The Greatest Payoff in World History — And Just the Beginning

By Ken Schoolland and Mats Walus

Ken Schoolland is a Hawaii Pacific University professor of economics, the author of award winning novel, The Adventures of Jonathan Gullible, and is on the Board of Directors of the International Society for Individual Liberty. Mats Walus is a member, of the International Society for Individual Liberty.

President Obama declared on the CBS “60 Minutes” television show, “I did not run for office to be helping out a bunch of fat cat bankers on Wall Street.” Really, Mr. President? Then why did you accept $38 million in campaign contributions from those “fat cats” in the industry?[1]

All the major Democratic and Republican presidential contenders supported the Toxic Asset Relief Program (TARP) as passed by Congress in September of 2008. Soon after passage, the package was miraculously transformed from $700 billion in mortgage relief for homeowners to a banker bailout program. This was only the tip of the iceberg. The spending surged to $1.5 trillion under President Obama with estimates of bailout guarantees ranging up to $8 trillion, twice the inflation adjusted cost of World War II.

The Iron Triangle: Special Interests, Politicians, & the Bureaucratic Payoff

The 2008 campaign season was also marked by the largest ever flood of money into politics, nearly half a billion dollars from the finance, insurance, and real estate industry alone. Money from this industry was the most from any sector of the economy and was distributed in roughly equal proportions to Democrats and Republicans.

The 161 companies receiving $305 billion in the original TARP bailout funds made campaign contributions and lobbying expenses totaling $114,000,000 to all candidates. That works out to more than $2600 of bailout funds for each $1 of political expenses in the 2007-2008 electoral season.

4 Most of these contributors are banks and investment houses. They know that there is no better investment anywhere in the world than a well-placed politician.

Bankruptcy vs. Bailout

So what’s the problem with a bailout? Wasn’t it necessary to rescue the financial system from collapse? Despite the hype, this was not the message from the World Economic Forum, a Swiss think tank.

The World Economic Forum ranked the United States as number one in the world for financial strength, the same month that Congress passed the TARP. In September 2008 the U.S. was listed as top of the world for the “strength of their financial markets, and the depth and breadth of access to capital and financial services. This wide-ranging index takes into account the quality of each country’s financial laws and regulations, its business environment, and the likelihood of a financial crisis…” [5]

Why such diverging views about a potential crisis in America? The World Economic Forum was expecting that financial troubles would be handled by well-established laws and regulations. Financial assets don’t disappear. Instead, bankruptcy proceedings transfer assets from incompetent owners and managers to competent owners and managers.

But the World Economic Forum didn’t count on Congress intervening to trash the bankruptcy laws in order to rescue their benefactors with massive taxpayer bailouts. Of course any incompetent owners and managers can be made to look good with a handout of $10-$40 billion. And, in the case of the Federal Reserve Board, there’s nothing that a trillion newly printed dollars can’t patch up…at least temporarily.[6]

The Revolving Door

This bailout was also manipulated by the “Revolving Door” of Washington. This is the constant movement of personnel back and forth across financial, political, and bureaucratic lines.

For instance, President Bill Clinton’s Secretary of the Treasury, Robert Rubin, had previously been the CEO of Goldman Sachs. As Secretary of the Treasury in 1995, Rubin engineered a bailout of the Mexican government that rescued substantial Goldman Sachs investments. President George Bush’s Secretary of the Treasury, Henry Paulson, had previously been the CEO of Goldman Sachs. As Secretary of the Treasury in 2008, Paulson engineered a bailout of AIG and Morgan Stanley that rescued substantial Goldman Sachs investments.[7]

President Barack Obama’s Director of the National Economic Council is Larry Summers. The Honolulu Star-Bulletin detailed speaking fees from Goldman Sachs, Citigroup, and others under the headline: “Firms that got bailouts paid Summers millions.”[8]

TARP companies that were the most foolhardy in taking on risk paid their CEO’s incomes that exceeded the average of all companies in America, of all banks in America, and even exceeded the average of all financial institutions in America. The pay for CEO’s of these TARP companies was well above the industry average both before and during the financial crisis.

Goldman Sachs, for instance, reported a doubling of compensation to its employees in 2009. Compensation to its 21,847 employees averaged $743,112 each.9 Is this the behavior of a company that has just barely survived a reckless disaster? Or is this the behavior of a company that has just scored a bountiful coup?

Moral Hazard

Success and failure are both essential to a thriving free market. Success must be rewarded as a signal to do ever more. Failure must be penalized as a warning to give it up and to try something else. But what happens when these signals are reversed—when success is penalized by taxes that are used to reward failure? Then failure is encouraged to do ever more and success is told to give it up. This is a prescription for certain economic collapse.

The causes of the current crisis have not been rectified. Most of the same people are still in charge and have not suffered for their blunders. TARP company revenues and compensation continue to rise, Congress remains unscathed and ever more strident, presidential powers are massively increased, government agencies are all intact and scheduled for expansion of regulatory authority, and Ben Bernanke, Chairman of the Federal Reserve Board, has been reappointed and is soon to be reconfirmed.

This is the essence of moral hazard. Moral hazard exists when governments intervene in markets to socialize losses. Thus, reckless risk taking is encouraged rather than punished. So the risk takers chuckle, take their bonuses, pay off their political enablers, and do it all over again on a bigger scale the next time around.

The U.S. government bailed out the savings and loan industry in the 1980’s, Long Term Capital Management in the 1990’s, and Fannie Mae, Freddie Mac, GM, Chrysler, AIG, and a host of others in 2008. Each time officials swore that the lessons had been learned and it couldn’t happen again.

On a global scale the U.S. taxpayer has paid directly or indirectly through the Federal Reserve Board and the International Monetary Fund for the rescue of Mexico, Russia, Brazil, Korea, Thailand, Indonesia, and a multitude of other countries. The numbers mounted over the years from $4 billion, $23 billion, $40 billion, and now trillions of dollars. What’s next?

Make no mistake about it, with such perverse incentives the disaster will be greater each time—until Atlas shrugs.

“Never expect the people who caused a problem to solve it.” –Albert Einstein

REFERENCES

  • Finance, insurance, real estate campaign contributions 2007-08 by presidential candidate, http://www.OpenSecrets.org; Glassman, James, “The Hazard of Moral Hazard,” Commentary, 9/09, p. 28-32
  • “How Our Spending Stacks Up,” Time, 12-22-08
  • Campaign contributions by category 2007-08 to all Democrats and Republican candidates http://www.OpenSecrets.org
  • 4) Ebeling, Richard, “Bank Bailouts are the Payback for Bankrolling Politicians,” American Institute for Economic Research, 2-23-09, http://www.aier.org/research/commentaries/1186-bank-bailouts-are-the-payback-for-bankrolling-politicians
  • 5) “Financial Development Index,” The Economist, 9/18/08
  • 6) Monetary base of the Federal Reserve Board. 1959-2009.
  • 7) Sorkin, Andrew Ross, Too Big to Fail, Viking Press, pre-release excerpted in Vogue, 11/09, p. 181
  • 8) “Firms that got bailed out had paid Summers millions,” The Honolulu Star-Bulletin, 4-5-09
  • 9) “3 banks prepared to pay record $29.7B in bonuses,” The Wall Street Journal, 10-14-09

What Is Real Compassion?

Lawrence W. Reed is president of the Foundation for Economic Education in Irvington, New York—www.fee.org.This essay has been adapted for CEIL by the author from an essay he published in 1997.


In every election campaign, we hear the word “compassion” at least a thousand times. Big government programs are evidence of compassion; cutting back government is a sign of cold-hearted meanness. By their misuse of the term for partisan advantage, politicians have thoroughly muddied up the real meaning of the word.

As Marvin Olasky pointed out in The Tragedy of American Compassion, the original definition of compassion as noted in The Oxford English Dictionary is “suffering together with another, participation in suffering.”  The emphasis, as the word itself shows — “com,” which means with, and “passion,” from the Latin term “pati,” meaning to suffer — is on personal involvement with the needy, suffering with them, not just giving to them.

But today most people use the term to mean little more than, as Olasky put it, “the feeling, or emotion, when a person is moved by the suffering or distress of another, and by the desire to relieve it.”  There is a world of difference between those two definitions: One demands personal action, the other simply a “feeling” that usually is accompanied by a call for someone else —namely, government — to deal with the problem. One describes Mother Teresa or the Red Cross, the other describes the typical buck-passing, bleeding-heart social activist with a picket sign in his hand.

The fact is that government “compassion” is not the same as personal and private compassion.  When we expect the government to substitute for what we ourselves ought to do, we expect the impossible and end up with the intolerable.  We don’t really solve problems, we just manage them expensively into perpetuity and create a bunch of new ones along the way.

From 1965, the beginning of the so-called War on Poverty, to the mid-1990s, total welfare spending in the United States was $5.4 trillion. In 1965, total government welfare spending was just over 1 percent of gross domestic product (GDP), but 30 years later it had ballooned to 5.1 percent of GDP annually — higher than the record set during the Great Depression. Until welfare reforms that emphasized work began to kick in the late ‘90s, the poverty rate had hardly changed from where it was in 1965.  For decades, millions lived lives of demoralizing dependency, families were rewarded for breaking up, and the number of children born out of wedlock soared to the stratosphere—terrible facts brought about, in large part, by “compassionate” government programs.

