Truth, Justice, and the American Way

Cavemen first decided to believe in gods and spirits because they had no other means to explain their world, and witch doctors and shamans quickly seized the chance go gain power by exploiting their fear of the world and offering a comforting but false view of the world. Throughout the ages, these witch doctors have held power and proclaimed that serving Re, Zeus, Gaea, Vishnu, Buddha, Jesus, and most recently Gaia (i.e. environmentalism) is the key to relieving worldly suffering and attaining eternal bliss. To the extent that religion provided the Opium to keep men sedate and make them serve whatever whims the current tyrant had, it served its purpose very well. Religious societies built great and wasteful structures such as pyramids and cathedrals, and killed people by the thousands for to satisfy whatever religious purge their witch doctor deemed appropriate, from the crusades to the inquisition, the Islamic conquests, to the pogroms of this century.

However, in every society, these witch doctors always worked hand in hand with the Thugs (to borrow a term) who never had much faith but sought power and wealth for the sake of wealth and power alone. There were the nihilists, and they existed in every age by the names of Gilgamesh, Khan, Caesar, Stalin, or Clinton. Sometimes they used Religion as an excuse for their quests, sometimes they were the witch doctors themselves, but in they have been as permanent and as destructive as the witch doctors in human history. Their power lay in their skills to control men’s minds — not in the ability to create but to use men to subvert others to their will. In modern day, most of these witch doctors rejected God and proclaimed the State or Society to be god that men were to serve. Kant was the first to define this idea, and Marx, Lenin, Stalin, Hitler and Mao followed as his loyal students, not surprisingly assuming the all the classic characteristic of both the witch doctor and the thug by using millions of men for their personal goals and in the process killing untold mullions (over 150 million men killed by their own state in the 20th century alone) On the fundamental level, God and Society have served the same purpose — to take away the personal goals of the individual and to replace them with a “greater” purpose, as defined by whichever whim the tyrant held, whether it was Kubla Khan or the Pope. The more influence and power these “mystics of the mind and muscle” (to borrow a term from Ayn Rand) have had, the more miserable the lives of peasants in their societies have been, from Egypt, to late Roman empire and the dark ages, to the two world wars of the 20th century.

In contrast to the two types on men described above, there have always been the Creators, the thinkers of society whose power lay solely in their ability to invent, to take raw materials and raw human muscle and create machines and organize men to do productive work and in the process increase the quality of human life, answer the secrets of the universe, and otherwise to give a productive purpose to life. They have been known as Aristotle, Archimedes, Aquinas, Benjamin Franklin, and Henry Ford. The more freedom these men have had to innovate, the richer and happier their societies have become — from ancient Greece, to early Rome to the Renaissance periods, to late 18th century Britain and late 19th century America.

The stakes of the conflict between the shamans and the creators are clear to any rational observer of history, but it was not until recently that the boundaries were drawn. For Kant, society defined good and evil, for Nietzche, religion was rejected for whatever personal motives the a person might stumble upon.

The problem with Kant’s ideas is that no one can feed a collective stomach or provide any other sort of collective benefit — only individuals can benefit from man’s labor, and a few men with the power of “pull” always became the elite that stole the product of all the other men in society and brutally suppressed anyone’s right to the product of their own effort. Nietzsche’s morality (if one were to call it that) fails as any kind of useful guide to life because saying “any values go” without any rational basis to choose between them is the ultimate nihilism — if men do not have a basis to choose values from, they will pick them up half hazard and end up seeking sex, power, violence or a combination of the above. Today’s society is a perfect example. School children are taught that self-esteem does not come from achievement but from collective group identity, such as race or ethnic group, that all achievement that does happen is a result of society, and that all values, morals, and cultures are equivalent. What is left to them? Nothing but nihilism, and the only means they have to gain self-esteem in this system is by popularity, whether by random sex, public exhibitionism or displays of aggression and violence in order to impress their peers. Furthermore, the Creators in society are brutally suppressed and denounced as “exploiters” — the factories and wages they provide are denounced as coercive, and the goods they invent as unsafe and forced upon brainwashed society. One wonders if these critics would be happier if the inventors and entrepreneurs sat around and let the factory workers to find other forms of income and consumers lived without the commercial goods they have come to rely on.

