The following comes from Derek Speranza (a friend who harbors, I can assure you, no warm feelings for Mitt Romney), on a recent Rolling Stone article by Matt Taibbi.

I was frustrated to read Matt Taibbi’s recent Rolling Stone article entitled “Greed and Debt: The True Story of Mitt Romney and Bain Capital.” Far from being the “true story” that it claims to be, Taibbi’s piece does more to muddy the public’s understanding of the nature of debt and private equity than any hastily-constructed, demagogic campaign attack ad has done so far. He obliterates any possibility of a nuanced understanding of debt financing by lumping corporate debt (intended for investment in a revenue generating entity), government debt (intended, in most cases, to be spent without an expected return), and even “a bill in the mail” (which could be for literally anything) into one homogenous category – debt. His premise is that Romney, who has protested the national debt with his right hand and used debt to make money with his left, has hoodwinked the American public in a dastardly, two-faced scheme.  But it turns out that this ostensible contradiction, which Taibbi names a lie “of historic dimensions”, is nothing more than a basic understanding on Romney’s part of a fundamental economic concept – that is, the difference between productive and unproductive debt. Of course, the question of whether debt that is intended to be productive actually succeeds in that pursuit is a legitimate debate that Taibbi eventually tries to tackle, but his inability to make any distinction between various forms of debt at least proves one point in his article: namely, “the rank incompetence of the American press corps.”

But the more troubling aspect of Taibbi’s article is his willingness to selectively draw some conclusions without recognizing others that are their necessary corollaries. To start, Taibbi uses about 5,000 of his roughly 8,000 words to cast the business of private equity as an inherently destructive practice. To be fair, he does admit that “private equity firms aren’t necessarily evil by definition” – good to know. It is interesting, then, to see how Taibbi proceeds with his argument from here, especially given some of the statistics that he himself states about private equity:

The company can fire workers and slash benefits to pay off all its new obligations to Goldman Sachs and Bain, leaving it ripe to be resold by Bain at a huge profit. Or it can go bankrupt – this happens after about seven percent of all private equity buyouts – leaving behind one or more shuttered factory towns.

If bankruptcy occurs after just 7% of all private equity buyouts, it is curious that almost all of the examples of PE deals that Taibbi chooses to provide end with the story of debt-induced bankruptcy. And even the presentation of these examples resorts to a bit of syntactical chicanery. In many of his examples, Taibbi presents the fact of a company’s new debt (“saddled” is a favorite word of his) side by side with the fact of the company’s bankruptcy:

KB Toys fell into bankruptcy, saddled with millions in debt .

Once again, storied companies with long histories and deep regional ties were descended upon by Bain and other pirates, saddled with hundreds of millions in debt… and ridden into bankruptcy amid waves of layoffs.

Steven Feinberg, the CEO of a takeover firm called Cerberus Capital Management that recently drove one of its targets into bankruptcy after saddling it with $2.3 billion in debt .

He doesn’t claim that it was because of new debt burdens that companies fell into bankruptcy, because he knows this wouldn’t be entirely true, but he implies it to less-than-careful readers by presenting the facts side by side. This, of course, ignores any other circumstances that may have driven the companies to bankruptcy, including the obvious characteristics that would have made them targets of PE buyouts in the first place.

But even if we grant Taibbi the premise that private equity does more harm than good (despite the less-than-comprehensive support he provides for it), his argument turns on itself when he grasps for more ways to make Romney out to be a hypocrite. After his lengthy decrial of the business of private equity, Taibbi goes on to say that Romney somehow owes the wealth he made in the business to the government:

His personal fortune would not have been possible without the direct assistance of the U.S. government.

The way Romney most directly owes his success to the government is through the structure of the tax code. The entire business of leveraged buyouts wouldn’t be possible without a provision in the federal code that allows companies like Bain to deduct the interest on the debt they use to acquire and loot their targets.

Because minus that tax break, Romney’s debt-based takeovers would have been unsustainably expensive.

