Friday, April 4, 2014

The Epic Battle

 I decided to post another chapter from my book called The Epic Battle. I have cut out a few paragraphs and the footnotes to make it shorter. There are some other things I could probably condense or write better, but I feel this is enough for now. The Restoring Honor rally I refer to occurred in August 2010, and I wrote this sometime between then and the next summer, for reference. Also, my state at the time was Nebraska, not Texas where I live now.

American conservatism is at the very bottom a belief that the person most affected by the consequences of a decision should be the one to make that decision. The classic example of this belief is free market capitalism. Every time an economic exchange occurs, a capitalist believes that both parties have made an economic decision that is in both their best interests. When you go to the grocery store and buy a loaf of bread for two bucks, you are telling the seller that the loaf of bread you bought is worth more than two bucks to you. It cannot be worth exactly two bucks to you, because you also expended the effort to drive to the store, find the bread aisle and bring it up to the counter to buy it. It may seem trivial to add value to those actions, but store owners know that value exists. Store owners know that the more convenient a location, the more likely customers are to come and shop there, and thus the higher profit margin they can make. They also know the importance of where products are placed in the store and a multitude of other factors that add or subtract value from their products. Thus the capitalist believes that prices are at least in part generated from a multitude of local factors, such as the amount of consumers living within a certain radius of the store, the types of jobs and levels of salaries in that area, the price of gas in the area which affects how often people choose to drive to the store. Prices can only be decided at the local level. Government intervention in setting prices is resented because a government is averaging their policies over the entire political body and doesn’t care about variations in localities. All taxes are government intervention in prices, because taxes always adjust the price of a good or service and the price for a good employee. Therefore higher taxes are bad because it represents more government intervention and less local control over economic activity.

All economic choices are made by the relationship between the consumer and the seller, and all of those choices, once made, are “right” automatically. If they were “wrong,” the buyer would not have bought that loaf of bread for two bucks. But since this buyer made the choice to buy that loaf of bread for that price, he is declaring that the loaf of bread is worth more than two bucks to him. The seller in turn, is declaring that he wants the two bucks more than that loaf of bread, and so those two bucks are worth more than the loaf of bread to him. Most likely, both the buyer and the seller will complain to the high heavens that the price is “unfair” and that he is being “ripped off,” but the capitalist pays attention to actions not words. People will say just about anything. A person who likes to complain will wail on and on even if they’ve been treated fairly, whereas a more stoic person will grin and bear it even when they are being screwed. What people say is more dependent on their personalities than actual economic reality. It’s their actions that determine what they really believe about the value of a good or service. In the economy, that action is whether or not a particular transaction takes place.

The basic principle at work can be expressed in game theoretic terms as a non-zero sum game. In a zero-sum game, there must be an equal number of winners and losers. If there are only two players in the game, in this case the buyer and seller of that loaf of bread, then one of them must be a winner and the other one must be a loser. But in fact both are winners because otherwise they would not have consented to the transaction. Therefore the most basic possible economic transaction is a win-win scenario and shows that economics is a non-zero sum game. If the transaction doesn’t take place, then both the buyer and the seller are losers, because they wanted something that they didn’t get. This is the very basis of determining whether or not the economy is doing well in general. An economy is doing well when lots of transactions are taking place and doing poorly when transactions are not taking place. A good economy means there are lots of transactions and thus more winners than losers. A slow economy means less people are making transactions, and there are more losers.

A socialist on the other hand believes against all logic that economics is a zero-sum game. A rich person only obtains their money and wealth at the expense of someone else, usually the poorly defined “poor.” Thus the “rich” person is a winner and the “poor” person is a loser. How does the socialist view economics then? He must believe that when an economic transaction takes place, one person is getting screwed and the other one is getting rich. Thus the socialist always believes that an injustice occurs whenever an economic transaction takes place, and there are usually only two candidates: the buyer and the seller. A socialist must then decide who is being screwed. Because there is no objective way to determine value, who is getting screwed and who is getting rich depends entirely on where the socialist is standing. If the socialist is a public school teacher and a member of the union, then he will likely complain that he is getting screwed by his employer, the government, especially if the government is currently controlled by a political interest he doesn’t control. If, however, the socialist is a politician and a member of the government, they are likely to believe that they are getting screwed by private corporations or in extreme cases, the voters (i.e. taxpayers) themselves. Thus when socialist lawmakers decide to get involved in economic transactions, such as paying for the people’s health-care, they will inevitably complain that health-care providers are charging prices that are too high, and will start making laws that fix those prices below a certain level or simply refuse to pay altogether. But if the socialists are in charge of the milk producing industry, then those socialist dairy farmers will complain that milk prices are too low and they are getting screwed by the consumer. Then they will lobby socialist lawmakers to fix the price of milk above a certain level. If the socialist is on neither side and simply observes as a third party, he will almost inevitably believe that whoever has the most money is the one who is screwing everyone else. When a socialist is not directly involved in an economic situation, any economic inequality means that injustice is occurring because anyone with more money than anyone else must be getting rich while everyone buying the rich person’s product is getting screwed.

