Fighting Populism: Doing the right thing and better

Progressives and conservatives feel uncomfortable or paralyzed when populists and other extremists adopt what looks like popular and necessary policies.

It does not need to be so.

When in the 1930s Hitler managed an economic recovery in Germany, through what we would call Keynesian policies of public investment, and in 1940 his finance minister Funk published a plan for a New Economic Order for Europe, John Maynard Keynes was invited by the British Ministry of Information to make a broadcast for American and Dominion audiences to discredit it. Keynes replied that the plan was “excellent and just what we ourselves ought to be thinking of doing. If it is to be attacked, the way to do it would be to cast doubt and suspicion on its bona fides.” For instance, “Funk´s talk of a rational division of labour was merely a cloak for concentrating industry in Germany and pastoralising the rest of Europe.”

Today, progressives face a similar problem in relation to some populist policies. Let me illustrate with three examples.

(1) The migrants’ caravan, which started in the Honduras and reached the Mexico/USA border today is a good example. Whoever started and facilitated the caravan, and it could be anyone from local village demagogues, criminal gangs, left-wing activists, religious idealists, Putin or Trump himself, is irrelevant.
Nobody can accept that a crowd, claiming poverty or whatever, organized in a country, decides to try to invade another country in search of settlement there.
However, how to stop them is a different matter. During the Roman times the army had to fight the armed invaders. But Trump’s decision to deploy the army in the border with an order to shoot unarmed civilians, seems out of proportion and risks causing a slaughter.

There are obviously more humane and efficient ways to stop the invaders and punish the organizers. For instance, by moving them into a refugee camp where the children and sick will be fed and treated prior being repatriated with a little bit of pocket money to help them settle back in their country of origin. Meanwhile, while in the camp, they need to be taught a lesson to dissuade further incursions. For instance, the leaders and organizers could be separated and taken into custody where they would remain until earning the money necessary to reimburse their deportation costs, while the remaining could be registered into a DNA database to prevent them from applying legally for residence in the USA during the next 10 years.

(2) The USA-China trade conflict is another example where the populist approach is wrong. Again, there is no doubt that China has often misbehaved in international trade, namely in relation to intellectual property.
However, Trump’s policy of imposing selective import tariffs and trying to negotiate some “deal” with Xi Ping is not only chimerical but also risks to backfire. For starters, it is an unprecedented reversal of roles, the USA has become the protectionist and China the free trader.

Yet, there are better solutions to lead China into behaving in accordance with international trade rules. For instance, the Trans Pacific Agreement, abandoned by Trump, had an important role in this regard. Likewise, encouraging China to join the OECD and follow its rules in terms of international competition and transparency is a better way. In the end, having China as part of the current liberal international order is better than driving them into trying to create a rival alternative.

(3) Finally, Bolsonaro’s decision to stop the use of Cuban medical slaves in Brazil is another example. Shamefully, for many years western countries (including Portugal) have tolerated the hiring of medical staff to the Cuban government, while ignoring that the doctors were forced to leave their families in Cuba as hostages and received only a pittance of the fees contracted with the Cuban government. So, Bolsonaro’s intention is laudable, but is it the best solution?
Of course, no. There are better ways to achieve the same result, without repatriation.
For instance, renegotiating the contracts to force Cuba to allow the doctors’ families to join them in Brazil would preserve their jobs and benefit their patients. Likewise, paying directly to the doctors. The slave doctors ended up being the victims of two extremists.

These examples and many others show why progressives and conservatives cannot be complacent with the populists. More than ever, they need to show the shortcomings of such policies and how they can do better. They must show that there are humane, liberal and civilized ways of dealing with such problems and the anxiety and fear associated with them.

Fake news: To ban or not to ban?

Following the revelation that Cambridge Analytics used Facebook to define personal profiles to be targeted in the Trump election campaign, there are now “calls for more transparency on the internal algorithms that internet platforms use to promote stories, limits on the “harvesting” of personal information for political purposes, and disclosure by tech companies of who funds “sponsored content” on their websites (FT, 31-3-2018)”.

The emergence of accessible and free (cheap) information through social media created a situation similar that in the XIX Century when cheap printing made a daily occurrence the proliferation of all kinds of pamphlets promising miracles or disasters. Like many today believe without reserve what is said in the press or shown on TV, our ancestors believed in the written word.

Obviously, like cheap printing, social media attracts all types of crooks and loonies as well as politicians. What is different this time is that state-sponsored organizations are taking a greater advantage of the naivety of social media users. But even this is not entirely new. In the past foreign governments have also sponsored radio and press sympathetic to their propaganda.

