Marc Faber on Democracy

Economist Marc Faber appeared on CNBC to talk about financial markets. But along the way he launched into a devastating analysis of class relations in a democracy. Here is my paraphrasing of Marc Faber,



It’s a question of entitlements. The majority of people are not very well to do. They want entitlements so they can work less. The people who have money and work hard are outnumbered by the poor people. The rich are very few in number so they have no vote. One way to get back at masses is to print money and outsource production, say to China. So you disenfranchise the working class and your asset prices increase dramatically. If you are affluent you have the same vote as somebody who was born illegitimate and poor. More than half of American children are born illegitimate and most of them are poor and they have the same vote as someone who is affluent. So the well to-do people will cheat the system as well.



It reminds me of what I wrote about democracy more than a year ago. Democracy according to Bertrand de Jouvenel "because of its centralizing, pattern-making, absolutist drive, can easily become an incubator of tyranny". Democratic society undergoes four stages before it becomes totalitarian.

1.In a democracy, the poor outnumber the rich so they vote to take away the property of the rich through policies like progressive taxation.

2. The rich, formerly gaining wealth through honest means, are encouraged to lobby and bribe politicians to protect their wealth. Honest entrepreneurs are placed at a permanent disadvantage while those with the skills of bribery and deception at an advantage.

3. The poor are further impoverished and dehumanized by the endless conflict in politics. While those who remain rich are those with very good political connections and are more likely parasites than producers (which makes the masses blame capitalism even more)

4. The political class conflict of rich versus poor wipe out the middle class, whom are entrepreneurial or high skilled workers, and thus the oligarchy is realized.

In a democracy, there is always a manufactured class conflict to keep the political machine running. The masses have to be incited and provoked so politicians' policies can be justified and their power strengthened. Politics creates what Jose Ortega y Gasset calls the mass-man, livestock for the state. The mass-man does not have independent thought, but a product of the state propaganda apparatus. A mentality of going(or voting) with the crowd is engendered and what left of independent thought and action is eroded. All democracies today are undergoing the same process. Democracy, is most destructive, governing large geographical areas. India, the largest democracy in the world, has less than half the per capita GDP of China and is politically unstable precisely because India is a democracy and China is not. The destructive effects of democracy, however, are restrained in states of small geographical areas like Switzerland. Rousseau, the great preacher of equality, believed democracy only works in states covering small territories because people will vote on their feet. Rousseau would find the current arrangement rather idiotic.

But such an analysis is not new. Frederic Bastiat observed the inherent problem with democracy as early as in the 19th century. He called it legal plunder or the perversion of the law by turning it into a means of taking another’s property. A major contributing factor to the decline of civilization in a democracy is the corruption of the wealthy class. As government and political pull are increasingly being used to gain wealth, traditional bourgeoisie values of hard work, frugality and bravery are replaced with opportunism, deception and bribery. The result is that wealth is no longer a symbol of virtue but of vice. There is also the issue of inheritance where the poor look at the rich as undeserving due to inherited wealth. But if an inheritor is really undeserving of his inheritance, then that inheritance would quickly dissipate on consumption and frivolous activity. It is only in a statist society where the inheritor uses political pull to pass legislation creating barriers to entry in order to unjustly enrich himself at the expense of the consumer.

Capitalism starving the Philippine Left of new recruits

I rejoiced when I read this article today. Facebook has afforded the disgruntled Filipino youth an alternative, and dare I say more productive, way of venting out frustration at politics than joining the communists. It is a sick irony that more poverty creates more demand for socialism. Far leftist groups have more recruits when the voices of the marginalized in society are not heard by the government. But it is unfortunate since the government is philosophically similar to the communists. They all think in terms of egalitarianism and 'from each according to his ability' philosophy. The far left, then, only serve an emotional purpose for the marginalized when what they really need is an understanding of 'why' they are poor and marginalized. The last thing the Filipino poor need is a decrepit ideology which has failed too many times to count. Socialism is mankind's greatest failure, an attempt to play god, a misunderstanding of what it means to be human. The fact that the leftists now resort to indoctrinating the children of the elite rather than propagandizing the masses shows utter hypocrisy in the stubborn attempt to redeem leftist falsehood. Socialism has broken many eggs but has never made any omelets. Those who stick to it in the face of mountains of evidence are slaves to false idealism and are unable to live in this world.

