Leading the Revival of Individualism & Self Reliance

Government Statistics Are A Really Poor Basis For Policy, Because They’re Really Poor Statistics.

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“The correct answer, I am afraid, is that we have virtually no economic use for national accounts, partly because we cannot be in control of our economy and partly because our economy has a dynamism which outpaces such accounts.” Those were the words of Sir John James Cowperthwaite, Financial Secretary of Hong Kong from 1961 to 1971.

Cowperthwaite famously harbored a dislike for government statistics given an unrelenting aversion to government intervention in the economy. The production of economic statistics would perhaps cause politicians to “do something” in response to measures indicating economic trouble, so Cowperthwaite avoided them altogether. Considering how desperately poor Hong Kong once was, it’s not unreasonable to suggest that Cowperthwaite was on to something. An economy is not a blob, or an organism that can be massaged or nursed, rather it’s just people. People have needs and they produce in order to fulfill them by exchanging their production with others. Where people are broadly free economically, their production has a tendency to be substantial.

All of this came to mind while reading a recent column by the Washington Post’s Catherine Rampell. Smart and witty as she plainly is, there’s an odd reverence for experts, and in particular experts in government, that informs much of what Rampell writes. Because they’re at the Fed, central bankers are wise in eyes of Rampell despite their track record of being routinely incorrect about the economy. This isn’t a knock on Fed officials as much as it’s a statement of the obvious. Anyone with a really good feel for the economy’s direction wouldn’t toil at the Fed for well below 1 percenter wages. They’d earn millions and billions as investors, and would do this despite still being wrong much of the time. As top macro traders would surely relay to Rampell, they’re incorrect nearly as often as they’re correct. Often stupendously so.

Rampell’s reverence for government and its experts extends to the statistics they produce. As her April 16th column emphatically stated, “[O]ne basis of a democracy – not to mention a healthy economy – is good official statistics so that people can make informed decisions.” Except that what Rampell presumes about statistics isn’t true. And the previous statement has nothing to do with conspiracy theories about government officials having it in for Republicans, or affection for Democrats. Instead, it has everything to do with Rampell seemingly being unaware of what she doesn’t know.

To see why, consider Gross Domestic Product, a production of the Department of Commerce’s Bureau of Economic Analysis. Seen by some as worthy, it’s this very statistic that has a president whom she despises ranting about so-called “deficits” in trade. But we have these “deficits” precisely because the U.S. is a magnet for both investment and imports. The world’s greatest investors are more than eager to purchase American equities, debt and land, but “export” of those certificates of ownership doesn’t count in trade statistics, while our import of shoes, socks and t-shirts does. This accounting abstraction is the source of “trade deficits” that bring down GDP, and this same abstraction that is a happy sign of prosperity has our 45th president threatening trade wars. Yet Rampell wonders why some on the right look askance at government statistics?

Sometimes the dislike of government statistics is rooted in a simple aversion to waste. Consider the monthly unemployment report produced by the Bureau of Labor Statistics (BLS). Notable here is that the BLS employs 2,500 people at an annual cost of $640 million to produce its report. Meanwhile ADP, an S&P 500 payroll company, produces a monthly jobless analysis that nearly mimics that of the BLS, all at no cost to the taxpayer. Better yet, the ADP measure is released one or two days ahead of the BLS’s. And since Rampell is of the view that our economic health is at least somewhat an effect of quality information, does she really think the BLS’s much smaller sample size data is more thorough than ADP’s? Think about this for a second in consideration of how vast is ADP’s data; it once again being the most prominent payroll company in the U.S.

And if ADP doesn’t convince Rampell that private industry could and does more accurately and inexpensively produce economic statistics, consider the monthly retail sales report produced by the U.S. Bureau of the Census. While consumption is always and everywhere an effect of production that has taken place first, the economics profession broadly puts the cart before the horse. It focuses on consumption as an economic indicator, even though our wants are endless and can only be fulfilled through production first. But that’s a digression. Let’s consider the retail report.

It’s a creation of 5,000 surveys sent out to businesses each month, of which generally only 2,500 come back to the federal workers compiling the numbers. Comical here is that so dated is the survey that more than a few of them reach the Census Bureau by fax machine! Rampell might contrast this blast to the past with the monthly retail report produced by Visa. Figure that the credit card company is operating in the 21st century, and better yet its consumer data springs from 400 million accounts. Rampell rails against rejection of government data as the stuff of mouthbreathers, but isn’t her protest a wee bit overdone? For her to pretend that the Census Bureau’s retail stats are anywhere close to as accurate as those of Visa would bring new meaning to willful ignorance.

So while Rampell surely has a point when she critiques President Trump’s aversion to facts and numbers, along with those in his employ, she might take a step back herself. And examine her own biases. Smart as she is, there’s much she doesn’t know. Or hasn’t considered. The low quality of government statistics that she oddly venerates reveals the latter in spades.

John Tamny is editor of RealClearMarkets, and Director of the Center for Economic Freedom at FreedomWorks.

Sticking It To The Rich Does Not Lead To The Socialist Paradise. Only The Uniqueness Of Individual Creativity Can Produce Wealth For All.

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Last week Roman Catholics marked the octave of Easter, a time when the glory of the Resurrection fills believers with anticipation of good things to come—if not in this life then in the next.

But hope is hard to come by in Catholic Venezuela these days. The nation is racked by despair as it faces privation so extreme that families eat garbage from dumpsters. Millions have fled, often with only what they can carry.

