Category Archives: Commentary
One of the things that I really appreciate about the liberty movement is that, despite the wide diversity of opinions and positions that its supporters take, it seems to have fostered a culture in which its advocates can usually address their differences rational, respectful, and civilized discussion. As so much of the American political conversation takes the form of people talking past each other and scoring cheap publicity points, this is often quite refreshing.
However, there is one issue that seems to be an exception to this rule: abortion. While some libertarians see it as a fundamental liberty issue that should not be regulated or prohibited at all, others see abortion as the extinguishing of a rights-bearing human life that is morally equivalent to murdering a child or adult. After having been witness to a number of these contentious, internecine arguments in which both parties fail to resolve anything and end up bearing grudges, I figured it might be useful to unpack what I perceive to be the source of the extreme tension that underlies the libertarian abortion debate.
People on both sides of the debate usually agree with the fundamental starting premise that human beings have inalienable natural rights, including the right to life. As such, the core of their disagreement stems from the fact that they view what it means to be human in a fundamentally different way.
Pro-lifers, I’ve noticed, generally subscribe to a position of mind-body dualism. They believe that human beings have a soul or essence of some kind that is fundamentally separate from the body, which is the source of one’s humanness, and thus one’s rights. This belief leads to a binary view of humanness – either a body has a discrete soul and is thus entitled to the full panoply of rights, or a body lacks a soul and has no rights. Thus, for the liberty movement’s pro-lifers, if the soul is present in the human being at the moment of conception, killing a fetus is the moral equivalent of murder, which violates the basic libertarian principle of non-aggression.
Pro-choice libertarians, on the other hand, tend to reject mind-body dualism in favor of a “spectrum of consciousness” model, in which levels of consciousness shade into one another, from the very low level embodied in a stalk of grass, to the very complex cognition of an adult human being (an interesting version of this viewpoint on consciousness and being can be found in Doug Hofstadter’s I am a Strange Loop). In this way of viewing the world, there is no sharp dividing line between the human who is entitled to full rights and the non-human that is entitled to no rights with in the “mind-body dualism” model. Instead, the amount of consideration a particular being should rightfully be given is dependent upon their level of consciousness. As such, as an early-stage fetus has the level of consciousness development of a plankton, it can be validly argued from this perspective that the rights of the fully developed mother includes the right to morally terminate a pregnancy up to a certain contestable point. This is not to say that people with this world-view can’t be against abortion as well; however, to be morally consistent, such people would have to be vegetarians as well, since killing a chicken is the moral equivalent to killing a fetus within this philosophical framework.
Given these fundamentally different perspectives on the nature of the universe, it is easy to see how libertarians often talk past each other on the abortion issue. To mind-body dualists, the pro-choice assertion of the mother’s rights seems ludicrous, since no-one has the right to end another human’s life. Conversely, the pro-life cries of “murderer” ring hollow to those of the “spectrum of consciousness” persuasion, since, to them, an early-stage abortion is the moral equivalent of eating a shrimp cocktail. As a result of this enormous philosophical chasm, it has been exceedingly difficult to have a meaningful discussion about the place of abortion within the liberty movement. Nonetheless, it is an important issue to wrangle with, and I hope that, by openly acknowledging the philosophical roots of our positions, we might begin to have the same sorts of productive discussions and disagreements that we are able to manage on so many other issues.
Having been intensively involved with liberty activism for the past few years, I believe that the emergence of the #OccupyWallStreet movement is a source of enormous promise. The political clout of well connected financial institutions was the reason the bailouts got muscled through Congress, and, in the years since, virtually no one has been held accountable for what amounts to one of the largest heists in human history. As such, the presence of thousands of protesters camping out a stone’s throw from the epicenter of our financial system serves to spark a much needed national conversation about true accountability for the criminality of the last decade.
