CNBC recently broadcast a documentary, Saving General Motors.
Listening to the executives defending the company's performance, I could not escape the impression that I had heard this kind of argument before. Their claims of improving quality, increasing production, and increasing efficiency even though the company's sales had cratered sounded eerily familiar.
Such rhetoric was commonly used by industry managers in the old Soviet Union and its infamous Five Year Plans.
Shoe manufacturers, for example, would boast about the quality of Soviet shoes, about how they made more shoes this year than last year, and how they made them as efficiently as possible. Soviet shoe manufacturing was an unqualified success, at least in the eyes of the shoe manufacturers.
Unfortunately, shoe consumers did not agree. They found Soviet shoes to be of poor quality, unfashionable, and offered in just a few sizes. Given a choice, Soviet citizens preferred Western shoes, when they could get them.
The only meaningful measure of an industry's success is how much money it can make by satisfying its customers in mutually beneficial, peaceful trades. An industry that hides behind production numbers is a dying industry in denial.
Tuesday, February 17, 2009
Hiding Behind the Numbers
Monday, February 16, 2009
Seven Principles of Sound Public Policy
On February 11th, Larry Reed addressed the Bastiat Society in Charleston, SC. He outlined seven principles of sound public policy. They are:
1. Free people are not equal, and equal people are not free.
2. What is yours, you tend to take care of; what everyone owns, everyone tends to ignore.
3. Sound economics requires looking at the long run, and considering the effects on more than just a few.
4. If you encourage something you get more of it; if you discourage something, you get less of it.
5. Nobody spends somebody else's money as carefully as he spends his own.
6. A government big enough to give you everything you want is big enough to take away everything you have.
7. Liberty makes all the difference in the world.
Larry also shared the inspiring story of Sir Nicholas Winton, who personally saved the lives of 669 children, most of them Jewish, in the face of Nazi aggression in Eastern Europe.
You can read more about Sir Nicholas and the Emmy award winning documentary of his life, The Power of Good, by clicking here.
Larry Reed is President of the Foundation for Economic Education in Irvington, NY.
Saturday, February 14, 2009
A Really Bad Bank
We've heard quite a bit about bad banks lately, but here's a story that really puts the "bad" in bank.
In the new movie, The International, the focus of evil in the modern world is...you guessed it, a bank.
NPR takes a sober look at the movie and concludes it might be a good thriller, but it's a ridiculous smash-up of the business of banking. Listen to the story here.
Friday, February 13, 2009
Thursday, February 12, 2009
Wednesday, February 11, 2009
Laughing at Locksmiths
“One should always assume that rules, then as now, were made to be broken. Business, like love, laughs at locksmiths."
David Landes, The Wealth and Poverty of Nations, pg. 42.
Tuesday, February 10, 2009
Government Cause, Financial Effect
"My research shows that government actions and interventions -- not any inherent failure or instability of the private economy -- caused, prolonged and dramatically worsened the crisis."
John B. Taylor, Professor of Economics at Stanford University and author of the forthcoming book Getting Off Track, writing in the Wall Street Journal.
Monday, February 9, 2009
"Seven Principles of Sound Public Policy"
Every policy of government at every level, whether we realize it or not, is rooted in ideas that are either flawed and short-sighted or time-tested and sound.
Economist Larry Reed's next talk on February 11th, entitled "Seven Principles of Sound Public Policy," has been delivered to audiences around the world from Beijing to Nairobi. He will explain the ideas that can produce the best policies for now and future generations. At this critical time in America's economic history, Reed will offer thoughts on the principles that should guide policy makers so that our economy can recover.
Date: Wednesday, Feb. 11
Time: 5 pm reception, 6 pm speaker
Location: Imaging Arts Gallery, 175 King Street, Charleston, SC
RSVP: April Herrera
About Our Speaker:
Lawrence W. (Larry) Reed is president of the Foundation for Economic Education, headquartered in Irvington, New York.
After serving as President of the Mackinac Center for its first two decades, Reed became president emeritus of the Center upon assuming his duties as president of FEE.
Reed holds a B.A. degree in Economics from Grove City College (1975) and an M.A. degree in History from Slippery Rock State University (1978), both in Pennsylvania. He taught economics at Midland's Northwood University from 1977 to 1984 and chaired the Department of Economics from 1982 to 1984. He designed the university's unique dual major in Economics and Business Management and founded its annual, highly-acclaimed "Freedom Seminar." In 1982, he was a major party candidate in the general election for the U. S. House of Representatives from Michigan's 4th district. He moved to Boise, Idaho in 1984 to direct a policy institute there before moving back to Michigan to head up the Mackinac Center in December 1987.
Under his leadership, the Mackinac Center for Public Policy emerged as the largest and one of the most effective and prolific of over 40 state-based "free market" think tanks in America. He served a term as president and 15 years as a member of the board of directors of the State Policy Network, a national organization whose membership consists of those state-based groups.
In 1994, Reed was invited to give the Commencement address to the graduating class of the Colleges of Education, Health, and Human Services and Extended Learning at Central Michigan University (CMU) before an audience of 6,000. CMU conferred upon him the honorary degree of Doctor of Public Administration. In 1998, Grove City College (his undergraduate alma mater) bestowed upon him its "Distinguished Alumni Award."
