The happy slave

From Mises’ Liberalism-

As the liberal sees it, the task of the state consists solely and exclusively in guaranteeing the protection of life, health, liberty, and private property against violent attacks. Everything that goes beyond this is an evil. A government that, instead of fulfilling its task, sought to go so far as actually to infringe on personal security of life and health, freedom, and property would, of course, be altogether bad.

Still, as Jacob Burckhardt says, power is evil in itself, no matter who exercises it. It tends to corrupt those who wield it and leads to abuse. Not only absolute sovereigns and aristocrats, but the masses also, in whose hands democracy entrusts the supreme power of government, are only too easily inclined to excesses.

In the United States, the manufacture and sale of alcoholic beverages are prohibited. Other countries do not go so far, but nearly everywhere some restrictions are imposed on the sale of opium, cocaine, and similar narcotics. It is universally deemed one of the tasks of legislation and government to protect the individual from himself. Even those who otherwise generally have misgivings about extending the area of governmental activity consider it quite proper that the freedom of the individual should be curtailed in this respect, and they think that only a benighted doctrinairism could oppose such prohibitions. Indeed, so general is the acceptance of this kind of interference by the authorities in the life of the individual that those who, are opposed to liberalism on principle are prone to base their argument on the ostensibly undisputed acknowledgment of the necessity of such prohibitions and to draw from it the conclusion that complete freedom is an evil and that some measure of restriction must be imposed upon the freedom of the individual by the governmental authorities in their capacity as guardians of his welfare. The question cannot be whether the authorities ought to impose restrictions upon the freedom of the individual, but only how far they ought to go in this respect.

No words need be wasted over the fact that all these narcotics are harmful. The question whether even a small quantity of alcohol is harmful or whether the harm results only from the abuse of alcoholic beverages is not at issue here. It is an established fact that alcoholism, cocainism, and morphinism are deadly enemies of life, of health, and of the capacity for work and enjoyment; and a utilitarian must therefore consider them as vices. But this is far from demonstrating that the authorities must interpose to suppress these vices by commercial prohibitions, nor is it by any means evident that such intervention on the part of the government is really capable of suppressing them or that, even if this end could be attained, it might not therewith open up a Pandora’s box of other dangers, no less mischievous than alcoholism and morphinism.

Whoever is convinced that indulgence or excessive indulgence in these poisons is pernicious is not hindered from living abstemiously or temperately. This question cannot be treated exclusively in reference to alcoholism, morphinism, cocainism, etc., which all reasonable men acknowledge to be evils. For if the majority of citizens is, in principle, conceded the right to impose its way of life upon a minority, it is impossible to stop at prohibitions against indulgence in alcohol, morphine, cocaine, and similar poisons. Why should not what is valid for these poisons be valid also for nicotine, caffeine, and the like? Why should not the state generally prescribe which foods may be indulged in and which must be avoided because they are injurious? In sports too, many people are prone to carry their indulgence further than their strength will allow. Why should not the state interfere here as well? Few men know how to be temperate in their sexual life, and it seems especially difficult for aging persons to understand that they should cease entirely to indulge in such pleasures or, at least, do so in moderation. Should not the state intervene here too? More harmful still than all these pleasures, many will say, is the reading of evil literature. Should a press pandering to the lowest instincts of man be allowed to corrupt the soul? Should not the exhibition of pornographic pictures, of obscene plays, in short, of all allurements to immorality, be prohibited? And is not the dissemination of false sociological doctrines just as injurious to men and nations? Should men be permitted to incite others to civil war and to wars against foreign countries? And should scurrilous lampoons and blasphemous diatribes be allowed to undermine respect for God and the Church?

We see that as soon as we surrender the principle that the state should not interfere in any questions touching on the individual’s mode of life, we end by regulating and restricting the latter down to the smallest detail. The personal freedom of the individual is abrogated. He becomes a slave of the community, bound to obey the dictates of the majority. It is hardly necessary to expatiate on the ways in which such powers could be abused by malevolent persons in authority. The wielding, of powers of this kind even by men imbued with the best of intentions must needs reduce the world to a graveyard of the spirit. All mankind’s progress has been achieved as a result of the initiative of a small minority that began to deviate from the ideas and customs of the majority until their example finally moved the others to accept the innovation themselves. To give the majority the right to dictate to the minority what it is to think, to read, and to do is to put a stop to progress once and for all.

