H.L. Mencken summed up public choice theory in 1936:
[Cross-posted at Shrubbloggers.]
Filed under: Economic Theory, Politics, Public Choice
Comments: 1 Comment
WikiLeaks founder Julian Assange turned himself over to British authorities, but it actually makes little difference what happens to Assange personally at this point–his victory is already assured. Assange’s situation reminds me of what Obi Wan Kenobi tells Darth Vader in Star Wars: “if you strike me down now, I will become more powerful than you can possibly imagine.” Assange and WikiLeaks are the first to disrupt the monopoly information systems of world governments and powerful corporations in a major way, but they will be far from the last, and I don’t think most people fully understand the implications of this.
One person who seems to have a rough grasp on what WikiLeaks means in the long run is legendary New Leftist Todd Gitlin. Writing in The New Republic, Gitlin compares Assange unfavorably to Daniel Ellsberg, famous for leaking The Pentagon Papers during the Vietnam War, because Assange is seeking to cause “system-wide cognitive decline” in the government, and Gitlin understands what that means:
Gitlin clearly disagrees with Assange’s almost wholly negative view of the state, but what I don’t think even Gitlin understands is that this is ultimately not about ideology or value judgments anymore. As information becomes easier to disseminate, secrets will become harder to keep, and it doesn’t matter whether Assange is free or imprisoned, alive or dead, someone will leak information to the public, and the government’s ability to communicate will be further eroded. In short, system-wide cognitive decline will continue apace.
Assange certainly seems to understand what he’s doing, and zunguzungu offers the best summary of Assange’s apparent strategy to undermine the conspiracies that call themselves governments:
(That’s an important excerpt, but, seriously, do yourself a favor and go read the whole thing. The rest of this post will still be here when you get back, I promise.)
The politicians seem to be dimly aware of the threat an open flow of information poses to them and their power, but the only means they have of striking back is killing the messenger, literally, but they can’t fight the future. As a side note, if you believe that the politicians like Joseph Lieberman and John McCain who have called for Assange’s head are doing so because they believe it will help the average American or anyone but themselves, you are deeply deluded. One of the new WikiLeaks cables reveals that DynCorp, a Texas-based company, has been using taxpayer dollars to buy child sex slaves for powerful Afghan men. No federal politicians have called for investigations into DynCorp, and I almost guarantee that they won’t. They don’t care that tax money is spent to subsidize child rape; they only care that the public found out about it. And that’s why they must try to silence Assange, because he reveals the government as the callous, incompetent organization that it is.
What Assange is ushering in is nothing short of the death spiral of the nation-state. Nation-states are masters of centralization, and they thrived in an industrial era when centralization seemed to be the most efficient means of administration–both in political and business affairs. However, in an era based upon information, decentralization is a far more powerful method for generating and using important data, for reasons explained by Nobel Prize winning economist F.A. Hayek in “The Use of Knowledge in Society” over 65 years ago. Once the government’s monopoly on its own information is cracked by Assange and others, the need and likely even the desire for its centralized bureaucracy vanishes.
I don’t pretend to know what will replace the nation-state as an agent of administration, military power, diplomatic relations, etc. As a libertarian, I hope it’s some kind of polycentric government or competing agencies, but that’s far from guaranteed. Despite fighting my entire adult life against the nation-state, I concede that an even worse system could arise from its ashes. However, I am confident that the central mode of governance in the Western World for over two centuries is now on the wane and will begin to disappear over the next thirty to fifty years. Good riddance.
Filed under: Economic Theory, Internet, Politics
Last week at a Liberty on the Rocks meeting, we discussed the need to show others how the market can provide for the disadvantaged better than the government can. Many libertarians may take this for granted, but this is a relatively important fact to establish in order to combat the idea that the government is necessary to help people. I thought I’d write a few posts on the topic of “the market at work” based off a few good examples I have recently encountered. (If anyone else has good examples to share, please do!)
For the last three class periods in my Program Planning class, we have been discussing a case study of KickStart, a company that sells treadle pumps to farmers in Kenya, Mali and Tanzania. A treadle pump doesn’t need fossil fuels to extract groundwater, so it can efficiently provide large amounts of water. It can be a cost-effective method for farmers to increase their output so they can sell their produce.
The Lessons Learned page on KickStart’s site is well worth reading in its entirety, but the main gist is that their founders were unsatisfied with the typical program model that focuses on giving away money or services, which has not been a lasting solution. What the poor need most is a way to make money; providing reliable and long-lasting tools are the best way to help them do that.
It is the “teach a man to fish” idea. Increasing the standard of living of an entire country requires an increase in production. An influx of foreign aid–without a subsequent increase in production– will not raise the standard of living across the board. By creating a tool that will help farmers be more productive, KickStart can help people in a lasting manner.