In the past twenty years, he has authored over 1,000 newspaper columns and articles, 200 radio commentaries, dozens of articles in magazines and journals in the U. S. and abroad, as well as five books. His articles have appeared in The Wall Street Journal, Christian Science Monitor, USA Today, Baltimore Sun, Detroit News and Detroit Free Press, among many others. Reed's most recent book is Striking the Root: Essays on Liberty. Since 1978, he has delivered more than 1,000 speeches in 40 states and 15 foreign countries, including one at People's University in Beijing, China.
Reed's interests in political and economic affairs have taken him as a freelance journalist to 69 countries on six continents since 1985, including five visits to Russia, five to China, four to Nicaragua, three to Poland, five to Kenya, and others to such places as Cambodia, East Germany, Mozambique, Haiti, Japan, Bolivia, Brazil, Ecuador, Honduras, Greece, Italy, Australia, Slovenia, Croatia, Peru, Chile, Argentina, Singapore, Israel, Egypt, Malaysia, Vietnam, Iceland and New Zealand.
From firsthand experience, he has reported on hyperinflation in South America, voodoo in Haiti, black markets behind the Iron Curtain, reforms and repression in China and Cambodia, the recent stunning developments in Eastern Europe, and civil war inside Nicaragua and Mozambique. Among many foreign adventures, Reed visited the ravaged nation of Cambodia in 1989 with his late friend, Academy Award winner Dr. Haing S. Ngor; recorded an authentic native voodoo ceremony in a remote region of Haiti in 1987; traveled with the Polish anti-communist underground for which he was arrested and detained by border police in 1986; interviewed presidents and cabinet officials in half a dozen nations; spent time with the contra rebels during the Nicaraguan civil war; and lived for two weeks with the rebels of Mozambique at their bush headquarters in 1991, at the height of that country's devastating civil war.
Reed was first elected in 1994 to the Board of Trustees of the Foundation for Economic Education (FEE) in Irvington, New York-one of the oldest and most respected economics institutes in America and publisher of the journal, The Freeman, for which he writes a column entitled "Ideas and Consequences." In 1998, he was elected chairman of FEE's board of Trustees and reelected chairman in 1999 and 2000.
His spare-time interests include reading, travel, flyfishing, hiking, skydiving, and animals of just about any kind.
Sunday, February 8, 2009
CEO Calls for Higher Income Taxes
More evidence that many successful business people don't really understand the way freedom works.
More evidence why the world needs the Bastiat Society.
In the New York Times, Reed Hastings, CEO of Netflix, says "President Obama should celebrate our success, rather than trying to shame us or cap our pay. But he should also take half of our huge earnings in taxes, instead of the current one-third."
Can anyone help arrange an intervention, before more harm is done?
Saturday, February 7, 2009
Tuesday, February 3, 2009
Ward Three Morality
Sunday, February 1, 2009
Thirsty for Some Good News?
"In sum, moderate drinking has links to good health, fortune, humor and character."
Forbes, Feb. 16, 2009
Monday, January 26, 2009
The Disputatious Science
Why don't economists agree? Does persistent disagreement among economists render all their advice meaningless? If both sides of an economics argument claim to possess empirical evidence for their position, how can a layman tell who's wrong?
Russ Roberts, an economist, takes a hard look at the disputatious science of economics in this podcast from Econtalk. Some of his conclusions:
First, it is extremely difficult to tease out one or two effects from a complex network of interactions. Yet, economists often charge ahead with the alarming phrase, "controlling for everything else."
Second, bad studies often overcome sound logic, especially when the studies confirm an established bias.
Finally, much of what is presented as empirical evidence is really sophisticated statistical analysis. In other words, economists sometimes mistake their math for the real world.
The counterpoint of the discussion is taken by Robin Hanson, another economist. Hanson says economics does offer a body of widely accepted knowledge that qualifies as science. He offers three possible explanations for the public squabbles:
1. What economists know might not be very useful in the real world
2. Economists like to focus their attention on the areas where they don't agree
3. Incentives distort the public dissemination of economic ideas
Sunday, January 25, 2009
"No He Can't"
Anne Wortham, a self-described "individualist liberal who happens to be black," says she cannot join the celebration of the election of Barack Obama. To do so, she says:
"I would have to believe that "fairness" is equivalent of justice. I would have to believe that man who asks me to "go forward in a new spirit of service, in a new service of sacrifice" is speaking in my interest. I would have to accept the premise of a man that economic prosperity comes from the "bottom up," and who arrogantly believes that he can will it into existence by the use of government force. I would have to admire a man who thinks the standard of living of the masses can be improved by destroying the most productive and the generators of wealth."
Read the rest of "No He Can't" here.
Saturday, January 24, 2009
The Mercurius Society
The Mercurius Society is a London-based group with goals very similar to the Bastiat Society. Its web site describes the Mercurius Society as follows:
"The Society was launched in London in September 2007. Since its establishment, the Society has brought together young business leaders and entrepreneurs for topical discussions with high-profile guest speakers. Mercurius Societies have been formed in other cities in Europe. The Society seeks to link those in the private sector who share the concepts of limited government and individual liberty with their counterparts in think-tanks, politics, academia and the media. The mission of the Mercurius Society is to strengthen support for free enterprise; enlist business leaders into the free market community; and encourage them to take pride in their role as the creators of prosperity."
I've added a link to the Society under "Free Market Links."
Tuesday, January 20, 2009
Monday, January 19, 2009
Animal Spirits
What is the best way to improve the lives of the poor?
Give them a chance to make some money. But how?
Mary Anastasia O'Grady writes, "the evidence is piling up that neither government nor multilateral spending on education and infrastructure are key to development. To move out of poverty, countries instead need fast growth; and to get that they need to unleash the animal spirits of entrepreneurs."
