 Okay, public finance. That's the topic that I've been assigned to. And what public finance means is you get money for government to finance its services. That's public finance. What's my take on this? My take on this is you don't need public finance. It's a fallacy to think we need public finance. The only reason we need public finance is because the government, the public, is providing services, goods and services for us, presumably the goods and services that we're incapable of providing for ourselves through markets, but there are no such things. Anything that the government provides, armies, courts, police, welfare, whatever, any of it, all of it, has always been provided by the free enterprise system, so you don't really need public finance. That's about the end of my lecture. Now, if I did that, Doug French would say, come on, I'm not gonna pay you, so I've gotta say something else. But that really is the public finance lecture, I think, from the Libertarian point of view, from the Austrian point of view, we can say a lot more, but from the Libertarian point of view, there's no need for public finance because you privatize everything. My motto is if it moves, privatize it. If it doesn't move, privatize it. And since everything either moves or doesn't move, you privatize everything and you have no public finance. The fallacies that I'll be now covering more as an Austrian than as a Libertarian, well, the main four economic failures, that's what they call it. They call it economic failures in the mainstream press or in the mainstream tradition. The biggies are monopoly, unequal distribution or maldistribution of income. The third is externalities and the fourth is public goods. I won't be discussing monopoly, it's a separate issue and other lecturers here are doing that. I've written about it, if you're interested, hit me up and I'll send you stuff on that. Heck, I've written about all this stuff so if I don't answer your questions and we don't have time, just email me with a question and I will try to do the best I can through email. But I will be talking about income redistribution, public goods and externalities. But before I get into it, what is the usual way that the mainstream public finance people deal with things? The way they deal with it, this is a very rough estimate of it, is what they do is they put regressive, proportional and progressive taxes on the top and then a whole bunch of issues, sales tax, income tax, VAT, excise, tariff, inheritance tax, here I do it a little bit more neatly so you can get a different view of that. And what they do is they, some public finance courses, what they'll do is they'll take the income tax and they'll go across regressive, proportional, progressive and then they'll take land tax and then they'll take interest tax and they'll compare the difference on these three each one at a time. So they'll take a profit tax regressive, profit proportional, profit progressive. Other times what they'll do is they'll just take regressive. They'll say, okay, all taxes are regressive and now let's go down the road instead of across the columns. Either way, you cover this and I think that's a good way to approach this, make boxes out of the things like I made boxes here and make sure the students understand what goes in each box. The way I do my environmental economics class is very similar to that. What I do is I say here is the free market environmentalist view, here is the moderate view and here is the left wing view and then we consider a whole bunches of environmental issues instead of different taxes like species extinction and global warming and overpopulation and things like that. So it's a good way to give students an overview by being able to fill in all the boxes. So I'm sort of in support of doing it that way if you have to do it at all. I don't think you should have to do it at all but that's a different issue. Another issue that sometimes comes up of interest in public finance is this thing called the Laffer Curve. Here is the Laffer Curve where you have revenue over here and you have the tax rate here and when you have a tax rate of 100%, how much revenue does the government collect? Zero because if they're gonna take it all away you're not gonna produce it in the first place. On the other hand, if you have a zero tax rate, how much will the government collect? Zero because they're not taxing anything at all and somewhere in between there is the maximum revenue that the government can get and what I say is if they tax it at 35% they'll maximize their revenues. Now I think Laffer has been unfairly convicted or charged with saying, well, the optimal tax is the tax that maximizes government revenues. He didn't really say that although he's been accused of that but an interesting implication of this is the fact that at different points like what is the, suppose we're at, well, let me try this one again. Suppose we're at a 75% tax rate and we're thinking of lowering the tax rate to 70% but we know that the government is gonna get more revenue at 70% than at 75%. So should we as libertarians, as Austrians, this question doesn't come up because Austrianism is value free and this is a value laden question, should we favor a lowering of the tax? And we have a little bit of a quandary. On the one hand, we sort of favor low taxes. On the other hand, we don't favor government getting more revenue. So we have a little bit of a quandary. My way of answering that one is lower taxes because at least you're going in the right way so if you extrapolate from that, if you keep getting to lower taxes it's better to get to zero than to go the other way to 100 because you could say, well, let's raise taxes from 75 to 80. That's good because the government will get less money but we don't really want that. You get the same sort of a thing like should we legalize drugs? Well, obviously as libertarians we should legalize drugs but the point is the government will then start to tax it and they'll get more revenue. Some people say, well, this is a reason for legalizing but for the libertarian it's an argument against legalizing. It's the only good argument against legalizing I've ever heard that the government will have more revenue and we don't want the government to have more revenue. Okay, so much for these interesting points. Now what I want to get to is the issue of public goods. What's public goods? This is one of the most