The Boardwalk of Huff Park

Recently, I moved to the northeast side of Grand Rapids, after having spent the past twenty years south of the city in Caledonia. With three weeks between the end of finals and my internship, I had a lot of time to kill.

To fill some of that time, I decided to walk around the streets and sidewalks to familiarize myself with this foreign land. Huff Park is within walking distance, so I started there. Yesterday, walking down a trail I hadn't seen before, I came across a sign hanging on a chain blocking the path.

The original message of the sign was weathered and undecipherable. Someone had crudely scraped "STOP" on the sign. I stepped over the chain. A colorful sign informed me I was on the Huff Park Boardwalk. I didn't see any immediate danger, so I kept moving.

The boardwalk seemed fine. The sign had mentioned it was built with plastic boards, which seemed to be holding up. Soon, the reason behind the sign became clear. At intervals, the boardwalk had sunken into the wetlands, and water spilled over the boards. Some enterprising individual had procured more boards, and laid them over the water so walkers could pass. 

While the boardwalk wasn't in great shape, it was largely serviceable. Friends of Grand Rapids Parks, "an independent, citizen led, nonprofit enterprise" had replaced some of the broken boards on their own accord, as seen below.

Rather than petition the city government to use taxpayer funds to fix the decrepit boardwalk, the self described "friends" of the park did it on their own.

In 2013, passionate park enthusiasts urged voters to support a ballot proposal that would add a new city property tax to revitalize and repair city parks. The tax would yield about $4 million a year, with an average cost to the homeowner of around $45. The proposal passed with 60% support later that year.

Part of that money, around $900,000, goes towards replacing the boardwalk in Huff Park. Though the total cost to the project is $1.2 million, the remaining $300,000 comes from the state government, through the Michigan Natural Resources Trust Fund. Taxpayers from across the state, not just the city of Grand Rapids, are paying for the Huff Park boardwalk repair. 

Should the city government be responsible for these parks? A better question might be, should the taxpayers be?

Most would say yes. Park enthusiast Tommy Allen defended the proposal, writing passionately about the importance of parks (and new property taxes). On Friends of Grand Rapids Parks, Allen says "But these actions, while necessary and vital to shore up the losses, are unfortunately not going to be enough to bring about the solutions we need to advance in the years ahead after a decade of depreciation on our parks from use."

The Executive Director of Friends of Grand Rapids Parks, Steve Faber, agrees, claiming "...there isn't much more that can be done to patch it up. What really needs to be done is to rebuild the boardwalk." 

Why can't individuals who want to fund the parks to do on their own? Is it right that a small numerical majority of voters can add to the tax burden of thousands of homeowners in the city? According to Election Magic, the proposal passed by a little over 3,000 votes. Turnout for the proposal was around 15,000 voters, total. Most wards had below 25% turnout.

The City of Grand Rapids has a population of around 200,000. With the passage of this ballot measure, a small number of voters (and taxpayers) forced a tax on a much, much larger body of taxpayers. This is a gross injustice.

Some may benefit a nicer boardwalk, and some may not. Some might think the increased tax burden is worth it, and some might not. Either way, they're paying. 

Local Government, "Blight", and Legal Plunder

In The Law, Frédéric Bastiat writes on the dangerous idea of "legal plunder", saying...

"Under the pretense of organization, regulation, protection, or encouragement, the law takes property from one person and gives it to another; the law takes the wealth of all and gives it to a few — whether farmers, manufacturers, ship owners, artists, or comedians."

This definition of "legal plunder", taking property from one to give to another, encompasses all sorts of government activity. At a local level, it's easy for a municipal government to wave its hands and claim that policies of legal plunder - where property and wealth is taken from one group of individuals and given to another - is really in the common interest of all. 

One example is the idea of urban "blight". Originally a biological term referring to dying plants, the term has been appropriated by governments to mean some sort of decrepit or decaying building. To combat this blight, local governments seek to demolish or other renovate these buildings (often with taxpayer funds). Justifications for this include: higher property values (and thus, higher tax revenues for the municipality), public safety concerns, and economic development. 

Pictured: Blight (?)

To use a local example, the city of Hillsdale recently voted to demolish three structures deemed "blighted". One such structure, the remains of a burned-down house, was on the property of a local woman. She protested the move heavily, but the city council voted to demolish it all the same.

The councilors had a host of justifications for their vote, including the public safety risk that a child might fall into a basement and be injured. Mind you, this has yet to happen, but we must be vigilant all the same!

The cash-strapped city government may have been partially motivated by the promise of a $24,275 grant from the state of Michigan, meant to cover the costs of demolishing blighted property. Who benefits in this scenario? Certainly not the taxpayers as a whole. Taxpayers in the city of Hillsdale pay state taxes, which the state then sends back to the city of Hillsdale to tear down houses. The rise in the value of their property from less nearby blight is likely to be negligible, and probably not even cover the taxes they had to pay for the pleasure. 

Some property owners may benefit, if they were planning on demolishing the property regardless (as is often the case). Only now, the taxpayers are footing the bill. The city is happy if the move generates slightly more tax revenue, years down the line, due to marginal increases in property value.

Would the city of Hillsdale be a little bit nicer if these plans go through? Probably. Is it worth perpetuating a system of legal plunder that transfers wealth from many taxpayers to a few beneficiaries? Probably not. 

Hillsdale students should oppose local corporate welfare

[This piece first appeared in the Hillsdale Collegian (3.31.2016)]

Cor­porate welfare is alive and well, even here in Hillsdale.

