Leading the Revival of Individualism & Self Reliance

Why The Great Depression Still Matters So Much Today

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Why worry about an event that occurred almost a century ago? Because history left unexamined is doomed to repeat itself. And sometimes even then, history still repeats itself. “What is past is prologue,” the old saying goes, but it doesn’t have to be that way.

I have previously spent some time taking a closer look at the root causes of the Great Depression, which are widely misunderstood. While mainstream economists will often attribute the crash of 1929 to unbridled capitalism, quite the opposite is true. Government intervention both caused and prolonged the economic crisis, leaving many Americans financially ruined.

But by understanding the root causes of a historical crisis as severe as the Great Depression, we stand a better chance at recognizing the potential for similar events to occur today. And if we know what warning signs to look for, we also stand a better chance at preventing future economic crises from occurring altogether.

In fact, there are two modern examples that perfectly demonstrate the importance of heeding history’s warnings: the housing crisis of 2008 and Trump’s recent trade wars.

The Housing Crisis

The 2008 housing crisis, had many similarities to the Great Depression. But unfortunately, many mainstream economists failed to recognize the warnings signs. Had they been paying closer attention, we may have been able to avoid, or at the very least lessen the impact of, the Great Recession.

Like the Great Depression, the housing crisis has many contributing factors. But both are perfect examples of the Austrian business cycle in action. Just like the Great Depression, prior to 2008, the government had meddled with the monetary supply, artificially lowering interest rates and increasing credit, making it accessible to more people.

This resulted in many people making the decision to purchase a home, and why wouldn’t they? In the short-term, this seemed like a smart idea since interest rates were so low. For a manageable monthly payment, they could own a brand new home, which is more than many thought they would ever be able to afford. But they failed to realize that the low rates were only temporary. Eventually, the regular rates would go back into effect, significantly increasing monthly mortgage payments.

But with each new home loan approved, the housing bubble grew even larger, until eventually, it popped. With new homeowners unable to make their monthly payments, many were left with no option but to foreclose. And with so many people defaulting on their home loans all at once, the bubble burst and the Great Recession was born.

If the elected officials and mainstream economists in 2008 would have paid attention to the Austrian business cycle, they would have recognized what was about to happen. And to be sure, there were many Austrian economists who warned of the coming crash. They were, however, laughed at and dismissed as crazy by the media and other economists.

Tariffs and Trade Wars

Unlike the housing crisis, Trump’s trade wars can still be stopped before they do any further damage, if those in power make the right decisions. Over the last several months, economists from all camps have warned Trump that tariffs on foreign imports would spell disaster for the American economy. The president has been an advocate for protectionist policies, that he believes will boost the American economy by forcing consumers to “buy American,” thus creating more jobs domestically.

But tariffs do not serve to benefit anyone and our economy will most certainly be in extreme trouble if we engage in any actions that bring us closer to a full-blown trade war, as the Great Depression taught us.

In fact, economists have likened the new tariffs to the infamous Smoot-Hawley Tariff, which, as discussed previously, exacerbated the downfall of the economy in the earlier days of the Great Depression by increasing the rates of unemployment. We already know how that story ended, so one can only hope that Trump Administration proceeds with caution lest we end up in a similar position.

The new tariffs, which will focus on Chinese imports, has not gone into effect yet, which means there is still time for President Trump to change his mind. Hopefully, he studies history before engaging in a trade war that could cost many Americans jobs.

Banning Plastic Straws Restricts Individual Consumer Choice

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There is no harm in wanting to make the world a better place. However, if in pursuit of your quest for progress an individual’s right to choose is compromised, then there is a real problem. But unfortunately, this happens all the time in the form of “ban everything” environmental activism.

Austin’s made headlines a few years ago when it banned the use of plastic bags, a policy that has recently been reversed. And while many of these bans are justified under the guise of environmentalism—plastic bags do take longer to biodegrade than other materials—the fact of the matter is that this type of prohibition does little to improve the overall state of things, and serve to destroy individual liberty by restricting choice.

The latest example of this comes in the form of a plastic straw ban, which is sweeping its way across the nation.

The Straw Debacle

The whole ordeal escalated rather quickly. At the beginning of July, Starbucks, along with other companies including American Airlines made the decision to ban straws. And while not all consumers were supportive of this change it was, at least, a voluntary decision on Starbucks part. But it wouldn’t stay that way for long.

As it turns out, Americans have strong opinions about straws. Angry consumers were using social media to express their disdain for Starbucks’ new policy while the environmentalists became vigilant crusaders against the use of plastic straws. Celebrities joined the circus and began a viral campaign demonizing plastic straws and promoting reusable straws. And then the media got involved.

A video showing a sea turtle with a straw stuck up his nose was spread far and wide as banning straws now became more about saving turtles. News outlets began sharing a statistic that claimed that Americans use 500 million paper straws each day. Of course, this outrageous number caused even more moral outrage over the use of straws which further fueled the campaign against them. However, Reason later found out that this number, which is absurdly high, was the result of a 9-year-olds estimation for a school project. Fifteen major news organizations had published this number as if it had been the discovery of environmental scientists. And yet, no one had bothered to fact check.

As it turns out, no one really knows how many straws are used each day and according to one Vice article, it doesn’t really matter. On a grand scale, stopping the use of plastic straws doesn’t do a whole lot to protect the environment. But according to the Vice article, banning plastic straws is a gateway ban that will help lead to banning more plastic products down the road. And while Starbucks enacted this band voluntary, the hype against plastic straws has resulted in cities stepping in to control consumer choice.

Government Bans vs. Voluntary Incentives

City councils around the country have now started banning the use of straws. In Seattle, a business offering straws is subject to a $250 fine. And while this sounds absurd the city of Santa Barbara, California has taken this ban to extreme levels.

