consumers’ opinions regarding profit and social value, they write:

We find a strong negative correlation between perceived profit and social value across both industries and specific firms. People report little faith in the power of markets to create and reward value, neglecting the incentive properties of profit and focusing instead on the perceived intentions of firms.

Holding profit and social value to be at odds defies even the most cursory understanding of economics. Profits, of course, do not detract from a firm’s social value, but are simply the reward for efficiently satisfying consumer demand. High profits are earned by those who most deftly meet the needs of their fellow human beings. A rejection of the notion that profit correlates with social value, then, reveals a deep ignorance of any and all economic theories.

But scientific surveys are hardly needed to uncover the economic illiteracy of the Millennial generation. It was my generation, indeed, who assured the eight-year presidency of progressive Barack Obama. It was this generation who hailed Obamacare’s victory over the largely unwilling elderly population. And it is the Millennial generation who overwhelmingly support mandated forgiveness for their unforgivably high levels of college loan debt.

Ironically, this same generation is the most educated in all of human history. Never before has public education been so readily available to every single child, and a university education as easy as a single FAFSA application. Even further, the Internet has made information freely available to anyone with access to a public library.

In that light, the economic ignorance of today’s young people is truly sobering.

But the dangers of ignorance itself stand pale in comparison to the hazards created by ignorance accompanied by a drive to succeed—the very combination possessed by young people today. In fact, the more “educated” an economically illiterate individual, the more likely he or she will advance ideas wholly antithetical to economic progress and human flourishing.

This happens all the time. Well-meaning individuals seeking to benefit their fellow men unknowingly plot the world’s economic demise with various welfare, entitlement and regulatory schemes they wrongly think to be steps toward equality and social harmony. The more educated these individuals are, the less likely they will be persuaded of their mistake. As Isabel Paterson wrote:

Most of the harm in the world is done by good people, and not by accident, lapse, or omission. It is the result of their deliberate actions, long persevered in, which they hold to be motivated by high ideals toward virtuous ends … when millions are slaughtered, when torture is practiced, starvation enforced, oppression made a policy, as at present over a large part of the world, and as it has often been in the past, it must be at the behest of very many good people, and even by their direct action, for what they consider a worthy object.

Unless young people recognize the unwavering power of economic law and accept the insights of praxeological science, my generation’s entrepreneurial energies will be spent in vain. Their arrogant attempts to conjure wealth, avoid fiscal austerity and thwart unstoppable market forces will crash and burn.

Read the article at ValuesandCapitalism.com.

What if Money Was No Object?

Money_closeupThis article was originally published at ValuesandCapitalism.com on January 10, 2013.

“What would you like to do if money was no object?”

This is the question asked in a trending Youtube video narrated by the late philosopher Alan Watts. It encourages young people to live and dream as if money didn’t matter—as if money was no object.

Inspiring, to say the least. The notion of dreaming and living without regard for financial reality can open the imagination to entire worlds that money had rendered unrealistic.

But profound narrative, dizzying imagery and hypnotic music aside, this video reveals an attitude about money that is hostile to economic prosperity and, more importantly, living a moral life. For despite what Alan Watts, Hollywood and Occupy Wall Street might say, money is a vitally important feature of the social world that we simply cannot do without, and using it is a moral issue.

First, money is simply a medium of exchange, and recognizing its usefulness is a good practice.

Whereas some activists might cite money as the root of evil and social injustice, that is simply not true. As every student learns in Economics 101, money is purchasing power. It represents the ability to acquire material ends. Those who most efficiently supply the needs of their fellow human beings will earn the most money.

For example, consider money’s origins. In the ancient world, barter trade was man’s primary means of exchange. If John wanted apples but produced only oranges, he traded oranges for apples. If, however, no one with apples wanted his oranges, he was out of luck. But instead of simply going without, John would trade his oranges for something the apple-growers wanted—like grapes—and then trade those grapes for apples.

