Leading the Revival of Individualism & Self Reliance

The US Government Is Mugging Huawei Without Any Understanding Of The Simplest Principles Of Economics.

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Last December, American authorities asked Canadian officials to arrest Huawei CFO Meng Wanzhou. The Canadians complied, and that on its own should have readers a bit terrified. Now she will be extradited to the US for trial. At the time of arrest, Financial commentator Zachary Karabell observed that the arrest was “somewhat like the Chinese arresting the daughter of Steve Jobs if she had helped run Apple.”

So while officials in the Trump administration claim President Trump was unaware of the pending arrest when he had dinner recently with Chinese President Xi Jinping, let’s be serious. Of course Trump knew, or was soon to know. He would have had to know simply because the arrest itself was so outlandish, and so outside any reasonable norms.

And since the arrest was more than outre, it’s useful to state emphatically that Trump and the Administration he leads is playing with serious fire. Markets reflect this previous truth. Protectionism on its own is boneheaded, and runs counter to the interests of American workers and companies alike. Protectionism combined with the arrest of prominent business leaders in other countries is truly dangerous.

Channeling Karabell, imagine the arrest of a prominent U.S. business personage in China (think Apple’s Tim Cook, as an example), particularly given the present occupant of the White House. The Trump administration has crossed a serious line, and yes, the Trump administration should be blamed here. Something like this would never have happened without approval from the highest of the high.

Almost as bad as what the Trump administration plainly called for has been the reaction among Republicans who should know better. Normally reliable Nebraska Senator Ben Sasse told the New York Times that “Americans are grateful that our Canadian partners have arrested the chief financial officer of a giant Chinese telecom company for breaking U.S. sanctions against Iran.” So up in arms was Florida Senator Marco Rubio that he promised legislation meant to ban Chinese telecom companies in the U.S. More on Rubio’s desire to vandalize basic economics in a minute.

For now, it’s more than worthwhile to focus on Huawei’s alleged flouting of American law through its sale of telecom equipment (equipment that includes American-made components) to countries including Cuba, Iran, Sudan and Syria. This is what has some in the U.S. political class riled up, and it’s a loud reminder of just how microscopic is that same class’s understanding of economics.

To put is as plainly as possible, U.S. companies trade all the time with “Cuba, Iran, Sudan and Syria.” They just do so through intermediaries. To understand this simple truth, we need only return to the 1970s and the toothless Arab oil embargo “imposed” on the United States. History books tell us that Arab countries stopped selling us oil, but they did no such thing. “Arab oil” continued to flow into the United States; albeit via producers in countries not embargoed.

The above is how so-called U.S. trade controls should be understood. They’re utterly meaningless. So long as American companies are productive, and so long as there is demand from inside countries known to be enemies of the U.S., then U.S. companies will be trading with the enemy. They may not be breaking the law “directly,” but production itself is a signal of trade with everyone simply because there’s no accounting for the final destination of any good. In sports terms, while the San Antonio Spurs made a point to not trade all-world forward Kawhi Leonard to a Western Conference foe, they ultimately can’t block the Toronto Raptors from trading Leonard to one of their Western Conference rivals.

Looked at through the prism of Huawei, it’s presently the world’s #2 maker of smartphones, and is the global leader when it comes to telecom equipment. What this tells us is that persecution of the corporation for sales to enemies of the U.S. is for federal officials to make a distinction without a difference. Short of Huawei hoarding all of its production, its smartphones and telecom equipment will ultimately reach Iran et al for the prosaic reason that Huawei sells so much in the way of smartphones and telecom equipment. It can’t be repeated enough that there’s no accounting for the final destination of any good. Translating what is completely mindless, the federal government is ultimately persecuting Huawei for being successful.

Which brings us back to Rubio’s proposed legislation. On its own Washington’s blockage of Huawei is notable when we remember how U.S./China trade is framed stateside. Supposedly they block all of our companies from selling there, while we’re fully open to them. Not so with Huawei. One doesn’t find its phones at AT&T stores not because they’re not high quality, but because they’re illegal. The why behind the latter is really and truly suspect.

Huawei, a wildly highly successful telecom company can’t place its goods on U.S. shelves because it is viewed as a national security threat. The laughable argument offered up by members of the political class to defend the indefensible is that Huawei’s close ties to the Chinese government mean that American use of its phones and equipment imperil us because we could be spied upon. Oh dear….

The real threat here is U.S. telecoms that are close enough to our federal government such that they can convince federal officials to pursue always damaging protectionism. Luckily for U.S. smartphone makers (Apple sells 20% of its iPhones in China), the rules against our best and brightest in China aren’t so stringent.

But the main thing is that national security types are wrapping themselves in a false argument that the Chinese will spy on us through our phones. Ok, but what will they do? As President Trump’s endless Tweets about China remind us, we’re a huge market for Chinese companies. So, we’re supposed to believe the Chinese government will spy on us in order to war against the biggest market for companies close to that same Chinese government?

The whole Huawei story is a ridiculous one. And a protectionist one. And one rooted in flamboyant confusion about economics within the U.S. political class. But the worst thing about this story is how dangerous it is. When protectionism leads to arrests, it’s not unreasonable to assume that shooting could be next.

The above in mind, we’ve heard since Trump entered the White House that he’s surrounded himself with people who understand diplomacy and the importance of trade to world peace. It’s time for those people to stand up in the Administration, and to show a willingness to depart same unless sanity prevails. Because make no mistake about it, the arrest of Meng Wanzhou was truly insane. The pending trial more so.

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John Tamny

John Tamny is editor of RealClearMarkets. His forthcoming book on current ideological trends will be published by the American Institute for Economic Research in 2019.

 

Economics For Entrepreneurs: Value-Creating Entrepreneurship Means Making Money And Making A Difference.

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It’s widely agreed that we need more entrepreneurship for economic growth and a higher standard of living. But more is not always better.

In fact, there can be too much of a good thing, in entrepreneurship as in so many other things. The reason is that economic growth comes from successful entrepreneurship that is also productive. And not all entrepreneurs who earn profits contribute to economic growth if they have unproductive — or, worse, destructive — effects on the economy.