Let no one object that the struggle against morphinism and the struggle against “evil” literature are two quite different things. The only difference between them is that some of the same people who favor the prohibition of the former will not agree to the prohibition of the latter. In the United States, the Methodists and Fundamentalists, right after the passage of the law prohibiting the manufacture and sale of alcoholic beverages, took up the struggle for the suppression of the theory of evolution, and they have already succeeded in ousting Darwinism from the schools in a number of states. In Soviet Russia, every free expression of opinion is suppressed. Whether or not permission is granted for a book to be published depends on the discretion of a number of uneducated and uncultivated fanatics who have been placed in charge of the arm of the government empowered to concern itself with such matters.

The propensity of our contemporaries to demand authoritarian prohibition as soon as something does not please them, and their readiness to submit to such prohibitions even when what is prohibited is quite agreeable to them shows how deeply ingrained the spirit of servility still remains within them. It will require many long years of self-education until the subject can turn himself into the citizen. A free man must be able to endure it when his fellow men act and live otherwise than he considers proper. He must free himself from the habit, just as soon as something does not please him, of calling for the police.

Given the fact that the US government murdered about 10,000 Americans (via Cafe Hayek) during the period of prohibition by deliberately poisoning industrial alcohol used by bootleggers-

The results were immediate, starting with that horrific holiday body count in the closing days of 1926. Public health officials responded with shock. “The government knows it is not stopping drinking by putting poison in alcohol,” New York City medical examiner Charles Norris said at a hastily organized press conference. “[Y]et it continues its poisoning processes, heedless of the fact that people determined to drink are daily absorbing that poison. Knowing this to be true, the United States government must be charged with the moral responsibility for the deaths that poisoned liquor causes, although it cannot be held legally responsible.”

His department issued warnings to citizens, detailing the dangers in whiskey circulating in the city: “[P]ractically all the liquor that is sold in New York today is toxic,” read one 1928 alert. He publicized every death by alcohol poisoning. He assigned his toxicologist, Alexander Gettler, to analyze confiscated whiskey for poisons—that long list of toxic materials I cited came in part from studies done by the New York City medical examiner’s office.

Norris also condemned the federal program for its disproportionate effect on the country’s poorest residents. Wealthy people, he pointed out, could afford the best whiskey available. Most of those sickened and dying were those “who cannot afford expensive protection and deal in low grade stuff.”

And the numbers were not trivial. In 1926, in New York City, 1,200 were sickened by poisonous alcohol; 400 died. The following year, deaths climbed to 700. These numbers were repeated in cities around the country as public-health officials nationwide joined in the angry clamor. Furious anti-Prohibition legislators pushed for a halt in the use of lethal chemistry. “Only one possessing the instincts of a wild beast would desire to kill or make blind the man who takes a drink of liquor, even if he purchased it from one violating the Prohibition statutes,” proclaimed Sen. James Reed of Missouri.

Mises’ views on the subject are all the more compelling.

Consistency and liberty

I said in this comment that the problem with most libertarians is that they are not consistent (I include myself in that). And in one of the longest posts I have ever written, I actually questioned the definition of libertarianism. Further, on more than one occasion, I have talked about (in the comments section) “the fatal flaw” in the libertarian argument – making it work. This post elaborates on these issues. Since I don’t have convincing answers to any of these questions, I will probably play the devil’s advocate throughout.

“Pakistan needs a Beant Singh,” Swami writes. And he is right. The moment I say this, the idea that I am a “libertarian” suffers a jolt. I have previously supported police/ military action in Punjab, Kashmir, the North East, the Naxal belt, and even understand why the LTTE has to be crushed regardless of the ethnic conflict between the Sinhalese and the Tamils. The reason why these scenarios are different from a regular murder, theft, bank heist etc is – the latter incidents are part and parcel of any normal society whereas the former represent the complete breakdown of the constitutional machinery – law and order – the writ of the government. This position implies that the “right to life” is meaningless in cases where the “protector” is no longer in control of the situation. My only concession here would be that the citizens who are caught in the zone where a government can no longer protect them have the moral right to arm themselves for their own protection, even if it is against government forces. I am simply extrapolating from “morality ends where the gun begins” – politics is to society what ethics/ morality is to an individual.

