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  Bread and Circuses
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   With the Sound
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What more is necessary to make us a happy and prosperous people? Still one thing more, fellow citizens – a wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labour the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicities.

Thomas Jefferson
First Inaugural Address (1801)

All taxation is loss per se. It is the sacred duty of the government to take only from the people what is necessary to the proper discharge of the public service; and taxation in any other mode, is simply in one shape or another, legalised robbery.

Sir Richard Cartwright
Canada’s Minister of Finance
Budget Speech (1878)

Democracy – a government of the masses. Authority derived through mass meeting or any form of direct expression. Results in mobocracy. Attitude towards property is communistic – negating property rights. Attitude towards law is that the will of the majority shall regulate, whether it is based upon deliberation or governed by passion, prejudice, and impulse, without restraint or regard for consequences. Results in demagoguery, license, agitation, discontent and anarchy.

U.S. Government Training Manual No. 2000-25
War Department (1928)

The ideal Government of all reflective men, from Aristotle onwards, is one which lets the individual alone – one which barely escapes being no government at all. This ideal, I believe, will be realised in the world twenty or thirty centuries after I have passed from these scenes and taken up my public duties in Hell.

H.L. Mencken
“Matters of State,” Prejudices: Third Series (1922)

In principle, as a private company owned ultimately by individuals, it takes no interest in politics and politicians. In practice, however, it cannot ignore them. The trouble is that contemporary politicians like nothing better than to harass private companies and usurp the affairs of private citizens. They do so to such an extent that capitalist transactions between consenting Australian adults are regarded more and more as misdemeanours – and, indeed, sometimes as felonies. On the basis of much inspection, analysis, reflection and direct experience, I conclude that politicians (however kind, honourable, intelligent and civilised they can be as individuals) are, in terms of their public actions, malevolent and predatory drongos. Further, government in general punishes industry, rewards idleness and thereby threatens individuals’ liberty and corrodes their morality and prosperity; and government programs in particular usually address imaginary “problems” and typically (and sometimes disastrously) run off their rails, thereby creating problems where none previously existed.

I conclude, in short (and with the possible exception of a very small number of basic things, such as courts, criminal and tort law and protection against pestilent flora and fauna), that government does not work because it simply cannot work. One of America’s foremost newspapermen, linguists, literary critics, robust individualists and detractors of Woodrow Wilson and Franklin Roosevelt, H.L. Mencken, agreed: “government is actually the worst failure of civilised man. There has never been a really good one, and even those that are most tolerable are arbitrary, cruel, grasping and unintelligent” (see in particular Terry Teachout, The Skeptic: A Life of H.L. Mencken, Perennial, 2003, ISBN: 006050529).

With Mr Munger’s resignation in mind, it is useful to cast a jaundiced eye at distasteful and disreputable things such as governments, politicians and elections. To do so is to hone one’s ability to think unconventional thoughts and to doubt; and to do these things is to become not just a more discerning thinker but also a better investor.

Bread and Circuses in Queensland

“No man’s life, liberty or property are safe while the legislature is in session.” These words, allegedly uttered by Mark Twain in 1866, no longer ring true. On 13 January 2004, to cite a current example, the Premier of Queensland, Mr Peter Beattie, secured from the Queen’s representative, Her Excellency Ms Quentin Bryce, AC, Governor of Queensland, a dissolution of the state’s legislative assembly and the issue of a writ of election for 7 February. Parliament, in other words, is no longer in session; and because politicians of all partisan (and non-partisan) stripes are scurrying from one end of the state to the other in a frenzied effort to secure their (re)election, and in order to do so are tirelessly bribing electors with their own (or their children’s) money and robbing Peter to pay Paul, the threat to Queenslanders’ liberty and property is now as perennial and widespread as the state’s sunshine.Mencken’s insight into the American politics of his heyday aptly describes the contemporary political scene in Australia. “The state – or, to make the matter more concrete, the government – consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can’t get and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time is made good by looting A to satisfy B. In other words, government is a broker in pillage, and every election is sort of an advance auction sale of stolen goods.”