If businesses operating within Santa Barbara are caught with contraband plastic straws, they are subject to $1,000 fine and six months in jail, per straw. Each straw is seen as its own separate infraction, so each individual straw comes with its own set of penalties. And while Santa Barbara is the most extreme situation, many other cities have enacted their own bans on plastic straws as well.

It is one thing to have Starbucks and other private businesses make the decision to ban a product on their own, after all, consumers are still free to take their business elsewhere, to a coffee shop with straws, for example. But when governments step in to control consumer choice they squash the individual’s right to choose.

But just because someone is against a government ban on plastic straws does not mean that they are inherently anti-environmentalism. Individuals should be free to make their own choices, but a preference for a plastic straw over a reusable straw should not make someone a criminal. If environmentalists want to enact real, lasting change, they should take a lesson from the market and use incentives.

Starbucks and other private companies are free to ban plastic straws or embrace them, and consumers have the right to decide which companies to support. But imagine how much stronger of an impact Starbucks could have if they used incentives to promote environmentalism. Instead of a ban, perhaps they could create a reward system that offered free drinks every now and again to those who routinely refuse straws. As an avid straw user myself, I would gladly use a plastic straw alternative if I was incentivized to do so. And this is just one solution.

The market is full of possible solutions, but the government only really knows how to use force to encourage individuals to adopt a certain behavior. There is nothing wrong with environmentalism unless it is forced on people using the threat of force, like jail time. If you want to really to encourage people to do stop using plastic straws, incentives are proven to work.

We need not go around banning everything to obtain the world we want to live in. By using market forces to encourage behavior we stand a better chance and really creating substantial change.

The Rise of the Digital Nomad

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Almost every aspect of our lives has been completely reshaped by technology. Where we once had to go out into the real world in order to meet new people and build relationships, we now use algorithms and smartphone apps instead. Cryptocurrencies, like Bitcoin have also completely redefined the way we view money and the entire financial world. But the implications of technological advancement can be felt in almost every sphere of our day to day lives, including our professional lives.

I recently had the pleasure of attending a conference in Austin that focused on the future of entrepreneurship. As a writer, I often meet many remote workers who keep a home base but travel often. But I noticed a particularly interesting trend with this crowd of people. Every time I asked young conference attendees where they lived, they would respond by telling me they were digital nomads and, therefore, did not technically live anywhere.

For anyone unfamiliar with the term, a digital nomad is a new type of young professional who utilizes telecommunications technology to work from just about anywhere. By doing so, these freelancers have been able to combine work with travel, greatly increasing their quality of life and presenting new career opportunities.

At first, the thought of giving up all my possessions and traveling around the globe without a permanent home sounded crazy. Not to mention, having worked in the traditional office environment for the whole of my professional life, this lifestyle was completely foreign to me. How would you be able to hold meetings or get to know your coworkers without coming into an office every day? But then I realized that in the modern world we are living in, technology has made the traditional office almost irrelevant.

The Rise of the Digital Nomad

There used to be a time when being present in an office day to day really mattered. Without the internet and thus, without email, communicating with coworkers and project managers was not nearly as simple as it is today.

However, as Entrepreneur extraordinaire Elon Musk has famously pointed out, in the world of internet and email, face to face meetings are, for the most part, no longer necessary. Elaborating on this point, Musk said, “Don’t be in a meeting unless there’s a purpose for it; either to make a decision or get people up to speed. In most cases, an email will suffice.”

And aside from email, thanks to applications like Skype or Slack—a platform that allows coworkers to communicate with each other and collaborate on different projects online, coming into the office every day is almost irrelevant. In fact, in many instances, when employees are free to work undistracted by coworkers or other office chatter, the quantity and the quality of work actually improves.

And unrestrained by the typical 9-5 workday, employees are also free to make their own schedules, making it easier to balance a hefty workload with leisure time.

Additionally, with the rise of the gig economy, many young professionals are already accustomed to the freelance lifestyle in fields like graphic design, website development, and journalism. Focusing on project-based work, rather than daily tasks, has allowed these workers to focus all their energy on producing quality products.

And for employers who have concerns that perpetual travel might make their employees less productive, there are dozens of open-sourced resources to help bridge the communication gap.

Platforms like Trello and Asana, for example, allow supervisors to divvy out tasks with specific checklists. As different stages of the project are completed, employees can check them off and move on to the next task. This allows employers to see what employees are working on at all times, whether they are in the office or not.

Also, with most airlines now offering wifi to their passengers, there is almost no excuse for a digital nomad to miss deadlines or leave tasks incomplete.

The Fulfilled Employee of the Future

While not all jobs can be performed remotely, it is estimated that by 2035, there will be over one billion digital nomads. When asked if this would be a desired career path, 68% of millennial job seekers responded that this lifestyle appealed to them. And why wouldn’t they?

Many of us grew up in households where our parents worked themselves to the bone, rarely taking time off to travel or see the world. And while hard work is nothing to scoff at, the traditional working environment can take a toll on one’s quality of life. But thanks to technology, millennial workers have the opportunity to travel the world while also building and maintaining a prosperous career. And for those who later decide they want to settle down and plant roots, their knowledge of the world will allow them to select a location where they know they can be happy.

Marxist Institute Of Technology: The Explicit Socialism Of An Elite Tech School.

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There is a resurgence of the acceptability of socialism in American economic discourse. Where is this coming from? Surely the history of Socialism has demonstrated that it results in disastrous economic outcomes, and it has been associated with massive death and destruction.

One source of fashionable thinking is our elite universities and their cloud of intellectuals. F. A. Hayek described intellectuals as dealers in second hand ideas, and there is no idea more second hand than Marxist Socialism. Yet, in a recent edition of MIT Technology Review, there were three overt recommendations for a contemporary lurch back to this discredited nineteenth century theory.

How To Create A Kind Of Capitalism Marx Would Warm To.

