Leading the Revival of Individualism & Self Reliance

Shall We Regulate Google, Facebook, Amazon & Twitter? No. Market-Based Creative Destruction Will Do The Job.

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A bipartisan anti-tech fever has taken hold in Washington with Left and Right alike calling for greater regulation of America’s digital giants such as Google, Facebook, Amazon, Twitter, and others. This so-called “techlash” threatens to undermine the massive benefits associated with the rise of the Internet and the Digital Revolution by putting antitrust lawyers and regulatory bureaucrats in control of fast-moving tech companies, whose apparent crime is giving the world affordable, high-quality services.

Worse yet, some tech companies appear ready to cut deals and cozy up to regulators here and abroad. For example, Facebook’s Mark Zuckerberg recently penned an essay inviting increased oversight of his sector, which is easy to say once you’ve made your billions and want to close the door on new competition with the help of expensive new mandates.

Joseph Schumpeter must be rolling in his grave at the sound of all of this. Writing over 75 years ago, the Austrian-born economist laid out a vision for how dynamic competition and innovative economies develop. In doing so he gave us a model for how to think about public policy in fast-moving tech markets—and how to get all new markets and technologies.

Two Lessons

If Schumpeter were alive today, he’d have two important lessons to teach us about the techlash and why we should be wary of misguided interventions into the Digital Economy.

First, Schumpeter would remind us that textbook theories of static “equilibrium” and “perfect competition” do not represent reality. Economic change is instead “an organic process” that “never can be stationary.” What really matters, he argued in his 1942 book, Capitalism, Socialism and Democracy, is “competition from the new commodity, the new technology, the new source of supply, the new type of organization,” because it is that sort of innovation, “which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.”

This was Schumpeter’s now-famous model of “creative destruction,” and it perfectly explains much of the intense competition we see at work in the modern Digital Economy. “This kind of competition is much more effective than the other,” he argued, because the “ever-present threat” of dynamic, disruptive change, “disciplines before it attacks.”

We can summarize Schumpeter’s first lesson in two words: Change happens. But disruptive change only happens in the right policy environment. Which gets to the second great lesson that Schumpeter can still teach us today, and which can also be summarized in two words: Incentives matter. Entrepreneurs will continuously drive dynamic, disruptive change, but only if public policy allows it.

Schumpeter explained how entrepreneurs are in a sort of quest for a prize. The primary prize he identified was profits, of course.  Entrepreneurial gains—even supranormal short-term profits—need to be tolerated if innovation is to occur. Innovators will only take risks if they can expect the potential for gains from it. But there are other “prizes” entrepreneurs are in the game to “win”—novelty and notoriety are two other big drivers. Other times entrepreneurs dream of changing the world to advance an important cause or personal desire.

Regardless of the prize, public policy must not discourage these races or else fewer innovators will be willing to risk everything in an attempt to unseat dominant market players. Instead, regulatory attempts to micromanage markets and limit entrepreneurial rewards will give us stasis and retard market change by undermining what Schumpeter referred to as “the most powerful engine of that progress,” i.e., profits. Denying those in the race for the potential for profits or other rewards means that society will be stuck with yesterday’s technologies and industries when what we really need is all new players and innovations.

Constant, Unexpected Change

This is the formula that helped power the Digital Revolution and topple Analog Era giants in the process. Think back just 15 years ago and consider the markets for video rentals and cell phones. In 2005, the Federal Trade Commission pressured video rental firms Blockbuster and Hollywood Video to call off a proposed merger. Antitrust officials were defining markets so narrowly that they didn’t even see the coming online video tsunami, which would wipe local video stores off the map thanks to Netflix and other innovators.

Around the same time, regulatory pundits were worried about the growing power of firms like Motorola, Nokia, Palm, and Blackberry in the mobile phone market. The idea that computer or Internet companies like Apple and Google could displace those giants was unthinkable at the time.  Today we laugh about ever being concerned about those old players.

Similarly, starting around 2010, upstarts Uber and Airbnb rolled the dice on risky gambits to enter local transportation and hotel markets respectively to square off against dominant incumbents who benefited from decades of special rules. Few people gave these Sharing Economy innovators much of a chance, but they are now firmly in the race and offering consumers new choices we previously never enjoyed and will never relinquish.

These case studies represent Schumpeter’s “creative destruction” in action. Moreover, those disruptors inspired countless other innovators who used these new digital platforms and capabilities to give us a growing constellation of “apps” and other corresponding services. Again, this all happened over the course of just 10-15 years.

Change is Still Possible

Critics always have the same response: But this time it’s different! They again take their static snapshots of current market conditions and tell us we have settled into an unassailable monopoly situation. Oh sure we foolishly thought AOL-Time Warner and MySpace were social networking monopolies a short time ago, but this time Facebook really has conquered the world! At least that’s what the pessimists want us to believe.

Again, Schumpeter had an answer for the skeptics: there is no discernable end point to the process of entrepreneur-driven change—so long as creative destruction is not replaced with cronyist public utility-style regulation. If Washington really wants to see challenges to today’s tech giants, then policymakers should not be cutting deals with them or crafting policies in a backward-looking fashion to preserve the old markets those firms dominate.

Instead, policymakers should be clearing away regulatory barriers and tax obstacles so that entrepreneurs can usher in the next wave of innovation, competition, and job opportunities. For example, every convoluted federal, state, and local licensing regime represents a potential barrier to competition and innovation.

Meanwhile, new data collection regulations will limit the ability of new digital ventures to take on tech incumbents. Big incumbents can bear the cost of complying with all that red tape; upstarts cannot.

America’s seemingly inexhaustible supply of entrepreneurial spirit will surprise us with better alternatives than any regulatory wrecking ball Washington devises to demolish existing players or markets. Heed Schumpeter’s lessons and let change happen by getting incentives right such that another wave of creative destruction can work its magic.

Adam Thierer is Research Fellow at the American Institute for Economic Research and a Senior Research Fellow at the Mercatus Center at George Mason University.

The Father of The Information Age And The Socialist State’s Resistance.

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The early 21st century is commonly known as the Information Age. Its genesis was the digital revolution that began in the 1950s, and made possible by the alternating current and wireless transmission pioneered by Poetic Justice Warrior Nikola Tesla. Some of its hallmarks are a knowledge-based economy and a global high tech industry. Of course, the internet is now the hub for social, political, and commercial communication and product delivery. The extraordinarily powerful network known as the world wide web is creating new networks of people and ideas, and it is exposing the inefficiency and corruption inherent in traditional hierarchical organizations.

However, there was another information age that had an even greater impact on human flourishing, and it also exposed the inefficiency and corruption inherent in traditional hierarchies. Much like the last half of the 20th century opened up vast markets for scarce and unknown luxuries, so did the last half of the 17th century. Particularly in Holland and England, ships were arriving from across the globe laden with sugar, spices, cotton, porcelain, tea and coffee. Wealth no longer had to be inherited, and fortunes could be built without the violence of the previous 1000 years. It could be earned, discovered, accumulated, invested, and protected from loss through peaceful and voluntary exchange. And it is the Poetic Justice Warrior Edward Lloyd who was the entrepreneurial firebrand who facilitated the rapid expansion of free enterprise.