Fortunately, our ancestors did not impose a ban on printing otherwise we would live in a different world. They simply waited patiently that the general public learned to distinguish the fake from the true and that a more trustworthy press emerged.

Likewise, we should resist any bans on social media. Otherwise, we would end up as in China, Russia or Turkey where only social media acceptable to the respective governments is tolerated.

This is not equal to a complete lack of regulation. Indeed, a soft type of regulation similar to what applies to the advertising industry is more than enough. One should distinguish between what is an acceptable exaggeration, or a non-harmful lie, from those that should give grounds to liability.

For the later, one needs to have rules on secrecy and sponsored messages that strike the right balance between privacy and responsibility.

Likewise, in what concerns the right to use personal information to build profiles and marketing strategies one should not go beyond what now distinguishes what is proprietary or public information used in market studies.

Finally, in what concerns forcing the social-media to provide tools that allow its users to protect against lack of privacy or to avoid spam from fake news, these are necessary but should be solved by business competition. It is desirable that more social networks other than Facebook flourish to provide less or greater degrees of secrecy.

For instance, among my Facebook friends there is one keen to share theories of conspiracy as well as Putin’s and communist propaganda. Now I have only two options, either to block him completely or to block one by one the sites he shares. However, it makes sense for Facebook to add an extra option to block everything that he shares. But this should not be enforced by regulation. I simply need to wait that Facebooks realizes that it risks losing members like me and come up with a solution out of their business sense.

In choices between regulation and liberty one should generally err on the liberty side. So, let us not rush into too much regulation of the social media.

O dilema dos liberais perante a guerra de corporações

A guerra de interesses corporativos entre a FENPROF e as associações representativas dos colégios privados com contratos de associação teve um efeito colateral interessante. Os nossos liberais ficaram divididos entre os que cerraram fileiras no apoio aos colégios privados e os (muito poucos) que permaneceram neutros.

Será que essa divisão serve para identificar os verdadeiros liberais?

Em parte sim, mas não é suficiente pela seguinte razão. A escolha entre manter monopólios estatais ou privatizá-los é um dilema clássico para os liberais, que se vêm confrontados com dois problemas diferentes.

Por um lado, os liberais acabam identificados com os oportunistas que advogam a privatização apenas para se apropriarem das rendas monopolistas. E, uma vez instalados, conluiem com os políticos na prática de abusos muitas vezes superiores aos dos monopólios estatais.

Por outro lado, os liberais têm de reconhecer que é muito difícil avaliar a eficiência relativa de monopólios geridos por privados ou pelo estado.

Serão inultrapassáveis estes dilemas?

Não, se houver o bom senso de distinguir as diferentes situações.

Por exemplo, é essencial distinguir entre monopólios naturais e monopólios criados por regulamentação. Mesmo quando essa distinção é difícil, como acontece no caso da saúde e da educação. Como explicamos num post anterior apenas nas grandes cidades a educação não é um monopólio natural.

De igual modo, os liberais têm de reconhecer que as suas posições atraem inevitavelmente muitos “amigos de ocasião”. Por isso, têm de ter o cuidado de distinguir entre o que são apenas interesses ou afinidades ideológicas e o que são princípios fundamentais do liberalismo. Há mesmo uma necessidade de promover os princípios liberais junto dos diversos partidos políticos pelas razões que expliquei num post anterior.

Também não podem ignorar o sistema em que vivem. Por exemplo, em Portugal vivemos há mais de oitenta anos num sistema de capitalismo de estado. Esse sistema perpetuar-se-á por mais tempo se o eleitorado confundir a privatização de alguns monopólios com liberalização.

Em conclusão, o efeito colateral das guerras entre corporações de interesses instaladas no aparelho de estado pode ser benéfico para os liberais se estes souberem aproveitar para discutir os dilemas do liberalismo em vez de se dividirem em múltiplas fações de apoio ou oposição às corporações em confronto.

Political contributions and democracy

Representative democracy has become a very expensive activity. For instance, in 2008 the USA presidential candidates raised more than $1.8 billion in campaign funds, an 80% increase in relation to the 2004 campaign . The Democratic presidential nominee alone, Barack Obama, raised a total of $745.7 million in private funds for his election campaign.

It was the first time in the history of presidential public financing that a major party nominee declined to accept public funds for the general election. Is this a good or bad development and what it says about market capitalism?

The controversy between public and private financing has a long history, especially in what regards the special advantage that private financing may give to incumbents and special interest groups (e.g. trade unions and business associations) over the election process .

In abstract, the freedom of association principle should go with the principle of free financing. However, since public office gives those elected an ample scope for decisions that favor private interests, such power has a monetary value that may supersede the public service motivation. Therefore, the rule of free financing cannot be easily upheld under representative systems.