serious, most sophisticated arguments against the free enterprise system in favor of government and the way that they do this, let me see if I can zoom in so I get the whole page. Yeah, that does it. Okay, the way that they do this is they say there are two issues. One is excludability. Can the government exclude non-payers from getting it? The idea is if you can't exclude a non-payer from getting it then the market can't work. The market can only work if you can exclude a non-payer and the people who enjoy it have to pay and the people that don't get it don't have to pay but you can exclude them. Namely are there any free riders? If everyone's a free rider then goes the argument you're not gonna have much success in the market. So excludability is one of the issues. The other is rivalrishness. What does rivalrishness mean? What rivalrishness means, that was a rough one, is are people rival with regard to the thing? Namely if I have it, does that preclude you from having it or can we both have it at the same time and if we can both have it at the same time why should we exclude? So the question is should you exclude even if you can exclude? I don't think this is very clear what I just said although I think what I just said is accurate but let me go through some examples and hopefully that'll make it more clear. Take pizza. Can you exclude people from eating pizza who don't pay for the pizza? Yes. So we say yes to can you exclude yes? You can exclude people from non-pizza payers from eating the pizza because you have a very credible threat. If they come up and they grab your pizza you call the cops and the cops will stop them and put them in jail. Can you exclude 100% no there's pizza theft but pretty much buy and lodge the purveyor of pizza has a very credible threat to make against the guy who's stealing his pizza namely cut it out or I'll bash you or I'll call the cops. So we can exclude. Can we exclude people from walking on a crowded street? Think of Times Square at Times Square in New York City on the end of the year, December 31st, New Year's Eve and there are millions of people and the idea is what are you gonna do? Go to this guy and say hey did you pay to be here and did you pay to be here? The idea behind the New York Classicals is that it's very hard to exclude people from using a crowded street. Okay, so now I've explained what excludability is. Let me go further. Can you exclude people from using a TV program? Yes, you can. What you do is you broadcast the TV program and then you what do you call it interfere with the TV program but you sell people a box, an unscrambling box that will enable them to see the thing whereas if you don't buy this box then you can't see the TV program. So I'm broadcasting a TV program that people on this side of the aisle have all got a box that will unscramble it's the you guys pay me and I'll give you the box you can see it, you guys you dirty rats don't pay me so I can exclude you by not giving you the box. What about defense in the lighthouse? The idea here is that if we make a credible threat to the commies or whoever the bad guys do drew or are that if you mess with us we'll nuke you we'll throw one in the men's room in the Kremlin. Well, and I'm trying to protect the people on this side of the aisle let's say the east of the Mississippi, the people on the west of the Mississippi will also benefit from this threat to the Russians namely I can't exclude you guys from the benefit of it because I'm protecting these guys so you guys are free riders and since you're free riders these guys will say well if they're not paying we shouldn't pay so defense can't be privatized or the lighthouse which would be another example can you exclude? Well no, I mean if I put the lighthouse on it and you guys pay me to put the lighthouse on because I put the lighthouse on a rock and if your boat hits the rock it's crebluey for you but these guys have got boats and they're not paying so I can't exclude them if I put the light on that's it. Okay, so that's so much for excludability. Now let's talk a little bit about rivalrousness. Are we rival for pizza? Yes, we're very rival for pizza. If I'm eating it you can eat it. If I'm wearing this wrist watch you can't wear this wrist watch. But what about TV? Is TV rivalrous? No, TV is not rivalrous. If I'm broadcasting out the TV thing you're not rival, any number of people can access it so even though I can exclude I shouldn't exclude according to this because we want to promote efficiency. And defense and lighthouse are not rivalrousness either because you can all enjoy the defense or the lighthouse. Okay, now don't get the idea that one quarter of all goods are in each of the four boxes. Maybe for the left-wing neoclassicals that's true but for the Chicago School which is supposedly for enterprise, they would say well most goods are right here. So most goods can be privatized and there are very few exceptions where we have to have the government involved. The people at Berkeley or Harvard would say well there are more things like that and the Marxist would say everything is like that. So you get a variance in how much we can have privatized. Okay, I'd now explain the public goods argument. I think I've explained it to the satisfaction of a neoclassical person. So if a neoclassical person were to hear this, they'd say well you don't have it perfectly, you didn't really put enough body English in supporting this, you could have done a better job but by and large I think if they were fair they'd say yeah that's what the public goods argument is. What I'm now going to do is to try to undermine this and say why this so-called market failure is a fallacy and that the market is legitimate and it's able to overcome the public goods argument. Okay the first thing I'll do is I'll attack excludability just because the government can't exclude people from the crowded street doesn't mean that private people can't exclude people from the crowded street. You don't have to go over to each individual. What you could do is give everybody a little tag like this and here in case you can't see it give them a little tag like that and then the police look around and anyone without that tag they say sir do you have your tag maybe in your pocket? If not they grab you and that's a credible threat. Look the Mises Institute part of the reason that they're doing this is to exclude people. We go out into the have