Taibbi’s point is that Romney the politician has criticized government regulations while Romney the businessman has profited solely by “exploiting” a government regulation – thus making him a duplicitous scheister. But if Taibbi really believes what he’s saying, if he really believes that private equity is a massive and detrimental misallocation of capital, and if he really believes it is made possible and encouraged by none other than government fiat… well, perhaps you can see the contradiction already. Taibbi has essentially outlined the proof for an argument against government involvement in business on the basis of its harmful unintended consequences, yet he has stopped short of indicting the government in any way. He instead chooses to criticize Romney for arguing against the very thing that Taibbi has proved to be harmful (by his own estimate). So perhaps there are some contradictions in Mitt Romney’s candidacy, but they are certainly fewer and farther between than those present in this article.

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Paul Krugman’s column today in The New York Times deals with Paul Ryan’s plans for Medicare and the rest of the health care system. I used to be more familiar with the PCA, which I believe Ryan’s plan is based off of, but I haven’t really taken much of a look at Ryan’s plan itself. My problems with Krugman’s column, however, don’t really rest on the specifics of Paul Ryan’s plan in the first place.

First of all, Krugman claims that Ryan’s voucher plans will eventually prove inadequate for health insurance purchase, since they do not factor in enough future growth in expenses. This, from what I remember of the PCA, is true, as I believe it was initially indexed to the CPI rather than health care price inflation (which grows more rapidly than the CPI). So, for those who support state action in the health care industry, I think that Krugman is right about the failings of the Ryan plan.

After this, however, the wheels start to fall off. Krugman writes:

Still, wouldn’t private insurers reduce costs through the magic of the marketplace?

That Krugman would caricature the market mechanism to such a degree is, frankly, a little astonishing to me. He is, after all, a renowned economist, and so surely should understand that the marketplace functions not by “magic,” but rather by an incalculable network of spontaneous, voluntary decision-making. In fact, I’m really not sure how to feel about the above statement, given that I don’t think Krugman, if he is still a serious economist, could actually feel this way about the economy. Krugman continues:

All, and I mean all, the evidence says that public systems like Medicare and Medicaid, which have less bureaucracy than private insurers…and greater bargaining power, are better than the private sector at controlling costs.

I know this flies in the face of free-market dogma, but it’s just a fact.

This, to me, seems like a very problematic series of statements, all of which rest on a series of unjustified assumptions and significant oversights. First of all, Krugman has constructed a dichotomy according to which health care is either characterized by “the free market” or Medicare/Medicaid. But this is a false dichotomy, as the erosion of Medicare and Medicaid that Krugman claims would result from the Ryan Plan still would not approach any free market state of affairs in the health care industry. It would be merely one step removed from the high levels of state intervention we see today. The provision of vouchers for purchasing health insurance is also a form of state intervention, as are the many, many other regulations that exist for the health care industry. In fact, in order to have free market care, we would have to unwind a series of lasting state interventions in the health care industry that date back to the end of the 19th century. What we are faced with today, then, is not a choice between the free market and state health care, but rather two different forms of state health care.

It is okay, intellectually, to argue that one of these forms is better than the other, but that is a different argument. What I am discussing here is Krugman’s unwillingness to recognize the degree to which varying state plans for the health care industry are far more similar than they are different.

Krugman also oversimplifies his arguments with regards to the ways in which Medicare and Medicaid actually function:

You can see this fact in the history of Medicare Advantage, which is run through private insurance, which is run through private insurers and has consistently had higher costs than Medicare/Medicaid. You can see it from comparisons between Medicaid and private insurance: Medicaid costs much less. And you can see it in international comparisons: The United States has the most privatized health system in the advanced world, and by far, the highest health costs.

All of these statements are correct on their faces, but the way that Krugman presents them is a little misleading. First, his suggestion that Medicare Advantage provides evidence for the failings of the free market in health care is sort of silly. As I’ve already discussed, Medicare Advantage does not represent a form of free market health care, but a system in which the government is still heavily involved. Medicare Advantage–or “Part C,” as it is known–is also not “run through private insurance” to the extent that Krugman seems to be suggesting. It is a system under which a Medicare beneficiary can receive his health insurance through a private insurer, which is somewhat similar to a sort of voucher scheme, as the state still pays for what Medicare itself would have provided.

