Friday, February 29, 2008

Risk, Freedom, and Choice

"You can't just wave a magic wand and eliminate risk for free, which is what people want to do. If you restrict people from taking jobs, if you restrict the foods that they eat, if you place limits on how much they can weigh, all of these things will reduce their welfare as they perceive it. The proper role of government is to give people enough information so they can make reasonable decisions, and after that step aside and allow them to make their own choices."

W. Kip Viscusi of the Vanderbilt University Law School, interviewed in the Federal Reserve Bank of Richmond's publication Region Focus (Spring 2007), cited in The Cato Journal (Vol. 27, No. 3, Fall 2008).

Thursday, February 28, 2008

March 2008 Monthly Meeting

Please be our guest at the next Bastiat Society monthly meeting to be held on Wednesday, March 5th.

Our distinguished speaker for the evening is Steve Lonegan, whose topic for the evening will be:

"The Dangers of the Entitlement State."

Date: Wednesday, March 5th
Location: Imaging Arts, 175 King Street, Charleston, SC
Time: 5 pm reception, 6 pm speaker
RSVP: Megan Rock

About the Speaker...

As the former Mayor of Bogota New Jersey, Steve Longegan successfully brought a "Taxpayers First" philosophy to his constituents. Steve fought against numerous proposed tax hikes and kept all municipal spending below inflation for the entire twelve years of his term in the face of reduced suburban aid and state mandates. Steve joined Americans for Prosperity in 2006 where he continues to fight for taxpayers. Americans for Prosperity is an organization dedicated to educating citizens about economic policy and engage citizens in the name of limited government and free markets. In 2007, Lonegan authored "Putting Taxpayers First," where he focuses on the entitlement state created by liberal Democrats and "moderate" Republicans.

Lonegan currently narrates the "Taxpayer Minute" on radio stations in New York, New Jersey and Philadelphia and he hosts a weekly radio show on WIBG in Ocean City. "New Jersey's Mayor" has been a guest on numerous TV news programs including Your World with Neil Cavuto, Fox & Friends, Good Day New York, The Big Idea with Donny Deutsch, Glenn Beck, Hannity & Colmes, Scarborough Country and New Jersey Power and Politics. He is a featured columnist on and news-papers throughout New Jersey.

Wednesday, February 27, 2008

Business, One Night Stands, and Polygamy

I gave the following presentation at the February 2008 monthly meeting of the Bastiat Society in Charleston, SC.

I did not enter the world of business via the usual paths. My family was not in business. My father was an artist and my mother worked for the state. As an undergraduate, I studied the humanities and sciences. At the risk of sounding pointy-headed, I came to business via my own search for the meaning of life. Little did I suspect that I would find it in earning a living.

My business career started in a philosophy class. A professor gave me subscription cards to reason and the now-defunct Inquiry magazines. Soon, I was voluntarily reading Adam Smith, Murray Rothbard, Milton Friedman, Friedrich Hayek, Ludwig von Mises, Frédéric Bastiat and others in the European liberal tradition, when I should have been studying something else.

Philosophy led me to economics, and economics led me to the belief that free market capitalism is the most productive form of large-scale social organization known. Through the pursuit of self-interest under the rule of law and an evolved moral code, entrepreneurs, business owners and executives create great wealth for themselves and for their societies.

But capitalism is more than just the creation of great wealth. Capitalism is morality in action, the morality of free and responsible individuals. Wealth without morality is theft. Morality without wealth is poverty. Only capitalism offers humans the opportunity to build a social order where they can be moral and they do not have to be poor.

When I announced my intention to go into business to my family and friends, along with some stunned silences, I got two memorable warnings. First a successful technology salesman told me I would never make it. He said, “You are too honest.”

This startled me, but I reasoned if there were that many crooks in business, honesty must be an unexploited marketing advantage. As Mark Twain advised, “When in doubt, tell the truth. It will confound your enemies and astound your friends.”

The second warning came from someone already in the same field. He told me getting clients was no different than picking up girls in bars. Now I was really worried. I was never any good at that. With slightly less confidence but a great deal of optimism, I went into business.