Unfortunately, many entrepreneurs fail to consider what it is that they’re contributing to the economy, and for that reason don’t always end up being productive. Sure, you don’t have to be productive to make money. And to the degree that “success” is a matter of getting big figures at the end of your P&L statement and being “in the black,” you can succeed as an entrepreneur without contributing much to the economy or society.

Many entrepreneurs, however, are not in it simply for the money; on the contrary, they don’t actually make more than they would through regular employment. And they’re not involved in entrepreneurship simply because they don’t want to work for someone else. Instead, they  want to change the world (though this doesn’t necessarily require their staying away from making money).

There is also a time and place for social entrepreneurship — doing good by spending money. And there is similarly a time and place for social business, or doing good while making ends meet. But the emphasis on such projects is often exaggerated. Rather, productive entrepreneurship means making a positive difference in the world without requiring that entrepreneurs sacrifice their and their families’ future.

The simple and inspiring truth is that there is no contradiction between making money and making a difference. In fact, you can do well from doing good. But to do so, you must consider the following simple but often overlooked ideas of what a truly “productive” business is:

1. It is not just about you.

Starting your business is a personal choice, and may be tied to a choice of the kind of life you want to live; but the impact and success of the business is not all “personal.” In fact it is not all about you, the product or service you provide, or the opportunities you recognize. It is about the value you create. And the value of what you offer is determined by those you offer it to.

Simply put, you are always at the mercy of how your customers see you and what you offer them. So, don’t fight their valuation, because you can’t. Instead, seek it. Think of how you can offer as much value as possible to your customer — on his or her terms. How do you serve others best? That’s how you can also serve yourself.

2. It is not just about what people say they want.

Henry Ford never actually said the famous phrase, “If I had asked people what they wanted, they would have said faster horses.” But that phrase does capture what the late Steve Jobs likely intended when he said that, “People don’t know what they want until you show it to them.” That’s because people may know the value they can get out of things, but they don’t necessarily know how to satisfy the “wants” they have. If they did, they already would have satisfied them.

Your job as an entrepreneur is to determine what those unsatisfied wants are and help people satisfy them. That, in a nutshell, is the definition of “value.” You can do this either by offering something new or offering something old in a new way. Alternately, you can tell a different story that excites your customers and makes them realize the value that they can attain.

3. It is not just about your competition.

We often think of business opportunities and competition in terms of market niches and the positioning of relative competitors: what’s often called someone’s competitive advantage. Certainly it’s important to maintain a competitive edge in an already mature industry, or to escape the low-margin, dog-eat-dog reality of “red ocean” business, through differentiation. But those factors shouldn’t be the primary objective for entrepreneurs.

To successful entrepreneurs, the positioning of relative competitors should be a secondary concern. What should come first is providing a specific customer segment, whether or not it is already served by others, with the utmost value — on those customers’ terms. If, in the eyes of customers, your business offers greater value (than do your competitors’ businesses), what competitors do is of little importance.

Successful and productive entrepreneurship is simple.

I bet you never considered as “simple” your entrepreneurial undertaking, and the constant struggle to make ends meet that comes with the territory. Yet simple is exactly what it is. To be a successful entrepreneur and also make a positive change in the world, all you need to do is two things. First, provide customers with value on their terms. Second, do so in an economic manner.

Unfortunately, this is simple in theory but hard in practice. But the truth is that many times the reason it is hard to make ends meet is that entrepreneurs think about their businesses backwards. When considering starting a business, they begin with what they want to do, then consider what customers say and what competitors in that market space already do. This is in effect placing the cart before the horse — by considering costs first and value second.

An entrepreneur cannot and should not ever rely on the cost-plus method for pricing. Instead, consider the value-minus method to make sure your customers get as much value as possible on top of the price they pay you. Then make sure you keep production costs below that price.

Thinking about entrepreneurship in “value” terms helps ensure you truly make a difference in the world. That kind of thinking also keeps you on the right path, where the obvious truth is that you serve yourself by serving others.

Photo by rawpixel on Unsplash

 

The Greatest Journalist Turned Novelist You’ve Never Heard Of.

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There are a few professions that do not lend themselves to producing Poetic Justice Warriors. Either because they reflect human life more than transform it, or they do not appeal to individualism. While romantic artists and fiction writers have the ability to reflect human ideals, modern art denies reality. Politicians and religionists appeal to collectivism, and professional journalists, a rare breed, do their best work when reporting objectively on the events of the day.

Even that is nearly impossible, a neutral journalist has to filter information to fit the reporting medium. While Sherlock Holmes advises “It is a capital mistake to theorize before one has data,” even this is flawed. The search for data implies a theory to pursue. Perhaps the most knowledgeable, eloquent, and persistent critic of postmodern journalism is George Orwell who said that “If liberty means anything at all, it means the right to tell people what they do not want to hear.”

Poetic Justice Warrior Garet Garrett told the statists what they didn’t want to hear. He is that singular journalist who was steadfast in the defense of personal liberty. He wrote about peaceful human progress with searing language. As economist Ludwig von Mises relates,”His keen penetration and his forceful, direct language are unsurpassed by an author.”

The Political Economist

As Garrett reported in his 1949 American Affairs article Laissez-Faire, state socialists claimed there is no harmony between public and private interests. With freedom there would be serious inequalities in the distribution of wealth, and freedom’s materialism and success needed to be thwarted. Otherwise, there would be social catastrophe and mass unemployment. The socialists Garrett reported on were spewing this nonsense around the year 1800. Of course this was before freedom’s mechanized farm equipment, chronometers, electricity, steam engines, and mass production.

All economic and political thought in Europe was basically pessimistic. Nobody could imagine that in the next few generations, under laissez faire capitalism, consumable wealth would be so prodigiously multiplied that the luxuries of the rich in one generation would become the necessary satisfactions of the poor in the next.

Garrett wrote that the elimination of poverty was a uniquely American idea. Americans made the ideas of economist Jean-Baptiste Say work – wages are paid out of production, wages and profits can rise together, and rising production creates capital. In fact, he quoted Scottish Enlightenment philosopher Adam Ferguson who wrote (years before Adam Smith), “Nations stumble upon establishments which are indeed the results of human action, but not the result of human design.” Or as Garrett clarifies,

You may take that to express the doctrine of economic laissez faire, but the true meaning goes far beyond eco­nomics and belongs to the philosophy of individualism. The point is that the spirit of laissez faire had already brought into the world religious liberty and freedom of enterprise, and that the foundations of what now may be called laissez faire capitalism had already been laid be­fore the words were familiar.

