Tag Archives: Free Markets

Why Trump’s Message Resonates With Working-Class Voters

This is the tl;dr version of my contribution to the TLP Round Table on Donald Trump’s rise to the status of presumptive Republican nominee.

Various motivations for Trump’s popularity have been posited over the course of the election cycle. Tribalism and xenophobia. Social order authoritarianism. Anger at the establishment. Anti-PC backlash. A yen for creative destruction.

I even have some sympathy for that last one. What is the point of preserving a GOP that has failed so resoundingly to deliver on the promise of limited government? Why not blow on the tiny orange flame of a Trump-match and see if it catches fire? Some wildfires make the ecosystem stronger.

But that is not my point here. There is another faction of Trump support, which has been overlooked amid all the self-righteous indictment of his surprising success. That faction consists of working class voters who spend their lives on the financial brink, who could not come up with $400 to face an emergency, but who, as a result of the statist, two-party-dominated system, cannot escape the inevitability of big government.

We advocates of free markets too often fail to explain, cogently, why free trade and voluntary exchanges deliver the best outcomes for the most people. We fail to explain why it is not just big corporations, businesses and entrepreneurs that get hurt by government interventions into the free market—but also the workers. And when those workers complain about the various ways in which they struggle to make ends meet, we too often dismiss it as a deficiency of effort, rather than a legitimate complaint against the system.

This makes no sense. We know better. We know that over-regulation, barriers to entry, excessive government spending, crony capitalism, and welfare for the rich are all bad for the economy and particularly bad for workers. We know these policies cause work to be less remunerative and hit poor people the hardest.

Why then, when they complain, do so many of us respond by dismissing them as lazy, unmotivated, unproductive and entitled? We should be capitalizing on their complaints. They are incontrovertibly legitimate.

The Mercatus Center at George Mason University recently published a study estimating that regulatory drag has stunted the size of the U.S. economy and made Americans significantly poorer than they would otherwise be. Their numbers, while shocking, seem woefully inadequate to reflect the true costs working people pay for intrusive government.

Through “subsidies,” regulations and entitlements, government intervention into the market drives up prices-relative-to-incomes on most of the things consumers need most. Housing, education, and healthcare all far outpace inflation. Meanwhile, government consumes 36% of GDP, and on everything from contact lenses to gasoline to occupational licensing, Americans must pay more while struggling to participate in a system that is rigged against their efforts.

It is simply not possible to sell people on the wealth potential of a free market while castigating them for failing to succeed in a system that requires hundreds of hours and thousands of dollars to get the mandatory license for a job washing hair.

In that regard, the Democrats have a point (incomplete and poorly made, to be sure) when they say, “you didn’t build that” or, “you’ve also been lucky.” Would-be business owners pay their extorted dues to the government-backed bureaucracy. In return, they are protected from competition by various barriers to entry, government-enforced monopolies, tax-payer funded subsidies, and other massive transfers of wealth from taxpayers to the favored recipients of government largesse. It makes a certain twisted sense to demand more compensation in proportion to their success.

One of these men understands how money and economies function. He led a grassroots movement that motivated millions of young voters. In response, the GOP changed its rules to keep him from gaining traction. The other one is the new face of the Republican Party.

One of these men understands how money and economies function. He led a grassroots movement that motivated millions of young voters. In response, the GOP changed its rules to keep him from gaining traction. The other one is the new face of the Republican Party.

Don’t like it? Great. I don’t either. Let’s repeal the barriers to entry, the legal monopolies, the government grants and below-market loans. Let’s get rid of the regulations and the occupational licensing, the mandated dues and the bureaucratic red tape and all the other bullshit.

This is, in fact, what we put Republicans in the House and Senate to do.

Yet over and over and over again, with a few principled exceptions (e.g., Rand Paul, Justin Amash, Thomas Massie, and, yes, Ted Cruz), Republicans have broken their word, expanded government, and asked us to be patient while they focus on getting reelected.

Revealing the true direction of their priorities, the GOP establishment acted to keep Ron Paul supporters from gaining traction in their ranks. The liberty movement has not died as a result, but it may have left the party. Inside the GOP, it has been replaced by an orange-faced baboon leading an army of alt-righters shouting “cuck” repetitively as they rock back and forth in fear of outside stimulation.

I will not deny a certain satisfying schadenfreude at that turn of events. And there is value in knowing such a cancer festers on the right. But there is equal value in understanding that Trump would not be succeeding on their support alone. He is also propelled by a significant faction of working-class voters desperate for better jobs, a stronger economy, and higher purchasing power.

Sanders is right about a lot of problems, wrong about the solutions. Sanders supporters who can understand the distinction may be an untapped area of future liberty votes.

