Coca-Cola | Starbucks | McDonald’s | Google | Microsoft | Intel | U.S. Department of Housing and Urban Development

Which of the listed groups do you think has the highest annual budget?  You probably guessed right because it sticks out like a sore thumb – the United States Department of Housing and Urban Development (“HUD”).  HUD has a higher budget than Coca-Cola and Google combined.  Starbucks takes care of over 5 million patrons per day (2006 stat) and sells packaged coffee beans and numerous other goods, and does it for a little over $9 billion per year in operating expenses.  Google handles more internet traffic than any other website on earth (over 4% of the internet’s entire traffic), builds software for computers and mobile phones, and does a slew of other money-making ventures and it spends a little over $16 billion per year, which comes out to about 1/3 of the amount that HUD plans to spend in 2010.  HUD spent over $40 billion in 2009 and plans to up that by a modest $3 billion to over $43.7 billion in 2010 and was rated the worst landlord in the United States in 2006.  On a per working person basis, that is over $291 that each of us will spend on HUD next year.  I can get a Playstation 3 or a laptop computer for less than that.

There is nothing special about HUD that made me choose it for my example.  They are no more inefficient than any other department of the federal government and they could have easily been replaced by one of the other countless departments and agencies that our government has developed (full list: http://en.wikipedia.org/wiki/List_of_United_States_federal_agencies).

The inherent inefficiencies in government lead to dramatically greater levels of spending.  There is no incentive for a government agency to run efficiently, in fact there is an incentive to run inefficiently.  By bloating their spending, government agencies can secure more funding for the next year.  If, however, they run efficiently and go under budget, that money will be stripped from them the next year and reallocated to an inefficient program.  Furthermore, as an agency grows and hires more people, legislators become afraid to disband the agency because they will then be “killing jobs.”  Conversely, private people and organizations have incentives to spend as little as possible while producing as much as possible.  These capitalistic efficiencies, not government spending, are what have made the United States so prosperous in its brief history.

Would you rather have Shaun Donovan (HUD Secretary most of us have never heard of and has a higher budget than the Microsoft CEO, Steve Ballmer) spend your $291 next year, or would you rather spend it yourself?  Every dollar that the government spends is one less dollar that each of us can invest or use to buy food and clothing.  If the government really wants to improve employment and housing, they would be best suited to get out of the way and let the people of this nation spend their own money in far more efficient manners than the U.S. Government will ever be able to spend our money for us.

In a recent Huffington Post article, film critic Marshall Fine veritably gushes over Michael Moore’s latest diatribe, Capitalism: A Love Story, calling it “an urgently important piece of work.” The film’s grievances are legitimate and even admirable. Its conclusions and central premise however, are critically flawed.

Michael Moore pinpoints the problem as “two Americas – and most of us are living in the one that routinely gets the short end of the stick. Why? Because that other America – the one in which the bulk of the country’s wealth is owned by the richest one percent of Americans – is so firmly committed to hanging on to what they’ve got and getting more.”

On this point, few Americans would disagree, including myself and certainly including the oft-derided “tea party” movement, which turned out in droves to protest the transfer of billions of dollars of wealth from ordinary citizens in the “short-end-of-the-stick America” to wealthy corporate interests in the “richest-one-percent America.”

But Michael Moore’s analysis of this problem’s root causes is shallow, unsophisticated, and inaccurate. Why are there two such Americas? Because, Moore argues, the Reagan and Bush Administrations “did so much to deregulate and destabilize our economy in the name of the free market.”

Capitalism, as the film’s title suggests, is the culprit and the target of Michael Moore’s misguided polemics. The free market is the problem and more government regulation is the solution. This common line of thought and rhetoric is so tragic not merely because it is mistaken, but because the mistake is predicated on a fundamental misunderstanding of capitalism itself.

Let’s look again at the picture of the two Americas. Let’s call the bad guys Corporate America and their victims Middle America, because they are middle-to-lower class and often caught in the middle between special corporate interests and a corrupt government that rewards and aids those interests in their fleecing of Middle Americans.