After a while, others caught on to this means of barter, and different media of exchange arose. All members of John’s society began to accept gold coins in exchange for their goods, knowing that these coins could then be exchanged for anything. Gold became money.

Money, then, is both a media of exchange and a means of calculation. It allows individuals to acquire things they want and to more precisely determine the value of their goods and services.

In that light, why ignore money? Why pretend like money doesn’t exist when choosing a career? Yes, money restricts options and makes some dreams impossible. But without money, there would be very few dreams whatsoever.

While pursuing a life in which money doesn’t matter may be exciting, it is a total fantasy.

Second, God has much to say about money, and none of it involves pretending it doesn’t exist.

Both the Old and New Testaments are littered with hundreds of verses about money. Common to all of these verses is the idea that the creation and use of money is a moral exercise. Whether it is God’s command to “use honest scales and honest weights” (Leviticus 19:36), His rejection of “diverse weights” and “false balances” (Proverbs 20:23) or his lament that Israel’s “silver has become dross” (Isaiah 1:22), it is clear that money is significant to God’s law and human life.

One particularly revealing issue is debt. Unfortunately, debt is all-too-common among American young people. According to the Federal Reserve, 37 million young people have outstanding student loans. What is not so common, however, is seriousness about making debt payments. According to arecent uSamp survey, the vast majority of those who have not paid off their student loans want those loans forgiven. While those answering the survey may never consider the ethical issues involved, repaying debt is a moral imperative.

In Romans 13, Paul writes that Christians should “Owe nothing to anyone—except for your obligation to love one another.” David writes in Psalm 37,”The wicked borrows and does not repay.” In short, the importance of repaying loans cannot be more explicit. If one contracts to borrow money from another, that contract should be upheld. Defaulters should be penalized.

Undeniably, money matters to God. Debts should be repaid. Budgets should be kept. Forced loan forgiveness and dishonest inflation should be rejected and condemned. These are moral imperatives. To live as if “money was no object” is a dereliction of moral duty.

Finally, while living as if money doesn’t matter may be exciting, such a life is available only to those with money to spare.

Try telling a single mother of two that money doesn’t matter—that her career path shouldn’t be determined her ability to provide for her family. Or consider an unemployed graduate with no means to finance his college debt payments. For them, of course, money matters.

But perhaps the absence of want is why today’s young people are so repulsed by money. Generation Y is the most materially blessed generation in recorded history. When it’s a given that there will be food on the table every day of the year, it is easy to forget the importance of money as a necessary means to sustain life and cultivate a healthy society. But that doesn’t change the fact that money is important.

Like it or not, money is dinner. Money is education. Money is life-saving medical technology. Of course, there are more important things in the world than being rich. But the existence of money is an unavoidable feature of social life that everyone should consider—especially when making career decisions.

For further reading on this issue, see my article Where Money Meets Morality.

Read the article at ValuesandCapitalism.com.

Three Ways to Defend the Free Market

Lucky number threeThis article was originally published at ValuesandCapitalism.com on January 4, 2013.

Each year, almost 50 percent of Americans make New Year’s Resolutions. Most often, these include things like losing weight, working harder or spending less. Whatever they may be, the common thread among them is that they involve things we deeply care about—things we think deserve more of our time and effort.

In that light, it only makes sense that the free market should, in some form, be among our New Year’s Resolutions. And if this year is anything like last year, the free market will need all the support it can get. As critics of the free market grow stronger, it is up to liberty’s advocates to counter those attacks.

So this year, make defending the free market one of your resolutions. Commit yourself to discuss the ideas of liberty with friends and neighbors. Here are three tips to help you get started:

1. Raising questions is always better than giving answers.

Capitalism defends itself. It is logical, coherent and well-supported. The last thing it needs is your careless, back-of-the-napkin arguments that can sometimes do more harm than good.

Instead of arguing defensively with your friends, try raising some interesting questions. Ask them about their beliefs. Why do they think like they do? What do they think about our economic future? How do they propose the government deal with things like inflation, student loan debt and gun control?