Unfortunately, I’ve also noticed that, in the last 24 hours, a lot of disinformation has been spreading around the liberty-oriented blogosphere about #OccupyWallStreet. As such, I felt it would be useful to lay out and dissect some of these criticisms, which I believe are being disseminated in an attempt to prevent an anti-corporatist coalition from forming that might actually have the power to challenge the immensely corrupt status quo.
(1) The #OccupyWallStreet movement wants to re-elect Obama/enact socialism/[insert feared outcome here]
The fundamental flaw with this point is that no one individual or group is, or can be, empowered to speak for the occupation as a whole. Rather, anyone involved in the protest can make demands or claims, but to believe that they represent the movement is to profoundly miss the point of what’s going on (for more on this, see this interview with David Graeber). The fact is that the protest is made up of people with a wide diversity of ideologies and opinions on what reforms are needed, but who are bound together by a shared outrage at the corruption of the Wall Street-Washington nexus. Indeed, the way the public perceives the message is heavily influenced by who shows up, so more liberty folks attending = a more libertarian narrative.
(2) They’re a bunch of lazy, dirty hippies who should get a job!
I’ve noticed that there is a population of people for whom this is a knee-jerk reaction whenever there is a protest, period. In fact, I had a powerful face-palm moment recently when I saw such a comment posted about a rally in my town that happened on a SUNDAY. Even leaving aside the aforementioned diversity of the group, this criticism is pretty ignorant considering the current, and rising, unemployment rate in this country. It was one thing to yell this at hippies in the mid-sixties when there was full employment, but I met plenty of smart, hardworking people there who’ve been laid off and were desperately struggling to find work. The “lazy hippies” narrative is simply a false meme that echoing around the Internet because it allows people to put the protesters in a cognitive box that deems them to be ignored.
(3) I saw one of them interviewed, and he was a total idiot calling for authoritarian solutions. Thus all of #OWS reflects his views.
In addition to the points made above, I’d like to ask the liberty community to remember the ways in which the early TEA Party was delegitimized by the MSM. By picking out and focusing on the sign that said “keep the government out of my Medicare” or a racist attendee, they attempted to tar the whole movement with the brush of its lowest common denominator. Similarly things are afoot with the #OWS movement – there are plenty of people at the rally talking about the FED, complementary currencies, etc., but the folks who don’t want it to succeed are desperately trying to draw attention to the less thoughtful occupiers in order to forward their divide and conquer agenda.
(4) This is a “Tea Party of the Far Left” that is being astroturfed by MoveOn, Soros, SEIU, etc.
As much as the institutional left would like to co-opt #OWS in the same way that the institutional right bought out the TEA Party, this has not happened yet and is by no means a done deal. In fact, the best way to prevent this movement from falling into their hands is for liberty advocates to show up en-mass as a counter balance.
In closing, the #OccupyWallStreet movement has the potential to be a space in which an alliance can come together that is powerful enough to challenge the clout of the corporatists in the banks and DC. In response to that possibility, the interests that would stand to lose from the movement’s success are engaged in a desperate divide-and-conquer attempt to squelch the effort and preserve their corrupt privilege. As such, it is essential that we resist those deceptive attacks and continue stand with the #OccupyWallStreet movement if there is to be any hope of restoring our liberties and our republic.
When most people think of the “Back to the Land” movement, the image that generally comes to mind is of hippies retreating to rural communes in the early 1970s. However, in her new book entitled Back to the Land: The Enduring Dream of Self-Sufficiency in Modern America, Dona Brown effectively shows how those back-to-the-landers were simply the latest manifestation of a very old American cultural tradition. As she powerfully demonstrates, the impulse to return to the land can be traced to the era when Americans first began to leave it for life in industrial cities.
A professor of history at the University of Vermont, Dr. Brown buttresses her narrative with numerous examples drawn from her extensive knowledge of the primary sources, beginning with the very first back to the land book. Published in response to the economic crisis of 1857, Ten Acres is Enough initiated a pattern that would continue for more than a century. In moments of crisis when unemployment became rife in the cities, many people came to see owning a farm as a powerful buffer against the vagaries of the market economy (in particular, the movement seems to have appealed to the higher echelons of blue collar workers and the lower middle class). In the time from the panic of 1893 to the First World War, the back to the land impulse became an actual movement, with powerful backers, several magazines, and an extensive number of published books.