How does Corporate America exercise its power and tyranny over Middle America? Moore points it out himself. One of his biggest grievances against corporate America in Capitalism: A Love Story is the seven hundred billion dollar bailout Wall Street received from the government.

Indeed, Moore’s distributor, Overture Films says that Capitalism: A Love Story chronicles what Moore considers “the biggest robbery in the history of this country the massive transfer of U.S. taxpayer money to private financial institutions.” Watch the trailer yourself and see how central the billion dollar corporate bailout is to Moore’s outrage and criticism.

Then remember that capitalism and free markets are based on no interference from the government. In a system of perfect capitalism, the bailouts would not have occurred. Indeed their very occurrence immediately precludes our system of economics from being considered capitalistic. It is not because our economy was so free and unregulated that this occurred, but because our government is allowed to become so involved in our economy.

In a free market, businesses succeed and fail on the basis of their ideas, on their merit in creating value for society. This is determined by the free and voluntary activity of individuals who exchange with others- again, on the basis of what improves and adds value to their lives. In this model, businesses that don’t create value for others… fail.

But in a controlled economy, the government decides who the winners and losers are irrespective of the value they create. In this case, failing businesses which should lose, get propped up as “winners” by the government, with money that is taken by the government, from taxpayers in Middle America, without their free and voluntary consent.

See who the culprit really is? Yes: the government. If the government were restricted to its Constitutionally enumerated powers (minus two centuries of a lot of case law and its many bizarre interpretations thereof), the bailouts would never have occurred. If America were a truly capitalist country, then the government would not be allowed to intervene by taking your wealth and transferring it to businesses that did not merit it.

If you can clearly and emotionally explain to others what I have written above, while vehemently agreeing with them as you should, that the corporations in America are way out of hand in their scope of power and influence, then we may be able to resolve a deep episode of polarization in American history that should never have happened.

For Michael Moore’s fans on “the left” to so deeply resent and abhor the government’s intrusive corporate bailouts, is an encouraging sign and a bright opportunity to clarify what the nature of capitalism and the proper role of government really are. With a little encouragement and clarity from free market proponents, we may yet see the rise of reason in 21st century American politics.

W. E. Messamore blogs at The Humble Libertarian.

I think this graph deserves an article of its own, as it speaks volumes. Yet another case in which people with good intentions do far more harm than good.

Credit for the graph goes to the Goldwater Institute.  The study from which the graph is derived can be found here: Goldwater Institute Study.

Thanks to John Stossel for putting this on his blog to be found.

Whole Foods CEO, John Mackey, recently published this editorial in the Wall Street Journal criticizing the Democrats’ health plan: WSJ Article by John Mackey.  In response to this article and John Mackey’s general libertarian ideals towards health care and other issues, many liberal-leaning Whole Foods shoppers have banded together to boycott the grocer.  A leading forum for these dissenters has been a Facebook group supporting the boycott.

The Facebook group, boasting over 19,000 members at the time of the publishing of this article, describes its mission statement as the following:

John Mackey, CEO and co-founder of Whole Foods wrote an op-ed in the Wall Street Journal on August 12, 2009 quoting Margaret Thatcher and suggesting that healthcare is a commodity that only the rich, like him, deserve.

Whole Foods has built its brand with the dollars of deceived progressives. Let them know your money will no longer go to support Whole Foods’ anti-union, anti-health insurance reform, right-wing activities.

I rather prefer the Margaret Thatcher quote with which Mackey began his article: “The problem with socialism is that eventually you run out of other people’s money.”

Being that we who contribute to this blog (and presumably most that read it) call ourselves libertarians, I would like to officially begin the Whole Foods Liberty Support group.  I hereby proclaim that we, as libertarians, should do what libertarians do best and vote with our dollars.  We should show that we support John Mackey’s stance on health care and libertarianism by making up for a small portion of the thousands of shoppers that will visit some other organic grocer.  Henceforth, I am buying all of my organic goods at Whole Foods.

