In this time of social unrest, Americans’ confidence in our institutions is in decline. A sample from Gallup’s frequent annual poll includes these selected comparisons between 2019 (latest available data) and 2000.
|% Confidence in Institutions (Great Deal + Quite a lot)|
Relatively few Americans declare confidence in political institutions, as represented by Congress. Roughly twice as many – but still less than a quarter of Americans – express more confidence in big business and banks. Newspapers, similarly, command only low levels of confidence. All the poll data from 2019 are lower than those from 2000, indicating across-the-board declines of confidence in institutions in general.
The Institution Of Entrepreneurship
Except for small business. Two thirds of Americans declare confidence in this institution, and that number is higher than in 2000. We can easily look beyond the structural definition of small business – which is, after all, defined by government statisticians gathering employment data – into the institution of entrepreneurship.
Entrepreneurs are those individuals who shoulder the task of making things better for the rest of society. They are society’s optimists. They recognize current conditions for what they are – and then imagine a future in which conditions are better. Then they sacrifice themselves to bring that future about, expending capital and labor now for the prospects of revenue in the future. That future is uncertain – entrepreneurs do not know if their initiative will be as well-received by customers as they hope it will. They press on anyway, their goals being discovery and achievement and making a difference, more than profit.
In this sense, entrepreneurs perform the kind of social function that is badly needed in a time of lost confidence in institutions. Having little time for the rear view mirror and gazing intently through the windshield at the road ahead, they substitute sanguine imagination for everyone else’s dissatisfaction and disappointment with the status quo. They don’t dwell on past injustices, as so many young people seem inclined to do today; they’d rather concentrate on what is possible in the future. When they see barriers they dismantle them.
Solving The Problems Of Others
Entrepreneurs are problem solvers – and the problems they solve are those that their fellow citizens (all potential customers) deem most pressing. If you’re looking for a solution to a problem, seek out an entrepreneur rather than an elected official or bureaucrat.
Entrepreneurs’ problem-solving technique combines empathy with rigorous cause-and-effect thinking. Empathy is the entrepreneur’s tool to understand why people – why society – feels a certain way. What does dissatisfaction stem from? Why do people feel uneasy the way they do? Entrepreneurs take society’s pulse and measure society’s level of pain. From this input, which is largely emotional, they try, as rigorously and logically as they can, to reverse-engineer a cause-and-effect chain. If dissatisfaction and pain are the outcomes, what are the causes? Entrepreneurs are not policy-makers like politicians, whose aim is to appease. They are obliging and accommodating collaborators whose aim is to please.
Entrepreneurship is a profoundly human, social and creative activity that changes our world for the better. In contrast to the destruction that our current social justice warriors seek to impose, entrepreneurs create new economic value via a transformative act of human imagination. Their ingenuity is limitless.
What are the entrepreneurial actions that result from this creative societal problem-solving disposition? Entrepreneurs start firms, grow businesses, research and introduce innovations, lower customers’ costs and increase customers’ convenience. Their guiding principle is that whatever customers want, customers can have. The responsibility to improve life is given to the customer, in that they are tasked with communicating, as clearly as possible, what needs to be done and what needs to be provided and what needs to be changed to make them feel better. Entrepreneurs put their own private property at risk to create customer benefits that add up to social benefits for all. The customer is sovereign in this exchange – what they want is what is produced. If they stop wanting it, entrepreneurial production ceases.
Contrast this with political action. Politicians put none of their own private property at risk. In fact, they steal property from some citizens, through taxation and debt (which is a tax on future citizens), in order to redistribute it in some new form to a different set of citizens. They appease one group of citizens with the property of another group. Where the entrepreneur’s collaborative deal with customers is win-win (entrepreneurs make profits when customers approve their initiatives), the politicians’ deal always involves loss. The politician achieves office when an opponent loses an election, and makes policy that imposes loss on some part of the population. Politicians deal in losses, entrepreneurs deal in benefits.
Individual Action, Social Benefits
Society would be happier and healthier if we turned to entrepreneurs for all our solutions, and to politicians solely to protect the system of private property and freedom of contract that makes entrepreneurship possible. It would be healthier still if we were to encourage the spirit of entrepreneurship in a larger group: the spirit of service to fellow-citizens through innovative technological problem-solving. The measure of success for this system is what historian and economist Deirdre McCloskey calls “trade-tested betterment”. What she means by that is the customer-determined improvement in the quality of life (i.e., betterment) validated by customers buying or not buying what entrepreneurs offer as potential solutions to their problems and their pain (i.e. trade-tested).
If those who protest and complain today were themselves to adopt the entrepreneurial spirit in their own lives, they would find that they could not only build better platforms for progress, but also introduce more purpose, meaning and autonomy into their own lives. The entrepreneurial life is purpose-driven (solving others’ problems), a source of meaning (solving problems is more meaningful than carrying protest signs or throwing rocks) and the ultimate autonomous lifestyle (discarding dependency on employment wages or welfare payments).
