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July 15, 2015 / Gabriel

Economic Freedom Creates Greater Prosperity and Happiness

The greater the economic freedom, the wealthier and happier the people.

This is the libertarian thesis differentiating them from liberals (and even many conservatives), who view greater government involvement in economic decision-making as the key to growth, equality and opportunity. From minimum-wage laws to higher progressive taxation to greater unionization to larger welfare programs to more regulations, liberals demand a stronger and more economically active central government. Libertarians, on the other hand, favor smaller government, less regulation, lower taxes, and greater individual and property rights.

But which economic policy approach actually yields the best results?

We’ve already clearly demonstrated via international and U.S. state migration rates that people the world over are naturally drawn towards greater economic freedom. Across countries, and even across states, millions of people every year migrate  away from greater taxation and regulation and towards lower taxation and regulation. But are they better off?

Yes.

Let’s take a look at the 50 U.S. states, ranked by their level of economic freedom (a combination of free market ideals such as lower tax burden, greater property rights, less government spending, labor market freedom, and so on).

Taking into account cost-of-living differences, the top 10 most economically free states have an average $52,334 median household income, which is considerably higher than the $43,090 median income for the 10 least free. That’s a 21% raise for workers by switching state government policies to a smaller government approach. How much more could it be increased if the same were done at the national level?

The observed results are not a question of race or country of origin: African-Americans, Hispanics, Asians and immigrants also earn substantially more in the more economically free states. While liberals should be lauded for their apparent concern for the welfare of minorities, the truth is that their policies yield the worst results for them, a standard of living pay cut just for living in a more regulated and taxed state.

FreedomStateIncomes

One may think that this could be driven by urban vs. rural states more than policies, but the top 10 free states are 71% urban vs. 72% for the bottom 10–a negligible difference. Moreover, the states in between the two are even more urban, at 75%, which effectively rules out correlation.

Another objection may be that “the rich” or “the 1%” are skewing the numbers–that income inequality is running rampant with less government to level the playing field, as many persistently believe. The exact opposite is the case.

Using median incomes as the measure (instead of average incomes) effectively eliminates the impact of the very wealthy on the numbers. And the Poverty Measure is lower in the most free states (13.3%) than in the least free (15.1%).

But the real measure of income inequality is the Gini index, and we can put aside for now the fact that median incomes are a far better measure of overall economic well-being than inequality of incomes (i.e. 100 people making $1 a day are perfectly equal but not better off than 99 people making $2 a day and 1 making $5 a day, despite the latter’s higher inequality). If we assume inequality to be an important economic measure instead of a normal byproduct of economic growth, the most free states do better, with a .446 Gini index vs. a higher and less equal .462 Gini for the least free states. Not only that, but the rate of growth of inequality over the past 40 years is lower in the most free states compared to the least free: 22% vs. 30%. In other words, heavier government involvement has led to more income inequality and faster growth of such, while less government has created a more equal growth in incomes.

FreedomPovertyGini

A final argument might be that while there may be greater income in more free market states, the increased government regulation and intervention provides greater care and increases the population’s happiness and well being. But the opposite is the case.

Gallup publishes an annual Well Being Index, which measures and ranks each state’s population across 5 core measures of well being:

  1. Purpose (Liking what you do each day and being motivated to achieve your goals)
  2. Social (Having supportive relationships and love in your life)
  3. Financial (Managing your economic life to reduce stress and increase security)
  4. Community (Liking where you live, feeling safe and having pride in your community)
  5. Physical (Having good health and enough energy to get things done daily)

Averaging each state’s Wellness rank for the past 7 years we find that states with greater economic freedom also bring greater happiness and well being.

FreedomWellness

So what happens when you create a more libertarian environment where people make more money, have less poverty and find greater happiness in their lives? People want to move there. And indeed, looking at state-to-state migration of Americans between 2006 and 2010, we see a net migration flow of 704,000 from the 25 least economically free states to the 25 most economically free. That’s hundreds of thousands of Americans choosing to relocate away from greater government to more free market oriented government.

On that latter point, it’s important to distinguish small-government libertarian from Republican. While it’s true that there’s a strong correlation between Republicans and economic freedom–the 10 most free states had a Partisan Voter Index (PVI) average of R+10.3 vs. D-6.1 for the 10 least free–it’s not a perfect correlation either. Two of the top 10 states (Virginia and New Hampshire), for instance, are swing states, and two of the bottom 10 economically free states (West Virginia and Mississippi) are solidly Republican. So there’s strong, but not perfect, correlation (hence the often uneasy political alliance of libertarians with Republicans).

FreedomPVI

It’s also worth noting what economic freedom is not: it is not corporatism or crony capitalism, where the government bails out banks and subsidizes politically connected businesses, which both major political parties are heavily guilty of. Rather, it’s smaller, less intrusive government–one focused primarily on keeping the peace and staying as much as possible out of people’s personal and economic lives.