The Information Problem

The sheer volume of new global trade created great demands for information about new trade routes, weather patterns, and sailing times between destinations. As economist Friedrich Hayek explains in his well-known essay The Use of Knowledge in Society, no one entity can possibly know everything that all of the market participants know individually. According to author Peter L. Bernstein in his book Against the Gods, even England’s Chief Secretary to the Admiralty knew that his knowledge was insufficient.

Samuel Pepys frequented a coffee house to get news of the arrival of ships he was interested in; he deemed the news he received there to be more reliable than what he learned at his job at the Admiralty.

The proprietor of the coffee house favored by Pepys was Edward Lloyd, and the reason is simple. Like all great entrepreneurs, Lloyd best understood the needs of his customers and created innovative ways to serve those needs. Like the world wide web, he was open for business every day, day and night. His customers were the merchant class doing business along London’s docks. They were ship’s captains, importers and exporters, and risk underwriters. Lloyd knew better than anyone that the most important service he could deliver to these particular customers was information. In 1696 he began publishing Lloyds List, a pamphlet that included information about ship arrivals and departures as well as intelligence on conditions abroad and at sea.

First Mover Advantage

Edward Lloyd’s Coffee Shop on Tower Street opened in 1687, a mere 50 years after coffee was first introduced in England. This was a time when ships and money converged on London, and each coffeehouse had its own specialized clientele, and Lloyd’s were ship owners and merchants. His first customers were primarily men from the ships moored nearby, and it quickly became a favorite (there would about 80 coffeehouses in London by then) because, according to local publications, “the house was spacious, well-built, and inhabited by able tradesmen.” Business was booming, and four years later Lloyd moved it to a much larger and more luxurious location on Lombard Street. It was described at the time as “very neat and shined.”

It was also strategically positioned across from the Royal Exchange where Lloyd employed a staff of five. To further serve his customers and attract new ones, he also hosted regular auctions of ship cargoes. Known as candle auctions, the tension-filled bidding began with a lit candle and ended when the candle guttered. The candle auctions highlight the role of auction markets and prices in the efficient distribution of resources and wealth creation. Not only were ship cargoes auctioned at Lloyd’s coffeehouse, it quickly became the headquarters for the underwriters who guaranteed financial reimbursement to owners for the loss of ship and cargo. According to Bernstein, to accommodate the growing appetite for information necessary for this kind of business,

Lloyd’s List was eventually enlarged to provide daily news on stock prices, foreign markets, and high-water times at London Bridge, along with the usual notices of ship arrivals and departures and reports of accidents and sinkings.

All of this was critical for the underwriters to gain the knowledge and experience needed for taking calculated risks and establishing the prices they charged for insurance premiums. After all, their personal fortunes were on the line. This was the birth of business forecasting.

Net Neutrality

Lloyd fostered this free public exchange of information with a network of correspondents located in shipping centers all over the world. The mailing address used by his correspondents was simply “Lloyd’s.” Think of what he created as a worldwide web of people and knowledge.

To paraphrase Brittany Hunter,

In fact, the only reason the coffee houses were able to become such an integral part of our lives was that they were left virtually untouched by regulatory forces. And since spontaneous order was allowed to occur, coffee house patrons were blessed with unbridled innovation that brought forth a robust variety of services.

Actually, Hunter’s “untouched by regulatory forces” reference was to the internet, not 17th-century coffee houses, but the analogy is extraordinarily fitting. Despots are jealous and suspicious of anything they can’t regulate, not the least of which is the free public exchange of information. In 1675 King Charles II ordered the coffee houses shut down. In February 2015, the Federal Communications Commission (FCC) adopted Net Neutrality rules in order to regulate the internet as a public utility. As President Obama explained:

Companies who connect you to the world have special obligations not to exploit the monopoly they enjoy over access in and out of your home or business. It is common sense that the same philosophy should guide any service that is based on the transmission of information.

What the Obama administration mandated was a typical, ham-fisted, one size fits all service model. Fortunately, much like Charles II’s closing of coffee houses was short-lived, the Net Neutrality regulations were reversed by President Trump’s FCC in 2017. As poetic justice would have it, a century after Edward Lloyd established his coffee house, 79 underwriters who did business at Lloyd’s joined together in what they called the Society of Lloyd’s. It eventually became the world’s largest insurance company, Lloyd’s of London, and helped accelerate the course of peaceful human progress.

 

 

 

Notre Dame de Paris – It’s Up To Us to Preserve Its Spiritual Symbolism of Beauty and Peace

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“Upon the face of this aged queen of French cathedrals, beside every wrinkle, we find a scar.” These words are from Victor Hugo, and his classic novel Notre Dame de Paris (from which we get The Hunchback Of Notre Dame). This “sublime and majestic building” was begun in 1163 during the reign of King Louis VII, and finished more than a century later. Hugo explains that “the various marks of destruction” by the work of Time are not nearly as egregious as “that of Men, especially the ‘men of art,’ since they are the ones who have styled themselves architects.”

The Premodern World

So who were the original builders of Europe’s medieval shrines to the divine? We don’t know them as individuals. As historian William Manchester explains in his book on the subject, A World Lit Only by Fire:

In many ways the most significant dimensions of the medieval mind were invisible and silent. Even those with creative powers had no sense of self. We know nothing of the architects or builders. They were glorifying God. To them, their identity in this life was irrelevant.

Of course the skilled laborers and designers were quarrymen, stone masons, engineers, architects, and artists. And what a marvelous testament they gave to division of labor and specialization as the foundations of human peace and prosperity.

Upon completion of the Gothic masterpiece, Our Lady of Paris suffered many attempts to improve its façade. Hugo claims “these modern fashions, more and more silly and grotesque,” have done more damage than revolutionary crowds. This treasure was finally rescued from further defacement toward the end of the Renaissance.

And during that era, another massive project was being launched, a structure whose gravity would shake the earth. While the medieval builders are unknown, and possessed only first names, the designers of this new structure had surnames, and egos. They included Montesquieu, Voltaire, Locke, and Madison. And they replaced the building material of choice, the gray matter of stone, with the gray matter of neurons and synapses.

The Great Upheaval

It was a time when the power of the human mind was unleashed. After a millennium of dormancy, the wonders of spontaneous order spread like stardust throughout the universe. As historian Jay Winik reveals in his epic account of the late 18th century titled The Great Upheaval:

In a symbolic passing of the torch from the Old World to the New, Voltaire embraced the rustic republican Franklin in Paris, yet simultaneously worshipped Catherine the Great. In the end, this founding moment of our modern world is not simply a story of America, France, or Russia, or for that matter, any one nation. It is a global story, and it is an extraordinary tale.

While Russia regressed into repressive despotism, and France into tragic revolution, the promise of the Enlightenment coalesced into America’s Declaration of Independence. British philosopher G. K. Chesterton describes it as “perhaps the only piece of practical politics that is also theoretical politics and also great literature. It enunciates that all men are equal in their claim to justice, that governments exist to give them that justice, and that their authority is for that reason just.”

