Curt Doolittle

Theme: Incentives

  • I’ll finish with this: Entrepreneurship is the art of finding problems and solvi

    I’ll finish with this: Entrepreneurship is the art of finding problems and solving them for less cost than the customer is willing to pay for it. So entrepreneurship is starting with a set of customers and working backward to the solution, not with the idea, and searching for customers. And hopefully that process is entertaining. At least, that’s why I do it…. And this advice is no value to the zillions of guys out there doing the opposite. They don’t want to hear it.

    Source date (UTC): 2010-07-26 23:46:00 UTC

  • Hi. Thanks for the invite. Interesting posts. But having built or founded a numb

    Hi. Thanks for the invite. Interesting posts. But having built or founded a number of companies from 5M-150M, I have to say that most of the inspirational propaganda read be entrepreneurs is largely nonsense. Most CEO’s are quantitative operational disciplinarians, quantitative disciplined salesmen or quantitative disciplined master craftsmen and by and large they are pedantically boring to people outside of their field. Ideas are cheap. Passion is cheap. Planning is cheap. Strategy is cheap. Operational discipline is costly. Credit is very expensive. But most importantly, customers are priceless: they are the ultimate scarcity. If you have customers, then you have a business. If you don’t, you have a very expensive form of entertainment.

    Source date (UTC): 2010-07-26 23:45:00 UTC

  • Question: “Can you be anti-capitalist and pro market?”

    On Straight Dope, there is a thread on whether one can be anti-capitalist but pro-market. I’ve captured my response below. DEFINITIONS 1) Capitalism (distributed planning and control using the technologies of property and the pricing system). Or politically: a bias toward letting the market solve problems of production. 2) Socialism (centralized planning and control in the necessary absence of the pricing system). Or politically: a bias toward political centralization of solving problems of production. 3) Mixed Economy ( distributed planning and control using property and pricing system, with redistribution of wealth through taxation). Or politically, letting the market solve problems of production, while centralizing some amount of the wealth generated for redistribution and investment in outcomes where the market process is unable to concentrate capital. 4) Market: the voluntary production of property for the purpose of speculating on it’s voluntary trade. The speculative pricing assigned to the goods or services. The reliance upon prices to determine the products to be produced, and the factors of production to be consumed. Implies the regulation of products into the market. and implies the defense of property rights and conflict resolution within the market of goods and services by a third party. 5) Trade: the voluntary transfer of property from one individual to another. (which implies knowledge of the purchaser, and the irrelevance of third parties) DISCUSSION Early Leftist were traditional luddites who confused the necessity of ownership of the means of production (property) with the ability to redistribute the results of that system of ownership: It is not necessary to control the means of production in order to redistribute wealth. While property and prices are necessary for complex production, and incentives are necessary to encourage people to produce, it appears that we can determine rules of property use, and we can determine some level of redistribution while maintaining sufficient incentives to produce. At least, that has been the general course of events over the past century. Contrarily, unstated but implied in that statement, such a redistribution will affect the ability to consume, but not ‘organized control over’ what is produced. This may disappoint some. However, since all groups are led by elites and elites must make decisions on production, the such centralized control creates only the illusion of proletariat control over what is produced. You cannot have a market (speculative production in anticipation of trade wherein prices communicate relative demand) without prices and property. This is logically impossible. While communists have forever posited the opposite, people will not produce excess for market purposes without the incentive to do so (and will resort to black markets, and therefore recreate the market). If what you define as “anti-capitalist” (i suspect) is having a number of people with knowledge and relationships and control of property concentrate resources toward productive ends that you disagree with, then you can indeed be “anti-capitalist”. If you define anti-capitalist as a status-criticism, wherein you dislike the fact that you are most likely a permanent member of the proletariat, which decreases your access to mates and opportunity, then you indeed can be an ant-capitalist. Those are sentimental objections. (Despite the fact that our society is largely run by the middle class and upper proletariat.) But if you mean that you dislike the nature of prices and property, then you’re just illogical, and the result of your beliefs would result in destitute poverty, murder and war. The market evolved because of the limitation of the human mind. We cannot replace it without making the human mind far better than it is. And perhaps far better than it can be. Redistribution is a biological sentiment in the human animal that evolved because it is necessary for group-persistence: to retain competitive ability against other groups, and to insure the group’s survival. Universal egalitarian equality, which is a member of the set of leftist sentiment of “harm/care/nurture” or the sentiment of eliminating the sensation of status differences, or the sentiment eliminating the material differences between people’s access to resources, is simply an illogical construct regardless of which sentiment is being applied: Because we need incentives to produce, and we must over produce and divide our labor to reduce prices. (“We are not wealthier than cave men, everything is just infinitely cheaper due to the division of labor”) Because people will always seek status differences even under socialism. Because the iron law of oligarchy mandates that elites and leaders emerge, and once they emerge they form a self-serving bureaucracy. Because it is impossible for more than a family sized group of people to agree on both the means and ends of doing anything meaningful in a division of labor sufficient to produce low prices. (this last, is the virtue of what we call the market). Participating in the market is also voluntary. One can consume the goods of the market without participating in the market one’s self. Some people, in fact, a majority of people, are not sufficiently competitive in any form of production that they can conceive of, or afford to speculate in the market. So they TRADE their productivity rather than SPECULATE on by producing goods or services for the market. To be a member of a market economy, one only needs to refrain from theft. To be a ‘good’ member of a market economy, once needs additionally to refrain from fraud and deception. But these are the means by which we obtain citizenship in the market, not participate in the market. To enter the market itself, means that you risk capital and compete in the arena that is the market, and are willing and able to accept losses. The problem for the proletariat is that their value-system is predicated on self-production for consumption purposes, and trading for goods that cannot be self produced. People only a century ago would put to market only their over-production, and purchase from the market only for goods that they could not produce themselves. Except there is precious little in modern society that a person can produce himself, let alone, produce for market consumption himself. This necessitates an uncomfortable uncertainty for those people who must speculate in order to survive in the market. Hence leftist sentiments of the family, epistemology of the family, organization of the family, production of the family must compete with rightist sentiments of the market.