Venezuela was once the richest country in South America. Now it’s a place of malnourished children, starving adults and pullulating disease. Yet its corrupt and cruel military dictatorship clings to power.

The world looks on in horror as Venezuelans are helpless to combat this evil. Inside and outside the country the refrain is the same: How could this have happened?

Venezuela’s abundant supplies of petroleum reserves played a role in corrupting the nation. But the real problem is ideological, and it’s a lesson for Americans.

Venezuela’s intelligentsia spent much of the 20th century inculcating the population with socialist pap. If you’re not sure what that means, listen to Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez. They spout the same nonsense.

Intellectuals, educators and politicians promised that sticking it to the rich was the path to socialist paradise. As government intervention in the economy—particularly through price and exchange controls—damaged living standards, Venezuelans voted for more of it. Little did they know that by targeting the rights of successful entrepreneurs in the name of social justice, they were setting up the country to fail.

Venezuelan socialism fomented envy and deep distrust of business. This destroyed respect for persons who dared to be creative and build wealth. Poverty and dystopia were inevitable.

Climbing out of this hole will take more than removing dictator Nicolás Maduro. The country is devastated, but Venezuelans haven’t abandoned the collectivist cause. Many popular opposition politicians still call themselves socialists, unwilling to defend the creative class and its members’ right to the fruits of their labor.

Venezuela needs an ideas revolution that recognizes business as an endeavor of the human spirit. Socialists pose as humanitarians and sometimes even as Christians but their system strangles the person, who is at the heart of Catholic teaching. Catholic University of America research fellow Father John McNerney, author of “Wealth of Persons” (2016), describes the “real wellspring” of human progress as emanating from “the unique, irreplaceable and unrepeatable . . . reality of the individual acting in relation to his neighbor.”

We are more than simply individuals, because it is in relation with one another “as persons” that we discover ourselves, Father McNerney told me by email last week. “As ‘persons’ we have intellect and will, allowing us to go ‘beyond’ the material. It is as ‘persons’ that human creativity unfolds.”

Economists understand that the profit motive is integral to entrepreneurship. But it is about much more than material gains. Father McNerney illustrates the point in his book with the story of Agnes Morrogh-Bernard, a Sister of Charity who worked in the west of Ireland in the aftermath of that country’s notorious 19th-century famine.

Starvation had wiped out whole communities, when not physically, spiritually. The sisters engaged in all manner of philanthropy to reverse the deep demoralization caused by the “Great Hunger.” But Sister Agnes recognized that “mere philanthropic handouts could not recover” the annihilated Irish spirit. The community needed a creative outlet; it needed work.

The Irish nun had no business training. But one day she looked at the River Moy and determined that by harnessing both the power of the water and the creative spirit of the people, she could run a woolen mill. How she did it is somewhat of a miracle if you consider that she convinced a Protestant, who was also a Freemason, to underwrite her project.

The Foxford Woolen Mills still operates, which proves it is both economically sound and “profitable” for its employees. Agnes’s “entrepreneurial acumen,” Father McNerney writes, was “the spark that ignited the bright star of a small industry in post-famine Ireland.” She recognized the “creative dimension in us all” and a “need for its realization.”

Agnes had a kind of “feminine genius,” Father McNerney observes. She used her “charismatic entrepreneurial intuition to tap into the power and truth of a ‘person-centered’ understanding of economic development.”

This truth has been all but lost in Venezuela, where despite the depths of their misery many still yield the moral high ground to socialism. Can the country ever recover without embracing the creative entrepreneurial spirit and its success? It is doubtful, even in this Easter season of great hope.

This Article By Mary Anastasia O’Grady first appeared at wsj.com. 

How Governments Take Ownership Of Industries By Burying Them In Regulation.

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Socialism is now woker than a two-for-one Che Guevara T-shirt sale, with Bernie Sanders leading the Democrats’ presidential primary polls and Alexandria Ocasio-Cortez dominating the party’s imagination.

In a rare calling-out of this bogosity, JPMorgan CEO Jamie Dimon warned shareholders this month that “socialism inevitably produces stagnation, corruption and often worse.” He was echoing Winston Churchill’s observation that socialism allows for “the equal sharing of misery.” Why is it only capable of generating misery?

Because under socialism, politics rather than productivity drives employment. Technological innovation is suppressed. Long ago, an Israeli explained to me that under socialism—Israel’s economic system until 1985—you would always hire two workers to do the job of one.

Of course, there is a spectrum of socialism. The textbook definition is government ownership of the means of production, as in the communist-run Soviet Union or Cuba, or the state-owned factories of China today. But socialism can also mean “owning” an industry by burying it in regulation (see education, Medicare, the overregulated auto industries and so on).

Socialists are modern-day Luddites, destroyers of technology to preserve jobs. Article 4 of the current postal-workers’ union (sweetheart) contract states that “any new job or jobs created by technological or mechanization changes shall be offered to present employees capable of being trained to perform the new or changed job.” It’s one reason, even with automation, we still have 500,000 postal workers when the right number is zero. Similarly, Detroit was slow to use robots. It’s only recently that United Auto Workers union contracts did away with job guarantees.

Workers at the Port of Oakland went on strike to protest the use of RFID tags on shipping containers because it would kill lucrative clipboard-toting jobs. Productivity be damned.

And that phantasmagoria, the Green New Deal? It’s a productivity pallbearer, with its federal job guarantees and a new mechanism to support those “unwilling to work.” Where do I sign up for that?