The ground shaking edifice, the one that enshrines the ideals of the Declaration, is the American Constitution. And it was a stunning innovation; one whose engine was fueled by a uniquely modernist invention: connectivity. As psychiatry professor Jordan Peterson explains, “Every bit of new information challenges a previous conception, forcing it to dissolve into chaos before it can be reborn as something better.”

Time, Turmoil, and Torts

Like the architectural and moral center of Paris, the most enduring moral achievement of the Enlightenment quickly came under siege. In the three hundred years following their respective christenings, both were forced to endure changing times and cultural upheaval. But most appalling of all, defacement by their caretakers. In both cases the same forces were at work: the elites of expert planning.

As Hugo asks, “Who set cold white panes in place of that stained glass of gorgeous hue, which led the wondering gaze of our fathers to roam uncertain? An architect, on the plea of good taste, amputated it.”

And one might also ask, what has become of the 10th Amendment to the US Constitution, the one that guarantees federalism? Our progressive masters, on the plea of the common good, amputated it.

Both crimes evoke Hugo’s explanation: “Time is blind, man is stupid.” In the case of the postmodern defacers of the Constitution, whose stated intent is to amputate the preface to the Declaration of Independence, meaning repeal Natural Law, they justify it with their claim that human nature has evolved.

The Emergence of Ego

Victor Hugo, a 19th century Romantic, had a keen vision of Europe’s history, powerful communication skills, and a humanist outlook for the way things should and could be. His work has given voice to France’s premodern creative minds, because in their time that was not possible. To appeal from the supreme voice of the Church was heresy, and a treason. As Manchester explains about medieval times:

Any innovation was inconceivable; to suggest the possibility of one would have invited suspicion, and because the accused were guilty until proven innocent by surviving impossible ordeals, to be suspect was to be doomed.

This all changed with the rediscovery of classical Greek philosophy. The upheaval it created, when blended with the mysticism of the Church, became the Renaissance. As Peterson tell us, “Michelangelo’s great perfect marble David cries out to its observer: “You could be more than you are.” And 18th century economist Adam Smith also gave voice, to specialization and the miracles of division of labor.

Instead of living a premodern life of determinist resignation to the divine G (almighty God), or a postmodern life of collectivist resignation to the profane g (almighty government), Hugo has taught us there is a better way. It is the affirmation that comes with a life of self-creation.

 

Pete Buttigieg Doesn’t Believe In Capitalism, Individual Rights Or Private Property.

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The Democratic Party’s latest flavor of the week, Pete Buttigieg, shocked Meet the Press viewers when he openly called himself a “capitalist” during his interview. Like so many others, Buttigieg announced in January that he would be launching an exploratory committee as a potential Democratic candidate in the 2020 presidential race. However, calling himself a capitalist at a time when the left considers this to be an “evil” ideology might not go over so well with Democratic voters.

But Buttigieg toes a very strange line. The openly gay millennial candidate is younger and “cooler” than his counterparts and has gone after issues that most Democrats never touch, like the national debt. But while he tries to present his policy stances in a light more appealing to moderate Democrats, at the end of the day his views are not all that different than those of other candidates like Elizabeth Warren and Bernie Sanders.

Despite what he may say, Buttigieg’s ideas are antithetical to free market capitalism. In fact, when pressed further during his interview, Buttigieg went so far as to say democracy should not be sacrificed for the sake of a free-market economy. And in making this comment, he has shown that his understanding of both democracy and capitalism are limited and misguided.

Buttigieg Is Not a Capitalist

When it comes to issues of economics, Buttigieg (pronounced Buddha-judge) is just like most of the other candidates in his party in that he is in favor of single-payer health care and labor unions. According to isidewith, a site that keeps track of the different policy positions of various candidates and politicians, he is also in favor of raising the minimum wage, raising taxes on the wealthy, and raising corporate tax rates.

He once said,

What is extraordinary is to do massive tax cuts for the wealthiest, blowing up the debt in the context of an economic recovery where you didn’t need that stimulus in the first place and no one was even asking for it.

This kind of rhetoric is really no different than what we hear from others in the party, like Warren and Alexandria Ocasio-Cortez.

When it comes to college, he would like to expand Pell Grants to students to make college more affordable. However, unlike Sanders, Buttigieg stops short of calling for free college, which, to be fair, is a pretty genius way to separate himself from the likes of Sanders and other democratic socialists while still catering to a progressive audience by promising to make college more affordable at the taxpayer’s expense.

One of Buttigieg’s biggest issues is regulatory capture. For those unfamiliar with the phrase, it is considered to be a type of government failure that occurs when regulators and the commercial market entities they are regulating end up working in cahoots to pass laws that mutually benefit one another. Of course, rather than blaming an overzealous government and overregulation for this “phenomenon,” Buttigieg is more concerned with corporations having too much power.

To be sure, what Buttigieg calls regulatory capture is really just a form of cronyism, and it is absolutely a problem. But his approach to fixing the problem is backward: Buttigieg would like to see more government regulation passed, all in the name of stopping collusion between businesses and regulators. He said:

When you have the kind of regulatory capture where powerful corporations are able to arrange the rules for their benefit, that’s not real capitalism.

The true solution to this problem is fewer regulations and thus, fewer protections given to powerful corporations looking to get in bed with the government for their own advantage. Without these state-granted privileges, all market entities would have to compete fairly for consumers.

Democracy and Capitalism

Since none of these economic stances are really aligned with true capitalism, audiences were shocked to hear Buttigieg call himself a capitalist on Meet the Press.

When Chuck Todd asked the 37-year-old mayor of South Bend, Indiana, point blank if he was a capitalist, his response was “Sure, yeah.” Initially, this seemed like a rather bold statement for a potential Democratic candidate to make since anything short of a blatant denouncement of free enterprise is considered an endorsement for the Republican Party these days. But wait, there’s more.

Qualifying his response, Buttigieg said the following:

It’s got to be democratic capitalism. And that part’s really important, and it’s slipping away from us. In other words, when capitalism comes into tension with democracy, which is more important to you? I believe democracy is more important.

Favoring democracy over capitalism should scare anyone who believes in private property or individual rights.

Today, the word “democratic” has become a magical “cure-all” adjective that, when placed before another term, suddenly makes it less threatening. Regular socialism may be terrible, we are told, but democratic socialism, according to the likes of AOC and Bernie Sanders, is different.

Democratic socialism, it is said, will never lead to the same economic and social disasters that have occurred in places like Venezuela since “democratic” somehow implies that this system is controlled by a government that is subject to the “will of the people” and thus protected against overreach and abuse.

Similarly, democratic capitalism calms the fears of those normally opposed to capitalism, promising to rein in the market by placing the economy under the control of a democratic state. But a market controlled by a state apparatus is closer to economic fascism than capitalism, no matter how much Buttigieg would like to believe otherwise. That sort of controlled economy is essentially what we have now. And what we have at present is an economy being strangled by state intervention and regulation.

