Monthly Archives: December 2011

Free Market Capitalism And Democracy

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I want to spend a little time talking about the relationship between free markets and democracy and about how closely connected the two are to each other.

A free market in this context is a market in which the participants—buyers and sellers, producers and buyers, businesses and customers, i.e., any pairing you’d care to think of involving people exchanging items of value—are free to determine for themselves both what it is that’s of value and the terms, if any, by which they’re willing to exchange those things.  Moreover, since the participants are free to bargain among each other, their collective choices, summarized into a general supply of and demand for goods and services and money determine general—and since voluntary, constantly fluctuating—terms of exchange: what can generally be expected to be available for buying and selling, and at what prices.

Capitalism in this context means private ownership of property, including money, and of the means of production: one’s body, including labor output; one’s thoughts, including intellectual property and output; and physical plant, including the entire gamut from individual hammers and screwdrivers up through whole plants and companies that use plants and employ physical and intellectual labor.  Further, capitalism occurs within the framework of a free market, and it facilitates accumulation of capital in a broad variety of forms for profit, for future expansion, and for development of new products and/or means of production.  Thus, capitalism underpins free markets.

Democracy is a means, often political, by which the members of a community decide for themselves a variety of matters, usually by voting in some manner.  A democracy may use a government as a mechanism for arriving at decisions, but in a democracy that government is subordinate to the people.  This is as opposed to a government originating decisions and handing them down to a subject people, with the people being subordinate to the government.

The aggregate of individual economic decisions is what makes up an economy.  In a free market, capitalist economy, individuals, at bottom, vote on what we want produced, vote on what we want to possess or to consume, with our economic property: dollars (which we earn in another component of the free market capitalist economy, the labor market, in which we sell our labor for a price voluntarily agreed on with an employer) and any other items we might offer in an exchange.

Every purchase we make, every sale we make, is the outcome of our voice speaking and the result of our choice made.  I’ve cited Adams before, but he’s applicable here, too: an individual’s happiness—the pursuit of which is one of those inalienable rights acknowledged in our Declaration of Independence—is this:

All men are born free and independent, and have certain natural, essential, and unalienable rights, among which may be reckoned the right of enjoying and defending their lives and liberties; that of acquiring, possessing, and protecting property; in fine, that of seeking and obtaining their safety and happiness.

Where we are free to choose for ourselves what we will do with our property, we there are free to develop our own lives toward our own goals.  And our economic property is founded on our natural right of property in our lives, our bodies, our minds, and the things we produce with those.  (As an aside, this natural right, among others, is acknowledged in our Declaration of Independence, as well as in Adams’ Massachusetts Constitution.)

It is this democracy of a capitalistic free market that enables us to manage our own ends, to reach for goals of our own choosing.  This is where we exercise our property rights in our own outputs.

And we must do so: if government exercises rights in our property, it also has control over our political property: it can give or withhold from us according to its approval of our voting.  Any time a government determines these things for us, even indirectly, by determining the terms of our exchanges, by determining the things we will be permitted—or required—to exchange, regardless of lofty motive, we individual participants lose our vote, we lose our voice: government is speaking, not for us and saying what we have instructed it to say; it is speaking, rather, to us and saying what its instructions to us are.

This is a two-way street.  Without political democracy, we cannot have the economic democracy of capitalistic free markets.  Within political democracy, we individually and freely vote with our political property for the things we need and want; it is through political democracy that we are able to act to preserve the freedom and capitalist nature of our markets.  The free market, our individual ownership of our property and of our productive facilities, are both demonstration and constructor of democracy.

In the end, free markets, capitalism, and democracy each needs the others; none can exist without the other two.  In fact, they are the same; they are merely economic and political sides of the same coin.

Whose Free Speech Is It, Anyway?

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These days we have reports of “Occupiers” planning to disrupt the Iowa Republican Primary caucuses, with one young woman justifying the disruption by saying that “all we have is our bodies, and we need to do what we can to have our voices heard.”

Last week, Congresswoman Michelle Bachmann was disrupted during a campaign appearance in Iowa City as “Occupiers” shouted her down and drown her out—so that only “Occupiers'” voices would be heard.

The same week, Speaker Newt Gingrich’s appearance at the Iowa State Capitol building was disrupted with the same “my free speech, not yours” technique by other “Occupiers,” and for the same reason.

The “Occupiers” plainly believe that their free speech rights don’t end where anyone else’s free speech rights begin.  The “Occupiers” insist that only their speech is appropriate to be heard.  They’re not only attacking the speakers’ rights to speak, though, with their behavior; they’re destroying everyone else’s, also: they intend, as they have been doing all along, to dictate to you and me what speech we will be permitted to hear.  We’re not to be allowed to decide for ourselves.

These are the folks, and this is the philosophy, that the Democratic Party actively supports.  But the “Occupiers”—and by extension, our Democrats—aren’t upset that their voices aren’t being heard; they’re upset that they are not being heeded.  So they’ll “do what we need to do.”  Your free speech doesn’t count.

Government Ego

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A while ago, U.S. District Judge Jed Rakoff rejected a proposed settlement between Citigroup and the SEC for $285 million.  The settlement would have ended a dispute between Citi and the SEC with Citi agreeing to obey the law, admit to no wrong-doing, and pay the vig.  Rakoff’s rejection was based on two premises: if the bank had done the wrongs, then the settlement was far too small; but more importantly, with no admission of wrong-doing by Citi, the SEC’s acceptance of that, and so no wrong-doing having been done, there was no basis for the “fine” in the first place.  With that settlement rejection, a trial of the actual issues at hand would have to proceed.