Whether you are an anarchist (people who don’t believe that the government has the moral right to exist) or a minarchist (people who believe in a limited government), or something in between, you subscribe to the broad philosophy of libertarianism. And, therefore, need to have a coherent, practical position on two main issues – the right to life, and the right to property.

Right to life: Morality
The moral position is not a problem unless you have to convince some utilitarians or consequentialists who make arguments like- “That’s right – basic utilitarianism. But I doubt killing 300 million Americans would prevent the death of >300 million others,” in response to my statement – “In that case the murder of a hundred million can be justified if it saves a billion” (see the comments on this post), or the only people whom I hate more than the consequentialists – those who believe in “positive liberty.”

Wait. Did I say a moral position is not a problem? Of course, if you are a natural rights libertarian – some one who believes that man has the “right to life” by the mere fact of his being born (if you want a neatly constructed proof that demolishes any other idea – try “self-ownership”, the Rothbardian argument), then the “right to life” is inalienable, inviolable. But what about voluntary slavery, or kinks that involve consent?

Austrian economist and libertarian theorist Walter Block actually puts forth a case for voluntary slavery in his Journal of Libertarian Studies paper (pdf)-

Various definitions of inalienability include non-relinquishability, non-salability, and non-transferability. What does this mean with regard to the right to life or liberty? If this right is non-transferable, then I cannot confer it on you, that is, I cannot make a gift of myself to you; I cannot voluntarily agree to be your slave. If it is non-salable, then I cannot sell myself to you as a slave.

However, the following scenario will illustrate a problem. You are a rich man who has long desired to have me as a slave, to order about as you will, even to kill me for disobedience or on the basis of any other whim which may occur to you. My child has now fallen ill with a dread disease. Fortunately, there is a cure. Unfortunately, it will cost one million dollars, and I, a poor man, do not have such funds at my disposal. Fortunately, you are willing to pay me this amount if I sign myself over to you as a slave, which I am very willing to do since my child’s life is vastly more important to me than my own liberty, or even my own life. Unfortunately, this would be illegal, at least if the doctrine of inalienability (non-transferability) is valid. If so, then you, the rich man, will not buy me into slavery, for I can run away at any time, and the forces of law and order will come to my rescue, not yours, if you try to stop me by force.

Some people may find it revolting, but the case of the German cannibal Armin Meiwes who ate a man who consented to being eaten is a very interesting one – both morally as well as legally-

Armin Meiwes (born December 1, 1961) is a German man who achieved international notoriety for killing and eating a voluntary victim he had found via the Internet. After Meiwes and the victim jointly attempted to eat the victim’s severed penis, Meiwes killed his victim and proceeded to eat a large amount of his flesh. Because of his deeds, Meiwes is also known as the “Rotenburg Cannibal.”

Or take a more common case which also deals with consent, that of sadomasochism, something is often depicted comically on film and television, but is of a very serious nature. FIA president Max Mosley got caught up in a scandal last year-

Max Mosley, the motor racing chief and son of the wartime British fascist leader, sat in silence yesterday as the High Court was played a tape of him at a sex party, yelling in German while an “Aryan” woman pleaded for mercy.

Mr Mosley, who is suing the News of the World for invading his privacy, insisted that he was the last person to find Nazi role-play erotic because it brought back memories of his parents, Sir Oswald and Lady Diana Mosley.

He said he had been taking counter-surveillance precautions after being tipped off that there was a plot to discredit him, but was unaware that one of the women at his sadomasochism party had smuggled in a video camera on behalf of the Sunday newspaper.

Ergo (he’s an Objectivist, I am not), in a post and podcast dealing with such (but not these, specifically) possible scenarios says that libertarianism is absurd and that “libertarians are not champions of freedom but destroyers of it.” Needless to say, though I have a few problems of my own with the ideology, I don’t agree with such a sweeping statement.

Whatever your views, the fact is you cannot simply brush these cases aside as lifeboat scenarios or rare occurrences – they are neither. The reason these cases pose problems is because they involve consent. Would you lock every masochist and every person who wants to be enslaved or wants to die in an unorthodox fashion in a mental institution? Where does society draw a line? Where will society (and by society I mean government – its nature is irrelevant) step in and save a man from himself?

Right to life: Legality
That was the moral position. Now the legal one. How inalienable is your “right to life”? If you suffer from a communicable disease, does society have the right to quarantine you, or kill you against your will? If you are not mentally stable (how is that decided?), at what point will society forcibly commit you to an institution? Another argument, a thought experiment – the “ticking time bomb scenario” that even someone like Alan Dershowitz has given his approval to-

The ticking time bomb scenario is a thought experiment that has been used in the ethics debate over whether torture can ever be justified.

