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Friday, May 24, 2013

Where the Well Regulated Economy Begins

In this series on the "well regulated" economy, let me be clear that there is no small degree of sarcasm involved in what I mean by "well regulated".  What I mean by "well regulated" is an economy that's pretty much completely controlled, where the government "protects" employees from employers, "protects" consumers from producers, "protects" the poor from the rich, "protects" the rich from the poor, and, most importantly, "protects" all of us from ourselves.  For the "well regulated" economy, the government is essentially one giant protection racket.

The fundamental force that enables both protection rackets and governments to impose their will is violence. The German philosopher Max Weber "defined the state as an entity which successfully claims a 'monopoly on the legitimate use of violence.'" The main difference between government and organized crime in that definition is the word "legitimate," and the degree of legitimacy depends on the degree to which the citizens "voluntarily" comply with government legislation, where "voluntarily" means they would comply even if there were no penalties for not doing so.

In order for a government to be violent, it has to have the will to be violent, which in turn means that its capacity for violence needs to be fulfilled by people willing to order and commit violent acts.  The more "well regulated" an economy and the less "voluntary" the compliance of the citizens, subjects, or serfs, the greater the capacity for government violence is required.

One of the most "well regulated" economies the world has ever seen was the Soviet Union.  Not surprisingly, one of the most totalitarian, ruthless, and violent governments the world has ever seen was also the Soviet Union during the same time period.

Stalin pulls all of the concepts above into one nasty package.  Before he was chief thug of the Soviet Union and responsible for the deaths of at least 20 million people, he was the chief thug of an organized crime group. Via Stephen Hicks, we have the fascinating story of a major bank robbery orchestrated by Stalin:
[O]ne of its most swashbuckling leaders, Josef Djugashvili - better known as Stalin - was about to pull off a dazzling heist. [...] 
The carriages were transporting an enormous sum of money - as much as one million roubles (£7 million) - to the new State Bank. [...] 
Stalin knew it would require great daring to pull of such a coup. He also knew he’d need a dependable gang of fellow criminals to help. These were easy to find in Tiflis: Stalin had already been involved in previous robberies and had a trusty band of individuals who could be relied upon. 
The robbery was meticulously planned. [...] 
The carriages swung into the square exactly as expected. One of the gangsters slowly lowered his rolled newspaper, the signal for the attack to begin. Seconds later, there was a blinding flash and deafening roar as Stalin’s band hurled their hand grenades towards the horses. 
The unfortunate animals were torn to pieces. So, too, were the policeman and soldiers. In a matter of seconds, the peaceful square was turned into a scene of carnage. The cobbles were splattered with blood, entrails and human limbs. 
As the gangsters ran towards the carriages, one of the horses  - maimed but not killed - reared up and began dragging the money-bearing cavalcade across the square. He picked up speed and there was a real danger he would get away. 
One of Stalin's men chased after the horse and frantically hurled another grenade under its belly. It exploded beneath the animal, with devastating effect. The horse was blown apart and the carriages were brought to a definitive halt. 
Before anyone in the square could make sense of what was happening, Stalin’s most faithful accomplice - a bandit named Captain Kamo - rode into the square. The gangsters hurled the banknotes into his carriage and then Kamo rode off at high speed. 
The carnage caused by the attack was spectacular. Some 40 people were killed by the grenades and gunfire and a further 50 wounded. Amazingly, none of the gangsters was killed.


Lives and pain clearly meant nothing to Stalin.  With the bank robbery he proved beyond a shadow of doubt that he had both the ruthlessness and capacity for violence for both organized crime and government.

And with that capacity for violence we can see where the "well regulated" economy begins.

46 comments:

Howard said...

Right to the classics - little additional wisdom beyond:

Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.

George Washington

Power corrupts, and absolute power corrupts absolutely.

Lord Acton

From a Don Boudreaux post he quotes:
Something remarkable happened in the seventeenth century, as John Locke and other philosophers began to think the unthinkable and imagine the unimaginable. They suggested, if only indirectly, that government is not absolutely necessary for the existence of society, that social order and even justice can be maintained to some degree without political institutions. Just as the authority of religious institutions had previously been undermined by Protestant Reformers, so the authority of political institutions now faced a serious challenge from liberal individualists.