In contrast, capitalism has provided a way to satiate the urge of the marginalized to be heard. The Philippine government might have severely hampered the life-giving market process through inflation, taxes, licenses and regulations, but capitalism has still managed to deliver the goods in the unregulated sector of cyberspace. The most unproductive in society cannot find employment because of the economic ignorance of politicians in legislating minimum wage levels. They are curtailed from having a good education because of tax-funded 'public' education. But whereas before such conditions encourage extremism and anti-social behavior, now facebook is there to provide an avenue for communication and entertainment. Capitalism has filled in the social gap through peaceful means, and on top of all the bureaucracy and wealth destroying government programs. In comparison, the socialists have to expend so much effort taking over the government and dispensing of the bourgeoisie. And only then can progress be possible, they say.

Capitalism works even without an intellectual vanguard. The universities and schools are stacked with leftists of all sorts trying to pound the common sense out of young peoples' brains. But their irrational ideology is most of the time pushed aside as untenable, because let's face it, who could honestly take the stance business, that institution which we acquire our daily meals, is a harm to society. Business provide goods, services, allow labor to be integrated into the structure of production. How can an institution which we depend on to live, simultaneously be a great evil in the world? In fact, capitalism not only provide the means for material satisfaction but opportunities for spiritual satisfaction as well, as the high levels of social production in capitalism allow more time to go to Church or on a noble advocacy. The fact that capitalism delivers even without or with little of an intellectual vanguard is a source of hope. No words better express my sentiments than that of Ludwig von Mises in saying,

"Neither economic thinking nor historical experience suggest that any other social system could be as beneficial to the masses as capitalism. The results speak for themselves. The market economy needs no apologists and propagandists. It can apply to itself the words of Sir Christopher Wren's epitaph in St. Paul's: Si monumentum requiris, circumspice(If you seek his monument, look around)"

It is a sort of a joke that 'social' networking has weakened the growth of the socialists. They must all be seething in their self-righteous rage in the mountains. And we are all better for it!

A la carte democracy advocacy

I got this from Ryan Faulk

One thing I find when arguing with pro-democracy ideologues is how they’re allowed to be a la carte, while I’m forced to defend every thing that comes about in a market.

Bailouts? Wars? Retarded “regulations”? The FCC “regulating” the internet? Taxation and inflation taking up 43% of GDP? Kids learning in a month online what they took a year to learn in the obsolete state schools?

See, don’t bother blaming those things on democracy. We just didn’t vote for the right things or have the right guys in office! It’s not democracy that has failed, oh perish the thought. Something as big and old and that we have known since childhood as being the manifestation of goodness as democracy can’t be to blame.

So I advocate a total market, and then some people will point out some mean things that happened. Now almost always it’s some myth, involved state intervention (like with the state giving the robber barons land grants - essentially monopolies - and then the resulting monopolies being blamed on the market), or ignores context - like working conditions in early industrialization not being humane by modern standards.

But all that notwithstanding, NEVER am I allowed to say, “Oh, well those were just the wrong businessmen. See, I’m for having nice angelic businessmen. The key is to get the right capitalists at the head of large firms.” No, I have to either defend the market as it stands or explain why X problem is not a result of a market.

Democracy pushers are allowed to make arguments from fantasy, and I’m supposed to argue not against the reality of democracy but against this hypothetical where whoever I’m debating against got their way in elections.

The problem is that most people don’t even know that they’re doing this. They don’t recognize that they’re advocating democracy anymore than a fish realizes it’s in water. And so each individual has their little a la carte proposal, and when I come in advocating a total market, they treat my idea like it’s just another democratic hypothetical, not as a paradigm alternative to democracy itself.

Repeating the Obvious

This is the cover of Ludwig von Mises' 1944 book where he popularized the term statolatry. If you think modern Philippine politics is far away from the sort of delusion depicted in the cover of this book, think again.



Statolatry looks like the new religion of the Philippines. It is defined as worship of the State. Statolatry entails that nothing exists outside of the State. The State is the means of emancipation and human progress. The State can never go wrong because 'We' are the State and 'we' only need to do 'our' part by voting and paying taxes to improve the lot of society. Moreover, the Catholic Church, which is an institution with the staying power of over 2000 years now, an institution which has contributed a lot to the glory of Western Civilization, is being undermined by the empirically unfounded pseudo-rationality of Reproductive Health Bill (RH bill) supporters. (for RH bill rebuttal, see here, here, here, here and here)




Having your heart in the right place is not enough, and could even cause harm when combined with fallacious beliefs.


