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Saturday, June 30, 2007


Paraphrasing an acquaintance of mine: The world is the same as it's always been, it keeps changing. Some of those changes are incremental in nature and some represent a radical break with the past. This means that things are uncertain, especially about the future. She does such a nice job, so I'll let Virginia Postrel explain:
We hate not knowing the future. Soothsayers are as old as history. But the kind of soothsaying that runs on giant computers, that fills the pages of business publications and informs the decisions of legislators and regulators, is different from old-time magic. Rather than tap omniscient forces operating outside time, it claims scientific knowledge of the present, or at least of everything important about the present. Drawing on that information, it then predicts what people will do and how their actions will shape the world. Or it tells them how they must act and assumes it can foresee the results.

The world is full of X-factors, the unarticulated and unrealized knowledge that can be elicited only by experience and experiment.

It is possible to discern patterns and to test that analysis against others'. But the competition-the test-is crucial. Most predictions are wrong, and the more specific the claim, the more likely the error.

In his bet with Paul Ehrlich, by contrast, Julian Simon was able to predict confidently that the prices of five metals would decline from 1980 to 1990. His prediction was based on a dynamic understanding of resource use; his mental model assumed increasing knowledge about alternative sources and applications, feedback from prices, and competitive pressures to do more with less. Simon bet only on the general trend, however, not on specifics.

"Most experts believe that without deep changes in both industry behavior and government policy, U.S. microelectronics will be reduced to permanent, decisive inferiority within ten years," wrote MIT's Charles Ferguson in a famous 1988 Harvard Business Review article. He called for a government-directed policy to help U.S. chip companies threatened by foreign competition and denounced the "fragmented, 'chronically entrepreneurial' industry" of Silicon Valley.

Ferguson and his mandarin contacts just Couldn't envision an industry driven by microprocessors, software, and networks rather than memory-chip manufacturing. Instead, they assumed an essentially static world, anticipated disaster, and demanded industrial policy.

"Economists moved by the invisible hand," who understood the dynamic patterns of the industry but did not try to predict its exact evolution, knew more than Ferguson's "experts"-for the very reason that they recognized the limits of their knowledge.

Technocratic plans assume the very things they try to enforce: that the world is simple and easily controlled, that it changes only in predictable ways, that it can be mastered.

Predictions go wrong because there are many possible sources of error: environmental shocks, bad or incomplete models, bad or incomplete data, sensitivity to initial conditions, the ever-branching results of action and reaction. Writing of technology, the physicist Freeman Dyson notes that its inherent unpredictability makes centralized decision making hazardous:
...human legislators act as if the future were predictable. They legislate solutions to technological problems, and they make choices between technological alternatives before the evidence upon which a rational choice might be based is available.

Unexpected events or patterns often make perfect sense in hindsight. But the very difficulty of predicting the future points up how little we know-or can know-about the present. The present is, after all, the basis of all prediction. Management guru Peter Drucker, among the most perceptive of trend spotters, declares emphatically that "I don't speculate about the future. It's not given to mortals to see the future. All one can do is analyze the present, especially those parts that do not fit what everybody knows and takes for granted. Then one can apply to this analysis the lessons of history and come out with a few possible scenarios. . . . Even then there are always surprises."

Knowledge is at the heart of a dynamic civilization-but so is surprise. A dynamic civilization maximizes the production and use of knowledge by accepting widespread ignorance. At the simplest level, only people who know they do not know everything will be curious enough to find things out. To celebrate the pursuit of knowledge, we must confess our ignorance; both that celebration and that confession are central to dynamic culture. Dynamism gives individuals both the freedom to learn and the incentives to share what they discover. It not only permits but encourages decentralized experiments and competitive trial and error-the infinite series by which new knowledge is created. And, just as important, a dynamic civilization allows its members to gain from the things they themselves do not know but other people do. Its systems and institutions evolve to let people develop, extend, and act on their particular knowledge without asking permission of a higher, but less informed, authority. A dynamic civilization appreciates, protects, and nurtures specialized, dispersed, and often unarticulated knowledge.
Some people refuse to accept the nature of uncertainty and grasp its' implications. I like to call it the Rodney Dangerfield of concepts: it don't get no respect!