The grand hypocrisy is that these same lazy-thinking Luddites use cutting-edge technology to propagate their myths. We have Bronx bartenders streaming on Instagram asking “Is it OK to still have children?” and a “Hear the Bern” Facebook page claiming you’ll have “freedom of choice” under Medicare for All.

An economic system is about raising the standard of living of its participants. The best way to do that is to lower costs of goods and services so that profits and capital are freed up to be reinvested in future life-enhancing products. Those who succeed in improving our lives deservedly get rich, but then earn the socialist’s scorn that “every billionaire is a policy failure.” C’mon. Technology is our best cost-chopper, but those gung-ho for government gunk the gears of progress.

Productivity drives profits, which drive prosperity, even though to nuevo-millennial socialists “profit” is a bad word. Rising stock prices—the sum of expected future profits—enable companies like Apple to spend more than $10 billion a year on research and development. They enable GlaxoSmithKline and others to fund research on potential cancer vaccines. Sagging stocks resize companies.

Socialism is about maximizing power, not maximizing profits. Government doesn’t make profits, has no incentive to show profits, wouldn’t know a profit if it hit it in the head. Inside government there are no markets or price mechanisms to act as a divining rod finding hidden productivity. Socialism handcuffs Adam Smith’s invisible hand.

Productivity is wealth. Sure, technology and markets might destroy two jobs, but they turn around and create three safer, higher-paying and more fulfilling jobs. To spend beyond a basic level for goods or services because of socialism’s political “make work” imperative destroys wealth.

How dumb. Socialists like Bernie Sanders love to spend money on “free” education and Medicare for All but have no policies to make money in the first place. Their socialist construct of technology-ignoring, job-guaranteeing claptrap seems like the only way not to fund all those freebies.

Technological progress is the only way to raise living standards over the long run. If you hire two workers to do the job of one, you kill the very productivity needed to fund the promised worker’s paradise. Without productivity, societal wealth eventually disappears and socialism spirals into decay and the stagnation and corruption that Mr. Dimon warns us about. Socialism rots from within.

Andy Kessler is the author of Inside View, a column he writes for The Wall Street Journal on technology and markets.

Economics For Entrepreneurs: Your Income Is Determined By The Scarcity Of Your Contribution, Not By How Hard You Work Or Your Worth As A Person.

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In a few months’ time, my wife and I will send our second child to daycare. Like all parents, nothing is more precious to us than our children. So it’s surprising that the people whom parents trust to take care of their kids—childcare workers and preschool teachers—get paid median salaries of just $22,290 and $28,990 a year.

This seems more than unfair. It seems perverse. Why would people trusted to take care of infants and toddlers 40-50 hours a week be paid the same as dog walkers and janitors? Why should people with such important jobs be paid so little?

Your Income Is Determined By The Scarcity Of Your Contribution

There’s a lot of popular misperception concerning why some people make more than others. Most recently, Rep. Ocasio-Cortez, citing the “value of human worth,” tweeted confusion over why people resist a $15 minimum wage when an airport croissant costs $7. Such confusion stems from the Marxist labor theory of value, a theory that economists have thoroughly debunked.

Popular misperception of how wages are determined is understandable because even the introductory economics course explanation of “productivity” doesn’t help much. “More productive workers get paid more” is a fine approach for the classroom but ultimately incomplete for the apples-to-oranges comparisons people like to make. Are people who take care of your children really as productive as dog walkers and janitors?

Here’s a better explanation, one that accounts for essentially all income differences:

Your income is determined by the scarcity of your contribution.

That’s it. There is no trick here, no intellectual gymnastics to perform. This is the grounding explanation for why some people make more than others. If you want to understand income inequality, or you simply want to make a lot yourself, this is the explanation you should always keep in mind.

Childcare Workers Are Simply Not That Scarce

Consider childcare again. Taking care of a room full of kids is exhausting. Like all jobs, it’s not inherently fun, which is why you have to pay people to do it. But it’s certainly more appealing than most jobs. There’s no work to take home and no grading to do. The hours are regular and, if the weather is nice, the work is outside. Many find the work meaningful.

It’s not only a relatively enjoyable job, but the skills required are also relatively easy to acquire. Evolution demands that most people be able to do the job of early childhood educators. Applicants might not always have the credentials, but its essential elements are no mystery. Most people have a lot of practical experience with their own children.

Even though childcare work is incredibly valuable, capable workers are relatively abundant. Pay falls accordingly because wages are determined not only by value or by availability. Wages are determined by scarcity.

Wages, Like All Prices, Measure Scarcity

Wages (or compensation, to include benefits) are prices of labor, and like all prices, wages measure scarcity. Scarcity is the operative word here. Scarcity is not just a matter of how much there is of something (supply) but also considers how much people want something (demand). The higher the price, the greater the scarcity. The lower the price, the lesser the scarcity.

For example, lots of people want water, but there is so much available, the price of water is low. At the same time, if I made a sculpture it would be the only one that exists, but no one would want it. Its price would also be low. Honestly, its price would probably be zero: even one David Youngberg original would be too many.

Labor markets are like any other market, and wages are like any other price. To illustrate, consider how crucial cashiers are to any grocery store. Though self-checkouts have taken away some of their necessity, most stores absolutely need cashiers. Yet cashiers make just $10 an hour, and their pay was low even in the time before self-checkouts, when a store literally couldn’t function without them.