    [callout]It is quite likely that the right and left will both fail. That we will instead of succeeding in incorporating all people into the market (the error of the right) or incorporating all people into the luddite familial structure (the error of the left) that we will adopt the european and south american models of a wealthy urban and rural groups, and a ring of abject destitute hyper-breeding poverty around the urban cores, wherein the upper and middle classes pay the permanent proletariat just enough to subsist, and we emerge with a tiered society both geographically, genetically, and materially. [/callout]

    It is quite likely that the right and left will both fail. That we will instead of succeeding in incorporating all people into the market (the error of the right) or incorporating all people into the luddite familial structure (the error of the left) that we will adopt the european and south american models of a wealthy urban and rural groups, and a ring of abject destitute hyper-breeding poverty around the urban cores, wherein the upper and middle classes pay the permanent proletariat just enough to subsist, and we emerge with a tiered society both geographically, genetically, and materially. And this end result will in no small part be due to the christian error of egalitarianism sentiments that deny the productive differences of human beings in the real and material world – the majority of which differences derive from the ability and rate at which one can learn and apply abstractions (IQ) in a dynamic and rapidly moving economy. While neither left or right can achieve it’s idealistic ends, leftism is an attempt to enslave the productive (innovative) class’s attempt to increase production and increase prices for the purpose of status enhancement. But by that restraint doom all people to poverty. This is the strategy behind all monotheistic religions. They are resistance movements that attempt to make status among the proletariat a spiritual rather than material construct. Capitalism (or right-ism) on the other hand is an attempt to keep sufficient productive resources in the hands of market producers that all society benefits, despite the fact that the proletariat feels increasingly left behind and deprived of status because of the accelerating rate at which the productive classes (those who take speculative risks and thereby increase choices and decrease prices) seemingly depart from the lower classes, despite the fact that in all but the rarest circumstances (catastrophic health care) that the difference between the quintiles is one of symbolic status and diversity of forms of entertainment, rather than differences in material well being. As it stands Quantitative Keynesianism is the socialist research program, and Anarcho capitalism is the capitalist research program. The difference between these methods lies in both their ambitions and their methods. By applying 19th century advances in the mathematics of the natural world (closed probabilism) to the aggregate symbols of production of the economy (monetary values), it became possible to try to fulfill some methods of the socialist program by using capitalism for socialistic ends. The problem for the capitalists, and the reason for the failure of the Austrian (qualitative) program’s emphasis on micro-economic behavior, is that they do not have a method of mathematics to provide sufficient explanatory power equal to the left’s program, despite knowing, with absolute certainty, that the Keynesian program must fail. This is because despite the efforts of Poincare, Mandelbrot, Hayek, Popper, Mises, and Parsons, more recently Taleb, and a host of others, there appears to be no symbolic language that can represent the plasticity and organic behavior of the property-pricing system and how it reacts to human knowledge. (This is typically called ‘Hume’s Problem’ of Induction.) It appears, at least at this point in time, that we will need a vast amount of data, on the order of many times that of the Google indexes, to provide us with enough of a basis from which to derive the patterns in that symbolic information. Even if we could find that information, we could find the patterns, and develop a mathematics of economics and the social sciences, the question would remain whether these innovations would have any material impact on the fact that humans are of pedagogical NECESSITY, epistemic status seekers, and that there are those who lead that pack of humanity and those who are forever followers in it, and the envy of the followers, and the arrogance of the leaders mandate that we will remain competitive, and that the problem of human difference is both permanent and valuable to the division of knowledge and labor.