Libertarians and liberals have almost diametrically opposed economic theories about what works best for the majority of people, and the reality on the ground is that it’s the libertarian free market policies that yield the better results: greater median incomes, a more equitable distribution, less poverty, greater success for minorities and immigrants, and higher overall levels of happiness and well being. In the political rhetoric landscape the battle of ideology is fierce and filled with demagoguery; in the real world the difference in results between competing economic policies are strikingly clear.

FreedomData

May 13, 2015 / Gabriel

Questioning the Wisdom of Minimum Wages

The minimum wage is advocated as a well-intentioned means to increase the earnings of the poor, but a deeper look at the economics and demographics behind it indicate that such legislation isn’t necessarily the proper means to achieve those ends. Here’s why.

Higher Price, Lower Demand

As it is imagined, raising the minimum wage forces employers to pay all of their entry-level employees a higher wage than before, thereby raising their standard of living. This is true only if employers have no adverse reaction to changes in the cost of entry-level labor.

Imagine for instance a government-mandated 20% increase in the minimum cost of magazine subscriptions. Should the magazine publisher automatically assume that not a single subscriber will unsubscribe after such a rate hike? Or that they will sign new subscribers at exactly the same rate as before? What if it’s a 50% rate increase?

Price elasticity

It’s an economics concept that everyone understands: as the cost of something increases, demand correspondingly decreases. The extent by which demand is affected by changes in price is called price elasticity. For some things, the price elasticity is very sensitive: a small change in price will have a major impact on demand (e.g. a 20% increase in magazine subscription cost might cause 50% of subscribers to cancel their subscription). For other things, there is less price elasticity (e.g. a 20% increase in subscription cost might only cause 2% of subscribers to cancel). But absolutely anything that has a price has some price elasticity, without exception. Including the price of entry-level labor.

Employers, like consumers, respond to prices. As the cost of entry-level labor increases, some employers will continue to pay for that same labor at the higher wages, but some will not, either reducing hours, cutting jobs, changing the way they do business or forced out of business. And of course the greater the increase in labor costs, the greater the impact on employment: a $0.01 increase in the minimum wage will have very little impact, whereas a $10 increase would likely lead to significant layoffs and bankruptcies.

So the first question anyone should ask about any proposed hike in the minimum wage: how much will it increase unemployment? To claim that it will have no impact on net employment would mean that wages could be increased to any hourly rate without ever causing a drop in demand for that labor. In other words, someone claiming that there is no price elasticity to entry-level labor is arguing that raising the minimum wage to $20 or $50 or $100 per hour would have zero impact on employment, which is not credible. Minimum wage laws above market rates are not about if they increase unemployment, but by how much they do so.

“The true minimum wage is zero—the amount an unemployed person receives from his nonexistent employer.” — Milton Friedman, Nobel Prize winner in Economics

The government well understands this tradeoff as well. For instance, the Congressional Budget Office recently estimated that the latest proposal to raise the minimum wage from $7.25 to $10.10 per hour would cause 500,000 current minimum wage workers to lose their jobs. A worthwhile price to pay for those that will now earn more? Perhaps, although there is a questionable morality to intentionally robbing the worst off of their income and livelihood in order to benefit others. It’s easy to play God with abstractions, but what if it were your job being sacrificed?

Where the Money Comes From

When it comes to where the money will come from to pay higher minimum wages, it is typically assumed by its proponents that businesses will simply reduce their profits a little to pay the workers more. The reality, however, is that the vast majority of businesses–and especially those that rely on minimum wage labor–run on thin margins. The average profit margin for all businesses is around 8% and small businesses–those that fuel job and economic growth–typically fall under that.

According to the Bureau of Labor Statistics, half of all minimum wage jobs are in the restaurant industry, which has an average profit margins of 2 – 6 percent. Not oil or drug companies or Wall Street banks, who have essentially zero use for entry-level wage workers. Labor makes up a disproportionate amount of a restaurant’s costs, with non-managerial labor typically in the 20 – 25% of revenue range. The math is simple: if you were to force restaurant wages up by 20%, that would add 4 – 5% in total costs and completely wipe out the average restaurant’s profit margin. The only way for most restaurants to stay in business would be to raise their prices. Assuming they stay in business after doing so, it’s inescapable that they’re not the ones paying for the wage hikes–the customers are.

In the vast majority of cases, a hike in the minimum wage is not a transfer of additional money from businesses to employees, as its proponents imagine, but a transfer of money from customers to employees. And the latter is not necessarily the more disadvantaged group.

Minimum Wage Does Not Equal Poor

One of the biggest misconceptions is that minimum wage earners represents “the poor.” There’s actually very little overlap between the two.

According to the Bureau of Labor Statistics, 2.28% of American workers earn the minimum wage. Of those, half (48%) are under 25, and these 16 – 24 year-olds live in households with an average family income of $66,000. That’s nearly double the national median household income and three times the national poverty line. These minimum wage earners aren’t anywhere near poor–they’re middle class teenagers, college students and young adults just starting out in the job market.

 Minimum Wage by Age

And what of minimum wage earners over 25? Their ranks dwindle very quickly as they age (over 70% of minimum wage earners are under 35), and their average household income is $42,500 a year, well over the national median and nearly double the poverty threshold. Half of them are working part-time, and two-thirds are white, mirroring national demographics. In other words, the typical profile of minimum wage workers over 25 is of second earners in mostly young, middle class households.