Entrepreneurship is an American institution. Every immigrant who ever came here brought an entrepreneurial spirit: life will be better for me and others if I escape from the limitations of my current situation and join this open, betterment-demanding, property-protecting, innovation-welcoming country and see what I can do. The institutions that grew up with our innovating immigrants and their offspring are now largely decayed and decrepit. But entrepreneurship is one institution that there is no need to abandon. In fact, it’s necessary that we revive it.
The science of economics has a big problem with vocabulary. It attempts to capture complex concepts in single words and phrases, which only serve to confuse and befuddle and cause arguments. To take a current example, the word “socialism”, for an economist, means state ownership of the means of production (which, in itself, is a good example of clunkiness in economic terminology). But when the country and its journalists and its bloggers argue about socialism and who is or is not a socialist, they’re not arguing about who owns the means of production. They’re arguing about forcible redistribution of people’s income by government, and about the top-down imposition of all-encompassing resource allocation schemes like Green New Deal and Government Health Care. They’re arguing about the role and scope of government and what it means to be free. “Ownership of the means of production” doesn’t help us understand the issues to any great extent.
The opposite of socialism is entrepreneurship. This is another word that comes from economics, and is even harder to define than socialism. The definition of entrepreneurship at the Library Of Economics And Liberty (econlib.org) is 2000 words long. Within those 2000 words, there are references to the many disagreements between economists as to what entrepreneurship really means.
Let’s propose that, instead of defining entrepreneurship, we examine it as a complex and multi-faceted system of individual and social human behavior, and identify its consequences.
Entrepreneurship is the system for the generation of betterment for all in a society characterized wholly or partially by both collaboration and private property.
Entrepreneurship is action. Entrepreneurial individuals, teams or groups are alert to situations where their fellow citizens are dissatisfied with current conditions – when they feel things could be better. Entrepreneurs see this as an economic opportunity: if they take action to devise a new, different and better offering than is currently available, people might buy it to improve their condition, delivering a profit to the entrepreneur. Entrepreneurs do take that action – that’s what separates them from others. There’s a risk in acting. It takes time to design and produce the new offering; the finished product or service may not be as good as the entrepreneur imagined in the design phase; the selling price may not be right; the consumer may have changed preferences over time and no longer wants this new solution, instead preferring someone else’s offering. But whatever the outcome for the individual entrepreneur, the system is a win-win. The consumer ultimately has the choice of the various new offerings, and at least one entrepreneur is rewarded, and society is better off. The entrepreneurs who were not chosen by the consumer in this case will redirect their efforts in another direction until they find the right exchange in which they can reap the reward of the marketplace.
The nature of the entrepreneurial system is that both consumers and producers experience reward when one responds to the other in a way that aligns what the consumer wants with what the entrepreneur can provide. It’s a collaborative win-win, and society (i.e. all the producers and consumers rolled up) progresses and improves. Consumers are more satisfied. Entrepreneurs are more fulfilled. GDP per capita rises. The world gets better.
The system works for everyone.
The econlib.org encyclopedia entry on entrepreneurship informs us that widely cited studies conclude that between one third and one-half of the differences in economic growth rates across countries, states and localities can be explained by differing rates of entrepreneurial activity. Economic growth is the economists’ way of saying “things get better for everybody”.
That’s because the goal of entrepreneurs is to help customers towards better lives, in which they experience feelings of greater satisfaction. When they succeed, the entrepreneurs get paid, i.e. achieve the monetary reward of profit. And they, too, also feel greater satisfaction: a sense of achievement and the expanded horizons that come with success. Entrepreneurs’ personal pursuit of higher aspirations results in consumers’ attainment of higher levels of satisfaction and happiness. Everybody wins.
Entrepreneurship blossoms in a culture that supports it and admires it.
Entrepreneurship requires an institutional and cultural framework in which it can blossom. Primarily, it thrives in political and economic systems that protect and secure private property rights. The entrepreneur must have control over private property in order to transform it into new offerings and solutions for consumers to choose and enjoy. In this case, private property includes their own personal effort and ideas, physical resources and capital, and money to invest.
More broadly, entrepreneurship thrives in a framework of economic freedom: low taxes, minimal regulation constraining entrepreneurial imagination, and an unbiased and rapidly-functioning judicial system to resolve any contract disputes that arise. Empirically, the level of entrepreneurial activity in a country correlates closely with the Economic Freedom Index, a measure of the existence of premarket institutions.
There’s also an important element of how we think about feel about and talk about entrepreneurs and business’s role in our culture. If the culture tags the successful entrepreneur as an exploiter rather than a hero, and emphasizes the inequity of outcomes – some succeed, some don’t – rather than the achievement of those who establish and grow successful firms, then society will turn against those who bring betterment. We must, as Professor Deirdre McCloskey insists, assign dignity to our entrepreneurs.
The main barriers to entrepreneurial productivity are governments and corporatism.
