Leading the Revival of Individualism & Self Reliance

How Crony Capitalism Ruins Free Market Competition

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Imagine, for a moment, that you are a runner preparing for a race. You know that in order to beat the competition, you are going to have to train as hard as you possibly can in order to be the best you can be. You sacrifice your free time to hit the gym and workout, give up all unhealthy foods to be in peak physical condition, and when the day of the big race finally comes, you feel prepared and confident in your abilities.

And all this hard work makes crossing the finish line ahead of the rest feel even better than you imagined because you know you put forth your best effort. But just as you are about to be awarded your cash prize for all your hard work, the judges tell you that your win was unfair. “The other runners were not as prepared as you were,” the judges claim. “It’s unfair that you should win when others didn’t have the training that you had.”

And after talking amongst themselves, the judges decided that the only way to make this race fair for everyone is to demand that your prize money be split up among the other runners so that they may pay for gym memberships, healthier food, or whatever ever else they may need in order to “level the playing field” for future races.

This, of course, would never happen. If it did, there would be massive outrage as this type of action would negate the entire purpose of competitions altogether. No one should have to pay to strengthen their competitors and give them a leg up in the competition. And yet, in the business world, this happens all the time.

Cronyism in Massachusetts

Just a few years ago, Massachusetts became the first state to force a company to help fund its competition. Levying a five-cent-per-ride on companies like Lyft and Uber, the revenue collected from this tax goes directly towards subsidizing the traditional taxi companies that operate within Massachusetts.

Kirill Evdakov, Chief Executive of the Boston-based ridesharing service Fasten, commented on this matter, saying, “I don’t think we should be in the business of subsidizing potential competitors.” Kirill is absolutely right: forcing ridesharing services to subsidize the taxi industry, which has been trying to regulate businesses like Fasten into nonexistence, is not only unheard of, but completely ridiculous.

The law is justified by saying the revenue will go towards helping the traditional cab companies create “new technologies and advanced service, safety and operational capabilities.” In other words, this new tax will be used to help cab companies achieve what ridesharing services have been able to do without any access to subsidies.

Though only five cents per ride will be going to the traditional taxi industry, the new law will actually place a 20 cent tax on ridesharing companies overall. The remaining 15 cents will be divided, with 10 cents going to the city where the service is operating, and the other five cents going towards a “state transportation fund.”

While subsidizing the taxi industry is easily the worst aspect of these regulations, giving a portion of this tax to the cities is going to make it harder to repeal or reform these types of regulations later, after local governments become accustomed to receiving this money.

In Massachusetts, ridesharing companies are responsible for 2.5 million rides per month. Those benefiting from this new tax stand to make millions of dollars from this regulation, something Massachusetts city governments are sure to be happy about receiving.

Competition Makes Everything Better

The government should never be responsible for picking losers and winners. The taxi industry has failed to evolve and innovate over the years, which has allowed ridesharing services to fill a void in the market. Instead of being praised for their success, ridesharing services are being punished while taxi industries are being rewarded for failing to innovate.

We recognize how silly this practice would be in the realm of sports, but for some reason when it comes to business, many champion these policies. But just like athletic competition makes us better and stronger, so does market competition. The only reason we have Uber and Lyft is because someone saw the shortcomings of the taxi industry and thought, “I can make this better.” Imagine how much better ridesharing would be if the taxi industry tried to make the Uber model even better.

But instead, the losing entities use governments to inhibit and steal from their competitors. In a truly free market, consumers would vote with their dollars, thus choosing the winning entity. Only consumers should be trusted with this decision, not governments. Hopefully, Massachusetts serves as a cautionary tale.

The Slipstream of the Tour de France Peloton and the Spontaneous Order of Free Markets Pull Everyone Along.

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Every July, France hosts one of the world’s greatest sports spectacles, Le Tour de France, and it offers something for almost all sporting and social appetites. For fans of individual sports there is the points leader and the king of the mountains. For fans of team sports there is the famous yellow jersey and the overall team competition. For entrepreneurs there are races within the race, constant innovation, and rewards for superior specialists. For progressives there is the equality of the peloton, the sacrifice of the domestiques, and the meager financial rewards for all but the elites.

The Wonders of Spontaneous Order

Unlike international soccer, cycling has not gained a lot of popularity or understanding (whichever comes first) in the United States, so here is a little in the way of explanation. The peloton is the big group of cyclists that is comprised of all teams and most of the riders at any given time. What looks like a random pack with lots of colors is usually well organized, and a wonderful example of spontaneous order – no one planned it. Every rider knows their individual role, but not the designs of the other riders. And each individual’s role depends on their team’s goals for the day, the moment they are in, and breakdowns in their plan so far.

A great way to understand the peloton is from the front. There, viewers can see the teams that are setting the pace, and see their colors lined up in single file behind their leader. These are the the trains, and the team leader will never be the locomotive. He is being protected and enjoying the slipstream; conserving energy for the mountains and the overall victory in Paris. The organization of the peloton falls into disarray when winds shift, roads steepen, riders attack, or riders crash (usually in the middle or rear of the peloton, it’s safer in front). That is the uncertainty of the future, yet order always returns with a different network of collaborators at a future unplanned moment.

Of Specialization and the Division of Labor

Within each team there is the team leader, the climbers, the sprinters, the generalists, the time trialists, and the domestiques. And it is possible to switch roles on any given day depending on the team’s goals. Those are dictated by the day’s terrain – flat, mountains, or rolling hills, and injuries. The term GC rider is the team leader being protected in order to stay in contention for the for the general classification victory, meaning the overall win. To have a rider on the GC podium in Paris is a major team victory. The GC guys will never endanger themselves in sprint finishes. However they will contend for mountain stage wins as that is where precious time is won. The sprinters are never GC guys. Their thing is individual stage wins on days set up for sprinters.