Please join the newly created Whole Foods Libertarian Support Group on Facebook and work with me to setup regular economic lunch discussions at local Whole Foods stores.

*Note that organic foods are completely ludicrous and Jeremy P. Arendt, The United States Holding Company, and Rise of Reason are in full support of genetically modified food, pesticide, fertilizer, and anything else that makes food more abundant and cheaper. However, the freedom to pay too much for your produce is fully supported.  Likewise, all said entities are in full support of libertarians across the world and are therefore in support of shopping at Whole Foods.  Plus, the store really has some great items.

Let’s, for the sake of argument, assume that HR 3200 is completely revenue neutral and that no one will be taxed a single extra penny, because, for the purposes of my discussion below, it doesn’t matter whether this is true or not. If you comment on this article and say anything about revenue neutrality or no increased taxes (on people making less than that magical number of $250K/year, of course), I will simply laugh at you for not reading the article and shouting out talking points.

It has been established that insurance companies struck a deal with Washington. The deal: You (Washington) force everyone to buy an insurance plan and we (the big bad insurance companies) will support a plan to insure people with preexisting conditions.

That sounds great, right? I mean, it’s just like auto insurance. The reason auto insurance is so cheap (I pay more for car insurance than I do for health insurance… so figure that one out for me) is that the auto insurance companies have a better risk pool because both good and bad drivers are forced to buy insurance.

You see, what would happen if not everyone were forced to buy auto insurance is that people who are not risk averse and feel that they are great drivers would buy either a watered-down policy or no policy at all. The bad drivers (knowing that they are bad drivers or otherwise accident prone) and the risk averse would pay a higher premium for better insurance. The insurance company would really have very little way to tell who was buying the better packages because he is just a bad driver and who is simply risk averse. This problem is known as adverse selection, which often occurs in situations where there is an asymmetry of information, meaning one or both parties have information that the other does not have.

Because of this problem of adverse selection, the insurance companies would charge a very large premium for the bad drivers (i.e. the policies with more coverage) and a very small premium for the good drivers (i.e. the policies with less coverage).

Now, when the government steps in and forces EVERYONE to buy a certain minimum level of coverage, what happens? Well, now the insurance companies know that some of the drivers are very good drivers who will rarely, if ever, make a claim, while some are the bad drivers who will constantly be making claims, probably in excess of the premiums they pay. But, because of the risk pooling now in effect, the insurance company can charge the bad drivers a smaller premium than before because the good drivers are making up the difference. In other words, the good drivers are subsidizing the bad drivers’ insurance premiums when they are forced to buy a minimum coverage in excess of what they would have without the law forcing the purchase of a minimum coverage policy.

This is great for bad drivers, and terrible for good drivers. Not only is it bad for good drivers because they pay more, but there are more bad drivers on the road because the good drivers are subsidizing their bad driving practices! And, on top of that, some of the good drivers who would have bought less expensive policies and then either not repaired minor cosmetic issues that are pricey to repair, or would have paid out of pocket because their plan didn’t cover it will start getting those repairs done, increasing both demand for and, therefore, cost of auto repairs.

Back to health care:

The health insurance lobby is not entirely stupid. They understand what’s at risk here. Either they cover preexisting conditions, or they face competition against a “public option” which will most certainly cover preexisting conditions at a fraction of the cost, being backed by the seemingly bottomless purse of the United States Treasury (ultimately, this is tax payers’ money… and mostly “rich” tax payers’ money). So, they cut a deal with Washington.

The health insurance companies know that if they can create a better risk pool by forcing young, healthy people into plans with certain “minimum standards”, then they can offer lower insurance premiums to older, sicker people and they can offer to cover preexisting conditions. The solution is clear: get into bed with Washington.

Just like auto insurance, this is great for those who will use their health insurance the most: the sick and the old. This is a terrible deal for those who wouldn’t typically use their health insurance all that much: the young and the healthy.