As you might have expected from me, I think that the alternative to this form of nihilism and state-worship was best presented by Ayn Rand — who defended the thinkers, inventors and creators of society as the engine that drove the world and improved the lives of men throughout the ages. Their work has sometimes been defended as pragmatically necessary, but Ayn Rand was the first to defend them as *moral* — not just a necessary evil, but the Good, as opposed to the witch doctors and tyrants who used the guise of God or the State to bend men to their will. Rand stated that the goal and purpose of man’s life is productive work — not for some dictator, priest or even neighbor — but for oneself, and the product of ones labor is to be exchanged with others only in return for another equal or greater value. Values are not chosen randomly nor dictated by any god or man — they are the values that sustained and enhance one’s life. A man can choose to live his life by any standard, but only one standard — rational selfishness will lead him to act to prolong his own life whereas standards of altruism will (by definition) lead him to act against his own life.

IHS:

A list of the five intellectual figures or books that have

most influenced your philosophical and political

thinking, and a single sentence for each stating how it

has influenced you.

Free to Choose – This book was my first introduction to free market concepts and the harmful effects of government regulation and intervention

Murray N. Rothbard – As I learned more about libertarian ideas, I started to read Rothbard from whom I gained a new perspective on the political spectrum and what it meant to choose freedom.

Economics in One Lesson – Henry Hazzlit explained many economic and social fallacies that I had grown up hearing, which confirmed and reinforced my belief in a free market.

Atlas Shrugged – Ayn Rand gave me a philosophical argument for free will and the pursuit self-interest and provided a foundation for my ethical system on top of my libertarian political beliefs.

Ludwig Von Mises – Reading daily articles and commentary from the Mises Institute gave me an introduction to Austrian economics and explained its application to current events and upcoming issues.

Dr. Morgan Reynolds – My Law and Economics professor explained the benefits of a free market and limited government from a Chicago-based efficiency standpoint and renewed my faith in academia, even though he has been the only libertarian professor I have ever taken.

A statement of no more than 250 words on your career

goals, immediate and long term, and how the

Summer Fellow Program would help you reach them.

As a political science and economics major, I am interested in graduating as a double major with a minor in Russian and eventually going on to business school to receive an MBA. I am passionate about my message of liberty and free markets and would like to promote market-based ideas in the business world. I am highly skilled in computer technology, and would like to apply those skills in the market while advancing the cause for freedom. I am currently fluent in two languages, English and Russian, and by the time I complete my education hope to be fluent in three. With these sets of skills, I am particularly interested in participating in business ventures in the former Eastern-Bloc which advance private investment and property rights (rather than the more common methods of quasi-government schemes attempting to mimic private firms). I am particularly inspired by the market-based management of Koch Industries, and I would like to use those concepts in my own business pursuits.

A statement of no more than 500 words about which

policy issues and potential host organizations interest

you and why. A complete list of participating policy

groups is available on the IHS web page; however, you

may indicate organizations not on the list.

I am interested in many policy issues, but primarily economic ones such as fiscal and monetary policy. I am also interested in health care and environmental policy – specifically free-market reforms of healthcare and private property solutions. I think that the CATO institute and CEI would be perfect places for me to have my internship. As a former member of the Sierra Club, I was very concerned with environmental issues. Since then, I have read several books on free market approaches to environmental problems, and CEI has been a major source of information for me, from whom I have discovered property rights as a superior alternative to corporate taxation and regulation. As an economics major, I am also very interested in various economic issues, such as social security, monetary policy, and regulation of international trade, which have lead to me to be a regular reader of CATO editorials and reports.

 

1. A brief essay, 500 words or less, about why you would like to participate in a seminar. You might discuss: what interests you about classical liberal or libertarian ideas; what intellectual figures or works have most contributed to your thinking on political, social and economic issues; or what you hope to learn or gain from the seminar

 

 

I would like to participate in the IHS summer seminar because I am deeply interested in ideas about liberty and would like to obtain the intellectual ammunition I need to support and promote my libertarian beliefs.