Simply stated, the consequentialist argument is that nations, even those such as the United States that legally disallow torture, can justify its use if they have a suspect in custody whom they feel sure possesses critical knowledge, such as the location of a time bomb or a weapon of mass destruction that will soon explode and cause great loss of life.

I concede that this is a lifeboat scenario, but the use of torture is all too common the world over. Even Kautilya has no great reservations against it (refer to his Arthashastra)[wikisource]-

Those whose guilt is believed to be true shall be subjected to torture… (emphasis mine)

Both these examples, however, are from consequentalist positions, and therefore would be a no-no in my book.

Then there is the question of punishment for crimes, and particularly the death penalty. What, or how, would society go about it? On punishments as such, I don’t support those that are purely meant to set an example to others, or that are a form of vendetta. The only position I support is this – “the punishment should fit the crime”. Death penalty – I am philosophically against it, though the chances of putting a wrong man to death is also a very valid reason. In cases of “crimes” – intentionally causing grievous injury or death to others – prison is the way to go. For every other crime, there are alternatives available – see the comments on this post.

Right to property
I have written enough about intellectual property rights. But the fact is they are controversial, and a coherent “moral” argument – either for or against is necessary. Utilitarian arguments are irrelevant as far as I am concerned, though they can be used to test the theories out in the real world.

The main question however is what right to property is moral, and what isn’t. Except for some left-libertarian schools (like the Mutualists – economist George Reisman calls it a philosophy for thieves, and if they don’t allow for contracts as a means of transferring property rights, I have to agree with him), homesteading, production and contracts are considered to be valid modes of establishing a right to property by the two major libertarian schools I am sympathetic to (and the only ones I am reasonably knowledgeable about) – the minarchists, as well as the anarcho-capitalists. Airwaves too can be homesteaded – cellular communication, satellite telephony, DTH services etc etc can operate on the first come, first serve principle and once all frequencies are occupied, they may be transferred just like any other property is. Questions however remain, at least as far as I am concerned, about the status of rivers, seas, oceans, space etc. How do you homestead them, and how do you enforce the right?

Now the legal question; there are only two. The first is – are property rights subject to certain limitations? If the man who owns the plot next to mine builds a skyscraper on it, can I dig a thousand foot pit on my plot of land causing his building to collapse just to spite him? Or can I start a discotheque or theater or brothel in a residential neighborhood? I don’t know about the first case, but Rothbard has written a bit about the second – he has said that even inconveniences can be homesteaded. In “Law, Property Rights, and Air Pollution” (pdf), he writes-

Most of us think of homesteading unused resources in the old-fashioned sense of clearing a piece of unowned land and farming the soil. There are, however, more sophisticated and modern forms of homesteading, which should establish a property right. Suppose, for example, that an airport is established with a great deal of empty land around it. The airport exudes a noise level of, say, X decibels, with the sound waves traveling over the empty land. A housing development then buys land near the airport. Some time later, the homeowners sue the airport for excessive noise interfering with the use and quiet enjoyment of the houses.

Excessive noise can be considered a form of aggression but in this case the airport has already homestead X decibels worth of noise. By its prior claim, the airport now “owns the right” to emit X decibels of noise in the surrounding area. In legal terms, we can then say that the airport, through homesteading, has earned an easement right to creating X decibels of noise. This homesteaded easement is an example of the ancient legal concept of “prescription,” in which a certain activity earns a prescriptive property right to the person engaging in the action.

On the other hand, if the airport starts to increase noise levels, then the homeowners could sue or enjoin the airport from its noise aggression for the extra decibels, which had not been homesteaded. Of course if a new airport is built and begins to send out noise of X decibels onto the existing surrounding homes, the airport becomes fully liable for the noise invasion.

It should be clear that the same theory should apply to air pollution. If A is causing pollution of B’s air, and this can be proven beyond a reasonable doubt, then this is aggression and it should be enjoined and damages paid in accordance with strict liability, unless A had been there first and had already been polluting the air before B’s property was developed. For example, if a factory owned by A polluted originally unused property, up to a certain amount of pollutant X, then A can be said to have homesteaded a pollution easement of a certain degree and type.

