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 George Reisman's Blog on Economics, Politics, Society, and Culture

February 2006  

This blog is a commentary on contemporary business, politics, economics, society, and culture, based on the values of Reason, Rational Self-Interest, and Laissez-Faire Capitalism. Its intellectual foundations are Ayn Rand's philosophy of Objectivism and the theory of the Austrian and British Classical schools of economics as expressed in the writings of Mises, Böhm-Bawerk, Menger, Ricardo, Smith, James and John Stuart Mill, Bastiat, and Hazlitt, and in my own writings.

The contents of the blog are copyright © 2006 by George Reisman. All rights reserved. Permission is hereby granted to reproduce and distribute individual articles below electronically and/or in print, other than as part of a book. (Email notification is requested). All other rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.


Tuesday, February 21, 2006

Papiere, Bitte (Papers, Please)

Growing up as a child in World War II, I saw countless movies in which a German soldier in uniform, or a Gestapo agent in plain clothes, would utter the spine-chilling words “Papiere, Bitte” (“Papers, Please"). What made those words spine chilling was the fact that whoever they were uttered to was in imminent danger of arrest, imprisonment, torture, and execution. This was almost certain to be the fate of any hapless soul who was unfortunate enough not to have his “Papiere” or whose “Papiere” did not satisfy the German who examined them.

Now, over sixty years later, it appears that those dread words, “Papiere, Bitte,” will soon be spoken in English—“Papers, Please”— and with all kinds of British accents. This was reported exactly a week ago, in The New York Times of February 14, in an article titled “A Bit of Good News for Blair: ID Cards for Britons Advance.” The article reported, “The government of Prime Minister Tony Blair faced down its opposition on Monday in a politically charged vote in the House of Commons on a plan to introduce mandatory national identification cards. The vote moved Britain closer to the use of such cards but did not make clear precisely when that would be.”

Worse still, the United States may not be all that far behind Britain in the adoption of such a system. An op-ed piece in today’s New York Times is testing the waters. Titled “A Card We Should All Carry,” the article dares to assert that “a national ID can put power in the hands of the people.” It will allegedly do this by, among other things, providing access to a national database containing everyone’s complete medical history and by enabling people with no fixed address to more easily claim welfare benefits.

It doesn’t seem to have occurred to the author (or to Tony Blair and his supporters, for that matter), that as a government becomes more and more oppressive, people have more and more reason not to want to be identified by it, indeed, to have their government know nothing whatever about them. For as a government more and more prohibits behavior that is both peaceful and advantageous to people, and more and more compels behavior that is against the interests of people, there will necessarily be more and more violations of its ever growing body of laws and regulations. In such circumstances, the easier it is for the government to identify and find the violators, the more effective is its oppression. By the same token, the less the government knows about its citizens, the greater is their freedom from it and thus the greater their ability to pursue their happiness.

Of course, today we have a problem of terrorism. And many people are prepared to accept such a thing as national identity cards in the belief that they are necessary to combat terrorism. It does not seem to have occurred to such people, that the terrorists who pose a serious problem are those supported by foreign governments and that they will soon be equipped with identity cards that are good enough forgeries to make the system worthless as a means of protection. The people who will be stopped by the system will not be terrorists but innocent citizens, seeking to evade unjust laws and regulations.

The United States and Great Britain defeated Nazi Germany in World War II. It is disgraceful that they are they now on the road toward importing this vicious feature of that regime, and that there is as yet so little opposition to it.

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Monday, February 20, 2006

Why Socialized Medicine Leads to the Prohibition of Private Medicine

An article in today’s (Feb. 20, 2006) New York Times makes clear that Canada’s much ballyhooed system of socialized medicine, in addition to being plagued by interminable waits for treatment, has prohibited competition from private medicine. But now, as the result of a ruling last June by Canada’s Supreme Court, limited forms of private medical care are apparently in process of being allowed to appear, at least in some provinces. In The Times’ article’s words: “The cracks are still small in Canada's vaunted public health insurance system, but several of its largest provinces are beginning to open the way for private health care eventually to take root around the country.” [See full Times article.]

