Bastiat’s Buildings: "But will unplanned development be *beautiful*?"

Why are housing prices so high? 'Supply and demand' is true but misleading, because draconian regulation drastically constricts housing supply. In his exciting new nonfiction graphic novel, economist Bryan Caplan makes the economic and philosophical case for radical deregulation of the housing industry. Deregulation turns out to be a bona fide panacea: a large rise in housing supply would raise living standards, reduce inequality, increase social mobility, promote economic growth, reduce homelessness, increase birth rates, help the environment, and more. Combining stunning visuals and careful interdisciplinary research, 'Build, Baby, Build' takes readers to a world where people are free to build―and shows us how to get there.

But many NIMBys will still say 'there are beautiful old neighbourhoods we need to protect,' or 'valuable coastlines that we shouldn't pollute with any building.' In this excerpt, Caplan notes that today’s governments strictly regulate skyscrapers — but the beloved skyline of New York City was largely built under near-laissez-faire conditions. And that today’s planners strictly protect historic buildings, but deny us any chance at something new and unthought of (and instead mandate places like Albany and Manukau, while living in the leafy unplanned inner-city suburbs they now write rules to protect ... )

Bastiat’s Buildings: Why I Wrote a Graphic Novel about Housing Regulation

by Bryan Caplan

The Cato Institute has just published my Build, Baby, Build: The Science and Ethics of Housing Regulation. The book is a non‐​fiction graphic novel. Think of it as the comic book equivalent of a documentary. Together with illustrator Ady Branzei, I combine words and pictures to give readers a tour of housing regulation, with a focus on how government restricts the construction industry, and what would happen if the restrictions were lifted.

About fifteen years ago, Larry Gonick’s Cartoon History of the Universe opened my eyes to the high potential of graphic non‐​fiction. Gonick’s books capitalise on the adage that “a picture is worth a thousand words” to teach history quickly. They use beauty and humour to hold readers’ attention. And though they look like comic books, they’re carefully researched.

In Build, Baby, Build, I try to emulate Gonick’s virtues. The book distills a vast empirical literature into a few critical lessons. Lessons like:

• US housing regulation roughly doubles the cost of housing.
• Besides making housing much cheaper, deregulation would increase productivity, equality, social mobility, environmental quality, fertility, and safety.
• The standard arguments in favour of regulation are both overstated and one‐​sided.

But what finally convinced me to make this book a non‐​fiction graphic novel was my realisation that what drives much, perhaps most, support for housing regulation is aesthetics. Economists focus on cost‐​benefit analysis, but normal people are more likely to ask themselves, “Will development be beautiful?” — then confidently answer, “Absolutely not.”

Faced with such attitudes, economists tend to facepalm in frustration. My reaction, though, is remember 19th‐​century French economist Frédéric Bastiat’s classic essay, “What Is Seen and What Is Not Seen.” Writing in 1850, Bastiat explained that people focus on the obvious direct benefits of government, while ignoring the severe yet non‐​obvious harms. When government subsidises universities, for example, people rarely ponder, “What else could have been done with the money?” When government denies permission to build, similarly, we never actually see what would have been built if permission were granted. This makes it easy for critics to visualise the ugliest possible outcomes.

The epiphany that convinced me to write Build, Baby, Build: Instead of trying to argue people out of their aesthetic pessimism, I should use the graphic novel format to fight aesthetics with aesthetics — to show readers the beautiful unseen world that government forbids. And that’s why the fifth chapter of the book resurrects the great Bastiat as a co‐​narrator. After we explore his classic insight on “the seen versus the unseen,” Bastiat joins me on a guided tour through a deregulated world. Which lets me showcase a world that is not merely richer than the status quo, but more aesthetically pleasing as well.

For example, regulators often forbid construction in areas famous for their natural beauty. But why assume that construction would tarnish natural beauty rather than amplify it? Take a look and see for yourself:

To my eyes — and hopefully yours — the bottom panel is more, not less gorgeous than the top panel. And while you can fairly point out that these are fantasy drawings, they are inspired by real life. Who really aesthetically prefers the largely desolate California coastline to the awe‐​inspiring towns of Italy’s Amalfi Coast?

Or the decidedly pleasant but anadorned Bear Run River to the same river with a house by Frank Lloyd Wright showcasing its beauty, and now hosting hundreds of thousands of visitors every year.

The same lesson holds for so many of forms of housing regulation. Today’s governments strictly regulate skyscrapers. But the beloved skyline of New York City was largely built under near‐​laissez‐​faire conditions. Today’s governments strictly protect historic buildings. But construction of these historic buildings often began with the demolition of an earlier beloved building. The original Waldorf‐​Astoria Hotel really was destroyed to make room for the Empire State Building. That’s what I call building “the history of the future.”