The first was the most overt of the three, with the headline “A digital capitalism Marx might enjoy“. The theme, as is appropriate for a Marxist proposition, is the supposed conflict between capital and labor. The author betrays his prejudices by describing capital before the digital age as “looms and furnaces and other machines you could see and smell and fall into”. He also betrays antediluvian thinking by asserting that capitalists put “maximizing of these factories’ output above all else”. Deirdre McCloskey debunked the “Max U” error in The Bourgeois Virtues, where she sheds light on the role of the seven virtues (Hope, Faith, Love, Justice, Courage, Temperance and Prudence) in entrepreneurial economic behavior that underpins what she calls “the great betterment” – the 3000% improvement in living standards in the last 200 years.

Now, according to MIT’s Marxist writer, things are getting worse, not better. Labor is being weakened; technology squeezes workers’ bargaining powers because the “quasi-labor” of A.I. replaces true labor. There is more scope to alienate and outsource jobs. Is this fair? Of course not, states our Marxist. After all, A.I. “learns from” labor in order to replace it, but doesn’t compensate labor in return. The answer: pay individuals for the data they generate, even if they don’t work. Data generators of the world must unite and form a new union. Even better, take a collectivist approach. Make data a public resource. Any A.I. that uses the public data must pay the government for access to it, and the government can pay the labor that generated the data.

Heck, let’s go all the way. Let’s have the government own the means of production, as Marx would have wanted. The author suggests that the government take ownership of the companies that gather data and pay a dividend to the public as “just rewards for their contribution”. From each according to his ability, to each according to his needs! This is, as the author puts it, a form of capitalism that Marx could warm to.

If Government Can’t Own The Means Of Production, It Can Aggressively Regulate.

Later in the same edition of the magazine, a headline in stark black capital letters repeats 11 times (in case we didn’t get it the first time): REIN IN THE DATA BARONS. The theme is similar, although more oriented towards government regulation and control of free market exchanges than quite so overtly Marxist. The author asserts that Facebook, Amazon and Google have too much “control over what we see, read and buy”. Why are our MIT superiors so pessimistic about human reason, about our mental processing power, about choice, and self-editing and self-reliance? What about basic economic principles like consumer sovereignty. If we want to, we can consult with Bob Murphy the leading expert on consumer sovereignty. We can read about it on Wikipedia or at mises.org. But no, MIT has declared that Facebook, Amazon and Google – referred to as data barons to bring up the spooky specter of the old oil barons, another staple of the intellectuals’ monopolist fiction – have all the control, and the rest of us are simply deluded.

The anti-trust laws are too tolerant. This is a problem attributed to Chicago School economists and nothing to do with Massachusetts brainiacs, because the economists don’t understand network effects whereas MIT does. So there. The solution to the monopoly control problem is the 20th century one of breaking up the dominant companies. The article claims this idea to be radical. Wow! These radicals require some kind of a software update to catch up with the world. If we can’t break them up, then regulate them more, and emulate the EU with its draconian privacy laws. Block acquisitions! Act progressively! If any company has more than 10% share of data (share of what is undefined – all the data in the world?) they must share it freely with everyone else. It seems like, while the scientific part of the MIT brain has been inventing new ways to analyze data, its social and political part has reverted backwards to the French Revolution.

You Didn’t Build That.

The third article returns unabashedly to Marxism. Let’s Make Private Data Into A Public Good. This is simply government ownership of the means of production re-expressed for the digital age. The author’s argument is the Obama riff of ‘You didn’t build that.” Giant companies like Google and Amazon are making huge profits from technologies originally created with taxpayer money. They are taking advantage of the habits and private information of the taxpayers who funded the technologies in the first place. And then, the most tired cliche of the digital era: with Google, we are the product.

Like all Marxists, the writer has a markedly dystopian view of the human condition, revealed in the accusation that, under Google’s influence, we are “transforming our friendships into sellable propositions”. Really? Are people so shallow and trivial? In MIT’s eyes, yes they are.

There is one further leap of Marxist faith in this article: that platforms are not even real businesses, they are just a way for companies that operate them to avoid responsibility. The Uber platform exists so that the company can avoid responsibility for crass behavior on the part of its drivers. The AirBnB platform exists so that the company can avoid responsibility for its users defacing the property of its other users. MIT makes no concession to creativity, to liberating digital disruption or to consumer choice. These companies are just self-perpetuating monopolists. They must be heavily regulated. The public must be protected against their abuses.

Technology and data were created by all of us and therefore should belong to all of us. The underlying infrastructure was created collectively. Data should be owned in a public repository and sold to the tech companies. Platforms are collective creations and should be driven by public purpose. We must all submit our individual instincts to this public purpose. How Marxist can you get?

We Need Better Intellectuals.

What are we to make of all this? MIT Technology Review is just a magazine. It uses the MIT brand name and the school’s aura of credibility and authority. Are MIT’s professors teaching Marxism to our kids? It is reasonable to assume that they are. In The Intellectuals And Socialism, F.A. Hayek conceded that our society rests on the intellectuals’ services. They tend to prefer and promote socialism because they have no experience of the workings of the economic system, they have a set of general preconceptions into which they fit all ideas, and one of those preconceptions is material equality, which Hayek describes as an abstract concept of doubtful meaning and no practical application in particular instances.

He exhorts the rest of us to make the building of a free society once more an intellectual adventure, and a deed of courage. Freedom and the free enterprise economy need to find their own intellectuals who can take the battlefield through more persuasive presentation of their stronger ideas.

 

 

Trade Wars Lead to Depressions, Just Look at History

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Tariffs seem to be the topic on everyone’s minds these days, as Trump’s trade war continues. But as we contemplate the consequences that such protectionist policies may have on our modern economy, we would be wise to take a sober look at history. For if we take a closer look at the causes that led to, and prolonged, the Great Depression, we will find that tariffs played a most important and destructive role.