I have not always been a supported of classical liberalism. My family emigrated from the USSR when I was ten because my father believed that the things he believed made America great were liberty and self-determination – something I did not come to believe until much later. When I was going through high school, I was exposed to and accepted the dominant liberal ideology that viewed government intervention as crucial in all areas of society and economics. When I started college as an aerospace engineering major, I became involved in political issues that matched the liberal ideas I had been exposed to in high school, but as I read more and more about economics, I started seeing the fundamental incompatibilities of statist policy with reality. Milton Friedman’s _Free to Choose_ was my first introduction to free market concepts and the harmful effects of government regulation and intervention, followed by _Economics in One Lesson_ by Henry Hazzlit, who explained many economic and social fallacies that I had grown up hearing and confirmed and reinforced my belief in a free market.

At the beginning sophomore year, I decided to change my major to economics and political science so I could study my newly discovered interest in economics full time. Dr. Morgan Reynolds – my Law and Economics professor explained the benefits of a free market and limited government from a Chicago-based efficiency standpoint and renewed my faith in academia, even though he has been the only libertarian professor I have ever taken. Reading daily articles and commentary from the Mises Institute introduced Austrian economics and explained its application to current events and upcoming issues. Ayn Rand’s _Atlas Shrugged_ gave me a philosophical argument for free will and the pursuit of self-interest and filled in the ethical system on top of my libertarian political beliefs.

My formal academic education starkly contrasts the libertarian beliefs that I have come to hold — my classes are often a struggle to defend my ideas to myself, my professors and my classmates. Because of this, I would greatly appreciate the chance to learn about ideas on liberty first hand from a group such as the IHS. I have been very active in speaking about classical liberal ideas these last two years and with the help of the IHS, I can learn to present my ideas even more effectively.

 

 

 

*2. A brief essay, 200 words or less, about your career interests. You might explain your career interests and priorities, your plans for the next two years, or your seminar choice

As a political science and economics major, I am interested in graduating as a double major with a minor in Russian and going on to business school to receive an MBA. I am passionate about my message of liberty and free markets and would like to promote it from the perspective of a successful executive, whatever field I end up working at. I am currently fluent in two languages and by the time I complete my education, I hope to be fluent in three so that I can work with international firms and help spread capitalism and liberty around the world.

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OAC:

 

Describe your career goals and how attending the OAC will be of value to you. 500-word limit.

I would like to participate in the OAC Undergraduate Program because I am deeply interested in Objectivism and would like to obtain the intellectual ammunition I need to

support and promote reason on campus and in my future vocation.

 

I will be graduating next year as a double major with a political science and economics double major degree and a minor in Russian and going on to get a Masters of Science in Management of Information Systems. I am passionate about my ideas on reason, liberty and free markets and would like to promote it from the perspective of a successful businessman, in whatever field I end up working at. I am currently fluent in two languages and by the time I complete my education, I hope to be fluent in three so that I can work with international firms and help spread capitalism and liberty around the world.

 

Despite having emigrated from the USSR in 1990 with my family, and experiencing communism firsthand, I became politically involved in the liberal movement in high school, and continued my involvement until my freshman year at Texas A&M, where I was first exposed to free-market economics and began to see more and more inconsistencies in the liberal position. As I became more and more interested in laissez faire ideas, I changed my major to economics at the beginning of my sophomore year. At this point, a friend recommended that I read Ayn Rand, who quickly changed my attitude on life.

 

Since then, I have helped start up and lead the local Objectivist Club where organized and promoted a speech by Dr Yaron Brook. I have promoted my view to several student groups, designed and spread fliers around campus giving rational perspectives on various current issues, and promoted and defended my ideas to my family, my friends, my classmates and my professors.

 

Because my formal academic education starkly contrasts the Objectivist beliefs that I have come to hold, my education is often a struggle to defend my ideas to myself, my professors and my classmates. The OAC would provide the ideas and arguments I need to defend and promote Objectivism in my formal education, my extracurricular activities and in my future vocation.

November 27, 2001

POLS 475 Essay #2

by David Veksler

Topic: When does “big government” become too big?