dinner or lunch or whatever it is and they can't check everyone we don't know everyone there are 260 students here and maybe 40 staff and faculty it's a 300 people that's not a crowded city street but it's pretty crowded and this is one way of excluding. So just because the government can't exclude the market can. Defense we can exclude what we can do is say okay in Texas there are a bunch of wimps and sissies and they're not gonna pay for defense but in Texas they sure as hell are because Texans are macho and we can tell the Russians or the Martians or whoever the bad guy is you know you wanna bomb Massachusetts we're not gonna retaliate but you mess with Texas and you know your rear end is grass or whatever the expression is we're gonna come get you. So you can exclude perfectly no you can't nothing is perfect but you can make a credible exclusion even on a domestic level if you don't have this tag and it could be on your house it could be on your store it could be on your car this one says the ACME defense agency will defend you your person and your property and if you don't have that that's an open sesame almost namely if we attack the guy without the tag if a criminal attacks a person without the tag the police will not stop him. So you know this would be an incentive for people not to free ride but to subscribe to the police services. Bill Barnett and I have several articles out on the lighthouse the lighthouse is a real big issue among economists and what we say to shorten it very much again if you're interested in more hit me up and I'll send you our lighthouse literature we can make a credible threat to the non-payers you guys have boats and you haven't paid for my lighthouse you guys have and the threat I can make as the lighthouse owner is I can say look most of the time you're right you can get away with not paying and you'll see the lighthouse and you'll be protected from crashing onto the shore however one of these days and this is in the days of sailboats when lighthouse has meant something now we have GPS it doesn't matter but the economic theory should be timeless namely economics should show that markets are legitimate whatever the technology I can say you know one of these days the moon is gonna sort of be out there and the clouds are not gonna be covering and I'm gonna be able to recognize your boats and if there are any of their boats out there you're safe but one of these days they'll only be your boats I'm gonna shut the lighthouse down and then you're gonna have risk of crashing and I'm gonna broadcast this and every sailor you hire on your boat is gonna know that he is engaged in a dangerous activity you're gonna have to pay him more salary a whole year even though it might only be once or twice a year so this is a way of excluding non-payers is it perfect? No, but it's a way of excluding non-payers Coasts got this all along our article is mainly an attack on coasts I'm not a big fan of coasts and I've got a lot more to say about coasts which I'll say further when we get to externalities it's very similar so this is called a pure public good these are semi-demi public good the idea here is that it costs something the marginal cost is greater than zero providing it here the marginal cost is zero of adding one more person given that I've got a lighthouse one more person watching it doesn't matter given I've got a TV program one more person doesn't matter but I can say that even as an attempted reductio even the pizza has got a zero cost because once I produce it, it's costless so maybe the government should produce that too so if you accept this argument what you're really forced to I think with the reductio ad absurdum is that everything should be run by the government and that's not what these guys want what these guys want is only certain things should be run by government, not everything they're not totally against markets okay, that's sort of a overview of the public goods argument let me now move to a thing called externalities what's going on with externalities get my notes out on that here we go okay, what's going on with externalities there are two types of externalities there's external economies and external diseconomies sometimes called positive externalities sometimes called negative externalities but whichever way you zig-ozag it's a market failure according to the critics of the market here is an external economy or a positive externality and the idea here is that this is the ordinary demand curve and that's the ordinary supply curve and this is the actual amount of a good that you will purchase which has an external economy what is an external economy an external economy is there are positive spillover benefits of me doing something and you benefit for example, I take a shower once a month whether I need it or not and the people in the front row are benefiting from this because otherwise you'd be in trouble so and yet I can't charge you for it you benefit and I can't charge you for it so there'll be too little of it let me give you another example, education this is the demand curve for education this is the supply curve of education and I'm gonna get this much education that actual amount of education why am I gonna get the actual amount of education because I can get a better job or I'll be more attractive to friends I'll be able to influence people whatever the reason but there are external benefits and when we take account of these external benefits this is the true demand curve and with regard to soap this is how much soap we're actually using because we only take into account our personal use for soap but if we took into account the spillover benefits for others when we use soap we get a higher demand curve well similarly, there are external benefits of education so-called if I'm educated I'll be less likely to be a criminal I'm more likely to vote better to vote more rationally, what have you and yet I don't get that much education because I'm only concerned with my own narrow self-interest and my own narrow self-interest says get this much education because I don't take into account the value of the extra education that I could get that would help you, you know, the hell with you I'm in it just for myself so I get too little education and you get too little education and as a society we get too little education and this is a sort of semi-sophisticated argument for why the government should subsidize education