Built in 1936

In a critique of my first book, philosophers Jon Elster and Hélène Landemore accuse me of being willing to use almost any rhetorical strategy to get my points across. While they overstate, they’re on to something. Once I’m convinced that my arguments are sound, I strive to sell them. Straightforward logic and evidence are fine, but so are thought experiments, appeals to common sense, humor, and beauty. 

False modesty aside, I think Build, Baby, Build is a beautiful book. If you like the visual samples I’ve shown you, I think you’ll agree.

* * * * 

Bryan Caplan is an American economist and author. Caplan is a professor of economics at George Mason University, research fellow at the Mercatus Center, adjunct scholar at the Cato Institute, and former contributor to the Freakonomics blog and EconLog. He has published in the American Economic Review, the Economic Journal, the Journal of Law and Economics, Social Science Quarterly, the Journal of Public Economics, the Southern Economic Journal, Public Choice, and numerous other outlets. His book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies (2007), was published by Princeton University Press and named "the best political book this year" by the New York Times. Bryan posts frequently at his blog, Bet on It.

His post first appeared at the Cato at Liberty blog.

Buy his comic book at Amazon in both paperback and e-book.

"The state has corporatised welfare, but it isn’t working. More costs, worse outcomes."

"New Zealand has a begging and homelessness emergency and it’s worse than what I recently saw in a country most Kiwis associate with it – India.
    "Begging and homelessness here is the tip of a full-blown social emergency, ... with ram-raiding kids destroying property for the sake of it.
    "RNZ hit the nail on the head saying shopkeepers on Auckland’s K Road are in despair. Not just the ram raids, but the crime and grime, with begging and homelessness. And it’s not just K Road, or Auckland, but in towns across New Zealand....
    "As business owners we agree there are addiction, mental health and a host of 'complex issues,' but the policy response seems to be, 'no action, talk only'....
    "A back-to-the future approach is needed. The state has corporatised welfare, but it isn’t working. More costs, worse outcomes.
    "We need to make the Salvation Army, city missions, Presbyterian Support Services and their counterparts in temples and mosques [and community centres] all central to welfare provision, not just peripheral to it. Give charities a chance.
    "Begging itself must be de-normalised....
    "This is a social investment call to change lives for the better [rather] than throwing benefits and hostel accommodation as answers.
    "It would also help those of us in business to stay in business too."

~ Sunny Kaushal, from his op-ed 'New Zealand has a begging emergency and it demands tough action'

'The Housing Theory of Everything...'

Two snippets from Houston Strategies post 'The Housing Theory of Everything...':

"Few Mayors Connect the Dots Between Zoning and Homelessness - Restrictive codes can severely limit housing development, but a new survey of mayors finds that few take them into account in their plans to address homelessness. This is definitely a major factor in Houston's relative success in alleviating homelessness vs. other major cities....

"Everything Is About the Housing Market - High urban rents make life worse for everyone in countless ways. I expect this “housing theory of everything” to continue to catch on because it’s absolutely right. It’s related to what I’ve been talking about for years with the four factors that go into Opportunity Urbanism, including discretionary income, that determine how vibrant a city can be. If you pay too much for your house, you don’t have money to put into other things. That has been covered up for decades now by the wealth accumulated by those homeowners, but that’s a short-term effect that’s diminishing...."

Guest Post: New Zealand’s new PM is clueless about capitalism

She must not understand that the entire world was mired in poverty before free markets took hold, says Washington-based economist Daniel Mitchell in this guest post.

Most politicians are feckless creatures driven by their insecurities to say anything and everything in hopes of getting elected. And, once in power, they will do or say anything and everything in hopes of getting reelected.

“Public choice” theory explains how these conventional politicians behave.

But not all politicians fit in that box. There are also evil politicians in the world. Maduro in Venezuela would be a prime example, and you can add the dictators of North Korea, Cuba, and other hellholes to that list.

There are even a few admirable politicians, though that’s a very limited list.

But there’s also another category, at least in my mind. These are the ones who behave conventionally but say things that really blur the line between foolish and despicable. For lack of a better phrase, these are the morally blind officials.

The politicians who eulogised Cuban dictator Fidel Castro belong in this group.

Another example would be Michael Higgins, the President of Ireland, who urged a return to “collective values” and condemned the “Celtic Tiger” era for being too individualistic and selfish – even though that was the period when the people of Ireland enjoyed both rapid income growth and huge improvement in quality-of-life measures ranging from central heating to infant mortality.

Now I have another politician who belongs in this special category.

Statism in New Zealand

The new Prime Minister of New Zealand just demonstrated her profound ignorance of world history and New Zealand history by declaring that capitalism is “a blatant failure.”

New Zealand’s new prime minister called capitalism a “blatant failure”, before citing levels of homelessness and low wages as evidence that “the market has failed” her country’s poor. Jacinda Ardern, who is to become the nation’s youngest leader since 1856, said measures used to gauge economic success “have to change” to take into account “people’s ability to actually have a meaningful life”. …Ms Ardern has pledged her government will increase the minimum wage, write child poverty reduction targets into law, and build thousands of affordable homes. …The Labour leader said her government would judge economic success on more than measures such as GDP.

