Conspicuous Poverty

Capitalism did not invent poverty. It made poverty conspicuous.

The Jungle

In the early years of the twentieth century, the socialist writer Upton Sinclair vowed that he would write a novel that would become "the Uncle Tom's Cabin of the Labor Movement!" That novel, published in 1906, was The Jungle.

Sinclair told the story of Lithuanian immigrants who came to Chicago looking for work, freedom, and a better life, only to find "wage slavery" and cruelty in the capitalist system. The novel became a national sensation, and was an important player in the movement to make the federal government responsible for food quality.

No one will argue that the Chicago stockyards in 1906 were a pleasant place to work, especially by today's standards. Immigrants suffered many hardships and injustices. However, with the benefit of hindsight, let's consider the subsequent course of history. We know what happened in Chicago: the children of immigrants fully integrated into American society and produced generations of workers, business owners, sports celebrities and politicians. Chicago is now home to Little Lithuania, the largest concentration of Lithuanians outside of Lithuania. The current president of Lithuania is a former resident of Chicago. Out of grinding poverty came success.

What happened in Lithuania? It had the dubious distinction of suffering under both the Gestapo and the NKVD, the forerunner of the KGB. Christian Caryl wrote movingly about the tragic course of Lithuanian history in an article in US News and World Report entitled "Ghosts from the Gulag" (October 12, 1997).

In 1940, the country was occupied by Joseph Stalin. Tens of thousands of Lithuanians were shot or deported to Siberia. In 1941, Nazi Germany invaded. Soviet power returned in 1944, and 100,000 Lithuanians or 5 percent of the population died at the hands of the Soviet army and secret police. Mutilated bodies were left lying in the streets as warnings for anyone thinking about resistance.

In the Paneriari forest outside of Vilnius, the Germans shot 100,000 people. In the Vilnius neighborhood called Tuskulenai, next to a red-clay tennis court, a grave contains 700 victims of Stalin's secret police, "each skull neatly perforated by a single bullet."

Given the choice between the misery of the stockyard, the misery of the Gestapo, or the misery of the KGB, I think we would all agree the fictional Lithuanian immigrants of Sinclair's novel made the right choice. A rotten job in Chicago beats a death squad in a forest every day of the week.

Of course, Upton Sinclair, being a loyal Socialist, could overlook the misery of the KGB, but not the stockyard.

I Object!

Who objects to an economy run by selfless technical specialists, guided by incorruptible science, and for the benefit of all?

I do. First, human nature is not reliably selfless. Second, science is not incorruptible. Third, it is impossible to make everyone happy.

What's the alternative? An economy run by no one, guided by the rule of law, and for the benefit of widely different and sometimes contradictory individual preferences.

Men Work Together

"Men work together, I told him from the heart,
Whether they work together or apart."

From "The Tuft of Flowers," by Robert Frost

Red Tape Injustice

Ordinary red tape is bad enough, a time consuming and expensive annoyance.

Far worse is the kind of red tape maliciously created to drive the competition out of businesses. More than an annoyance, it is a legal injustice. This kind of red tape flies in the face of everything capitalism stands for. It smells more like organized crime than laissez-faire.

Unfortunately, using red tape to limit competition is distressingly popular. In Texas, veterinarians use it to threaten unlicensed "floaters" who file down horses' teeth. In Minnesota, barbers and cosmetologists used it to threaten unlicensed hair-braiders. In several states, interior designers use it to threaten unlicensed interior designers. In every case, the groups making the threats hide their self-seeking motives under a virtuous claim of consumer protection.

Consumers rarely benefit from such schemes. Competition for business, not red tape, is the most effective consumer protection.

Dirty Job

From the irrepressible economist Don Boudreaux, thoughts on the question of Candidate or Deity?, this time from the point of view of the politician. A candidate must:

"...confidently insist that no issue is beyond your comprehension and no problem beyond your ability to solve. You pretend to be simultaneously a master of foreign policy, military strategy, economics, law, political horse-trading and even environmental science. If elected, you will publicly swear to uphold the Constitution and then immediately proceed to violate it in ways too numerous to count.

