April 17, 2014

What Kind of Power Is the Most Dangerous?

What Kind of Power is the Most Dangerous?

Americans continue to talk past each other by using a similar vocabulary while really discussing very different concepts. Previously I examined how those with a utopian view of the world (liberals) seek equal results, whereas those with a more tragic view (conservatives) only seek a fair process. I argued that most of the work toward equality of results not only fails, but it harms society’s complex incentives in the process. Regardless of good intentions, the result impoverishes everyone depending on how much force is applied.

Views also differ on the concept of power. To utopians, the exertion of power explains society’s unhappy circumstances, which they believe result from the privileged exerting power for selfish motives. Their solution is to centralize power in the hands of people who are sincere, well intentioned and reasonable and thus direct it toward more lofty goals.

Those with the tragic view sharply disagree. They view selfishness as inherent in human nature. So long as people are still free to choose without penalty, they would call it influence, not power.

For example, imagine that business magnate Warren Buffett asks you to quit your current job and work for him for a guaranteed five years at an annual salary of $2 million. Does Buffet have power over you, or do you still have all the options you had before his offer? Those with a utopian view of the world judge power by the outcome. If Buffett can entice you to work for him, then by definition he has exerted power over you.

Those with the tragic view welcome Buffett to exert this type of free market influence. But in the utopian worldview, there is no free market. Rather liberals think markets are manipulated by big corporations. These powerful forces manipulate the markets only to serve their own interests. Evil is epitomized by these greedy and selfish forces that must be brought under control to serve common interests.

Those with the tragic worldview believe sweeping reforms aimed at centralizing power in government are among the most dangerous actions society can take. In their view, the market is made up of innumerable individuals and companies. It is very efficient at providing its own negative feedback. And it is very good at setting prices based on scarcities, technological advances and consumer preferences. No centralized planner is omniscient enough to know or omnipotent enough to control the complex variables in a free market.

Any time government tries to force one variable within a free market to a certain value or to move in a certain direction, it destabilizes every other variable. And the more variables it tries to control, the greater the instability of those it leaves free to move with market forces. This is why the utopian perspective sees increased centralized planning and control as the solution to most societal problems. As a result, for example, banks are forced to loan to those with dubious credit histories, nearly bringing down our financial markets.

I divide the idea of power into two categories. The first is the use of violence or any coercive power. The second is wealth or any power that relies on rewards. Those with the conservative view fear coercion much more than the influence of wealth.

If the offer of a large sum of money influences me, a natural negative feedback is built into the system. After all, they are giving me the source of their “power” to influence me. That provides a natural negative feedback. Their only influence is either to pay me more or charge me less. In either case, I am still free to ignore the deal and choose another course of action.

But with coercion I am not given a choice. My options are restricted to only those that they have decided to allow. I say “decided to allow.” I would say “in the best interests of society,” except that is not the way those with the conservative perspective would view it. Even if it is in the best interests of 80% of society, society includes the other 20% who used to be free to pick a better course of action and now are forbidden by law. Only if you allow freedom of choice can it truly be best for all of society.

To those with the tragic view, dealing with the so-called problem of economic influence by increasing and concentrating the known evil of political power is ludicrous and naive. Perhaps the worst case is the cronyism of government favoring some corporations over others.

So when General Motors is in deep financial trouble, the government intervenes. Left on its own, GM would have survived after reorganization but with very different owners. Instead, the legal rights of bond owners and shareowners were ignored. The government seized control of the company and gave ownership to the United Autoworkers.

Then the government instituted the program familiarly known as cash for clunkers, giving away $3 billion to support its newly owned company. Aside from scrapping perfectly serviceable older vehicles and moving potential sales forward six months, it was a very inefficient way to add a handful of new sales to their new company’s bottom line. The government also imposed hybrid car tax credits to favor GM’s line of vehicles. None of these decisions made economic sense.

It is difficult to call the bailout a triumph simply because GM is now profitable. That’s like calling it a success when someone steals your car with the help of the police and then gets great gas mileage. GM might well have recovered faster or better without government intervention. The specific cost to bond holders and the general cost to society would have been smaller.

The coercive power of government is more dangerous than the free market specifically because special interests always use it to circumvent the legal and/or economic system. GM came to be in government and union hands through coercive power. Ownership was taken by force, and no measure of subsequent spoils to those who pirated it can justify the way it was seized.