She sounds like a clueless college student, regurgitating some nonsense she heard in a sociology class. Is she not aware that capitalism is the only successful strategy for reducing poverty? Does she not understand that the entire world was mired in povertybefore free markets took hold?

Is she unaware that horrible material deprivation in countries such as China and India only fell after those nations opened themselves to some economic liberalisation?

I wish some journalist would ask her a version of my two-question challenge. Or, better yet, have Bono talk with her about how to genuinely help poor people. Heck, let’s sign her up for an economic history class with Deirdre McCloskey.

Clueless About Capitalism

She reminds me of Pope Francis, who has a knee-jerk view that capitalism is bad. I’ve explained why those views are wrong, though I’d first recommend reading what Walter Williams and Thomas Sowell wrote on the matter.

By the way, I don’t know enough to comment on homelessness and child poverty in New Zealand, but if their welfare state is anything like the mess in the United States, I wouldn’t be surprised to learn that the government is actually subsidising destitution and dependency.

But even if that’s not the case, Ms. Ardern is condemning capitalism because it doesn’t solve every problem in society. That might be a fair assertion, except the alternatives to capitalism have never solved any problem. Indeed, the various forms of statism are the cause of much misery around the world.

For what it’s worth, I would not be agitated if she simply had made a conventional left-of-centre argument about being willing to accept less growth to get additional redistribution because the benefits of capitalism aren’t “equally shared,” or something like that. That’s the standard equity-vs-efficiency debate. But she apparently doesn’t have the depth of knowledge even for that discussion.

The bottom line is that New Zealand is now governed by a politician who doesn’t know what she doesn’t know. That doesn’t mean she’ll be any worse than the standard elected official, but I’m not overflowing with optimism that New Zealand will continue to be ranked near the top by any Economic Freedom of the World index.

By the way, I appeared on New Zealand TV earlier this month while in the country for a speech. But we talked about America’s most prominent politician (and his worrisome protectionist mindset) rather than what’s happening in Kiwi-land. Though I did mention that New Zealand made great progress because of sweeping economic reforms in the 1980s and 1990s. Hopefully, Ms. Ardern won’t have much success in moving her country back in the wrong direction.

P.S. Obama came close to joining the morally blind club when he suggested we could learn from communism. And Bernie Sanders deserves to be in that club but may belong in an even worse category...

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Daniel J. Mitchell is a Washington-based economist who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the 'Cayman Financial Review.’ 

Dan’s work has been published in numerous outlets, including the Wall Street Journal, New York Times, Villanova Law Review, Public Choice, Emory Law Journal, Forbes, USA Today, Offshore Investment, Playboy, and Investor’s Business Daily. He has appeared on all the major TV networks, and has given speeches in almost 40 states and more than 30 countries. Dan earned a PhD in economics from George Mason University.
His post previously appeared at International Liberty and FEE.

PM Elect: Capitalism is a "blatant failure”

Capitalism is a "blatant failure" when it comes to housing the poor, says Prime Minister-Elect Jacinda Ardern. Her comment has been much reported. This is what the stories say she said:

"When you have a market economy, it all comes down to whether or not you acknowledge where the market has failed and where intervention is required. Has it failed our people in recent times? Yes. How can you claim you've been successful when you have growth roughly 3 percent, but you've got the worst homelessness in the developed world?"

Capitalism has failed? Really? Is Ms Ardern, or the reporter, aware that capitalism, the market economy, has been shackled here in recent years like a straw man in a sellotape cape?

How can you possibly claim capitalism has failed when the spread of even the growing amount of shackled capitalism around the world — what Ludwig Von Mises called “hampered markets” — have delivered more people out of poverty than at any time ever in history!

• In 1820, for example, only 60 million people lived lives free of extreme poverty. Today, more than 6.5 billion people do. That’s not from redistributing wealth, that’s from beeing free to grow it.
• Further: in 1990, 34.8% of people worldwide lived in extreme poverty. In 2015, this number declined by over 72%, to only 9.6%.
• And as the world is becoming richer, infant mortality is plummeting.
  
• And in the places, like Hong Kong, where economic freedom was able to flourish most (thank you Mr Cowperthwaite) … right after WWII, Hong Kong's per capita income was one third of that in Britain. Today, it's over 30 percent higher. And as late as 1960, lives in Hong Kong were four years shorter than those in Britain. Today, they're four years longer.

This should be the biggest story around — not this whimpering about failure. And it’s happened because freer markets have made the world a much better place. And who have been modern capitalism's chief beneficiaries? Answer: the poor. It is an irrefutable historical finding, says Deirdre McCloskey, who is one of many who researches these things.

Is Ms Ardern or those who have spread this report aware of any of this great and historically-uprecedented news?

Do they even care?

