TOS Blog: Daily Commentary from an Objectivist Perspective

Tuesday, May 15, 2012

JPMorgan’s Big Loss Highlights the Virtue of Capitalism

Posted by Ryan Krause at 9:24 pm

Chase_TowerJPMorgan Chase CEO Jamie Dimon announced last week that the bank had lost over $2 billion as a result of some bad investment decisions. Following the announcement, Dimon hit the airwaves apologizing for what he called “sloppy” and “stupid” behavior on the part of his company, and he told the company’s customers and shareholders, “we will fix it and move on.”

Like clockwork, pundits and politicians seized on this instance of a private company losing money based on its own decisions and claimed it as evidence that further regulation of the financial services industry is needed. White House Press Secretary Jay Carney said, “It’s amazing given the events that we’ve seen in the last few days, that there are still those who are out there arguing that we should repeal Wall Street reform, that we should let Wall Street write its own rules again.”

Although many are spinning this event as proof that the government should increase regulations on the financial industry, the event is actually proof of the opposite. JPMorgan’s big loss—and those affected by it—highlight how capitalism ensures that only those invested in a given company suffer the consequences of that company’s mistakes.

Dimon disclosed this $2 billion loss as soon as regulators permitted (he would have been criminally liable had he disclosed it any sooner). He apologized to customers and shareholders and committed to fixing the problem quickly. And he did not try to dump the problem or the loss on anyone else.

So where is the problem that the government must fix? It does not exist.

Some have argued that the government must bolster regulations to guard against such losses in the future. Part of the rationale behind this argument is that, given the government’s commitment to “save” firms that are supposedly “too big to fail,” taxpayers are liable for such losses.

Subscribe to the Journal for People of ReasonTaxpayer bailouts of private companies are a problem, but the solution here is to let failing businesses fail. Yes, people invested in those businesses will suffer losses. That is a risk they voluntarily embraced when they chose to invest in or do business with the company. They have no right to foist their losses onto taxpayers, just as taxpayers have no right to expect private investors to hand them profits when the company succeeds.

And “saving” businesses from the consequences of their decisions not only costs taxpayers money; it also distorts the incentives and disincentives inherent in a free market and leads to worse decision-making and greater losses in the future.

Losses and failures are important parts of capitalism. Just as the free market rewards good decisions with success, so too it punishes bad decisions with failure. When the government tries to regulate failure out of existence, it effectively removes negative consequences from companies’ consideration. As a result, companies have less incentive to make sound decisions, and more incentive to take unwarranted risk. Companies’ and shareholders’ rights to produce and keep wealth is one side of the relevant coin; the other side is their corresponding responsibility to shoulder their own losses.

This big loss on the part of JPMorgan, far from exposing a need for regulation, is a perfect example of how the market deals equitably with losses when and to the extent that the government stays out of the way.

JPMorgan miscalculated its risks; it is now paying the penalty in terms of losses to both its balance sheet and its reputation. Most importantly, only JPMorgan (including its investors) are suffering the negative consequences.

This is as it should be. This is how a free market works.

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Image: Creative Commons by Reagan Rothenberge

Posted in: Business and Economics, Individual Rights and Law

Monday, May 14, 2012

Privatize the Postal Service: Protect Rights, Save Money, Improve Service

Posted by Hannah Krening at 8:17 pm

Post_OfficeThirty-four billion dollars. That’s the amount of taxpayer money proposed in a Senate-approved bailout of the US Postal Service. Senator Susan Collins of Maine, a Republican, lauds this bailout as “saving an American institution.”

Why do Collins and company presume that we should save a government-run business that can’t compete in the marketplace even with massive taxpayer subsidies and gun-wielding guards keeping competitors at bay?

In addition to—and because of—the fact that the existence of the Postal Service violates the rights of Americans by forbidding them to act and contract in accordance with their judgment, the service provided by the Postal Service is pathetic. When private businesses such as UPS and FedEx have been permitted to compete with the monopoly for just a portion of services (package delivery), they have profitably provided more guaranteed delivery options and much better service at comparable rates.

Privatizing the US Postal Service would be good on multiple counts and bad on none. It would put an end to rights violations is this area of Americans’ lives; it would unleash a flood of entrepreneurs eager to bring innovative and cost-effective improvements to mail delivery; and it would not cost taxpayers a dollar, never mind thirty-four billion.

