What is "Neoliberalism" anyway?

A viral video by young lawyer Riana Te Ngahue is doing the rounds purporting to explain (for her aunties) something called Neoliberalism.

'A' for effort. 'F' for content. As libertarian Alberto Mingardi observes, very few who use the term have actually taken the time to define it correctly and to trace back its origins. She does take the time, but just like the folk she notes in her video (Tamitha Paul, Chloe Swarbrick, et al) Ms Te Ngahue fails to either define or understand where it came from. 

To be fair, it's not clear. Neoliberalism is like "trickle-down" in economics, or "austerity" in political economy: a term used almost exclusively by critics to characterise and critique a whole ill-defined whole cluster of policies and people, none of whom actually exist. (Take a look at Phil Magness for example explaining 'Why I Am Not a Neoliberal.') "Capitalism" of course was famously one of those words too -- used initially by French socialist Louis Blanc and anarchist Pierre-Joseph Proudhon -- before being taken up by capitalism's supporters. A bit like "queer."

But (apart from Scott Sumner, who thinks it's "awesome") there's no sign of that happening with "neoliberalism."

As Jeffrey Tucker explained way back in 2016, "We need a fix on what this term means. Is there a founding thinker, book, or meeting?" Or, in other words:

What is "Neoliberalism" anyway?

by Jeffrey Tucker

The term “neoliberalism” is being flung around everywhere these days, usually with a haughty sense of “everyone knows what this is.” But do we really? You may think you know, but there’s very little agreement among everyone else.

Is there a founding thinker, book, or meeting? The most common search phrases on Google are these: “definition neoliberalism,” “what is neoliberalism,” and “define neoliberalism.”

The confusion is understandable. Sometimes the term is used approvingly by the mainstream press, as for example to describe France’s Emmanuel Macron. Or Javier Milei. (As if there were much in common between the two.)

More often the term is used as a pejorative by the far left and the alt-right. Here it is said with a sneer to be a synonym for capitalism, globalism, elite rule, ruling-class privilege, and the administrative state.

It's true that there's more doubt around these days about cradle-to-grave government.

What are the reasons for this change?

First, there is the rather obvious fact that government management has failed to live up to its promise. People are far more likely to dread than appreciate any real-world contact with the state. Where would you rather be: the DMV or McDonald’s? The school-district office or a local bar? A military base or a car plant? The courthouse or the shopping mall? Want to deal with a government cop or a private security guard?

Second, private enterprise has turned out to produce far more amazing improvements in our lives; health, prosperity, education, transportation, security, and all the other “commanding heights” of life have been well-served by innovation stemming from entrepreneurship and commercial exchange. Pick your example, but a favourite one is how much transportation alone has improved with ride-sharing technology.

Third, a quiet intellectual revolution has been taking place in the postwar period, with generations of outstanding scholars having rediscovered, then improved, then propagated the insights of classical economics. To be sure, it is now conventional wisdom on the Left that this “neoliberal” intellectual shift is a result of an elite conspiracy dreamed up by billionaires and pushed by well-funded institutions and public intellectuals.

But there is a simpler explanation: the ideas of classical liberalism explain the world better than any alternative. Whether the intellectual change is the prime cause of the shift or incidental to it is unknowable. But this much is true: the shift in ideas is both real and necessary for a change in the paradigm.

Still, a classical liberal is not a neoliberal. We need a firmer fix on what this term "neoliberal" means. Is there a founding thinker, book, or meeting?

Liberalism Needed a Champion

The answer is yes. The thinker is the American journalist Walter Lippmann (1889-1974). He is often called the founder of modern American journalism. Also, if any writer/thinker can be called the founding father of neoliberalism, it is he. His life and times roughly overlap with both Mises and Hayek, the twentieth century’s two most prominent proponents of the classical idea of liberalism. Unlike Lippmann, there was nothing particularly “neo” about either of them. 

In fact, Mises himself had already written the definitive book to champion liberalism in the classical form in 1929. But it was published in Austria, in German. Lippman, as a New Yorker, would never have seen it.

Lippmann was not a professor, though he had an elite education and his brilliance was unmistakable. He was one of the most famous public intellectuals of his time, and a paragon of what was called liberalism in the Progressive Era and through the New Deal. As a founding editor of the New Republic, he was a defender of civil liberties, a proponent of peace, and opponent of socialism and fascism. No one would call him a dissident intellectual but he did resist the totalitarian winds of his time.

The Ideological Crisis

In the interwar period, this class of intellectuals had a sincere concern for the preservation of all the gains of liberty in the past, and sought to find a way to protect them in the future. The situation they faced was grim both in the United States and Europe. Two main extremist factions were struggling for control: the communists/socialists and the fascists/Nazis, which, Lippman realised, were two sides of the same authoritarian coin. The New Deal seemed to be borrowing from both while trying to hold on to certain liberal ideals. It was an unstable mix.

Where was the opposition? In Europe, the U.S., and the U.K, there was also a rise of what might be generally called Toryism or conservatism (or, in the American South, agrarianism). This was not a positive program but rather a reactionary or revanchist pose, a longing for the order of days gone by. In Europe, there were waves of nostalgia for the old monarchies and, with it, the desire to roll back the legitimate gains of liberalism in the 19th century. And with this pose comes a series of demands that are absolutely incompatible with modern life and contemporary human aspirations. 