On top of that, it is no wonder that Medicare Advantage is more expensive than Medicare, since it often has plans that offer additional benefits, like gym memberships , to the insured. This makes it difficult to compare the two side by side and draw any meaningful conclusion as to whether the market or the state is better at controlling costs. It turns out to be apples to oranges.

Next, Krugman says that Medicaid “costs much less” than private insurance, which is also true. Yet, he fails to adequately appreciate the distortions that this introduces to the market for health care, chiefly in the form of more and more physicians who are unable to see Medicare and Medicaid patients, due to how little the programs pay and the increasing overhead costs for physicians. In fact, Medicaid could even make costs zero tomorrow by government fiat, but it doesn’t mean that that would bring about a desirable state of affairs.

Then, Krugman confuses correlation with causation by insinuating that the “privatized” (again, not really) nature of American health care has made it the most expensive system in the world. He overlooks a lot of complicating factors though, especially those that deal with differing populations between nations and the relative states of health that a population exhibits versus the others.

Krugman closes with the following line:

The question now is whether voters wil understand what’s really going on.

My answer is that those who follow Krugman’s commentary on the health industry, which I find to generally come off as uninformed, will almost certainly not. At least, not until Krugman begins to introduce a little more nuance to the way he deals with these topics.

The John Locke Foundation has put out a good, short paper on some of the unintended consequences of Amazon taxes, which attempt to force out-of-state retailers who have either a “nexus” or advertising affiliations in that state to collect some form of sales tax from consumers.

Beyond, the Performance Marketing Association (PMA) estimates that about 1,000 online advertisers terminated their North Carolina affiliates when the law passed in 2009, which would have negatively impacted income and other state taxes. The PMA has observed “consistent patterns in all nine states where this has passed” and estimates that one-third of impacted affiliates moved out of state, since South Carolina and Tennessee do not have Amazon taxes.

Read the rest of the paper, entitled The Amazon Tax That Was Not: North Carolina’s Attempt to Expand Sales Taxation Beyond Its Borders , here.

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Both taken from a piece over at Lew Rockwell’s website.

The first is a graph of the velocity of money over the past century. The velocity of money is “the frequency with which a unit of money is spent on goods and services…calculated by simply dividing GDP by the money supply.” The graph shows velocity to be at its lowest point in the last hundred years, including the Great Depression.

This is not my area of expertise but, from what I understand, velocity is basically a measure of the transactions that have been taking place within a given economy (correct me if I’m wrong). If that’s the case, then this graph seems to suggest that consumers are getting increasingly hesitant to spend. I understand that there are Austrian criticisms of this measure, and I will try to read up on those later this week and repost if it gives me any new insight.

The second graph is more straightforward. It shows the rate of growth of per capita personal income in Washington, D.C. over the past decade.

This reminds me of a familiar criticism of Wall Street executives and, especially, private equity firms: that they get paid more and more no matter what sort of job they do. Now, generalizations such as these really don’t go for much, but, while we’re all lobbing them around, why not throw some of them at Capitol Hill?

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Paul Krugman has posted a piece about a Republican plan to voucherize Medicare. I am unfamiliar with this plan, so I really can’t comment on the specifics of either it, or Krugman’s analysis. One line, however, jumps out at me.

Bear in mind that health expenses will still have to be mainly paid for by some kind of insurance; that’s in the nature of medical care, with its high but unpredictable cost.

I find the phrase “that’s in the nature of medical care” to be a very, very poor choice of words.

I am going to give Krugman the benefit of the doubt, and suggest that this is merely a poorly worded means of reaching his larger point. In fact, he even confesses in the post that he is especially busy today, and I admit that it’s not realistic to say that every writer should justify every assumption they make all of the time. But I think this one is, frankly, pretty bad.