Now compare cashiers to other grocery store jobs. Florists, butchers, and bakers aren’t nearly as critical to the store, but their median pay is $12-$15 an hour. You don’t need a flower shop or deli or bakery to sell most groceries, so why are cashiers paid so little?

Scarcity is why. It’s not just about how much employers want to hire (demand) but how many people are available to hire (supply). Anyone can do a cashier’s job, as evidenced by the proliferation of self-checkouts. Florists, butchers, and bakers require more training and a greater degree of conscientiousness. Even though a cashier is more “productive,” other workers are much scarcer and are paid accordingly.

Not All Income Is Justly Earned

The “incomes as scarcity of contribution” explanation is merely descriptive; it is not a commentary on the justness of the outcomes. Luck can suddenly render a useless skill relevant or a valued skill redundant. That’s unfortunate, even unfair, for the people on the losing end of that change, but it’s how the world works.

There’s no avoiding the underlying reality of the competitive pressure of markets.

More commonly, the level of scarcity is politically manipulated. Licensing creates barriers to entry, making jobs like hairdresser and interior designers scarcer than they otherwise would be. Other regulations drive up the wages of providers in industries like health care and law. Corporate subsidies, including farm subsidies, drive up demand and artificially increase scarcity. Just because income is determined by the scarcity of the contribution doesn’t mean all levels of scarcity are natural.

“Contribution” Doesn’t Mean Hard Work Or Your “Worth” As A Person

Contribution is a wholly different concept from hard work. Some work hard doing low-value activities, and others can create a lot of value with little effort. There’s a correlation between effort and contribution, but it’s noisy. As the saying goes: work smarter, not harder.

Nor is your “worth” as a person the same as your income—it probably doesn’t even correlate. “Contribution” describes only market activity. Many people add a great deal of value to society, from stay-at-home parents to volunteers to very good friends. That they don’t get paid for this contribution only means that people are more than what they do for a living. They are valuable in some larger sense, but you only get paid for market activity. People are much more than their income.

This last point is the hardest to internalize. There are many people who have contributions that are so relatively abundant, they have a difficult time purchasing their basic needs. It’s easy to fall into a trap that the world thinks little of them because of their income.

The low salary of preschool teachers, janitors, and cashiers only tells us that what they contribute to economic activity isn’t that scarce. It says nothing about their worth as people. When you understand that wages are just measurements of scarcity, deriving from natural differences in work and people, the absurdity of minimum wage increases become clear.

David Youngberg is an associate professor of economics at Montgomery College in Rockville, MD.

This article was originally published on FEE.org.

 

How A.I. Will Create A New Era Of Entrepreneurship, And As Much Meaningful Work As We Demand.

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Journalists and commentators are trying to instill in us the fear that robotic automation, using artificial intelligence, will eliminate many, perhaps a majority of, jobs. We will all require a universal basic income, we’ll lose the sense of worth that comes with purposeful work, and we’ll have to shift our focus to figuring out what to do with our spare time.

These commentators forget – or, more likely, they never understood in the first place –  one of the first principles of economics: customer sovereignty. The customer is king. The customer determines what is produced by the act of buying or not buying. Anything the customer buys or wants to buy – i.e. there exists what the economists call demand – producers will figure out how to produce, and how to produce more and better, and how to produce more variations. If people want jobs, then they will be produced.

Robert Lempert explores this potential for AI to produce more meaningful work for humans in an article he titles Bezos World or Levelers published at AIPulse.

He observes that it is potentially possible that technology could destroy vast numbers of jobs – as many as 40% of the world’s jobs could be replaced in the next 15 years. Skills training, social insurance programs, and universal basic income (UBI) could only nibble at the edges of such a major social transformation.

But Lempert argues that the threat that AI poses to the system of jobs and meaningful work exists only because the giant tech companies that, so far, dominate the application of AI in commerce are deliberately creating the threat to further their own interests. They will make profits from automation, both directly and by selling it to other large corporations who want to substitute computer code and robots for expensive employees.

In order to explain the possibility of a totally different kind of outcome from the current technological revolution, Lempert first goes backwards in history rather than forwards. He returns us to the original promise of free markets. They shattered aristocratic hierarchies and government-chartered monopolies. They promised “a world of independent proprietors, whose few employees would be young apprentices on their way to running their own small firms”. He quotes Abraham Lincoln as a proponent of this vision, and he might have added Thomas Jefferson or even Adam Smith.

But another revolution undermined this happy vision by “creating economies of scale that required vast enterprises to exploit”. While this revolution greatly expanded consumer choice and convenience in travel, electric light, food and clothing, it also generated new hierarchies of power and wealth in large corporations. Industrial age production required large agglomerations of capital, and those reinforced the imbalances of the power hierarchy.

AI, says Lempert,  is being deployed by new but similarly large corporations towards a future in which machines do all the work and technology is used to maximize power and wealth in the hands of a small number of companies who own the capital. Why do corporations use AI to replace people with machines? Because that’s their goal.

But it doesn’t have to be this way. Lempert says we can just as easily imagine – and act purposely to create – a very different scenario in which we as individuals use technology to unwind the large corporations and disperse the productive capital into more hands in order to use it better.

He asks why we need these big corporations in the first place. Economists point to transaction costs: productive assets need to be organized within managerial hierarchies associated with large stocks of capital. Today, corporations add centrally managed proprietary data (often gathered from customers), and sell services that enable the collection of the data and the AI learning from that data to make services more efficient and effective.

