Stossel: Freedom 2.0

I have lately been a little bit bored with Stossel, not because I don't think his topics are interesting and important, but because I have just heard it all before.  I am hearing the sermon from choir.

But his latest episode, Freedom 2.0, was fantastic.  He covered some of my favorite topics in considerable detail including:

• Government Transparency
• New Media (Including Jimmy Wales, the founder of Wikipedia). 
• Government-free regulation of important markets
• Artificial Intelligence and its potential effects on our lives and the economy of the future
• Bitcoin, the government-free currency of the future (hopefully).

I feel that I actually learned something new, and I highly recommend you check it out.  

In the Long Run We're All Ill-defined

Admittedly I'm no expert in details of modern macroeconomic theory, but one thing that has bothered me since the beginning of that course in college is the concept of the long and the short run.  They seem so varyingly and broadly defined to me as to be relatively useless.  To me this is exemplified in the oft-quoted evasion by the famous John Maynard Keynes, "In the long run, we are all dead."

The one important point I do recall about the subject is the admonition that correlation X and law Y apply only in the short run.  As well as I recall, this stipulation applied to every quantitative concept that we learned.

If one were to take the pragmatic position for central planning based on macroeconomic models, wouldn't one need to answer to a high degree of certainty this glaring issue?  Isn't the long-term the period we should be interested in for our future and that of our posterity?  Do we know the effects of today's policies on prosperity 5, 10 or 15 years down the line?  Is it mere coincidence that politicians, who are in office for a relatively short period in comparison to the length of a human life, seem serially uninterested in the long-term effects of their "scientifically" guided, short-term machinations?  If pharmaceutical companies relied only on science investigating the immediate effects and side effects of their drugs, would we not cry foul?  Would we not accuse them of confirmation bias?


It is fine by me if someone wishes to invest their wealth based on macroeconomic models.  It may be quite beneficial for them, and I wish them the best.   But, I will not consent to having mine taken to support such lofty and ill-defined goals.  Unfortunately, as a lowly citizen of these states I have no choice in the matter.  

A View Into Krugman

Paul Krugman recently provided some insight into the influence Isaac Asimov had on him at a young age over at the guardian (yea, they don't capitalize it either).  I will provide only a few snippets.  He begins:

There are certain novels that can shape a teenage boy's life. For some, it's Ayn Rand's Atlas Shrugged; for others it's Tolkien's The Lord of the Rings. As a widely quoted internet meme says, the unrealistic fantasy world portrayed in one of those books can warp a young man's character forever; the other book is about orcs.

Ok, that's a little bit funny, but in reality Atlas Shrugged, one of the most popular and highly acclaimed books in human history, is a tale of a struggle to be free.  Yes, those people who are struggling have made alot of money for themselves, but nonetheless, 16 year-olds the world over are able to see the heroism inherent in a free mind in spite of the class warfare they have been marinated in since kindergarten.  An economist who cannot say a kind word about this novel should raise a few red flags.  Interestingly he links to another guardian page with a single review of the book.  Surprise, surprise, they didn't like it.    

The Foundation itself seems to recapitulate a fair bit of American history, passing through Boss Tweed politics and Robber Baron-style plutocracy

The emphasis here is mine. What serious economist uses the term "Robber Baron"? 

 Yet if the Foundation books are a tale of prophecy fulfilled, it's a very bourgeois version of prophecy.

And "bourgeois"?  Seriously, it appeared twice.  

economics is, after all, largely about greed, while other social sciences have to deal with more complex emotions.

And here we come to the essence of the man who has been very influential in guiding the policies - enforced at gunpoint - which are intended to scientifically and magnanimously guide us to the promised land of wealth, health and prosperity for all.  He sees your quest to maximize your subjective self interest as nothing more honorable or complex than greed, and he doesn't even know you.  What you choose to buy, eat, wear, drive, watch and read - and at what price - are simple matters for the economic scientist of tomorrow. 

Admittedly, I have made nothing here but ad hominem attacks, but in the realm of economics, a field far from the certainty and consensus of the physical sciences, it pays to understand the ideology of the shaman offering you the cure. 

Dog-eat-dog Capitalism

The Utopian dreams of Communism abound with adolescent attacks against free markets and trade.  For example,  "A dog-eat-dog struggle for goods will give way to a family of humanity." 

Ayn Rand was fond of saying that the "dog-eat-dog" description of capitalism didn't aptly apply to either dogs or men.  As a broad general statement of course, this is true.  However it goes far beyond that.  Capitalism, or volunteerism, or free markets, or whatever you want to call it is precisely the opposite of dog-eat-dog.  It is dog-please-dog.

Take the infamous and much hyped Cola Wars waged between Coke and Pepsi.  Despite the moniker, this "war" was waged over the opportunity to bring you the cheapest, sweetest, carbonated beverage imaginable and was waged without drones, planes, bombs, guns, whips, chains or military prisons.  I doubt so much as a fist fight broke out between the two sides, and I am not aware of a single unkind word officially spoken by either side about the opposition.  Yet to hear the enemies of capitalism tell it, you would think that two companies, engaged in a violence-free "war" to give you pleasure, were starving hyenas snapping at each other while ripping the flesh from  your cooling carcass.