Smoot-Hawley Tariff

Over the last several months, thousands of economists have warned of the negative consequences that inevitably arise from imposing tariffs on foreign countries. Many fear what might happen to the economy if Trump continues his love affair with protectionism. And this fear is not unwarranted or unprecedented.

As mentioned previously, the Austrian business cycle teaches us that economic booms and busts will always occur when the state meddles in the economy. But the situation tends to grow much worse and lasts much longer the more governments intervene and try to correct their mistakes. This is exactly what happened with Smoot-Hawley.

By the time the Smoot-Hawley Tariff Act was passed in 1930, the market had already experienced an economic bust. Economists had warned that instituting new tariffs would result in the economy falling further into a recession. The American Economic Association was so concerned about the impacts that Smoot-Hawley might have, 1,028 of its members even signed and published a statement opposing its passage.  

The statement contained the following concerns:

“We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. A higher level of protection would raise the cost of living and injure the great majority of our citizens.

Few people could hope to gain from such a change. Construction, transportation and public utility workers, professional people and those employed in banks, hotels, newspaper offices, in the wholesale and retail trades, and scores of other occupations would clearly lose, since they produce no products which could be protected by tariff barriers.

The vast majority of farmers, also, would lose through increased duties, and in a double fashion. First, as consumers they would have to pay still higher prices for the products, made of textiles, chemicals, iron, and steel, which they buy. Second, as producers, their ability to sell their products would be further restricted by barriers placed in the way of foreigners who wished to sell goods to us.

Our export trade, in general, would suffer. Countries cannot permanently buy from us unless they are permitted to sell to us, and the more we restrict the importation of goods from them by means of ever higher tariffs the more we reduce the possibility of our exporting to them. Such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods.

Finally, we would urge our Government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. A tariff war does not furnish good soil for the growth of world peace.”

Unfortunately, all these fears came to fruition, which is what inspired modern economists to invoked the 1930 statement in their own recent letter to President Trump. Many hope that if Trump understands how this tariff contributed to the Great Depression, he might be more cautious about repeating history’s mistakes.

Tariffs and The Great Depression

Like Trump’s recent tariffs, Smoot-Hawley was supposed to incentivize consumers to “buy American” by placing high tariffs on foreign goods. And by forcing Americans to buy domestically, the government believed they could solve the unemployment problem. But instead of helping the economy and creating jobs, the tariffs ignited a global trade war. As Lawrence Reed writes:

“They ignored an important principle of international commerce: trade is ultimately a two-way street; if foreigners cannot sell their goods here, then they cannot earn the dollar they need to buy here.”

As America’s new tariffs began reeking havoc on foreign economies, governments overseas began imposing their own tariffs in retaliation. But all this trade war meant that foreign countries were not buying American goods, especially agricultural products. Smoot-Hawley resulted in farmers losing ⅓ of their customers, which signaled the beginning of the decimation of the American agriculture industry.

This, in turn, then led to President Hoover’s plan to save American agriculture through subsidies. Hoover’s administration began allocating millions of dollars to the farmers whose livelihoods he had ruined by signing Smoot-Hawley. These handouts only served to worsen the situation, however, as higher income tax rates were imposed on the American people in order to pay for these subsidies.

And worse still, these subsidies did nothing to help the agriculture industry, which would continue to plummet as the depression continued. In fact, agriculture would continue to play a major role in the depression. Just a few years after Smoot-Hawley, President Roosevelt would propose his own plan to save the agriculture industry as part of his New Deal. Of course, this would also prove to have disastrous consequences, as we will see in the next installment.

A Peek Inside the Soft Money And Snake Oil Economics Of Renewable Energy

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Energy, what is it? Energy takes many forms, it is everywhere there is life, and omnipresent in the universe. Energy is the most essential, plentiful, and mysterious of all components of reality. Despite being the most complex of systems, there is no shortage of people who pretend some level of expertise on the subject. Especially regarding renewable energy; though technically, there is no such thing.

One of today’s most widely accepted forms of renewable energy is wind, and the machinery that transforms its kinetic energy into electrical energy and heat is the wind turbine. Generally speaking, wind turbines convert a diffuse form of active energy into a concentrated form of potential energy.

Another complex system with no shortage of people who pretend some level of expertise is economics. So listening to proponents of renewable energy talk about the economics of wind farms is doubly mystifying. Fortunately, there is no shortage of online resources to help the public sort through the basics of wind turbine mechanics and the business of investing in wind farms. One of them is the Danish Wind Industry Association (DWIA) at windpower.org.

The Fundamentals of Wind Energy Investment

Under DWIA’s online section titled Basic Economics of Investment it says “we look at the economics of an investment in wind energy from the point of view of society as a whole, as economists typically do. If you do not like economics, or if you know everything about it in advance, skip this page.”

Heck, why not just say, “if you think you know everything about economics then you’re more arrogant than we are.” Or it might mean, “if you understand anything about the operation of free markets, then there’s nothing for you to see here.”

According to the DWIA, there are three costs of wind power generation to consider –

  • Economic depreciation of your investment
  • Interest on the capital invested
  • Operation and maintenance costs

They also discuss other factors that make the economics of a wind turbine complex. No single metric reveals very much, and that is normal in a complex system with dependent co-variables. For wind turbines they include: power production per square meter of rotor area, installation cost variations, turbine price per kilowatt hour generated, price per kilowatt capacity, and tariffs.

Depreciation – the Madness of the Methods

Regarding depreciation, the DWIA claims that “with rapid tax depreciation you get a higher return on your investment.” But according to them, that only works for bean counters. This is economics, so the economic depreciation method is recommended, but with this understanding: “economic depreciation is a bit trickier, you simply cannot calculate the economic depreciation of your investment unless you know the income from your investment.”

In free markets, the potential income from an investment is estimated from prices. The price mechanism gives investors an ongoing basis for evaluating the risks and rewards of an investment opportunity. But in the case of wind –

The patterns of sales, types of turbines, and types of contracts vary significantly and unsystematically from year to year. Germany has a very high electricity price for renewables. You will therefore find that in Germany it is profitable to equip wind turbines with very tall towers. The high electricity price also makes it profitable to locate wind turbines in low wind areas.