Not all teams contend for the three week GC victory, but they all contend for daily stage wins. On mountain stages, the sprinters become domestiques or fall off the back. The generalists do it all, as the name implies. They are competitive sprinters, good climbers, and reliable in the peloton regardless of the terrain. Today’s premier generalist, and the overall rider that’s most fun to watch, is Peter Sagan of Slovakia. A young man with a vibrant sense of life.

Specialization and the division of labor offer great value in the sport of professional cycling in the same way they offer great value in the sport of human life on planet earth. They are the product of having a long-term vision, anticipating the future, and deferring immediate rewards. Not only does this attitude lead to success in the long and arduous competition that is the Tour de France; according to economics professor Saifedean Ammous, it also leads to cultural and artistic enrichment for entire societies.

The Allegory of the Peloton

Americans can easily relate to the idea of team leaders and specialists, but a domestique? Their role is to protect the team leader in the peloton, lead the sprinters toward the finish, and shepherd the specialists back to the peloton if they crash. The English translation is servant. But while they don’t make headlines, they don’t resemble servants either. Instead of building socialist utopias like the horses described in Animal Farm, they are more like the steel workers hired by capitalist Henry Rearden in Atlas Shrugged. They are the best at what they do, prideful of their skill and integrity, and compensated accordingly. Domestiques can also be upwardly mobile, servants to socialist utopias not so much.

If social justice activists could organize a peloton, the exploiters would be placed at the front and create the slipstream. Their victims would be pulled along so that everyone enjoys the same outcome, so long as the entire group behaves into eternity. Free market advocates would just leave it alone; it is the equivalent of a complex system working efficiently. Every participant is pursuing their own rational self-interest and they all function in harmonious rhythm. The peloton is a temporary phenomenon that serves the needs of its riders at the moment. It cannot be rigid, planned, or controlled because there will always be a break-away group of riders that symbolize new ideas and innovation. No authoritarian could ever anticipate this. A free market, like its allegorical peloton, is flexible and ever-changing.

To summarize, the peloton is a network of voluntary cooperation that can’t be improved. Its cyclists have a long-term vision that the group does not. Individually, they have traded immediate rewards for intense physical and mental training; the payoff being greater future rewards. This attitude is natural and necessary for the culture of cooperation that is the peloton, and in a larger sense, all peaceful and prosperous human endeavor. All riders have a vested interest the success of their fellow cyclists. This prevents crashes in the short run and inevitably leads to greater potential rewards for everyone in the long run. So enjoy the spectacle of Le Tour, appreciate the elegance of its various forms, and understand the bright future symbolized by its spontaneous order.

 

 

Seattle Proves That “Fight for Fifteen” Movement Will Have Negative Consequences

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The city of Seattle Washington is quickly becoming a cautionary tale when it comes to its economy. In May, the city even announced that it would begin levying a new employment tax on prosperous Seattle-based businesses. The “employment tax” as it is being called, will institute a new tax on the top 20 percent of businesses for each hour worked by each Seattle-based employee.

While this is absolutely absurd to tax job creators for creating value for Seattle, what is seemingly more absurd is the fact that the city hasn’t seemed to learn anything from its previous attempts to centrally plan its economy.

Fight for Fifteen

In many ways, Seattle is personally responsible for sparking the “fight for fifteen” movement. In 2014, it became the first municipality to vote in favor of raising the minimum wage to $15.00 an hour. At the time, the city’s minimum wage was only $9.47.

Jumping from less than ten dollars all the way to $15 was a dramatic increase. Even the city recognized the danger this posed on local businesses, who would be the ones responsible for finding the means to fund the new wage rate. So, it was decided that instead of the new minimum wage going into effect at the beginning of 2015, the city would do it incrementally.

After the first year, when the minimum wage had been increased from $9.47 to $11.00, a research team at the University of Washington began analyzing the effects it had on employment, specifically in the restaurant industry. As it turned out, the impact was minimal. For most people, the wage increase resulted in an extra 72 cents every few months. But what was most shocking to these researchers was the fact that low-wage employees, the very people who this was wage increase was supposed to help, were being negatively impacted. Low-wage employment was actually down in the year following the increase. But at the time the study was conducted, there simply wasn’t enough data to confirm how big of an impact the new wage rate was having. The city was going to have to wait a little longer before they could determine the impact.

Then, last summer, UC Berkeley joined in on the research and released their own new numbers declaring:

“Our results show that wages in food services did increase — indicating the policy achieved its goal. … Employment in food service, however, was not affected, even among the limited-service restaurants, many of them franchisees, for whom the policy was most binding.”

Of course, this gave city officials all the fuel the needed to start boasting that their initiative had been a success. However, right after then-Mayor Ed Murray has published the Berkeley findings on his own government page, bragging that wages in the fast food industry specifically had increased without negatively impacting employment rates, the University of Washington released its second installment of the study. And this one did not fit the city’s narrative.

Centrally Planned Economies Do Not Work

When the new study from University of Washington was released,  Bloomberg reported:

“The University of Washington released its second study, this one covering the increase from $11 an hour to $13. And this study found huge effects: For every 1 percent increase in their hourly wage, low-wage workers saw a 3 percent reduction in the number of hours worked. As a result, they lost about $125 in earnings a month, clawing back the entire gain from the earlier hike and more.”

As it turns out, money has to come from somewhere. And when employers are forced to pay more money to meet the wage requirements they have to cut hours or even cut positions in order to afford to do so.