Of course, the dilemma we face is that you can't plan animal spirits. You can't control them with a committee. You can't count on their methods or their results. No wonder governments prefer to stick with development plans that consist of conspicuous spending. It's too hard to claim political credit for something that happens out of sight, even if it works.
In other words, most of what is presented as economic development is really political development, and most of what is really economic development has nothing to do with politicians.
Sunday, January 18, 2009
Caveat Emptor
Writing in Forbes, Kathy Kristof reveals "an unfolding education hoax on the middle class that's just as insidious, and nearly as sweeping, as the housing debacle. The ingredients are strikingly similar, too: Misguided easy-money policies that are encouraging the masses to go into debt; a self-serving establishment trading in half-truths that exaggerate the value of its product; plus a Wall Street money machine dabbling in outright fraud as it foists unaffordable debt on the most vulnerable marks."
The hoax? College.
Perhaps we should require every college to adopt a new motto: "Caveat emptor."
Friday, January 16, 2009
Thursday, January 15, 2009
Murder, Music, and Shopping
The Economist links murder, music and shopping to the eternal human quest to "propel the genes of the successful into future generations."
An excerpt:
"Shopping, that most urgent and tiresome activity at this time of the year, may seem to have little to do with either music or murder, beyond the mindless jingles in every store that provoke a desire to dispose of the manager who chose the playlist. But it, too, helps propel the genes of the successful into future generations. As surely as the tasty morsel that the male robber-fly offers up to his chosen mate, the jewels, champagne and scent that a man showers on a woman speak of his prowess as well as her desires. The Jaguar in his driveway, meanwhile, serves to emphasise his status to other men. A Fiat would get him there as fast, but only to physical destinations, not sexual ones."
Wednesday, January 14, 2009
Wealth in America
"America's wealthiest counties ring a city where the chief industry is government — and the entire region's only getting richer. That doesn't seem like a trend that bodes well for the health of a market-based economy."
Read more here.
Tuesday, January 13, 2009
Not the Stimulus We're Looking For
In another excellent video from the Center for Freedom and Prosperity, Dan Mitchell explains why government spending is not the stimulus we're looking for:
Monday, January 12, 2009
More Fact Than Fiction
Stephen Moore, writing in the Wall Street Journal, notes that Atlas Shrugged reads more like fact than fiction...
"Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism."
Saturday, January 10, 2009
New Links to Shake the Status Quo
Shaking up the status quo is a risky business. Entrenched political interests -- read Democrats and Republicans -- have erected a complex set of tripwires and booby traps to discourage any political activity outside of their control.
Protected from the outside, rule number one on the inside is "Don't shake things up." Expecting those who benefit from the status quo to change things is like expecting North Korea to hold free elections.
I've added three new links for those who are willing to take a risk.
The first is to the South Carolina Policy Council. Its president, Ashley Landess, spoke at the January 2009 monthly meeting about the Council's efforts to make the case for increased state government transparency. The Policy Council is a 501(c)3 engaged in education and research.
You'll find the link to the Policy Council under "Free Market Links" down the left-hand side your screen.
You'll also find a new link for the South Carolina Club for Growth. The Club is a 501(c)4, which means it can engage directly in political campaigns. The Club promotes state candidates who can reliably carry the message of limited government.
The third link is under "Related Events." There you'll find a link to the BB&T Speaker Series at the Initiative for Public Choice and Market Process at the College of Charleston. The Initiative is bringing in Mike Munger, Chair of the Political Science Department at Duke University.
Enjoy!
Friday, January 9, 2009
TV Worth Watching
Mark your calendar!
The Fox Business Channel is featuring The Call of the Entrepreneur at the following times:
Saturday, January 10, from 5 p.m. to 6 p.m. EST
To find your local station visit the FOX channel finder. To find out more about the movie, discover related materials, and learn how to host your own screening, visit The Call of the Entrepreneur website.
Wednesday, January 7, 2009
Designer Goods
Business people can achieve fabulous success without ever thinking about the larger economic process at work. Indeed, that process is so large and so complex that no one can completely understand it. The best we can do is work to understand a small part of it, and then trade that understanding to make a living.
Anti-capitalists argue that such bottom-up, piecemeal improvement is too slow. They believe that we can make the world a better place by designing society from the top down, according to a master plan of virtue, goodness, and harmony. Such sentiments sound virtuous. In reality, they make impossible demands on human nature and human knowledge.
First, social master plans require individuals to deny their most powerful motivation: self-interest. Asking people who can't stick to a diet to stick to a social master plan makes as much sense as asking them not to go to the bathroom.
Second, social master plans require somebody, somewhere to know everything that is going on, and to know what is going to happen next. Even Al Gore can't do that.
Rather than spend precious time, energy and money trying to run perfect plans with perfect people equipped with perfect knowledge, shouldn't we spend that time, energy and money trying to get the best results out of imperfect people who actually know very little, who face an uncertain future, and who are motivated primarily by self-interest?
Tuesday, January 6, 2009
Dead, But Still Dangerous
Ariannna Huffington declares laissez-faire capitalism dead, but still dangerous:
She writes, "It's time to drive the final nail into the coffin of laissez-faire capitalism by treating it like the discredited ideology it inarguably is. If not, the Dr. Frankensteins of the right will surely try to revive the monster and send it marauding through our economy once again."
Ideas are easier to deal with when they are sorted with Manichean clarity. Unfortunately, such dualism obliterates important details. Laissez-faire capitalism does not call for the elimination of all rules, nor does deregulation automatically equal laissez-faire capitalism.