Sanders supporters may be an untapped area of future liberty votes.

In that regard, Trump’s message resonates with voters on the right for some of the same reasons Bernie Sanders’ message resonates on the left. If big government, high taxes, and crony capitalism are inevitable – because neither of the viable parties intends to do much about them – why not use one’s vote to fight for a bigger piece of the stunted pie? Trump at least pays lip service to the struggle. He promises jobs and protectionism, a reprieve from debt and stagnation.

Of course I know he will not deliver. Trump’s “solutions” will further hurt working class people, by driving up prices and contracting the size of the economy.

Trump is Sanders in orange-face.

The point is, if a liberty-movement aims to rise from the ashes of the Trump-fire, it must speak to the struggles motivating voter support for these two surprise candidates. It must explain why no amount of further tinkering will alleviate the real pain that government intrusions into the economy cause to real people, why the only solution is to unwind those intrusions in the first instance.

Then it needs to actually deliver.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.

In the Wake of Obergefell v. Hodges: Gay Marriage, Religious Liberty, and the Free Markets

[Photo: Church of the Pilgrims, a Presbyterian USA Church in Washington DC, via Wikimedia Commons.]

On Friday, June 26, 2015, the Supreme Court held in Obergefell v. Hodges that under the Fourteenth Amendment, states are required to license marriages between same-sex partners and to also recognize same-sex marriage licenses from other states. The topic of same-sex marriage is probably one of the most polarizing topics in modern-day America. Over the past several days I have seen dozens of people, both for and against same-sex marriage, acting hateful to one another, unfriending and/or blocking people on social media because they have different views, and just having a very nasty tone. But why? Why can’t we have a dialogue on the topic? Let’s face it. Obergefell is now the law of the land. The purpose of this post is to try to open that dialogue. So now that gay marriage is legal in all 50 states, what comes next?

Gay Marriage

Contrary to what many may think, the Supreme Court did not create new law here. They did not legislate from the bench. The Supreme Court has a long history of recognizing marriage as a fundamental right and has held that the states cannot discriminate against consenting adults with regard to this fundamental right. The Supreme Court has held this time and time again. As Justice Kennedy noted in his majority opinion:

[T]he Court has long held the right to marry is protected by the Constitution.
In Loving v. Virginia, 388 U. S. 1, 12 (1967), which invalidated bans on interracial unions, a unanimous Court held marriage is “one of the vital personal rights essential to the orderly pursuit of happiness by free men.” The Court reaffirmed that holding in Zablocki v. Redhail, 434 U. S. 374, 384 (1978), which held the right to marry was burdened by a law prohibiting fathers who were behind on child support from marrying. The Court again applied this principle in Turner v. Safley, 482 U. S. 78, 95 (1987), which held the right to marry was abridged by regulations limiting the privilege of prison inmates to marry. Over time and in other contexts, the Court has reiterated that the right to marry is fundamental under the Due Process Clause.

– Obergefell (slip op., at 11)

Furthermore, the right to marry is guaranteed under the Equal Protection Clause of the Fourteenth Amendment. Anytime that a fundamental right is restricted to a group of people, the government bears the burden of proving that the law is necessary to meet a compelling government interest, that it is narrowly tailored to meet that interest, and that the means of implementing the law is the least restrictive means available. The Court found that there is no compelling government interest in denying same-sex couples the fundamental right to marry solely because of their sexual orientation. This is not creating new law. This is the Supreme Court telling the states that any law which restricts fundamental rights between consenting adults is unconstitutional.

Another argument that I often hear is that people think that this should be left up to the individual states to decide. That would be true under the Tenth Amendment. However, the Tenth Amendment only applies to powers not delegated to the United States by the Constitution. The Supreme Court has the power to interpret these laws under the Fourteenth Amendment. So the states’ rights argument doesn’t apply. Bans on same-sex marriage also violate the Privileges and Immunities Clause of the Fourteenth Amendment. This means that citizens who move to a new state are entitled to the same rights and privileges of citizens in the new state. The state cannot discriminate against them. Therefore, a marriage license that is valid in Massachusetts is also valid in Mississippi. A state cannot discriminate against people who move from other states.

This is not a legislative issue either. As Justice Kennedy stated:

The dynamic of our constitutional system is that individuals need not await legislative action before asserting a fundamental right. The Nation’s courts are open to injured individuals who come to them to vindicate their own direct, personal stake in our basic charter. An individual can invoke a right to constitutional protection when he or she is harmed, even if the broader public disagrees and even if the legislature refuses to act. Obergefell (slip op., at 24)

So even though the ideal process may be to go through the democratically elected legislature, this does not preclude one from raising the issue before the Court if his or her fundamental rights are abridged.

