New Economic Reality, Old Economic Truths

A Book in Search of an Author
By Nicholas Stix
January 18, 2007

(I just found this mss. while hunting for something in my folders, using the keyword, “Robert Putnam.” I still haven't found what I'm looking for.)

Has history left economics behind, or have the economists and businessmen who claim to champion free market economics betrayed that theory, and made a deal with the Devil that has put America on a road to serfdom just as surely as the socialism of which F.A. Hayek warned?

Adam Smith, the father of free market economics, saw that such an economics functions within a world of national economies, in which businessmen compete with each other for comparative advantage. Today, businessman engage in global labor arbitrage, in seeking absolute advantage, and compete less with each other, than with the citizenry/work force of their nominal countries for absolute advantage. And economists, while paying lip-service to Smithian market economics, have thrown Smith out with the bath water.

Meanwhile, as exasperated members of the American middle class increasingly see themselves being economically displaced, the call is rising for statist solutions. And whenever the people see – correctly, in this case – private businesses breaking the rules of the game with abandon, they will seek statist solutions. But those “solutions” will almost always prove to be chimerical, and will harm business and the people alike.

The economic capital that drives free markets stands on a foundation of social capital (no welfare state, limited government, rule of law, trust).

When Adam Smith wrote The Wealth of Nations, he took the nation-state for granted. But we no longer can. Since borders limit the mobility of labor, and thus keep a floor on labor prices, the open borders ideology of global labor arbitrage has sought to eliminate borders. But such a mentality, though of enormous short-term profitability, is fool’s gold in the near and long-term. Non-coercive economic exchange requires trust, and trust is built up only over the course of generations of an ethnically homogenous people engaging in countless transactions among themselves. Eliminate the homogenous character – the peopleness – of a people, and one is left with either squabbling nationalities who mortally distrust each other, as even liberal political thinker Robert Putnam came to realize, clans ands warlords who trust “their own” and deal with outsiders by literally cutting their throats, or a totalitarian state that controls all economic relations, be it socialism, fascism, communism or national socialism. [Postscript, 2013: Today, we have under “Obama” a mixture of the worst of the clan/warlord and totalitarian models.]

Global labor arbitrage has shown contempt for America’s labor and immigration laws by inviting tens of millions of largely unskilled laborers into the U.S. who have contempt for its culture and its laws – often violent contempt. While the immigrants have accepted the role of serf/slave, their children refuse to accept either a subservient role or even normal citizenship, with its attendant obligations.

A market economy is also based on a model of limited government. But global labor arbitrage privatizes profits, while socializing costs. That is to say, that businesses routinely violating the law (whether by hiring illegal aliens, or by lying to the federal government, and claiming a shortage of skilled technical workers, hiring foreign workers at half the market rate, as H1-B workers) pay wages so low that families cannot legally live on them, and offer no benefits. Thus, workers illegally overcrowd homes, thus destroying precious housing stock and making entire neighborhoods unlivable (due to noise, crime, air pollution, traffic accidents, and overstressed infrastructure), fill hospital emergency rooms for medical treatment for which they have no intention of paying, rampantly initiate fraudulent lawsuits against municipalities, and eat away at the tax base. As the late Milton Friedman famously said, “You can’t have open borders and a welfare state.” Yet, open borders apologists do not seek to dismantle the welfare state. And who will pay for the welfare? The same citizens whom the Open Borders Lobby have disenfranchised.

The combination of an ever-decreasing tax base, ever increasing demands on government, disenfranchisement of a nation’s citizens, and legal privileging of non-citizens is a volatile, revolutionary one, that no economy and no polity can long endure.

There is a need for real solutions that will save free markets from those who claim to defend them but who are actually plundering them, and introducing a schizoid combination of feudalism/slavery and anarchy, on the one hand, and those on the other hand, who would seize the moment to eliminate the last vestiges of economic freedom. This book proposes to offer such solutions.