The Moral and Economic Basis of Government.

 

Throughout the last decade, “Big Government” has been frequently denounced by Republicans and Democrats alike, especially after the term was popularized by President Reagan in the 1980’s and Clinton announced that “the era of Big Government is over” during his second term. Nevertheless, the reality is that during Republican and Democratic administrations alike, the government keeps growing regardless of the party dominating Congress or the Presidency. While this fact may be surprising to the average American, the politically-savvy citizen knows that budgetary and political expansion is almost always in the interest of any given politician or bureaucrat regardless of which major party he belongs to.

The presence of such perverse incentives and bureaucratic inefficiency is often justified by the idea that there are certain activities and functions which are not supplied by the market, and while government is not always efficient at performing them, it is the only entity capable of providing them. However, when evaluating the size of the government, a crucial question is to ask whether the benefits of a certain government activity outweigh the costs – costs such as loss of income through taxes, decreased economic efficiency, and a loss of civil liberties.

Because government by its very definition has a monopoly on the use of force, all of its actions are acted through involuntary measures. Whether it is providing for a military or optional services to business, all its services cost money that must be paid in involuntary taxes that in principle depend on the “consent of the people,” but in practice are beyond the control of the average citizen. Thus, the economic justification of governmental action must be complemented by an equally important ethical justification, as each governmental action necessarily restricts individual rights. It is my opinion that these two mandates for the existence of a government are crucial to the justification of every governmental action and lead to the same conclusion – the only government that meets the twin mandates of moral legitimacy and maximal economic efficiency is a constitutional republic that limits its actions to the protection of life, liberty, and property and the creation of a few basic institutions to maintain an environment suitable for a free-market economy.

The Constitution of United States provides for a form of government very close to such an ideal, but governmental powers have quite clearly expanded far beyond the original boundaries of the Constitution. Thus, when we ask if government has become too big, we can answer the question by analyzing both the economic and ethical basis for government action and seeing if the current functions of government overstep these boundaries.

 

The Economic Basis of Government

It is worthwhile to consider the ideal model of democratic government and the reality of what happens when politicians come into the scene. Ideally, citizens demand government actions to “fix” situations of “market failure” – cases where the market leads to less-than-efficient outcomes, such as when a used-car salesman lies about the quality of the cars he sells. Ideally, taxpayers consent to the use of their money to correct the asymmetrical information problems, by say, mandatory information stickers on used cars. If politicians had the sole interest of the public in mind, this might indeed lead to greater economic efficiency, but human nature dictates that man is self-interested and reality quickly confronts such ideals. The bureaucrat who makes his living inspecting car dealerships is unlikely to suggest to his superiors that a consumer protection agency would be better at his job, or that bringing a mechanic to the dealership is a cheaper solution to government intervention. He is more likely to suggest that more regulations be placed on used car lots so that he may hire assistants or increase his work hours. Meanwhile, the consumer knows little of such inefficiencies in the inspector’s work, because the best judge of the efficiency of inspecting used cars – the government inspector himself is the one least likely to reveal the inefficiencies of his job — because they may lead to his demotion or loss of work. The point is not that regulation of used car dealerships is harmful to consumers, but that government bureaucracy is inherently inefficient and self-promotional, and the costs of such inefficiencies must always be balanced with the potential benefits.

There is another, more dangerous aspect of government regulation. The used-car dealership rarely takes regulation lying down. Rather, it will hire lobbyists, create ad campaigns to raise public support, court politicians, and in various other ways attempt to influence public policy. It is undeniable that business has such influence with the policy-makers of the United States. The problem is that as soon as an industry seeks to influence the government, it begins to compete on two levels – the competition for market power and the competition for bureaucratic power. Firms no longer strive to produce the best product at the lowest price, but for political “pull” – and the ones that win the war of pull are rarely the ones that are the most efficient. Thus, firms try to out-regulate each other out of existence rather than out-compete each other. Such is the inevitable side-effect of government regulation.