That was my impression when I saw this photo of students protesting the government, particularly the Department of Labor and Employment (DOLE), for its failure to provide jobs for Filipinos who then work abroad and become vulnerable to abuse. Although well-intentioned, they cannot think outside the State apparatus. The fact that these students think of the government as job provider when people are employed in private firms everywhere they look is alarming. As George Orwell put it,

"...we have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men. It is not merely that at present the rule of naked force obtains almost everywhere. Probably that has always been the case. Where this age differs from those immediately preceding it is that a liberal intelligentsia is lacking. Bully-worship, under various disguises, has become a universal religion, and such truisms as that a machine-gun is still a machine-gun even when a "good" man is squeezing the trigger..."

And whereas those on the Left think of themselves as 'progressive' and independent thinkers who are fighting an uphill battle against the 'neo-liberal' oligarchy, but the powerful influence of Marxism is evident in that its opponents also think like Marxists. As Ludwig von Mises said,

"...the ideas of Karl Marx ... are widely accepted today, even by many who emphatically declare that they are anti-communist and anti-Marxist.To a considerable extent, without knowing it, many people are philosophical Marxists, although they use different names for their philosophical ideas."

Today, only self-confessed morons and over-educated college professors call themselves Marxists, but it is no doubt that the vast majority still think in terms of egalitarianism, collectivism, class struggle, sacrificing the self to society, etc. It would be unfathomable for the leftists to think that it is their ideology which is the cause of social ills. As a political philosophy, Marxism will remain dead from the neck up, but its body is still swinging the bludgeon on the life-giving market order.

The answer to social ills lies in an understanding of basic economics. Its importance cannot be overstated.

Fruits of State Resource Management: The Case of Pasig River, Manila Bay and Makati Area Slums

Public property can be seen as one type of interventionism. The most pollution happens in public land because government does not have an incentive to take care of its property. As a result, those on the perimeters of the public land are affected. People living on the side of roads, seas, and rivers suffer from the pollution that is encouraged. Just look at Pasig River. Huge amounts of money and effort were expended to pressure the government to 'do something' about the dying river. And even now the its pH level is just enough for fish to survive. We would likely see little or no outcry if that river was privately owned. The owner would make use of it in the most profitable way he can think of, which means that resource will be used in the most socially optimal way. Even if the government successfully cleans Pasig River, it would still remain an idle resource slowly accumulating pollutants again.


Pollution is encouraged when the resource has no owner, i.e. public property.

Recently, there has been news of a residential community urging the government to cleanup the shores of Manila bay. As a result, 130,000 squatter families will be displaced without relocation. Here we see another effect of public property, the creation of conflict between different groups of people. The poor cannot find work because of the minimum wage and are made dependent on government urban planning schemes. They end up in public land that are then leased to those who have political pull. If private property were respected, then the homesteaders (the first to imprint his mark as owner) of the shores of Manila Bay would become the rightful owners. The squatters who now stay there would not have been made dependent and treated as expendable by politicians but would have found employment at a wage matching their level of productivity.






Public property not only encourages pollution, but creates conflict between different groups of people. The government relocates slum dwellers to areas which are polluted due to its own mismanagement. Now their homes are going to be demolished because of the whims of those with political pull.

In a free market, poor urban areas would be bristling with commerce because of employment opportunities provided by capitalists. Wages would be bid-up through competition between different capitalist employers vying for labor power. The relationship between rich and poor would be mutually beneficial, give-and-take, value for value. It now be very different from the situation now where wage controls restrict employment opportunities and the location of the urban poor is arbitrarily determined by government zoning. If the minimum wage, urban planning and welfare schemes were abolished, the poor would either find employment in the city or move to areas where the cost of living is low or in the peripheries of the city. Government urban planning creates disorder, leading many to wonder why there are slums not so far away from large banks and 5-star hotels like in Makati. It gives the impression of an inherent conflict of interest between the rich and the poor, with the former gaining at the expense of the latter. How is it that there can be cooperation across long distances, as in the case of foreign capital investment putting upward pressure on wages in China, but not amongst individuals a few kilometers away? This is the destructive power unintended consequences of interventionism. It makes enemies out of neighbors by outlawing mutually beneficial employment through the minimum wage on the one hand, and promoting dependency through welfare on the other. This economic and social inequality is then exploited by the Left to promote Marxist class struggle theory which only make the problem worse. The last thing slum dwellers need is a false ideology.