For Garrett, the great adversaries of political and economic freedom in the premodern world (before the Age of Reason) were the church and the state – “Radicalism was the sword of liberty.” In our postmodern era (ingloriously christened by World War I), Garrett lamented that “laissez faire, which was radical, is reactionary. The wheel has gone all the way around.”

The Journalist

As a 20 year old, in 1898, Garrett began his journalistic career as a writer and eventually covered politics for various publications including the Cleveland Recorder (Chicago) and the Washington Times. From there he became a financial writer for the New York Sun, the New York Times, and the Wall Street Journal. By 1922, he was the principal economic writer for the Saturday Evening Post, a position he held for twenty years. Accordingly, he earned his chops as a political economist and philosopher while on the job and through self-study. According to libertarian writer Jeffrey A. Tucker, “His influence in economics came primarily through a book by the American mathematician/astronomer Simon Newcomb: Principles of Political Economy (1886). Newcomb was an advocate of the gold standard and laissez-faire.”

In 1932 Garrett published a compilation of articles from the Saturday Evening Post titled A Bubble that Broke the World. It’s about the Crash of 1929 and the ensuing Great Depression. According to brief introduction by mises.org:

This book blows away the conventional interpretations, not only in its contents but that the book exists at all. Author Garet Garrett ascribes the crash to the pileup of debt, which in turn was made possible by the Federal Reserve’s printing machine. This created distortions in the production structure that cried out for correction. So what is the answer? Let the correction happen and learn from our mistakes.

It was a big seller and a brilliant analysis. This was before FDR and his New Deal administration, who in turn blamed it all on capitalism and speculation. Another spectacular example of socialists denying reality for more centralized government power.

The Novelist and Philosopher

Garrett began writing fiction in 1921. With the end of World War I, President Warren Harding’s desire for America was “a return to normalcy.” And for Garrett (according to Tucker), normalcy meant civilization itself. He was a staunch defender of Western Civilization against Eastern totalitarianism, and to a fault, America’s entrepreneurial spirit. This was crystallized in his trilogy of The Driver (1922), The Cinder Buggy (1923), and Satan’s Bushel (1924). Tucker summarizes the power of The Cinder Buggy by saying,

Garrett employs every literary device to make commerce itself the setting for great acts of courage, heroism, sacrifice, and tragedy. The central mover of events is the price system. It is the signal for and cause of the most notable changes in the plot. The reader discovers economics in a way that might not otherwise be possible, and it is hard to imagine that anyone can come away with anything but love for the whole subject of enterprise.

This is what romantic novelists do. Create heroic characters, scoundrels, abstract concepts, complex situations, rational and irrational emotions, and combine them in clear and artful prose. For example, in Satan’s Bushel Garrett writes about wheat speculators,

To say that he acts upon impulse, without reflection, in a headlong manner, is true only so far as it goes. Many people have that weakness. With him it is not a weakness. It is a principle of conduct.

Reason leads to concepts, and principles, then action, and to Poetic Justice. Along with novelist Ayn Rand, Garrett’s romantic heroes are men and women of creativity and production. The scoundrels are on TV.

The Phoenix Is Rising

Garrett later recognized his looming irrelevance (before the interconnectivity of the internet, big data’s looming fascism notwithstanding). As economist Murray Rothbard explains, “Garrett began his pamphlet “The Revolution Was” on a startlingly perceptive note: conservatives, he wrote, were mobilizing to try to prevent a statist revolution from being imposed by the New Deal; but this revolution had already occurred.” As Garrett himself explained in his 1952 essay The Rise of Empire,

We have crossed the boundary that lies between Republic and Empire. If you ask when, the answer is that you cannot make a single stroke between day and night; the precise moment does not matter. There was no painted sign to say: “You now are entering Imperium.”

As Poetic Justice Warriors, we reject the mindless, 220 year old chants of today’s socialist rhetoric, just as Garet Garrett did. Their greatest fear is individuals who see through their indoctrination, and choose to live lives of reason, purpose, and pride.

 

This Entrepreneur Gives The Homeless Free Meals Every Single Day.

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There is no one-size-fits-all approach to success when it comes to entrepreneurship. Innovative individuals come in all different shapes and sizes and each is fueled by a unique passion that keeps them going even in the face of the overwhelming obstacles that arise on the path to prosperity. For restaurant owner Kazi Mannan, his entrepreneurship is fueled by his faith and his inherent desire to help his fellow man. And in an era where everyone is divided by politics, Mannan’s unwavering love and generosity are a breath of fresh air in Washington, D.C.

There are dozens of Halal restaurants around the D.C. area, but none are as unique as Sakina Halal Grill. Sure, the food might be delicious and the atmosphere most welcoming, but Mannan is the gem that makes the place truly extraordinary.

Named for his mother, Sakina, the restaurant is just a few blocks from the White House. Upon first glance, the dining room might not look that different from other high-end establishments—except for one thing: if you come during the lunchtime rush, you will notice some of D.C.’s homeless population enjoying a meal.

A Very Good Deed

Since Kazi Mannan took over ownership of the establishment in 2013, he has been giving free meals away to the homeless every single day. And no one has ever been turned away due to an inability to pay.

“The day I took over, I brought in all of the homeless people that I could find, and I said, ‘You eat for free.’ They didn’t believe me. They sat down in the dining room and said, ‘Are you sure you’re not going to charge us?’” Mannan told a local news source. He continued, “They thought that I was tricking them, but I told them, ‘This is your place to eat. As long as I own it, this is your place.’ So now they can dine-in or takeout for free.”

Mannan estimates that he has given away nearly 16,000 free meals over the years to those who could not afford to pay. One man has even come in twice a day for the last four years, and he is always greeted warmly with a smile and given a meal, no questions asked. The restaurant has gotten to know so many of the homeless individuals who come in, they have even memorized their orders by heart. Mannan even started offering the most tender cuts of meat to those whose drug addictions and lifestyles had caused them teeth problems.