The Canadian Supreme Court’s decision was the outcome of a lonely and courageous struggle conducted at great personal cost in time and money by a Canadian physician, Dr. Jacques Chaoulli. Dr. Chaoulli went to court with the case of a chemical salesman who had been forced to wait a year for a hip replacement and who at the same time was prohibited from paying for private surgery. As described in an earlier Times article, Dr. Chaoulli argued

that regulations that create long waiting times for surgery contradict the constitutional guarantees for individuals of “life, liberty and the security of the person,’' and that the prohibition against private medical insurance and care is for sick patients an “infringement of the protection against cruel and unusual treatment.''

To most Americans it may come as something of a shock simply to learn that all is not well with health care in Canada. That’s because Canada’s system has continuously been held up as the model for the United States to follow. Sometimes it seems that every ignoramus with a graduate-school diploma is ready to pontificate on how wonderful medical care is north of the border and that to solve our problems with medical care, all we need do is adopt that wonderful, single-payer Canadian system.

I could stop here, with the satisfaction of conveying knowledge that the system of socialized medical care in Canada is in fact so unwell that the door to its replacement with private medical care has been opened. But there is a deeper point I want to make, which will help to establish why socialized medicine is a profoundly evil and immoral system, that should never be implemented anywhere.

And this is the fact that the prohibition of private medical care that has existed in Canada is not some inexplicable accident but, on the contrary, follows logically from the very nature of socialized medicine. The connection is this:

Socialized medicine is advocated as the means of making medical care free or almost free, thereby enabling even the very poorest people to afford all of it that they need. Unfortunately, when medical care is made free, the quantity of it that people attempt to consume becomes virtually limitless. Office visits, diagnostic tests, procedures, hospitalizations, and surgeries all balloon. If nothing further were done, the cost would destroy the government’s budget. Something further is done, and that is that cost controls are imposed. The government simply draws the line on how much it is willing to spend. But so long as nothing limits the office visits, requests for diagnostic tests, etc., etc., waiting lines and waiting lists grow longer and longer.

Then the government seeks to limit the number of office visits, tests, procedures, etc., etc., by more narrowly limiting the circumstances in which they can occur. For example, a given diagnostic test may be allowed only when a precise set of symptoms is present and not otherwise. A hospitalization or surgery may be denied if the patient is over a certain age.

As part of the process of cost control, the government controls and sometimes reduces the compensation it allows to physicians and surgeons. For example, in the present fiscal year, in the United States, the fees paid to physicians by Medicare are scheduled to fall by four percent. (The New York Times, Feb. 4, 2006.)

Now all one need do to understand why socialized medicine leads to the prohibition of private medicine is simply to hold in mind the combination of deteriorating medical treatment and controlled physician incomes under socialized medicine and ask what would happen if an escape from this nightmare exists in the form of private medicine. Obviously, physicians who want to earn a higher income and to have the freedom to treat their patients in accordance with their own medical judgment will flee the socialized system for the private system and leave basically only the dregs of medicine for what will remain of the socialized system. That is what the government’s prohibition of private medical care is designed to prevent. This was confirmed in arguments before the Canadian Supreme Court. The Times article on the subject reported that

Various medical experts, government representatives and union leaders argued in court that privatization of insurance and services would bring an exodus of medical talent from public to private practices, and make waiting times even longer.

And there you have it. Socialized medicine destroys the quality of medical care and dare not allow the competition of private medical care. To prevent that competition, it must prohibit private medical care and establish a legal monopoly on medical care.

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Saturday, February 18, 2006

Double Takes in Reading Yesterday’s (February 17, 2006) New York Times

Department of Homeland Security’s response to fears about an Arab company having “a major role in operating ports in and around New York City”:

Stewart Baker, assistant secretary for policy at the Department of Homeland Security, said his department had no information about Dubai Ports World that justified an objection to the deal. . . . "We did not find derogatory information in our review," he said. [See full article.]

Isn’t something glaringly obvious being overlooked here? Something that everyone can easily see who is not blinded by “political correctness”? Namely, that when the immense majority of terrorists are Arabs, such as nineteen out of nineteen of the 9/11 airplane hijackers, you don’t put Arabs in a position to wreak even greater havoc, such as bringing in an atomic weapon in the hold of a ship and detonating it in New York harbor.

