How Can We Reconcile Freedom-Loving Libertarianism with Tough Prosecution of Fraud?

Liberty and Justice Are Not Irreconcilable

I voted for Gary Johnson, and respect and fully-support the libertarian passions for freedom and free markets.

But I am also a tireless crusader for enforcing the rule of law.

You might assume that these are opposite philosophies.  For example, a reader asks:

Your work on the dangers of the American nuclear industry has been really comprehensive, and you have drawn attention to the deception, manipulation, neglect, and willful ignorance of the nuclear industry. For example, I just watched the Al Jazeera video you posted earlier this year (3/12), in which the NRC and the nuclear industry are (rightly) criticized for waiting for harm to happen, instead of preventing it. At the same time, you identify as libertarian, and I believe you supported Gary Johnson in the presidential election. He is opposed to public regulation of industry and has said that post-harm lawsuits — for example, in medical contexts — are sufficient to encourage businesses to self-regulate for public safety. Could you please explain how you reconcile the libertarian position against regulation with your clear recognition that too-loose self-regulation of the nuclear industry imperils the public?

Nuclear Power Would Not Exist In a Free Market

Initially, it is undisputed that nuclear power plants would not exist if operators had to obtain funding and insurance through the free market. Private insurers won’t touch nuclear energy. Investors run the other way, because the odds of losing all of their investment are so high.

No private company in the world would operate a nuclear plant unless the government put a very low cap on liability. In many parts of the world, governments cap liability at a mere $13 billion dollars.

This is a little insane, given that “the risk of a nuclear catastrophe … could total trillions of dollars and even bankrupt a country”.

Indeed:

If there was a free market in energy, nuclear power would be over … immediately.

AP notes:

Nuclear power is a viable source for cheap energy only if it goes uninsured.

***

Governments that use nuclear energy are torn between the benefit of low-cost electricity and the risk of a nuclear catastrophe, which could total trillions of dollars and even bankrupt a country.

***

The cost of a worst-case nuclear accident at a plant in Germany, for example, has been estimated to total as much as €7.6 trillion ($11 trillion), while the mandatory reactor insurance is only €2.5 billion.

“The €2.5 billion will be just enough to buy the stamps for the letters of condolence,” said Olav Hohmeyer, an economist at the University of Flensburg who is also a member of the German government’s environmental advisory body.

The situation in the U.S., Japan, China, France and other countries is similar.

***

“Around the globe, nuclear risks — be it damages to power plants or the liability risks resulting from radiation accidents — are covered by the state. The private insurance industry is barely liable,” said Torsten Jeworrek, a board member at Munich Re, one of the world’s biggest reinsurance companies.

***

In financial terms, nuclear incidents can be so devastating that the cost of full insurance would be so high as to make nuclear energy more expensive than fossil fuels.

***

Ultimately, the decision to keep insurance on nuclear plants to a minimum is a way of supporting the industry.

“Capping the insurance was a clear decision to provide a non-negligible subsidy to the technology,” Klaus Toepfer, a former German environment minister and longtime head of the United Nations Environment Programme (UNEP), said.

U.S. News and World Report reports:

The disaster insurance for nuclear power plants in the United States is currently underwritten by the federal government, Cooper says. Without that safeguard, “nuclear power is neither affordable nor worth the risk. If the owners and operators of nuclear reactors had to face the full liability of a Fukushima-style nuclear accident or go head-to-head with alternatives in a truly competitive marketplace, unfettered by subsidies, no one would have built a nuclear reactor in the past, no one would build one today, and anyone who owns a reactor would exit the nuclear business as quickly as possible.”

See this and this.

In other words, this is not a free market.  Instead, the public has funded the nuclear industry.  As such, we – the owners – should get some control over how nuclear plants operate.

Likewise, the government created the mega-banks, big oil and the other mega-corporations.

Free Market Champions Demand Prosecution of Fraud

A strong rule of law is the main determinant of prosperity.  On the other hand, failure to prosecute fraud is destroying our prosperity.

Nuclear meltdowns, the financial crisis and the Gulf oil spill all happened for the same reason:  the commission of fraud to make a few more pennies, and a subsequent cover-up to try to protect the wrongdoers and continue “business as usual”. And see this.

This is not free market economics.

Indeed, the father of free market economics – Adam Smith  – leading Austrian economists, and other free market advocates are for the prosecution of fraud:

There is a widespread myth that free market supporters are against regulation or prosecuting fraud.

