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  • Stephan Livera 7:30 AM on November 22, 2014 Permalink | Reply  

    “Why is that libertarians are so rich?” 

    An understandable concern that non-libertarians have is feeling like libertarians are all really rich, and that must be why “they want to keep all their money to themselves and not ‘share’ it with society” or “give back”, and that “Big Business is in cahoots with the libertarians” etc. This is not accurate. Most libertarians take this position for two main reasons:

    1. Because they believe it is the philosophically consistent and just position to take – i.e. that political authority does not exist, and you don’t get a free pass to do things that would otherwise be considered wrong if done by an individual, just because you happen to work for the state. Examples here include: locking up people just because they are doing a drug that you don’t like or agree with, drone bombings, taxation under threat of imprisonment to fund programs that the person does not agree with.
    2. Because they believe that free markets lead to better outcomes, like economic growth which raises the poor out of poverty.

    Here are a few more points to consider:

    • Libertarians are not necessarily as rich as you think they are. Many of them have foregone more lucrative jobs and positions advocating for the state or tacitly supporting the state e.g. being an economist at a central bank, or an economist/writer who shills for the state.
    • “Big Business” doesn’t necessarily want a libertarian society, if they have the option of being able to use the state to entrench themselves against competition, or to rent-seek etc. If libertarianism was really so conducive to “Big Business”, then Big Business would be funding libertarians a great deal more than they are being funded now.

    I think there’s a fundamental misconception going on, where I’ll quote Julian Simon to explain:

    “Not understanding the process of a spontaneously-ordered economy goes hand-in-hand with not understanding the creation of resources and wealth. And when a person does not understand the creation of resources and wealth, the only intellectual alternative is to believe that increasing wealth must be at the cost of someone else. This belief that our good fortune must be an exploitation of others may be the taproot of false prophecy about doom that our evil ways must bring upon us.” – Julian Simon

    Fundamentally, most people have the wrong idea about how wealth is created, and how we acquire and use resources in society. People who think wealth is a zero sum game will tend to think capitalism is bad – people who understand that wealth creation is a positive sum interaction will tend to think capitalism is good. People who hold the incorrect technical-engineering estimate style view of resources will tend to think that the earth’s resources are a thing that need to be conserved lest we run out. People who understand that ‘natural resources’ are actually infinite (in a sense), realise that our most important resource is not oil or coal or anything like that. Our most important resource is human ingenuity, which is best enabled by free markets. To understand why, I recommend you see Julian Simon’s book, The Ultimate Resource.

     
  • Stephan Livera 6:30 AM on November 14, 2014 Permalink | Reply
    Tags: australian property bubble, , , ,   

    Review of Australia: Boom to Bust by Lindsay David 

    I really enjoyed the book (get it from Amazon here) and found that Lindsay very skilfully deals with all the common objections that we hear about the Australian property market today. Lindsay presents the case for why Australia’s high property prices are not really a boom, but a credit-driven unsustainable bubble that will likely start deflating within the next 3 years.

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    Lindsay points out how overly levered the banks are, and how the raw numbers look compared to the numbers of the banks that fell during the 2008 GFC. He also points out the dependence of the Australian economy on three pillars: Financial Institutions, Natural Resources and Real Estate – and how it could all come crashing down if people do not act to adjust their investments, work and lifestyles.

    To be fair, my viewpoint going into reading the book was already very aligned with the overall thesis of the book (that we’re living in a massive credit bubble). But there were still areas where the book presented facts and arguments that I hadn’t heard before, such as the arguments about how the cause of the high prices is not merely lack of new supply. Lindsay shows that there is plenty of new supply relative to other bigger cities.

    It really does annoy me that there is this unspoken rule that ‘property prices don’t go down here in Australia’, which is really a very dangerous idea to hold. We live in a world where capitalism is able to reduce the price of so many goods and services (measured in terms of labour hours required to get those goods/services). Why wouldn’t unhampered capitalism be able to find cheaper and cheaper ways to make buildings, apartments and other infrastructure? Or at the least, find ways to make property without it skyrocketing above normal median income ratios? The answer: we don’t live in a world of unhampered capitalism, we live in a world where the government controls the money and banking system. We don’t have capitalist money, we have centrally planned money.