If you’re like me, you’ll quickly find that questions build bridges and create mutual understanding. If you’re lucky, your friends will begin to seriously consider their own opinions, and will become more open to listening to alternative points of view. Helping others come to their own opinions will create more lasting change than asking them to adopt yours.

2. Everyone deserves respect, no matter how mistaken they may be (yes, even your crazy socialist uncle).

Granted, respecting your opponent can be difficult. How can someone be so educated, you might wonder—and yet wrong? How can that friend of yours be so blind to the harms of government debt when they have experienced the pains of bankruptcy in their own life? What makes your unemployed neighbor believe that investing more in the same government policies will help her get a job?

But the fact is, many people who are “hopelessly wrong” have the best of intentions in mind. Socialists believe their policies will bring economic fairness. Occupy Wall Streeters believe big banks harm the poorest of the poor. Progressives believe that more deficit spending will alleviate, not intensify, the current unemployment crisis. Only crazy people support ideas because they want to bring destruction and poverty to their fellow human beings.

So instead of snubbing your intellectual opponents, draw upon their good intentions for your noble purposes. Show them the free market is the solution they are looking for—not an oppressive, evil monster. Make sure they understand that you support the free market because you think it is fair, moral and wealth-generating—not because you are greedy and selfish. Most importantly, help them know that you are as concerned as they are about the plight of the poor, disadvantaged and unemployed—you simply believe the free market is the best solution.

In little to no time, you’ll find that your friends and neighbors will start to be more attentive to what you have to say. As in all areas of life, your respect for others will translate into their respect for you.

3. Use your resources.

Like it or not, no one is going to change their worldview because of a 30-second coffee break conversation. Even if they are proven totally wrong, most of us would rather continue to argue bad ideas than embarrassingly admit defeat.

So instead of arguing, point your friends to some of the thousands of liberty-related resources available in print and online. Email them an article and ask them to respond. Send them a book about an issue you know they care about.

In fact, this is precisely why organizations like the American Enterprise Institute exist. Their scholars have studied these issues for decades and have prepared arguments that—like it or not—are stronger than yours may ever be. Whether Ludwig von Mises on socialismCharles Murray on welfare policy or Arthur Brooks on the morality of capitalism, scholars throughout the ages have advanced and defended the very arguments you are trying to make. Use them!

The ideas of liberty have been growing and evolving for centuries. You have no reason to fight the battle alone.

Read the article at ValuesandCapitalism.com.

In Praise of the Speculator

Flickr_-_Government_Press_Office_%28GPO%29_-_D441-138[1]This article was originally published at ValuesandCapitalism.com on December 5, 2012.

In recent years, the purported effect of oil speculators in raising the price of oil has sparked much debate and concern. Pundits of various political bents have sought an explanation for the rising price of oil among the activity of speculators, and legislation has recently been considered by Congress that would limit the profit margins of oil speculators with the goal of suppressing costs.

Summarizing perhaps the most prevalent belief about the role of speculators in altering the price of oil, President Obama argued this spring that the American people “can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage and driving prices higher, only to flip the oil for a quick profit.”

Additionally, initiatives like Stop Oil Speculation Now (now part of the National Airline Policy Campaign) have gained considerable support from industries that rely heavily on oil for operations, such as transportation and energy companies. These industries allege that financial speculators drive up the price of oil by buying and selling it with no intention of using it, and that such speculation must end if their corporations are to function efficiently—or “based on supply and demand fundamentals instead of profiteering strategies.”

But these critics of speculators grossly misunderstand the role of speculators in the modern economy, and if their attempts to limit speculators’ activity succeed, the economy will suffer.

To understand why, it is critically important to understand what a speculator does.