Essentially, KickStart‘s long-term idea is that “creating a middle class is the most sustainable way to lift a country out of poverty.” To do this, they have created a product that will help people become entrepreneurs.
Using the market
KickStart is different from many similar organizations because it believes that selling their products is better than giving them away. There is an elaborate chart that explains how, because they sell the products, they are able to help three times the number of people than if they gave them away. By commodifying the product, there is a profit motive that incentivizes each portion of the supply chain to become more efficient. Even if the donor funds disappear, people will still be able to get pumps.
Most importantly, the price system also allocates the products more efficiently than giving them away. When people have to make an investment, they are more likely to actually use them to create their own enterprise. The pump makers are accountable to create pumps that fit the needs of their usersr. Because KickStart sells the product, there is a self-sustaining supply chain that keeps costs low and allows people to fix the product when a part breaks.
The Ethics of Selling?
One complaint my class had was that it was “unethical” to sell these treadle pumps because selling exacerbates socioeconomic differences, since those that can afford the pump may be slightly better off already. Inequity is a hot topic issue in many of my classes. While inequity is a problem, I think that the focus should be more on how low the bottom is, as opposed to how different the bottom is from the top. Helping people up from the bottom should always be seen as a good.
But the part that is missed is the effect that something like a treadle pump can have on an entire community. When a few people are able to raise their standard of living, more money is brought into the community. This money is spent on other businesses in the region, which can benefits other people, whether or not they purchases a pump.
Also, the “early adopters” help establish the supply chain and find any “bugs” within the product. Over time, the supply chain and technology will improve both the efficacy of the pumps and their cost, allowing other people to buy the pumps. These market forces have been seen in many products; by selling the pump, the proper incentive structure is set up to improve the pump and to determine the method to provide it in the cheapest manner possible. When one looks at KickStart’s data showing that they can help three times the number of people by selling instead of giving the product away, it seems unethical to not sell the pumps.
How successful has KickStart been? We’ll find out after the pending independent evaluation, but the anecdotes seem to show that it has made great strides for many involved. According to their own measures, they have sold 144,600 pumps, helped create 93,200 enterprises, helped 466,000 people out of poverty and generated $94 million in new wages, which is fifteen times the amount of donor funds. This means it took about $60 to get one person out of poverty. Whether or not these results are overestimated, it is still an impressive impact from one organization.
Most importantly though, KickStart is affecting real, cost-effective change that doesn’t rely on government intervention. Emulating and promoting their model elsewhere is one way to show people how the market is the best mechanism to really help people.
Filed under: Economic Theory, Market Efficiency
Comments: 2 Comments
I came across this article about a U.K. think tank’s suggestion to improve British lives: Cap the work week at 21-hours. It’s brilliant reasoning, of course. The study found that people who work fewer hours have more time for fulfilling recreational activities; therefore, the government should mandate that people work less!
At first I wasn’t sure if this study was serious, but I’ve since found that the New Economics Foundation is a real institute, established in 1986, which “aim[s] to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environment and social issues. We work in partnership and put people and the planet first.”
On to the mocking! From the abstract of the study:
Ah yes, because before the Industrial Revolution, farmers and merchants worked about four hours a day, five days a week. The new work week would have people working the equivalent of two Industrial Revolution work days, when 10-12 hour days were typical. The study goes on:
If people are more productive, they should be compensated to reflect that. Indeed, we’ve seen a downward trend in average hours while the average standard of living has increased. These changes do not need governmental intervention to occur; if a company believes its employees are more efficient if they work fewer hours, then it would make financial sense for them to translate that into higher pay and decreased hours.
To its credit, the study recognizes potential downsides of this policy. The article about the study says:
Not to mention, higher prices at the same time! To produce the same product or services, employers will either have to either pay overtime or hire more workers. An employee working 21 hours per week gains less experience than one working 30 or 40 hours; these employees on average are less efficient. This legislation, like minimum wage, makes the cost of labor more expensive, which will translate into higher prices. The NEF’s solution to these problems?
Ah, even higher prices! If a country is to achieve a 21 hour work week, it is because it has gotten so efficient that 21 hours are all that is necessary. (In fact, some people think you can get rich off a four hour work week, but that’s not for everyone.) Mandating a shorter work week does not achieve efficiency though.
At any rate, more leisure time is not a good to be valued infinitely. As Henry Hazlitt explained in Economics in One Lesson, the increase in leisure time has diminishing marginal returns for the employee, while productivity decreases:
People don’t work just to work, but in part because increased income translates into higher standard of living and improved leisure time. Leisure activities necessitate money. The added anxiety of lower take home pay and higher prices would potentially outweigh the added benefits of further leisure time. Unfortunately, the NEF’s study does not thoroughly take into account the unintended consequences of their policy suggestion.
