The Road to Totalitarianism is Paved with Good Intentions

Several decades ago, some idealistic politicians got together with the intention of making college educations more accessible to students of modest means. To this end, the Higher Education Act of 1965 was passed, which provided for grants and guaranteed loans to students who met eligibility criteria. At the time, the criteria were largely based upon economic need.

I could go off on a tangent here and note that the real beneficiary of the guaranteed loans were bankers, who got to underwrite risk free loans to a whole new market, but I’ll just leave that as an observation that should be considered here.

I also want to note a great quote by one of the supporters of the HEA: “Education is too important to be left solely to educators.” I haven’t found the context of this quote to see who he thought knew more about education than educators, but I have my guesses as to his explicit and sub rosa beliefs on this issue.

Returning to the topic under discussion, I’ll grant that many, if not all, of these idealistic politicians believed that they were doing a good thing. And, of course, at first, the argument carried some wait. For the first several years, the new federal money got to students who were purchasing education from providers who had not yet priced in the newly created “demand” created by the federal money. So the students were, in fact, receiving a very good deal.

But soon, the colleges and universities began to price in the increased demand. From 1978 on, college tuition increase over 800%! Now, college loans and government grants were necessary for many people to afford college. Not only that, but since more people were going to college, an undergraduate degree suddenly started becoming a baseline requirement similar to what a high school diploma had been a generation before. There is a term for this – fallacy of composition. Just because a college degree confers competitive benefits on an individual, it does not follow that if everyone gets a college degree that everyone will receive the same benefits as that initial individual. In fact, all that will have happened is the competitive baseline will have been raised on an absolute scale.

So, within a decade or so, the benefits of this Great Society social program started petering out as the laws of supply and demand started to affect not only the price of college, but the benefits of the degree as well. But, at that point, it was impossible to end the program. Ending the program would slam the door on nearly half of all college students – by 2003, 46% of all college students used some form of HEA aid to afford skyrocketing higher education costs. So more and more money was dumped into the program to achieve less and less for the aided students.

And I’ll make another tangential note here, that the increased costs of education and increased limits on guaranteed loans, combined with a bankruptcy provision that made student loans non-dischargeable, must have created quite a nice market for no-risk loans for bankers.

All of which, while an unfortunate demonstration of government failure to account for the laws of economics (again, I’ll actually give these people in government the benefit of the doubt on this one and assume ignorance and not recklessness or worse), is not directly the stuff of a totalitarian imperial police state. But…

As is fairly well known at this point, the initial criteria for federal aid have been expanded to include a requirement that the applicant can have no convictions for drug crimes. If a student has a juvenile adjudication for drugs, he is ineligible for federal aid. And as noted above, this is more likely to foreclose access to college now, since the increased demand has caused prices to skyrocket than it would have in the absence of HEA. In other words, the HEA is an intervention that has created its own necessity going forward.

Again, this is a problematic development (at least if you believe that a poor juvenile drug offender shouldn’t be shuffled off into a lower economic class by design), but not quite at the level of a totalitarian imperial police state. However, if you understand the social consequences of needing to toe the state’s line in order to live a comfortable lifestyle, you can see the problems forming here.

Milton Mayer notes in his book “They Thought They Were Free,” a book I plan on reviewing extensively at some point because it is so important, that early on in the Nazi regime, there was no coercive penalty for speaking out against the Nazis, or against any of their policies. There was, however, tremendous social pressure due to the fact that economic stability was available generally only to those who were Nazis. If you didn’t join the party, you could, or at least the perception was that you could lose your job. (Mayer uses an interesting anecdote about a rail worker who became a Nazi because his boss did, and he feared that his boss would fire him if he didn’t. Turns out the boss was an anti-Nazi, who joined the party to ingratiate himself with his boss who was a party functionary. And because he was actually an anti-Nazi, he tried to fire the employee who he saw as a fervent nazi, but he was foiled by his superior who protected Nazis!) This circumstance combined with the fact that many Germans were never able to completely verify the many rumors of Nazi atrocities that circulated through the population. People were justifiably unwilling to risk their economic situation by speaking up unless they were certain of the facts involved.