Are there any 25+ year-old minimum wage earners living below the poverty line? Yes, about a quarter of them are–roughly 13% of all minimum wage earners. That’s about 387,000 workers, or 1.3% of the 30 million American adults stated to be living in poverty. That makes for next to zero overlap between minimum wage earners and the poor. In fact, the biggest problem for the poor isn’t their wage level but lack of jobs: 67% did not work during the past year. And of those that worked, 3/4 didn’t have a full-time job. The poor need a larger supply of available jobs, not less.

 Minimum Wage Venn 3

Minimum wage jobs are primarily a stepping stone to better employment opportunities for the young, or a part-time work opportunity for second income earners. These types of jobs are not meant to be a career nor the primary means to earn a living. These jobs are also not the home of the nation’s poor, 98.7% of whom aren’t minimum wage earners.

More importantly, entry-level jobs are the entry point into the job market for teenagers with as of yet no marketable skills or job experience, a gateway to better opportunities. Most top income earners once started with such employment back in their teens. The higher the first rung of the employment ladder, the more out of reach it becomes for many, robbing youths and new members of the labor force (e.g. financially disadvantaged immigrants) of valuable job training and experience.

And what happens to teens and young adults with no money or viable job prospects? Priced out of employment by minimum wage laws, they’re faced with a choice between poverty, black market labor (with no employment protections), or crime. In other words, minimum wage laws aimed at helping the poor are in fact likely to be inadvertently contributing to their perpetual disadvantage, locking inexperienced teens and young adults out of a viable entry point into the legal job market where their skills–and income–could grow over time. Instead of a path to prosperity, this creates a systemic, perpetual cycle of poverty and crime.

“The net economic effect of minimum wage laws is to make less skilled, less experienced, or otherwise less desired workers more expensive — thereby pricing many of them out of jobs. Large disparities in unemployment rates between the young and the mature, the skilled and the unskilled, and between different racial groups have been common consequences of minimum wage laws.” — Thomas Sowell, economist and Senior Fellow, Stanford University

Helping the Right People

The impulse to do something to help the poor is right and noble, but on that front good results count far more than good intentions. If the goal is to provide the actual poor with more direct income, a tax credit (such as the EITC) is by far the simplest and most direct means to do so, targeting the exact income ranges and family situations to provide taxpayer-funded assistance to those who actually need it. Trying to artificially do so via a legislated minimum wage, which affects just 1% of the country’s working poor and whose benefits–to the extent there are any–fall mainly to teenagers in wealthy families, is both ineffective and likely counterproductive.

Asking the Right Questions

Honoring the noble motives of those who favor an increase of the minimum wage, the above economic and demographic considerations nevertheless prompt the following important questions:

1) What is the price elasticity of entry-level labor? (i.e. how much will the proposed rate hike increase unemployment)

2) Why is it morally right to eliminate the livelihood of some so that others may financially gain?

3) What does the additional unemployment do to the long-term health of the overall economy?

4) Why is a forced raise that primarily benefits teens and young adults from wealthy families better than the same money given directly to people who actually need it?

Are there possible answers to all of these questions? Sure. Minimum wage policy is one of the most fiercely debated topics in economics, with highly respected economists, research and empirical evidence on both sides. One need look no further than the hundreds of economists openly against or in favor of minimum wage laws, each with Nobel Laureates.

But one thing is clear: it’s a topic–and legislation–that warrants a lot more intelligent thought and respectful consideration than most of its advocates give it. On both sides.

Sources:
April 27, 2013 / Gabriel

Belief System Flowchart

Beliefs

May 20, 2012 / Gabriel

Americans Vote With Their Feet

“Actions speak louder than words.” – Proverb

 

Do Americans prefer to live in Democrat or Republican states?

As discussed previously, on the international level the data is clear: millions of people every year vote with their feet and move from countries that are less economically free to countries that are more free-market orientated. People of every nationality and culture generally favor economic freedom over central planning.

But what of within the United States? A very similar analysis can be done by ranking each state according to the Cook Partisan Voting Index (PVI) and correlating that with IRS state migration statistics.

A state’s PVI measures how strongly each state favors one political party over another. For instance, the state of Massachusetts has a PVI rating of D+12, which means that a generic Democratic candidate up for election would be expected to receive 12% more votes than the national average. Conversely, Texas has PVI rating of R+10, which means that it votes 10% more Republican than the national average. And a state like Colorado is at a zero PVI, a true swing state with neutral partisanship.

Ranking each state by its PVI, we get a full range of states from the most conservative (Utah) to the most liberal (Vermont)[1]. So how do we measure which states Americans prefer to live in?

The IRS publishes migration data every year. Since tax returns are filed by Social Security Number, the IRS can track how many filers and dependents each year file from a different state than the one they were in previously. Since this excludes births, deaths, and foreign migration, this is an exact measure of the number of Americans making a conscious decision to move from one state to another.