because the market is misallocating resources the market is having too few resources in education okay, that's the argument it's a pretty sophisticated argument if you haven't heard it the opposition to it isn't readily apparent but that's what I'm gonna give you now first of all the, you know we're rent control and minimum wage law are the most popular they're most popular in college towns like the People's Republic of Ann Arbor the People's Republic of Cambridge Mass the People's Republic of, I don't know where is it in Texas, Austin, Texas, big college town and let's stipulate that rent control and minimum wage are bad things so the very opposite is true what we ought to do is tax education here it's an external dis-economy which I'll get to in a minute we've got too much education the people who are the most educated are the most idiotic they're the ones who are voting for these bad things so that's one argument against that the more sophisticated argument against this is that you have no way of measuring any of this stuff this is just what do you call it lines on a blackboard or lines on a screen you can't prove anything like this Murray Rothbard has a beautiful quote see what we're trying to do is force other people that become more educated and Murray says quote A and B often benefited is held if they can force C into doing something any argument proclaiming the right and goodness of say three neighbors who yearn to form a string quartet forcing a fourth neighbor at bayonet point to learn to play the viola is hardly deserving of sober comment and yet that's what this is there are two people saying you're not educated enough you're not educated you should be more educated to benefit me so we're gonna force you at bayonet point or as my buddy and my opponent last night was saying that men with a badge and a gun are gonna come at you and make you become more educated well that's not kosher so what Murray is saying this is not really worthy of sober comment to force people into doing things because supposedly they'll be spill over benefits for other people it's just silly there's no way to prove this okay let's move from external economies or positive externalities to negative externalities oh wait there's more to be said on this one of the reasons for public parks we can have private parks because if we have private parks there'll be a misallocation of resources again this is sort of a sophisticated argument and this is what they teach you in economics God help us see if you have a public park and it'll have spill over benefits the value of the houses across the street will increase not true yes that's probably true if right now there's a big slum say Harlem and what I do is I take a square block and I'm gonna knock down all the houses and put in a park and it'll be green space and it'll be nice and it'll increase the value of the other houses right there'll be an under investment of private parks why? because the owner of the private park can't capture the value of the houses all around the park and therefore there'll be fewer parks than would be optimal and the government knows how many parks are optimal you know we stipulate this obviously they're the governments they must know and therefore since there are external economies with spill over benefits there'll be too few parks or maybe no parks at all and therefore the government has to do it the obvious refutation of this is that if I'm the only one I'm setting up a private park I'm the only one knows that where I'm gonna set it up and what I could do if I think that the value of these houses will increase I'll buy up those houses too you get it? before I put in the park I'll buy up all the houses around the park then I'll put in the park and then I'll capture the value of this will I capture it all? no perfection has denied us on this side of the Garden of Eden but I'll capture some of it or a lot of it because only I know where it'll be right and I'll start buying this land surreptitiously under friends' names right so that nobody gets wind of the idea that I'll buy this park okay so that's the argument on parks and that's the refutation now let me get into external diseconomies what's an external diseconomy the usual definition of an external diseconomy or a negative externality is something not where I benefit you and I can't charge you for it but rather where I harm you and you can't charge me for the harm I impose on you and I said that too quickly so and I'm not gonna say it again but let me give an illustration of it pollution what I do is I create these podiums and most of the costs here is the supply curve which is the cost curve most of the actual costs there's supply and demand that's the actual number of podiums I make most of these costs are so-called internalized I have to pay for the wood if I don't pay for the wood I don't get the wood I go to jail if I steal the wood I have to pay for the labor I have to pay for the interest rate on my loan I have to pay for the factory I have to pay for all these things but there's one external cost that I don't have to pay for and that is the pollution that I waft out onto your land and your lungs and your washing and stuff like that and I don't have to pay for that and if I did have to pay for that the supply curve would shift upward and that would take into account total costs see the argument for external economies is I'm not taking into account total benefits here the argument is I'm not I that is the free market I'm not taking into account total costs and when we take into account total costs the optimal amount of these things is here not here namely I'm overproducing things because I'm not taking into account part of the costs that I'm on imposing on the people and you can't sue me for it everyone get that? okay that's the argument for externalities of the negative externalities pollution the market misallocates resources by having too much before it was too little what is the libertarian or rather Austrian refutation of this so-called market failure we don't say it's not a failure pollution is a failure but it's not a market failure it's a government failure now here Murray Rothbard's article air pollution I forget the total title of it it's a big long title but the key word is air pollution it's a magnificent article it must be 90 pages it's available for free at the Muses Institute the first half has got nothing to do with pollution or