  • The Economics Of Spies: What Spies Really Do

    via What Spies Really Do | Capital Gains and Games. Bruce Bartlett, in reference to the recent Russian spy case, uses an example from his past to pick on the behavioral economics of spying.  But I think, like anything else, there is more to be understood here than meets the eye. He writes:

    I remembered all this some years later when I was working at the Treasury Department and was on the distribution for some CIA raw material relating to economic issues. Almost all of it was worthless. It involved conversations some CIA agent had with a prominent foreign businessman or economist relaying information that could easily be gleaned from that day’s Financial Times.
    Suddenly, I understood what [the spy who had been interviewing me] had been up to. He could have written a memo to his bosses just regurgitating what was in the daily papers, news magazines and other public sources, but that wouldn’t have been very spy-like. It undoubtedly sounded so much better if he could relay the same identical information but say that it had been secured from a high-level congressional staffer. That’s what spies do.

    Bruce, You’re right in part. But there are other factors that might change your opinion of that experience: 0) Yes, a spy is often a bureaucrat, because he exists in a bureaucracy. Often with dismay, frustration and resignation. 1) Spies try a lot of trial-and-error relationship building. In fact, trial and error are a very important part of the business. 2) While Spies are largely from that social group we call ‘nerds’, US spies are usually amazing, wonderful, engaging, intelligent people. But they are, like everyone else, expressions of a bell curve. There are good spies and bad spies and smarter spies and dumber spies. 3) Being a spy is not necessarily doing interesting things and meeting interesting people. And these days, it is a lot more about using relationships to get access to data than it is about human opinion, which is fraught with eror and deception. When a spy talks to you, he is generally looking, like MOST ECONOMISTS ARE, for sources of data, not sources of opinion. And this is very important. Data is more valuable than opinion. They are looking for relationships that will give them access to data. So any conversational content is irrelevant. Your opinion is only a measure of the trustworthiness of the relationship.  The data on the other hand is the reward he is looking for. 4) The value in human intelligence on economic opinion, is not to be found in what you tell them. It’s to be found in the SET of ALL economic opinions found by ALL spies speaking to ALL contacts in any administration and by looking for POLITICAL patterns among the participants. It is not in what you tell them. In fact, a spy will NEVER ask you a direct question regarding his real intentions. This information is then fed to Analysts (Super nerds) who try to obtain value from it. This is a round-about way of saying that you were just a cog in a wheel. And spying is an art of subtlety. And you shouldn’t try to deduce too much about spying from your experience. A spy is, in general, engaged in the trial and error process of creating a large number of relationships while looking for opportunities to gain access to some sort of data. It is a very nerdy business. Forensic accounting and forensic communication data are considered valuable to the trade. By contrast, relationships that are valuable are ‘lottery winnings’. Sure, they target specific people and specific industries, but all the good data is actually in the private sector, and it’s far easier to get there than it is from “another bureaucratic wonk in another bureaucracy who is even more ignorant about that is going on in his country than I am”.