Correlating the IRS state migration data from 2000 – 2010[2] with each state’s PVI score, we get the following results:

 

The higher the Democrat PVI, the higher the percentage of people left the state to move to a Republican-leaning state. States with a Democrat PVI of 10% or greater over the past decade saw an average outflow of 5.8% of their population to other states. States with a milder Democrat PVI of between 5 – 10% also saw outflows, albeit at a lower average level of 2.6%. And states with a light Democrat lean with PVIs of up to 5% saw small population outflows of 0.9%.

Conversely, the people moving out of Democrat states are moving into Republican states. Those with a center-right lean with Republican PVI of up to 5% saw net inflows of people moving from Democrat states of 2.8%. And even more Americans chose to relocate to states with a Republican PVI of 5 – 10%, with a strong 4.2% net population inflow. Interestingly, the trend weakens with states with a very strong Republican lean (PVI of 10% or more), which weren’t as popular as center-right states but still saw net population inflows of 1.6%.

What do the figures tell us? On average, the migration trends at the U.S. state level mirror those at the global level: hundreds of thousands of Americans every year vote with their feet and make the choice to pack up and move away from Democrat states and into Republican ones. The more Democrat-leaning the state, the faster they move away. And on average, the preferred states to move into are center-right Republican states.

 

August 28, 2011 / Gabriel

Proposed Taxes on “Millionaires” a Bait and Switch Tax on the Middle Class

There’s a lot of talk these days from some politicians about an increase in the income taxes of “millionaires and billionaires.”

Whether that’s good policy or not, there’s a huge difference between the class warfare rhetoric and the economic reality of the proposals, a combination of economic ignorance by many who support such a tax increase and the politicians willing to deceive them in order to actually increase taxes on the middle class.

The first clue that not all is as it seems is that “millionaires and billionaires” are curiously defined down as being individuals making $200,000 or couples making $250,000 annually. Or not so curiously, if you understand the distribution of income:


As this annotated chart from the Wall Street Journal shows, there’s not all that much money above the $1 million mark, and much of it is already heavily taxed. You could in fact confiscate 100% of the income of all millionaires and above this year and at $938 billion it would hardly make a dent in the national debt.

No, the real money in this country is in the middle, and that’s precisely what the proposed tax on “millionaires and billionaires” is intended to target.

But how? Even at a threshold of $200,000 for individuals and $250,000 for couples, it would appear that the tax would only impact the upper range of the income distribution, not the bulk of the middle class.

And therein lies the dirty trick: wage inflation.

Every year, average incomes rises from a combination of monetary inflation (historically 3.25% a year) and wage inflation resulting from gains in real productivity (long-term average of 0.65% annually). And tax brackets are not indexed to account for either of these.

Average incomes rise by an average of 3.9% every single year, and tax brackets stay the same. Which means that every year, more and more people move up into a higher tax bracket (known in economics as “bracket creep”). Or, if you look at it in today’s dollars, what actually happens is that the tax bracket moves relatively lower by 3.9% every year (this is probably on the low end, as recent monetary policy has been expansive, which could easily push inflation to 5% annually or higher which would yield 5.65% annual wage inflation).

Here’s what this looks like represented graphically in today’s dollars:

As you can see, the “millionaire” tax starts off targeting households with $250,000 in combined income or more, but even in a low inflationary environment starts hitting the upper middle class after 10 years. After 25 – 30 years, all but the poorest households are in the “millionaire” tax bracket.

Within 25 years, even if inflation stays under 5%, a married couple earning $29,000 a year each (i.e. combined household income of $58,000) would be in a tax bracket currently being touted as a tax on “millionaires and billionaires.” This is not an accident or oversight on the part of the politicians designing these taxes: their own projections show progressively higher tax revenues each year, not because they think there will be more millionaires but precisely because they know bracket creep will capture more and more of the middle class as inflation pushes them into the higher brackets.

As the economist Frederic Bastiat famously said in 1848: “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”

But as you sow, so shall you reap.

August 1, 2011 / Gabriel

Fiscal Responsibility: Liberals vs. Conservatives

There is an ongoing debate whether conservatives or liberals are more fiscally responsible.

This is a difficult question to answer at the national level, where so many different factors come into play: the President, the party controlling the House and Senate, the incoming economic situation, unforeseen and unpredictable current events, natural business cycles, policies that cross party affiliations, and the difference between campaign rhetoric and actual policy actions, among other things. It’s a debate that has been and will continue to rage for years, shifting back and forth with every election.

But if we examine financial performance at the state level, we have 50 different examples (plus the District of Columbia), which can give us a far greater potential insight.

To do so, we’ll rank all states by Obama’s vote margin percentage in the 2008 election. This will rank each state from the one that has the highest concentration of liberal voters (the most liberal state) to the one that has lowest concentration of liberal voters (i.e. the most conservative state).

Then we’ll compare that ranking to each state’s debt per capita to determine the degree of fiscal responsibility. Debt per capita takes into account each state’s policy decisions on both taxation (revenues) and spending, for an effective measure of how well the state’s finances are managed for long-term sustainability.