anything it's just the law of property rights and then in the second half he applies it to this sort of a thing and what Murray says and he gets a lot of this from a guy named Horowitz not Steve Horowitz the semi-Austrian but the historian at Harvard University and what he says is in the 1830s when when we had quasi-libertarian law there was a spate of nuisance suits and what would happen is some little old lady would hang up her washing on the line this is before dryers she would hang it up and it would be clean and wet and then she'd come back two hours later and it would be dry but dirty and she'd go to court and say that their factory you can see it's spewing forth pollutants and some of the pollutants are coming here and they're getting onto my laundry I want two things I want an injunction and that is an order from the court to tell them to cut it out and I want damages and pretty much in the 1830s and 1840s this was agreed to by the courts in other words the philosophy of the courts was that if you're going to damage other people physically invade them you're going to get an injunction and make you stop it and if you don't respect the injunction we put you in jail and we're going to make you pay damages for it and as a result you didn't have too much of this or you had a case of a farmer put out his haystack and the railroad comes by with sparks going 400 feet and the sparks set off the haystack and the farmer goes to court and says hey, tell the railroad to cut it out and give me damages and if you could prove this the burden of proof was on you the courts would pretty much exceed to this and as a result things were pretty good from an environmental point of view this is, I'm now giving you sort of a free market environmentalist analysis of pollution things were pretty good the factories were led as if by Adam Smith's invisible hand to use clean burning anthracite coal even though it was a little bit more expensive rather than dirty burning sulfur coal because the dirty burning sulfur coal would get on the little old lady's washing and the railroad was led by an invisible hand to get the spark prevention devices so they put some sort of fence there so the sparks didn't fly so much and things were pretty good there was even a bit of environmental forensics you know what forensics is from the CSI movies you know the blood and the semen and the hair follicles to see who murdered and who raped well you take a little dust bit and you'd have to analyze that and find out where it came from and then go get the perpetrator so things were pretty good then in the 1890s, 1880s, 1900s the so-called progressive period Coco, Gabriel Coco is a very good historian on this there's an interesting story about him he was a Marxist but he was very good on property rights don't ask and libertarians would invite him to their conferences and he'd come because he was paid but then he realized that we were using him to promote freedom and he said, oh we can't have that and he refused to have anything to do with us but we still have his books and his books are excellent Gabriel Coco, K-O-L-K-O the progressive period and what happened then a sea change took place over the law courts and who was number one then who was the big imperial power it was Great Britain in 1890, 1900, 1910 and we wanted to be number one and how do you get to be number one by messing with factories and taking the side of little old ladies or by supporting the stupid farmers against railroads no so the next time the little old lady or the farmer came in a court the court would say, yes, yes they're violating your property rights you're stinking lousy private property rights there's something more important than private property rights and that is a public good and what does the public good consist of it consists of letting these guys run rampant and pollute they did offer a SOP they had minimum smokestack height regulations previously the smokestack was 20 feet high and you could tell where the stuff was coming from now they were 300 feet high and you just had pollution all over and it was very hard to tell where it came from so if you were a green businessman if you said I'll use anthracite colbis it's less invasive and I'll use a smoke prevention device and I'll put stuff in my chimney to capture most of the pollutants before they get out you would be at a competitive disadvantage vis-a-vis your competitors who had no such compunctions so of course instead of putting the problem under the rug we put it into the clouds and of course there was failure but it wasn't market failure it was government failure it was the government's failure to uphold the law this is the Murray Rothbardian analysis of that okay now we get to our man Coase and our boo and our man Coase says well there were two other solutions to this one was what the hell is his name? Pagoo said well let's just have a pollution tax which is now taken up by our friends on the environmental left the watermelons green on the outside red on the inside I mean there are certain people that love to run the lives of other people and for a while they were doing well with communism I mean communism was good you could control other people's lives and then in 1889 and 1901 the fall of the Berlin Wall and the fall of the Soviet Union and you really couldn't ride that horse anymore so we had to come up with some other way to hitch our interventionist wagon environmentalism so they're really red on the inside they just have a green cover okay so Pagoo said let's tax and what Coase said is you don't really need Pagovian taxes what you could do is they could negotiate and let me just give you a little bit of Coase I don't have time to do all I can go on for hours about Coase but let me give you one of the favorite most famous Coasean analyses there's a mechanic and he lives in this house and he starts I put a number one for the mechanic because he sets up a machine that makes noise and here's a doctor who comes in and puts his operating room or whatever is room where he interviews customers, patients and he needs quiet for a stethoscope and everything is fine because the noise doesn't reach him then what happens is that the doctor moves from area two to area three everyone following what I'm saying the mechanic was there first the doctor used to be here but then the doctor moved to the other side of his house and he put his waiting room there or rather his