As the tenth anniversary for the defining day of my generation comes upon us, it feels necessary for me to reflect on both the event itself and how we, as a nation, have responded to the terrorist attacks on September 11, 2001. The events of that day certainly had an effect on everyone in one way or another, but the degree of influence varies dramatically. Those who lost loved ones felt the sting of how violent and misguided humans can be in a way that I can never truly comprehend, and the pain from that day lives on in their memories and the repercussions that play out in their daily lives. While I did not feel the personal loss that many had, 9/11 was still a day that redirected my life.

After the second tower fell and the magnitude of what happened was only beginning to be realized, I walked into the U.S. Army Recruiter’s office in Gresham, Oregon. Coming from a conservative Christian background it seemed natural to rise up to defend my nation, one that I felt at the time had been attacked without cause. Vengeance was on my mind and in my heart. My family did not encourage or discourage my decision. They supported it but wanted to make sure that I did not feel pressure from them to serve or not. In retrospect, my parents handled it in the best possible way. Without their support and love, the next few years of my life would have been unbearable.

I volunteered to serve in an Airborne Infantry unit and was soon whisked off to boot camp, advanced training, and airborne school. When I got to my unit, I discovered I was going to get exactly what I wanted at the time. I was going to war. We were slotted to deploy to Afghanistan in early 2003. My unit deployed as scheduled and spent a lot of time in a variety of different areas of Afghanistan. Being an infantry unit, there were many times when we made the initial contact with tribes throughout the region, a duty that is potentially dangerous but provides an interesting perspective on war.

I visited the recently opened Museum of Old and New Art (MONA) this week. It shows that great art doesn’t need government support.

Despite the fact that it mixes cavernous sandstone architecture with a synthetic tennis court, and it displays ancient coins alongside hanging carcasses, the MONA has a coherence that other museums and galleries lack. It is clear that the MONA is the creation not of a bureaucracy, but of an individual (and an interesting individual at that).

It’s the creation of David Walsh, an internet gambling millionaire. He built the stunning building near where he grew up in the working class outer suburbs of Hobart. He filled it with his eclectic personal collection (some of which would be too extreme for a State-funded gallery). He decided against having blurbs next to each artwork, so as not to interfere with the feel of the place (and because you can borrow a free ipod loaded with all the ‘artwank’ you could want). And in the middle of his gallery he installed a cool bar, which, like the rest of the place, is set to make massive losses (gallery entry is free).

So while the GOMA in Brisbane shows that government support need not kill great art, the MONA shows that government support is in no way necessary.

There is now a good chance the Greek government will default on its bonds. If it does, the impact on financial markets in Europe and elsewhere will be savage. Interestingly, there is actually no need for Greece to default. It is not, nor is it ever likely to be, bankrupt. It is a sovereign country with plenty of assets (like the Mediterranean coast) that could be used to pay off bondholders. If it defaults it will simply be because it doesn’t feel like selling these assets.

If the Greek government didn’t want to pay higher yields on its debts it could secure the bonds with assets. Like the Mediterranean coast, or the Acropolis, or all those unused Olympic Stadiums. Greece and countries like it only issue unsecured debt because they want the opportunity to default or restructure when it suits them.

The natural response of the market would (should) be to demand a higher yield on Greek bonds now and in the future. But that is unlikely to happen in the long term while Greece is part of the Euro and can blackmail the Germans (and the IMF, etc) into giving them bridging loans and, ultimately, restructuring the debt. (Nice international financial system you got there. Shame if anything were to happen to it.) As long as this is likely the debt market will (rationally) not charge as high a default premium on the debt. So the Greeks get cheaper borrowing rates at the expense of the rest of the world.

It is extremely unfortunate that the mechanism that would usually purge this kind of nonsense — credit rationing and higher yields — cannot operate while the world is convinced that any sovereign or large corporate default must be prevented at all costs to forestall a descent into Hades. But such is the prevailing thinking.

In Australia we have the world’s most overpriced housing. Federal and State governments and the Reserve Bank live in fear that the bottom will fall out of the housing market, leaving recent buyers with negative equity, causing a financial collapse and depression after the example of Lithuania, Latvia and Estonia. In a desperate attempt to keep the music going, governments have been pumping taxpayers’ money — your money — into the housing market.