Rothbard also covers the case of “nuisances” such as “excessive” noise-

Excessive noise is certainly a tort of nuisance; it interferes with a person’s enjoyment of his property, including his health. However, no one would maintain that every man has the right to live as if in a soundproofed room; only excessive noise, however vague the concept, can be actionable.

In a sense, life itself homesteads noise easement. Every area has certain noises, and people moving into an area must anticipate a reasonable amount of noise. As Terry Yamada ruefully concedes:

An urban resident must accept the consequences of a noisy environment situation. Courts generally hold that persons who live or work in densely populated communities must necessarily endure the usual annoyances and discomforts of those trades and businesses located in the neighborhood where they live or work; such annoyances and discomforts, however, must not be more than those reasonably expected in the community and lawful to the conduct of the trade or business.

In short, he who wants a soundproof room must pay for its installation.

Refer to Rothbard’s paper for more on homesteading and some ingenious arguments on how to deal with air pollution etc while keeping busybodies (like the greens) and governments out of the whole affair. Also read his book “For A New Liberty: The Libertarian Manifesto” (I haven’t read it yet completely – only chapters one and two – but it is a devastating assault on the legitimacy of the State).

The second question on right to property is the violation of the “Castle Doctrine” by law enforcement (public or private). What is the standard of evidence that would be used to break into my house? Is suspicion that I am assembling a nuclear device good enough (should it be disallowed)? Or that I am conducting an experiment that would create a black hole (again, should it be disallowed)? What about the standard “to save a life” argument? If the standard is not high enough, governments like those in the US can commit mischief in the name of upholding the law. Or is it simply inviolable? Ergo makes a good point here (refer to the podcast) – the right to property is derived from the right to life. So if I violate someone else’s right to life on my property, the hierarchy of rights means that the right to property is not inviolable. That leaves us with the standard of evidence, and since every philosopher (including Rand) seems to do it, we can simply say its a technical matter which is part of the philosophy of law.

“The Fatal Flaw”
I simply don’t know “how” a libertarian government (for the minarchist) and a state with no State (for the anarchist) will ever come into existence. Do we wait for it to happen? Has such a state of affairs ever existed for an extended period of time? I once gave the example of Kashmir. Say, the Indian government withdraws from Kashmir saying all you libertarians – come, take this over. What next? Geopolitics plays a major role in this world, and always has for over 2,500 years; the state would simply be crushed by the three surrounding countries – India, Pakistan and China. This is one of the fatal flaws. Another example. The Indian government actually has minimal control over a belt that extends from Nepal to Kerala – its infested by Naxals. For all purposes, its basically anarchy out there. The same is the case as far as Swat valley in Pakistan is concerned. One gang withdrew, another has taken over. This is an argument against anarchism. If the anarchist however plans to wait till all governments worldwide dismantle themselves, that’s asking for too much.

And the same is the case with the Randian philosophical renaissance. Morally, there is nothing much wrong with her philosophy. But waiting, expecting that the whole world will one day give up on altruism, is expecting too much. Her’s is a minarchist idea. Those minarchists who are simply interested in a limited government but don’t bother with philosophy too don’t seem to have a bright future. Nothing as far as people’s opinions and intellectual depth suggests that the world, or certain countries of the world are ready for anything even resembling a small government. Will it happen in a 100 years time? No. 500? I don’t know.

Other flaws deal with issues that libertarians typically support. If drugs are available in plenty, and so are arms, what effect will it have on society? Further, the issue of immigration. If I am not mistaken, both Mises and Rothbard changed their position from free immigration to a restricted one. The “why” is not too difficult to imagine. Consider a democratic society. And consider immigrants from a country hostile to that country entering in droves. A point will come, when, depending on the size of the country, the demographics will change. Something similar has already happened in Assam, India due to migration from Bangladesh (the other side of which I explored yesterday). You could have a bloodless coup of sorts.

The question simply is this – what is the point of dreaming about an ideal society if the chances of achieving it, due to any number of reasons, are nearer to zero than anything else?

Free Market

[This is the first in a series of posts I plan to write on free markets. As and when I write them, the posts will be accessible under this tag - free market series. In the current post, I argue that a free market cannot exist under a statist system of government.]