For this reason, under systems of state capitalism, capping campaign spending and restricting its financing to public funds may prove a better solution to secure a level playing field in democracy.

However, in countries close to market capitalism, why shouldn’t the candidates be able to tender some of their policies to special interest groups? For instance, party A could tender the easing of regulations in the financial sector, more private outsourcing of public services, more arms spending, etc. against political campaign contributions.

There is one fundamental reason why that cannot be made. It would be impossible to create a competitive market for political funding because of the asymmetric nature of the benefits received by the special interest groups and the public in general. Imagine for instance that one thousand banks can earn each 100 million dollars from deregulation while 200 million voters can save one thousand dollars from tighter deposit protection. That is, banks could earn up to 100 billion while depositors could save up to twice that amount. However, this difference may not be enough for voters to outbid the banks because their gain is only a potential saving while that of the bankers is a certain gain.

So, it is unquestionable that market capitalism requires the regulation of political contributions. And, in fact, all democratic countries regulate them, namely by limiting contributions by foreigners, by contractors of public services, trade associations, unions, regulated corporations, etc. These are usually complemented by rules on public disclosure.

Nevertheless, these limits and rules are easily evaded through soft dollars and by setting up special vehicles to make contributions (e.g. foundations, think tanks, etc.) or through the media and other unrelated intermediaries.

So, a level playing field in political campaigning must be promoted more vigorously, namely by capping the size of donations to small amounts, limiting the amount of advertising, etc. However, such limitations must be based in the principles of constitutional liberalism. Otherwise, the strong positive synergies that exist between market capitalism, constitutional liberalism and representative democracy are lost.

Dress codes and individual freedom: Topless vs. Burkas

In many countries politicians try to rule about what is acceptable or not in terms of dressing in open public places. Frequently, legislators are moved by political and religious prejudices and fail to distinguish between the various dress codes and the distinct nature of public places.

Currently the debate is mostly about the use of burkas and veils by women. In the past similarly heated discussions were about topless, barefoot and mini-skirts. Then as now, many justify the prohibition on the grounds that its use offends other people´s beliefs and moral values. Namely, that they encourage the oppression of women or the lust of men.

Whether these are true or not (they may be true) they should not be an acceptable reason to limit individual freedom. Indeed, any offence taken is the result of one’s moral and religious beliefs. But, one of the basic freedoms is the freedom of religion. Therefore we cannot use one’s freedom to prevent other people’s freedom.

Acceptable limits to individual freedom may be universal or apply only to designated professions or places, and their justification varies. Nevertheless, one should only apply universal limits to individual freedom if it may endanger other people’s life or property, not its moral beliefs. For instance, the public use of balaclavas or burkas may be prohibited only if there are reasonable grounds to assert that they pose a threat to our security.

However, in restricted places it is acceptable that the operators of such places impose specific dress codes, such as uniforms for schools or the military, formal dress for some concerts and casual for others. The objective of such dress codes is to facilitate identification or to signal specific characteristics.

Humans’ dressing varies not only with income, tradition, climate or circumstances but also with the desire to signal specific messages. For instance, in egalitarian institutions without a dress code such as universities, it is often observed that finance professors dress formal while sociologists may dress in rags. The first wish to signal the financial relevance of their field while the later may wish to signal their left leaning politics.

Yet, there are some types of signalling that we may consider controversial. Among the most controversial is the signalling of mating desires. The arousal of sexual interest in humans is stimulated by displaying some parts of the body. Therefore, some types of dressing (topless, mini-skirts, etc.) can be designed to display such parts and be used to signal a mating mood. Here we confront two distinct possibilities. First, to argue that if society forbids sexual relations in public it should also ban the signalling of mating desires. The second is to argue that signalling is not the same as soliciting and therefore the public exhibition of such body parts should be free.

In general, the second argument seems more reasonable. Especially if one bears in mind that the interpretation of the signalling may diverge substantially between issuer and receptor due to tradition and personal circumstances. For instance, the male reaction to a topless female is substantially different whenever he is before a young or an old female and whether he is in the beach or in a night club.

So, we may conclude by saying that, under liberal principles, the ban of some forms of dressing in free public spaces can only be justified in the case of unequivocal danger to people and property. Prohibitions based on whim, fashion or religious beliefs do not qualify as legitimate restrictions of individual freedom. However, in delimited public spaces more restrictive dress codes may be applied. For instance, if, within his power, the director of a public school decides to ban mini-skirts or burkas he should be entitled to do so. Another completely different matter is the civilized expression of disapproval or dislike in relation to some outfits. In a polite manner we may criticise friends and acquaintances.

