David R. Henderson  

My "Occupy Monterey" Talk, Part I

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I finally have found time to tell the story of my "Occupy Monterey" talk last Saturday, titled "Crony Capitalism versus the Free Market." My expectations for the success of my talk, on a scale of 10, were 3 to 6 or 7. A 3 would mean that people wouldn't listen much, booed me and interrupted me, and were just plain angry. (A 2 would have meant that someone physically attacked me. A 1 would have meant that more than 1 person physically attacked me.) A 7 would mean that people listened a fair amount, listened politely, maybe got and agreed with some of my points, but went away unenthused about my views. I would rate my reception at least an 8 and more like a 9. There was some disruption near the end, especially by one woman and a man who tried to shout me down during Q&A. When they did that, though, a young woman, one of the organizers took the microphone and reminded the man and woman about the ground rules: taking turns talking, listening respectfully, etc. The young woman said passionately, "Look where we've got by people not listening to each other. How are we ever going to do better if we don't listen and if we don't try to learn from those who disagree?" I could have hugged her.

That didn't shut up the man and woman, who just got more venomous, but I had virtually the whole crowd (about 30 or so people) on my side. I don't mean that they agreed. What I mean is that they seemed to have a fundamental sense of fair play. One young Russian immigrant yelled out that since the two of them didn't want to hear what I had to say and the other 30 or so did, there was a simple solution: for the two to leave. They didn't leave but they settled down slightly and I think they felt outnumbered.

So what led to their outburst? The proximate cause was a question about Social Security, to which I answered that there was no real trust fund because Social Security is a Ponzi scheme. That had led to about 6 or 8 boos, but then the booers had settled down and started to listen.

But I think that the real cause was that I had gotten the audience to go a long way with me in hearing and understanding my message. I had led off by telling them briefly what crony capitalism is and telling them that I had written about it as early as 1980 in a Cato Policy Analysis, Cato's first Policy Analysis actually. I quoted the following:

Should the U.S. government let Chrysler fail? Let's reword the question: Should the government force taxpayers to subsidize a company whose products do not meet the market test? The answer becomes clear: No. Why should taxpayers have to pay to keep a firm in business? As consumers and producers, they have shown that they do not want to keep it going. Consumers are not willing to pay enough for Chrysler's products to cover the company's costs; producers -- including suppliers to Chrysler and Chrysler employees -- are not willing to sell their goods and services at a cost below Chrysler's projected revenues. Consumers and producers have spoken, and that should be the end of it.

I pointed out that with the Chrysler bailout, it would become less important to produce good products and more important for companies to send executives to Washington to lobby the executive branch and Congress. I also pointed out that lobbying in Washington would increase.

Then I segued to the crony capitalism that President Eisenhower had criticized (though not by that term) in his farewell address in which he had coined the phrase "military industrial complex." From that I went to the tragedy of the Department of Defense essentially becoming the Department of Offense and, with some historical examples, the claim that President Obama, in his foreign policy, is President George W. Bush on steroids. I also hummed a few bars on Bush's and Obama's assaults on our civil liberties, first with the USA PATRIOT Act, then with Obama's breech of his promise to, as Senator, filibuster a bill (which he then voted for) to relieve some telecomm companies of their liability for illegally surveilling Americans at the behest of Bush. I also pointed out that Bush had claimed the right to kill Americans abroad if he suspected that they were terrorists ("And we all know that the government never makes mistakes, right?" I asked) and then Obama had gone ahead and acted on that Bush claim by killing Anwar al-Awlaki. Then, when al-Awlaki's 16-year-old son ran away from home to try to find his father, Obama had him killed on October 14.

The problem with the military industrial complex, I said, was not big business per se but business that colluded with, and sought special favors from, the government.

Then I segued to the robber barons.

"Who here has heard of the robber barons in U.S. history?" I asked. Over half of the audience raised their hands.
"Do you know where the term came from?" I asked. "It was used to refer to Cornelius Vanderbilt," I said. "How did Cornelius Vanderbilt make his money?" I asked. A few people answered various things, all of which were wrong.
"He made his money by competing against a government monopoly granted to Robert Fulton and, by competing, bringing down fares for people traveling on steamships. He fought for his right to compete, all the way to the Supreme Court, and the Supreme Court found that the New York state government could not legally grant a monopoly over interstate commerce. When he won the case, people in New Jersey celebrated. In fact, some of your great grandfathers might not have made it here had he not won the battle for competition."

I then told the story and gave the evidence that Tom DiLorenzo tells and gives in his 1985 article, "The Origins of Antitrust: An Interest-Group Perspective," published in the International Review of Law and Economics, that I summarize here. I also highlighted the fact that rather than using his high market share to charge high prices, John D. Rockefeller got a high market share by charging low prices. "The robber barons," I concluded, "were neither robbers nor barons."