The War and the prosperity of the 1920s moderated the movement’s goals and vision, but its radical side reemerged with a vengeance in the 1930s, when some aspects of it were incorporated into the New Deal. Partially in response to that institutionalization, a decentralist, alternative back to the land movement, which was very suspicious of the central government, also emerged during this period, centering in Vermont. This, in turn, laid the groundwork for Vermont to be one of the main stops for the subsequent generation’s own back to the landers.
Outlining in great detail the projects and personalities that characterized the back to the land movement over the course of the past century and a half, Dr. Brown’s book is not only a rich source of information about the past, but also casts many of the projects of the present in a new light. As her work demonstrates, things like food sovereignty and the local food movement exist are not wholly new developments, but descend from a long and venerable lineage. Even Vermont secession, which most contemporary advocates trace back to Frank Bryan’s work in the late 1980s, is shown to have reared its head in previous iterations (Vrest Orton, the founder of the still extant Vermont Country Store, was advocating a second Vermont republic as early as 1928). As such, this book is not only of great interest to those with an affinity for the history of social movements or of Vermont, but it is also essential reading for anyone involved in contemporary projects inspired by the back to the land spirit. Understanding the motivations and experiences of one’s intellectual ancestors is essential to fully comprehending the meaning of one’s own work, and Dr. Brown’s book is the best tool I’ve encountered for cultivating that consciousness. Do yourself a favor and pick up a copy of Back to the Land!
In my time engaged in politically decentralist activism in general, and my work on Vermont independence in particular, I’ve noticed that it is very difficult to escape the long historical shadow cast by the Civil War. When considering the idea of using state sovereignty as a legitimate tool for resisting Federal abuses, the claim is often made that the issue was settled by the Civil War. The North (and thus centralized sovereignty) prevailed over the South (and distributed sovereignty) in 1865, and the question is thus closed.
Generally, this attitude is characterized by two key elements. The first is the concrete opinion that the Civil War functioned to cement America as “One Nation, Indivisible,” which is true, as far as it goes. In the years after the Civil War, the term “United States” morphed grammatically from plural to singular, and the balance of power between the Federal Government and the States has shifted continuously towards the former. However, though the aforementioned attitude is certainly descriptive of historical phenomena and trends, it is not, from a legal or moral standpoint, a valid argument against the legitimacy of the reassertion of a state’s sovereignty, up to and including its secession from the union. Rather, as has been argued persuasively and in great detail elsewhere, such principles as that of self-determination and the legitimacy of government being derived from the consent of the governed mean that subsidiary political units have the inalienable right to independence. Continue reading
By Matt Cropp
In recent weeks, the game of political chicken that the Republicans and Democrats have been playing over the national debt limit has, for many people, raised the question of what would happen if the Federal Government does, in fact, default on its obligations. With tens of millions of elderly and disabled Americans directly dependent upon the Feds for their subsistence, and millions more of their fellow citizens employed by taxpayer-funded institutions, it is clear that even the partial bankruptcy of the US Government could have potentially disastrous consequences. Between throwing the most vulnerable Americans into abject poverty and eliminating the jobs of millions of their fellow able-bodied citizens at a stroke, such a scenario would seem, to many, like a whole-sale collapse of the American way of life on a scale not seen since the Great Depression.
In many American communities, the impact of such an event would be devastating. As recipients of government aid (including everything from food stamps to social security to welfare) and those employed by the government find their incomes suddenly eliminated, unemployment would explode. When all of that money ceases to circulate through the local economy, many key businesses (such as grocery stores) would cease to be profitable and, as they are usually owned by shareholders with no connection to the community in which they do business, many would close their doors and liquidate in order to pay off their creditors and owners. As a result, unemployment would rise further and many communities would soon find themselves lacking the vital services that are essential to their very survival. Thus, it is not unimaginable to envision a mass migration by able-bodied persons in desperate search of work along the lines of the Okies who migrated out of the Dust Bowl in the 1930s. For those who are too old or disabled to move to greener pastures, however, such an outcome would be utterly devastating, as they might often find themselves abandoned in communities with almost no ability to care for them.