In reality, speculators are no different than any other market participant. They seek to exploit price differences in order to make a profit. This is no different than the entrepreneur who begins a certain line of production believing it to be an ultimately profitable investment. Ludwig von Mises explains this well:

The mentality of the … speculators … is not different from that of their fellow men … They guess what the consumers would like to have and are intent upon providing them with these things. In the pursuit of such plans they bid higher prices for some factors of production and lower the prices of other factors of production by restricting their demand for them.

When the popular media refers to oil speculators, they are usually referring to persons who buy and sell oil with the intention of making a profit, rather than using it for any “productive” purpose. Thus, stock speculators are generally defined as “traders who take a position in an asset solely to profit from a change in price.”

Allegedly, these people are driving up the price of oil and making everything worse for the larger public, who need oil in order to go about their daily lives.

Now while there is some apparent truth to the notion that speculators drive up the price of oil, it is not the case that if there were no speculators, oil would be less costly. Indeed, when speculators predict future increases in the price of oil, they bid up the spot price as they seek to increase their own stock in oil. They then plan to sell it at a later date for a profit. Thus, speculators turn future price-increases into present price-increases, often preventing a fall in prices in the present.

But imagine if there were no speculators. If the price of oil were to drop to $1.25/gallon, the amount of oil consumed would skyrocket. Indeed, considering the important place oil occupies in today’s economy, such an occurrence would lead to a general economic boom. And all because there were no speculators to buy up all the cheap oil, right?

Wrong. If there were no speculators predicting future price increases—future changes in fundamental supply-and-demand—there could very well be shortages of oil in the present, as the low price entices consumers to buy far more of it than they need. As Victor Niederhoffer explains:

When a harvest is too small to satisfy consumption at its normal rate, speculators come in, hoping to profit from the scarcity by buying. Their purchases raise the price, thereby checking consumption so that the smaller supply will last longer. Producers encouraged by the high price further lessen the scarcity by growing or importing more. On the other side, when the price is higher than the speculators think the facts warrant, they sell. This reduces prices, encouraging consumption and exports and helping to reduce the surplus.

Speculators are thus a sort of “price-corrector,” seeking spot prices lower than anticipated future prices. By capitalizing on intertemporal price differentials, they prevent shortages and give other entrepreneurs means to gauge the future price and supply of oil. And as Niederhoffer shows, speculators can drive down the price of oil just as they can allegedly drive up the price of oil. To attribute only price hikes to them is mistaken.

Much more can and should be said about the benefits of speculation. Suffice it to say, however, that speculators are by no means an “unnatural” or harmful part of modern-day financial markets. We should be more careful than to immediately accuse them of messing things up for everybody else.

Read the article at ValuesandCapitalism.com.

Earned Success in the Free(lance) Market

Hammond_typewriter[1]This article was originally published at ValuesandCapitalism.com on August 20, 2012.

As I begin my last year of college, I think often about my post-graduation plans. Thinking often gives way to worrying, though, as the job market is weak and landing my dream job isn’t likely. So, like thousands of other frustrated Americans, I am considering freelance writing as a profession—at least temporarily. I have experience with it already, and it offers a relief from the incessant job-hunting that plagues so many today.

My decision, however, is not one solely of necessity. In fact, I rather like the spontaneity and risk involved with freelancing. I’ve enjoyed my experience with it so far.

But most importantly, I like the fairness of freelance work—merit-based reward that only freelance markets can offer. Indeed, working freelance gives me a deeper understanding of the fairness of free markets from a perspective others don’t necessarily have.

For most people, applying for jobs happens maybe once or twice every few years. For freelancers, it happens every day. Employers are always looking at their portfolios, evaluating their work, and deciding if they are good enough for the job.

It’s stressful. As a freelancer, I won’t necessarily know if I’ll have a paycheck next week. I won’t have a traditional long-term contract. No paid vacation time. No automatic raise after six months. If I decide not to work one day, I won’t get paid. But honestly, I wouldn’t have it any other way.