But, but ... what about high prices and homelessness here at home, you say? Hasn’t capitalism failed here? Well, how can you possibly claim the local housing market has failed when that market is at the intersection of possibly the three most heavily regulated sectors of life in New Zealand today - those three being land-use, banking and building.

Heavy regulation of all three is the product of both Labour and National Governments over the last many cramptonyears — as this blog among others has been pointing out for much of that time. (Read the archives if you have time. There’s plenty there.)

So, to make things very simple: 

Q: Why is there a housing crisis?
A: Because we’re adding houses less quickly than we are adding new buyers with newly-minted money.

It’s clear that housing prices have been responding to all the new monetary demand (induced in large part by the way governments have insisted new money comes into markets) so we know that part of the market is working well enough, i.e., the part that adjusts prices.

That part almost always works well, even when you wish it wouldn’t.

But why isn’t housing supply responding to this resounding price signal? Answer: becuase they grey ones haven’t allowed it to.

As Eric Crampton so cogently pointed out (and we understand at least one Labour Housing Spokesman took the lesson aboard at the time):

Auckland doesn’t have a barber crisis induced by the tens of thousands more people who need haircuts every month as compared to the same time last year.   

But it does have a housing crisis because the regulations on land-use and building have seriously constrained supply. Or to paraphrase it using Eric’s very simple summation:

Pro-density activists made it too hard to expand at the outskirts of town; Not In My Back Yard activists made it too hard to build apartment towers or terraced housing close to downtown. And pro-regulation politicians gave both these activists large amounts of power. And when a city can’t go out or up, prices can only go one way when monetary demand increases.

Capitalism hasn’t failed New Zealanders, Jacinda. Instead, those like you who’ve shackled it have.

You have three years to correct that, if you’d really like things here to progress.
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In Greece, Reliance on Public Funds Is the Central Problem

Guest post by Justin Murray

Greece is and will remain a hot topic. Much of the discussion paints either the image that Greeks are lazy good-for-nothings forever fated to debt disaster, or that Greece is only a debt-restructuring away from a stable economic situation.

Without understanding how Greece got into this problem in the first place however, and without identifying the root cause of an over-indebted society, any plan or solution has a high probability of failure. To crack into this root cause, I had to develop an entirely new metric called “implied public reliance.”

Employment Data Doesn’t Tell the Whole Story

The main puzzle behind Greece is simple from a praxeological standpoint — you get more of what you subsidise and less of what you tax. Greece, being a nation with a high tax rate on production, and a high subsidy rate on public assistance, will generate a population that finds greater preference toward public assistance and away from productive labour.

The problem with this is that, on the surface, the data doesn’t support the statement. Calculating the average annual hours worked, Greece actually ranks far ahead of nations that have lower public sector subsidies and lower taxes:

If it were true that higher taxes dissuaded labour, then Greece shouldn’t report higher worker hours than much lower tax-burdened places like the United States and Canada. This indicator would also identify Germany as the European Union’s economic basket case, not its economic powerhouse. Even nations like Spain and Portugal, which have a negative stereotype for sloth, both come ahead of Germany, but are suffering economically.

The problem is these numbers are only applied to those who were actively employed and did not provide us a picture of the overall employment situation. Even other indicators, like workforce participation rates, don’t fully paint the picture. What is needed is a new metric that effectively identifies the core of a nation’s potential growth and prosperity.

Someone Has to Pay for All the “Free” Stuff

This is where a look at “implied public reliance” comes in. Mass starvation, homelessness and sickness are not generally present in modern nations, so virtually every citizen receives food, medicine, and housing from somewhere. Ultimately, in a modern nation, all citizens are provided with the necessities of life in some form or another.

So, we must look to find the source of those resources. Of course it is, by and large, the active employees of any given nation that are tapped to provide the resources for all other individuals who are not engaged in economically-productive activities. In every modern country, these resources are primarily delivered through the public bureaucracy, and are funded with taxation on existing workers.

How to Find Who’s Paying

So, first we must identify a nation’s currently-employed population.

Next, all public sector employees are removed to obtain an adjusted productive workforce. It may be objectionable that certain professions, like teaching, nurses in single payer systems and fire fighters, are classified as an “unproductive workforce,” but as our system is currently designed the salaries of these individuals are not covered by the immediate beneficiaries like any other business but are paid through dispersed taxation methods.

In other words, they are being paid out of someone else’s productivity.

Finally, this productive population is divided into the nation’s total population to identify the total number of individuals a worker is expected to support in his country. To remove bias toward non-working spouses and children, the average household size is subtracted from this result to get the final number of individuals that an individual must support that are not part of their own voluntary household. In other words, how many total strangers is this individual providing for?