Update: thought this banner from this blog was appropriate

Politics is mainly a contest between those who think they know but don't (The Left and the Greens) and those who know that they don't know (Conservatives and Libertarians)

Thursday, June 28, 2007

They're Dropping Like Flies

At the current rate, we're gonna be needin' a Post-"Post-Judd Alliance". Peter Burnet hasn't posted since March, David Cohen "is now on hiatus, perhaps permanently", and Brit's dropped out of The Daily Duck (and then there were three) and is working to "recover" his (blog's) identity. My my, hey hey, it's better to burn out than to fade away, but Howard and I'll just keep pluggin' away, Great Guys is here to stay (though there sort of used to be eight of us, so even we've been sort having a bit of an attrition problem over the years).

Fortunately, Thought Mesh has woken from a recent short slumber and The (not quite) Daily Duck is sure to continue to be prolific with Hey Skipper promising to be "back in a couple weeks". And I'm just getting revved up, so

Wednesday, June 27, 2007

Caution is advised

In advocating for what I would consider to be pro growth policies, it is advisable to avoid scare tactics and proclaim that things will be terrible if x,y and z are not done. It might be possible to have an OK economy in the face of poor policy due to the benefit of accelerating trends of technological progress.

In any event, the world of 2100 will be more different from 2006 than 2006 is different from 8000 BC.

Biotechnology is converging with information technology, and by some estimations medical knowledge is doubling every 8 years at this point.

Even energy has burst forth from what appeared to be a century of stagnation into an area of rapid technological advances. Beyond simple market forces like the price of oil, the revolutions in computing, biotechnology, and nanotechnology are all converging on the field of energy through multiple avenues to chip away at the seemingly gargantuan obstacles we face. Energy, too, is in the process of becoming a knowledge-based technology, and hence guaranteed to see accelerating exponential innovation.

Furthermore, the case must be made clarifying that which is less than desirable about current policy so that people don't opt for worse policy because they believe that this is as good as it gets. The economy is better than it is portrayed by the media, however:

The reality is the U.S. economy is under-performing because there's still too much intervention by government at all levels around the world.

The pro-market arguments must be more sophisticated then simply too much taxing and regulating.

Food prices are soaring because federal politicians manipulated incentives to produce more corn to make into ethanol.

Oil and gasoline prices are soaring. Supply cannot keep up with demand because all levels of the supply chain are constrained, from the prevention to build more refineries to government's ownership of petroleum assets globally. This article illustrates one problem.

Health care seems to be a perpetual political problem because the market has been interfered with by government for sixty years. Governments around the world put ceilings on prices, thereby forcing producers to try to make up for the skimpy profits there by pushing prices higher in the U.S.

Hidden from plain view but a burden nonetheless is the cost of regulatory compliance.

The costs to the public of complying with federal health, safety, environmental and economic regulations appear nowhere in the federal budget.

Economist Mark Crain's research for the U.S. Small Business Administration finds that in 2006 regulatory compliance cost Americans $1.14 trillion. Astoundingly, that approaches half of last year's total federal spending of $2.6 trillion, and exceeds 9% of U.S. GDP — and tops Canada's $1 trillion GDP.

Combining regulation and spending, the federal government's share of the economy is a whopping 29%.

We might be getting much less benefit than this cost.

The case for limited but effective government must be made in simple clear terms, again and again without risking the loss of credibility engendered by an hysterical approach.

Friday, June 22, 2007

Snookering the electorate

I think that if a donkey was in the White House instead of an elephant the press would be making great efforts to convince the public that this economy is really good. They would be happy to sell this truth. But the spinmeisters can't have this state of affairs. Blogger Engram dissects statements by a politico from the previous administration. First part of the statement:
“The typical American family is making $1,300 in inflation-adjusted dollars less than they were in 2000. They’re $1,300 poorer each and every year,” added Sperling, who was chairman of the National Economic Council during Bill Clinton’s administration. “If Rudy Giuliani and President Bush want to say that’s success, they can.
This doesn't fit his sense of things until he remembers that there is Census data which fits...
You can see that median income peaked in 1999 and then dropped each year until 2005, when it finally turned around (slightly). But the 2005 figure is about $1300 less than the 2000 figure, so this must be what he was referring to.
Then the dissection begins with some selected excerpts:

...let me explain why the Census numbers are so unreliable.