The Federal Government brought in the First Home Owners’ Boost to inflate a fresh bubble at the bottom of the housing market, and kept it going just long enough for the bubble to spread to the top of the market — through first-time buyers leveraging their grants, then sellers leveraging their capital gains, and so on. The original $7000 Federal grant for first-time buyers is still in place. Various State governments have their own grants on top of this. Instead of bailing out the banks, Australian governments in the main are trying to bail out the housing market before the problem reaches the banks.

If a government spends your taxes to help someone buy property, it’s only fair that the government retains an interest in that property and eventually gets some revenue from it, so that you can have a tax cut later on. This would make the spending sustainable. But it seems that governments aren’t in the business of being fair or thinking ahead. They just take your money and give it to someone else — or borrow money, give it to someone else, and take your money to pay the interest!

And it doesn’t stop with outright grants. The hundred-billion-dollar binge on hastily-announced infrastructure projects is also about supporting property values — or, more precisely, land values. The benefit of an infrastructure project is worth whatever people willingly pay for it; and what they don’t pay for actual use of the infrastructure, they pay for access to locations where the infrastructure is available, as opposed to locations where it isn’t. “Location, location!” And the value of a location is the land value — not building values, which are limited by construction costs, but the value of the land, which has a location, and therefore a locational value, even if nothing has yet been built on it. So the benefit of the infrastructure, net of user charges, appears in land values. Property investors know this; in February 2010, the front cover of Australian Property Investor magazine screams “FOLLOW THE INFRASTRUCTURE”, with the subtitle “FIND OUT WHERE MAJOR PROJECTS WILL SEND RENTS AND PROPERTY PRICES SOARING”.

That’s great if it’s your property rising in value. But more often it’s property in some marginal electorate where the government wants to buy other people’s votes with your money. And if you’re a renter, infrastructure projects that enhance your own neighbourhood still don’t do you any good, because then you have to pay more rent to live in that neighbourhood! If governments were fair, infrastructure would be paid for out of the uplifts in land values caused by the infrastructure, without dipping into your pocket unless you’re getting some of the uplifts. But again, fairness is not the aim. And again, what makes the process unfair also makes it unsustainable.

If we are to avoid a Baltic-style depression and avoid a sovereign debt crisis, the bailout of the property market must be made fiscally sustainable. How can this be done without encroaching on liberty? By setting up an alternative, sustainable system of financing government, and letting you “opt in” to the new system by accepting bailout money, or “opt out” by not accepting it!

Under present conditions the most obvious opting-in mechanism is something that looks like the abominable first home buyers’ grants, but isn’t a gift and isn’t limited to first home buyers. It works like this:

When you buy a property, the government offers you an up-front payment (called the co-payment) equal to a certain percentage of the current land value, on the condition that after a certain period (called the rent-free period), the government gets the right to collect the full market rent of the site (i.e. the land, excluding buildings). Acceptance of the offer is voluntary. If you accept it, the attached condition is attached to the land, not to you; it’s a lien against the land (so let’s call it a rent lien). If you’re buying a property that is already subject to a rent lien, the co-payment is offered in return for a reduction in the rent-free period. There’s a scale of co-payments and rent-free periods: the bigger the co-payment, the shorter the resulting rent-free period. But the maximum available rent-free period is 70 years for residential purposes and 50 years for other purposes.

The “government” in question could be the Commonwealth or a State. Hence the Commonwealth could end up collecting the rent on some land and the State on other land.

(In the case of the Commonwealth, the right to collect the rent would be legislated under the taxation power for want of an alternative head of power; but because that right would depend on voluntary agreements, it would not be a tax in any other sense. At the State level, the corresponding right could be legislated using either the taxation power or the land power. In either case, while the government would collect rent from the title holder, all other prerogatives of ownership would remain with the title holder.)

Notice that if a property does not yet have a rent lien attached, you are free to buy it outright, without attaching a rent lien — and without any subsidy from the taxpayers.