The Michigan Economic Devel­opment Cor­po­ration is the insti­tution responsible for orga­nizing and directing cor­porate welfare in the state of Michigan. According to their website, the MEDC offers “business assistance services and capital programs for business attraction and accel­eration.” In practice, this amounts to allo­cating tax dollars as direct sub­sidies to busi­nesses, often coupled with special tax breaks.

The MEDC recently funded two projects in Hillsdale. The first was an $82,865 subsidy to Mar-Vo Mineral Company to purchase the old FW Stock and Sons Mill (“Mar-Vo moves in, ‘breathes life’ into abandoned mill,” Sep­tember 17, 2015). The second was the heftier $785,000 “com­munity devel­opment block grant” for the purposes of ren­o­vating an old factory into apartments (“Former fur factory fitted for flats,” March 17, 2016).

Pro­ponents trotted out familiar arguments to justify the taxpayer subsidy of private enterprise, noting that the projects would revi­talize downtown Hillsdale, as well as create jobs and housing. While these are cer­tainly benefits, the arguments ignore the costs. For one, similar arguments are made across the state to justify cor­porate welfare, resulting in almost $600 million doled out in “grants, programs, and projects” in 2015.

Orga­ni­zations like the MEDC are an affront to the free market, and little more than a vehicle for crony cap­i­talism. Unlike a private investor, the MEDC can only get funds through taxation. So tax­payers from across the state of Michigan, from Houghton to Detroit, are obligated to sub­sidize busi­nesses to the tune of hundreds of millions of dollars a year. Despite the gross injustice of being forced to sub­sidize projects that most receive no benefits from, cor­porate welfare persists. Why?

The answer is simple. Busi­nesses and private indi­viduals realize that, rather than trying to succeed or fail in the market, it is easier to get help from the state. Under the guise of “economic devel­opment,” or “jobs,” or “revi­tal­ization,” they can earn sub­sidies from the MEDC, and stick Michigan tax­payers with the bill. The benefits are con­cen­trated to busi­nesses and politically-connected indi­viduals, while the costs are dis­persed over millions of Michiganders.

Frederic Bastiat, a 19th-century French political economist, noted that eco­nomics involves looking at the seen and the unseen. In terms of cor­porate welfare, the seen effects are the projects they fund. New apartment buildings, bustling fac­tories, and so on. The unseen is more complicated.

Think of what $600 million could have done in the hands of Michigan res­idents, rather than in the hands of gov­ernment bureaucrats fun­neling the money to special interests. Private indi­viduals, working in the free market, fund projects they think will be prof­itable, and decline those which seem likely to fail. In this system, busi­nesses only profit by pro­viding what the con­sumers want, and not by lobbying the gov­ernment for subsidy. All of these potential oppor­tu­nities are nec­es­sarily unseen, because they never came to be. Instead, tax­payers are stuck with a bill of almost a million dollars to build apartments in a small, out-of-the-way city in southern Michigan.

Students of Hillsdale College, an insti­tution that stands for defending liberty, should oppose this great injustice. The MEDC is nothing more than dressed-up cor­porate welfare, existing to benefit special interests at the expense of the state as a whole, and the tax­payers that have to foot the bill.

A Bug's Life: Family-Friendly Libertarianism

A Bug's Life, Pixar's second studio film, was one of my favorites as a child. While scrolling through the channels today, I saw it was on, and decided to watch. The computer animation (state of the art in 1998) hasn't aged well, but the voice work remains phenomenal.

The plot is simple enough. A colony of ants collects a yearly offering of food for roving grasshoppers, under the threat of violence should the offering stop. An oddball ant, Flik, accidentally knocks the offering over, but is later ultimately successful in stopping the grasshopper oppression.

 According to Franz Oppenheimer (echoing Bastiat) in The State, there are two fundamental ways for man to meet his ends. The choice is between work, and robbery. Early human history was marked by two distinct types of societies: sedentary farmers, and roving herdsmen. The state originates when the herdsmen, realizing their superior military prowess, extort the farmers for food and tribute rather than working for it.

This conception has parallels to A Bug's Life. The peaceful ants are sedentary farmers, and harvest the fruit and grain on their island, as they have since the formation of their colony. At some point, the grasshoppers (herdsmen) instituted the annual offering, opting to extort food rather than work for it. The ants, for the most part, have grown to accept their lot in life as the nature of the world.

Oppenheimer's portrayal of history can easily be extended to modern times. The state uses taxation (under the constant threat of violence) to fund its projects, while the taxpayers, who have no monopoly on legal force, work to meet their ends. 

The protagonist of A Bug's Life, Flik, is an oddball and something of an outcast. Early on, he is mocked and discouraged from using his new inventions to harvest the grain on the island, rather than doing it by hand. After inadvertently ruining the offering, he sets out on a quest to find "warrior bugs" to fight off the grasshoppers when they return.

Sedentary farmers will try to fight back, using their own armies, but are generally less adept at the harshness of war than the herdsmen. Recruiting mercenaries to fight on their behalf seems a logical step, but it invites the risk that they will simply do the same as the marauders. 

Ultimately, Flik (and the circus troupe he recruited in lieu of "warrior bugs") convinces the colony to fight back through deceit, rather than outright war. Constructing a fake bird, the bane of all bugs, they plan to scare off the grasshoppers when they return. Though this plan is ultimately unsuccessful, the ants eventually unite to drive off the invaders forever.

The movie also addresses the importance of individualism, though seemingly glorifying the collective of the colony. Ultimately, the ants never would have driven off the grasshoppers without the leadership of Flik. Daring to stand up to the grasshoppers (even if he's alone), he inspires other individual ants to rise up and join him.

Hopper, the leader of the grasshoppers, argues that as soon as one ant stands up to their violent system, they all might. Though A Bug's Life has some praise for the collective (all the ants in the colony standing together to fight off the grasshoppers), Hopper recognizes they would do so if one individual ant chose to act.