Yet Americans, Buttigieg included, continue their love affair with the word democracy, even if few actually understand it.

In a 1992 piece for The Los Angeles Times, Marvin Simkin aptly wrote:

Democracy is not freedom. Democracy is two wolves and a lamb voting on what to eat for lunch. Freedom comes from the recognition of certain rights which may not be taken, not even by a 99% vote.

Simkin is absolutely correct, and the rights he speaks of are, of course, individual rights. James Madison famously said, “Where a majority are united by a common sentiment, and have an opportunity, the rights of the minor party become insecure.” And there is no minority smaller than the individual.

Furthermore, recognizing that democracy is not all sunshine and rainbows like many assume it is, it becomes ever more clear that capitalism and democracy do not actually go hand in hand at all.

As economist Randall G. Holcombe noted in “Liberty and Democracy as Economic Systems,” published in the Independent Review:

There are inherent tensions between democracy and a free-market economy that make it difficult to maintain a stable system. In particular, the ascendancy of democracy threatens the survival of the free-market economy, which was built on a foundation of liberty. . . . The evolution of democracy has come at the expense of liberty.

An essential component of free-market capitalism is an extremely limited government that protects individual rights and stays out of the marketplace in order to let producers properly meet the needs of their consumers. Democracy, unfortunately, does nothing to limit the government’s power in this manner, or at all for that matter.

Arthur Foulkes made this very point in a 2006 FEE article:

Democracy, however, makes no promises regarding the size and scope of government. Indeed, it could be argued that democracy is inherently hostile to limited government since many citizens in a democracy (including many so-called “capitalists”) soon find they can successfully lobby government officials for subsidies, trade protection, and other legal privileges. Likewise, elected officials soon learn it is in their interest to strategically grant economic favors for their own political and electoral needs.

Oddly enough, the same reasons Buttigieg is opposed to an unbridled free market sound very similar to Foulke’s explanation as to why democracy is naturally at odds with capitalism.

John Wenders once wrote in The Freeman, “Democracy evolves into kleptocracy.”

This, of course, is among the many reasons America’s Founding Fathers feared the raw power of unrestrained democracy.

Stop Trying to Make “Democratic Socialism” Happen

Just like Bernie Sanders uses the term “democratic socialism” to downplay the horrors of socialism, so is Buttigieg using “democratic capitalism” to appear more moderate among the radical Democratic candidates.

But there is danger in using this term. Truthfully, capitalism and democracy do not go together at all. And as Buttigieg himself admits, if made to choose between democracy or capitalism, it would be the former. A true believer in individual rights and private property would never sacrifice the free market to the will of the majority.

Ray Dalio Has Made His Pile, So Now He Wants To Change The Rules.

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Hedge fund titan Ray Dalio is just the latest billionaire to call for government to save us from guys like him.

It’s not pretty. Dalio’s recent article titled “Why and How Capitalism Needs to be Reformed” is a mess, though to be clear it’s a thoroughly well-intentioned and heartfelt mess. It’s a mix of self-effacement (I’m just a lucky guy with good parents who went to good public schools!), dubious statistics concerning the non-problems of wealth and income inequality, and utterly unoriginal, counterproductive proposals for government action. But approving journalists can’t get enough of it, or him, because nothing beats a billionaire’s mea culpa for capitalism. So Dalio, fantastically rich and successful at age 69, finds himself a media darling on financial talk shows after a recent kickoff appearance on CBS’s 60 Minutes.

The article, in two parts, is fairly long. It spends several pages discussing the author’s own background, wage and income inequality, bad schools, lack of child care, lack of health care, and a host of other standard left-liberal complaints. But we can summarize Dalio’s bottom line, as he does in a section called “What I Think Should be Done.” It’s an exercise in bland, meaningless jargon and lack of specifics:

  • Leadership from the top. People with their “hands on the levers of power” (yikes!) need to make inequality a priority. Obviously he means politicians and corporate leaders, and does not intend to lessen the “power” of either. But if bad politicians and greedy corporate types got us into this mess, how will they get us out? More importantly, and left unaddressed, is any suggestion of their incentives to do so. After all, the present system made them rich, powerful, and unaccountable.
  • Bipartisan policymakers working together to “divide and increase the economic pie better.” More politics, which doesn’t work and can’t work. Whose policy? What makes a policy good? Why hasn’t this supposed policy consensus already emerged on its own?
  • Clear metrics and accountability for the “people in charge.” This doesn’t work, and can’t work, in politics. We have centuries of “data” to show how the worst rise to the top of the political world. Government by definition acts outsider the market, and is unaccountable by its very nature as a monopoly. Politicians don’t have a P& L; private businesses do. Again, why does Dalio seem so oblivious to incentives?
  • Redistribution of resources. This doesn’t work and can’t work, except by market processes. Taxes. regulations, economic intervention, and state ownership of industry always reduce total wealth in society. A total non-starter of a tired and thoroughly debunked idea, especially considering we already have a heavily interventionist economy. We also have the entire history of 20th century collectivism to demonstrate why “third-way” interventionism can lead to outright socialism.

Many billionaires—Mr. Dalio, Warren Buffett, and Bill Gates among them— like to call for higher taxes on people such as themselves. But this raises a compelling question: would they have become rich in the first place under the kind of tax system they now advocate? Would they have accumulated a critical mass of investment capital if taxes had consumed more of their profits along the way? Would they have been able to maintain sufficient capital expenditures in their respective businesses to stay dynamic? Or would revenue, capital, and personal wealth lost to the IRS have relegated these super achievers to the status of merely successful?

Well-heeled tax hikers never mention the diminishing marginal utility of money. A billionaire could lose 90% of his/her wealth to the state and remain an elite centimillionaire. Higher taxes for billionaires are simply a cost of doing business, like paying 20% more for an acquisition. But for a “rich” American family making $200,000, or even $40,000 by global standards, a 20% higher tax bill might prevent them from ever reaching their own critical mass of savings and wealth. Just as dominant corporations welcome new regulations, financial elites welcome new taxes as a form of protecting their status from upstarts.

Furthermore, there is no indication Mr. Dalio or other wealthy advocates for wealth redistribution ever practiced this idea in their own businesses. Dalio voluntarily could have paid higher taxes, much higher taxes, both to the federal government and his home state of Connecticut. He could have argued for higher capital gains tax rates, and refused to accept “carried interest” treatment of his firm’s income for management services. After all, to paraphrase Warren Buffett, why should Dalio’s secretary pay a higher tax rate than him?

He also could have equalized pay and ownership among his employees, and hired low-income and low skilled victims of the bad public schools he identifies. He could have run his hedge fund as an employee-owned cooperative. He could have opened his funds to ordinary people with $500 or $1000 to invest.

Perhaps most of all, he could have called for the Federal Reserve to end its practice of keeping interest rates artificially low. Cheap money and credit are the lifeblood of hedge funds, making it possible to buy companies with less equity and more debt—less skin in the game. Leveraged acquisitions allow for fewer shareholders receiving (nondeductible) dividends, along with the tax benefits of deductible interest payments. Cheap leverage made Mr. Dalio billionaire he is today.