Lippman knew that some form of liberalism had to be the way forward. But not the old liberalism, which he believed had failed (it led to economic depression and social instability, in his view). His goal was a renovated liberalism. He never used the term neoliberalism (that was invented by a colleague), but that is what it came to be called.

The Good Society

Lippmann’s great book – and it truly is a great book and very much worth a read – appeared in 1937: The Good Society. The book celebrated liberalism and thus rejected socialism, fascism, and Toryism. However, it also rejected laissez faire with equal passion, although you have to get pretty deep into the book to discover this. Lippmann had very casually accepted the bulk of the Keynesian criticism of free markets. He tried to thread the needle: opposing statism, loving liberty, but innovating what he regarded as liberal ends through quasi-statist means.

The book made such an impact that it inspired the calling of a hugely important scholarly colloquium held in Paris in August 1938, in the midst of a growing conflict in Europe and the world. Six months later came the German annexation of Austria, and one year before the Nazi invasion of Poland. These were extremely volatile times, and these intellectuals believed they had a responsibility to do something about righting what was going wrong in the world.

The “Walter Lippmann Colloquium” was organized by French liberal philosopher and logical positivist Louis Rougier. It was attended by Lippmann, and included several other leading French intellectuals, including the great monetary theorist Jacques Rueff. Also in attendance Michael Polanyi from the UK, as well as Germans Wilhelm Röpke and Alexander Rüstow. Most notably Friedrich Hayek came from London, and Ludwig von Mises arrived from Geneva where he was then living in sanctuary after having fled the Nazi invasion of Vienna. 

In short, this was a high-powered group, consisting of the world’s most important liberal intellectuals in the year 1938. It was at this event that Alexander Rüstow coined the term "neoliberalism" to label what they favoured. It was intended to apply only to Lippmann’s vision.

Hayek: neither neoliberal, nor conservative

Again, this was a new way of thinking about liberalism. It was democratic, tolerated a wide degree of regulation, plus welfare states, public education, and public provision of healthcare and infrastructure. But it maintained the core competitive processes of the market economy. The hope was to come up with some stable mix of policies that would lead to rising prosperity and bring about a general public contentment with the social order such that the demand for extremist ideologies like fascism and socialism would be kept at bay. The rising progress and demand for new technologies among the public would similarly outcompete revanchist and conservative sentiments in the political marketplace.

That was the hope in any case. I’m not aware of a report of precisely what took place in this Colloquium but one can imagine that both Mises and Hayek were alternatively pleased and unhappy about being pressed to agree with this view.

Hayek was emerging as the main opponent to John Maynard Keynes, while the other participants had made their peace with Keynes. For his part, Mises held the view that any mixture of state management into the market mix only diminishes the individual’s range of choice, slows economic growth, and introduces distortions that cry out for some political fix at a later date. Neither were believers in the great new Lippmann/Rüstow vision.

The Ur Text

To really understand this vision, let’s take a look at Lippmann’s treatise. It is not shabby. In fact, it is an excellent tutorial in the history of liberty. If only it had stuck with that. Still, the rhetoric is powerful and inspiring. You get a flavour from this passage:

Everywhere the movements which bid for men’s allegiance are hostile to the movements in which men struggled to be free. The programmes of reform are everywhere at odds with the liberal tradition. Men are asked to choose between security and liberty. To improve their fortunes they are told that they must renounced their rights. To escape from want they must enter a prison. To regularise their work they must be regimented. To obtain great equality they must have less freedom. To have national solidarity they must oppress the dissenters. To enhance their dignity they must lick the boots of tyrants. To realize the promise of science they must destroy free inquiry. To promote the truth they must not let it be examined. The choices are intolerable. 

Absolutely wonderful! And for the most part, the book continues in this lovely spirit, enough to feed the soul of the most radical libertarian. You have to get pretty far into the book to discover the “neo” part of neoliberalism. He believed that “liberalism must seek to change laws and greatly to modify property and contract” in a way that rejects laissez faire, a term and a system he completely counterposes to his own.

Neoliberalism includes public provision of education, health care, environmental protection, financial regulation, fiscal policy management, monetary control, and more. In fact, “the purpose of liberal reform is to accommodate the social order to the new economy; that end can be achieved only by continual and far-reaching reform of the social order.”

What Lippmann wanted was a new constitution for a “free state.” What he was rejecting was a state that is neutral to social outcomes – the “nightwatchman state” that the old liberals believed in.

Whereas the original liberals wanted law to be stable and general, pursuing only the most limited functions, the neoliberal vision is of a state that is an active part of the guarding, maintaining, and promoting liberty itself, as understood by a particular vision of what should be. It asserted that liberalism is so important that it must be the primary goal of the state to see it realised. 

In practice, there are no limits to how far this can go.

As an example of a state neutral to outcomes, consider the US Constitution. It is a framework for government and law. It specifies what various branches can do and why, and spells out what they cannot do and why. It contains no great aspiration for how society should look (well, perhaps the “general welfare” clause might apply) but mostly sticks to creating a framework and letting the people take it from there.

Neoliberalism instead wants a living state that is not only adaptive but even aspirational. It should take an active role in the lives of people with the expressed purpose of helping them live freer, flourishing, more fulfilling lives. The state must never lord it over the population but rather be the people’s partner in building prosperity and living out the promise of liberalism.