First, they are based on a person's memory of what they made in the last year.

Second, in the Census Bureau income measure, people are asked only about pre-tax income, so any effect of the Bush tax cuts would not be apparent.

What you really want to know is how much money people have after taxes.

Third, the income figures do not reflect all forms of income. Not only are capital gains excluded, but other noncash benefits are excluded as well.

A much better approach is to use the figures that appear on actual tax returns. The numbers are objective (not memory based), you can look at after-tax income (which is what you really want to know), and all forms of income are taken into account, including benefits.

In year 2000, after-tax income was $45,900. In 2004, it had increased to $48,400 after taking out the effect of inflation. That is an increase of $2500, or 5.5% (contrary to what the Census Bureau figures suggest). Note that actual incomes increased more than that, but this is the increase that occurred over and above the rate of inflation. When the numbers for 2005 come out, there is no doubt that they will be higher still. As such, it is simply wrong to assert that the median family is $1300 poorer in 2005 compared to 2000. The Census figures indicate that families feel poorer, but that might be because we have a media that is largely incapable of reporting anything positive about the economy. Whatever the reason, it happens not to be true. People in the middle in America are getting better off with each passing year. As such, Gene Sperling should have said “The typical American family is making $2,500 in inflation-adjusted dollars more than they were in 2000...."
The far more indicative, even if imperfect, data shows a $2500 improvement rather than a $1300 decline for the typical family. I've seen interviews with Mr. Sperling and have no reason to think that he is stupid or ignorant. It would be interesting to see his response if a knowledgeable interviewer grilled him on the matter. Technically he can point to Census data and claim that he is not lying but for my taste he is being far too disingenuous.

Thursday, June 21, 2007


Recently I was reading this post at Rich Karlgaards' blog and it linked to this absolute gem. If you have even a little bit of curiosity about the world you'll find the linked to item very revealing. When trying to make sense of things you can study theory, relevant data and history. This can be done in different fields with different perspectives all trained upon the matter of interest. Some people narrow their focus and get trapped by the dark side before they can acquire a broader perspective. People who do this again and again are Apocaholics.

Hi, I’m Gary and I’m a recovering Apocaholic. I am currently Apocalypse free for nearly 18 years. I left the church of the Religious Apocalypse in 1976, over 30 years ago, and I resigned from the secular church of the Financial Apocalypse in 1989. Yes, I still feel the urge to proclaim the end of all things, from time to time, but I white-knuckle my way to a history book for a little perspective, and then I breathe easier. If you wish to join AA, the only requirement is that you give up the adrenaline rush of media-fed fantasies.
Here is a sampling:

We’ve now gone over 61 years without using nuclear bombs against humans – thank God. Back in the late 1960s, Herman Kahn wrote “On Thermonuclear War” and “Thinking the Unthinkable,” in which he demonstrated that we can survive a nuclear holocaust, but that didn’t seem likely in 1962:

I wrote other articles supporting the ban in DDT, which I am ashamed to say, has caused the deaths of millions of Asians and Africans since then. Many insect-borne diseases were on the verge of extinction in 1970, when the U.S. tied foreign aid to poor nations to their “voluntary” banning of DDT, to our great shame.

Then came Paul Ehrlich’s “The Population Bomb” (1968), in which he opened famously by saying, “The battle to feed humanity is over. In the 1970s and 1980s, hundreds of millions of people will starve to death, in spite of any crash programs embarked upon now.”

The famine/population fear is older than Malthus. Confucius thought the earth was full, 2500 years ago. Romans thought they had “worn out the earth.” St. Jerome said “the world is already full, and the population too large for the soil.” Tertullian wailed about “teeming populations of Carthage” with “numbers burdensome to the world.” He saw death from famine, war and disease as “the means of pruning the luxuriance of the human race.” In truth, Rome was rich when it was crowded, and a wasteland when it was empty.