Understanding this dynamic in 1930s Germany helps to recognize the danger posed by the HEA in the abstract. Unfortunately for us, we don’t need to recognize it in the abstract – it’s already being used to create a totalitarian imperial police state. Those students who are denied HEA aid because of drug convictions are being accepted with open arms by the armed forces. Now these people are totally dependent on the state for their livelihoods. Now they will be even less likely to speak out against state policies, because to do so will affect their economic well-being, especially if they have only hearsay evidence about what the state is doing.

In some respects, this is akin to the libertarian story about breaking a person’s leg then handing them a crutch and claiming the mantle of humanitarian. But it’s worse than that. They don’t hand a crutch, they hand a crutch with a rope attached that can pull the crutch out at a moments notice. And then they hand a gun, and a set of orders, while pointing at the rope.

The Myth of the Rational CEO

Wall Street is using half-baked financial calculations, according to the man who devised the calculations.


And the CEOs of these companies have absolutely no idea of what their underlings are doing.

A (Not So) Random Proposition part 2

Well, as I was hoping, I got some good questions right off the bat in my previous post. I wanted to be careful in defining my terms and the scope of my claim, so thanks to all for your comments, they helped me organize what follows.

First, for purposes of this discussion, I’m going to use Dr. Long’s definition of capital – undeveloped natural resources are distinguished. That isn’t to say that my point doesn’t apply to them as well, but I think it adds a fair amount of complexity to the analysis, and I’m trying to keep it simple because I’m venturing beyond my comfort zone, here. I’m not nearly as well read in economics as everyone who commented on my previous post, so I’m in the position of putting forth as narrow a claim as I possibly can to start of with, to see if even that can be defended consistently.

Second, while there are certainly cultural, social, and other parameters that can come into play, as Jeremy and others have pointed out, I’m trying to stick directly with the more purely “economic” side of the question. I’m going to go so far as to propose a very simplistic model to discuss why I “doubt” the productivity of capital in the free market.

Which brings me to the final point of throat clearing: When I say (type?) that I doubt the productivity of capital, I’m not denying that it enhances worker productivity – it clearly does. Nor am I denying that, given a specific wealth context, labor can provide a competitive income absent capital assistance. What I’m denying is that the absolute category of capital, as opposed to the absolute category of labor, will provide income to an individual over the long term in a market totally devoid of state granted privilege.

To begin, then, I’ll repeat the two assertions I had in my last post – a) labor does not need capital to be productive, and b) capital does require labor to be productive. Given these two assertions, I’ll model the relationship as

CL + L = P

Where C is capital, L is labor, and P is production. Yes, a simple model, and yes, I think I am probably oversimplifying concepts and relations that Kevin Carson more thoroughly addressed in MPE, as well as other eminent economists in their own tomes. But I am aiming for simplicity here, and dealing with the completely abstract absolute definitions for capital and labor. If someone is looking for the more thorough and detailed discussions on this subject, I am sure the comments to this post will provide a fairly thorough bibliography of the nuance I am missing.

With this model in mind, we can see that a 0 value for L results in P=0, while a 0 value for C results in a relatively low value for P, but still positive, so long as L is positive. If both C and L are positive, P can large fairly quickly.

Now it’s time to add a third assertion, one that I don’t think is overly controversial, and is one that I hinted at in the original post – capital depreciates over time (especially with use). There are probably exceptions, though I can’t think of any right now, but for the vast majority of capital, maintenance, repair, replacement, etc. is necessary over time. I’m going to conflate all sorts of costs into the single depreciation term just to keep the model simple, so it will include maintenance, resource inputs, skilled labor to utilize (think engineers), etc. If we deny that this cost is part of the model, I need to go no further – given the third assertion I’ve already established that capital will provide decreasing returns over time until it becomes functionally useless. At the same time, L will never drop below some form of subsistence standard, given the option of subsistence farming in a free market as an alternative.

So the updated equation would look like this:

(C + D)L + L = P

D of course representing the savings necessary to offset depreciation costs on capital. From this relationship, we can understand that, given an initial condition of relative equality, L stands in a superior bargaining position. How could this be reversed? Well, that’s the ultimate point here, so I’ll come back to it later.

So far, so good. Now, let’s apply this to the competition between a business that has the currently established model where capital and labor are inputs from separate parties, and a business where the capital and labor are supplied the same parties.

In the current model, on a free market, all three cost inputs (C, D, and L) must be included in the final price (though not necessarily according to the model provided above) in order for both parties to receive their income over time. And there is a definite “floor” to income that can be allotted to L, as the next model creates an alternate option (I don’t think the floor is hard, though, as there are plenty of reasons for a laborer to accept a somewhat lower wage in return for less responsibility, but for reasons beyond the scope of this post, I don’t think that would be as widespread as it currently is).