Conflating both laissez-faire and deregulation with gangster anarchy is intellectually irresponsible. Furthermore, it is politically dangerous. If we "drive the final nail into the coffin of laissez-faire," what is left? Severed from the Western tradition of natural rights and limited government, public policy would drift according to populist whims. Good news for ambitious demagogues like Juan Peron. Bad news for everyone else. That is hardly a reassuring vision.
Rather than declare laissez-faire dead or dangerous, we should recognize what is really happening: it is slowly choking on the 80,700 pages of the Federal Register, a daily publication.
Monday, January 5, 2009
Work Study
Charles Murray, writing in the New York Times, says the typical undergraduate degree is meaningless as a career starter. He says we should discourage the B.A. in favor of professional certification, which would tie education directly to employable skills. Why demand students get a degree they neither need nor want, when most of them just want a job?
Read it here.
Thursday, January 1, 2009
Not A Better World
January 1, 2009 is the 50th anniversary of the Cuban Revolution. You've heard of eco-tourism, but are you ready for Marxo-tourism?
This would be funny if it weren't so sad. Notice how little difference there is between political propaganda and a press release from the chamber of commerce.
"Celebrate five decades of resilience, progress, allegiance to peace and social equality with the people of Cuba
Witness the stellar achievements of the Revolution first hand
Saturday 27 December 2008 through Saturday 3 January 2009
Five days in Havana and three days in Trinidad for the best of island dance, music, culture, art, nature and history
Truly a once-in-a-lifetime experience – a moment in history for reflection, rejuvenation, enjoyment and new friendships
Today millions optimistically follow the course of the Cuban Revolution, which despite hardships resulting from sanctions and blockade, is as dynamic as ever. This tour is for those who believe a green, healthy, educated, people-first way of life is the hallmark of civilization. It is for people who think as Cubans do, and say: Yes, we can make a better world and have a good time doing so!"
Gerald Warner, writing in the Telegraph, has a less enthusiastic view of 50 years of revolution:
"During his "five decades of resilience, progress, allegiance to peace and social equality", Castro has executed 16,000 people and imprisoned more than 100,000 in labour camps. The Western media are greatly exercised about Guantanamo; but few have heard of Kilo 5.5, Pinar del Rio, Kilo 7, the Capitiolo (for children up to age 10) and the other camps that compose Castro's gulag. Two million Cubans have by now rejected the resilience and progress of Castro's revolution and more than 30,000 have died trying to escape."
Wednesday, December 31, 2008
The Drug Trade
In 1776, Adam Smith famously noted the human "propensity to truck, barter, and exchange one thing for another."
But why do humans trade at all?
Another way to ask the question is, what is the survival value of trade?
To put the answer in its simplest terms, trade must deliver what humans want, and deliver it more reliably and with less effort than violence, fraud, or self-sufficiency.
Ah, you may ask, but what do humans want? For most of the history of our species, the answer was simple: food and sex. Today, in a world that offers most people food and sex in abundance, surely human desires have grown more sophisticated.
Or have they?
The Washington Post reports that the CIA is trading Viagra for information about the movement of the Taliban in Afghanistan. Traditional inducements for information like weapons and cash aren't working as well as they used to.
One 60-year-old Afghan chieftain had extensive knowledge of the region but would not cooperate with the Americans. He changed his mind after a CIA operative gave him some Viagra. The next time the operative visited, the chieftain "came up to us beaming. He said, 'You are a great man.' And after that we could do whatever we wanted in his area."
The more things change...
Tuesday, December 30, 2008
Seven New Books for the New Year
Here's what Epstein says about Bastiat:
"Over the years, I have seen many references to the work of Frédéric Bastiat, a French economist who lived and wrote during the first half of the 19th century. (Caplan describes him in The Myth of the Rational Voter as "the original one-handed economist" -- a reference to the type of economic seer that Harry Truman vainly sought.)Here is Gene Epstein discussing his selections:
This year, I finally read the two volumes of The Bastiat Collection (2007). The only depressing part about these funny and satirical essays that assault economic myths is that they all seem so current.
Nothing much seems to have changed in the more than century-and-a-half since they were published. Just read Bastiat's "Petition of the Manufacturers of Candles...and...Everything Connected with Lighting," (volume 1, pages 227-232), in which the French parliament is exhorted to protect the lighting industry from "the intolerable competition of a foreign rival" -- the sun."
Monday, December 29, 2008
Evolutionary Economics
"The economy is a product of human action, not of human design"
Michael Shermer, The Mind of the Market
Saturday, December 27, 2008
Organizations and Markets
It is a sad truth that most academic writing about business is indecipherable, pointless, or openly hostile towards its subject. Business people wisely ignore it. Their time is better spent making money by serving the lives of their customers.
But there are exceptions. For that rare treasure, really useful academic musings about business and economics, I highly recommend spending some time at the blog Organizations and Markets. It's creators describe the blog as follows:
Organizations and Markets was created in April 2006 by Nicolai J. Foss and Peter G. Klein, professors with research interests spanning organizational economics, strategic management, entrepreneurship, innovation, the economics of institutions, and the history, philosophy, and sociology of science. Foss teaches management at the Copenhagen Business School and Klein teaches economics at the University of Missouri, giving the blog an international and interdisciplinary orientation.
