Why Trump and Sanders See Losers Everywhere

Donald Trump, Bernie Sanders, many political actors, too many intellectuals, and much of the general public share a false and destructive belief about the nature of exchange: that economic activity is something akin to a battle or a full-fledged war in which the goal is for one group to “defeat” another. We see this mentality across the political spectrum.

Zero-Sum Losers

Think of the ways Trump and others on the political right talk about international trade. The basic framework is to see other countries as enemies in competition with us. The goal of trade policy is somehow to “beat” them, because if they are “winning” by selling us a lot of stuff, we must be losing. The result is mistaken policies such as Trump’s proposed 45 percent tariff on Chinese imports.

Market economies are not zero-sum games.

We see the same us-and-them thinking on the left, where progressives perceive a persistent battle between capital and labor, each trying to defeat the other. For leftists, capital is always the winner and labor is always the loser — unless the government intervenes. The appropriate policy response, from this perspective, is either to limit capital’s gains or, if you’re a bit more radical, to help labor vanquish capital once and for all. One of the related beliefs on the left is that the wealth of capital comes at the expense of labor. That is, capital’s gains come from labor’s losses.

Both arguments share the underlying belief that the winners’ gains must come at the losers’ expense. Economic activity, and specifically wealth creation, is at best seen as what economists would call a “zero-sum game.”

In zero-sum games, the winners’ gains do, in fact, come at the losers’ expense. Think of a poker game where each person buys $100 worth of chips. If there are five players, there is $500 to be apportioned out. If the game ends with me having $250, then the remaining $250 will be sp…

Sanders Is Wrong on College and Jail

In a December 15 tweet, Senator Bernie Sanders intimated that graduating from college decreases the likelihood that you will go to jail:

Sanders has long supported dubious measures for making college more affordable and hence accessible to all, and this may be why: he believes that “no college” is a path to jail.

Mike Rowe, the former TV host of the Discovery Channel series Dirty Jobs and a longtime opponent of the “college for all” message, responded to Sanders with outrage. Rowe challenged Sanders’s idea that the most viable option without a college degree is jail. He also brought home a favorite point of his, to throw into question whether a cost-benefit analysis of college really shows that college is the best path to a successful career.

I’ve written before against the “academic training for all” mentality that Sanders and so many others seems set in, but Rowe, unfortunately, also gets a few things wrong.

Upcredentialing and Downvaluing

While Sanders is right that college degrees significantly increase one’s job prospects, he’s wrong to think that “college for all” will increase job prospects for everyone. Rowe is right to note that there are viable career options that don’t require college degrees, but he overlooks that they are vanishing by the year.

We all strive to “outcredential” each other, and in short order, the college degree is the new high school diploma. 

As a rece…

The Big Short Misleads on Ratings Agencies

The Big Short has captured rave reviews, not just from conventional critics but also from the likes of Paul Krugman. By featuring Hollywood heavyweights Ryan Gosling, Brad Pitt, Christian Bale, and Steve Carell, this exposé of the housing bubble and ensuing financial crisis was sure to gain attention. For his part, director Adam McKay does a great job keeping the plot moving forward while accurately conveying the essentials of the Wall Street and commercial lender shenanigans.

The Big Short leads viewers to believe that shortsighted greed is the ultimate explanation for why the ratings agencies gave their blessing to dangerous products.

The movie was surprisingly entertaining, given the dry subject matter, and I was impressed at the level of detail. Furthermore, fans of free-market economics should cheer any movie that can make short-selling speculators, of all people, look cool.

But the movie blames market forces without looking to the role government intervention played. FEE.org’s Jeffrey Tucker points out, for example, that The Big Short fails to mention the role of the Federal Reserve and the various federal government policies that promoted unsound mortgage practices. I’d like to focus specifically on the role that the ratings agencies played.

Derivatives and the Ratings Agencies

The Big Three credit ratings agencies are Moody’s, Fitch, and Standard & Poor’s, which together account for some 95 percent of the market. They were an essential part of the housing boom and bust. To understand their contribution, we need briefly to review the historical context.

From 2002 th…

Among a People Generally Corrupt, Liberty Cannot Long Exist

Each week, Mr. Reed will relate the stories of people whose choices and actions make them heroes. See the table of contents for previous installments.

Murray Rothbard, the Austrian school economist and student of Ludwig von Mises, regarded Edmund Burke in his youthful days as a libertarian and even a philosophical anarchist. Russell Kirk, the renowned man of letters and author of The Conservative Mind, viewed Burke as the progenitor of the modern conservative movement.

Rothbard and Kirk differed on many things, but on this they agreed: Edmund Burke was one of the greatest political thinkers of the last 300 years, a man to whom lovers of liberty owe a considerable intellectual debt.