There are none so blind as those who will not see.  The essence of capitalism is voluntary exchange.  The goal is an improved standard of living, and the means to achieve that goal is to provide it to your neighbor according to your ability and his needs.  But, and here's the big "but", you must do it without the aid of a knife, or a gun, or a mob, else you are a thief. 

If dogs were able to negotiate the trade of physical objects for  services rendered (think two chew toys for one dead bird), we would instantly transform into giggly 9-year-old girls, reflexively declaring "how cute" the exchange was.  Yet, when this is the behavior of men are we to believe it should be curtailed, that it must be bridled or else we will be strapped with run-away, free-wheeling, dog-please-dog capitalism?  The horror! 

Atlas Shrugged Part II: Atlas Mugged

I first arrived at this title upon seeing Atlas Shrugged Part II in the theater.  I was reeling from the disappointment with several minor points in the film (the corny opening scene, the overuse of under budgeted and unnecessary graphics, the watering-down of the author's hardcore message and particularly, the not-so-handsome depiction of John Galt, the supposed ideal man).  I was prepared to rip the film apart.   I was so disappointed because the book had such a transformative effect on me.  How could they do this to Ayn Rand's fictional masterpiece that explains the moral underpinning of free markets, free minds and free money?!  It was epic, iconic and eerily predictive of so many subsequent conditions of government overreach.  But that's enough bickering; it gets us nowhere.  Besides, I'm sure someone, somewhere who claims to know far more about movies than I do has done plenty of the bickering for me.  I bet there are even people out there who don't like Ayn Rand and saw the film.  I'm sure they'll have a hay day tearing it down.
 
Instead I will focus on the aspect of the film that came across most clearly and was the most accurate representation of the novel's theme:  actions of the state represent force enacted against the citizenry.  This is clearly demonstrated in the government's aggression against Hank Rearden, in my mind the undisputed hero of Part II.  Mr. Rearden committed a crime against the state by selling Rearden Metal to his friend, the coal magnate Ken Danagger, in a quantity contrary to the newly minted "Fair Share Law" which limited the sale of "strategic" goods and included a laundry list of other elixirs sure to save the world economy.  He was hauled before the court to answer for his crimes.  Then he performed what is in my opinion the most courageous act in the entire story.  He stood before the gang of black-robed thieves and told them that he did not recognize their authority to take his metal.  They appealed to the "common good" and to the needs of his fellow men.  They placed themselves in the position as the savior of mankind, and they demanded that he be reasonable and submit to their authority.  But, Hank recognized their obfuscation.  He called them on their bluff and made their threats explicit to all who could hear, "If you think you have the right to use force against me, bring guns." 

Anyone who wishes to hide their aggression behind the veil of love for fellow men requires your consent.  Don't give it. 

The mind is the instrument that holds the world aloft.  Atlas Shrugged is a tale of the mind, weary from being beaten and robbed, going on strike. 

Atlas was mugged, so...




... Atlas Shrugged. 

Is Linux Capitalist or Communist/Marxist?

Over the past several months I have begun do dabble in the Linux world.  I have installed Fedora, Ubuntu and Mint (my favorite) on an old laptop which really brought it back from the dead.  I have set up my desktop to dual-boot Windows Vista and Ubuntu which, besides being a fun learning experience, has opened the door to a wide variety of applications while still allowing me to seamlessly sync my Zune (Yes, I actually have one of those).  As with most things in my life, once I become interested in it, I start listening to podcasts about it so that I can then become completely obsessed with it.  One of my favorite podcasts on the subject recently held an open ballot on the question, "Is Linux Marxist or Capitalist?"

Most responses were of the inane line of thought describing it as some sort of mix between the two.  Some seemed to think it was an ultra-groovy, though imperfect form or example of communism, while a few less muddle-headed listeners realized that the operating system and the community that surrounds it were not inconsistent with capitalism.  This last perspective lights upon the first relevant insight on the subject - that the question is slightly ill posed.  An operating system and it's supporting community cannot very well be said to conform to a particular ideology.  We will instead attempt to answer whether Linux is consistent with a capitalist society or a communist one.

As anyone who has written about the subject of capitalism vs. communism has doubtless learned, it is impossible to unwrap the various definitions everyone has in their minds of these two political systems.  Thus, while I know that I will be scolded for it later on, I choose to provide my own simple, rule-based definition of the two.  I define capitalism as a social system in which all individuals are free to own property.  Similarly, I define communism as a social system in which individuals are excluded from owning property by the state.  The characteristics that emerge in societies based on these respective rules such as wage labor, capital accumulation, competitive markets, profits, class structure and lack thereof are irrelevant and tend to distract from the core principle and nature of each system.  