In short, in this job you must soil your honor and sell your soul by behaving foolishly and by saying things that you know to be false. Without question it is the dirtiest and most repellent job that anyone with a conscience can possibly try his or her hand at."

Read more here.

Candidate or Deity?

The most troubling thing about the various campaigns to elect the next President of the United States is how completely they have become religious revivals in form and substance. We are no longer looking for a candidate; we are looking for a savior.

I'm not talking about a simple breakdown in the separation of church and state. I am talking about the bi-partisan revival of an old religion, perhaps the oldest, the religion that satisfies the desire for a god you can see and touch, the religion that makes a god out of someone merely human. It is a religion built on desperate hopes, wild promises, and blind ambition.

Consider what the candidates are promising they can accomplish. The following list, by no means complete, is compiled from the platforms of just a few of the candidates:

* Shorten the work day
* Make college more affordable
* Increase the minimum wage
* Provide affordable and accessible health care
* End war
* Make the US energy independent
* Stop man-made global warming
* Support parents
* Care for children
* Expand the middle class
* Restore America's reputation in the world
* Improve the lot of women and minorities
* Reform government
* Strengthen democracy

This isn't a list of realistic political objectives for a four-year term in office; it's a prayer list, a list of hoped-for miracles. Unfortunately, it appears to be the kind of desiderata that gets people elected -- and deified.

Stossel v Gore: The Video

I, Pencil

Perhaps the best explanation of how free markets use more knowledge than any one person can possess. A classic.

A Convenient Crusade

From John Stossel's report on global warming last night...

"In all the confusion surrounding the global warming debate, one thing is clear: Global warming activists don't welcome the skepticism.

Those who call their extreme projections into question are compared with Holocaust deniers and accused of being paid off by big business. I've questioned the extreme global warming predictions in the past, and for that I've been branded a "corporate toadie" and a "flat-earther." I don't mind being called names, but is this what the global warming debate has come to? One side saying, "Shut up. Dissent should not be heard?"

The truth is, that while everyone agrees that the earth has warmed, lots of good scientists don't agree that it's mostly our fault, and don't agree that it's going to be a catastrophe. So when Gore says, "The debate is over," I say, "Give Me a Break!""

Read more here.

Stossel v Gore Smackdown

Tonight on ABC's 20/20...

"20/20 co-anchor John Stossel is going on the attack against “experts” who warn about manmade global warming – along the way berating Al Gore for saying the debate over climate change is over.

In a release from ABC previewing Stossel’s report on Friday’s “20/20,” the veteran newsman and Newsmax pundit – who won 19 Emmys exposing scammers and con artists – says:
“This week on ‘20/20’ (in our new 8 p.m. Eastern time slot) I say ‘Give Me a Break!’ to our Nobel Prize-winning Vice President.

“Mr. Gore says ‘The debate is over,’ and those who disagree with his take on global warming have been ‘purchased’ in order to create ‘the illusion of a debate.’ Nonsense. It's as if the Vice President and his allies in the environmental movement plan to win the debate through intimidation. I interview some scientists who won't be intimidated, even though one has had his life threatened for speaking up.""

Read more here.

November Monthly Meeting

We often hear that the business community must do more to support education. But before business people rush to contribute their time and money, they should seek the answers to some fundamentally important questions.

What role should the State play a role in educating America's children? Are government schools compatible with a free society? Is it possible to have a free market in education?

C. Bradley Thompson, the Executive Director of the Clemson Institute for the Study of Capitalism, will examine the destructive effects of "public" education in America. He will critique the principal assumptions behind government schooling, and he will call for fully private system of education. Thompson will present a principled argument for a free market in education that begins with the rights and responsibilities of parents to provide for the education of their own children.