A person’s willingness to spend government funds on aid programs is not evidence that the person is himself compassionate. Professor William B. Irvine of Wright State University in Dayton, Ohio, explains: “It would be absurd to take a person’s willingness to increase defense spending as evidence that the person is himself brave, or to take a person’s willingness to spend government money on athletic programs as evidence that the person is himself physically fit.”  In the same way as it is possible for a “couch potato” to favor government funding of athletic teams, it is possible for a person who lacks compassion to favor various government aid programs and, conversely, it is possible for a compassionate person to oppose these programs.

It is a mistake to use a person’s political beliefs as the litmus test of his compassion. Professor Irvine says that if you want to determine how compassionate an individual is, you are wasting your time if you ask for whom he voted; instead, you should ask what charitable contributions he has made and whether he has done any volunteer work lately. You might also inquire into how he responds to the needs of his relatives, friends, and neighbors.

True compassion is a bulwark of strong families and communities, of liberty and self-reliance, while the false compassion of the second usage is fraught with great danger and dubious results.  True compassion is people helping people out of a genuine sense of caring. It is not asking your congressman or parliamentarian to do it for you. True compassion comes from your heart, not from government treasuries. True compassion is a deeply personal thing, not a check from a distant bureaucracy.

The next time you hear someone use the word “compassion,” ask him if he really knows what he’s talking about.

Where Are the Omelets?

Lawrence W. Reed is president of the Foundation for Economic Education in Irvington, New York—www.fee.org. This essay has been adapted by the author from the original version that appeared in FEE’s journal, The Freeman, in October 1999.

On ne saurait faire une omelette sans casser des oeufs.” Translation: “One can’t expect to make an omelet without breaking eggs.”

With those words in 1790, Maximilian Robespierre welcomed the horrific French Revolution that had begun the year before. A consummate statist who worked tirelessly to plan the lives of others, he would become the architect of the Revolution’s bloodiest phase—the Reign of Terror of 1793–94. Robespierre and his guillotine broke eggs by the thousands in a vain effort to impose a utopian society based on the seductive slogan “liberté, égalité, fraternité.”

But, alas, Robespierre never made a single omelet. Nor did any of the other thugs who held power in the decade after 1789. They left France in moral, political, and economic ruin, and ripe for the dictatorship of Napoleon Bonaparte.

As with Robespierre, no omelets came from the egg-breaking efforts of Lenin, Mao, Pol Pot, Adolf Hitler, and Benito Mussolini either.

The French experience is one example in a disturbingly familiar pattern. Call them what you will—leftists, utopian socialists, radical interventionists, collectivists, or statists—history is littered with their presumptuous plans for rearranging society to fit their vision of “the common good,” plans that always fail as they kill or impoverish other people in the process. If socialism ever earns a final epitaph, it will be this: “Here lies a contrivance engineered by know-it-alls and busybodies who broke eggs with abandon but never, ever created an omelet.”

Every collectivist experiment of the twentieth century was heralded as the Promised Land by statist philosophers. “I have seen the future and it works,” the intellectual Lincoln Steffens said after a visit to Stalin’s Soviet Union. In The New Yorker in 1984, John Kenneth Galbraith argued that the Soviet Union was making great economic progress in part because the socialist system made “full use” of its manpower, in contrast to the less efficient capitalist West. But an 846-page authoritative study published in 1997, The Black Book of Communism, estimated that the communist ideology claimed 20 million lives in the “workers’ paradise.” Similarly, The Black Book documented the death tolls in other communist lands: 45 to 72 million in China, between 1.3 million and 2.3 million in Cambodia, 2 million in North Korea, 1.7 million in Africa, 1.5 million in Afghanistan, 1 million in Vietnam, 1 million in Eastern Europe, and 150,000 in Latin America.

Additionally, all of those murderous regimes were economic basket cases; they squandered resources on the police and military, built vast and incompetent bureaucracies, and produced almost nothing for which there was a market beyond their borders. They didn’t make “full use” of anything except police power. In every single communist country the world over, the story has been the same: lots of broken eggs, no omelets. No exceptions.

Nobel laureate economist F. A. Hayek explained this inevitable outcome in his seminal work, The Road to Serfdom, in 1944. All efforts to displace individual plans with central planning, he warned us, must end in disaster and dictatorship. No lofty vision can vindicate the use of the brute force necessary to attain it. “The principle that the end justifies the means,” wrote Hayek, “is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule.”

The worst crimes of the worst statists are often minimized or dismissed by their less radical intellectual brethren as the “excesses” of men and women who otherwise had good intentions. These apologists reject the iron fist and claim that the State can achieve their egalitarian and collectivist goals with a velvet glove.

But whether it is the Swedish “middle way,” Yugoslavian “worker socialism,” or British Fabianism, the result has been the same: broken eggs, but no omelets.

Have you ever noticed how statists are constantly “reforming” their own handiwork? Education reform. Health-care reform. Welfare reform. Tax reform. The very fact that they’re always busy “reforming” is an implicit admission that they didn’t get it right the first 500 times.

The list is endless: Canadian health care, European welfarism, Argentine Peronism, African postcolonial socialism, Cuban communism, on and on ad infinitum. Nowhere in the world has the statist impulse produced an omelet. Everywhere it yields the same: eggs beaten, fried, and scrambled. People worse off than before, impoverished and looking elsewhere for answers and escape. Economies ruined. Freedoms extinguished.

It is a telling conclusion that statists have no successful model to point to, no omelet they can hold up as the pièce de résistance of their cuisine. Not so for those of us who believe in freedom. Indeed, economists James Gwartney, Robert Lawson, and Walter Block in their survey, Economic Freedom of the World: 1975–1995, conclude that “No country with a persistently high economic freedom rating during the two decades failed to achieve a high level of income. In contrast, no country with a persistently low rating was able to achieve even middle income status. . . . The countries with the largest increases in economic freedom during the period achieved impressive growth rates.”

Perhaps no one explained the lesson of all this better than the French economist and statesman Frederic Bastiat more than 150 years ago:

“And now that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems, and try liberty.”

Courage, Fear and Immigration:The Significance of Welcoming Newcomers in a Free Economy

Ken Schoolland is an Associate Professor of Economics and Political Science at Hawaii Pacific University and a member of the Board of Directors for the International Society for Individual Liberty.
This speech was delivered at the International Society for Individual Liberty Conference, Phoenix, Arizona on January 8th, 2010.


Immigrants’ voyages to this land, following upon preparations that required extraordinary effort and often pain, have been among the most exciting and noble of human endeavors. Women and men and children have been strong and brave. They have undertaken their inevitably-frightening transits to a new place for the best of motives: the desire to improve their own lot and that of their families; the urge to leave countries whose governments they could not abide; and the willingness to help build another country where persons can live in freedom and dignity.

Julian Simon, A Life Against the Grain

HERE WE ARE, a room full of freedom-loving people, where it is safe to cheer for freedom and to denounce repression. Yet even in such a room of fellow travellers, there is one topic that is sure to stir up anxiety and friction.

And that topic is ‘immigration’, which can divide a room faster than almost any other. So whenever I get nervous about addressing a group on the topic of immigration, I take courage from immigrants themselves.

COURAGE

I think of the amazing courage it takes to flee oppression, to leave behind everything that is familiar, and to chance the hostility of a completely alien culture in order to find freedom, opportunity and a better life. When I think of that courage, I am greatly emboldened. How much easier it is to speak to a friendly audience than it is to risk one’s life in a rickety boat facing storms, pirates and sharks.  Or to risk one’s life crawling under fences and trudging for hours or days without water across a desert in temperatures exceeding 120°.

I cannot fault those who try. I admire them. Some of my ancestors probably tried something similar, very long ago, and it has benefited me. I can only hope I would have had the same courage had I been in their shoes.

But if I had been a German or Polish Jew in the 1930s, I’m not sure I would have had the courage to flee an increasingly hostile Nazi regime. Would I have defied the authorities and tried to sneak into Switzerland or the US, even though these nations had declared their quotas for German and Polish Jews were full?1 Or would I have watched my family being exterminated?

If I had been a Cuban or North Korean in the 1990s, would I have had the courage to hand over a lifetime’s savings to the novice captain of a crowded, leaky boat and chance the dangers of the open sea? Or would I have accepted the tyranny of a communist or military dictator who would enslave and impoverish me and my family for decades?

If I had been a Black slave in the antebellum South in the early 1800s, would I have risked the underground railroad – to run from a slave master? Would I have fled to a Northern state where I was considered illegal runaway property that stole itself, and where most people would have been eager to turn me over to the authorities for a swift return to my owner? Or would I have been content to stay where I was, legal and unfree, and watch my family live under tyranny?

All this reminds me of a cherished American hero, Patrick Henry, whose words appear in every American history schoolbook: ‘Give me liberty or give me death!’

While these words are cherished, do we really cherish those who act upon them? I hope I never have to face such a dilemma. But there are people who do. For the world is still filled with nation masters, rulers who see people as slaves to their will.

FEAR

What about those who argue against open immigration? Aren’t any of the arguments valid? I say no.

Of course there are problems which arise when people move around the planet. I don’t deny that. But I don’t blame those problems on liberty. Instead I look to see if it is the repression of liberty itself which is causing those problems. And it usually is.

In order to solve problems I don’t ask, ‘What can the government do?’ Instead, I ask, ‘What has the government done to cause or contribute to these problems in the first place?’ Undo that and you have a solution.