Additionally, Flik's harvester invention represents technological innovation and capital investment, which ultimately makes the ant colony better off. By the end of the film, the ants have adopted his harvesting machine, which leads to specialization of labor and ultimately makes the colony more prosperous.

A Bug's Life addresses several crucial political and economic concepts, such as the origin of the state, individualism, the inherent theft in taxation, and more. There are few films, let alone ones aimed at children, that so clearly and concisely illustrate these ideas.

The Economics of Politics in Star Wars - Return of the Jedi

The final film of the original trilogy, Return of the Jedi, concludes in the downfall of Emperor Palpatine. Until now, the entire Star Wars saga detailed Palpatine's rise to power, from political manipulation to engineering a galactic war, and his gradual expansion of that power through military might.

After spending forty years tightening his grip over thousands of systems across an entire galaxy, Palpatine faces the threat of defeat from the increasingly powerful Rebel Alliance.

Desperate to keep a firm grip on any wavering planets, Palpatine orders the construction of a second Death Star, more powerful than the first. The Rebel Alliance plans to strike a shield generator on the forest moon of Endor, in order to weaken the defenses of the Death Star enough to attack the core. Though the strike team (led by Leia and Han) is ultimately successful, the Alliance is forced into a pitched battle above Endor.

Rebel intelligence suggested the second Death Star was lightly guarded  and inoperative, both leis deliberately planted by Imperial intelligence officers. Here, one can again the importance of the control of information in maintaining control of empire.

During the battle, Luke Skywalker fights against Darth Vader (his father, the former Anakin Skywalker) on board the Death Star. Palpatine, hoping to repeat the downfall of Anakin as seen in Revenge of the Sith, tries to sway Luke with promises of ultimate power. When he refuses the give in, the Emperor moves to kill him. Darth Vader, when faced with the chance to save his son or let him die, opts to betray the Emperor and throw him deep into core of the Death Star.

Though the Imperial military would survive for another year (before their defeat at the Battle of Jakku), the apparatus of empire has been permanently damaged. The logical successor to the Emperor, his apprentice Darth Vader, was his killer, and soon dies from injuries regardless. Part of the trouble of concentrating supreme power into one individual (or one office) is the chaos that can result on the death of that person. The Empire post-Palpatine was the collapse of his bureaucratic system of government. With no clear strongman holding the disparate Empire together, it began to fracture, and fall apart.

Ultimately, the Emperor failed due to his own hubris. Upon hearing that Anakin Skywalker was the alleged Chosen One who would bring balance to the Force, Palpatine set about grooming the young and powerful Jedi for his eventual fall to the dark side, if only to spite the Jedi Order by corrupting the supposed Chosen One. Vader's eventual rejection of Palpatine, and the dark side, led directly to Palpatine's downfall, fulfilling his alleged prophecy.

All that said, the Rebel Alliance was still successful in their attack on the Death Star. For all of Palpatine's political genius, he was unable to detect the hints of Rebellion already stirring in the first days of Empire. The courageous few Senators dedicated to restoring the Republic, including Bail Organa, Mon Mothma, and Garm Bel Iblis, secretly funded and began the Rebel Alliance, all while publicly supporting Empire.

Palpatine was always convinced of his ultimate power, especially after the fall of the Republic. Though he had indeed amassed massive control over the galaxy, he was unable to fully control everything. The Rebellion grew in the shadows, remnants of the Jedi Order (like Obi-Wan Kenobi) survived in seclusion, and his death came at the hands of his most trusted subordinate. Empire cannot last in perpetuity, and the power of any individual can never be ultimate.

Bernie Sanders versus Interest Rates

The amount of sheer economic ignorance coming from Bernie Sanders on the campaign trail is staggering. In a blind seething rage against business, big business, oil, Wall Street, banks, and corporations, Sanders fails to demonstrate even a tenuous grasp on basic economics. Recently, he (or whichever staffer runs his Twitter) spoke out against high interest rates, calling them "usury".

Usury was once defined to be loans with any level of interest, and was nearly universally condemned for much of human history. Today, most accept the necessity of interest, and understand its benefits. Some, like Bernie Sanders, still condemn a modern usury, any loan with an arbitrarily "excessive" rate of interest.

The economic reasons for lending at interest are simple. In the market for loanable funds, there are two key groups. The first group, savers, are those who willingly forgo immediate consumption in order to save for the future. From the largest venture capitalists to a student with a savings account, these are all savers. From their perspective, the interest rate is the reward they get by delaying consumption.

The second group, borrowers, want to access these savings for a variety of purposes, usually investment. Sanders is specifically referring to consumer loans rather than investment. A consumer loan is one made to a consumer for immediate consumption spending. "Payday lenders" offer short-term loans to consumers. From the perspective of borrowers, the interest rate is the cost of immediate consumption versus waiting.

The interest rate varies depending on many factors, one of which is risk. For short-term consumer loans, there is sometimes a high degree of risk. Namely, the risk that the consumer will be unable to pay back the loan (and default). Since payday loans, and other consumer loans, have a substantially higher risk than other loans, it makes sense for there to be a higher interest rate.

Sanders is clearly trying to tap into a populist,  anti-business, and anti-bank sentiment in order to drum up more support. Were he to succeed, and interest rates were capped at 15%, those he's trying to protect would lose out. People take payday loans, at the "usury" rates, because they see it was the best option available to them. When the alternative is losing your car or your house, some are willing to take out a payday loan. The highest interest rates are to consumers with the highest risk, either because of previous default or a particularly desperate situation.