While the above is a bleak picture, I believe that there is a community institution that’s existence would lead to a radically different outcome when faced with similar circumstances: namely, a fully developed, well-run food co-operative. Owned by its customers, the response of a food co-op to an economic catastrophe has the potential to radically differ from that of a corporate grocery store. For the latter, monetary profit is the sole measure of its value, and, if the store becomes unprofitable, the natural response is to cut investor losses by shutting it down. By contrast, a food co-operative exists for the mutual benefit of its members, and, in a pinch, it has the ability to substitute their labor for capital, insulating both the co-op and its community from the worst elements of an economic collapse in several ways.
First of all, as the co-op’s cash income declines as a result of the community’s increasing unemployment, it could mobilize unemployed members to do jobs that would have otherwise cost the co-op valuable cash. Such workers might be paid a subsistence wage in scrip that can be spent at the co-op, thus both saving unemployed members from total destitution while simultaneously strengthening the organization. Furthermore, depending on the depth of the crisis, this member-worker model could be extended to productive pursuits outside the co-op, i.e., they could be put to work bringing land under cultivation, the products of which would then be sold through the co-op. Indeed, such organization of the unemployed into productive enterprises could well form the foundation of a sustainable economic recovery (and has fascinating historical precedents in co-operative experiments among the unemployed in California during the Great Depression of the 1930s). Finally, since the principles that govern co-operatives includes “Concern for Community,” co-ops could organize ways to meet the needs of the vulnerable people who were functionally abandoned when their government benefits dried up. Such help could include relaxed work requirements for elder and partially disabled member workers, and the counting of hours worked in organizations that serve the especially vulnerable (such as senior centers, group homes for the developmentally disabled, etc.) towards member workers’ weekly quotas.
Given these potential benefits in an economic crisis situation, I believe that a food co-operative should not be seen as just another grocery store, but also as an insurance policy. While the most immediate possibility of serious dislocation seems like it might come from the looming Federal default, the truth is that, in our increasingly interconnected and globalized world, a disruptive shock could come from almost anywhere. At its best, globalization has allowed billions of people to specialize and trade with each other, generating the wealthiest society ever seen in human history. However, such profound interdependence has also made many communities increasingly vulnerable to the effects of systemic failure. As institutions that can, in good times, fully and efficiently access the fruits of the global economy (in fact, my food co-op is the cheapest place to get groceries in Burlington), while providing the organizational capacity for community resilience in times of collapse, a well-run food co-op is something that no responsible community should be without.
If you agree with this argument, there are a few things you should consider doing. First, if you are fortunate enough to live in a place with an already existing food co-op, become a member, patronize it, and see what you can do as a volunteer to help advance its interests. If it does not have an existing member-worker program, encourage the board to consider launching one. At my co-op, members get a 7% discount if they work two hours per month, and 12% if they work four; while not at the scale that such a program would need to be in a crisis, simply having the infrastructure in place to organize member-workers means that a co-op will be able to respond much more nimbly when it counts.
If you do not live in a place with a food co-op, consider trying to help organize one. In New England, the Neighboring Food Co-op Association and the Cooperative Fund of New England are great organizations that provide both mentorship and resources to groups who aspire to found a co-op – for other regions, a quick Google search will often uncover valuable resources. Additionally, if you have money that you’d like to invest in a manner that promotes resilient communities while making a modest rate of return, the Cooperative Fund of New England will put your funds to good use.