Self-defense, War and the Protection of Life

The right of self-defense from coercion (including violence) is a fundamental right under libertarianism. In situations of danger to oneself or to one’s property we are entitled to respond with armed or unarmed resistance that may result in killing the attacker. In practice the various legal systems limit such right, namely to situations where defense is not available from the police or military, to prevent the escalation of violence into death.

This restraint is especially important in modern warfare where combatants are expected to avoid collateral damage and to take prisoners rather than kill its enemies. This philosophy of war is contrary to the traditional objective of war which was to kill as many enemies as possible, in some cases to extermination, and where those defeated in a battle expected to be either slaughtered, enslaved or used for ransom.

The modern philosophy of war is the result of various attempts aimed at the regulation of warfare, namely The Hague, Geneva and Genocide Conventions. It resulted in the definition of war crime as a serious violation of such rules, but did not prevent a rise in violence and deaths; partially because of the destructive power of modern weaponry.

Indeed, the new weaponry led to the development of three different types of war – nuclear war, conventional war and guerrilla war. The first has the power to destroy the whole humanity and has so far been avoided through the fear of self-destruction. The second type of war has been progressively substituted by guerrilla-type wars because the development of highly advanced weapons gives its possessor an unmatched superiority in open conflict (illustrated recently in Iraq, Afghanistan and Libya) leading the weaker part to resort to a war of attrition through guerrilla and terrorism warfare.

The rising resort to terrorism, including the use of suicide-bombers, affects all conflicts; whether external (between nations), national (usually separatist) or transnational (often ideological or religious). The way warriors in this type of warfare often switch between the roles of freedom fighters and terrorists means that it is not adequately regulated.

The use of violent tactics to create generalized fear, intimidation or conflicts is not limited to political organizations but it is perpetrated also by criminal organizations. Therefore, the regulation of the self-defense right to prevent the escalation into criminal or warfare violence needs to be comprehensive and consistent.

The pursuit of peace and the preservation of the inviolability of life in a constitutional liberal world require the establishment of both national and international security and judicial bodies capable of simultaneously preserving the rights to self-defense and to life preservation, whether in civil or military conflicts.

Liberalism and Abortion

Does the liberal ruling on the inviolability of the right to life applies to the unborn? This is the fundamental question in the debate between pro-choice and pro-life movements. Whether the deliberate termination of pregnancy before the fetus becomes viable violates the ruling rests on two controversial issues – when life begins and parental ownership.

Human life begins during fecundation or sometime during the gestation period? Life itself begins with the first cell split. But an embryo only becomes human once it has developed a brain. The brain begins to develop after the third week of pregnancy and will be complete by the 36th week. However, by the 22nd week it will be sufficiently developed to allow the survival of premature born babies. This is also the period after which the unborn can definitely be considered as separate from his mother.

The critical stage of brain development is between weeks seven and nine when it gains shape and becomes capable of some behavioral complexity. Thus a human being is alive by the ninth week and from then onwards abortion should be condemned.

We have said about suicide that for God-believers life is God's property. Yet, we have also noticed above that an unborn can only be separated from his mother on the 22nd week. So, between weeks 9 and 22 shall we consider the mother as a simple trustee of a God’s life or the rightful owner of the unborn human? If we take the second view then mothers would have the right to dispose of their babies until that stage of the gestation period.

Yet, for non-believers, the rights to freedom and equality based on mutual love would impose on mothers the obligation to protect the unborn human being during that period. Therefore, under the property criteria liberals cannot expand beyond nine weeks the period during which abortion is acceptable.

However, self-defense provides an exceptional circumstance under which abortion could be carried out beyond the ninth week. This includes only the case when the mother’s life is at danger due to pregnancy. It does not include other exceptions often invoked, namely in the cases of rape, incest or malformation of the unborn. Other arguments about saving the parents and the unborn from future pain and misery must be also refuted.

In conclusion, the liberal principles require the protection of all unborn individuals from the moment when they can be considered human beings.

Arguments Against the Death Penalty

Based on liberal principles, we argued before that individuals should not have the right to voluntarily terminate their lives. We shall consider now whether the State should have the right to capital punishment.

Most countries have renounced that right, but about 60% of humankind still lives under regimes with death penalty. Some of those regimes are dictatorships, like China, Iran or Saudi Arabia, but others are democracies, such as Taiwan, Japan and the United States.

Leaving aside the case of dictatorships and countries at war where human rights are ignored, we shall focus on the use of death penalty to punish non-political crimes in democratic countries such as the United States.