“The true danger is when liberty is nibbled away, for expedients, and by parts.” — Edmund Burke

Born in 1729 in Dublin, Ireland, Burke gained a reputation as a promising writer and political commentator by his early 30s. After he moved to England in 1750 to study law, he considered himself at least as much English as he was Irish. He began a long career as a Whig member of the House of Commons in 1766 and the first major issue he addressed was the approaching crisis with the American colonies. Historian Jim Powell writes,

Burke wasn’t a great orator — indeed, his speeches, which were sometimes three hours long, emptied the seats in Parliament. But Burke had acquired deep knowledge of history which gave him valuable perspective, and he developed a passionate pen. He urged religious toleration for Irish Catholics. He su…

Thank Goodness for Price Gougers

A gallon of milk: $7.59.

Outrageous! That was twice what I spent in town the day before. One lousy gallon of milk, and I would have to file for bankruptcy. Whoever was responsible was a rotten price gouger. But I didn’t have a choice; the potatoes were already boiling. I grabbed the milk, sulked up to the counter, and coughed up the money.

You see, my brother was cooking a meal for the family: ham, vegetables, and mashed potatoes. He’d already started. The potatoes were peeled, cut, and boiling on the stove. My job was to get the milk — you can’t properly mash potatoes without milk.

We were in the middle of rural Virginia, where the closest grocery store was a half hour away. I’d secured the milk the day prior, but I accidentally left both gallons in the car, sitting in the sun. Luckily, there was one gas station that stocked necessities, a few miles down the road.

When I arrived, I walked to the back of the store and saw the last gallon of milk remaining. It had a bright orange sticker slapped on it, notifying customers of its new, astronomical price. After purchasing it, I hadn’t even reached my car before the economic lesson dawned on me: I was extremely fortunate the milk was so expensive.

In hindsight, it’s obvious. Why wasn’t the store completely out of milk? Because all the customers before me didn’t purchase that last gallon. They were more revolted by the price than I was. And thank goodness, because otherwise I would have failed my mission. I didn’t have time to travel a half-hour to and from town. Dinner would have already ended, mashed potato-less. Instead, thanks to the price markup from the store manager, I returned home triumphant, with plenty of time to enjoy dinner. The final product was creamy and delicious.

The Bigger Picture

We live in a world of scarce resources. There just isn’t enough milk available to satisfy every human demand. In a perfect world, perhaps…

The Good Old Days of Poverty and Filth

Standing in a luxury hotel, cultural historian Luc Sante daydreams about the good old days of homeless alcoholics lighting trash fires in the streets of Manhattan’s Skid Row.

“Over there, next to the flophouse hotel,” Sante reminisced to the Guardian, “is where Nan Goldin lived and worked. Forty years ago there were still lots of vacant lofts here that had been burlesque and vaudeville theatres during the era when storefronts were saloons. There were bars solely inhabited by bums, their heads down on the counter. At night they’d be lined up outside the missions and Salvation Army hostels — veterans from World War Two, from the Korean War, from the Vietnam War. At night, trash fires would be lit in oil drums.”

The French have an elegant phrase for what Sante is doing. They call it nostalgie de la boue, “longing for the mud,” which means a romantic yearning for a primitive or degraded behavior or condition.

The phrase, which was coined by a French dramatist in 1855, has been around for a while and usefully describes the very real way in which the wealthier and healthier inhabitants of modernity look back at the past through a misty, romantic haze.

Rather than ignoring the historical “mud,” nostalgie de la boue actively longs for that kind of unpleasantness.

While it annoys historians when we put a soft-focus filter on history, it doesn’t generally do a lot of damage. We don’t need every medieval romance novel to remind us that the heroine’s breath didn’t smell like cool mint Listerine. It’s probably for the best that the historical re-enactors at Colonial Williamsburg don’t actually use authentic colonial medical remedies for their health problems, and visiting tourists are certainly grateful for modern plumbing and street sanitation. Even the BBC’s determinedly authentic <a href="…

But Who Will Stock the Supermarkets?

On first seeing the bounty displayed in our supermarkets, the émigrés either froze at the endless array of choices in front of them, or they wildly loaded their carts, because they assumed the shelves would be empty the next day. This was back in the 1980s, when a wave of expatriates fled the Soviet Union for the United States. Many of them had host families to help them acclimate to American life, and it was from some of the hosts that I heard about these first encounters with America’s commercial abundance.

These émigrés could only understand what they saw within the context of their current belief system in central planning. Many may have initially thought that the United States had unbelievably effective five-year plans. What else could explain so much plenty? They were dumbfounded when told that no government official directed where a supermarket should open, what it should stock, from whom it should buy goods, or the hours it should be open.