Filed under: Economic Theory, Nanny State, Regulation, Unintended Consequences
Comments: 1 Comment
Attempts to summarize all morality into a simple principle are ancient. Long before Kant’s categorical imperative we were blessed with the Silver and Golden Rules. Indeed, there is a sort of progress in the development of these rules:
But the progress may be illusory. (more…)
Filed under: Economic Theory
Comments: 1 Comment
The left wing caricature of a market economy presents rapacious businessmen monopolizing resources and raising prices to further enrich the wealthy while crushing the poor and middle class. There are a multitude of problems with this notion, but the primary one is that the market almost always discourages monopoly and drives prices down for the benefit of everyone except the firms that cannot compete. Even more remarkable is that in many cases the downward pressure on prices actually reaches its logical conclusion of firms giving away numerous goods and services for free (i.e. at a zero monetary cost to consumers).
One often overlooked example of this phenomenon is the near total availability of condiments at fast food restaurants. Salt, pepper, ketchup, mustard, hot sauce, and more can be taken in large amounts whenever you make an order. When I was still in college, I stockpiled those little packets to use at home so that I didn’t have to pay for them at the grocery store. I’m sure this seems insignificant to most people, but that’s only because the market has made these goods so abundant that we take them for granted. In ages past, salt was such a valuable commodity that it was used as money, giving rise to the expression “worth your salt.” And it was demand for other spices like pepper that sent Europeans scrambling across the world 500 years ago in an effort to reap the enormous profits they could bring. It is nothing short of amazing that what was once so expensive that thousands of people would risk their lives to procure it is now so abundant that we don’t even give a second thought to people giving it away.
A similar, if more high tech, example of the same phenomenon is the plethora of restaurants and coffee shops that now give away free WiFi internet access to anyone who wants it. Most of these places don’t even require users to make a purchase, operating on the belief that the longer a person stays in the store, the more likely they are to buy something. If you have a laptop, you can now access the greatest store of information the world has ever known as much as you want for free, all thanks to the free market, which forces businesses to compete by enticing potential customers with such fringe benefits.
You might object here that the cost of these goods is included in the price of a meal, so it isn’t actually free to the consumer. That cost is negligible, which is why they give the stuff away, but the point is true enough, so let me give you a few examples where the user never has to spend a dime to reap some pretty enormous benefits.
Many of the internet’s most powerful tools are completely free to users. Without search engines, the internet would be of very limited use, but despite being so valuable, they are almost all free because if one tried to charge people would very quickly migrate to a free alternative. Facebook allows individuals, businesses, charities, and all other manner of like-minded groups to set up free profiles and communicate with each other. I regularly chat on Facebook with friends across the country and the globe. Two generations ago, such instant communication wasn’t available at any price, but now it’s just part of an average day. The major search engines and Facebook rely on advertisers to provide their revenue, so you only pay for those services if you buy something through one of their ads.
Furthermore, even these ads typically benefit the consumers. Because the advertisements are generated by a computer program based on information given by the user, they are more likely to be of interest than the average TV or radio commercial, and if a person buys a product because of the ad, he is made better off, provided it meets his expectations. To give a personal example, I discovered the service Groupon, which sells daily coupons to local businesses with steep discounts, through an ad on Facebook. I have eaten numerous meals for around 50 percent off thanks to Facebook, a service that I enjoy for free.
Now contrast these remarkable market achievements with the government. The free market is providing numerous, highly valued goods and services at no cost to the consumer. On the other hand, the government provides many “services” that I don’t even want (e.g. the drug war, the war in Iraq, illegal wiretapping) and never for free. Why anyone would ever prefer the latter to the former is beyond me.
Filed under: Economic Theory, Market Efficiency
Comments: 7 Comments
A number of writers from across the political spectrum have been writing about the word “capitalism” recently. What does it mean? Do we have what it signifies? Does talking about such a seemingly vague thing increase our understanding?
John Stossel argues that we don’t live under capitalism, unless you modify the word to mean “crony capitalism.” His essay “Let’s Take the ‘Crony’ Out of ‘Crony Capitalism’” makes a very familiar case:
This is all very well and good. Accurate in its own way. But I am not sure we should give in to either libertarians who want to defend free markets or statists who want to bury them in red tape. “Capitalism” isn’t a word that means just one thing, just as “democracy” isn’t a word that means just one thing. One usage isn’t obviously better than another. Thackeray’s coinage serves more than one master.
I support laissez-faire. It’s a great and noble — and ultra-civilized — policy. But laissez-faire isn’t the only form of capitalism. (more…)
Filed under: Economic Theory, Regulation
Comments: 3 Comments
As component of its Make a Difference campaign, Starbucks gives its customers a 10 cent discount if they use a reusable travel mug. This is another example of how the private sector can encourage certain behaviors without direction from the government, such as environmental stewardship.