In fact, Adam Smith – the father of free market capitalism – was for regulation of banks, and believed that trust is vital for a healthy economy. Because strong enforcement of laws against fraud is a basic prerequisite for trust, Smith would be disgusted by the lack of prosecution of Wall Street fraudsters today.

Smith railed against monopolies and their corrupting influence. And Smith was pro-regulation, so long as the regulation benefited the little guy, as opposed to the wealthiest:

When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.

Richard Posner – one of the leading proponents over the course of many decades for removing the reach of the law from the economy – has now changed his mind.

So has another leading proponent of deregulation and turning a blind eye towards fraud: Alan Greenspan.

While some promoters of a fake version of Austrian economics are anti-regulation and against prosecuting fraud, the main Austrian economists were unambiguously for them.

William K. Black – professor of economics and law, and the senior regulator during the S&L crisis – notes that leading Austrian free market economists said that fraud must be prosecuted:

Real Austrian economists … hate elite frauds and want them prosecuted vigorously. Ludwig von Mises and Friederich Hayek are the two most famous Austrian economists.

Hayek, F.A. The Road to Serfdom

To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies— these tasks provide a wide and unquestioned field for state activity.

The Constitution of Liberty

There remains, however, one other kind of harmful action that is generally thought desirable to prevent and which at first might seem distinct. This is fraud and deception. Yet, though it would be straining the meaning of words to call them ‘coercion,’ on examination it appears that the reasons why we want to prevent them are the same as those applying to coercion. Deception, like coercion, is a form of manipulating the data on which a person counts, in order to make him do what deceiver wants him to do. Where it is successful, the deceived becomes in the same manner the unwilling tool, serving another man’s ends without advancing his own. Though we have no single word to cover both, all we have said of coercion applies equally to fraud and deception.

With this correction, it seems that freedom demands no more than that coercion and violence, fraud and deception, be prevented, except for the use of coercion by government for the sole purpose of enforcing known rules intended to ensure the best conditions under which the individual may give his activities a coherent, rational pattern…..

Liberty not only means that the individual has both the opportunity and the burden of choice; it also means that he must bear the consequences of his actions…. Liberty and responsibility are inseparable.

Mises, L.

Government ought to protect the individuals within the country against the violent and fraudulent attacks of gangsters, and it should defend the country against foreign enemies.

Black also notes that fraud is a leading cause of financial bubbles and malinvestment – two of the greatest sins which Austrian economists rightly fight against.

Unless financial fraud is prosecuted, bubbles will be blown … and when they burst, the economy will tank. Fraud – along with bad Federal Reserve policy – is what causes bubbles in the first place.

The Proof Is In the Pudding: Fewer Prosecutions Equals a Worse Economy

Obama has prosecuted fewer financial crimes than any president in decades – less than Ronald Reagan, less than George H.W. Bush, less than Bill Clinton, and less than George W. Bush.

The economy is worse than it has been since the Great Depression, if not before.

See the connection? See this and this.

Everyone Supports Laws Protecting Contract and Private Property Rights

Even the most radical free market advocates support laws protecting contract and private property rights. In other words, they support the judicial branch of government and the basic laws Congress passes to support such rights.

There are obviously good, pro-competitive laws and bad, anti-competitive laws.

Paul Craig Roberts – a true conservative, who was a Wall Street Journal editor and Assistant Secretary of the Treasury under Ronald Reagan, and is widely credited with being the “father of supply-side economics” – points out:

Regulation can increase economic efficiency and … without regulation external costs can offset the value of production.

***

Thirty-three years ago in an article in the Journal of Monetary Economics (August 1978), “Idealism in Public Choice Theory,” I developed a model to assess the benefits and costs of regulation. I argued that well-thought-out regulation could be a factor of production that increases GNP. For example, regulation that contributed to the quality and safety of food and medicines contributed to specialization in production and lower costs, and regulations enforcing contracts and private property rights add to economic efficiency.

On the other hand, bureaucracies build their empires and extend their regulations into the realm of negative returns. Moreover, as regulations increase, economic managers spend more time in red tape and less in productive activity. As rules proliferate, they become contradictory and result in paralysis.

I had hopes that my analysis would result in a more thoughtful approach to regulation, but to no avail. Liberals continued to argue that more regulation was better, and libertarians maintained than none was best.

Do Anti-Law Advocates Really Want Anarchy?

