Tuesday, June 7, 2016

GOLD Thought #3

There are two types of libertarians--the right-wing libertarians, who like capitalism because they think it's good for the rich, and the liberal-tarians and left-libertarians, who like capitalism because they think it is good for the people, in other words, for the majority of humans, the working class and poor and lower middle class. Most libertarians, the Objectivist-influenced ones and the Rothbardian Austrians, are the former, while some notable university professors are the latter. I confess to being the latter. I do not care one way or the other about the rich--they are doing fine and don't need our help. It is the poor who suffer and, in the spirit of human sympathy and compassion, the people need a better system than what we have now.
It seems counter-intuitive to say that radically free, deregulated, tax-cutting laissez faire capitalism helps the poor, yet this is what I believe--that what the people need is libertarian radicals, not leftist radicals. I have written, in Liberty Magazine, in 2009 (which now seems ages ago), an article why this is so, but, in looking back, the arguments I made, while true, were quite simplistic--employers reward good employees, the poor have the opportunity to climb the social ladder, a strong government can become a dictatorship and oppress the poor even worse, etc. Recently I have come to more sophisticated explanations, using my GOLD theory of economics that I put forward in my ebook Golden Rule Libertarianism, and in recent blog posts.
To summarize, the two alternatives, as I see them, are supply side economics, in other words libertarian economics, which is focused on the creation of wealth, in other words, on creating the supply of goods and services, vs. leftist demand side economics, which is focused on consumption, as if allocation of goods and services to consumers, i.e. the needy, is what matters most. Supply side economics is the policy that lets the productive, the creators, be free to create new wealth. When you get government out of the way, when you leave wealth in the hands of businesses that create wealth instead of taxing it away, when you cut the regulations that block trades in the marketplace from being made, and when you motivate the geniuses of the economy with the potential for vast self-made wealth for the rich who succeed in business, then the productive people, geniuses, hard workers, etc., add to the pool of wealth, creating new wealth that wasn't there before. It's that simple as to why capitalism creates more wealth, while socialism, where there is no reward for productivity, instead it is punished by higher taxes and the wealth you create is taken away from you, does not create added wealth--human psychology is that simple, and humans are motivated by pleasure and reward, not by abstract disembodies ideas of brotherly love that are mere rhetoric and can't be eaten with a knife and fork.
Here is it useful to look at what is, and is not, a zero-sum game. The difference between supply side economics vs. demand side leftist economics, is that according to supply side, wealth is dynamic, the amount of wealth can go up, or down, when new wealth is created or destroyed. You do not take any wealth for granted, and you know you must create all wealth, down to the last dollar, before you can consume it. Contrast leftist Marxist Keynesian economics, where they think the pool of wealth in an economy is static, wealth is automatic (as a result of post-industrial historical forces, according to Marx), the factories and goods and services are just sitting there waiting to be distributed, and if you leave a dollar in the hands of the rich, it must have been taken from the poor, because wealth is a zero sum game, since wealth is not created or destroyed, it is a static pool waiting to be consumed.
GOLD believes that production is dynamic, whereas consumption is a zero-sum game: the amount of wealth changes with more or less creation, but, after having been created, there is a finite amount of wealth to consume, so that, for one person to consume what he did not produce, another person must produce wealth without consuming it. The leftists, in other words, have it backwards.
Now, why does this matter? If wealth is dynamic, then new wealth can be created. According to GOLD, for every unit of new wealth that gets created, which otherwise would not have been creating under a leftist economy, that new wealth benefits the poor, even if the rich created it and own it initially. Why? Here I break ranks with my right-wing libertarian fellows. It does not "trickle down." What benefits the rich does not benefit the poor, there is no reason why it would. I do not care about the rich, nor to help them, nor their interests. They, in general, are doing fine, they don't need our help, and most of them are conservatives who hate libertarianism. No, the new wealth does not "trickle down". Instead, when new wealth is created, the supply of (that type of) wealth goes up. When supply goes up, price goes down, relative to everything else which that wealth can be traded for, in other words, relative to the rest of the economy--including the dollars owned by the working class. So, when new wealth is created, everything becomes that much cheaper--a benefit felt very powerfully by the poor, and which doesn't really help the rich very much at all. When food, clothing, housing, education, become very cheap, with a lot of new wealth created by a libertarian utopia, then the standard of living for all poor people will rise up to lower middle class levels--only libertarianism can win the War on Poverty. Of course, one needs to fully grasp my GOLD theory, the ratio of dollars to wealth in the economy, my theory of the triangle of trade, and the pool of value, etc., and my vision of supply and demand, to understand this fully.
That is why I am a libertarian: because if you let the productive economic forces, which, for good or bad, are often the highly educated rich with access to capital, be free to create, be free of taxes and regulations that get in their way, then when they create new wealth, even motivated as they are by their selfish greed (the true genius of the invisible hand: the more wealth you create, the more money you make, the richer you become, so selfish greed benefits humanity because it is a motivation for productivity, the great motivator, the one that really works), this newly created wealth does, in fact, help the poor, and doesn't even really help the rich very much more than the vast wealth which they had already. If wealth is not just waiting there to be distributed, if wealth is dynamic and cannot be taken for granted and must be created--and is quite difficult to create--then we need a government with policies designed to let people be free to create and trade, instead of a policy focused on consuming the wealth already created, which turns a blind (or malevolent) eye upon the production and trades that made all the goods and services for people to produce.
If this makes me a liberal-tarian, then so be it, although I think that this is true libertarianism, and the right-wing libertarians are the abberation, they are really so-called "conservatarians", or merely conservatives trying to steal the cool hip chic aura of libertarian principles and convictions. Note that, as I observed, most of the rich in the USA and around the world are not libertarians, perhaps because they astutely observe that their own interests lie with the conservatives, who favor government interventions that help the rich, while screaming bloody murder when any government action even slightly helps the suffering miserable poor. I am, I think, a libertarian--one with a well-thought-out theory, and principles and ethical convictions, which is the hallmark of the true libertarian.