Not everyone has applauded the timing of Queensland’s election. The Australian (14 January) stated in a news-Op/Ed article (it constantly and irritatingly conflates these two distinct things) that “political cynicism doesn’t come much more blatant than Peter Beattie’s ambush of Queenslanders with a February 7 state election. Before Christmas, Mr Beattie publicly beseeched politicians to refrain from politicking so that people could enjoy the summer holiday season in peace. And as late as 12 January his staff insisted that the Premier was taking a break and would return to his desk on 19 January. But now, suddenly and unexpectedly, there is a poll on the Saturday following the first full week of school – the earliest day in the year the state’s electoral law permits an election. Accordingly, the bulk of the 26-day campaign will occur during the same holiday period that the Premier said should be a politics-free zone. So much for playing it straight with voters.”

Nor has everyone accepted the election’s rationale. According to a front-page article in The Australian Financial Review (14 January), “Mr Beattie said he called the election as soon as possible to address the crisis in child protection in the state. ‘I called this election to put children first’, he said. ‘Governments of all political persuasions, including mine, could have done better in terms of looking after children.’” The Australian (14 January) added that the Premier, whose party commands a massive majority in the legislative assembly, wants a mandate from voters in order to reform child protection laws and programs. “Mr Beattie said, ‘we’ve had enough delays, we’ve had enough agony’ and it would be wrong to delay the poll when the welfare of children was involved. Declaring that his ‘major priority’ if re-elected for a third term would be to establish the best child protection system in the country, Mr Beattie said he would stake his name on implementing sweeping reforms to foster care and family services recommended last week by Queensland’s Crime and Misconduct Commission.” To go to the polls so early will severely limit voters’ scrutiny of the state’s maladministration of foster care. It will also distract attention from the alleged rorts of electorate vehicles that hounded the Government before Christmas. “For a man who came to power in 1998 loudly promising open, accountable government, [this is] a truly appalling double standard.”

The Australian (14 January) editorialised that “the best example of the Beattie style is the way he is seeking to turn a child welfare crisis, which his Government has manifestly failed to fix, into a reason to re-elect him.” The CMC’s report detailed the appalling failure of the Department of Family Services to protect children in foster care. It also called for wholesale reform to replace the “failed” department with a new child protection agency. The report was an indictment of two senior ministers in the Government, and the Premier himself has referred to DFS as “the Department of Human Misery.” “But turning the report into a positive for the Government and announcing an election to clear the way for the CMC recommendations is the sign of the extremely skilful – and brazen – master politician Mr Beattie is. He should be on the back foot over the children in care scandal, not arguing that because his colleagues failed to fix the problem in this term the Government deserves to be re-elected so it can have another go.”

The Hills Are Alive With the Sound of Morons

It seems that some and perhaps many Australians, particularly during the summer holiday period, are at best uncritical and at worst gullible. “As all successful premiers understand,” said The Australian in its editorial on 14 January, “voters have modest expectations of state governments. As long as the hospital queues are not too long, the police and teachers do not strike and trains run to time, the electorate will rarely vote a premier out of office.” Alien to Australian eyes, ears and brains, therefore, are the sentiments of the American lawyer and jurist Louis Brandeis. In his dissenting opinion in Olmstead et al. v. United States, 277 U.S. 485 (1928), he cautioned that “experience should teach us to be most on our guard to protect liberty when the Government’s purposes are beneficent. Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in the insidious encroachment by men of zeal, well meaning but without understanding.”

Equally foreign are the insights of Alexis de Tocqueville’s timeless classic Democracy in America (Signet, 1831, 2001, ISBN: 0451528123). “The will of men is not shattered [by the welfare state], but softened, bent and guided. Men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence. It does not tyrannise, but it compresses, enervates, extinguishes, and stupefies a people, until each nation is reduced to be nothing better than a flock of timid animals, of which the government is the shepherd.”

Stupefaction and submissiveness may explain the outrageous sentiments that appeared in The AFR on 14 January: “a cardinal rule of political economy is that governments that preside over successful economies, with budgets strong enough to shower voters with goodies, should be re-elected no matter how many foster children they misplaced.” Hence, too, the effusive and sycophantic tone of two Op/Ed articles (each, predictably, written by academics) published in The Australian on the same day. The first gushed that “along with [New South Wales Premier] Bob Carr, Queensland Premier Peter Beattie is the most accomplished state politician in Australia. He is an excellent grass-roots politician. He maintains a dialogue with the Queensland electorate and when he offends the voters he is usually intelligent enough to admit it. In the past week, Beattie has again been quick to promise action on the child protection front. This area, which attempts to provide a last line of defence for children when families fail, is one of the hardest faced by government. Queensland has for half a century invested far too little in social infrastructure, including child protection. Decades of funding can not be made up overnight. Since Beattie came to office in 1997, child protection spending in Queensland has risen from $75 million in 1997-98 to $179 million in 2002-03. The fact remains that the current government is investing the kind of money that the Sir Bjelke-Petersen régime never did. For these reasons, Queensland voters will forgive Beattie on this politically charged issue.”