He then concludes:
Uncivilized people, children, violent criminals – these are people whose first instinct is to demand the seemingly simple solution of brute force to all problems, real and unreal. But there’s surprisingly little difference between the base, instinctive attraction to force of such people and the base, instinctive attraction to force of academics, “activists,” pundits, and politicians who, dissatisfied with some aspect of the world, immediately propose to use force to remedy the problem. Awareness of the great potential for society to progress undesigned, organically, bottom-up, spontaneously, piecemeal through a marvelously complex process of multitudinous tiny mutual adjustments – that is, awareness of the only process by which society has in fact progressed from subsistence and incivility to prosperity and civilization – is lost on the advocates of force, the most intellectually celebrated of whom call themselves (irony of irony) “Progressives.”

Harry Eagar said...

Curious. In other forums, the USSR is usually described as dysfunctional, not well-regulated at all.

But perhaps we need a commie version of Godwin's Law to label people who cannot see any difference between Bolshevism and the New Deal.

As for violence, there was plenty of corporate violence against workers who, indeed, did need protection from employers. Since the New Deal, no one in America has thought it politic to turn a machinegun on workers.

History says things were different before.

I think you have constructed a delusion that has no relation to any actual events in this country.

Harry Eagar said...
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Bret said...

The Soviet Union was nothing, if not thoroughly (well) regulated. Every last aspect was planned (the five-year plans).

Peter said...

In Harry's revisionist world, the problem with the Soviet Union was too much individual initiative and not enough regulation.

erp said...

The difference between Bolshevism and the New Deal was that Frankie made a mistake in choosing Truman as his VP and Eisenhower as the commander of allied forces. Had he chosen a couple of other fellow travelers, we would be much farther along on the road to perfection aka world communism/socialism/progressivism or whatever the euphemism of the day may be than we are now.

Not to worry, Obama et al. are hitting all their marks and it won't be long now that all of us will be safe from those employers wielding automatic weapons. All of us that is who willingly give up our freedom and go into the gas chambers of slavery like good little cogs.

Those who don't, will be stopped with much more sophisticated weapons than machine guns ... and yes, Bret, this is over the top hyperbole, mixed metaphors, etc., but nevertheless true as revelations of the past weeks have graphically demonstrated.

Where are the heroes of yesteryear? Is there not one among us who will rise up?

erp said...

An excellent summation here.

Annoying Old Guy said...

As erp points out, FDR was a fan of Stalin and Bolshevism and I for one see little fundamental difference. But perhaps Mr. Eagar could enlighten we historically ignorant dolts as to what is, in fact, the difference between those two.

P.S. erp - see, when the machine guns come out against the workers, it will be public sector people shooting them down, not capitialists, which is completely different and therefore morally OK. What matters is who pulls the trigger, not how many workers are killed or oppressed.

erp said...

aog, thanks for clearing that up.

Harry Eagar said...

In your fantasies, workers are being shot down in America, but those are just fantasies.

Whereas it was reality that they were shot down by employers.

It is curious that the gold standard of regulation is taken to be Russia, a state which has never, ever had good government. Why not, say, Holland?

There was, of course, no difference between the regimes pre- and post-1917. Both embraced autocracy. They just changed autocrats.

erp said...

Harry, you should read the papers, hundreds of workers were shot down in Boston just a few short months ago by state financed and IMO state sponsored terrorists for the purpose of softening up We, the People, to tolerate more power grabs ... And it looks like the statists are correct, we are frightened and will give up our birthrights for the very brief illusion of safety followed by eons of regret.

Annoying Old Guy said...

Heh. Eagar writes "There was, of course, no difference between the regimes pre- and post-1917" about Russia. Since Eagar has stated that Tsarist Russia was a free market economy, this means he also consider Soviet Russia a free market economy. One is left wondering what extreme of state control moves a regime out from under the "free market" label in Eagar's world. But since he can't point out any fundamental differences between the New Deal and Bolshevism, I'm not surprised.

P.S. "In your fantasies, workers are being shot down in America" - on what basis do you make this claim?

Peter said...

There was, of course, no difference between the regimes pre- and post-1917. Both embraced autocracy

Harry, are you aware that in the thirty years before 1917, the Ohkrana was reponsible for about 26,000 deaths and that, in the thirty years after, the NKVD/Soviets murdered 43,000,000? Are you aware pre-revolutinary Russia had Europe's highest growth rates and strongest currency and that the Soviets turned them into toilet paper? Are you aware that Russia went from a major exporter of grains to a begging importer? Are you aware standards of living dropped sharply?

Describing the Soviet Union as autocratic is like describing Hitler's Germany as traditional. What is it you liked about the Soviets? Six family communal apartments? Five year plans that proved to be jokes? Their success in the Olympics?

erp said...