The relevant question then becomes, "Is Linux owned by any state which in turn claims to confer communal ownership to each of its subjects?"  Clearly this is not that the case.  Linux, in all of its manifestations, was freely given by all of its many contributors who had the choice along the way to either not participate or to keep their contributions proprietary.  This is not inconsistent with a social system of people free to own property and is thus not inconsistent with capitalism.  Capitalism does not require all facets of human life to be driven by the profit motive.  Giving money to the Salvation Army, birthday socks to your nephew, hugs to your children and sensual massages to your significant other(s) are not acts of communist revolution.  Neither is contributing your time and expertise to a free software community.

A better analogy to communism would be forcefully nationalizing Microsoft and Dell, distributing their products for free, and "'lawfully" eliminating all competition.  This is because the defining characteristic of communism is force.  Contrary to the Utopian ramblings of Marxists everywhere, communism is not about giving; it is about taking!

Stossel: NASA Brought us CAT Scans?

Anyone who knows me could guess that my DVR is full of Stossel episodes.  I think the man and his crew are doing an excellent job distributing the ideas of individual liberty and freedom into the mainstream.  I was surprised this weekend, however, to hear him attribute the invention of the CAT scan to NASA.  This is not in line with the origin story I have heard, so I did a little bit of research.  Now this should not be taken as an attempt to scoop Stossel, as it is one of my favorite shows.  Rather, I am chasing down what I see as a theme of attributing to NASA the full-scale development of any project with which it was associated.

I did a little bit of very superficial research which confirmed what I had heard about the origin of the CAT scanner.  The first commercial machine was developed by Sir Godfrey Hounsfield in the UK, at EMI Central Research Laboratories, the very same company which held the record label for The Beatles.  The popular tale says that it was the success of The Beatles that helped fund the research lab which led to the development of the CT, but of course, this is difficult to confirm.  The invention of the scanner was preceded by a series of advancements and discoveries in x-ray technology, imaging and mathematics dating back to the early 1900's.  In my brief research, I found very little specific attribution to NASA except a few statements on NASA-related websites indicating that image processing technology developed for the Apollo program is used in modern CT imaging.  No doubt the program deserves credit for advancements made under its many programs.  Clearly there have been several that have had considerable, positive impact on human life.  However it is not fair to, as is commonly done, attribute recognition in toto for the development of a technology in which the program played only a bit part.  This only serves the fuel the drumbeat for greater government funding of research and development, a task better left to the market as I have discussed in detail previously.

And so, every time we object to a thing being done by Government, it concludes that we object to its being done at all. We disapprove of education by the State—then we are against education altogether. We object to a State religion—then we would have no religion at all. We object to an equality which is brought about by the State then we are against equality, etc., etc. They might as well accuse us of wishing men not to eat, because we object to the cultivation of corn by the State. -- Frederic Bastiat

Heinlein Foreshadowed Cash for Clunkers

In a brilliant scene from Heinlein's classic The Door into Summer, written in 1957, the main character seems to channel Bastiat himself when confronted in a futuristic world with a government program essentially the same as Cash for Clunkers.  The main character goes on a long sleep in 1970 and awakes in 2000.  His first steady job upon waking is crushing new, unsold cars.  This is the conversation he has with a coworker upon his first day of work:

“It’s a simple matter of economics, son. These are surplus cars the government has accepted as security against price-support loans. They’re two years old now and they can never be sold...so the government junks them and sells them back to the steel industry. You can’t run a blast furnace just on ore; you have to have scrap iron as well. You ought to know that even if you are a Sleeper. Matter of fact, with high-grade ore so scarce, there’s more and more demand for scrap. The steel industry needs these cars.”  

“But why build them in the first place if they can’t be sold? It seems wasteful." 

“It just seems wasteful.  You want to throw people out of work? You want to run down the standard of living?” 

“Well, why not ship them abroad? It seems to me they could get more for them on the open market abroad than they are worth as scrap.”  

“What!—and ruin the export market? Besides, if we started dumping cars abroad we’d get everybody sore at us—Japan, France, Germany, Great Asia, everybody. What are you aiming to do? Start a war?” He sighed and went on in a fatherly tone. “You go down to the public library and draw out some books. You don’t have any right to opinions on these things until you know something about them.”

Sound at all like the familiar parable of the broken window?  There truly is nothing new under the sun.

