Alexander C. Cartwright: February 2013

The most important question you can ask

Alexander C. Cartwright

Changing ideas is difficult; especially when it comes to our most cherished believes. Even though it’s easy to pass on a well-written and well-argued article to a friend, there is little chance that the article is going to have much effect on his on his or her thinking. I have found a very effective strategy for debating and speaking with those who don’t necessarily agree with me: I ask the following: What hypothetical or theoretical fact, logical mechanism, statistic, or conclusion would cause you to change your mind regarding that position?

Though most of us do not have an answer to this question for each position we hold, we should. What would cause you to believe that the welfare state is a good thing? That socialism is the superior method of social organization? That natural rights exist? Or even that Jesus died for our sins? By having an answer to this question, you are acknowledging that there is a hypothetical case in which you would change your position, given that your hypothetical threshold (whatever it may be) is met. By acknowledging that there are circumstances under which you would change your mind, you are demonstrating that your position is not one that you dogmatically hold but rather one that is the product of some critical reflection.

I think that answering this question for each and every debate we have is so fundamental that I’m comfortable saying, those who have no answer it are not worth talking to. If someone explains that there is no hypothetical or theoretical world under which they would change their position, then it is not possible to debate with them. They have, by responding ‘no’ acknowledged that there is nothing that would convince them that there position is wrong or unfounded. Those who respond ‘no’ to this question are by definition being dogmatic, not valuing the pursuit of truth, showing their disconcert with reflecting on their own positions, are not practicing the virtues of intellectual honesty, and quite possibly are ‘irrational’ individuals.

I’ve found that even thought many people see the value in answering this questions, they feel as if they are conceding their own position by admitting a theoretical circumstance in which they would change their mind. This is incorrect. By simply acknowledging that if, for example, socialism lead to a more just and prosperous society to capitalism, one would advocate socialism, he is not at all conceding his position or undermining the strength of the argument for capitalism; in fact, by admitting that there set of circumstances in which you would change you view, makes your own view appear to be the product of critical reflection and thus stronger.

One might object to this method of forcing your opponent to be intellectually honest by pointing out that it appeals to consequentialist intuitions. By asking someone under what circumstances they would change their position, or asking them to imagine a hypothetical outcome that would cause them to change an opinion, the question explicitly appeals to the ‘consequences’ and has nothing to say about any intrinsic good, value, or honor that comes from the act of holding a position or doing what one believes to be correct regardless of consequence. This is a reasonable and correct objection. This question is consequentialist in nature; I don’t see that as any mark against it.

In order to stay on the pursuit of truth and practice the virtue of intellectual honesty, there should be a hypothetical or theoretical fact, logical mechanism, statistic, or conclusion would cause us to change your minds for each and every position we hold. Furthermore, before any debate, we need to be asking our opponents this question not only so that we can make sure they are worth debating, but also because it allows us to discover which points we need to appeal to in order to win the argument.

“We can’t cut our way to prosperity” – Why not?

Alexander C. Cartwright

Even though most speeches that politicians give to large audiences are filled with general terms and are designed to be replayed in sound bites, there is one line President Obama said during his most recent state of the union address that cannot be easily taken out of context or given a reconstructed meaning. The president clearly remarked that in light of record deficits and federal debt, “we can’t cut our way to prosperity.” Though President Obama followed that comment up with what sounded like a reasonable, bi-partisan, solution of combining tax cuts with revenue increases, he didn’t explains why we cannot ‘cut our way to prosperity.’ Why cant we?

The states that have been successful in getting their fiscal houses in order have done exactly that, cut spending, along with revenues so that their government’s can’t continue to spend. The Wall Street Journal reports that “Nine states—including such fast-growing places as Florida, Tennessee and Texas—currently have no income tax, and the race is on to see which will be the tenth, and perhaps the 11th and 12th.” At least 5 other states are pushing for major tax cuts; in fact, Arkansas is considering cutting their income tax by as much as half. Our states have to maintain secure fiscal environments and stable, fair, tax policies in order to attract businesses, and if they are not effective in doing so then their economies will suffer.

Despite the action that the states have chosen to take to stay competitive, the federal government, and especially the President, want to take a different path. Though the President believes, as he said many times during his campaign, that “we need to wisely invest government dollars” in things that he see’s valuable, like green energy and other research projects, it is simply not possible to have a ‘smarter’ government make ‘better’ economic decisions.

F.A Hayek, my favorite economist, put the intellectual nail in the coffin of central planning and government spending for explaining exactly that, and we was awarded the Nobel Prize in Economic Sciences for it. Hayek explained that knowledge about how resources, either capital or material, should be allocated to their highest valued use, is not something that any one person knows but rather it is something that we discover via the market process. For example, platinum is a fantastic material for train tracks, but we use platinum in train tracks- why? Because the price is too expensive, but the price system is a result of the market process otherwise described as voluntary trade. Without a free market for platinum, we couldn’t know its price and thus we couldn’t possible determine if using it for train tracks is a good idea. The government simply can’t allocate resources, to their highest valued uses outside of the market. Smarter public servants and faster computers cannot substitute all of the tacit and local knowledge that each person communicates to producers when they buy and sell goods as different prices. Wisely ‘investing’ government dollars might win you more votes, but it will not lead to a just and prosperous society.