Where Lippmann Goes Wrong

All of this is interesting, but mostly fantasy. In his many chapters on the liberal state, Lippmann lays out all the ways in which his vision of an expansive state does not trend authoritarian. The official and the citizen are just people and there are no royal prerogatives. Bureaucracies aren’t issuing commands such much as behaving like publicly held corporations, always responsive to the public. There are all kind of intermediate institutions between the individual and the state. The public sector is humane, hospitable, adaptive, creative, and why? Because their power comes from the people, not the dictator or king.

All of this is interesting, but it is mostly fantasy.

Lippman, writing in 1938, was blind to important developments that took place in liberal theory, mostly in response to his vision.

The first is that crucial Hayekian point concerning epistemic humility. Lippmann writes as if he knows for sure how to achieve and judge social results that accord with his vision. It is a normal presumption of most intellectuals. Hayek’s innovation was to see that the knowledge necessary for the right ordering society is not accessible in whole to intellectuals and much less to presidents, legislators, or bureaucrats. It is deeply embedded in social processes themselves, and, in turn, in the minds of individuals making the choices that constitute the driving parts of that process.

The second point completely overlooked by Lippmann is that the players within the state itself have their own interests and designs, just as market actors do. They pursue their own interests. They seek to maximise their welfare. They look for more power, more funding, more prerogatives, and those they serve are the interest groups who can bring them more of it.

The idea that a public bureaucracy can be consistently much less permanently directly toward serving the genuine public interest is lacking in evidence. In other words, Lippman was blind to how the truths that would later be associated with the Public Choice school of economics might impact his vision of liberty.

A third problem is the one Mises identified: neoliberalism chooses the wrong means to realise its ends. Legislating higher wages does not actually raise wages; it throws people out of work. Regulating to protect the environment doesn’t end in doing so; it only devalues property which leaves it to be ravaged by irresponsible stewards. Instituting single-payer health care guts the sector of its signaling systems, its incentives for innovation, and its capacity to be rolled out to ever broader sectors of the population. And because intervention doesn’t achieve its stated ends, it becomes the pretext for ever more meddling in the market process.

These problems doom his system to be as much a fantasy as the authoritarian ideologies he opposed.

The Dangers of Neoliberalism

It was in response to Lippmann that both Hayek and Mises crafted many of their arguments over the coming years. Mises never stopped pointing out that laissez faire does not mean “let soulless forces operate,” as Lippmann seems to suggest. It means letting individuals make the choice over what kinds of lives they want to live, and let those choices drive forward the path of social evolution. Mises’s book Human Action was as much a response to Lippmann as it was to Keynes, Marx, and all the other anti-liberals.

Let’s just posit that we have a state that is determined to advance the cause of liberty – not a state neutral to outcomes but one directed at a certain end. Where will this lead us? It could lead to another form of top-down planning. It can result in practices such as social insurance schemes, heavy regulation in zoning and the environment, taxes and redistribution with the aim of bringing more effective liberty to ever more people. In an imperial state, it can lead to the imposition of planning on foreign nations: the IMF, the World Bank, the so-called Washington Consensus, and the United Nations Declaration on the Rights of Indigenous Peoples. 

It can be the excuse for wars for “spreading democracy” and nation building abroad.

You can say that all these policies are well intentioned. In fact, neoliberalism is the very embodiment of good intentions: we shall free all people! In the best case, neoliberalism gives us a post-war German economic miracle. But it could just easily land in Pinochet’s Chile, often cited as a neoliberal state. In foreign policy, neoliberalism can inspire beautiful reform (Japan after the war), or create a destructive terror state that seethes in resentment (see Libya, Iraq, and Afghanistan).

All of which is to say: the neoliberal can quickly become the anti-liberal state. There is no institutional reason why it would not be so. A state with a social mandate is a roaming beast: you might hope for it not to do bad things but you wouldn’t want to be alone with it in a dark alley.

To be sure, the world owes a debt to neoliberalism. It was this formulation that inspired many countries to liberalise their economies, and even been a reason for many of the loosening of controls in the United States. It led to the reforms in Latin America, China, and even Eastern Europe after the collapse of socialism. Neoliberal ideology is partially responsible for the liberation of billions of people from suffering, poverty, and tyranny.

The downside is also present: the continuation of colonialism by other means, the spread of global bureaucracy, the entrenchment of the welfare state, and the rise of deep-state control over culture, society, and the economy. It is also not politically stable. These institutions feed public resentment and fuel populist extremism, which is the very opposite of what Lippmann wanted. 

At the same time, genuine liberals (often called libertarians today) absolutely need to understand: we are not neoliberals. The great part about neoliberalism is the noun not the modifier. Its primary value is not in what it innovated but what it recaptured. To the extent that it diverges from the beautiful system of liberty itself, it can be the source of the opposite.

Neoliberalism Today

That the term is strewn throughout viral videos and public discourse today is a tribute to the power of an idea. This little seed planted in 1938 has grown into a massive global presence, mostly embodied in international bodies, public bureaucracies, political establishments, media voices, and pretexts for every manner of foreign, domestic, and global action. 

And what has been the result? Some good but a vast amount of highly conspicuous bad. Huge public sectors have held back economic growth. Large bureaucracies have compromised human freedom. It gave life to what is called "crony capitalism" today. Global control has bred nationalist blowback, while corporate monopoly has fed socialist longings.