Consider Peter Klein's comments on the popularity of business guru books like Jim Collins' Good to Great. I read Collins' book, and went away with a nagging doubt. Klein not only puts that doubt into words, he backs it up with research:
I’m not a fan of “guru” books like "In Search of Excellence," "Built to Last," and "Good to Great," for reasons well documented by Phil Rosenzweig in his excellent "Halo Effect." These books suffer from ad hoc generalization, sampling on the dependent variable, and a host of related methodological and expository flaws. If Rosenszweig’s critique is startling, then two articles from the November 2008 Academy of Management Perspectives on Jim Collins’s" Good to Great" — perhaps the leading guru book of our time — are devastating.
Organizations and Markets is a valuable stop for the time-starved but intellectually curious business person who would like to spend a little time in the company of important and perhaps even profitable ideas.
All those in search of excellence should start there.
Friday, December 26, 2008
A Pirate's Life
Every business is the expression of the human will to survive.
Where there are no legal businesses, illegal ones will have to do. Consider the success of Somali pirates.
"While their countrymen face the threat of famine, pirates in northern Somalia are building houses, buying cell phones and SUVs, giving relatives hundreds of dollars and winning the attention of beautiful women, who seem to be flocking to the area from miles around."
Healthy societies make it possible for men to support themselves and their families without violating the rights of others. The best way to reduce crime is to make behaving well more rewarding than behaving badly. That happy state of affairs begins with legally enforceable property rights. Where there are no property rights, only the most violent will dare own property. Violence offers the only reward.
When behaving well equals starvation, it comes as no surprise that desperate humans are drawn to violence, especially when it pays so well. As one Somali taxi driver said, "The pirates are the hottest men in town," he said. "Girls from all over Somalia moved here to marry pirates. But if the girl isn't cute, she's out of luck, because the pirates only go with beautiful girls."
Thursday, December 25, 2008
Back in the USSR
"You see those men?" Brezhnev asked the official standing next to him, "those men are snipers. They can light a match at two hundred yards."
Next came the tanks. "You see those tanks? They can go 50 miles per hour and fire a shell two miles."
Next came the missiles. "You see those missiles? They can reach a target anywhere on the globe in fifteen minutes."
Finally came three men absent-mindedly walking, wearing thick glasses and bad suits. "Who are they?" the official asked.
"Oh, they are our finest economists. You have no idea how much damage they can do."
Adapted from The Age of Turbulence by Alan Greenspan
Wednesday, December 24, 2008
A Work of Science Fiction
In the January 2009 special issue of Scientific American, Steve Mirsky makes fun of Republican politicians who dared to criticized some taxpayer-supported scientific research:
"On October 24 vice presidential candidate Governor Sarah Palin took on what looked through her designer eyeglasses like silly pork-barrel spending by the U.S.: “Some of these pet projects, they really don’t make a whole lot of sense, and sometimes, these dollars, they go to projects having little or nothing to do with the public good. Things like fruit-fly research in Paris, France. I kid you not.” Never mind that fruit-fly research has brought us modern genetics and molecular biology. The particular earmark in question was some $211,000 to a laboratory in Montpelier, France, with long experience studying ways to protect olive trees from fruit flies. And the little pests are threatening California’s olive crop—with a retail value estimated in 2005 at $85 million. So this money might be looked at by anybody with business savvy as an investment."The question Mr. Mirsky fails to answer is why an industry with a retail value of $85 million deserves a $211,000 transfer payment from taxpayers. The beneficiaries of such money often dress it up as an "investment." Anyone with business savy knows that such "investments" are, in reality, examples of the truth of Bastiat's observation: "The state is that great fiction through which everyone tries to live at the expense of everyone else."
Tuesday, December 23, 2008
A More Statist World Economy
“We’re seeing a more statist world economy,” says Ken Rogoff, former chief economist at the International Monetary Fund and now a professor at Harvard University in Cambridge, Massachusetts. “That’s not good for growth in the longer run.”
It’s not good for stocks either, says Paola Sapienza, associate professor of finance at Northwestern University’s Kellogg School of Management. Slower economic growth means lower profits. Shares might also be hurt by investor uncertainty about the scope and timing of government intervention in the corporate sector.
“If the rules of the game are changing, people are reluctant to invest in the stock market,” Sapienza says.
From Bloomberg, "Saving Capitalism No Sure Thing as Statism Undermines Economy"
Monday, December 22, 2008
Do Something!
"The whole country is with him, just so he does something. If he burned down the Capitol, we would all cheer and say, well, we at least got a fire started anyhow."
Humorist Will Rogers, referring to President Roosevelt in 1933; quoted in "Great Myths of the Great Depression" by Lawrence W. Reed
Saturday, December 20, 2008
A Confused Mess
The fiduciary responsibilities inherent in the profession of management are essentially those of an agent. An agent is empowered to act in behalf of a principal but not against the principal's interests. The doctrine that managers are agents of shareholders does not diminish managers' fiduciary responsibilities, and the law certainly allows different degrees of risk-taking within the bounds of fiduciary responsibility, depending on the goals or needs of the person on whose behalf the fiduciary acts. A trustee has a fiduciary responsibility to the trust's beneficiaries, for example, and not to society at large. Depending on the terms of the trust, he or she may manage its assets aggressively or conservatively, and may take single or multiple objectives into consideration. To society the trustee owes compliance with the law but not the subordination of the trust's interests to the claimed interests of society.
Friday, December 19, 2008
Got Inflation?
Henry Hazlitt described Keynesian economics as “one of the great intellectual scandals of our age."
Thursday, December 18, 2008
A Crime by Any Other Name
In Forbes, Professors Fisman and Khurana criticize the view that managers are agents for shareholders. They say that managers are agents for society.