I won’t go into Citi’s rationale for accepting the settlement; Citi, in fact, insists that the SEC’s case is groundless:

In the event the case is tried, we would present substantial factual and legal defenses to the charges.

What’s of interest here is the government’s attitude. The SEC has appealed Rakoff’s rejection, claiming he made a “legal error” in his rejection: after all, this is the way the SEC has done business for a long time.  Never mind the immutability of Rakoff’s logic that in the absence of actual wrong-doing, there was no basis for any settlement.  No, the judge should have rubber stamped the government’s say-so because it was the government doing the saying.

However, as Rakoff points out in his response to the SEC’s appeal, there is no basis even for the appeal: the trial must go forward.  Rakoff says, as WSJ Law Blog reports,

…to file a proper appeal, the SEC would have to show that it would suffer “immediate and irreparable harm from the denial” of the court-ordered provisions of the settlement—including a prohibition of future violations, a common feature in SEC deals.

The agency and Citi said they would have to allocate lots of resources to litigate the matter….

It seems the petty convenience of the government (or of Citi) isn’t a reason for appealing settlement rejection.  A government imposed “settlement” based on nothing illegal having been done has no legitimacy.  Rakoff reasoned in his appeal response in part by citing the Supreme Court:

As the Court (per Justice Souter) stated, there are innumerable situations, including rejections of settlement agreements, where the effect is to force the parties to litigate and go to trial even though they had expressly bargained not to.  “But if immediate appellate review were available every such time, Congress’s final decision rule would end up a pretty puny one, and so the mere identification of some interest that would be ‘irretrievably lost’ has never sufficed….”

No, this is nothing more than a simple case of government ego getting in the way of government doing its job.  Conduct the trial.  Or let the settlement acknowledge actual wrongs.

Lessons from Germany

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Spiegel Online International talks about a (relatively) strong German economic performance in the coming year, following on the heels of a strong performance for 2011.  It also draws a contrast, while outlining the jealousy of its European neighbors.

Germany’s economic success does not make the country more popular among its neighbors, though. After all, this is the same country that has been blocking all proposals to use the European Central Bank (ECB) to provide more generous financing for embattled euro-zone countries. Some European countries appear to be secretly hoping that Germany, Europe’s economic paragon, will also soon feel the brunt of the crisis.

How did the Germans achieve this?  One path is through the intermediate-term outcome of some economic and governmental reforms they put into place in 2003, in part to cure themselves of being the “sick man of Europe.”  They:

  • increased, from management’s perspective, the mobility of their labor force,
  • provided stronger financial incentives for the unemployed to go back to work, rather than paying them unemployment “benefits” for not working,
  • reduced taxes,
  • reduced government debt relative to their GDP.

One of the things the labor reforms led to was increased hiring because the reforms made it easier for employers to hire.  In 2011 alone, for instance, a half million new jobs were created in a population of 81.5 million.  Their reforms also encouraged more people to try to go back to work.  The resulting increased employment rate matched up with the lower tax burden to leave more money in the hands of individual Germans.  In short, Germany took steps to free up its economy, moving it closer to an open, free market, especially in comparison with their embattled euro-zone neighbors, and embarrassingly so relative to the US.

Their European neighbors, on the other hand, are not implementing similar reforms; indeed, although the embattled euro-zone nations are cutting spending, they’re actually raising the tax burden on their populations and businesses.  Moreover, they’re eschewing reforming their labor laws which leave unions with a decisive upper hand.

Are there lessons here for us?  Let’s see: those half million German jobs would work out to nearly 2 million new jobs in the US in 2011.  Germany cut taxes, but like the failing nations of Europe, our government insists on raising taxes.  Our tax increases aren’t even intended to close any budget gap, or to pay down any national debt, either—they’re for supporting even higher spending.  And here we are, just as are the embattled euro-zone nations, mired in a three-year-old recession in all but name—stagnating away with high unemployment, rapidly increasing budget deficits, and exploding national debt.

Hmm….

More Federal Racism

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I wrote a bit ago about racism in our Federal government.  Here’s another example, this time in the milieu of a Federal court reaching deep inside a State to overrule the vote of the people of a local community.  All in the name of racial preference.

It seems that the voters of Kinston, NC, via a 2008 plebiscite, had decided that, rather than bearing the costs of primaries and to reduce burdens imposed by their existing electoral system on third party and unaffiliated candidates, they’d alter their city charter to provide for a nonpartisan election system, one in which anyone would be able to run for local political office, and no candidate would be required, a priori, to have a party affiliation or a potful of petition signatures to find a place on  the ballot.

But no.  The illustrious Federal Attorney General Eric Holder objected on the basis that

…elimination of party affiliation on the ballot will likely reduce the ability of blacks to elect candidates of choice.

In a decision filed just a few days ago via LaRoque v. Holder, 755 F. Supp. 2d 156, Federal District Judge John D. Bates, actually upheld Holder’s objection and ruled that the good people of Kinston may not speak for themselves; their decision does not count because the Federal government knows better.  A copy of Judge Bates’ ruling can be found here.

The basis of the Bates’ and Holder’s Progressives Know Better position?  It’s that asserted inability “of blacks to elect candidates of choice” without knowing party affiliations.  These worthies think American blacks a) are stereotyped into voting Democratic preferentially, b) are too lazy to find out who the candidates are without a party logo, and c) are simply too stupid to know what to do without someone telling them.

This is another example of the racism of low expectations.  And of the very stereotyping against which so many anti-racism organizations object.  Yet it’s the only way for a failed government to preserve its power: keep Americans properly on the plantation.