As we can see, this Implied Public Reliance metric does a far better job of predicting economic performance:

Greece, the nation with the debt problem, is currently expecting each employed person to support 6.1 other people above and beyond their own families. This explains much of the pressure to work long hours and also explains the unstable debt loads. Since a single Greek worker can’t possibly hope to support what amounts to almost a complete baseball team on a single salary, the difference is covered by Greek public debt, debt that the underlying social system cannot hope to repay. They system cannot hope to repay it, because the incentives instead are to maintain the current system of subsidies.

To demonstrate how difficult it is to change these systems within a democratic society, we just have to look at the percentage of the population directly reliant on public subsidies:

The numbers imply that 67 percent of the population of Greece is wholly reliant on the Greek government to provide their incomes. With such a commanding supermajority, changing this system with the democratic process is impossible because the 67 percent have strong incentives to continue to vote for the other 33 percent — and also foreign entities — to continue covering their living expenses.

How does this equate to GDP growth? While GDP is far from a perfect metric, it can still be a useful comparison: we find that each nation that has breached the 50 percent barrier in public reliance is also showing poor growth -- with numerous nations coming dangerously close to the majority in some form of reliance on redistribution for earnings.

What does this tell us? A nation that allows its citizenry to remain idle and expect the support of a productive worker will eventually undermine its ability to maintain the economy that those recipients of public funds rely on. Nations that do not have a structure to dissuade usage of public assistance or hire too many public sector workers will find their economic growth impeded and, if it becomes too large, recessive.

However, public institutions are not capable of creating these safeguards to ensure thar as few people as possible engage in safety net programs. The incentives instead are all the other way. Government institutions are, in fact, designed to grow public sector employment rolls.

So long as this social structure remains in place, the odds that a Greek default and restructuring will lead to a sustained Greek recovery are very low.

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Justin Murray received his MBA in 2014 from the University of St. Gallen in Switzerland
Image source: iStockphoto. A version of this article appeared at the Mises Daily.

Dangerous Murmurings Pulse from Hulse

Guest post by Stephen Berry from Affordable Auckland 

Anyone who reads between the lines of politician gobbledygook should be very worried by comments about rental tenancy tenure made by Auckland’s Deputy Mayor Penny Hulse .

Following the release of the ‘Residential Mobility’ report from the Growing Up in New Zealand study, which shows high levels of residential movement in young families,  Ms. Hulse says she is “disturbed” by findings that “a high proportion of our most vulnerable, being children, have unstable accommodation in the first years of their lives.”

This situation is not acceptable on any level [she says]. Auckland Council’s Housing Action Plan identifies the need for more secure rental tenure as a key priority. We are calling on the government to urgently address this issue and put some options to the community on how this can be achieved.

Comments like that clearly indicate Hulse wishes to further regulate the housing and rental market – that she harbours a barely-concealed desire to write another volume of ill-begotten regulations making life worse for all involved.

Should go down that path, she would effectively be condemning her low-income constituency to homelessness.

The more rules that are put in place to supposedly protect renters actually add costs for landlords, which result in higher rents and fewer rentals. If legal minimums are implemented for periods of tenancy, for example, then landlords will become more risk-averse in dealing with young and low-income applicants, making it far harder for them to rent a house.

Policies supported by the Len Brown-nosing Hulse have already shut the young and poor out of buying property. Now she clearly intends to shut them out of the rental market too.

Stephen Berry believes that with the waning of Len Brown’s political career, Penny Hulse is now the greatest political threat to the freedoms and wallets of Aucklanders.

Brown knows his career is over in 2016 and that is why his behaviour is increasingly erratic. Hulse on the other hand clearly has plans to succeed Brown as Mayor, which is very concerning.

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Stephen Berry was the Affordable Auckland candidate for Mayor in the 2013 election. He finished in third place.
www.affordable.org.nz
www.facebook.com/affordablecity

When Trade is Not Enough

Guest post by Jeffrey Tucker

Capitalism and entrepreneurship make the difference in the world. Whether a country is rich or poor depends on both. The evidence is all around us, and the explanations are a click away.

An example is the video below.

Anthony Bourdain is a fascinating person, a great chef and also world traveller. He has his own show called No Reservations, and one of my favorite episodes is the one he did on Haiti. He draws attention to some remarkable realities of the poverty in this country. It does not result from lack of imagination, from lack of trade, from lack of work. The problem is more fundamental.
Here is the video followed by my commentary:

A Travel Channel episode of No Reservations, a cooking-focused show narrated by Anthony Bourdain, took viewers to Port-au-Prince, Haiti. I had heard that the show offered unique insight into the country and its troubles. I couldn't imagine how. But it turns out to be true. Through the lens of food, we can gain an insight into culture, and from culture to economy, and from economy to politics and finally to what's wrong in this country and what can be done about it.

Through this micro lens, we gain more insight than we would have if the program were entirely focused on economic issues. Such an episode on economics would have featured dull interviews with treasury officials and IMF experts and lots of talk about trade balances and other macroeconomic aggregates that miss the point entirely.