So of course the DWIA recommends the economic depreciation method. The governments subsidizing wind turbine investment are setting the prices for the electricity being sold by the wind turbine operators. The investment returns can then be used to justify more wind farm construction, reward the turbine contractors lobby, and create jobs (votes) out of moving air.

Of Investors, Landlords, and the Public Good

Regarding the interest on capital invested, “We do not look at financing or taxation. These items vary enormously from one country to the other, but they do not make any nation richer or poorer: They only serve to redistribute income.”

So it seems that capital financing doesn’t really matter. And this makes sense when the major investors are dependent on government subsidies. After all, its public money, for the public good, what could go wrong?

To cite another example of the omniscience of the DWIA, “Frequently people who understand the economics do not understand the technology and vise versa – and sometimes neither!” For proof the DWIA offers this –

It is a very common mistake to treat compensation to land owners where the turbines are placed as a cost of wind energy. If the compensation exceeds what you would normally pay to install a power line pylon, the excess is really an income transfer, which is quite a different matter to economists. It is not a cost to society as such, but it is a transfer of income (profits) from the wind turbine owner to the land owner. Such a profit transfer is called a land rent by economists. A rent payment does not transfer real resources from one use to another.

So, why not have the landowners pay the turbine operators instead? That would allow them to reduce the cost of electricity to consumers and have no impact on society as a whole. This can be confirmed by celebrated political economist Alexandria Ocasia-Cortez of Boston University’s class of 2011.

The Omnipotence of the Impotent

To these so-called economists, the voluntary exchange of money from one owner to another is meaningless – simple human economic transactions do not create wealth. Of course the omnipotent vision of the DWIA does create wealth: “what society gets in return for investment in wind energy is pollution-free electricity.”

On July 30th of this year, Inside Climate News reported that American Electric Power cancelled America’s largest wind farm project. It seems the $4.5 billion Wind Catcher development faced stiff headwinds –

With cheap natural gas and shifting tax policies casting doubts on its economic merits, its demise, while a big deal in the world of wind energy, probably doesn’t signal trouble for the wind industry at large, which is thriving.

Of course it’s thriving; their totalitarian “economic” dogma fueled by cheap money and phony bookkeeping makes it so.

Two things in our world that are indestructible are energy and gold. The sun has bestowed earthlings with massive stores of concentrated energy and a rare metal that is the perfect store of human value. But to the wind lobby economists and politicians, the heck with that. They have a much better plan; for proof, its genius was documented in A Petition by Frederic Bastiat.

Creative Destruction and the Closing of Toys R Us

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Last weekend, I noticed more than a few friends posting to their Facebook pages about going to pay one final visit to Toys R Us. Like many brick and mortar retailers, the famous toy store has found itself drowning in a market now dominated by online retailers. This news has pulled at the heartstrings of many, who have fond memories of the toy store, as my newsfeed can attest.  

It’s understandable to see why so many adults are getting sentimental about this closure. As children, Toys R Us was almost as exciting as Disneyland. The store had everything you could ever dream of wanting to play with as a child. Even if nothing was being purchased, just strolling down each aisle was a true pleasure. 

But just because Toys R Us is leaving doesn’t mean we have cause to mourn. In fact, the death of the toy store symbolizes the beginning of a new era where tech and online shopping have made the store irrelevant. And this creative destruction is all part of the of the market process.

Creative Destruction

For the average person, a massive store like Toys R Us closing can stir up a lot of emotions. In addition to the sentiment, a big company closing means that many people will now be out of a job. Not to mention, this only adds to the hysteria surrounding the closure of many other brick and mortar establishments. In fact, Trump has, on many occasions, proposed taxing online retailers like Amazon because of the impact they are having on other physical businesses. 

But the world is not stagnant. The market always changes. And with those changes comes the opportunity for new innovation. And where old jobs are done away with, new jobs are always created.

When the news of Toys R Us closing was first released, many headlines told stories of national concern over what was to happen to the 33,000 people who would soon be out of a job. And while job loss is never something that should be celebrated, there is another angle here that is not being discussed: creative destruction.

The term creative destruction was coined by economist Joseph Schumpeter and is described by Investopedia as:

“The process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This occurs when innovation deconstructs long-standing arrangements and frees resources to be deployed elsewhere.”

And that is exactly what is happening with Toys R Us. As economist Antony Davies commented:

“Think about the young parents who are buying toys for the kids. Where are they buying them? They are buying them from eBay, from Amazon, so at the same time we are losing jobs at Toys R Us we are gaining jobs there….It is something economists call creative destruction. That is, we lose some jobs in one place, but we gain others somewhere else.”

Commenting on creative destruction further, Schumpeter once wrote:

“The function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on.”

This makes perfect sense when we look at the current market for toy consumers. As Davies says:

“In the great scheme of things, this isn’t surprising because what we have is the first generation that has grown up with the internet. They’re old enough, they’re starting to have babies, and they’re looking for toys and what do they do naturally? They go to the internet.”

Additionally, it is so much easier to buy toys online than it is to load the kids in the car and haul them across town to the local toy store. Amazon and other online retailers have made it more convenient than ever to shop for toys. And while kids today might not have the same memories of strolling through the aisles of Toys R Us as their parents did, they will be making their own new memories.

Each time an older, perhaps outdated, business bites the dust, there is ample opportunity for a new, better idea to take its place. And with new innovation comes the need for new jobs.

Toys R Us isn’t likely to be the last brick and mortar casualty of the virtual revolution. But we needn’t be discouraged by these changes. The market will always evolve and change to meet the needs of consumers. And while jobs might be temporarily lost, new jobs will always be created as part of the market process.

Local Protectionism Threatens And Limits Consumer Choice.