Op-Ed Columnist Thomas L. Friedman on how Israel can get rid of Hamas:

If Israel truly wants to get rid of Hamas, or at least see it disarmed, the only people who can do that effectively are the Palestinians. . . . If Hamas is going to fail now in leading the Palestinian Authority, it is crucial that it be seen to fail on its own — because it can't transform itself from a terror group into a ruling body delivering peace, security and good government for Palestinians — not because Israel and the U.S. never gave it a chance. [See the full column.]

Success and failure depend on a comparison of results achieved with results intended. If the Palestinian people had wanted Hamas to be disarmed, the very least they would have done would have been to abstain from voting for it. If they wanted a ruling body delivering peace and security, the last thing they would have done is vote for a government to be run by terrorists openly bent on the annihilation of a neighboring country. Waiting for the Palestinian people to get rid of Hamas is about as reasonable a prospect as waiting for the German people in the 1930s to get rid of Hitler.

Indeed, I think I remember another column by Friedman, in a previous life:

If Britain and France truly want to get rid of the Nazi party, or at least see it disarmed, the only people who can do that effectively are the German people . . . . If the Nazis are going to fail now in leading the German people, it is crucial that they be seen to fail on their own—because they can’t transform themselves from a terror group into a ruling body delivering peace, security, and good government for Germans—not because the Allies never gave them a chance.

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Thursday, February 16, 2006

Socialized Medicine and Rationing

A news story from Great Britain highlights an essential flaw of socialized medicine and of our own, also highly collectivized system of medical care. Namely, that it results in having to choose between bankruptcy, to pay for unlimited medical care, or the government’s rationing of medical care, including its denial to people whose very life may depend on it.

Thus, a branch of Britain’s National Health Service was upheld by a judge of the country’s High Court in its refusal to pay for the expensive cancer drug required by a 54-year-old woman to extend her life, and who had brought suit to compel it to pay. The judge wrote that he found nothing “irrational” in the refusal to pay, which was based on the proposition that "`The primary care trust has to care for the whole population . . . . We have other people in our community who don't have a strong voice, and we have to consider them.'"

This rationale and its acceptance by a judge is an illustration of what Ayn Rand, with good reason, used to describe contemptuously as a “collectivist stewpot.” Here is an individual, the cancer victim, who has been compelled to pay taxes all of her life to help finance the National Health Service and has thus been equivalently deprived of funds she might have used for her own medical care and who now cannot obtain medical care because the funds are required for others, whose need for her money is held to be more important than her own.

Such a situation is apparently all well and good as far as New York Times columnist Paul Krugman is concerned. Last December, in arguing for socialized medicine, he wrote: “Eventually, we'll have to accept the fact that there's no magic in the private sector, and that health care - including the decision about what treatment is provided - is a public responsibility.”

There is a different system: namely, that medical care is the responsibility of each individual and family, with the right to keep and use its own money for its own purposes and to choose the best it can find for its money.

This is the principle we follow with tremendous success in the purchase of food, clothing, automobiles, computers, and almost everything else. Its abandonment in medical care, and also in education, is the cause of the great and growing problems we are now experiencing in these areas. But more on this in future postings.

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.


Friday, February 10, 2006

Under Siege: Voting Rights of Felons or Property Rights of Citizens?

The New York Times misses almost no opportunity to advance the cause of government robbery and other forms of force and violence against the citizens of the United States. Its latest effort, expressed today in an editorial titled “Voting Rights Under Siege,” is to urge the enfranchisement of five million felons.

With exceptions, such as those convicted of income-tax evasion or violations of other interventionist legislation, felons are people who have committed acts of force against their fellow citizens. It is sound policy to keep them from the polls, where they would be in a position to contribute to more of the same, by voting for politicians who would do under cover of the law the very kind of thing that they have done in violation of the law.

For example, holding up a gas station at the point of a gun is a felony. But a tax collector taking the gas station owner’s money—under the threat of armed force—that’s legal. And the money may even serve exactly the same purpose in both instances. The holdup man doesn’t want to work, so he commits a holdup. The government gives money to people so that they don’t have to work, and now don’t even have to pull the holdup themselves.

