Leading the Revival of Individualism & Self Reliance

George Washington Knew Something About Civility, And Decency.

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Americans have given up commemorating George Washington’s February 22 birthday in exchange for a 3-day weekend. One of the downsides is that we are now more likely to overlook the wisdom he has to offer us. That is particularly unfortunate following an intensely uncivil and partisan election, whose subsequent “unity” has continued to be uncivil and partisan.

America’s “indispensable man,” as historian Forrest MacDonald termed him, offered us insights into civility and what we should abandon partisanship to unite around.

As to civility, our beltway elbow-throwers could benefit from reading Washington’s “Rules of Civility and Decent Behavior in Company and Conversation.” Written before Washington was 16, it summarized important facets necessary for him to behave “according to the custom of the better bred.”

Consider some of the advice George Washington gave himself:

Every action…ought to be with some sign of respect to those that are present.

Speak not when you should hold your peace.

Show not yourself glad at the misfortune of another.

Always submit your judgment to others with modesty.

In reproving, show no sign of choler but do it with all sweetness and mildness.

Take all admonitions thankfully.

Mock not nor jest at anything of importance.

Wherein you reprove another be unblameable yourself.

Neither curse nor revile.

Let your conversation be without malice or envy.

In all causes of passion admit reason to govern.

Speak not injurious words, neither in jest nor earnest.

Detract not from others.

Be not obstinate in your own opinion.

Reprehend not the imperfections of others.

Think before you speak.

Undertake not what you cannot perform.

In disputes, be not so desirous to overcome as not to give liberty to each one to deliver his opinion and submit to the judgment of the major part.

Contradict not at every turn what others say.

Speak not evil of the absent, for it is unjust.

George Washington’s commitment to decorum has been thoroughly trampled in America’s ongoing political uncivil war. We could benefit greatly from deflating the incivility that besets us, in his honor.

However, even more important would be once again looking to the principles Washington articulated for governing:

The cause of America [is] liberty.

Express your utmost horror and detestation of the Man who wishes, under any specious pretenses, to overturn the liberties of our Country.

Liberty will find itself…where the Government…[will] maintain all in the secure and tranquil enjoyment of the rights of person and property.

Under [government’s] protection; everyone will reap the fruit of his labors; everyone will enjoy his own acquisitions without molestation and without danger.

[Government] has no more right to put their hands into my pockets, without my consent, than I have to put my hands into yours.

Government is not reason. It is…a dangerous servant and a terrible master. Never for a moment should it be left to irresponsible action.

George Washington’s character was important to our founding, but even more so, his actions were essential to our revolution’s success and the creation of America as “this land of equal liberty.” He recognized that “preservation of the sacred fire of liberty and the destiny of the republican model of government are justly considered, perhaps, as deeply, as finally staked on the experiment entrusted to the hands of the American People,” and provided core principles that provide a useful model in that direction.

But we have turned to honoring those principles more in the breach than the observance. We could greatly benefit from reviving those principles, which made him “First in war, first in peace, and first in the hearts of his countrymen.”

Gary M. Galles is a professor of economics at Pepperdine University.

Why SPACS Are A Bubble That’s About To Burst.

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It’s not yet two months old, but 2021 already looks poised to outdo 2020 in one area: SPACs, or special purpose acquisition companies, raised around $26 billion in January this year in the United States, nearly a third of the record $83 billion collected by 248 SPACs over the whole of 2020.  These so-called “blank check” shell companies have no operations or business plan other than to acquire a private company using the money raised through an IPO, thereby enabling the latter to go public quickly.

It seems almost everyone who is anyone is “sponsoring” or setting up a SPAC, from ex-Trump adviser Gary Cohn to basketball star Shaquille O’Neal to Hong Kong tycoon Richard Li. But, as my recent paper shows, signs beyond the headline figures suggest that SPACs are a bubble about to burst.

Remember Reverse Mergers?

SPACs are a form of reverse merger, the subject of my paper. In a standard reverse merger, a successful private company merges with a listed empty shell to go public without the paperwork and rigors of a traditional IPO. The shell is usually a remnant of a previously operational public firm or a public virgin shell formed to combine with a private company. Where SPACs are different is simply that the shell company is a proactive party, flushed with cash from the IPO and hunting for private targets.

Often criticized, reverse mergers have existed for decades, mostly on the margins of financial markets, and we have seen several waves of them since the 1970s. They surged in the mid-2000s, outnumbering IPOs in some years, and peaked in 2010, before falling off a cliff in 2011. In our paper, my co-authors and I sought to identify what drove the boom and bust of reverse mergers and to draw lessons from the reverse mergers story in order to understand the life cycles of controversial practices more generally.

From Boom to Bust

Research shows that when more people adopt a practice, it will become increasingly widespread due to growing awareness and legitimacy. But that’s for non-controversial stuff. Things get a little more complicated for controversial practices like SPACs and reverse mergers, where third-party concern and skepticism also grows as the practice becomes more widely used.

Our study offers an institutionally and sociologically informed explanation of the boom-to-bust dynamics of controversial practices. While finance and economics have suggested that decision makers’ cognitive biases drive these bubbles, we add to evidence that such bubbles can relate to institutionally driven dynamics. In effect, we show that the popularity of reverse mergers planted the seeds of its own demise.

We collected data on the use of reverse mergers, market responses, and firm characteristics, including market value, earnings, total assets and debt, exchange listing and between 2001 and 2012. We also studied how the media evaluated reverse mergers. Of the 267 articles published between 2001 and 2012, 148 were neutral, 113 were negative and only 6 were positive. Finally, we gathered share price data to examine how stock markets valued reverse mergers.

Our analysis of this data shows that — as you would expect — higher popularity of the practice (i.e., higher number of past adoptions of reverse mergers) initially triggered imitation and further adoption. But, simultaneously, as the number of reverse mergers grew, investors and the media became increasingly skeptical about the practice. The skepticism and negative reactions were further intensified as the proportion of reverse merger transactions involving firms with relatively low reputations increased. The poor stock market valuations of reverse merges, and the negative media coverage discouraged firms with good reputations from adopting the practice. The regulators duly waded in. Both the Securities and Exchange Commission’s 2005 disclosure rules for reverse mergers and its 2011 warning to investors about investing in reverse mergers amid an influx of Chinese players — a phenomenon studied in another of my recent papers — triggered negative market reactions and led to a decline in the practice.

In essence, investors, regulators, and the media — important arbiters of financial innovations — fed off one another’s cues and evaluations. Negative media coverage weighed on stock market valuations and the subsequent diffusion of reverse mergers. By 2010, when reverse merger activity peaked, 70 percent of media articles on the phenomenon had a negative tone. Reverse merger firms’ share prices plummeted to the extent that cumulative returns neared -45 percent. The following year, in 2011, reverse merger activity plunged by 35 percent. In effect, the popularity of reverse mergers planted the seeds of its own demise.