In other words, forget about results and use taxpayers’ money as a proxy for politicians’ good intentions. Let politicians confiscate and squander vast amounts of money, create new problems and make existing ones worse. Then let them commandeer even more money – and, by some unprecedented miracle, trust them, all will be put right. The underlying “logic” is identical to that used by William Westmoreland, who repeatedly requested – and received – ever more troops to turn the tide in Vietnam.

No, Virginia, Government Doesn’t Work

How on earth can anyone write such stuff with a straight face? How can anybody read it on a full stomach? Part of the problem is that more and more Australians spend more and more years in educational institutions. Almost invariably, they confuse this elapse of time with “education” and therefore regard themselves as “educated.” Alas, the contrary is probably closer to the truth: people who spend time in state-run institutions and are therefore subjected to years of statist dogma are far more susceptible to the lies, cant and empty slogans of politicians than people who leave school early, get proper jobs and inhabit the real world. People who have spent much time in schools, colleges and universities may flatter themselves that “education” creates a rational and sceptical outlook and hence an immunity to myths, clichés and propaganda. In fact, says Joseph Sobran (Now They Tell Us, 3 June 2003), “it may do just the reverse. It may create a disposition to settle for fancy words and high-sounding slogans instead of results.”

From the French Revolution to the horrors of Hitler, Stalin and Mao, Western “intellectuals” have figured disproportionately prominently among the leading apologists and blind supporters of totalitarian dictatorship and state-sanctioned mass murder (Thomas Sowell, Knowledge and Decisions, Basic Books, 1980, 1996, ISBN: 0465037380). They also spawned Franklin Roosevelt’s New Deal and thereafter rationalised its many disasters (Jim Powell, FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression, Crown Forum, 2003, ISBN: 0761501657). More generally, in Western countries since the 1930s intellectuals have typically applauded (and been subsidised by) the modern welfare-warfare state and stridently condemned liberty and capitalism (see Ludwig von Mises, The Anti-Capitalist Mentality, Libertarian Press, 1956, 1994, ISBN: 0910884293, and Robert Nozick, Why Do Intellectuals Oppose Capitalism?).

Our forebears, such as Professor Alexander Fraser Tytler, knew much better. Over two hundred years ago, just as George III was served with a notice of ejection from thirteen of his North American colonies, Tytler reckoned in The Decline and Fall of the Athenian Republic (1776) that “a democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilisations has been two hundred years. These nations have progressed through this sequence: from bondage to spiritual faith; from spiritual faith to great courage; from courage to liberty; from liberty to abundance; from abundance to complacency; from complacency to apathy; from apathy to dependence; from dependence back again into bondage.”

Why, then, doesn’t government work? Because the vast majority of government activities, combining politicians’ preferences and coercion, attempt to prevent or modify activities that, were they left in peace, individuals would freely choose to undertake. Alas, not a few of the people whom politicians say they want to help value that “help” more than their independence. These people are joined by many others who would rather receive help than give it. Meanwhile, those whose bread finances the help resent the coercion and do what they can to avoid it; and those who are no longer allowed to do what the politicians have banned will devise something worse to do instead (see Charles Murray’s Losing Ground: American Social Policy, 1950-1980, Basic Books, 1995, ISBN: 0465042333 and In Pursuit of Happiness and Good Government, Institute for Contemporary Studies, 1994, ISBN: 1558152970, and also Bertrand de Jouvenel, The Ethics of Redistribution, Liberty Press, 1952, 1990, ISBN: 086597084).

When individuals freely agree among themselves to co-operate in order to achieve some desired end, most of them act as they say they will– and those who do not can be ejected from the group. But when a program is based upon coercion, as a government program must necessarily be (if the payment of taxes were purely voluntary, would you pay as much as you do now?), everyone involved modifies his behaviour– and so the program’s outcome is very different (and often far worse) from what was intended. Government programs promoted by affable and well-intentioned politicians, in other words, are almost inevitably derailed by human nature and unintended consequences. Hence poverty programs harm the poor; the War on Drugs makes drug trafficking more profitable; central banks manufacture inflation and exacerbate the business cycle; the War on Terror will increase the number of people who violently protest Western governments’ interventionist foreign policies; and child protection policies harm children.