Here are the results:

There is, without question, a clear and unambiguous pattern: the more liberal a state’s voter concentration, the more indebted and fiscally irresponsible its finances (the top 5 most liberal states have $14K in debt per capita), while the more conservative a state is, the more fiscally responsible (the top 5 most conservative states have $5.4K debt per capita, or one third as much as the most liberal states).

In other words, the amount of conservative voters in any given state is directly proportional to its successful financial management. And the more liberal voters there are, the more irresponsible the spending and financial situation.

Given the clear difference between the two when measured across the 50 states, if the goal is fiscal responsibility and balanced budgets, the lesson is to follow the counsel and successful track record of conservative voters.

 

Source data:

September 19, 2008 / Gabriel

The Myth of Corporate Taxes

Some politicians claim that they’re not going to raise your taxes; instead, they say, they’re going to raise taxes on corporations. Those nameless, faceless, greedy corporations will shoulder more of the tax burden instead of Joe American.

This is utter nonsense.

Here’s the reality: corporations do not pay taxes. Corporations collect taxes. People pay taxes.

Corporations may be legal entities, but money always comes from someone. Real people. And when it comes to corporate taxes, that someone is either consumers, employees or investors.

Here are the three ways in which “corporate” taxes are automatically, ultimately paid by real people:

1) By increasing the price of the product or service. Corporate tax is passed on to consumers as a hidden sales tax.

2) By reducing employee wages and benefits. Corporate tax is passed on to employees as a hidden income tax.

3) By lowering returns to investors. Corporate tax is passed on to investors as a hidden capital gains tax. This drives down the value of the stock market and lowers the rate of new investments and job creation.

That’s it. Those are the only three ways in which a corporation can “pay” taxes, and they all come from actual people’s pocketbooks. People like you and I. There’s no other choice. Because corporations do not ultimately pay taxes: people do.

Ask yourself these questions:
– Do you buy products or services from businesses?
– Do you work for a business?
– Do you own mutual funds, stocks or bonds?

If you answered “yes” to any of the above, that means your taxes are going up if corporate taxes are increased. Period. Be it via a hidden sales tax, a hidden income tax or a hidden capital gains tax, your taxes are effectively going up.

So the next time someone tells you that they’re not going to raise your taxes, but that corporations will foot the bill instead, the only question you should be asking yourself is whether they’re economically illiterate or trying to fool you. And wonder which is worse.

December 4, 2007 / Gabriel

Global Warming Alarmists: I Don’t Believe You

So you think that global warming is real? A key issue? You agree with Academy Award and Nobel Peace Prize winner and chief global warming luminary Al Gore that the climate “crisis” is a “true planetary emergency” and a “moral and spiritual challenge to all humanity?”

I don’t.

More importantly, I don’t believe you truly believe it either.

After all, if you were really concerned about global warming…

…you’d stop eating beef, milk and all associated dairy products immediately. Livestock are responsible for 18% of greenhouse gases worldwide—more than all planes, trains and automobiles on the entire planet combined. Cows belch and flatulate methane (up to a whopping 130 gallons per cow daily), a gas with 21 times the warming impact of carbon dioxide. So if you talk about the dangers of global warming but had a steak for dinner and milk with your cereal this morning, you’re far from convincing.

…you’d push for more nuclear power plants. Only 14% of U.S. energy comes from nuclear power—the rest comes from sources that are major greenhouse gas producers: petroleum (40%), coal (23%) and natural gas (23%). France, on the other hand, generates 78% of its energy needs from nuclear power, and it has the cleanest air (and lowest electricity bills) of any industrialized economy in the world. More nuclear energy would immediately and massively lower greenhouse gas emissions (even a doubling to 28% would be the greenhouse gas equivalent of removing carbon emissions from all U.S. passenger cars). Have you petitioned Congress to allow the building of more nuclear power plants?

…you’d stop using air conditioning in your home and car. Mankind survived several hundred thousand years without A/C, and still does in the vast majority of the world. Maybe you can too. Or is feeling nice and cool today more important to you than the whole world supposedly feeling too hot tomorrow?

…you’d live in a smaller house, closer to work. Everyone else in the world does. Or are you somehow special and exempt? Al Gore, at least, seems to think so: his Tennessee mansion consumes 20 times more energy per year than the average U.S. household, which in turn consumes far more than those in other countries. And in that vein, how about the hypocrisy of the Hollywood set, who give Gore’s movie an Oscar while being chauffered in by limo to the Academy Awards from their energy-guzzling palatial mansions.

…you’d forego pets. Let’s face it: they’re cute, but they’re also furry little CO2 emitters on legs, and they eat a massive amount of food, which is energy-intensive to produce and primarily meat-based (see cow issue). Or is the love you get from Fido more important to you than entire islands disappearing from projected rising sea levels?