If all these sound familiar — rapid proliferation of a controversial financial innovation, plagued by poor-quality players, bad publicity and regulatory concern — it’s because similar dynamics have re-emerged in the SPACs boom.

Here We Go Again

The most obvious sign is the frenzied growth. Amid the global stock market volatility, last year’s $83 billion haul by SPACs was six times the amount raised in 2019 and nearly equaled the figure mustered by IPOs. Even David Solomon, chief executive of major SPACs underwriter Goldman Sachs, warned in January 2021 that the boom is not “sustainable in the medium term.”

Then there is the fact that many firms taken public by SPACs have little to show in terms of business plan or revenue, in some cases triggering shareholder lawsuits by disgruntled investors. The most infamous example is Nikola. Three months after going public last June via its merger with a SPAC, the electric truck startup was accused of fraud by short sellers, resulting in the resignation of its founder and a flurry of lawsuits by shareholders. Nikola’s stock price has fallen to a mere fraction of its peak in June. Meanwhile SPAC successes such as fantasy sports betting firm DraftKings and data company Clarivate Analytics are relatively few. In fact, a recent study found that most SPACs’ post-merger share prices fall.

Another red flag comes in the form of negative media sentiment and regulatory concern. Reports about SPACs are often negative and cautionary. “SPACs are oven-ready deals you should leave on the shelf” warned a Financial Times headline in December. SEC Chairman Jay Clayton has signaled similar reservations. The SEC was watching SPACs closely, he said in September, in efforts to ensure SPAC shareholders “are getting the same rigorous disclosure that you get in connection with bringing an IPO to market.”

Under the rules governing them, SPACs must identify firms they can merge with within 24 months after they have raised their funds or they will be wound up and the IPO proceeds returned to investors. More than 300 SPACs need to pull that off this year or risk being liquidated. But with only so many quality targets to go round, and SPAC founders’ strong incentive to close deals — even at the expense of shareholder value — SPACs may well end up in a negative spiral of poor quality/bad press/tighter regulation. And we know how that ended for reverse mergers.

 

Ivana Naumovska is a professor at INSEAD. This article was published at HBR.org

Mainstream Economists Tell Us We Are Irrational When We Make Choices Of Which They Disapprove.

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This year has been interesting for Wall Street, to say the least. After hearing that hedge funds had shorted the stock of the dying retail chain GameStop by over 100 percent of shares, Redditors banded together to buy up the stock, knowing that short sales do not expire, so the hedge funds will eventually be forced to buy it all back at a drastically raised price.

Estimates of short interest on the stock from sources such as the NASDAQ, MarketBeat, Yahoo Finance, and Bloomberg range from 53 percent to 177 percent of float. Hedge funds have been shutting down retail brokers, trading among themselves after hours, and publicly claiming to cover shares they had not yet bought, all in an attempt to lower the price on the stock, minimizing losses for the hedges when they finally cover the shorts. Historical examples such as the Volkswagen short squeeze of 2008 suggest that even a short interest as low as 50 percent could still yield high dividends for GME stockholders.

With this in mind, Redditors hold GameStop under the perfectly rational desire to avoid getting tricked out of their money, and many more profess a willingness to hold despite losses if it means that hedge funds will be punished through bankruptcy for manipulating the market.

So why does the corporate press describe this phenomenon as a “bubble” that is “irrational, insane, and dangerous,” the product of the “hysteria” and “cognitive bias” of investors who “don’t know what they’re doing”? Short squeezes are not new. The Redditors’ strategies are nothing that Wall Street has not tried before. In addition, the Redditors who initially popularized the stock have a reputation for treating the stock market like a casino, as evidenced by the name of their community, r/wallstreetbets. Gambling is a form of consumption spending, an end in itself. It is not inherently irrational for someone to buy a consumer good, no matter how strange.

Moreover, the Redditors live in a world where the committee investigating the blatant fraud surrounding GameStop is led by a woman who accepted six-figure fees from the defendant. Holding the stock as an attempt at getting justice makes sense, especially from the perspective of an online community full of Millennials, who have had their economic future crippled by Wall Street financiers through three consecutive “once in a generation” market crashes. For the amateur investor, there is no rule of law on Wall Street—and revenge is a rational strategy outside the law. All of this is obvious to anyone who reads what the Redditors have to say. Their plan might be ill-advised, but it is definitely not irrational. Why doesn’t the corporate media acknowledge this?

The answer is that economic rationality, like so many other terms, has been defined to suit the convenience of the neoliberal establishment. The concept of bias in economic decision-making is pseudoscientific, since its meaning can be warped to include any deviation from neoclassical economic models, even ones which are rational when put in context. In the instance of the GameStop investors, this confusion of terms is serving its purpose, pathologizing as irrational a well-reasoned populist response to a broken financial system. This crucial context is necessary to recognize that the media’s concern for the mental soundness of retail investors is only a tool meant to delegitimize them in the eyes of the public.

First, a word about irrationality. Rationality in economics is a different concept than rationality to the average person, a distinction lost upon the media pundits that bandy about the term. There is no single accepted definition of rationality in economics, but the general concept is one of maximization of self-interest, quantifiable as utility. Neoclassical economists’ models of human behavior all revolve around a strict interpretation of this definition, one that Austrian economists see as incompatible with the actual human experience. This mainstream conception of rationality excludes values that cannot be quantified from economic decision-making, painting human beings as automata competing to gain control of limited tangible resources.

When neoclassical economists’ models are compared with reality, they fail, often spectacularly. But rather than sacrifice their models to accommodate a broader definition of rationality, where humans use the means available to them to meet subjectively valued ends that can differ based on a multitude of factors, neoclassical economists of late classify those who deviate from these models as “irrational,” and make it their mission to fix them.

Enter behavioral economics, the application of the theory of cognitive bias to economic decision-making. Despite the name, it is an offshoot of applied psychology, specifically the theory of behaviorism within psychiatry. Behaviorism holds that human reactions to stimuli are either products of evolution or reflexes trained through past reinforcement. By this definition, human action is predictably irrational, and must be systematically adjusted by some enlightened outside actor in order to maximize human welfare in a world vastly different from the one we evolved to live in. In behavioral economics, the logical endpoint of this world view is the need for regulation, which behavioral economists take it upon themselves to design.