Underlying every argument against the movement of people to freedom is fear. Such fears are sometimes openly expressed, but more often they are veiled or disguised. The fear of immigrants denotes the absence of courage.

Courage welcomes competition. Fear shuts it out. Courage embraces the newcomer. Fear expels him or her. Courage champions liberty. Fear denies it.

When I think of this fear, I think of the official term for immigrants: ‘aliens’. The authorities call them ‘aliens’, and give them ‘alien registration’ cards.

I’ve seen a few movies about aliens. Alien, Aliens, Aliens 3 and Alien Resurrection. The movie books show more that 20 listings about aliens, all from outer space.

Such movies are very popular because they tap primal xenophobic fears. The alien movies are typically about hideous foreign creatures who disguise themselves by invading the bodies of beautiful, loving Hollywood humans and their children. All this is done with the purpose of gaining strength and power from the host. The aliens then suddenly break out, conquering and devouring all life as we know it. This approximates the subconscious fear that people everywhere have of immigrants – throughout history.

What are these fears that immigrants arouse? The basic fears have to do with race, culture, change, livelihood, security and crowds. And the rationalisations for exclusion are disguised in many forms.

SLOTHFUL IMMIGRANTS?

One of the most frequent arguments used by Americans against opening of borders is that immigrants come for welfare and that innocent US taxpayers are compelled to pay for these slothful immigrants. It is an interesting contrast: people fear immigrants for working too hard and taking away jobs, and for working too little and taking away welfare. So which is it?

I am always asking my students about supposedly ‘slothful immigrants’. I ask them to imagine being an employer who is facing two prospective employees. Little is known about the job applicants except this: one is an American citizen and the other is an immigrant. Now which prospective employee do the students identify as the harder worker of the two: the American citizen or the immigrant? They always, always, always say that the immigrant would be the harder worker.

Those who move from one country to another are often the most energetic, the most courageous and enterprising. They leave behind everything that is familiar in order to go to a place where everything is unfamiliar and where everyone is potentially hostile.

When immigrants start businesses in America, hire Americans and offer to sell products to Americans, it is the right of the consumer to buy from these immigrants if he chooses.

And what of American employers? Do employers have a right to hire immigrants if they choose? Consider the words of Robert W. Tracinski, a senior writer for the Ayn Rand Institute:

The irrational premise behind our nation’s immigration laws is that a native-born American has a ‘right’ to a particular job, not because he has earned it, but because he was born here. To this ‘right,’ the law sacrifices the employer’s right to hire the best employees – and the immigrant’s right to take a job that he deserves. To put it succinctly, initiative and productiveness are sacrificed to sloth and inertia.

The ‘American dream’ is essentially the freedom of each individual to rise as far as his abilities take him. The opponents of immigration, however, want to repudiate that vision by turning America into a privileged preserve for those who want the law to set aside jobs for them – jobs they cannot freely earn through their own efforts….Any immigrant who wants to come to America in search of a better life should be let in – and any employer who wants to hire him should be free to do so.2

TREASURES OF THE EARTH

And what of the economic consequences of immigrants coming to work? The practical questions have already been answered by the brilliant work of Julian Simon.3 According to Simon,  immigrants provide extraordinary benefits to a nation. Most immigrants come when they are in their most productive years.

Overall, new immigrants average only one year less in education than the native population of the US, but their children are highly motivated and excel beyond the level of native Americans in school. Immigrants have a higher proportion of advanced degrees than the native population, especially in high productivity areas of science and engineering. Of immigrants who have a background in science and engineering when they go to the US, more than a third are from India. The Economic Times reported last month that median income of Indian-Americans in the US is $60,000, 50% greater than the average in America.4

Immigrants to the US, even those from poor countries says Simon, are healthier in general than natives of the same age. Family cohesion, with a tradition of hard work, is stronger than among natives. Simon also reports on 14 separate studies concluding that immigrants do not cause native unemployment, even among very sensitive categories of low-paid, minority, low-skilled or even high-skilled groups of natives.

Another 12 studies revealed that immigrants do not have a negative effect on wages. There is no fixed number of jobs. Enterprising immigrants come with arms, legs and brains that create employment and wealth wherever they settle. Those who have little education have traditionally had the motivation to take on the four D’s, work that is either too difficult, too dangerous, too dirty or too dark for most American workers.

Simon concluded from a review of the research that, when they are not prohibited from working by anti-labour laws, immigrants contribute more in taxes than they draw out from government welfare services. And over the years, immigrant earnings exceed the earnings of comparable native groups. Julian Simon asserted that the continuation of welfare benefits for aging citizens may well depend on the contributions of youthful immigrants.5

If this is so, why aren’t immigrants treated as treasures of the earth? Why aren’t politicians the world-over competing with each other to lure these valuable human resources to their land in the same manner that they compete to lure capital investment, the product of all this human labour? Why aren’t immigrants seen as an inspiration – as were the immigrants Mikhail Baryshnikov, Enrico Ferme, Irving Berlin and Albert Einstein?

Except for well-to-do tourist, student and business visitors, those newcomers who wish to settle inspire xenophobic fear. This fear will not stop immigrants from the most natural of human impulses, the striving for freedom and opportunity.

During class debates, my students hear all the arguments about immigration with an impressive array of documentation, both pro and con. As the debate rages, the students find themselves torn by the dilemma between fear and ethics.

For me, the ethics are clear: if I do not have the right to stop a person from peacefully pursuing freedom and opportunity, then I do not have a right to ask a politician to do this for me. The law may declare someone illegal, but if his or her actions are moral, then it is the law that is immoral.

HIGH WELFARE CORRELATES WITH OUT-MIGRATION

This view of personal ethics satisfies many free-marketers in virtually every aspect of economics except immigration. They may accept immigration theoretically, but only after all forms of welfare have been abolished. Which is to say – ‘Not in my lifetime!’6

Is it correct to suppose that in-migration is caused by the existence of welfare? If it is true that immigrants go to America for the welfare, then it would follow that once in the country, immigrants would move to the states with the most welfare. But just the opposite is true.

Both the native-born population and the foreign-born population flee states with the highest welfare and move to those with the lowest welfare.

Take Hawaii, for example. According to Michael Tanner and Stephen Moore of the cato Institute,7 the six basic welfare benefits in Hawaii (six among a possible 77 welfare programs) could have provided a mother and two children with the equivalent of a pre-tax income of $36,000 or a wage of $17.50 an hour, the highest benefits in the nation. This, however, is not associated with net domestic in-migration to Hawaii. According to recent data from the US Census Bureau for the decade of the 1990s, Hawaii experienced net domestic out-migration to other states of both the native-born and the foreign-born population.

Among the ten states that provided the greatest levels of welfare, there was a net out-migration of 1,500,000 native-born and almost 500,000 foreign-born individuals.8 Eight of the ten highest welfare states experienced out-migration of the native-born.


LOW WELFARE CORRELATES WITH IN-MIGRATION

Contrast this with states that grant little welfare. Eight of the ten states offering the lowest levels of welfare experienced net domestic in-migration of the native-born population. And nine of the ten low welfare states experienced net domestic in-migration of the foreign-born population.

Hourly wage equivalent of welfare (1995) Native net domestic migration: (Number) Foreign-born domestic net migration: (Number)
 
TOP 10:
Hawaii $17.50 –  65,505 –    10,628
Alaska $15.48 –  31,040 +       542
Massachusetts $14.66 –  56,324 +    1,616
Connecticut $14.23 –  66,950 +    2,340
Wash. D.C. $13.99 –  35,515 –     9,816
New York $13.13 -669,102 –  205,146
New Jersey $12.74 -186,933 +    4,104
Rhode Island $12.55 +   2,320 +       916
California $11.59 -518,187 –  237,349
Virginia $11.11 + 59,364 +   16,366
       
       
Top 10 average $13.70
Total Pop Chg. – 1,567,872 –  437,055
       
       
BOTTOM 10:
Mississippi $5.53 +  25,845 +  1,085
Alabama $6.25 +  25,158 +     665
Arkansas $6.35 +  35,049 +  7,067
Tennessee $6.59 +135,615 +10,699
Arizona $6.78 +275,814 +40,334
Missouri $7.16 +  42,397 +  3,656
West Virginia $7.31 –    9,778 –      976
Texas $7.31 +131,538 +16,702
Nebraska $7.64 –   20,160 +  4,807
S. Carolina $7.79 +124,151 +  8,054
Bottom 10 Ave $6.87
 
Total Pop Chg. +765,629 + 92,093
CATO US Census US Census

Moore, Stephen, “Why Welfare Pays,” Wall Street Journal, September 28, 1995
“Migration of Natives and the Foreign Born: 1995-2000,” US Census Bureau, August 2003

There are some high-profile exceptions, but most migration results from a desire for opportunity, not for welfare. People who are too lazy to work are also too lazy to leave everything that is familiar to them and go to a place that is unfamiliar and potentially hostile. This is even more true of people who move across national borders at great personal risk.

In refuting the ‘welfare magnet theory’, the ethical argument is far more appealing than the practical argument. To say that immigrants are responsible for welfare in the US is a collectivist notion. The ethics of individual liberty oblige US to hold people accountable for their own actions, not for the actions of others. Immigrants are no more responsible for oppressive welfare laws in the US than they are for the oppressive tyranny in the country they are fleeing.