examination room there and now he goes to court and says hey the mechanic is messing with me and get the mechanic to move over here or get the manic to shut up I don't care just get the mechanic to stop and Kose's idea for pollution is that different people will negotiate well that's not exactly true what Kose is saying is that we can negotiate over over pollution in an ideal world in a world where there is zero transactions cost and in a world where there is zero transactions cost well who should win this who should win this dispute should the mechanic win the dispute or should the doctor win the dispute the libertarian answer based on homesteading and first come first served is mechanic wins why does the mechanic win because he was there first and he homesteaded the noise rights what's Kose's answer Kose's answer is unclear Kose's answer is not that the mechanic should win or that the doctor should win rather Kose's answer is whoever should win is the guy who if we voted against him in the court would suffer the least damages in costs so if the cheapest way to deal with this is to get the doctor to move back then we vote in favor of the mechanic and we make the doctor move back because it's cheaper to have the doctor move back and for Kose the key is reduce costs on the other hand if it's easier to shut down the mechanic or cheaper to put the mechanic over here away so the doctor is protected then we go that way so for Kose you see the usual analysis the usual pre-Kosian analysis is that there's cause and effect I'm the perpetrator I punch you in the mouth I'm the aggressor you're the victim that's it for Kose well your chin got in the way of my fist Kose has got this reciprocality it's not that I punched you in the mouth it's that you charged my fist and who should stop should you stop putting your chin in the way of my fist or should I stop putting my fist in the way of your chin is whichever is cheaper if it's cheaper to stop me then you stop me if it's cheaper to stop you then you stop you which is not exactly libertarian and it's open to all sorts of reductios for example we're now having a dispute as to who owns this wallet let's say I just took this wallet from Dr. Prince and it's got his picture in it it's got a picture of his wife and his kids and all that and now he holds me in the court and we get a Kosean judge and the Kosean you see the ordinary judge would look in the past they'd look in history and say well where did you get this block and I say I took it out of his wallet I took it out of his pocket I'm a great pickpaw I'm honest you know I'm an honest thief but I'm not lying it's got remember it's got his picture picture of his wife and kids and all sorts of stuff that he has in his wallet and I don't lie so I just took it out of his wallet and the ordinary judge would say well you know give me a break you're going to jail you're a thief not the Kosean judge the Kosean judge doesn't look in the past the Kosean judge looks in the future and he asks well he says block well what will you do with the money in the wallet so I'll write great philosophy and I'll write great articles and I'll promote liberty or I'll promote Koseanism or something like that and then he asks Dr. Prince well what will you do he's a drunkard and he'll just go out and get drunk with the money and he'll be a burden on society and the Kosean will give me the wallet I mean and I have all sorts of great reductives remember OJ Simpson was supposedly killed his wife and most people took the view well if he did it he should go to jail and if he didn't do it he should be free and thanks to Koseanism I had a third alternative he did it but he should have done it because in a zero transactions cost world he would have bid her away from herself because he valued her more than she valued herself she had low self-esteem I mean you can do anything you can do anything with Koseanism Kose is even worse than the commies at least the commies at least the commies had a theory of property rights the bourgeois know the proletariat yes okay it's a theory of property rights I mean it's not a great theory but it's a theory of property rights whereas for Kose there's no theory of property rights property goes to whoever can use it best in the future now how the hell does a judge know who's going to use it best or how the hell does Kose know who would have bid for OJ Simpson's wife I mean it is just crazy and yet Koseanism has taken over the whole economics profession I mean Kose is beloved even more than most other Nobel Prize winners I mean he's just a horrible person by the way by the way you know who's really good on Kose Gary North, magnificent Gary North and I have been writing a lot other people have written good stuff on him Gary North is excellent on Kose he really gives it to him good okay so this is the you get the same problem with the airport the airport has noise if the airport is there first then and this house comes to the nuisance the so-called nuisance well the airport homesteaded the noise and the guy who builds a house afterward has to tolerate the noise on the other hand if he was there first then according to libertarian theory the airport has to buy the noise rights from him and you get the same sort of a thing with the pig farm you know who's there first the smell, the house, whatever there are all sorts of legal examples and legal cases like that okay I've now done the second thing first was public goods now was externalities now I'm going to do the third thing and this is another fallacy of public finance and this is the business of another market failure here the market failure is misallocation of resources not really misallocation misallocation of wealth some people are too rich and some people are too poor and what we have to do is have egalitarianism we have to take money from the rich and give it to the poor now for the ordinary guy in the street and certainly for the libertarian this sounds like theft but no no no you're not sophisticated in economics when you become sophisticated economics you'll understand the power of this stupid argument I mean the power of this great argument okay so how do we do it well the first we do okay so we have here and we have wealth here and we have margin utility now someone was asking me for about you know suppose the third beer tastes better because you know the first beer you drink it you hardly feel it and then the second one