There I discovered the truth. First, honesty is a valuable business skill, not a liability. Honesty builds better marriages, families, friendships and business relationships. Human nature craves honesty and trust, and it quickly punishes those who fail to deliver them. It appears we operate based on an internal rule of, “Trust someone until they give you a reason not to.”

Second, I discovered that building business relationships is not at all like picking up women in bars (lucky me). It is not about lots of short term, unstable, one-sided relationships. It is about lots of long term, stable, mutually satisfying relationships. It is really like a successful marriage. Or, to be more dramatic, it is like successful polygamy.

The keys to success in business are the same as in any relationship: honesty and reliability. How then, did business get such a bad reputation? Why didn’t I know this before entering business and discovering it for myself? Why didn’t the technology salesman know it? Why didn’t the guy who treated his clients like one night stands know it? How could something so important be so misunderstood?

The answer lies in human nature, where the first rule is “survive.” All that we are, both the good and the bad, is there because at some point in the history of our species, it proved useful in the struggle for survival. Violence, lying, cheating, fear of strangers, envy, love, trust, peaceful competition, and cooperation are an ancient set of behavioral tools. We are all stuck with them, whether we want them or not.

However, through our culture and civilization, we have been steadily expanding the social and physical space where peaceful competition and cooperation work better than violence, fraud, and cheating. This doesn’t mean those awful behaviors aren’t there or that we’re not still tempted to use them – witness the warnings I received. Those behaviors just aren’t as effective in the struggle for human survival as peaceful competition, trust, and cooperation.

Consider, for example, the specific behavior of violence. Many people feel the world is becoming more violent. But the psychologist Stephen Pinker of Harvard has demonstrated that the world is undeniably becoming less violent, making violence more conspicuous when it does occur. In a world where lots of people die violently, another violent death is not news. In a world where few people die violently, it is. It grabs our attention and skews our perception.

The same logic applies to the business world. In a world where most commercial transactions conclude honestly, peacefully, and to mutual benefit, those that do not are news, and the bigger the breach of trust, the bigger the news. Think Enron. Think WorldCom. Psychologists call this an anchoring bias. When one event acquires far more significance than it should, it creates the impression that the exception is the rule. To borrow the title one of Bastiat’s essays, “What is Seen and What is Unseen,” we see the business scandal, but we do not see a much larger market that works extremely well.

The danger in anchoring bias – something we are all subject to as humans – is that people will act on the basis of biased perception, not on the basis of facts. The undeniable fact is that for-profit businesses employ, feed, clothe, house, transport, heal and entertain more people than all the charity in the world, and they do these things faster and better. Yet, consider the following news stories which paint an entirely different picture.

In the February, 2008 edition of Scientific American, Michael Shermer began an article on the evolutionary basis of the psychology of corporate environments with a loaded question, “Do All Companies Have to be Evil?”

In the 2006 movie, Superman Returns, Superman’s archenemy Lex Luthor is no longer the mad scientist he was in the old comic books. The director, Bryan Singer, said he wanted Luthor to be more bitter, more angry, and more evil. So he made the character a businessman. Luthor swindles an elderly, terminally ill woman. Then he tries to create his own continent (he must have been a developer). Kevin Spacey, the actor who played the role of Luthor, said he based his character on Enron’s Ken Lay.

According to a 2005 study of network television by the Media Research Center, corporate executives are twenty-one times more likely to commit a kidnapping or murder than mobsters, five times more likely than terrorists, and four times more likely than gang members.

With news and entertainment like that, it is easy to see why the exception becomes the norm in expectations, why headlines anchor the perception that all business is evil. Unless we can change this perception, we run the risk of a social and political war on the system of exchange that makes the modern world possible. Certainly, we all agree that any business guilty of theft, fraud, or violence should be punished. But an indiscriminate attack on all business is nothing less than an attack on civilization itself.