Peter,

Harry is so fixated on his probably distorted childhood memories of the the south that he sees everything through that distorted view. Add that to his history readings of left wing loonies and this is the result.

Bret said...

Peter wrote: "the NKVD/Soviets murdered 43,000,000"

But at least the free market didn't kill them!

erp said...

Bret, per Harry, the free market killed hundreds of millions, not a piddling 43 mil.

Peter said...

the free market killed hundreds of millions, not a piddling 43 mil

Nah, that was Christianity.

When you think about it, Harry's blithe assertion of equal social/moral worth between two completely different regimes in different time periods defies analytical reply, is anti-intellectual and amounts simply to cant, but it is typical of leftist history. It's no longer acceptable to actually defend the Soviet Union, Mao's China, etc. ("Mistakes were made"), so the fallback position is that they were better, or at least not any worse, than what came before. Clearly they were much worse, but such an approach can lead to amusing results. In the last years of the Soviet Union I was working a guest stint in our foreign ministry on Arctic issues, and I travelled a lot to Russia and the Nordic countries. Over a period of several days in Stockholm, I kept running into people anxious to tell me that "We" saw no difference between the Soviet Union and the States. Not a one--they were equal. The differences all cancelled one another out. Having come there from Moscow, I was more than taken aback and argumentative at first, but I soon came to understand that I was hearing some collective national article of faith rather than informed opinion. Whether any of them had actually visited either place was completely beside the point. After a while, I began to yearn for someone with the independance of mind to say he thought the Soviet Union was better.

Bret said...

erp,

What I mean to say is that at least in the Soviet Union, no one died because of a profit motive or exploiting the ownership of resources. After all, there is no evil worse than profit.

Bret said...

Peter,

By definition, under moral relativism, they are the same.

erp said...

Peter, Christians, Capitalists, Corporations -- don't nitpick. They all kill workers and that's the important thing.

Bret, have you forgotten how many people starved to death because grain from the Ukraine was sold for profit. Of course, the producers didn't enjoys the fruits of their labors, but their leaders did -- so it all evened out in the end.

Hey Skipper said...

[Howard:] Awareness of the great potential for society to progress undesigned, organically, bottom-up, spontaneously, piecemeal through a marvelously complex process of multitudinous tiny mutual adjustments – that is, awareness of the only process by which society has in fact progressed from subsistence and incivility to prosperity and civilization – is lost on the advocates of force, the most intellectually celebrated of whom call themselves (irony of irony) “Progressives.”

Granted, self-organized complexity (i.e., the "marvelously complex process ...) beats intelligent design any day.

However, I think you give short shrift to the Hobbesian security dilemma. Unless there is a central entity possessing sufficient force, then there will never be conditions capable of sustaining self-organized complexity.

Napolean Chagnon's recent book "Noble Savages" (widely hated by the left), documenting his experience with Amazonian tribes, shows how well the alternative works.

Stephen Pinker, in "Better Angels of our Nature" directly attributes the huge reduction in violence to centralized force resolving the Hobbesian dilemma.

There are useful roles for government to play regulating the economy -- primarily in areas prone to free-rider and defector problems, and where property rights are either difficult or impossible to establish.

But that still leaves whole dung heaps of regulation and intrusion that serve as nothing more than food for corrupt and petti-fogging bureaucrats, plus parasites of every description.

Hey Skipper said...
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erp said...

I was wrong. There are still heroes in the land.

Harry Eagar said...

Whatever Swedes may say, I did not say there was no difference between the USA and the USSR. I said there was no difference between the tsarist autocracy and the Bolshevik one.

Well, one difference. The USSR had no Pobedontosov.

Can we count the 30 million (more or less) inhabitants of Russia/USSR who were slaughtered by Capitalist Imperial and/or fascist invaders as a debit on the capitalist side, or do we credit them to the commies to?

Annoying Old Guy said...

Those 30 million were on the collectivist tally board, since both governments were collectivist. Or you could explain the difference between Fascism and Communism.

erp said...

No Harry, you may not.

Fascists are socialists just like bolshevics, maoists, marxists, etc. They are most certainly not capitalists.

Imperialists? Isn't imperialism synonymous with monarchies? Certainly not free market economies, unless you mean the land on which the allies buried our dead soldiers is an example of a land grab.

Oops, wait a minute. You think monarchies are capitalist. What a notion. ;-}

Peter said...

Capitalist, imperialist and fascist invaders? Man, I didn't know anyone still talked like that.

I'll bet Harry thinks we're all guilty of rootless cosmopolitanism.

Howard said...