Of course, the mayor couldn’t be troubled with these new inconvenient findings and stayed relatively quiet.

As new studies are about to be released, we are about to find out just how grave the numbers look after the wage has incrementally increased once again, quickly approaching $15.00 per hour.

But the data already provided does not do much to boost hope. And instead of trying to meddle in the market further like they are doing with the new employment tax, Seattle officials should seriously be considering the consequences of their actions.

While taxation and the minimum wage rate are not entirely the same, they both require the central planning of an entire economy, of which no good can come. A governing body that tries to control an entire economy will soon find they do not have enough knowledge or insight to do so. As Hayek reminds us, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” And when it comes to determining employee wages, the market will always do a better job than government. 

Capital Markets Are Uncertain Complex Systems That Can’t Be Predicted But Can Be Anticipated.

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In July 2008, the giant government mortgage agencies Fannie Mae and Freddie Mac failed, the US Treasury bailed them out, and their directors were rewarded with bonuses. Earlier that year, Treasury forced JP Morgan Chase to buy Bear Stearns, and later Washington Mutual. JP Morgan was also rewarded, with billion of dollars in fines. Later in 2008, Auction Rate Securities markets froze and money market funds were in jeopardy.

While the causes for 2008’s financial meltdown are suppressed by state-run media, its effects were borne by everyone not in the good graces of government. The banking crisis that began in 2007 led to a collapse in stock prices, home values, interest rates, and crippled the retirement dreams of millions of Americans. While almost everything was losing value, corporate retirement plan managers claimed to be helpless to do anything about it.

After all, the meltdown could not have been anticipated, and its effects were not controllable, right?

As the dust cleared in late 2008, Black Swan Theory became a popular theme in investment policy meetings and newsletters. The mythical Black Swan is a metaphor for extreme outlier events that are unpredictable, have major consequences, and are rationalized after the fact. One rationale was that portfolio diversification did not work because everything dropped sharply at the same time.

But was 2008’s perfect storm impossible to anticipate? Did diversification really fail?

Black Swan Hunting

In April 2007, professor and statistician Nassim Taleb published his influential book titled The Black Swan: The Impact Of The Highly Improbable. And his message is clear: authoritarian macroeconomics experts are not experts, and they don’t know it. Their tendency is to assign simplistic explanations for outlier events. Serious analysis of the problem is what Taleb described as “stemming from the use of degenerate metaprobability.” In plain English, he explains it as “What happens, happens.”

In 1999, another statistician and investment manager built a system that anticipates the possibility of Black Swan events (it does not predict them). And it calculates their possible effects.

David Loeper’s Monte Carlo engine is based on the capital market assumptions (CMAs) of Modern Portfolio Theory, and he uses them to calculate the likelihood of extreme market events, both positive and negative. His overriding premise is that the future is uncertain. As Loeper explains about the nature of capital markets,

Being excessively conservative in assumptions will needlessly sacrifice an investor’s life. The data exists to discover this. If you have bad assumptions, the allocation will not behave as anticipated. Well reasoned assumptions should have modeled extreme ‘asymmetric correlation’ markets.

In other words, the possibility of something like 2008 should have been anticipated. Loeper did, and the personal sacrifices of individual investors could have been mitigated.

Asymmetric Correlation Ate My Homework

In plain English, what investment managers call asymmetric correlation really means, ‘Hey, at least we sound smart!’ Their diversifying asset classes such as hedge funds, real estate, emerging markets, and managed futures were expensive and unproven. Or as Loeper explains “they had insufficient data to draw valid conclusions.”

In Modern Portfolio Theory, each asset class has two potential assumption errors – median return and risk. And not only were the assumptions for the diversifiers unreliable, the addition of each one multiplies the potential for errors. This is because their correlation to each other must also be considered. What happened in 2008 was that the diversifier asset classes became positively correlated with the risk assets they were intended to hedge, meaning they all lost value at the same time. As a result, retirement plan investors were exposed to a great deal of needless sacrifice and risk.

For example, in 2008, stocks of US companies lost 37%. A portfolio consisting of just four asset classes (domestic stocks, foreign stocks, US government bonds, and cash), with 60% of that in stocks, lost about 18%. Yet many “more diversified portfolios,” also with 60% in stocks, were down more than twice as much. Besides all of these additional assumption errors, there was another big one – investment managers had an aversion to US government bonds.

Of Strategists and Optimizers

According to Loeper, “The purpose of fixed income in an asset allocation is to lower the overall risk of equity markets, particularly in shock environments.”

Only US government bonds do this well, and there is a vast historical data set behind their CMAs to prove it. Newer bond asset classes like foreign, high yield, emerging market, and TIPs have no such reliability. However, traditional investment managers do not use US government bonds to diversify risk assets because of perceived interest rate risk, or their economic forecasts.

And neither do many mathematical models known as mean variance optimizers (MVOs).

The similarity between traditional managers and optimizers is that they are predicting the future. This adds potential assumption errors. While strategists admit they couldn’t anticipate the events of 2008, MVOs are a different story. Their analysts merely adjust the data inputs of the new, diversifiying asset classes because those data sets were insufficient anyway. The problem is the optimizer might select a portfolio dominated by these new, alternative asset classes. Ask Yale University’s endowment how that worked out.

“I Don’t Want My Money to Work Hard. I Want it to Relax.”

Jerry Seinfeld is on to something here. It took a lot of work to get things so wrong, and it was expensive. Those who religiously follow government policy couldn’t foresee the disastrous consequences of government policy. Those who place their faith in unreliable data sets built on self-fulfilling prophecies were also blindsided.