Then I segued to free markets and started with the basics, the gains from exchange. I asked a young woman if she had bought her cell phone. She had received it as a gift. I was looking around for someone who had bought something. A man volunteered that he had bought his dog. "May I ask how much you paid?" I asked. "$30," said the man. I held up my notes to my head and said, "Maybe I'm dating myself here, but I'm like Carnac on the old Johnny Carson show," I said. "I think that when you bought the dog, you valued him at more than $30," I said. "Yes," he replied.
"Boy, am I brilliant," I said. (Pause.) "Am I brilliant or is that there's a principle that's brilliant? It's a principle that's brilliant. The principle is that both sides gain from exchange."
"How do I know that?" I asked. Someone in the audience yelled out, "Because if he hadn't value the dog at more than $30, he wouldn't have bought it."
"Right," I said. People were starting to have fun. And then, to cap it off, the dog came over to me. I bent over and let it lick me.

I'll continue on Saturday with Part II.


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COMMENTS (9 to date)
Randy writes:

Great story. Excellent method.

Rooz writes:

Are you stil whining about the auto bailout? That saved countless jobs... You need to wake up from this anti-government intervention thing and smell the China. While you're whining about the government doing too much China's government is destroying our private business. Money is money, investment is investment.

David R. Henderson writes:

@Rooz,
Did you notice the date on my piece? No, I havent’ been “whining” since 1980. I criticized the Chrysler bailout then and then went on to other things.

David R. Henderson writes:

@Randy,
Thanks.

fundamentalist writes:

Excellent speech! Congratulations!

Rooz, it's simply not true that all investment is the same. China's government invested a great deal before 1980 with little effect. Since 1918 the USSR invested far more than China ever has and how did that turn out?

Your mistake is looking only at the short term effects. Sure in the very short run government spending has some positive effects, but look at nations where government spending has dominated investment for a long time.

France and the UK tried government investment after WWII until they almost went broke in the 1970's. Then they gave it up for private investment.

Government investment in China has resulted in whole new cities with no residents at all. Most of China's government spending is total waste. They can keep it up as long as the Chinese people continue to increase productivity and save 50% of their income. But one day the hard working and frugal Chinese will wake up and realize the government has wasted most of their savings. Then they'll be pissed.

Check out Thomas DiLorenzo's "How Capitalism Saved America" and you'll learn how state investments in the 1800's bankrupted many states and caused the people to add ammendments to their constitutions forbidding any more state investments.

c141nav writes:

I wish that just one Presidential candidate - any Presidential candidate - would say words like these.

BTW I bought your book The Joy of Freedom. It is one of my favorites.

goddinpotty writes:

fundamentalist said:

Since 1918 the USSR invested far more than China ever has and how did that turn out?

Well, the USSR from 1918-1980 went from being a largely agricultural-feudal society to one capable of fighting a war with Nazi Germany, sending men into space and building thermonuclear weapons, so I'd say that in pure economic terms it paid off just great.

fundamentalist writes:

"I'd say that in pure economic terms it paid off just great."

So why did the USSR collapse if the pay off was so great? Google for Yegor Gaidar's account of the collapse. The USSR would have fallen decades earlier if it didn't have the benefit of a black market (a free market) to feed its people. 30 million starved to death under Stalin. Was the pay off for them so good?

Gaidar, the economist who guided Russia through the transition as much as possible, wrote that the USSR couldn't feed its people by 1930. It had to buy wheat with gold. When the gold ran out people would have starved but high oil prices in the 1970's saved them. The USSR exchanged oil for food. When oil prices collapsed in 1986, they had to rely on US loan guarantees to buy food.

Gorbachev had been minister of agriculture for a decade before becoming the premier and saw the main problem of the USSR as the lack of food, this in spite of the fact that the Ukraine has the best farm land in the world. And before 1917 Russia exported more wheat than the US and Canada combined.

Then Poland kicked out the communist government in the late 1980's. The Soviets intended to crush the rebellion with tanks, but the US told them if they did they could forget the loan guarantees. The Soviets had a choice: feed their people and let the empire collapse or let their people starve to save the empire. Gorbachev chose to feed his people.

Yes the Soviets had a good space program, but at the expense of the rest of the country which remained mired in the 19th century.

bill leone writes:

David,

How do you explain the fact that The Cato Institute,
which you refer to, was financed primarily by the
Koch brothers and other "Libertarian" (that is
Right Wing Nuts), who also financed the Tea Party?
The Cato Institute, by the way, has been reporting
"studies" that vehemently deny climate change, while
Koch Industries routinely violates international &
local laws designed to protect the environment.
Are you interested in reading about The Business
Plot of 1933, & its connection to the Occupy
Movement? I will gladly send you this collaborative
essay.

Sincerely, bill leone, Monterey, California

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