The Labor Theory of Value in Everyday Life: The Soylent Brown Fallacy

The labor theory of value stipulates, in a nutshell, that the value of a product on the market represents the value of the labor input in the course of its production (plus evil, pilfered, bourgeois profits if you're an old-fashioned Marxian).  This theory, though it is intuitive and attractive on its surface, is fundamentally flawed.  This doesn't stop it from being applied in everyday life, especially by the common layman who has never heard of the formal theory.  For example:

1. I once had a coworker who, fresh out of his undergraduate schooling, declared all advertising to be wasteful.  Therefore, he claimed, it would be better for the government to distribute all relevant product information and for advertising to be illegal.  The primary driving force behind his thinking was that embedded in the price of goods that are advertised is a unit related to advertising costs, and if that were to be removed, the savings could be passed along to the customers.
2. Similar to the previous notion is the often heard proposition that generic grocery items cost less because the companies that produce them don't have to pay for advertising.   
3. The development of costs in grant proposals is usually based in part on a number of employees at a percentage of effort for a fixed period of time.  
4. The bottom line on your invoice from the auto shop or your contractor includes "parts" and "labor".

This is not to say that the going rate of labor an other inputs is not involved in the calculus of prices paid.  These activities simply contribute to the misguided notion as to the origin of value.  Consider the following:

Imagine that you intended to open a restaurant based on the sale of reconstituted  excrement.  Of course, assume that you have developed a laborious and expensive technique to sterilize the manure through a process involving intense heat.  Assume also that this process has been approved by the various regulating bodies and that you have obtained contracts with local farms and sewage agencies to acquire the raw material at a fire sale price.  How do you arrive at a list price for your various incarnations of, for lack of a better name, Soylent Brown.  You would probably start by adding up the cost of the raw material, shipping charges, labor expenses for you and your employees, a function of your rent on the building and a percentage markup that you think is reasonable and that you expect to represent your profit.

Now it's all a matter of raking in the dough.  Will the product sell?  I haven't done any market research, but probably not.  You think that maybe your list price was too high; perhaps you are too far up the demand curve for anyone to be interested in your curried excrement over rice.  You then might decide to invest in an advertising campaign to get the word out about your new lower priced delicacy.   You've had to cut into your potential profits to do this because raising your prices is clearly not an option.  Still, in spite of your efforts, you are not successful.  What to do?

Inspiration strikes!  You decide to sell your product to local ranchers who are less squeamish about what they feed their livestock than the average soccer mom is about what to feed her children.  You realize that this must be done at a lower price point and that you have the opportunity to sell a larger volume, so you ditch the expensive rent for a restaurant downtown in favor of a small factory on the outskirts.  You let your sandwich artisans go in favor of lower paid and less skilled workers.  You scale back your operation by eliminating hoagie buns and guacamole from your inventory, and you finally settle into an operation that can return a profit selling the region's lowest form of refuse to a couple of cheapskate farmers.

Admittedly, this is an unlikely scenario and a business plan that I wouldn't recommend, but I hope it illustrates the origin of the value of your product.  It wasn't some intrinsic value in your labor (how wonderfully circular that would be) or the quantity of it.  It wasn't the money you spent advertising your low-priced fecal sundaes.  It was the subjective valuation of your product given by those farmers.  Your profits, were you be lucky enough to have them, were not milked out of your employees or reaped from operant conditioning of the masses through clever advertisement but from your hard-earned knowledge of what someone valued and how to deliver it to them.    


Related Post: Starship Mises

Mandatory Blood Donation

I gave blood yesterday...no, no, thank you, please hold your applause...Anyway I gave blood yesterday and got to thinking, perhaps due to lack of blood flow to my brain, how grand it would be if everyone who was able donate blood on a regular basis or even just gave it a shot.  It's really not difficult or unpleasant.  I mean I am a particularly weak individual, and I have never had any trouble during or after donation.  Maybe the government should require all able-bodied citizens above a certain age to regularly be screened for blood donation eligibility, and if they pass the criteria, be compelled to "donate" a pint under penalty of law.  Maybe a simple tax on anyone who didn't show up for screening and a stiffer one for anyone who passed screening and didn't submit to the needle.  You would probably want to impose a stiffer penalty (tax, I meant tax, sorry) on anyone who willfully made themselves ineligible through international travel, living in the UK for a period exceeding 5 years, having sex for money, sharing an apartment with someone who has hepatitis etc.  Based on recent precedent, this should all be quite constitutional in the US.

Just think of the potential savings, not just in lives, but more importantly, in the federal budget.  I'm no medical expert, but it should be fairly straight forward to come up with a figure spelling out the cost savings for Mr. John Q. Taxpayer due to the ready access to compatible blood in the ER, since he is paying for so many of those visits for the uninsured and the insurance for the insured (Author's Note:  remind me to draft a plan on an O negative blood type breeding program).  Further, think of all the money it will save the blood banks.  If everyone is forced (sorry, incentivized) to give blood, they can stop calling me three times a day and asking me to donate.

More thoughts on the subject - More on Mandatory Blood Donation

"You Didn't Build That" - A response in favor of peace

For those of you living under a rock, there has been a recent uproar over something our gentle public servant Obama said the other day.  If you search for "you didn't build that", you will doubtless find a great number of  news items describing, quoting, misquoting, spinning and backpedaling on the statements of the president.  I will not sully my site with the banal news cycle.  I simply wish to provide my thoughts on the subject.