A socialist sees an injustice in every economic transaction involving an “unfair” price. He will tend to believe that unless all prices in an economy are “fair” than injustice decreases when economic activity decreases. Economic problems are less important to a socialist than the primary concern of fixing all these perceived injustices. What is a little recession when God Himself is offended? If the socialist cannot directly control prices through the use of political force to make sure every transaction is “fair” in his own eyes, then every economic transaction over which he has no control is automatically unjust. If every economic transaction is a zero-sum game with winners and losers, than the fewer economic transactions there are, the more justice there is in that economy. If a socialist wants to fight injustice as he sees it and does not have the power to control the economy, he will inevitably find himself fighting to lower the amount of economic transactions and in so doing lower the amount of injustice in that economy. He will be in effect fighting against a healthy economy. Thus the socialist must either have absolute power over the economy, or fight to make that economy less healthy. A socialist must be a either a rebel or a tyrant. He has no other options.

Because of this inherent extremism and volatility, a socialist system can only be stable if there is unanimous agreement on virtually every price and every salary in the marketplace. No disagreement can be judged rationally, and so every economic argument must be settled through the use of political force. A capitalist society on the other hand accepts disagreements on value as a matter of course. Capitalists do not assign injustice to every economic transaction. One person may not think that loaf of bread is worth two bucks, but that person’s reaction is not to cry foul but to simply not buy the loaf of bread. If someone else wants to buy it, then obviously they disagree with the first person’s opinion, and that disagreement is not a problem which needs to be solved through the use of political force. The person who thinks the price of bread is too high simply finds another seller willing to sell it for less. If no lower prices are available, he bets that most other people agree with him and waits for the seller to lower his price when not enough people buy it. If the price does not get lower, then he will be forced to buy the loaf of bread at a price determined by the market because most people disagree with him. In the end, prices are determined naturally without the need to go through all kinds of political nonsense. And in the end, the prices and salaries are in fact agreed upon by all the parties involved, not by grandstanding politicians fighting for this or that interest, or by third party observers with no actual stake in the transaction who are simply crying wolf about everything because of their socialist worldview. Thus a capitalist society can easily handle diverse economic opinions, in fact it celebrates diversity of opinion (because diversity of opinion generates innovation), and any economic dispute is easily settled without resorting to politics. A socialist society, on the other hand, must be either naturally conformist in economic opinion or give its politicians more and more power to decide every little economic issue since socialism has no natural way to make these decisions.

The socialist then argues, “What if everyone is naturally conformist? Why is that a problem?” It is not of course a problem theoretically. If everyone wants to think the same thing about everything, then more power to them. Socialist systems do tend to work better in smaller, more homogenous states such as Sweden, but the same problems still exist with a smaller impact. The problem is that in the real world there are always disagreements about value. A capitalist system provides a natural and non-political way for these disagreements to be resolved where both buyer and seller have power over the final decision. The seller gets to set the price, and the buyer gets to decide whether he buys it or not. A socialist system must resolve these disagreements through the use of political force wielded against those with whom the socialist disagrees. In a socialist system, value is determined by the most powerful politicians, and the one party, now genuinely being screwed, loses his power thus unbalancing the economic equation. So how is this party to respond? The only way is to lobby the politicians to move the price more in their favor. The only way is to play the game and buy into the system. Politicians are already invested in economic transactions because of taxes. It is already difficult for a politician to act in the interest of the people who voted for him. Add lobbyists to the mix and it becomes even more difficult. In this way socialism leads to more corruption in politics because in order to stay in business sellers must compete with each other and with buyers for political influence. In a socialist system, a smaller group of people, politicians, are given a larger and larger amount of power at the expense of buyers and sellers.