More generally, governments’ countless rules and regulations typically make worse the alleged ills they seek to redress. One of the most famous graduates of New York University’s Stern School of Business, Alan Greenspan, noted forty years ago that government regulations would encourage events such as the Enron, WorldCom and other messes that have surfaced since December 2001. Greenspan stated in a 1963 essay entitled “The Assault on Integrity” that

Reputation, in an economy [unregulated by the government], is a major competitive tool. It requires years of consistently excellent performance to acquire a reputation and to establish it as a financial asset. Thus the incentive to scrupulous performance operates on all levels. It is a built-in safeguard of a free-enterprise system. [But] government regulation is not an alternative means of protecting the consumer. It does not build quality into goods, or accuracy into information. Its sole “contribution” is to substitute force and fear for incentive as the “protector” of the consumer.

Mr Greenspan continued:

What are the results? To paraphrase Gresham’s Law: bad “protection” drives out good. The attempt to protect the consumer by force undercuts the protection he gets from incentive. First, it undercuts the value of reputation by placing the reputable company on the same basis as the unknown, the newcomer, or the fly-by-nighter. It declares, in effect, that all are equally suspect. Second, it grants an automatic guarantee of safety to the products of any company that complies with its arbitrarily set minimum standards. The minimum standards, which are the basis of regulation, gradually tend to become the maximums as well. A fly by night securities operator can quickly meet all the S.E.C. requirements, gain the inference of respectability, and proceed to fleece the public. In an unregulated economy, the operator would have had to earn a position of trust.

“Health care” is an archetypal example of public policy gone awry. In Anglo-American countries, particularly since the Second World War, politicians have in various ways and at different rates of speed overturned voluntary, free market arrangements in order to “improve access” to doctors, nurses and hospitals. These interventions have reduced patients’ immediate out-of-pocket costs– and thereby increased the demand for medical personnel and resources. But by requiring medical personnel to devote ever more time and energy to complete forms and comply with regulations, these interventions have also reduced the supply of medical services and resources below what they would likely have been under free-market conditions.

Further, in these countries thousands and perhaps tens of thousands of people die each year because governments’ Byzantine regulatory processes restrict and delay access to life-saving medications. Surprise, surprise: as demand has increased and supply stagnated, the price of doctors, nurses, hospitals and associated goods and services has risen sharply. Governments have tried to suppress the rise of consumers’ out-of-pocket expenses. The result? Queues and budget blowouts. When Medicare was established in the U.S. in 1965, politicians projected that it would cost $3 billion ($12 billion in 1990 dollars) by 1990. In that year it actually cost $98 billion. As a result, in most Anglo-American countries people now pay more from their own pockets, find it more difficult to get medical appointments and must wait longer for operations than they did before the government bulls crashed through the china shop (see Thomas Sowell, Applied Economics: Thinking Beyond Stage One, Basic Books, 2003, ISBN: 0465081436).

In the world of Bill Gates, the advance of technology greatly reduces costs, but in the world of government it inflates them. The first lesson of economics, says Sowell, is scarcity. There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics. The problem, it is worth emphasising, is not that bureaucrats are dumb or lazy or self-interested. They are no more or less so than non-bureaucrats, and indeed some are admirably intelligent and diligent and conscientious. The problem is that what “health care” bureaucrats are trying to do, regardless of their intentions, simply cannot be done. Mr Buffett’s words, uttered in a different context, are also applicable here: “when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”

And the economics of a government-financed and directed medical industry are abysmal. Most and perhaps virtually all Australians think that politicians’ lofty rhetoric and coercion can deliver more and better medical goods and services than individuals’ voluntary efforts. They think these thoughts with respect to the large and growing number of private and toll goods whose production and consumption politicians arrange and regulate. To do so is to give much more weight to hope than to reason and experience. Less charitably, a four year old who believes in Santa Claus is charming; but an adult who believes that a political Santa Claus can give him what he wants without depriving him of what he owns is naïve. Peter Saunders (The Australian, 6 December 2002) summarises the (unpalatable for most Australians) reality: “individuals and small groups are better at organising things than governments are. Government often gets involved in things for the best of motives but ends up making things worse. It turns out that in most areas. the best thing the government could do for us would be to get out of the way.”