Government action – regulations, subsidies, tariffs, taxes, manipulation of labor markets and financial markets, and so much more – impedes entrepreneurship. Governments limit the scope of entrepreneurial imagination and freedom, by restricting what is possible. They divert the productive efforts of entrepreneurs through taxation, which is the confiscation of the fruits of productivity so that they can be put to unproductive uses. They restrict productivity via regulatory constraints, such as the limitations on the location of new production facilities (think solar energy farms) and the distribution of produced goods (think interstate electricity distribution). Government, by its very nature, is anti-entrepreneurial.
As government gets bigger and more interventionist, it brings into existence new barriers to entrepreneurship. Entrepreneurial action can take place at any organizational scale – single employee companies, small businesses and venture-funded startups, and within medium and large-sized businesses. But, as Michael Munger explains, government distorts the incentives for entrepreneurship by creating conditions in which a dollar invested in lobbying can provide a greater return than a dollar invested in R&D and innovation. If a large corporation can secure the passage of a bill or a regulation or a tax or a tariff that is favorable to its business and unfavorable to competitors, domestic or foreign, it will be tempted to make that investment. R&D is starved, innovation is slowed or stopped, and incumbent corporations are insulated from the creative destruction that entrepreneurs generate and which raises consumer satisfaction through innovative improvement.
If we can restrict government and reduce its level of regulatory and fiscal activity, we will enjoy a double boost in economic productivity because the temptation for corporations to spend money cozying up to regulators and legislators will be reduced, if not removed, and the level of investment in entrepreneurial innovation will be increased.
Entrepreneurship is the antidote to the culture of dependency.
At the level of individual behavior and attitude, the culture of entrepreneurship can be energizing, motivating and fulfilling in ways that the current culture industry of state schools, leftist media and welfare state socialism can never emulate. The entire cultural edifice of government and its associated institutions is dependency. This culture insists that individuals can not be successful without state assistance, welfare, subsidies, and regulatory control. Since our children are continuously and exclusively indoctrinated in this dependency framework from the earliest age in state schools, it is not surprising that most of them never get to experience the joys and rewards of entrepreneurial striving. They feel that they must depend on others, especially the welfare bureaucrats, to achieve whatever goals they are capable of conceiving. As a result, self-reliance, imagination, resourcefulness and entrepreneurial energy are under-developed attributes among our young population. The long-term drift towards suffocating hopelessness and helplessness sometimes feels irreversible.
Yet the spirit of entrepreneurship has not been fully extinguished. We still have some entrepreneurial heroes, despite the cultural repudiation of “millionaires and billionaires”. We still have some supportive branches of our institutional framework, including local small business groups, entrepreneurial business school courses, private online education, incubators, venture capital, private loan platforms, and exchange platforms like Upwork and Angie’s List. Perhaps someday, we’ll be able to extend that list to include pro-entrepreneurship public policy.
Until that day, let’s celebrate every entrepreneur who breaks out from statism, corporatism and dependency.
April 22 of each year is now Earth Day. (I note that April 22 is also the birthday of Vladimir Lenin. Readers may draw their own conclusions.)
The internet and airwaves will teem with gloom ’n’ doom, as warnings are heard of a coming calamity. Guilt-tripping will also peak, with scolds cursing us for using such demonic devices as automobiles, HVACs and electric blenders.
We’re ruining the earth and our own future — or so we’re told.
I’m here to cheer you up by offering reasons for optimism about the future of both the earth and our species.
According to the invaluable interactive website HumanProgress.org, in this young century alone:
• Global infant mortality fell from 39 per 1,000 live births to 24.
• Global life-expectancy rose from 68 to 72 years.
• The percentage of the global population that is undernourished fell from 15 to 11.
• The food supply per person, measured in calories, rose by 7%. Since 1961 it’s up by 26%.
Here’s more good news. According to the Environmental Protection Agency, “Between 1970 and 2017, the combined emissions of the six common pollutants (PM2.5 and PM10, SO2, NOx, VOCs, CO and Pb) dropped by 73%.”
• Since 1980 indoor air pollution — mostly from home cooking and heating — has steadily fallen in every region of the planet, as have deaths from such pollution.
• Global deforestation is a myth: Since 1982, an additional 2.24 million square kilometers — over 7%— of the earth’s surface is covered by trees.
• Worldwide since 1990, the portion of the population who die from cancer is down 8 percent, and in the United States. it is down by almost 20%.
• The globe’s proven reserves of petroleum continue to grow; in 2017 proven reserves were 58 percent higher than in 2000 and 165%higher than in 1982.
• Despite steadily increasing extraction of oil, since the 1970s the number of oil spillsfrom tankers is down to a small fraction of what it was 40 years ago.
• Since 1961, world cereals production has nearly doubled.
• Between 1990 and 2015, the portion of the world’s population with regular access to improved sources of drinkable water — such as pipes and protected dug wells — rose from 76% to 91%.
• Between 1992 and 2011, the percentage of the world’s population living on $2 dollars a day or less fell from 27% to 13%.
• Between 1992 and 2010, the percentage of the world’s people aged 15 and older who are literate increased from 75% to 81%.