Earlier scholars of the liberty movement have performed prescient analyses of the relationship between governance and the science of human behavior. In his book, Law, Liberty and Psychiatry, prominent antipsychiatrist Dr. Thomas Szasz describes the role of such sciences as follows: “Law and psychiatry are similar in that both disciplines are concerned with norms of conduct and methods of social control…. If people believe that health values justify coercion, but that moral and political values do not, those who wish to coerce others will tend to enlarge the category of health values at the expense of the category of moral values.” Today, this medicalization of moral values has grown out of the field of psychology, where it originated, and into other fields such as economics.

Decades before Daniel Kahneman and Aaron Tversky would publish the paper that created behavioral economics as we know it, Szasz argued that the medicalization of social science would create a “therapeutic state,” one that granted power to unelected departments of experts to pathologize and thereby delegitimize abnormal social behavior in the name of the health of the citizenry. The Western world was put on house arrest for a year by the policy czars of the Centers for Disease Control and Prevention (CDC) and the World Health Organization (WHO). Psychiatrists have en masse violated the Goldwater rule, which disallows them to speculate about the mental health of a public figure they have not personally examined, in order to stigmatize right-wing populism. It’s not difficult to see the resemblance to current events. How neatly this parallels arguments to deny amateur investors access to the market for their own good, in a move that would, coincidentally, of course, benefit the hedge funds that these investors want to bankrupt.

The mechanism of the therapeutic state is the same, no matter which social science is used to implement it. Irrationality, to the behavioral economist, is the consumer’s insanity, and the behavioral economists who profess to cure it are the darlings of the Keynesian establishment. Daniel Kahneman has received the Nobel Prize. Cass Sunstein, another pioneer of the field, was appointed administrator of the Office of Information and Regulatory Affairs in 2008. Policymakers in both the private and public spheres have leapt at the chance to implement these theories. They recognize cognitive bias as a useful explanation for why the public doesn’t react as expected to policies that are supposedly in our best interest. And the terminology that behavioral economists coin makes its way into popular parlance, where it can be thrown at anyone whose actions are inconvenient to the established order—including retail investors.

From the perspective of an economist, this makes little sense. Austrian economists have had no problem incorporating economic behavior deemed “irrational” from a neoclassical standpoint into their paradigm. Moreover, many of the studies instrumental to the theories that behaviorists, and behavioral economists in turn, cite to prove human irrationality are highly flawed in their reasoning. In many cases, they either extrapolate beyond what the original experiment can be said to prove, have fallen victim to the replication crisis in social science, or have been shown to be the product of deliberate fraud.

Finally, as any student of human behavior should be able to predict, the ethical concerns that behavioral economists pay lip service to are ignored by policymakers in fact. These self-titled “choice architects,” using a euphemism for psychological manipulation common in the field of social engineering, assume their own immunity to the biases that they accuse others of displaying. If they cared to think about many of these cases of “irrationality” from the perspectives of the people they try to regulate, they would realize that their view of human behavior is not born of some privileged knowledge but is a willful blindness to other factors at play.

But from the perspective of an apparatchik of the therapeutic state, this economic fad makes perfect sense. These are the same people whose conception of the business cycle assumes that entrepreneurs are incapable of recognizing and correcting systematic errors in their economic calculations, even when doing so would provide long-term benefit. This view is incompatible with reality, only useful to justify endless government intervention. Is it any surprise that they want to smear every economic actor in the same way, if only to claim that their intrusions constitute a moral good?

In this light, it is inevitable that the GameStop uprising will be declared a product of “cognitive bias,” even though the only bias here is that of media companies toward the Wall Street investors who own them. Rather than admit that the Redditors’ investing behavior poses a threat to the powerful, the media condescends to them, hoping that a public unaware of the fraught history of the terminology in use will discard what they have to say. As long as it is inconvenient for these lackeys of the American aristocracy to acknowledge the rational incentives at play, they will continue to use any shoddy rhetorical tactic necessary to justify their overlords’ manipulation of the market, regardless of the impact this slander may have on retail investors. This is not science; this is graft—and unfortunately for the field of economics, it is here to stay.

America’s Governing Elite Wants To Govern Just Like China’s.

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China envy runs strong among America’s progressive elite. The Communist Party of China’s hold on power and centralized decision-making has long appealed to progressives infuriated with their inability to mandate solutions to global warming (and other progressive priorities).

Tom Friedman, an established bellwether of elite opinion, has been voicing this exasperation for more than a decade. Last weekend he reduced the genocide in Xinjiang to “bad stuff with the Uighurs,” of less concern than Chinese excellence in high-speed rail.

Far too few Americans grasp the implications of such a view taking root among their own elite. Though more and more Americans are awakening to the challenges inherent in China’s growing economic, technological, and military capabilities, few understand the threat that China’s governing philosophy and structures pose to the US.

As David Goldman has explained, though the CPC is nominally Communist, China is what it has been for millennia: an empire run by oligarchic mandarins. The appeal to an American elite that sees itself as a worthy meritocracy enamored of governance by bureaucratic experts is obvious.

Americans need to understand that beyond mere appeal and envy, there is a growing convergence of interests between China’s entrenched communist oligarchs and America’s emerging progressive oligarchs.

Today’s China, like all imperial powers, seeks to exploit the resources of anyone and anything outside its central oligarchy to enhance the prosperity, prestige, and power of that center. As a result, the CPC doesn’t much care how foreigners organize their internal affairs as long as they remain subject to two imperial edicts: Don’t interfere with China’s exploitation of your resources, and don’t challenge the CPC’s virtue and wisdom.

Those rules frame Chinese influence in the US. As Lee Smith recently outlined, China has employed another standard imperial trick to further that influence. It has invested heavily to create a formidable oligarchy of American enforcers.

Though penetration is far deeper among Democrats than Republicans, this oligarchy is bipartisan. It also extends to leading American names in industry, banking, entertainment and sports to create a tight alliance binding America’s progressives to China.

Those enforcers understand what they’re paid to do. Unlike in earlier eras, when food and gold were the focus of imperial exploitation, the most valuable resource today is information.

China seeks to exploit American technical education, research, finance, and intellectual property. China’s payment for those public resources flows almost entirely to elite progressives and their institutions. For Americans outside the elite, China offers low-cost consumer goods and technology products.

Because the exploitation of information resources and the provision of inexpensive goods both reduce US employment opportunities, America’s elite must stifle resentment that unemployed Americans express toward China.

Potential critiques of the CPC run far beyond economic grievances, however. Numerous alleged actions are deeply offensive to traditional American sensibilities: destroying Tibetan culture, crushing freedom in Hong Kong, running genocidal concentration camps for Uighurs, brutalizing Falun Gong practitioners, suppressing Christianity, and using political prisoners for organ harvesting, to name but a few.

The American oligarchy is paid to play down these atrocities as lamentable, but of minimal consequence – as Friedman’s recent comments demonstrate quite clearly.