In Europe, the attack has already begun. Stefan Theil, the European economics editor for Newsweek, describes in detail what he calls “Europe’s Philosophy of Failure.” In a 2005 poll, just 36 percent of French citizens said they supported the free-enterprise system. In Germany, support for socialist ideals is running at an all-time-high. The most important French history text describes capitalism as “brutal,” “savage,” “neo-liberal,” and – the most damning word of all – “American.” In Germany, students are told India and China are successful because they have large, state-owned enterprises and have protectionist trade policies. Sub-Saharan Africa is held up as a case-study on what a free-market does to people.

The expansion of peaceful competition, trust, and cooperation under a private property rights system has been long and powerful. But it is not inevitable. What must be done to ensure its continued success?

First and foremost, we should proudly proclaim that a profitable business, honestly run, is one of the great achievements of mankind. The world is getting better and it is free enterprise that is doing it. Each mutually beneficial business transaction increases the overall well-being of the world. It reinforces trust, and it is trust that makes commercial civilization possible. Trust is the essential lubricant for commercial activity. Cheating, lying, stealing, violence and fraud are sand in the system.

On the other hand, cheating, lying, stealing, envy, violence and fraud are tools of the trade for criminals and politicians. We should be very skeptical about relying on politics and public policy to improve the world. As social tools, they are tempting because of their immediacy and power. The truth is that nothing is easier to change than public policy. All it takes is another election. The United States tax code is a depressing example of what happens when we rely on public policy to improve public policy. True reform must come from the culture, from the ground up (individual decision making), not from the top down (political decision making). If top down political reform worked as well as its faithful followers believed, Iraq would be a peaceful democracy today.

There is another danger in relying on public policy to improve the world. It comes from those unscrupulous souls among us who are eager to use the power of government to crush their competition and loot their customers. These businesses are often successful, but they are not market successes. They are political successes. They rely on government-sanctioned violence to collect the profits they cannot earn in the marketplace.

The best way to keep business out of government and government out of business is not to limit the size and influence of business. It is to limit the size and influence of government. A large and powerful government – even one with good intentions – is simply too tempting a prize to lay in front of that part of human nature that would rather steal wealth than earn it. Our Founding Fathers knew this well. That is why they drafted a Constitution: not so much to free humans as to bind the government’s ability to meddle in the affairs of free men.

Third, we in business should watch our language. We should never use phrases like “giving back” to describe the money or time we give away. It implies we took something that wasn’t ours. Phrases like this make us sound like a generous gangster or a Congressman running for re-election, not a valuable member of society.

Fourth, we all should learn enough to defend capitalism ourselves. This doesn’t mean we have to become PhDs. We can take small steps to improve our awareness of the ideas that make freedom work so well. For example, in Charleston, SC, we created the Bastiat Society to educate business people on how their efforts to make a profit also make the world a better place. We named the Society after the great 19th Century French economist and statesman Frédéric Bastiat, who was a master at explaining complex ideas in language anyone could understand – even maids and merchants. Our motto is, “Those who work in freedom should know how freedom works.” In addition to monthly meetings, the Bastiat Society maintains this blog where we try to have something new and thought-provoking every day. I encourage individuals interested in these ideals to consider starting their own discussion group, or consider partnering with the Basitat Society.

The Bastiat Society has worked with Liberty Fund, a private, educational foundation that promotes wide-ranging discussions centered on the topic of a society of free and responsible individuals, directing conferences for business people, addressing issues such as eminent domain, business ethics, and corporate social responsibility.

There are also opportunities for business people to engage in the self-study of economics. The Mises Institute offers an online course in Austrian economics. The Austrian School included Ludwig von Mises and Friedrich Hayek and played an important role in the development of free market theories. Austrian Economics influenced programs at the University of Chicago and the University of Virginia, and influenced Nobel-prize winning economists like Milton Friedman and James Buchanan. Friederich Hayek’s The Road to Serfdom is available as an audio book in most medium-sized public libraries. Many Austrian lectures and videos are available on YouTube. The Foundation for Economic Education a number of educational opportunities, including the periodical The Freeman: Ideas on Liberty.

