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Why Bad Economics Makes Such Good Politics

Why Bad Economics Makes Such Good Politics


As the election nears, politicians will more and more frantically point out what wonderful favors they’ve done for the voters — or what favors they will do for the voters, if elected.

Of course, they never mean all the voters. They mean groups or individuals within the voting population who believe they benefit from laws, taxes, regulations, and spending programs supported by the politician in question.

Two such examples of these sorts of favors are tariffs and minimum wage laws. Both impose costs on both producers and consumers overall, while benefiting a small sliver of the population that is able to take advantage of the government mandate.

The economics of each of these, or taxation and business regulation in general, have already been addressed numerous times in these pages.

It must suffice to point out that these policies, for which politicians think they deserve accolades, potentially benefit only very specific interest groups. Nevertheless, these policies can prove to be politically popular, and may help a politician get elected.

But why should policies that help so few — and impose many costs on even those they purport to help — be politically popular?

Hazlitt and Mises on the Popularity of Bad Economics

Answering this question was one of the main reasons that Henry Hazlitt wrote his perennially popular bookEconomics in One Lesson.

In the very first chapter, Hazlitt notes that economic science is prone to so many errors because people are motivated to believe an incorrect version of economics that supports their own economic interests. Or as Hazlitt put it, economic errors “are multiplied a thousandfold … by the special pleading of selfish interests.”

Sometimes, these attempts to throw good economics in the garbage are spectacularly successful. After all, for decades, no insignificant number of Americans believed the claim that “what’s good for General Motors is good for America.”1

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Solutions Only Arise Outside the Status Quo

Solutions Only Arise Outside the Status Quo

Solutions are only possible outside these ossified, self-serving centralized hierarchies.

Correspondent Dan F. asked me to reprint some posts on solutions to the systemic problems I’ve outlined for years, most recently in How Much Longer Can We Get Away With It? and Checking In on the Four Intersecting Cycles. I appreciate the request, because it’s all too easy to dwell on what’s broken rather than on the difficult task of fixing what’s broken.

I’ve laid out a variety of solutions to structural problems in my many books, and I’ll attempt a brief synthesis in this post.

1. The dynamics of stagnation are built into the system. Centralized systems optimize specific solutions to a specific set of problems that prompted the development of the system.

In the U.S., the empire that resulted from the global effort to win World War II and the Cold War competition with the Soviet Union spawned centralized bureaucracies to manage the complexities and budgets of this new era.

In effect, the system was optimized to the circumstances of 1950 or perhaps 1960. Though circumstances have changed, the system remains essentially unchanged, except bureaucracies and budgets have ballooned in response to the dynamics of bureaucracies: the initial purpose erodes and is replaced with self-aggrandizement of insiders and bureaucratic bloat.

As the systems optimized for a bygone era start failing, due to the erosion of accountability and transparency as insiders mask their self-serving ineffectiveness, the organizational structure attempts to meet the challenges by doing more of what’s failing: since every layer of bureaucracy now has a constituency that will fight to the death to maintain its power, budget and perquisites, a ratchet effect is the dominant dynamic: budgets and power cannot decline due to resistance, but the path to increases in power and budget is well-greased.

Since the structures are optimized for a bygone era, the institutions are fundamentally incapable of responding effectively or reforming themselves.The universal solution to failing institutions and hierarchies is to throw more money at the failings in the doomed hope that doing more of what’s failed will magically solve the systemic problems.

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In a Stateless World, Can You Grow Veggies In Your Front Yard?

In a Stateless World, Can You Grow Veggies In Your Front Yard?


The Miami Herald reports that a local couple is going all the way to the state supreme court to fight a local ordinance banning front-yard vegetable gardens: 

Hermine Ricketts and her husband Tom Carroll may grow fruit trees and flowers in the front yard of their Miami Shores house…

Vegetables, however, are not allowed.

Ricketts and Carroll thought they were gardeners when they grew tomatoes, beets, scallions, spinach, kale and multiple varieties of Asian cabbage. But according to a village ordinance that restricts edible plants to backyards only, they were actually criminals.

“That’s what government does – interferes in people’s lives,” Ricketts said. “We had that garden for 17 years. We ate fresh meals every day from that garden. Since the village stepped its big foot in it, they have ruined our garden and my health.”