    Some ideas which support the basic thesis of the book, but aren’t mentioned – are ideas from the Austrian school of economics in relation to monetary theory. For example, in the book, The Ethics of Money Production – Guido Hulsmann points out that it is because of the government intervention into the creation of money, that there is a race to the bottom in terms of the money we use. People no longer care about the soundness of their money, and consequently we end up with poor quality fiat money. We see credit expansion as a result of central bank and government interventions e.g. legal tender laws, lender of last resort, government imposed fractional reserve banking, government is the monopoly maker of money. This credit expansion acts to lower interest rates, relative to what they would otherwise be under a free market.

    Also, in his chapter on the Cultural Consequences of fiat money, Guido explains why in an inflationary economy - it doesn’t make sense to save up and then buy property. Inflation punishes savers and rewards borrowers, house investment is no different. Rather than save up first, investors would rather go into debt and repay that debt with a currency that is rapidly losing its purchasing power. This constant easing of credit ends up causing bubbles because unlike in the free market, there is no commensurate saving/foregoing of consumption to enable capital investment.

    These sustained low interest rates are a big driver behind Australia’s property bubble. If you’re looking to spend hundreds of thousands of dollars buying property in Australia, do yourself a favour and spend the $10 AUD to buy and read this book first. If you’re curious, I recommend you check out Lindsay’s blog: Australia Boom to Bust.

     
  • Stephan Livera 6:30 AM on November 12, 2014 Permalink | Reply
    Tags: nuance,   

    “Your ideas are too restrictive” 

    Some people suggest that libertarian ideas are too restrictive. They suggest that libertarianism lacks the nuance that their ideas have, or that libertarianism does not adequately capture the complexity involved. As an example of the style of “your libertarian ideas are too restrictive”, see:

    Sample Pro Government argument: “I’m happy to entertain whatever ideas it takes to seek effective* solutions to the economic problem, which is why ideas of the restrictive form (e.g. 1 the state cannot play a significant part, as in ancap, or e.g. 2 none but the state can play a significant part, as in communism) are quite irritating to me.”

    So the main two types of counter argument here are:

    1. The pro-government side has not managed to successfully defend political authority, which is what libertarians dispute. If you believe in the idea of the state, then you have to make this case, or otherwise you have to massively pare back state imposition on society. e.g. if any normal individual went around doing “charity mugging” (forcibly making other people chip in to their chosen charity, even if it was very ineffective), we would call that criminal. But when the state does it via taxation and welfare state, progressives loudly cheer.
    2. The other big problem is that the state introduces more problems than it solves. For examples:
      1. It introduces the mother of all public goods problems
      2. Advocating the state is commonly a ‘unicorn’ belief

    Paraphrasing Tom Woods in his new book, Real Dissent: This style of argument is willing to try lots of things, like freedom, semi-freedom and full on coercion. Instead, libertarians are trying to stick to the whole freedom thing, and also sticking to the view that the same moral code ought to govern all individuals, whether they belong to that mystical thing called “the state” or not.

     
  • Stephan Livera 6:30 AM on November 10, 2014 Permalink | Reply
    Tags: , higher education, higher education cartel,   

    Political debate about fee deregulation focuses on the wrong thing 

    From the Australian Labor Party facebook page:

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    As usual, the political debate is about the wrong thing entirely. It entirely ignores why university education has become so expensive to begin with.

    Imagine if the government provided, say guaranteed car loans up to any price. A lot more people would probably be driving around in BMWs, Bentleys, maybe Lamborghinis, and car manufacturers would probably respond to that incentive by adding lots of (unnecessary) features to their vehicles and jacking the price.

    Now apply this to higher education. Do you see the problem?

     
  • Stephan Livera 7:30 AM on November 8, 2014 Permalink | Reply
    Tags: Real Dissent,   

    Review of Real Dissent by Tom Woods 

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    I recently read Real Dissent: A Libertarian Sets Fire To The Card of Allowable Opinion by Tom Woods. Tom Woods is one of the best at promoting and presenting libertarian ideas. Being a supporting listener of Tom Woods Radio, you get a free kindle copy of the book. The book is only $4 on Kindle anyway, which is magnificent value.

    The book is excellent, and Tom makes great arguments in favour of liberty. He covers so many different topics, such as War and Propaganda, Capitalism and Anti-Capitalism, attacks against libertarianism, Ron Paul, the Federal Reserve, Where Libertarians Go Wrong, and selected interviews from the Tom Woods Show.