In the early 1970s, Garner Ted Armstrong pulled me aside and gave me a challenging new project, which might take years to finish. He said that all the globe’s trends are getting worse, and that if we could only “feed all these trends into a computer,” we could predict the precise time of the end.
They fed all the same kind of data into Harvard’s massive mainframe and came out with their magnum opus, “Limits to Growth,” modeling the future consequences of growing world population and finite resources.

Shortages beget higher prices and more exploration, not depletion of resources. In the extreme cases, shortages create new technologies. A wood shortage in England in the early 17th Century led to the use of coal and the birth of the industrial revolution. A shortage of whales led to the use and discovery of petroleum, and electrical lighting. The stench of horse manure in urban streets led to the invention of the horseless carriage.

One example was Newsweek, for the week of April 28, 1975. It said that leading climate scientists were “almost unanimous” (sound familiar?) in their predictions of global cooling. Time Magazine had “The Coming Ice Age” on its cover, and the November 1976 issue of National Geographic had a lead article on the problem of global cooling.

In the 1970s alone, all of this was “Coming…”
* The Coming Dollar Devaluation (1970) by Harry Browne
* The Coming Dark Age (1971) by Roberto Vacca
* The Coming Credit Collapse (1974), by Alexander Paris
* The Coming Bad Years (1978), but Howard Ruff
* The Coming Real Estate Crash (1979) by English and Cardiff
The #1 Best-seller in 1987 was Dr. Ravi Batra’s “The Great Depression of 1990.” Dr. Batra turned out to be right on his timing, but wrong on his geography. Japan suffered a decade-long Great Depression in the 1990s, but according to Batra and others, Japan was the last place this could happen. Many other best-sellers of 1987 were proclaiming the superiority of the Japanese management system, Japan’s work ethic, its currency, its wealth and ability to “buy up American assets” from Hawaiian hotels to Hollywood studios. (As it turned out, Japan only knew how to pay way too much for those assets.)

I remember this last book well and was under its' sway for awhile. When I woke up and got over being so foolish my efforts to better understand the world shifted into high gear. My depth and breadth of knowledge and critical thinking skills thereby improved dramatically.

Having gained a new perspective from all of the past misperceptions, Mr. Alexander makes this prediction:
For my grandchildren’s generation, I look for another 75-fold gain in the next 60 years, despite threats from Global Warming, the Housing Crisis, the Triple Deficits in America, and anything else Doomsday prophets dream up in the future. I have been inoculated against such fears. Please join me in abandoning the siren song of the Prophets of Doom.
There will always be challenges and difficulties to overcome. I would be especially concerned about self-inflicted wounds from people trying to fix problems which aren't really problems. There is no sainted savior here on earth who can know what will happen. Do not be seduced by their promise to save us if we only follow their prescription. People living in freedom with a culture and institutions which support innovation and adaptation can always find a way!


Life expectancy varies around the world. Genetic factors and lifestyles prevalent within cultures can result in significant differences. Even within Japan which is noted for greater longevity than most other places, there is a rather curious phenomenon:
Japan’s population of centenarians is the largest in the world. Most of the 28,000 Japanese who have made it beyond 100 are women and the highest concentration of the very elderly is in the southern part of the archipelago. The area around Hiroshima and the island of Okinawa are especially rich in former “world’s oldest” title holders.
This may well be an example of a phenomenon known as hormesis. The common theory about exposure to chemicals or radiation, any exposure is bad and more is cumulatively worse, also known as LNT (linear no threshold). The theory of hormesis posits that small doses have a health benefit, possibly through stimulation of the immune system, but beyond some optimum level the positive effects diminish and turn progressively more negative. I don't know that this idea has been proven but there is considerable evidence in support. The dosage makes the poison. This has very different implications than LNT when formulating health guidelines are environmental regulations. Nobody told you? Now you've read the idea. A website is here and a book is here. After reading the book I am much less concerned about the difficulty of dealing with spent fuel from nuclear reactors.

Someday low dose exposure to various substances may be part of recommended health routines!

Agricultural Robots

Update: It was great to make Wired magazine, but now Instapundit has linked to the article too. Now Vision Robotics has really hit the big time!