We are fortunate that US politicians are beginning to take hold of the runaway welfare system of recent decades. The share of the US population living below the poverty line has fallen to a 21-year low, the number of people on welfare and the percent of the population on welfare have both been cut in half.9

The welfare system is not a given. Welfare need not be an excuse for prohibiting immigration. A system of welfare that was created by politicians can also be changed by politicians.

Some opponents of immigration say that refugees ought to stay in their home country to change the political and economic system rather than to move away. I reply that the best judge of this option is the immigrant himself or herself.

Sometimes refugees –  in the tradition of Ludwig von Mises, Friedrich Hayek and Ayn Rand –did more to change their homeland from a distance than they would have had they remained behind – to be killed, to rot in the dreary confines of some dungeon, or to slave away at backbreaking toil for a few pennies a day. The immigrant is the best judge of his or her own options, as is the case of all earlier immigrants to America.

TROJAN HORSE?

Another fear, especially in America these days, is concerned with national security. This has certainly commanded a lot more attention since the 9/11 terrorist attack on the World Trade Center. Some have cried out for an end to immigration as a means of keeping terrorists far away. Every ship, barge and airplane is perceived as a potential Trojan Horse.

To the extent that government has any legitimate function, it is to protect the people from a conquering invasion, and it should be intelligent enough to figure this out. I have no problem with denying visas to an invading army, though I suspect that if the North Korean government gave orders to invade the United States in this manner, virtually every starving soldier would become a defector the instant he crossed the border.

It is understandable that, in the aftermath of such a tragic crisis as 9/11, people will, and must, clamour for protective measures against terrorists. But reason must prevail over collectivist repression in order to gain real protection.

The US government has had no shortage of defence expenditures, ‘spending more than the rest of the world combined’.10 Nevertheless, the US intelligence and security agencies – despite the abundance of wealth, personnel and technology at their disposal – came up short in a decades-long effort to root out a terrorist network with global tentacles which originated in some of the poorest nations of the world.

The villains of 9/11 had long said they wanted an attack on America. The villains had attempted attacks before, even on some of the same targets. The villains are reported to have been within the US government’s grasp on earlier occasions, but were not pursued.11

Will such attacks in the future be forestalled by stopping all immigration? I think not. This sentiment was recently echoed by the US Secretary of State, Colin Powell.

Some argue that we should raise the drawbridge and not allow in any more foreign visitors. They are wrong. Such a move would hand a victory to the terrorists by having US betray our most cherished principles. For our own well being, and because we have so much to give, we must keep our doors open to the world…

Openness is fundamental to our success as a nation, economically, culturally and politically. Our economy will sputter unless America remains the magnet for entrepreneurs from across the world. Our culture will stagnate unless we continue to add new richness to our mosaic. And our great national mission of spreading freedom will founder if our own society closes its shutters to new people and ideas. Openness also is central to our diplomatic success, for our openness is a pillar of American influence and leadership…12

Secretary Powell recognised the importance of openness to leadership, but his department has been closing the door on this leadership. The number of visas granted to scientists and engineers for work in the US has been cut by two-thirds in the past two years.13 The fear of foreigners has also led to a tremendous reduction in the number of student visas issued over the past three years. There was, according to Nature magazine, ‘a 19 percent decrease in the number of foreign students admitted to graduate programmes in the life sciences and a 17 percent drop in admissions in the physical and earth sciences. Admissions from China, India, and South Korea, which between them provide the lion’s share of foreign students in the United States, were all down sharply.’14

Indicative of the effect of increased visa restrictions, the University of Hawaii announced a decline of international student enrollment by 28 percent for next year. These students, with all of their talent and leadership, will go elsewhere to take their classes.

Asking for a sweeping end to all immigration sidesteps responsibility for the need to have good intelligence and effective police work. It scapegoats the very refugees who are also the victims of terror. Far better that individual criminal conspirators be effectively – effectively – tracked and brought to justice.

One way to approach the security issue is to examine the actions of government which may have placed American security at risk. For guidance on this, I think two early American Presidents, George Washington and Thomas Jefferson, had it right two centuries ago when they advised against entangling alliances. Jefferson declared in his 1801 inaugural address, ‘Peace, commerce, and honest friendship with all nations – entangling alliances with none.’

What entangling alliances might Jefferson have warned US against?

He might have warned US government officials against the overthrow of the democratically-elected leader of Iran in 1953, placing a tyrant in power for the next 26 years.15 Thomas Jefferson would have warned US government officials against the arming of Saddam Hussein for his eight-year-long invasion of Iran. And he might have been suspicious of US government support of Osama bin Laden in the Afghan war in the 1980s.

Interventionist policy makers in the US government may have thought they knew how to manipulate the affairs of foreign nations. But they were dead wrong. Washington and Jefferson had more foresight and were right to warn against such arrogance.

HUMAN TRAFFIC

According to the US State Department, there are thousands of slaves in the United States. Unbelievable? The Economist magazine reports, ‘Every year, on State Department estimates, about 50,000 people, the vast majority women and children, are forcibly trafficked into the United States from all over the world – Eastern Europe, Asia, Central America, Africa.… They are forced to work as virtual slaves, for the traffickers’ profit, in the sex industry, on farms and in factories.’16 Beyond that, there are an estimated four million slaves worldwide.17

Why don’t these slaves in the US today simply run to the police for protection? That’s what the police are for, aren’t they? But no. As enforcers for deportation, the police unwittingly collaborate to empower black market slave owners. Black market slaves don’t run to the police because the police will only deport them to a nation-state where the official slave masters are perceived to be worse. It isn’t an attractive choice.

It is for the same reason that, during the 1850s in the US, runaway plantation slaves would not have gone to the police for protection. The police openly collaborated with slave owners. Running away was illegal, but it was moral. The law was immoral.

Runaway slaves could be abused by employers, denied payment for work, beaten or even raped. The slave didn’t dare turn to the police for help because the so-called ‘help’ would be deportation to a ‘state plantation’ master where conditions were perceived to be worse. That wasn’t an attractive choice either.

This is why slavery persists around the world today. It continues as Burmese, Sudanese, Cubans and North Koreans are hustled back to slave states. Americans are even fined $3000 per head for the ‘crime’ of rescuing refugees at sea and bringing them ashore.18 Hard as it is to accept, we have not progressed from the horrible time when runaway slaves were captured and forcibly returned to their plantation masters.

It persists because immigration laws provide collaboration with tyranny. These immigration laws should be condemned just as the Fugitive Slave Law of the 1850s was condemned by abolitionists 150 years ago in America.

It isn’t enough that the US Coast Guard captures runaways throughout the Caribbean Sea in order to return them to their state masters. The US Department of Homeland Security now seems to consider the whole world an American ‘homeland’, sending the Coast Guard thousands of miles to the shores of Ecuador where it has detained more than 4,000 suspected illegal migrants and sunk a dozen emptied boats by setting them ablaze and firing on them with their .50-caliber guns.19

A former student of mine, a member of the US Coast Guard, said he really felt he was in a dilemma because these intensely crowded boats are not at all seaworthy. ‘Imagine,’ said Craig, ‘just imagine falling off one of these boats and seeing it sail off without you.’ Yet this near-certainty of death, of a very ghastly death at sea awaiting them, highlights the desperation of refugees. Every trip echoes Patrick Henry, ‘Give me liberty or give me death!’

It isn’t the turbulent water and the rickety boat that kills. If I want to travel to Haiti or Ecuador, I can fly in safety and comfort for a few hundred dollars. The only reason these refugees spend many thousands of dollars for a dangerous journey on a deathtrap is because of border laws.

TYRANT AND CORPORATE WELFARE

Americans should not be worried about welfare for immigrants, but there are other forms of welfare, however, that Americans should be alarmed about. Two kinds of welfare help to drive immigrants from their homes: ‘tyrant aid’ welfare and ‘corporate protectionist’ welfare.

The US taxpayer has been compelled to provide tyrant welfare to an extremely sordid gang of thugs over decades: from Duvalier, Mobutu and Marcos, to Pahlavi, Noriega, Suharto – even a billion dollars for Saddam Hussein.

The Center for Defense Information20 states that the US sells weaponry to the political elite in 150 nation-states – four-fifths of these nation-states are undemocratic, and two-thirds are listed by the US State Department as having governments that are abusive of human rights.

Since the end of the Cold War and the beginning of endless drug wars, the American share of worldwide arms transfers climbed spectacularly to 70 percent,21 most of which is paid for, directly or indirectly, by US taxpayers. This has surely contributed to the ten-fold increase of refugees in recent decades.

Still another form of welfare directly leads to immigration. This is corporate welfare known as ‘protectionism’. Because of trade barriers, American, Japanese and European consumers are prohibited from buying products that workers and entrepreneurs are willing to produce abroad. This is especially true in agricultural and textile sectors that are particularly well-suited to development in less developed countries.

The OECD says that Europe’s agricultural protectionism increases food prices by as much as 20 percent. At the same time, farmers and textile manufacturers in poorer countries are hobbled in their efforts to export, and they find subsidised commodities dumped on their domestic markets.22

It is much the same in the US where trade barriers currently quadruple the price of sugar for US citizens, from the world market price of 5 cents per pound to the US domestic price of 20 cents per pound. To accomplish these high prices for US consumers, beet farmers were recently paid to plow under 120,000 acres of growing sugar beets. Immigrant farmers are forbidden from coming to the US. Lower income neighbours abroad are banned from selling to US consumers. And many US food processing companies are driven to move abroad.