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Starting my day off with butter coffee is a must. On any given day, you can open up my refrigerator and see it packed to the brim with beautiful, metallic gold, rectangular boxes, filled with rich, grass-fed Kerrygold butter just waiting to take a dip in my scalding cup of coffee.

I’m not alone in my love for this fatty beverage. “Bulletproof coffee,” as it’s called, has become a huge dietary trend over the last few years. But for Wisconsin residents who share my love of rich, full-fat, buttery caffeine, buying Kerrygold grass-fed butter within state lines just became a difficult and illegal act.

All Butter Is Not Created Equal

Bulletproof coffee is made by blending medium-chain triglyceride oil—a more concentrated form of coconut oil—and butter together with your morning coffee in order to form a thicker beverage whose consistency is similar to that of a frothy cafe latte.

For fans of this decadent and highly potent coffee, grass-fed butter is absolutely essential since it contains optimal levels of healthy fat.

Grass-fed butter is not as common in America as it is in Europe, making it harder to come by in the states. Kerrygold, the Irish brand of grass-fed butter, has been a staple in the high-fat diet community as it can be purchased almost anywhere from health food grocers like Whole Foods, to your local neighborhood grocery chain.

However, thanks to an archaic state law, Kerrygold Irish Butter is being ripped from the shelves of Wisconsin grocery stores, and consumers are not happy about it.

Resurrecting an Outdated Law

In 1970, a law was passed which required that all butter intended for commercial purposes within Wisconsin first be put before a panel of “experts” responsible for grading the product based on a set of state standards. This law, which had largely been forgotten or at least ignored for decades, has now become an issue once again thanks to the rise of high-fat diets.

For those who subscribe to high-fat lifestyles such as the Paleo, Primal Blueprint, or Ketogenic diets, butter usage is strongly encouraged, so long as that butter is grass-fed. This has caused market demand for grass-fed butter to skyrocket over the last several years, alarming Wisconsin food bureaucrats who cannot stand to see a rule being broken, no matter how arbitrary it may be.

Since Kerrygold is based in Ireland, its products do not go through the same regulatory processes as American products. Without an official American-issued quality grade, the nanny state of Wisconsin is refusing to allow this butter to be sold on its grocery store shelves, despite overwhelming consumer demand.

Now, Kerrygold butter is being pulled from shelves and store owners are being threatened with hefty fines and even jail time if they fail to comply with these state regulations.

The Butter Bootlegger

Jean Smith, a Wisconsin resident and fan of both bulletproof coffee and tea, has been one of the most outspoken voices on this matter. Commenting on the situation to a local news outlet, Smith said, “I want to please ask whoever it is that’s preventing me from getting butter in our stores here to stop it.”

Smith, whose devotion to her morning caffeine ritual is unwavering, has now been forced to make frequent trips across state lines to Nebraska, where she brings a suitcase with her in order to stock up on grass-fed butter.

“I just think it’s a little goofy that this exists and I can get it in any other state that I travel in and I’m hauling Kerrygold back in my suitcase and my coolers,” Smith said.

This Butter Tastes Like Cronyism

Wisconsin apparently takes its role as the “butter police” very seriously. The regulatory process that explains how butter is to be inspected and assessed before making it onto store shelves is several pages long and includes 32 “quality points” that each butter specimen must meet before gaining state approval.

Anyone caught bypassing this process is subject to a $1,000 fine and up to six months of jail time.

Some Wisconsin residents, Jean Smith included, worry that this butter statute has more to do with protecting the American dairy industry and less to do with protecting consumers.

“I feel suspicious. Who are you really trying to protect here? Are you protecting the consumers, are you protecting Wisconsin dairies?” Smith asked.

Given the popularity of Kerrygold’s products, consumers were obviously unconcerned with the quality of their butter. But like many government-protected industries, the U.S. dairy industry does not appear to be a fan of foreign competition and is making it difficult for Kerrygold products to get into the hands of consumers.

In Wisconsin, a state known for dairy products and especially cheeses, the dairy industry has a great deal of pull with local legislators. This pushback against foreign butter is just another example of state and private entities coming together to form a more cronyist union. Rather than allowing free and open market competition, the government is protecting an American industry from having to innovate and compete with foreign markets.

Kerrygold, which was completely ignorant about its lawbreaking, is currently working with the state in order to put its butter back on market shelves, but it is is going to be a grueling process as Wisconsin is the only state that has these strict regulations. The company must now alter its entire quality assurance process in order to appease the state and prevent the dairy industry from throwing a childish temper tantrum.

Government Bureaucracies Spin Wheels While Israel Speeds Ahead.

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The OECD is the Organisation for Economic Cooperation and Development. Its stated mission is to expand market economies and democratic institutions. It is comprised of 36 members – governments funded by high income developed or mature economies – and it works with other governments of developing economies in Africa, Asia, and Latin America.

It was created in 1960 with 18 European governments, plus the United States and Canada, and now includes Chile in South America, Mexico in Central America, and Japan and South Korea in Asia. Australia belongs too, and the Near East is represented by Turkey and Israel. Ostensibly, the objective is to harness market forces that will ignite human flourishing. To that end, the OECD publishes lists of country by country economic performance.

Global Country Clubs Didn’t Build That

Two other widely recognized lists, ones maintained with private funds, are the Morgan Stanley EAFE (Europe, Australia, and the Far East) stock market index for mature economies, and the Morgan Stanley EM (Emerging Markets) index for developing economies. A cursory review of these three lists (OECD, EAFE, EM) reveal some interesting facts.

Two countries in the EAFE index are not members of the OECD – Hong Kong and Singapore, who happen to be tied for #1 on the Heritage Foundation 2017 Index Of Economic Growth. Also, the two countries with the most people, China and India, are not on either list. Why is that? After all, the primary wealth producing resource, and the jewel of human flourishing, is the individual human mind. In turn, creativity leads to specialization, division of labor, peaceful activity, and wealth creation. These are fundamental to mature economies, and when left alone, they expand geometrically. This suggests that large populations should have a great advantage.