Mannan said:

“We have so many that are like a regular guest. We know them and what they want to eat. Some have teeth problems so we give them boneless chicken, tender ones. For some, the alcohol and the drugs, a lot of people have teeth problems.”

Instead of merely offering free meals to-go, Mannan lets his guests sit in the dining room just like all the other customers so that they may enjoy a few minutes of dignity before returning back to the streets. “If you can’t afford a meal, come in and have a free meal. Enjoy the same atmosphere that everybody who is paying is enjoying,” Mannan insists.  

While he is doing these guests a great service by feeding them regularly, he seems to think that he is the lucky one in this situation. “Today, I have so many homeless friends. I have phone numbers and get texts from them all of the time … That’s what I want. I want them to see me as their friend. And, I want others to see them as human beings.”

For Mannan, the plight of the individuals he serves hits close to home. It wasn’t so long ago when he was living in poverty, dreaming of the day he could finally afford to run his own restaurant.

Striving For The American Dream

Mannan is a living testament to the American Dream. “It was always my dream to overcome poverty and own a restaurant. And, that’s what I did,” he said.

When the Pakistani-born immigrant first came to this country in 1996, he had three dollars in his pocket and a heart full of dreams. Born and raised in a town without plumbing or electricity, he left his wife and family behind in order to secure a better future for them. Living in Washington, D.C. presented a world full of possibilities. Mannan recalls first arriving in the country:

“When I got to D.C., it’s funny, but the first thing I wanted to do was go jogging. I saw Americans working out and running, and I thought it was so cool. I wanted to do it. But, I didn’t own any tennis shoes. So here I was, this guy running around D.C. without any tennis shoes on.”

After his jog around the city, Mannan got right to work saving money so that his family back in Pakistan could have a better life. He started working at a gas station until he could save enough money to start his own limousine service, which he did within a few years. Mannan still owns that limo service today, where he makes it a practice to hire other immigrants just like him who are new to this country and striving to better their lives.

Mannan lives to serves others, just as his mother taught him to do back home in Pakistan. Even though they were destitute during his childhood, his mother often sacrificed in order to serve others. He has taken that principle and applied it to his business practices where he is always extremely generous.

“I am very blessed to have a truly amazing family. My mother taught me to be generous and give with my time. Because remember, we were broke. But, if we had a guest visit, she would make tea and welcome them into our home. She gave everything of herself. I’m trying to teach that to my family too.”

Mannan’s son just started school in Virginia and when he is not studying, he is in the kitchen working. As a man of faith, Mannan believes it is his responsibility to lead by example and show love and generosity to all those he meets. He said:

“I’m a Muslim-American. And I like to believe that when I’m giving to the poor and hungry, God sees that. Just the act of giving a smile to someone can be a blessing. Just think about what food has the power to do.”

Good Practices Pay Off

As the famous expression goes, “there is no such thing as a free lunch,” and one would think that giving away all these free meals would hurt Sakina’s business. Yet, Mannan’s has experienced continued success in spite of all the free food he has given away, and this has surprised even him. He has said, “That question, I ask God every day. How do I keep my business open, growing and making profit?”

By two o’clock, the lunchtime rush has ended and all the other restaurants in the area have begun to slow down, but not Sakina. And the influx of paying customers is what makes Mannan’s charity possible. It would seem that the customers not only enjoy his food, but they also enjoy the philosophy behind the business itself.

It has been well known for years that Sakina allows the homeless to dine in and eat with all the other guests. Yet, no one complains or refuses to come back. Instead, his guests return over and over again to break bread, so to speak, in the same dining room as those they might typically just walk past on the street. And Mannan’s thriving business is proof that his conscientious business model can be profitable. It’s also proof that being successful in business doesn’t mean someone is greedy or uncharitable.

Our culture has recently become obsessed with this “blame the rich” mentality. But it is only through Mannan’s wealth that he is able to give back to the community’s homeless. And it’s not like the community isn’t also benefiting by having access to his delicious food.

Mannan said:

“I’m the little guy on this block, and I love it. Because I want to say, ‘Hey listen, corporate people and people in politics! Listen to me!’ I want to show them what love can do, and I want to spread a wave of love that touches the lives of millions.”

Even the kitchen is a manifestation of this love Mannan is so committed to sharing with the world. While Mannan’s brother, Sohail, is the head chef, the kitchen has two other chefs: one from Nepal and one from India. Rather than focusing solely on Pakistani food, the restaurant features staples from each of these regions. As Mannan explains:

“The chefs work together … and not only do they make delicious food, but they represent places, which are typically at odds with each other. They come together in this kitchen and use pure love and food. When you do that, you can overcome conflict, ignorance, and hate.”

It’s hard to find a lesson that Mannan’s brand of entrepreneurship can’t teach us. His generosity and his resilient spirit serve to remind us of the integral role entrepreneurs play in our communities.

Public Policy Think Tanks And The Administrative State Merely Peddle Complexity Worship.

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The mass distribution of human knowledge spawned by the printing press led to the Age of Reason, the American Revolution, the Industrial Revolution, and unimaginable technological innovation and prosperity. But it also led to something else, the rise of individualism and the irrelevance of political elites. Of course those who wish to make the rules for everyone else, and harness the force of government to enforce them, can have none of that. As a result, the Age of Reason has been replaced by the Age of Complexity. According to Mark Meckler of the Article V Convention of States,

Today, if you order the Constitution (Centennial Edition, annotated with Supreme Court interpretations) from the government publishing office, for 130 dollars roughly, it is now 2738 pages, and weighs over 10 pounds. Its outrageous, we’re living out of this big fat document. Its not the Constitution most people think we’re living under. That’s for the most part the left’s Constitution. They love that big fat book because it gives government almost unlimited power.

Their rationale is simple, because of the unprecedented choice created by entrepreneurs and technology, life is too complicated for us poor dumb slobs, and we need a massive government bureaucracy loaded with experts to protect us from information overload. To them, the exponential increases in life expectancy, economic productivity, high speed travel, and electronic communication have outgrown the quaint ideals of the Enlightenment.