Some sound bites-

Champions of “free markets” and “deregulation”
“Globally, the sustained and systemic nature of this crisis may mean that an era is ending. In one sense, it already ended when Washington, under the tutelage of the Bush administration which champions deregulation, took over giant mortgage agencies (Fannie Mae and Freddie Mac) and took an 80 per cent stake in the American International Group.

Deregulation began as a way out of the stagflation of the seventies. It’s generally associated with the advent of Ronald Reagan in the US and Margaret Thatcher in the UK, both of whom championed free markets and took their respective national economies out of the rut each was stuck in.” – Crisis as Opportunity, TOI Editorial

Narayanamurthy The Philanthrocapitalist
“Infosys Chairman NR Narayana Murthy suggested stricter regulations and increased vigilance. ‘Even in countries that follow the capitalist system of government, there should be more regulations. It is an extraordinary event that a capitalist government such as US is considering the acquisition of shares in companies to bail them out,’ he said.” – Infy beats St, but stays cautious

Keynes The Capitalist
“There are some people, such as former White House economist Nouriel Roubini, who feel that the government’s active role in rescuing Wall Street firms is turning America into a socialist state. There are others, particularly in India, who sees the crisis as proof of the inevitable failure of markets and capitalism. Both these views are wrong. There is nothing in capitalist systems that prevents the government from regulating markets. Indeed, that is the contribution of Keynesian economics, which requires the state to help maintain growth and stability in free market economies.” – Not Apocalypse Now, TOI Editorial

In a world where people kill themselves in the mistaken belief that a black hole generated by the Large Hadron Collider will bring about an apocalypse, where astrologers sue space agencies, where experts routinely go about spewing nonsense based on a theory of government they don’t understand, or bother explaining (see sound bites above), trying to convince people that the free market is less about the market and more about freedom is like trying to move a mountain. But if the free market has to see the light of day, those who believe in it will have to keep defending the idea even if it means the same points have to be made again and again and again and again and again and again, to the point of utter boredom, lest its written off as “dead”.

There are three broad classifications of government- anarchism, constitutionally limited government and statism. Anarchism is an umbrella term used to describe various political philosophies that deny (some of them fanatically) the need for government of any kind. Limited government is the theory that a government is necessary to secure the rights of the people, but to prevent government from becoming the people’s enemy, its powers need to be specified – curtailed – through a tightly written constitution. Statism is an umbrella term that is used to describe various political philosophies which essentially give governments unlimited power over people, their lives, property, everything. Communism, mixed-economies, fascism, democracy (as opposed to a constitutional republic – limited government), and any system of government that governs not to protect individuals and their rights, but for some other reason, are all various forms of statism.

A free market can only exist in some forms of anarchist societies (particularly anarcho-capitalist ones, assuming private defense works) and in societies governed by a limited government (assuming the constitution does not permit a US style constitutional disaster) – that is, in societies that practice laissez-faire capitalism. A free market cannot exist in a Statist system of government – it is a theoretical impossibility, so assumptions are useless – irrelevant. Those who believe that governments with unlimited power will somehow let free markets function live in a fool’s paradise. But such people are probably in a minority. A majority of the people know this fact, and are pretty happy with it. They prefer growth and employment over freedom, avoidance of “systemic risk” over freedom, everything over freedom. A free market is too scary a prospect for them because it signifies loss of control.

Now the answer to the question – why is it that “free market” cannot exist within a Statist system of government? Because Statism’s ends-justify-the-means philosophy will necessarily result in interventionist policies. The free market is all about making profit; its not about meeting social responsibilities; its not about nationalism, patriotism and protectionism; its not about charity; its not about some vague feel good factor. And this is precisely why statism will demand regulation; the economic history of the world is proof that statist governments won’t leave markets alone. As for current trends, I will simply quote some paragraphs from Dani Rodrik’s articles-

Good governance is, of course, essential insofar as it provides households with greater clarity and investors with greater assurance that they can secure a return on their efforts. Placing emphasis on governance also has the apparent virtue of helping to shift the focus of reform toward inherently desirable objectives. Traditional recommendations like free trade, competitive exchange rates, and sound fiscal policy are worthwhile only to the extent that they achieve other desirable objectives, such as faster economic growth, lower poverty, and improved equity.

By contrast, the intrinsic importance of the rule of law, transparency, voice, accountability, or effective government is obvious. We might even say that good governance is development itself. (Getting Governance Right)

and

What a difference today’s crisis has made. We now realize even the most sophisticated market players were clueless about the new financial instruments that emerged, and no one now doubts that the financial industry needs an overhaul.