  • CONTROVERSIAL REALITY : A CONTRARIAN’S VIEW OF THE AGENCY, BUSINESS AND SOCIETY

    AdAge and The Decline In Car Driving Among The Young The advertising industry’s most important publication, Ad Age, recently posted an article entitled “Is Digital Revolution Driving Decline in U.S. Car Culture?” wherein the author describes the decline in driving among the young, and the readership leaves comment after comment positing reasons for the change, most of which belie political sentiments. This kind of economic commentary can be found daily on any economics blog. And it’s fascinating to see the difference between the interpretations of different subcultures of the same data. Economists make fewer errors in their reasoning. Reporters try to create sensationalism and readership by appealing to the common errors that people tend to make, most importantly the error of confirmation bias : seeking what you agree with and ignoring what you don’t. Humans demonstrate a cognitive bias wherein they overestimate their own ‘normalcy’, or how likely people are to think like them. This is particularly true of people in the agency business for a variety of reasons – and thinking otherwise might not necessarily be beneficial to one’s career in the agency business. This business is a ‘magnet’ for group-thinkers, because the profession requires that you think about ‘groups’ for a living. THE REALITIES OF CITIES Most people in history were confined to 20 mile arduous around their home. Cities are, and always have been, notoriously dirty and noisy, often crime ridden, and push people into small spaces from which they desire ‘vacations’. (The Un-Heavenly City by Banfield.) In a recent conversation I had with a Chinese intellectual I was surprised at how little he understood the ‘toxicity’ of human beings living in density. It’s hard on them. (Selection in urban environments comes from disease resistance. – Plagues and Peoples by McNeil) People like density because it decreases opportunity costs – everything is close-by and because it’s dense, businesses and services are better capitalized and better funded because they have a higher opportunity of being funded – as long as they don’t require much space, or as long as what they sell is expensive enough to pay the cost of that density. But because of the expense of that proximity, raising children is for the poor who have no other choice but to live in kennels where the cost per human is low, and the wealthy who can afford to make the choice, not the middle class, who must live elsewhere. Therefore, Cars and Suburbia Are Synonymous. Because costs of a the quality of residences decrease with distance from urban centers, allowing more space at lower cost. Most urban downtown cores are surrounded by slums. Paris, Vienna, NY, Chicago and most impressively LA. Most dense urban areas outside of the west are almost entirely slums. London seems to have done a better job of controlling it’s development than most other cities. The reason for this is simply a tragedy of the commons that occurs when people move into very high density. It’s fixable with serious political effort, but there is a high cost of projecting that effort. WHY PEOPLE DRIVE CARS People drive cars because 1) Increasing opportunities for experience (we all this ‘the sense of freedom’) 2) Increased opportunities for mating outside of one’s group (this is obvious) 3) Permitting distance between home and job once jobs industrialized 4) Permitting the easy transpiration of ‘stuff’ to one’s residence 5) Ease of childrearing, especially once women enter the work force. 6) Increasing Leisure Time not spent traveling. 7) Status – because status will always be with us, because it determines access to mates, jobs, opportunities, knowledge and experiences, and because people are imitative and need a way of knowing what to imitate in order to get attention, opportunities, and mates. CHANGES IN DRIVING BEHAVIOR The actual reasons for the shift In Driving: 1) Cheap credit inflated residential prices, mortgages and rents. Wages were stickier, so young people whose primary social function is mate-seeking chose urban locations in exchange for car ownership and geographic freedom. This phenomenon will change once they find mates and seek suburban life for their children, as well as increase their household incomes by marring. So in other words, preferences will not change, just demographic distributions. (Just like political preferences.) 2) Unemployment over the past two years has decreased the tolerance for high fixed costs and younger people are abandoning or delaying the luxury of driving. They are just delaying it, and will reverse it when possible. 3) It’s a lot less ‘boring’ to stay at home when you have so many forms of entertainment available. 4) People live in increasing density, so that the need to travel in order to ‘sample’ enough people to identify friends and potential mates is lower, and to some degree is simply easier on the web. 5) Increased Populations Of Immigrant Urban Poor and their children who are most likely to consume public services, and least likely to have risk capital available for automobiles. These aren’t in any order, but I’ll leave it to the reader to determine the impact of adding 30M people over a 20 year period. PUBLIC TRANSPORTATION Public transportation has a statistically insignificant to statistically minor impact on commuting everywhere except New York City. In fact, NYC is so dominant, that it skews the entire country. If you remove NYC from the analysis then the dominance of car culture is obvious. By contrast, many rail systems (Portland Oregon for example) are catastrophic losses, and suffer from insufficient ridership to cover the costs. In europe people do not own homes, they rent and save. National cultures are also more homogenous. People are gregarious in homogenous societies and isolationist in heterogeneous societies. Contrary to what is commonly believed. Diversity decreases willingness for public investment. Everywhere. in general, if a people can afford the independence of a car, in any culture, they adopt it. That is what the statistics illustrate, and there is no evidence that that preference will change unless the cost of urban homes decreases per square foot and the cost of personal transpiration increases dramatically. Why? Because at any point, either TIME or MONEY is more important. At the point where time is more scarce than money, a car becomes your preferred method of transport. At the point where you have a family and must transport them, and STUFF a car becomes your preferred method of transport. No matter what your income bracket. People do not change their lifestyle, political or class biases, except that they become more conservative as they age. There is no shift going on that is not purely economic and demographic in origins. Agencies who are supposed to promote goods and services can only create loyalty inducing narratives for people if they understand why people make decisions. And bringing your biases to the table only makes it increasingly difficult to create messages and campaigns that resonate with consumers – because consumers increasingly resonate with the truth. Good advertising is the truth spoken succinctly and creatively.

  • The Humble Libertarian And Flat Taxes.

    The humble libertarian makes an argument for flat taxes in order to quell the state’s tendency to foster class warfare.

    with a flat tax, they can’t just pick on the winners anymore. In order to get more revenue, their best tactic would be to incentivize overall growth. Lower trade barriers. Lower the costs of doing business. Encourage real growth.