The case for using the death penalty to punish horrible crimes (e.g. homicide) is usually based on the principles of reciprocity, proportionality and deterrence. All these arguments are flawed.

The principle of reciprocity has its roots in the Hammurabi Code that introduced the law of an eye for an eye. However, it is now clear that you cannot correct a wrong by repeating it. Moreover, vengeance is not certainly among the enlightened virtues.

The principle of imposing penalties proportional to the seriousness of the offense is obviously just, but must be kept with reasonable boundaries. For instance, the assumption that death is the ultimate punishment is false. Torture, forced labor or isolation can be used as the harshest forms of punishment. However, societies need to balance redemption and punishment on the basis of its costs and benefits to society as whole; as well as the risk of committing irreparable mistakes in the administration of justice.

It is certainly true that lenient punishments or unrealistic beliefs in the recuperation of criminals can encourage crime. This can be easily observed in countries like Portugal which, after introducing a maximum effective prison sentence of 15 years and various forms of soft prison regimes and house arrests, experienced one of the highest rises in crime in the world.

Nevertheless, the statistics for the United States, where not all states have death penalty, also show that capital punishment does not work as a deterrent of violent crime. First, some homicides are not premeditated (e.g. passion crimes). Second, crimes are mostly the result of widespread possession of lethal weapons that often turn what would be simple fights into murders. Finally, and not least important, the perpetrators of premeditated crimes believe that the odds of being caught and executed are small and worth taking.

To sum up, none of the three arguments in favor of death penalty is strong enough to waive the liberal principle about the inviolability of the right to life. Only fallacious reasoning or prejudice can justify this barbarous historical relic.

Liberalism and Suicide

Liberals believe that the acceptable limits to individual freedom are only justified by the need to prevent doing harm to others. But, what about harming to himself namely through the extreme act of committing suicide?

The attitude to suicide has been extensively debated by philosophers and theologians throughout history, and we find all types of arguments in favor or against ranging from utilitarianism to stoicism.

Some Classical Liberals are often are in favor of such freedom on the grounds that a person's life belongs to herself, and nobody has the right to force their own ideals that life must be lived. Others go even further by claiming that suicide represents the ultimate freedom of humanity. For instance, Thomas Szasz argues that if freedom is self-ownership—ownership over one's own life and body—then the right to end that life is the most basic of all rights.

However, many libertarians hold that the right to life is an inalienable right that one cannot renounce by committing suicide, any more than one could alienate oneself from the right to one's liberty by selling himself into permanent slavery.

The self-ownership argument depends on whether one believes in God or not. For instance, John Locke, one of the founders of liberalism, believed that “men being all the workmanship of one omnipotent and infinitely wise maker … are his property” and therefore man has no liberty to destroy himself.

For those who do not believe in God’s ownership, Locke’s principle on the equality of all mankind as the foundation for mutual love, which leads him to advocate that “men know that is no less their duty, to love others than themselves”, provides a basis to refute suicide.

In conclusion, on the basis of the inalienability of the rights to freedom and equality liberals must condemn suicide. Yet, because of their duty to be charitable they must pardon suicide committed as an act of despair before a certain death from torture or from a painful incurable disease.

The Founders of Libertarianism

Any doctrine should be like a living being. It has its origins and then develops in many different ways. One should not take its founders to the letter, in a Koran-like fashion. But, likewise we must require that its many emanations have a minimum content from the founders, the same way a burger to be a burger must have a minimum of beef.

Therefore, finding a fine balance between innovation and tradition should be a never ending pursuit for a wise person. Its first step must be reading some of the founders’ writings.

For those in a hurry, Wikipedia has an entry with a good overview about liberal and liberalism. There you can read that its ancestry goes back four hundred years to the beginning of the English Civil War. With the rise of the Enlightenment, the word acquired a more positive undertone, being defined as "free from narrow prejudice" in 1781. However, the word liberalism only began to be used around 1815, while the Napoleon troops ravaged Europe.

For those with time to follow the development of the liberal doctrines here is a short bibliography of the main classic texts, all of them available in a Kindle Edition at a low price.

John Locke’s Second Treatise on Government (1689) is a good start to understand why people have natural rights and the main purpose of governments is to safeguard such rights. Likewise Adam Smith’s Wealth of Nations (1776) provides the basis to understand the role of free markets.

Jeremy Bentham’s An Introduction to the Principles of Morals and Legislation (1781) launched the basis of utilitarianism while John Stuart Mill’s On Liberty (1859) defended the right of individuals to control their own mind and body, guaranteed by limiting the exercise of power to prevent individuals from harming others.

