Good assignment

Here’s a nice assignment (via Instapundit):

If you want to introduce someone to libertarian thinking, encourage them to try this experiment. Spend a few days reading nothing but technology news. Then spend a few days reading nothing but political news. For the first few days they’ll see an exciting world of innovation and creativity where everything is getting better all the time. In the second period they’ll see a miserable world of cynicism and treachery where everything is falling apart. Then ask them to explain the difference.

- Andrew Zalotocky

If you accept this challenge, I’d love to hear your thoughts.

 

Ingenious innovation

I love cheap and simple solutions.

For $2.99 the Zip-It drain cleaner is worth it. It’s it’s a long zip tie with serrated hooks to pull debris from drains. Stick it down your shower drain and beware what you’ll hook  on to. It’s a bit like if the devil had a bad twin.

How about Innovationism Day?

Mark Perry links to and quotes from this Investors Business Daily editorial. I’ll also quote it:

Of the estimated 1 billion people who will observe Earth Day worldwide this year, few will know about the progress that has been made. Fewer still will know how it was made. The media, uninterested in looking at the real story, will simply credit the environmental movement for the improvements.

We won’t discount the movement’s contribution. Four decades ago, it helped show the world the value of global stewardship. But that movement is no longer interested in a cleaner world.

Filled with extremists and anti-capitalist crusaders, its primary goals have changed. Topping the agenda of today’s environmentalist groups is the pulling down of market economies, the raising up of central planning for egalitarian goals, forced lifestyle changes and the vilification — in hopes of the elimination — of signs of wealth.

None of these advance the planet’s environmental health. But capitalism has. Through wealth generated by the free market, we have enough resources to move beyond the subsistence economies that damage the environment, enough disposable income to fund clean-up programs, enough wealth to scrub and polish industry.

Only in advanced economies can the technology needed to recycle hazardous waste or to replace dirty coal-fired power plants with cleaner gas or nuclear plants be developed. That technology cannot be produced in centrally planned economies where the profit motive is squelched and lives are marshalled by the state.

There’s nothing wrong with setting aside a day to honor the Earth. In fairness, though, it should be complemented by Capitalism Day. It’s important that the world be reminded of what has driven the environmental improvements since Earth Day began in 1970.

It amazes how so few people recognize where their bounties come from.

What is profit?

I’m looking forward to listening to the latest EconTalk podcast, where an organic farmer talks about profit and how she finds her teenage workers not quite ready to earn their keep. Her theory, similar to mine, is that kids have led a life up to the point of getting their first job where things are done for their benefit, rather than them having to make themselves useful to others.

EconTalk host, Russ Roberts, posted her interesting comments about this here. It’s worth repeating:

we hire some high school kids. And they are lovely people. But usually it’s one of their first jobs, like maybe they’ve mowed the lawn for their neighbor or maybe they did some babysitting. But by and large we’re their first job. So, everything else that’s happened in their life has happened for their benefit. They’ve gone to summer camp–that was for their benefit. They’ve gone to school–that was for their benefit. We as parents certainly do everything we can to benefit our children. And then they come to me and–yeah, there are a lot of programs that go on in the summer. And that’s not what this is. This is: You are going to work, and at the end of the week I’m going to give you money; and I expect that because you are here, I will make more money. And that’s a concept that I’ve had to explain to them. And it comes in really hard. And I have to say: Why would I have you here if I wasn’t going to end up with more money? Why on earth would I have you show up every day? And they kind of start to get that this should be a mutually beneficial arrangement, not just that I shouldn’t come out even because I think of–capitalism as me making money for the aggravation of having you here. And then we get the college kids; they’ve kind of gotten that kind of concept a little better. But then I’ll say: What do you want to do when you are done with college? And they’ll say: Oh, I want to work for a non-profit. And that one makes me angry. First, it’s like, well, non-profit, that could be a hospital, that could be a–like you haven’t thought about this any more–that could be a land trust, it could be anything. ‘Non-profit’ is huge. You don’t have any more direction than that you want to work for a non-profit? But also, they are telling me that profit is bad. So, I say: Well, look around at all this stuff you see, the tractors, the greenhouses, the walk-in cooler–like all this stuff. Ralph and I could have taken that money and even if we put it in the bank in a savings account we’d have earned like a percent or something, even now. But we’ve done this, and we’re risking that–it may not work out; we may not make any money from this; we may not get back the money we put in. Don’t we deserve a little more than what we could get in a bank by doing something safe? And they say: Oh, well yeah, of course you do. And I say: Well, that’s profit. And that’s all that profit is. And: Ohhhh. And then the light dawns. But they come with no idea about how capitalism works, even though capitalism is the economic system of our country.

I’d go a step further on profit.

I think it is unfortunate that we tend to only think of profit as a financial term. This causes us to see differently the actions undertaken by profit-seeking companies from the actions we undertake ourselves to conduct our daily lives. Those evil companies seek profit. How noble I am to give my time to charity.

But, a more general definition of profit is to derive benefit. What percent of your actions do you take to derive benefit?