In case you're curious (how could you not be?), a recent Wired Magazine article (Farms Fund Robots to Replace Migrant Fruit Pickers) describes some of my company's handiwork in the area of robots for agriculture. As I write this, the article actually headlines on the main page.

The title is rather silly. The farms aren't funding the robots (they don't exist yet), the farms are funding us (Vision Robotics). The primary reason for the funding is to get their fruit picked, not to replace the migrant workers. Other than that, for a random magazine article, it's surprisingly accurate.

In the past, I've almost never posted about robotics and artificial intelligence, my main two areas of expertise. After all, why write about something you know about? I find it much more fun to write about topics about which I am clueless (or semi-clueless).

That's going to change soon. I'm about to start a series of essays (next month) on how to use Artificial Intelligence techniques to make millions in the stock market. No really! I'm not kidding! You'll see!

Sunday, June 17, 2007

Everyday is Father's Day

When I was a kid and wondered why there was a Mother's Day and a Father's Day but no Children's Day, my mother would always quip, "because every day is Children's Day." And while intellectually I could understand that I was lucky as a child to be me, it never actually felt that way since I'd always just been me and didn't know how it might feel if I'd been born into some other situation. So I never really felt as though every day really was Children's Day.

This particular Father's Day was a somewhat typical Sunday for me. I had to go into the office in the morning to catch up on a few things. The afternoon was filled with honey doos (my wife points out that I'm not her father so she doesn't need to cut me any slack on Father's Day and she needed me to get some things done). The evening was filled with cooking dinner and getting the kids to bed. The one bit of specialness was that I was served tea and chocolate truffles in bed this morning complete with hand made Father's Day cards. Tea and chocolate truffles are always a good thing. Very nice!

Fortunately, my inability to appreciate being a lucky child has not precluded me from appreciating being a lucky father. My daughters bring me such overwhelming joy, day in, day out, year in, year out, that on Father's Day, I usually reflect just how lucky I am to be their father.

For me, every day is Father's Day, and I love it.

Saturday, June 16, 2007

Unintended Consequences

The possibility of "Unintended Consequences" is often used as an argument against instituting a government policy or taking various actions in the private arena. And certainly it's something to consider as sometimes the unintended consequences are truly terrible (though in this particular example, the terrible consequences, while clearly unintended, could have been foreseen).

But I think the unintended consequence argument is used far too often. If we all refused to take any action because of potential unintended consequences, it would paralyze society. I could use unintended consequences to argue that I should never leave the house. It could be that when I open the door to leave I spook a mouse and that causes a cat to jump which causes a bird to flutter upwards and land on the tree branch above my door which, due to the extra weight of the bird, breaks off of the tree and falls on my head and kills me instantly. Or something like that.

The resulting paralysis of society from using the unintended consequences argument too often would be an unintended consequence of deploying the unintended consequences argument. That also could have been foreseen.

Monday, June 11, 2007

Totalitarian Environmentalism

I'm not a global warming skeptic. I may not be as certain as some about the extent of warming, but I accept that a majority of the scientific community has determined that it's highly likely that the the earth, on average, will get at least a little bit warmer over the next few centuries.

On the other hand, I'm extremely skeptical of the concept of "catastrophic" global warming. The idea that man cannot adapt to changes in temperature occurring over the course of centuries during a time of extremely rapid technological innovation seems very, very unlikely to me. Anything's possible, but if I have to place my bet, I'm willing to be very heavily against it.

I also can't help but feel that some of the hysteria regarding warming is intentionally stoked and at least partly sinister. Czech President Vaclav Klaus, who has some serious experience with totalitarianism, seems to also detect the same sort of thing. Here's an excerpt from a recent question and answer session he gave to the House of Representatives of the U.S. Congress, Committee on Energy and Commerce:
The – so called – climate change and especially man-made climate change has become one of the most dangerous arguments aimed at distorting human efforts and public policies in the whole world.

My ambition is not to bring additional arguments to the scientific climatological debate about this phenomenon. I am convinced, however, that up to now this scientific debate has not been deep and serious enough and has not provided sufficient basis for the policymakers’ reaction. What I am really concerned about is the way the environmental topics have been misused by certain political pressure groups to attack fundamental principles underlying free society. It becomes evident that while discussing climate we are not witnessing a clash of views about the environment but a clash of views about human freedom.