    In Part I:War and Propaganda, Tom points out that being anti-war is a Conservative position – it is only that the neo-conservatives have gone and turned into enormous warmongers.

    I really liked Parts 2 and 3, where Tom shows his incredible skill at deconstructing and refuting anti-capitalist and anti-liberty arguments. For example, he demonstrates why it’s not that the market ‘rewards the strongest and grinds everyone else into the dust’. Actually, it is more like: improvements in productivity come from capital equipment, this pushes prices down relative to wages. These improvements in productive capacity make the output (the good or service) cheaper and therefore easier for people to acquire. So it is precisely the opposite to what the anti-capitalist claims. Capitalism does not hurt the poor, it helps the poor.

    In Part 4, Tom shows why Ron Paul has been of incredible importance to the libertarian movement. Ron Paul did not water down his message to fit in with mainstream ‘approved opinion’, instead he spoke the truth and explained himself boldly and without retreat. As for people who don’t understand Ron Paul or don’t support him, Tom says:

    A lot of people, possibly even the majority, don’t want their worldviews challenged. They want endless goodies. They want checks with their names on them. They want to be flattered.

    In Part 5, Tom crafts a hard hitting case against the Fed, and against government control of money. He skilfully points out:

    1. That we are not living in a free market in money/banking today
    2. Though there were pre-Fed crises, they were nowhere near as bad as those that occur now under the Federal Reserve
    3. Though there were pre-Fed crises, these were not brought about due to free market money, they were commonly brought about because of other government interventions
    4. The Fed helps those who are well connected, and harms those who aren’t so well connected

    Tom also includes some transcripts from important interviews on his radio show. I particularly liked the interviews with Michael Huemer and John Hasnas. Michael Huemer skilfully refutes common justifications for the state’s political authority, and he does it very succinctly too. The John Hasnas interview is about his article, “The Myth of the Rule of Law”, which critiques the idea that the law truly is “the rule of law and not men”. In actual fact, when humans make the law, it’s human beings that control others, not the rules themselves.

    The broad message of the book is about not falling victim to the ‘thought controllers’ or the people who set what an ‘allowable’ opinion’ is.

    “People whose minds have been formed in ideological prison camps for 12 years have learned to confine themselves within an approved range of possibilities. Tax me 35 percent or tax me 40 percent, but don’t raise the possibility that taxation itself may be a moral issue rather than just a matter of numbers. Either bomb or starve that poor country, but don’t tell me there might be a third option. The Fed should loosen or the Fed should tighten, but don’t tell me our money supply doesn’t need to be supervised by a central planner. As always, confine yourself to the three square inches of intellectual terrain the New York Times has graciously allotted to you.”

    Analogizing with slavery abolitionists hundreds of years ago, it takes courage:

    “It took a lot of courage to oppose slavery in, say, 1855. It takes zero courage to oppose it today.”

    In the face of this opposition, we should remain courageous and unrelentingly present the case for liberty, peace and free markets.

    If you’re at all curious about liberty, listen to the Tom Woods Radio Show and get his book.

     
    • Alex Welk 1:25 AM on November 11, 2014 Permalink | Reply

      Thanks for the push! I’ve been meaning to get this for a while, but now I’m actually going to get it and give it a read.

      Like

  • Stephan Livera 7:30 AM on November 6, 2014 Permalink | Reply
    Tags:   

    There’s schooling and then there’s education 

    Progressives are constantly chattering on about the value of education. Anybody who is against their chosen method of education (state funded, state regulated) must obviously not want people to get educated at all. But wait, is that really correct? Or maybe progressives are just conflating the broader concept of education with government education.

    This is the blind spot that many people have when it comes to education. People think that if one particular form of education wasn’t being government subsidised or controlled, that people would not get an education at all, or that education would be poor quality. The theory would not predict such a thing: free markets bring the cost down and the quality up where they are permitted to operate. There’s also evidence against this position, see earlier posts here and here.

    Don’t fall into the trap of thinking that government subsidised education is the only way. This is neglecting treatment and selection effects, where government might subsidise education that would have been produced by the free market anyway. It is also conflating between unproductive degrees and productive degrees.