Of course, it doesn’t actually work out that any fewer private holdups or other private acts of force are committed. Quite the contrary. This is because when the use of force to seize other people’s wealth is sanctioned and legitimized by the behavior of the government itself, the moral barrier to its use is weakened throughout society. The government, in effect, tells the robbers that their behavior is essentially justified.

In an effort to limit the extent of force and violence against its citizens, the Legislature of the State of Pennsylvania is considering a bill that would limit the voting rights of felons. At present, felons have the right to vote in Pennsylvania once they leave prison. What is under consideration is preventing them from voting until the terms of their maximum sentences have expired. In addition, the Pennsylvania Legislature is considering requiring proof of identity on the part of all voters, not just first-time voters, in order to reduce fraud at the polls.

The Times identifies these measures, probably correctly, as creating a voting barrier “especially for groups that tend to be Democratic.” That, of course, is the constituency which it favors. And it is especially concerned because “Pennsylvania [is] a swing state that will hold some critical elections this fall.” What The Times is doing here is fighting against barriers to criminality and fraud. And this from a newspaper that pretends to have high moral standards and regularly puts itself in the position of moral censor of the nation. What hypocrisy!

There are property rights. There is no right to steal. There is no right to vote to steal. A majority voting to steal is no different in principle than a majority voting for a lynching.

The American people need protection from crime, private and government. The starting point of any real protection must be the unmasking of the sophistries and dishonesty present in such mistakenly esteemed publications as The New York Times.

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Thursday, February 09, 2006

Who Offends Islam?

A cartoon depicting the Prophet Muhammad as a terrorist bomber is certainly highly offensive to all those Muslims who have rioted, burned, and killed in recent days in protest against such cartoons.

In retaliation for the publication of these cartoons, Iranian officials have launched a contest to encourage the drawing of cartoons mocking the Holocaust and its murder of six million Jews by the Nazis in World War II. The pain and outrage inflicted on Jews by these cartoons, they believe, will be comparable to that inflicted on Muslims by the earlier cartoons. Already, a cartoon has been published by the Arab European League depicting Hitler in bed with Anne Frank and telling her to put that in her diary.

The Iranian officials do not appear to be very intelligent. They do not seem to realize that they are helping to build a record that will cause still more ridicule of Muhammad. To the extent that their contest is promoted in the name of Islam and the teachings of Muhammad, the set of cartoons after theirs will quite reasonably show the Prophet joining with Hitler in the murder of Jews. For exactly that is what the Iranian officials and all the imams, sheiks, muftis, ayatollahs, and others who add their endorsement will have taught the world to believe is part of Islam.

Which must be more offensive to anyone who might truly esteem the Prophet? Nonbelievers humorously depicting him as a bomber, presumably in ignorance of his actual teachings, or the leaders of his own religion, seriously and in full knowledge of what they are doing, depicting him as approving the actions of one of the most evil and murderous human beings in the history of the planet?

Talk of offense to Islam! To whatever extent there may be anything of value in the religion, those who are offending it are not newspapers in Copenhagen or anywhere else in Europe or in America. The offenders are in the Middle East, and in Mosks around the world, thick in the ranks of the Muslims themselves. And their offense is in every bomb they hurl or urge to be hurled, every murder they commit or urge to be committed, against innocent victims, in the name of Islam. They are the people responsible for the Danish cartoons, which were merely a depiction of the repeated example their behavior gave of the teachings of Islam and its prophet.

It’s one thing to be a lunatic or a gang of lunatics. It is much more when the lunatics are able so closely to associate themselves with an institution as to make any distinction between them and that institution extremely difficult or impossible. This is what the lunatic element has done to Islam. Those taking offense at the view the world is coming to have of Islam need to start, unfortunately at the risk of their lives, to decisively break the grip of the lunatics on that religion.

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Tuesday, February 07, 2006

Dictator Mentality at The New York Times

In its Monday editorial “Next Steps on Energy,” The New York Times criticizes the president’s proposals concerning oil that he made in his State-of-the-Union message on January 31. Its criticism is not aimed at the actual failures of the president in connection with his proposals, such as his description of Americans’ consumption of oil as an “addiction” and his resulting failure to state the need for expanded oil drilling within the United States—and freedom from the environmentalist-inspired government intervention that prevents it.