There are various arguments of the type, "You couldn't have accomplished (or you wouldn't have possession of) X, Y or Z without the government.  The government invested in the internet, microchips, space exploration, your education, and roads.  They provided laws and boots for your protection including such things as patents, police, armies, navies and courts.  Governments paid Columbus to "discover" the new world and Lewis and Clark to explore and document it.  Therefore, you have no cause to complain about taxation or other government interventions which have provided for your general welfare."

These arguments are generally given by the left, though the right is only conditionally allergic to them.  They are given in opposition to the simplistic, dare I say Randian, portrayal of the rugged individualist entrepreneur standing alone against the world to profit in a capitalist paradise.  They so often end with some variant of, "You didn't accomplish this alone."  Well of course is it overly simplistic to think that anyone succeeds in business (or in life for that matter) purely on the merits of their own efforts, but does it follow that we should back off any opposition to government based on this fact?

Of course we all rely on the kindness, savings, investments, intelligence, innovation and business of others in extraordinary and unpredictable ways.  You must receive your business inputs, you must obtain the capital and skills to produce your output and your customers must find you and decide to purchase your product at the price you have set.  You stand on the shoulders of inventors and discoverers who have come before you and presume that somehow a population will have the wealth and the desire to purchase your wares.  You didn't plan all of this; you would have had to start before you were born.  So if you succeed in business through loss of your own blood, sweat and tears, whom do owe and how much?

Certainly you can account for the prices paid for your raw materials, your capital equipment, your employees and your education.  You will pay interest or give up a portion of future profits to investors.  Your parents are unlikely to insist repayment for your upbringing, so you're off the hook there.  You either pay rent for your property or you purchased it outright.  Last but not least, your customers pay you, which ultimately allows you to pay for all of your inputs.  So maybe you owe your customer the most; you clearly couldn't have done it without them.  But wait a minute, they received something in this transaction - your product.  Did they pay too much?  Should you give something back, if not to them then to society?  Unless you defrauded them, forced them or sold a defective product, you should not feel the need to repay anyone.  The price paid for any good is a reflection of the subjective valuation of that good to the purchaser at the given place and time.  You give a man a hamburger, he gives you $5 and you owe each other nothing but mutual thanks.  This relationship recurses back through every transaction in the chain of production and we end up with this beautiful, spontaneous, chaotic order in which we can peacefully make progress and profits off the backs of our neighbors and owe them nothing but our thanks.    

Now enter a gang of thieves who disrupt this harmonious relationship with force or subterfuge.  Their guns represent an attempt to get something from the beautiful order of man without giving anything in return.  The gang may in special circumstances provide money in exchange for their takings, but this "price" is meaningless on account of their weapons and their "right" to use them.  Imagine a gang large enough to repel all other gangs between the sea and the nearest mountain range.  The pragmatic gang will not disrupt the order enough to destroy it as it provides for the welfare of all.  They will protect their borders with troops and the order on their streets with police.  They will take their cut of commerce flowing in, out and within their realm.  The population will become so accustomed to these takings that the guns will be rarely taken out of their holsters for the robbery, which then will be called a tax.  If possible they will monopolize the currency used by the populace to aid in extracting the resources required to "maintain" the order, which preceded their existence.  Finally, the populace will thank them and sing their praises for false promises written on paper to constrain the power they have already usurped for themselves.  They will put roads and build bridges where it pleases them and pay prices that mean nothing for materials and labor.  With funds taken from the people, they will pay meaningless fees to scientists to discover things they think people are interested in knowing and engineers to build things they think people will want.  In the same way they will enforce a curriculum upon the youth.  They will mistake progress with comfort and destroy both by paying men to dig ditches and fill them in.  For all of this they will claim a right to thanks from the citizenry.  They will shout down objections to their power with claims that the order would not exist without them and that their theft was necessary and beneficial.  And at this point, their resemblance to the state is complete.          

Brand X - Xtreme Stupidity

Unfortunately I was awake last night to catch part of an episode of Brand X on FX.  In the course of an incoherent argument, propped up by a Harvard graduate who used to work for congress (yes, you are supposed to be impressed), the host presented the audience with two examples of "the free market".  The basis of the argument was something like America doesn't need a Dalai Lama because we have the president of the united States, Oprah Winfrey and "the free market" to worship.  This is really too asinine to get in to, but who did he present as  models of the free market?  Warren Buffet and Alan Greenspan!  I have previously explained for those who don't already know how Warren Buffet is a poor example of a free marketeer, but Alan Greenspan, seriously?!  Perhaps when he was writing about the use of gold as currency for Ayn Rand's Newsletter that would have made sense, but he is most well known as the Chairman of the Federal Reserve.  The Federal Reserve is a banking cartel affiliated with the federal government and dedicated to controlling the monetary system!   Do I really need to explain how controlling a fiat currency and manipulating the banking system are not actions that can be associated with a free marketplace?  