David vs. Goliath Redux

The EAFE countries are the top 21 performing economies, yet more than half have populations between 5 and 11 million, or between 89th and 121st on Wikipedia’s national census compilation. So how are vastly less populated countries creating wealth per capita that outshines the behemoths? Common wisdom says that the richness of a country’s natural resources are also a major factor that determines its wealth. As such, it stands to reason that a very small country, and one particularly devoid of natural resources, would have zero chance of being considered a high income country, let alone be included among the EAFE heavyweights.

But included in the EAFE index is a country with a population of about 9 million. In fact, it is the world’s 32nd largest economy, yet rich only in the natural resources of sand, mud, and potash. To boot, their regional trading partners randomly lob live munitions into its population centers. Of course the country is Israel, and it has exceeded the average economic growth rate of other OECD countries by about double since 2004. According to BlueStar Global Investors, Israel also ranks in the top 5 worldwide in engineers per capita, research spending relative to GDP, quality scientific institutions, and patent applications. Today, “its technology ecosystem is second only to Silicon Valley.”

But it wasn’t always that way. In the early 1980’s Israel experienced hyper-inflation and unsustainable public debt levels. That is when Israeli politicians abandoned the socialist policies of their country’s founders. In addition, there was a massive inflow of immigrants from Russia in the early 1990’s that doubled the headcount of Israeli engineers and scientists. Economic freedom does that.

The Fallacy of Natural Resources

Israel is not the only example of a small country defying common wisdom. In 13th century Europe there was a principality known as Flanders, part of what is now western France and Belgium. Like Israel, it was very small, not rich in natural resources, and it was bordered by a violent enemy who was intellectually trapped in the past. To the medieval Franks, wealth was land, and it was to be acquired by the sword.

Flanders was to be conquered. After all, it had built a prosperous and sophisticated society through manufacturing and trade. But not only were they able to pursue arts and leisure, they had built a professional military force that repelled the cavalry of their Frankish invaders in the 1302 Battle of the Golden Spurs. This is one of many crucial events in the march of western civilization into the Renaissance, the Age of Reason, and the ensuing starburst of human achievement and prosperity we enjoy to this day.

Instead of cavalry, today’s version of the Franks surrounding Israel possess vast oil reserves. But these can only be exploited by geologists, engineers, and chemists who have the intellect to discover it, extract it, refine it, and distribute it. Oil is worthless without the human minds needed to make all this work. This is true of all so-called natural resources, and is precisely why Israel and Flanders were not limited in their ability to create a wealthy and peaceful society, and the professional army necessary to defend themselves from backwater insurgents.

Just Get Out of The Way

According to equity research analyst Joshua Kaplan, “Israel today represents the greatest concentration of innovation and entrepreneurship in the world.” However in 2003, Israel was again suffering economic recession, and newly appointed Finance Minister Benjamin Netanyahu quickly identified the root cause – a bloated public sector and stifling regulation.

His remedy was to cut the top marginal income tax rate by 20%, and the corporate rate in half. Netanyahu also took other controversial steps – he increased pension ages, capped government spending, and liberalized currency exchange laws. In other words, he got government out of the way of a generation of young professionals who are self-reliant problem solvers and risk-takers. The results were spectacular; it always works that way.

Statists Mind Your Business, Capitalists Mind Their Own

According to its website, OECD had a budget of 374 million euros in 2017, and a staff of 2500. It was also one of “the world’s largest publishers of books in the fields of economics and public affairs with more than 250 new books, 40 updated statistical databases, and thousands of new statistical tables, working papers, and journal articles each year.” And while the economic data sets have great value, how many of these books and journal articles are devoted to Israel’s policy of just getting out of the way?

But to statist bureaucracies, Israel is rogue state, and anyway, publishing that would just render the OECD irrelevant. Yet Israel is not the only role model, Switzerland is ranked 5th in the EAFE index, and Sweden (which is NOT a mythical Scandinavian socialist economy) is ranked 10th. They both have a population about the same size as Israel. No wonder economic powerhouses Singapore and Hong Kong have no use for the OECD.

 

Meet the Henry Ford of Heart Surgery

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Health care is a delicate topic. So delicate, in fact, that comparing it to something as impersonal as the mass production of cars seems almost cold. But what if some of our most dire health care problems, such as the rising costs of surgical procedures, could be solved by treating the industry more like Henry Ford’s famous Piquette Avenue Plant?

In the 1920s, Henry Ford revolutionized the auto industry when he found a way to mass produce the automobile at a price that the middle class could afford. Prior to Ford’s Model T, automobiles were a luxury reserved only for the rich. But through economies of scale and the assembly line, Ford mastered the art of mass production. By maximizing his output of cars, he was able to reduce marginal costs, which in turn introduced the automobile to an entirely new class of people.

But what could Henry Ford’s Model T possibly tell us about making surgical procedures cheaper and more accessible to a wider range of people? As it turns out, quite a lot.

As American health care costs continue to rise, many are unable to pay for the procedures they so desperately need. In fact, someone needing an open heart surgery in the United States may be expected to pay nearly one million dollars in medical costs. And as politicians continue to argue over how to make health care more affordable, medical innovators are taking a page out of Henry Ford’s playbook. One such innovator is Dr. Devi Shetty.

A Different Kind of Doctor

Since he was a small boy growing up in southern India, Shetty knew he wanted to be a doctor. Throughout his childhood, he watched in amazement as local Mangalore doctors revived his father each time he fell into a diabetic coma. This gave Shetty and his eight brothers and sisters tremendous respect for the profession that repeatedly saved their father’s life.

When he was in the fifth grade, Shetty’s teacher excitedly informed the class that the world’s first heart transplant had been performed. And as his classmates marveled at this medical miracle, young Shetty had an epiphany: he was going to be a heart surgeon.