Hey Skipper,

As someone who subscribes to what Thomas Sowell calls the constrained vision, I'm aware that the aspects of human nature that make it wise to advocate for limited government also applies against anarchy. I view my willingness to sometime entertain extremely libertarian ideas as an antidote to the highly statist assumptions built into the current conventional wisdom.

Harry Eagar said...

So, Peter, how would you describe the invaders?

I gather nobody here ever heard of Oskar Schindler. A capitalist.

Once again, I question whether any of you has bothered to study Russian history. In my total of 30 million, about 10 million (more or less) were attributable to monarchies, which no one would ever call collectivist.

erp said...

Of course monarchies were collectivist. They owned their serfs body and soul. What you can't say is that they were free marketeers. The mere concept is silly.

Schindler was an industrialist who joined the Nazi party kinda like Obama's crony capitalists play ball with him to line their own pockets. Nothing free market about any of it.

Face it Harry, your side has no actual successes and never has had.

BTW -- I'm still giggling about your suggestion we read the hallucinations of the Rev. Coffin for insight.

Annoying Old Guy said...

Mr. Eagar;

I've studied quite a bit of Russian history. But you apparently can't grasp the concept of a difference of opinions, so if we do not share yours, you always attribute that to ignorance, never a different interpretation of the same facts. You're just too parochial, I suppose.

Oh no, now I've outed myself as a "rootless cosmopolitan".

Harry Eagar said...

erp, if you actually informed yourself, you'd find that Coffin was a murderous Cold Warrior who was in charge of sending saboteurs onto the USSR as a CIA officer.

erp, I don't think King Victor Emmanuele, for example, had any serfs.

For an amusing description of how the free market in grain operated in Russia in late tsarist times, see the opening pages of Isaac Asimov's autobiography. (His grandfather was a grain buyer in southern Russia.)

I've studied markets for a long time now. So far as I know, there has never been a free market anywhere, at least as you guys would define it. However, the market for grain in Russia was as close to free as any I've ever discovered.

Annoying Old Guy said...

"I've studied markets for a long time now. So far as I know, there has never been a free market anywhere, at least as you guys would define it."

Everything I read by you indicates that you have no idea whatsoever how we guys would define a free market.

Bret said...

aog wrote: "Everything I read by you [Harry] indicates that you have no idea whatsoever how we guys would define a free market."

LOL.

But in some sense, Harry's right. It's a spectrum, with the "well" or completely regulated economy at one extreme and the ideal of the free-market at the other. Because there are always looters waiting in the wings, some of which are private and some of which are public, a totally free market can never be achieved. Because of off-the-books transactions and "black" markets, a totally regulated market is also impossible.

Hey Skipper wrote: "There are useful roles for government to play regulating the economy"

Adding to what I just wrote above, it's not a question of the end point, but rather the direction. Given where we are, the question is should we move towards more regulation or towards more freedom. Harry's answer is more regulation, my answer is more freedom. I think we're a long, long way past the optimal point towards vast over-regulation. Part of that is just subjective preference.

Harry Eagar said...

But within these complex markets, there are totally free sectors. Like credit default swaps and, yes, the tsarist grain market (once the grain left Odessa, other factors came into force).

So we look at pretty free markets and ask ourselves, is this the result we want?

Bret said...

No, even credit default swaps weren't anywhere near completely free. For example, the moral hazard of too-big-to-fail was well known. Also, fiat currencies are a public good and not a free market good so anything that has to do with money is not completely free market. In other words, in the U.S. nothing is truly a free market except maybe when kids trade Halloween candy.

Harry Eagar said...

Of course, externalities affect everything. Even gold bugs have to beware of the next discovery of a New World full of gold that deflates their assets.

But within the realm of real world deals. credit default swaps were free of government interference.

Hey Skipper said...

[Harry:] So we look at pretty free markets and ask ourselves, is this the result we want?

Well, let's take a look at some pretty free markets.

The market for bicycles is pretty free, and continually produces better bikes for less. And that market is just one example of many similar that function quite well, and without any planning and scarcely any regulation.

You really need to turn that question on its head, because when choosing the results we want, that choice is with respect to the other options on offer.

We have seen the results of planned economies.

How are those results preferable in any way to what unplanned economies offer?

[Bret:] Given where we are, the question is should we move towards more regulation or towards more freedom. Harry's answer is more regulation, my answer is more freedom. I think we're a long, long way past the optimal point towards vast over-regulation.