Finally, it is crucial to recognize that government is not especially good at producing any one good – it is only capable of transferring wealth from one party to another. Taxes, tariffs, licenses, and regulations either take wealth or create barriers to market entry, and private and corporate welfare, agricultural subsidies, tax-breaks, and regulations give wealth and monopoly powers to other parties. There are many arguments for such transfers of wealth, and it is impossible to answer them all in a short space, but it is sufficient to consider the previous two arguments, as they inevitably corrupt any good intentions legislators have when they enact such legislation.

When one considers the above effects of market regulation, it is easy to see why politicians have such a bad reputation. Many reformers propose further regulations and agencies to oversee politicians’ actions and finances – but this only increases the size of government. The real solution was provided to us by the Constitution of the United States — while imperfect, it contained built-in limits on the power of government to intervene in the market. When the government remains small and stays out of the regulation business, businesses have little interest in lobbying government because their livelihood is not at stake, and consumer groups have little success in imposing regulation because of court oversight of legislation. Such is the ideal size of government. When it strays into the market, it immediately becomes too big and acquires tremendous incentives to expand more and more.

At this point, it is reasonable to mention that the free market requires certain institutions to function optimally. Property rights are the basis of a capitalist economy and several government institutions provide for their protection. Civil and criminal courts provide for mediation of personal and business conflicts, a patent office creates additional property rights in trademarks and patents, and other agencies may extend property rights to airway frequencies, marine territories, and even space in the form of non-interfering satellite orbits. Today’s federal agencies accomplish all these tasks, but they also inject a large amount of additional regulation that creates much inefficiency. Radio and television spectrums are complicated by a complex grid of grants to use certain frequencies that have come to resemble quasi-property rights, yet grossly deviate from market outcomes due to massive lobbying in the part of telecommunications companies, radio and television content providers and other such groups. The same idea applies to the fields of aviation, medicine, and many others, and the net effect is a stifling of innovation and combined with massive, bloated federal and state governments.

Protection of life, liberty, and property includes protection from criminals and outside invaders. The police and the courts accomplish the first task, and a military accomplishes the second. As long as their task remains solely to protect the rights of citizens, agencies such as the FBI and CIA are justified parts of the government, and may even impose certain restrictions on trade and immigration for the sake of national security. But when the military or police agencies focus on missions that favor a certain industry (such as oil interests in the Middle East) or are unrelated to the protection of citizens rights, (such as politically motivated forays into distant nation such as Bosnia and Somalia) as they often do, they once again lead to “big government” and expand endlessly as they acquire more and more goals unrelated to their primary duties but favorable to their bureaucratic instincts.

Regulations designed to “protect” the public from “coldhearted” industry have several additional flaws. Besides the economic harms described above, they assume that the common law courts will be unable to create an environment that discourages dangerous and unsafe products from being introduced into the market. This is clearly not the case as there have been many well-publicized examples of courts being too harsh on business, not too lenient. Public juries and court judges are clearly less likely to be bought off by rich corporations than politicians. Protective regulations also ignore the role of consumer report services such as Consumer Reports, which will inevitably spring up in the place of regulation and provide efficient reporting product safety and quality ratings such as the Good Housekeeping seal does today. Furthermore, new legal tools such as class action suits and technological progress in measuring damages allow even widespread harms such as air and water pollution to be tried and discouraged by the courts.

It is worthwhile to mention that there are alternatives to civil courts in the form of private mediators, alternatives to the police and military through private provision of defense services through insurance firms, and alternatives to patents through trade secrets, but these are only supplements to the basic duties of a government and suitable replacements if and when they are judged to be better than their public alternatives.

This is the basic outline of government’s legitimate functions. Any additional functions lead to “Big Government” and can only be detrimental to its citizens, because just as the used-car salesman has perverse incentives, so do bureaucrats, and they have no market oversight to punish their trespasses.

 

The Moral Basis of Government

 

One of the reasons why a moral justification of government action is necessary is because oftentimes equity rather than efficiency arguments are used to justify redistributive programs such as welfare, Medicare, Medicaid, social security, various other job-preservation policies of government, and even public education. These functions are major portions of the federal and state budgets, and if one is to maintain that a limited Constitutional view of government is ideal, it is crucial to dispute these programs on ethical as well as economics grounds. The major problem with redistributive programs is that they violate the primary purpose of government – to protect rights, and condone legal theft under a guise of democratic approval.