    Exactly. Flat taxes are superior in a democratic government for two reasons 1) they must be kept small, and the lower half of society will make sure that they are kept small. 2) the government must foster growth in order to increase revenues. Secondly, our rhetoric treats people as if they are in permanent classes, yet we tax income which is highly variable. If we are to tax anything progressively, it should not be income, but balance sheets. Lastly, there is a point at which one’s possession of and use of capital is a distortion of the market (The Silver Debacle, or George Soros’s Abuses). This appears, at least in round numbers, to occur at its lowest, somewhere near 1000 times the median income, and accelerates from there. Above that position, people are no longer participating in the market. They are governing it. (This debate is a bit complicated for a comment on a blog post.) So, if our taxes are to include those that are progressive, they should be against balance sheets, with the purpose of getting as many people into the capitalist class late in life as possible. At least, unless you want private capitalist government rather than a market run by market participants for the benefit of market participants. Large capital concentrations in combination with individual knowledge cannot be applied to ‘the market’ as we understand it, and justify it in the classical liberal sense, as a ‘social good’.

  • The Economist: Why Are Companies Hoarding Cash? My Answer: Uncertainty.

    THERE is a new question posed to our panel in the Economics by Invitation section:

    Much of the recent increase in private-sector saving comes from businesses. What explains the rise in corporate thrift? How long will it last, and what policies might reduce it?

    As an article in this week’s edition explains, the build-up of cash by the private sector can affect the recovery.

    If cautious firms pile up more savings, the prospects for recovery are poor. Economies will be stuck in the current—and odd—configuration where corporate surpluses fund government deficits. If firms loosen their purse-strings to hire workers and to invest, that will allow governments to scale back their borrowing.

    Economist Xavier Gabaix believes that the fear of another shock down the road is making firms cautious. Hal Varian thinks that firms are not investing because they see no signs of demand picking up anytime soon.

    Firms are not investing because they don’t see much demand for their products now or in the near-term future. And, of course, we end up with a self-fulfilling prophecy. One possible strategy would be to offer a temporary investment tax credit or accelerated depreciation allowance.

    They are hoarding cash be cause of uncertainty. Regime uncertainty. Economic Uncertainty. Even cultural uncertainty. There are so many layers of uncertainty that businesses don’t even know how to advertise. What products to bring to market. What trends can or might emerge if they help them.

    [callout]Big businesses are starting to spend BECAUSE they have cash. But recessions and job recovery are led by SMALL BUSINESS and small business cannot get credit. Credit for small business is speculative. It’s all speculative. And small business owners have nothing to borrow against. Nothing. Any hard asset is now questionable in value.[/callout]

    Big businesses are starting to spend BECAUSE they have cash. But recessions and job recovery are led by SMALL BUSINESS and small business cannot get credit. Credit for small business is speculative. It’s all speculative. And small business owners have nothing to borrow against. Nothing. Any hard asset is now questionable in value. To move the economy, consumers have to show that they’re spending. Companies have to show that they’re taking risks (investing). Any reference to demand is an antiquated method of looking at an economy. There isnt’ a demand problem unless there isn’t an uncertainty problem. Right now there is an uncertainty problem, so there isn’t room for a demand problem. To eliminate uncertainty, and to create jobs, we have to loan to small business despite their weak balance sheets. That’s the problem. In a nutshell. That’s the problem. Some of us are trying to figure out how to fund small businesses. But politically,, it seems impossible.

  • The Nonsense Alternative Called “Solidarity.” Throwing The Peasants A Bone.

    This bit of ridiculously regressive Luddism was posted on a left leaning blog. It touts “A Solidarity Economy”. Which is a nice name for voluntary organizations that circumvent the pricing system. Yet another example of enduring marxist silliness.

    There is no alternative to free-market capitalism, Margaret Thatcher used to say, and about this, like so many things, she was wrong. … What is the Solidarity Economy? It’s a movement that has brought hope to a world disillusioned by capitalism and too often unaware that economic activity can be conducted with respect for human decency and the planet on which we live. Its five key principles are solidarity, sustainability, equity in all dimensions, participatory democracy and pluralism. … The role of these initiatives is certainly up for debate. Consumer cooperatives are vulnerable to criticism as being somewhat exclusive. Some models of cooperative housing are not particularly sustainable. But the wide variety of Solidarity Economy practices ensures that successful models are emerging, with success based not just on economic viability, but on social and ecological responsibility. … The transformative power of the Solidarity Economy is that it can grow within the current economic system, eventually replacing it with a more human way of providing for society’s needs. …

    You can use meaningless terms yet conveniently rely on a lack of detail to gloss over yet another permutation of communal sentiments. But no matter how many times you rephrase the same tired fantasies, you will not alter the hard reality that will face any participants in this fanciful silly Marxist doctrine: 1) A lack of incentives. 2) a lack of competitiveness 3) human limits to consensus on means and methods 4) human tendency towards bureaucratic corruption 5) the natural slowness of the system. Essentially you would doom everyone involved to perpetual poverty.