Another, potentially far more serious failure of the president’s speech was his advocacy of the use of taxpayer money in support of alternative fuel and automotive technologies. Even though the funds he requested may be modest by the standards of present-day government spending, they will be taken as a starting point by others and have the potential for being substantially increased in future years.

No. The Times criticizes the president because his proposals do not go far enough in failing to uphold the rights of American citizens, and in further violating them. It declares: “The real question is not whether Mr. Bush's proposals are going to make life difficult for some people but whether they are tough and adventurous enough. The answer is plainly no.”

The Times’ standard of accomplishment is apparently making life difficult for some people. And it’s better from its point of view to make life more difficult for more people than the president seeks to do. Thus, it wants “tougher,” more “adventurous” proposals than he does.

The only reasonable meaning that can be attached to “tougher” governmental action is more governmental coercion to compel more people, more often to do what they otherwise would choose not to do, or to prohibit more people, more often from doing what they otherwise would choose to do. One wonders why The Times cannot find room for the right of the individual man (or women) to choose the kind of vehicle he will drive and how much oil or other fossil-based fuel he will consume. Why does it seem like the only right to choose that The Times, and so much of the rest of the “liberal” establishment, is willing to recognize is the right of women to choose to have an abortion? Shouldn’t the freedom to choose apply across the board, to everyone, short of violating the equal right of others to choose how to employ their persons and property?

Not according to The New York Times. In a bizarre corruption of the concepts of “incentives” and “market,” it attacks the president for failing to propose the kind of “program” it wants.

But the biggest shortcoming is the total absence of a program that would deliver any of these dandy new technologies to the marketplace. By program we mean a uniform set of incentives — what the economists call market signals — that would drive American industry to build the more fuel-efficient vehicles and the cleaner power plants that we need.

For vehicles, there are two ways to get there. One, favored by most research groups specializing in energy, is to greatly strengthen the fuel-economy standards for cars and trucks. The other, favored by many economists, is to enact a substantial gas tax. We like both. One way or another, through regulatory or market mechanisms, the country would soon be driving cars that were far more fuel-efficient.

The kind of “incentives” The Times wants the president to offer is greater use of the “incentive” to avoid being fined or imprisoned. That’s what will make the auto industry achieve greater “fuel-economy” and the utilities build power plants different from the ones they would otherwise build. Yes, in some cases, it also wants the government to offer money—subsidies. But the money is taken from taxpayers, who are given the “incentive” of staying out of jail as their reason for paying the additional taxes that will provide that money. And additional taxes, of course, is exactly what The Times asks for.

In its view, higher fuel prices resulting from higher taxes constitute using the “market mechanism” to provide a “market signal” to consume less fuel. Here The Times casually neglects the fact that the “market” that has a “mechanism” and provides “signals” is the market free of government coercion—that is, free of precisely what The Times wishes to introduce into it.

The Times idea of a “market mechanism” and a “market signal” is comparable to a dictator’s notion of the role of the press in the publication of election results. The dictator wants to use the press to announce his version of the outcome of the election.

We have markets for automobiles and for the fuel to power our automobiles. On those markets, the public has again and again expressed its choices. It wants a large number of large automobiles, and when it’s prohibited from getting them by such means as government-imposed “fuel-economy” standards, it wants large numbers of SUVs. It wants a supply of fuel sufficient to power its automobiles to the extent it chooses to drive them.

To borrow further from Ludwig von Mises: Like a dictator who is unhappy with the outcome of an election, The Times is unhappy with the outcome of the choices of tens of millions of American citizens expressed in their purchases of motor-vehicles and fuel for those vehicles. It contemptuously dismisses the market signal that is being flashed with the power of an aircraft searchlight into the eyes of anyone who is not blind, that the American people want more oil and energy and are willing to pay profitable prices to have it produced. It cavalierly describes the administration’s willingness to allow some additional drilling for oil in Alaska as “ill-advised,” “meaningless,” and a “fixation.”

Again and again, it joins with the rest of the environmental movement, of which it is a leading part, to frustrate the public’s choice for more energy of all kinds, energy that the American people are ready, willing, and eager to pay profitable prices for, and which the oil, coal, natural gas, and atomic power industries would eagerly produce if not prohibited by government intervention inspired by the environmental movement and applauded by The New York Times.