… you’d buy only locally produced foods. Nothing is more ironic than seeing a global warmist buying bananas in a Chicago supermarket. Where, exactly, did that banana come from? Central America? From a banana plantation onto a diesel train to the coast. Then a refrigerated container on a ship to the U.S. Then a refrigerated warehouse. Then a refrigerated truck to the supermarket. How much energy (and greenhouse gases) were expended so that you could enjoy that banana split? Let’s not even talk about ice cream (deep refrigeration of a dairy product), or the French cheese section at Whole Foods (refrigerated dairy products flown in from across the Atlantic). Is the satisfying of your taste buds more important than all the kids in Africa that will supposedly die from increases in global temperatures?

…you wouldn’t go on vacation away from where you live. Unless you plan on traveling by bicycle, that trip you’ve been planning is entirely dependent on oil, be it by car, train or—God forbid—the tons of kerosene consumed by jet aircraft. Or is all the coastal devastation global warming will allegedly entail merely the price to pay for your Cancun beach getaway?

…you’d dramatically cut back on commercial entertainment. What, exactly, is the carbon footprint of a blockbuster movie filmed in multiple locations around the world? How much energy does it take to light up all those sets, power all those computer effects, and air-condition all those movie theaters? How about all those TV shows? How many trees were felled and shipped to print all the books? How much electricity are you using annually to power all your electronic gadgets—from cell phones to internet to video games to ipods to flat-screen TVs. Remember, most people in the world do not have any of these, so if you do, you’re a primary global warming contributor.

…you’d stop having kids. After all, the crux of the global warming scare is that humans are causing it. Less humans, less warming. Why directly contribute to Gore’s “true planetary emergency” by increasing the population?

But you’re not doing any of these things.

So no, I don’t believe the global warming alarmism. People who truly believe something don’t just talk—they act.

Until I start seeing global warming believers actually doing things that match the severity of their rhetoric, consider me a rational skeptic. Especially when the so-called “solutions” to the global warming “problem” sound remarkably like the same political agenda that these same folks were previously pushing under different guises.

You want to convince me that global warming is real? Fine. Show me by your actions that you actually believe it first. Until then, save the hot air.

February 26, 2007 / Gabriel

The Case for Guns

Should private citizens be allowed to own guns? Anti-gun advocates say no; pro-gun advocates say yes.

While both want what is best for the country, these two groups approach the issue from different perspectives: anti-gun advocates focus entirely on the societal costs of guns, while pro-gun advocates weigh those against the major societal benefits of private gun ownership.

The Anti-Gun Viewpoint

The anti-gun position against private gun ownership is straightforward: guns are an instrument of force and violence, and in the hands of private citizens will only increase violence in the country. After all, one cannot commit a crime with a gun if there is no gun to commit a crime with.

From this viewpoint, the anti-gun solution is very clear: disallow private citizens from owning guns and society will benefit. There will be less violent crime and accidental shootings and the whole country will be a better place as a result.

And from this viewpoint, anyone arguing that private ownership of guns is a good thing must be uninformed, immoral or simply callous to the loss of life.

Not so fast, say the pro-gun camp—the issue is more complex than that. Not only is it naïve to think that making guns illegal will eliminate gun crime (criminals in every country always have access to guns), but this line of reasoning doesn’t take into account any of the major benefits of guns.

Cost and Benefit

To understand the pro-gun position, think of cars. They kill, every year, a far greater number of people than guns do. This is an undisputed fact. So should we then not allow private citizens to own cars? Wouldn’t we save thousands of lives every year and make the world a better place as a result?

Most would agree that this is an absurd proposition. But implicit in coming to that conclusion is the mental cost/benefit calculation that we make in evaluating the question: yes, ownership of cars leads to the deaths of some 45,000 Americans every year. But (and this is a very important but) the benefits of car ownership are perceived to far outweigh the costs, from convenience to greater productivity to pleasure to the health of the economy.

In coming to this conclusion, we are not uninformed, immoral or callous about the loss of life resulting from car ownership. We simply accept that there are tradeoffs and in this case the value of car ownership for society as a whole exceeds the cost.

The pro-gun position on private gun ownership follows the same logic. Those against guns, they say, focus only on the costs of guns. The costs are real. But the discussion is not complete unless one weighs these costs against the benefits of private gun ownership.

From a pro-gun viewpoint, there are two main benefits to private ownership of guns, both of them equally important: protection of individual liberty and crime prevention. We’ll look at each of these in turn.

Protection of Individual Liberty

It is no accident that the right to individual gun ownership is clearly spelled out in the U.S. Constitution’s Bill of Rights, directly following freedom of speech and religion.

After winning the bloody revolutionary war for independence, the drafters of the Constitution aimed to design an ideal form of government for the new country, one that would most effectively secure the rights and liberty of its people.

Astute students of history, they full well understood that whatever words were in the Constitution were worthless if the people didn’t have the power to protect their rights and resist against tyranny. And in this they followed the old Swiss dictum: “if weapons are a token of power, then in a democracy they belong in the hands of the people.”

Aristotle had said much the same centuries before: “those who possess and can wield arms are in a position to decide whether the constitution can continue or not.”

This has been true throughout history. One of the first and most crucial steps to dictatorial rule has always been to disarm the populace. Name any of the most repressive regimes in the history of either the modern or ancient world, and it is an absolute certainty that the people subjected to its rule were not allowed to carry arms. As Hitler himself stated, “history teaches us that all conquerors who have allowed their subject races to carry arms have prepared their own downfall by doing so.”