Thus we come to the real evil of socialism: Big Business. Readers might be surprised to learn that the father of capitalism, that nefarious swash-buckler Adam Smith himself, in the seminal capitalist text Wealth of Nations, explained his aversion to large corporations—in fact, to corporations in general:

"The pretence [sic] that corporations are necessary for the better government of the trade, is without any foundation. The real and effectual discipline which is exercised over a workman, is not that of his corporation, but that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence. An exclusive corporation necessarily weakens the force of this discipline. A particular set of workmen must then be employed, let them behave well or ill. It is upon this account, that in many large incorporated towns no tolerable workmen are to be found, even in some of the most necessary trades. If you would have your work tolerably executed, it must be done in the suburbs, where the workmen having no exclusive privilege, have nothing but their character to depend upon, and you must then smuggle it into the town as well as you can."

It should be obvious why capitalism is naturally against Big Business. The capitalist believes that the primary constraint on the seller is the buyer: the larger the corporation, the more separation between the individual sellers and individual buyers, and the lesser the constraint upon the seller. The primary advantage in forming a corporation is the ability to remove the risk of failure from the individual. If a corporation goes bankrupt, its creditors cannot seize the assets of the individuals involved, but only the assets belonging solely to the corporation. Thus the larger the corporation, the lesser the risk to the individual and lesser motivation for the individual to work hard and provide a good product or service, as Smith observes. Larger corporations are more able to protect themselves from the consequences of failure, and are therefore never as responsive to the needs and wants of the buyers as are smaller businesses. The ability of small businesses to maneuver with the ebb and flow of the market is the hallmark of a capitalist system and why capitalism works so well. Eventually the small business becomes the large business, and in a capitalist system large businesses are at a disadvantage. The natural thing for a large business to do is to split off into smaller businesses to remain agile and competitive. The unnatural thing to do is a merger to make your business even larger and more unwieldy. Yet mergers and acquisitions happen all the time and large corporations seem to have more power and market share than ever before. Why?

The reason is we are no longer living in a genuine capitalist system, and haven’t been for a hundred years. A hundred years seems like a long time, but it is really only three to five generations. Because the United States has remained partly capitalist, it has taken this long for us to be forced to pay the piper for our socialist deviations. But how did this happen? If capitalists are against big business and so are socialists then why have big businesses succeeded more and more?

Our contemporary political intuitions insist that capitalists are for Big Business and socialists are against. This is largely because socialists have made this rhetoric one of their primary marketing strategies. But is it true? Socialists tell us that Big Business is Public Enemy #1, and the job of elected officials is to oppose Big Business and stand up for the little guy. Socialists have invented a surefire way to convince everyone they are putting it to Big Business: government regulations. Government regulations are the solution to every sin of Big Business, and socialists work hard to convince us they are up to a task normally reserved for God. I suspect some socialists are sincerely crusading for the little guy and are just naïve, but I find it hard to believe that none of them are smart enough to have realized the real game being played. Regardless of whether socialist politicians are actually sincere or not, government regulation is almost always to the advantage of Big Business and thus socialism and Big Business are natural allies.

In a true capitalist system, Big Business is always at a disadvantage against smaller businesses as already explained. In order to survive Big Business must gain advantages of its own. Government regulation provides the perfect answer. Large corporations know that regulations are just like chemotherapy. The principle behind chemotherapy is that those chemicals you are taking may be bad for you, but they are far worse for the cancer. Why? One simple reason: You, the human being, are much bigger and have far more resources to draw on then the cancer does. You have much more to lose before you die than the cancer does, so you can sacrifice part of your health in return for completely destroying the cancer. So you take those chemicals, knowing that your hair may fall out but the cancer is faring much worse. Government regulation is just like chemotherapy. It hurts small businesses far more than it could ever hurt large businesses. And there’s another consequence: Since regulations hurt both large and small businesses, the entire economy’s hair falls out. But it doesn’t matter to Big Business, because they have now evened the score and taken back the initiative which capitalist systems naturally give to small business. That they can do so while fooling most of the population into believing that what Big Business wants is really something they don’t want is just a convenient bonus.

As soon as Big Business realizes this strategy, and they realized it a long time ago, their bottom line suddenly depends on how much political influence they have. The game then becomes how much they can control the political system to cater to their needs and fight back the smaller, more agile and consumer sensitive businesses which if they survive the initial stage usually have better business models and higher profit margins. Big Business has become exceedingly good at manipulating the political system to make up for their natural disadvantage. They now routinely use their outsized political influence to buy loopholes in the regulations and even the tax code which favor them.