This imperative has never been more important than in discussions about the origins of the coronavirus that causes Covid-19. Unlike China’s domestic human-rights abuses, this pandemic has had a clear, negative impact on the lives of Americans. Hence the absolute need to insist that the pandemic’s origins remain unknown, and to label as racist any reference to a “Chinese virus.”

Beyond simply serving China’s imperial needs, the US oligarchy is working to build an America that looks more like China. The contours of their system are already clear: an enlightened elite broadcasts official progressive facts, beliefs, and values that none may question.

Individual rights and liberties are sacrificed in the name of the common good. Those who object are deemed unfit for polite society, then shunned or removed. Citizens inform on one another to curry favor and prestige.

Such a transformation of the US along Chinese lines is hardly without precedent. Throughout history, the structures and ethos of dominant powers have flowed throughout their spheres of influence. Since World War II, American norms like representative government, human rights, and the rule of law have held sway around the globe – at least in theory, if not always in practice.

Should the American hegemon give way to China, the governing model of a ruthless, meritocratic bureaucracy charged with defining the common good will play a comparable role.

When progressives committed to transforming America express their China envy, the pieces all come together. What they’re after is an America transformed to conform with the China model. Americans willing to pay attention to current events understand that this transformation is already under way. Those who prefer to restore a more traditional understanding of America must start by raising awareness of the threat that it poses.

Fighting Poverty With Entrepreneurship.

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My father, the late Reverend Gilbert H. Caldwell, Jr. was a Civil Rights Movement “foot soldier” who knew and marched with Dr. Martin Luther King, Jr. As a child of the “Movement,” I paid close attention to Dr. King’s strategic approach to transforming the United States. Most people are not aware that the official name of the march where he delivered his famous “I Have a Dream” speech was the “March on Washington for Jobs and Freedom.” In this historic speech, he states that it is tragic that some people live “on an island of poverty in the midst of a vast ocean of material prosperity.” Dr. King knew that racial equality would only be sustainable if residents of poor communities had jobs that enabled them to pay their monthly bills. I am convinced that if he were alive today, Dr.King would say that the economic stability of communities is the foundation of the social well-being of countries.

No country has sufficient funds to fight poverty in perpetuity. Current “top-down” poverty reduction programs providing a “safety net” have had little success reducing systemic poverty. The current safety net programs trap families in a net of economic instability that is difficult to untangle. It is time for a “people up” poverty reduction program designed to provide a “safety trampoline” that bounces people up from poverty to the middle class. Poverty reduction strategies must be based on the belief that if you give someone a fish you can feed them for a day. However, if you help them start a fishing business you can feed a community for a generation.

The United Nations made “Ending poverty in all its forms” its number one Sustainable Development Goal because the inability of people throughout the world to feed, house, clothe and educate their families is a“cancer” on society that can be cured if innovative new approaches are implemented at the community level.  The Grameen Bank microfinance program, created by the 2006 Nobel Peace Prize winner Mohammed Yunis, is an example of a successful innovative program that works very well in certain circumstances. Unfortunately, the community development bank approach has limited applicability in many locations. One of the most successful ways to reduce poverty in the Group of Twenty (G20) countries is to implement a place-based program called “Entrepreneur Zones” or “EZones.”

Specific words can be a powerful tool in generating support for a community revitalization program. The term “Entrepreneur” refers to a specific person committed to utilizing novel approaches to creating value. The term “Zone” is a specific location with clear boundaries. Historically, poverty reduction programs have been disconnected “social support” programs that exist as long as there is political support and government funding. The EZones are a“social investment” program designed to help entrepreneurs create jobs and generate greater income and tax revenue. One of the key components of the program is the provision of quality job training and placement for residents. By investing in EZones with public funding, private investment, grant funds, and tax credits, economically challenged communities can generate the revenue and jobs needed to reduce local poverty in a sustainable way (without the need for long-term government funding).

One of the best examples of an Entrepreneur Zone was the Greenwood Section of Tulsa, Oklahoma. Plessy v. Ferguson was a landmark Supreme Court decision in 1896 that upheld the constitutionality of racial segregation in the US. Black communities survived this racist ruling by developing, what we would consider today as, segregated EZones that succeeded economically because of thriving black-owned small businesses. These neighborhoods fought against discrimination by developing healthy communities rooted in entrepreneurship. The wealthiest of these communities was the Greenwood Section of Tulsa. This community was so strong economically that it was nicknamed “Black Wall Street.” White supremacists and the local government were so jealous of the economic success of this community that on June 1, 1921they bombed it by plane and attacked it by foot. Tragically, more than 300 people were killed and 200 businesses destroyed simply because the black community was living the “American Dream” of entrepreneurial success.

One positive lesson that we can learn from this embarrassing American history is that when economically challenged communities are given the opportunity to develop entrepreneurial businesses they can flourish and transform poor communities into middle-class communities. Government leaders committed to implementing sustainable solutions to chronic poverty should establish EZones in economically challenged communities around the world. Businesses in these locations should receive public funding, regulation relief, investment fueled by tax credits, grants, and entrepreneurship training. In addition, qualified nonprofit organizations should provide poverty-informed job training and placement programs helping the long-term unemployed find jobs. Government programs providing housing, education, and health services should be aligned and leveraged to provide more comprehensive and effective support to residents of the EZone community. By creating Entrepreneur Zones in economically challenged communities, we can move the world closer to Dr.King’s “Dream” of a society where all people live in an “ocean” of financial stability and social well-being.

 

This article by Dr. Dale G. Caldwell was first published at groupofnations.com

DR. DALE G. CALDWELL IS THE CREATOR OF THE ENTREPRENEUR ZONE PROGRAM AND A PROFESSOR AND EXECUTIVE DIRECTOR OF THE FAIRLEIGH DICKINSON UNIVERSITY ROTHMAN INSTITUTE OF INNOVATION AND ENTREPRENEURSHIP. HE IS THE FOUNDER OF THE DALE CALDWELL FOUNDATION (DALECALDWELL.ORG).

Wealth Saves Lives, And Careers. Government Spending Destroys Wealth.

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In June of 2019 basketball great Kevin Durant tore his Achilles tendon. In the words of the Wall Street Journal’s Ben Cohen, what Durant suffered was “basketball’s most devastating injury.” Despite this, Cohen goes on to write that in 2021, there “is nothing about Durant that suggests he is diminished in any way.”

Durant is back, and arguably playing better than ever. Keep in mind that before the injury he was playing at a Hall of Fame level, and that with the exception of LeBron James, he was arguably the best basketball player in the world.

Cohen quotes surgeon Robert Anderson as saying that an Achilles tear ‘”used to be the kiss of death,”’ but not anymore. Per Cohen, “Medicine changed over several decades. Science did too. Past results would not be indicative of Durant’s future performance.”