But AI does not necessarily have to be used in support of centralization of organization and concentration of economic power. It can be used to reimagine the firm and reverse the existing power arrangements. Think of it in the role of helping labor to hire capital, instead of helping capital to dispense with labor. Let’s imagine a small team wanted to join together to build a new kind of car. AI would help them identify others with the skills they need for design and resource assembly, and to rent 3D manufacturing facilities to produce their design. Or AI could help drivers and passengers get together using competing databases without the need of an Uber to own the network. Overall, Lempert says, we could envision an economy of radical equality in social and economic opportunity, in which everyone’s an entrepreneur, finding their highest and best use, and hiring the capital and connecting to the collaborators necessary for efficient production, in a world of abundance, choice and convenience.

What has to change? The way we write algorithms. More specifically, the demand for the scenario that Lempert imagines must drive the producers of algorithms to new forms and designs – algorithms with different goals and functions than those that are common today. Algorithms can “enable individuals to make reasoned and consequential choices about their own lives, to act on those choices, and to evaluate the results in terms of their own goals and values”.

Many of today’s most touted algorithms are designed to reduce this “reasoned and consequential” human choice. Such algorithms start with a clear objective and a set of actions they can take, and they choose the actions to best achieve the objective. Drive this car to that destination without accident. The algorithm determines that the best method is to reduce human involvement. Such algorithms employ predict-then-act analysis, aiming for a single computer-generated understanding of the future and making prescriptive recommendations for action. They are designed to operate independently from human subjectivity and influence.

What if the algorithm had the objective of helping to improve the human experience? It could certainly help individuals gather resources, including skills, capital, and material resources, and connect to appropriate human collaborators. It could help the individual make good choices, examining those choices from multiple vantages and explaining the choices to others. Such algorithms do exist. They are called agree-on-decision algorithms and follow a process called “deliberation with analysis”. They can facilitate a collaborative process of social choice, where everyone recognizes that there can be many competing views and are judged by the extent to which they empower people involved in the process to make what they subjectively regard as meaningful choices. Do you want purposeful work? Then choose it. AI can help.

In other words, it all comes down to demand. What kind of a world do we want? Let’s make sure we communicate our preferences to the algorithm producers.

Bernie Sanders Makes Money Via The Capitalist Way: Rewarded By The Market For His Unequal Skills.

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Bernie Sanders released ten years of tax returns, and it turns out he’s a millionaire. Thanks especially to revenues from book royalties, Sanders is now, as CNN put it, “in the category of the super-rich.” Or, as some might say, he’s part of “the 1 percent.”

After years of denouncing “millionaires and billionaires” as a supposed source of America’s economic problems, this information is a little awkward for Sanders.

Awkward Contradiction

Some critics of Sanders have claimed this makes him a hypocrite. Here’s a man who trashes millionaires, and yet is one himself.

“Hypocrite,” however, isn’t really the right term here. So long as Sanders pays the taxes he says millionaires should pay, his income alone doesn’t make him a hypocrite. Moreover, Sanders can (plausibly) claim that when he denounced millionaires, he didn’t mean all of them. He just meant 90 percent of them. And he can then include himself in the “good” ten percent.

Nevertheless, Sanders appears not entirely comfortable with his status as a rich man.

When confronted as being among those he has long villainized, Sanders became defensive:

“I wrote a best-selling book,” he declared. “If you write a best-selling book, you can be a millionaire, too.”
Translation: “I made my money fair and square, so quit hassling me about it.”

It is at this point that we start to see Bernie Sanders undermine his own claims about millionaires, wealth, and capitalism.

Bernie Sanders, Capitalist

For a normal person, Sanders’s defense of his riches would be no big deal. There’s little doubt that a great many wealthy people, when asked how they earned their money, would respond with, “I worked for it. I earned it.”

But, when Bernie Sanders says this, it’s quite remarkable.

After all, one of the central myths of the Bernie Sanders wing of the American left is that people who become rich do so on the backs of the poor. As is the case with orthodox Marxists, there is a persistent and widespread belief on the left that wealth is gained by exploiting workers. Moreover, it is believed that market-based economies systematically favor the wealthy while closing off economic success to those who are not already well off. In this narrative, those who haven’t exploited workers directly have likely inherited their money from others have who have exploited others. This sounds suspiciously like the “bootstraps” argument which the left so often and so vehemently rejects.

To hear Bernie Sanders on the matter, however, it sure sounds like he does believe that wealth can be had through a little hard work: “I wrote a best-selling book. If you write a best-selling book, you can be a millionaire, too.”

Translation: “You can make a lot of money if you work at it. It’s just that easy!”

This sounds suspiciously like the “bootstraps” argument which the left so often and so vehemently rejects. And it’s pretty odd to hear it from Bernie Sanders.

Can Wealth Be Moral after All?

It shouldn’t surprise us, though, that when called upon to justify his riches, Sanders ended up resorting to a capitalist cliché.

He did this, of course, because the argument makes sense to a lot of people. Sanders needed to make the case that his wealth was obtained morally. So he pointed out the most common-sense argument in favor of letting people keep their wealth: he earned it.

Assuming we’re only talking about income received from book sales, Sanders is right. No one forced anyone to buy his books, and he made money when people voluntarily handed over money in exchange for the books. By this measure, Sanders did indeed “earn” the money.

Sanders also admits that delivering a product or service to a large number of people is a key factor in getting rich.

