October 29, 2011

The Eminently Real Free Market (XLIV): Sketchy Stories (32): Scrooge on Externalization and Other Samples of Ferraran Standards of Documentation

Continuing his eighth sketchy story, Mr. Ferrara rails against State-facilitated externalization or socialization of the cost of doing business. In his attempt to make this a case against the free market, however, Mr. Ferrara has, as we have seen, summoned to the witness stand an unrepentant Catholic Fascist. Remarkably, he then reinforces his argument by quoting the words Charles Dickens put into the mouth of Ebenezer Scrooge in A Christmas Carol. You know, where he suggests that the poor repair to the prisons and workhouses of Victorian England, etc:
Well, I’ll be tougher than the toughies, and sharper than the sharpies—and I’ll make my money square!
All right, that was Scrooge McDuck.[0] That cartoon character’s lines may be more irrelevant to the matter at hand than Ebenezer’s, but not much. For the matter at hand is Mr. Ferrara’s accusation that
. . . it is precisely Scrooge’s reliance on the State to do what he should do in justice that Austrians defend. (28)
yet Mr. Ferrara does not—because he could not—quote any Austro-libertarian to the effect that employers either (a) morally owe their employees certain welfare benefits or (b) should evade that “obligation” by persuading their employees to join the welfare rolls. The Austrian condemnation of the welfare state in all its incarnations does not allow for that inference.
Let’s overlook that typical shortcoming, however, and instead make sure we understand his slander: Austrians allegedly defend the fictional Scrooge’s reliance on the State (which they want to dismantle) to do what that fictional miser was allegedly morally obliged to do.
Mr. Ferrara’s implicit slander that any given capitalist is presumptively a meanie—a Scrooge—informs the tenor of this section. And he is not finished: here he is merely foreshadowing the chapter (15) that he will devote to Michael Levin’s contrarian, pro-market interpretation of Dickens’ classic. Mr. Ferrara’s slander is not based on evidence we can examine, but rather trades on the negative emotional charge attaching to “Ebenezer Scrooge” enhanced by (as we shall see) a poorly documented anecdote. As there’s no real defendant here, no defense is required.[1]
We wonder why Mr. Ferrara didn’t omit this appeal to the fictional and instead move directly from Fanfani to one of his favorite whipping boys, Wal-Mart:
A perfect example of how the “free” market uses government to “externalize” its operating costs so that it can scrimp on employee compensation is the declaration by Wal-Mart’s CEO that Wal-Mart employees without medical coverage should consider public assistance. (28)
Truly horrible. But what does this have to do with Austro-libertarianism?
Markets, whether “free” or free, don’t use government. Individuals use government to seek power over other individuals, and historically the State has served as the convenient facilitator of such exploitation. We Austro-libertarians don’t think that moral hazard should exist.
Mr. Ferrara insinuates that the interest of big business in getting others to pay their costs of doing business was the prime mover of the rise of the welfare state in America, which would not, of course, explain its earlier rise in Europe. We agree that the effort to externalize costs was a factor, but hardly the only one. It is certainly not the kind of explanation that should satisfy a Catholic intellectual. Unless one is committed to Marxist—or Beardsian, quasi-Marxist—interpretation of history, one will look for ideological drivers. Murray Rothbard’s “Origins of the Welfare State in America”[2] shows how much ideology Mr. Ferrara’s economic determinism omits.
The silent, unsupported premise of Mr. Ferrara’s indictment of Wal-Mart is that “medical coverage” is somehow a morally necessary part of an employee’s compensation. Mr. Ferrara has not even attempted to show that it is any more such a part than is a Social Security “insurance premium.”
Compensation—money paid to “compensate” employees for the leisure they forego when they produce goods or services their employer prefers to that money—is determined by market forces, including the supply of and the demand for their particular skill sets. It is also, as we have argued, a function of the capital investment that increases the productivity of labor, which in turn increases the wages or “compensation” that labor can command.
Market forces—not ethical desire or the imperatives of justice—also determine the production of the goods and services for which wage earners exchange the money they receive in wages, including health care insurance. Markets cannot—logically cannot—be blamed for political interference with markets, which distorts pricing. Let’s eliminate those complicating, distorting, aggravating political forces.
One form that interference takes is the mandatory pooling of people who incur greater risks to their health through their lifestyle choices with those who incur lesser. That is, the same coverage is offered both to those who don’t eat well and exercise and to those who do.[3] But to the degree that health is subject to one’s control, to that degree the acquisition of an adverse health condition is not a poolable risk as is, say, a catastrophic accident. Yet insurance underwriters get raked over the coals every time they insist on following the logic of pooled risk rather than that of welfare benefits.