This is not wise policy. This is lunacy – for the benefit of powerful special interest groups and politicians who betray the public trust.

‘If rich countries were to remove the subsidies [to agriculture]…poor countries would benefit by more than three times the amount of all the overseas development assistance they receive each year.’23 This has been equally true of textile barriers.

The politics of protectionism contributes mightily to the economic troubles of poorer nations. And since politics and economics are so intertwined, why are immigrants separated into two categories: political immigrants and economic immigrants?

I have no sympathy for this distinction. People have troubles with their economic life not because they speak out against their rulers, but because they often wish to act in the marketplace in defiance of their rulers. One cannot separate politics from the economic consequences of politics.

People have a right to their own reasons for moving from one place to another. They do not have to articulate their protest in political forums to be genuine refugees from political repression. In this sense, voluntary economic behaviour is a political action that risks imprisonment, or worse, if one resists the long arm of authority.

RUNAWAY SLAVES

Slaves who ran away from Southern plantations before America’s Civil War, may not have articulated their opposition to the political system, but they were political refugees nonetheless, simply in their pursuit of economic freedom. And they had a right to move from areas of low economic freedom to areas of relatively high economic freedom.

It is no accident that whenever trade barriers are raised against poor nations, there is more poverty, more civil strife, more drug running and more migration. Whenever a US president travels to neighbouring countries asking for help in fighting the drug war or for help in stemming immigration, he is always greeted with the request for the US to simply open its doors to trade, especially in farming and textiles. But these requests have fallen on deaf ears.

Finally this month, after decades of restriction, we will have a reduction in world textile barriers. But agricultural barriers remain.

The wealthy nations of the world have it within their power to massively increase prosperity and investment in poorer countries by simply practising what they preach about free trade, but they don’t.

When a tsunami ravaged nations of the Indian Ocean a couple weeks ago, the wealthy nations raised great fanfare and noise about the emergency relief aid they were giving. On the other hand, these same wealthy nations have been stone silent about the decades of trade protectionism against exports from Sri Lanka, Indonesia, India, Bangladesh, Malaysia and Thailand. These exports could have increased earnings, investment and prosperity so much that people of the region could have prepared themselves against such calamity with better roads and bridges, better homes and hospitals, better flood control and civil defence warning systems.

Economic growth makes the world much safer from natural disasters. Reports Carlo Stagnaro, ‘Thanks to scientific progress and a stronger control over nature, the number of victims due to natural disasters is declining. Death rate has fallen by 98 percent in the last century…In absolute terms, this means that – despite the demographic boom which occurred in the meantime – the numbers killed has fallen from 1.2 million casualties at the beginning of the [20th] century to 77,000 at the end of it. This is still too many, but it has significantly improved in the last few decades.’ 24 Of course, this is not possible when economic development is blocked.

This is certainly not to say that wealthy nations are solely responsible for poor growth in much of the world. Corruption, inflation, trade barriers and repression are among the political practices that have been crucial factors in preventing many Latin American nations from achieving the extraordinary growth rates of the Asian Tigers.

While starting from roughly the same base in 1950, the Asian Tigers have grown much more than the nations of Latin America. In 50 years, GDP per capita has multiplied 20 to 40 times in the Asian Tiger nations versus two to three times in most Latin American nations. Rigoberto Stewart and José Cordiero demonstrated that freer economic systems can make the difference.25 And policies of the wealthy nations can either be a help or a hindrance in doing so.

RESOURCE  SCARCITY?

In 1783, America’s first president, George Washington, proclaimed, ‘…the bosom of America is open to receive not only the opulent and respectable stranger, but the oppressed and persecuted of all nations and religions, whom we should welcome to a participation of all our rights and privileges.’

My critics say, ‘Okay, so George Washington would have welcomed immigrants two hundred years ago. But in today’s world there’s not enough room and not enough resources.’

This is false.

In a free society, human beings produce a growing abundance of everything they need. Again, it was Julian Simon to the rescue. Simon demonstrated over and over that resources are not running out, but are constantly becoming more abundant and cheaper.

Michael Cox wrote in an issue of Reason magazine, ‘Capitalism creates wealth. During the last two centuries, the United States became the world’s richest nation as it embraced an economic system that promotes growth, efficiency and innovation.’ Real GDP per capita in the US has now reached $36,000.26

Okay, there’s growing wealth, but what about the land? Land is fixed. It doesn’t increase. Isn’t the US too crowded?

Indeed, when people think of opening the borders north of Mexico, my critics imagine crowds of immigrants pouring in. ‘Where would they all fit?’

While there are a lot of people trying to get into the United States, it is arrogant to assume that everyone in the world wants to be there. Already there are as many as 10 million US citizens who have chosen to live outside of the United States.

While many Americans live abroad, they have the security of knowing they could return during a time of danger. Many immigrants to the US hope to return to their native country as well, when they have established a greater measure of prosperity and security in their lives. Many from India and China are doing this today.

The Fraser Institute publishes a report on Economic Freedom of the World, which shows a high correlation of economic freedom to economic growth. It is the natural impulse of human beings to move to areas of greater economic freedom, where they have greater opportunity to use their talents. Scientists and engineers from India have established some of the most dynamic computer industries in Silicon Valley, and, as regions of India become more economically free, many of these scientists and engineers are now returning there.

This also explains why native American researchers are currently moving away from the US to places like Singapore, which rank even higher in degrees of economic freedom. Reports Charles Piller of the Los Angeles Times, ‘Salaries in Singapore are comparable to the United States, but living costs here are lower…Even with full-time domestic help, they save more money than would be possible back home.’ 27

This is precisely what happened in the European Union when Spain was admitted to the EU. Once it became clear that the borders were to open, there was a net homeward migration of those who had previously come illegally. Just last year the EU was enlarged by ten new member nations in Eastern Europe. This didn’t lead to a mass migration. If anything, it has led to a massive increase of investment opportunities and prosperity for the whole of the EU – or they wouldn’t keep enlarging the EU every few years.

People want the opportunities that freedom brings, and most people would be delighted to have that freedom in the land that is most familiar to them. When it isn’t possible, they move.

In recent years the economic policies of China and India have been more free and there has been more growth. But the policies are not the same everywhere in China. The Fraser Institute reports that economic freedom in various provinces range from the most free to the least free in the world. It is the most free provinces that have become the engines of growth and attracted the most in-migration.

This change is happening in India as well. Several years ago, Nobel prize winning economist Milton Friedman was quoted in an American news special saying, “Indians can do well everywhere except in India. They do so badly because they are not allowed to use their abilities in India. The government tells them what to do.”  (“Is America #1,” ABC News Special, September 19, 1999) But this is changing by region and Indians are moving internally to regional engines of growth.

Part of the concern about immigrants is due to a frightening perception of the population bomb. These fears are unfounded. The United Nations reports that fertility rates in both rich and poor countries have been falling for 30 years and continue to fall. In the rich countries, fertility rates are below the replacement rate, which means that without immigration the overall population would decline. One day this will be the case everywhere.

But what about now? The critics say that no country could accommodate the vast number of refugees in the world today!

The earth is far more accommodating than people realise. There is plenty of room for humanity. For a perspective, let’s consider the 30 million refugees in the world today.

This includes 12 million refugees who have fled across international borders as well as 18 million more who are estimated to have been displaced within national borders due to civil strife.28 Compare this with Hong Kong and just one tiny US state, Hawaii.

LIBERTY AND DENSITY

Hong Kong is known to be one of the most densely crowded places on the face of the earth with 17,500 people per square mile and a per capita income rivaling that of the United Kingdom. Yet few people are aware that living conditions are only as crowded as they are in Hong Kong because 40 percent of the land area is zoned by the government as country park – where people are not allowed to live.

The same is true of Hawaii. There is no lack of land, but there is lack of politically approved zoning. In all of the Hawaiian Islands, less than five percent of the land area is zoned for all commercial and residential use. There would be plenty of room for newcomers on these tiny islands in the Pacific if only the government stood out of the way.

In fact, if people in Hawaii were willing to accept even a third of the population densities of Hong Kong, then all the refugees of the world could live on the Hawaiian Islands – and still 40 percent of the land area could be zoned as country park. If those people were allowed to farm the agriculturally-zoned sugar plantations that have mostly all gone bankrupt in recent years due to high US labour costs, there is no doubt that diligent Chinese, Vietnamese and Filipino newcomers could turn the land into one of abundance without a penny of government subsidy.

Or just take one portion of federal land in the US that is 65 times as great as the Hawaiian Islands, the lands of the Bureau of Land Management. The BLM leases its 270 million acres of land to a few favored cattle ranchers at one-seventh the market rate. This means that for $1.43 per month, the federal government provides them with enough land to sustain a cow and a calf. 29

Surely there are a lot of people around the world who would be willing to pay more than $1.43 per month to live on ten acres (five hectares) in a free country? Aren’t human beings worth more consideration than cattle? This is especially true at a time when Western governments are paying extraordinary sums to farmers not to use their land.

Surely each generation believes that living space is a problem. In 1800 there were five million people living in the United States, some of them complaining about the crowds of newcomers. How could anyone in 1800 imagine a nation of 281 million people living in the United States today?