DATE: Thursday, November 8th
LOCATION: Imaging Arts Gallery, 175 King Street, Charleston, SC
TIME: 5 pm reception, 6 pm speaker
RSVP: Stephanie Whitener

Gridlock

From Reason.tv...

Host Drew Carey examines the costs and consequences of traffic jams and explores several solutions that can get our roads moving. How does a speedy trip on the "Drew Carey Freeway" sound? Plus, one lucky commuter gets a helicopter ride to work, courtesy of Drew.

The Accident of Discovery

From the pages of Forbes, another reminder that discoveries can't be reliably planned. If they could, they wouldn't be discoveries, they would be proofs.

The act of discovery is more like an accident than a plan. It is that moment when someone stumbles across a remarkable truth other than the one he was looking for.

An excerpt:

"Things, it turns out, are all too often discovered by accident--but we don't see that when we look at history in our rear-view mirrors. The technologies that run the world today (like the Internet, the computer and the laser) are not used in the way intended by those who invented them. Even academics are starting to realize that a considerable component of medical discovery comes from the fringes, where people find what they are not exactly looking for.

It is not just that hypertension drugs led to Viagra or that angiogenesis drugs led to the treatment of macular degeneration, but that even discoveries we claim come from research are themselves highly accidental. They are the result of undirected tinkering narrated after the fact, when it is dressed up as controlled research. The high rate of failure in scientific research should be sufficient to convince us of the lack of effectiveness in its design."

Conclusion: if you want a steady stream of innovation and discovery, encourage a lot of random tinkering. This is true not only for scientific research, it's true in all areas of human endeavor. A strictly enforced orthodoxy is the enemy of anything new.

Business Humor from "The New Yorker"

A great business cartoon video from the latest issue of The New Yorker. Watch it here!

Around the World, Clusters Aren't Working

The Palmetto Institute, a Columbia, South Carolina-based non-profit think tank, hired Harvard professor Michael Porter to develop an economic game plan to improve per capita income and wealth in the state.

In 2004, Darla Moore, a member of the Palmetto Institute board, said Porter's foundational principles are that "we must...identify and grow inherent industry clusters, and two, that economic development must be led by the private sector in cooperation with government."

Now The Economist reports that private/public clusters in Europe have been a huge waste of money. The magazine reports that all across Europe, government bureaucrats have been "obsessed with creating geographic clusters like Silicon Valley. The French have poured billions into pôles de compétitivité; and Singapore, Dubai and others are doing much the same. There are dozens of aspiring clusters worldwide, nicknamed Silicon Fen, Silicon Fjord, Silicon Alley and Silicon Bog. Typically governments pick a promising part of their country, ideally one that has a big university nearby, and provide a pot of money that is meant to kick-start entrepreneurship under the guiding hand of benevolent bureaucrats.

It has been an abysmal failure. The high-tech cluster in and around Cambridge, England, is the most often-cited counter example. Hermann Hauser, of Amadeus Capital, a leading British venture capitalist (who, curiously, also hails from Vienna), is an optimist: “Silicon Valley is still the lead cow but Cambridge is the best in Europe.” Perhaps, but that is faint praise. The main problem, argues Georges Haour, of IMD, a Swiss business school, is that Cambridge suffers from the Peter Pan complex: “inventors never want to grow up, they are happy with modest success.” One veteran of the city's start-up scene even argues that its success came “in spite of, not because of” government and university support.

Experts at Insead looked at efforts by the German government to create biotechnology clusters on a par with those found in California and concluded that “Germany has essentially wasted $20 billion—and now Singapore is well on its way to doing the same.” An assessment by the World Bank of Singapore's multi-billion dollar efforts to create a “biopolis” reckoned that it had only a 50-50 chance of success. Some would put it less than that."

Like convention centers and professional sports teams, government planned clusters are not the key to prosperity. If community leaders really want to create a more prosperous society, the best thing they can do is get out of the way. Simplify or eliminate red tape. Insist on a meritocracy. Do not prop up or protect companies or industries that cannot compete in a global marketplace. More than accepting the creative destruction that innovation brings, they should insist on it. Recognize that the most successful innovations are the ones that make the most trouble for the status quo.