Such interference has made health care insurance coverage virtually unaffordable for most people.[4] Many of them conclude, unfortunately, more emotionally than rationally, that such coverage is not something they must either (a) pay for themselves or (b) receive as charity from others. It is rather something that is theirs as a matter of justice, as Mr. Ferrara suggests. This moral imperative does not, however, immunize companies from the central bank-spawned alternation of boom and bust, and during the bust, when many of them are forced to cut costs, including those associated with their compensation packages, healthcare insurance coverage is vulnerable. Wal-Mart demonstrated that just the other day. But Mr. Ferrara has not demonstrated that there is any presumptive right to such coverage: so far that’s just his dogma. As far as we can tell, it is but another form that compensation has taken historically and can one day cease to take.
If, in fairness to former Wal-Mart CEO Lee Scott whom Mr. Ferrara seems to quote, you would like to read for yourself what he said, even what else he may have said immediately before or after his alleged comparative judgment
“In some of our states, the public program may actually be a better value with relatively high income limits to qualify and low premiums” (28-29)
do not look to Mr. Ferrara. He fulfills his obligation as a propagandist once he has held up his target for mockery, sourcing only the latter’s adversary: his reference note cites something called wakeupwalmart.com/facts, but that link does not take one to the transcript of Mr. Scott’s speech mentioned in Mr. Ferrara’s note. (331 n. 51) Rather, it redirects to the site of the United Food and Commercial Workers International Union.
If fact, do not bother to look anywhere for the origin of those words, which seem to reproduce themselves, meme-like, across the Internet. On the Wiki article on criticism of Wal-Mart one can find a contemporary source for this alleged speech-fragment, but its linked reference, Susan Bucher’s impartially titled study, “Walmart: the $288 billion welfare queen,” Tallahassee Democrat, April 19, 2005, also redirects to that union site.
In short, Mr. Ferrara’s “perfect example” is an anecdote, from which nothing may be reliably inferred.
For the sake of argument, however, let’s assume that Mr. Scott said what he is quoted as saying and that it fairly represents his attitude toward the “public program,” i.e., the welfare rolls. Let’s also assume the veracity of the facts Mr. Ferrara appended to Mr. Scott’s words:
And this from a company whose CEO earns more than $25 million annually and whose founding family is worth more than $80 billion collectively thank to the labor of the “sales associates” Wal-Mart declines to provide with medical coverage . . . . (29)
The undefended implicit premise here seems to be: “And employers who are worth that much and pay their officers that much ought to pay larger compensation packages than those mutually agreed upon.” But that “ought” begs the question.  
While corporations are externalizing these operating costs [Mr. Ferrara writes], wage earners are paying for them almost entirely. In fiscal year 2008, for example, federal personal income taxes and payroll taxes combined represented 81% of federal tax revenues, while the corporate tax represented only 12%. (29)
Tax avoidance is everyone’s game, however, and we should not be surprised that those with more money and power will be better at protecting their money from the taxman than those with less. So, in the interest of equity as well as justice, let’s abolish all such systems by which the few loot the many and find a more intelligent way to pay for socially necessary goods and services. Let's try free markets.
On this very point, we are pleased to note partial agreement between Mr. Ferrara and ourselves. After imputing another silly “panic button” to us (“So, you want to soak the corporations?”), he “replies”:
. . . this is not an argument for increased corporate taxation. Rather, it is an argument for abolition of the personal income tax and the federal corporate income tax . . . (29)
Actually, we haven’t seen much of an argument at all, but if Mr. Ferrara wishes to number himself among the tax abolitionists, however, we will take him at his word. But then he drops the other shoe. (Same sentence; take a deep breath.)
. . . followed by payment of just wages and benefits to employees in the Catholic spirit of commerce, along with privatized retirement plans and public provision only for those truly in need, and then only at the local level. (29)
Hmmm.  How will that be paid for? He will attempt an argument for this opinion later, but here it is a gratuitous, question-begging assertion, meriting only gratuitous denial.