These sorts of stories pop up several times a year. They are often discussed at free-market oriented and libertarian sites to illustrate just the myriad of ways that the state interferes in our daily lives. Many times, they intervene to prohibit totally innocuous activities like growing a front-yard garden.

What articles like these often fail to point out of course, is that these laws didn’t appear out of nowhere. They are often passed because some voters demanded the city council or the county commission pass laws prohibiting front-yard gardens, or backyard chicken coops, or other non-violent activities deemed by some to be a nuisance to the neighborhood. These laws then persist over time because the majority of voters either agree with the laws, or don’t feel strongly enough about the matter to demand a change.

In Miami Shores, the law against front-yard gardens was likely passed because at least a few people felt that front yard gardens were not so innocuous after all.

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The Seneca Cliff as an Effect of Bureaucracy

The Seneca Cliff as an Effect of Bureaucracy

The idea of the “Seneca Cliff” is that a certain entity, from a company to an empire, tends to fall rapidly when it is subjected to a dearth of resources and, at the same time, affected by pollution. More than once I noted that there are many forms of pollution; in the model, the term indicated any kind of phenomenon that tends to grow at the expenses of the capital stock of a society. Bureaucracy clearly satisfies the definition and an excess of it may be a major cause of collapse. Here, Miguel Martinez discusses the concept on the basis of his experience in Italy, a country that seems to be especially plagued by overbureaucracy. Martinez notes several interesting phenomena, including the fact that the decline in economic resources reinforces also the problems created by excessive bureaucracy generating a near complete standstill in everything that can be overcome only by acting illegally, which creates other problems as well. So, it seems that the only cure for over bureaucracy is the Seneca Collapse!

Bureaucracy and the Seneca Cliff

Ugo Bardi’s blog is always a great mental stimulant. His Seneca Curve made me think of another parallel curve. Imagine two lines: the first has to do directly with resources. The other has to do with the rules which govern the resources and how they are used.Rules, laws, regulations, contracts, terms, provisions, standards, obligations, whatever…

Whoever issues them, the ultimate enforcement comes from some entity related to the state; and enforcement can be quite painful, implying the end of a career, severe financial damage, heavy expenses for lawyers, gaol or at least the stress of years of worrying about all of this, whatever the outcome.

Let’s start with the line of resources. Basically meaning the relationship among available resources, extraction costs and waste.

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Bureaucratic Insanity: Free to be Slaves

Bureaucratic Insanity: Free to be Slaves

Schools in America today are less concerned about the overall welfare of students than they are with making sure that they obey all the rules, no matter how pointless, and produce good test scores. The emphasis on mindless obedience and rote learning prepares them for dehumanizing office work, where employers don’t even try to pretend that they care about the welfare of their workers. Instead, they shame them for taking vacation time and force them to work overtime for free. Employers and school administrators only care about what they can produce: children are treated no differently from widgets, and employees are treated no differently from robots.

It is only a slight exaggeration to say that the hierarchical power structure embodied in our rigidly regulated and controlled schools and jobs closely resembles the relationship between a master and a slave. But there is a difference: slaves are under no obligation to pretend that they are free and can be as sullen and apathetic as they wish. They know that they are property, they do the bare minimum to avoid punishment, and they cannot be shamed for such behavior any more than a lawn mower or a toaster oven. We, on the other hand, require both students and employees to cheerfully and meekly deny their slave-like status, and to perpetuate the fiction that they are not compelled to conform but are acting of their own free will. They are gradually driven insane by the chronic cognitive dissonance caused by the mismatch between their pretend-freedom and their all-too-real slavery. In the following excerpt from his new book, Bureaucratic Insanity: The American Bureaucrat’s Descent into Madness, Sean Kerrigan delves into the nature of this effect.


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When Collapse Is Cheaper and More Effective Than Reform

When Collapse Is Cheaper and More Effective Than Reform

Collapse begins when real reform becomes impossible.

We all know why reforms fail: everyone whose share of the power and money is being crimped by reforms fights back with everything they’ve got.