But Sanders’s observations about the origins of his wealth don’t stop there. By noting that this was a “best-selling book” Sanders is also admitting that delivering a product or service to a large number of people is a key factor in getting rich.

In other words, had Sanders merely written a book, he would not have made millions. But since he wrote a best-selling book, that brought in a lot of money. But if the key to getting rich is to sell something a lot of people want, doesn’t that show that “millionaires and billionaires” are providing a benefit to society? Sanders is recognizing that the extent of one’s riches are tied to how many consumers an entrepreneur serves in the marketplace. Sanders apparently thinks at least one millionaire—himself—got rich by giving people what they want. And if this is the case, is it fair to assume that rich people aren’t paying their “fair share?”

We might go on to extrapolate even more from this.

As to the matter of inequality, Sanders hints at its origins. What if not everyone writes a best-selling book? Wouldn’t that mean some people have millions of dollars and other people have much smaller amounts of money? Wouldn’t that create inequality?

The answer, of course, is “yes.” And we can see from Sanders’s own success in selling books that inequality is not necessarily a result of the wealthy exploiting the poor. It can simply be a result of some people selling more books than others.

Is Inequality Inherently Immoral?

We can also conclude that Sanders apparently believes it is possible to produce a good or service without exploiting the workers. After all, his books did not appear by magic out of thin air. Human beings worked to print the books, assemble them, and distribute them. Sanders made money from their labors.

In fact, he made a lot more money than any truck driver who delivered his books to stores. He made a lot more than any factory worker who assembled the books. Does Sanders believe he took advantage of these workers? Apparently not. Sanders justifies his wealth as a matter of writing books. He doesn’t mention anything about the workers at all.

  • So, in this one short interview, we’ve learned a few things from Sanders:
  • He believes that providing an in-demand product or service justifies high incomes for those who produced it.
  • There is a connection between income earned and the total number of customers served.
  • If you do the same, you can be a millionaire, too.

That’s quite a little capitalist manifesto from Sanders.

Unfortunately, he’s unlikely to take any of these newfound revelations and translate them into decent public policy going forward. Instead, he’s likely to keep telling his supporters what they want to hear. Why stop now? It’s made him a rich man.

This article first appeared at mises.org

 

On Earth Day, Don’t Believe The Gloom-And-Doomers. Everything Is Getting Better, Including The Environment.

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April 22 of each year is now Earth Day. (I note that April 22 is also the birthday of Vladimir Lenin. Readers may draw their own conclusions.)

The internet and airwaves will teem with gloom ’n’ doom, as warnings are heard of a coming calamity. Guilt-tripping will also peak, with scolds cursing us for using such demonic devices as automobiles, HVACs and electric blenders.

We’re ruining the earth and our own future — or so we’re told.

I’m here to cheer you up by offering reasons for optimism about the future of both the earth and our species.

According to the invaluable interactive website HumanProgress.org, in this young century alone:

• Global infant mortality fell from 39 per 1,000 live births to 24.

• Global life-expectancy rose from 68 to 72 years.

• The percentage of the global population that is undernourished fell from 15 to 11.

• The food supply per person, measured in calories, rose by 7%. Since 1961 it’s up by 26%.

Here’s more good news. According to the Environmental Protection Agency, “Between 1970 and 2017, the combined emissions of the six common pollutants (PM2.5 and PM10, SO2, NOx, VOCs, CO and Pb) dropped by 73%.”

Also:

• Since 1980 indoor air pollution — mostly from home cooking and heating — has steadily fallen in every region of the planet, as have deaths from such pollution.

• Global deforestation is a myth: Since 1982, an additional 2.24 million square kilometers — over 7%— of the earth’s surface is covered by trees.

• Worldwide since 1990, the portion of the population who die from cancer is down 8 percent, and in the United States. it is down by almost 20%.

• The globe’s proven reserves of petroleum continue to grow; in 2017 proven reserves were 58 percent higher than in 2000 and 165%higher than in 1982.

• Despite steadily increasing extraction of oil, since the 1970s the number of oil spillsfrom tankers is down to a small fraction of what it was 40 years ago.

• Since 1961, world cereals production has nearly doubled.

• Between 1990 and 2015, the portion of the world’s population with regular access to improved sources of drinkable water — such as pipes and protected dug wells — rose from 76% to 91%.

• Between 1992 and 2011, the percentage of the world’s population living on $2 dollars a day or less fell from 27% to 13%.

• Between 1992 and 2010, the percentage of the world’s people aged 15 and older who are literate increased from 75% to 81%.

And then there’s the happy news recently reported by Brigham Young University professor Gale Pooley and the Cato Institute’s Marian Tupy. These researchers have constructed the “Simon Abundance Index,” named after the late University of Maryland economist Julian Simon. Simon was the 20th century’s greatest slayer of doomsday myths about the environment, population growth, and alleged dangers posed to humanity by economic progress.

The Simon Abundance Index is a tool for tracking changes over time in the abundance of a basket of 50 commodities, including copper, maize, natural gas, wool and zinc.

Using this index, Pooley and Tupy find that “our planet was 379.6% more abundant in resources in 2017 than it was in 1980. Put differently, resources were 4.796 times as plentiful in 2017 as they were in 1980.”

Wow! Be happy on this Earth Day!

Photo by Esther Tuttle on Unsplash

Donald Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. 

Wouldn’t You Want The Purchasing Power Of Your Dollar To Be Stable And Predictable? That’s Called The Gold Standard.