    To the question of which degrees are productive and which ones aren’t: consider that ultimately, the market is the aggregate of all individual decisions, transactions and interactions. Through their actions, consumers help dictate which types of education would be profitable. Let’s say people care a lot about having history products like books, documentaries, museums. Then the free market would naturally seek to serve this demand by providing historians and documentary makers, and in this process, the salary for these history-service-providing occupations would rise. This would in turn make people more inclined to take on courses that enabled them to get these jobs, and entrepreneurs would compete against each other to find ways to train them. This market competition would bring the prices down and the quality up.

    To to the extent the government subsidises unproductive degrees, society’s scarce resources are being directed towards ends that consumers do not value as highly as other ends. This means we collectively could have got more of what we wanted than what we’re getting now. Remember, politicians and voters are all participating in a massive tragedy of the commons problem: Voters don’t have enough incentive to become politically informed, and politicians don’t have enough incentive to do what’s in society’s best interest. Politicians routinely do what is in their own interests.

    Remember also that the free market is diverse. There would be many types of education across many topics, and taught in myriad ways. This is what happens when you leave entrepreneurs freer to experiment and find better ways to do things.

    Don’t view education as either “the progressive/big government way” or nothing. Disaggregate it and think in terms of specific types of education and specific subjects, and you will see the problem with the overly coarse Progressive analysis.

    “I have never let my schooling interfere with my education.” – Mark Twain

     
  • Stephan Livera 7:30 AM on November 4, 2014 Permalink | Reply
    Tags: , intervention begets intervention, ,   

    Denying prior interventions 

    In their haste to justify their viewpoint on government, some people bend over backwards to justify the state. Many of them are highly intelligent people, but for “psychology of authority” type reasons, their judgment is clouded.

    An example might be attempts to belittle the contribution of free market ridesharing solutions like Uber or Lyft because: “Uber gets away with good service by ignoring the inconvenient places. Since these outlying places are generally lower in socioeconomic status, Uber exacerbates the class divide in a way taxis don’t.”

    Or that “Uber, as a private company, fundamentally does not care about social equity; it cares about most effectively growing its business. That’s why government needs to intervene to provide equity, because it’s not commercially sensible to do it.”

    This sort of reasoning strikes me as just ignorant of prior government interventions. The story should be exactly reversed!

    As an example, look at the way governments have created poor roads and public transport infrastructure (relative to what a free market in roads would look like). Governments regularly diminish private property rights and reduce certainty that entrepreneurs would otherwise have over their property rights. As a result, they would be less inclined to go and build roads and bridges and highways without sufficient government / political backing. As examples of state created or exacerbated problems, consider: Compulsory acquisition laws, zoning rules, requirements for DA’s, highly unionised public sector workforces. See A Future of Private Roads and Highways by Walter Block, here’s a sample:

    Do not be misled by the oft-made contention that the actual cause of highway fatalities is speed, drunkenness, vehicle malfunction, driver error, etc. These are only proximate causes. The ultimate cause of our dying like flies in traffic accidents is that those who own and manage these assets supposedly in the name of the public — the various roads bureaucrats — cannot manage their way out of the proverbial paper bag. It is they and they alone who are responsible for this carnage.

    If social equity and empowerment is what you truly care about – then understand that government is denying people the ability to help themselves. See Keep Them Down, Keep Them Dependent by Isaac Morehouse who skilfully parodies government programs, here’s a sample:

    Young and inexperienced workers don’t have a lot of expertise. They make mistakes. Of course, if they’re allowed to participate in the trial-and-error process of the market, the incentives will soon drive them to develop expertise and be reliable suppliers of goods and services. That would be a travesty for us. We need to keep them unskilled and unreliable. The solution is to create a labyrinthine web of licenses and regulations that make it illegal for anyone but experts to sell goods or offer services.

    Uber and other ‘sharing economy’ services are actually acting to empower some of the people disenfranchised by government. See Who’s Afraid of the Workers’ Revolution? by Jeffrey Tucker, here’s a sample:

    Well, this shift is precisely what seems to be taking place — not through socialist upheaval or policy mandates but through the advancement of markets themselves. Economic productivity and exchange are increasingly happening peer to peer, thanks to technological innovations.

    Do we find the opponents of traditional capitalism now celebrating? Far from it. Apparently you can’t make these people happy.