And then there’s the happy news recently reported by Brigham Young University professor Gale Pooley and the Cato Institute’s Marian Tupy. These researchers have constructed the “Simon Abundance Index,” named after the late University of Maryland economist Julian Simon. Simon was the 20th century’s greatest slayer of doomsday myths about the environment, population growth, and alleged dangers posed to humanity by economic progress.
The Simon Abundance Index is a tool for tracking changes over time in the abundance of a basket of 50 commodities, including copper, maize, natural gas, wool and zinc.
Using this index, Pooley and Tupy find that “our planet was 379.6% more abundant in resources in 2017 than it was in 1980. Put differently, resources were 4.796 times as plentiful in 2017 as they were in 1980.”
Wow! Be happy on this Earth Day!
Donald Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va.
Recently, Professor Per Bylund explained to readers and listeners the different economic roles of entrepreneurs and managers.
From the perspective of the economic system – i.e. how the market works – the entrepreneur is the one who allocates scarce productive resources to their highest and best use. Many of these uses are not yet in existence – the entrepreneur imagines the future and then re-arranges existing resources to bring that future into being. Perhaps he or she turns silicon into microchips. Or internet connections into delivery services. Or sugar into cookies. Or coal into electricity. Or aluminum into truck beds. Or knowledge into professorial college lectures. Or hard work into a finished construction project.
The entrepreneur finds ways to put resources to better and more productive use than those for which they are utilized today. This creative energy is what drives human betterment, economic growth and our ever more comfortable standards of living. How do they do it? Each individual entrepreneur focuses on what they know and what they understand. They put the consumer first (or the customer if they’re running a B2B business) and focus their knowledge gathering on what the consumer wants.
When they start assembling resources to bring their new idea to market, they might be bidding them away from other activities. If the innovation they are developing is so new that no-one else recognizes the opportunity, the underlying resources might be relatively low priced – for example, purchasing a run-down house in a downtrodden neighborhood that others avoid, with the imaginary vision of being able to upgrade the house and rejuvenate the neighborhood. That’s why many real estate professionals say that the real profit is made with a smart acquisition rather than a brilliant marketing plan to support a sale. If the improvement is incremental, and the resources are already in use for consumer-approved products and services, it may be more expensive to bid the resources away. The entrepreneur’s economic calculation is more nuanced in this situation, and it may be unclear whether the consumer verdict will ultimately deliver a profit. The entrepreneurs bring the action of the pricing system into being with their bids, and their competition for resources is what ultimately ensures that society’s resources are put to their highest and best use. Prices for resources are generated by entrepreneurs.
There is no role for the manager in this fundamentally important economic activity. Until the entrepreneur has bid for and assembled the resources, there is nothing to manage. Once the resources are allocated to a “project”, then there begins to be a role for the manager to make sure processes are efficient and well-implemented, and the assembled resources are utilized in the most efficient manner, last as long as possible, and are well-directed towards the end of customer or consumer satisfaction. Even at this stage, if the entrepreneur senses that resource allocation is ripe for further fine tuning – more R&D, for example, with the money being transferred out of marketing – he or she will step in and take the reins back from the manager until the adjustment is executed. The manager is an expert in organizing production to implement the entrepreneur’s vision. The entrepreneur is the expert doing the imagining in the first place.
There can never be a market without entrepreneurship, but there can be a market without managers. It is perfectly conceivable that there could exist an economy where every stage of production takes place through market contacts without firms, where the entrepreneur is self-employed or an independent contractor, as are all workers and administrators. This is beginning to happen today. For example, independent producers in China can offer their goods and services on a platform like Alibaba to independent importers and resellers in the USA who execute their retailing, marketing and fulfillment on Amazon. Alibaba and Amazon and the other supply-chain enablements in the emerging global commercial network are not so much firms as software platforms providing digitally enabled services. In this emerging entrepreneurial ecosystem, there would be very little, if any, use for managers, since there is no value-enhancing cost-cutting or process efficiency to be sought, and no immense transaction costs to be managed away.
In his book The Globotics Upheaval, Richard Baldwin coins the term Globotics to communicate the idea of globalization and robotics – including processes robotically automated in software – as concurrent trends in today’s economy. More and more white collar jobs – managerial jobs – that are merely repetitive or unimaginative implementation and enforcement of rules can be done by software, or, as Mr Baldwin puts it, by “globots”. In actual fact, the robotic automation does not eliminate jobs but repetitive rules-based tasks that require neither creativity nor humanity. Released from mindless office tasks, we will all be freed to create value through our human values and human ingenuity. We can all become entrepreneurs.
In this non-managerial world, entrepreneurs would focus on new and previously unknown types of goods and services, and types of production. They will imagine what could be but isn’t, and compare the value of the current state to the not-yet-existing state, to determine whether there is profit for them in pursuing the new state. Managers focus on the current state and try to reduce its cost, smooth its processes and refine its supply chain. This can all be done by contracting between entrepreneurs – continuous dynamic bidding for each element and component. The entrepreneurial economy moves too fast to be “managed” or to require “managers”.
Listen to Professor Bylund and Center For Individualism Executive Director Hunter Hastings discuss The Role Of The Entrepreneur on the Economics For Entrepreneurs podcast.