Corporate Social Responsibility (CSR) initiatives like Starbucks’s are preferable to government mandates because they respect individual choice. If, for whatever reason, a person does not want to use a reusable mug, he or she can still purchase coffee.
Consumers win because they pay a lower price for the product and also because their choice is unrestricted. Companies like Starbucks win because they can reduce their material and inventory costs. The environment wins because fewer paper cups go to landfills.
Filed under: Economic Theory, Environment, Market Efficiency
Comments: 2 Comments
Working as an intern for the Cato Institute in 1997 was one of the most formative experiences of my life. During that time, I participated with the other interns in a series of lunchtime discussions with Tom Palmer, a Cato senior fellow, director of Cato University, and also now with the Atlas Economic Research Foundation, where he’s vice president for international programs. I’ve written elsewhere about my high esteem for Tom, and his considerable impact on my own intellectual development, and I could say more — but for now, I’ll get to the point.
The very first reading assignment that Tom gave to the interns was Frédéric Bastiat‘s essay “What Is Seen and What Is Not Seen.” It’s pretty powerful stuff, even today, and even for those of us for whom the ideas contained in that essay are old hat. That may be partly because of Bastiat’s clear, lucid, illustrative way of making abstract economic concepts understandable and unmistakable, but also because the economic fallacies that Bastiat debunked are still widely believed today, so his points remain relevant to modern political and social problems. When journalists — and even a Nobel laureate economist — begin to credit wanton destruction as a form of economic stimulus, it becomes obvious that Bastiat is more relevant than ever. Henry Hazlitt updated Bastiat’s essays for a new generation in his book for which this blog is named. Tom Palmer is helping to bring them to the YouTube generation.
Tom has begun producing a series of video clips with Atlas that aim to take these fallacy-busting arguments viral. I’m far from the first person to link to this clip, and I’ll be far from the last. The belief that destruction — or, for the same reasons, government spending — can stimulate the economy in a useful way is a symptom of lack of forethought. Anybody reading this right now can help stem the tide of economic ignorance by passing on the link to friends, or suggesting it to the reading audience of whatever forum you might participate in.
[Cross-posted at Shrubbloggers.]
Filed under: Economic Theory, Government Spending
Comments: 5 Comments
N.B. I wrote this post a few weeks ago for my personal blog before I changed the site to a new server, and it seems to have gotten lost in the shuffle. I happened to really like this one, so I went through the trouble of retrieving it and thought it was worth sharing here.
I finished season two of The Wire last night (yes, I know I’m way behind on this one), and I thought there was a particularly interesting point about why governments fail running through the whole season. While the show is essentially an in-depth study of how different institutions fail, I think this one might warrant a little drawing out. (This post will not really have spoilers as such, but if you haven’t seen it, you likely won’t get it, so it might be time to stop reading now.)
The whole reason for the detail’s existence in season two is because Major Valchek is angry that Frank Sobotka and his union gives a more substantial gift to the church they both attend than the police union. It is nothing more than a personal vendetta, which just happens to uncover a massive criminal conspiracy. Furthermore, if Valchek had his way, the worst of the conspiracy would have remained hidden just so he could pursue one of the least guilty members of it.
Public choice economics holds that one of the major problems with government is that politicians and government employees do not cease to be self-interested once they become part of the government. They do not pursue some mythical “common good” but their own profit, and Valchek is the perfect illustration of that. To use one of his phrases, Valchek “couldn’t give a hairy-ass fuck” about some ideal like law or justice. For him, being a police officer is about rising within the organization as far as possible and abusing his power to get what he wants in the outside world. There are many “natural police” who do care about doing the right thing, but they are always crushed by the organization, while the Valcheks and Burrells rise to the top. And so it is with every governmental organization. Political decisions are almost never made with an eye to the costs and benefits of the whole society but merely the costs and benefits to the politician or bureaucrat.
Contrast this with the gangs in the show. While there is a great deal of personal animosity between some groups (e.g. the Barksdale and Proposition Joe), it can almost always be set aside if it becomes necessary for the sake of business. At the end of the season the Greek says “Business. Always business,” and it’s a perfect statement for the mentality of almost all the gangsters on the show. They do some truly awful things to keep their business functioning–usually because of the black market nature of their businesses–but it is rarely for any personal reason. Their organizations exist for one reason: to sell a product that people want. If they lose sight of that, they will cease to exist.
However, the police and other government organizations only theoretically exist to enforce laws and mete out justice. In reality they have as many different missions as there are personalities involved. What benefits one division of police, almost inevitably hurts another, so the organization can never be organized because no one can agree on its goals. The police can only muddle forward, fighting each other almost as much as they fight crime, while even if the gangs are feuding, the shit makes it to the street.
Filed under: Drug Policy, Economic Theory, Market Efficiency
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