Redistribution as theft may be explained by looking at the two basic models of elected government – republican and democratic. The basic purpose of a republican government is to maintain a monopoly on the legitimate use of force by the consent of those governed and use it to protect individual rights from being violated. These are the rights to life, liberty, and property. Any other supposed rights – such as the right to healthcare, food, or a job necessarily infringe on the primary rights to liberty and property because welfare requires that wealth be taken by force from one party and given another.

An alternative view is presented by a democratic government. Such a government is ideally a mirror of the majority opinion, and the larger the public participation in such a government, the stronger its mandate to rule. In such a government, equity may have a higher value than property rights in some instances, and the individual thus becomes a tool for a vague ideal known as the “social good”. The problem with such a notion is that society is not a living entity – only the individual is capable of enjoying goods, and a standard of social good ultimately leads to an inefficient and unjust redistribution of wealth to those groups of society who have the most political influence. The concept of social good is not only at the heart of socialist regimes, but also pervasive in all “mixed-economy” states, including America.

It is possible to debate redistribute policy in terms of individual versus social responsibility, as the major political parties do, but this is not necessary. It is sufficient to point out that such policies violate the basic mandate and purpose of government — to protect individual rights and subject them to social good under the guise of democracy.

Finally, redistribute policies also have perverse effects on the recipients as well as the involuntary contributors to such policies. By preempting private charity, they discourage voluntary charity and provide an excuse to bureaucratic expansion. In a sense, high taxation combined with government social programs in place discourages private donations. Ironically, the enormous funds earned for the 9-11 terrorist attack suggest that the private sector has the ability and interest in providing charity, given proper information about causes and widespread motivation to be active. Another case us social security — a program that despite being a pyramid scheme is popular with both parties. Nevertheless, it a classic example of a government program. It forces working persons to give up some of their wage for a retirement program that consistently has a lower rate of return than the market—even if the market is in a recession! While there are many private retirement plans that are much more efficient than social security, bureaucrats have incentives to promote their own version out of their own self-interest and successful sell the necessity of the program to the public, which is far less aware of the program’s faults that the people running it. Meanwhile, the cost of social security withdrawals prevents all but the well-to-do from being able to afford a real retirement policy, and is likely to be a giving a false sense of security to those who rely upon the government version if some of the dire predictions about its financial stability hold true.

Thus, the moral premise and sole purpose of government is the protection of individual rights. Any other claimed rights to a minimum provision of any good or service are invalid because they necessarily infringe on this basic purpose. Government is a contract among the people it governs that maintains a monopoly on the legitimate use of force, but the will of the majority does not give it the right to go against its basic purpose and make any individual a tool of the state or the whim of the majority.

Monday, September 24, 2001

When should government promote or assist private business?

POLS 475 Essay #1

by David Veksler

Never. That is the short answer, and it is a substantial claim considering the plethora of subsidies and financial support given to business by the federal and state governments today. There are several reasons why government assistance is actually harmful to the economy and they clearly explain the failure of each government assistance policy to achieve the desired goals. The main policies used to “help” businesses are: tariffs and other protectionist measures, tax breaks and low interest loans, and subsidies to corporations and agriculture. Unfortunately, while every one of these measures is widely used today, they all end up hurting competition, business, and consumers.

It is no secret that protectionist measures hurt consumers and competition, as any introductory economics class will quickly show, but Congress rarely heeds the free-trade argument. America’s trade deficit at the end of 2000 was a record $370 billion according to Commerce Department figures, yet it accompanied the largest economic growth cycle in America’s history. This confirms the idea that trade deficits do not cause poor economic performance; rather, they typically accompany improving economic conditions because they are a sign of increasing foreign and domestic investment. Despite ideas to the contrary, trade deficits do not cause Americans to lose their jobs, as during the last nine (as of 2000) years of rising deficits, the unemployment rate has fallen by 0.4 to record lows. As the Cato Institute reports, as the economy experienced the recent recession, the monthly deficit figures fell right along with the stock market. (The 2000 U.S. Trade Deficit: Select Cato Commentary, http://www.freetrade.org/new/DGTD2000.html. February 21, 2001) Nevertheless, the Bush administration has been invoking protectionist measures for the steel industry among others, in what is probably a sign of their political influence. America’s protectionist policy is clearly a solely political one, and a costly one at that, as protectionist measures are harmful to consumers and manufacturers as well as hypocritical, since United States often encourages the WTO and other global free-trade organizations to lower their own member nation’s tariffs.