Two hundred years ago the American people were quite a bit more equal in terms of wealth, and life was marked by unrelenting drudgery. Those relatively brutal living conditions weren’t an effect of socialism, even though socialism would have eventuated the same outcome.
The shame of socialism is that the wildly talented are restrained from profitably improving the lives of the people around them, and perhaps continents away. Thinking about life two hundred years ago, distance was a severely limiting factor for the talented when it came to think making things better for everyone. No doubt there were people with skills similar to those of the richest Americans today, and some became very well-to-do by early 19th century standards. But they didn’t become staggeringly rich simply because a lack of technology limited the ability of the ‘1 percenters’ of the early 19th to touch the U.S. (and the world) with their genius. Limited technology has socialistic qualities in the outcome sense for it restraining the brilliant from improving the lives of others while getting rich for doing just that.
But as is well known now, inequality of the wealth variety began to soar toward the end of the 19th century, and even more in the early part of the 20th. It used to be that when night fell, the day ended. With most lacking the means to burn candles that didn’t much illuminate as is, there was little to do or see at night. John D. Rockefeller’s first fortune remedied this living-standard cruelty. The kerosene that he sold widely quite literally lit up the night for the common man.
Thanks to railroads and other advances that were bringing on the “death of distance,” someone of Rockefeller’s entrepreneurial caliber could suddenly reach more than just the locals with his skills. That was one source of his early wealth. And then he shifted his focus to the refining of oil. Rockefeller’s mass marketing of gasoline eventually gave life to the automobile that Henry Ford grew immensely rich mass producing. Whether it was ships, railroads, cars, trucks, or airplanes, technological advances were all about bringing on the “death of distance.” Before technology shrank the U.S. and the world in a figurative sense, entrepreneurial genius was logically a narrow, town and/or neighborhood concept. After its proliferation, the surging inequality that resulted was the very predictable, and very happy result. The “robber barons” got rich by virtue of erasing cruel living standards simply because the talented could more and more serve the masses. Readers should never forget that the richest entrepreneurs almost always get that way by improving the living conditions of the greatest number of people. Surging wealth inequality is rather egalitarian and immensely compassionate despite what you’re told.
Which brings us to a recent USA Today article about Pizza Hut, and how it may “be taking its pie-making show on the road.” Yes indeed. As the self-driving car future becomes increasingly clear, it’s no surprise that businesses are feverishly working to figure out ways to profit from cars that no longer need drivers. Those profits are a sign that living standards are set to take yet another life-enhancing leap in the not-too-distant future.
In Pizza Hut’s case, USA Today’s Mike Snider reports that the chain is planning a “pizza-making robot prototype that cooks pizzas on the way to customers’ homes…” As Pizza Hut COO Nicolas Burquier told Snider, “We are always looking to find ways to bring the oven even closer to the doors of our consumers.” Death of distance indeed. If driving and pizza-making can be automated, then so can the size of the market that Pizza Hut chains serve expand. Even in big cities we’re already aware of how restaurants can frequently only serve a limited area, but if cars with ovens are driverless, getting pizza will no longer be a problem. Even in rural areas. Pizza Hut’s growing revenues will signal how much more useful the chain is to a growing number of people.
The profits will also be a sign of how much better-tasting are the pizzas that reach the chain’s customers. As Burquier went on to tell Snider, “Our obsession is always the same: How do we reduce the gap between the moment when the pizza comes out of the oven and when the customer starts to enjoy eating our product?” Technology is increasingly solving what was once a distance and time problem, along with one associated with not always reliable drivers. Translated, driverless cars and automated pizza-makers can’t call in sick, can’t give customers attitude, don’t require sleep, plus they realistically can’t quit. The days of 24-hour pizza delivery aren’t too far off….
Walmart understands what Pizza Hut does: its profits will grow the more that it makes life easier for existing and potential customers. And so it’s focused on innovating. USA Today’s Charisse Jones writes that this holiday season, Walmart shoppers will be able to use “a digital map to find the toy or TV they’re looking for, then make the purchase right in the aisle where they find it.” These two shopping enhancements will come care of an app that will enable shoppers to “pinpoint the location of whatever item they’re needing to tick off their holiday list,” and then employees stationed throughout the retailer’s stores will be nearby to complete their purchases sans checkout lines. As Steve Bratspies, Walmart’s chief merchandising officer explained it, they always want buying to be “fast and convenient.” Of course.
And as Amazon’s Go stores remind us, entrepreneurs are just scratching the surface when it comes to expanding the ways in which they can serve us. Amazon wants customers to have a checkout-free experience in its physical stores, one or two day access to everything on sale with one-click, and if drones (or some other technological marvel) fulfill their promise, customers will eventually have near instantaneous access to the world’s plenty through a click of a mouse.
Crucial about all this is that the commercial seers who get the future right will grow stunningly rich for being right. The more convenient life is, the more unequal are the living. But as opposed to a sign of hardship, the happier truth is that life is truly cruel when the talented aren’t getting rich. That’s when we know that no one is devising ways to make our lives easier, cheaper, healthier, more productive, and everything else good. Life without rising inequality is very much like life with socialism.