What’s not to like?

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Image: Creative Commons by Los Angeles

Posted in: Business and Economics

Sunday, May 13, 2012

Thanks to a Bionic Suit, Paralyzed Mom Finishes Marathon

Posted by Joshua Lipana at 2:35 pm

Claire_LomasClaire Lomas, a woman paralyzed from the chest down because of a horse riding accident, recently finished a marathon thanks to a bionic suit “designed by Israeli firm Argo Medical Technologies,” reports Time NewsFeed. Claire finished the marathon while being cheered on by her family—her husband, 13-month old daughter, and mother—and a crowd of supporters.

Happy Mother’s Day to Claire and hats off to her for such a difficult achievement despite the paralysis. And, of course, hats off to the brilliant men and women of Argo Medical Technologies for creating this wonderful, life-enhancing bionic suit.

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Image: Vladimir Pandovski

Posted in: Science and Technology

Saturday, May 12, 2012

France’s Real Problem—TOS’s Week in Review for May 12

Posted by Ari Armstrong at 12:30 pm

Noteworthy news and views from the week ending May 12, 2012

France’s Real Problem

Yesterday I wrote about the so-called “austerity” measures of France and other European nations, measures that have failed to significantly reduce government spending or curb government intervention in the economy. But much more can be said about the French government’s destructive economic interference. For example, Gregory Viscusi and Mark Deen write for Businessweek:

[France] has 2.4 times as many companies with 49 employees as with 50. What difference does one employee make? Plenty, according to the French labor code. Once a company has at least 50 employees inside France, management must create three worker councils, introduce profit sharing, and submit restructuring plans to the councils if the company decides to fire workers for economic reasons.

France’s economic problems result not from nonexistent “austerity,” but from the government violating the rights of citizens, including their rights to act and do business in accordance with their own judgment.

Viscusi and Deen conclude with the understatement of the week: “With 2.9 million people out of work—the worst joblessness in 12 years—France may need to overhaul its rigid labor laws.”

France Embraces Evil

The Independent notes that François Hollande, France’s new Socialist president, “styles himself as a ‘social democrat’ and not as any kind of revolutionary.” Nevertheless,

The 57-year-old Socialist has openly admitted that he “does not like the rich” and declared that “my real enemy is the world of finance”. This means taxing the wealthy by up to 75 per cent, curtailing the activities of Paris as a centre for financial dealing, and ploughing millions into creating more civil service jobs.

Nothing revolutionary about that—unless one recalls the socialist revolutions throughout history that were motivated by that very same hatred of the rich and that committed mass slaughter to achieve their goals.

To review socialism’s horrifying history, listen to these talks by Alan Charles Kors and C. Bradley Thompson:

A Tipping Point for Gay Marriage?

Despite the fact that a majority of North Carolina voters banned gay marriage this past week, the nation may have reached a tipping point in favor of gay marriage. Consider some of the signs.

Week in ReviewIn the past three years, support for gay marriage has grown from 40 to 50 percent of the population, reports Gallup. Whereas most Colorado voters opposed gay marriage in 2006, this year many expressed outrage when the state’s Republican legislators killed a civil union bill. Consequently, Colorado’s governor has called a special legislative session to reconsider the measure.

And, of course, this week, President Obama made history as the first U.S. president ever to endorse gay marriage, saying, “I think same sex couples should be able to get married.”

Given who said this, why he says anything, and when he said it, thinking Americans are seeing Obama’s endorsement for exactly what it is: political expediency. As Radley Balko writes,

It’s a position he has allegedly held all along, but didn’t have the political spine to state publicly prior to this afternoon. Even then, he only made his statement after carefully strategizing with his aides to make sure it wouldn’t damage him politically.

Even so, the increased support for legalizing gay marriage is a positive development. As the editorial writers of the Denver Post argue in a spirited editorial, removing legal barriers to gay marriage is akin to removing similar barriers to interracial marriage just a few decades ago.

Unfortunately, many Republicans, now led by Mitt Romney, continue their Bible-thumping bigotry against homosexuals and seek to forbid them the right to marry.

Joss Whedon’s Avengers

Joss Whedon’s fabulous science-fiction television show Firefly was canceled after only fourteen episodes, and the follow-up feature film Serenity, while a critical success, didn’t earn much.