Instead, with the focus on food and cooking, we can see what it is that drives daily life among the Haitian multitudes. And what we find is surprising in so many ways.

In a scene early in the show set in this giant city after the earthquake, Bourdain and his crew stop to eat some local food from a vendor. He discusses its ingredients and samples some items. Crowds of hungry people begin to gather. They are doing more than gawking at the camera crews. They are waiting in the hope of getting something to eat.

Bourdain thinks of a way to do something nice for everyone. Realizing that in this one sitting, he is eating a quantity of food that would last most Haitians three days, he buys out the remaining food from the vendor and gives it away to locals.

Nice gesture! Except that something goes wrong. Once the word spreads about the free food -- word-of-mouth in Haiti is faster than Facebook chat -- people start pouring in. Lines form and get long. Disorder ensues. Some people step forward to keep order. They bring belts and start hitting. The entire scene becomes very unpleasant for everyone -- and the viewer gets the sense that it is worse than we are shown.

Bourdain correctly draws the lesson that the solutions to the problem of poverty here are more complex than it would appear at first glance. Good intentions go awry. They were thinking with their hearts instead of their heads, and ended up causing more pain than was originally there in the first place. From this event forward, he begins to approach the problems of this country with a bit more sophistication.

The rest of the show takes us through shanty towns, markets, art shows, festivals, and parades -- and interviews all kinds of people who know the lay of the land. This is not a show designed to tug at your heart strings in the conventional sort of way. Yes, there is obvious human suffering, but the overall impression I got was not that. Instead, I came away with a sense that Haiti is a very normal place not unlike all places we know from experience, but with one major difference: it is very poor.

By the time the show was made, the glamour of the post-earthquake onslaught of American visitors seeking to help had vanished. One who remains is actor Sean Penn. Although he's known as a Hollywood lefty, he's actually living there, chugging up and down the hills of a shanty town, unshaven and disheveled, being what he calls a "functionary" and getting stuff for people who need it. He had no easy answers, and he had sharp words for American donors who think that dumping money into new projects is going to help anyone.

The people of Haiti in the documentary conform to what every visitor says about them. They are wonderfully friendly, talented, enterprising, happy, and full of hope. Like most people, they hate their government. Actually, they hate their government more than most Americans hate theirs. Truly, this is a precondition of liberty. There is a real sense of us-versus-them alive in Haiti, so much so that when the presidential palace collapsed in the recent earthquake, crowds gathered outside to cheer and cheer!
It was the one saving grace of an otherwise terrible storm.

With all these enterprising, hard-working, and creative people, millions of them, what could possibly be wrong with the place? Well, for one thing, the earthquake destroyed most homes. If this had been the United States, this earthquake would not have caused the same level of damage. This led many outsiders to think that somehow the absence of building codes was the core of the problem, and hence the solution is more imposition of government control.

But the reality shows that this building-code notion is some sort of joke. The very idea that a government could somehow go around beating up people who provide shelter for themselves while failing to obey the central plan is simply laughable. Coercion of this sort would bring about no positive results and lead only to vast corruption, violence, and homelessness.

The core of the problem has nothing to do with a lack of regulations. The problem is the absence of wealth. It is obviously true that people prefer safer places to live, but the question is: what is the cost, and is this economically viable? The answer is that it is not viable, not in Haiti, not with this population that is barely getting by at all.

Where is the wealth? There is plenty of trade, plenty of doing, plenty of exchange and money changing hands. Why does the place remain desperately poor? If the market economists are correct that trade and commerce are the key to wealth, and there is plenty of both here, why is wealth not happening?

One can easily see how people can get confused, because the answer is not obvious until you have some economic understanding. A random visitor might easily conclude that Haiti is poor because somehow the wealth is being hogged by its northern neighbor, the United States. If we weren't devouring so much of the world's stock of wealth, it could be distributed more evenly and encompass Haiti too. Or another theory might be that the handful of international companies, or even aid workers, are somehow stealing all the money and denying it to the people.

These are not stupid theories.  They are only shown to be wrong once you realize a central insight of economics. It is this: trade and commerce are necessary conditions for the accumulation of wealth, but they are not sufficient conditions. Also necessary is that precious institution of capital.

What is capital? Capital is a thing (or service) that is produced not for consumption but for further production. The existence of capital industries implies several stages of production, or up to thousands upon thousands of steps in a long structure of production. Capital is the institution that gives rise to business-to-business trading, an extended workforce, firms, factories, ever more specialization, and generally the production of all kinds of things that by themselves cannot be useful in final consumption but rather are useful for the production of other things.

Capital is not so much defined as a particular good -- most things have many varieties of uses -- but rather a purpose of a good. Its purpose is extended over a long period of time with the goal of providing for final consumption. Capital is employed in a long structure of production that can last a month, a year, 10 years, or 50 years. The investment at the earliest (highest) stages has to take place long before the payoff circles around following final consumption.