In contrast, in the model where capital and labor represent a unitary interest, only two of the inputs require remuneration from the final price. The self-employed laborer can afford to trim the remuneration due to his capital investment down to zero in order to out-price his competition. He, like the other model, is still required to pay D over time in order to maintain efficiency, and will of course not stay long at his employment if L is significantly less than what he can get from some other employment. But he can afford to not repay his capital investment to himself. He will, in the end, be able to undercut the opposing business model on price by sacrificing the payment of income to capital.

Now, the right wing will scream that noone would invest in capital if there is no distinct income stream generated. There are several rebuttals to this, but the most simple is – it would be treated as any other resource input expense to the business. In other words, the self-employed laborer will treat his prior capital investments as business expenses, necessary to continuing his business.

I admit that there are some businesses that have naturally high capital intensiveness, for example, steel production. In such cases, the capital requirements are likely to split some of the unity of interest naturally. But these will be the exceptions and not the norm.

It is easy to see that under such non-privileged market conditions, widespread price deflation will occur. Productivity will increase, as capital investments will still be made (albeit at perhaps a slower pace than under the current system), while prices will remain stable or drop due to competition. Under these conditions, capital formation will be relatively easy for the average laborer – a dollar saved in the mattress in year 1 may be worth 3 or 4 in year 2, merely due to deflation. As such, the “unpaid” capital investments into his own business will be less of a problem, as will the depreciation costs. Over time, the process will reinforce the cycle of downward pressure on the income due to capital.

So, how does the temporarily wealthy merchant transform his temporary advantage in capital into a long term advantage? Easy – the printing press. (And yes, others such as entry barriers, but in my opinion, monetary debasement is linchpin that enables the whole process – without it, entry barriers would just require more savings, which if that were the incentive structure in place, deflation would increase, acting to decrease the need for more savings). If you don’t want your competition to be able to self-finance in the manner laid out above, you inflate the money supply and give preferential access to the new money to yourself and your cronies. You simultaneously enrich yourself and increase your bargaining power, while decreasing the wealth and bargaining power of your competitors, but you also instill an incentive structure that discourages savings for use in self-employment. The dollar kept in your mattress is worth less in year 2 – you must “invest” it somewhere to earn a positive rate of return just to keep even with inflation. And once you get used to the idea that you can make nominal dollars with no labor involved, you start to get all sorts of funny goals about living a life of leisure like the super-rich – that you can make a living merely by maintaining a specific pool of investments.

Bear Stearns Shrugged

Which character in Atlas Shrugged said this?

“We here are a collective victim of violence.”

Oh, right. That was Alan Schwartz, CEO of Bear Stearns, speaking to his employees.

No, really. He said that.

For an amazingly good article on the “super-rich” and how their actions belie their supposed superior ethics and values, read:

http://www.slate.com/id/2187571/

A (Not So) Random Proposition

Capital requires labor to be productive - labor does not require capital to be productive.

Obviously, in the world of science fiction, one can imagine self-replicating robots that engage in production, but we're not there yet (if it is even possible). And regardless, when thinking of such a scenario, I'm reminded of Agent Smith's speech to Morpheus in the Matrix - (paraphrasing) "I say 'your' civilization, because after we stated making everything for you, it became 'our' civilization, didn't it?" Do we really want such a world where everything meaningful is done by robots?

Anyway, the sentence at the top is probably controversial. So let me hear it. What's wrong with it?

Or, if you can't find fault with it, give me what you think those two facts imply about how a free market might operate. When I get a few spare moments, I hope to elaborate on why I think they lead me to doubt the productivity of capital in a free market.

Housekeeping mystery

So, I've noticed that my last couple of posts use "millions" where "billions" should be. Thinking I just had some sort of brain fart, I went to correct them, but first decided to go back to the Word files I copied and pasted them from to see if I could catch any other blatant mistakes. Amazingly, I have "billions" in the Word files!

I honestly have no idea how this happened. It's obviously not some sort of conspiracy, given the absolutely trivial amount of traffic that comes here, but I just don't know how to explain this one. Oh well. I guess this serves as admission of the error of my original posts and notice of my subsequent edits.