Therefore, the Supreme Court did not create a new law. They did not legislate from the bench. This is not a case of judicial activism run amok. Even if you do not agree with gay marriage, at least understand that the government cannot deprive others of fundamental rights that are given to the rest of us.

Religious Liberties

Rest assured that just because same-sex couples can now marry in all 50 states, it does not mean that the government can discriminate against religious institutions. The government should not force any particular denomination, pastor, priest, or clergy to perform a same-sex wedding against their will. This would violate the Free Exercise Clause of the First Amendment.

I don’t foresee this as much of an issue. Most gay people that I know would get married outside of the church anyway. But if a same-sex couple does want to get married in a particular denomination, their right to marry is not infringed by a pastor’s denial to perform the service. The same-sex couple is still free to seek out another pastor. If a Southern Baptist church does not want to perform the ceremony, the couple can go to an Episcopalian church. If a pastor with the Presbyterian Church of America (PCA) declines to perform a ceremony based on his religious conviction, the couple can seek a pastor with the Presbyterian Church USA (PCUSA) willing to perform the ceremony.

Therefore, I don’t see this decision as an attack on our religious liberties. Every denomination should be able to exercise their faith and religion as they see fit under the Free Exercise Clause of the First Amendment. If you do agree with gay marriage, at least understand that the government cannot infringe on a clergy’s right to exercise his or her faith by declining to perform a same-sex marriage.

Free Markets

Okay. So now same-sex marriage is legal in all 50 states. How does this affect the markets and what does it mean for all of the bakers, florists, photographers, et. al who decline their services to same-sex couples? As a Christian AND a libertarian, I sometimes find myself at odds with…myself. Even if I disagree with something that goes against my convictions, it doesn’t give me the right to deprive another of their rights or hate on them for their choices. So I want to view this topic in two lights. How should this be handled with regard to the free markets and the courts? And how does this appear in the eyes of God?

Over the past several years, Christian wedding service providers, such as bakers, florists, and photographers, have declined to provide their services to same sex weddings. In Colorado, Masterpiece Cakeshop was sued for failing to make a wedding cake for a same-sex reception. Despite the owner’s willingness to serve homosexuals in his establishment, he believes that making the wedding cake means that he is participating in the union and it goes against his convictions. More recently, in Oregon, an administrative judge proposed that Sweet Cakes by Melissa pay a same sex couple $135,000 for refusing to bake a cake for a same-sex marriage. Then of course, there was the New Mexico case where the NM State Supreme Court held that Elane Photography discriminated against a same-sex couple by refusing to record their wedding, despite their policy on welcoming gay couples for other services.

From a free market, libertarian position, I disagree with all of these decisions. In each of these cases, the business owner was willing to serve gay couples, but did not want to participate in the wedding ceremony. Businesses are rewarded or punished in the marketplace for their stances and services. If a customer doesn’t like their stance, s/he does not have to give them business. Let the markets dictate what happens to the business. I also understand the business point of view that their services are forms of expression. They should be protected from being forced to cave on their religious convictions. If they don’t want to express themselves in that manner, I don’t agree that they should be forced to. But does that mean that it’s the right decision?

As Christians, is this the way that we are to show our love to the world? In Matthew 22:36-40, Jesus tells us that we are to first, love the Lord our God with all our heart, soul, and mind and second, that we are to love our neighbors as ourselves. When we decline these services to others, are we loving our neighbors as ourselves? Are we reflecting the love of Jesus as we are called to do? I don’t think so. Jesus never really hung out with the religious folks. He was always meeting with, preaching to, and loving on the fishermen, the taxcollectors, the prostitutes, the dregs of society. Jesus said that he didn’t come for the righteous or powerful, but to save those who are lost. When we refuse services to same-sex couples, are we drawing them closer to God, or are we just pushing them further away?

I think that it’s time that we love our neighbors as ourselves.

 

Albert is a licensed attorney and holds a J.D. from Barry University School of Law as well as an MBA and BA in Political Science from The University of Central Florida. He is a conservative libertarian and his interests include judicial politics, criminal procedure, and elections. He has one son named Albert and a black lab puppy named Lincoln. In his spare time, he plays and coaches soccer.

Today’s Nasdaq Illustrates the Phenomenon of Creative Destruction

Those of you who are old enough to remember the dot com bubble bursting some 15 years ago might also remember the handwringing about how Microsoft was becoming a monopoly. Microsoft was the juggernaut that could only be taken down with antitrust suits by the federal government. Other companies simply could not compete with such a well-established corporation; the free market was inadequate.