If interest rates on consumer loans were capped, many of these lenders would no longer find it viable to lend to those who most desperately need it. The risk would be too high without a higher interest rate. Bernie Sanders, in his crusade against banks and business, is actually harming the people he's trying to help.

Is Cheap Oil Bad?

Scrolling through Facebook this morning, I came across someone upset over the recent fall in oil prices. The source of their frustration was the layoffs and economic slowdown associated with falling oil prices in the oil and natural gas industry. The price of oil has indeed fallen, and the oil industry is undergoing a temporary bust as a result, but is that a bad thing?

This article from the New York Times offers a good explanation for economic reasons for falling oil prices. In short, the supply of oil has dramatically increased in recent years, especially from the United States. Additionally, OPEC is continuing to pump out oil, rather than artificially restrict output to raise the price, as they have done in the past.

The sentiment that low prices are a problem is not a new one. Frédéric Bastiat, a Classical French Economist, tackled the issue in his essay "Abundance - Scarcity". He noted that when prices are high in a particular industry, such as oil, those working in that industry benefit. This leads many to conclude that high prices are desirable in all industries, leading to tariffs, barriers to trade, and other means of artificially raising price.

Bastiat saw an inherent conflict  between producers and consumers. Producers want to sell goods for as high a price as they are able, and consumers want to obtain goods as cheaply as possible. However, he also noted that "Man is at once producer and consumer". Anyone in the oil industry, though they produce oil, also have to consume food, water, shelter, and so on. While it would benefit farmers or contractors to have the price of food and shelter high, it would not benefit those who consume what they produce. For any individual working in any given industry, it is almost certain that they consume far more, both in quantity and in diversity, than what they produce.

This was Bastiat's key insight. When prices are high for one industry, say oil, that leaves consumers less wealth to spend on other goods. Expensive oil may lead to growth and stability in the oil industry, but it comes at the expense of growth in any other number of industries. Every consumer of oil benefits from a lower price, just as every consumer of bread benefits from a falling price of wheat.

Bastiat saw wealth in the abundance of commodities, not in the money a select few might earn due to high prices.

"Men are not fed on money. They do not clothe themselves with gold, or warm themselves with silver. What does it matter whether there is more or less money in the country if there is more bread on our sideboards, more meat in our larder, more linen in our wardrobes, more firewood in our cellars."

Cheaper and more abundant goods means a wealthier society. Those who fear falling oil prices would do well to heed the lesson of Bastiat.

The Economics of Parks and Recreation - Swing Vote

[Heavily conceptually inspired by "The Economics of the Office"]

Parks and Recreation, a mockumentary style comedy in the vein of The Office, explores the lives of employees at the Parks and Recreation department in the fictional Indiana city of Pawnee. One of the main sources of conflict in the show is between the Director of Parks and Rec, the grizzled anti-government Ron Swanson, and the Deputy Director, the cheery (and pro-government) Leslie Knope. Eventually, Leslie is elected to City Council, and starts a crusade for more and more government involvement in the lives of the citizens of Pawnee. 

One such crusade, as seen in the episode "Swing Vote", is to stop the closing of the Pawnee Palms Public Putt-Putt, a government subsidized mini-golf course. Ron Swanson, ever the budget hawk, has moved to cut funding, citing his belief in "cutting useless government projects". Ron notes the course costs taxpayers $9000 a year to fund, and views it as little more than government waste.

The issue will be decided by a City Council vote the next day. A desperate Leslie tries to whip votes to "save" the course, citing how it's "good for families" and "a job creator".

Leslie's second argument, that the subsidized course is a "job creator", is one of the most persistently enduring economic fallacies. The city of Pawnee is not "creating" any jobs at all. All they are doing is transferring wealth from one group (the taxpayers) to another (those who are employed by the Public Putt-Putt). While jobs may exist as a result, these aren't "created" in the same sense that someone could create new jobs by opening a new restaurant and employing people there. Jobs of that sort wouldn't exist without providing real, economic value to the patrons of the restaurant, the employer, and so on. Government jobs, like at the Public Putt-Putt, don't face the same constraints. They shall continue to exist as long as they are funded by the government, which they often are.

One Councilman, Jeremy Jamm, holds the swing vote on the issue. Leslie, eager to get his vote, takes him golfing at the Public Putt-Putt, and plies him with copious amounts of snow cones to try to sway his favor. Leslie's actions show the way that many decisions are actually made in government, through trading favors and excessive lobbying. Ostensibly acting for the "public good", Jamm is actually making his vote based on what he personally can get out of it. Individuals still face incentives, even in government, as stated in public choice theory.

Ron Swanson, sensing that Leslie might try to influence Jamm, also arrives at the course. He consistently states the downsides of the course, namely, that "this ridiculous play palace costs the taxpayers thousands of dollars a year". Leslie responds by again noting that "everyone loves it". Some people may in fact enjoy the Public Putt-Putt (at the government subsidized pricing), but all taxpayers might not. Ron is defending those taxpayers (likely including himself) that do not enjoy Putt-Putt, and are yet forced to pay for it through their tax dollars.

Eventually, Jamm is swayed to Ron's side (after Ron beats Leslie in a game of mini-golf). An angry Leslie confronts Ron the next morning, who cites his principles as the reason for his opposition. Jamm later meets Leslie in her office, brazenly offering to switch his vote for the right offer. Leslie seems sickened by his political graft, but Jamm notes that this system of trading favors for political support "is just how people like us [politicians] operate".

Leslie, apparently drawing a line in the sand, refuses to make a deal, and Putt-Putt is defunded. However, she later notes a plan to authorize funding through a ballot proposal, which she believes will pass. Putt-Putt's passing is a classic example of concentrated benefits, dispersed costs. Those who stand to benefit (former employees of the Public Putt-Putt, former patrons) will eagerly vote for its authorization. The apathetic (or indifferent) taxpayers who don't support Putt-Putt will likely not find it worth their time to go vote to save a few cents on taxes per year.