Yeah, that's the free market at work, all right

Want to know what nationalizing an “industry” looks like, USA-style?

http://www.independent.ie/business/world/fed-expands-role-by-aiding-jpmorgans-purchase-of-bear-stearns-1326899.html

The Federal Reserve has created a company to hold all the bad (read, value of zero dollars or less on the open market) assets that were held by Bear Stearns so that JP Morgan can buy the outstanding stock. There’s some mumbo jumbo about JP Morgan shouldering the first billion dollars in losses, but don’t be fooled – that won’t come to pass either. In any event, as Professor Joe Mason at Drexel University (props to a homie) says:

“``The Fed is so far outside the traditional bounds. It isn't innovative, it is taking a step back in time to a system of direct credit'' where the government decides ``who gets funding and who doesn't”

Not that this is really different from business as usual – the Fed indirectly controlled who got funding by controlling who was considered a primary dealer. But now the mask is off – the Fed, a mish-mash of the worst aspects of private and governmental interests (on the one hand, it is not democratically accountable in any even theoretically meaningful manner, but on the other, it is the recipient of state-granted privilege) is openly and directly supplying funding to their friends and colleagues.

More importantly, this whole transaction is not structured like a traditional loan. The new Fed created company will “borrow” 29 billion from the Fed, and 1 billion from JP Morgan. The company will then “send” (*&^% - even journalists who are trying to report on this stuff can’t be precise in their language, and I would bet that is because the Fed is using Newspeak about this transaction) 30 billion to JP Morgan in exchange for the toxic assets that sank Bear Stearns.

The assets at stake here – the Bear assets – are the equivalent of a lit piece of dynamite. You can easily assume that there are other lit sticks out there on wall street as well. You are seeing the beginning stages of a game like musical chairs. Wall street and big finance are all dancing around hoping to tie their pieces of dynamite to the chair occupied by people whose assets and income are denominated in dollars before the music stops. Sometimes, the dynamite will blow up before they can finish tying it, and one of them, like Bear Stearns, will be caught. This process is essentially a winnowing of the ruling class – power, money, and influence is being consolidated, with the lesser lights essentially getting a one way ticket out.

Don’t fret for the lesser lights, though. Notice how last week JP Morgan’s offer for Bear Stearns was for $2 a share? And yet sellers were having no problem selling Bear stock for approximately $4 a share. By the end of the week, there was some speculation about strange trades occurring, and sure enough, JP Morgan is upping its bid to $10 a share this week.

What happened was that insiders (probably those who really took a bath when Bears’s stick of dynamite blew) knew the price would go up, and so were willing to buy as much Bear stock as possible to book the profit. Insider trading at its finest, but you can rest assured the SEC won’t even investigate, because, well, regulation is only for the commoners.

So the lesser lights get bought off, and they’ll slink away quietly into lives of relatively powerless opulence, instead of fighting all the way down.

It is no longer (I’m not sure when it really was, but that’s another question entirely) the case that the U.S. financial system can be described as a market. It is now akin to Soviet committee meetings, where profits and losses are determined by political power and personal relationships to it.

Pay No Attention To The Man Behind the Curtain!

Want to know what the purpose behind the tax rebate “stimulus” is? Let’s look at some numbers:

The first estimate on what the tax rebate stimulus will total is approximately $150 billion. Add to this that we know that the rebates will be parceled out in a manner that most families will receive $600 to $1200.

In contrast, look at the recent stimulus the Fed provided to banks: $200 billion (). Combine this with the fact that there are far fewer banks than families, and I can guarantee that each bank is going to make exponentially more money off of this stimulus than $600 to $1200.

So what was the purpose of the tax rebate stimulus?

Cover.

“No, our economic policies aren’t just an excuse for socializing the risk of our buddies’ business plans. See, we’re giving bread and circuses to the people!”

See also:

The Short Bus Rides Again

And then, we find out that this whole bail out was likely just for the benefit of Bear Stearns. But Bear Stearns couldn't even make it to next week. They needed to get JP Morgan to give them an advance on the bail-out.

Expect to see more hand-outs to the banks. Which will likely mean more bread and circuses for public consumption. Gas price controls are probably on the horizon, as is some sort of action against Iraq. Anything to distract from the fact that we are now socializing the downside to all those obscene profits the bankers have made over the past 4 years.