Like a dictator who is dissatisfied with the choice of the citizens, The Times again and again urges the dispatch of the police to change or prevent the outcome that the people want.

It dares to close its editorial with the assertion, “This [more government regulation and more taxes] is the right direction, whether the administration wants to go there or not.”

The role of the administration is totally secondary.

The primary consideration is the direction the American people seek. As they’ve demonstrated in the market day after day, year after year, they want the vehicles and the fuel they buy, and they want more of them, at lower prices, not less of them at higher prices. The right direction for the government of the United States is to respect the freedom of its citizens to choose and the choices they’ve made in the market. It is the opposite of the policy advocated by The Times. It’s the direction on which the United States was founded, the direction that is enshrined in its very foundation: namely, the “The Right to the Pursuit of Happiness,” a right held by each and every individual and exercised, in large part, every day in choosing what and how much to buy and what and how much to produce and sell. The government of the United States was established to protect this right, not to violate it.

The New York Times is a malevolent, alien influence, one that is hostile to the United States’ very reason for being.

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.


Sunday, February 05, 2006

Ready to Kill Over Cartoons

Following a series of lesser acts of terrorism, our own World Trade Center in New York City was destroyed on September 11, 2001 by airplanes full of jet fuel, hijacked and made into massive bombs by Muslim terrorists. The loss of life was in the thousands. Property damage was in the billions. Since then, there has been a seemingly endless series of car bombings, suicide bombings, and assorted other brutal murders in Israel, Iraq, the rest of the Middle East, Holland, Spain, Britain, and around the world, all carried out in the name of Allah and Islam. None of the terrorism has met with any significant or meaningful repudiation by allegedly respectable Islamic organizations or spokesmen. As a result, some people have become impatient with Islam and its prophet Muhammad. This has especially been the case in Western Europe, which is home to relatively larger numbers of Muslim immigrants and their offspring than is the United States and whose Muslim population also contains a relatively larger number of highly militant “activists,” i.e., individuals threatening, and not infrequently carrying out, acts of force and violence.

In this environment, last September, finally tiring of the self-censorship imposed by the desire not to provoke Muslim fanatics, a courageous Danish newspaper Jyllands-Posten decided to publish a collection of twelve cartoons that it had commissioned as a test of self-censorship. The newspaper’s editor, Fleming Rose, was standing up against what he very reasonably perceived as a profoundly unjust demand by Muslims. He is quoted as saying, "Some Muslims try to impose their religious taboos in the public domain. In my book, that's not asking for my respect, it's asking for my submission." (The New York Times, Feb. 5, 2006.)

One cartoon published by the newspaper depicted Muhammad as a bomber, another showed him with horns, a third showed him standing blindfolded between two women who were totally covered in black except for a narrow opening over their eyes, which was the size of his blindfold. A fourth cartoon showed him standing at the gates of heaven telling newly arrived suicide bombers that heaven had run out of virgins. (All of the twelve cartoons can be viewed on the website of Wikipedia
( There is nothing in any of the cartoons that would greatly offend anyone in his right mind.

The New York Times’ article reports, however, that a group of Danish fundamentalist Muslim clerics “inflamed the response” by adding “far more offensive cartoons that never appeared in any newspaper, some depicting Muhammad as a pedophile, a pig or engaged in bestiality.” They did this after their demand that the Danish government punish the newspaper and apologize was rejected. Wikipedia reports Denmark’s prime minister as replying, "The government refuses to apologize because the government does not control the media or a newspaper outlet; that would be in violation of the freedom of speech."

The courage of Jyllands-Posten and the Danish government was emulated by newspapers in half a dozen other European countries, which reprinted the cartoons. In the United States, the only newspaper of note to have joined them thus far appears to be The Philadelphia Inquirer. ABC’s Nightline showed one of the cartoons in its broadcast. Practically all others, including the US Department of State and the governments of most European countries seem to be merely trying to pretend that they uphold the right of free speech: they are all for free speech, but it should not be used to offend anyone’s convictions. French President Chirac, for example, simultaneously claims to defend free speech while asking everyone to avoid saying anything “that could hurt other people's beliefs."