Now, however, Whedon is king of the box office. His superhero Avengers film broke opening-weekend records, earning more than $200 million in the domestic market.

While constrained by a preestablished premise and general storyline, Whedon crafted a moving (and often humorous) screenplay. In one particularly poignant scene, the villain demands than a crowd kneel before him. One elderly man refuses to kneel, saying he saw what happened last time a ruler demanded such submission.

Of Comic Book Heroes, Fracking, and Keynesian Economics

The release of the Avengers film generated a couple of interesting political discussions.

First, Mark Ruffalo, who played Bruce Banner (a.k.a. the Hulk) in the movie, wrongly suggested that hydraulic fracturing (“fracking”) in energy production poisons people’s wells. Alex Epstein of the Center for Industrial Progress responded with an open letter to Ruffalo that begins, “As an energy researcher I am disappointed that you are using the media attention over your new Avengers movie to attack ‘fracking.’” Epstein invites Ruffalo to an educational seminar so he could “be an avenger for fracking.”

Second, someone has calculated that the destruction of New York shown in the Avengers film would cost some $160 billion in real life. For Keynesian “economists,” this kind of destruction is just what we need to get the economy back on track. Sarcasm? Hyperbole? Hardly. Last year Paul Krugman suggested that an alien invasion would “stimulate” economic growth by necessitating spending on a military buildup.

Obama Administration Harasses Romney Donor

Thank goodness we don’t live in China, where government officials have detained family members of activist Chen Guangcheng. Here in America, the Obama administration and its allies merely conduct “opposition research” against those who contribute to Obama’s political opponents (specifically Mitt Romney), then lead public smear campaigns against them. The Wall Street Journal carries the latest developments on this front.

Maurice Sendak: “Live Your Life”

Maurice Sendak, author of Where the Wild Things Are, died May 8. Far more notable than his death, however, is how he lived. Consider comments he made during an NPR interview last year (as transcribed by Poker Grump):

I’m not unhappy about becoming old. I’m not unhappy about what must be. . . . [T]here’s something I’m finding out as I’m aging: that I am in love with the world. And I look right now, as we speak together, out my window in my studio, and I see my trees, my beautiful, beautiful maples that are hundreds of years old. They’re beautiful, and I can see how beautiful they are. . . . Oh, God, there are so many beautiful things in the world which I will have to leave when I die! But I’m ready. . . . I wish you all good things. Live your life. Live your life. Live your life.

The Call to End Occupational Licensing

This past week, the Institute for Justice released a new study, “License to Work: A National Study of Burdens from Occupational Licensing.” It “documents the license requirements for 102 low- and moderate-income occupations—such as barber, massage therapist and preschool teacher—across all 50 states and the District of Columbia.”

title="Subscribe to the Journal for People of Reason">Subscribe to the
Journal for People of ReasonThis is an important report that deserves the media spotlight, because, as Michael LaFerrara discusses in a recent TOS blog post, such licensing violates individual rights, increases the costs of doing business, restricts entry into targeted industries, and gives politicians more control over producers.

Another Producer Leaves U.S. Due to Tax Code that Punishes Success

“Eduardo Saverin, the billionaire co- founder of Facebook . . . renounced his U.S. citizenship” to reduce his tax liability, Bloomberg reports. He is just the latest successful American entrepreneur to flee the oppressive and grossly unjust U.S. tax code, which penalizes producers for producing.

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Image of Barack Obama and Nicolas Sarkozy by Wikimedia Commons. Image of Joss Whedon by Gage Skidmore at Wikimedia Commons.

Posted in: Events

Friday, May 11, 2012

Europe Needs Real Liberty, Not Fake “Austerity”

Posted by Ari Armstrong at 1:58 pm

To various leftist American pundits, France’s recent election of socialist François Hollande to the presidency proves the ineffectiveness of Europe’s alleged “austerity” measures. For example, after considering Hollande’s election and the upheavals in Greece, Time’s Bryan Walsh concludes:

Both are reactions to the increasingly discredited—or at the very least disliked—austerity policies that have been put in place to fix the euro-zone crisis. That hasn’t happened yet—countries like Italy and Spain are in recession and nations like Greece are in worse straits. In fact, the one thing we know austerity causes is the end of political careers. [France’s so-called conservative] Nicolas Sarkozy [who lost to Hollande] could tell you that.