In a developed economy, the vast majority of productive activities consist in participation in these capital-goods sectors and not in final-consumption-goods sectors.

Many people (I've been among them) rail against the term capitalism because it implies that freedom is all about privileging the owners of capital.

But there is a sense in which capitalism is the perfect term for a developed economy: the development, accumulation, and sophistication of the capital-goods sector is the characteristic feature that makes it different from an undeveloped economy.

The thriving of the capital-goods sector was the great contribution of the Industrial Revolution to the world.

Capitalism did in fact arise at a specific time in history, as Mises said, and this was the beginning of the mass democratization of wealth.

Rising wealth is always characterized by such extended orders of production. These are nearly absent in Haiti. Most all people are engaged in day-to-day commercial activities. They live for the day. They trade for the day. They plan for the day. Their time horizons are necessarily short, and their economic structures reflect that. It is for this reason that all the toil and trading and busy-ness in Haiti feels like peddling a stationary bicycle. You are working very hard and getting better and better at what you are doing, but you are not actually moving forward.

Now, this is interesting to me because anyone can easily miss this point just by looking around Haiti where you see people working and producing like crazy, and yet the people never seem to get their footing. Without an understanding of economics, it is nearly impossible to see the unseen: the capital that is absent that would otherwise permit economic growth. And this is the very reason for the persistence of poverty, which, after all, is the natural condition of mankind. It takes something heroic, something special, something historically unique, to dig out of it.

Now to the question of why the absence of capital.

The answer has to do with the regime. It is a well-known fact that any accumulation of wealth in Haiti makes you a target, if not of the population in general (which has grown suspicious of wealth, and probably for good reason), then certainly of the government. The regime, no matter who is in charge, is like a voracious dog on the loose, seeking to devour any private wealth that happens to emerge.

This creates something even worse than the Higgsian problem of "regime uncertainty." The regime is certain: it is certain to steal anything it can, whenever it can, always and forever. So why don't people vote out the bad guys and vote in the good guys? Well, those of us in the United States who have a bit of experience with democracy know the answer: there are no good guys. The system itself is owned by the state and rooted in evil. Change is always illusory, a fiction designed for public consumption.

This is an interesting case of a peculiar way in which government is keeping prosperity at bay. It is not wrecking the country through an intense enforcement of taxation and regulation or nationalization.
One gets the sense that most people never have any face time with a government official and never deal with paperwork or bureaucracy really. The state strikes only when there is something to loot. And loot it does: predictably and consistently. And that alone is enough to guarantee a permanent state of poverty.

Now, to be sure, there are plenty of Americans who are firmly convinced that we would all be better off if we grew our own food, bought only locally, kept firms small, eschewed modern conveniences like home appliances, went back to using only natural products, expropriated wealthy savers, harassed the capitalistic class until it felt itself unwelcome and vanished. This paradise has a name, and it is Haiti.

* * * * 

Jeffrey Tucker is the publisher and executive editor of Laissez-Faire Books, the Primus inter pares of the Laissez Faire Club, and the author of Bourbon for Breakfast: Living Outside the Statist Quo and It's a Jetsons World: Private Miracles and Public Crimes, among thousands of articles. Click to sign up for his free daily letter. Email him: tucker@lfb.org | Facebook | Twitter

Inflation Silently Works to Destroy Your Wealth

While John Boy wants to use inflation to get an $11.5 billion off his government’s books, Australian money market writer Kris Sayce explains (once again) how inflation silently works to destroy your wealth.

One of the worst aspects to inflation is that it silently works to destroy your wealth.

The creation of new money from thin air by banks and central banks ensures that the most you earn and the money you save is constantly being devalued.

What that means to you is that you have to work harder and longer, plus you have to take more risks with your investments in order to just maintain your standard of living.

Most of the time, mainstream economists won’t admit to that. They’ll tell you that inflation is vital because it keeps the economy growing and because it prevents the economy from falling into the death trap of deflation.

As we’ve pointed out before on many occasions, deflation is not bad for an economy. It helps to counter periods of inflation. And furthermore it is beneficial to savers and also means you don’t have to work as hard as the cost of living falls.

In other words, you can work just as hard tomorrow as you did today and your cost of living is actually less. Or, you could work less tomorrow but still maintain the same standard of living.

The mainstream lies about deflation are nothing short of criminal.

But as we read the online version of The Age last night, we noticed that one of the mainstream economists has let the cat out of the bag on inflation.

I’m referring to former ANZ Bank chief economist, Saul Eslake’s article in The Age.

It was this quote from Eslake that blows the lid on what every mainstream economist thinks about inflation, and how they are quite happy to sacrifice the individual at the alter of inflation if it means letting the banks get away with fraud:

“These inflation targets were chosen because, when inflation is about ”2-point something”, people tend not to notice it. And when they don’t notice it, they tend not to do things to protect themselves against it that are likely to lead eventually to prices rising at a faster rate.”