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Owners of Bitcoin have endured a wild ride in recent years. While the coin could fetch $900 when 2017 began, one year later its value briefly moved above $20,000. At present, one Bitcoin exchanges for roughly $5,000.

The coin’s substantial volatility ably explains why, at least for now, it’s not seen as a worthy substitute for the dollar. It more realistically exhibits the floating dollar’s worst qualities, many times over.

Indeed, imagine entering into a transaction in which payment would be made in the cryptocurrency. I’ll pay you 10 Bitcoin to remodel my kitchen. Ok, but which Bitcoin? The 2017 version, or the much more valuable coin of 2018? How about I pay you 10 Bitcoin now, and 10 in April of 2020 to add on a room to my house? Assuming continued volatility, someone’s going to be very unhappy next April.

So while Bitcoin fails in the present as a dollar replacement, its volatility instructs. Who among us would comfortably enter into a transaction in which the medium of exchange facilitating the transaction is bouncing around in the most erratic of ways? The question is rhetorical.

And it’s one that helps explain the ongoing desire among some monetary thinkers to relink currencies to gold. Gold didn’t emerge as the primary definer of money by coincidence, but instead because its value is so remarkably stable. The latter is an effect of gold’s unique stock/flow characteristics. While roughly 2,000 metric tons of the yellow metal are mined each year, there are already around 200,000 metric tons of gold above ground. Gold is the “constant” simply because any sales or discoveries of it are highly unlikely to alter its price in material fashion. A dollar, euro, pound, or yuan defined in terms of a gold ounce takes on characteristics of stability that give money its sole purpose as a medium of exchange. As Adam Smith long ago put it, “the sole use of money is to circulate consumable goods.”

It’s a reminder that when we transact, we’re ultimately exchanging products for products; money merely an agreement about value among producers that enhances the quality of the exchange. If the monetary unit is stable, buyer and seller have the highest odds of attaining equal value in return for what they bring to market. The problem is that since the early 1970s, money has floated without definition.

While a dollar was exchangeable for 1/35th of an ounce of gold in August of 1971, it now buys roughly 1/1300th of an ounce. A dollar that used to purchase almost ½ of a barrel of oil now purchases 1/60th. Readers get the picture. Since the early ‘70s, the dollar has exhibited volatile qualities that bring to mind Bitcoin in modern times.

Gold proponents merely want to revive money’s historical purpose as a stable measure of value.  For the same reason that no sane person would comfortably enter into a deal measured in Bitcoin, money of the dollar, euro, yen and pound variety similarly has demerits rooted in volatility. Re-linking currencies to gold would imbue them with the stability that would render them most useful as money. Yet critics abound.

Largely due to President Trump’s expressed plan to nominate gold supporters Herman Cain and Stephen Moore to the Federal Reserve’s Board of Governors, critics of money defined in terms of gold have sharpened their knives. Notable here is that the criticism has come from both sides.

James Pethokoukis of the conservative American Enterprise Institute observed in a recent blog post that Moore’s past support for a gold-defined dollar disqualifies him as a nominee. At the Washington Post, Catherine Rampell haughtily declared that the gold standard “has been roundly rejected by actual economic experts,” including “every single economist surveyed by the University of Chicago’s IGM Economic Experts Panel.” Oh well, a 1980 letter signed by 364 top economists promised that Margaret Thatcher’s fiscal policies would bring about disaster in England…

Funny about the critics of gold is that they’re revealing their own misunderstandings in reacting so negatively, and their confusion extends well beyond an inability for them to comprehend money’s purpose. Seemingly lost on those who view the gold standard as the low-rent equivalent of a diner using the outside eating utensils to cut the entrée’s meat is that the Fed doesn’t oversee the dollar’s exchange rate as is. And it never has. That Fed officials rarely discuss the dollar’s exchange rate is seemingly lost on the naïve minds who fear Cain and Moore will – gasp – relink the dollar to gold. Sorry, but the dollar’s exchange rate has at least in the last 100 years been a Treasury/presidential function, and assuming anyone cares about the Constitution anymore, it began (Congress “coins money, regulates the value thereof”) as a prerogative of Congress. Pethoukoukis, Rampell and the economists they aim to please have their history wrong in addition to not understanding money.

After that, not asked enough of gold-standard critics is what exactly has them so hysterical. If it’s about gold somehow limiting the supply of dollars, there’s no empirical evidence supporting what is an unserious claim. Figure that the supply of dollars (source: Nathan Lewis, who will forget more about money in the time it takes to read this than Pethokoukis and Rampell will ever know) soared 163 times from 1785 to 1900 despite the greenback’s gold definition. The supply of dollars is production determined. Where there’s production there will always be copious “money” to facilitate exchange of same. Where there’s very little, there will be very little money. It’s not by coincidence that dollars are plentiful in Manhattan, but relatively scarce in the Bronx. Money supply doesn’t instigate as the monetary fabulists would have us believe, rather it’s an effect of production.

As for the operation of a gold standard system, lost on the myriad critics is that it wouldn’t even require any gold. Instead, what would be required is a commitment by Treasury to maintaining the dollar’s value in terms of a commodity least vulnerable to outside influences that result in volatility.

All of which raises a basic question: what are the critics so worked up about? Few could say with a straight face that Bitcoin would serve as an effective facilitator of transactions, and neither would gold-standard supporters. Proponents of a gold-defined dollar are merely saying that the dollar would be much more useful as a facilitator of trade and investment if its value were stable throughout time.