The response to Jyllands-Posten’s courage has been a boycott of Danish goods, rioting in several countries, and the burning down of the Danish and Norwegian embassies in Syria, which was almost certainly the work of the Syrian government.

The following, reported in The New York Times of Feb. 4, is an indication of the further response that at least some in the Muslim world desire: "`We will not accept less than severing the heads of those responsible,’ one preacher at Al Omari mosque in Gaza told worshipers during Friday Prayer, according to Reuters. Other demonstrators called for amputating the hands of the cartoonists who drew the pictures.”

The question facing the Western world now is whether it will allow itself to be intimidated by a collection of utterly crazed fanatics and their religious delusions. If the decision is left up to most of the West’s politicians and intellectuals of the present-day, it will probably be to compromise, though hopefully less than to the extent of the severing of just the ears of “those responsible” and the amputation of just their thumbs.

The Muslim fanatics have no idea how revolting and offensive is not only their murderous behavior but also their beloved, utterly barbaric legal code of “Sharia,” with its beheadings, amputations, stonings, and floggings. It is revolting and offensive to anyone who values human life and the dignity of the human person. Let these wild beasts, for that is what they are, tremble lest they offend civilized people beyond the limit of endurance. Let them learn that in the Western world there will never be a “cultural diversity” broad enough and contradictory enough, to incorporate their barbarism into Western civilization.

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.


Saturday, February 04, 2006

Fiscal Schizophrenia—As Reported in The New York Times of Today, Feb. 4, 2006

Headline of The Times’ main story on page one:

“Bush to Propose Vast Cost Savings in Medicare Plan— $30 Billion Over 5 Years”

Headline and some text from a separate story on page 8:

“Bush Urges Study of Math and Science” “Mr. Bush was near Albuquerque, in the suburban city of Rio Rancho, as part of his post-State of the Union road show to promote major proposals in the address. In Rio Rancho, he pushed what the White House is calling the `American competitiveness initiative,’ which calls for, among other things, doubling federal spending on basic research grants in the physical sciences over 10 years, at a cost of $50 billion.”

Not counting the “among other things,” which will certainly add significant additional costs, Bush’s proposal on math and science works out to $25 billion in 5 years, almost enough just by itself to wipe out the “vast cost savings” of $30 billion projected in his Medicare plan.

In the article on his math and science proposal, the president is reported to have said (as a means of stressing the value of “mentoring”), “`I’m looking for a mentor, by the way, both in math and English.’” He should also be looking for one in logic. This conclusion, unhappily, is greatly reinforced by the observation in the article on Medicare that “Medicare spending totaled $333 billion last year. Under current law, it will climb by one-third in two years, reaching $445 billion in 2007, as the [president’s, the same president’s] new prescription drug program gets under way, the Congressional Budget Office says.”

In other words, the “vast savings” now being sought in the cost of Medicare, by such means as reducing “payments for oxygen equipment to Medicare beneficiaries,” are not much more than a mere 25 percent of the cost by which Medicare will increase, mainly as the result of the president’s own choices enacted just last year.

The questions must be asked: What is the president thinking? What are his advisors thinking? Do they think? Does he think? Do their right hands know what their left hands are doing? Do they know today what they did yesterday? Do they know today what they will do tomorrow?

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

Thursday, February 02, 2006

Oil, Big Business, and "Monopoly"

A reader of my analysis of the backlash against the profits of big oil companies thinks that one of my statements is “laughable,” namely, my claim that the “oil companies, including Exxon Mobil, have been doing their utmost to increase the supply of oil, including reinvesting a major portion of their profits precisely for that purpose. But time and again, they have been prevented from increasing the supply of oil by the environmental movement and the maze of governmental regulations and prohibitions that it has inspired.” He writes:

Come on! Are we supposed to believe that the brave oil companies are the helpless victims of these environmental laws?! . . . government has supplied to oil companies a means of preventing supply from being increased when they raise their prices - in effect, a monopolistic privilege, in the Rothbardian sense... and we are to believe that oil companies are very angry about this and are trying to increase supplies in spite of it?! ... Environmental laws are just some of the monopolistic privileges that oil companies enjoy, and it is laughable to suppose that they aren't happy with that!