Fortunately there is a proven alternative to the stress of beating the market – Moneyball. Billy Bean, GM of the Oakland A’s, showed the baseball world how to win the division while minimizing the cost per win. He replaced the unforced errors of talent scouts with reliable data. For retirement plan investors, it’s about winning the future while minimizing risk, and replacing forecasters with your own vision for the future.

Let the price mechanism of free markets do the work, anticipate the possiblility of extreme events, avoid unforced errors, and let the retirement nest egg relax. The uncertainty of complex systems like capital markets and its price information can be reckoned with. After all, “the data exists to discover this if you examine it closely.”

tuttle twins books

This Serial Entrepreneur Teaches Kids Economics And The Ideas Of Freedom.

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Connor Boyack believes the world will be a better place when kids learn and understand – and apply – the core concepts of economics.

This is not government economics, of course. The abstract aggregates and mathematical models of the mainstream economics of the academic elites are deemed to be too advanced for kids. They’re taught in universities with a view to turning anyone with an interest in economics into (a) a fully propagandized Keynesian and (b) a direct or indirect employee of the government or one of its captive think tanks or lobbyist groups.

Kids haven’t run into all these encumbrances yet. Before they do, Connor Boyack hopes to introduce them to the fundamental ideas of the real economics that are relevant to individuals and the world around them. Principles such as the allocation of resources: we always have a longer list of things we could do with our scarce resources (including the scarcest of them all, time!) than exist in the realm of possibility, so how do we decide on the most effective and efficient allocation, the highest and best use? Thinking in this direction leads to the principle of opportunity cost: if you do X, you forego Y, and it’s important to have a decision making process. It’s called economic calculation. It might be a heuristic rather than a formula, but it’s a considered decision rather than a thoughtless one.

Connor also introduces kids to the idea of time preference, which is wrapped up in savings and investment. If we save – sacrifice – today and invest our savings into a productive initiative, we’ll reap a greater reward in the future. We know that many kids have a hard time with this concept – many of us have read about the marshmallow test – yet learning about it and considering the benefits of self-control and the value of the longer term over short term indulgence can be a life-enhancing change.

Of course, kids are not going to be able to relate to terms like time preference and opportunity cost. The words aren’t right for them. And the concepts are too abstract. They need to be clearly grounded in a world that kids understand. A different creative strategy is needed.

Connor’s initial vehicle for teaching kids economics has been The Tuttle Twins series of books. These books feature fast-moving stories and are fully illustrated, so that they are engrossing page-turners for kids. They are very ambitious in making classic content simple. The Tuttle Twins Learn About The Law is a presentation of the principles expressed by Frederic Bastiat in his classic “The Law”. Learning about the law includes natural rights, the difference between right and wrong and government legislation, and the awareness that bad guys can get government jobs and what the government does is often bad, wrong and illegal. The Tuttle Twins And The Road To Surfdom (yes, that’s the right spelling) illustrates the danger of tyranny, the difference between individualism and collectivism, and the nature of the threat inherent in central planning. An afterword introduces F.A. Hayek and the term Austrian Economics.

Connor also learned that kids like to see a narrative where there is good and bad, a protagonist and an enemy, and a story of heroes overcoming villains. In the Tuttle Twins And The Creature From Jekyll Island, the enemy is The Federal Reserve , government produced money and inflation. In The Tuttle Twins And The Food Truck Fiasco, the enemy is crony capitalism and the heroes are entrepreneurs.

The most recent Tuttle Twins edition is The Tuttle Twins And Their Spectacular Show Business, which is devoted to the subject of entrepreneurship. The Tuttle Twins absorb and follow the free market theory of entrepreneurship that starts with self-awareness (Who Am I?), self-resourcing (Who Do I Know and What Do I Know?) and self-efficacy (What Can I Contribute?). Can kids learn to be entrepreneurs? Certainly, says Connor:

Just like economics is a way of thinking, I think so too is entrepreneurship, and I believe we can inspire young people to look for opportunities and solve problems and be creative in their thinking. Through practice, study, and incremental opportunities, the child, once an adult, is going to have a lot of practice in entrepreneurship.

Listen to folks like Mark Cuban. He was selling stuff as an 11 year-old and a 12 year-old and was going door to door. There are many ways that kids can be practicing entrepreneurship, learning from their mistakes, and growing and refining their abilities. When they are an adult and have a full legitimate opportunity, they can hit the ground running, That’s what I am hoping this book can help kids with.

Connor is teaching kids not only economics but also values, including the ethics of capitalism, and self-reliance and self-empowerment. As a father, he wanted his own kids to absorb and understand the ideas he believed in, and could not find any educational materials to help them do so. In the spirit of entrepreneurship, he and his wife decided to create a book. They did not have the idea of a complete series at first, just a trial to see if people were interested. The market response was tremendous and now there are 8 books in the series and more to come. Over 200,000 copies have been purchased. Not only do kids enjoy and learn from Tuttle Twins books; parents tell Connor that they enjoy reading them to and with their kids, and they, too, are introduced to new ideas and prompted to learn more.

Like any serial entrepreneur, Connor is inspired to go further. He began to realize that while the books continue to sell well, “we’ll always be playing catchup. To get ahead of the curve, we have to get into the schools”.

So he set up The Association for Teaching Kids Economics (ATKE) as a mechanism through which he could begin building curriculum resources around the Tuttle Twins books so that teachers would better be able to introduce these ideas to their students. In the past school year alone, ATKE has distributed nearly 20,000 books to students while their teachers were given material to help explain and expound on free market economic ideas in class. Connor reports: “It went great! The response was overwhelmingly positive and we’re super excited to grow ATKE and help even more students in the years ahead.”
Economics is the essence of civilization, the moral science. It can teach kids to deal with the circumstances of the world around them, to sustain themselves as individuals, and to consider carefully how they exchange with other individuals. Values and “moral sentiments” are inherent to economics. The hope that economics offers is embodied in Connor Boyack’s entrepreneurship and the adventures of The Tuttle Twins.