What I really love about working freelance is the knowledge that the better I do, the more money I will make, and the more successful I will be. Growing up, I did very well in school. My grades were about as high as they could possibly be. So working harder did not necessarily mean more reward. This was always frustrating.

But working as a freelance writer, I am rewarded according to how well I do my job, not according to whether I completed my tasks for the day. Reward is commensurate with quality. A job well-done makes the next one that much easier to land. And there’s no limit on how much or what kind of work I can do—there are always more articles to write, more work to be done, and more money to be made.

Will I ever be like Malcolm Gladwell or George Will? I doubt it. And like anything else in life, successful freelancing involves a bit of luck. But as a freelancer, I can have full confidence that the harder I work at being a better writer, the more successful I will be. People appreciate work done well, and they naturally reward those who do things the right way.

While the world of freelance offers a unique perspective on the fairness of free markets, don’t believe that the “permanent job” market is any different.

In fact, in a free market we are all freelancers—regardless of our job or title. We all try to sell our labor to potential employers, refine our skills to earn more money, and work harder in hopes of getting a promotion. If we show up early, we get rewarded. If we slack off, we lose our jobs (and getting another one becomes much more difficult). There really is no difference between freelance work and “traditional” work—freelancers simply switch jobs more often and receive their rewards (and penalties) more immediately.

So while freelancing offers an up-close view of the fairness of the free market, everyone—freelancer or not—has firsthand experience with this fairness. Success is earned in the free market, not granted arbitrarily.

Unfortunately, many seem to forget this fact and choose instead to blame the free market for economic inequality. Capitalism, they argue, leaves the masses in the dust of the super-rich and powerful. But in the course of their accusations, they wage war on the notion of earned success. They take for granted the idea of merit-based reward, and overthrow the principle undergirding their belief that good work deserves good reward. But of course, there is nothing as deceptive as an obvious fact. As long as our culture takes for granted the notion of merit-based reward, capitalism will be ever under attack.

In that light, maybe a little freelancing would do us all some good.

Read the rest at ValuesandCapitalism.com.

Is the Fed Really to Blame?

bernankThis article was originally published at ValuesandCapitalism.com on August 14, 2012.

With the passage of Ron Paul’s “Audit the Fed” bill in the House recently, monetary policy is once again becoming a mainstream political issue. And it’s about time. For decades, Americans have stood idly by as inflation destroys the value of their hard-earned savings with the sole purpose of pushing economic problems further into the future.

But while Paul and many Republicans like to blame the Federal Reserve, the fact is that inflation has as much to do with your own personal spending habits as it does with Bernanke and his cohorts at the Fed.

According to the BEA, Americans saved an average of 3.9% of their income last May. Over the past several decades, this number has been steadily declining. Indeed, just 30 years ago, the personal savings rate was near 10%, meaning Americans saved almost three times more money than they do today.

While there are various explanations for this decline in personal savings, perhaps the most popular among conservatives is that reckless inflationary policies scare many would-be savers into spending more money to avoid higher prices in the future. Thus, the Fed and big government would be to blame, as only they have the power to legally create money out of thin air.

But another perspective on this decline—while less convenient—is equally plausible and decidedly more ominous. That is, Americans’ failure to save money left little reason for them to actively oppose the inflationary environment that government has always desired. Inflation, then, is a resultand not just a cause of Americans’ own personal financial irresponsibility.

For example, Americans who save a portion of their income every year have much to lose to inflation. Indeed, the more money they’ve put away in the past, the more loss they will experience as the Fed expands the money supply and devalues the dollar. Savings do not adjust for inflation.

On the other hand, Americans who do not save have virtually nothing to lose—they have no substantial wealth for inflation to diminish. Yes, their groceries might become more expensive. But wages adjust for inflation all the time, and inflation for spenders is simply nominal—very little happens to their levels of real wealth.