    [callout]But make no mistake that such fantastic extra-market lifestyles are luxuries provided BY THE MARKET, not alternatives to it.[/callout]

    These are good models for knitting circles, volunteer organizations, the uncompetitive, and the dull and ignorant, for whom market signals in the form of prices are too abstract to synthesize, and who do not have to manage scarce resources. In other words they are good for small networks within a capitalist system for the purpose of organizing members of a permanent submissive underclass. Any system capable of the current productive diversity must be of necessity incomprehensible. The market exists to handle incomprehensibility. And it functions despite incomprehensibility, anonymity, compassion or care. Within the wealth that is generated by capitalism, it is certainly possible to carry vast numbers of people who consume the benefits of the market without participating in it. But make no mistake that such fantastic extra-market lifestyles are luxuries provided BY THE MARKET, not alternatives to it. But if you want to throw the poor kiddies a bone so that the can lie to themselves that they’re special and principled rather than impotent and subsidized i suppose amidst the political discourse its no more harmless or harmful than any other drivel.

  • Krugman Watch: Paul’s Beginning To Admit Failure And Here Is Why

    In a series of recent posts, Paul Krugman is starting to admit that he’s failing to be able to use his pulpit, position and his credibility to encourage government spending. What I find most interesting is that he argues that proletariat sentiments of inequality (injustice) are the driving social force, while failing to understand that middle and upper middle class sentiments of injustice (inequality) are an equally driving force. Paul:

    [callout]What I find most interesting is that he argues that proletariat sentiments of inequality (injustice) are the driving social force, while failing to understand that middle and upper middle class sentiments of injustice (inequality) are an equally driving force.[/callout]

    I think you are failing in your effort as a public intellectual, that you are aware that you’re failing, and that twenty years from now, it’s going to be clearly evident that you failed to encourage borrowing (debt) and spending (investment) that WOULD have made a difference, and WOULD have assisted us in getting out of this long term stagnation. And you’re failing because you can’t envision HOW to put money to work in the economy, and you can’t do that because of your personal biases and fantasies. But I suspect that you will go to your grave holding desperately to your desperate convictions – convictions held by the fantastical beliefs of a frustrated minority. A minority that has not in two thousand years, been able to obtain and hold onto land, and as such fails to understand peoples that DO hold onto land, and why they are able to hold it. And in particular, why they are wiling to pay very high social costs, in order to hold it. But the social engineering you think that you can accomplish with economic policy runs too counter to human behavior to produce your desired ends. A heterogeneous people will NEVER act as you desire them to. A ‘CREATIVE CLASS’ will never work to produce your desired ends. Because a creative class must take RISKS, and they take risks with people with whom they TRUST. And they trust people with whom they can best how to trust. And they best understand people who are LIKE THEM. The diasporic english, armenian, chinese, hindu and jewish people are the most competitive and innovative, but aside from the english, the rest tend to work intra-race. Even within races, people cooperate within CLASSES. They may work or consume across lines but they do not RISK across lines, and RISK is what generates jobs, and jobs are what generate consumption. Government spending does NOT ‘inform’ risk takers. It actually makes them angry, because they see the state as a competitor that deprives them of opportunity, and a predator that deprives them of choice. More importantly, all productive creativity requires some sort of technological innovation. It is a product of material manipulation of the physical world. Creativity is not in the capitalist class but in the entrepreneurial middle class. Something must be invented before it can be profited from. So some groups are more effective at mobilizing their middle classes than others. The USA had prosperity to share because of external, not internal factors. Anglos had a new continent to sell off, the only form of government capable of distributing the work of it, (And after the Louisiana Purchase, a government invented specifically for it). Aggregate but temporary technological advantage over much of the world. The inexpensive acquisition of british sea ports. The ability to sell ‘dollars’ internationally because of adopting those ports and the ensuing projection of military power. The collapse of or absence of competitors – particularly those under communism. The conversion of vast numbers of laborers and farmers to suburbanites made possible by low cost of energy, energy distribution and manufacture. The use of print, television and radio advertising to stimulate class-advancement incentives in vast numbers of people by the accumulation of basic consumer goods many of which freed women from the need for dedication to household labor and allowed them to enter the work force and increase productivity. These external factors are MORE INFLUENTIAL than monetary policy. Demographic (distribution), Race, Culture and Class factors are MORE important than monetary policy in determining risk-taking, and risk-taking is what creates jobs. These cooperative frictions DECLINE under wealth because of less need for group persistence, and they INCREASE under duress. In fact, we are seeing a national moving pattern that is the ‘flight from diversity’. And we are witnessing the US adoption of the south american model of a defensive white urban elite, an increasingly minority poor suburban ring. And in those cities where this situation cannot form, flight. Because diversity is an economic disadvantage. Cheap labor may not be. Diversity is. And we have known for a very long time that tribes may integrate into the legal and property system, but they do not integrate into the political and cultural system. Any integration is an illusion of our winner-take-all two party system. Minorities and majorities demonstrate group-persistence strategies. They do so because status determines mate selection, access to opportunity as well as serves to provide people with feedback signals, and status is easier to obtain within group than without. This status-economy is MORE important than pricing signals EXCEPT under absurd conditions. The US interwar period is an ABSURD condition. The euro-atlantic expansion is an absurd condition. The western dalliance with integration of cultures is the product of ABSURD conditions.