Most of the slum dwellers are unemployed or work in undeveloped extra-legal economies. Why aren't the rich in Makati 'exploiting' the nearby slum dwellers by making them work for low, but higher than pre-existing, wages? The answer: The government makes it illegal for them to do so.


Under conditions of capitalist freedom, the shores of Manila Bay would be de-socialized ( 'privatization' is misleading) and the residential community living nearby would own shares to it. The squatters, since they are also victimized by government intervention, could also be given shares, albeit less since they are 'late-comers'. The government would not be paid anything. Voluntary arbitration (not political pull) would settle the matter with equal representation of the two groups and conflict easily relieved. Private property is the best means man has discovered to solve conflicts. A society, for it to be considered civilized, must recognize it.

To contrast, 130,000 families are going to be driven to the streets just so to waste tax-payers money on cleaning up the shores of Manila Bay, unproductive land which will eventually accumulate pollution in the future. Not only is this insensitive, it is un-capitalist and uncivilized.

Should the Government Regulate the Financial Markets?

A summary of a debate between Walter Block and Richard Squire. The video can be found here




The modern banking system is based on fractional reserves which is government sanctioned fraud. It is therefore anti-capitalist.



Richard Squire:

1. Creditors of banks are not as vigilant as creditors of other agencies so a bank-run on one bank means a bank run on all banks.

2. Private credit rating agencies do not have the incentives.

3. Insider trading: Block argues that insider trading is arbitrary, no real victim, unenforceable, and stops information from being reflected in prices. But regardless, inside traders will create volatility in the market to make money.

4. Block will argue that corporations could ban insider trading in their charters. But there is no empirical support for this.


Walter Block:

1. Government is immoral because it forces people to pay taxes and it won’t allow you to secede. If it won’t allow you to secede then you’re a slave. Government is inefficient because it can’t go bankrupt. FEMA wouldn’t allow any help to come in. They killed 1500 people. Are they still in business? Yes. So we shouldn’t have a government at all because its immoral and inefficient. If the government shouldn’t exist at all then they shouldn’t intervene in anything.

2. Financial markets are too important for the government to intervene in them. If we really should have government intervention, let it be in the production of paper clips and rubber bands. One half of every trade is money so financial industry is very important. The Fed is a Soviet central planning board. A gold standard would mitigate volatility. The reason we have bank runs is fractional reserve banking. Fiat money, legal tender and FDIC are all bad.

3. Yes, FDIC prevents bank runs by creating money galore but this will cause hyperinflation.

4. There is no market failure if there is no market to begin with. So the solution is to remove the government intervention that created the problem in the first place.

5. If the fact that ordinary individuals are not sophisticated enough to regulate banks themselves is the reason we should have government intervention in the financial markets then we should have government intervention in all areas of the economy as well since we are not sophisticated in most things which are not related to our hobby or occupation.

6. The volatility of the stock market before and after the inception of the Fed is very different. The Fed causes the instability.

7. ABCT – Fed misallocates resources by lowering interest rates. The debate is monetary or fiscal intervention. Fiscal Keynesianism versus monetary Keynesianism.

8. Insider Trading: Michael Milkin: He is the private solution to market volatility. The CEO high salaries were possible by giving lower dividends to shareholders so the stock price plummeted. Michael bought shares and kicked out the CEOs. But the government put him in jail.

9. Market rating agencies: Government influenced the credit rating agencies.


Richard Squire:

1. ‘Road to Serfdom’ theory is not empirically founded. Europe has a lot of political freedom even while being increasingly interventionist.

2. Empirical evidence trumps your reduction ad absurdum.

3. Fractional Reserve Banking existed before fiat money. It is the government that limits FRB by requiring minimum reserves. FRB is what private banks naturally want to do.

