Friday, December 30, 2011

Ron Paul, Israel and lost opportunities

Ron Paul's presidential campaign, while bringing an exciting visibility for libertarian ideas, is also an utter disappointment on several levels. A lot has been said recently about his affiliation with paleolibertarians and courting of the ultra right, and how this old decision of his and of his "handlers" at the von Moses Institute misrepresented and hurt the image of libertarians. However, for those willing to look past his "youthful" indiscretions, his campaign provided an interesting opportunity to talk about distinctions between conservative and libertarian positions on American place in the world. This is a large topic, and here I want to focus on only one issue: American relations with Israel. Apparently, I cannot agree with Paul's anti-Israel and pro-Palestinian position, but I think that his candidacy provided an opening for honest discussion of this issue. Unfortunately, this opportunity has not been seized by the pro-Israel camp, whose attitude was that it is so obviously wrong that there is nothing to talk about.

Unfortunately, for a large part of electorate it is not so obvious as Paul's surge in the polls demonstrate. Candidacy of Ron Paul brought to the surface uneasiness of American population about US foreign policy in general and US -Israel relations, in particular. He essentially gave political cover and the aura of respectability to views, which lurked for many years under the surface of public debate, expressed mostly by both right- and left-wing fringe elements. These views can be shortly summarized in the following statement: America has no true national interest in allying itself with Israel, and America (and the world) would have been better off if Israel somehow disappeared. Proponents of these views believe that USA supports Israel only because American politicians are controlled by all-powerful Jewish lobby empowered by Jewish money and Jewish press.

As repugnant these views can be for supporters of Israel, I believe that they must be openly discussed and refuted on strictly rational grounds by explaining to Americans why allying itself with Israel, USA, first of all, serves its own self-interest.

One can discern several narrative lines of non-Jewish supporters of Israel. The one coming from evangelicals justifies support for the Jewish State by their faith in the coming of the prophet, which is hardly constitute the basis for rational discussion. Another is based of the notion that the enemy of my enemy is my friend, and is coming out of the people who do not believe in the possibility of peaceful co-existence with Islam. While this narrative is more rational, it's rationale is hardly sustainable politically and economically. Bush understood it as he went out of his ways to distinguish the war on terror from the war on Islam. However, in the absence of the global war with Islam, the justification for friendship with Israel based upon commonality of the enemy becomes significantly weaker.
Yet another narrative in favor of US-Israel alliance is based on the notion that Israel is the only democracy in the Middle East and for this reason alone deserve to be supported by US. This argument, which is not completely without merit, is based on the idea that only countries politically, economically, and ideologically compatible with the North-Atlantic type of societies do not present a threat to US and should be, therefore, be supported. While it is hard to argue that alliances between countries are forged on the ground of common interests, which often, while not always, arise from shared ideas about society and economy, it is not quite obvious how this argument applies to Israel. Indeed, let's us not to forget that Israel was created by socialists with the idea of creating a socialist state. Present day Israel is not of course a socialist paradise of centrally planned economy, but it is also very far from Anglo-Saxon economic model in its American reincarnation. I think that under different circumstances, Israel would have been a darling of left-wing liberals with its supers-strong labor unions, socialized medicine, and extensive social safety net. Why liberals choose to support Palestinians rather then Israel is a different story, which I partly discussed here.

Unfortunately, I am yet to find a satisfactory rational explanation of the US-Israel relationship based upon clearly formulated American interests. I do not fill competent enough in these issues to give here any positive version of such an explanation, but I fell that any attempts to justify US-Israel alliance based upon ideas of "moral obligations" or such are demeaning to Israel, and cannot be used as basis for foreign policy in any region, leave alone the one as controversial as Middle East. I am positive, however, that US does have crucial interest in maintaining friendship with Israel, and I call on those more knowledgeable in this problem to invest time and efforts into actually explaining it to American public.

Sunday, December 11, 2011

Obamanomica or how to get rid of rich people

Latest Obama speech, which I did not have patience to listen in its entirety, but read enough exerts from to form an opinion, once again confirmed lack of intellectual honesty in his approach to problems facing this country. Or may be it is just the lack of understanding of these problems, and it is not clear, which is worse.