That said, as Americans continue to spend more and more, they will become increasingly less likely to vote against inflation, let alone actively oppose it. And the further they go into debt, the more an inflationary status quo will become desirable. Currently, levels of personal debt and spending in the US are so high that any serious attempt at curbing inflation through legislative means is probably unrealistic. The reality of inflation simply does not hit home for most Americans, despite the fact that its long-term consequences are disastrous.

Of course, Keynesian economists often welcome this increased spending. Too much saving, they argue, is an impediment to economic progress. But saving and investment are the true engines of economic growth, and without a private sector backed by financially sound individuals, sustainable progress over time will remain an economic fantasy.

No doubt, blaming “average Joes” for inflation isn’t as marketable as blaming Bernanke. But when Americans are saving less than four percent of their income, the effects of inflation become palatable—even attractive—to many Americans, and elected officials find the support they need to fund excessive spending with irresponsible inflation.

Congress and the Federal Reserve are not blameless, however. An audit of the Federal Reserve should have happened decades ago, and the ever-expanding government “safety net” discourages rainy day saving. But before you go marching on Washington, make sure your own financial house is in order.

As long as Americans continue to spend themselves into oblivion, inflation will continue to run its destructive course. We are a republic, indeed. Our elected officials must pass our test if they are to remain in power. Thus, as we seek to preserve capitalism, reexamining our own values and habits will be far more effective than blaming those to whom we ourselves give power. Indeed, how much we spend is ultimately up to us—a matter of personal responsibility.

In the end, Congressman Ron Paul puts it well:

We would like to think that all we have to do is elect the right politicians and everything is going to be OK. But the government is a reflection of the people and their values. That is why the burden is on people like you to make sure we have those values.

Read the rest at ValuesandCapitalism.com.

How You Contribute to Monetary Inflation


A few weeks ago, I had the privilege of speaking to a small gathering of churchgoers about the causes, dangers and morality of monetary inflation—a topic about which I wrote recently. The audience was great and followed up the presentation with several thoughtful and challenging questions.

One in particular stood out: “Are there ways that we—well meaning, moral and informed people—unknowingly contribute to our nation’s culture of inflation and excess spending?”

It was a great question, and one I admittedly did not know how to answer at the time. But after some days of pondering, I have identified three ways in which even the most virtuous of us fuel our culture’s (and government’s) addiction to inflation.

First: Going into debt.

I don’t believe acquiring debt is always a bad decision. Given a particular circumstance, it may even be the most prudent choice. But debtors face a temptation to favor inflation that is difficult for even the most honorable of people to overcome.

The fact is, when money is debased through inflation, debtors gain the difference. If I borrow $10,000 tomorrow to fund a new car, I gain (at the expense of my creditor) from whatever debasement of the dollar occurs as I’m paying it back. If the dollar has lost five percent of its value by the time I start paying off the loan, I will be paying back five percent less in real terms.

That said, by going into debt, one exposes himself to moral hazard that too easily makes a principled opposition to excessive inflation take a back seat to the short-term gain that occurs in an inflationary environment. And when everyone is a debtor, preventing inflation via representative government becomes virtually impossible.

Second: Spending too much and saving too little.

Even if your personal finances remain in the black, spending too much as a percentage of your income lessens the harm that inflation has on your personal finances. This—like inflation—creates dangerous moral hazard.

For example, someone who spends 95 percent of his income each week has very little savings to actually be devalued in an inflationary environment. And assuming wages periodically adjust, inflation can be almost meaningless—he loses nothing. Price changes for him are strictly nominal and inflation does not affect his wealth.

On the other hand, someone who prudently saves 50 percent of his income each week stands to lose as the dollar is progressively devalued. What he put away in the past becomes worth less and less as inflation runs its course, making the accumulation of wealth over time exceedingly difficult.

Therefore, by spending too much money, one stands to lose very little from inflation, and in turn has little incentive to exert pressure on officials to refrain from inflating the money supply.

Third: Voting “single-issue.”

It is a known fact that most Americans vote for a candidate based on his or her belief on two or three particular issues. Taxes, spending, abortion … these issues make and break elections.