4. Takeover artists like Milkin are going to be banned by corporate charters.

5. There are a lot of takeover artists who were not jailed.


Walter Block:

1. Reduction ad absurdum is good because it challenges the premises.

2. He called me an ideologue but aren’t we all ideologues since we study ideas.

3. The government looks good when you only look at one-half institution. Anything that the government does cannot be justified because its based on coercion.

4. If you jail one takeover artist then that sends a signal to other takeover artists.

5. FRB implies bank run because its instantaneous debts are greater than its instantaneous assets. It’s only got 100 bucks and has a 190 outstanding so it ought to be allowed to be bankrupt but the government is protecting it.



Q&A:

Why haven’t we had free market anarchism if it’s so good?


Block: Countries with more economic freedom are richer. Libertarians are a small minority because humans are not hardwired for implicit cooperation. We do not fear bathtubs but we fear snakes even if bathtubs have killed more people than snakes. This is an example of sociobiology. Another example is that people who stood in line wanting to benefit from price gouging during Katrina cheered when the police arrested the price gouger.

The winner of this debate is....

Subsidy through mandatory oil price discounts will not work

Anybody with knowledge of economics101 knows that price controls create shortages by pushing the price below the point where supply and demand meet. Price controls also discourage production by reducing profit margins, even wiping them out. Marginal producers are likely to go out of business because of lower profit margins than well established firms. So when it comes to the oil industry, one can't cry oligopoly whilst supporting price controls.

Subsidization of an interest group, such as drivers of Public Utility Vehicles (PUVs), by forcing gas stations to give discounts also has the effect of disrupting the price mechanism. But in this case the market still has the opportunity to prevent shortages by charging higher prices to consumers not given a discount. There is no such thing as a free lunch. Government intervention to subsidize one interest group, PUV drivers, can only be possible at the expense of those not included in that interest group, everybody else who buys gas.

Some would argue that mandatory discounts are only fair. After all, PUV drivers are at the lower rung of the income bracket. Moreover, most individuals who use PUVs to travel are also part of the lower income bracket. Mandatory discounts at the gas station would remove the need to raise transportation fares, and in effect subsidize consumers.

But if poverty justified economic subsidization then we would also need to pass legislation to give the poor discounts in buying food, medicine, clothes, etc. But we do not give mandatory discounts to the poor even in these basic necessities. Even scholarships and other financial subsidies in universities are not given solely on the basis of poverty, but on academic merit. And there is a lesson to be learned here. In a free society, poverty is only a stage in life. Each person is born under unique circumstances and some may be considered more permanent than others, but individuals are largely placed in their 'proper' role in society by the time they reach middle age. By then, poor people are poor because of only three reasons:

1. Incompetence, laziness, antisocial behavior resulting in low productivity
2. Contentment with current financial condition
3. Injustice caused by government (e.g. minimum wage, taxes, inflation)


If poor who fall into category 1 are subsidized, then the ills associated with them will also be subsidized and society will have more incompetence, laziness and antisocial behavior. If the poor who fall into category two are subsidized, then this will amount to minding of other peoples' lives and presuming to know what's best. The poor who fall into category 3 should be helped by repealing legislation such as the minimum wage. It is clear that government intervention should not be used in all three counts. The simple fact is, if the poor had the same material standard of living as the rich, then no one would want to be rich. In other words, no one would have the incentive to work hard and produce for his fellow man. Both theory and history teach us that the result of egalitarianism is a Soviet economy where the only incentive to work is fear of death and torture. (Socialism cannot 'work' w/o killing fields, this is something the Leninists knew that the social democrats still haven't learned)

Let's go back to the main issue of mandatory gas price discounts for PUV drivers/operators. Some would still support such legislation not because PUV drivers are poor, but because their fuel cost increase makes them the most affected among the poor. But this is only because of standardized transportation fares. Without government standardization, drivers would be able to raise transportation fares to a level where profit margins are not much reduced (if not for increase in gas prices). Freedom of individual PUV drivers to set fares would remove their being a 'special' case among the poor and make mandatory gas price discounts unjustified.


Non-subsidization of PUV drivers and removal of standardized fares will prevent further problems but it will not solve the main problem of higher gas prices. The solution lies in economic freedom. Cut taxes, remove regulations, lower tariffs, abolish licensing. That's only the tip of the iceberg. More ambitious would be to stop the war in the Middle East, outlaw fractional reserve banking, and de-socialize public land for purposes of oil drilling. Lower prices can only come about via increased supply and stable currency. All the aforementioned government interventions discourage production either directly or indirectly and hence should be abolished. Freedom is always the solution, always.