First of all, it is factually incorrect to say that high cost, unpredictability, and insurance companies are all in the “nature of medical care.” It is worth pointing, of course, that medical care predates its current inflated prices as well as insurance companies in general, so it is actually impossible for either of those things to be a fundamental aspect of the nature of medical care. The objection might be raised that I am arguing semantics, and that what he intended to say was that these things are in the nature of today’s medical care. And that, to an extent, is not quite as factually incorrect, but really only applies to catastrophic or prolonged care. (What I mean is that check-ups are neither high cost nor unpredictable, and needn’t be paid by insurance–even if they typically are nowadays.)

There is nothing about the nature of medical care itself, however, that has to do with any of that. In order to show this, perhaps it is easiest to examine the nature of medical care. In a free market, medical care typically occurs when one individual, the patient, voluntarily seeks some form of health-related treatment from another, the doctor, who is somehow reimbursed for his services. The health-related treatment can be anything from a jar of leeches to extensive reconstructive surgery, as these procedures themselves are not integral to the nature of medical care, which will exist regardless of the presence of reconstructive surgery.

Actually, the high cost and insurance company combination is in the very nature of medicine as it is practiced today , which is not the same thing. Medicine as it is practiced today has been distorted by a number of exogenous forces, and the nature of “medicine as it is practiced today” is necessarily defined by these forces.

This may seem like a minor point, but it is important to the foundation of an argument for market care. If readers believe that high costs and insurance companies are part of the nature of medical care, then they are more likely to endorse viewpoints that work within these given frameworks. If, however, they believe that these things are only an integral component of medical care “as it is practiced today,” then they may be more likely to entertain an alternative point of view. And, of course, the former is just factually incorrect.

Reading List and Upcoming Changes

Over the course of the past couple of days, I’ve managed to make it out of my apartment enough to pick up some new books. In terms of literature, I’ve started on Kazuo Ishiguro’s An Artist of the Floating World already, while keeping his Remains of the Day on the back burner for now. I’ve always thought that Ishiguro’s Never Let Me Go was, politically, a very strong novel, and I get the sense that An Artist of the Floating World operates in much the same way. I also picked up Yukio Mishima’s Spring Snow , the first in his Sea of Fertility series. (Mishima is famous for his attempt to stage a coup of the Japanese government, and the ritual suicide he committed as soon as this attempt failed.)

As far as political philosophy goes, I picked up a copy of Robert Nozick’s Anarchy, State, and Utopia . This book has been on my list of things to read for a very long time, and I look forward to getting into it at some point in the next few weeks, probably after I finish the Ishiguro novels. I plan to post extensively on my reactions to Nozick’s work when the time comes.

Also, I am planning some additions to the blog. For one thing, I will be adding a publications page at some point, now that my weekly opinion writing for the Duke University student newspaper will be resuming. On top of that, I’d also like to incorporate different weekly posting topics for different days of the week. It might be, for instance, that on Mondays I always make a short, isolated post about some historical circumstance that bears any relevance to the topics usually discussed here, even if it is not related to anything going on at the time. I am always considering a “definitions” series, which would work to a) discuss basic terms so that beginning readers gain an understanding of how they are used, and b) seeks to redefine commonly misused terms in political theory and philosophy (i.e., “capitalism” versus “crony capitalism”). I am pretty sure that I’ll proceed with those two, and am kicking a couple of other ideas around at the moment, but am also open to suggestions!

Is Rand Bashing Misguided?

In recent weeks, Ayn Rand and her work have been increasingly mentioned in the media. Much of this I attribute to the nomination of Paul Ryan as Republican Party vice presidential candidate, since Ryan has often cited her work as an influence. The media has not been kind to this.

I’m not sure, however, how valid Rand bashing really is. Now, as someone who has read Atlas Shrugged and is currently work his way through The Fountainhead , I have to confess that I myself have mixed feelings about Ayn Rand’s ideas. On one hand, I appreciate the personal values and lessons she promotes. On the other, I think that her views on the market and the arts can oftentimes be confused and contradictory. This being the case, it’s a little confusing to me that she is often chosen by critcis as a representative for all libertarian and market-oriented modes of thought.