 

Wikipedia and Hayekian Philosophy: Spontaneous Order

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Over the course of human history, information, and thus knowledge, has been more or less controlled by those in power. This is, obviously, a dangerous precedent as the guarding of knowledge means that a central authority is in charge of determining who has access to that knowledge.

But in our digital age, information is becoming decentralized and more accessible than at any other time in history. Much of this is largely thanks to Wikipedia, which has become the first place most people look for information.

In a previous article, I wrote about the influence economist F.A. Hayek had on Jimmy Wales, the founder of Wikipedia. While the last article addressed the concept of the knowledge problem and how Wales had specifically set out to solve this problem. But in addition to making information accessible to all those who seek it, Wales also incorporated another aspect of Hayekian economics when he created Wikipedia: spontaneous order.

Spontaneous Order

Spontaneous order is the belief that market order emerges when individuals are free to voluntarily exchange with each other and create value. But when governments interfere with this process and impose regulations on the market, this order is inhibited and value creation stifled. 

As Lawrence Reed from the Foundation of Economic Education said, “Spontaneous order is what happens when you leave people alone—when entrepreneurs… see the desires of people… and then provide for them.” And this is exactly how Wikipedia came to fruition.

Jimmy Wales recognized that there was indeed a knowledge problem, as Hayek has pointed out in his essay, “The Use of Knowledge in Society.” Seeing a void in the market, he created an online encyclopedia that was accessible to anyone with the internet. But he didn’t stop there.

The internet has made so much information readily available to its users, but that does not mean that this information is always true. The era of “fake news” has made this problem even worse, as many have even called on the government to take an active role in censoring any information thought to be false. So how do you ensure that your users are getting the most reliable information when there is so much information available online? You create your own voluntary community and practice self-regulation. 

Self-Regulating

There is no governing body controlling the information that is available on Wikipedia. And with so many internet trolls roaming the web, this sounds like it would yield nothing but chaos. However, the opposite is true.

When it comes to the rules for posting content, Wikipedia does have its own form of rule of law. As Wales told Wired during an interview:

“Yeah, so there are general principles that do get written down and in certain cases the general principles are so widely and immediately obviously accepted that, you know, upon being written down it becomes pretty firmly entrenched.”

If, for example, someone added someone’s address or telephone number to a Wikipedia page, this would break the general rules. There would be no need to discuss what type of action to take since this was a clear violation. But when it comes to disputes over the information itself, the community comes together to self-regulate using a system of common law.

As Wales says:

“…In other words, you can take some principle and apply it fairly mechanically and have precedence that you set for your previous cases that you follow repeatedly, mechanically, and that’s you know, consistency is a good thing.”

When a conflict arises, the community comes together to discuss the problem and put it in terms of the existing common law. This helps the community make consistent, just decisions when dealing with disputes. But what makes this dispute resolution so interesting is that it is transparent and available for all to see. This makes the whole process open to everyone viewing the site. 

There are also incentives for Wikipedia users to provide the most accurate information as possible. Since there is clout associated with being a reliable source, it is in each users self-interest to only provide accurate information. 

Those who eagerly call for government regulation do so because they do not believe individuals are capable of regulating themselves. But Wikipedia shows us that the opposite is true. While there are examples of spontaneous order naturally occurring in real life, it is interesting that Wikipedia actually set out to be a manifestation of Hayek’s economic philosophy.

And thanks to Wales and his Hayekian vision, the world has access to more information than at any other time in history… and the government has had absolutely nothing to do with it.

When Equal Access Means Zero Access for All

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There is irrational comfort taken in the belief that man-made laws somehow ensure equality for all. More often than not, the exact opposite is true.

Last Summer, UC Berkeley was forced to remove over 20,000 lectures, videos, and other digital documents from its free online library. While the prestigious school had been generous in making its electronic resources available to the public, a violation of the Americans with Disability Act has left the University with no other choice but to remove the online archive in its entirety.

We are currently living in a golden age of information, where the internet has provided the world with limitless sources of learning without ever having to leave the comfort of home. Like many institutions of higher education, including many other Ivy League schools, UC Berkeley has contributed to open source learning by sharing its curricula and other materials to online platforms like YouTube and iTunes, as well as its own site.

While many were celebrating the fact that technology has helped make Ivy League education accessible to anyone with a computer and a wireless connection, others did not believe this accessibility went far enough.

Enter the State

Nearly 3,000 miles away from the iconic Sather Gate entrance at UC Berkeley, two employees of Washington D.C.’s Gallaudet University—a school for the deaf— were outraged to learn that Berkeley’s online archives, though extensive in scope, were not accessible to those with hearing impairments.

Instead of contacting Berkeley to see if accommodations could be made without resorting to state intervention, the complainants sought help from the Department of Justice (DOJ).

After investigating the claims made by the two Gallaudet employees, the DOJ came to the conclusion that yes, Berkeley’s free online archive had in fact violated the ADA, particularly Title II, which mandates that all public audio and video content provide accommodations for the deaf and hard of hearing. Among these stipulations is the requirement that all applicable content offer closed captioning, which, regrettably, 543 of Berkeley’s videos were missing.  

The DOJ has declined from publicly commenting on the matter, but its letter to Berkeley officials laid out the alleged violations clearly:

“The Department found that of the 543 videos it could identify on the YouTube channel, 75 had manually generated closed captions. Of the remainder, many had automatic captioning generated by YouTube’s speech recognition technology.”