What about the workers who earn dollars? Seemingly no reasonable economist or pundit would say they’ve benefited from the dollar’s wild ride. Better yet, no economist has ever offered up a reasonable argument in favor of devaluation of the very dollars workers earn.

Investors? Their commitments of capital amount to explicit purchases of dollar returns and dollar income streams in the future. Without investment, there are no companies and jobs. A stable dollar would quite logically remove a great deal of uncertainty from the investment that powers all economic activity.

Stated simply, gold-standard proponents seek a dollar that is widely trusted as a constant measure of value. Nothing more. Nothing less. Unknown is why a desire to revive money with stability top of mind has so many so up in arms. They won’t admit it, but their protest is a rather unwitting admission that they don’t have a clue about the subject they naively presume to discuss.

Your move, gold critics. If stable money is problematic, please explain what money is. Better yet, please explain why money that has erratic, Bitcoin qualities is superior to money that is more of a constant measure of value. And please end the pretense about the Fed putting us back on the gold standard. You’re revealing how little you know when you make such a silly argument.

John Tamny is editor of RealClearMarkets, and Director of the Center for Economic Freedom at FreedomWorks.

Trump’s War On Socialism Is A Call For Individualism, Which Neither Democrats Nor Republicans Will Deliver.

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President Trump recently declared that “America will never be a socialist country”. In a supportive statement, US National Economic Council Director Larry Kudlow urged us to put socialism on trial and convict it. Their urgency is triggered by the aggressive push for “Democratic Socialism” by left-wing politicians like Bernie Sanders and Alexandria Ocasia-Cortez and the Green New Dealers.

And President Trump may be swimming against the tide. In a Harris Pollpublished at Axios on March 10th, 2019, 49.6% 0f Millenials and Gen Z said they’d prefer living in a socialist country. Axios also reported that 61% of 18-24 year old Americans have a positivereaction to the word “socialism”, beating out capitalism at 58%.

What is it that they really want? And what is it that Trump and Kudlow want?

The historical definition of socialism has focused on the elimination of entrepreneurship from the economic processes of production. The State owns the factories and the banks and the hospitals. This was the socialism of the old Soviet Union, and it’s closely mirrored in Cuba and Venezuela and partially in China today. This kind of socialism represses economic freedom at the level of individual consumers, because the signals they would normally send back to producers about what they prefer and what they don’t want are not received. Consumers get what is produced and are not free to choose. Their motivation is quickly strangled and their creative energy dies. With no entrepreneurs to respond to their preferences, they give up, and take what they are given. Their social and economic objectives can not be realized because there is no response mechanism.

Democratic socialism is meant to be different. Social democracy is meant to achieve the objectives of the people through democratic mechanisms. Instead of “socializing” the means of production, the democratic socialists shift their institutional aggression to the fiscal sphere, promising to “even out” social and economic opportunities. The difference between real socialism and democratic socialism is not one of category or class but simply one of degree. The aggression against the citizen in democratic socialism is profound and far-reaching, with regard to the number of social spheres and processes affected, and the millions of people who suffer systematic expropriation through taxes of a very large share of the fruits of their individual entrepreneurial activity, and are forced by law and regulation to act in a way that they would not normally or voluntarily agree to.

Even though the democratic socialists express ostensibly noble goals – impossible, in reality, to achieve – they approach them via coercion and repression of individual choice and individual creativity. There is a “mirage” effect of democratic socialism. When individuals are blocked from the creativity of their own initiatives, they become dependent and lose awareness of what they could otherwise create or experience in a dynamic entrepreneurial economy. They identify government agencies with the existence of goods and services that are crucial to their lives. It becomes difficult for dependent individuals to return to the entrepreneurial habits of their prior lives.

But let us not fool ourselves that the people who will save us from socialism are members of the Republican party. The right-leaning political party in the US is no champion of unfettered entrepreneurial capitalism. Their proposed levels of spending and taxation may (at times) be less than those of the Democrats, but they are still too high. Their regulation, even though Trump is trying to pare it back here and there, is still intrusive and restrictive. Their fiscal and regulatory policies continue to ensnare hundreds of millions of producers and to confiscate the fruits of production.

The opposite of Democratic Socialism is not Republican Party policy, it is entrepreneurialism based on individual choice and individual action. The normal conduct of society is the continuous adaptation of individuals to each other’s needs. If one sees a need exhibited by another – they need to hire, they need a particular good or service, they need to assemble a team for a project – they offer to help. If the price is right, an exchange is made. If it’s not, a further adjustment is made. These adjustments and exchanges take place between billions of individuals every day, and a society that works for all – because it represents the sum total of everyone’s mutual adjustments – emerges. This is society. This is the social process.

Socialism is, in fact, anti-social. It does not permit the social process to work. It imposes rules and regulations and taxes and assaults on private property to forcibly impose its “noble” goals. It becomes totalitarian, because this systematic aggression eventually spreads to every nook and cranny. It impedes the process of innovation and the production of goods and services that people prefer, slowing down economic development. It shackles creativity and individuality.

If Trump is right that America will never be a socialist country, he must recognize that we are an individualist country. American exceptionalism means that we are the one remaining capitalist country where government can get out of the way of its productive citizens, and celebrate the advances that they bring for their countrymen simply by working hard. Innovators and economic achievers are trying to earn a living and making individual choices every day, with their own interests in mind and no collective goal. Betterment for everyone is the result. Trump seems to be pretty individualistic. Perhaps he can move us in that direction.

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.

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