Finally…

An economist publicly says something I’ve thought for more than a decade:

Paul Krugman, very sadly, no longer even pretends to reason like an economist.  He instead reasons as if he’s a 19-year-old cultural-studies major.

Don Boudreaux, Cafe Hayek, Krugman Flunks Basic Labor Economics

“How the West (and the rest) Got Rich”

That’s the title of an excellent essay in today’s Wall Street Journal by Deirdre McCloskey.

The answer, in a word, is “liberty.” Liberated people, it turns out, are ingenious. Slaves, serfs, subordinated women, people frozen in a hierarchy of lords or bureaucrats are not.

“Immitate the stuff that brought us wealth, not the stuff that almost brought us ruin.”

Nice short video about what makes Sweden great (HT: Café Hayek).

 

Government-can-solve-all types often point to Sweden’s big governments as something to imitate, but they get cause and effect backwards. Big government didn’t cause Sweden’s wealth. As Norbert points out in the video, Sweden got rich first off free trade and an open economy.

This is very important to keep in mind. I wrote about this in regards to a burrito business way back when. Government is overhead. While it provides some valuable services, just like the overhead functions of a burrito business (like accounting, HR, etc.), selling the burritos is what keeps the overhead functions busy, not the other way around.

 

Things aren’t so bad

From the NY Times:

With disparities in wealth greater than at any time since the Gilded Age, the gap is widening between the highly affluent — who find themselves behind the velvet ropes of today’s economy — and everyone else.

 

You might think the article is about how the wealthy can afford better health care or something like that.

Nope. It’s about cruise line companies offering luxury experiences for a higher price removed from the masses on their boats.

What’s not addressed in the article: We’re doing pretty good if the masses can afford to take cruises. A generation ago they couldn’t.

 

 

Too Good to be True

I recommend reading this post at Carpe Diem blog on Why socialism always fails.

This is particularly well-said:

The strength of capitalism can be attributed to an incentive structure based upon the three Ps: (1) prices determined by market forces, (2) a profit-and-loss system of accounting and (3) private property rights. The failure of socialism can be traced to its neglect of these three incentive-enhancing components.

And this:

The main difference between capitalism and socialism is this: Capitalism works.

“I don’t like to think of the world that way.”

From Russ Roberts’ recent EconTalk podcast with Timothy Taylor (Taylor speaking):

…you are reminding me a little bit of a conversation I had with an old friend of mine a few years back, a non-economist. We were talking about the minimum wage and I was trying to explain sort of an economic viewpoint of the minimum wage–in a nonpartisan kind of way. So what I was sort of saying was, ‘Look, minimum wage, the extra money for that minimum wage, it has to come from someplace. And maybe it comes from hiring fewer workers or maybe it comes from more productivity or maybe it comes from cutting certain job perks or it comes from higher prices to consumers or it comes from lower wages–but it comes from some place. And so, without specifying the place, you have to understand where it comes from. And you have to think about that tradeoff.’ And my friend looked at me for a long slow moment and said, ‘You know, I really don’t like to think of the world that way.

 

And this:

It’s interesting to me when, for example, when Steve Jobs died, there was sort of this outpouring of, I don’t know, emotional support for the man and his life’s work. And what’s interesting about that was, Steve Jobs was, you know, as ruthless a capitalist as there’s been. And at that moment, though, it was okay that he was a ruthless capitalist–and never gave any money to charity. It was sort of celebrated for a little while. And I just thought: that’s interesting; here’s a moment–when Sam Walton died, I don’t know if there’s the same feeling of, ‘Wow, he revolutionized something.’ And a certain kind of praise. And I think some of that is, for lack of a better word– you’re referring to this as, well, it’s kind of a class thing.

What fails better?

David Henderson on private companies like Walmart filling the gap while Flint, Michigan’s government flounders to provide safe water to its citizens.

The point I’d add is that failure happens in government and private companies. That’s a fact. There’s no getting around it. That’s why Walmart is closing 100+ stores.

There never has been an organization of humans that only produces successes. We live in a trial-and-error universe.

The question then becomes what handles failure better?

I wrote about this in a series of three posts that can be accessed here. In short, I think there are 3 things to look for in systems that handle failure better:

  1. Lots of independent trials. In a trial-and-error universe you can never predict what works and what doesn’t, so it helps to try lots of stuff.
  2. No single point of failure. Think Death Star. And, yet the First Order didn’t learn from the Empire’s mistakes! Just like one generation of central planners don’t learn from previous generations. They believe they will do it better.
  3. How far away the decision-makers are from the benefits and cost of their decisions. The further removed they are, the less careful they will be in their decisions.