In the interest of full disclosure, I stopped watching the show at this point, so it is possible that this was an elaborate set-up for a more informed discussion of economics and freedom.  I feel comfortable with the assumption that it was not.  

Starship Mises

I started reading Heinlein's "Starship Troopers" last night.  First of all, if you haven't seen the movie, read the book instead.  If you have seen the movie, try to forget it and read the book anyway as it is quite different and much, much better.  Granted, I'm only 1/3 of the way through the book, but I like it well enough to give it a ringing endorsement.

Scattered throughout are pearls of wisdom in elegantly plain language such as this one on value:

He had been droning along about “value,” comparing the Marxist theory with the orthodox “use” theory. Mr. Dubois had said, “Of course, the Marxian definition of value is ridiculous. All the work one cares to add will not turn a mud pie into an apple tart; it remains a mud pie, value zero. By corollary, unskillful work can easily subtract value; an untalented cook can turn wholesome dough and fresh green apples, valuable already, into an inedible mess, value zero.

He continues on with a brilliantly simple explanation of subjective value theory, but you'll have to read the book for that.  

Related Post: Heinlein Foreshadowed Cash for Clunkers

Economy: Impossible

Chef Robert Irvine hosts a fantastically entertaining show on the food network, Restaurant: Impossible in which he attempts to turn around failing restaurants with a combination of customer-centric business savvy, a tremendous work-ethic, psychological counseling and a healthy dose of yelling.  To be sure much of the show is geared toward the theatrical, and the businesses are helped by an infusion of cash and at least a temporary bump from appearing on TV.  But the show illustrates a very important aspect of business - it's not all about the cash. Often the proprietors have poured copious quantities of their own money and time into the business only to fail due to their poor decisions, management techniques and food preparation.  Chef Robert provides something more valuable than capital or marketing; he provides entrepreneurism.  He roots out the structural problems in the business plan, or lack thereof, and attempts to fundamentally improve the way the restaurant treats the customer so that they may become profitable in the long term.

I would love to see the show's producers add another layer to the show by providing a subsection of the applicants with cash and free advertising by appearing on the show but with no advice from Chef Robert.  This "control arm" would provide a valuable insight into the application of "stimulus" without any intelligent market direction.  I have little doubt that the control group businesses would continue to struggle more often than not.

You may have guessed that I see this show as an allegory to our current economic struggles and the government's attempt to literally paper them over.  But let me stop you before you think that I am suggesting a layer of guidance bureaucracy atop the stimulus.  Besides the fact that any such bureaucrats are unlikely to have the skills or proper incentives to succeed in such an endeavor, there is already a much better structure in place to provide this market guidance - profit and loss.  When a business fails, the Chef Roberts of the world can take the capital that has been producing things people don't want to buy and apply their knowledge and skills to employ the capital in making things people do want to buy.  They will not always succeed, but they will certainly produce more wealth on the whole than we will by throwing money at bad ideas.

Most people can’t think, most of the remainder won’t think, the small fraction who do think mostly can’t do it very well. The extremely tiny fraction who think regularly, accurately, creatively, and without self-delusion—in the long run these are the only people who count . . -- Robert Heinlein 

In Defense of Moonshiners

You might say that I come from a long line of men who enjoy the drink, so if anyone were to be helped by the paternalistic ban on booze, it would be me.  Unfortunately, it is incongruent with human nature to think that anyone can be protected from themselves.

It's been rumored that my grandfather made moonshine.  He was coal miner in southern West Virginia, so as far as I can tell, the story checks out.  Regardless, let's take a moment to think about who might be hurt from his alleged business.

First, let's consider the case in which he makes a good and safe product.  The most obvious victim is the consumer who cannot control his actions under the influence of alcohol let alone curtail his own consumption of it.  Everyone is familiar with the story of the drunk who, during the brief period during which he keeps his job, goes home and beats his family after a long day at the mill.  Doubtless he and his family would be better off without access to alcohol.  So fine, let's make a law banning the production, distribution and consumption of alcoholic beverages.  Wait a minute, didn't we try that?  What happened?  People kept drinking spirits, which were purchased on a black market.  Black market purchases, as always, were accompanied by violence and products of inferior and practically unverifiable quality.  So the drunk either, in the best case, went blind from drinking methanol, got caught up in gang violence and was killed or, in the worst case, continued to beat his wife and kids.  An organized and ruthless system of crime developed around this black market, leading to a loss of safety and security for the masses, the dissolution of the seemingly well-intended law, and providing fodder for the greatest films of the 20th century.  So much for protecting the first class of victim of this otherwise safe and reputable product.  It turns out there were a great number of unforeseen victims ignored by the well-meaning legislators, as is usually the case.