In other words, mangers don’t work for the owners, they work for society.
This is a startling metaphysical leap, little different from the claim that an individual’s will to live is secondary to the will of society. The purpose of any business is an individual concern. The consequences of business are a social concern. Society does have a role to play in dealing with some of those consequences; preventing violence, theft and fraud, for example.
But it is a mistake to use businesses as a means to dreamy social ends. So long as a business is peaceful, does not commit fraud, or violate the property rights of others, society has no right to insist on different social ends.
We all agree that a manager who enriches himself at the expense of the owner is guilty of an injustice. Such a thing is not "free market capitalism." It is more correctly described as theft. Calling it free market capitalism is a symptom of confused morality. Capitalism does not equal looting the shareholders. That is hardly the way to maximize shareholder value.
Why should a social program that enriches itself at the expense of the owners be viewed any differently? Such a program is not "stewardship." It is another form of theft. Social justice does not equal looting the shareholders, either.
In his great novel Crime and Punishment, Dostoevsky made a point the professors miss: a crime committed in the name of society is morally indistinguishable from a crime committed for individual gain.
Wednesday, December 17, 2008
Government Intervention
The difference between just and unjust government intervention is simple.
If your house catches fire and the fire department comes when called, puts out the fire, and then leaves, that's justice. If your house catches fire and the fire department comes when called, puts out the fire, and then claims ownership of your house, that's injustice.
There are times when even the most ardent believer in markets relies on government intervention; even times when it is his right to expect it.
Sunday, December 14, 2008
Liberating Commerce
Via Econ Lib, one of the world's most unique dedicatory plaques, one that actually celebrates free trade:
Saturday, December 13, 2008
Why Flatter is Better
We often hear about businesses with flat organizational charts, by which is meant the business has comparatively few layers of decision-making between its top management and its front line.
Flatter is better, according to most people. But why?
There are at least two reasons. First, flat organizations are less likely to distort or destroy vital information as it moves up, down, and throughout the organization. Better information means better decision making.
Second, individuals in flat organizations don't have as much incentive or opportunity to behave bureaucratically by seeking more power and pay at the expense of organizational goals. Reduced bureaucratic behavior increases the chances that individual and organizational goals will overlap to a useful degree.
Considering the advantages of flat organizations, it's remarkable that we ever tried anything else. Yet, the unsettling and unavoidable truth is that for most of human history, flat organizations were simply unthinkable, as unthinkable as a man without a king or king without a church.
In a sense, you could say that all of human history is the messy and sometimes bloody process of flattening out our social organizational chart. Flatter is better in business because flatter is better in society. Societies with stronger horizontal social bonds -- i.e. more individual autonomy -- have proven better at interpreting dispersed information and at adapting to new situations than societies held together by predominantly vertical bonds.
The unpleasant truth of business is also the unpleasant truth of history: power destroys more creativity than it rewards.
Friday, December 12, 2008
The Curious Task of Economics
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
Friedrich Hayek in The Fatal Conceit, quoted by Russ Roberts at Cafe Hayek.
Thursday, December 11, 2008
Wednesday, December 10, 2008
The Anti-Capitalist Intellectual
A September article in the New York Sun describes the mission of the Clemson Institute for the Study of Capitalism, and also illustrates the primary problem: most of the intellectual elite in America are deeply opposed to capitalism.
"Capitalism is thoroughly immoral and has no moral foundation," said Kirkpatrick Sale, the director of the Middlebury Institute, a think tank that studies separatism and self-determination. "In fact, it celebrates all of what we know of as the seven deadly sins except for sloth."
"All fundamental human rights have material and institutional conditions," a professor of law and ethics at the University of Chicago, Martha Nussbaum, said. "There would be no such thing as private property, for example, without government protection of property from trespass and other damages. There would be no freedom of travel if government did not maintain the highways in a safe condition, enforce traffic regulations, and so forth."
She added, "Early capitalists thought parents should be free to use their children for labor; we now think that government must require all children to go to school, no matter what the parents want. The story of the 20th century has been the story of the gradual rejection of the idea of minimal government in favor of a capitalism that protects 'human capabilities,' meaning the ability of people to live a decent life and enjoy their rights on a basis of equality with others."
Tuesday, December 9, 2008
The Dreams of Unknown Men
All eyes are focused on Washington these days. That is just the way the folks in Washington like it. Washington is The Greatest Show on Earth, the World's Largest, Grandest, Best Amusement Institution. Barnum & Bailey has finally met its match.
But there is a far more important and impressive show happening somewhere else. You can find it wherever individuals labor to discover new and useful knowledge: in garages and office cubicles; in buses, trains and commuting cars; in living rooms and across kitchen tables; in easy chairs and taxi cabs. Here, in places like these, wealth is truly created, not just moved around. Here, in places like these, the economic life of the nation rises and falls. Here, millions of individuals satisfy their basic need for security and status through a process of mutually beneficial trading, independent of what happens in the circus tents of Congress
Our economic salvation does not lie in the glitter and pomp of Washington; it lies with the dreams of unknown men.
Friday, December 5, 2008
Tax Haven Myths vs Facts
Part Three of the Center for Freedom and Prosperity's series on tax havens...
Thursday, December 4, 2008
The Moral Basis for Tax Havens
This is Part Two of the Center for Freedom and Prosperity's series on tax havens.