I can barely believe anyone with a brain would write such a thing. It’s a clear admission that inflation is a tool used to impoverish the population.

Because as long as the banks don’t conspire to make the inflation rate too high, they can get away with creating more and more money from thin air, lending it out to sucker home buyers and therefore increasing bank profits, because, “people tend not to notice it.”

But worse, he’s happy they don’t notice it because if they did, people would do something to “protect themselves.”

Has there ever been a more vile comment from a mainstream economist? We don’t think so. Eslake and the rest of the mainstream economists should hang their heads in shame.

In effect what Eslake is saying is that it’s better for the banks and central banks to be petty thieves than it is for them to be armed robbers.

In our books, a crook is a crook, and Eslake has shown his cards as a supporter of thievery.

Even more than that, it’s an extraordinary admission from a man who is on the board of the National Housing Supply Council, and who helped to write the report – the one that we scoffed at – on housing that suggested the housing shortage was evidenced by homelessness.

On the one hand he’s putting himself forward as some sort of economic social campaigner, working for an organisation that claims to help form public policy, while at the same time he privately – and now publicly – advocates an inflationary policy which he knows destroys wealth.

But perhaps the saddest aspect of Eslake’s comments is that it’s exactly the same thought process that 100% of mainstream economists go through. It’s the same thought process that drives all the economists at every bank. And it’s most certainly the same thought process driving the inflationary policies of the Reserve Bank of Australia (RBA).

And that is to keep inflation just low enough so that the masses don’t realise they’re being robbed blind.

What a disgraceful advertisement that is for economics, or his brand of economics anyway. We’ve got no idea what school of economic thought Eslake follows, we won’t even try and pin this one on Keynes.

Our guess is that Eslake is perhaps a follower of the Artful Dodger School of Economics – encouraging the pick-pocketing of your wallet.

My suggestion is that Eslake needs to go back to school and re-educate himself on economics. A good place for him to start would be with the more enlightened thinking of the Austrian School.

Of course, for someone like Eslake who believes that inflation is good and that central banks know what they’re doing, he could find the Austrian School to be something of a shock – it could only do him good…

It certainly wouldn’t do him any harm.

Cheers.
Kris.
MONEY MORNING AUSTRALIA

The Voluntary City

Traffic jams, restrictive zoning, slum housing, district plans, heritage plans, rate rises, mayoral embarassments ... all examples of local government failure. The idea of the Voluntary City offers an alternative in which the city's 'public goods' are provided by private means, and without the usually accompanying meddling and incipient failures. The Voluntary City integrates a large number of contemporary approaches to freedom in the modern city, and how institutions can and have been formed to make more freedom possible, and more local government unnecessary.

The Voluntary City movement is an idea whose time has come, one as Jay Jardine argues that can be embraced "whether you are a hard-core libertarian/anarchist, a social conservative or even a grass-roots green. Anyone who is interested in nurturing civil society will certainly be provided with compelling challenges to widely-held myths about the need and justification for government intervention."

Says the recent book The Voluntary City: "In many cities, government increasingly dominates life, consuming vast resources to cater to special interest groups. Decision-making has become intensely politicized, bureaucratic, and largely unaccountable to the populace." The problems that plague cities -- crime, homelessness, gridlock, pollution -- are examples of an oversupply of bureaucracy and an under-supply of freedom. [C/f: Andrew Galambos: "A traffic jam is a collision between free enterprise and socialism. Free enterprise produces automobiles faster than socialism can build roads and road capacity."]

The idea of The Voluntary City is an attempt to change that by making the point that communities can and have been formed and run by choice, rather than by failing and meddling central and local governments. That leaves a role for local government that as I see it is essentially just a forum in which disputes are resolved by common law, rather like a small claims court for property disputes.

A number of posts here at Not PC -- let's face it, a large number -- sit very well with the Voluntary City idea. Here for your edification is a partial list. Many of them outline the means by which the recognition and protection of property rights supports voluntarily chosen actions to produce a spontaneous order in which freedom can flourish:

THEORY:
Cue Card Libertarianism: Bureaucracy, Common Law, Pollution, Property
Decentralisation, and those who oppose it
Message to NZ: Dump the RMA
De-politicising the busybodies
The 'right' to a view
"What nuisance?" And who came to it?
RMA and the Common Law?? Answering back
Right to property = a place to stand
Countywide zoning is unwanted government control
Sprawl is good; regulation is not

PRACTICE:
Mediocrity and meddling announced by Hubbard and Co.
East Germany in East Auckland
Building slums while banning growth
Building the slums of tomorrow
Frank Lloyd Wright: Broadacre City
Central planning pushing new boundaries
Meddling arseholes
Coromandel mining exposes "a clash of values"--Tanczos
Whose bloody land is it anyway?
Pylons v property rights
Piling on the pylon pressure
"No!" to more council powers
Libertarianz Submission to 2001 Local Government Act Review