Robert Reich’s “Inequality for All” Includes No Analysis of the Fed’s Role in the Economy

Written by: C Dallas Menger

Seems impossible, but it’s true. Reich talks about middle-class workers not having an increase in inflation adjusted wages since the ’70s, but completely leaves out the cause of the inflation. He talks about CEO pay, and explains that stock options are part of the pay. He also talks about how the stock market increased significantly over the last 30+ years, but does explain how the 0% interest rate from the Fed chased savings from community banks to Wall Street. Lastly, one of the charts shows that income inequality starts to really separate in the early ’80s. He ignores that that’s because the US went full fiat currency in 1972 after Nixon took eliminated the dollar’s link to gold. I can hear the objections, but Chris if the US went off the gold standard in 1972, how come income inequality didn’t really start for another 10 years? Well, don’t forget that Volcker was the Fed chair and wanted to stamp out inflation through a tight monetary policy consisting of 20% interest rates. Once inflation was “under control” the FED has mostly lowered interest rates and allowed the money supply increase for decades after.

Private Police Part 2: Voluntary, Market-Based Police & Security Systems

Whenever the idea of a stateless society is brought up, the usual reaction is that of fear and worry. Without government, who would take care of the poor and the sick? Who would educate the children? Who would regulate the businesses? Who would build the roads? And, most strenuously, who would keep us safe?

In Part 1, the idea of fully privatized and free market-provided policing was begun by taking a look at policing as it exists today through government. As shown, today’s police don’t do an excellent job of providing that safety that so many seek, and this part of the series will attempt to outline a few of the possible ways that police/security services could be provided through voluntary market-based means. To start, let me say that Robert Murphy’s Chaos Theory is one of the greatest economic and theoretical efforts on this subject; it’s short at only about 60 pages, and is recommended to anyone that is even remotely interested in these ideas.

Throughout this piece, it is important to remember that in a stateless society, everyone would be at least 40-50% richer. This is simply due to the elimination of taxation. Take a moment to visualize yourself with forty percent more money. Imagine what you could do with that. This additional money, combined with the competitive forces of the market, will team up to provide all the same services that many believe can only be provided by government more efficiently, effectively, and cheaply.

The simple thinking about private police and security services is that there would be competing firms who offer these services, and individuals will contract with these firms in much the same way as we contract with cell phone providers. While this is entirely possible, there are many good arguments against such a system. One such argument is, if a person is late with a payment, will the security company refuse to respond? The answer is that private firms likely wouldn’t operate in this way. While they certainly could contract with individuals, they would likely be more inclined to contract with insurance companies because those contracts would be much more guaranteed in terms of payment to the security firm as well as in provision of services to the end customer. Renter’s, homeowner’s, or personal liability insurance would contain clauses that protected the insured person against damages to life and property. Because the insurance company would be liable for any such claims, there is incentive for the insurance company to contract with a security company to protect the life and property of their policy holders as a way to keep their claims low.

There’s also the concern that if security firms were paid on a ‘per-crime’ basis, this would provide incentive for the security firm to concoct ways for there to be more crimes. This concern is obvious, and contracts between individuals and the firm, or insurance companies and the firm, would be written on a simple per annum basis as opposed to a per crime basis. Further, even if someone was duped by a fraudulent security firm into signing a per-crime contract and then the firm began concocting crimes to increase their revenue, word of this would eventually get out, spread, and the firm would lose customers and eventually go into bankruptcy. Security firms would be incentivized to provide high quality, peaceful services. A firm that provided security that successfully protects property, catches perpetrators, and helps to provide restitution to victims of crime, would be very popular, increase their clientele, and make more money.

The problem of the inherent racism in the present policing and justice systems would be mitigated through a fully privatized system. The existing system only answers to politicians who are made up of majority rich, white men. This results in severe distrust of the police among minority communities (a distrust that lately has been spreading to white communities). First, the problem will be mitigated because firms will be out to make profit, and being perceived as a bigot is bad for business. Second, if the market demanded it, firms could specialize in providing targeted services for particular communities.