In the more than two centuries since the beginning of radical transformation of economic life that accompanied the rise of industrial capitalism, one of the most interesting trends has been the changing nature of the forms through which people have engaged in economic activities. Before the industrial revolution, an artisanal mode of production predominated, with many small work-shops producing the goods required by the largely agrarian economy. At first glance, such the existence of many small firms would suggest a highly competitive economy; however this was not the case. Rather, the high cost of transporting goods created by primitive transportation networks, the risk of brigands, etc., meant that, rather than a single integrated economy, there existed many small economies between which only low-bulk, high-value goods (such as spices) were exchanged. In this situation, workshops were almost universally owned locally, since the cost of monitoring an agent in a distant city would be prohibitively high (the exception being those in the aforementioned low-bulk, high-value businesses, but they also helped ensure the loyalty of distant agents by using family members).
However, the advent of the 19th century transportation and communication revolutions, which brought better roads, canals, steamships, railroads, and telegraphs into widespread use, changed the game. The many local markets became increasingly integrated, and the prices of commodities converged over the course of the century. These changes also led to radical shifts in how firms were both run and owned. With huge, growing markets at their disposal, firms could, as Chandler describes in his brilliant book Scale and Scope: The Dynamics of Industrial Capitalism, drastically reduce the unit cost of many products by engaging in capital-intensive mass production. However, in order to fully take advantage of such available efficiencies, firms needed to mobilize amounts of capital beyond the resources of almost any individual or family. As a result of this problem, the “managerial firm” emerged as the dominant model in many industries by the end of the 19th century. Where, previously, the owner of a business was generally involved with its operations, managerial firms were characterized by a separation of ownership and management (which began to be undertaken by salaried professionals).
The practical result of this change was that it meant that the ownership of a firm could be divided between a far greater number of individuals than had been previously possible when owners were responsible for directly monitoring a firm’s performance. Such a division would not have been cost effective at the beginning of the 19th century, but the drastically reduced cost of information brought about by the aforementioned revolutions meant that, by the 1920s, a small but respectable percentage of the American population held some ownership stake in a corporation through the stock market.
I believe that this historical dynamic has a very interesting implication for our contemporary situation. If the cost of information, in fact, influences the optimal structure of firm in the economy, then the growth of the Internet over the last decade should be understood as a signal that the traditional corporate model is heading the way of the dinosaur. Indeed, there is plenty of evidence to suggest that small to mid-size firms can use their flexibility to outmaneuver the existing behemoths in many ways; however, there are certain industries in which economies of scale will remain extremely important. However, certain very recent developments have to potential to radically alter the ownership structures of such firms.
Of paramount importance is the emergence of peer-to-peer online monetary systems such as Bitcoin. By drastically reducing transaction costs and allowing for true micro-payments (on the order of hundred-thousandths of a cent), such systems have the potential to drastically reduce the minimum barrier to entry to obtaining an ownership stake in a firm. As a result, I believe we might begin to witness the organic transformation of many large firms to co-operative ownership.
The logic of such a transition is as follows. In a perfectly competitive market, the margin of profit trends towards zero, with consumers obtaining products at cost. In such a situation, the motivation for shareholders who do not use the firm’s products to retain ownership is fairly low, while the only tool left for a firm to attract customers away from its competitors would be to offer them an ownership stake in the business, which would guarantee that they would continue to receive the firms products at cost in the future. As such, it would be reasonable to expect the gradual transition of the ownership of many companies in the coming years from absentee shareholder to consumers.
A possible objection to this scenario would be to inquire as to why such a transition has not already occurred? The answer, I believe, lies in the relative cost of ownership. In 1800, owning a share of a London blacksmith’s shop while living in New York would have been prohibitively expensive, due to the fact that the transaction costs necessary to receive the benefits of ownership would eat up most, if not all, of the profits. However, once the underseas telegraph cable was in place, such costs were reduced to the point that such ownership became possible. It seems there is a similar dynamic at play with co-operatives.