This is a massive transfer of cost from the sick to the healthy. And, because the healthy will be forced to buy more expensive policies, they will be more apt to use the policy, increasing the demand of and, therefore, the cost of health care.

It all sounds like a good deal to anyone with a heart. However, when you look at the unintended consequences, you have to ask yourself if it’s right. The people who will be disproportionately hurt by this deal are the young, healthy people in our economy. It will become more expensive to ensure low wage earners (who are typically younger, healthier workers), and it will cost those young people who are either unemployed or self-employed a considerable amount more money to buy health insurance, because they will be forced into buying more expensive coverage to meet minimum coverage standards.

Ultimately, this will cost young, healthy people their jobs as they become more expensive to insure. It will keep unemployment rates higher among the very people this bill is aimed to help: the poor (low income earners) and the unemployed.

For those of you who have preexisting conditions and think this is a great thing, I only ask that you say out loud what you are truly asking for: “I want to force healthy people to pay more money so that I can pay less. I want to take from the healthy for my benefit.” Don’t try to make this seem like some nobel purpose you are pursuing – some right to which all Americans are entitled. You are in this for yourself. You are as greedy as Bernie Madoff, but you are trying to use the government to force people to give to you, whereas Bernie Madoff just committed fraud. You both have the same end goal: more for yourself at the expense of others.

Freedom creates optimal efficiencies because it demands the best from people and the best is always the outcome.  However, one of the byproducts of efficiency is creative destruction.

Take, for example, the typewriter.  At the height of the typewriter industry there were two notable typewriter manufacturers (there were more than two, but I am only referring to two in this example).  Both companies grew into large corporations and bought out competitors in an effort to ramp up growth.  Eventually the personal computer was invented and an entirely new degree of competition entered the typewriter industry.  One of these two companies did not have the foresight to adapt to the changing free market – it kept producing mainly typewriters.  The company eventually declared bankruptcy in 1995.  That company is Smith Corona – most of you have probably never heard of them.  The second company in our example decided to diversify and enter the high-tech world of manufacturing computers and computer parts as well as a number of other industries.  That company is still around today and recently it sold its computer manufacturing division in an effort to slowly exit the manufacturing industry and expand itself into the consulting industry.  That company is one of the largest American companies today – International Business Machines Corporation (IBM).  The point of this exercise is to point out that freedom demands the best and creates the best.  IBM boasts revenues of about $100 billion each year because it has provided some spectacular services and products to its customers.  Smith Corona declared bankruptcy and is still struggling producing only two models of type writers because they have failed to adapt to the market and are not providing their customers with the best products for the lowest prices.  Just take a look at the two companies’ websites (www.ibm.com and www.smithcorona.com) to get an idea of what I am referring to when I say “best.”  This example of how freedom fosters the best of all things and weeds out those things that are inefficient and unproductive ends with a happy ending – IBM continues to operate and has probably provided more for Corona Smith’s old customers and employees than they would have ever had if it had not been for IBM.  Most importantly, the government did not get involved.

Other endings are not so happy.  Let’s consider the example of our automobile industry.  Since the beginning of our automobile industry many automobile manufacturers have opened and closed their doors.  Some names include Pierce-Arrow, the American Motor Car Company, Hudson Motor Car Company (acquired by American Motors Corporation), American Motors Corporation (nearly bankrupt and acquired by Chrysler and rebranded as Eagle), and Eagle (defunct since 1998).  Despite all of these companies closing their doors, the American economy continued on and the people that used to manufacture these vehicles found new jobs.  The exits of these companies were at the hands of competitors that offered superior products at lower prices, just as the troubles of GM and Chrysler in today’s day are at the hands of competitors offering superior products at lower prices.  However, because people all have big hearts (or disgustingly crooked intentions, depending on your angle) and look out for their fellow man, the elected officials of the United States Government decided we simply could not put all of the GM and Chrysler employees out of work (even though most of us clearly did not like what they were producing).  As such, the government stepped in and decided to tax us all to “prop-up” these companies.