Even if government could systematically make good investment decisions, there is no reason to assume that public officials are benevolent enough to do so. In fact, government spending encourages both businessmen and public officials to collude at the public’s expense. When government has money to spend, politically influential businesses open up offices in Washington and, often successfully, collude with government officials to obtain special legal benefits that they could not obtain via voluntary action. Laws that exclude competition, regulations that favor only certain businesses, and government contracts given out to companies where public servants begin second careers, come at the expense of all taxpayers. More government spending only encourages these activities.

Instead of spending, government can create a prosperous society by maximizing our economic freedom. Economic freedom includes and impartial rule of law, the freedom to trade with others, a stable currency, and low government spending relative to the size of government. The Frazier institute’s empirical evidence is extremely strong in showing that societies with higher economic freedom enjoy higher income, lower poverty, lower unemployment, cleaner environments, and longer life expectancies. In economically free countries, people are happier, healthier and enjoy stronger civil rights.

Big government ideas might be mainstream right now, but thinking that we cannot ‘cut our way to prosperity’ is intellectually bankrupt. Bigger government spending comes at the cost of lower economic freedom as government either taxes our private sector directly or via devaluing the currency. Those who care about creating a just and prosperous society for everyone should care about maximizing economic freedom and not government spending programs.

‘Why do some societies prosper, while others remain stagnant and poor?’- it’s not a difficult question

During one of my trips to Peru, the school, where I have been giving talks on economics, invited me to attend a conference that the school was hosting for high school students. At the beginning of the conference the teachers showed the student’s a power point presentation. The first slide was a bid’s eye view of Hong Kong’s busy harbor. The second slide was of downtown Manhattan. During the third slide, the teachers asked all the students, ‘why doesn’t Peru look like that?’

During a lecture, Adam Smith explained that, “little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”[i] Even though Smith articulated this nearly 257 years ago, there are still some countries that do not embrace what many economists, and advocates of liberty, have so well articulated. Today, the differences prosperity between countries provide social scientists with the contrast class needed to determine which key factors contribute to prosperity; the answer is clear: prosperous countries embrace and protect individual’s economic freedom. Specifically, some countries prosper because they have institutions that protect the three ‘P’s’ – property, prices, and profit- and have laws that don’t interfere with the three ‘I’s’ – incentives, information, and innovation.

Once well-established property rights are defined, exchange can take place. Property rights give actors an incentive to care for what is theirs and to trade for what is not. Trade incentivizes citizens to produce what is easiest for them to produce and trade for what we cannot make profitably ourselves, which simultaneously encourages a peaceful social order. Trade also gives us an incentive to peruse our comparative advantages in production: as people produce what they are good at producing, their capabilities to produce improve and their actions become more specialized. Division and specialization of labor allow for producers to be more productive, which encourages yet more trade. Because voluntary exchange is mutually beneficial, this process simultaneously increases the wealth of all who participate.

As trade becomes more complex, prices arise. Though they are often only 3-4 digits, prices are incentives wrapped in an immeasurable amount of knowledge. Prices constantly signal consumer demand, along with the relative scarcity of a product’s inputs, to producers. This information allows producers to produce more of what consumers demand, allowing the trading process to generate even more wealth. As Hayek explained to us, these price signals are part of a system so dynamic that the order cannot possibly be ‘planned’ and therefore should not be tampered with. Thus, once property rights are well established, prosperous countries must permit prices to fluctuate freely in order to continue on the path to prosperity.

Freely moving prices and the increased information and trade that result from them will allow producers to earn larger profits. These profits are not just ‘spent’ in the economy but ‘re-invested’ as producers seek to experiment with new products and research new ideas. The innovative process, permitted by the existence of profits, leads to even greater profits for producers and better products for consumers. Better products do not necessitate ‘higher quality’ since often they are simply ‘less expensive’ or some how save consumers time. Innovation allows producers to start creating wealth on an endless number of vectors, all while a country’s prosperity increases. The most prosperous countries minimize taxes on profits and restrictions on innovation since these things deter the entrepreneurial process.

One final element is key in explaining why some countries are prosperous and others are not and that is the stability of their political institutions. Political and legal institutions that are free of corruption, just in their decisions, and principled in their actions, are an important cornerstone to a country seeking to achieve and maintain high levels of prosperity. Predictable legal institutions create a stable investing environment that encourages investment and allows contracts to be predictably enforced. Both of these benefits lower the transactions costs of the trading- wealth generating- process.

Even though ‘trade’ typically provokes a mental image of material things and professional services, free trade, and its requisite institutions, create more than just material prosperity. In prosperous countries citizens that are typically happier, have more freedom to peruse their dreams, receive better healthcare, and ultimately have more autonomy over the direction of their lives. Economic freedom is a requisite to all of these ‘non-material’ measures of prosperity, and in fact these ‘non-material’ measures of prosperity don’t exist in countries that do not have high levels of economic freedom.

To the high school students in Peru, why some countries were wealthy and others poor seemed like a mystery, almost a fact of nature: it isn’t. In fact, even though we live in a highly developed country, our political debates seem to suggest that only after you have an advanced understanding of statistics and economic planning are you qualified to legislate in rules in Congress or manipulate the money supply at The Federal Reserve in such a way that will bring about wealth. Don’t let what seem to be highly intellectual public policy debates confuse you- creating a just and prosperous society is much less complicated. Well established and enforced property rights combined with unrestricted rules to determine prices and make profits, lead to the incentives, information and innovation that that make prosperity possible- anywhere.