Though readers can’t exactly raise their hands, this column asks readers to at least internally raise them if they’ve purchased something on Amazon in the past month. The column would also like to know how many readers have used the internet in the past hour, but the question is redundant: If you’re reading this column, you’re using the internet. In that case, how long could you go without internet access before losing your mind in the figurative sense?
Probably not very long. Evidence supporting the previous claim is all around us. When people aren’t at their desks working on internet-connected computers, they’re almost invariably tapping away on internet-connected smartphones. Look around you. It’s not too much of an exaggeration to say “everyone” is on the internet nearly all of the time.
That so many of us view the internet as essential to our existence is a certain sign that most of us have no major problem with rising wealth inequality. Think about it. It’s easy to see the connection between frenetic internet usage and soaring inequality. And for the readers certain that they in no way cheer a rising wealth gap, they might ask themselves if they hate inequality enough to forever renounce their laptop, smartphone, high-speed WiFi, the future promise of 5G, and any other technology that connects people. Absent the world going cold turkey on ever-improving technology, wealth inequality is going to grow and grow. Wonderful. Life will get better as the super-talented are able to reach more and more of the world with their genius. The internet is most certainly the biggest driver of rising wealth inequality in the world, and nothing else comes close.
This brings us to the column by Farhad Manjoo, technology writer for the New York Times. In it, Manjoo writes that “Jeff Bezos should spend his vast fortune pushing for a society where no one can ever become as rich as Jeff Bezos is now.” It’s hard to know whether to laugh or cry or how to analyze what is so obtuse and contradictory. Bezos got rich by virtue of relentlessly meeting the needs of his global customer base, and because he did, Manjoo wants Bezos to spend his fortune making sure no future individual achieves on the scale that Bezos has? Oh, dear…
Implicit in Manjoo’s confusion is that he would have preferred that Bezos had quit tinkering with books, CDs and DVDs. If not the latter, what is Manjoo’s problem with Bezos being so rich? Bezos’s wealth is largely an effect of Amazon’s shares; investors have placed a high value on them given their belief that Bezos will continue to figure out ways to please a growing customer base, yet Manjoo writes as though what Bezos did was a bad thing. By this measure, the late Steve Jobs should have stopped at the iPod, and Mark Zuckerberg should have limited Facebook just to kids at elite American colleges. Reducing all of this to the absurd, would Manjoo blanch at a mass-produced cancer cure if he knew the creator would earn billions for creating it? What about a cure for paralysis?
All of the above is a long way of musing about what Manjoo could possibly mean by his droolings. It’s evident he thinks Bezos has succeeded too much, but then Bezos, Jobs, and Zuckerberg were and are worth billions precisely because few of us could go too long without utilizing their creations. As opposed to limiting the number of people like Bezos, it seems the world would be much better off if there were hundreds like him. Only richer.
Bezos Revolutionized the Internet—and the World
What about the internet more broadly? Manjoo claims that “Mr. Bezos’s extreme wealth” is a function of the “unequal impact of digital technology,” but what he leaves out is that Bezos wasn’t always worth billions. In fact, there was a time when Bezos was ridiculed for presuming the internet had any kind of potential as a connector of buyers and sellers. If Manjoo doubts this, he need only visit the majority of venture capitalists and investors who either passed on backing Amazon in its early days or who consistently passed on buying the shares of what used to be described as “Amazon.org.” Manjoo also misses that the “unequal impact of digital technology” wasn’t handed to Bezos as much as he created it. He saw the commercial potential of the internet long before others did.
Thinking about all this, short of Bezos somehow using his wealth to shut down the internet altogether, there’s quite simply no way he could push for “a society where no one can ever become as rich as Jeff Bezos is now.” Having pioneered what is brilliant, more and more brilliant minds like Bezos will meet the needs of more and more of the world’s population via the usage of the internet that Bezos revolutionized. While 100 years ago an immensely talented entrepreneur like Bezos could arguably only improve the lives of people in Seattle with his genius, the global interconnectivity the internet personifies means Bezos can increasingly serve the needs of the world from Seattle.
Better yet, this interconnectivity is only going to become more pronounced. If 5G lives up to its billing, the ability of the talented to meet our myriad needs is only going to grow, and with it, so will inequality. Sorry, but the internet you can’t live without is the driver of wealth inequality that is set to soar. Thank goodness. Rising inequality in terms of wealth is a sign of shrinking lifestyle inequality between the rich and poor. Think about it. Entrepreneurs generally amass great wealth by virtue of mass-producing the goods and services previously only enjoyed by the rich.