Then the twentieth century brought in a divide about how far the government should go. Now, we have the minimalist and rule based schools (Austrians and Monetarists) and the Keynes-inspired school of discretionary interventionism (in fact most of his followers crossed over to the socialist anti-liberal camp). Here, the two basic references are Friedrich Hayek’s The Road to Serfdom (1944), showing that reliance on free markets would preclude totalitarian control by the state, and John Maynard Keynes’ General Theory (1936) claiming that in special circumstances, when countries were caught in a liquidity trap, state intervention was indispensible to avoid depressions.

Currently, the two branches are frequently confused by identifying them with conservative or progressive parties. By reading the classics one hopes that a renaissance of liberalism in the 21st century will discard such connotations.

True Democracy ≡ Representative Democracy

Los indignados (the indignant) sit-in by young people in central Madrid and other European capitals is not just one more “youth protest”. The true grievance expressed by many protesters is not simply an adulthood ritual.

Every generation of teens and youngsters needs to affirm their adulthood by contesting their parents. This is usually done by adopting different life styles, entertainments and clothing or by endorsing naive political views. This is a positive process promoting creativity and carried out mostly in peaceful ways (despite the occasional brawl by a few thrilled by violence).

However, the indignant complaints have more to do with failed job expectations and unemployment and what they see as the lack of hope. They feel betrayed by elected politicians who pay only lip service to their concerns. Traditionally left wing parties and anarchists capitalize on this discontent to recruit members and cause some havoc. Ironically this has been a key reason why many youngsters have kept away from such protesters.

Although on the background those parties still try to manipulate the protesters, in general, these have been led by genuine non-partisan leaders. So why are the protesters still embracing revolutionary utopia falsehoods and anti-capitalist propaganda?

Some in the Democracy Camp in Madrid’s Puerta del Sol demand a “Real Democracy Now through neighborhood assemblies”. This amounts to direct democracy, which throughout history has always failed to provide democracy and led to dictatorships. This idea of direct rule by the people is populism based on a false view of early forms of democracy in ancient Greece. Rule by the majority, subject to a constitutional limitation of power to protect minorities, is the true democracy. And that is representative democracy.

Still, youngsters are right in questioning why elected representatives fail to act on their concerns. They need a clear answer to: a) they do not care; b) there is nothing they can do about it; c) the problems are transitory and the labor market will recover soon; or d) that the measures they are taking will work but take some time.

First they need to dispel the first perception. Second they need to fight the main source of anxiety – uncertainty.

This means that classical liberal progressive politicians cannot entrust the young generation to some kind of anger therapy provided by left wing revolutionaries and hope that anxiety dies out soon. For a young person who has been unemployed for more than two years it is not enough to hear that the market will solve the problem some day.

They need hope, and need it now. So, whether politicians believe in demand or supply measures they need to demonstrate action now.

Such action must also include education on why representative democracy together with constitutional liberalism and market capitalism are not the cause but the solution to their problems. They are in fact the only solution that can give young people hope in the future.

Reasons for the demise of European films: television, subsidies or Cannes?

During my childhood cinema-going was still the top form of entertainment and I witnessed its decline, which was superbly described in the film “Cinema Paradiso”. Indeed, Portugal like most European countries had their golden age in the movies industry during the 1940s.

It is well known that when a major industry declines due to the emergence of a new technology that creates a stronger competitor (in this case Television) there is an inevitable consolidation in the declining industry. What is not so well understood is the reason why the major survivors concentrate in specific regions (USA or India) and almost vanish in others (Europe).

The historian Tony Judt examined the fall of the European movie industry in his Postwar book and claims that “domination of post-war European cinema did not come about through the vagaries of popular taste alone… there was a political context”. Hollywood films flooded Italy and other countries encouraged by the State Department to support the anti-Communist vote.

In contrast European governments (left and right wing) tried to protect their declining industries from the so-called “American dumping”. The usual combination of barriers (quotas) to the entry of foreign films and subsidization of European movie producers were used to no avail. By confusing a technological shift with dumping they created the wrong incentives and facilitated the decimation of the few producers that could have survived through consolidation.

Worst, in the 1960s this fed a subsidized cottage industry which was taken over by (mostly) left-inclined and auto-proclaimed intellectuals; dominated by Directors such as Truffaut and Jean-Luc Godard and their followers that today gather around the Cannes Film Festival.

To be fair, the decline in the cinema-going activity meant that the production of movies for a domestic market is no longer a commercially viable activity; despite the widespread ownership of DVDs and a recent rise in the number of smaller theatres in shopping malls. For instance, in Portugal the most popular film can hardly attract 100 thousand viewers. This means that it can earn only 300 thousand Euros and this hardly covers half of the cost of a low-budget film. So only politically-minded “intellectuals” could be attracted for this type of business.