Unfortunately, the government is not a magical entity, it cannot wave a wand and level all playing fields without trespassing on someone else’s freedom along the way., which is precisely what is happening as a result of the complaints filed against UC Berkeley.

All or Nothing

All 20,000 files will have to be removed from the online library. Now, instead of one group of people having limited access to a very small portion of Berkeley’s extensive online library, the whole world will lose access to the entire archive.  

UC Berkeley was put in the unfortunate position of being demonized for providing free information. To satisfy the ADA requirements and keep the content live, the University was going to have to reformat all the videos in question. However, this process is both timely and extraordinarily expensive, which left Berkeley with only one remaining option if it wished to comply with the DOJ’s demands.

Cathy Koshland, vice chancellor for undergraduate education at the University made the following statement:

“In many cases the requirements proposed by the department would require the university to implement extremely expensive measures to continue to make these resources available to the public for free. We believe that in a time of substantial budget deficits and shrinking state financial support, our first obligation is to use our limited resources to support our enrolled students. Therefore, we must strongly consider the unenviable option of whether to remove content from public access.”

Last Spring, the University made its decision final and announced that it will begin the process of removing all the content on March 15th. To add insult to injury, it turns out that removing this digital library will ultimately end up requiring about five months worth of work— a cost UC Berkeley will be forced to pay.

The Market Provides a Way

While this entire situation is frustrating, there is, of course, a possibility that the two authors of the DOJ complaints had no idea their actions would result in a major loss of public information.

However, for many people, and perhaps even most people, they view the state as the benevolent enforcer of all things good, not realizing that government entities always hurt what they claim to protect: liberty.

The fact that the two scorned Gallaudet employees felt they had no option aside from involving the state in this matter is the real tragedy at hand. Perhaps, if instead of choosing to file complaints these two people would have channeled their disappointment and passion into a positive solution, both parties could have benefitted, rather than both sides losing.

Generally speaking, people love being a part of something bigger than themselves. Giving back to communities we feel connected to, and dedicating ourselves to causes we feel passionately about, is part of the human experience.

Just as technology has made sharing information more convenient than ever, it has also made fundraising and coalition-building easier as well.

Utilizing crowdfunding sites like GoFundMe and KickStarter.com allows individuals from all walks of life the opportunity to feel as though they are invested in some grand, unified effort. It allows each donor to feel as if they have participated in something important, whether they donated a few thousand dollars or just a couple of bucks.

Imagine an alternate reality where instead of pursuing legal action against UC Berkley, those who felt passionately about this matter joined together as a community and raised awareness and funds in order to provide the funding needed to have the 543 videos reformatted. If they had “criticized by creating,” instead of by litigating, not only would the problem have been solved in a more productive manner than it actually was, but all parties would actually benefit in the end.

Berkeley wouldn’t have to spend several months taking down its content, those who wanted the content adapted for those with hearing impairments would have not only gotten what they wanted, but they would have also raised awareness and possible donors to their own school. Additionally, the entire world would have also continued to benefit from the use of Berkeley’s material.

Unfortunately, as this situation has so aptly demonstrated, once the government gets involved in a scuffle, everybody loses.

Wikipedia and Hayekian Philosophy: The Knowledge Problem

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Wikipedia has become a staple in each of our lives. No matter what information we may be in search of, Wikipedia either provides what we are looking for or offers a great launching off point to further research. And while most of us routinely use the site to aid us on our quest for knowledge, few know that the site was born out of a deep respect for the work of economist, F.A. Hayek. 

The Knowledge Problem

As a college student at Auburn University, young Jimmy Wales, the founder of Wikipedia, had the pleasure of taking an economics course from Austrian economist, Mark Thornton. It was during this course that Wales was first introduced to the ideas of Hayek. Specifically intrigued by Hayek’s essay, The Use of Knowledge in Society.

In this essay, which was published in 1945, Hayek explains that one of the major problems with central planning is the amount of knowledge that would be required to make it work. Since information is dispersed among individuals, it would be impossible for central planners to set regulations that accounted for every single person’s wants and needs. They would simply not have enough information to answer to solve these problems.

If the main goal of was the organization of knowledge, then Wales, who is himself a subscriber to the Austrian school, believes there are two means of centralizing this information. First, governments and rulers around the globe could do their best to collect all this knowledge. Of course, once someone is the keeper of knowledge they also control who receives it. This, of course, is not decentralization at all. Even so, this is what has occurred for most of human history.

Access to state-gathered information has traditionally been guarded against reaching the masses of the people. Instead, the right to this knowledge was a privilege given to those in power, whether political or economic. Obviously, this was not an effective way to decentralize knowledge among the people. Additionally, while this is the best possible solution for those in power, with large populations of individuals it is unlikely that even force would yield the gathering of all information. There would still be an inefficient amount of knowledge—and an insufferable amount of state control.

The Wikipedia Solution

The second approach to the knowledge problem can be found by taking a closer look at Wikipedia. Since history has shown us that governments are not the best keepers of knowledge, it is best for this information to stay decentralized, but still accessible by all individuals. Wales explained Wikipedia by saying:

“Wikipedia begins with a very radical idea, that is for all of us to imagine a world in which every single person on the planet is given free access to the sum of all human knowledge. And that is what we are doing.”

Instead of state control, Wikipedia is managed by a voluntary community. Users are free to add information and edit. However, the edits are subject to review by the community itself. If there is a dispute over any of the information added to the site, the Wikipedia community utilizes private conflict resolution in which they discuss and debate amongst themselves, without the need for state authority. Wikipedia even has its own internal common law system to help settle any disagreements about site entries that may arise. So not only is Wikipedia making knowledge accessible to all, it is also paving the way for private dispute resolution methods that do not involve government courts.