As someone who lived under communism for most of my life I feel obliged to say that the biggest threat to freedom, democracy, the market economy and prosperity at the beginning of the 21st century is not communism or its various softer variants. Communism was replaced by the threat of ambitious environmentalism. This ideology preaches earth and nature and under the slogans of their protection – similarly to the old Marxists – wants to replace the free and spontaneous evolution of mankind by a sort of central (now global) planning of the whole world.

The environmentalists consider their ideas and arguments to be an undisputable truth and use sophisticated methods of media manipulation and PR campaigns to exert pressure on policymakers to achieve their goals. Their argumentation is based on the spreading of fear and panic by declaring the future of the world to be under serious threat. In such an atmosphere they continue pushing policymakers to adopt illiberal measures, impose arbitrary limits, regulations, prohibitions, and restrictions on everyday human activities and make people subject to omnipotent bureaucratic decision-making. To use the words of Friedrich Hayek, they try to stop free, spontaneous human action and replace it by their own, very doubtful human design.

The environmentalist paradigm of thinking is absolutely static. They neglect the fact that both nature and human society are in a process of permanent change, that there is and has been no ideal state of the world as regards natural conditions, climate, distribution of species on earth, etc. They neglect the fact that the climate has been changing fundamentally throughout the existence of our planet and that there are proofs of substantial climate fluctuations even in known and documented history. Their reasoning is based on historically short and incomplete observations and data series which cannot justify the catastrophic conclusions they draw. They neglect the complexity of factors that determine the evolution of the climate and blame contemporary mankind and the whole industrial civilization for being the decisive factors responsible for climate change and other environmental risks.

By concentrating on the human contribution to the climate change the environmentalists ask for immediate political action based on limiting economic growth, consumption, or human behavior they consider hazardous. They do not believe in the future economic expansion of the society, they ignore the technological progress the future generations will enjoy, and they ignore the proven fact that the higher the wealth of society is, the higher is the quality of the environment.

The policymakers are pushed to follow this media-driven hysteria based on speculative and hard evidence lacking theories, and to adopt enormously costly programs which would waste scarce resources in order to stop the probably unstoppable climate changes, caused not by human behavior but by various exogenous and endogenous natural processes (such as fluctuating solar activity).

My answer to your first question, i.e. what should policymakers consider when addressing climate change, is that policymakers should under all circumstances stick to the principles free society is based on, that they should not transfer the right to choose and decide from the people to any advocacy group claiming that it knows better than the rest of the people what is good for them. Policymakers should protect taxpayers’ money and avoid wasting it on doubtful projects which cannot bring positive results.
Totalitarians in green clothing. That's what I see too. They'll go to any length, fabricate any story, latch on to and distort any kernel of truth to try and derail the extended order and attain power for themselves (and for the supposed good of humankind).

Fortunately, just as with past totalitarian ideologies, I think that Americans are pretty resistant to succumbing to them. Hopefully, that resistance will continue.

Wednesday, June 06, 2007

Not all flavors are the same

If you compare collectivist economies or atleast the idea of such to some of the market economies around the world, collectivist approaches don't always look so bad. Fortunately, the authors of Good Capitalism, Bad Capitalism do us all the favor of drawing important distinctions amongst various flavors of capitalism. Some flavors are much tastier than others. This post at Club for Growth blog has links to the book, a WSJ review and some lectures by the authors including one which has a transcript. I'll just swipe the same excerpts from the review.
Their taxonomy goes like this: In state-guided capitalism, the government decides which industries get investment, and it often controls the banks and usually emphasizes exports....They tend to invest too much in the wrong places, stick too long with yesterday's winners and fail to spot tomorrow's.
In oligarchic capitalism, prevalent in parts of Latin America and the Arab Middle East, power and wealth are held by a few, and economies are organized to make them, not the general populace, richer....
Then there's big-firm capitalism, in which big private enterprises dominate...."At its best, [it] generates sufficiently large cash flows to finance...continuing, incremental improvements in products and services," the authors write. "At its worst, big-firm capitalism can be sclerotic, reluctant to innovate, and resistant to change."
Finally, there is entrepreneurial capitalism, in which small and innovative firms are significant. Think the U.S., Ireland, Israel, Taiwan and, increasingly, the United Kingdom. Forming a company is easy, socially useful entrepreneurship is rewarded, institutions provide incentives for innovation and growth -- a catch-all that encompasses everything from openness to trade to sound bankruptcy laws to effective antitrust regulation.
Messrs. Baumol, Litan and Schramm conclude the "best form of capitalism" blends elements of the entrepreneurial and big-firm strains. The former provides the oomph to imagine and invent technologies that propels economies; the latter provides the money and organization to refine and mass-produce them. The secret to prosperity, then, is for other economies to find their own ways to be more like the U.S.
Good stuff.