But if the property already has a rent lien attached, you buy it subject to the rent lien. Obviously the duration of the remaining rent-free period will influence the market price.

Also notice that if you already own a property without a rent lien, it never becomes subject to a rent lien as long as you don’t sell it. In particular, religious, charitable and educational institutions can retain their present properties indefinitely without subjecting them to rent liens. Like anyone else, they can buy other properties without rent liens as long as they don’t accept co-payments. And if the supply of properties for sale without rent liens dries up, governments will be free to let land to such organizations for peppercorn rents, just as they do now.

Of course there’s no restriction on the availability of co-payments; they’re offered to first-time buyers and repeat buyers, owner-occupants and investors, individuals and corporations, for residential and non-residential property, regardless of how many co-payments the buyer has used in the past. No restriction is needed, because the taxpayers get something in return for the co-payments: the revenue that the government gets through rent liens is so much revenue that doesn’t need to come from taxes.

All this follows from the basic opting-in arrangement. But we can speed up the adoption of rent liens, and hence the abolition of existing taxes, by adding the following features:

(a) The government will let you buy an extension of the rent-free period on any property that you own; but you can’t extend the rent-free period beyond the aforesaid maximum (70 years for residential purposes; 50 years otherwise), measured from the present date.

(b) Home-owners who outlive their rent-free periods in defiance of actuarial expectations get free extensions as long as they continue to live in the same homes. This is the only possible exception to the 70-year maximum.

(c) A property buyer may seek and obtain a co-payment at any time after the purchase, provided that the usual scale of rent-free periods is applied, and provided that if the buyer is a distressed borrower, the co-payment goes to the lender and is paid on the condition that the balance owing is reduced by some larger amount.

(d) If you’re an individual or firm owning property, and if the combined site-rental value of all your property exceeds your recurrent tax bill from a particular government, you can sell that government a rent lien over your property in return for a “co-payment” in the form of a tax exemption. The rent-free period is negotiable (and obviously depends on the margin by which the site rent exceeds the tax).

(e) Sales of Crown land are permitted, but must be subject to rent liens (which obviously reduce the up-front sale prices).

Of these, (a) and (b) make the deal more attractive by adding flexibility and removing the perversely-named “longevity risk”, while (c) and (d) provide additional ways of opting in. In particular, (d) would allow some taxpayers to get immediate relief from either State or Federal taxes. Point (e) provides some up-front revenue to offset the co-payments, but in a fiscally responsible way: the opportunity to charge rent for the land is only temporarily forgone.

When most of the land in the country is yielding revenue through rent or through sales of extensions, how much revenue will be raised and what taxes could it displace?

One might be tempted to answer that Australia’s land is worth roughly $3 trillion, so that if it yields (conservatively) 4% per annum in rent and 5% per annum in capital gains, and if the rent liens captured all the rents and capital gains (which they wouldn’t), they would bring in about $270 billion per annum, which is barely enough to replace Federal taxes.

But that’s almost irrelevant, because land values wouldn’t stay constant as existing taxes were phased out. The supply of land, whether we mean the overall supply or the supply within acceptable distance of essential services or markets, is limited. But access to suitably located land is essential to economic participation. So the rents and prices of land are competed upward until they absorb the economy’s capacity to pay. Why haven’t rising incomes solved the “housing affordability” problem? Because they’ve been soaked up by rising land values! Similarly, as existing taxes are reduced or abolished in response to rising income from rent liens, the revenue capacity of the rent liens will rise to absorb the benefits of the tax cuts — including not only the reductions in tax bills, but also the increased production due to reduced disincentives.

Furthermore, collecting revenue from land values effectively takes infrastructure off-budget, because every infrastructure project that passes a cost-benefit test pays for itself by expanding the revenue base (land values) without the need to increase anything resembling a tax rate. When revenue comes from land values, infrastructure is seen to be an investment, not an expense. The present tax system makes it look like an expense, by failing to capture benefits in order to cover costs.