you sort of awake to the wonders of beer and you enjoy a little bit more and then the third one is really good and after that you get diminishing returns that's a psychological analysis of margin utility and the mainstream agrees with that so they might have a little really cute over here get one out here like they might say it's really like this so they would say minimum margin utility can rise but then it falls eventually you have diminishing returns in margin utility well this is a problem to put utils on an axis means that there are units of happiness and there are no units of happiness I can't say well right now I'm 5.3 units happy and and yesterday I was 10.6 units happy so I'm half as happy now as I was before I mean you know that's crazy and yet that's what this implies so that's one of the problems with that but before the problems that was just one of the problems let's see how the mainstream economists use this sort of stuff in order to justify taking money from the rich and giving to the poor okay so you have a rich guy and he earns 100,000 a year and what you're going to do is take a thousand dollars away from him pushing him toward 99,000 whereas here's a poor guy who only earns 7,000 a year and you're going to give him that thousand that you took from the rich guy everyone with me here so you're reducing him from 100,000 to 99 you're increasing him from 7 to 8 and look at the benefit the benefit is he loses the area under this curve because that's what the margin utility curve is it shows how much utility you get from a thousand dollars and look at how much this guy benefits he benefits much more and the additional benefit is in this blue striped area so you see the misallocation when one guy's got too much money the other guy's got too little money if you take a little bit from the rich guy and give it to the poor guy the poor guy gains more than the rich guy loses the rich guy loses this much the poor guy gains that much right so now what you have is not only utils but now you have a thing a really sick disgusting perversion thing called ICU individual comparison interpersonal thanks I'm losing my mind here interpersonal thanks I need all the help, interpersonal comparisons of utility so now what I'm saying is I'm 10.6 units happy Tom Woods is only 3.2 units happy and therefore I'm 3 times happier than him you know that's crazy you can't say that there are new units of happiness and when you compare utils from one person to another it's even crazier it's sort of like craziness squared or something okay so what I'm now going to do is criticize this and my first criticism of it will be within the scope of neoclassical economics and what I'll say is okay let's use your own tools of analysis and let's see if we can't use them against you why do they both have to be on the same utility curve why couldn't they be on different utility curves so I have the same utils and I have the same interpersonal comparisons of utility but the rich guy is on this higher utility curve because he's rich he really enjoys things much more for any given amount of money the rich guy enjoys it more than the poor guy it's just as coherent as their curve their assumption was they're both on the same curve well I'm a good neoclassical economist I can make two curves I'm even more sophisticated and and when I do we get a very different result the different result now is if you take a thousand away from the rich guy and give it to the poor guy well you're taking more utils away from the rich guy than you're giving to the poor guy you see that so even using their own tools of analysis their own idiotic perspective you can now prove the opposite you can say what we should do is take money away from the poor guy and give it to the rich guy because you'd be taking fewer utils from him and giving more utils to the rich guy so what we ought to do is have the reverse of income distribution from rich to poor have income distribution from poor to rich I mean Dr. Prince is a slob and he doesn't really enjoy things he's drunk all the time I hope you don't mind me doing this and if I take a thousand bucks from him he'll enjoy the slobber that he drinks whereas I'm a connoisseur I'll drink fine wine and stuff or I'll do much better things with him and he's poor and I'm rich and he should give me his money I mean you can prove anything you damn well want with this nonsense ok now let's let's apply this to some real world cases one real world case is the case of ruining the black family with welfare before I do this I want to impress you with my sophistication as a biologist and it goes as follows if you put a frog in cold water and you heat it up very slowly the frog's metabolism is such that it can't distinguish between fine gradations of temperature and it stays in the boiling water eventually hotter and hotter in boiling and it dies if you throw a frog in the boiling water its metabolism is such that it knows well it's not good for it to be in the boiling water and it hops right out slavery was like boiling water for the frog slavery did not destroy the black family oh yes slavery destroyed the black family during slavery this person was sold here that person was sold there but after slavery during the late 1860s you get letters in newspapers Mary Jones was in the ABC plantation and looking for Hiram Jones her husband who was shipped off somewhere I know not where the hell are you and the people would get back together I looked at the 1910 census and in the 1910 census the black and the white families were almost this intact the white families were about a percent or two more intact than the black families intact means non-divorced and married at least married you start a family by being married so slavery was was like boiling water was unable to stop the black family from being a black family and a family is very important if you have two people a mother and a father the kids do much better they're less likely to be criminals they're less likely to drop out of school they're less likely to do all sorts of incidents of bad things like being killed being a gang and all the lefties would agree to that they would say that the intact families a much better way for kids and if you look at poverty most poverty is non-intact families if you look at the intact black families they're not poor some exceptions but in the main they're not poor so if you want to cure black poverty get the black