All sports need a referee. Some players will be bigger or more talented than others, which is great. They have a better chance of outcompeting the other guy and winning.

But without basic rules and referees, ruthless players might use a knife or kick the other guy in the knee. Perhaps we could suspend all rules, and maybe everyone would whip out a knife break the other guy’s kneecap. That’s fine … but that’s not the game of football.

Radicals who believe that we should not have any laws against fraud are implicitly arguing for anarchy. They might not use that word, but that is what they’re arguing for.

But the same Founding Father who argued for periodic revolutions to keep the government honest also argued against tearing down something unless you have something better in mind to replace it? Thomas Jefferson, the most vocal advocate of the citizens’ right to revolt to ensure honest government also cautioned against tearing something down unless it was for the express purpose of replacing it with something better.

Real, deep-thinking anarchists (as opposed to those using fake anarchy philosophy in order to promote lawlessness by the super-elite) are not for destroying all organization.  Instead, they argue for self-organization and self-regulation. See this, this and this.

JP Morgan and Goldman Sachs aren’t reining in one another’s fraud.  Bank of America and MF Global didn’t police each other’s fraud.   Tepco and BP didn’t make sure the companies made accurate reports about their safety measures.  Solyndra and Koch Industries didn’t guard against abuse by the other company.

So if one wants to argue that the Federal government should not regulate financial players, fine (perhaps our country is too big and complex to manage, and the federal government has become too corrupt) … but who should?

The states? Cities? Communities? Neighbors?

Human beings have the ability to form social contracts. Our D.C. government has largely breached it social contract with the people.

But we shouldn’t tear down the federal government unless we replace it with something better.

No one wants to tear down the state of organization so completely that we go back to monkeys (without the ability to talk), or one-celled critters . . . so the question is how do we want to organize?

Do you want to live as a “savage”? In reality, the natives had survival skills, cultural traditions, and knowledge developed over many hundreds or thousands of years (including knowledge gained before the migration from Asia to America), stored in the database of oral traditions. The settlers had traditions and knowledge as well. If we tear away all of that organization, life is going to be pretty challenging.

It is easy for a teenager to criticize his parents, but a lot harder to actually create a better adult life for himself. A teenager looks silly and immature when he criticizes everything his parents do without understanding the challenges he’ll face as an adult. But a young person who rebels against his parents and then creates a better adult life is doing important and heroic work.

In other words, anarchy as an economic model could work if economic players organized in such a way as to police against fraud and criminal behavior (the equivalent of pulling out a knife or taking out someone’s kneecap in the middle of a football game).

This is a long-winded way of saying that we should not stop the government from enforcing fraud laws unless we come up with a more effective way to stop fraud.

The Real Problem …

While liberals tend to distrust big corporations and conservatives tend to distrust the federal government, it is really the malignant, symbiotic relationship between the two is the root problem.

Too much government overreach? Giant unaccountable corporations?

Maybe … but the root problem is that corrupt government officials and corrupt corporate fatcats have merged into a crime syndicate.

Do you get it?    Before we can have a real free market, we need to burst the bubble of fraud.

Before we can have a functioning government, we need to stand up to corrupt government officials.

We all need to step out of the left-right dichotomy which is distracting us and dumbing us down.

We need liberty and justice.

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  • Warren Celli

    Regarding this in your close;

    “While liberals tend to distrust big corporations and conservatives tend to distrust the federal government, it is really the malignant, symbiotic relationship between the two is the root problem.”

    Big corporations, through fraud, much of it in the past, own and control the federal Government. The deflective liberal and conservative (left right dichotomy) is their construct. Initially created to deflect from their self serving greed, it is now being used as a herd thinning tool, along with many other divisive constructs, by intentionally creating perpetual conflict in us all.

    If you want to pop the “fraud bubble” you have to get free of present bound thinking. You have to see clearly the ratchet of Aggregate Generational Corruption…

    http://www.boxthefox.com/deceptionology/10aggregategencorruption.html

    Libertarianism is for individuals. Groups that create larger social constructs within the umbrella social construct, that impinge on that individual freedom, should be regulated, proportional to their size, by all citizens.

    Deception is the strongest political force on the planet.

    • jo6pac

      Thanks

  • gozounlimited

    Which fraud to you prefer?

