Imagine a school of economic thought in which saving money is bad, inflation is good, and no government boondoggle, such as the bridge to nowhere, is a waste of taxpayer money. That is the liberal school known as keynesian (prounounced “caines-ian”) economics, after its founder, John Maynard Keynes. Over time many of its original principles have been overturned, and it is now much more closely in line with classical economics. Its chief contribution to economics largely consists of “managed inflation” as a way to help the economy. But as the high unemployment rates in Europe plainly show, “managed inflation” cannot overcome the harm caused by violating the microeconomic principles.

Although many of its original principles have been wisely abandoned, keynesians still tend to support at least a modest role for the government. In today’s times the most popular defenders of keynesian economics are Paul Krugam and Brad DeLong, both of whom are staunch Democrats that oppose many of the Republican’s economic policies. It is important to understand the weaknesses of thesir positions.

The first thing to realize is that keynesians like Krugman and DeLong are still further to the right on economic issues than most liberals. For example, Paul Krugman has written an article called In Praise of Cheap Labor, in which he correctly observes that a bad job is better than no job at all. The Democrats would have to move from “far left” to “center left” to adopt keynesian economic positions.
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One of the main criticisms the left makes of economics is that it is built upon an invalid premise. The Rational Man (Homo Economus) of the economists is a nice simplifying assumption, they claim, but the real world is too messy for those assumptions to be valid.

Is The Left Socially Conservative?

Let’s suppose this is true; people are too irrational to be trusted with free markets. This is an odd objection for the left, since they strongly reject the conservative argument that poverty is self-created - even though the research shows that the number one cause of poverty is the breakdown of the married, two-parent family. After all, if there is one area where people tend to behave irrationally, it is in the arena of sex, lust, and love.

Government Failure and Public Choice Theory

The economic discipline of Public Choice Theory studies how governments work (much like how regular economics studies how markets work). The main conclusion is that governments failure is a bigger problem than market failure. There are several reasons.

• Irrational Consumers. Suppose you do a poor job researching a consumer purchase; perhaps you wistfully hope that Product X will make you lose weight, gain a fortune, or attract lovers. You will bear the consequences of your bad decision. But if you do a poor job researching your support for politician X, then you will not have to suffer the consequences. That is because your vote is unlikely to decide the election. The lack of a direct stake in your success or failure means that poor decisions go unpunished. The lesson is that voters are even more irrational than consumers.
• Power Corrupts. Regulatory capture is a term public choice theorists use for the process by which government regulatory agencies serve the interests of the corporations they are supposed to regulate (the solution: abolish the regulatory agencies). Logrolling is the process by which politicians sign off on each other’s pork. They can brag to local voters about all the money they brought home - they will not mention that other politicians did the same thing. The lesson is that government – which is more powerful than industry – is more corruptible than industry.

The lesson of public choice theory is that even if the Rational Man of the economists is unrealistic, the Rational Government of the Left is even more unrealistic.

Businesses Are Rational

Regardless of whether or not it is true of people, businesses are rational decision makers. They may not be perfect, but they do have to make a profit, answer to shareholders, respond to market signals, and make decisions based upon research and cost-benefit analysis. Businesses that are too irrational to do this have a tendency to go out of business. The same cannot be said for the government, which has monopoly protection. So if governments are (reasonably) rational, then businesses are at least as rational if not more so.
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This is an essential book for anyone who wishes to defend a political philosophy based upon the doctrine of natural rights. I frequently debate politics, abortion, the morality of war, and other ethical positions. Many of my “sparring partners” employ thought experiments to refute rights-based ethics. A common example is Ellen Goodman’s thought experiment in which an IVF clinic is on fire. You can save either a a test tube with an embryo, or a small child. Who do you choose?

Moral Theory by David Oderberg is the perfect rebuttal. Study the mechanics of natural rights ethics, particularly the Acts/Omission distinction and the Principle of Double Effect. The Principle of Double Effect is particularly important. It resolves conflicts of rights while still upholding the moral worth, dignity, and rights-bearing status of the “losing” side. Utilitarianism cannot do this. Even though it starts from the premise that everyone’s interests get equal consideration, the hard fact remains that a leading cancer researcher had a greater ability to benefit the interests of society than a homeless man.

Natural rights ethics avoid this problem because it takes into account more than your ability to benefit the rest of society. Natural rights ethics lead to the principle that “the ends do not justify means.” Natural rights ethics also factor in the importance of intention - actions that are taken with selfish intent are not considered to be morally good even if the outcome is good. For example, giving money to charity to impress people is not a morally good act (it is not necessarily bad either - it may be indifferent).
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Conservatives theory: design the government with the idea that it will be run by your worst enemy.

Liberal theory: Design the government with the idea that *you* will be running it.

Here’s an interesting thought: the most anti-Democratic part of the Constitution is the Bill of Rights. There is no part of our Constitution that more systematically thwarts the will of the majority than our basic freedoms of speech and religion. We could have 99.99% of the population staunchly opposed to holocaust revisionism and racism, but the KKK would still have the right to freely express their ideas. Well, except in some “tolerant” communities and college campuses that have banned hate speech. In those cases the will of the majority wins and freedom of speech loses.

James Madison wrote in Federalist Paper 51: “It is of great importance in a republic not only to guard the society against the oppression of its rulers but to guard one part of the society against the injustice of the other part. If a majority be united by a common interest, the rights of the minority will be insecure.” Government is a tradeoff between directly expressing the will of the majority versus protecting individuals from the tyranny of the majority. Liberals tend to favor directly expressing the will of the majority, conservatives tend to favor protecting individuals from the tyranny of the majority. The common theme that runs through the anti-Democratic Constitutional structures favored by conservatives is that they amplify the power of minority groups against the will of the majority.
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Slavery has been the standard throughout world history. What is unprecedented is a society that willingly abolished slavery. And while Christians were not always united on the issue, slavery would not have ended were it for Christianity.