    [callout]our government, has built an empire rather than a nation. … [Empires] only survive when a minority has political control over the empire, and where that minority allows economic freedom, but specifically prevents political freedom.[/callout]

    Under these conditions of absurdity, our government, has built an empire rather than a nation. Empires are not egalitarian, they simply consolidate trade routes and reduce the friction of trade while increasing the size of the market. They are anything but egalitarian. And they are only beneficent, and they only survive when a minority has political control over the empire, and where that minority allows economic freedom, but specifically prevents political freedom. You are not going to get what you fancy. You’re going to fail as a public intellectual. And you’re going to fail as a public intellectual because of your own class and cultural biases. It’s not that we don’t need spending. It’s that we must invest in production not consumption. And that your underlying desire is really redistribution, and fulfillment of your frustrated cultural and racial ambitions, not increases in production. And you will not get the body of people to borrow and invest unless you abandon those fantasies. But people never do. You won’t. And so you’ll fail. And all your efforts will be wasted.

  • Who Was Hayek, What Are Austrians, And Why Should I Care? (In 1500 Words)

    On Old School Economics, someone asks:

    Can anyone summarize the basic tenets of this school of economics and what are Hayeks contributions? I’ve been looking all over the place and have found some websites that are a bit confusing so if you could make a list, it would be helpful.

    Hayek is one of a line of Austrian thinkers. The term ‘Austrians’ was originally, like ‘capitalism’, derogatory: meaning essentially ‘those quaint hicks’. Austrianism is a micro-economic (versus macro), rhetorical (versus mathematical), approach to political science and economic theory. This approach suggests that we can analyze the behavior of individuals in economic affairs and from that deduce the best macro policy. It assumes (Like all systems of natural law) that people are not terribly plastic, and that they will ‘always act as humans with self interest’ and that we should enact policies that work in tandem with human behavior rather than trying to change human behavior.

    [callout] The Austrians used insights gained from calculus (the relative movement of bodies) to create the principle of ‘Marginal Utility’ (wherein each unit of a group of resources changes in value to the owner as they are sold) and the ‘Subjective Theory Of Value’, wherein the value of an object is in what others will pay for it, thus explaining the essentially speculative, and therefore unsettling, nature of capitalism. [/callout]

    Historically, the Austrian school is a German reaction to the English school’s theory of value. The English (and then marxist) schools, embraced the Labor Theory Of Value, wherein the value of an object has to do with what work went into it. The Austrians used insights gained from calculus (relative movement of bodies) to create the principle of ‘Marginal Utility’ (wherein each unit of a group of resources changes in value to the owner as they are sold) and the ‘Subjective Theory Of Value’, wherein the value of an object is in what others will pay for it, thus explaining the essentially speculative, and therefore unsettling, nature of capitalism. This theory created a much more complex world of things for economists to measure: if all values are subjective, and if each unit of a resource has a different value, then the world consists of an infinite number of unique objects whose value cannot be known until it is sold, and our attempts to measure them in real time are limited to our ability to make wide generalizations and averages about the economy. After these initial insights, Austrians also contributed to theories of money, trade cycles, business cycles, and in particular theories of money and interest. But they all depended upon the basic innovation: relativism (like Einstein’s relative motion of bodies) and therefore subjectivism – again, the application of calculus to human affairs. (The depth of this cognitive insight into the nature of relativism might not be apparent to most people, nor the complexity of created by it. Pi For example is forever inaccurate because it is an approximation of an infinite number of triangles. It’s insolvable using the technology of mathematics as we understand it. Economics to some degree, must make similar averages and assumptions and there is simply no way around it. In fact, the only measure of what we may do, is what we did. There may be no mathematics to explain our economic activities other than the record of our economic activities, because we invent the future, we don’t discover it. ) Austrian theory, which explained the workings of money and information in the market economy, provided the analytical and mathematical methodology with which to argue against the socialist’s attempt to revert from the increasingly complex relativistic market economy to the simplicity of the predictable the village economy. Hayek contributed to this body of economic and political theory in a range of areas. But he is particularly read for his application of the limits of knowledge to political and economic systems. These limits of knowledge are embodied in three essays. They are easy to read. And you can read them a hundred times and learn from them on every reading. 1) “Economics and Knowledge” 2) “The Use of Knowledge in Society” 3) “The Pretense of Knowledge” (To which I would add one more “Coping with Ignorance” and another by Karl Popper: “sources of knowledge and ignorance”. THey were friends and popper’s essay is insightful. ) And after reading those, the one book he referred to as a ‘pamphlet’: “The Road To Serfdom”.