Prices and Human Nature

When large numbers of people are free to spend their money on whatever they want, the resulting pattern of spending can reveal a great deal about human nature. Unrestrained commerce cuts through the thick ropes of legal and social restrictions, and it lets us see the kinds of things that people really think are worth paying for.

As I've noted before, the auction of Internet domain names is as close as we've come to a global consumer market. Each domain has the potential to reach every person on the planet. The value of a domain is therefore directly related to its likely appeal to six billion potential customers. It is hard to imagine a bigger or better commercial test.

With that in mind, consider this story from The Financial Times of London. Tomorrow, the auction of the domain "wallstreet.com" is expected to fetch $10 million, which would make it the second most expensive domain ever sold. Obviously, the bidders will be counting on a strong human interest in money and markets to drive traffic to the site and justify that price.

What is the most expensive domain name ever sold? "Sex.com" for $12.5 million.

The Rational Animal

Aristotle defined man as a rational animal. New scientific research adds the qualifier, "but not all the time." In fact, chimpanzees appear to be more consistent rational maximizers than humans.

While it is true that people generally behave in rational ways, there are many well-documented occasions when people consistently behave in ways that defy reason. The systematic study of such behavior is known as "behavioral finance" or "behavioral economics."

One of the best-known tests in behavioral finance is the ultimatum game. In this test, two individuals must agree on how to divide a reward. No agreement, no reward.

Researchers at the Max Planck Institute report that when chimpanzees play the ultimatum game, the chimps behave the way traditional economic theory predicts that a rational economic agent should. Chimps will accept whatever they are given, and are thereby rationally better off. Humans, on the other hand, will reject any deal that strays too far from a 50-50 division of the reward, thereby sacrificing a rational improvement in their condition in favor of some other value.

The difference between the two species appears to be a sense of fair play. Chimps don't care about it. People do. Apparently, for humans, fair play trumps reason.

The Recipe for Successful Candidates

Take half a measure of celebrity. Combine with half a measure of blind faith. Add a tablespoon of extract of ideas. Stuff with cash. Bake for fifteen months. Serve on election day. Goes especially well with denial, avoiding the blame, evading the question, and taking all the credit. Leftovers can be frozen and thawed to serve again and again. Just change the name to create the illusion of variety. Serves millions of people who cannot accept the limitations of a merely human candidate.

A Society of Wealth Creators

The great strength of capitalism is that it is an economic system wherein everyone has the opportunity to be successful without ever thinking about the intellectual and cultural context that makes success possible. We don't have to know everything. We just have to know something useful to other people, and have sense enough to use it for our mutual advantage.

Unfortunately, an economy built on limited individual knowledge is also capitalism's great weakness. It leaves the system vulnerable to those who claim that their perfect knowledge or their theory of the will of history is more important than individual knowledge or the will of the individual.

If the individuals who benefit most from capitalism -- the wealth creators -- do not understand the intellectual and cultural institutions that make business possible, what chance do they have to withstand a steady series of attacks from the intellectuals, populists, collectivists, and religious extremists who want to bring capitalism and the life of the individual to an end?

That is why we formed the Bastiat Society: to educate other wealth creators on their right to the moral high ground, and on the intellectual and cultural institutions that are necessary for individuals to be successful. Our motto is "Those who work in freedom should know how freedom works."

We call on successful business people everywhere to join us in an organization unlike any the world has ever seen: a society of principled wealth creators, the benefactors of the human race, committed to reclaiming the moral high ground and the life of the individual.

Pinker on "The Myth of Violence"

We often hear the world is getting worse, not better. Stephen Pinker argues that what we hear is simply not true.

Listen to it here.

They Meant Well

From 18 Doughty Street...

Shane Greer presents Brought to Book and speaks to the author of an analysis of six major schemes, including Concorde and the Millennium Dome.