In the past, co-operatives have only been successful in economic sectors in which the size of the economic relationship they have with their members is sufficiently large to offset the transaction costs of ownership (i.e., groceries, insurance, feed for livestock), and they have often further defrayed such costs through the use of volunteer labor. However, with such technologies as Bitcoin sending transaction costs plummeting towards zero, the range of firms that could be economically owned by their users/consumers is drastically expanding. The logic is simple – why patronize a for-profit firm when you can be assured you’re receiving goods and services at cost from your co-op store/auto repair shop/social networking website. Just as the first communications revolution gave birth to the age of the corporation, the rapid changes that our contemporary world is experiencing could be paving the way towards the age of the co-operative.
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After having been cued in to Bitcoin a few weeks ago, the crypto-currency’s rise has been quite impressive. Its value has quintupled since I began following it, and the amount of goods and services for which people are willing to accept Bitcoin has been consistently expanding. Barring any unexpected catastrophe, then, I feel like it’s reasonable to expect that crypto-currency will be an important part of the economic landscape in the years to come.
That being the case, I think it is important to engage in a meaningful conversation as to the nature of the optimal monetary model for a crypto-currency. After ingeniously solving the double spending problem, the initiators of Bitcoin chose to implement a system in which, for the first few years, a large amount of money is created but, within a decade, the supply of currency will reach a cap of around ~21 million units. This model of a predictable and stable money supply could very well be the optimal one, but it carries certain risks, the largest of which might be some of the pernicious effects of deflation.
The primary concern is that, in a deflationary environment, people will choose to horde rather than spend their money. For instance, why buy a t-shirt today for six Bitcoins today when you’ll be able to get it next week for five? Such incentives might hobble the growth of the Bitcoin economy, meaning more transactions happen in other units of value while people with Bitcoins hang on to them in order to realize potential capital gains.
Different schools of economics hotly debate the legitimacy of such concerns, but, until now, they’ve never really had a chance to engage in a full blown competitive experiment to test the issue. However, since the Bitcoin source-code is open source, it would not be difficult for someone to create a rival currency that, rather than capping off at ~21,000,000 units, is designed to consistently increase the money supply by 1% per year indefinitely after the initial takeoff period. By doing so, it might be possible to learn an enormous amount about monetary economics by comparing the performance of the two economies. Additionally, an environment might emerge in which currencies with innovative elements are regularly introduced to the mix, allowing for the empirically-based semi-organic evolution of an increasingly optimal monetary system. Truly, this is an exciting time to be an econ nerd!
Given my recent interest in the new crypto-currency, I figured I’d try to put my money where my mouth is, so to speak, and initiate a casual venture with a friend selling actual, honest-to-god goods in exchange for Bitcoins. After a bit of brainstorming, we decided to produce some Bitcoin-themed t-shirts and *exclusively* accept btc for them through a website. Well, the shirts have arrived, the website is up, and I just sealed our very first package destined for a fellow in New Zealand. The next few weeks should be interesting as we get a sense of the benefits and pitfalls of running a (very) small business in the Bitcoin economy. If any experiences or insights of particular interest should crop up, I’ll make sure to post them on ASR, so stay tuned…
P.S. If you want a t-shirt, head over to http://www.iusecoins.com!
While lazing about the house one Sunday morning while my partner was out to lunch with a friend, I decided to take advantage of her absence to watch a documentary on the Netflix instant play (she’s not a huge fan of political or economics films, so this was a bit of a treat for me). While scrolling through the enormous selection in their database, I happened upon Michael Moore’s Capitalism: A Love Story. Now, given his propensity for ignoring nuance and shamelessly appealing to emotion, I’m generally not a huge fan of his work. However, given his influence among the statist left, I figured it’d be interesting to get a sense of his interpretation and framing of the financial meltdown, so I made a bag of pop-corn and settled in for a viewing.
All in all, I was pleasantly surprised. Sure, there were generous helpings of the shameless heart-string pulling and agenda-driven propaganda that Moore’s films are known for. However, he also does a decent job of laying out a good portion of the facts of what happened during the boom, bust, and bailouts we experienced over the last decade. In that aspect of his film, I felt like it was roughly equivalent in usefulness to Inside Job, the fantastic investigation into the financial crisis that won this year’s Academy Award for Best Documentary. Both films do a fine job of showing how the enormous fraud and subsequent politically corrupt bank bailouts played out historically; however, I also find that they fall flat in their attempts to prescribe a solution to the problems they so skilfully demonstrate.