  1. What? Rothbardian Austrians "like capitalism because they think it's good for the rich"??

    Are you serious about that? So what your sources?

    1. Allow me to elucidate. Rothbard in Man Economy & State claimed that the purpose of economics is to prioritize scarce resources. The rich have more money than the poor. Hence Austrian economics reduces to the principle that we must satisfy the needs of the rich at the expense of the poor. It is that simple. In contrast my theory of GOLD economics actually helps the poor.

    2. Sorry, Mr. Hasan, but you're completely wrong. Neither Rothbard claimed "that the purpose of economics is to prioritize scarce resources" (in what page of MEE?) nor any other Austrian economist "reduces to the principle that we must satisfy the needs of the rich at the expense of the poor".

      It is impossible for Rothbard to have said that because there is no such thing as "prioritize scarce resources": the economy only deals with scarce goods; non-scarce goods are not object of study of the economy (in Menger, Principles of Economics, https://mises.org/library/principles-economics, the father of Austrian economics). Therefore, "prioritize scarce resources" is a economic nonsense.
      Furthermore, the assumption "prioritize scarce resources" (a scarecrow invented by you) does not lead to "the principle that we must satisfy the needs of the rich at the expense of the poor" (another scarecrow invented by you). This is substantially wrong, and formally fallacious.

      Mr. Hasan, please, pay attention: "Capitalism is not simply mass production, but mass production to satisfy the needs of the masses" (Ludwig Von Mises, https://mises.org/library/rise-capitalism).

      So, Mises (the Dean of Austrian School) defended capitalism because capitalism is good for the masses (in: Human Action; Socialism; Planning for Freedom; Economic Freedom and Interventionism, etc. etc.).

    3. Man Economy & State, pages 5-6 of the Mises Institute Scholar's Edition: "All means are scarce... these scarce means must be allocated by the actor to serve certain ends and leave other ends unsatisfied. This act of choice must be called economizing the means to serve the most desired ends." And, not merely this quote, but the entire first chapter, the context surrounding these lines, explaining Rothbard's concept of human action, indicates that, in his opinion, the purpose of economics is to prioritize scarce resources.
      Your idea that economics only deals with scarce resources, hence I cannot argue about this, is a conclusion that assumes the premise. You assume that all economics is focused only on scarce resources, so my saying that Austrians believe that economics focuses on scarce resources is nonsense. But, you have assumed, in this argument, as an unreasoned premise, that it is impossible for economics to be concerned with non-scarce resources. Yet it is quite possible, I assure you. My attack against the Austrian position on intellectual property is actually on point here: the Rothbardians oppose intellectual property because they believe that ideas and inventions are not scarce, hence don't need to be prioritized in their use by the science of economics. I have written, in my book on economics and in Liberty Magazine, that there is an economic need for intellectual property, regardless of whether or not ideas are scarce. So, if you do not begin with an assumed axiom that you have not proven and which I do not accept, then no, it is not true that "the economy only deals with scarce goods, non-scarce goods are not the object of study of the economy."
      So, you are wrong in your lack of knowledge of your own side's positions. Second, since you have accused me of turning your Austrian economics into a straw man, let me return the favor: you are turning my critique of Austrian economics into a straw man. I have a dozen criticisms directed at the Austrians, as outlined in my book Golden Rule Libertarianism, and their support for the rich is the least among them. The Austrians cannot explain what it means to make money, do not understand supply and demand and the price system, nor can they, as they lack the theory of GOLD economics which I explained in my book, and which is necessary to understand these things. Thus, Austrianism is bad economics, period, regardless of its attitude towards rich and poor.
      You are quite cleverly drawing me into this argument about rich and poor to make me look like a Leftist, when nothing could be farther from the truth. In my book Golden Rule Libertarianism I advocate cutting the federal income tax by 90%, slashing the federal budget by two trillion dollars, and other interesting things, none of which makes me a darling of the Left. That having been said, I will not watch and sit idly by while the Republican Party tries to swallow the libertarian movement. Indeed, this has less to do with Austrian economics, and more to do with the direction the movement is heading in, as a practical matter. However, the errors of Austrian economics certainly don't help matters.


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