The nation isn’t poorer for having 56 times as many people as 200 years ago. It is much richer. People accept the changes of the past much more easily than they accept the change that is yet to come. The future will bring US ever greater riches, yet people are still afraid.

Afraid? Why? Because, without confidence in the marvelous potential of a free market, people will always be afraid of the unknown.

Donald Boudreaux argues that, by historical standards, the percentage of immigrant population is relatively small and America is far richer and far more capable of absorbing immigrants than ever before.

Compared to 1920, America now has twice as many physicians per person, three times as many teachers per person, and 50 percent more police officers per person than 80 years ago. There is more food, more health care, more residential living space, and there are more jobs than ever before. Says Boudreaux, ‘The fact is America today is much wealthier, healthier, [more] spacious, and resource-rich than it was a century ago. And we owe many of these advances to the creativity and effort of immigrants.’30

BOTH MORE CROWDS AND MORE SPACE

What is the capacity of the United States in the ‘worst’ case scenario – or ‘best’ – depending on your perspective?

The land area of the United States, 30 percent of which is owned by the federal government, could support ten times the current population and it would still be less densely populated than Japan is today. If only one percent of that number was allowed into the US, the country could accommodate the entire refugee population of the world.

The fact is that, aside from the fraction of federal land that is set aside for national parks, the bulk of federal land is managed for the benefit of a very few, privileged citizens. What was once taken from Indians does not now belong to me or to all US citizens. It effectively ‘belongs’ to whoever has power in the councils of government: foresters, cattlemen, miners and environmentalists.

A study of one national forest found that the government spent $13 building logging roads for every $1 of revenue earned from the sale of timber. This isn’t frugal management, this is plunder of the taxpayer for the benefit of special interest lobbies.

I would much rather see governments give greater respect to the private ownership of justly acquired land, rather than taking lands by force with the condemnation powers of eminent domain. And where the government holds land, it should be open to those with a just claim or to homesteading. If this means a livelihood for millions of people instead of cows and prairie dogs, then so be it.

Do US citizens prefer open space to cities? Do they need rolling hills and great expanses between each other? For some, yes. And there is more and more of both types of living, cities and open space, for all.

Generally speaking, Americans are like people everywhere and they prefer to live and work in cities or suburbs, which account for less than 3 percent of the land area of the contiguous 48 states.31 Most people like crowded cities or they wouldn’t go there. That’s where the action is.

That explains why, in the decade of the 1990s, the population of New York State declined, while the population of Metropolitan New York City increased. Likewise, the population of California State declined, while the population of Metropolitan Los Angeles City increased. So there is both more open space in the countryside and more action in crowded cities.

As anyone who has flown across the United States can affirm, the population is highly concentrated in certain regions. One can fly for hours across vast expanses of land which are virtually uninhabited. Even the most desolate of land becomes inviting when the law permits freedom.

The number one travel destination for residents of Hawaii is to the deserts of Nevada, not for the open spaces, but for the crowded casinos of Las Vegas where gambling is allowed. Legalising games of chance has made Las Vegas one of the fastest growing regions of the country.

When these cities have troubles, it isn’t because of the number of people, it is because of the failure of governments to provide the primary protection services that politicians so often promise. Washington DC, the crime capital of the US, is a prime example.

We shouldn’t use poor government performance as an excuse for excluding newcomers. Instead, we should seek to improve performance with market alternatives wherever possible.

THE ETHICS OF LIBERTY

Every Fourth of July, the people of the United States proudly reaffirm the bold words of Thomas Jefferson that, ‘We hold these Truths to be self-evident, that all Men Are Created Equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness.’  Jefferson’s words are as true today as when first written.

To reiterate, I wish to say in the strongest terms I can muster, emboldened by the courage and fortitude of immigrants throughout the world and throughout history, that we should not be devising schemes and rationalisations for the restriction of liberty.

Rather, let US take part in the fight against fear, prejudice, custom and law to champion freedom. This is practical, humanitarian and, above all, ethical. Let US be a part of the drive for liberty today. Let US champion the millions of immigrants who are seeking liberty in the same manner that we would if we were in their shoes.32

Footnotes

1. Horberger, Jacob G., “Locking Out the Immigrant,” The Case For Free Trade and Open Immigration, p. 93, The Future of Freedom Foundation, Fairfax, Virginia, 1995, “Nostra Culpa,” The Economist, March 30, 2002, pp.27-28

2. Tracinski, Robert W., “Opposition to Immigration is Un-American: Restrictions on ‘H-1B’ Visas Punish Ability and Trample the Rights of Employer and Employee, Ayn Rand Institute, http://www.aynrand.org/medialink/immigration.txt

3. Simon, Julian, Immigration: The Demographic and Economic Facts, The Cato Institute, Washington, D.C., 1995, pp. 3-5. Another excellent source is Population: The Ultimate Resource, edited by Barun Mitra, President of the Liberty Institute, New Delhi, India, 2000

4. Ferguson, Ellyn, “Skilled US workers lose jobs: Visa programs give positions to recruits from overseas,” Honolulu Advertiser, December 20, 2004, see also  “NRI’s among US’s superachievers,” The Economic Times, December 30, 2004, http://economictimes.indiatimes.com/articleshow/msid-975426,curpg-1.cms

5. Simon, Julian, op. cit., pp. 3-5

6. An excellent presentation of various arguments can be found in The Journal of Libertarian Studies, 13:2 (Summer 1998), www.vonmises.org. Hans-Hermann Hoppe presents his case with “The Case for Free Trade and Restricted Immigration.” Walter Block’s essay, “A Libertarian Case for Free Immigration,”  is the best defense of open immigration that I have seen anywhere. Also excellent is: Horberger, Jacob G., “Locking Out the Immigrant,” The Case for Free Trade and Open Immigration, Future of Freedom Foundation, Fairfax, Virginia, 1995, www.fff.org

7. Moore, Stephen, “Why Welfare Pays,” Wall Street Journal, September 28, 1995

8. “Migration of Natives and the Foreign Born: 1995-2000,” US Census Bureau, August 2003

9. “An End to Poverty?” Investors Business Daily, October 19, 2000

10. “World Defense Spending,” Investors Business Daily, October 18, 2002, p. A16

11. Ijaz, Mansoor, “Clinton let bin Laden get away,”  Honolulu Advertiser, December 7, 2001 and “Inept National Security,” The Economist, March 23, 2002

12. Powell, Colin, “Secure Borders, Open Doors,” Wall Street Journal, April 21, 2004

13. Ferguson, Ellyn, op. cit., p. C3

14. Brumfiel, Geoff,  “Security restrictions lead foreign students to snub US universities,” News@nature.com, September 15, 2004

15. “Iran coup mastermind Kermit Roosevelt dies,” Honolulu Advertiser, 6/11/00, see also, Solberg, Carl, Oil Power)

16. “A cargo of exploitable souls,” The Economist, June 1, 2002, p. 30

17. Shapiro, Treena, “Conference to spotlight trafficking in humans,” Honolulu Star-Bulletin, June 13, 2002, p. A6

18. “$24,000 cruise ship fine for rescuing 8 Cubans,” Honolulu Advertiser, Oct. 22, 1993 and “Piracy done with fines,” Honolulu Advertiser, Nov. 6, 1993

19. Finley, Bruce, US takes border war on the road: Boats being sunk near Ecuador, Denver Post, December 19, 2004, http://www.denverpost.com/Stories/0,1413,36~11676~2606736,00.html

20. Center for Defense Information, America’s Defense Monitor, Washington, D.C., www.cdi.org. The data cited in the text of this article was derived from their film, “The Human Cost of America’s Arms Sales,” Nov. 8, 1998,

21. Omicinski, John, “US dealers dominating world arms market,” Honolulu Advertiser, April 17, 1994

22. “Europe’s Farms,” The Economist, 7/13/02, p 42

23. “Patches of Light: Special Report on Agricultural Trade,” The Economist, June 9, 2001

24. Stagnaro, Carlo, “When Your Mother Kills,” Tech Central Station, December 28, 2004, http://www.techcentralstation.com/122804B.html

25. Stewart, Rigoberto, Ph.C., Limon Real: A Free and Autonomous Region, Litografia e Imprenta LIL, S.A, San Jose, Costa Rica, 2000, drawing from the excellent research of José Cordiero of Venezuela, including The Great Taboo: A True Nationalization of the Venezuelan Petroleum, 1998.

26. Cox, W. Michael and Alm, Richard, “Off the Books,” Reason, August 2002, p 48

27. Piller, Charles, “ ‘Brain drain’ flowing from US to Asia,” Honolulu Advertiser, December 12, 2004

28. “Refugees: Exporting misery,” The Economist, Apr. 17, 1999

29. “Subsidized cow chow,” The Economist, March 9, 2002, p. 39

30. Boudreaux, Donald, “Absorbing Immigrants,” Ideas on Liberty, Foundation for Economic Education, June 2002, p. 54

31. Ibid, p. 54

32. Schoolland, Ken, “Immigration: An Abolitionist Cause,” Ideas on Liberty, January 2002.

Growing Up Means Resisting Statist Impulse

Adapted from the October 2006 edition of The Freeman, published by the Foundation for Economic Education (FEE)—www.fee.org. The author is president of FEE.

A few months ago, I walked into a restaurant in Naples, Florida, and said, “A nonsmoking table for two, please.” The greeter replied, “No problem. All restaurants in Florida are nonsmoking by law. Follow me.”