We are again faced with the same problem today that confronted Lippmann in 1938. Everywhere there are ideologies that seek to put men in chains. We do need an alternative to socialism, fascism, and Toryism. We need to get it right this time. Let’s take the neo out of liberalism and accept nothing less than the real thing.

Freedom is not the correct implementation of a public policy plan. It is not the condition of appointing high-minded and intelligent social and economic managers. It is not the result of sound intentions from a fleet of ruling class intellectuals and major economic stakeholders.

Freedom exists when a people, an economy, and a culture, undirected and unmolested by administrative elites with power, are permitted to live and evolve in peace according to the principle of human choice in all areas of life.

* * * * * 

Jeffrey Tucker is the founder and president of the Brownstone Institute, organiser of the Great Barrington Declaration, and a former Director of Content for the Foundation for Economic Education, where his post first appeared. 

The oxymoron of 'smart active government'

"[L]ast month [MBIE and MFAT issued a draft report asking] ‘How can we accelerate the growth of high productivity activities in the New Zealand.’ …

"It was the ‘accelerate the growth of high productivity activities’ that prompted me to look a little further: the focus apparently was not economy-wide productivity and policy settings but the sort of ‘smart active government’ stuff MBIE has long championed, involving clever officials and politicians identifying specific sectors to focus on and specific interventions to help those sectors. …

"On a day when the dysfunctions of our public sector were on particularly gruesome display it seemed even less appealing and persuasive than usual. In a month when the government had been a) buying a rugby league game, b) increasing (again) film subsidies, and c) subsidising expensive New Zealand restaurants (via the Michelin corporate welfare), all in the name apparently of 'going for growth. …

"[T]he draft report is unlikely to be any use to anyone looking for illumination rather than support (the old two uses of a lamppost line). … [T]here is a list of types of interventions that have been or are being used in [other] countries but no effort at all to assess what role (positive or negative) these interventions have played in contributing to medium-term productivity growth. It certainly isn’t impossible that some might have been helpful, some will almost certainly have been harmful …, and perhaps many will have just been ornamental or redistributive …  

"N]ot once in the entire document is there any suggestion of the possibility of government failure, capture etc.

"Then the draft report moves on to four domestic case studies … None of it seems to display any scepticism, only a sense that we (governments) haven’t been sufficiently focused or willing to persist with particular sector supports. … And the whole document ends with a question that shouldn’t even be being asked by government departments: ‘How might we identify higher productivity and growth potential?’ …

"[T]heir mindset and fairly shallow analysis in documents like this helps provide cover for governments more ready to paper over symptoms, toss out some cash to favoured firms/sectors, and avoid insisting that the hard structural issues are identified and addressed).

"[Yet] this sort of stuff helps keep lots of officials busy and feeling useful."

~ Michael Reddell from his post 'Government departments championing…bigger roles for themselves'

NOTHING will ever be "adequately funded"

"Let’s go ahead and get this out of the way: nothing will ever be “adequately funded.” In pretty much any circumstance, someone somewhere will have at least some idea of what else they could do with an extra dollar or two. The fact that they have to forsake something because they have limited resources means that, in their eyes, the problem is simply that the world is not 'adequately funding' whatever initiative [they] think is important.
    "There is a subtle social danger here: it is easy, therefore, to think that social problems are not because we face unavoidable trade-offs but because bad people out there have the wrong values ...
    "Roads and schools could always be better. People could always be healthier. Blaming problems on inadequate funding stubbornly refuses to acknowledge that trade-offs exist and are inevitable. When someone says they have 'inadequate funding' what they really mean is, 'I could do a little more of what I find important if I had a little more money.'
    "There are four problems. First, people can always do something with a little more money... Second, funds for one thing can’t be used for another... Third, [what I find important isn't necessarily what anyone else cares about at all. [Fourth,] even when a cause is adequately funded–or at least funded well enough to win a particular crusade, it usually doesn’t dissolve but moves on to a different crusade ...
    "We shouldn’t blame problems on 'inadequate funding' ... people will always be able to think of something else to do with the next dollar."

~ Art Carden from his post 'NOTHING is "Adequately Funded"'

But it's *not* just 'back-office' jobs that are going, is it.

 

Folk are "astonished" that the culling of "back office" jobs is resulting in the loss of jobs that "should have ben recognised as a basic duty. ... And that we're gradually going to discover that a lot of 'non front-line' jobs that got cut were actually important."

Why on earth is this astonishing? It is entirely predictable. At times like this you might have asked yourself:"What would Sir Humphrey do?" And your answer would be that, when ordered to "cut jobs," it wouldn't be back-office jobs he'd be cutting. 

So don't go acting surprised. 'Cos I told you all this back in April:

"Colonial empires do not come cheap."

"In recent years, we have seen a renewed interest in Britain’s imperialist past: the British Empire, the slave trade and the Caribbean slave labour plantations. More precisely, we have seen a revival of the idea that the wealth of the Western world – and Britain’s in particular – was originally built on slavery and colonial exploitation.
    "There is a lot to be said for a ‘warts-and-all’ approach to history, which does not gloss over or relativise the darker chapters of a country’s past. But the problem with the above narrative is that it is bad economics. ... [I]t is quite possible that the empire was a net loss-maker for Britain....