But low interest rates cause tremendous harm to average people who simply want to save money in simple, low-risk vehicles, and they distort the entire economy by producing malinvestment, encouraging consumption over saving, and rewarding high time preference. While Dalio admits the Fed favors rich guys by crafting policy that inflates asset prices instead of wages, he remains blind to the central bank’s role as the primary driver of the wealth inequality he laments.

Mr. Dalio is by all accounts a brilliant and hard-nosed businessman. Hedge funds, at least successful hedge funds, make money by ruthlessly identifying untapped value in organizations, replacing board members and management with fund executives, and selling when the selling is good. So why on earth would he pledge to donate $100 million to Connecticut public schools, a system he admits is failing?  Would he invest in a company with a similar track record of spending more and more each year for worse results? A company where he would have no say in management, board governance, operations, or how it spends his investment? Will he maximize, or even measure, the “return” on his investment in Connecticut public schools? Will he seek to minimize risk, in the form of his $100 million being irretrievably wasted?

The answer to these questions is “No”, because he’s not buying a company or making a financial investment. He’s buying goodwill, a form of insurance for billionaires against the growing tide of populist resentment. The infamous Reverend Bacon from Tom Wolfe’s Bonfire of the Vanities comes to mind: Dalio is buying “steam control,” and he’s getting “value for money” as Bacon puts it. He’s buying relief, an indulgence for his sin of getting too rich.

Dalio played the game, by the rules of the game. Now he appears to say, “I’ve got mine, let’s change the rules.”

 

Jeff Deist is president of the Mises Institute.

Trump’s Laudable Strategy Of Values-Based Alliances With Self-Reliant, Self-Determining Nations.

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Self-reliance is a behavioral attribute of great power. Self-reliant individuals are entrepreneurs who know and understand themselves well, are objective in calculating how to serve others best in the economic marketplace in order to thrive, and they assemble the right bundle of resources, including education and skills, to support their individual mission. They know how to collaborate and are thoughtful in joining or assembling teams and common interest groups in the pursuit of shared success, based on shared values. They are entrepreneurs in the broadest sense of the term, imagining a future that can be better for themselves and their collaborators, partners and customers, and working together to bring that future about. When it’s time to change the team or the terms of collaboration, because conditions in the market have changed, self-reliant people are agile in making adjustments.

What if there were a foreign policy strategy like this for the USA? President Trump is designing one.
Yoram Hazony and Ofir Haivry, writing in The Wall Street Journal, describe the new, smarter strategy. First, any entrepreneur starts with an understanding of the problem that is crying out for a solution:

On paper, America has defense alliances with dozens of countries. But these are the ghosts of a rivalry with the Soviet Union that ended three decades ago, or the result of often reckless policies adopted after 9/11.

Asking the entrepreneur’s question – why? – the authors identify the problem in the shape of costs that are not shared, indicative of values that are not shared.

Today a $22 trillion national debt and the voting public’s indifference to the dreams of world-wide liberal empire have depleted Washington’s ability to wage pricey foreign wars. At a time of escalating troubles at home, America’s estimated 800 overseas bases in 80 countries are coming to look like a bizarre misallocation of resources.

……the U.S. can no longer afford to assume responsibility for defending entire regions if the people living in them aren’t willing and able to build up their own credible military deterrent.

……so-called allies include Turkey and Pakistan, which share neither America’s values nor its interests, and cooperate with the U.S. only when it serves their purposes. Other “allies” refuse to develop a significant capacity for self-defense, and are thus more accurately regarded as American dependencies or protectorates.

The USA’s so-called allies also include the European countries in NATO who refuse to spend adequate amounts on their own defense, and, operating under the US defense umbrella, divert spending to the welfare and dependency programs that have resulted in decivilization and cultural decadence. Worse, their decadent ideas float over the Atlantic to pollute America shores.

These ideas are then exported to the U.S. and the rest of the democratic world via international bodies, universities, nongovernmental organizations, multinational corporations and other channels. Having subsidized the creation of a dependent socialist paradise in Europe, the U.S. now has to watch as the EU’s influence washes over America and other nations.

How would the entrepreneurial approach to a foreign policy of collaborative self-reliance evolve? The authors build it brick-by-brick.

The first brick in the wall is to separate the Eastern European nations with a genuine self-interest in deterring Russia from those Western Europeans who, without borders with Russia, have no real skin in the game.

The members of the Visegrád Group—the Czech Republic, Hungary, Poland and Slovakia—have a combined population of 64 million and a 2017 GDP of $2 trillion (about 50% of Russia’s, according to CIA estimates). The principal strategic question is therefore whether these countries are willing to do what is necessary to maintain their own national independence. If they are—at a cost that could well exceed the 2% figure devised by NATO planners—then they could eventually shed their dependent status and come to the table as allies of the kind the U.S. could actually use: strong frontline partners in deterring Russian expansion.

The second brick comes from an examination of shared national interests in repelling the economic and military aggression of the Chinese Empire.

Perhaps the most important candidate for such a strategic alliance is India. Long a dormant power afflicted by poverty, socialism and an ideology of “nonalignment,” India has become one of the world’s largest and fastest-expanding economies. In contrast to the political oppression of the Chinese communist model, India has succeeded in retaining much of its religious conservatism while becoming an open and diverse country—by far the world’s most populous democracy—with a solid parliamentary system at both the federal and state levels.

India’s values, interests and growing wealth could establish an Indo-American alliance as the central pillar of a new alignment of democratic nation states in Asia, including a strengthened Japan and Australia.

A third brick might come from the United Kingdom, if they can extricate themselves from their EU nightmare.

With a population of more than 65 million and a GDP of $3 trillion (75% of Russia’s), the U.K. may yet become a principal partner in a leaner but more effective security architecture for the democratic world.

Adding a few more bricks, like Israel, Japan and Australia, the authors assemble their collaborative alliance of self-reliant nations.

An alliance including the U.S., the U.K. and the frontline Eastern European nations, as well as India, Israel, Japan and Australia, among others, would be strong enough to exert sustained pressure on China, Russia and hostile Islamist groups.

President Trump is often accused of creating a needless rift with America’s European allies. Establishment neo-conservatives portray him as an incompetent bull in their carefully curated china shop. But by assembling an alliance of self-reliant democratic nations, the President could reduce America’s security burden, close a lot of our overseas military bases, and make military intervention the exception rather than the rule.

At the same time, it would free American resources for the long struggle to deny China technological superiority, as well as for unforeseen emergencies that are certain to arise.

Self-reliance works not only for people, but also for nations.

Mr. Hazony is the author of “The Virtue of Nationalism.” Mr. Haivry is vice president of the Herzl Institute in Jerusalem. The referenced article appeared in the April 6, 2019, print edition of WSJ.

Follow Hunter Hastings at hunterhastings.com

When The Left Talks About Their Programs, They’re Never Honest About The Increase In State Power And Coercion.

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The number one problem of all public debate about politics and economics is the failure to name the state. If this would change, so would public opinion.