    As California proceeds with investment in green energy ….. to replace aging nuclear plants (that we cannot afford), the people approved Proposition 39, which closed a corporate tax loophole, allocating about half of tnew revenue to environmental goals for five years. The Prop 39 backers spent more than $31 million to promote the initiative, $29.6 million of which came from its sponsor, billionaire hedge fund manager Tom Steyer. It received almost no opposition, and, despite the millions spent on advertising, garnered less attention than other initiatives on state taxes, political contributions and genetically engineered foods.

    The money raised by Prop 39 also has the potential to be combined with another new source of clean energy cash – the roughly $1 billion the state expects to raise over the next fiscal year as the state’s pioneering carbon market opens.

    The carbon market, part of California’s response to the global warming [fraud], caps the amount of carbon emitted by industries each year and lets companies buy and sell permits to pollute. The state is the primary seller of permits, which could raise $50 billion over eight years. State law requires the revenue be spent on environmental projects, but details have not been ironed out yet.

    In the new budget, “The Governor applies all revenue raised by Proposition 39—including the revenue required to be spent on energy–related projects—toward the Proposition 98 calculation. This is a serious departure from our longstanding view of how revenues are to be treated for the purposes of
    Proposition 98, the minimum guarantee for public school funding, . It also is directly contrary to what the voters were told in the official voter guide as to how the revenues would be treated.”

    Consequently, misappropriation of voter initiative funds has been a common theme following Brown’s budget announcement. Many Republicans have cried foul over the fact that only 40 percent of Proposition 30 funds were set to go towards schools in the proposed budget since the initiative,
    spearheaded by Brown, led voters to believe a more substantial portion of the tax increase would go to the classroom.

    A new report found that California’s Energy policies will raise state power rates and associated costs by nearly 33 percent.The costs to California consumers in 2020 will rise by more than 13 percent as a result of the renewable fuel mandate. However, the report notes that even without the mandate, state power rates would rise by nearly 20 percent due to “various capital investments driven by both economic and regulatory factors,” and because of the state’s cap-and-trade program.

    Global warming hoax & Cap and Trade Scam … http://www.youtube.com/watch?v=2yYLzyD7Jcg

    Early in 2012 the California Independent System Operator reported to the Federal Energy Regulatory Commission suspicion that J.P. Morgan Chase was guilty of a plot to keep electric power off the California consumer market until it was able to command “exceptionally high prices.” The amount
    grabbed was $73 million. The ISO oversees California’s electricity market.

    Are market speculators circling the California Cap and Trade waters preparing to repeat the gaming of the California electric system as they did in 2000 and 2001? For those who may have forgotten, it was Texas company Enron that drove electric prices to record highs, causing massive blackouts for
    California consumers, while billions of dollars were made in excess profits. Enron went bankrupt and some of its executives went to prison.

    The top cops in Europe say carbon-trading has fallen prey to an organized crime scheme that has robbed the continent of $7.4 billion — a massive fraud that lawmakers and energy experts say should send a “red flag” to the U.S., where the House approved cap-and-trade legislation over the summer amid stiff opposition.

    As U.S. hesitates, California pours billions into green energy …… http://www.reuters.com/article/2012/11/14/us-clean-energy-california-idUSBRE8AD0F720121114

    Legislative Analyst Claims Brown Budget Misuses Prop 39 Funds ….. http://ivn.us/2013/01/15/legislative-analyst-claims-brown-budget-misuses-prop-39-funds/

    Report: Costly state energy policies to raise California power costs by 33 percent … http://dailycaller.com/2013/01/24/report-costly-state-energy-policies-to-raise-california-power-costs-by-33-percent/

    Is Cap and Trade a much larger Enron scam? ….. http://www.calwatchdog.com/2012/09/13/is-cap-and-trade-a-much-larger-enron-scam/

    Fraud in Europe’s Cap and Trade System a ‘Red Flag,’ Critics Say ….. http://www.foxnews.com/politics/2009/12/14/fraud-europes-cap-trade-red-flag-critics-say/

  • windcatcher

    Great job GW, but you are
    being too all inclusive in your view of nuclear energy.

    .

    The US were the pioneers of
    safe liquid fluoride thorium reactors but abandoned that technology in favor of
    nuclear reactors that provided a by-product for the production of nuclear
    weapons.

    Today, Communist China is the
    worlds leader in safe liquid fluoride thorium reactor technology and Americans have
    there thumbs up their butts waiting for the calculable and inevitable nuclear
    disaster.

 

 

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