Please think about this. What used to end careers in basketball no longer necessarily does.

Notable about this is that all manner of maladies not related to sports used to amount to death sentences. As this column routinely makes plain, pneumonia used to be “Captain of Man’s Death” per the late surgeon and author, Lawrence D. Dorr. Tuberculosis was a quick life ender too. So was yellow fever. Cancer was a certain killer, but then most didn’t live long enough for some form of cancer to get them. See what used to bring on mortality first.

So what happened? Economic growth did. It’s that simple. Economic growth produced resources necessary for healthcare experimentation and advances that ultimately saved lives. Per Dorr, people could more and more “live once,” but “die twice.” As in people could survive what killed their ancestors, all care of medical advances made possible by the matching of the talented with the resources that are a consequence of economic growth. Wealth would save lives.

Crucial here is that wealth can’t be decreed, or engineered by governments despite what President Biden wants you to believe. Wealth is created. Always.

Which means that when politicians like Biden, and economists like Treasury secretary Yellen claim that a “big,” $1.9 trillion “stimulus” plan from the federal government will revive the U.S. economy, they’re lying. Through their teeth. There’s not a word in their confident pronouncements that has a kernel of truth to it. Government quite simply cannot create wealth. It can only redistribute wealth already created via its taxing and borrowing power, which means that Biden and Yellen’s confident pronouncements will ultimately amount to historical monuments to double counting. Government cannot create. It can only redistribute.

The only thing government can do is to get out of the way. The natural state of free people is to progress. To grow. If the aim is economic growth, the only answer is freedom for the individuals who comprise any economy to produce without limits foisted on them by witless politicians and economists.

Government spending is a certain limit placed on progress precisely because central planning doesn’t work. Since government can only redistribute previously created wealth with its spending, the latter signals the politicized allocation of what’s precious. It signals Nancy Pelosi, Chuck Schumer and Joe Biden substituting their judgement about how wealth should be allocated to the detriment of actual visionaries like Jeff Bezos, Elon Musk and Peter Thiel. Three individuals who have no track record when it comes to innovation or prescient investment, redistributing wealth that would otherwise be allocated in more careful, knowledgeable and market-driven fashion by some of the world’s greatest minds.

In short, government spending is by its very name an economic somnolent. The more wealth the federal government redistributes, the less that’s available for intrepid entrepreneurial endeavor without which there is no progress.

Back to Durant, medical and scientific advances have made it possible for athletes to come back from what used to end their careers. About those advances, they didn’t just happen. They were the direct result of brilliant medical and scientific minds being paired with wealth previously created.

This is why government spending is so dangerous. When governments spend, they consume wealth. Conversely, when the wealth creators in our midst get to keep the fruits of their enterprise, they have no choice but to put it to work. Translated, there are only so many houses, vacations, cars and other rich baubles that the well-to-do can buy. What they don’t spend builds the capital base, and with it capital available to the innovative.

About this, some will say government spends on research too. Sure it does. But implicit there is that absent politicized research, that it wouldn’t happen. Please. That’s not serious. Private investment is all about removing unease from our lives, including erasing diseases. In other words, if the federal government were a microscopic fraction of its present self, there would still be the internet, cancer cures and other remarkable advances. The only difference is that they likely would have come sooner thanks to politicians consuming exponentially less of the wealth always and everywhere created in the private sector first.

And what about the lockdowns? By their very name they were anti wealth creation. Workers and business owners suddenly saw their ability to create wealth curtailed. With less wealth created, there’s necessarily less progress. Lockdowns instituted with health in mind were logically anti-health precisely because they were anti-wealth. They were anti resource without which the creative can’t vivify what’s on their minds.

What will it mean for the future? Very simply, this tragic imposition of command-and-control by politicians means progress against career-ending injuries for athletes will likely slow, the discovery of what will eventually render the internet primitive will similarly be rendered a more distant object, and then progress against diseases that still kill us will have been relatively suffocated. All so politicians could “do something.”

A Complex World Needs Simple Rules.

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If anyone was wondering who is one of my top living intellectual influences, it would be Richard Epstein. That certainly isn’t a unique assertion given that he is currently one of the most influential legal scholars in the world. Look up any talk he has given on the internet and you will be promptly mesmerized by the sheer intellectual firepower and eloquence that emanates from this man. As a law professor, he has taught about essentially every subject on Earth and I’m sure when human beings eventually colonize the solar system, he would likely be at the forefront of teaching about how we ought to regulate extraterrestrial commerce. But back to the topic of making laws regarding life on Earth. The man has written a great many books but this article will be about one in particular which has a name and subject that is dearly needed for discussion today. His book is called Simple Rules for a Complex World, which sets forth a general framework for an optimal legal and regulatory apparatus for a society as sophisticated as the one we have now. Its core assertion is that a system that maximizes freedom over one that seeks to regulate everything in its path would lead to a far better society.

The Paradox

The idea that we ought to have simple rules for a complex world is one that has been extremely successful in practice but paradoxical in its logic. Why should the rules become more simple and basic as the scope which those rules are intended to regulate grows? When making rules and regulations at the federal level in a country as diverse and complex as America, shouldn’t we have a very sophisticated set of rules? Don’t we need people like Dr. Fauci and the various bureaucrats in the regulatory state to make all sorts of tailored rules for us so society doesn’t collapse in on itself?

This is often the narrative that is espoused today by many politicians and academics but the problem is that we need exactly the opposite. Such burdensome and complicated restrictions on human action made from thousands of miles away is a recipe for incompetence and stagnation. History shows that decision-making rights and coordination are best assigned to those immediately dealing with a problem. The proper role of the state in this system is to simply ensure that rights are respected, interactions are voluntary, and to provide the basic framework for which such mutual interactions can occur with the greatest level of rapidity and ease.

Take, for example, the planning of a wedding. When it comes to the individuals actually involved in the wedding, there will be plenty of precise decisions made about the decorations, the guests, the food, the traditional procedures, and so on. These very precise and complicated rules are made in a concentrated and voluntary manner by those immediately involved. Now, what is the role of government in this equation so that we can have the most amount of successful weddings? Should the Biden administration have an agency dedicated to approving and inspecting every single wedding for compliance with a hypothetical code of wedding conduct? Does it need specialized departments that can deal with weddings from different cultures and conduct detailed analyses on the optimal procedure of weddings?

The answer to this rhetorical question is obviously a resounding no, and it is clear that if that were the case the conduct of weddings in this country will become tremendously more troublesome and perhaps downright dreadful having to deal with such bureaucracy. The only thing the government needs to do is ensure that contractual relationships and individual rights are enforced most likely through a system of courts and police. It should basically be saying that when it comes to holding a wedding my only rule is that as long as nobody tries to hurt anybody or doesn’t try to take anyone’s stuff it’s really none of my business what you do. Such a system can not only accommodate the greatest diversity of wedding arrangements from different cultures and backgrounds, but it also allows for such events to be carried out with the greatest ease.