Fifth, as wealth creators, business people have many opportunities to influence the intellectual and cultural opinion about business for generations to come. When philanthropy is carefully planned, the time and money successful business people donate can sway public opinion far more than the profit they earn. Business people should make sure they are not handing their money to their ideological enemies in the university, in public policy, or in the popular culture. They can avoid this by consulting with the Philanthropy Roundtable before making major gifts. They can use legal documents to enforce their intentions and prevent “mission drift.” They can also set up their own foundations with documents that clearly express donor intent, rather than making an unrestricted contribution to existing foundations or institutions.

None of what I have said should be taken to mean that business makes saints out of sinners. The crooked timber of humanity cannot be straightened out by an economic system. We will always struggle with inappropriate behaviors that are the vestiges of our beginning. However, capitalism is the economic system that is most consistent with our human nature as it really is, not as we wish it could be. Free market capitalism makes heroes out of ordinary men and women, one satisfied customer at a time.

Tuesday, February 26, 2008

The Laffer Curve, Part II

Dan Mitchell continues his lucid explanation of the idea that government can actually increase tax revenue by cutting tax rates.

Yes Virginia, there is a Santa Claus: tax cuts can pay for themselves.

View Part I here.

Monday, February 25, 2008

Sowell on "Economic Facts and Fallacies"

Thomas Sowell of Stanford University's Hoover Institution talks with EconTalk host Russ Roberts about the ideas in his new book, Economic Facts and Fallacies. He discusses the misleading nature of measured income inequality, CEO pay, why nations grow or stay poor, the role of intellectuals and experts in designing public policy, and immigration.

Sunday, February 24, 2008

The Moral Foundations of Capitalism

We often hear that business has few friends in the universities. This may be true...for now. But there are promising signs of change, such as the Institute for the Study of Capitalism at Clemson University. The following video is from its 2007 conference on the Moral Foundations of Capitalism.

Saturday, February 23, 2008

A Bad Retirement Plan

What an irony that the Supreme Court just decided that workers can sue for losses in their 401(k). According to the Wall Street Journal, "recent cases have included allegations that employers offered participants unwise investment choices, or allowed investment managers to charge participants unreasonably high fees."

In 1960, the Supreme Court ruled that individuals have no claim on any of the money they pay into the Social Security system. They cannot claim that money as a property right. They cannot sue the government for mismanagement. They cannot sue for excessive administrative fees or unwise investment choices. In fact, they have no absolute right to any benefit at all.

The Supreme Court said, "To engraft upon the Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands."

Or, in the words of P.J. O'Rourke, " Unfortunate people who scrutinize the Social Security Trust Fund discover two facts: It's not there. It's not theirs."

Yet another case of a double standard of justice: a strict one for the private sector, and a lax one for the public sector.

Friday, February 22, 2008

Skin on the Wall

Mark Cuban, American entrepreneur and billionaire, makes a point about the media and ambitious government prosecutors. From an interview in GQ...

"...look at the way the media handled Barry Bonds. They never pay attention to the fact that no one in government ever gets fired for trying to put a skin on the wall. They’ll only get promoted—other than Nifong from Duke.

Nifong was an extreme case.

It wasn’t an extreme case. He was just stupid enough to drive it in the media with his own name. You don’t know the guys behind the Barry Bonds investigation. You don’t know that someone’s not saying, “If I can only get Barry Bonds, I’ll be the stud in this government office.” Barry Bonds can’t sue the person who’s trying to make him a poster child. To spend however many years of government money to prove something that happened four years ago—what does it accomplish for the American people?"

Thursday, February 21, 2008

Dangerous Tool, Deadly Master

When people allow the government to make up the rules, regulations and taxes that govern the most personal aspects of individual behavior, from diet to sex, it should come as no surprise that personal decisions suddenly become political flashpoints.

The result is toxic to civil society. While my neighbor and I may differ in our diet, we can peacefully co-exist, until we attempt to deny one another a choice. Then, we are no longer neighbors. We are political combatants locked in a struggle only one of us can win.

The great strength of business is that it labors to give people a choice. The great strength of government is that it can demand obedience. A healthy society encourages the former, and keeps the latter in reserve, knowing it to be a dangerous tool and deadly master.