And while Wales’ recognition of the knowledge problem would be impressive enough on its own, Hayek’s influence on Wikipedia does not end there. In the next installment, we will discuss how Wikipedia is yet another real-life example of spontaneous market order.

Why Economists Don’t Understand People And How It Causes Them To Make Mistakes.

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Economists are strange. Their science is supposedly about how we human beings interact in the economic sphere of our lives – working, providing service to others, buying and selling and exchanging in the marketplace, saving and investing, sharing information and communicating in general. We humans make the decisions that are implicit in all those activities based on our subjective individual values, and our decisions are tinged with emotions, often idiosyncratic and not necessarily consistent. How we feel determines what we do.

From those ingredients, economists insist on making mathematical models, populating charts and graphs and computerizing functions they call demand schedules and utility functions. Huh?

When the scenarios and predictions from this math go awry, they tend to blame the human being whom they treat as subjects in their experiments, or, worse still, as “consumers”, as if we did not have any other useful purpose.

Sometimes they insult us. For example, Arnold Kling accuses us of tribalism, which he defines as “hostile and suspicious toward people who are unfamiliar”. In economics, that’s so absurd. The entire economic system rests on collaboration with people we don’t know. When you buy a package of Triscuits or a jug of Tide at the supermarket, you are collaborating with untold thousands – farmers and growers, makers of chemicals, manufacturers and people who make the machines that make the products, truckers, loaders and unloaders, shelf-stockers and checkout clerks and accountants and marketers. They all want you to have a good experience, to have your needs met and to come back again and again. Hostile and suspicious? Hardly.

Here are a few attributes of we humans in the economic realm that economists should think of as primary.

We are collaborative.

Economic tribalism just does not exist. A boat owner in Miami can collaborate with the economic community of Alibaba to find a replacement part, by searching through all the relevant manufacturers in China, checking specs and part numbers, making a purchase and triggering the supply chain that brings the part from China to the US mainland to the purchaser’s boat at dockside, with guaranteed quality (or money refunded) and three-day delivery and low cost. It’s not that the boat owner is collaborating with Jack Ma personally, but collaboration – the co-operative effort to go to great lengths to meet the customer’s exact need at low cost and high speed responsiveness – is the built-in norm. There is trust and positive expectation built in to the entire exchange process. This condition is general and widespread today. Economists talk about individuals pursuing their own self-interest, but, in fact, their interest is in making the system work, and making sure their own contribution to it meets the standard of their customers (or employers), so that they get suitably rewarded. We all want to build up trust and a good reputation. We want to be liked and respected and tribalism and pure self-interest is not going to take us there.

We act on our moral values.

Economists treat us as what they term “maximizers”. They believe we strive for as much income and wealth as we can, pushing others out of the way to get them. They think we want to consume as much as we can, as conspicuously as we can. They tell us our self-respect comes from success at these behaviors and that we are envious of those who accumulate more than us and disdainful of those who don’t. These, they believe, are our motivations.

Does anyone you know behave like that, or think like that? In fact, the opposite is generally the case. People make their decisions based on the values they hold most dear. Those might be family values related to happiness, health and economic security. Or they may be the achievement ethics of hard work and duty. Or they may be broader values regarding helping others, or even saving the world through charity and conservation. All the economic choices people make are shaped by their values. Hostility and suspicion are not part of the economic calculus.

On Econtalk recently, Russ Roberts (with a nod to Jeremy Bentham) cited as economic motivators, among other things, the pleasure of being on good terms with others; the pleasures of a good name, the desire for distinction; the desire to be admired; and Adam Smith’s locution that we desire “not only to be loved, but to be lovely”. At least Dr. Roberts’ thinking is right.

We like to work.

Another term of economics is “disutility of work”, by which economists mean to say that we humans don’t like work and will do everything we can to avoid it. Yet from the time we were children doing our homework, we knew the opposite to be the case. All our incentives, both economic and cultural, not to mention the goading of our parents, are clearly in favor of work. We love to work. It’s dignified, even noble; it generates rewards, both financial and psychic. The profit motive drives us, and it profits us to work.

We Do Best In A Self-Governing System.

Economists are generally in favor of government regulation and government intervention in the economic activities of citizens. They think of the economy as a machine and themselves as the Ph. D. engineers best qualified to manage and maintain it.

But we are not cogs in the machine. We are collaborative, values-driven, hard working individuals. As human beings, we evolved, as Darwin discovered, to the biological supremacy we are in today. Many more biological systems exhibit this energy of spontaneous order, evolving to high degrees of benefit for all members. The economy is a similar biological system. The system-level outcomes of our interactions along vectors of subjective values, individual market exchanges, emotions and idiosyncrasies are impossible to predict and futile to try to plan. The energy at the core of our dynamic economic system is competition, which is a process of discovery: finding out which people and which processes can serve others best with the highest quality and lowest prices. We do not know in advance which individuals are going to do best in this competition. As F.A. Hayek put it (in Law, Legislation and Liberty Vol 3)

“Indeed, competition is of value precisely because it constitutes a discovery procedure which we would not need if we could predict its results.” The economist’s “artificially constructed models ….are interesting only in the instances where he cannot test them because he does not possess that knowledge that he would need.”

All planning, all economic legislation, and all hierarchical ordering of the process of entrepreneurial competition are impositions that can only restrict the dynamics and limit the good outcomes of the value-creating process.

Economics Is Life.