This process is repeated over and over, for all kinds of government projects, and eventually those few cents add up. That is why there is consistent government growth. That is why so many boondoggles, like a publicly subsidized mini-golf course, exist. When economic decision-making is politicized, this is the end result.

Gaddafi, Gold, and Libyan Intervention

Over the course of the twentieth century, the United States (and its allies, most prominently the NATO coalition) has increasingly engaged in military intervention overseas. The justifications for intervention were many: maintaining stability, blocking the influence of other foreign powers, and humanitarian.

In 2011, NATO intervened during the Libyan Civil War between longtime Libyan leader Muammar Gaddafi and various rebel groups, acting to enforce a no-fly zone and move towards a ceasefire. The intervention was justified partially on humanitarian grounds. Certain attacks on civilians, according to a UN resolution, could constitute "crimes against humanity".

Buried in one of the 3,000 recently released emails from Hillary Clinton's private server is an intelligence briefing detailing Gaddafi's supply of 143 tons of gold. Additionally, it notes French President Nicolas Sarkozy's reasons for seeking military intervention in Libya, none of which involve protecting from "crimes against humanity". His five reasons, according to the email, were:

1) A desire to gain a greater share of Libya oil production
2) Increase French influence in North Africa
3) Improve his internal political situation in France
4) Provide the French military with an opportunity to reassert its position in the world
5) Address the concern of his advisors over "Qaddafi's" long term plans to supplant France as the dominant power in Francophone Africa

 The email goes on to note that the supply of gold "was one of the factors that influenced" the decision to "commit France to the attack on Libya".

Gaddafi had been stockpiling gold with the hopes of creating a new gold-backed currency, the gold Dinar, to rival the Euro and the Dollar. He had hoped to force acceptance of this new currency by only selling Libyan oil in exchange for the new Dinar. Further, Gaddafi planned to use the gold reserves to make the Dinar a pan-African currency, and eliminate Western influence in the process.

Francophone Africa, the nations of Africa where French is widely spoken, widely uses a currency called the CFA Franc. The CFA Franc is backed by the French treasury, and trades at a fixed rate to the Euro. The ostensible purpose of the CFA Franc is stability in trade between France and nations using it, but it has the added benefit of maintaining French influence in the region.

Gaddafi's gold dinar would have served as a substitute to the CFA Franc throughout Africa. Whether or not the dinar would have replaced the CFA Franc entirely is uncertain, but Sarkozy feared the possibility enough to support military intervention in Libya. Gaddafi was without a doubt an evil man, a dictator, and responsible for the deaths of many innocents. Yet it seems that supporters of military intervention were actually concerned with maintaining Western influence in Libya and the rest of Africa, and not as motivated by humanitarian reasons as they claimed.

The Economics of Politics in Star Wars - The Empire Strikes Back

The Empire Strikes Back, chronologically the fifth Star Wars film, entails the Imperial counterattack against the Rebel Alliance, following the destruction of the Death Star in A New Hope. Though the crown jewel of the Emperor's military complex is gone, most of the massive armada remains. The Rebellion has fled to the far reaches of the galaxy, on the ice planet Hoth, to avoid the grasp of Empire.

Darth Vader, desperate to find the Rebels, orders thousands of probe droids sent throughout the galaxy. When an empire has reached a critical mass of military buildup, the next logical step is surveillance. In order for The Emperor's ultimate quest, absolute power, to be attained, he must necessarily control the information of the galaxy and monitor the activities of its citizens.

Though this may be the first use of these droids, and they're used solely for rooting out "enemies of the Empire", it's not a stretch to assume that the data-gathering capabilities of the probe droids may be used on peaceful citizens in the future.

Thanks to the droid, the Empire discovers the Rebel base and attacks, forcing an evacuation. Han Solo and a Rebel leader, Princess Leia, escape aboard his ship the Millennium Falcon. Eluding Vader, he is forced to call in a team of bounty hunters to search for them. This move shows the limitations of the Empire, powerful as it may be. Individuals operating outside of its control, the bounty hunters, are better equipped to do the job the military can't do. They are free to innovate, to experiment, and to operate independently.

Eventually, the Falcon lands on Cloud City. Cloud City is a small gas mining colony, run by Lando Calrissian. A former smuggler, and friend of Solo, he has decided to take up a more "legitimate" entrepreneurial business, undergoing the risks of starting a new firm. By bearing the risk, Lando stands to succeed or fail based on his own effort. This is the sort of free economic activity the Empire seeks to control.

"We're a small outpost, and not very self sufficient. I've had supply problems of every kind, I've had labor difficulties..."

Lando operates outside of prohibitive Imperial supervision and regulation, allowing him to more easily innovate and turn a profit. Furthermore, he has evaded the industry's own regulator, the Mining Guild. Industrial self regulators, like the Mining Guild, seek to limit entry into a market and artificially prop up prices and restrict competition. Competition like the upstart Cloud City.


Lando: "So you see, because we're a small operation, we don't fall under the jurisdiction of the Empire."

Leia: "So, you're part of the Mining Guild then."

Lando: "No, not actually. Our operation is small enough not to be noticed. Which is advantageous for everybody, as our customers are anxious to avoid attracting attention to themselves."

Han: "Aren't you afraid the Empire's gonna find out about this little operation, shut you down?"

Lando: "It's always been a danger, but it looms like a shadow over everything we've built here...I've just made a deal that will keep the Empire out of here forever."