Now that the industry of broadcasted-television is also being challenged by a new technology based on the internet the inevitable consolidation will also to take place. How, the television and film producers will be affected by the emergence of Youtube and similar distribution channels? Before embracing a new round of protectionism European governments would be well advised to learn from the mistakes of the past.

It will be a missed opportunity if once more the Europeans are left behind in a major creative industry as is the film-making industry.

Sex and family relationships as pillars of human happiness

This month SlutWalk marches, sparked by a Toronto’s cop remark about the role of provocative dressing in rape, brought sex again to the forefront of public debate. Given the importance that sex (or the lack of it) has in our daily lives, and the fact that family relationship always come top in any surveys about human happiness, we need to explain why we did not include them among the six pillars of human happiness.

The reasons for exclusion are different from those we used to exclude religion. They derive mostly from the fact that all controversial issues surrounding sex and family relationships depend on historical context and involve moral values that are better debated within the principles of liberalism, enlightenment and science.

For instance, the right to indecent exposure or promiscuous relations that is invoked by some of the feminists among the SlutWalk promoters is better discussed in the context of the limits to freedom in a society ruled by liberal principles.

Namely, such limits must be defined bearing in mind the historical experiments with free love in the 1920s and the 1960s and the attempts to eliminate the family institution in communist regimes. Both experiments ended up degrading the role of women. The first by turning into sects whose leaders abused women into coercive sex while the second degraded women turned into second class citizens or forced to prostitution.

Likewise, old debates about the use of sex for pleasure or procreation, the health consequences of masturbation, incestuous relations and other non-conventional forms of sex can now be studied scientifically. Other issues such as the age of consent, monogamy vs. polygamy, cohabitation vs. marriage, divorce, etc. should be discussed under enlightened principles and bearing in mind their impact on society cohesiveness and productive capacity.

For all these reasons, and despite the vital importance of family relationships for happiness, we did not separate them as one of the six pillars of human happiness.

The killing of Bin Laden and the superiority of western values

Nobody embracing moral values needs to shed any tears for the killing of Bin Laden, the ideologue of international terrorism responsible for the murder of thousands of innocent civilians.

However, as details of his death become known, it seems that he could have been captured alive without endangering the life of the soldiers involved in his capture. So, if he was intentionally killed, whoever gave that order committed a major mistake.

The moral superiority of western values derives from its reliance on representative democracy, constitutional liberalism and enlightened ideals which, when taken together guarantee even to the hardest criminal a fair trial. This superiority is reinforced whenever the West is not afraid of confronting openly the ideals pursued by terrorists.

The idea that this would give Bin Laden’s supporters visibility and lead to his martyrdom is simply preposterous. Indeed, historical precedents such as the Soviet Union decision to hide the burial place of Hitler only gave his followers a mythical status that his henchman that were publicly judged at the Nuremberg trials never enjoyed. Likewise, the fact that Che Guevara was never tried for his crimes made him even today a hero among impressive young people.

Now, with the Arab Spring uprising in full progress, the West owes the young Arabs fighting for democracy in the streets a clear explanation of why Bin Laden was not brought in for trial.

Saving on shoes or on energy?

A few days ago I rebutted my wife’s criticism on how careless I was in relation to saving electricity by remembering her that she had 10 times more shoes than I have. She replied that it was completely different.
She said: we are not self-sufficient in energy, energy is less friendly to the environment and I was wasting the money that the government spends promoting the use of alternative renewable energies and energy efficiency. I replied that her arguments were economic nonsense. Who is right? Here are my arguments.

I agree that we should not be wasteful, whether we are talking shoes or electricity. But what is wasteful is to a large extent a matter of personal taste. If she prefers shoes and I prefer electric gadgets nobody should interfere with our preferences. That is what is called consumer sovereignty.

The argument for self-sufficiency goes contrary the only indisputable law in economics, Ricardo’s law of comparative advantage, which provides the rationale for free trade. In a world of free trade the argument for self-sufficiency in energy or food is as wrong as the argument for self-sufficiency in shoes or chewing gum. The risk of supply disruptions in basic necessities such as food or energy caused by war or natural catastrophes must be minimized through buffer stocks or forced savings during those periods not through a permanent constraint on our preferences.

The decision on when to exhaust non-renewable resources is an issue for their owners to decide by quoting a price that in their view gives them the best return over time. Consumers only have to choose among competing sources of energy. In the recent past coal has become almost obsolete as a source of energy. If the same happens to oil or gas so be it. Consumers do not need to worry about that as long as they have alternatives as they do (nuclear, water, wind, solar, etc.).