* * *
The rest of his sketch concerns the role of big business in the creation of the welfare state and its infamous socialistic “programs,” an involvement we lament and deplore, but to the origin of which there was much more by way of ideological inspiration than he shows any awareness of or interest in.[5] We do, however, question what this indictment of “the Keynesian model of the managed economy,” as he refers to it, has to do with the defense of free markets, hampered as they are by the implementation of that model. He tops off his narrative with this flourish:
. . . every single Western nation today . . . combines a “free” market of privileged corporations with government assistance programs by which corporate costs for employees are externalized. “We’re all Keynesians now,” as Milton Friedman has famously observed. (29)[6]
But he has not shown that they are necessarily “corporate costs” at all. They are simply various goods and services (e.g., “social security” financed by a Ponzi scheme) that people demand through the political system, which large corporations effectively control. The latter warrants the aim of abolishing, not the corporate form of organization, but rather the State.
As for his use of Friedman, Mr. Ferrara’s source for his words is not the December 31, 1965 issue of Time magazine where they first appeared, rather (once again) a book by his economics control, John Médaille. (331 n. 53) The latter author, however, merely reproduces the fragment of Friedman’s words that President Nixon echoed when he closed the U.S. “gold window” in 1971. Words “as quoted” by Médaille, however, is apparently good enough for Mr. Ferrara. We have seen how unreliable that can be. Let’s explore that defect in this instance.
Mr. Médaille wrote: “The conservative economist Milton Friedman somewhat impishly suggested “We’re all Keynesians now!” (The Vocation of Business, 79). If the following qualified remark by the late dean of the Chicago School of Economics sounds like an impish suggestion to our readers’ literary ears, then perhaps something is wrong with ours:
In one sense we are all Keynesians now; in another, no one is a Keynesian any longer. We all use the Keynesian language and apparatus; none of us any longer accepts the initial Keynesian conclusions.
As for Mr. Médaille’s political characterization of Friedman:
In 1994 Milton Friedman wrote a letter to Policy Review to complain that the magazine, then published by the Heritage Foundation, had inaccurately described his mentor and friend F.A. Hayek as a conservative. Noting that Hayek had included a postscript in his classic work of political philosophy, The Constitution of Liberty, explaining “Why I Am Not a Conservative,” Friedman said, “Hayek, to the best of my belief, like myself, always considered himself a ‘Whig’—a 19th century liberal, never a conservative.” Policy Review's editor, Adam Meyerson, was unfazed. Not only was Hayek a conservative, he told Friedman, but “you are a conservative, too. Sorry.”
Jacob Sullum, “Milton Friedman, Archliberal: Why the great free market economist was not a conservative,” TownHall.com, November 22, 2006. Emphasis ours.
We never said Mr. Ferrara is the first practitioner of the art of persistent misquotation and mischaracterization.

[0] Brother to Viennese polymath Ludwig von Drake. (Hat tip to Dave Rogers.)
[1] Mr. Ferrara once before treated us to his sophomoric use of the novelist when he referred to Albert Jay Nock’s unfortunate reliance on Dickens’ Hard Times to express disapproval of the enclosure of the English commons.
[2] The text of a paper Rothbard delivered at the Mises Institute's “Evils of the Welfare State” conference, Lake Bluff, Illinois, April 30—May 2, 1993.
[3] As Hans-Hermann Hoppe tersely put it: “Subsidies for the ill and diseased breed illness and disease, and promote carelessness, indigence, and dependency. If we eliminate them, we would strengthen the will to live healthy lives and to work for a living.”
[4] For excellent reading material on the topic of free-market health care, see the list Tom Woods compiled for a recent post.
[5] “J. Douglas Brown was head of Princeton's IRC-created Industrial Relations Department, and was the point man for the CES [FDR’s Rockefeller-dominated Committee on Economic Security.—A.F.] in designing the old-age pension plan for Social Security. Brown, along with the big-business members of the Advisory Council, was particularly adamant that no employers escape the taxes for the old-age pension scheme. Brown was frankly concerned that small business not escape the cost-raising consequences of these social security tax obligation. In this way, big businesses, who were already voluntarily providing costly old-age pensions to their employees, could use the federal government to force their small-business competitors into paying for similar, costly, programs. Thus, Brown explained, in his testimony before the Senate Finance Committee in 1935, that the great boon of the employer “contribution” to old age pensions is that it makes uniform throughout industry a minimum cost of providing old-age security and protects the more liberal employer now providing pensions from the competition of the employer who otherwise fires the old person without a pension when superannuated. It levels up cost of old-age protection on both the progressive employer and the unprogressive employer.” Rothbard, op. cit. Our emphasis.
[6] Mr. Ferrara’s grammar is as good as his scholarship. Reference in 2010 to someone’s “observing” something in 1965 should be expressed in the simple past tense.