D. R. Myddelton is Emeritus Professor of Finance and Accounting at the Cranfield School of Management, and chairman of the managing trustees of the Institute of Economic Affairs.

When A Miss Is As Good As A Hit

Noam Chomsky, well-known voice of the left, aims a few salvos at the free market, manages to hit a few free market pretenders, and claims success.

Tax Credits for Everybody

Political power is primarily the opportunity to redistribute the property of others, and the tax code is the primary political tool. That's why politicians of both major parties love to tinker with the tax code: it's their universal wrench.

There are two major problems that come from using the tax code to solve political problems. First, every change in the code makes it more complex. Like a computer program that contains millions of lines of code, a continuously amended tax code eventually makes it impossible to anticipate how a change in one place might affect the entire program. As the system grows more complex, the possibility of contradictory logic grows as well. Eventually, a growing list complex and contradictory rules will result in a total system failure.

The second problem with using the tax code to solve political or social problems is that few of the intended beneficiaries of any tax policy have the time and expertise to find and use the tax policy directed their way. This is another problem related to complexity. In order to find the benefits in a complex system of rules, you need an intimate understanding of the rules or you need to hire a competent guide. Most taxpayers have neither.

More on the problem with tax credits in Forbes.

A Child of the State

There is no other place on earth that has a greater reputation for free-wheeling, creative capitalism than the southern part of the San Francisco bay area known as Silicon Valley. Every economic development officer in every state drools over the thought of capturing just a little of its glory. Cities and states have spent millions, perhaps billions in attempts to duplicate some measure of Silicon Valley's success in biotechnology, computers, and venture capital.

How did it happen? How did the business people in the Valley develop a culture of successful innovation that is the envy of the world? Tom Abate, staff writer for the San Francisco Chronicle, explains it all with the help of Chritophe Lecuyer, author of the book, Making Silicon Valley.

It all started more than a hundred years ago, with the then-new technology of radio. Radio engineers in the area formed hobby clubs, swapped ideas and tinkered with their equipment. Whoever came up with a workable idea that made things cheaper, faster and more reliable got respect. Even better, he got whatever money there was available.

At first, the United States military was the most important customer of Silicon Valley. The military needed lots of help with the new technology for World War I. Military contracts poured enough money into Silicon Valley to bring companies like Magnavox to life.

Over time, the culture of engineering innovation and meritocracy created at the beginning of the twentieth century, sustained and nurtured with military contracts, evolved into what it is today.

There are two remarkable conclusions we should take away from this tale. First, like the Internet itself, Silicon Valley is the child of the state and of war.

Second, radical innovation rarely comes from the dominant institutions in an economy. It usually comes from some out-of-the way place where people are free to explore crazy new ideas, the kind of ideas that usually get shot down in the board meetings of large, well-capitalized corporations.

In 1906 American big business was essentially industrial, not technological. Steel, railroad, utilities and oil dominated the economy. Mass production was cutting edge technology. The high-tech tinkering near San Francisco was viewed as of secondary importance to bigger business concerns in the Mid West and East.

In the end, it was the high-tech tinkering that launched an industry and revolutionized a world. The question is, can Silicon Valley retain its entrepreneurial culture in the face of its success, or will it, like every successful industry before it, eventually turn into a group of organizations not terribly different from the Department of Motor Vehicles?

Or, to put the question another way, must every child become his father?

Photo of the San Jose, California skyline in 2006. Photo created and uploaded by SCUMATTMount Hamilton in the Diablo Range. 01:08, 16 January 2006 (UTC). North is to roughly to the left; looking roughly southeast towards

The Crimes of Communism

From the Acton Institute...

Professor Yuri N. Maltsev, former member of a senior team of Soviet economists that worked on President Gorbachev's reforms package of perestroika, discusses the reversal of liberalized reforms in Vladimir Putin’s Russia and the variety of ways in which communism oppresses people, especially religion.

Listen to it here.