Second, you may say, "There is no guarantee that his product is safe and reliable.  He could really hurt some people by selling wood alcohol or blowing up his home and still."  Fine, let's regulate the production and distribution of alcoholic beverages.  This should sound perfectly reasonable and familiar to everyone.  But to whom do we grant these licenses and for what cost?  How do we separate ourselves from the organized crime bosses, who after all merely sought to bring order to the unruly anarchy before them and who employ the same tactic that we propose - physical force?   You may say that we elect officials to conduct our raids and protect our made men at our chosen distilleries, but this is merely different in magnitude, not in kind.  Had Capone's business been more popular in the eye's of the public, would any among us have considered them just?  Those of us who wish to govern must understand that proclaiming the power to license inexorably weakens our armor to corruption as those who have purchased our favor will certainly pay to keep their neighbors out.  So, by assuming rights we do not have, we will have disrupted what integrity remains of our government all in the name of an alleged good which can never be measured at cost which can never be known.

Let the moonshiner's reputation govern the safety and quality of his product.  Let him engage in peaceful transaction with his benefactors in the sanitizing light of day.  Let freedom ring; and let's have another drink!

A whore should be judged by the same criteria as other professionals offering services for pay—such as dentists, lawyers, hairdressers, physicians, plumbers, etc. Is she professionally competent? Does she give good measure? Is she honest with her clients? It is possible that the percentage of honest and competent whores is higher than that of plumbers and much higher than that of lawyers. And enormously higher than that of professors.  -- Robert Heinlein, Time Enough for Love

 

Incandescent Bulbs - The Seen and the Unseen

During a large portion of the year, in a large portion of the world, I would argue that the incandescent bulb is 100% efficient.  Provocative enough?  Well it shouldn't be.  If you're thinking that incandescent bulbs are generally reported to be 10-20% efficient, you are correct.  But the energy that is wasted is simply heat put off by the bulb.  Here in Pittsburgh there are only 4-5 months out of the year that I am not running the heat, at least intermittently.  This means the heat put off by the bulb, even though it is quite small in magnitude, is helping me heat my house.  So from my perspective, the bulb is 100% efficient during such time.  I doubt this consideration has been included in the justification of the laws attempting to ban incandescent bulbs in favor of the "more efficient" compact florescents.  This thinking is in line with the overly constrained and simplified engineering perspective that our great leaders so often take when attempting to run out lives.  They will always fail to take into consideration all potential use cases - in this case they missed a pretty big one.  It is relatively easy to come up with models and estimates for how much product X is going to save the average consumer Y.  The difficulty comes in extrapolating those savings to the entire population.  It is quite easy to imagine scenarios in which a CFL does not save John Q. Citizen any money or is more trouble than it is worth.  But it doesn't matter.  Our choice will be forcibly constrained so that model citizen Y may save a few bucks using his light bulbs in a particular way.   

I Am Officially Getting in the Way

It's easy to miss the point of an article, blog or oral argument, especially when you are more interesting in grinding your ax than really understanding the other point of view.  It turns out this is even the case for highly skilled philosophy experts.

Every struggling upstart blogger is thrilled to see notifications of comments on one of their posts.  I am no different; I relish each of the 10 comments my site has received.  A few weeks ago I was delighted to see a new comment but was surprised to find that it was a tag from another blog.  I pasted the address into my browser and was delighted to find a rather lengthy article devoted to missing the point of my original commentary which was essentially a very simplified, sound-bite-style summary of the socialist calculation problem.  I never intended for the piece to be a thorough dissertation on the topic, but rather, a rant the blow off steam and preach to for four-person choir that is my following.  But I posted it nonetheless, so it is fair grounds for debate.  It is a curious strategy to pick on a blog nobody reads, but I am flattered still.
 
The argument, which was about 5 times the length of my original post, went something like this (parenthetical statements are to be taken from my perspective):

1. Talented individuals do not always perform up to their expectations.
2. Sometimes less talented individuals outperform more talented ones by better honing their skills and being more well rounded.
3. Therefore skill is the relevant metric for predicting success as opposed to talent.  
4. The quoted statement (from my post) implies that no one will ever be talented enough to effectively centrally plan an economy (a gross misunderstanding).  We already know how irrelevant talent is, therefore this statement is false.  
5. Our institutions have it all wrong because they tend to look at talent instead of skill. 
6. Parents who tell their children to follow their talents and do what they love are "almost criminal" because alot of people don't like their jobs.  
7. Therefore, we can't give up on central planning because we haven't been appropriately looking for or demonstrating the skills required to be successful at it.  We have to keep our optimism and keep plugging away (in spite of a total lack of evidence to the efficacy of central planning).

I especially enjoyed the conclusion:

"This is just one more reason why I find libertarian bomb-throwing to be wearying: we already know that something is going wrong, and we already know how to make it better. What we need is for fewer people to pounce on the opportunity to be bitterly pessimistic and instead look around them at the ways in which we can, have, and do make things work - or, in the case of people who can't manage that, to at least have the courtesy to stay the fuck out of the way."