Slavery was common in ancient Greece and Rome, but it died out in the Middle Ages. Slavery only survived on the pagan fringes of medieval Europe, such as the Vikings of Scandinavia. This alone should be a strong testimony to the fact that Europe’s Christian nature led directly to opposition to slavery - why else would warlike feudal lords not take slaves?

In fact, the Catholic Church did oppose slavery. Here is an article by sociologist and historian Rodney Stark summarizing some of the positions of the Church and other prominent Christians during the early Middle Ages and beyond. His book, For the Glory of God goes into more detail.

Of course, some people have argued that serfs were effectively slaves. But this is not true. While serves were not free, they were still greatly elevated above slaves. Serfs were free to marry. Serfs owned land that they could pass to their children. They were allowed to keep the products of their land. On the downside, they were tied to the land, and owed labor to their seigniorial lord. They typically had to devote some of their labor to his land. Furthermore, the Church encouraged Lords to free their serfs as an act of piety (see page 287 of Western Europe in the Middle Ages).
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Math Against Tyranny
by Will Hively, Discover magazine, November, 1996

When you cast your vote this month, you’re not directly electing the president–you’re electing members of the electoral college. They elect the president. An archaic, unnecessary system? Mathematics shows, says one concerned American, that by giving your vote to another, you’re ensuring the future of our democracy.

“One morning at two o’clock,” Alan Natapoff recalls, “I realized that I was the only person willing to see this problem through to the end.” The morning in question was back in the late 1970s. Then as now, Natapoff, a physicist, was spending his days doing research at mit’s Man-Vehicle Laboratory, investigating how the human brain responds to acceleration, weightless floating, and other vexations of contemporary transport. But the problem he was working on so late involved larger and grander issues. He was contemplating the survival of our nation as we know it.

Not long before Natapoff’s epiphany, Congress had teetered on the verge of wrecking the electoral college, an institution that has no equal anywhere in the world. This group of ordinary citizens, elected by all who vote, elects, in turn, the nation’s president and vice president. Though the college still stood, Natapoff worried that sometime soon, well-meaning reformers might try again to destroy it. The only way to prevent such a tragedy, he thought, would be to get people to understand the real but hidden value of our peculiar, roundabout voting procedure. He’d have to dig down to basic principles. He’d have to give them a mathematical explanation of why we need the electoral college.

Natapoff’s self-chosen labor has taken him more than two decades. But now that the journal Public Choice is about to publish his groundbreaking article, he can finally relax a bit; he might even take a vacation. In addition to this nontechnical article, which skimps on the math, he’s worked out a formal theorem that demonstrates, he claims, why our complex electoral system is “provably” better than a simple, direct election. Furthermore, he adds, without this quirky glitch in the system, our democracy might well have fallen apart long ago into warring factions.
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Here are three economic myths I’d like to see come to an end.

• Myth #1: Tax Cuts on “the Rich” hurt everyone else. Reality: You get less of what you tax and more of what you subsidize.

  That is a basic economic fact. Price matters - people buy more of something when it is on sale and less when the price goes up. Using taxes to raise the price and discourage consumption is why many people favor “sin taxes” on alcohol and cigarettes (ironically, since smokers are addicts, sin taxes have relatively little impact). Taxes on businesses mean you get fewer businesses. Fewer businesses = fewer jobs. This even applies to the standard income tax since many small businesses file under the personal income tax as subchapter S corporations. See a fuller discussion here. Also note the higher unemployment rate in Europe compared to the lower-tax United States.

• Myth #2: the government can check the power of big business.. Reality: Power corrupts; government regulations enable the abuses of big business.

  When governments have the power to dictate the terms of how businesses compete, then big businesses will lobby politicians to tilt the rules in their favor. The result is less competetion, and regulations that favor large corporations against the small businesses that do not have the financial resources to lobby Washington. The consumer and the entrepreneur are the real losers when government has the ability regulate. This process is called “regulatory capture” and is studied under the ecnomic discipline of Public Choice Theory, for which James Buchanon received a Nobel prize. See more here and here.

• Myth #3: the President has a lot to do with the economy. Reality: There is a reason why the head of the Federal Reserve is called the second most powerful person in the country. His ability to set interest rates is what really determines the ups and downs in the economy.

  Low interest rates encourage investment, which in turn creates jobs. The economy starts to heat up and unemployment goes down as jobs are created through this investment. But as unemployment goes down too low, businesses are forced to compete for scarce labor and wages go up. This is a good thing, until inflation driven by rising wages sets in. So the Federal Reserve raises interest rates to deter investment. If the Fed does their job right, they can keep unemployment and inflation fairly low, while wages steadily increase (if you follow the social security debate closely, you knowe that part of the impending budget crunch is because social security benefits are indexed to wages, which rise faster than inflation. Indexing social security benefits to inflation would largely fix social security). In practice the Fed tends to “oversteer” and the economy swings from hot to cold, hot to cold. The President can only nudge the economy slightly to the right (by cutting taxes) or slightly to the left (by raising taxes) but this effect will be small compared to the much larger swings in the business cycle.

  Read about the more free market oriented take on the business cycle in this wiki article, and this longer article on the leading website on the Austrian school of economics.