Socialism is anti-social!!

When discussing the effectiveness of a free market economy compared to collectivist approaches many arguments can be brought to bare. The greater powers and adaptability of a spontaneous order are certainly part of that line of reasoning. This post on Cafe Hayek along with the comments is a reminder of a very different point.
This process is flexible and it encourages creativity. It also denies to anyone the power to unilaterally impose his own vision on others.

In brief, to advise "Let the market handle it" is a shorthand way of saying, "I have no simplistic plan for dealing with this problem; indeed, I reject all simplistic plans. Only a competitive, decentralized institution interlaced with dependable feedback loops -- the market -- can be relied upon to discover and implement a sufficiently detailed way to handle the problem in question."
A commenter states:

It is easy to comprehend the selfish motive of a rotten king, but much more difficult to perceive the complex of selfish motivations in the hypothetical "collective".

So they have rejected the idea of being subjected to the selfish rule of kings, but not the idea of being ruled. Or rather, they believe that others must be ruled to restrain their selfish impulses.

What is the market?

It is the venue where people satisfy their selfish needs and desires by satisfying the selfish needs and desires of others through trade.

Selfish can justifiably be described as self-interested. This leaves us with an order in which people need to make an effort at providing goods and services which other people need and desire, a very social order. Alternatively, central authorities or elites can decide many things. This is less social and in an extreme enough form, downright anti-social.

Monday, June 04, 2007

Kiwis Fruitful

One reason economists have such diverse opinions on policy is that numerically, it's often really tough to verify or disprove theories in the real world. For example, are tax cuts beneficial? I've done analyses in the past, and I can kind of see that past tax cuts have been beneficial overall, but not with any statistical confidence. That's because the tax cuts generally aren't that big and the effects are overwhelmed by other factors. In other words, there are just too many variables and too much noise to really discern anything.

Every once in awhile, some policy change somewhere will have such stark and clear results, that even though there still might not be any statistically significant conclusions that can be derived from that single data point, it seems pretty obvious that the policy makers are on the right track. One example of such a policy is New Zealand's elimination of farm subsidies. Let's start with the conclusion:

A prosperous farm sector without government subsidies? Sounds too good to be true...sounds like a fairy tale. It's not. In 1985, New Zealand permanently eliminated 30 different agricultural production subsidies and export incentives. Over the past 20 years, as New Zealand's farms flourished without assistance...

Here is some of the background:

Subsidies for fertilizer had resulted in its wasteful application. Without subsidies, fertilizer use decreased, water quality increased, and yields were not affected. Additionally, farmers fit their production to the land. Marginal land, which was only farmed to receive subsidies, went out of production and reverted to native bush.

Competition also drove innovation, and farm productivity improved substantially. Labor productivity nearly doubled, and land productivity increased 85 percent. Lamb carcass weights rose 34 percent, and the quantity of milk solids produced per dairy cow increased by more than 30 percent.

Annual productivity gains before reform were about 1.5 percent. For the first 9 years after reform, they averaged 6 percent -- higher than any other sector in the country's economy.

Many had worried that the end of subsidies would destroy agriculture in the country, yet the agricultural sector grew as a percentage of GDP. Today approximately 90 percent of farm output is exported, making up more than 55 percent of total merchandise exports. [...]

Wow! There's more too, please read the whole thing. It's rare to have such a clear example of how letting markets do their thing helps everybody, even the group previously being subsidized.