Fast forward to where Microsoft stands today. The once seemingly invincible company has succumbed to the realities of competition and now finds itself in third place on the Nasdaq index.

James B. Stewart writing for The New York Times explains:

The Nasdaq composite that peaked at 5,048.62 on March 10, 2000, in what turned out to be the height of the technology bubble, bears little resemblance to today’s Nasdaq index. Of the top 20 Nasdaq companies by market capitalization in 2000, only four — Microsoft, Cisco Systems, Intel and Qualcomm — remain in the top 20 today. Eight no longer exist as independent companies, most as a result of bankruptcy or acquisition, and several are shadows of their former selves. The current Nasdaq composite index has only about half as many companies as it did in 2000.

“Joseph Schumpeter was spot on when he said capitalism is all about creative destruction,” said Richard Sylla, an economics professor at New York University’s Stern School of Business and a specialist in the history of markets, referring to the Austrian-American economist who described the phenomenon in 1942 in “Capitalism, Socialism and Democracy.”

In the intervening 15 years, a new generation of entrepreneurs, newly public companies and entire industries have emerged and seized the dominant positions in the Nasdaq index even as their predecessors faltered. Apple, now the world’s largest company by market capitalization, barely registered in 2000, and the first iPhone was not announced until 2007. Over a billion smartphones were shipped in 2014.

The chart below which accompanies the article illustrates this creative destruction of the past decade and a half quite clearly.
Capture

What this tells me is that no matter how large these corporations get, they cannot rest on their laurels. They cannot assume that just because consumers like their product(s) more than the competition today that the same will be true tomorrow. How many people use Myspace today as opposed to Facebook?

It’s the creative destruction of the free market – not additional regulations which ultimately allow consumers to have more choices.

Tesla Whines About Protectionist Legislation for Auto Dealers While Using Government Largesse to Compete

Last week, I wrote about rent seeking auto dealers lobbying for protection from competition with manufacturers utilizing direct-to-consumer sales models. I mentioned direct-to-consumer manufacturer Tesla by name, and suggested such legislation would prevent consumers from enjoying the savings that might otherwise be realized from Tesla’s efforts to “eliminate the middle-man.”

I should have taken the opportunity to address Tesla’s own abundant receipt of government largesse.

And to be clear, “government” largesse is always paid for by the taxpayers.

In a piece entitled “If Tesla Would Stop Selling Cars, We’d All Save Some Money,” Forbes contributor Patrick Michaels details all the ways Tesla benefits from government handouts. Michaels concludes that taxpayers shell out $10,000 for every car Tesla sells.

Michaels starts with a claim that purchasers of Tesla vehicles receive a $7500 “taxback bonus that every buyer gets and every taxpayer pays.” Since the tax credit appears to be non-refundable, I would not count it as a cost to other taxpayers, as Michaels does.

But the federal tax credit is only the tip of the crony capitalist iceberg for Tesla.

There are also generous state subsidies paid by taxpayers to the wealthy people who buy Tesla’s expensive vehicles. Purchasers in Illinois, for example, can receive a $4,000 rebate from that state’s “Alternate Fuels Fund,” a $3,000 rebate to offset the cost of electric charging stations, and reduced registration fees. California likewise offers a long list of rebates and subsidies to buyers of electric vehicles.

One of the hidden costs to consumers comes in the form of the increased price tag on cars sold by manufacturers who do not qualify for California’s mandated emissions credits, which they instead have to buy from Tesla, allowing it to earn a profit despite selling cars at a massive loss. As Michaels explains:

Tesla didn’t generate a profit by selling sexy cars, but rather by selling sleazy emissions “credits,” mandated by the state of California’s electric vehicle requirements. The competition, like Honda, doesn’t have a mass market plug-in to meet the mandate and therefore must buy the credits from Tesla, the only company that does. The bill for last quarter was $68 million. Absent this shakedown of potential car buyers, Tesla would have lost $57 million, or $11,400 per car. As the company sold 5,000 cars in the quarter, though, $13,600 per car was paid by other manufacturers, who are going to pass at least some of that cost on to buyers of their products. Folks in the new car market are likely paying a bit more than simply the direct tax subsidy.

Slate’s Scott Woolley details another way in which Tesla has cost taxpayers money. In 2009, Tesla received a $465 million Department of Energy loan that allowed it to weather a financial maelstrom. Unlike Solyndra (and Abound Solar and Fisker Automotive and The Vehicle Production Group LLC), Tesla managed to repay the loan in 2013. According to Michaels, it did so by reporting its first ever quarterly profit (earned from the sale of the emissions credits), which sent its stock soaring and enabled it to borrow $150 million from Goldman Sachs, and then issuing a billion in new stock and long-term debt.