Politicians, Dot Coms and the Tyranny of Good Intentions

An unflattering analogy emerges from this jaundiced look at politicians, governments and elections. In key respects politicians and governments resemble Bubble-Era dot-coms: they absorb vast amounts of others’ funds, can survive only if this drip-feed is maintained, produce precious little of enduring value, are vastly overvalued by the general public, are headed by silver-tongued clowns, enrich privileged “insiders” and take benighted outsiders to the cleaners. Recent history suggests that executives who use the most effusive and confident language often generate the poorest results. These executives, like politicians, first shoot the arrow of good and ambitious intentions and then hastily paint the bull’s eye around the spot where it happens to land.

Similarly, political journalists, commentators and editorialists, like equity analysts, are rent with misconceptions, delusions, ignorance– and sometimes conflicts of interest. Equity analysts are increasingly obliged by governments to declare whether they own the securities of (or possess commercial relationships with) the companies they analyse. But academic political commentators, whose incomes derive from tax dollars and thereby depend upon the state, are not required (and feel no compunction) to disclose this source of their statist bias (see in particular Thomas Sowell, The Vision of the Anointed: Self-Congratulation As a Basis for Social Policy, Basic Books, 1996, ISBN: 046508995). In one critical detail, of course, this analogy utterly fails: it is utopian and absurd to expect that an even half-hearted governmental investigation will ever hint at (much less reveal) the demonstrable, inexorable, innate and fundamental failings of politicians.

To cite a current and depressing example, Protecting Children: An Inquiry into Abuse of Children in Foster Care (January 2004), conducted by Queensland’s Crime and Misconduct Commission, does not even hint that it is possible to provide decent foster-care without the involvement of politicians, government bureaucrats and regulations. Still less does it allude to the (apparently utterly taboo) idea that perhaps the only civilised way to do so is to liberate children from the abusive hand of government (see, for example, Richard McKenzie, ed., Rethinking Orphanages for the 21st Century, Sage Publications, 1998, ISBN: 0761914447). The CMC’s report is a statist, one-size-must-fit-all report partly because its terms of reference make it so; further, its underlying premise is that Whatever the Disasters It Causes, The State Knows Best because not in a million years would it occur to politicians to think unconventional (i.e., non-governmental) thoughts. Governmental tigers, in short, cannot change their stripes.

Hence Mencken’s view that “government, in its very essence, is opposed to all increase in knowledge. Its tendency is always towards permanence and against change. [Therefore] the progress of humanity, far from being the result of government, has been made entirely without its aid and in the face of its constant and bitter opposition.” If so, then every foster child in Queensland will suffer before politicians abandon their empty sloganeering and damaging actions. Herein lies a fundamental lesson to value investors: just as it is wise to inspect the bona fides of financial statements and then cautiously analyse their numbers, being careful not to infer too far and to take the words of executives and analysts with a healthy dose of scepticism, it makes eminent sense (unless there are compelling reasons otherwise) to distrust the intentions, words, deeds and numbers of politicians. Capitalism certainly has its defects and humans are clearly not angels. But these defects pale when capitalism is compared to its alternatives.

If a man is never so innocently and productively employed as when he is in hot pursuit of an honest dollar, then a man is most dangerous when he uses political institutions to bend others to his will. A politician has nothing to give to A except what he has taken from B; accordingly, a group of politicians “compassionate” enough to give you everything your heart desires must also be ruthless enough to confiscate everything you own. (The parable of the Good Samaritan, by the way, shows that compassion is a virtue precisely because it is voluntary. If A gives to B things that have been coerced from C, then A is not compassionate with respect to B: A is simply a bully and a fraud.) The chance that you will be harmed by terrorists is infinitesimal, but the probability that you will be robbed by your own government approaches 100%. Again, Mencken is apt: “people constantly speak of 'the government’ doing this or that, as they might speak of God doing it. But the government is really nothing but a group of men, and usually they are very inferior men. They may have some better man working for them, but they themselves are seldom worthy of any respect.”

The sobering reality, then, is that if (as Mencken cautioned) politicians’ “urge to save humanity is almost always a false front for the urge to rule” then Queenslanders have much to ponder– for themselves and for young wards of the state– when they enter the polling booths on 7 February. All politicians promise to be good masters, but make no mistake: they intend first and foremost to be masters. The point of limited and frugal government is to preserve the liberty of individuals and to stymie the good, bad and indifferent intentions of politicians. C.S. Lewis has the last word: “of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.”

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