For one thing, a great piece from Reason online makes a few observations that fly in the face of Rand bashing. Her works are often caricatured as pieces in which heroic, wealthy, and successful industrialists take on the moochers of society, and to an extent, this is true. Those who levy these criticisms based on what they’ve read about Rand’s books rather than what they could have read in them, however, expose themselves by their failure to note that almost all of her villains are also wealthy, many of them are industrialists, and a significant portion of her heroic characters are poor and even unconcerned with material gain.

This brings me to my next point: not only do Rand bashers tend, in my experience, to be relatively unfamiliar with her writing, but they also tend to be wholly unfamiliar with more serious free market literature. To illustrate this, I’ll use a phrase I often hear from dissenters when discussing the ideas behind a free society: “I’ve read Ayn Rand, and” or “I’ve read Atlas Shrugged, and.” This, to me, seems like a cop out, for several reasons. In the first case, it’s entirely possible that they haven’t actually read these books, and that they’ve only read what’s been written about them by yet other people who haven’t read them. On a more useful note, though, it’s important to point out that Ayn Rand is not the go-to thinker of choice in terms of libertarian political thought.

What I mean is this: Rand is famous in part for her vicious attitude towards those who disagreed with her in the slightest (her philosophy, after all, was called Objectivism), which to me seems to be at odds with most libertarian thought and literature. In fact, it creates a significant tension against the subjective theory of value, which is one of the most important elements of the economic rationale for a free society. To dispel her writings as unintellectual and not worthy of serious consideration, then, does nothing either to advance progressive arguments or to refute those of libertarians and free marketeers. Intellectually, it is an endeavor with no relevance at all.

I suspect, then, that people continue to do this because it is easier to dismantle a caricature of an opponent’s view than it is to familiarize yourself with their theory and refute it line by line. (Jonathan Finegold has written a similar critique of Paul Krugman and Matt Yglesias .) To put it differently, as many times as critics have told me they’ve read Atlas Shrugged before continuing an argument, not once have I heard any of the following: “I’ve read Lysander Spooner’s “No Treason,” and”; “I’ve read Murray Rothbard’s Man, Economy, and State , and”; “I’ve read Ludwig von Mises’ Human Action , and”; etc, etc, etc.

In the end, I don’t think that most serious free market political thinkers really consider Ayn Rand’s writing to be central to their beliefs. I think that they view her more as a gateway writer, who can inspire an initial interest in a reader before prompting him to move on to more significant works. To attempt to refute theories of free societies by lambasting Rand, then, is a little bit like if conservatives bashed Naomi Klein in order to refute progressivism. It is completely irrelevant to the larger point, because it refuses to take into account any of the elements of it.

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Jefferson and the Boisterous Sea of Liberty

From Thomas Jefferson:

Timid men…prefer the calm of despotism to the boisterous sea of liberty.

Reprinted from

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A personal correspondence today has brought to my attention both the Pope Center and the John Locke Foundation . Both of these organizations are think tanks centered in Raleigh, NC, which by itself catches my interest. The Pope Center focuses on the issue of higher education both at the national level and with a focus on North Carolina, while the John Locke Foundations seems to be more of a general policy think tank. Both appear to take a classical liberal bent to their analysis, which itself is even more interesting to me than the fact that they are centered so close to my hometown.

I have yet to truly explore their websites, but am looking forward to doing so when I get the chance.

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Hoppe’s new book, entitled The Great Fiction: Property, Economy, Society, and the Politics of Decline is out on September 10th, and pre-orders are now available from Laissez-Faire Books.

I have not yet made my way entirely through Democracy: The God That Failed , which I have been reading piecemeal over the past year (along with three books by Robert Higgs and several other works of political philosophy), but I am certainly excited for this new one. I am almost as excited for Jeff Tucker’s new book, A Beautiful Anarchy: How to Create Your Own Civilization in the Digital Age , also available from Laissez-Faire Books.

I promise I receive no kick back for plugging these books here; I just really enjoy reading these two writers.

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