The implication is that the potential revenue from rent liens is more than enough to replace taxes. What then should be done with the “excess” revenue? The libertarian answer (I presume) is that the excess revenue, together with a large part of the present revenue, should not be collected in the first place, and that a rent lien should therefore allow the government to collect only part of the site rent, so that the uncollected portion would be capitalized in the selling price of land. This would be a bonanza for property owners — including those whose sites are subject to rent liens — because the public share of the rent (and hence of increases in the rent) would give governments the incentive and the ability to invest in infrastructure that increases land values, while the private share would give property owners a net gain from the same infrastructure projects — most of which would be unviable if the provider did not claw back a share of the uplift in land values.

Meanwhile there would be no taxes, no tax-induced distortions and disincentives, no tax-related paperwork, no invasions of privacy in the name of taxation, no odious and arguably unconstitutional obligations to collect tax from other people, and no fear of prosecution for making a mistake with tax.

If a government collects the rental value of land (or part thereof), it doesn’t inhibit the enterprise of the people any more than private landlords inhibit the enterprise of their tenants — indeed less, because a private landlord typically charges rent for both the site and the building and constrains redevelopment of the building, whereas the government would only charge rent for the site. As the site of a property is not created by the owner, and as the rental value of the site is conferred by the surrounding community rather than the owner, collecting the rental value of the site from the property owner does not diminish the reward for any productive activity of the owner. In contrast, any kind of tax diminishes the reward for the activity subject to the tax.

Libertarians consider it virtuous to accumulate assets during their working lives so that when they eventually retire, they can live on income from assets without burdening the taxpayers. I submit that governments should likewise accumulate assets until they can finance their necessary activities (whatever they are) without burdening the taxpayers. The ideal assets for the purpose are claims on the rent of land — rent liens — which governments can accumulate through voluntary agreements.

In the Annual Index of Economic Freedom published by the Frazer Institute of Canada and the Heritage Foundation of USA  Hong Kong comes out on top year after year, followed by Singapore. 

Hong Kong’s famous Laissez Faire Capitalist system works.  It has made Hong Kong prosperous and uniquely successful.  Low taxes, predictable rule-of-law, strong property-rights, low regulation, banking privacy and a history of ‘good  behaviour’ in the financial and political areas make it attractive to capital and talent. 

Much of the [western] world is going down a path of higher taxes, heavy regulation, big government.  This could be the outcome of long-term success and prosperity (they are getting fat and lazy) of unfettered democracy or simply of a tendency for governments to grow and become interventionist and expensive. 

One of the things that tempers the [once-prosperous] west in their clamour for more taxes and compulsion for more interventions is competition – for capital and for talent. The politicians of western democracies are prone to promise things to voters in the hope that they will get elected.  But politicians and their bureaucracies are not stupid (at least not all the time) and they know that if they raise taxes too far, or regulate too heavily,  they will lose their support-base.  People, particularly wealthy and skilled people, will vote with their feet and their bank accounts and move to capital-friendly and talent-friendly jurisdictions;  this where Hong Kong plays a valuable role in keeping the rest of the world honest. 

But Hong Kong is prone to the same forces of government growth as the west.  There is pressure to intervene, to regulate (and eventually to raise taxes ?).  Some say Hong Kong is losing its ‘positive non-interventionist’ tradition.  Local officials see things they think they should be doing – in the name of ‘fairness’ or something.  And pressure comes from international busy-bodies – like the IMF – for interventions (like Minimum Wage Laws) that will, bit by bit, erode not only Hong Kong’s competitive advantage but also its dynamic culture and work ethic.  It is the “Unintended Consequences” of such interventions that cause the damage.  These unintended consequences can permeate into unforeseeable nooks and crannies of the economy and the society with insidious results. 

So while other nations need Hong Kong to keep them  honest and somewhat economically free,  Hong Kong too needs competition, from places like Singapore and other capital-friendly regimes to keep it from becoming a victim of its own success and sliding into interventionism. Hong Kong needs a strong appreciation of its specialness by reinforcing its commitment to hands-off laissez-faire capitalism. 

Institutions like the small but vigorous Lion Rock Institute are needed to point out the dangers of interferences and regulations in Hong Kong’s economy.   
 