The Swamp Rats

Also, the Internal Revenue Code for taxation, and the Federal Register for regulation, are tens of thousands of pages long. To enforce them, an intrusive government bureaucracy has been created. Agencies like the Consumer Financial Protection Bureau (CFPB) and Environmental Protection Agency (EPA) have been awarded the powers of law maker, judge, and enforcer. This sounds so innocent, after all, who could be against consumer and environmental protection? Due process be damned, and these injustices are protected by media, education, and public policy think tanks who are convinced that central planning is necessary for an anti-concept they call the common good.

A great example is a report issued on February 28th by the Brookings Institution, An Interactive Exploration of the Geography of Prosperity. The article summarizes a study conducted by The Hamilton Project (The Geography of Prosperity). According to the Brookings piece, something amazing has been discovered.

Americans in many ways experience a different economy based on where they live, generating substantial gaps in life outcomes. Poverty rates are three times higher in the poorest 20 percent of counties compared to the top counties.

To arrive at this finding, The Hamilton Project created what they call their Vitality Index by

Using a statistical procedure that can isolate the underlying common factor among these variables, we found that having a high median household income, a low poverty rate, and high life expectancy were the most important indicators of a county’s vitality.

Of course it has to be more complex than that, “Confirmatory Factor Analysis (CFA) entails the estimation of factor loadings and the Vitality Measure in a series of simultaneous equations.” Whew!

The Hamilton Project

It helps to know who wrote this paper. According to The Hamilton Project website, among their 24 contributing authors, one is from the private sector, and all of the others are the usual academic and government elite muckety-mucks. Based on this, its no wonder that “A county’s average level of educational attainment, in terms of high school and college completion, is the strongest predictor of vitality.” Incredibly, human flourishing can only be achieved through their publicly funded schools. To understand how this stunning and self-fulfilling prophecy was derived, consider the premise of The Hamilton Project research,

On critical measures such as household income, poverty, employment rates, and life expectancy, there exist yawning, persistent gaps between the best and worst-performing communities. The evidence-based proposals contained in this volume can help restore the conditions of inclusive growth that make it possible for individuals from any part of the country to benefit from economic opportunity.

In other words, centrally planned equal outcomes everywhere, an ideal they know to be inane. But that’s OK, it’s impossible for individuals to benefit from their own human action. It’s impossible for the human mind to wade through the complexity of life without expert guidance from the hubristic elites whose business it is to distort economic incentives. Or as philosopher Leonard Piekoff describes, they are “modern pragmatists who make a fetish of complexity.”

They try to solve the problem by reverting to the animal level, by narrowing their focus to some isolated concrete, while evading all of the other concretes to which it is connected in reality. They solve the problem of complexity by throwing out vast amounts of relevant information, thereby reducing themselves to helplessness.

Principled Human Action

Because of our capacity for reason, the human mind can accumulate a tremendous amount of information and condense it into abstract concepts – into a form that we can process. Instead of submitting to puppet-masters, and conforming to their one size fits all simplicity, we can easily perform our own simplification. As Piekoff explains,

Man has a conceptual faculty, a faculty of forming principles, which is specifically his weapon for coping with complexity. Yet our leaders, thanks to centuries of bad philosophy, distrust and reject this faculty, and therefore are helpless to lead or to know what to do.

Of course life is complex, but no more complex today than at any other time in human history. The big difference is that where there is capitalism, we no longer fear starvation and violence. While there has been rapid and wonderful change in the human condition, human nature has not changed. There will always be the arrogant and incompetent who wish to rule. To make themselves relevant, public policy think tanks and the administrative state use complexity to peddle their hopelessness. Individuals who live according to principles established by reason can easily see through this, and do just fine.

 

 

The Federal Reserve Generated A Boom, Clumsily Contracted It, And Left Us With A Badly Broken System.

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A decade ago, Americans found themselves living through the greatest economic downturn since the 1930s. In the time since, much ink has been spilled about it. What caused the Great Recession? Why was it so severe? Were the policy responses effective?

The real world is complicated. And simple stories tracing cause A to effect B always leave out meaningful details. Reasonable people might disagree about the significance of this or that contributing factor. But there should be some consensus on the big picture. In my view, any account of the Great Recession that omits the following three features is woefully incomplete.

  1. The Great Recession was preceded by Federal Reserve monetary expansion.

The economy was overproducing in the years leading up to the Great Recession. We often talk about the housing bubble. But the overproduction can also be seen in the aggregate data. Capacity utilization increased from 75.63 percent in January 2003 to 79.91 percent in January 2007. Over the same period, labor force participation for those in their prime earning years (25-54) increased from 82.9 to 83.4 percent while the unemployment rate fell from 5.8 percent to 4.6 percent.

What caused the boom? There were many contributing factors. But, as the late Anna Schwartz observed at the time about booms in general, expansionary monetary policy usually plays an important role:

If you investigate individually the manias that the market has so dubbed over the years, in every case, it was expansive monetary policy that generated the boom in an asset. The particular asset varied from one boom to another. But the basic underlying propagator was too-easy monetary policy and too-low interest rates that induced ordinary people to say, well, it’s so cheap to acquire whatever is the object of desire in an asset boom, and go ahead and acquire that object.

In other words, poor monetary policy fueled an unsustainable boom.

We can see this in the data. Ideally, the supply of money would be managed to offset any changes in the demand to hold it. Hence, the product of the money supply and the velocity of money (the latter of which is inversely related to the demand to hold money) should grow at a steady pace. From January 1991 to 2001, the product of M2 and velocity of M2 grew at a continuously compounding annual rate of roughly 5.50 percent. From January 2003 to 2007, it grew more rapidly, at a rate of 5.97 percent. Faster money growth relative to money demand fueled a boom.

  1. The Great Recession was exacerbated by Federal Reserve monetary contraction.

When monetary expansion generates an unsustainable boom, a period of correction must follow. Resources, having been misallocated, must be reallocated. Machines will be repurposed, retooled, or relocated. Workers will spend time looking for new jobs, perhaps taking a break to gain new skills as well. And, all the while, the economy will be producing less.