Wednesday, February 20, 2008

A Business Education

Kathy Gornik, President of Thiel Audio, points out the paradox of a business school asking for political money to teach young people the principles of business. Her letter appeared in Business Lexington.

Kathy is also the first recipient of the Bastiat in Business Award.

Dear Editor,

I'm writing in response to Tom Martin's article about the University of Kentucky seeking state funding for a new high-tech home for the Gatton College of Business and Economics. I hope that the irony of this request is not lost on readers of Business Lexington.

Businesses create wealth by economic means, the ONLY way wealth is created. Businesses voluntarily produce good and services for which customers voluntarily trade their money. However, it is possible to OBTAIN wealth through political means, i.e., stealing it.

For the sake of the students they are teaching, one would hope that the Gatton College of Business, of all colleges within a university system, would raise its money through economic means, both as an educational example and moral reflection of what free enterprise, markets, and businesses are all about. By using tax dollars extracted from productive workers and business owners in Kentucky to build their new high tech home, Gatton College contradicts the very nature and meaning of what is being taught. Every dollar taken from the private sector impedes the ability of businesses to grow, prosper, and hire more workers. Why would the Gatton College of Business want to participate in such a system?

What an inspirational and educational statement it would make if Gatton would raise its own money through a voluntary system of private donations or some other means that put into practice what I can only assume they are teaching about business, entrepreneurship, economics, and wealth and job creation based on the American founding principles of private property, individual rights, and limited government. Business owners and their employees are the antithesis of a government handout.


Kathy Gornik

Tuesday, February 19, 2008

A Seat at the Table

The most appalling thing about the capital city of any government is the number of groups that feel morally entitled to more of someone else's money. Every year, these groups line up to beg and whine before the legislature. When that doesn't work, they make threats.

If the spectacle didn't involve real money, it might make good theater -- of the absurd. Wikipedia says that kind of theater is defined by "broad comedy, often similar to Vaudeville, mixed with horrific or tragic images; characters caught in hopeless situations forced to do repetitive or meaningless actions; dialogue full of clichés, wordplay, and nonsense; plots that are cyclical or absurdly expansive."

That is a pretty good description of a legislative hearing. Nothing can drive a rational human being to existential despair and suicide faster than listening to a few days of testimony and Q&A before a sub-committee. No one in their right mind goes there voluntarily. Anyone who shows up every day is suspect.

The problem is we just don't have enough money to give all those groups all the money they want. Even if we took ALL the money from the people who have it, and gave it ALL to those people who want it, we'd still come up short. We just can't eat the rich. There aren't enough of them. Or there are too many people who want a seat at the all-you-can-eat bar-b-que. Either way, the only way to handle too many claims and not enough money is to develop a set of priorities.

The worst way to do this would be to divide up the money equally and give everyone the same amount, regardless of merit. Even a sub-committee wouldn't do that. Not usually. Well, maybe sometimes. But it is still a bad idea.

A better idea is to ask the question, "Where can we get the biggest bang for the buck?" Of course, every group shouts back "Right here!" Want to improve the condition of the poor, the balance of trade, stop global warming, end racism, promote dental hygiene, fight terrorism, and end obesity? Amazing! Everyone who wants your money can tie what they do to what you want. Now that is creative capitalism (Bill Gates take note)!

That is why I tend to be skeptical about any group that insists its project is the most important one on the agenda. Even when that group is the modern equivalent of Egyptian priests asking the Pharaoh for enough money to ensure the flooding of the Nile: a bunch of scientists.

Monday, February 18, 2008

Too Many Convictions

In the December 2007 edition of Imprimis, the historian Paul Johnson writes about what great statesmen have to teach us. Johnson is the author of more than forty books, including Modern Times, A History of the American People, and A History of the Jews.