"In the eighteenth and nineteenth centuries, the great bulk of Britain’s economic activity was domestic. Even then, Britain’s most important trading partners in the eighteenth and nineteenth centuries were not its colonies but other industrialising powers, such as Britain’s Western European neighbours.
    "Colonial empires do not come cheap. The acquisition, defence and administration of overseas territories require huge upfront investments and ongoing maintenance costs. This is why, in the eighteenth and nineteenth centuries, Britain and other colonial empires had higher levels of military expenditure than their less imperialist neighbours and, consequently, a substantially higher tax burden.
    "The economic benefits of empires are often overstated. Empires boost trade between their constituent parts, but they are far from the only determinant of trade volumes. At least some trade between Britain and India, for example, would have occurred anyway, even if India had never been colonised, or even if it had been colonised by some other European power.
    "The cost–benefit analysis for other European colonial empires is similar. ....

"The transatlantic slave trade was no more important for the British economy than brewing or sheep farming, but we do not usually hear the claim that ‘brewing financed the Industrial Revolution’ or ‘sheep farming financed the Industrial Revolution.’

"Not all Western countries were major colonial powers.
    "Some had only minor colonial possessions, some had only short-lived colonial empires, some only acquired colonies very late in the day, and some never had any colonies. [Yet] those minor players in the colonial arms race industrialised at roughly the same speed as the major colonial empires, so if there was an ‘empire bonus,' it is not visible in the macro data.

"The claim that colonialism and slavery made the Western world rich is often accompanied by the claim that colonialism and slavery made the non-Western world poor. This companion thesis stands on stronger ground. There is indeed evidence for the long-term scarring effects of colonialism and slavery - [especially places that were once subject to short-termist colonialist extraction] — since these corrupted the institutional development of the affected regions."

~ Kristian Niemitz, from his new monograph 'Imperial Measurement: A cost–benefit analysis of Western colonialism' 

 

"Why aren’t politicians taking more action on the housing affordability crisis? The answer might lie in the latest 'Register of Pecuniary Interests'."

"Why aren’t politicians taking more action on the housing affordability crisis? The answer might lie in the latest 'Register of Pecuniary Interests.' This register contains details of the various financial interests of parliamentarians. It shows that politicians own real estate in significant numbers....[amidst] a relatively narrow spectrum of socio-economic interests ...
    "Collectively, [MPs] owns 261 houses, or 2.2 properties each.... In terms of Cabinet ministers, they own 60 houses, meaning on average, they have a stake in 3 houses each. ...
    "Given that New Zealand MPs are so heavily invested in property, it raises questions about whether this impacts their willingness to deal with the housing affordability crisis. Owning so many houses means MPs have a vested interest in preventing the housing market from slowing growth or even having house prices drop. They are personally advantaged by retaining the status quo.
    "[Economist Shamubeel] Eaqub says it’s a broader vested interests problem: 'It’s not just that the MPs have property and investment property and hence there is a vested interest – it’s that people who vote for them and engage with them are similar....'
    "More analysis and attention needs to be put into this area, as MPs continue to be too divorced from the reality of the housing crisis."

~ Bryce Edwards from his post 'MPs own 2.2 houses on average'

Predatory Bureaus and Sunset Commissions

WHEN GOVERNMENT SPENDING IS OUT OF control, it might seem odd to propose more spending.

When the place is already over-endowed with bureaucrats, it might seem just as puzzling for libertarians to propose another bureaucracy.

But some have. Here's two. And a related idea ...

The first is what economists John Baden and Rodney Fort called a "Predatory Bureau," whose mission is "to reduce the budgets of other agencies, with its ongoing income depending on its success."

We contend [they say] that elections fail to control government size and growth due to specific failures in the representative system. One major failure has been the concentrated focus of political activities within bureaucracies.

In other words, the bureaucratic system of governance tends to concentrate  real power in the hands of 'Sir Humphries,' whose motivation for their departments is not efficiency, but engorgement. This is not inevitable, however, say Baden and Fort. "Through the restructuring of incentives, i.e. by re-rigging the game, bureaucratic outcomes can be made to approach the elusive social optimal. This device has been named the Predatory Bureaucracy."

The literature on bureaucratic pathology is voluminous and growing rapidly. ... The bottom line of studies from each of these areas remains fairly consistent with the following: bureaucrats operate to increase their discretionary control over resources. In sum, they operate to expand their budget. ...
    [C]urrent institutional setting fails to provide those incentives requisite to successful efforts at budgetary reduction. Yet there are grounds for caucious optimism.... The fundamental issue is one of designing an institutional environment that will provide incentives to utilize information errosive to agency budgets.
    A predator is an animal (or occasionally a plant) that captures and extracts his sustenance from other     animals. Could this mode of existence be replicated and introduced in a bureaucratic environment to provide a negative feedback to the propensity for bureaucratic growth? Conceptually the answer is yes ...
[A]ssume that this agency is established with a one time appropriation that will carry it for two years only. ... Continual funding, and hence survival and growth, are dependent upon predation of other agencies budgetary requests ...

(A good principle there, that much bureaucracy and law should contain within it a mechanism for being self-extinguishing.)

The job of the Predatory Burueau is very simple: to claw in its own funding by pulling down funding from other more profligate budgets. If something particularly egregious and profligate is proposed by one bureau, it's the job of this one to oppose it by every means necessary. It's reward is its own continued existence.