But reallocation recessions tend to be small, roughly in proportion to the booms they follow. We cannot explain the biggest economic downturn since the Great Depression by pointing solely to the requisite reallocation. After all, the preceding overproduction was fairly modest.

Why, then, was the Great Recession so severe? In brief: monetary mismanagement. Having grown rapidly in the mid-2000s, the growth rate of M2 times velocity of M2 fell over the first three quarters of 2008 and then turned negative. The Fed allowed nominal spending to contract. And, since the price level does not adjust instantaneously, real output fell as well.

  1. The Great Recession resulted in a radical change to the Federal Reserve’s conduct of monetary policy.

Perhaps least appreciated in all of this is the change in the Federal Reserve’s operating regime. Prior to the Great Recession, the Fed engaged in open market operations — largely limited to short-term Treasuries — in an effort to influence the effective federal funds rate. Since October 2008, the Fed has maintained a floor system, in which the interest it pays on reserves functions as the primary policy tool. The size of its balance sheet has exploded, and the composition has changed to include much riskier assets.

The Fed’s new operating regime is worse in several respects. First, maintaining a floor system requires setting the interest on reserves at or above the rate that would clear the federal funds market. That means monetary policy will tend to be tight on average, as the Fed fears setting the interest on reserve rate too low and seeing all of the new money it has created pour out into the economy.

Second, to maintain a larger balance sheet, the Fed must bid savings away from the private banking system. That reduces the extent to which valuable financial intermediation takes place and, correspondingly, the extent to which valuable investments and expenditures on research and development take place.

Third, since paying banks to hold reserves causes overnight-lending markets to dry up, banks no longer need to incur the costs to monitor one another. That means banks can take on excessive risks with little fear of reprisal.

Finally, the new operating regime has made the Fed more vulnerable to short-sighted political influence. It is hard to say precisely how much of the growth slowdown since the Great Recession can be attributed to the Fed’s new operating regime, but it almost certainly accounts for some of it.

Much like the Great Depression of the 1930s and the Great Inflation of the 1970s, the Great Recession of the 2000s shaped a generation of macro- and monetary economists. We can debate the details. But three things warrant widespread agreement. The Fed generated an unsustainable boom. It followed up with a severe monetary contraction. And it swapped out its traditional operating procedures for a new regime, reducing economic growth and increasing systemic risk in the process.

 

This article first appeared at AIER.

This Socialist Obsession With Income Inequality Threatens To Impoverish All Of Us.

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An obsession with income inequality would make sense only in a world in which wealth is created independently of the choices and actions of human beings. The same is true for the itch to soak the rich.

If food, clothing, medical care, automobiles, houses, diamond rings, airplane seats, rolls of paper towels, and all other good and services were randomly rained down onto earth by some heavenly being, it would then be true that the more of these goodies that I manage to grab, the fewer are the goodies available for you to grab, and vice versa.

And so if through simple luck or sinister cunning I grab more than you grab, then the resulting inequality in our wealth has no good justification. If the government seizes from me a chunk of “my” stuff and gives it to you, no ethical offense is committed.

Likewise, such wealth redistribution will uncork no economic problems. After all, the government’s forcible transfer of “my” stuff to you won’t affect the amount of wealth that the heavenly being randomly rains down onto the earth.

Of course, in reality the material goods and services that are so abundant in our society are not rained down randomly on us from the heavens. These things must be produced by us. And to produce them requires human creativity, risk-taking, saving and work effort. The more reluctant are individuals to perform on these fronts, the fewer are the goods and services we have to consume.

The truth that wealth creation requires creativity, risk-taking, saving and work effort seems to me to be both indisputable and obvious. And yet many people apparently don’t understand this truth.

How else to explain the enthusiasm that many Americans today have for the soak-the-rich schemes offered up by politicians such as Sens. Bernie Sanders and Elizabeth Warren and Rep. Alexandria Ocasio-Cortez?

I’m not close to being a billionaire, and I have no prospect of ever becoming one. Yet when I hear calls to confiscate large amounts of wealth from billionaires, I shudder. While exceptions no doubt exist, the people who get rich in our economy are overwhelmingly people who have made the rest of us richer.

Jeff Bezos is worth billions only because hundreds of millions of ordinary people found his new retailing method to be a boon. Bill Gates is worth billions only because hundreds of millions of ordinary people found his software to be superior , all things considered, to rival software. Billionaire hedge-fund managers are wealthy overwhelmingly because they took the risks necessary to direct large amounts of financial capital to where they do the most good for the economy.

The prosperity that we all enjoy as a result of the creativity, risk-taking, saving and work effort of these and other super-rich people would not exist if they had lounged around all day watching television, playing pool or reading poetry.

And note this important fact: no super-rich entrepreneur got rich by forcing anyone to buy his or her goods or services. You, me, and every other middle-class and poor person who spends money on what these entrepreneurs offer spends that money voluntarily.

People such as Ocasio-Cortez no doubt feel swells of moral superiority when they thunder in support of confiscatory taxation of the rich. But sensible people understand that such taxation, by dampening the incentives for entrepreneurship, will make us all poorer.

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

Democracy’s Crony Capitalism Is Falling Behind Autocracies In Per Capita Income Growth And Wealth Creation For Citizens.

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As the 20th century drew to a close, democracy was on the march. The Soviet Union was gone, Nazism was a distant nightmare and every continent showed signs of moving toward free elections and the rule of law. All of humanity was finally coming to recognize the transcendent principles of democratic liberty and equality—or so many observers concluded.

Looking back, the reasons for democracy’s appeal in those heady days appear more complicated. A big part of it had to do not with noble ideals but with economic success. The world’s richest countries were democracies, and the rest of the world wanted to be rich too. Today, global wealth is shifting to more authoritarian parts of the world—and it isn’t clear how well democracy, without every material advantage on its side, will fare in the competition.

Since the 1890s, countries like the U.S., Great Britain and a small band of other democracies have dominated the global economy. As recently as 1995, 96% of all people who lived in a country with a per capita income over $20,000 (in today’s terms) were citizens of a liberal democracy. With the exception of a few oligarchs perched atop stagnant and repressive societies, only democrats got to enjoy real affluence.