In the United States, our freedoms have been trampled by people with the very best of intentions.    Most of the United States citizens in favor of “bailing out” GM and Chrysler (excluding congressmen, senators, anyone in the executive branch, any employee of GM and Chrysler, and any UAW member or representative) believed we should spend tax dollars on taking over the companies and redistributing the equity how President Obama saw fit because it would help the employees of these companies.  Some even listened to the politicians’ nonsense and believed that taking over these companies would somehow improve the economy.  Either way, most people believed that it would help their fellow Americans to nationalize two thirds of the United States automobile industry.  They had good intentions; they just did not have the knowledge to foresee that their actions would actually harm most Americans.  Most tragically, it would harm innocent Americans that had previously had no stake in GM or Chrysler and would still pay the price of nationalizing them.

Each dollar you spend is a type of vote.  You are voting that the product or service you acquire is better than its competitors.  When you buy a ticket to The Hangover rather than Paul Blart: Mall Cop, you are voting that more movies be made like The Hangover than Paul Blart.  Similarly, when Americans went out and bought Toyotas, Hondas, and Fords, they were voting that more vehicles be produced like those they bought than those produced by GM and Chrysler.  Now we do not have the freedom to decide.  Now the government decides for us.  We are each taxed (some more than others) and we have all therefore given our money to GM and Chrysler, even though they created inferior products.  Furthermore, this occurrence puts a big vote in from all of us that it doesn’t matter what kind of filth you put out of your factories – if you employ enough people the government of the United States will tax its citizens more to pay for your company’s shortcomings.  What do you suppose this will do to the research and development of these companies?

Because the auto-industry has been the focus this year it is easy to pick on, and I will continue picking.  Consider the subsidies the government gives buyers of hybrid vehicles.  These also come from the best of intentions (for most people).  Generally, the supporters of this subsidy want less vehicle emissions to enter our atmosphere in hopes of keeping the air clean and somehow (this is also bullshit . . .) cool our planet (apparently a cold planet is better than a warm one and I don’t think anybody knows why they feel that way).  No matter your politics, it is clear that most of these people have good intentions.  However, they are stripping the rest of us of our freedom and they are tampering with creative destruction.  They are effectively making each of us pay for part of a hybrid car, whether or not we want one.  Furthermore, they are making people that may not otherwise buy a certain model or brand of car, buy said car.  This creates a situation whereby people are voting for one type of car with their dollar because it is now cheaper (because we are all pitching in) than the car they would have otherwise purchased, even though the other car would otherwise be superior for that given price.  This then tells the automobile manufacturer to make more of the subsidized car and less of the car that is actually superior.  If the hybrid cars truly were superior cars for the price then people would naturally be lining up to buy them.  I can’t be certain because they are already subsidized, but I am confident that if there were not subsidies for hybrids that the Toyota Prius would still sell well because it gets great gas mileage for those people that are concerned with that.  We do not need the government to tell us (or “nudge” us as Cass Sunstein would say) what we should buy, sell, do, or believe.  If a product is better and cheaper then it will prevail.  If it is overpriced and lousy then it will be driven out of the market.  The same can be said for all things, not just automobiles.

These are but a couple small examples, but the lesson holds true to all things.  One of the most beautiful parts of a free society is that it embraces the best and discards the worst.  It is only when the government steps in to press its will upon the citizens of that society that things go wrong.  No matter the intentions of those people that push for new laws and regulations, one thing stands true about them: they feel they can run your life better than you can run it yourself.  I disagree.  I believe we are all capable of making decisions for ourselves.  Sometimes you and I will be wrong and we will pay our own price for being wrong and, likewise, we will reap our own benefits from being right.  But, no matter how often we are personally wrong, with enough people acting freely the world will inevitably improve and each and every one of us will be better off in the long run.

Please Comment: I’d like to hear if any of you can come up with a situation in which creative destruction is more destructive than creative.