family together the next story is this LBJ Lynn Baines Johnson started in the welfare in 1980 by the way I'm getting this stuff now from Charles Murray Losing Ground an excellent book and what Charles Murray shows is that the welfare was making a young black pregnant woman a much better financial offer than the father of her child a young black man could make off of a minimum wage job and the only way you could collect this welfare which was very serious money they would give you money, they'd give you an apartment they'd give you all sorts of benefits that you couldn't get if you weren't on welfare the only way you could get that is if there were no man in the house now previously in the 1950s for every family black families included if a single black female got pregnant it was a disgrace she had to go live off with Antilia until she had the baby and the baby was adopted and then maybe she could come back in the society but it was an absolute disgrace but now with the advent of welfare throwing so much money at poor people and it's not just blacks, it's the same thing in Sweden where they're mostly white when you throw money at people supply curves slope up with and the more money you offer for something the more response you'll get a lot of money for being pregnant without an intact family because if you had an intact family you couldn't qualify for the welfare so what this did is it didn't ruin the black family the ruination of the black family would be divorced it stopped the black family from forming in the first place and that's one of the big incidences of poverty because the black family is failing to form in many places 75% of black kids are born with that illegitimate I'm not trying to make a moral case I'm not saying it's immoral to engage in intercourse, that's a very different issue it's certainly not a libertarian issue when it's not an Austrian issue what I'm saying is a matter of social policy if you really hate the black family or if you really hate black people then you favor welfare I just found out by the way that today the NAACP favored legalizing drugs I just saw it on the blog it came over here which is magnificent because the drug policy is really an attack on young black men just as the prohibition of alcohol was an attack on young Italian men during the alcohol prohibition times but this is a long time coming and they weren't even very clear so the black leadership is problematic they don't see the problem of welfare they don't see the problem of drug addiction drug legalization drug prohibition but at least they're moving in the right direction on the drug issue so one of the problems when we make fun of utils and we put a thing like this over here it's sort of funny and we show that the thing doesn't really work but this has real world implications and one of the real world implications is that the high crime rates in the inner cities are a result of this sort of a policy of redistributing money from rich to poor and you give it to the poor people who are disproportionately black and you undermine their family and it doesn't say this on any of these diagrams so I have to fill in the story let me give you another story about income distribution the other one comes from Jane Jacobs housing there were two boxers in one of the Olympics I don't have their names here does anyone remember them? they were in the Pruitt-Igoe housing Michael and somebody else Spinks, the Spinks Brothers they lived in the Pruitt-Igoe houses which was a housing project in St. Louis they must have had 50 or 60 houses and they were all 40 or 50 stories high and terrorists had to blow them up but these terrorists were government terrorists what happened is that they were vertical slums it was just impossible to live there Jane Jacobs has two arguments against public housing the first argument is that in order to qualify for public housing you have to have below a certain amount of income if you have above that income you don't qualify and if you qualify by being below and then you get a raise above they kick you out so what happens in public housing is that you have single family, female headed households and the women were unable to deal with the teenage boys you know that movie the one with the 12 year olds where they were on this island and killing each other what's that movie Lord of the Flies well this is sort of a Lord of the Flies not for 12 year olds but for 16 year olds and they were running rampant defecating in the hallways the elevators were dangerous to go in it was just a horrible thing and the government had to just blow them up because they were just impossible to live there you know the lesson they learned from that of course was nothing to do with income levels but the fact that they were high rise buildings so now you have low rise public housing with the same problems the other problem that Jane Jacobs saw with public housing was the people who promulgated public housing had this hatred of commerce most high rise buildings at the bottom floor you have a store and then there's movement in and out of the store and then you have what Jane Jacobs called eyes on the street yentas, old Jewish ladies or old ladies or people looking down and seeing who's doing what with whom and then they call the police if something bad is happening well you don't have that in public housing because there's no movement in and out and the basketball court is a quarter of a mile away and this is a disaster for public housing and the solution I suppose is to get rid of housing, public housing and get tenement housing the sort of housing that they had before before public housing they had tenement housing yes it wasn't that good but it was better than the public housing because you had a landlord who had an incentive to make sure that this was semi safe otherwise people wouldn't rent there so you have this privatization or non privatization of housing and this it's sort of like a double whammy for the black community on the one hand the welfare, the family the public housing the drugs so this is sort of a libertarian analysis of how to deal with inner city problems and the solution is not governmental it's private it's a way of enriching this sort of analysis to show that it's not just a loss of utils but rather the real flesh and blood and tears problems involved with redistribution and money from rich to poor and with those remarks I thank you for your attention