The fact that different sources of energy have different negative externalities is a matter for regulators who should find appropriate ways of internalizing such costs (the polluter-pays rule) so that they will be reflected in the price charged to consumers.

This is a proper role for governments. But they have no right to spend our taxes to tell us what we should buy or not buy, regardless of whether we are being frugal or conspicuous in our spending. Nor should they subsidize some producers at our expense. If they wish to promote research in new technology they should support both renewable and non-renewable industries.

Today we need to regulate the regulators. We need to make sure that their only job is to force the internalization of negative externalities and to fight monopolistic or oligopolistic misbehaviors. They have no business influencing neither what we buy nor how much we buy. This type of freedom is an essential part of constitutional liberalism.

Why constitutional liberalism is consistent with progressive taxation and inheritance taxes

Constitutional liberalism does not require the state to provide exclusively pure public goods like defense, policing and justice or to act only as a neutral referee. All it requires is that the state strives to act exclusively in a subsidiary manner and to be minimalist in its activities, including those of wealth redistribution.

However, many who consider themselves liberals or libertarians often believe that the financing of such activities should be funded only by taxes, and preferably by a flat tax rate. Therefore, they tend to consider any progressive and inheritance taxes as unfair and inefficient redistribution of wealth that discourages the hard-working members of society.

But, in contrast to classical liberalism (or laissez faire), constitutional liberalism has no problems in relation to fair inheritance taxes and a progressive tax system. Indeed, both are even indispensable in a system based on constitutional liberalism for two simple reasons: to prevent an unfair free-riding redistribution of wealth in favor of the rich and to preserve market capitalism. We shall demonstrate the first in the case of progressive taxation and the second with reference to inheritance taxes.

The reason why in the absence of progressive taxation wealthy people would enjoy an unfair free ride is easily understood if we use a parallel with insurance cover. Even hard-line laissez-faire adepts accept that the state has a duty to protect people and property against domestic and foreign predators. So paying for that protection with taxes is similar to paying for an insurance premium based on the risks and amount of capital covered. Using a flat tax rate based on wealth would apparently achieve a fair result since everyone would pay proportionally to the amount of capital they have at risk. But this would be misleading.

Just as insurers charge premiums on the basis of both capital and risk (e.g. a one-million dollar house in a quake-prone area pays more insurance) so should the state tax differently citizens that add more risk to the community. Since greater wealth attracts more predators and consequently adds more risk, it follows that those with higher wealth should pay more than proportionally to their capital. On the contrary, since crime often breeds on poverty it also follows that it pays to reduce poverty to fight crime. So, without any social concerns in mind, on pure economic grounds we can see that to be fair taxation must be progressive.

The case for inheritance taxes is not so straightforward. These taxes work as a brake to the accumulation of wealth and since saving and accumulation are necessary to promote growth it seems that such brakes would be counterproductive. Moreover, while we can justify limiting the size of corporate wealth to prevent oligopolies and to preserve the competitive markets needed for market capitalism there are no similar argument to limit private wealth. So, the argument for inheritance taxes has to be found elsewhere.

Such argument can be found by considering the importance of credit in a capitalist system and the availability of quasi risk-free investment opportunities in debt financing. Unfortunately, after a sufficiently long period, if unchecked, debt financing together with the power of compound interest would lead to the concentration of all earthly wealth into a single family or institution. To check this out consider the case of a long lasting institution like a religious congregation and calculate the real rate of interest required for it to acquire all of today’s world wealth.

For instance, we can carry out such calculation for the priests at the Temple of Jerusalem who paid 30 pieces of silver (about USD 15,000 in today’s money) for Judas betrayal of Jesus. If instead they had invested that sum in risk-free debt, and ignoring the practical impossibility of lending at a risk-free rate after a certain level of capital accumulation, we can calculate that an interest rate of 1.28% per year would be enough for them to own now the entire world wealth estimated at almost 2000 trillion US Dollars.

However, if they were charged an inheritance tax of 20% every 50 years they would need to wait another 1000 years to own the same amount of wealth. This would not eradicate the problem of wealth concentration. But, it clearly demonstrates that inheritance taxes act as a powerful restraint on wealth concentration, without the negative consequences of the usual alternatives of war and confiscation.

For today we limit our case merely under the assumption of tax neutrality, but we shall return later to discuss if the use of taxation as a social and economic tool is compatible with a system of constitutional liberalism. Note also that, regardless of the fundamental principles that interest us, in the field of taxation the disputes over the tax pie and the practicalities of the various tax options are of vital importance. That is, we should never forget the old say that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”.