The problem today of course is that the current trend of the regulatory state follows in the mold of the hypothetical wedding bureau that I just described.

The Power of Freedom of Contract and Reducing Administrative Cost

The basic tools that Epstein lays forward that can solve many administrative issues are honoring freedom of association, private property, contracts, and reducing administrative cost which is typically associated with extensive rulemaking. Take for example the question of environmental regulation and preserving forest land. The current system empowers the state to essentially try to manage forests through a complicated political process. Epstein writes,

“Is cutting timber necessary for the continued vitality of the Pacific Northwest and its lumber industry? The political process leads to grandiose claims of environmental necessity and dire predictions of economic stagnation. The present process of decision making treats the value of the first acre of public land as the same as the value of the last, making it impossible to acquire information to the marginal value of each acre in its alternative uses.”

When it comes to deciding what forests should be used for, the current big-state system essentially encourages extreme political lobbying rather than calculated decision making. How much of the forest should be chopped down to fuel essential progress and what portion needs to be preserved to protect nature? The current system of public regulation only encourages zealots from both sides rather than real cost-benefit analysis.

Now let’s say we simply allowed private associations such as lumber yards, landowners, nature preserves, and so on to voluntarily figure this out on their own via a system of market processes. Epstein writes,

“Private owners have incentives to harvest that timber which is easy to replace and can be removed with little damage to other parts of their property. But the companies who harvest public lands care little about the replacement value of the timber they cut. Worse still, since they do not own the land outright, they care little about the damage that their cutting does to the forest itself. The same companies that harvest their own lands with an eye toward recreational use will take far less care in harvesting on public lands because they collect none of the gains of good husbandry and all of the gains from quick cutting.”

The current system of public forest management is a classic example of the tragedy of the commons, which is when in the absence of discreet property rights everyone just abuses the land. If companies operated in a system of simple contracts and private property rather than the current public management system, the incentives of such an arrangement would actually lead them to be more careful with the environment. Such care for the environment would paradoxically be linked to the pursuit of profit as companies can typically make more money with sustainable practices and preserving parts of the forest for tourism and so on. It’s also far cheaper for taxpayers as they won’t be on the hook for some broad regulatory apparatus. Such a system of private management has the potential for more dynamic and effective use of forests as compared to the current political process.

Another important area where a simple system of contracts and private association would be beneficial is labor relations. The current system has a sprawling litany of rules regarding things like minimum wage, healthcare requirements, promotions, dismissals, and so on. Now, this isn’t to say that unions and the demands that they advocate for shouldn’t exist, but they certainly shouldn’t be federal law. The current system not only makes operating a business extremely complicated, which hurts both management and labor, but it also favors established large businesses that can afford to comply with all the regulations. Small businesses and other forms of corporations that don’t fit the traditional mold of big businesses which can afford to comply are disadvantaged by these rules. Ironically, these anti-capitalist regulations primarily benefit established corporations, which is why the Marxist Jacobin magazine even published an article talking about how small businesses are overrated because they can’t provide the same labor benefits as the larger ones.

A superior system to the current sprawling expanse of labor regulations is to simply enforce contracts made by employees with employers. Allow individual workers and companies to create these arrangements for wages, healthcare, job security, and other requirements on their own. Allow labor unions to engage in back and forth discussions with management, so that provided violence is not used, the government need not care about the results. Every company has individual needs and preferences which are then balanced against the needs of its workers. In a competitive and open market, employees who do not feel accommodated may leave for other companies which in turn creates incentives to treat workers better. The current dominance of the administrative state in policing labor relations not only stunts innovation but holds the entire country captive to the interests of politically-connected big corporations and big labor.

Key Takeaways

Epstein’s book is one where every chapter could become an article in itself. There is so much I wish I could touch on here, like how a simple system of contracts and freedom of association can do far better in accomplishing monopoly regulation than current antitrust laws. Then there are his interesting views and masterful illustrations of the evolution of modern product liability standards, corporate structuring, tort law, and so on. The main takeaway from this book is that there is massive potential to improve society, if we move away from the current manner in which we view regulation to a system that prioritizes individual autonomy. The current system essentially follows Maslow’s hammer to which if all you have is a hammer, everything looks like a nail. Our current bias towards trying to make a government rule for every single issue that arises in society is not only ignorant of the very institutions of freedom that make our society prosper, but it also threatens to continue a vicious cycle that fuels an ever-encroaching state. A more optimal solution to address societal issues would be a paradigm shift to a system that understands the power and promise of simple rules in an ever more complex world.

Stimulus for Whom? Trial Lawyers, Mostly.

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The nation’s political landscape has seen a momentous shift with the election of a new president, followed by the slimmest of new majorities in the Senate after Georgia’s recent special election. As a 50-50 Senate run by Democrats settles in, attention is now turning back to another massive pandemic relief bill, this time shaped in the image of President Biden.

With the Democratic control in Washington, there appears no chance that the next pandemic relief bill will include one of the most high-profile items from previous negotiations: virus-related lawsuit limits for responsible businesses.

It looks as if businesses that simply did their best to stay open, scrape by, and serve consumers as safely as they could during the pandemic will have to keep waiting and hoping. And it is pretty easy to figure out why these businesses are being left out — commonsense lawsuit limits would run afoul of the nation’s trial lawyers, who are favored allies of Senate Majority Leader Chuck Schumer, a New York Democrat who has significant control over the next relief bill.

During the preelection pandemic relief negotiations, Mitch McConnell, then the Senate majority leader, placed blame for the deadlock over pandemic-related lawsuit limits on the alliance between the Left and trial lawyers, tweeting: “Trial lawyers are among Democrats’ most reliable sources of campaign cash. Coincidentally, Democrats say they’d rather not pass any more aid (PPP, vaccine distribution, jobless aid) than limit the opportunity for the plaintiffs’ bar to suck money from our nation’s re-opening.”

McConnell was right on target. Trial lawyers as a group give millions to liberal political allies. Giving by the most high-profile firms is particularly notable. Morgan & Morgan, the Florida firm famous for its ubiquitous billboards, was responsible for over $3 million in the past two election cycles. And Motley Rice out of South Carolina was responsible for over $1 million, which averaged to more than $13,000 per lawyer and put its lead partner, Joe Rice, into position as a rumored candidate to be an ambassador for Biden.