This post is one of the most frustrating I’ve run across in a while. It’s either an analysis that starts with a valid insight and works backwards to reach an invalid conclusion, or an analysis that starts from incorrect assumptions which fortuitously reaches a proper conclusion. I’ll pick the second choice and provide my comments.

The post is based upon a graph that indicates the timing of recessions over the past ~ 150 years. From this chart, and from some faulty historical understanding (more on this later) the author comes to the conclusion that “capitalism” is unstable without state intervention. And from his further comments, it seems he implies that therefore, state intervention is necessary to protect the common man (labor) from the horrors of capitalism.

Jeremy, in the comments, asks the first question (or possibly question 1b) that should be answered before any further analysis is done: what does the author mean by “recession?” (the other question might be “what does the author mean by capitalism?”). This is important, because, as we shall see, his implict argument depends heavily on what recession means.

I think Jeremy is right, that the author is using the standard definition of recession, i.e., that GDP (it appears that the chart at the distributist is using GNP, but the points I will make hold true for both GDP and GNP) contracts for two consecutive quarters. Another question pops immediately to mind – what is GDP? Purportedly, it is a measure of the economic activity inside (in the relevant case) the United States. But it is important to remember several important points about GDP. First – it only measure market transactions. Black market transactions and voluntary socialism (i.e., gifts among friends and neighbors, etc.) are not included. Therefore, to the extent that there are non-market voluntary production and transactions, GDP will under-report the amount of productive activity in the United States. Second, GDP is measured in dollars. Furthermore, to the extent that valuable property is destroyed by war or other calamity, GDP does not adequately value the loss of standard of living – it falls prey to the broken window fallacy.

As the author apparently is aware (from the comments), the value of a dollar over the relevant period is far from a constant. To take just one example , the amount of currency in circulation was increased greatly during the civil war, which would then increase GNP One would expect that during this period GNP increased, but I doubt that this would be a period where the author would say that the common man was coming out ahead. As any 8th grader with a rudimentary understanding of algebra will tell you, if you have an equation x=y and you double the amount of x, you will double the amount of y, but you haven’t changed the fundamental nature of the underlying equation.

Obviously, the author believes that because the chart is labeled “Real”, that the change in money supply is being held constant. Not only is this not true as a matter of definition (CPI is not a measure of monetary aggregates, it is a set of cherry picked prices), it is not even an accurate measure of the price level (). But the price level is merely a way of hiding the loss of increase in value of cash savings (who do you think keeps more of their savings in cash – the capitalist or the laborer?).

So, far from being some era of truly free markets, the period of 1862-1900 involved some massive government distortions (without getting into the grimy details of the “national bank period,” (read “dual banking system”) I’ll just say two words that should put any assertion of “free markets” to rest – reconstruction carpetbaggers) and yet, I’ll concede that for parts of the North, this was a relatively free-market period.

Furthermore, the author is clearly dismissing the massive government regulation of the economy during WWI (price controls on pretty much every major industrial input) and WWII. To say that government intervention in the economy *increased* after 1946 is just a staggering statement of ignorance.

And then we have the post-1946 period itself. Trying to draw broad conclusion from data derived from this period is highly problematic if for no other reason than the United States was in a fairly unique situation. As pretty much the only industrial power whose productive base hadn’t been decimated by WWII, it was in a position to act as supplier to the world. Coupled with that fact was the fact that the US$ became the reserve currency for the world, and you have two huge variables that acted to stabilize the US economy.

All of this is just to meant to demonstrate that the author’s logic makes several huge leaps of faith in arriving at his conclusion. It is tremendously important to keep in mind that GDP (and also GNP) are essentially fictitious numbers that are, at best, used to approximate the diverse productivity of a given population. It really tells you nothing useful about the standard of living or actual productivity of a population. For a truly relevant example, look at “the long depression. . During 1873-1896, GNP decreased steadily. But, amazingly, productive output increased 4-fold! And it is important to note one specific sentence in that wikipedia article – “[during the long depression] [c]onsumers benefited from falling prices.” Another very interesting quote from wikipedia: “Like the Great Depression, the Long Depression saw many nations of the world resort to protectionism to shore up faltering industries.”

It should be becoming obvious by now that what GDP and GNP will tell you is how well the capitalists in a market economy are faring. Once you have this context, the author’s chart (and non-chart assertions regarding recessions) lead to similar conclusion with important differences. The author is correct that the period he is considering “free market,” which most definitely was not, tended to be very bad times FOR CAPITALISTS. However, the numbers the author presents tell us nothing about what happened to the common man or laborer during that period.