“Whether you can observe a thing or not depends on the theory which you use.” —Albert Einstein

In the Soviet Union, when food ended up on the kitchen table, it was the result of command and control. Given their experience, the idea that order could emerge without central planning seemed unfathomable.

Consider this thought experiment. It is 1980 in Moscow. At a planning bureau meeting, someone says, “Comrades, we need less planning, not more. If we give up controls and establish property rights, the free market will stock our markets with plenty at prices cheaper than we could imagine. We just have to get out of the way.”

Imagine the replies if others engaged him in thoughtful discourse: “Comrade, you propose a fantasy. Who would order the farmers what to plant and how much to plant? Who would arrange for food pickers?” (Food often rotted in Soviet fields for lack of pickers.) “Who would arrange for transportation? And then our problems are just begi…

Uber Revolutionizes Common Sense

The Uber revolution has created a surge of support for free markets, although not every Uber advocate realizes what he or she is supporting. Those who use the ride-sharing service know the difference it has made in their lives, and they resent attempts to maintain (or resurrect) the taxi cartels’ political privilege.

What’s most surprising is the quality of the arguments Uber’s defenders make on social networks and elsewhere. Not only do they condemn legal barriers to entry; they even talk of the inherently coercive nature of a state-licensed system.

Customers know that it’s not from the driver’s benevolence that the bottled water, candies, and kindness come.

Many appeal to freedom of choice: Why should they be limited to one service when it should be possible to choose from many different options? Some criticize the low quality of government-protected taxi services compared to the new entrants, pointing out that competition leads to a general improvement of the service and consumer’s well-being. Others even claim that if it were up to the legislators, we’d still be using horse-drawn carriages and manual typewriters.

To this wave of supporters — I think of them as “lubertarians” — Uber is already sufficiently regulated by its customers.

All these arguments, typically defended by libertarians and classical liberals for centuries, are being made spontaneously by people who, whether through ignorance or choice, probably wrinkle their noses when hear the term libertarian.

The App Economy Promotes Common Sense

There’s a reason that people’s common-sense notions about Uber, ride sharing, and the app economy in general line up so well with free-market ideas. As economist Donald Boudreaux points out, we are now so used to the fluidity of markets in our daily lives that we never question how the exchanges made by billions of strangers can work so well…

The Wealth of Everyone

Each week, Mr. Reed will relate the stories of people whose choices and actions make them heroes. See the table of contents for previous installments.

Adam Smith entered a world that his reason and eloquence would later transform. He was baptized on June 5, 1723, in Kirkcaldy, Scotland. It’s presumed that he was either born on that day or a day or two before. He would become the Father of Economics as well as one of history’s most eloquent defenders of free markets.

The late British economist Kenneth E. Boulding paid this tribute to his intellectual predecessor: “Adam Smith, who has strong claim to being both the Adam and the Smith of systematic economics, was a professor of moral philosophy and it was at that forge that economics was made.”

Economics in the late 18th century was not yet a focused subject of its own, but rather a poorly organized compartment of what was known as “moral philosophy.” Smith’s first of two books, The Theory of Moral Sentiments, was published in 1759 when he held the chair of moral philosophy at Glasgow University. He was the first moral philosopher to recognize that the business of enterprise — and all the motives and actions in the marketplace that give rise to it — was deserving of careful, full-time study as a modern discipline of social science.

Wealth to the world’s first economist was plainly this: goods and services.

The culmination of his thoughts in this regard came in 1776. As American colonists were declaring their independence from Britain, Smith was publishing his own shot heard round the world, An Inquiry into the Nature and Causes of the Wealth of Nations, better known ever since as…

3 Kinds of Economic Ignorance

Nothing gets me going more than overt economic ignorance.

I know I’m not alone. Consider the justified roasting that Bernie Sanders got on social media for wondering why student loans come with interest rates of 6 or 8 or 10 percent while a mortgage can be taken out for only 3 percent. (The answer, of course, is that a mortgage has collateral in the form of a house, so it is a lower-risk loan to the lender than a student loan, which has no collateral and therefore requires a higher interest rate to cover the higher risk.)

When it comes to economic ignorance, libertarians are quick to repeat Murray Rothbard’s famous observation on the subject:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Economic ignorance comes in different forms, and some types of economic ignorance are less excusable than others. But the most important implication of Rothbard’s point is that the worst sort of economic ignorance is ignorance about your economic ignorance. There are varying degrees of blameworthiness for not knowing certain things about economics, but what is always unacceptable is not to recognize that you may not know enough to be speaking with authority, nor to understand the limits of economic knowledge.

Let’s explore three different types of economic ignorance before we return to the pervasive problem of not knowing what you don’t know.

1. What Isn’t Debated

Let’s start with the least excusable type of economic ignorance: not knowing agreed-upon theories or results in economics. There may not be a lot of these, but there are mo…