And Schumer, in particular, has benefited from the “generosity” of the trial lawyers’ political donations. Senate Majority PAC, a Schumer-aligned super PAC, received at least $2 million from the main trial lawyer political arm, American Association for Justice PAC, during the last four-year election cycle. And then there are the millions upon millions that trial lawyers spent supporting Schumer’s hand-picked Senate candidates, which include money flowing out of a web of trial lawyer super PACs and political committees focused squarely on the Senate.

For example, Truth and Justice Fund PAC, a trial lawyer super PAC that was supported by many of the leading trial law firms, including Motley Rice, spent $1.5 million backing Steve Bullock in Montana and the now-infamous Cal Cunningham in North Carolina during the 2020 election.

Justice 2018 and Justice 2020, two other trial lawyer-funded PACs, separately sent seven figures of support to Democratic Senate candidates across the country, backing Democrats and hitting Republicans in Georgia, Iowa, Missouri, Montana, North Carolina, and beyond.

When you see numbers similar to this, it isn’t surprising that liberal politicians such as Schumer would work hand in hand with trial lawyers. And that is before you consider that the Left has long been happy to enrich lawyers who not only make big political contributions but also spend their time and money using questionable legal theories to generate payouts to left-wing groups or obtain liberal policy outcomes through the courts.

Remember, it is trial lawyers who are trying to cripple the nation’s energy companies through climate change litigation, using the courts to advance immigration policies favored by liberal advocacy groups, and sending massive privacy class action settlement awards to the American Civil Liberties Union and liberal universities instead of everyday victims whose privacy rights were violated.

And the ties between trial lawyers and liberal politicians now run all the way to the steps of the White House. Let’s not forget that Biden’s younger brother Frank serves as a high-profile senior adviser at a trial lawyer shop in Florida. According to recent news reports, Frank Biden flew to his brother’s inauguration on a Morgan & Morgan private jet with the firm’s leader, his close friend John Morgan.

If we can take one lesson from the current, bewildering failure to pass commonsense business protection measures at the federal level in response to the pandemic, it should be that the time has come to tackle the influence of the radical trial bar, which is deeply entrenched on the Left and is growing more influential in certain circles on the Right. These trial lawyers too often fail to serve consumers, the rule of law, or the public good. Instead, they line their own pockets and advance a far-left policy agenda in the courts.

In responding to the pandemic, and more generally, it is time to put consumers and the economy first, not radical lawyers serving their own pocketbooks and the liberal wish lists of their political allies.

 

O.H. Skinner is the executive director of the Alliance for Consumers.

Subjective Value: Best Story Wins.

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A truth that applies to many fields, which can frustrate some as much as it energizes others, is that the person who tells the most compelling story wins. Not who has the best idea, or the right answer. Just whoever tells a story that catches people’s attention and gets them to nod their heads.

C. R. Hallpike is a respected anthropologist who once wrote a review of a young author’s recent book on the history of humans. It states:

It would be fair to say that whenever his facts are broadly correct they are not new, and whenever he tries to strike out on his own he often gets things wrong, sometimes seriously … [It is not] a contribution to knowledge.

Two things are notable here.

One is that the book’s author doesn’t seem to disagree with the assessment.

Another is that the author, Yuval Noah Harari, has sold over 27 million books, making him one of the bestselling contemporary authors in any field, and his book Sapiens – which Hallpike was reviewing – the most successful anthropology book of all time.

Harari recently said about writing Sapiens:

I thought, ‘This is so banal!’ … There is absolutely nothing there that is new. I’m not an archeologist. I’m not a primatologist. I mean, I did zero new research. . . . It was really reading the kind of common knowledge and just presenting it in a new way.

What Sapiens does have is excellent writing. Beautiful writing. The stories are captivating, the flow is effortless. Harari took what was already known and wrote it better than anyone had done before. The result was fame greater than anyone before him could imagine. Best story wins.

It’s nothing to be ashamed of, because so many successes work this way.

The Civil War is probably the most well-documented period in American history. There are thousands of books analyzing every conceivable angle, chronicling every possible detail. But in 1990 Ken Burns’ Civil War documentary became an instant phenomenon, with 39 million viewers and winning 40 major film awards. As many Americans watched Ken Burns’ Civil War in 1990 as watched the Super Bowl that year. And all he did – not to minimize it, because it’s such a feat – is take 130-year-old existing information and wove it into a (very) good story.

Bill Bryson is the same. His books fly off the shelves, which I understand drives the little-known academics who uncovered the things he writes about crazy. His latest work is basically an anatomy textbook. It has no new information, no discoveries. But it’s so well written – he tells such a good story – that it became an instant New York Times bestseller and the Washington Post’s Book of the Year.

Charles Darwin didn’t discover evolution, he just wrote the first and most compelling book about it.

John Burr Williams had more profound insight on the topic of valuing companies than Benjamin Graham. But Graham knew how to write a good paragraph, so he became the legend.

Same with Tesla, isn’t it? The company is worth seven times more than GM and Ford combined, not because it built a good business but because Elon Musk is good at getting people’s attention. Customers. Investors. Twitter followers – he’s told them all a good story, and the best story wins.

This drives you crazy if you assume the world is swayed by facts and objectivity – if you assume best idea wins. There’s a devoted group of Harari critics obsessed with showing how unoriginal his work is; Musk is viewed with the same mix of confusion and contempt.

In a perfect world the importance of information wouldn’t rely on its author’s eloquence. But we live in a world where people are bored, impatient, emotional, and need complicated things distilled into easy-to-grasp scenes.

If you look, I think you’ll find that wherever information is exchanged – wherever there are products, companies, careers, politics, knowledge, education, and culture – you will find that the best story wins. Great ideas explained poorly can go nowhere while old or wrong ideas told compellingly can ignite a revolution. Morgan Freeman can narrate a grocery list and bring people to tears, while an inarticulate scientist might cure disease and go unnoticed.

Novelist Richard Powers put it this way: “The best arguments in the world won’t change a single person’s mind. The only thing that can do that is a good story.”

A few things about good stories worth remembering:

When a topic is complex, stories are like leverage.

Leverage is just something that squeezes the full potential out of something with less effort. Stories can leverage ideas in the same way debt can leverage assets.

Trying to explain something like physics is so hard if you’re just deadlifting facts and formulas. But if you can explain things like how fire works with a story about balls rolling down hills and running into each other – watch Richard Feynman, an astounding storyteller, do that here – you can explain something complex in seconds, without much effort.

This is more than just persuading others. Stories help you just as much. Part of what made Albert Einstein so talented was his imagination and ability to distill complexity into a simple scene in his head. When he was 16 he started imagining what it would be like to ride on a beam of light, holding onto the sides like a flying carpet and thinking through how it would travel and bend. Soon after he began imagining what your body would feel like if you were in an enclosed elevator riding through space. He contemplated gravity by imagining bowling balls and billiard balls competing for space on a trampoline surface. He could process a textbook of information with the effort of a daydream.