Tax breaks, low interest loans and other such financials incentives are used mainly by states to attract business to their area. These measures are costly to the taxpayers because as research shows, the money spent attracting business rarely pays of. It is hard to measure the effect of government economic policy on a national level, but it is possible to learn a lot from looking at individual states’ policies. As all states want to attract business to their area, all fifty states have passed a variety of tax and financial incentives that can be compared to measure their relative effectiveness. According to a study by Thomas R. Dye in the Journal of Politics # 42 (Winter 1980) pp 1085-1077 titled “Public Policies and Economic Growth in the American States,” there is actually a negative relationship between the number of incentives enacted by states and the foreign and manufacturing investment as percentage of GDP (’92-’94) The r coefficient is only .108, so there is no statistically significant relationship visible. There are however, several outliers, such as Minnesota and New Hampshire that only have one and two out of the six incentives studied and fare unusually bad in investment, while Kentucky, with all six investments, fares unusually well. Perhaps, politicians are impressed by these exceptions and ignore the general failure of state incentives in attracting business. If we look at employment growth, another important measure of a state’s economic well being, we find that there is a slight positive correlation, but the r-value is only .199, so once again there is no statistically significant relationship between economic incentives and employment growth. Additionally, these incentives have little effect becuase all of the states have at least one incentive to attract business, and 48 have at least three, with the majority having five or six. Once again, there is no relationship between the number of incentives provided, the wealth of a state, or the success it has in attracting business, and financially successful states like Texas and New Hampshire have three and two incentives respectively, while poorer southern states often have all six incentives enacted. (Friedman, Miles. Directory of Incentives for Business and Development in the United States. Washington: The Urban Institute, 1991.) As the evidence shows, the end effect of these state incentives to businesses is increased taxes to individuals with little or no reward in attracting business to a state.

Subsidies, the most expensive from of government assistance to business, otherwise known as “corporate welfare” are by far the most expensive form of government assistance to private business. Subsidies to businesses cost more than $75 billion of the yearly federal budget. (“Corporate Subsidies in the Federal Budget.” Testimony of Stephen Moore before the House Budget Committee, June 30, 1999.) Instead of helping business, they have several harmful consequences. Originally meant to correct marked failures, the highly political process of distributing these subsidies creates huge market distortions, effectively throwing a wrench in the market system. As Stephen More says, “The major effect of corporate subsidies is to divert credit and capital to politically well-connected firms at the expense of their less politically influential rivals.” While more than 90 percent of American businesses manage to survive just fine without subsidies, government grants, loan guarantees, or insurance, they do have to pay higher taxes to support their politically connected competitor, which lowers their competitiveness significantly. Agricultural subsidies are yet another case of price supports harmful effects. Out of 400 farm commodities, two dozen received price supports, of which 80 percent goes to farmers with a net worth of over $500,000. The end effect agricultural supports is that the bigger, politically well-connected farms get subsidies from the government, while over a million small farmers struggle to compete with them. (“Corporate Subsidies in the Federal Budget.) No wonder small farms have trouble staying in business.

The end result of all this government “help” is quite clear — government distorts the market system by politicizing the economy, and favors larger, better-connected bossiness over smaller, less influential ones. State financial incentives cost money in higher taxes without any visible success in attracting investment. Finally, tariffs lead to higher manufacturing costs for imported and domestic raw materials, and eventually lead to higher consumer prices. Meanwhile, the group most hurt by these programs is the consumer, who has little influence or knowledge of these programs, but ends up paying for them due to higher prices for imported and domestic goods and higher state and federal taxes to pay for the various government programs.