Today’s reality is very different. Our analysis of International Monetary Fund projections shows that sometime in the next five years, the total GDP of countries rated “not free” by Freedom House will surpass that of Western democracies. The combined economies of democratic countries like the U.S., Germany, France and Japan will be smaller than those of autocracies like China, Russia, Turkey and Saudi Arabia.

If the West is to navigate this new world successfully, it will need to understand how the scales tipped so rapidly from democratic dominance to authoritarian resurgence. One part of the explanation is democratic reversals in large economies, thanks to the efforts of strongmen such as Russia’s Vladimir Putin and Turkey’s Recep Tayyip Erdogan. If democracies like Brazil, India and South Africa experience similar erosion in the years ahead, the relative power of autocratic rulers will keep growing.

The Growing Economic Power Of Autocracies

The Growing Economic Power of AutocraciesPercentage of global gross domestic product, at purchasing-power paritySources: Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD (1946–1989); International Monetary Fund(1990–2023); Polity (autocratic/democratic status, 1946–1971); Freedom House (1972–2018). Note: 2018–23 are projections

But an even more important factor has been the rise of authoritarian capitalism. Before the 21st century, autocratic regimes that reached a relatively high level of per capita income tended either to stop growing, like the Soviet Union, or to become democratic, like military regimes in Asia, Latin America and southern Europe. Countries such as Singapore, which kept growing without becoming a true democracy, were explained away as small exceptions that proved the rule.

This limitation still applies to autocratic regimes like North Korea and Venezuela, which have clung to strict state control of the economy. But a growing number of countries have learned to combine autocratic rule with market-friendly institutions, and they have continued growing economically well beyond the point at which democratic transitions used to occur.

At the famous “Kitchen Debate” in Moscow in 1959, Soviet Premier Nikita Khrushchev and U.S. Vice President Richard Nixon debated their countries’ economic systems.
At the famous “Kitchen Debate” in Moscow in 1959, Soviet Premier Nikita Khrushchev and U.S. Vice President Richard Nixon debated their countries’ economic systems. PHOTO: ASSOCIATED PRESS

Today, 376 million people live in deeply unfree countries—including Russia, Kazakhstan and the Gulf states—that have per capita incomes above $20,000 in terms of purchasing-power parity. In China’s coastal region, average incomes have already risen above this level, and the major cities have surpassed $35,000. When China as a whole crosses above $20,000 in per capita income, which the IMF estimates will happen next year, 1.8 billion people around the world will live in upper-income authoritarian regimes.

This development carries enormous implications for the future of democracy. The last time the democratic world faced a serious challenge to its economic and technological primacy was after the Soviet Union’s launch of Sputnik, the world’s first artificial satellite, in 1957. Buoyed by postwar reconstruction and the addition of seven new vassal states in Eastern Europe, the Soviet bloc had seen its GDP increase from one-fifth of the U.S. level in 1945 to over half that level by 1958. A few years later, Paul Samuelson, the Nobel Prize-winning economist, predicted in his widely used introductory textbook that the GDP of the Soviet Union would surpass that of the U.S. by 1984.

Hopes for the U.S. to grow its way out of the current predicament are no more than fantasies.

It never happened, of course. By 1969, an American flag was fluttering on the moon and economic growth in the U.S. once again outpaced that of the Soviet bloc. Living standards under communism never reached those of the West. Subsequent editions of Samuelson’s textbook kept pushing the point at which he projected the Soviet economy would overtake that of the U.S. into the ever more distant future.

Today, however, there is less reason for confidence in the eventual economic triumph of democracy. In 1957, the U.S. and its democratic allies in Europe and Japan accounted for almost two-thirds of the global economy—three times more than the Eastern bloc plus China. Sputnik may have made Americans nervous, but the West was still economically dominant. The real question was whether it had the political resolve to translate its material power into geopolitical hegemony.

In 2019, by contrast, no amount of political resolve will reverse the fact that Western democracies account for little more than a third of the world economy. Given the radical shift in world-wide population and productivity that we have witnessed in the recent decades, it would be naive to expect North America and Western Europe to reign supreme again anytime soon. Hopes for the U.S. to grow its way out of the current predicament are no more than fantasies.

Whether democracy or autocracy rules the world in the 21st century is thus likely to depend on a number of pivotal countries that could end up as part of either camp. If countries such as India, Nigeria and Indonesia manage to build stable and affluent democracies, the principles of liberty and equality have a chance to maintain and extend their influence in the coming decades. But if these crucial “swing states” turn autocratic while becoming rich, democrats will have a harder time making their case.

As the history of the 20th century shows, freedom tastes much sweeter when it seems to be the gateway to prosperity.

Mr. Foa is a lecturer in political science at the University of Melbourne. Mr. Mounk is an associate professor of political science at Johns Hopkins and the author of “The People Versus Democracy: Why Our Freedom Is in Danger and How to Save It.”

PHOTO: GILLES SABRIE/BLOOMBERG NEWS

Economics For Entrepreneurs: There Can Be An Economy Without Managers, But Not Without Entrepreneurs.

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Recently, Professor Per Bylund explained to readers and listeners the different economic roles of entrepreneurs and managers.

From the perspective of the economic system – i.e. how the market works – the entrepreneur is the one who allocates scarce productive resources to their highest and best use. Many of these uses are not yet in existence – the entrepreneur imagines the future and then re-arranges existing resources to bring that future into being. Perhaps he or she turns silicon into microchips. Or internet connections into delivery services. Or sugar into cookies. Or coal into electricity. Or aluminum into truck beds. Or knowledge into professorial college lectures. Or hard work into a finished construction project.

The entrepreneur finds ways to put resources to better and more productive use than those for which they are utilized today. This creative energy is what drives human betterment, economic growth and our ever more comfortable standards of living. How do they do it? Each individual entrepreneur focuses on what they know and what they understand. They put the consumer first (or the customer if they’re running a B2B business) and focus their knowledge gathering on what the consumer wants.