=============

Written by Nev Kennards, a preaching & practicing capitalist who is now living in Hong Kong. This article will also appear in the next issue of ‘Best Practice’, the quarterly publication of the Lion Rock Institute.

I’ve long suspected that the people who design the front page of The Australian have a wicked sense of humour, and today’s (16 November) front page confirms that suspicion. The first paragraph of “Home Scheme Falling Short” reads “Four out of five proposed renovations to houses in several central Australian communities have been scrapped because of cost blowouts in the crisis-ridden $672 million Aboriginal housing program, which is yet to build a single house.”

The lead article (“Bid to Rescue Climate Talks”), on the other hand, informs us that “Kevin Rudd and his Mexican counterpart, Felipe Calderon, have been at the centre of the late bid to prevent the collapse of next month’s Copenhagen talks, amid acceptance that the conference will fail to produce binding targets for reducing global carbon emissions.” It quoted the Prime Minister: “It’s going to be as tough as all hell but, let me tell you, I believe that everyone is seeking right now to put their best foot forward.” A PM whose government has failed to erect a single dwelling for Aborigines in the Northern Territory nonetheless persists in the delusion that he can “save” the world’s climate. Who needs gifted comedians when we have the front page of The Australian to start the day with a hearty laugh?

“The larger the mob, the harder the test” wrote HL Mencken in The Baltimore Evening Sun (26 July 1920). “In small areas, before small electorates, a first-rate man occasionally fights his way through, carrying even the mob with him by force of his personality. But when the field is nationwide, and the fight must be waged chiefly at second and third hand, and the force of personality cannot so readily make itself felt, then all the odds are on the man who is, intrinsically, the most devious and mediocre — the man who can most easily adeptly disperse the notion that his mind is a virtual vacuum.”

Mencken continued: “the Presidency [and, it’s worth adding, Australia’s Prime Ministership!] tends, year by year, to go to such men. As democracy is perfected, the office represents, more and more closely, the inner soul of the people. We move toward a lofty ideal. On some great and glorious day the plain folks of the land will reach their heart’s desire at last, and the White House [and The Lodge] will be adorned by a downright moron.”

As part of my entrepreneurship courses, I have students who want to start their own business listen to new entrepreneurs discuss their background, their reasons for starting the business, and of their effort to establish the business. Students usually find these speakers fascinating and inspiring, but also come away with a sense of the enormous amount of effort, capital, risk, and uncertainty that is involved in starting a business. Many of these students decide they no longer want to start their own business. They realize that entrepreneurs, too, have a boss: the customer. Mises put it this way: “Ownership of the means of production is not a privilege, but a social liability.”

One speaker, a recent founder of a small Mexican restaurant (which are not common in Australia), saved his money over 20 years and then took out a bank loan of AU$1 million dollars, with his house and car as collateral. It took him over a year to write a business plan, find a suitable location, develop a menu, hire employees, and create marketing materials before he could open to the public.

Some of this time was wasted dealing with local-council–government officials, to whom he had to pay AU$25,000 just to open his restaurant. Delays in approval by government bureaucrats meant paying rent of AU$7,000 a month for several months on an empty restaurant. This entrepreneur said dealing with local government was the most difficult and discouraging battle he had to face. (Getting credit from banks, he said, was not a problem.)

This entrepreneur still works seven days a week, from morning until evening, to get the business established. After six months, and still not at a break-even point, he realized his business is only as good as the next day’s sales. As Mises said, “There is no security and no such thing as a right to preserve any position acquired in the past.” (Human Action, p. 311)

He knows he has to continually innovate through better quality products and services, better management of operations and resources, and more accurate pricing. He also realizes his competitors next door are trying to do the same.

Students inevitably ask him if he would do it again, knowing how difficult it is to establish a business, and after having some of the myths surrounding entrepreneurship contradicted by the founder’s experience. “Definitely,” he confidently responds, “… if you see the risk perhaps you shouldn’t start the business. I was so passionate about Mexican food I saw an opportunity.” This founder is passionate about serving customers Mexican food — an action so simple, so peaceful, and so far removed from force and war.