Lando, desperate to keep the Empire from crushing his business, betrays Han and Leia and surrenders them to Darth Vader. Knowing that he operates outside of Imperial control, the threat of Imperialization "looms like a shadow" over the operation. When the chance came along seemingly guaranteeing independence, he had no choice but to take it.

Though he eventually has a change of heart and joins the Rebellion, Lando's gambit demonstrates the prosperity and freedom that can emerge for all, if the government merely gets out of the way. The Emperor, not content controlling the government and the galaxy with a mighty military force, is intent on economic control as well.

The Empire Strikes Back is often lauded as the best of the Star Wars films. It shows an Empire yearning for complete domination of the galaxy. The beginnings of a surveillance state (justified by the threat of attack, of course) are seen, as is the threat of economic Imperialization over a thriving free enterprise.

(Analysis continued for The Return of the Jedi HERE.)

The Economics of Politics in Star Wars - A New Hope

The first Star Wars film release, A New Hope, takes place approximately nineteen years after the events of Revenge of the Sith. Luke Skywalker, the son of Anakin Skywalker aka Darth Vader, has grown up in a galaxy ruled by the iron fist of the Empire.

In a first of a series of deleted scenes, Luke watches the famous opening of A New Hope from Tatooine, as an Imperial Star Destroyer chases down and captures Tantive IV, controlled by the fledgling Alliance to Restore the Republic (also called the Rebel Alliance). The Rebel Alliance has grown since its inception, primarily through the efforts of dissatisfied Senators in the new Imperial Senate. Unable to limit the Emperor's absolute power in any official capacity, they have slowly begun gathering forces to oppose the Empire.

Later (in another deleted scene), Luke meets up with an old friend, Biggs Darklighter, who has returned from the Imperial Academy while training to be a pilot. He plans to "drop ship" as soon as possible and join the Rebellion instead. Trying to convince Luke, who hates the Empire, to join, Biggs notes the steady growth Imperial involvement in economic affairs.

"You know they're starting to nationalize commerce in the central systems...it won't be long before your uncle is merely a tenant, slaving for the greater glory of the Empire."

Luke's uncle, a small-time moisture farmer, may soon face the threat of directly working for the Empire. The nationalization of key industries, and greater government regulation and control, is a staple for budding totalitarian regimes. The Emperor had already begun nationalization (or, as it sometimes referred to, "Imperialization") immediately following his rise to power, absorbing the commercial apparatus of the former Separatists.

Emperor Palpatine recognizes the importance of economic affairs to the galaxy. In his constant quest for more and more power and control, he has begun to stifle the free economic activity of individuals throughout the galaxy, except those whom he rewards with special favors and contracts.

The Imperial Economy is a classic example of crony capitalism or cronyism, where the market allegedly functions freely, but is in fact heavily influenced and controlled by the government. In this case, the Empire might Imperialize competition, so that one politically favored firm should have an advantage.

Luke eventually does join the Rebellion, flying off Tatooine with the assistance of a famed smuggler, Han Solo. Smugglers like Solo have been on the rise in the Age of Empire, as many seek to engage in economic activity outside of the control of the Imperial bureaucracy in black markets.

In addition to economic controls, growing bureaucracy, and centralization, the new Empire has also channeled immense resources into military buildup. Most famously, as seen in A New Hope, they have constructed a superweapon capable of destroying an entire planet, the Death Star. The Death Star, and the previous military buildup, are the deliberate designs of the Emperor, hell-bent on complete control of the galaxy.

Grand Moff Tarkin, commander of the Death Star, elaborates on the Emperor's plan.

"The Imperial Senate will no longer be of any concern to us. I have just received word that the Emperor has dissolved the council permanently. The last remnants of the Old Republic have been swept away forever....The regional governors now have direct control over their territories. Fear will keep the local systems in line. Fear of this battle station."

As enough time (nineteen years) passes, even the trappings of the Old Republic are swept away. The Emperor, confident in his power, no longer keeps up the pretense of a republican government. Though written well before the prequel trilogies, the Imperial government in A New Hope fits in well with the standard pattern of totalitarian empire.

Furthermore, the Emperor plans to rule the galaxy through fear. The massive military buildup, the Death Star, the constant threat of Imperialization of commerce. All of it serves to further Palpatine's power and control. Though lauded in his early political career as a great man, one strong enough to "get things done", his creation of Galactic Empire is a perfect illustration of where "greatness" in politicians often leads. The cliche, but true, quote of Lord Acton sums it up.

"Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men."

Throughout A New Hope, the dangers of nationalization and government control of an economy, along with the the military buildup and continually increasing power of a totalitarian empire, are well illustrated. Formed under the guise of peace and stability, the Empire has become an instrument of fear and destruction. As with the prequel trilogies, these issues are not necessarily the main focus of the film, but serve as a necessary backdrop in order for the action of the film to take place.

(Analysis continued for The Empire Strikes Back HERE.)

The Economics of Politics in Star Wars - Revenge of the Sith

In the concluding film of the prequel trilogy, Revenge of the Sith, Palpatine's ambitions are finally realized. Three years after the events of Attack of the Clones, and thirteen years after he manipulated his way to the Chancellorship in The Phantom Menace, Palpatine remains in power. As the film opens, the Jedi (and the Republic at large) are still unaware of his sinister plans as the puppetmaster behind both sides of a galactic war, the so called "Clone Wars".

The film opens with Palpatine engineering his own kidnapping by the Separatists. Interestingly, he is held on board a flagship dubbed Invisible Hand. In economics, the "invisible hand" of course refers to the famous use of the phrase by Adam Smith. According to Smith, individuals acting in their own self interest unconsciously promoted some social good, as if their actions were guided by an "invisible hand". Broadly speaking, Smith showed that individuals acting in a free market, pursuing their own self-interest, were able to unconsciously build a better and more prosperous society for all. As Adam Ferguson famously put it, the economy (and other societal institutions) developed "the result of human action, but not the execution of any human design".