Walsh’s remarks (and comparable commentaries by others) contain so many fallacies it’s difficult to know where to begin.

Even if some European nations slightly reduced their massive government spending in the name of “austerity,” such measures can hardly be expected to result in economic recoveries, let alone quick ones. By analogy, a man who goes on a “diet” by reducing his daily intake of Twinkies from 100 to 95 should not expect to transform into a model of health.

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Journal for People of ReasonBut the notion that any European nation significantly reduced government spending or controls over the economy is laughable. Responding to the anti-austerity rants of Paul Krugman and Eugene Robinson, the Cato Institute’s Michael Tanner points out that, far from cutting spending, Portugal went on a “massive Keynesian spending” spree. Tanner notes that “the average EU government consumes more than half of a country’s GDP,” and in “France . . . the so-called austerity largely consisted of raising taxes.”

Writing for the Mercatus Center, Veronique de Rugy shows:

France and the U.K. have not cut spending. . . . [W]hen spending was actually reduced—between 2009-2011 in Greece, Italy, and Spain—the cuts were relatively small compared to the size of their bloated European budgets. While Italy reduced spending between 2009-2010, it also increased spending in the following year by an amount larger than the previous reduction. Most importantly, meaningful structural reforms were seldom implemented. Whenever cuts took place, they were always overwhelmed with large counterproductive tax increases.

This so-called balanced approach—some spending cuts for large tax increases—has been proven to be a recipe for disaster by economists. It fails to stabilize the debt, and it is more likely to cause economic contractions.

Dan Mitchell and Russ Roberts make the same basic case, and Mitchell points out that Sarkozy was no free-market advocate, but rather a tax-hiking statist. The Wall Street Journal makes a similar point about Sarkozy, though its writers predict that, under the likely worse policies of Hollande, there will be “another wave of French tax migrants to London.”

What Europe needs—and what America needs—is not fake “austerity” but radical cuts in government spending, radical reductions in regulations, a radical turn toward protection of property rights and the establishment of economic liberty.

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Creative Commons Image of Hollande by Jean-Marc Ayrault

Posted in: Business and Economics, Events

Thursday, May 10, 2012

It’s Time to End Occupational Licensure

Posted by Michael A. LaFerrara at 10:38 pm

A virulent epidemic is violating American’s rights and sapping the U.S. economy: occupational licensure.

The statistics are astounding. According to Forbes’ Suzanne Hoppough, from 1960 to 2007 the percentage of U.S. workers belonging to a licensed profession rose from 4.5 percent to 28 percent. In all, writes Hoppough, occupations requiring a government license in at least one state—including dentists, plumbers, hairdressers, secretaries, librarians, wallpaper hangers, and florists—rose from 80 in 1980 to 1100 by 2008.

The economic cost is incalculable. Licensure restricts the supply of workers in the occupations affected, stifling innovation and entrepreneurship, suppressing competition, and driving up prices. And the violation of American’s rights to liberty and the pursuit of happiness are patent: We are forbidden to act or contract in accordance with our judgment, forbidden to pursue our happiness as we see fit, forbidden to earn a living in these areas unless we have permission, in the form of a license, from the state.

What drives the licensure epidemic? It is fueled, in large part, by the established members of the various occupations themselves, through myriad professional organizations such as the National Association of Mortgage Brokers, American Dental Association, and the Cleveland Bar Association. Writes Hoppough: “These modern-day guilds have replaced organized labor as the main vehicle for workers seeking to shield themselves from competition.” Institute for Justice President William Mellor observes that they are “monopolies created by the government.”

But by seeking government “protection,” the guilds have sold their souls to the devil. Statists are beginning to discover the extortive power that government licensure accords them, and they are using that power against those who have helped hand it to them. Consider a few examples:

  • A Florida legislator threatens a doctor with loss of his medical license for exercising his First Amendment rights.
  • A proposed Massachusetts law would force health care providers to treat Medicare and Medicaid patients as a condition of their medical licenses.
  • Beginning next year, New York lawyers will be required to perform fifty hours of free legal services as a condition of their law licenses.