Really, "we" know how to make it better?!  Then why didn't "we" stop it from happening in the first place.  The author must suffer from the delusion that there was no central planning going on prior to the crash and that only the government can swoop in and save us from the dastardly deeds of "the market".  The original point he is missing, and I take part of the blame for being so terse to begin with, is not that no one is smart enough, talented enough or even skilled enough to manage an economy.  The point is that no one will ever acquire the knowledge needed to do such a thing at the time they will have needed to do it.  To think otherwise is pure hubris, and frankly, quite dangerous.  This is not pessimism per se; I simply disagree with the position. that "we" can and must do something.  I am quite optimistic that free individuals left to their own devices and allowed to live, innovate, and trade freely will prosper.

Besides all of the practical considerations, which I leave to Mises, Hayek and Rothbard for further detail, there is no moral justification for central planning.  No amount of skill gives anyone the right to force me to use a particular type of money or to spend it on a particular type of good.  No level of crisis gives anyone the right to take something from one individual by force and give it to another.  It seems pretty clear to me, that the man who proposes we give up on peace and start imposing the will of the state on formerly free people should bear an enormous burden of proof well beyond torturing a distinction between "talent" and "skill".  Further, it is clear that he is the one standing between us an prosperity.  

The author, after missing the finer points, has hit square upon the central purpose of this blog - to get the fuck in the way...




...of legal plunder*.








*If you didn't get this, you haven't been reading enough Bastiat.
 

Cold, Soft Cash

You will occasionally hear old-timers use the phrase "Cold, Hard Cash".  This is clearly an expression of a bygone era as our cash no longer can be misconstrued as "hard" in any way.  The fiat bugs (they call us gold bugs) have managed to destroy the currencies of the world by pegging them to the ever fluctuating index of bureaucratic whim.
"How can you say the dollar is weak?" people often ask me me, "After all, it is thumping the Euro (or the Peso or the Canadian dollar) this week."  This would be like concluding that my nephew is getting shorter because my niece is going through a growth spurt.  In order to draw meaningful conclusions about the value of cash or the heights of youngsters, we need a stable, standard reference.

Today's James Taggart

While reading Peter Schiff's excellent article on gold investment, I realized that the real James Taggart is alive and well.  The following is an excerpt from that article focusing on the Oracle of Omaha's less than honest, politically charged rhetoric of which we should all now be familiar.

[Warren Buffet] has been in the press since last August claiming that he pays less taxes than his secretary – and urging Congress to pass a "Buffett Rule" mandating a 30% minimum tax on millionaires. The natural reaction is to say, "If you want to pay more, go ahead." But Buffett has gone on record saying that it's not enough for him to lead by example, and demanding that all of America's well-off bear the burden of Washington's reckless spending binge.

The problem is that Buffett's entire argument is constructed on deception. Buffett is rated as the third richest man in the world for managing the nearly $393 billion in assets, and he highlights that he pays only pays 17.4% of his income in taxes. But this is because he earns less than 1% of his annual wealth from his salary, while over 99% is earned as the largest shareholder of Berkshire Hathaway. Buffett claims that he discounts his Berkshire holdings because he plans to give it all to charity when he dies. So, it's not that the tax rates are so low, it's that Buffett plans to give away 99% of his wealth.

But even accounting for this clever accounting trick, Buffett is still grossly understating his personal tax burden. He owns roughly 1/3 of Berkshire's outstanding shares, the profits from which are subject to a 29% corporate tax rate. Last year, Berkshire paid $5.6 billion in taxes – and the IRS says they owe $1 billion more! In addition to corporate taxes, Buffett is also subject to an additional 15% capital gains tax on his stock when he cashes out, not to mention any future estate tax, leaving many to conclude that his share of taxes is certainly higher than his secretary's.

Ayn warned us that we would have to save Capitalism from the capitalists.  She is turning out to be more prescient than we could have imagined.

The Core Fallacy of Central Planning

The fundamental fallacious assumption that all central planners make in the course of their divine intervention into our personal affairs is not that they are smarter than the average person or even that they are the smartest person alive.  Rather it is that they are smarter than all of us put together.  

Was bailing out GM a good idea?  Well maybe, maybe not, but "we" had ample opportunity to make investments in the company on our own through the stock market.  Perhaps investors chose not to do so for a reason - it wasn't a sound investment.  Instead, the geniuses in the federal government decided that they were smarter than the whole of the people and that they would force us to "invest" in GM's future.  

Should we invest in new forms of energy?  On an individual level investing in particular energy concerns may pay off handsomely and help the future of mankind immensely.  Unfortunately when the central planners decide where to spend our money, they do so based on  much less information and insight than our pooled individual efforts, and they base their decisions in whole or in part on political merits.  They may occasionally back into a good idea that pays off, but their historical record is pretty awful - think Soviet Union.  The fact is "we" shouldn't be investing in anything.  The government has no right or authority to plunder our savings to fund their pet projects.  What's worse they will never have the information or the skills to succeed at it, regardless of who is in office.  


A committee is the only known form of life with a hundred bellies and no brain. -- Robert Heinlein