So, what are the main points of his speech? First is concerned with disproportion between growth of the incomes between very rich and the rest of us. Is it a valid point? It could have been, if instead of focusing on "income inequality", the President talked about "income stagnation" of the middle class. While the latter is a real economic and political problem, the former is a populist slogan smelling of the class warfare, no matter how many times he denies it. Indeed, the focus of Obama and cheering him progressives on the "inequality" betrays their thinking about economy as a zero sum game, which is the essence of Marxist thinking. Within this framework, the labor and capital are enemies in constant struggle for a fixed amount of resources, therefore, when one side wins, the other side looses. Luckily, the economy does not work this way as any serious economist would confirm. Capital and labor are dependent on each other and their rewards are supposed to grow in sync as they create wealth together. A physicist in me cannot resist to pointing out that there is no law of conservation of wealth; it can be created from productive energy and skills of people or destroyed by their incompetence and stupidity, both of which are much worse offenses than greed - the main enemy of populist charlatans and their cheerleaders.

There is a certain consistency in progressive's use of "comparative analysis" when discussing county's problems. They do not talk about poor quality of American education, they prefer to discuss "achievement gaps" between white and black, rich and poor, boys and girls, etc. The notion of the "income inequality" fits right here in this "comparative" narrative. The main problem with this approach is that it does not deal with real problems while wasting time, money, and public energy on unnecessary discussions of phantoms. The problems formulated in terms of "inequalities" or "gaps" have quite simple "solutions". One just needs to make wealthy poorer, strong students weaker, and the problem of inequalities goes away. In the area of education it is already happening, and Obama's latest speech signifies an attempt to apply the same template to economics. It reminds me of an old joke from Soviet times stating that the goal of Russian Revolution was to create a society, in which there are no rich people.

Joke or not, but the second point of Obama's speech, where he proposes a solution to the problem of inequality is quite consistent with the above mentioned goal of Russian Bolsheviks. Indeed, the main point of his proposal is to reform the tax code, such that rich will pay more. While it is not obvious how this proposal will increase income of the middle class, it clearly will make, if successful, rich people poorer. Thus, I think that I am entitled to believe that this is the main goal of the policy.

But let give the man a benefit of a doubt, and let assume that he does want to help the middle class out by increasing their income rather than by making them feel better because their rich neighbors suffer. The speech was, not surprisingly, devoid of any specifics about how taxing the rich will make middle class better off. While it is easy to imagine, how the redistribution of wealth can benefit poor (extension of welfare and medicaid programs), it is much less clear cut with respect to working middle class who live off the wages. To improve their situation these wages must be made to go up. The question how government can achieve this with extra money, collected from the rich. Government does not yet have a direct control of wages for those of 99% who works in private sector, and the idea that taxing the employers more will somehow induce them to pay better wages to their employees seems somewhat counter-intuitive. This leaves the government with only one option - create more and better paid public sector jobs. This proposition, however, raises lots of objections of philosophical ( Do we want to become a nation, where the State is the main employer?), political (Population of a country, in which most lucrative jobs come from the government cannot be free) and economical nature. I will not dwell on the first two objections, they are quite clear, so let me focus on the last one. Economically speaking, this simply would not work for several reasons. First, being deep in debt, government would not have the money even if it raised taxes on the rich by 100%. Second, let's assume for the sake of argument, that the money is not an issue for now. What can be the result of the government creating more and better paying jobs in public sector? If our economy were isolated from the rest of the word, it could, in principle, put pressure on private sector and force them to increase wages of their workers to remain competitive in the labor market. But we do not live in a closed system. The direct result of the employees run from private enterprises to governmental jobs will be shifting even more private jobs outside of the country. This process will be further exacerbated by the fact that increased taxation of investment income (the main portion of Obama's tax plan) will make domestic investment less attractive resulting in the flow of capital to other ,more attractive markets. This will create a vicious circle, with government having to keep stepping in to compensate for job losses in the private sector. It will end, though, pretty soon, with government going completely broke, and the entire system disintegrating. All rich people will flee the country with their money at the first sign of the troubles, and USA will finally become a country of only poor people, the dream of the progressives, I guess. No income inequality anymore, but is this what we all actually want?