I don’t purport to have those facts at hand. I’ve read some, and would say that my impression is that in those areas where it was actually more free market than not, labor fared better, and in those areas where state intervention was high (reconstruction south, corrupt New England cities), labor got hit as bad as, if not worse than, the capitalists during the period. But again, I don’t have the ability to lay out the statistic or anecdotal support for my impression of the period.

What I can do is point to much more recent history. During the recent housing and credit finance bubbles (I’ll somewhat arbitrarily choose 2002-2006 as the boom period) we were in undoubtedly GDP and GNP growth periods (not a recession!). And yet, things weren’t so great for labor in general. The Gini coefficient over that time *increased* by 1.7% . Now granted, there are plenty of problems with the gini coefficient’s methodology, and I’ll concede that there are valid criticisms of it, but the general point is – the boom has been bad for labor, and good for capitalists. The stock market took off. The value of real estate increased dramatically. Private equity deals and hedge funds made obscene amounts of money.

During this time, we can see that our banking system was busy printing lots of new money and preferentially handing it out to capitalists. This was truly a tax on the lower and middle class laborers for the benefit of capitalists.

On the other hand, now that the recession is hitting – who is taking the beating so far? Well, let’s see, so far, Citibank, BOA, Merril Lynch and UBS are writing off massive losses and beginning the process of a Fed funded (likely to eventually become a true taxpayer funded) bailout . Societe General took a beating too. More of these types of writedowns are coming. Granted, mortgage brokers and real estate agents, who made killings during the boom, are starting to hurt some too. But the reality is that the dawning recession is very bad news mainly for capitalists.

As for labor, well, what’s the “run for the hills” signal for capitalists? “Wage Inflation”. What’s really happening is that all the new funny money is starting to settle into the economy, and the return for labor is starting to re-equilibrate with the return for capital. That’s bad news for the capitalists. As has been observed in the past, the Fed can’t undo the inflation by raising rates – the money’s already out there, and, according to the monetarists, turning off the spigot is what causes major depressions. So they’ll turn to other tricks to avert the re-equilibration – price and wage freezes (ala Nixon), war (ala, well, just pick a recent president), and possibly bubble management.

It will obviously become bad news for the common man or labor, as state intervention and the lure of easy money (or do I repeat myself?) have led to ever greater numbers of them becoming dependent on capitalists for employment. You can see this most directly in the boom in employment for mortgage brokers and real estate agents, as well as financial planners and assorted related industries. But this is not the result of some free market phenomenon – it is the result of state capitalists rigging the economy for their benefit. Without the boom, we wouldn’t have had so many people pursue these careers. Instead they would have been finding other productive work that wasn’t directly dependent on the creation of credit bubbles.

If, instead, we were a society of mainly farmers and craftsmen, such as held true in the 1800s, this recession would mostly be bad news for the capitalists that made so much money during the boom. Their imaginary wealth would vaporize, just as it did then. The rest of us could humbly continue on with our business and chuckle to ourselves while reciting that age-old proverb “neither a lender nor a borrower be.”

So, to summarize, Medaille shouldn’t be focusing on the recessions as the problem, unless he is concerned about the welfare of the capitalists. It’s the booms where the capitalists screw labor. And if you want to comment on the stability of the post-war period, the best description is that the capitalists have managed to fine-tune their system of oppression. But I think that the next few years are going to show that even that description is faulty.

More on Contract enforcement

Okay, I know I’m sounding like a one-key piano here, but I think a recent topic of debate has some relevance to my contract enforcement regime. I’m speaking of course, about the Archbishop of Canterbury’s endorsement of the concept of poly-centric law. Some libertarian bloggers have been supportive of this endorsement, and some have been critical . I think there are valid points on both sides, but that many of the points made by the critics tend to fall away once you accept that coercion is not an acceptable contract enforcement tool.

The standard objection to poly-centric law is well summarized by the following comment to IOZ’s post:

“The problem with cutouts for communities is what does that really mean? What is a community? Since I am a suspicious stateist as opposed to an anarchist, I have issues with this concept. In Medieval Europe, those under Holy Orders were immune to the civil government, such as it was. To what extent do we really want to allow the revisiting of that experience whether for Islamic Divorce, the licensing of Kosher delis or the proverbial dispensation for drunken Irish guys from DWI laws on those days adjacent to March 17. It's a community-cultural thing.”