Why did you show up to work? Probably for the same reason companies distribute their products, to earn money.

Why don’t you devote all of your time to charity? Probably because you need to have a shelter, you need food and clothes and you want quite a few other things. Companies, too, do not give all of their output to charity because they would soon have nothing left to give.

Why did you build the patio and fire-place in your backyard, instead of giving that money to charity? You did this for the same reason companies build lounges for workers and sell their products in pleasant surroundings.

Why did you replace your aging vehicle, instead of giving that money to charity? For the same reason companies replace their aging equipment.

How are the actions you take to derive benefit different from the actions companies take to derive benefit?

There are only two key differences that I see. First, companies more carefully record the money unit benefits of their actions because they have folks who hold them accountable, the owners. Second, they are trying to accrue those benefits for someone else, the owners instead of themselves, unless they happen work for an employee-owned company.

Profit is nothing more than a derived benefit. We profit a great deal from others, that’s why we are willing to pay them. Without that profit, we’d be living the short and lean lifestyle of a hunter-gatherer.

A couple thoughts from Thomas Sowell

From Thomas Sowell’s latest Random Thoughts:

Everybody is talking about how we are going to pay for the huge national debt, but nobody seems to be talking about the runaway spending which created that record-breaking debt. In other words, the big spenders get political benefits from handing out goodies, while those who resist giving them more money to spend will be blamed for sending the country off the “fiscal cliff.”

I, too, am amazed at how spending gets a pass, even from folks like Warren Buffett who should know better.

Would Mr. Buffett give such a pass to a manager of one of his businesses who habitually spent 20% to 30% more than he took in and planned to do so as long as possible? In this case, would Mr. Buffett be so eager in volunteering his own income to continue to support such a manager so that manager could carry out his indefinite plan of spending beyond his means?

Here’s another good Thomas Sowell thought:

The more I study the history of intellectuals, the more they seem like a wrecking crew, dismantling civilization bit by bit — replacing what works with what sounds good.

I’ve seen the same with managers of successful businesses. New managers often ignore the actual success of the business they’ve been entrusted to run — what works — and change that business with their own ideas — what sounds good.

The typical outcome of that can be seen with JC Penney of the past year, where the new manager of JC Penney has made major changes to the business that sounded good, but have reduced the stock price by more than 50% against the S&P 500.

Intellectuals often have the same effect on society. For example, they may wish to ‘wage war on poverty’, but they ignore the best anti-poverty mechanism ever — innovationism (what works) — and instead seek to replace it with systems that sound good, but actually encourage poverty.

“Innovationism”

In a post about styrofoam, Don Boudreaux points out Diedre McCloskey’s better name for capitalism, innovationism. I couldn’t agree more. The word capitalism sterilizes what’s really happening. Innovationism captures it much better.

Bono 4 Capitalism

Amazing timing.

I had a conversation about the band, U2′s, lead singer, Bono, with a co-worker. I quipped that I thought it was funny how Bono made so much money from commerce while being so critical of commerce.

Then I read this post at The Pretense of Knowledge, about the reformed Bono, who now recognizes that commerce and capitalism is key for lifting folks from poverty and creating prosperity.

Not only that, it’s as if he heard me poking fun at him. From the article:

The Irish singer and co-founder of ONE, a campaigning group that fights poverty and disease in Africa, said it had been “a humbling thing for me” to realize the importance of capitalism and entrepreneurialism in philanthropy, particularly as someone who “got into this as a righteous anger activist with all the cliches.”

I think this is good news and bad news.

It’s good news that a popular entertainer gets it now. Maybe someone will listen to him. It’s also good news that someone like Bono admitted to changing his mind. We don’t see enough of that.

It’s bad news that it took him so gosh darned long to figure it out. That’s a key reason folks the world over try to restrain capitalism — they don’t understand it, even when it provides them with so much prosperity.

Why Fear the Rummage Sale?

I caught a glimpse of the Sunday morning talk shows. Topic of discussion: Obama ‘saving’ the US auto industry.

One person (I think Carly Fiorina) correctly pointed out that Ford stayed viable and gained strength without a government bailout. I might add that they have done so with some good ‘adult’ management (making tough choices) and by making stuff that people want.

Another person responded saying that the US auto industry wouldn’t exist if it weren’t for Obama. Yet another added that an auto industry collapse would have had far-reaching effects in the economy.

Both present an overly simplistic false choice: Either government bails out the auto industry or the industry disappears and takes a lot with it.

That’s not true. In our world, big businesses rarely go out of business completely. Their restructurings and bankruptcies are like exploding stars that give birth to new stars and planets.

Big hunks of the business would continue in some form or fashion. Other companies may buy the healthy operations or the workers might buy their divisions to form new companies.

My father worked for a company that was owned by a steel company that no longer exists. As the steel company was going out of business, the leaders of his division organized an employee purchase of his part of the company. That employee owned company is still around, nearly 30 years later, and much larger and stronger than it was then.