Conversely, the opposite is true: an armed populace is one of the most effective checks against excessive government tyranny. Switzerland, for example, has one of the highest ownership of guns per capita of any country in the world. It is also one of the most successful democracies in history, the combination of which prompted Machiavelli to note in 1532 that they are “most armed and most free.” What was true some 500 years ago continues to be true to this day.

This was clearly reflected in the thinking of the men who drafted the United States Constitution. Thomas Jefferson declared that “all power is inherent in the people…it is their right and duty to be armed at all times.” Patrick Henry’s goal was that “every man be armed.” And James Madison praised the “advantage of being armed, which Americans possess over the people of almost every other nation.”

The primary motivation for arming the general populace was to ensure that Americans always had the means to defend themselves against tyrannical oppression.

To provide just one example of the effectiveness of this concept, 1,500 Jews with just a few dozen guns in the Warsaw Ghetto uprising of World War II were able to hold out for 28 days against over 12,000 German troops armed with tanks and heavy artillery, prompting Goebbels to comment that “it shows what is to be expected of the Jews when they are in possession of arms.”

What if citizens of all countries during the last 100 years been armed? Could a great number of the 20th century’s most horrific injustices, massacres and genocidal acts been avoided or greatly minimized?

An armed populace serves as a bulwark against oppression and tyranny. It is perhaps no accident that a number of the world’s longest-standing democracies—such as the United States, Switzerland and Finland—also have had the most armed populace. “Most armed and most free” is not a coincidence.

Crime Prevention

The second benefit of individual gun ownership is as a means of preventing crime. Any weapon that can be used to attack can also be used for defense.

First, there is deterrence. Let’s say a criminal has a choice to commit a crime (murder, robbery, assault, etc.) in one of two cities: one where it is legal for citizens to carry guns and one where it is not and the population is unarmed. Which would he choose?

The answer is obvious. And in fact, surveys of felons report that they are typically more fearful during a crime of a potential victim being armed than running into the police. This is easily evident in criminal behavior patterns: for example, the instance of “hot” burglaries, where the criminal robs a house while the resident is present is more than 3 times lower in the United States, where many citizens are armed, than in Canada or Great Britain, where strict gun laws have left the majority of the populace defenseless. Criminals clearly understand the deterring value of guns.

Apart from deterrence, guns also play a major role in the outcome of a crime. For instance, crime statistics show that women are 2.5 times less likely to suffer serious injury from an attack if they resist with a gun than if they offer no resistance. Guns provide women with an equalizing tool to efficiently subdue their would-be attacker.

The link between guns and crime prevention is also evident in places where gun bans have been recently imposed. Australia, which banned most firearms in 1996, saw the following changes in crime in the two years following, according to the Australian Bureau of Statistics: armed robberies rose by 73 percent, kidnappings by 38 percent, assaults by 17 percent and manslaughter by 29 percent. Clearly, disarming law-abiding people is not an effective means of crime prevention.

On the flip side, statistical regression analysis showed the impact of certain U.S. states allowing citizens to carry concealed weapons. Had other states followed suit and also allowed concealed weapon permits, in the same year murders in those states would have declined by 1,800, rapes by 3,700, aggravated assault by 11,000, robberies by 61,000 and burglaries by 112,600.

Guns play a significant but role in crime prevention: major national polls suggest that there are somewhere between 760,000 to 3.6 million defensive uses of guns in the United States per year. How many of those have saved people from property loss, bodily harm or even death?

While there is no question that some legally purchased guns will be used to commit crimes, it is also without question that guns in the hands of law-abiding citizens are both a deterrent to crime and an effective means to positively change the outcome of a crime in progress. These are critical, undeniable benefits.

Conclusion

Any serious discussion of the gun debate must include not just the cost of private gun ownership but its benefits as well.

For pro-gun advocates, as it was for the founders of this country, protecting freedom, individual liberty and the right to self-defense are inalienable individual rights. As Samuel Adams said, “The said constitution shall never be construed to authorize Congress to prevent the people of the United States, who are peaceable citizens, from keeping their own arms.”

Those in favor of private gun ownership, like the founders of this country, believe that by leaving the entire citizenry defenseless one would only invite tyranny and abuse from criminal elements—be they in official government garb or otherwise. Gun ownership gives peaceful citizens the means to defend their liberty, property, life and freedom.

In the words of Thomas Paine, “the peacable part of mankind will be continually over-run by the vile and abandoned while they neglect the means of self-defense…The supposed quietude of a good man allures the ruffian, while on the other hand arms, like laws, discourage and keep the invader and plunderer in awe and preserve order in the world…Horrid mischief would ensue were [good men] deprived of the use of them…The weak will become a prey to the strong. The history of every age and nation establishes these truths.”

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September 14, 2005 / Gabriel

The Human Desire for Free Markets

All economic systems can be placed on a spectrum ranging from a fully centralized economy (e.g. communism) all the way to a fully decentralized economy (free-market capitalism), with a variety of other systems falling somewhere in between (e.g. socialism).