Or, as Gillis argues:

“Free markets in justice would act to eliminate all but the most inherent and universal of laws (murder, etc.). While obviously Sharia law comes in many forms some more palatable than others, they're historically less a product of a free market in justice than the western secular system (insofar as such things can be measured). So what's the benefit of mandating an alternative legal system that's absolutely unresponsive to market conditions and happens to be built--at the very best--on a premise of an inherent and absolute distinction between two genders.”

The first argument is undeniably valid as far as it goes. A “community” is no more a real entity than a state, when it comes to a law. So yes, what does it exactly mean to “cutout” for a community? Gillis is also correct in noting that, under the current system, the reforms at issue don’t really reflect the functioning of markets (or, for a less charged term, “voluntary activity”).

But the criticisms, especially Gillis’s, are also very problematic in their own right. For example:

“Without even needing to appeal to some metaphysical natural law, one can still reject this situation on the grounds of support for universalistic law. Have we forgotten that the whole point of a free market in justice is to establish a single common code, more or less irrespective of local kookery?”

I don’t agree that the point of a free market in justice is to “establish a single common code.” Heck, if I believed that “universalistic law” existed in some complete, detailed form like Gillis proposes, I wouldn’t be an anarchist, and probably not even a libertarian. The point of free market “justice” (scare quotes merely to identify that I am appealing to the human institution, and not the ethical concept) is to make it, as far as possible, voluntary. And contra Gillis, I envision free market “justice” to be amazingly diverse, based upon local conditions and culture. I don’t even need to go very far to observe a fairly good example of this diversity in action – the Pennsylvania Amish, who live by a set of norms that are, by and large, voluntarily assumed. And inside the Amish community, these norms override the coercive legal system that surrounds it.

I’ll be the first to admit that I wouldn’t agree to at least one major aspect of the Amish code. But that doesn’t change the fact that the Amish code exists, and the people subject to it voluntarily choose to limit their legal redresses that are available to them from the surrounding society.

I’ll further point out that objective-ish, universal justice *ideals* are useful, if not necessary, for a proper evaluation of the morality of certain actions. But the fact that these objective-ish ideals are useful for evaluation does not mean that the ideals should be put to use in coercive practice, where circumstantial details and subjective valuation will often render the ideals ambiguous in application.

Turning back to the question of whether it is okay to allow people to choose Sharia law, the answer to any anarchist worthy of the name is a resounding “YES”. If a person voluntarily chooses to abide by a set of restrictions that I find repellent, I have NO right to interfere and impose my subjective valuations on that person.

In the context of Sharia law, the parade of horribles invoked are the problems involved in Sharia marriage and divorce rules. Just to be clear up front, I find them repellant. But that doesn’t mean I get to force people that have chosen to subject themselves to it to follow my wishes “for their own good.” Rather, they get to comport themselves in the way that best suits their own subjective valuations.

The caveat here, of course, is my argument against coercive enforcement of contractual obligations. In a free market, people could make contracts that explicitly reference Sharia law. Under my vision of a free market, if a party later determines that they don’t want to be subjected to Sharia law, they can refuse it. The only remedy available to the non-breaching party would be moral opprobrium. To me, this seems to be the only way to balance the competing interests at stake here. To avoid imposing our subjective values on non-consenting others, while still avoiding nasty issues like race and gender slavery, we must allow them to make these decisions according to their own subjective values, while allowing to change their minds at a later date.

Returning to the Sharia law nightmare scenarios brought up, we can easily imagine a poor woman, who has been kept ignorant of many facts and circumstances by her family and local culture, somehow learning that her local culture’s norms aren’t universal, or merely deciding that they are immoral, the answer becomes that she is free to breach her previous contract, with the only sanction being a moral sanction (at most, a boycott) from those within that cultural community. Since, in my opinion, there will be a plurality of other communities that practice other norms (especially in this case, where I could see Sharia law becoming a true minority absent state support), I would see this as not much of a price for her to pay. But that’s me imposing my subjective values – perhaps she would decide that retaining ties to certain people in the community was more important to her. I would find that unfortunate, and, based upon my guidelines of morality informed by universal ideals, I would find that culture and community oppressive and worthy of boycott itself. But I would not, in any way, force my beliefs onto non-consenting parties.