Capitalism and Metcalfe’s Law

Metcalfe’s Law is the idea that the value of a computer network increases at a rate exponentially higher than the number of connected users on the network.

For example, a network of 10 connected users will be 4 times as valuable as a network with 5 users.

I believe there’s a key reason for this: luck. As the number of users increase, so do the odds that someone on the network will have something valuable to contribute for the others.

This why markets work, too.

Well before the internet, the price network connected people and encouraged them to do things of value for each other. The more people connected through the price network, the more valuable that network becomes.

If your trade network has 10 people in it, you won’t get much.  Expand that network to hundreds of millions and you get useful things like grocery stores filled to the brim with food, TVs packed with thousands of channels of programming, phones that take pictures and keep you in constant contact with your friends and families, movies to fill movie theaters with 24 screens, satellites that talk to your smart phone so you can find the closest Subway to get something to eat.

Freedom works

The Wall Street Journal Weekend Interview quotes from Arthur Brooks’ book, The Conservative Heart:

Capitalism has saved a couple of billion people and we have treated this miracle like a state secret.

The key point Brook’s makes in the interview is that free markets is the best way to help the have-nots and Republicans/conservatives should be stressing that. Further, we should all know Adam Smith what he wrote in the Wealth of Nations and Theory of Moral Sentiments.

I agree.

It amazes me how far I got into life before discovering how free markets works for everyone. It wasn’t taught to me. I had to figure it on my own.

Free markets get knocked because of greed, but those doing the knocking don’t realize that greed exists with or without a free market. Greed exists in every form of social order. Government doesn’t minimize greed, it makes it worse by aiding cronysim by creating a gray market in authority.

I agree with Brooks. Conservatives should be looking for ways to articulate that freedom and free markets have better outcomes for everyone.

And, if you don’t support free markets because you haven’t taken the time to consider how they benefit everyone or you won’t let yourself see past the propagandized smearing of capitalism, then you really aren’t interested in helping the people that you claim you want to help. You are ‘the man’ holding them down.

Happy 4th of July! Affordable Care Act Makes Care Less Affordable!

The first sentence from this morning’s big news story says it all (emphasis added):

Health insurance companies around the country are seeking rate increases of 20 to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected.

If we haven’t learned by now that government programs usually result in the opposite of the goals (often stated in their titles), then we deserve what we get.

Government sought to make home ownership more affordable. That didn’t end well. The price of homes were driven up before the bubble burst.

Government keeps trying to make college education more affordable. It’s no coincidence that college tuition rates have climbed consistently faster than the rate of inflation.

A good question to ponder is, why does this happen? Perhaps if more people understood the answer we could get past it.

The simple answer is that these programs increase demand for services (intended consequence) while, often, also constricting supply (unintended consequence), which increases the price.

The market is an amazing thing. It can do amazing things if we let it.

Check out any part of your life that has not needed a government program to make it more affordable or available. You have some amazing things. Shoes, tablets, food, restaurants, printers, phones, boob jobs…none of these needed government to make affordable and available to anyone. The key question is why do we think we need government to make some things affordable and available with some things, but not others?  What’s the difference between shoes and health care that makes government’s involvement so necessary?

True, but not compelling

Don Boudreaux quotes from Thomas Sowell’s book, Intellectuals and Society:

The intelligentsia … have encouraged the poor to believe that their poverty is caused by the rich – a message that may be a passing annoyance to the rich but a lasting handicap to the poor, who may see less need to make fundamental changes in their own lives that could lift them up, instead of focusing their efforts on tearing others down.

The intelligentsia have acted as if their ignorance of why some people earn unusually high incomes is a reason why those incomes are either suspect or ought not to be permitted.

No doubt.

Boudreaux then responds to a critic who says that firefighters, paramedics and other first-responders are underpaid with a quick lesson on supply and demand and prices.

My guess is the critic did not find his lesson compelling. I can imagine she thought, So, the reason these folks are paid less than I think they should be paid is because the supply of the people willing those jobs is high relative to the value provided by one of those individuals?

If your life has been saved by one of these first-responders you likely think the value of that individual is high.

I think this is an interesting topic. Boudreaux’s answer is correct, but I doubt it wins over many folks who think like his critic. How do we make it more compelling for the critic?

James Franco does the proper thing

In this Washington Post piece, he says McDonald’s was there for him when nobody else was.

What a pleasant departure from the all too typical vilifying of the fast food giant for not paying ‘living wages’ for jobs that were meant for teenagers to earn gas money and learn how to show up to work on time.

We should be more thankful for the opportunities we have.

Beware Silver Bullets

In his column, Don’t Go, John Stossel writes:

Politicians such as Hillary Clinton promote college by claiming that over a lifetime, college graduates “earn $1 million more.” That statistic is true but utterly misleading. People who go to college are different. They’re more likely to have been raised by two parents. They did better in high school. They’d make more money even if they never went go to college.

Politicians like to promise silver bullets. Silver bullets make for great campaign promises. But they usually confuse causes with signals. The world is usually more complex than the silver bullets.

Does a college degree cause higher earnings or is it just a signal of something people with higher earnings ambition do?

I like to reference the home ownership example.

Responsibility used to be a prerequisite for home ownership. First you established responsible behaviors, which led to savings for a down payment, good work history, history of paying your bills on time and a good credit score for a loan, then you became a home owner.

When politicians mistook home ownership as a cause, rather than a signal, of responsible behavior they believed they could create responsible citizens by eliminating responsible behavior as the pre-req for becoming a home owner. That did not end well.

Likewise, politicians like Hillary Clinton mistake college degrees as the cause, rather than the signal, of higher earnings.

Could it be that folks with higher earnings have a number of traits that lead to higher earnings? Might those traits include things like responsible behavior, grit, ambition, self reliance, delayed gratification, an openness to trying new things, getting along with a diverse group of people and abilities to handle stress, manage time and prioritize well from a host of choices?

If so, it is these behaviors that should be encouraged, not simply mimicking one signal of this group of people.

That’s about like dressing people up in a costume. Certainly, you can buy a costume that makes you look like the President, a movie star or even a witch, but just looking like one doesn’t make you one.

Staircase wit

Darn. I missed a good opportunity.

At a party recently, I was discussing Jack Black with a family member. The family member asked, “You like his stuff? Isn’t he the direct opposite of your politics?”

I thought the question was dumb, but so was my response (although it was meant to avoid a political discussion). I said I liked his work. We can separate someone’s politics and their work, right?

But, I immediately wish I would have asked, “He’s opposed to freedom?”