    So let’s recap: Government intervenes in private property rules/laws, roads, unions, development approvals, zoning laws to create bad outcomes like high cost of public transport, and poorly designed road infrastructure. Statists then cry out that there’s a problem with social equity (because the rich are more easily able to navigate this environment) and that now we need more government in the form of taxi licence monopolies to ‘fix the problem’.

    As Mises argued, intervention begets further intervention. Don’t call for more government while being blind to the initial government interventions that worsened outcomes in the first place.

     
  • Stephan Livera 7:30 AM on November 2, 2014 Permalink | Reply  

    Inflation is a policy 

    The current ‘consensus’ is wrong and needs more influence from Austrian economics. The way you hear people talk about inflation, you’d be excused for thinking inflation was just this natural phenomenon that occurred or it was just like manna from heaven. Inflation harms savers and rewards borrowers. It pushes people towards taking on debt rather than saving, even if they are not consciously aware of this. In the current monetary system, inflation acts to enrich the people who are politically connected as they are the first recipients of the newly created money. They are able to spend it at today’s purchasing power, while other people do not yet have access to this new money – and then other people receive new money later, prices have already adjusted and been distorted. They now pay the price in loss of purchasing power.

    Ludwig von Mises has some great quotes on inflation:

    The advocates of public control cannot do without inflation. They need it in order to finance their policy of reckless spending and of lavishly subsidizing and bribing the voters. – Mises

    I particularly like this one:

    The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy. – Mises

     
  • Stephan Livera 7:30 AM on October 31, 2014 Permalink | Reply
    Tags: , ,   

    “But they’d come here and bring their violence” 

    Another objection to the idea of open borders is this idea that “people from wartorn country XYZ have a violent culture and would bring their violence to our peaceful streets”. So presumably when coming to the more developed country, they would prefer to use violence than to simply trade for what they want. Interesting objection, but I think there’s a good answer to this.

    Let’s start with a more abstract and general idea: Other things being equal, you are less likely to do something if it costs you more to do it. An opportunity cost is what we bear when we have to forego the next best alternative. This was a great point I heard on the EconTalk podcast: Edward Lazear on Becker (relevant transcript pasted below)

    And so Gary (Becker) then reasoned that the opportunity cost of a child was the price of the mother’s time; and the price of the mother’s time is what she could be doing elsewhere. And that related to her wage rate. All right, so what does that tell you? Well, in the 20th century, what that says is that when women had the option to work, or when most women were working, as they are now, what you’d expect is that women with high wages have very high values of time, and as a result, it’s more costly for them to take time off and to have children, and so they tend to have fewer of them. If you go back to the 19th century, women were not working, and so this mechanism of high-priced women versus low-priced women was the reverse. The women whose time value was high in alternative activities, like working on a farm or doing household chores, was actually the low-priced woman, or the woman who was poor. And so we had the situation reversed in the 19th century. And so what Gary was able to do with this simple approach was to reconcile two facts. I’ll make one more point and then I’ll pause. Russ, I’m sorry I’m talking on here, but this is– Russ: Go ahead. This is great.Guest: This is one that gets me excited. One of the most important policy implications that came out of Gary’s work–and at this point it’s so obvious and so much of a given that people don’t even realize that it came from Gary’s economics of fertility. And that is that if you want to change population growth rates–let’s suppose we go to a developing country where population is growing at a very rapid rate–the implication of Gary’s work is that the best way to do that is to educate girls. And it has nothing to do with teaching them about birth control or other methods of abstinence or anything like that. What it has to do with is that if you educate girls, what you do is you raise the value of their time in the labor market, and as a consequence, women will then voluntarily choose to have fewer kids. And we see this all around the world, and virtually every international organization and NGO (Non-Government Organization) accepts this as a given. And that’s now an important component of fertility policy. If you want to change the fertility rates, you need to make sure that you educate girls.

    So by educating the women, their opportunity cost of having a child rose dramatically – they could now otherwise earn a lot more money in the labour market.