Reforms that can’t be stopped by the outright purchase of politicos are watered down in committee, and loopholes wide enough for jumbo-jets of cash to fly through are inserted.

The reform quickly becomes “reform”–a simulacrum that maintains the facade of fixing what’s broken while maintaining the Status Quo. Another layer of costly bureaucracy is added, along with hundreds or thousands of pages of additional regulations, all of which add cost and friction without actually solving what was broken.

The added friction increases the system’s operating costs at multiple levels.Practitioners must stop doing actual work to fill out forms that are filed and forgotten; lobbyists milk the system to eradicate any tiny reductions in the flow of swag; attorneys probe the new regulations for weaknesses with lawsuits, and the enforcing agencies add staff to issue fines.

None of this actually fixes what was broken; all these fake-reforms add costs and reduce whatever efficiencies kept the system afloat. Recent examples include the banking regulations passed in the wake of the 2008 meltdown and the ObamaCare Affordable Care Act (ACA).

Back in 2010 I prepared this chart of The Lifecycle of Bureaucracy: as bureaucracies expand, they inevitably become less accountable, less efficient, more bloated with legacy staffing and requirements that no longer make sense, etc.

As costs soar, the bureaucracy’s budget is attacked, and the agency circles the wagons and focuses on lobbying politicos and the public to leave the budget untouched.

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Civil Service Infected by Culture of Intimidation, Say Former Top Bureaucrats

Civil Service Infected by Culture of Intimidation, Say Former Top Bureaucrats 

Kevin Page and Linda Keen say their experiences show need for reform.

No matter who forms government after Monday’s election, they need to move quickly to end the culture of intimidation, inefficiency and top-down management that infects Canada’s public service, say two former top bureaucrats.

Former Parliamentary Budget Officer Kevin Page and the former nuclear safety watchdog Linda Keen agree the public service needs major, quick reform.

Page was the independent budget officer from 2008 to 2013 and worked in the federal civil service for 27 years in various departments. He said many current practices need to go.

Too many people are being appointed to powerful positions with little or no experience in a department, he said. “These people are moving paper around as opposed to engaging and providing fearless advice to cabinet ministers.”

And though many civil servants may be proven performers, many appointments to top jobs are made based on relationships and networking instead of looking for the best candidate, Page said. He too was guilty of this, he acknowledged.

That’s resulted in civil servants more concerned with keeping deputy ministers and MPs happy and delivering services however the government wants instead of providing alternative, more effective solutions, he said.

Often agencies like the Privy Council Office are calling the shots, Page said, and department heads aren’t really able to fulfill their responsibilities. The control extends to trying to intimidate civil servants during meetings, he said.

“You could see the steering and control that was taking place,” Page said. “It wasn’t a one-on-one relationship with a deputy minister in an aligned department. The central agencies were playing on the control issue.”

The public sector bonus system can also be used to ensure deputy ministers’ willingness to do the government’s bidding, Page said.

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The Regulatory State – Central Planning and Bureaucracy on a Rampage

The Regulatory State – Central Planning and Bureaucracy on a Rampage

The New 10,000 Commandments Report – It’s Worse than Ever

Before we begin, we should mention that the US economy has long been one of the least regulated among the major regulatory States of the so-called “free” world, and to a large extent this actually still remains true. This introductory remark should give readers an idea of how terrible the situation is in many of the socialist Utopias elsewhere.




Even in the US though, today’s economic system is light years away from free market capitalism or anything even remotely resembling a “laissez faire” system. We are almost literally drowning in regulations. The extent of this regulatory Moloch and that the very real costs it imposes is seriously retarding economic progress. It is precisely as Bill Bonner recently said: the government’s main job is to look toward the future in order to prevent it from happening.

A great many of today’s regulations have only one goal: to protect established interest groups. Regulations that are ostensibly detrimental to certain unpopular corporatist interests are no different. Among these is e.g. the truly monstrous and nigh impenetrable thicket of financial rules invented after the 2008 crash in a valiant effort to close the barn door long after the horse had escaped. They are unlikely to bother the established large banking interests in the least. The banking cartel is probably elated that it has become virtually impossible for start-ups to ever seriously compete with it. The same is true of many other business regulations; their main effect is to protect the biggest established companies from competition.

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Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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