When they start assembling resources to bring their new idea to market, they might be bidding them away from other activities. If the innovation they are developing is so new that no-one else recognizes the opportunity, the underlying resources might be relatively low priced – for example, purchasing a run-down house in a downtrodden neighborhood that others avoid, with the imaginary vision of being able to upgrade the house and rejuvenate the neighborhood. That’s why many real estate professionals say that the real profit is made with a smart acquisition rather than a brilliant marketing plan to support a sale. If the improvement is incremental, and the resources are already in use for consumer-approved products and services, it may be more expensive to bid the resources away. The entrepreneur’s economic calculation is more nuanced in this situation, and it may be unclear whether the consumer verdict will ultimately deliver a profit. The entrepreneurs bring the action of the pricing system into being with their bids, and their competition for resources is what ultimately ensures that society’s resources are put to their highest and best use. Prices for resources are generated by entrepreneurs.

There is no role for the manager in this fundamentally important economic activity. Until the entrepreneur has bid for and assembled the resources, there is nothing to manage. Once the resources are allocated to a “project”, then there begins to be a role for the manager to make sure processes are efficient and well-implemented, and the assembled resources are utilized in the most efficient manner, last as long as possible, and are well-directed towards the end of customer or consumer satisfaction. Even at this stage, if the entrepreneur senses that resource allocation is ripe for further fine tuning – more R&D, for example, with the money being transferred out of marketing – he or she will step in and take the reins back from the manager until the adjustment is executed. The manager is an expert in organizing production to implement the entrepreneur’s vision. The entrepreneur is the expert doing the imagining in the first place.

There can never be a market without entrepreneurship, but there can be a market without managers. It is perfectly conceivable that there could exist an economy where every stage of production takes place through market contacts without firms, where the entrepreneur is self-employed or an independent contractor, as are all workers and administrators. This is beginning to happen today. For example, independent producers in China can offer their goods and services on a platform like Alibaba to independent importers and resellers in the USA who execute their retailing, marketing and fulfillment on Amazon. Alibaba and Amazon and the other supply-chain enablements in the emerging global commercial network are not so much firms as software platforms providing digitally enabled services. In this emerging entrepreneurial ecosystem, there would be very little, if any, use for managers, since there is no value-enhancing cost-cutting or process efficiency to be sought, and no immense transaction costs to be managed away.

In his book The Globotics Upheaval, Richard Baldwin coins the term Globotics to communicate the idea of globalization and robotics – including processes robotically automated in software – as concurrent trends in today’s economy. More and more white collar jobs – managerial jobs – that are merely repetitive or unimaginative implementation and enforcement of rules can be done by software, or, as Mr Baldwin puts it, by “globots”. In actual fact, the robotic automation does not eliminate jobs but repetitive rules-based tasks that require neither creativity nor humanity. Released from mindless office tasks, we will all be freed to create value through our human values and human ingenuity. We can all become entrepreneurs.

In this non-managerial world, entrepreneurs would focus on new and previously unknown types of goods and services, and types of production. They will imagine what could be but isn’t, and compare the value of the current state to the not-yet-existing state, to determine whether there is profit for them in pursuing the new state.  Managers focus on the current state and try to reduce its cost, smooth its processes and refine its supply chain. This can all be done by contracting between entrepreneurs – continuous dynamic bidding for each element and component. The entrepreneurial economy moves too fast to be “managed” or to require “managers”.

Listen to Professor Bylund and Center For Individualism Executive Director Hunter Hastings discuss The Role Of The Entrepreneur on the Economics For Entrepreneurs podcast.

The Poetic Justice Warrior Society Addresses The Attacks On American Capitalism And Personal Liberty.

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In the Poetic Justice Warrior Society Manifesto, we declare:

An eclectic group of men and women have been spotlighted as Poetic Justice Warriors because of their enduring contributions to personal liberty and the unimaginable prosperity enjoyed everywhere there is capitalism. All of them have overcome obstacles thrown in their path by the established hierarchies of monarchy, religion, education, politics, and socioeconomic class traditions.

It Is For Us The Living To Be Dedicated Here

We are at a place and time in American history where the root cause of peaceful human progress is being ignored and forgotten. Our political, education, and media elites are looting the American economy through state coercion under the guise of social justice and saving the planet. Their latest recipes are labeled as democratic socialism. In other words, Soviet style control of all human thought and action, but without the violence. How quaint, and utterly insane. It is impossible to separate their goals from the use of force. But more and more people are actually buying this nonsense.

Download The Inventors, the first part in our Poetic Justice Warrior Society series.

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For example, solar and wind projects are economic and environmental disasters, and there is no such thing as renewable energy anyway. Government monopoly fiat currency is the root cause of large scale war, public corruption, and the cycle of poverty in their dependent communities. Higher education and health care are inordinately expensive because of third party payers, primarily government. And the distrust being sowed by identity group politics saps the spirit of those who succumb to its victimhood.

The purpose of the Poetic Justice Warrior Spotlight series is to educate and prove convincingly that the economic way has always worked whenever and wherever its been allowed. Personal liberty is responsible for the prosperous human condition we enjoy today, and its an extremely rare occurrence in human history. We are dedicated here to spreading the wealth by growing it, not confiscating it. In our feature articles, we have pointed out how the pro-capitalist, pro-freedom, pro-individual path can be pursued via many different professions.

It Is Altogether Fitting And Proper That We Do This

Today, we are proud to announce the release of our first free eBook from the Spotlight Series of articles – The Inventors. In the sidebar of this blogpost you will see the book’s cover, which is also the link for you to be able to download it. We are starting with The Inventors for the reason described in the book’s Introduction:

All living things exist to live. Plants have photosynthesis, animals have instincts, and human beings have reason. Inventors use their power of reason to transform the natural world for the benefit of everyone, and every generation builds on their discoveries. The unimaginable prosperity we enjoy today is the result of their profound human action.

Today’s release is the first of four sections of what will be compiled into a complete book. As a bonus, the full version will include two previously unpublished feature articles. Of course, the Poetic Justice Warrior Spotlight series will continue. The more research we do, the more wonderful stories we find that need to see the light of day. Some of whom (like next week’s Spotlight article) are relatively unknown – they are the unsung heroes of Western Civilization. The second section of the eBook will be released in a few weeks – The Philosophers.

We here highly resolve that these Poetic Justice Warriors shall not have died in vain – that this nation shall have a new birth of freedom.

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