Licensure is anti-freedom, anti-American, and pro-statism—it violates our rights, squelches our liberties, and throttles the economy in myriad ways—and it is high time for Americans to call for its abolition.

Without licensure laws, how would we know whether a person or company is of sufficient credibility, quality, or safety to do business with? By reference to the various companies and institutions that fill the vital demand for information about credibility, quality, and safety.

Consumers want such information (hence the concern), so, in a free market, where people are free to act and to do business in accordance with their own judgment, profit-seeking businesses and nonprofit institutions arise to provide it. Indeed, such organizations already abound.

Consider, for instance, occupational accreditation that is voluntarily instituted in various professional and trade associations, such as the American Dental Association through its Commission on Dental Accreditation and the National Institute for Metalworking Skills. Consider also Zagat, which rates restaurants; Underwriters Laboratories (UL), which provides product safety testing for a wide range of industries; and the American National Standards Institute (ANSI), which provides a wide range of services including personnel certification and accreditation.

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Journal for People of ReasonIf Americans want information about the credibility, quality, and safety of the people and organizations with whom they do business, they do not need to get such information from the government (nor can the government competently provide such information). Rather, they need freedom—and the goods and services that flow from self-interested people operating under the principle of supply and demand in the marketplace.

It is time for Americans to call for an end to occupational licensure and to demand, instead, that the government protect and not violate our rights.

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Posted in: Individual Rights and Law

Wednesday, May 9, 2012

The Difference between Voluntary Exchange and Rationing in Healthcare

Posted by Michael A. LaFerrara at 2:35 pm

In a recent post, a reader commented:

Even without a national healthcare plan the old person is taking a finite amount of time away from the possibility of the doctor working on a younger patient. Therefore rationing is inevitable in any system. Rationing has to take place. It is only fair to allow the rationing to take place through a democracy [government rationing] and not at the whim of a doctor or the pocket book of those who can pay [a free market].

If the term “rationing” (in the political/economic context) has any rational meaning, it refers to the activity of a government forcibly dictating who will receive which goods or services and when. If we were to refer to the activity of a doctor voluntarily treating a patient who is willing and able to pay for the service as “rationing,” then we would have to refer to every trade in every economic field as “rationing,” and the term would lose its purpose in the English language.

Hospital_BedsThe distinguishing characteristic of rationing—the thing that separates it from voluntary market activities—is the fact that it is instituted by force and by a government. When a farmer voluntarily contracts to ship his corn to a distributor in New York, that’s a trade; when a government forbids a farmer to ship his corn to New York and forces him to ship it to a distributor in Idaho, that’s rationing. Likewise, when a doctor voluntarily contracts with a patient or an insurance company to provide a certain service for a certain fee, that’s a trade; when a government forbids a doctor to contract with some patients or insurers and orders him to serve others, that’s rationing.

A trade is a voluntary exchange. Rationing is a violation of individual rights.

That a doctor’s time is finite, or that someone is unable to afford his services, or that the doctor might refuse to treat someone for some voluntary reason, does not constitute rationing, because it does not involve force. The person is still free to pursue medical treatment by other means—whether by scheduling a later appointment, or offering the doctor more money, or seeking a doctor who has room in his schedule or works for less money, or seeking private charitable assistance.

Trade and rationing are antipodes, and anyone who cares about life, liberty, and the pursuit of happiness had better grasp and respect their actual meanings.

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Image: Wikipedia Commons

Posted in: Business and Economics, Health Care, Individual Rights and Law

Tuesday, May 8, 2012

Congress Should Reject Obama’s “To Do List” and Remind the President of his Proper Role

Posted by Ari Armstrong at 1:20 pm

“President Obama plans to give Congress a ‘To Do List’ today,” USA Today reports. But that’s not how American government is supposed to work.

On the contrary, Congress, the legislative branch of government, is supposed to give the “to do lists” to the president, head of the executive branch. (The president may “recommend to [Congress’s] consideration such measures as he shall judge necessary and expedient,” the Constitution says.) The presumption that Congress exists to do the president’s bidding puts the future of our Republic in extreme peril.