Another fear is who these private security firms would answer to. It’s been said that private police forces would answer to private boards and stock holders. This is mostly true and is a good thing, though it doesn’t tell the whole story. Boards answer to stock holders. Stock holders put pressure on the board to run a profitable business. In order to run a profitable business, the firm will have to satisfy customers. In this way, it is the customers who have the ultimate control.

Contrast this with government-issued police who supposedly answer to “the people.” As shown in Part 1, government police forces do a very poor job of this. It takes some magical thinking to imagine how a person could affect change to police forces as they exist today. Police forces don’t answer to the people, they answer to politicians who hold the purse strings. Politicians don’t answer to the people either, they answer to the people who fund their re-election campaigns.

If an employee of one of these security firms were to be summoned to a person’s property, and instead of resolving the issue in question he decided to shoot the person’s dog, he would get fired or worse. When a government police does the same thing, as long as he claims, “I feared for my life,” he will likely go unpunished. If you go to a restaurant and get food poisoning, you never go back. Beyond that, you tell all your friends what happened, and they don’t go. If this happens to enough people, the restaurant will go out of business. As it should. With fully privatized policing, the same would happen to those who provide this very important service.

Without government police providing the illusion of safety to people, they would seek alternative means of keeping themselves safe. The private security firms and insurance policies described above are one way of doing this. Another way would include becoming trained in ways of self defense. Some people may hire patrols to stand watch over their property. Many will have home security systems installed on their property. These systems could include cameras that would make identifying and tracking down criminals a simple task. Enterprising entrepreneurs would come up with all kinds of solutions to providing the security that would be demanded by the marketplace.

If a person is able to take the mental leap and accept that the safety and security related police services could be provided by the free market, a final objection will likely be that of justice and dispute resolution. How would a person who commits a real crime be dealt with? What if one person accuses another of wrongdoing, but the accused denies it?

This will likely need to be dealt with to a larger extent in a Part 2b article, but let’s attempt to look at this briefly here. Presently, private arbitration firms do exist. These would become more prevalent. The private security firms would contract with the arbitration firms to hear cases that the security firms brought forth. Arbitration firms would compete with each other to earn contracts with security firms, insurance companies, businesses, and even individuals. The existing justice system is monopolized by the government. There is near universal acceptance among economists that monopolies will always provide poorer and poorer services at increasingly expensive costs over time. This is certainly true of the government justice system when put under any basic examination. Furthermore, the government justice system isn’t about justice, it’s about punishment. True justice would involve making the victim of a crime whole. Instead of this happening, the victim of a crime is victimized twice, first by the criminal, and then again by the government punishment system when he is taxed to pay for the criminal’s incarceration, food, recreation, and healthcare. The victim is rarely, if ever, made whole. The point of private arbitration firms would be to make victims whole. The firms that did the best job of this would gain more customers, and increase their profits; there would be incentive to provide true justice.

There are many benefits of replacing government-provided services with private services provided by competing businesses in the free market. Efficiency and effectiveness as described in this article are two of the major ones. Another potentially overlooked benefit of this type of system would be that consumers would know exactly how much they are spending on these services. Government’s one-size-fits-all services simply can’t compare. Some may choose to spend a lot of money on extensive security services. Others may decide that they are comfortable with simply keeping a firearm in the house along with a basic alarm system. Some may choose to forgo security services altogether. The beauty in this is that each individual could perform their own cost-benefit analysis and decide what works for them. No force would be used, and the funding of any and all such services would be entirely voluntary with the individual having the freedom to patron or not any of the available market provided services.

Even if a person joins their local government provided police force with the best of intentions, it is inevitable that they will be forced to act in a way that would be unacceptable if the action were done by anyone else. Police sign up to enforce the law. Since very few of the laws that they are required to enforce are just, eventually there is no way for them to act other than maliciously. Private firms, with the consumer having the freedom to choose whom to do business with is the only complete solution to the problems that come with government police.

“This is a free country.” In all aspects, it should truly be so.