Palpatine is "rescued" by Anakin Skywalker and Obi-Wan Kenobi, with the former killing Count Dooku in the process, and crash-land the Invisible Hand into the planet below. It is fitting that the movie which shows the culmination of Palpatine's plot for the concentration of power into the state, and away from free individuals, also shows the collapse and destruction of the Invisible Hand. Palpatine is no friend to free enterprise, as will be demonstrated in his yet-unrealized role as Emperor.

In fact, the Separatist Movement is largely built on the idea of self-governance, and a rejection of the excessive taxation and control of the Galactic Republic. Though the movement was doomed at the start (as Palpatine never intended for their victory), the Separatists represent a last-stand against more and more centralized power.

Later, once the Jedi realize that Palpatine is Darth Sidious, a Sith Lord and mastermind behind the Clone Wars, they attempt to arrest him. Mace Windu, leader of the arrest, later dubs Palpatine "too dangerous to be left alive", as he controls the Galactic Senate and the court system. In other words, Palpatine has so effectively centralized power that he cannot be stopped within the political system, as is often true of tyrants and dictators. The only move left is extra-legal force.

Fortunately for Palpatine, Anakin abruptly switches his allegiance from Jedi to Sith, and saves Palpatine from the attack. He does so because Palpatine, throughout the film, has been hinting at the Sith ability to stop death. Anakin fears the death of his wife, Padme (who remains a Senator) in childbirth, due to visions he's been having.

So, he joins Palpatine, citing the great "power" that he can gain from doing so. Though the emphasis in the film is on the power of the force, Palpatine's soon to be formed Empire will also hold a tremendous amount of political and coercive power as well, and Anakin would receive a portion.

Newly dubbed "Darth Vader", Anakin proceeds to slaughter the Jedi, and later, the Separatist Leaders. Meanwhile, in a session of the Senate, Palpatine claims the Jedi were attempting a coup. Using the alleged attack as justification for assuming even greater power, Palpatine declares the Republic over, and the Empire begun.

"In order to ensure our security and continuing stability, the Republic will be reorganized into the first Galactic Empire, for a safe and secure society which I assure you will last for ten thousand years."

Notice that Palpatine justifies the transition as all tyrants do, for "security and stability". Many are willing to sacrifice freedom in exchange for safety, especially in the face of a crisis. All of the plot of the prequel trilogy has led to this. A galactic war, the creation of massive armies, and an elaborate conspiracy to end the Jedi Order, all for the sake of complete political domination of the galaxy.

Padme, sitting in session, notes that "...this is how liberty dies. With thunderous applause." Though some Senators, who would later go on to form the Alliance to Restore the Republic, oppose the move, most of the Senate accepts it without hesitation. She later comments on the decay in the Republic that led to Palpatine's rise to power.

"What if the democracy we thought we were serving no longer exists, and the Republic has become the very evil we have been fighting to destroy?"

While the political maneuvering of the newly crowned Emperor was necessary to end the Republic, the system had become politically corrupted long before. The Senate was not truly a place of "democracy", but narrow-minded Senators pursuing their own self interest, rather than a common good. This was not a problem solely with the quality of Senators, but with the political incentive structure set in place. This flaw is hardly exclusive to the fictional Galactic Republic.

Political corruption and decay leads to inefficiency in government action and a growth of bureaucracy (as seen in The Phantom Menace). The growing dissatisfaction with the status quo leads to appeals for a strong leader who can "get things done". The process is helped with some crisis or another, usually a war (such as the Clone Wars), which concentrates power more and more into a charismatic leader. Eventually, the trappings of democracy (or political process) are abandoned, and a new Empire stands.

The fall of the Republic, as seen in Star Wars, beautifully captures similar situations in reality. The fall of republic and the rise of empire under the political influence of a strongman can be seen in all of human history, from Caesar's Rome to Hitler's Third Reich. For all the faults of this part of the Star Wars saga, the strength of the political plot shines through.

(Analysis continued for A New Hope HERE.)

The Economics of Politics in Star Wars - Attack of the Clones

In the second film of the prequel trilogy, Attack of the Clones, Palpatine's plot to manipulate the Galactic Senate and amass power continues. Though the inception of the coming civil war was seen in The Phantom Menace, it begins fully here.

The Secessionist Movement, a confederation of dissatisfied star systems (and other organizations like including the Trade Federation), declares independence from the Republic. Nominally led by Count Dooku (who is in fact in league with Palpatine), they have begun preparing a droid army. In response, the Galactic Senate is set to vote on the creation of their own army, The Grand Army of the Republic.

The former Queen of Naboo Padme Amidala, turned Senator, plans to oppose the bill. She has also fallen under the threat of assassination, leaving Obi-Wan Kenobi and his young apprentice Anakin Skywalker to guard her. Anakin, smitten by the Senator, is cautioned by Obi-Wan from proceeding, as politicians are "not to be trusted".

Anakin stubbornly defends Padme, claiming that she's "not like the others in the Senate". His arguments echo those who decry the corruption in politics in general, but insist that their chosen partisan is "one of the good ones".

The wiser, and perhaps more cynical, Obi-Wan responds with a quip that could easily be taken straight out of a public choice lecture. 

"It's been my experience that Senators are only focused on pleasing those who fund their campaigns...and they are more than willing to forget the niceties of democracy to get those funds". 