One final note. Invoking T. Roosevelt ghost as a champion of progressive agenda is a bold political move, given a number of controversies surrounding his presidency. One that cut my attention in particular, is Roosevelt's fondness of eugenics (source - Wikipedia article on eugenics, where one will find Roosevelt in a fitting company of Keynes). Now we might find this attraction unbecoming, but at that time, where ideas of planned economy were on everybody's mind it was quine a natural sympathy. After all, if one can plan economy, why not to plan humans as well? Another popular idea of that era has also found its way to Obama's speech. It is not good, says he, than everybody plays by its own rules. Everybody will be better off if we all act together. This is, obviously, a poorly disguised attempt at promoting collectivism, from which it is just a small step to any kind of collective type of economy, be it socialism or fascism (not to confuse with Nazism). This part of his speech is wrong on so many levels, that it is even difficult to decide where to start. Interpreting individualistic philosophy as a game where "everyone is playing by its own rule" shows a gross misunderstanding of the nature of American individualism. It does not imply that there are no commonly accepted rules, it means people use their own individual judgements based upon their individual preferences to choose which moves to make in the game. And mantra of "we will be better off if we do it together" has never been anything more as a disguised attempt to force most productive part of society to work for the benefits of the less productive one. I hope that people will see right through this demagoguery.

Sunday, December 4, 2011

Socialism and welfare state

A great deal of confusion going on in current political discussions. Such terms as socialism, welfare state, social safety net, free market, lassies fare capitalism are thrown around as monikers and used to frame users political positions but without actually giving them any real meaning. Most of political conversations these days are conducted not with real words but with their ghosts devoid of any stable meaning, which take any shape dependent on political preferences of their users. This phenomenon is not limited to just one ideological group as everyone, liberal and conservative alike throw around words and ideas in a very incongruent and confused manner.

In this post I want to focus on words socialism, welfare state and social safety net, which are often thought to be almost synonyms. Let me begin by stating that while socialist economics requires establishing the welfare state (population devoid of any rights to private ownership and free economic activity is at complete mercy of the State), the reversal of this statement is not true. Ironically, the first welfare state was conceived and realized by Bismarck in Germany to prevent spread of socialist ideas. The substantial social safety net developed in Nazi Germany played a huge role in ensuring popular support for Hitler. In neither of these cases existence of welfare state implied socialist type of economics. It should be noted, however, that Hitler's economics model was much closer to socialist ideals than current proponents of socialism are ready to admit. Hayek in his "Road to serfdom" gave very convincing arguments to support this point. In contemporary liberal political commentary successful socialism is often mentioned in relation to welfare states of protestant Europe such as Denmark, Netherlands, or Germany. For obvious reasons Greece, Spain or Portugal are talked about by modern proponents of socialism less frequently. At the same time, conservatives do not waste time pointing out to these states as examples of failure of socialism and by extension deny successes of the "Low Countries" and Germany in providing their citizens with free medicine and education.

Any kind of objective analysis must point out, first of all, that neither Denmark, nor Germany have socialist economies. Denmark, for instance, have been rated by Heritage Foundation as a country with most favorable for free markets economic system for several years in a row. Serious economic growth in Germany had began only after Germans significantly liberalized their labor laws. Let me clarify it for particularly stubborn liberals: liberalization of labor laws (making it easier for businesses to fire workers and freeing wages from dictate of the Unions), i.e. freeing labor market from regulations, means more capitalism and less government intervention in economy. Thus, in both examples of Denmark and Germany economic growth is directly caused by more and not less capitalism.

As a side note I would like to point out that discussions about socialism versus capitalism is often framed in terms of Keynesian versus Austrian school economic paradigms, which is undoubtedly wrong. Keynesianism may be an example of economists' equivalent of the delusion of grandeur, when economists believe that they can actually manage economy, but it is not equivalent to socialism.

Returning to the main point of the post, I hope it has become clear by now that presence of well developed social safety net with free medicine and education is not neccessarily imcompatible with free markets economy. This statement, of course, should be qualified because social safety net does create disincentives for productive particpation in the markets, and deflect resources form their most effective use. However, it is wrong to think about people as "pure homo economicus". No society can be built using economic efficiency as an only criterion. Political consideration, which sometimes require redistribution of resources to ensure political stability of the system, also play an important role. Thus, the main question is how much of safety net is too much? The answer to this question cannot be given by economists alone, as it depends on a great deal of local factors such as cultural traditions, the etnic homogeneity of population, the size of economy, economic inspirations of the populace etc. In short, in a democratic society, the extent of the safety net is determined by local social compact, and its success depends on ability of the citizens to resist the calls of the "sirens" of dependent life. It have been working for Dutch and Danes, and I happy for them, but combination of the welfare state with different cultural traditions of Italy and Greece resulted in a complete disaster. The selective use of European experience to promote liberal political agenda is a clear cut example of intellectually dishonest behavior of our progressive "intellectuals". However, when conservatives refuse to address successes of such countries as Denmark talking only about politically more convenient Greece and Portugal, they demonstrate shallowness of their political thinking.