For a brief moment as we walked to our table, I thought to myself: “Good. No chance of even a whiff of a cigarette. I like that!”

And then I felt shame. I had fallen victim to the statist impulse. For 40 years, I thought I was a passionate, uncompromising believer in the free society. Yet for a few seconds, I took pleasure in government trampling on the liberties of consenting adults in a private setting.

This incident troubled me enough to think about it a long while. I wanted to know why my first instinct was to abandon principles for a little convenience. And if a committed freedom-lover like me can be so easily tugged in the wrong direction, what does that say for ever getting nonbelievers to eschew similar or more egregious temptations?

At first, I thought about the harm that many doctors believe secondhand smoke can do. Perhaps it wasn’t wrong for government to protect nonsmokers if what we have here is a case of one person imposing a harmful externality on an unwilling other. Then I quickly realized two things: no one compelled me to enter the place, and the restaurant belonged to neither the government nor me. The plain fact is that in a genuinely free society, a private owner who wants to allow some people in his establishment to smoke has as much right to permit it as you or I have to go elsewhere. It’s not as though people aren’t aware of the risks involved. Moreover, no one has a right to compel another citizen to provide him with a smoke-free restaurant.

Besides, I can think of a lot of risky behaviors in which many adults freely engage but which I would never call upon government to ban: sky diving and bungee jumping being just two of them. Statistics show that merely attending or teaching in certain inner city government schools is pretty risky too — and maybe more so than occasionally inhaling somebody’s smoke.

The statist impulse is a preference for deploying the force of the state to achieve some benefit — real or imagined, for one’s self or others — over voluntary alternatives such as persuasion, education or free choice. If people saw the options in such stark terms, or if they realized the slippery slope they’re on when they endorse government intervention, support for resolving matters through force would likely diminish. The problem is, they frequently fail to equate intervention with force. But that is precisely what’s involved, is it not? The state government in Florida did not request that restaurants forbid smoking; it ordered them to under threat of fines and imprisonment.

I tried this reasoning on some of my friends. Except for the diehard libertarians, here were some typical attitudes and how they were expressed:

Delusion: “It’s not really ‘force’ if a majority of citizens support it.”

Paternalism: “In this instance, force was a positive thing because it was for your own good.”

Dependency: “If government won’t do it, who will?”

Myopia: “You’re making a mountain out of a molehill. How can banning smoking in restaurants possibly be a threat to liberty? If it is, it’s so minor that it doesn’t matter.”

Impatience: “I don’t want to wait until my favorite restaurant gets around to banning it on its own.”

Power lust: “Restaurants that won’t keep smoke out have to be told to do it.”

Self-absorption: “I just don’t care. I hate smoke and I don’t want to chance smelling it even if a restaurant owner puts the smokers in their own section.”

On a larger scale, every one of these arguments can be employed — indeed, they are invariably employed — to justify shackling a people with intolerable limitations on their liberties. If there’s one thing we must learn from the history of regimes, it is that you give them an inch and sooner or later, by appealing to popular weaknesses, they will take a mile. The trick is getting people to understand that liberty is more often eaten away one small bite at a time than in one big gulp, and that it’s wiser to resist liberty’s erosion in small things than it is to concede and hope that bigger battles won’t have to be fought later.

Delusion, paternalism, dependency, myopia, impatience, power lust and self-absorption: All are reasons people succumb to the statist impulse. As I pondered this, it occurred to me that they are also vestiges of infantile thinking. As children or adolescents, our understanding of how the world works is half-baked at best. We expect others to provide for us and don’t much care how they get what they give us. And we want it immediately.

We consider ourselves “adults” when we learn there are boundaries beyond which our behavior should not tread; when we think of the long run and all people instead of just ourselves and the here and now; when we make every effort to be as independent as our physical and mental abilities allow; when we leave others alone unless they threaten us; and when we patiently satisfy our desires through peaceful means rather than with a club. We consider ourselves “adults” when we embrace personal responsibility; we revert to infantile behavior when we shun it.

Yet survey the landscape of political debate in the West these days and you find no end to the demands to utilize the force of the state to “do something.” Tax the other guy because he has more than me. Give me a tariff so I can be relieved of my foreign competition. Subsidize my college education. Take that property so I can put a hotel on it. Fix this or that problem for me, and fix it now! Make my life easier by making somebody else pay. Tell that guy who owns a restaurant that he can’t serve people who want to smoke.

I wonder if Western countries have become a giant nursery, full of screaming babies who see the state as their loving nanny. It makes me want to say, “Grow up!”

Societies rise or fall depending on how civil its citizens are. The more they respect each other and associate freely, the safer and more prosperous they are. The more they rely on force — legal or not — the more pliant they are in the hands of demagogues and tyrants. So resisting the statist impulse is no trivial issue.

In my mind, resisting that impulse is nothing less than the adult thing to do.

New Books in Finnish

MItä valtio on tehnyt rahallemme?

Two very important and influential economics books have been finally published in Finnish. Especially, professor Rothbard’s What Has Government Done to Our Money? is a classic that is regarded as one of the best introductions to the very confused and complicated issue of money. For better introduction read professor Jesús Huerta de Soto’s excellent preface. Rothbard’s book is available online in English.

Ytimekäs opas talouteenJim Cox’s The Concise Guide to Economics is with the words of Nobel-laureate Milton Friedman: “…a noble effort to put so briefly so many fundamental ideas.” His book covers a wide range of topics in a shortest space possible and serves also as a reference guide for further reading. Cox’s book is also available online in English.

Introduction by professor de Soto

Mitä valtio on tehnyt rahallemme?

CIEL has the honor to publish professor Jésus Huerta de Soto’s Introduction for the Finnish edition of Murray N. Rothbard’s influencial book What Has Government Done to Our Money? The book is published by Lumo Kustannus and pre-orders are available from today.

Introduction
Jesús Huerta de Soto

The theory of money, bank credit, and economic cycles poses the greatest theoretical challenge for economic science in the first decade of the twenty-first century.  In fact, now that a “theoretical gap” has been filled with the analysis of the impossibility of socialism and the study of the contradictions inherent in interventionism (exemplified in the past by the fall of real socialism and the widespread crisis of the welfare state), the least-known, and thus the most critical, sphere has become that of money.  Indeed, this field is still rife with methodological errors, scientific confusion, gross ignorance at the popular and political levels, and in consequence of it all, institutional manipulation and systematic coercion by governments and central banks.  For the social relationships which involve money are by far the most abstract and difficult to understand, and hence the flows of information and social knowledge they produce are the most massive, complex, and elusive to the individual observer.  On the one hand, these circumstances have facilitated systematic coercion in the monetary sphere by governments and central banks, and on the other hand, they have made this coercion far and away the most damaging and detrimental to the spontaneous processes of social cooperation which constitute the market.  In fact, the combination of the intellectual lag in monetary and banking theory with the systematic intervention in financial markets by governments and central banks has not failed to exert serious and often traumatic effects on the evolution of the world economy, which well into the twenty-first century, continues to go through severe financial crises and recurring cycles of boom and recession.

Furthermore, it seems as if the very defenders of the market economy were unable to agree in the area of money.  Thus, there are many different opinions on whether it is necessary to maintain the central bank or whether it would be better to replace it with a free-banking system, and in the latter case, what sort of substantive rules should apply to private bankers (a fractional reserve or a 100-percent reserve requirement on demand deposits).  The central bank emerged as a result of a series of coercive government interventions, though on many occasions these were sought and promoted by the agents of the financial sector themselves (especially bankers), who did not hesitate to demand state support to insure the survival of their business ventures in recurrent stages of economic crisis.  Does this mean the central bank is an “inevitable” by-product in the evolution of a market economy?  Or rather, that private bankers’ particular business practices, which at certain points in history have become legally corrupt, have given rise to financial activity that is unsustainable in the absence of a lender of last resort?  These and other monetary issues are of vital theoretical and practical importance and should be the object of the most careful analysis.  In short, the goal should be none other than to develop a comprehensive research program aimed at clarifying once and for all what monetary, financial, and banking system a free society ought to have.

In this sense, the small book by Rothbard you are now holding in your hands is the best and most brilliant introduction to Austrian monetary theory.  A number of special characteristics make this a landmark book, and the reader could scarcely miss them.  Nevertheless, while by no means an exhaustive list, the following attributes are particularly worthy of mention:

First, the book is written with great clarity.  Indeed, if any trait characterizes Rothbard, it is his ability to present economic theories in a manner perfectly understandable to any person, even one not initially familiar with his method and concepts.  For Rothbard, scientific accuracy must never be at odds with clarity and simplicity of exposition.  Quite the contrary:  despite appearances, obtuse or difficult explanations merely conceal a lack of scientific validity, along with the intellectual confusion of their authors, who, paradoxically, often become surrounded by a false aura of scientific prestige nourished by the reverential fear of all those who do not wish to appear ignorant, though they do not fully grasp what they read.  The clarity, freshness, erudition, and even courage of Rothbard’s economic analysis contrast sharply with the nature of much of the scientific literature the academic world produces.

Second, Rothbard’s constant goal is to seek scientific truth regardless of the expectations of political correctness or acceptability that prevail at any given time.  A scientific economist must never betray this principle, if only because a failure to frankly state, with no strings attached, what he believes to be true in any particular instance will mean that no one does, and thus he will be abandoning his very purpose and depriving society and his colleagues of knowledge which in the long run is essential to the advancement of civilization.