Throughout the prequel trilogy, characters often pay lip service to "democracy", ostensibly enshrined in the Galactic Senate. However, Obi-Wan recognizes the incentives the Senators face. In order to get elected to the galactic government, a prospective Senator needs money. In order to stay in office, they need to please their backers, otherwise the money will flow to a more pliable puppet. So, in practice, the Galactic Senate is a hotbed of corruption, special interest maneuvering, and political waste.

In response, an exasperated Anakin whines "Not another lecture, Master...not on the economics of politics." The dialogue then transitions to the dominant political figure of the day, a man much admired by Anakin, Chancellor Palpatine. Anakin remarks that the Chancellor "doesn't appear to be corrupt". This further demonstrates the ability of politicians with sufficient emotional appeal and charisma to remain part of a broken system and yet seem "better" than the system itself. This is also why the system remains in place, because most voters associate  one party (or at least a few chosen politicians) with a perceived purity. He goes on to note the Chancellor is "a good man" according to his own "instincts". 

Obi-Wan, ever the cynical observer, fires back.

"Palpatine's a politician. I've observed that he is very clever at following the passions and prejudices of the Senators..."

Here is one of the few direct references to Palpatine's political genius. First, he manipulates some given situation (be it the Naboo Crisis or the entire Separatist Conflict) in order that he may incite some specific passion in the Senators. Then, he can ride the wave of popular sentiment to get what he wants, in this case, power. Through this, he has managed to maintain the Chancellorship past the term limits, having been granted an extended administration to guide the Republic through the Separatist Crisis. That he engineered.

[It should be noted that all of this dialogue takes place during an attempted assassination of Padme, and is not at all the focus of the scene.]

Finally, towards the end of the movie, Palpatine is granted further emergency powers, using the same tricks he used ten years earlier to get elected Chancellor. He feigns reluctance as he accepts the office. "It is with great reluctance that I have agreed to this calling. I love democracy. I love the Republic. Once this crisis has abated, I will lay down the powers you have given me!"

Like all who are granted great powers in the face of crisis, Palpatine promises to lay them down as soon as the crisis ends. Immediately after this, Palpatine authorizes the creation of the Grand Army of the Republic. Turns out, he didn't need the Senate after all. Not anymore, at least.

Attack of the Clones is arguably the weakest film of the prequel trilogy, at least, in terms of what the moviegoers tend to focus on. The battle scenes are weak, the romantic sub-plot between Anakin and Padme is laughably bad, and most characters continue to act irrationally for the sake of advancing the plot. That said, the underlying story thread of political manipulation, including a lecture from Obi-Wan Kenobi on "the economics of politics" is perhaps richer here than in any other film in the trilogy.

(Analysis continued for Revenge of the Sith HERE.)

The Economics of Politics in Star Wars - The Phantom Menace

The infamous Star Wars prequel trilogy (Episodes I, II, and III) is widely panned for bad writing, weak characters, and weaker dialogue. Brief moments of glory, including (at-the-time) cutting-edge  special effects and improved lightsaber fight choreography do little to distract from the glaring flaws.

One aspect of the trilogy, however, presents an interesting insight into the economic analysis of politics and institutions. Many mocked The Phantom Menace for focusing on the mundane topics taxation and trade routes, while getting mired down in the muddled bureaucracy of the Galactic Senate.

To disregard the political intrigue inherent in the prequels because they lack action and flash is to ignore the dominant story thread of the trilogy. Every aspect of the three movies, from the Naboo Crisis to the Clone Wars, serves to further the goals of future Emperor through political means.

Senator Sheev Palpatine (also known as Darth Sidious and, later, the Emperor), drives the plot of movies forward through political maneuvering. Though the process is gradual, Palpatine manages to control both sides of a civil war and overthrow the government of the Republic, forming a Galactic Empire with him at its head.

In Episode I: The Phantom Menace, the plot revolves around the Naboo Crisis. The Trade Federation, a megacorporation and commerce guild, blockades the planet of Naboo in response to the Republic's taxation of trade routes previously marked as Free Trade Zones. It should be noted that the Trade Federation was under the influence of Palpatine, though cloaked in his role of Darth Sidious. Following the blockade, the Trade Federation invades Naboo. In other words, a trade war led to military conflict. French economist Frédéric Bastiat is alleged to have said:

"When goods don’t cross borders, Soldiers will."

Palpatine was also the Senator representing Naboo in the Galactic Senate. By engineering a political crisis on his home planet, Palpatine planned to thrust himself into the political spotlight, taking advantage of the crisis to grow his power.

The ruler of Naboo, Queen Amidala, escapes the blockade and eventually makes her way to the Galactic Senate, to plea for assistance against the invasion. She is blocked at every turn, with the corrupt Senate bureaucracy moving too slowly to act, and many Senators denying an invasion ever took place.

The current Chancellor, an unremarkable figurehead, is deposed by a vote of no-confidence. Palpatine, as the Senator from Naboo, is widely seen as the logical replacement to fill the seat, and is elected by a wide margin.

Here, one can see one of the biggest lessons in political incentives, as widely taught by economists and political theorists. Crisis, political or otherwise, tends to guide support towards strong-men who promise action and strength. Palpatine engineered the Naboo Crisis, and positioned himself to take advantage of it.

In The Phantom Menace, one can see crucial economic lessons play out. The folly of oppressive taxation and opposing free trade is apparent, as this led directly to a military conflict. In addition, the incentives of collective decision making, where the government grows and centralizes in the face of crisis, is used by Palpatine to further his rise to Chancellor.

While much of The Phantom Menace focuses on mindless action, irrational characters, and something about Jedi, the backdrop of political intrigue and corruption shows a depth and complexity seen nowhere else in the prequel trilogy.

(Analysis continued for Attack of the Clones HERE.)