    [callout]One critic has stated that “all of Hayek can be understood in a few essays”. Which is true. Of course, all philosophers can be reduced to one insight. However, his insight is profound.[/callout]

    One critic has stated that “all of Hayek can be understood in a few essays”. Which is true. Of course, all philosophers can be reduced to one insight. However, his insight is profound. Along with Ludwig Von Mises, Hayek helped undermined the advance of socialism in what was called the ‘Socialist Calculation Debate”, in which he and Mises argue: first, that as populations increase and specialize in a division of knowledge and labor, the knowledge needed to coordinate production in time is so vast and so rapidly changing that it is impossible for a central authority to obtain and use that information. Second, that prices are the vehicle by which we communicate and coordinate with one another and by destroying prices you destroy that ability to coordinate our activities. Third, that without prices and competition there is no incentive for people to participate in ‘problem solving’ necessary for efficient production, and instead, production will atrophy through entropy. Fourth, that people will simply turn to recreating the price-market in the form of a black market. There are an infinite number of additions to this list, but the central themes are the same: we must increasingly coordinate our actions in increasingly large numbers, producing increasingly complex goods using increasingly fragmentary knowledge. And that without these tools we cannot coordinate our activities. For most of his career Hayek was unhappy that ‘The Road To Serfdom’ was so well respected compared to his more ‘scientific works’ as he put it. But he changed his mind later in life. We should note that Hayek’s ideas are not arguments against redistribution or redistributive public services, so much as arguments against interference in the market economy, and the necessity of using the market economy to provide services. The contemporary reader may not understand that the scope of socialism has changed from one of outright management of the economy to incremental management of the economy. Others have followed Hayek and stated that the behavior of people in a bureaucracy is the problem, not necessarily government itself, when we see government as limited to the use of ‘earnings’ for the provision of public services. Others have theorized that the entire state can be privatized as it was under the large monarchies and can accomplish the same ends. And it appears that this might be true. Hayek’s strengths are also his weaknesses: he was a polite gentleman, and thus his arguments are often ‘softly spoken’. WHen he refutes someone else, he assumes that they are making a simple intellectual error and that he’s helping them correct it. He assumes all men have the best of ambitions. And in doing so does not expose their motivations. In particular he did not refute Keynes, who simply gave socialism a nicer name, and allowed government to change it’s purpose to that of reducing unemployment and increasing redistribution from that of creating competitive capital, and changing society from a system of saving for the purpose of inter-generational lending, to one of consumption and inter-generational dependence. This gentle conservatism perhaps limited the scope of his theory. But for whatever the reason, his theory was too limited. Among all theorists back to Hamilton and Jefferson, Hayek came the closest to solving the problem of political economy in an industrial society: but failed. He gives us warnings about what not to do, and why not to do it, but despite his efforts, he failed to tell us what we should do. Or at least, he failed to sufficiently innovate such that we could implement a society that would preserve our anglo-saxon ‘rights as englishmen’: those rights and obligations as a fraternal order of peers participating in a republican self-government operating a market economy. Which is really what the conservative movement is, and always will be, about.

    [callout]he failed to sufficiently innovate such that we could implement a society that would preserve our anglo-saxon ‘rights as englishmen’: those rights and obligations as a fraternal order of peers participating in a republican self-government operating a market economy. Which is really what the conservative movement is, and always will be, about. [/callout]

    He tried to solve the problem of political economy in the industrial age, but he failed, along with Mises, Popper and Parsons. Socialism is not an innovation. It is Luddism: the attempt to make comprehensible a market economy, which exists precisely because it is so complex and incomprehensible that we must use the pricing system and a division of knowledge and labor to administer it. But that does not mean we know how to govern a complex and diverse empire using the traditional republican methodology of opposing powers using debate and consensus over abstractions and an unaccountable legislature relying on intuition and hearsay because the numbers that they have to work with are of such imprecision and speculation that they are meaningless. And when, under fiat paper money, they are not limited by the opinions and willingness of others to comply with their ambitions. Republicanism is a methodology for operating the extended family we refer to as the city-state in a hard-money economy: people with shared economic incentives and shared values.

    [callout]Republicanism is a methodology for operating the extended family we refer to as the city-state in a hard-money economy: people with shared economic incentives and shared values[/callout]

    We have not yet solved the problem of Imperial Government under Fiat Money. Hayek thought too small and failed us. The libertarian answer is a Luddite response as well: either reduce government and our states to city states (classical liberals) or fully embrace a market government (Rothbardian-Hoppian Anarchists). And so far, we are left with creeping socialism and no sufficient answer to the problem of preserving our freedom from within competing empires. These articles can be read at http://hayekcenter.org/?page_id=11.