Ken Burns once said: “The common stories are 1+1=2. We get it, they make sense. But the good stories are about 1+1=3.” That’s leverage.

Stories get diverse people to focus attention on a single point.

Steven Spielberg pointed this out:

The most amazing thing for me is that every single person who sees a movie brings a whole set of unique experiences. But through careful manipulation and good storytelling, you can get everybody to clap at the same time, to laugh at the same time, and to be afraid at the same time.

The key thing is that stories capture and direct attention, which is so important in a world where people are bored and impatient.

Good stories create so much hidden opportunity among things you assume can’t be improved.

Rory Sutherland writes in his book Alchemy about the idea of psychological moonshots:

Making a train journey 20 per cent faster might cost hundreds of millions, but making it 20 per cent more enjoyable may cost almost nothing.

The Uber map is a psychological moonshot because it does not reduce the waiting time for a taxi but simply makes waiting 90 per cent less frustrating.

It seems likely that the biggest progress in the next 50 years may come not from improvements in technology but in psychology and design thinking. Put simply, it’s easy to achieve massive improvements in perception at a fraction of the cost of equivalent improvements in reality.

This applies to so many things.

How many great ideas have already been discovered but could grow 100x or more if someone just explained them better?

How many products have only found a fraction of their potential market because the company is so bad at describing them to customers?

So, so many.

You’ll get discouraged if you think every new book has to be about an original idea, or that every new company has to sell a brand new invention. There is so much more opportunity if you see the world like Yuval Noah Harari – best story wins.

Julian Simon Believed In People, In Economics, And In Abundance.

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You have heard it said that the environment is in trouble. We are running out of resources. Things are bad, and they will only get worse–unless, of course, we hand practically unlimited power to direct our affairs to those who very clearly know better than we do what is best for us. The world, you hear day in and day out, is coming to an end. The inevitability of resource scarcity and hence the long-run tendency toward desperate poverty for everyone was the plot in one of the most successful film franchises of all time. In Avengers: Infinity War and Avengers: Endgame, our heroes do battle with the mad titan Thanos, who is collecting Infinity Stones so that he can snap his fingers and literally wipe out half the life in the universe–all because, he reasons, in a closed system with finite resources, mass poverty is all we have to look forward to. It was the grim economic and social vision of the Reverend Thomas R. Malthus, who had the bad fortune of offering what had been a pretty good description of the world up until the point at which he published his An Essay on the Principle of Population in 1798.

Poverty-and-starvation-for-everyone gave way to prosperity-and-plenty-for-a-lot-of-people, first in western Europe and its overseas extensions like the United States and Australia. We are, quite literally, on the verge of actually making poverty history here at the beginning of the 21st century. This is the case, Deirdre McCloskey and I think, because we have laid aside the old social deals that embraced and venerated blue bloods and bloodshed and embraced a new Bourgeois Deal that said “Leave me alone, and I’ll make you rich.”

How, exactly, were those who were left alone going to make us all rich? In a world where merchants and innovators had the economic liberty and social dignity to take a shot at something new, they had every reason to start making more of what the economist Julian Simon called The Ultimate Resource: the mind.

Simon was born on February 12, 1932. He earned a BA in experimental psychology at Harvard in 1953 and went on to earn an MBA (1959) and a PhD in business economics (1961) from the University of Chicago. He taught for a long time at the University of Illinois-Urbana-Champaign before moving to the University of Maryland, where he finished his career before his death from a heart attack on February 8, 1998, a few days short of his 66th birthday.

Simon suffered from severe depression from 1962 through 1975. He “banished” his depression quickly upon his discovery of what he called the “Mood Ratio,” which was the perceived state of oneself/a hypothetical benchmark state. From that point forward, he wrote, he had cured his depression. He remained extremely productive up until his death, and he is most notable for his book The Ultimate Resource (later updated and republished as The Ultimate Resource 2), his ongoing crusade against environmental pessimism, and the famous bet he made with the outspoken Stanford biologist Paul Ehrlich over long-run trends in resource prices. Simon’s resounding victory made him a legend in classical liberal and libertarian circles: the Competitive Enterprise Institute now bestows the Julian Simon Award on the scholar or journalist who, in its opinion, best exemplifies Simon’s analytical approach.

One can summarize Simon’s conclusion as “more people are blessings, not curses.” We are not, he argues, in danger of outstripping the planet’s ability to feed us. Malthus and so many of his followers have gotten things badly wrong by emphasizing diminishing marginal returns to labor, land, and resources. These are constraints in the short run, but not in the long run. Each person born brings a mouth to feed and hands with which to scratch the ground, but most importantly, each new person brings a mind with which to have new ideas. The key, he argues, is freedom. When free minds are blessed with political and economic freedom, they can accomplish anything.

To Simon, necessity is the mother of invention. Market prices are the necessary “signals wrapped up in an incentive,” to borrow the way Tyler Cowen and Alexander Tabarrok put it, that tell people when it is time to conserve and when it is time to look for substitutes. Big enough price changes mean sustained changes in people’s daily patterns, and facing the pressure from higher prices a lot of people will work to come up with better ways to do things. In the case of natural resources, they might work to find new sources of supply–like drilling for oil in deeper waters–or substitutes altogether.

Simon did not just speculate from an armchair. In addition, he spent enormous amounts of time and many pages of books like The Ultimate Resource looking at long-run trends in resource stores, resource production, and importantly, resource prices. He finds that the very long-run trends are more consistent with abundance than Malthusian poverty.

Simon also put his money where his mouth was. In 1981, he challenged Ehrlich to a bet about what would happen to resource prices over the next decade. Ehrlich, who had spent a long time mocking Simon’s resource optimism, jumped on the offer. They settled on a bet in which they would consider a hypothetical portfolio containing $200 each of five commodities: copper, chromium, nickel, tungsten, and tin. If the inflation-adjusted prices of these commodities had risen after ten years, Simon would lose the bet and pay Ehrlich the difference. If the inflation-adjusted prices of these commodities had fallen after ten years, Ehrlich would lose the bet and pay Simon the difference.

In October 1990, Ehrlich wrote Simon a check for $576.07. The inflation-adjusted prices of the commodities that Ehrlich thought we were “running out of” had fallen by almost sixty percent, and this in a world with some 800 million more people.

Simon, then, was a model mind and an outstanding intellectual citizen. He thought through the theory and formulated his hypotheses very carefully. He tested his hypotheses against the data. Importantly, he took real and consequential action based on his beliefs–at great risk to his own reputation, but to the everlasting benefit of the rest of us.

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