Third, as we have already indicated, Rothbard always writes from the theoretical viewpoint of the Austrian school of economics.  This European school of continental origin runs counter to the Anglo-Saxon tradition of the English classical school.  The Austrian school began with Carl Menger in 1871 and reached its highest level of development at the hands of Ludwig von Mises and Friedrich A. Hayek during the second half of the twentieth century.  Today the Austrian approach is the chief scientific alternative to the neoclassical paradigm in its different versions (Keynesianism, Walrasianism, the Chicago school, etc.), which share a research focus on equilibrium models and overlook the dynamic market processes entrepreneurship drives.  Such processes are the focal point of Austrian study.  Rothbard was an ardent disciple of Mises, whose praxeological perspective on economics and subjectivist methodology, in contrast with positivism and social engineering, he adopted almost to the letter.[1] Today the Austrian school has entered an exciting phase of expansion worldwide, and the publication of this first Dutch edition of Rothbard’s book is one more sign of the much-needed paradigm shift which is leading away from the unrealistic assumptions and obsessive mathematical analysis of equilibrium models and toward the much more realistic, dynamic, and multidisciplinary analysis of market processes that characterizes the Austrian school.  In this context, the criticism which, at various points in his book, Rothbard directs at the analysis and monetary recommendations of the Chicago school in general, and of Milton Friedman in particular, is especially relevant.  This is so mainly because the identification, at a popular and even at an academic level, of both the Austrian and Chicago schools as defenders of the free market and the capitalist free-enterprise economic system (though with clearer and more consistent principles in the case of the Austrian school, when compared with the greater ideological “tepidness” and tendency toward political compromise in the case of the Chicago theorists) has led many people to mistakenly believe the two schools somehow coincide in their methods, theoretical developments, and conclusions.  However, nothing could be further from the truth.  From the Austrian standpoint, Chicago theorists have fallen into the clutches of a narrow, reductionist, maximizing approach which, in the search for “operational” solutions, ends up justifying a sort of social engineering lethal to the free functioning of the market.  To put it another way, Chicago theorists’ defense of the market is theoretical flawed.  We must defend the market because it is a process which continually fosters creativity and entrepreneurial coordination, and not because it is in equilibrium (which is never reached), nor much less because it is “perfect” or Pareto efficient, as Chicago theorists mistakenly believe, thus exposing countless flanks to facile, self-interested criticism from all enemies of a free economy.[2] Moreover, as Rothbard skillfully reveals in this book, the prescriptions of the Chicago school in the monetary sphere (monetary nationalism and free floating exchange rates) have proven particularly unfortunate and have on a broad scale exerted a corrupting influence on the course of economic events (international monetary chaos, competitive depreciation as a trade weapon, and the loss of the function of money on an international level).

Fourth, we should note the importance Rothbard attaches to the history of economic and monetary events as an illustration and application of the theoretical analysis.  In fact, his book is divided into two very distinct parts.  In the first, he sets out the theoretical basis for money and the critical analysis of state intervention in the monetary sphere in general, and of the privileged exercise of fractional-reserve banking in particular.[3] In the second, he applies the lessons taught in the first to explain in a logical, connected manner the way in which the state has destroyed step by step the monetary system which had spontaneously emerged in the market following a prolonged period of evolution.  Rothbard considers nine successive phases which run from the height of the classical gold standard in 1815 to the destruction of the Bretton Woods system and the emergence, beginning in 1973, of international monetary chaos based on floating exchange rates.  The conclusion to be drawn from this review of past events in the monetary sphere is truly depressing, and it more than justifies the attractive title Rothbard gave to his work:  What Has Government Done to Our Money? The conclusion is especially depressing in light of the fact that today, well into the twenty-first century, even following the nearly worldwide collapse of real socialism and, at least in theoretical terms, of economic interventionism and the welfare state, the monetary sphere, as we indicated at the beginning, continues to suffer forceful intervention, monopolization, and planning by central banks and governments, which continually generate cycles of boom and recession that systematically destabilize and discoordinate the world economy.

It is truly disheartening to realize that from the very last time Rothbard was able to examine his book for reprinting until now, little or no progress has been made.  During this period, particularly for readers in the European area, the most significant development has undoubtedly been the introduction of the euro as the single currency of a large part of Europe ten years ago.  In this context, we must emphasize that criticism of the European Central Bank and the European single currency must rest, in keeping with Rothbard’s thinking, on their distance from the ideal of a pure gold standard with a 100-percent reserve requirement for banking,[4] and not, as many “free market” theorists (influenced chiefly by the erroneous teachings of the Chicago school) assert, on the fact that they preclude the survival of disruptive monetary nationalism with floating exchange rates.  For although the accomplishments of the European Central Bank over the last ten years leave much to be desired, a single monetary standard for all of Europe, one which is as rigid as possible, besides being a healthy move toward the ideal of a pure gold standard as the single international monetary system, may help to complete the institutional framework for the European free trade system, by preventing monetary interference and manipulation on the part of each member state and obliging the members, especially the most rigidly structured ones, to implement the flexibilizing reforms necessary to remain competitive in an environment in which it is no longer possible to resort to an inflationary national monetary policy to accommodate institutional rigidities.  If the euro is to have a brilliant, promising future, it will have to rest on its total separation and independence from the monetary recklessness and laxity which, under the pretext of a poorly understood pragmatism based invariably on theoretical error, have become typical features of monetary policy in the Anglo-Saxon world since the creation of the Federal Reserve in 1913 and the triumph of macroeconomics, first the Keynesian and then the Chicago-school version, from World War II onward.

Finally, it is fitting to wrap up these introductory remarks with a brief biographical sketch of the work’s author.  Murray Newton Rothbard was born in New York in 1926, into a family of Jewish emigrants from Poland.  He earned his doctorate at New York’s Columbia University under the direction of Joseph Dorfman and the mentorship of his neighbor, the famous economist Arthur Burns.  A coincidence brought him into contact at a very young age with the seminar Ludwig von Mises was leading at the time at New York University, and Rothbard immediately became one of his most brilliant and devoted disciples.  Rothbard would later become a Professor of Economics at New York Polytechnic Institute and subsequently, the S. J. Hall Distinguished Professor of Economics at the University of Nevada, Las Vegas.  Rothbard was one of the most consistent and tenacious champions of freedom on all levels and of its grounding in the philosophy of natural law.  He wrote over twenty books full of great clarity, freshness, erudition, and even good humor, qualities which pervade the most profound and rigorous theoretical analysis.  His primary contributions to economic theory are his economic treatise, Man, Economy, and State (1962), and Power and Market (1973).  Among his chief writings on the history of economic thought and events, we find important works such as The Panic of 1819 (1962), America’s Great Depression (1963), a history of the American colonial period in four volumes entitled Conceived in Liberty (1975-1979), and the extraordinary two volumes published posthumously under the title An Austrian Perspective on the History of Economic Thought (1995).  His main contributions to political philosophy, in which he lays the foundations for the anarchocapitalist system, include his books For a New Liberty:  The Libertarian Manifesto (1973) and The Ethics of Liberty (1982), as well as hundreds of articles and essays.  Rothbard played a key role in the founding of the American Libertarian Party and was also a co-founder of the Cato Institute, the Ludwig von Mises Institute (which publishes the Quarterly Journal of Austrian Economics), and the Center for Libertarian Studies (which publishes the Journal of Libertarian Studies).  Endowed with a great capacity for intellectual pursuits, vast erudition, multidisciplinary scientific knowledge, along with a superb sense of humor, Rothbard has become one of the classic names in the defense of liberty in the second half of the twentieth century.  He died of a heart attack at the office of his ophthalmologist in New York on January 7, 1995.  With his death, the world lost one of its intellectual giants whose work, like that of Tocqueville, Acton, Mises, and Hayek, will endure, bear fruit, and be remembered always with particular admiration and reverence by all those who love liberty and grasp its crucial importance.

Madrid, August 19, 2009

Jesús Huerta de Soto
Professor of Political Economy
Universidad Rey Juan Carlos


[1] On the differences between the neoclassical mainstream and the Austrian paradigm, see J. Huerta de Soto, The Austrian School:  Market Order and Entrepreneurial Creativity (Cheltenham, UK:  Edward Elgar, 2008).

[2] Hayek himself went so far as to assert that Keynes’s General Theory and Milton Friedman’s Essays in Positive Economics are equally dangerous books.  See F. A. Hayek, Hayek on Hayek:  An Autobiographical Dialogue, eds. Stephen Kresge and Leif Wenar (London and New York:  Routledge, 1994), 145.

[3] On the corruption of general legal principles which accompanies fractional-reserve banking, and on the way in which this practice provokes recurring cycles of boom and recession and makes the appearance of a central bank inevitable, see (firmly rooted in Rothbardian thought) Huerta de Soto, J., Money, Bank Credit, and Economic Cycles (Auburn, AL:  Ludwig von Mises Institute, 2006).

[4] See Murray N. Rothbard, The Case for a 100 Percent Gold Dollar, 2d ed. (Auburn, AL:  Ludwig von Mises Institute, 2005).  This work contains a preface in which Rothbard himself offers his interpretation of monetary events between 1973 and 1991 (a period which could be considered phase 10 of his historical interpretation), a study which perfectly complements the book we are now commenting on.