There are of course some people who's ideas, if followed, assure not only increased costs but destruction of the social order itself.

Crisis of Capitalism by David Harvey: A Response

A 2010 youtube video features Marxist intellectual David Harvey discussing the recent economic recession as a failure of capitalism. It's main contentions are as follows:

1. Since the liberalization of markets in the 1980s, wages have been stagnant or falling in OECD countries.

2. But wage earners are also consumers so reducing wages means less demand for capitalist products.

3. So the capitalists loaned money to wage earners and set the stage for the economic crisis.

4. Economic recovery in the United States does not absolve capitalism of its ills because the crisis was just shifted other countries like Greece, Spain and Portugal.

5. Financial institutions allocate capital efficiently but make financiers rich therefore resulting in injustice.

Similar to my approach in this article, we will examine the internal consistency of statements. Economic theory is also important but Marxist propositions are so convoluted with logical fallacies that a discussion of economics is superfluous.

The first statement, that wages have been falling, will be taken as true. We will no longer examine the difference between household income and individual income. No discussion will be had on the function of profits and their necessity for the increase in wages. (an empirical rebuttal to Harvey can be found in this video)

The second statement is amusing because older Marxists never thought about the fact that wage earners were also consumers who bought, and hence benefited, from the mass production possible under capitalism. It would seem that the Marxists have gotten less wrong in their beliefs.

Statement three suggests that statement two was made only to justify the ad hoc theory that wage earners were 'forced' into debt to compensate for the reduced ability to consume as a result of declining wages. The accumulated debt on the backs of wage-earners/consumers is then the cause of the credit crunch. Capitalism is hence destroyed because greedy capitalists could not see the flaw in lending money to unsound borrowers.

So let me get this straight. Capitalists were smart enough to solve the problem of demand by making credit accessible to the masses but they were too blind in their greed not to lend to unsound borrowers. If capitalists are blinded by greed to the prospect of major long-term losses then it should have also blinded them to the lack of demand resulting from lower wages in the first place. What we see here is a double standard in the application of the premise. Not only that, but the whole proposition is based on belief in a capitalist conspiracy theory!

Are the capitalists really to blame for the recession? The question of moral responsibility needs to be reassessed. I would venture into the possibility that it is the (gasp!) wage earners who are to blame for the recession. After all, there would be no recession had the wage earners not defaulted on their debts. As the saying goes, 'it takes two to tango'. Surely, some responsibility ought to be assigned to the wage earner for the decision to borrow money he knew he could not repay. If the capitalist creditor is blinded by greed, then so is the wage-earning debtor. If we are not to be hypocrites, then both capitalist and wage-earner are to blame for their freely chosen actions which resulted in the recession.

But my ramblings mean little to Marxists who would surely argue that unlike the capitalists, the wage earners were 'forced' to indebt themselves since their wages were below subsistence. This claim is even more ridiculous considering the context of United States, where the consuming wage-earners used credit to fund exuberant lifestyles. But the main point here is that the reality of 'voluntariness' of trade is totally ignored. Every transaction in capitalism is voluntary. For a wage-earner to be exploited by a capitalist implies the consent of the alleged victims of exploitation. This reality is totally ignored because it exposes the necessarily violent means employed by anti-capitalists to achieve their intended goals. Extreme situations such as a worker starving to death if he did not submit to 'exploitation' do not change matters. Freedom is the absence of physical coercion. It is not about doing whatever one wants. Man must work, provide value for value, for him to improve his lot in life. A jobless individual starving to death under conditions of natural freedom can only mean that the person does not have anything of value to provide his fellow man. The miserable state of this individual is not an injustice but justice since he deserves it for not using his mind, which is the only tool for man's survival. Since such a dire scenario would be unlikely in a free society, its presentation only shows the philosophical nihilism of those giving such examples.

Go back to the five statements. We find other ad hoc explanations in defense of the leftist position. The possibility of an economic recovery might salvage capitalism in the US so our Marxist author says the harm is not eliminated only moved to other countries. The fifth proposition shows the author's downright bigotry of wealth and success. Such asinine claims do not even merit discussion.