Or, new management may take over during bankruptcy and renegotiate the obligations that have become untenable and allow the business to continue with a more competitive cost structure.

Lots of things can happen.

The unhealthiest portions of the business may go away, but these were the parts that were holding the company back. And this is exactly what is supposed to happen. Without the barriers caused by the unhealthy parts, the healthy parts can thrive and grow to quickly offset the unhealthy part that died off.

This is not much different from what most of us do with our personal belongings. We buy nice shirts to look nice at work. Eventually, we get tired of it. How often do you throw away shirts?

When I’m done with my shirts, I give them to family members, sell in a garage sale or donate it to a thrift store so others can get use from them.

If I kept all the shirts that I stopped wearing, I’d have to rent storage lockers to store them and eventually the cost of renting those storage lockers would prohibit me from buying new shirts.

If I started talking about selling all my shirts in those storage lockers, my two good friends from the Sunday morning talk show would complain.

The first would say that without me renting storage lockers, the storage locker industry will suffer, so Obama needs to help save that industry.

The second would say that if the storage locker suffers, others will too, so Obama needs to help prevent the spread of collateral damage.

I ask, but what about all the companies that make shirts that will benefit now that I will have some proceeds from my shirt sales and saved storage locker fees to buy more? Maybe I’ll buy some pants, too. Might other rent the locker space that I vacate?

In the end, the ‘auto industry’ (or some evolved semblance of it) would survive. It may look different. But, what’s remaining might be healthier and better poised to grow.

“Life Would Be So Much Better Without Capitalism!”

Thanks to Cafe Hayek for pointing me to this well done video from the Fund for American Studies:

 

All the good stuff we get from capitalism and don’t even notice is a them I like to explore often. The video does a nice job of illustrating it.We take for granted something as mundane as having 24-hour pharmacies nearby chock full of stuff to help many ailments that can be ours for a relatively small price. Have you considered that billions of people in the world now and before us would love to have.

In the video, an anti-capitalism protester who enjoys plentiful gadgets, food and overall decent standard of living (due to capitalism), is knocked out by a sign waver at the demonstration and gets to explore a world without capitalism while out cold, aided by a little dude with wings to help explain why everything is so dreadful there.

I love this line:

Anti-capitalist: My X-Box is gone?

Little winged guy: Yeh. In this world, that greedy Bill Gates works at a bowling ball factory in Akron.

Join the discussion.

Hey Folks, Capitalism is a Good Guy!

Here’s a very good read on the virtues of capitalism in today’s Wall Street Journal from Charles Murray. A snippet:

From the dawn of history until the 18th century, every society in the world was impoverished, with only the thinnest film of wealth on top. Then came capitalism and the Industrial Revolution. Everywhere that capitalism subsequently took hold, national wealth began to increase and poverty began to fall. Everywhere that capitalism didn’t take hold, people remained impoverished. Everywhere that capitalism has been rejected since then, poverty has increased.

What happened to turn the mood of the country so far from our historic celebration of economic success?

Murray goes on to answer that question. First, he blames it on collusive capitalism — which he breaks into two parts: crony capitalism and government collusion.

He also assigns blame to those with earned success who are unwilling to defend themselves because they have a liberal mindset and seem embarrassed by their good fortune.

I’ll add to those thoughts.

People often mistake collusive capitalism for capitalism. They cannot separate the crony and collusive parts from capitalism itself. I think it would be clearer if we take the word capitalism out of the description and simply call it cronyism and collusion.

As Milton Friedman pointed out in this video, all societies have greed. Greed is not unique in capitalism. It is human nature. If all we had was capitalism and greed, we’d be okay. Capitalism directs greed into productive pursuits that benefit others. That results in earned success. As Murray points out, that is embodied by Steve Jobs, Thomas Edison and even Mitt Romney.

But greed also leads to cronyism and collusion. That is toxic. Rather than earned success, that leads to bending the rules (i.e. reducing the our freedoms) to gain unfair advantages. Those are embodied by the fat-cat, cigar-smoking, well-connected folks that feed our images of capitalism gone awry. This means that it was illegal for me to willingly assemble bikes for a local bike shop owner when I was a kid. I was underage and made less than minimum wage. The third parties who passed those laws might say that bike shop owner was evil, or that I was taking away job opportunities for others. But for those involved — myself, the bike shop owner and my parents — the arrangement worked out well.

But the key insight is that real capitalism is the best check against those rent-seekers, it’s not the cause. Neither is greed by itself. Cronyism and collusion are the causes.

Capitalism is the conjured, tabloid and propagandized evil. The way our society treats it reminds me of the fictional propaganda war waged against Harry Potter in the final book of J.K. Rowling’s popular series. The evil folks were in charge and spun everything they could to make Harry Potter look like the bad guy. They even had the media on their side, as the magic community newspaper, The Daily Prophet, wrote regular and unbalanced screeds against the evils of Potter. With J.K. Rowling’s brilliance, she made those screeds remarkably similar to the reporting we see here in the muggle world.