In a previous essay, the thesis advanced was that this range also represents a spectrum between economies based on fear versus those based on happiness.

Communism                                                                                                     Capitalism

<———————————————————————————————————————>

(Fear-based)                                                                                       (Happiness-based)

In a nutshell, the idea is that all transactions in capitalistic economies take place only when both parties are happier as a result of an exchange, whereas in centralized economies the only way the state can enforce its economic decisions for transactions is through the threat of force for non-compliance, or fear.

This is a great idea in theory, but is there any way to validate its truth in practice?

If the thesis is correct, then we should expect to consistently see people wanting to move from fear-based economies to happiness-based economies.

According to the Index of Economic Freedom[i], here are the 20 countries with the least economic freedom:

Congo, Republic of the

Vietnam

Guinea-Bissau

Syria

Suriname

Bangladesh

Nigeria

Belarus

Tajikistan

Haiti

Venezuela

Uzbekistan

Iran

Cuba

Laos

Turkmenistan

Zimbabwe

Libya

Burma

Korea, North

There is little doubt that these are not typically countries that people want to move to. In fact, in a number of them the economic repression is so extreme that it is even against the law to leave the country.

Net migration statistics confirm that these countries have a negative migration outflow of minus 1.12 per thousand[ii]. In other words, every year these countries see 1.12 more people moving to another country per 1,000 in population than people from another country moving in. Clearly, this represents overall dissatisfaction with life in that country (especially since these numbers would be higher if it wasn’t illegal to leave some of the countries).

On the flip side, the 20 most economically free countries in the world are:

Hong Kong

Singapore

Luxembourg

Estonia

Ireland

New Zealand

United Kingdom

Denmark

Iceland

Australia

Chile

Switzerland

United States

Sweden

Finland

Canada

Netherlands

Germany

Austria

Bahrain

Not surprisingly based on our thesis, these countries are much more desirable to live in and have a positive net migration inflow of 3.81 per thousand. And unlike those countries with extremely centralized economies where it was illegal to leave, in most of the economically free countries there are limits on immigrants allowed to move in due to overly high demand. If the restrictions weren’t there on either side we would see an even bigger difference in net migration.

So our theory is holding: the most extreme centrally managed economies see either a net outflow of their population (or make it against the law to leave), while the most economically free countries see a strong net inflow of people from other countries.

This principle holds true not just for the extremes. Of the 154 countries that are ranked by the Index of Economic Freedom, comparing the top 77 with the bottom 77 you also see that the top half (more economically free) has an average positive net migration inflow of 0.83 per thousand, while the bottom half (less economically free) has an average negative net migration of minus 0.57 per thousand.

Migration patterns of people around the world clearly show that people consistently move from centrally-managed economies to free-market economies (and in fact the results of the analysis are statistically significant, with a P value of 0.0220)

Now, some may advance the argument that only rich countries can afford to be economically free, and thus it’s normal to see migration from poorer countries to richer countries. Let’s put aside the fact that this ignores the fact that rich countries are rich precisely because of their economic policies and take this at face value.

Here are the 22 “first-world” countries of Western Europe, Australia, New Zealand, the United States and Canada, ranked by order of most economically free:

Luxembourg

Ireland

New Zealand

United Kingdom

Denmark

Iceland

Australia

Switzerland

United States

Sweden

Finland

Canada

Netherlands

Germany

Austria

Belgium

Italy

Norway

Spain

Portugal

France

Greece

All of these countries are among the most free market-based in the world, including 7 of the top 10. Even the three least economically free of this select group (Portugal, France and Greece, ranking at 37, 44 and 59, respectively) are well above average in their free-market orientation.

If our thesis is correct, even among these we should be seeing migration from less economically free to more economically free. After all, if the spectrum analogy holds true, people will always gravitate towards the greater happiness found in more free-market economies.

Of these 22 first-world countries, the 11 most economically free have an average net migration rate of 2.68 per thousand, while the 11 less economically free have an average net migration rate of 2.01. In other words, even among these countries the most economically free show 33% more positive net migration than their less free peers. The principle holds.

Even within a country, we can see migration from more restrictive to more free market policies. In the United States, net migration is 23% greater to states that have a conservative governor than to states with a liberal governor[iii], and as a general rule the conservative political platform is more pro-free market.

Even at the county level, 97 of the top 100 fastest growing counties in America voted conservative, or more free market, in the last election[iv]. Again, the principle holds.

By analyzing the net migration of millions of people making individual decisions every year in every country around the world, we are able to objectively validate the thesis: that on the economic spectrum ranging from centrally-managed economies all the way to decentralized free market economic policies, people will always tend to shun central planning and gravitate towards the free market. In all cases, people are happier with freer markets and repeatedly demonstrate this by their choice of where to live.


[i] Source: 2005 Index of Economic Freedom

[ii] Source: CIA World Factbook

[iii] Source: National Governor’s Association & U.S. Census Bureau 2000 – 2004 Migration Statistics

[iv] Source: Los Angeles Times, November 23, 2004

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