After completing medical school in India, Shetty left for England where he performed heart surgery at the prestigious Guy’s Hospital in London for six years. While he was content with his work, he decided to return home to India after a prominent industrialist offered him a position at a new heart hospital he was opening in Calcutta. This decision, and the experiences he encountered while operating in this hospital, would later redefine Dr. Shetty’s entire career.

Upon returning to India, Dr. Shetty rose to prominence after the world-renowned Catholic missionary Mother Teresa sought his care after suffering a heart attack. After she had received, and successfully recovered from, the lifesaving surgery administered by the doctor, the future saint then asked him to be her personal physician, an offer he could hardly refuse. And while this rather famous patient is what initially pushed him into the public spotlight, it is his unique approach to heart surgery that makes Dr. Shetty truly extraordinary.

As he continued to perform heart surgeries in Calcutta, Shetty was saddened to learn that most of his patients did not have the means to pay for the procedure. $2,400 was a lot of money for his patients and many simply didn’t have it. “When I told patients the cost, they would disappear. They literally didn’t even ask about lowering the price,” he once said. But Dr. Shetty was not content to simply stand by as his patients went without care. Instead, he found a way to entirely revolutionize the field of heart surgery by approaching it from an entrepreneurial perspective.

Much like Henry Ford, Shetty had a vision of taking what was considered to be a luxury item that only the wealthy can afford, and making it accessible to all people.

Economies of Scale

If Dr. Shetty was going to lower the costs of surgery he was going to need to cut costs while also maximizing output. But in order to have the authority to make those types of administrative decisions, he was going to have to start his own hospital. So he did.

In 2001, the Narayana Hrudayalaya Hospital opened its doors. Completely funded by private entities, the facility has over 1,000 beds. To understand how truly impressive this number is, in the United States, hospitals average around 160 beds for patients receiving heart surgery. This allowed the hospital to drastically multiply the number of surgeries that could be performed each day. It also drove costs down— way down.

As reported by Harvard Business School:

“The purpose of the hospital was to offer healthcare for the masses… The interesting aspect of its business formula was its ability to offer such complex surgeries as CABG (popularly known as bypass surgery) for about $2,000, which was substantially less than other similarly equipped hospitals in India.“

To put this price perspective, the same surgery in the United States would cost a health care consumer around $75,345. This is because in many countries, like the United States, there are regulations that restrict the number of surgeries that can be performed by each surgeon. For this reason, most U.S. hospitals only perform about 32 heart surgeries per day. But capping the number of surgeries performed each day goes against market demand and serves to keep the cost of surgery high by controlling the supply.

In Shetty’s hospital, the doctors respond to actual demand; if there are patients needing surgery, then they find a way to meet that demand. On average, Shetty and his team of surgeons perform over 300 heart surgeries a day. In fact, in the course of his career Dr. Shetty has performed over 20,000 heart surgeries himself. That number is about six times more than the average American surgeon is expected to perform in their lifetime. And at only 62, Dr. Shetty has many surgeries yet to perform.

Commenting on his unique health care model, Shetty said:

“Japanese companies reinvented the process of making cars. That’s what we’re doing in health care. What health care needs is process innovation, not product innovation.”

But while many are applauding what Shetty has been able to accomplish, there are others who worry that Shetty’s increase in quantity might result in a decrease in quality.

“On one level, it’s a damn good idea. My only issue with it comes from the fact that if you pursue wholesale volumes, you may give up something — which is usually quality,” Indian physician Amit Varma said. He continued, “I think he has reached the point where if you increase volume any more, you could compromise patient care unless backed up by very robust standard operating procedures and processes.”

And while there is some validity to Varma’s fears, in Shetty’s case, the opposite seems to be the case. Narayana Hrudayalaya Hospital has a 1.4 percent mortality rate as compared to the 1.9 percent average in United States’ hospitals. But even these comparisons don’t tell the full story, as the Wall Street Journal points out:

“It isn’t possible truly to compare the mortality rates, says Dr. Shetty, because he doesn’t adjust his mortality rate to reflect patients’ ages and other illnesses, in what is known as a risk-adjusted mortality rate. India’s National Accreditation Board for Hospitals & Healthcare Providers asks hospitals to provide their mortality rates for surgery, without risk adjustment.

…Dr. Shetty’s success rates would look even better if he adjusted for risk, because his patients often lack access to even basic health care and suffer from more advanced cardiac disease when they finally come in for surgery.”

When asked how his surgeons are able to perform such high numbers of high-quality heart surgeries, Dr. Shetty says:

“Practice makes perfect. There is learning by doing. The more times you do something, the better you get at it.”

The Future of Health Care

While he has already changed and saved many lives, Dr. Shetty is not content to stop at heart surgeries. As health care costs rise, medical tourism is on the rise as well. Since so many jurisdictions have strict health care regulations, innovation has been stifled. As a result, many American and European health care consumers are choosing to travel abroad in search of less expensive care. And with doctors with reputations like Shetty, who can blame them?

Continuing his mission to make quality health care accessible to all, Shetty is involved in a project called Health City. Located in the Cayman Islands, Health City is where many of Shetty’s proteges now practice. Offering medical services at a third of the cost as the United States, Health City has become a prime medical tourist spot. In fact, many of the procedures come in packages that include airfare and lodging all offered at a price far lower than the procedure would cost in the United States.

But there is something more to this location other than being a destination for Americans in search of lower cost health care: its proximity to places like the Caribbean, for example. As Shetty explains it:

There are 40 million people living in the Caribbean. Before Health City, the only option for serious medical care was the United States – assuming the patient could afford it. Now there is an alternative.”

By treating health care as a mass product, Shetty has been able to increase the quality of care, while making it financially accessible to a wider range of people. Instead of looking to government to fix our health care system, we should be looking to innovators like Dr. Devi Shetty.

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