There is no shortage of examples. People talk about health care for all, solving climate change, providing security in old age, universal educational access, boosting wages, ending discrimination, and you can add to the list without end.

That’s one side.

The other speaks of national identity, protecting jobs, making us more moral, forming cultural cohesion, providing security against the foreign enemy, and so on.

Obfuscation

All of this, no matter how fancy the language, is obfuscation. What all of this really means is: put the state in charge. What’s strange is the unwillingness to say it outright. This is for a reason. The plans the politicians have for our lives would come across as far less compelling if they admitted the following brutal truth.

There really are only two ways to allocate goods and services in society: the markets (which rely on individual choice) and the state (which runs on compulsion). No one has ever found a third way. You can mix the two — some markets and some state-run operations — but there always is and always will be a toggling between the two. If you replace markets, the result will be more force via the state, which means bureaucratic administration and rule by force. If you reduce the role of the state, you rely more on markets. This is the logic of political choice, and there is no escaping it.

The above paragraph is the great truth of political economy. I’ve never seen any evidence to dispute it. And yet it is the great unsayable truth. Seasons of political rhetoric fly by with no frank discussion of what precisely this or that proposal would require of the state and how that will affect our lives, much less a serious analysis of the risks of making a problem worse by replacing market forces.

Diversity in Markets

To be sure, when I say markets, I don’t only mean the money-exchange economy in which prices and accounting govern choices. Markets include philanthropy, familial organization, houses of religion, volunteering to work without pay, and everything else in the social order that relies on human volition. There are infinite varieties in the way markets instantiate themselves in human lives. The variations are contingent on culture, norms, traditions, and so on. There can be more or less voluntary ways the market expresses itself just like there can be more or less coercive forms of statism.

But let us not deny that the choice is real. If this is correct, it is strange how much people complain about markets and how little the only alternative is discussed, studied, evaluated, and finally judged. This is because the statist means will also come up short.

Depending on the state to deliver some social good depends on using the threat of violence to compel people to do what they otherwise would not choose to do. There is also no clean path to doing so; the bureaucracy always ends up as the everyday mediator between the individual and the point of a gun.

You Don’t Like Government

The reason we hear so little frank talk on this subject is that hardly anyone has ever really enjoyed their dealings with a state bureaucracy when it is imposed upon them. You think that the local DMV experience is subpar; wait until you face your first federal audit or FBI investigation, or seek benefits from some agency. Or perhaps you have a relative who is mixed up in the criminal justice system. Whatever it is, no experience in the private sector can compare.

It means unpredictable wait times. You aren’t really a customer; you are a bother — at best. Objecting to any aspect of the service is mostly pointless. Step out of line and you are in trouble. You are a subject, and the sullen faces and dreary postures of your fellow citizens in line underscore the point.

The truth is that no one relishes dealing with the government at any level. Where would you rather be: the driver’s license bureau or McDonald’s? The school district office or a local bar? A military base or a car plant? The courthouse or the shopping mall? Want to deal with a government cop or a private security guard?

There’s a pattern here. It’s a hugely important one. The relationship between the individual and the state, vs. the same individual and the market, is fundamentally different. We all know this intuitively.

I personally know no one who relishes dealing with government. And yet I know plenty of people who support letting government take over ever more aspects of our lives, especially when they don’t understand that their favorite program means exactly that.

How can we make sense of this paradox? Well, most expansions of government power are pushed without overt public approval, with plenty of deception, and with the unfair advantage that government itself has in the political process. In other words, it is not necessary that people actively favor government expansion for government to continue its imperial march through society. It only requires a certain level of passive compliance.

The TSA

The creation of the Department of Homeland Security — and the TSA as the centerpiece — is a great example. I was talking with Edward Lopez, economics professor at Western Carolina University, about how this came about. We were both around at the time and we compared notes.

How did it happen? Government took advantage of public fear and panic following 9-11 to impose what government had always wanted. There was private lobbying too: plenty of contractors have gotten rich, so their lobbying has paid off. The airlines might have played a role too in offloading security liabilities.

Anyone who knew the nature of government could have predicted the results. There have been exploding costs. Individual rights have been violated. Our privacy and constitutional protections have been shredded. Inefficiencies have ballooned. And what for? No credible terrorist threats have really been stopped.

Somehow, at the time this gigantic government apparatus was created, many people imagined that this time would be different, that government would magically do a better job at securing us than the private sector could or would do. Of course, this time is never actually different. The bureaucracy gets created, and then people shake their fists at it. But, by then, it is actually too late.

A bureaucracy created tends not to go away. It gets worse even as it expands and takes on a life of its own. The abuses, wastes, and inefficiencies mount, and no one can do anything about it.

What I conclude from this is that the average person lives with a complete mental disconnect when it comes to government. We don’t like dealing with it. We know the truth in our hearts. And yet we keep suspending our incredulity on the belief that government must be doing some wonderful thing somewhere even if we don’t experience it ourselves.

Government promises always fall short. Even worse, government wrecks what it touches. Wars increase violence. Moral crusades produce opposite results. Cultural planning backfires. Welfare programs break and fail to serve. Monetary policy from the Fed yields massive financial distortions. Government efforts to protect industry lead to inefficiency, shutdowns, and stagnation. Government security makes us less secure and subjects us to scary regiments of spooks and thugs.

In other areas of life, we are seeing the rise of massive innovation in the private sector that shows the failure of government. Large companies are generating their own power. Global digital money is making new inroads. Local zoning laws and taxi monopolies are being strained by private initiative. And the daily excitement about private communication systems is breaking down the capacity of political elites to control the conversation.

The tendency toward loss of political control has inspired new, more extreme, and more obscurantist forms of selling state control to us. As the dynamics of public vs. private continue to shift, we can look forward to ever more obfuscation about the reality of displacing market forces. But once you see what’s going on you, can’t unsee it. The most effective path toward helping others see too is simple: name the state.

The bitter truth about most public policies being sold by the political class is that they give them more power to control our lives. If you favor some of these policies, be honest with the rest of us about what you mean, so that we can make more clear-headed judgments about the kind of society we want to live in.

 

Authored by Jeffrey Tucker via The American Institute for Economic Research.

Road To Serfdom

Democratic Socialism Is Not Only Unachievable, Its Unintended Consequences Would Be Unbearable.

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When F.A. Hayek moved to Britain in the early 1930s from his native Austria, he was struck by what he saw as the same attitude among British intellectuals as he experienced among German thinkers during the 1920s. There was an extreme skepticism toward the market economy and capitalism, coupled with great optimism for planning and the promise of socialism. Advance the calendar almost a century, and Hayek might hear the chorus of Alexandria Ocasio-Cortez, Elizabeth Warren, and Bernie Sanders humming the same reprise. His ears may even perk up a bit when harmonies emanate from right-leaning folks like President Trump, who dabble in central planning.