Many utopians mistake government working with private enterprise as business-friendly support for free markets. Nothing could be further from the truth. When the referee starts playing on the field, the game is no longer fair. And if the referee scores more than the competitors, the game is not a success. Such intervention is the definition of fascism, socialism with a capitalistic veneer.

In a true free market, if you don’t benefit from doing business with someone, you have options. Liberals do not offer you a choice. They can and do change laws to seize and favor businesses that should fail and to punish their competitors. That is the most dangerous power.

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About David John Marotta

David John Marotta+ is the Founder and President of Marotta Wealth Management, Inc. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)

Comments

  1. John Q, says:

    Please make your case against child labor laws. This should be interesting.

    • Greetings John Q,

      Sorry to disappoint you, but children, by definition, can’t be consenting adults in any financial transaction. Laws protecting them from parents who might exploit them is precisely protection against force. I support not allowing parents to use parental force to exploit their children’s work. Having said that, there is a great number of the world’s children who live by picking over garbage heaps who would welcome the exploitation of an indoor job with any wages over $2 a day.

      I’m amazed and disappointed that with the plethora of laws making good things illegal you would pick exploiting children. It shows an unwillingness to consider the harm done by removing people’s choices. Let’s start by allowing organic raw milk or allowing teens to hold a first job that pays under minimum wage.

      • John Q. says:

        Does that mean you would have supported the recent proposal from the Labor Department that would have limited the kinds of employment that children of farm families could do to limit their exposure to high-risk farming activities?

        • Greetings John Q.,

          The child labor laws I support are those that keep options open for children to choose their own path. Working long hours without the opportunity to go to school and better themselves seems exploitative. Personally I encouraged my children to pursue whatever career options they were passionate about. I encouraged them to do paid work as young as possible. It would be wrong for the Labor Department to ban children from trying career options unless the safety concerns were significant. That is a judgement call.

          I’m certainly not the expert on farm safety and what tasks children of various ages are ready to assume. I’m certain that the Labor Department was well-intentioned, but I’m also certain that their ridge rules to hedge all accidents have significant exceptions in real life.

          As I understand the laws, they were written to bar hired workers younger than 16 from tasks such as crawling up structures taller than 6 feet, vaccinating livestock and driving ATVs. They would not be allowed to drive certain types of tractors. They would not be allowed to handle tobacco crops. They would not be allowed to work in grain silos.

          Interestingly enough, children working for their farming parents would have been exempt and therefore able to perform any chores their parents assigned to them. But the rules would apply to children working on farms owned by uncles, grandparents and other relatives.

          What is interesting is that the utopian (liberal) attitude is that one accident or death is one too many. The answer is always more laws to prevent even the possibility. The tragic (conservative) view believes that as you try to approach the utopian view the costs in unintended consequences becomes prohibitive.

          One unintended cost would be to discourage children of family farms from understanding how everything on a farm works. They would be less prepared to take on the complex family business. I don’t know enough to know if the Labor Department’s proposal went too far. I give those running farms the benefit of the doubt on this issue.

          Another pause I would have is that a situation has to be very bad before I would get between a child and his or her parents. There are cases when it is necessary, but it will cause its own harm and should never be done lightly. The exception for farming parents therefore seems appropriate. Most parents generally have their children’s safety at heart and would strive to ensure that safety on their own farms.

          Finally, many families disagree on what constitutes the greatest danger to their children’s well-being. Opinions on what is dangerous to youth vary wildly and include: bacon, dryer sheets, processed milk, soda, air fresheners, synthetic vitamins, antidepressant drugs, fast food, chemical laundry detergents, fluoride in the water, sunscreen, sports drinks, ADHD drugs, antibacterial soap, hot dogs, vaccines, button batteries and magnetic balls. Others would add bunk beds, roller blades, water skiing, trampolines and air bags.

          Farm families would sooner ban television and the internet than hard work on the farm.
          For freedom’s sake we should agree to disagree on these issues and give families some leeway in making an informed decision. Seek to change the culture before you change the law.

  2. Richard Steven Gregg says:

    Your discussion was a bit too profound for me right at the moment, but recent history shows that total despotic power in government leads to disaster as in the case of Germany Russia, and Japan too. Some think FDR was somewhat of a despot as well in some of the decisons he made, and that the IRS is the ‘gestapo” enforcing the taxes he started, on the truly productive people. It’s all relative…once the government has the power to tax you, it just gets bigger and bigger. Power corrupts….as the saying goes..

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