Such efforts, in my opinion, are not merely bordering on heroic, but are no doubt worthy of a peace prize. I cannot help but point out how absurd it is — in contrast to the voluntary, coordinating, and peaceful actions of entrepreneurs — for virtually any political bureaucrat to receive an award that has anything to do with peace. It is the seemingly small efforts of millions of hardworking, passionate entrepreneurs who make it difficult to understand why a peace prize still goes to someone who lives off the fruits of entrepreneurs’ efforts. Not only does President Obama depend on the force of taxes for his position, but he also decides how much and what to spend on with others’ money. Government merely consumes the efforts and capital of individuals. To award a political bureaucrat for this is to add insult to injury.

President Obama is not only engaged in foreign wars with some nations; he is engaged in economic wars with nearly every nation, including his own, through trade barriers and inflation, which often lead to actual war. Ludwig von Mises provided great insight on this issue. Mises realized the link between foreign trade wars and foreign wars. When countries are trading freely and frequently there is less need to protect them with soldiers and go to war over resources. When entrepreneurs are allowed to engage in production and exchange, the economic incentives to initiate war and conquest are minimized. Mises put this idea succinctly when he wrote: “War is the alternative to freedom of foreign investment as realized by the international capital market.” (Human Action, p. 502)

Murray Rothbard also recognized the likely outcomes of political intervention versus the market process:

It would be almost inevitable for such an autistic world [exchange involving coercion without receiving anything in return] to be strongly marked by violence and perpetual war. Since each man could gain from his fellows only at their expense, violence would be prevalent, and it seems highly likely that feelings of mutual hostility would be dominant. (Man, Economy, and State, p. 101)

Contrast this with the individual sovereignty found in the marketplace. Entrepreneurs only reap profits by offering something that individuals will buy voluntarily. They obviously cannot force anyone to buy their product. If they knew ex ante that their product had guaranteed demand, there would be little risk. And if entrepreneurs do not satisfy the consumer, they take a loss. Sustained losses (without government support) lead to the entrepreneur shutting down unprofitable operations. Government, paradoxically, rewards its losses with more funding and more labor.

In contrast, about the likely social outcomes of the market process Rothbard wrote,

On the other hand, in a world of voluntary social cooperation through mutually beneficial exchanges, where one man’s gain is another man’s gain, it is obvious that great scope is provided for the development of social sympathy and human friendships. It is the peaceful, cooperative society that creates favorable conditions for feelings of friendship among men. (Man, Economy, and State, p. 101)

The more entrepreneurs can engage in peaceful and coordinating actions that try to satisfy demands of consumers, the less likely war is made. Surely, noble entrepreneurs who contribute to the peaceful and voluntary exchange of property as part of the coordinating market process are worthy of peace awards. Political bureaucrats, who act as parasites on the rewards of such entrepreneurs, should be disqualified by their very nature.

Guest post by Chris Brown, a lecturer at the Australian Graduate School of Entrepreneurship at Swinburne University. He also centrally plans the Austro-libertarian blog. Cross-posted at mises.org.

The thousands of books in McGuinness’ collection describe the broad thinking and eclectic interests of a contrarian and often incendiary thinker. From Palgrave to poetry, politics to film, PP McGuinness’ private collection spanned all genres of literature and thought, and influenced McGuinness’s contribution to Australian intellectual history.

Paddy McGuinness’s daughter, Parnell, says “There are almost ten thousand books here — more than I can possibly keep. It’s time to distribute the books to people who want them and will appreciate them. There are some rare, out-of-print editions, as well as some which are almost too common. I think there are five copies of Madame Bovary in there.”

The Paddy McGuinness Last Drinks Book Fair will be held in McGuinness’ garden in Darling Street Balmain on Saturday 21 November. Books, BBQ and drinks will be available 10am-4pm.

Paddy McGuinness was one of this country’s most renowned and controversial commentators. His intellectual life traversed both sides of Australian political terrain, and his mischievous pleasure in playing devil’s advocate caused him to be alternately revered and reviled by ideologues in an intellectual arena dominated by partisan politics.