This reader simply ignores all of the repeated efforts of the oil companies to develop ANWR, to increase offshore drilling, to build new refineries and pipelines, and the fact that time and again they have been frustrated in these efforts by the environmental movement. He asserts the conspiratorial, leftist line, apparently endorsed by some prominent libertarians, that government intervention, indeed, socialism and communism, is a capitalist plot, that, if not invented, is at least promoted by big business and the rich for purposes of their further enrichment.

He is right, of course, to describe the environmental laws as monopoly legislation. They forcibly restrict the production of oil and thereby make its price higher. But their existence and result are not the responsibility of those who produce oil and thereby add to its supply and make its price lower.

I think that this reader and his mentors have probably been unduly influenced by the doctrine of “marginal revenue” and the supposed sensitivity of big business to a consideration of it, as opposed to a consideration of price, in deciding whether or not to expand production.

Marginal revenue is the change in total revenue that results from a change in production. It is believed that it follows from the concept of marginal revenue that the larger the share of an industry’s business that a firm accounts for, the less is its incentive to expand its production, because it will have to suffer the resulting reduction in price on its correspondingly larger, already existing output.

Thus, for example, if an industry presently produces an output of 100 units of product, which it sells for a price of $10 per unit, its total revenue is $1000. (I’ve kept the numbers as small and simple as possible.) If the industry’s output expanded to, say, 105 units, and the result was a fall in price to $9 per unit (a fall that is necessary in order to find buyers for the additional units), the total revenue of the industry at that point would be only $945, an actual reduction of $55. Its marginal revenue would thus be -$55. From the perspective of the marginal revenue doctrine, if there were only one firm in the industry, producing 100 percent of the industry’s output, its production would never expand in such circumstances, because the result would be lower earnings from the larger volume of production than from the smaller volume of production.

I want to point out that even in this, most extreme case, it does not actually follow that the industry’s output would not expand or even that the one firm that presently constitutes the industry would not expand its output. Everything depends on whether or not the production of the additional 5 units is profitable apart from its effect on the earnings from the existing 100 units of output. If, for example, the total cost of producing 5 units to be sold at $9 per unit is less than $45 by enough to provide a competitive rate of profit, those 5 units will be produced and the price will fall. The only question for the firm that presently produces 100 units is whether it wishes to produce 100 units at a price of $9 or 105 units at a price of $9. To whatever extent, it is possible for anyone else, anywhere in the world, to produce those additional 5 units, our firm simply does not have the option of choosing between 100 units at a price of $10 or 105 units at a price of $9. Its only choice is between 100 units at $9 or 105 units at $9.

In such circumstances, it’s not at all unreasonable to expect that even our 100 percent supplier firm would be out there attempting to increase its output. Because if it does not increase its output and anyone else does, it ends up with the same lower price, but does so with less volume than it might have had and accordingly earns lower profits than it could have earned.

Now the actual fact, of course, is that neither any individual American oil company nor all American oil companies taken together accounts for anything close to 100 percent of the world’s oil output. The United States consumes approximately 25 percent of the world’s oil output, and roughly half of that is now imported. This implies that total oil output in the United States itself is about 12½ percent of global output. The percentage of global output produced by any individual American oil company, such as Exxon Mobil or Chevron, within the United States is far less than that.

In terms of our example of price and quantity, the actual fact is that a large American oil company might presently produce on the order of 2, 3, 4, or 5 out of a global oil output of 100. For such a company to be able to increase its own output by an amount equal 1 to 5 percent of the present world oil output, the sheer percentage increase in its own volume would almost certainly substantially outweigh the percentage decline in the world price that its expansion caused. If, for example, Exxon Mobil could go from 5 to 10 in output, while the price declined from $10 to $9, its revenue would rise from $50 to $90, making it vastly more profitable.

The more the price of any commodity exceeds the cost of producing additional quantities of it, the more powerful becomes the incentive to expand its supply. This is as true of the price of oil today as of anything else at any other time. All that is required to bring the price of oil down is to get the government and the environmentalists out of the way. The American oil industry would then lead the charge in the expansion of production.

[For further discussion of the subject of monopoly in general and of the doctrine of marginal revenue in particular, see Chapter 10 of my Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996).

Copyright © 2006 by George Reisman. All rights reserved. George Reisman, Ph.D., is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics.

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