How would it work? Let's say that, through its own efforts, our Bureau overturns a major policy proposal costing billions. 

First the Bureau receives one percent of the requested budgetary item. Second, the proposing agency ...  suffers a budget cut of one percent of the projects proposed operating costs from its operating budget. ... 

    The major advantage of this proposed system is that it counters the problem of legislation concentrating benefits while diffusing costs. Further, it builds into the appropriation process a spokesman for the public interest — more importantly, a spokesman who does good while doing well. In sum, by employing this system we rely upon self-interest to advance the public interest.

Sounds good, right? 

SO NOW, LET'S GO BACK to that thing about being self-extinguishing ....

That's incorporated into something called a Sunset Commission, something that was proposed in the US back in 2005 (and something that, of course, would face opposition by the Predatory Bureau).

Government programmes are the only sign of eternal life on Earth. Once they are created, they often attract large constituencies that are ready to complain loudly about their “essential” services should anyone try to reduce their funding or, worse, end them altogether…
    The Sunset Commission would review the effectiveness of each [government] programme. Programmes and agencies would automatically cease unless [the legislature] took specific action to continue them. [A] Results Commission would work to uncover duplication of services in government programmes, of which there are many.
    The need for these commissions should be evident when one considers that about one-third of the fiscal 2005 discretionary budget is unauthorised. Comprehensive reviews of spending might save taxpayers hundreds of billions of dollars.
    [Government] spending is out of control. It must be properly monitored by an entity that places the interests of those who earn the money over those who didn’t earn it and can spend it with little accountability.
    If taxpayers want to keep more of the money they earn, they must also work to become less dependent on a government check. We look to government too often and to ourselves not enough. When that dynamic reverses, our need of government will be reflected in less government. That will benefit the economy and the government more than additional revenue.

And like the Predatory Bureau, its income should be dependent on its success.

THAT PRINCIPLE OF BEING self-extinguishing should also be followed through with legislation. One of the very best things about the COVID legislation was the incorporation of a Sunset Clause.

Good, huh! (And I bet you a small sum you didn't know that was there, did you.) 

Every new law should have one. And why not?!  Imagine if that was at the head of all new legislation instead of clauses about the Treaty of Waitangi! Imagine if, instead of parliament spending all their time writing and ranting about new laws and regulation (when there are already so many goddamn pages cluttering up law libraries) they spent their time justifying to each other (and to us) the continuation of existing law!

So there's three viable proposals to savage the bureaucracy and its ever-growing bureaucracies, budgets and regulatory thickets — or that the very least to keep them pruned.

Go and tell the Minister for Regulation.

A question for you all on those sackings [updated]

 

At times like this you might ask yourself:
"What would Sir Humphrey do?"

Imagine you're Sir Humphrey. Head of a government department.

Now, imagine you minister has issued instructions to sack a given number of pen-pushers in your department. Simply to sack a given number, without real guidance as to whom. Leaving it to you to decide on whom the axe will fall.

So, here's the question: do you sack the folk who are most effective and most needed?

Or are those to whom you give the DCM the least useful, most surplus-to-requirements?

I'll give you a moment to think about it ...

3 questions for a regulatory reform minister

 

So let's say you're a minister in a reforming government, a rare enough beast. And that you're someone who has both the job and the intention of reforming regulations. (An even rarer animal in any political environment!)

Economist Jon Murphy offers 3 simple questions to guide your work. And they start with Ronald Coase ...

As many economists have been pointing out since at least Ronald Coase’s famous 1960 paper 'The Problem of Social Costs,' we exist in a complex world of pre-existing social, economic, legal, and legislative arrangements. These arrangements influence our actions. Like Chesterton’s Fence, we cannot pretend they do not exist, nor discard them because we do not understand their purpose.
    And yet, many interventionists do ignore current arrangements.

Many interventionists simply load new intervention upon old intervention, assuming either the new intervention will fix the unintended consequences of the old intervention — or, worse, ignoring altogether that the old interventions exist!

But let's assume our political reformer is honest as well (an even rarer beast in politics!) Then your first question would be:

Question 1: What is the current state of affairs?

... Of course, it is impossible to articulate every single aspect of the current state of affairs. Rather, one should focus on the most salient (eg, direct laws, institutions, etc). ... There are all sorts of preexisting arrangements that influence [affairs]. These preexisting arrangements, as Coase pointed out, are crucial. If they are misunderstood, then interventions can make the situation worse.
    Answering this question also helps understand why existing patterns are what they are.

As Hernando de Soto liked to point out, if you see people doing insane things, then that's your clue there are some bad laws against which people are trying to just do their best. Talking about the developing world's shanty towns, for example, he pointed out it's no surprise that folk there tend to build their furniture before their roof: the reason being that the laws give them no chance to get secure land title, so their lounge suite will always be more secure than their shelter. People respond to incentives, even if bad law only encourages shitty ones.

Which leads us to the next question.

Question 2: Why have pre-existing arrangements failed?

If the answer to Question 1 leads one to conclude that there is indeed a failure, now we need to understand why that failure has occurred. Is there something about the current state of affairs that triggers that failure? What are the actual causes of the failure? What are the incentives people face?

Understanding those shitty incentives is the key here. And Do Soto's example is still on point: we should assume that people making apparently bad decisions are acting rationally. It's not they are irrational; it's the incentives they face that are irrational. So, in our example, our reforming political animal should examine  how poor property rights protection encourages these poor property decisions.