But Tesla paid the U.S. taxpayers back at a rate far below what venture capitalists would have earned on the same loan. As an example, Tesla’s CEO Elon Musk also made a loan to Tesla. Musk got a 10% interest rate and options to convert the debt to stock, which he did, resulting in a 3,500% rate of return on his investment.

In contrast, the U.S. taxpayer received a 2.6% rate of return.

In other words, in our crony capitalist system, taxpayers take the loss on bad loans like the one to Solyndra, but do not enjoy commensurate reward on good loans like the one to Tesla.

But there is still more. Tesla cannot keep earning emissions credits, which allow it to earn a profit despite selling its cars at a loss, unless it can keep selling those cars. Josh Harkinson, writing for Mother Jones, writes that:

Its first-quarter profit, a modest $11 million, hinged on the $68 million it earned selling clean-air credits under a California program that requires automakers to either produce a given number of zero-emission vehicles or satisfy the mandate in some other way. For the second quarter, Tesla announced a $26 million profit (based on one method of accounting), but again the profit hinged on $51 million in ZEV credits; by year’s end, these credit sales could net Tesla a whopping $250 million.

Tesla’s ability to continue selling the cars that earn the credits is in question. The market for $80,000 cars has a limited number of buyers. Tesla must expand its customer base with a more affordable product.

One way to achieve that would be to cut the vehicle’s range. But subsidies, credits and fuel savings notwithstanding, consumers have little taste for lower ranges—even at a much lower price. Another way for Tesla to lower the cost of its vehicles is to cut the cost of its batteries without sacrificing the range. As Harkinson observes:

That, however, may again depend on massive subsidies—in this case funding to battery researchers and manufacturers by the governments of Japan and China. Over the past five years, Japan’s New Energy and Industrial Technology Development Organization, a public-private partnership founded in 1980, has pumped roughly $400 million into developing advanced battery technologies. Tesla’s Panasonic cells also might be pricier if not for subsidies the company received to expand its battery plants in Kasai and Osaka.

When Republican Gov. Rick Snyder signed the bill reaffirming Michigan’s protectionist legislation for traditional automobile franchise dealers, auto blog Jalopnik reported GM’s position as follows:

“Competition is always healthy,” GM spokeswoman Heather Rosenker tells Jalopnik. “But it needs to be on a level playing field.”

In the context of the substantial aid Tesla receives from federal, state and foreign governments, it is easier to have some sympathy for the plight of traditional manufacturers—and their dealers.

Ultimately, that sympathy shines a spotlight on the problems created when government starts “tinkering” in the market. Inevitably, that initial, well-intentioned tinkering necessitates ever more intrusive secondary tinkering aimed at remediating the unintended side effects of its initial foray into the market.

Consider health care. Inflation in the cost of U.S. health care began to outpace the general rate of inflation when the government began subsidizing health care costs. Nobel laureate economist Milton Friedman has estimated that real per capita health spending is twice what it would be in the absence of third party payments, and that Medicare and Medicaid are responsible for 43% of that increase. The remaining portion can be blamed in large part on the third party payments from mandated employer health care coverage, further separating patients from the cost of their care and eliminating the market forces that would otherwise keep costs down. Add to the foregoing the government-enforced monopolies on health care education, leading to 22% fewer medical schools in the United States now than one hundred years ago, despite a 300% increase in population, and attendant provider shortage. All that well-intentioned tinkering created a whole host of ugly, unintended side effects, necessitating more tinkering. The federal government responded with the Affordable Care Act and its accompanying thousands of pages of new regulations.

Everywhere the pattern repeats. The cost of higher education outpaces general inflation precisely because the government wants to help people pay for it. The unintended side effect is increasing numbers of graduates with useless degrees and few job prospects, necessitating further tinkering in the form of loan relief, jobs programs and minimum wage hikes. The Federal Reserve suppresses interest rates to artificial lows in the well-intended effort to speed recovery from the bust of the dot-com bubble. The unintended (in this case, it may actually have been intended, at least by Paul Krugman) side effect is a new bubble in housing. When that bubble bursts, the government must step in to bail people and banks out of their bad investments, create new bureaucracies and new regulations making it harder for people to qualify for loans (in contrast to previous tinkering designed to make it easier).

Lather, rinse, repeat.

I am not a radical free-marketer because I dislike poor people or have a special love for corporations. I am a radical free marketer because I know no amount of tinkering ever produces results as beneficial as what the market produces, naturally and efficiently, all on its own.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.