British intellectuals in the ’30s such as Harold Laski and William Beveridge were dedicated social reformers. They despaired over the social costs they identified with unbridled capitalism resulting from monopoly power, externalities, macroeconomic volatility, mass unemployment, and income inequality. E.F.M. Durbin’s 1934 Labor Party Policy Committee “Memorandum on the Principles of Socialist Planning” promised that a planning system could eradicate the social ills emerging from the market’s inherent weaknesses. But a critically important point to understand is that from the perspective of these intellectuals, they were socialists in their economics precisely because they were liberal democrats in their politics.

Hayek heard all this before in the coffee houses of Vienna and throughout German-language periodicals. By the late ’30s, he decided to offer a warning to his sincere colleagues and fellow liberal democrats. “The Road to Serfdom” was the result of that effort.

He sought to demonstrate the incompatibility of socialist economic policy with the rule of law and democracy. Key to his argument is that in a democratic liberal society, there’s no overarching single scale of values. Society cannot achieve a single hierarchy of ends we all agree on. In fact, the great strength of democratic liberal societies is a multiplicity of values that are respected among diverse and often divergent, even distant, individuals. Liberal democratic society is a pluralistic society.

There are severe limits of agreement on the ends within a functioning democratic society, and thus we must restrain ourselves to an agreement on the means by which we interact, resolve conflicts, and come eventually to live better together with one another than we ever could live in isolation. Democracy in this sense is a way to relate to one another as dignified equals—not simply as a set of voting procedures such as one person, one vote majority rule.

In “The Road to Serfdom” Hayek gets to this point when he argues that “whoever controls all economic activity controls the means of all our ends and must therefore decide which are to be satisfied and which not.” So, Hayek warns his friends—“those socialists of all parties,” to whom he dedicates the book—that “democratic socialism, the great utopia of the last few generations, is not only unachievable, but that to strive for it produces something so utterly different that few of those who now wish it would be prepared to accept the consequences, many will not believe until the connection has been laid bare in all its aspects.” To lay bare the consequences for liberal democracy of socialist economic policy is what Hayek set out to do not only in “The Road to Serfdom” but throughout his career, culminating in “The Fatal Conceit.”

It’s important to understand, however, that his argument was never a slippery slope argument as critics often suggest. Hayek’s economic analysis of socialist economic planning reveals that policies employed to achieve impossible goals will lead to dire unintended consequences. Crucially, once faced with such frustrating feedback, it’s up to those in positions of power to decide to continue down their predetermined yet flawed road, or to change path.

The book is not deterministic. It’s a warning that, if heeded, means that the road where the danger to our freedom lies can be avoided. For many years, the UK and Nordic countries were headed down that road, but their leaders changed course—in part due to Hayek’s influence and the failures of the Soviet Union. For many, these lessons still inform their stance on government today, such as when former Swedish Prime Minister Carl Bildt recently chided Berne Sanders’ socialist policies.

Yet if recent trends are to be believed, intellectuals, policy makers and the youth in the United States and the UK are turning their backs on Hayek’s warning. Angered by two decades of international conflict since the 9/11 attacks, the discontent with globalization, and the outrage of the global financial crisis—which robbed individuals and communities of their livelihood and in many instances their dignity—the capitalist system is perhaps more under attack today than any time since the 1930s.

While nobody is calling for comprehensive central planning and the abolition of private property, calls ring out for government involvement in the economic and social system at every stage, and the establishment of large-scale policy initiatives to address societal priorities. The Green New Deal was introduced only shortly after the Council of Economic Advisors produced a report on the opportunity costs of socialist policies.

In any public policy discussion, we should insist that the debate move from the level of abstract desirability to the concrete level of feasibility. If we really want progress, we must earnestly scrutinize the array of feasible outcomes that are economically viable. Such moves in public discourse require a discipline in intellectual affairs that seems almost out of reach at this time of division and discord.

But this challenge is certainly less daunting than the one Hayek took up when he began his “Abuse of Reason” project and released “The Road to Serfdom” 75 years ago. A fresh reading of the book today provides a calm and sober analysis of economic and political systems, not at all prone to hyperbole as Hayek’s critics contend. His argument is a subtle and nuanced one examining the situational logic of comparative institutional arrangements and the impact on productive specialization and peaceful social cooperation among free and equal people.

Hayek still speaks to us today about the nature of democratic ways of relating to the rule of law, the structure of government, the role of public policy, and the promise of an international order of cosmopolitan liberalism. The book may be 75 years old, but its essential message is as young and fresh as any work in political economy and social philosophy that you will read this year.
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Peter Boettke is Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU. This article first appeared at AIER.org.

We Need The Billionaires Who Revive Neighborhoods Where The Rest Of Us Don’t Feel Safe.

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David Parker revives neighborhoods in the Boston area. Since the 1970s he has gone into the most impoverished parts of the city, only to buy the apartments and buildings that very few wanted. Parker’s intrepid nature proved prescient. The locales once shunned by Boston’s many well-heeled residents are now very desirable to them.

Parker’s success is an effect of him having fixed what was broken. Yet he’s very modest about it. Lightly paraphrasing this most courageous of investors, “I could only afford neighborhoods that I didn’t feel safe in.”

Seeing Potential Where Others Don’t.

People like Parker are essential to progress. They see potential where others don’t, and they set about unearthing the potential.

Parker is also a free thinker. He thinks government is too large. This rates mention given his long-ago observation that there should be a Museum of the Unseen. Channeling the brilliant 19th century political economist Fredric Bastiat, Parker likes to imagine what diseases aren’t being cured, what technological advances aren’t revealing themselves, and yes, what neighborhoods, towns and cities aren’t being revitalized simply because politicians are vacuuming up so much previous capital that might, absent the taxing and spending, be put to daring use by the courageous.

All of this came to mind while reading in the Wall Street Journal recently about New York real estate developer Jay Sugarman. Sugarman is one of those intrepid sorts who, like Parker, fixes what’s wrong.

As the Journal’s Keiko Morris put it, ten years ago Asbury Park, NJ (most famous as the part of the Jersey Shore where Bruce Springsteen got his start) was “pockmarked with half-finished buildings and vacant land poised for redevelopment.” Enter Sugarman.

According to Morris, Sugarman “saw potential” where others didn’t. He started buying up land at a time when more than a few felt residential real estate was done for the foreseeable future. Lest readers forget, 2008 was prominent in the rear-view mirror.  As Sugarman told Morris, “It wasn’t obvious in 2009 or 2010 that this [Asbury Park as a wise investment choice] made sense.” Amid healthy skepticism, Sugarman had to “go all in and push all the chips onto the table.” His gutsy decision was rewarded.

Per Morris once again, the formerly dilapidated town that Springsteen once described as “Newark by the sea” is experiencing a revival defined by “new restaurants, art galleries and music venues.” Sugarman’s company (iStar) has on its own put $300 million into Asbury Park projects, and hopes to achieve an impressive return. For now the latter looks promising, but one never knows. Things change. So do tastes. So does the economic outlook.

We Need Those Who Can Afford To Push All The Chips On The Table.