The best kind of democratic leader has just a few -- perhaps three or four -- central principles to which he is passionately attached and will not sacrifice under any circumstances. This was true, for instance, of Truman, of Konrad Adenauer of Germany, Alcide de Gasperi of Italy, and Robert Schuman of France -- all the outstanding men who did most to raise Europe from the ashes of the Second World War and who built up the West as a bulwark against Soviet advance and a repository of a free civilization. It was also true of Ronald Reagan and Margaret Thatcher, the two outstanding leaders of the next generation who carried on the work. I am not impressed by leaders who have definite views on everything. History teaches it is a mistake to have too many convictions, held with equal certitude and tenacity. They crowd each other out. A great leader is someone who can distinguish between the essential and the peripheral -- between what must be done and what is merely desirable. Mrs. Thatcher really had only three musts: uphold the rule of law at home and abroad; keep government activities to the minimum, and so taxes low; encourage individuals to do as much as they can, as well as they can."

Sunday, February 17, 2008

The Independent Women's Forum

I'm adding a new link to the Independent Women's Forum. The Forum describes itself as:

"The Independent Women's Forum is a non-partisan, 501(c)(3) research and educational institution. Founded in 1992, IWF focuses on issues of concern to women, men, and families. Our mission is to rebuild civil society by advancing economic liberty, personal responsibility, and political freedom. IWF builds support for a greater respect for limited government, equality under the law, property rights, free markets, strong families, and a powerful and effective national defense and foreign policy. IWF is home to some of the nation's most influential scholars—women who are committed to promoting and defending economic opportunity and political freedom."

Saturday, February 16, 2008

When Profits Aren't Greed

The New York Sun is having way too much fun pointing out the hypocrisy of the New York Times. Like most newspapers, the Times is in trouble. The family that controls the Times would like it to make more money. So where do they turn for help? Harvard? Yale? Nope...

When a director of an oil company tries to make profits for his shareholders, he is accused of "greed." When a Wal-Mart director tries to make profits for her shareholders, she is lectured about being "tight-fisted." But when The New York Times Company's shareholders start getting restless for profits, where does Arthur Sulzberger Jr. turn to for "exceptional individuals"? Why, to veterans of the boards of Wal-Mart and Chevron. When it is the Times that is hoping to make the profits, somehow it isn't "greed" but, as Mr. Sulzberger put it, "skills, expertise and leadership qualities." We couldn't have put it better ourselves.

Friday, February 15, 2008

Europe's Philosophy of Failure

Government schools in France and Germany are training the next generation to fear and despise a group of their own citizens.

This group is accused of blood sucking greed, violence, and an attack on the existing national order.

Sounds familiar, doesn't it? All that's missing is an anti-Semitic slur. However, in this case, the villains are not the Jews. The villains are business owners, corporate executives, and entrepreneurs. In short, anyone that doesn't have a government job.

In a truly excellent article in Foreign Policy, Stefan Theil, Newsweek's European economics editor reports on his research of American, French, and German textbooks. His conclusion: Europe is sowing the seeds of its own economic distress.

Consistently and across the board, French and German students are told that capitalism is savage, unhealthy and immoral. A French text goes so far as to use the ultimate French condemnation. It calls capitalism "American." The same French text warns students that globalization kills people.

German textbooks teach students that the internet dehumanizes people. German students are also taught India and China are big successes because they have powerful governments running the show, and that free markets made Sub-Saharan Africa the mess it is today.

The list of offenses goes on and on. Private companies destroy jobs; government policy creates them. Employers exploit their employees; government protects them. Capitalism creates market chaos. Governments establish order. Profit is a zero-sum game.

Of course, this is all hogwash. But there is a new generation rising in Europe that has heard nothing but hogwash.

Thursday, February 14, 2008

The CEO of the Sofa

I've been re-reading P.J. O'Rourke's 2001 book, The CEO of the Sofa. It is classic O'Rourk: smart and laugh-out-loud funny. Some excerpts:

"Anthropology is just travel writing about places that don't have room service. Sociology is journalism without news, and Psychology is peeking into your sister's diary after your parents have sent her to rehab."

"Fascism sought to bring people together, to heal the fragmentation of society, to remedy the alienation that the individual feels in the ruthlessly competitive atmosphere of the free market. But, at the same time, fascism wanted to preserve and improve all the material benefits of industrialism and trade. So far it sounds -- as I've pointed out before -- like a New Democrats campaign platform. But instead of recounting votes in Palm Beach County, Mussolini, Hitler, Franco, and Tojo believed they could accomplish their aims with mindless patriotism, genocide, and secret police. It didn't work."