Manjoo ultimately wants Bezos to direct his wealth toward creating a more “equal” society whereby the “have-nots” have access to what the “haves” do, but in clamoring for this false utopia, he’s unwittingly calling for exactly the rising wealth inequality he bemoans. Indeed, Manjoo ignores that money on its own has no uses. Money is only useful insofar as it can be exchanged for goods and services. Applied to Bezos, the redistribution of his dollars to the alleged “have-nots” will only improve the lives of the downtrodden insofar as they can exchange them for life’s comforts. Crucial here is that Bezos got rich providing those comforts. Manjoo oddly wants to make sure no one ever eclipses Bezos, but Bezos giving away his billions to the poor will mean nothing to the poor if there aren’t people like Bezos constantly figuring out ways to meet the needs of the people. All this is an inconvenient truth for statists like Manjoo—and card-carrying socialists, too: They only have a voice and a purpose if the capitalist economy is thriving whereby they can obnoxiously call for the forceful seizure of the wealth produced by the capitalists. The capitalists don’t need socialists, but my oh my, how the socialists need capitalists.
The endlessly confused Manjoo is unsurprisingly caught in a total contradiction. He wants the poor to enjoy the trappings of the unequal, and he wants people like Bezos to finance this equalization but doesn’t want anyone ever again getting as rich as Bezos. But again, redistributed wealth has no meaning if the profit-motivated aren’t bringing goods and services to the market at the same time. Basically, Manjoo naively wants Bezos without all the wealth creation, which is an impossibility. Even if Bezos drops all of his billions into the poorest parts of the world from helicopters, those dollars will only be useful to the poor to the extent that a future Bezos is getting filthy rich serving them…Think about it. Farhad Manjoo obviously hasn’t.
John Tamny is a Forbes contributor, editor of RealClearMarkets, a senior fellow in economics at Reason, and a senior economic adviser to Toreador Research & Trading. He’s the author of the 2016 book Who Needs the Fed? (Encounter), along with Popular Economics (Regnery Publishing, 2015).
We’ve highlighted Professor Deirdre McCloskey’s concept of trade-tested betterment – the innovation and economic growth resulting from capitalism that has boosted standards of living in developed countries by 3000% in 200 years. Stephen Miller, writing in the Wall Street Journal, tells us a personal tale about betterment over the years to which we can all relate: how cars went from dodgy to dependable, improving consumers’ quality of life in a very direct way.
I take for granted these days that my four-year-old car will get me from A to B without breaking down. Forty years ago, this wasn’t the case. When I drove, I would listen carefully to the car’s many sounds, worried that something was about to go wrong.
This anxiety was reasonable. My first car, purchased in the early 1960s, had an unusual problem: The accelerator pedal sometimes stuck to the floor. I would have to bend down to get it unstuck while keeping one eye on the road. A few years later I bought a new car, but before long its fuel pump began to clog, and the engine would suddenly die. My next car had a very exposed gas tank that, in the event of a rear-end collision, could cause a fiery explosion. The car after that had a bad distributor that caused the engine to sputter in rainy weather. I would have to stop every 50 miles and wipe the distributor dry.
The cars of the 1950s through the 1970s were prone to problems. They had a tendency to overheat when stuck in traffic on hot summer days, and their tires would often go flat. I once got a flat at 1 a.m. on the approach ramp to the Verrazano Bridge between Staten Island and Brooklyn. Fortunately, a police car showed up and I changed the tire without getting killed.
Today, cars are much more reliable. I can’t remember the last time I called roadside assistance. “Getting 100,000 miles out of a car in the 1970s was cause for celebration,” economist Steven Horwitz wrote in a 2015 paper. “Not getting 100,000 miles out of a car today is cause to think you bought a lemon.”
The improvement came because of what Deirdre McCloskey, author of “Bourgeois Equality,” calls “trade-tested betterment.” In countries with strong market economies, companies that develop better products and services usually reap financial rewards—as long as the government doesn’t interfere to protect the existing industry leaders.
Countries that embraced trade-tested betterment after about 1800, Ms. McCloskey writes, were “startlingly more productive, creating ten times, thirty times, a hundred times more goods and services, and to the poorest among us.”
Some people want the government to protect jobs threatened by new technologies, but that’s an old mistake. “The advent of cars did not produce mass unemployment because of insufficient demand for the output of blacksmiths and horse traders,” Ms. McCloskey writes. “Fundamentally, all tools—a blast furnace and a spinning jenny, or for that matter an Acheulean hand ax or a Mycenaean chariot wheel—are ‘robots,’ that is, contrivances that make labor more productive.”
Trade-tested betterment worked not only for cars, but for all the appliances in my house. They are more reliable and sophisticated than those I had 40 years ago, and they use far less energy. The computer this article was written on, a Chromebook, cost me $175 a year ago. My first computer, bought three decades earlier, was more expensive yet did nowhere near as much.
When the government tries to protect jobs, it impedes economic growth and lowers the standard of living for everyone. U.S. policy makers should listen to Ylva Johansson, the Swedish minister for employment and integration, who says: “The jobs disappear, and then we train people for new jobs. We won’t protect jobs. But we will protect workers.”
Mr. Miller is author of “Walking New York: Reflections of American Writers from Walt Whitman to Teju Cole. ”
Photo: iStock/Getty Images
This article first appeared in wsjonline on 14 August, 2014.