Here at home, he could do worse than start with the bad outcomes of the RMA and the Building Act.

And then consider ...

Question 3: Is your proposed solution the best method achievable?

Hopefully, by this point, [our enlightened political beast] has a pretty good understanding of the current state of affairs. Now is the time to start considering proper interventions. Note that this question actually has two elements to meet: 

1. the intervention is the best method to achieve the goal, and
2. the intervention is achievable.

... What is "best" may not be a positive intervention (meaning that one takes a new action) at all. Indeed, while investigating Questions 1 and 2, one may discover that the best thing to do is remove an existing intervention! 

Given the encrustation of existing legislation and regulation, that would be an enlightened first option.  

The second element relates back to our first question. Whether or not some intervention is achievable will depend on the current institutions. ...

And more crucially, will depend on the principles and political agility of the reformer, and the support they can garner for their goals.

My own suggestion would be to always head in the direction of more freedom, however small the increment, just as long as there is no new impediment to freedom imposed. That would be a principled, practical approach to reform. More white with no new black.

Or set off one or two small steps that would self-initiate many more, such that the liberating process might be unstoppable. (This was Hernando De Soto's approach with title registration in South America.)

We've seen more than one pinstriped "reformer" end up preening their ego rather than doing the work. But if the reformer's motivation were to remain sound, great things could be achieved even in small steps.

 

The allure of economic nationalism, alas, isn’t only real, it’s also powerful. Even once-libertarians aren't immune. Yet as Don Boudreaux points out in this guest post, far from being imposed on us it's so popular that governments actively have to suppress it. Because globalisation, as he says, is a "fundamental human activity" that benefits us all ...

Defending Globalisation

Guest post by Don Boudreaux

THIS PAST SEPTEMBER, THE CATO Institute launched a major new initiative called “Defending Globalisation.” The brainchild of Cato’s prolific international-trade scholar Scott Lincicome, Defending Globalisation is a multimedia project designed to explain the benefits of what is described on the project’s website as “all aspects of the fundamentally human activity that we call ‘globalisation.’”

Many people, no doubt, will object to globalisation being described as a “fundamentally human activity,” a term that conjures images of a natural process that has long been familiar to humans. But the term is accurate. Globalisation is what happens naturally when individuals in modern society are left free from government restraint to trade – free to offer to sell, and free to offer to buy, with no one compelled to accept any such offers and, importantly, with no politicians or policemen obstructing the offerers and offerees.

Trading comes naturally to humans. The trading instinct is the root cause of great commercial cities, ancient and modern. In the past, when transportation and communications were very costly and time-consuming, the natural geographic range over which intensive trading regularly occurred was small. But as the costs of transportation and communications fell, and as each of these activities became faster (with the latter becoming instantaneous literally over the whole earth), the natural geographic range over which intensive trading regularly occurs grew. Today, that natural range for many goods and services spans the entire populated area of the globe.

The indisputable truth that today the natural range of trading activity is large – certainly larger than the area of any individual country – comes in an ironic form: tariffs and other government-erected obstructions on trade. Only because people are eager to trade with people in different countries do governments feel the need to suppress this trade.

Stated straightforwardly, this truth is undeniable. Nevertheless, it is denied by the many pundits and politicians who assert that elites impose globalisation on ordinary people. The implication is that globalisation is both detrimental to the masses as well as unnatural. Of course, if these pundits and politicians really believed that globalisation is unnatural (and, therefore, must be imposed) they’d be content simply to leave ordinary people free to trade, confident that no, or only minimal, cross-border commerce would occur. The very existence of government-erected restraints on international commerce proves that those persons who are responsible for erecting these restraints understand that what must be imposed is not globalisation – that would arise naturally – but economic nationalism.

The allure of economic nationalism, alas, isn’t only real, it’s also powerful. People in different countries and different eras have willingly embraced it. Just why so many people are so easily deluded into believing that they are made better off when their access to goods, services, and investment opportunities is restricted by elites has long been a mystery. This mystery is partly solved by public-choice economics: Voters are rationally ignorant, and disproportionate political influence is enjoyed by special-interest producer groups. 

Another reason is that we humans are likely evolved to see reality as a struggle between “us” and “them,” and therefore the interest groups who stand to gain from protectionism find success in portraying actions that benefit foreigners as actions that harm us and our fellow citizens while simultaneously enriching those who mean us harm. Relevant here is the fact that trade restrictions are invariably described by their peddlers as both “protection” of fellow citizens and “standing up to” or “fighting back against” foreigners.

Free trade and globalisation, although great benefactors of humankind, are not naturally popular. It might even be closer to the truth to say that free trade and globalisation are naturally unpopular. Thus they are forever in need of sound defense – which is precisely what is supplied by the Defending Globalisation project.

I ENCOURAGE YOU TO READ every essay in this project, many of which remain to be published. I’ve read each that has been published, and attest to their excellence. Here’s a small sample of what you’ll learn.

From Johan Norberg’s contribution, titled “Globalisation: A Race to the Bottom – or to the Top?”

In his book 'Globalisation and Labor Conditions,' Robert Flanagan summarises the evidence: “Countries that adopt open trade policies have higher wages, greater workplace safety, more civil liberties (including workplace freedom of association), and less child labor.” Flanagan and Niny Khor also document this relationship in “Trade and the Quality of Employment: Asian and Non‐​Asian Economies,” in the OECD report Policy Priorities for International Trade and Jobs.