"Species extinction is sad, in a way, but it's nonetheless pleasant to go get the paper in the morning without being bothered by pterodactyls. And a mastodon would wreck the lawn."

"The world has been collapsing for more than two thousand years. Either the world was once a very wonderful place with a long way to fall (of which there is no historical evidence) or people my age are full of crap."

"The Founding Fathers, in their wisdom, devised a method by which our republic can take one hundred of its most prominent numskulls and keep them out of the private sector, where they might do actual harm."

"Women are successful in the business world because the business world was created by men. Men are babies. And women are ... good with kids."

Wednesday, February 13, 2008

The Average Wage

We often hear that it's getting harder and harder to make ends meet. That, however, is simply not true. Many of the things we buy are getting less expensive, largely due to the competitive pressure of international trade.

Michael Cox and Richard Alm discuss this in an op-ed in the New York Times. An excerpt:

At the average wage, a VCR fell from 365 hours in 1972 to a mere two hours today. A cellphone dropped from 456 hours in 1984 to four hours. A personal computer, jazzed up with thousands of times the computing power of the 1984 I.B.M., declined from 435 hours to 25 hours. Even cars are taking a smaller toll on our bank accounts: in the past decade, the work-time price of a mid-size Ford sedan declined by 6 percent.

There are several reasons that the costs of goods have dropped so drastically, but perhaps the biggest is increased international trade. Imports lower prices directly. Cheaper inputs cut domestic companies’ costs. International competition forces producers everywhere to become more efficient and hold down prices. Nations do what they do best and trade for the rest.

Thus there is a certain perversity to suggestions that the proper reaction to a potential recession is to enact protectionist measures. While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well.

Tuesday, February 12, 2008

The Laffer Curve

Dan Mitchell of the Cato Institute explains why money-hungry politicians should love tax cuts. The right kind of tax cuts can actually increase tax revenue.

Monday, February 11, 2008

Facts and Fallacies

Mindful of the sage advice, "It isn't what you don't know that hurts you. It's what you know for sure that just isn't so," Thomas Sowell has published a new book, Economics Facts and Fallacies.

Among the fallacies he discusses are:

1. Government programs are needed to create “affordable housing.” (Actually, government intervention is what has made housing so unaffordable in places where even hovels are expensive.)

2. Employer discrimination is the main reason for differences in income between women and men. (Tons of evidence point in other directions.)

3. College tuition is going up so fast because of rising costs. (Only if you call voluntary increases in spending “rising costs.”)

4. Foreign aid helps poor countries become more prosperous. (Only if you don’t look at the evidence.)

5. The rich are getting richer and the poor are getting poorer. (It all depends on whether you are talking about flesh and blood human beings or statistical brackets.)

Sunday, February 10, 2008

The Mind of the Market

From reasontv...

Michael Shermer is the founding publisher of Skeptic magazine, a columnist for Scientific American, and most recently the author of The Mind of the Market: Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics.

Shermer's new book--which The Washington Post says "has earned the right to our attention"--seeks to explain "how evolution shaped the modern economy and why people are so irrational about money."

Shermer, who lives and works in Southern California and is the author of previous books such as Why Darwin Matters and The Borderlands of Science, sat down with to talk about the intersection between evolution and capitalism, trust in a globalized world, his "Google theory of peace," and his ideological journey toward libertarianism.

And why it's extremely tough to convince left-wingers who believe in evolution that capitalism is a good thing and conservatives who believe in free markets that evolution is real.

Discuss this story online at reason's Hit & Run blog.

Saturday, February 9, 2008

The Best Books for Business

One of the best books for quickly understanding the way the world works is the classic text by Henry Hazlitt: Economics in One Lesson.

Among many other valuable insights, he retells Bastiat's fallacy of the broken window.

Someone breaks a shopkeeper's window, creating work for the window repairman. The window repair creates a visible job.

But before the window was broken, the shopkeeper had a window and enough money to buy something else, perhaps a new pair of shoes or a new suit of clothes. Now he must spend that money on repairing his window, i.e. that which is seen.