    Now let’s apply the lesson to this specific case. A person who comes from a poorer country to a more developed nation will be able to produce more value to the economy, because there is just so much more infrastructure, technology and capital accumulation. Remember, they don’t necessarily have to be better at producing things than the local workers – due to the theory of comparative advantage, they need only focus on the area in which their relative productive inferiority is least (as we all could choose to do). See earlier post: Benefiting from the productivity of other people. Think of it like this: Even lower skilled work is valuable to society, because it can free up the time of very highly skilled/productive people to focus on doing what they do best.

    So in this sense, their movement to a more developed nation dramatically raises their opportunity cost. They can now produce at a much greater rate, and they now have access to many more goods and services than they previously did. If they choose to be violent and risk being thrown in jail, they’d now have a lot more to lose. Much better to trade for what we want in the positive sum economic system of capitalism than to try and fight other people and risk losing access to modern day comforts.

    I think people are more likely to get aggressive and cause trouble when they have nothing to lose. Give them something to lose.

     
    • cardiffkook 5:36 AM on November 1, 2014 Permalink | Reply

      I agree that the likelihood of violence in general is lower here than there. However the violence is often local. The relevant issue to most people is the health of their community not just the utilitarian state of the human race.

      In other words, if we assume everyone is a utilitarian, then your argument would be convincing. Of course I have never met a real utilitarian before. They are either real scarce or non existent.

      I am not arguing against immigration. But I don’t think this argument will be convince anybody.

      Like

      • Stephan Livera 7:34 AM on November 1, 2014 Permalink | Reply

        I agree with your broad point about utilitarian reasoning (that most people don’t think like utilitarians), I think Mike Huemer makes a similar point here on using the common sense approach to defending libertarianism https://www.youtube.com/watch?v=vmCn2vP-DEo

        As for my standard approach, I lead with the ‘common sense’ approach, but then in order to deal with possible objections – we have to use economics and statistics and history to try and show why the objection doesn’t hold water. So this post isn’t really making the initial case for open borders, I think there are better ways to do that. This post is ‘objection handling’.

        Like

  • Stephan Livera 7:30 AM on October 29, 2014 Permalink | Reply  

    Typical ways the state wrecks good things 

    Entrepreneurs in the free market look for ways to serve consumer demands in more cost effective ways. See Texas kindergartner gets 3D printer Iron Man hand.

    A Texas kindergartner is feeling like Iron Man thanks to a new prosthetic hand that was created by a 3D printer…. KTRK-TV in Houston said a volunteer in North Carolina created the hand, which cost only $45. A new prosthetic would have been too expensive, about $40,000, and would have lasted only as long as Keith didn’t grow.

    So once again, free market capitalism helps the poor by dramatically lowering the cost of goods and services. Now, what are the typical ways the state will wreck and reduce the value of this sort of innovation? See this comment by nefreat:

    I really hope you’re right and I am optimistic about the future.. BUT I can foresee all the Lyft/Uber bullshit but 100x worse. Medical industry is a much bigger and influential lobby than taxis.

    • Is the person who printed the prosthesis a licensed dealer?
    • You’re going to need to register as an LLC and go through FDA’s approval process if you want to be licensed.
    • Does dealer have malpractice insurance in every state where one of these is sold?
    • How about routine audits for the 3D printers because now they are classified as medical devices. You wouldn’t want to have unsafe medical devices would you?
    • Better have some office space allocated specifically for auditors who are on-site 24/7
    • Is there some prosthetic patent being violated?
    • Does the owner of the 3D printer realize there’s a EULA about not manufacturing weapons or medical equipment and you’re in general compliance with the laws of the country you’re manufacturing in?
    • Do you have a cleanroom where the manufacture of said prosthesis is performed?

    I am sure you could think of many more… but this is the type of shit I am sure we’ll deal with in the future.

    These are just some examples of the ways the state actually creates a war of all against all. Not in a literal, physically fighting each other sense, but just in the sense that so many different interest groups will try to use the power of the state to ensure that they get their ‘cut’. Why do they do this? Because in a world with governments, it’s easier to do this than to honestly compete for it.

    Am I suggesting that none of the above bullet points are required services? Not at all, they might well be required – just not to the extent or to the scope that the state typically mandates they are.

    The problem is not that everyone in the government is inherently evil (I’m not making that kind of argument here) – the problem is that the existence of the government changes the way everybody plays the game. While a free market is not perfect, it is a reasonable ‘disciplinarian’ to keep people honest. Contrast this with the state, which encourages dishonesty.

     
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