This would be extremely surprising if companies always scoured the globe searching for the lowest‐​cost country. But they don’t. If they did, 100 percent of foreign direct investment would go to the least developed countries, but in fact, no more than 2 percent of all foreign direct investment is heading in their direction. Most investment goes to relatively developed countries, and GDP per capita is the strongest influence on labour conditions. On average, richer countries have higher wages, safer jobs, shorter working hours, and stronger labour rights, such as freedom of association and less forced labor.

The race‐​to‐​the‐​bottom hypothesis got it wrong because it neglected half the cost‐​benefit analysis. If labour compensation (in the broad sense, including working conditions) were just a gift generously bestowed on workers, it would make economic sense to reduce it as much as possible, but in a competitive labor market, it is compensation for the job that someone is doing, and therefore there is a tight link between pay and productivity. Some workers might be twice as well paid as others, but that does not make them uncompetitive if they are also twice as productive.

From Daniel Drezner’s “The Dangers of Misunderstanding Economic Interdependence”:

While contemporary fears about excessive interdependence are real, that does not mean that these fears have been realised. Indeed, a quick perusal of the alleged downsides of interdependence reveal that much of what has been feared has not come to fruition.

For example, consider the allegations about how China gamed the liberal international order to serve its own revisionist ends. It is undeniably true that as China has grown economically stronger, it has also grown more repressive and more revisionist. Neither of these facts, however, falsify the liberal theory of international politics. 

The liberal argument posits that interdependence constrains rising powers from pursuing more bellicose policies than they otherwise would have. It says next to nothing about interdependence triggering democratisation. It is possible that China can repress domestically while still acting in a constrained manner on the global stage. Most of China’s alleged revisionist actions have been exaggerated. For example, neither the BRICS (Brazil, Russia, India, China, and South Africa) bank nor the Asian Infrastructure Investment Bank have challenged the Bretton Woods Institutions. Claims that the Belt and Road Initiative is an example of debt‐​trap diplomacy have also been wildly exaggerated; indeed, if anything, China’s recent lending practices suggest that it will not weaponise debts from the Global South. While China has built new institutions outside the purview of the United States, none of them contradict the principles of the liberal international order.

And from Daniel Griswold’s “The Misplaced Nostalgia for a Less Globalised Past”:

Even these adjusted income data understate the gains enjoyed by American workers in our more globalised era. In 'Superabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet,' Cato scholars Marian Tupy and Gale Pooley compare time prices (how many hours people must work on average to acquire various goods and services) across decades and find that American workers have experienced dramatic gains since the 1970s. 

In particular, they calculate that the number of hours an average U.S. blue‐​collar worker would have to work to afford a basket of 35 consumer goods fell by 72.3 percent between 1979 and 2019. For example, in 1979, a coffeemaker cost $14.79 while the average blue‐​collar worker earned $8.34 per hour, meaning he would have to work 1.77 hours to buy the coffeemaker. By 2019, a comparable coffeemaker sold for $19.99 while the average blue‐​collar worker earned $32.36 an hour, translating to a time price of 0.62 an hour — a 65 percent decline. 

Using the same methodology, the authors found similar improvements for other household goods: the time price of a dishwasher had fallen by 61.5 percent; for a washing machine, by 64.6 percent; for a dryer, 61.8 percent; for a child’s crib, 90 percent; for a women’s blazer, 69 percent; and for women’s pants, 44.6 percent.

Today's workers are better off than in decades past not only because familiar goods have become more affordable, but also because new types of products have come on the market and spread rapidly.

Again, the above selections are only a slim sample of the impressive abundance of wisdom, insight, and information that await you at “Defending Globalisation.” Embrace it.

* * * * 

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalisation, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.

His psot first appeared at the American Institute for Economic research blog.

Revealed Preference

"Steven E. Rhoads, in 'The Economist’s View of the World', points out what seems to be a constant in opinion polls. When people are asked whether they want the government to do something, a majority says yes. But if they are asked whether they want the government to do that same thing if it means their taxes will increase, that majority shrinks to a minority. There’s a lesson here ..."

~ David R. Henderson, from his article 'How Much Does $100 Billion in Federal Spending Cost You?'

"The primary problem with current cities is that they are extremely car-centric. ..."

"The primary problem with current cities is that they are extremely car-centric. We don't realise this because it's just everyday life and we assume that cars make transportation easier and more convenient, but this is false. Car-centric designs are so bad that they make driving worse....
    "Remember this fact: cities and their infrastructure are government funded and planned. The car-centric model was developed because the government mass-funded roads to be built for cars; and the government, as it does for everything, has terrible incentives. So it did not do this because it was more efficient to be car-centric and respond to market demand but because of public choice incentives.... 

    "The primary problem with most urbanists however .[including the video maker above].. is that they are not libertarians. ... [T]here is the market urbanist movement. But it gets little attention....
    "It's important we prove we don't need the government, even the Dutch government, to make cities beautiful. Public choice must get out of the way."

~ SolarxPvP, from his post 'Market Urbanism: Another Panacea'

LINKS:

• What is Market Urbanism?
• Market Urbanism Report
• @Market Urbanism Report on TWITTER 

• Market Urbanism
• @Market Urbanism on TWITTER