Let's look at some of the glories of regulated markets:

Taxi Cab regulation:

Uber [a taxi booking service] is now available in numerous cities, including Atlanta, Boston, Chicago, Dallas, Detroit, Los Angeles, New York, Philadelphia, San Diego, San Francisco and Washington. The good news is that it is serving tens of thousands of customers (and creating jobs in the process).

The less good news is that it is having to fight a series of absurd regulatory battles, which provide a revealing case study in interest-group efforts to block new entrants and innovative approaches.

The basic problem is that the taxi industry is intensely regulated. One goal of regulation isn’t to protect consumers. It is to entrench current providers and to limit competition.

With respect to taxis, some states have a system that isn’t altogether different from socialist-style planning. Some longstanding regulations have the purpose and effect of squelching new entrants. And in the face of fresh competition, the industry has been creative and occasionally shameless....

True, there is an important place for rules designed to promote safety and to prevent fraud or deception. But regulation of the taxi industry goes far beyond those goals. That regulation is a dinosaur; it should become extinct.


That from Cass Sunstein, of all people.

But wait, there's more:

Well planned raisins:

In Horne v. USDA, the question involved a Great Depression program to prop up the price of raisins by forcing raisin sellers to hand over a share of their crop at a discount to the federal government. Through annual marketing orders, the Raisin Administrative Committee controls the U.S. raisin supply.

When raisin farmers Marvin and Laura Horne tried to avoid the confiscation by cutting out the middleman sellers, the USDA came after them with hundreds of thousands of dollars in fines. The Hornes appealed on grounds that taking the raisins at below-market rates was an unconstitutional seizure of their property.


Advocates of planned economies really need to look at their results a little harder.

Hey Skipper said...
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Harry Eagar said...

Are you sure we get better bikes for less?

A friend of mine, Dan Speas, patented an electric-assist bike that works better and costs less than any competition.

He sold the patent to a big bike manufacturer. You cannot buy a Speas bike for any price.

A blog post is not wieldy enough to explain raisins, but there is a reason (see Speas bike) why that legislation was passed. Same with taxis.

Hey Skipper said...

Are you sure we get better bikes for less?

Absolutely -- lighter, more durable, more comfortable, and far less maintenance.

But then I only have first hand experience to go on. I worked in a bike shop when I was in high school, and have used the things extensively ever since.

A friend of mine, Dan Speas, patented an electric-assist bike that works better and costs less than any competition.

A completely unverifiable assertion, BTW. Moreover, it amounts to an extraordinary claim, which requires extraordinary evidence. You have provided none.

A blog post is not wieldy enough to explain raisins, but there is a reason (see Speas bike) why that legislation was passed. Same with taxis.

There are reasons for almost everything. A good many of them bad. Raisins, and taxis would be in that pile.

Hey Skipper said...

And yet more adventures in the well regulated economy: A Rice Gets a Price Premium

Peanut, cotton and rice farmers are big beneficiaries of price guarantees tucked into agriculture legislation under consideration on Capitol Hill. But another big winner may be producers of what is known as sticky rice, the kind used in sushi and other Asian dishes across America—and grown by a congressman who helped push for the provision.

The federal subsidy in the House bill guarantees farmers of Japonica Rice that if market prices drop below 115% of the average price of all types of rice, they will get a government payment to make up the difference. Japonica is the formal name for medium- and short-grain rice strains commonly called sticky rice.


(Bret, why is comment moderation on?)

erp said...

Skipper, isn't that also commonly known as crony capitalism? I'd like to know how much of our money confiscated to keep the congress critter whole gets back to gracious leader's coffers.

Bret said...

Skipper,

Comment moderation is always on after 20 days. I'll change it to 40. If I don't do that, huge amounts of spam gets through.

Harry Eagar said...

I reported on the Speas bike long ago. It was/is a really brilliant simplification of on-the-shelf technology.

I warned him that if he sold his patent to a big manufacturer, that would be the end of it. It was.

But he didn't have the resources to do anything else.

Howard said...

We are told that a new technology is the best thing since sliced bread. Betamax was superior to VHS format for videotape recording, atleast the picture quality was better. VHS had adequate quality and something consumers really wanted, the capability to record complete shows. Darn those consumers for having their own preferences. There was also the Dvorak keyboard which had a superior logic in the layout compared to conventional keyboards. One slight problem for Dvorak enthusiasts, people are so adaptable they type just as fast on a QWERTY keyboard even after much practice on a Dvorak.

Now we are told about the wonders of the Speas bike. I'm not sure which features are the cats meow and yet the electric assist bike market does not seem to lack for improvements such as mid-drive motor and continuous drivetrain.