The principles of economics point us towards the good life, well-lived. It’s only economists who fail to understand this.

 

 

How To Prepare Yourself for Success In the Interconnected Era.

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We are all going to face a new framework for personal success in the emerging era of A.I., platforms, apps and global platforms.  And a big part of figuring out the solution will lie in self-discovery, self-reliance, and individual initiative. There will be tremendous opportunities for every one of us, but they will not come automatically. We each have to work hard at our own vision and our own pathway. Happily, emergent technologies are giving us access to all the resources we will need.

New Baseline: Individual Values, Individual Action.

When Dr. Saras D. Sarasvathy studied entrepreneurial expertise, one of her core conclusions was that effective entrepreneurs start not with an idea, but with a question: “Who am I?” It’s a question about values. Entrepreneurship is based on empathy with others and a drive to provide service that is both creative and moral. Individual entrepreneurs recognize when their personal values are aligned with the entrepreneurial role. It’s at that point they become excited and energized. The entrepreneur leads a noble, high-value life. Once anchored in their values, entrepreneurs can take action. They can conceive of and chart out a navigable future. An entrepreneur might decide on a start-up; on helping manage another founder’s early stage company, or to start a small, local business, or to be an independent contractor, designer, code-writer, or project manager.

“Values plus action” is the point where the journey begins. “What are my values? What can I do?”

Augmentation: We All Have New Means.

The new technologies that we are all able to use represent a kind of entrepreneurial superintelligence. Dr. Sarasvathy’s second question for entrepreneurs is: “What do I know?” Today, and in the immediate future, you can answer: I am a person with access to any knowledge I need and to tools of immense power. I am networked to virtually everyone in the world, who can provide knowledge, resources, and collaboration on any issue. All resources are accessible to me. There are no insurmountable barriers.

Universal Access.

Interconnectivity is the new power tool to assemble whatever means the entrepreneur requires. AI, especially in the form of individually tailored cognitive assistants attuned to specialized knowledge, is the ultimate augmentation resource. The cloud provides computing power, and global platforms provide market exchanges for the talent, services, and products the entrepreneur requires to build out a business. Scale is no longer an advantage for incumbent businesses. The enterprise of one, or a few, is perfectly viable.

Social Networking.

Networking is important in answering Dr. Sarasvathy’s third question: “Who do I know?” Potentially, you can know everyone you want or need to know. Not only does social software such as LinkedIn make it easy to connect to people, it enables the establishment of common ground and shared ideas in groups of shared interest. Your parents may have thought you were wasting your time on Facebook, but, in fact, you were developing an invaluable skill for the new era of work.

Global Exchange: New Channels Are Opening.

If you are a B2B entrepreneur, you can target and reach your potential customers with astounding accuracy. You can provide them with product and service demos over the Internet via video-friendly software, you can SEO your persuasive content so that they find you when they search, and you can A/B test your most creative messaging. If you are a B2C entrepreneur, you can sell direct to consumers, build a virtual supply chain for fast delivery, and never have to operate a store or a warehouse  or own any inventory. If you are looking for an employer, you can author your own profile so as to make an ideal match with their AI-assisted recruitment bot. Whatever your choice, there is an open channel for you.

Disintermediation: Remove Friction and High Cost.

Peer-to-peer trading platforms and new digital exchange mechanisms such as distributed ledger technology are by-passing bankers, brokers, lawyers, etc., and opening up new opportunities for direct exchange. This is a trend that will provide a wind of efficient change at the back of the individual entrepreneur.

New Organizational Forms: Join an Organization or Create a New One.

The reconfigurable collaborative network is now a reality. An individual joins by contributing unique skills and knowledge, inviting others with complementary skills and knowledge, completing a task in collaboration with others, exiting when the task is completed, and paying or earning based on value contribution. These organizations are flexible, continuously reconfigurable, efficient, and results based. You can join one or start one.

What This Means for Spontaneous Order and New Organizations.

The twenty-first century is the global century. One of the more interesting global leaders to define our new era is Jack Ma, founder and executive chairman of Alibaba. Ma does not think of Alibaba as a company, but as an economy. Through a seamless, transparent transaction system, Alibaba makes it possible for all individuals and all small business entrepreneurs to conduct e-commerce via the Internet and globalize their individual business. If Alibaba were a country, it would rank number 21 or 22 on the GDP league table of countries. In the next three years, Alibaba will grow beyond $1 trillion.  By the year 2036, Ma hopes, Alibaba will be the 5th largest economy of the world, that is America, China, Europe, Japan, and the Alibaba economy.

It will be a virtual economy that every small business of the world can leverage. They can sell their products across the world, to every consumer of every country. They can buy and sell things through their mobile phone or any device anywhere in the world. Everything a seller places on the line, within 72 hours, the buyer will receive. Of course, Alibaba does not own that economy. Ma wants to join forces with all the people of the world to build that economy. Ma’s vision is for global integration, transcending country, industry, and enterprise. Alibaba is an example of democratization of opportunity for entrepreneurs on a platform that creates a scalable global exchange economy with access, transparency, and low cost to the businesses. Alibaba does not develop its own content, just a system that enables others.

It’s just one example of an enabling global platform. We can all be global entrepreneurs. Interconnectivity will empower us, and Jack Ma (and others) will give us the tools.

It’s Up To Us – Each Of Us.

Augmentation, Universal Access, Social Networking, Disintermediation, and Global Exchanges will extend the invitation to each one of us to be an effective entrepreneur. It’s an invitation we should all accept.

Adapted from The Interconnected Individual: Seizing Opportunity In The Era Of AI, Platforms, Apps and Global Exchanges by Hunter Hastings and Jeff Saperstein.

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