Moreover, Obama’s “to do list” is all about expanding the federal government’s interference in the economy. Obama’s five-part list breaks down into three types of federal interventions:

1. Expanded tax manipulation. Obama wants to eliminate “tax incentives that allow companies to deduct the costs of moving their business abroad,” USA Today reports. He also wants to implement tax credits for hiring new employees, raising wages, and moving companies back to U.S. shores. But, rather than try to use tax policy to manipulate the economy, Congress should lower taxes for everyone in a equitable way—and cut spending to match. Rather than raise taxes on businesses that move operations to other countries, Congress should lower corporate taxes and regulatory burdens so businesses can remain here and operate profitably.

2. Contract interference. Obama wants to “cut red tape in the mortgage market” to make it easier to refinance “at today’s lower rates.” If by “red tape” Obama means government rules arbitrarily blocking refinancing, then great. But I suspect that what Obama means by “red tape” is actually rational credit requirements by lending institutions, which Obama seeks forcibly to override. At any rate, as every thinking adult knows, the mortgage meltdown was caused by federal interference in the mortgage market and the economy at large, and Congress should act to end government interference in the economy, not expand it.

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Journal for People of Reason3. Forced wealth transfers. Obama wants more corporate welfare for allegedly “clean” energy (such as the abandoned and toxic waste-filled Solyndra complex). He also wants to create a “Job Corps” for veterans so that they can work as “cops, firefighters, and [in] serving their communities” (whatever that means). But the federal government should free up the economy so veterans (and everyone else) can find work in the private sector; it should not suck more resources out of the economy to expand the federal workforce. The notion that the federal government should finance local police and fire departments (or anything of the sort) assaults the constitutional system of federalism that our veterans have fought so valiantly to preserve.

Congress has a moral and constitutional responsibility to reject Obama’s “to do list” and remind the president that he is not a Caesar but the chief executive of a constitutional republic.

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Image: Wikimedia Commons

Posted in: Business and Economics, Presidential Candidates

Monday, May 7, 2012

Cruising Uphill, Thanks to Big Oil

Posted by Hannah Krening at 11:00 am

ColoradoLiving in Colorado, out in the country, my route to civilization takes me up and over the shoulder of Dawson Butte. The road climbs steadily for about a mile and then descends on the other side into town. Because the road is beautifully scenic, bicyclists often ride the road, too. As I pass them climbing the hill with great effort, it occurs to me that while I can elect to exercise vigorously as they are doing, my frequent trips take no physical effort and get me up and over that hill with great comfort and amazing speed.

Since my car gets about 32 miles per gallon of gasoline, the climb up that hill uses about half a cup—which costs about 12¢. That’s 12¢ worth of easily gotten, safe, portable, efficient fuel, to give me the luxury of sitting and listening to music or contemplating my values and goals while I cruise uphill!

Thank you, Big Oil—or, more precisely: Thank you, producers of oil—producers who enable me to live in a pine forest yet have easy access to town and beyond, on my own terms, so quickly and inexpensively.

What do these great producers enable you to do? That’s something to think about the next time you hear someone railing against “Big Oil.”

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Image by Hannah Krening

Posted in: Business and Economics, Science and Technology

Sunday, May 6, 2012

Extraordinary Courage, Bionic Eyes, and Remarkable Manufacturing: Good News Abounds

Posted by Joshua Lipana at 1:24 pm

CessnaA few items from the benevolent news front:

  • Helen Collins, an “80-year-old woman with no flying experience,” safely landed a plane as it was running out of gas after the pilot died. An airport official said, “She was remarkable on the radio… She kept her composure and sounded like she had been a pilot for years.” Hats off to Helen for having the self-esteem and presence of mind to save her life.
  • A British man, “who had been totally blind for more than 20 years,” now has rudimentary vision thanks to the men of the mind who created and implanted his bionic eye.
  • Emerald Touch Inc., has created an “external spine” for the U.S. Military that enables soldiers to carry heavy equipment more easily. Imagine the potential applications for civilian life and industry.
  • A penny has sold for $1.15 million. Hyperinflation? No. Rational elation. In addition to its rareness (“After 200 years, we can only account for 14 of these”), the front of the coin reads, “Liberty Parent of Science & Industry.”
  • Here’s an article on beautiful efficiency in manufacturing, showing how Herman Miller’s employees and technology create an Aeron chair every 17 seconds. And here’s a video about the process:

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Image: Wikipedia Commons

Posted in: History, Science and Technology