Wednesday, December 3, 2008
Why Tax Havens are a Good Thing
I've added a new link to the Center for Freedom and Prosperity. Based in Alexandria, VA, the Center is a non-profit created to lobby lawmakers in favor of market liberalization. The top project at the Center is the Coalition for Tax Competition, which fights to preserve jurisdictional competition and taxpayer privacy.
Tuesday, December 2, 2008
When Markets Need Help
Over at the Cato Daily Podcast, economist Russell Roberts explains why he is not an anarchist. Markets work, but they don't work perfectly. Sometimes, they need help from the public sector.
Monday, December 1, 2008
Education "Investments"
"I believe that not only should government not increase its spending on higher education, but also that the case for subsidizing it at all is very weak."
George Leef, in the featured article at the Library of Economics and Liberty
Sunday, November 30, 2008
The Rules of the Game
Writing in the Washington Post, columnist George Will quotes Russell Roberts of George Mason University on the danger of New Deal-like attempts to straighten out a misbehaving economy:
"By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s."
Read the rest of "Same Old New Deal" by George Will here.
Here you can read more from Russell Roberts on why the rules of the game are important.
Saturday, November 29, 2008
The Role of Troublemakers in Society
We praise entrepreneurship at least as much as it used to be despised, and for the same reason.
The entrepreneur is an innovator, the discoverer of new and useful knowledge. Radical innovations destabilize groups, organizations, industries, and even whole societies. Innovation is the act of a rebel.
The difference between an entrepreneur and an enemy of the state can be a fine one. The great success of capitalism is that it institutionalizes innovation, which is another way of saying it decriminalizes entrepreneurship. Capitalism makes troublemakers legit.
When the social order outlaws innovation, the innovators become outlaws. Consider pirates, for example.
Friday, November 28, 2008
What's the Plan?
"This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals. Planning in the specific sense in which the term is used in contemporary controversy necessarily means central planning—direction of the whole economic system according to one unified plan. Competition, on the other hand, means decentralized planning by many separate persons. The halfway house between the two, about which many people talk but which few like when they see it, is the delegation of planning to organized industries, or, in other words, monopoly."
Thursday, November 27, 2008
Wednesday, November 26, 2008
A Sustainable Development
On my way to a doctor's appointment, I searched inside my briefcase for something to read while I waited. I found an issue of one of my favorite magazines, Scientific American, dated October, 2008.
Actually, my mother -- God rest her soul -- raised a polite skeptic who tolerates the pretensions of other people, especially when they are well-intentioned and harmless, but is ready to rise up in indignation at the kind of arrogance that presumes to speak ex cathedra . Here is what Dr. Sachs wrote in a column entitled "Coping With a Persistent Oil Crisis":
"...the fundamental factors of supply and demand will keep oil costly for years to come."
"The current energy crisis will most likely worsen before it gets better."
Here is what actually happened to energy prices almost immediately after Dr. Sachs' confident declarations, according to the Energy Information Administration, Harvard summa cum laude notwithstanding:
At Harvard, do they still teach that humility is a virtue, or is pretension a sustainable development?
Tuesday, November 25, 2008
Extraordinary Events
"Extraordinary events do not always require extraordinary causes. Given enough time, they can happen by chance. Knowing this, [Leonard] Mlodinow says, “we can improve our skill at decision making and tame some of the biases that lead us to make poor judgments and poor choices ... and we can learn to judge decisions by the spectrum of potential outcomes they might have produced rather than by the particular result that actually occurred.” Embrace the random. Find the pattern. Know the difference."
Monday, November 24, 2008
Another Urban Myth
Did deregulation cause the financial mess? "Yes," if you ask most people. "No," if you ask a small group of thoughtful commentators who are willing to look beyond the self-serving political spin of the angry legion that wants to crush the spirit of deregulation, once and for all.
Consider Jeff Jacoby in the Boston Globe...
"Like the alligators lurking in New York City sewers, Bush's massive regulatory rollback is mostly urban legend. Far from throwing out the rulebook, the administration has expanded it: Since Bush became president, the Federal Register - the government's annual compendium of proposed and finalized regulations - has run to more than 74,000 pages every year but one. During the Clinton years, by contrast, the Federal Register reached that length just once."
Read the rest here.
By the way, 74,000 pages is equivalent to 74 novels the length of Tolstoy's Anna Karenina. If you read ten pages every night, it would take you twenty years to read all 74,000 pages -- if nothing changes.
Sunday, November 23, 2008
The New Deal Didn't Always Work
"In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives."
Read the rest here.
Saturday, November 22, 2008
Friday, November 21, 2008
The Purpose of Business
What is the purpose of business?
That is a question with many answers. The answer often reveals more about an individual's political point of view than the truth behind the human "propensity to truck, barter and trade."
In repeated trades over time, the strategy of deception produces lower and lower yields. Try it yourself, and you'll quickly discover the truth in the old adage, "Fool me once, shame on you. Fool me twice, shame on me." Deception eventually destroys trust.
Over time, the most successful trading strategy is to cooperate with those who cooperate with you, and to punish or avoid those who deceive you, a strategy that is known as "tit for tat." This type of trading is a non-zero sum, that is a two-person game with two winners. It also has the advantage of a built in mechanism for dealing with cheaters.
Thursday, November 20, 2008
No More Czars
Commentary from Will Wilkinson on the unfortunate habit of naming "czars."
"Remember America's can-do, point man in the war on drugs, the so-called "Drug Czar?" Well, if you like czars, you'll love President-elect Barack Obama. He's proposing a new "technology czar," he's considering a "climate czar," and he's even floated the idea of a "car czar."