But monetary policy, while complex difficult to understand, is just as important as any other political issue. Voters should consider candidates monetary views when deciding who to support. Indeed, the nature of money as a universal medium of exchange means bad monetary policy harms everyone, and is thus a very important policy area. Bad money corrupts a rational economic order, and ignoring this issue when voting makes one as responsible for inflation as those who actively promote such policies.

Voters everywhere should keep their representatives accountable on the issue of monetary policy like they do on the other “mainstream” issues.

These are three ways in which well-meaning, informed people unknowingly contribute to our nation’s culture of excessive inflation. Consider yourself warned, however, and take measures to protect yourself from your own selfish heart.

Read the article at ValuesandCapitalism.com.

Where Money Meets Morality

If there’s one political issue that puts America to sleep, it’s monetary policy.

Yes, most will concede that monetary policy is important. But the fact is, between all the M1s, M3s, CPIs, PPMs, and Vt=(nT/M)s, the average person gets lost in what appears to be a hopelessly complex system of regulation and statistical modeling.

This is regrettable, considering the profound influence money has on our well-being. Even more unfortunate is the fact that many otherwise well-informed citizens “defer to the experts” for practicality’s sake, believing that educated monetary officials cannot possibly propose a policy that is counterproductive, let alone immoral.

But monetary policy is no less vulnerable to moral abuse than is any other political issue. Indeed, monetary policy undergirds a huge part of human life, affects every other political decision, and has a deeply moral component that should concern any informed observer.

For example, the Old Testament—sacred to three of the world’s major religions—contains commands regarding money that are essentially ignored by modern-day policymakers, liberal or conservative. Granted, many of these commands rest on implicit assumptions, but they are obvious assumptions nonetheless.

When God commands his people to use “honest scales and honest weights” (Leviticus 19:36), laments that Israel’s “silver has become dross” (Isaiah 1:22), and is said to consider “diverse weights” and “false balances” an abomination (Proverbs 20:23), it becomes easy to understand money as an area of human commerce with which God’s law is concerned.

This is because in ancient times, inflating the currency did not involve complex procedures like “quantitative easing” or extending credit on fractional reserve. Rather, inflation was achieved by coin-clipping or other deceptive measures designed to make phony coins appear to be real. This is aptly called “counterfeiting” today, and is not considered morally justifiable.

But while most Americans today recognize that counterfeiting is dishonest, many do not hold monetary officials responsible when they take a roundabout approach to doing the same thing. When the Federal Reserve adds a few zeros to the end of its balance sheet in order to buy Treasury bonds, they create money out of thin air. This money was not earned—it was simply contrived into existence.

Certainly some will disagree. This sort of monetary expansion, they will say, is necessary during economic recessions. I’ll leave that argument to another day. But the conflict remains: How can one defend “just weights and measures” while advancing a policy that would have the money supply altered—distorting its true value—by majority vote?

But religious concerns aside, monetary inflation harms people—especially the very poor and those on a fixed income. Unfortunately, most people who are being cheated by inflation probably don’t know it, believing instead that policymakers would not inflate the currency if it were not good for their constituents.

But when the government increases the money supply, every dollar you have is suddenly worth a little bit less. All that money you have been saving up over the past ten years is not worth as much as it was when you started to put it away. Saving becomes slower and more difficult.

Yes, wages will eventually adjust to account for the devalued dollar. But this takes time—a lot more time than it does for grocers to change the label on their loaves of bread or bottles of milk. And for those on a fixed income, wage increases are very rare indeed.

Needless to say, inflation equals a sort of theft by those who use the newly created money to serve their own ends, for their new purchasing power is earned at the expense of everyone else.

It should be obvious now that monetary policy is something that should concern those who profess an allegiance to a higher moral code, and especially to those who claim belief in the Judeo-Christian God. The issue is far from black-and-white, but caution—not apathy—should be our approach to this important issue.

Read the article at ValuesandCapitalism.com.