That’s of course what’s so crucial about people like Sugarman, along with investors who back people like him. That they’re willing to do what isn’t necessarily obvious, that they’re willing to “push all the chips onto the table,” means living standards continue to rise. Sugarman and others like him are entrepreneurs in the truest sense, and they are precisely because they see things differently than others. And they’re willing to act on their contrarian visions. Translated, people like Sugarman are willing to lose.

All of this rates thought in consideration of the never-ending debate about taxation. To hear the class warriors say it, the rich aren’t paying enough. Even though the top 1 percent of earners account for nearly half of all federal tax revenues, this isn’t enough for those who live to redistribute. They want the rich to pay much, much more. Such a view is quite literally impoverishing.

It is given the basic truth that $100,000 in the hands of a billionaire is nothing like the same amount in the hands of someone worth $200,000. Someone with a $200,000 net worth is much more often than not going to look the other way when it comes to investing in the Asbury Parks of the world. With good reason. What’s less than obvious is not a good way for hundred thousandaires to put their savings to work. And so they quite logically buy what’s obvious; blue chip stocks, housing in established neighborhoods. There’s nothing wrong with this approach. It’s called wealth preservation.

But a billionaire? Such a person has money to lose. This is a crucial distinction that the class warriors routinely gloss over to the detriment of everyone else. The superrich have money that, if they lose every penny of it, won’t materially alter their lifestyles one iota. It’s a safe bet that people like this have backed Sugarman at various times in his career. The “seen” result is towns like Asbury Park that are improving by the day.

What was once wrecked, and a “drive-through” town for the Springsteen curious is increasingly a living destination. Thanks to Sugarman and others possessing nerve and/or money to lose, what formerly had forgotten qualities is more and more on the minds of those with means.

The Seen And The Unseen

Thinking about all this through the prism of David Parker’s Museum of the Unseen, it’s sadly an accepted reality on the left AND right that the rich, for being rich, should shoulder a very large portion of the total tax burden. They once again account for the vast majority of federal revenue, but there’s no policy proposal on either side that aims to correct this most impoverishing of realities. Figure that even a flat tax, or even a consumption tax, would result in the rich handing over exponentially more to the feds than everyone else. And what crucial money this is that they’re handing over.

Indeed, imagine for a moment the various cities and towns across the U.S. that have Asbury Park potential, but that no investors presently deem worthy of investment. This isn’t to say that all of them would be fixed overnight if we ended the impoverishing practice of overtaxing the rich, but it’s surely safe to say that absent a steeply progressive income tax structure, there would be many more Asbury Park-style stories.

What would they be? Where would they be unfolding? The answer is that we don’t know. What’s not improved thanks to excessive taxation pulling the most important money of all away from the private sector is always and everywhere unseen.

John Tamny is editor of RealClearMarkets, where this article first appeared. 

AP Photo/Seth Wenig

Economics For Entrepreneurs: Entrepreneurs Change The World For The Better By Thinking Exclusively About How To Offer New Value To Consumers.

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Politics is hardly an effective force for bringing about positive change in society. Instead, real change, and especially such that changes people’s lives for the better, comes from elsewhere. It comes from business, and specifically from innovators, entrepreneurs, and pioneers in the market. And very often it does so despite politics and the state — or even in direct conflict with it.

While technology often gets the credit for achievements of the market place, this is too much of a simplification. It is not technology per se that produces the changes and improvements; it is but a common (and eye-catching) means. The real change is brought about through entrepreneurship, specifically through what Ludwig von Mises called the entrepreneur-promoters: the pioneers, the disrupters, the creative destroyers.

These innovative and trailblazing entrepreneurs are often thought of as creators of something new. For example, it is easy to see the immense change brought to the market for personal transportation by new and innovative players like Uber and Lyft. By providing a new type of transportation — ride-sharing — these entrepreneurial firms placed themselves outside of the existing regulatory framework for taxi cabs. And thus they broke new ground and forced deregulation of the often guild-like taxi industry.

Ride-sharing is an obvious and important example of the enormous change that entrepreneurship can have on society — for the better, by providing new goods and services, and thus improving people’s lives. This is the power of the market. But that is too limiting a definition of disruptive entrepreneurship. Such change can also be brought about by incumbent business firms who pursue new and innovative business models.

A Membership-Based Auto Industry

An example of such is the recently advertised change in how automobile manufacturer Volvo intends to do business. While other automobile manufacturers are stuck, partly due to protective regulation, with producing automobiles sold through a vast dealership network, Volvo intends to stop selling automobiles. Yes, you heard that right.

The new program, Care by Volvo, is a flat-rate membership in which you are provided access to your automobile — with maintenance, service, and even insurance included. While this seems like an interesting twist on the face of it, it is a new business model that has the potential to revolutionize the automobile industry. Drivers no longer need to own their cars, and they also, as a result, do not need to worry about anything with the usage of their car. There is an immense convenience gain.

But think one step further. If a Volvo membership, rather than owning an automobile, means you have the right to a vehicle, this could change everything. Imagine going out of town, and being provided with an identical (or, if you prefer, different) Volvo when you arrive at your destination airport. The Care by Volvo program is effectively competing with the rental car business.

Further imagine that “your” Volvo is a self-driving car, as automobiles will soon be, and your leaving town means not only that you can be picked up at the airport by your preferred car, but also that the car in your driveway, or which dropped you off at the airport, can be used by others.

The future that Volvo likely envisions is one in which there is no need for ownership of automobiles because they can provide the transportation service without hassle everywhere and always. The gain is not only that resources become better utilized as automobiles no longer are parked for long stretches of time in one’s driveway or garage, but also that consumers no longer have to make capital-intensive investments in something as banal as personal transportation.

With much more efficient use of transportation resources, one can imagine how automobile manufacturers such as Volvo not only take on rental car agencies and taxi cabs, but also (out)compete public transportation systems like buses, trains, and subways.

Rather than automobile manufacturing being a stagnated industry “of the past,” and under threat from the anti-oil movement, Volvo’s business model innovation can completely change the playing field and revolutionize the entire transportation sector of the economy. (And I haven’t even mentioned how Volvo also envisions soon offering only electric vehicles .)

The driving force here is obvious: entrepreneurship. But the disruption is not from a new player, but from a player thinking anew. The step for Volvo going from a lease-or-sell model to membership is not a huge one in terms of the production or distribution process. The difference lies in how they imagine best serving their customers, and by thinking of their customers first – or the actual value of what they do – they realized they should think differently about their business. Their dealership locations become member care facilities.

By explicitly thinking of and making consumer value the purpose and goal of their business, Volvo has recreated themselves. As a result, they could disrupt the automobile industry. And in the process, they may erase the boundary between different industries involved in providing the value of personal transportation: automobile manufacturing, car rentals, taxi cabs, public transportation.

This is an entirely predictable evolution. The only reason these are considered different industries in the first place is that they started out offering different types of services based on the technology of the day. But what they really do is not to provide technological solutions to consumers, but to provide value. By recognizing this simple but often forgotten fact, artificial boundaries dissolve and more value is attainable for both businesses and consumers. Herein lies the power of business and entrepreneurship to change the world: by serving the rest of us.

Per Bylund is assistant professor of entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. Website: PerBylund.com.

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