Who can we believe? Certainly not those who quote government-manufactured statistics to make a political point. The New York Times wants us to believe that real median incomes in 2016 are lower than those in 1973. What’s real?
The effect of entrepreneurial capitalism is to make everyone’s standard of living and quality of life better. Entrepreneurs rival each other in offering consumers the goods and services of betterment. The consumer judges, by buying or not buying, using or not using. The feedback helps the entrepreneurs to continuously improve their offerings. Life gets better every year. But the New York Times and the government don’t want you thinking that way. Hence the Bureau Of Labour Statistics (to name just one useless bureaucracy, totally dedicated to producing nothing of value) invents a methodology to refute the empirically observable facts.
Andy Kessler exposes the fraud.
As election season approaches, chants about the hollowed-out middle class predictably grow louder. Wages have been flat for decades, we’re told. “In 1973, the inflation-adjusted median income of men working full time was $54,030. In 2016, it was $51,640,” the New York Times breathlessly reported last year. Sounds awful. Except it’s nonsense. Cast a leery eye on anyone who uses 1973 as a base—it was a high-water mark before a deep recession. But the real red flag—what makes this argument totally bogus—is the phrase “inflation-adjusted.”
Enter The Bureau Of Labor Statistics.
The odoriferous offender is the manufacturer of inflation data, the Bureau of Labor Statistics. After the creation of Social Security in 1935, Congress would occasionally bestow vote-winning gifts on retirees in the form of benefit increases. In 1975 Congress switched to automatic cost-of-living adjustments based on a consumer-price index, or changes for “a market basket of consumer goods and services.” That’s food, rent, electricity, T-Mobile, Netflix .
Forget for a moment that some of that didn’t exist in 1975. As consumer items got more feature-rich and complex, the BLS simply couldn’t note the absolute price of, say, a microwave oven. So the bureau came up with the indulgently named hedonic quality adjustment, defined as “decomposing an item into its constituent characteristics, obtaining estimates of the value of the utility derived from each characteristic, and using those value estimates to adjust prices when the quality of a good changes.”
Let’s Do Our Own Hedonic Adjustment.
It’s a better measurement but still inaccurate. Here’s a thought experiment: Think about your car’s automatic emergency braking, sometimes known as precrash or collision avoidance. It has been an increasingly popular option in recent years. By 2022, it will be standard on most cars. Some silicon sensors and a few pieces of code—today it costs maybe $50 to produce. But what’s it worth?
Let’s do a little hedonic decomposing of our own. Before these sensors, you would have had to hire a person to ride shotgun and constantly watch for potential collisions and slam on the brakes for you. In 2016 the AAA Foundation for Traffic Safety estimated the average driver spends almost 300 hours a year in the car, logging more than 10,000 miles. Paying someone even $10 an hour to stare into traffic means that over five years, collision avoidance is worth nearly $15,000. Double if you want someone to look out the back window, too.
Does this show up anywhere in the consumer-price index? Of course not. One of the most lifesaving features has dropped in cost by three orders of magnitude in less than a decade. To the BLS, it’s practically nonexistent.
Then there’s that hunk of glass and plastic in your pocket. Your smartphone is your newspaper deliveryman, librarian, stenographer, secretary, personal shopper, DJ, newscaster, broker, weatherman, fortuneteller—shall I go on? The mythical man of 1973 certainly couldn’t afford $100,000 or more for dozens of workers at his beckoning.
By the time the BLS puts something new in the CPI basket, it’s already cheap, so it misses the massive human-replacement price decline. The CPI is good at freezing a lifestyle and standard of living and showing how it gets more expensive over time. Great. But the CPI absolutely doesn’t take today’s technology-infused lifestyle and work backward to show how much more expensive it would have been in 1973. Yet that’s what pundits infer when they talk about a hollowed-out middle class. How would the BLS reverse-decompose artificial intelligence and Alexa? Good luck with that.
The Currency Debasement Index.
The CPI is obsolete. The feds should more accurately rename it the CDI, for Currency Debasement Index. Most hedge-fund managers I know rely on the CRB Commodity Index, which tracks everything from oil and hogs to molybdenum and orange juice, as a proxy for inflation. The Bureau of Economic Analysis and the Fed also use hedonic adjustments for inflation, meaning that official measurements of gross domestic product and productivity are also massively understated.
Worse, that undermeasured hedonic cost decline driven by technology has allowed price increases to sneak in elsewhere without triggering classic inflation fears. Have you bought tickets to a professional basketball game lately? Studied your hospital bill? Rented an apartment? Bought smelly cheese, organic balsamic vinegar or a textbook?
Don’t Believe The Government’s Numbers.
Don’t believe the numbers—at least not the government’s numbers. Former Fed Chairman Alan Greenspan was on to this in 1996, saying the optimal level of inflation was “zero, if inflation is properly measured.” Freezing today’s lifestyle and going backward, I estimate a “true” median income of $347 in 1973 against the $51,640 of 2016. Today’s middle class isn’t hollowed-out. It’s living high on the hog.
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