From his early years as a rabble raiser among the libertarian, anti-establishment movement known as the Sydney Push during the 1950s and 1960s, Paddy went on to work as an economist for the Moscow Narodny Bank and lectured at the University of London. After a period as film critic for The National Review, then adviser to the federal government during the mid-1970s, he became editor of the Australian Financial Review, and then columnist for The Australian and the Sydney Morning Herald. In 1997 Paddy was appointed editor of Quadrant and continued in that role until his death last year.

About Shaken and Stirred:

Shaken and Stirred was started by Parnell McGuinness and Leonie Phillips in May 2008. Modelled on the Parisian salons of the enlightenment, Shaken and Stirred events gypsy through Sydney presenting unusual speakers on provocative ideas. With no agenda other than to encourage lively and interesting discussion, the events bring people from across the political spectrum together for raucous debate in a relaxed environment.

Past speakers have included sociologist Frank Furedi, journalist Pramit Pal Chaudhuri, bioethicist Julian Savulescu, historian John Hirst, former politician Michael Costa, sex-worker activist Elena Jeffreys, founder of Arts and Letters Daily Denis Dutton and blogger Antony Loewenstein.

All profits from the book fair will go to the publication of Binge Thinking, a collection of the thoughts of Shaken and Stirred Supper Club participants from across the political and intellectual spectrum.

To find out more please contact:

Leonie Phillips, Shaken and Stirred
Phone: 0403 063 852
Email: thoughtbroker@gmail.com
Web: http://thoughtbroker.wordpress.com

————————————————————————-

A recent teachers’ union strike that included economists and other business faculty members at my university — ironically and yet unsurprisingly led by an economics lecturer — has motivated me to consider the intended consequences of these strike actions.

Economists are prone to call the consequences of many decisions “unintended,” and thus assume the actors are genuinely ignorant of these effects or would otherwise not choose the actions that cause them. However, I must give these economists qua economists credit for a minimum knowledge of the effects of unions and strikes, and assume they knew the likely outcomes of their actions. If they did not understand these consequences, they surely cannot be worthy of what some consider a noble title: economist.

In the union’s political self-interest, these economists are making nearly everyone else worse off by going on strike. They went on strike to request, inter alia, higher wages and more paid leave.

Cui bono? It is obvious these union members would directly benefit if their demands were met. So, who would not benefit, and how? Let’s have a look at what these economists must have intended. The money has to be taken from somewhere.

The unionized economists must have understood that their actions could cause the administration to raise tuition prices in order to fund the union’s requested increase in pay. Yet not all students pay equally in Australia. International students make up a lot of the revenue and pay much higher fees. Hence, the union is essentially asking foreign students to give them more money — more money so these union members can go on vacation.

Or perhaps union members intended their increased salaries to come as a result of other employees losing their jobs. Even if nonunionized lecturers benefit in some ways from the union’s actions, other university staff members will most likely not. Maybe they will be fired, falling prey to the common consequence of unions: unemployment. Maybe some individuals who would have been hired will simply no longer be considered, since the funds that would pay their wages will be going into union pockets. Thus, union members were in a way just telling university management to not expand and grow.

Admittedly, the union members could have been asking merely for others’ benefits to be reduced or eliminated: other staff members could have fewer benefits so the union could have more. Either way, with more paid leave, the marginal productivity of all union workers would be lowered, thus consumers — the students — would be worse off. (Although a case could probably be made for paying union members to do nothing, rather than teach young minds.)

Thus, overall, these unionized economists intended for some combination of increased tuition fees, lower employee benefits for some staff, and more unemployment. Perhaps Murray Rothbard would be shocked (although I doubt it) that presumably well-informed economists would make such decisions, given what he wrote in Man, Economy, and State:

It is certain that knowledge of these various consequences of union activity would greatly weaken the voluntary adherence of many workers and others to the mystique of unionism. (p. 714)

The degree to which these union members qualify as economists is the degree to which they must knowingly intend the consequences of their actions and therefore be culpable for them. The phrase “unintended consequences” all too easily attributes ignorance to the actions of union members. In large part, for many, including these unionized economists, the consequences must be intended.