In tough times like these, America does not need a dose of tragic Russian authoritarianism. America does not need more czars."
Listen to the rest here.
Wednesday, November 19, 2008
Monday, November 17, 2008
Aristotle, Updated
Aristotle is one of the people Gus was bragging about. In the 4th century BC, Aristotle said that man is a rational animal. Reason is man's most reliable guide, and an essential tool for investigating the natural world. No wonder Aristotle has been called the father of modern science.
But modern economic science teaches us that human reason has its limits. The human mind is not a computer sorting through complex alternatives at the rate of billions per second. It simply does not have the time or the resources to analyze decisions in that kind of exhaustive detail. Somewhere along the way, the mind must decide that enough is enough. It must make a decision on the basis of a reasonable expectation, not an optimal solution. To quote a popular saying, "better a good plan than a perfect one." The human mind is not an optimizer.
In both of Aristotle's 4th century statements, he implies a third point: humans are animals. Modern science has validated Aristotle's conclusion in ways that would have startled but no doubt delighted him. We are more closely related to the animals than he ever could have imagined. We share many of the same organs, physiology, and we have the same genetic material, just arranged differently.
One of the primary goals of animal social behavior is social status. This is visibly true in the world of primates and human teenagers. Status is no less important in the world of adult humans, where it is earnestly but more subtly pursued. Everyone is sensitive to the charge of naked ambition.
In Aristotle's age, status came from an individual's high birth, education, and being Greek (some things never change, Gus). Wealth did not necessarily equal status. In fact, Aristotle's view of the money making business was that it was an unpleasant necessity best left to men of lower rank.
Aristotle's view was not unique. For most of history, making money was viewed as a low-status occupation, less worthy than politics, the military, and religious orders. Napoleon I would famously disparage the English nation by dismissing it as "a nation of shopkeepers."
Napoleon not withstanding, by the late 19th and early 20th centuries, especially in the United States, business fortunes finally brought a social status rivaling that of aristocrats, generals, and religious potentates.
Today, creating wealth through business activity is the most widely accepted means of achieving higher social status. But it is not, by any means, the only one. A degree from an Ivy League school is really more about status than it is about getting a superior education. Driving a Prius is more about status than it is about environmental concerns. In fact, driving a Prius and driving a Maserati serve exactly the same social purpose. Both cars elevate the status of the driver within their chosen circles.
Sunday, November 16, 2008
The Math of Markets
Markets are epiphenomena derived from individual acts of discovery and exchange. In the modern world, markets are described by quantitative expressions. We call these expressions prices.
Prices are also themselves drivers of human behavior. They play the roles of both cause and effect. This duality makes the math of markets very different from the math of the physical world.
In the physical world, math conveys predictability. In markets, math conveys no such thing. In fact, it creates the illusion of a certainty that we do not possess. The probabilities are different. Rocks don't decide where they will go or how fast they will get there. People do.
People often ask, when will prices stop going down? The answer is, when the underlying phenomenon, i.e. human behavior, makes that happen. Predicting the behavior of falling stones is easy. Predicting the behavior of falling markets is as difficult as predicting the next thought that will flicker across your mind.
Saturday, November 15, 2008
Lifeline or New Way of Life?
When business spends more time lobbying in Washington for government money instead of trying to make its own money, it's hard to continue calling it business. Is the bailout a lifeline or a new way of life?
Businesses as diverse as plumbers and boat manufacturers are crowding the halls of Washington. The New York Time reports, "The biggest surprise was how quickly it went from ‘I don’t need this,’ to ‘How do I get in?’ ” said Michele A. Davis, the head of public affairs at the Treasury."
Friday, November 14, 2008
Tyler Cowen on Markets
"Markets allow productive people to provide extraordinary service to generations of their fellow human beings: by inventing new drugs,developing labor-saving devices, or finding cheaper, more efficient ways to supply the world with food. !e chance to become wealthy is often an incentive for such creative types, and ego and ambition are also prime factors. But we should not confuse these motivations with bad character. Markets make it possible to harness our desire for wealth and personal distinction to our more altruistic impulses. They spark us to do good by doing well. And, of course, they create the means for people to donate their wealth and labor to a range of philanthropic causes."
Read the rest here.
Professor Cowen will be the Bastiat Society's December speaker on Wednesday, December 3, 2008.
Thursday, November 13, 2008
Tacitus on Law and the State
Corruptissima in Republica Plurimae Leges
"The more corrupt the state, the more numerous the laws.""
Publius Gaius Cornelius Tacitus (ca. 56 – ca. 117) senator and historian of the Roman empire, Annales III, 27.
Wednesday, November 12, 2008
"We Blew It"
P. J. O'Rourke offers some post-election advice to his fellow conservatives:
"Let us bend over and kiss our ass goodbye. Our 28-year conservative opportunity to fix the moral and practical boundaries of government is gone--gone with the bear market and the Bear Stearns and the bear that's headed off to do you-know-what in the woods on our philosophy.
An entire generation has been born, grown up, and had families of its own since Ronald Reagan was elected. And where is the world we promised these children of the Conservative Age? Where is this land of freedom and responsibility, knowledge, opportunity, accomplishment, honor, truth, trust, and one boring hour each week spent in itchy clothes at church, synagogue, or mosque? It lies in ruins at our feet, as well it might, since we ourselves kicked the shining city upon a hill into dust and rubble. The progeny of the Reagan Revolution will live instead in the universe that revolves around Hyde Park."
Read the rest here.