Of course, the game is up if any large amount of the population figures any of this out, so Big Business must now play politics just as much as the socialist. Take AT&T. Just a few days after Obamacare was signed into law, AT&T suddenly announced out of the blue that the bill would cost them a billion dollars a year. Are we supposed to believe that they just figured it out a couple days after it was signed into law? Hardly. Everyone knew Obama would sign the law. When it passed the Senate and the discussions about reconciliation started the calculations began. The timing of AT&T’s announcement was intended to be clever but any good poker player could see right through AT&T’s hand. AT&T wanted to make it look like the law would hurt them without actually bringing any pressure to bear to stop it from going through. In doing so they were helping out their natural political allies while at the same time complaining that they needed extra help from the government because they were so large the law affected them more severely than other companies. They were playing politics, pretending to be against Obamacare while in reality knowing they could easily turn it to their advantage. The facts since then have borne that out, as AT&T along with many other large businesses have been simply handed tens and even hundreds of millions of dollars from the government to cover some of their losses, losses which in most cases have not even occurred yet.

As for the socialists, if Obama is so concerned about hurting Big Business, why did he and the Democrats insist on bailing them out? After campaigning against Big Business, the first thing the Democrats did when they won the election in 2008 was to save some of the biggest businesses in the world from the natural, capitalistic consequences of their own bad behavior. What was all this “too big to fail” talk? Nonsense that’s what. The real reason the bail-outs happened is that Big Government is in bed with Big Business. They depend on each other. A truly capitalist system would have let those supposedly crucial companies fail and the smaller, more scrupulous businesses buy up their assets at bargain prices and set them straight again. Yes, it would have meant a sharper economic decline, but it also would have meant a sharper recovery instead of this slow burn we are in now. Economic recessions will happen. They are inevitable. The question is how fast do we want to recover? The fastest way is to let everyone who screwed up go bankrupt or get bought out, and let the healthier companies with better business acumen and better standards take over and build it all back up. This is the way a truly capitalist system is supposed to handle recessions. If handled this way, recessions are actually a good thing, like pruning your trees.

But what's in it for the socialists? Why hand out millions and billions of dollars to the biggest businesses in the industry after campaigning vociferously against them? What socialists want you to know is that Big Business is a racket. What they don’t want you to know is that they are in on it. The socialists through regulation and hypocritical anti-business rhetoric get more and more power over the economy and a bigger government, while Big Business gets their dominant position ever strengthened against all those aggressive and upwardly mobile smaller businesses competing for their market share. Socialists want absolute power and control over the economy for reasons already explained, and they have found it's much easier to control a few large businesses with the most market share than to control a very large number of ornery, disorderly small businesses. It's in the socialists' bests interests to have industries and entire economies dominated by Big Businesses which can then be more easily controlled. After all, the end goal is to have the government directly control all production. That means one super massive singularity of a government business running each industry. It's a small, practically meaningless step between a private monopoly controlled by regulations and genuine communism.

On my way back from the Restoring Honor rally in Washington, D.C., I decided to stop and visit an old friend from high school. He had been far more involved in politics than I had back then, volunteering for Republican candidates. He had even worked for one of our state’s Congressmen in Washington for a few years. It seemed our positions had somewhat reversed as he was now going to grad school when I had always been the one wanting to pursue academics. Now I was the political one. I asked him why he had stopped being involved with politics. He told me stories of how teams of political activists would roam the country fighting for the Republican candidate no matter what the local issues were or even if they actually liked the candidate at all. He said other things, but the gist was he had become disillusioned with politics. He said because of all the money in D.C. now the whole city was being gentrified and the poorer population being driven out, ironically because of liberal Keynesian economic policies supposedly intended to help the poor. I asked him whether he thought the money could be gotten out of Washington again, and he scoffed and shook his head no. Everyone’s in on it, he said. Democrats, Republicans, it doesn’t matter. When they are all in on it how do you fight it? I suggested, pretending to be hypothetical, a political movement whose first and only priority was to get the money out of Washington and the government in general. Their entire focus and reason for being would be to fix this problem. That stopped him. He looked past me out the window of Arby’s at a life left behind and considered. Maybe, he said, but it would be an epic battle.