The fixes that they advocate are representative of the overall left-liberal narrative of the financial crisis. The argument goes that, at the dawn of the millennium, the Glass-Steagall Act was repealed. This Depression-era regulation served to separate the functions of investment and commercial banks, and its repeal caused the banking sector to go on a hog-wild frenzy of complex transactions that served as a cover for an enormous wave of fraud in the mortgage market. This, in turn, resulted in an entire sector of our economy assuming the characteristics of an enormous Ponzi scheme, which came crashing down in 2008. The solution, liberals argue, is for the Federal Government to re-establish tight regulation of financial markets in order to ensure good behavior on Wall Street and prevent further calamities.
As far as it goes, I believe that this narrative has great descriptive value; the repeal of Glass-Steagall was, indeed, one of the major factors that allowed for the financial crisis to get out of control. However, I also think the purveyors of this line of reasoning fail to grasp an important piece of the puzzle. Underlying their model is the assumption that the behavior we observed during the meltdown is rooted in human nature. As a result, they believe that all financial markets will “naturally” behave in the same fraudulent manner if left unsupervised by the state.
The fatal flaw of this perspective lies in the fact that financial markets (and by extension, virtually all markets) are not primarily made up of atomized individuals, but, rather, people whose incentives and opportunities are powerfully determined by the institutions in which they are embedded. Far from being “natural” or fixed, the structures of human-created organizations can be as widely varied as the limits of the human imagination, and, in a totally free market, the ownership and incentive structures of firms would be essential factors in their performance. As a result, competition would pressure firms to organically evolve towards the structures that most appeal to consumers.
If all of that seems a bit abstract, let me provide a brief hypothetical example from the financial crisis. The Federal Government’s bailouts saved an enormous number of banks, many of which likely would have become insolvent and failed. By contrast, during the same period, only a tiny number of credit unions were in serious jeopardy, because the ownership structure of credit unions (the depositors are also the owners) steered the institutions towards more conservative, risk-averse behavior than their joint-stock cousins. Had the Feds not intervened on behalf of the banks with seven hundred billion dollars, many of those banks’ large depositors would have suffered serious losses. Furthermore, they would have noticed that their peers who’d kept their money with credit unions had not taken haircuts, and would thus subsequently view credit unions as safer places to store their deposits than banks. Credit unions would then find it easier to attract deposits, and banks would have to engage in an enormous amount of self-regulation to remain viable institutions.
As such, the effect of government regulation of financial markets (and of the economy in general) is to subsidize sub-optimally structured firms. A co-operatively owned credit union is inherently more trustworthy to a depositor than a for-profit bank, but regulations artificially level the playing field by establishing the State as a guarantor of the good behavior of banks. In good times, the shareholders of these firms reap the benefits of this subsidy; when their companies screw up, however, the whole of society often ends up paying for the inflicted damage. As a result, our economy is chock-full of firms that would succumb to more efficient, just, and trustworthy business models in a truly free market, but persist thanks to the legitimization that the state provides.
Given all of this, the proper response is not, as Moore and other liberals would have it, to create new reams of regulations. While creating temporary stability, such a regime would simply serve as a fig-leaf for the abuses and dishonesty that stems from the very structure of many presently existing businesses. Instead, we should go to the root of the problem and eliminate the entire regulatory regime. By opening up competition between different kinds of firms and forcing them to fully internalize the costs of their behavior, consumers would begin to take into account the structure of a business when deciding where to deposit their money, buy their groceries, etc. The best that regulators can hope to do is curb the worst excesses of fraudulent and exploitative behavior; by contrast, fully freeing our markets will finally provide us with the opportunity to witness the flowering of an economy that truly works for all of us, not just a handful of well-connected plutocrats.