What is not seen is the loss of business suffered by the man who makes shoes or the tailor who makes clothes. This is the kind of loss that is often overlooked by politicians who are hell-bent to create jobs.

Buy your own copy of Economics in One Lesson with a forward by Steve Forbes from the Mises Institute for only $14.

Friday, February 8, 2008

Thursday, February 7, 2008

The Lowly and Despised

For most of human history, the economy was built to satisfy an elite few: kings, courtiers, priests and generals.

Ours is the first economy built to satisfy everyone. This still shocks many of the elite. That's why they make fun of people who live in trailers, own guns and go to church.

The consumer economy serves the humble and lowly as well as the powerful and wise. The apostle Paul didn't know anything about a consumer economy, but he understood the revolutionary potential among those the world had used and ridiculed.

1 Cor 1:26-31

Consider your own calling, brothers and sisters.
Not many of you were wise by human standards,
not many were powerful,
not many were of noble birth.
Rather, God chose the foolish of the world to shame the wise,
and God chose the weak of the world to shame the strong,
and God chose the lowly and despised of the world,
those who count for nothing,
to reduce to nothing those who are something,
so that no human being might boast before God.

Wednesday, February 6, 2008

The Morality of Capitalism

Rev. Robert A. Sirico is interviewed by James Freeman, assistant editor of the Wall Street Journal’s editorial page, about markets and morality and about the Acton Institute’s Call of the Entrepreneur documentary.

Tuesday, February 5, 2008

A New French Hero

NPR reports that Jerome Kerviel, the rogue trader who lost Société Générale $7 billion, has become a folk hero of the French left for exposing the weaknesses of "Anglo-Saxon capitalism."

A few more revolutionary successes like this and France -- unofficial motto: "One Nation Above God" -- won't have to worry about capitalism any more. It will join North Korea -- official motto: "Powerful and Prosperous Nation" -- at the vanguard of human progress.

Monday, February 4, 2008

Unlimited Limited Liability

Consider the growing list of human activities associated with the words "zero tolerance." We have zero tolerance for weapons in school, drunk driving, underage drinking, and pesticides in our food.

We have zero tolerance for medical mistakes, sexual harassment, drugs in school, hate speech and carbon dioxide emissions. We have zero tolerance for indoor smoke.

And of course, we have zero tolerance for product liability.

With all this "zero tolerance" running around, why don't we try a zero tolerance policy on public policy itself? As the situation currently stands, the governing class is free to exaggerate, obfuscate, and lie about the effects of its policies from behind a shield of almost unlimited limited liability. They can tinker with the lives and property of millions. They have the power to compel, coerce and destroy anyone who disagrees with them. They and their predecessors around the world have ruined, wounded and killed more people than shoddy products, tobacco, alcohol and privately owned firearms, combined.

If the governing class had a marketing motto, it would be "Millions and Millions Sacrificed."

The true believers in the power of governance will argue that we should not focus on the mistakes of governance, but on its successes, all the while working to repair and remove mistakes from the system. In other words, they are willing to live with a high tolerance for failure, harm and death when the government is involved. Everybody else gets zero.

In ancient Athens, a lawmaker was held responsible for the consequences of any legislation he proposed. He could be fined, imprisoned, or even executed for sponsoring a bad law. Today, bad laws and regulations flow out of Washington with impunity. It's a dream come true for every ambitious person who wants power without responsibility. It's a threat the rest of us have grudgingly learned to tolerate.

Friday, February 1, 2008

Compete, Don't Cheat

In Scientific American, Michael Shermer asks the question, "Do all companies have to be evil?"

The question reflects the popular belief that companies are evil. Shermer makes the point that they can be very good so long as their organizational principles encourage the virtue of trust.

This reminds me of Coach Lou Holtz's advice to a man in the business of financial advice. Coach Holtz told him the customer only wants to know three things:

1. Can I trust you?
2. Do you care about me?
3. Are you committed to excellence?

Trust is the essential lubricant of commercial activity. Cheating, lying, stealing, violence and fraud are sand in the system.