But what, exactly, needs to be done? Economists who focus on such issues tend to fall into three groups.

First are the libertarians, for whom anything that comes between two consenting adults is akin to a crime. If you are selling a piece of paper that I want to buy, it is my responsibility to know what I am buying and be aware of any possible adverse consequences. If my purchase harms me, I have nobody to blame but myself. I cannot plead for a government bailout.

Non-libertarians recognize the fatal flaw in this argument: financial blow-ups entail what economists call a “systemic risk” – everyone pays a price. (Guns, Drugs, and Financial Markets)

and those of Joseph Stiglitz-

The world has not been kind to neo-liberalism, that grab-bag of ideas based on the fundamentalist notion that markets are self-correcting, allocate resources efficiently, and serve the public interest well. It was this market fundamentalism that underlay Thatcherism, Reaganomics, and the so-called “Washington Consensus” in favor of privatization, liberalization, and independent central banks focusing single-mindedly on inflation.

For a quarter-century, there has been a contest among developing countries, and the losers are clear: countries that pursued neo-liberal policies not only lost the growth sweepstakes; when they did grow, the benefits accrued disproportionately to those at the top.

Though neo-liberals do not want to admit it, their ideology also failed another test. No one can claim that financial markets did a stellar job in allocating resources in the late 1990’s, with 97% of investments in fiber optics taking years to see any light. But at least that mistake had an unintended benefit: as costs of communication were driven down, India and China became more integrated into the global economy. (The End of Neo-liberalism?)

and

We rely heavily on incentives . Auditors desire to maintain their reputation. But the interlinking of consulting and auditing practices puts other perverse incentives in place: an incentive to please the clients, who dislike unfavorable reports. Arthur Levitt, the former Chairman of the Securities and Exchange Commission, recognized the conflict: as many within the auditing firms focus on their own short-term interests, the integrity of the audits could be compromised. He is perhaps the unsung hero of the entire debacle. But the auditing firms and their corporate clients – not surprisingly, given the cabal that developed – roundly attacked his proposal for separating consulting from auditing.

What Levitt grasped – and what the Enron debacle shows so clearly – is that incentives matter, but that unfettered markets by themselves may not provide the right incentives. Markets may not provide incentives for wealth creation; they may provide incentives for the kind of shenanigans Enron pursued. The new economy – and its complicated new financial instruments – enhance the problems of reliable accounting frameworks; they make it easier to obfuscate. Rather than facing up to the issues, corporate America systematically turns its back – aided and abetted by crony capitalism, American style.

The central issue of our time is finding the right balance between the government and the market. The status quo will argue that Enron is an exception:
[...]
Repeatedly, we have seen the consequences of the excesses of deregulation, of unfettered markets. Now we must resist the temptation to go to the other extreme. The challenge is: get the balance right. (Crony capitalism American-style)

Stiglitz and Rodrik are not ordinary people. They are some of the world’s top most economists (Stiglitz beats Rodrik by a substantial margin, but still) – people whose opinions get heard, at least when it comes to economics. And they are not interested in “unfettered markets”, but in how the market can be controlled so that certain other “desirable objectives” can be met. And politicians and dictators find this to their liking.

Some people might not find this answer convincing enough. But it should, because a government that has unlimited power at its disposal and which believes in the carrot-and-stick approach in the quest for accomplishment of some “desirable objectives” doesn’t sound like some “champion of free markets”. Note that I don’t intend to convince the majority; their intentions are pretty clear. Stiglitz, Rodrik and many others know; the communists and socialists know; the fascists and corporatists know; the utilitarians and consequentialists know. These people will only embrace freedom and free markets when they come to believe that the individual and his rights are superior to that of any other group; and this job cannot be accomplished by economics, but by philosophy. Its those who believe that statism and free markets can somehow coexist that need convincing. And that’s what I am trying to do here to the best of my knowledge and ability (which is at present average, at best, and this is not an attempt at false humility).

Okay, to those who are still not convinced, I will try and give actual examples about how government intervention (regulations) distorts the market, and why a regulated market is not a free market; but every example is a separate topic in itself and will require a post of its own. Over the next few days/ weeks, I intend to cover the following topics (at least)-

• Money, banking and finance
• Health and education
• Competition and antitrust

Therefore, the next post in the series will be on “Money, banking and finance”.