Tuesday, May 22, 2012

Rising Tide Or Rising Sun

"When goods don't cross borders, soldiers will."

Frederic Bastiat (1801-1850)

How many times do we have to learn the lesson from history that we learn nothing from history?

By that I mean, how many times have nations created their demise by determining that since they did not have something they would simply go get it from some other nation?

Does Bastiat mean to say that economics can keep world peace?
It probably can!  But only if each nation regards trade in the same light - fair, free, without huge tariffs, without pirating.

Will that day ever come?  Probably not!

There are people to keep in power!  Production that needs protection!  Competitive advantage that needs not be shared!  Politics that must be foisted on this or that populace!  Regulation must restrict and divert and limit and crush!

The key word in Mr. Bastiat's quote is not there.  The key word is FREEDOM.

People must be free to make ideas into realities.
People must be free to turn those realities into production.
People must be free to innovate that production and recreate it into something better and cheaper.
People must be free to find markets and offer their wares to those markets.
People must be free to get their wares to those markets.

AND THE PEOPLE IN THOSE MARKETS MUST BE FREE AND ABLE TO PURCHASE THOSE GOODS!  A RISING TIDE IN ALL THOSE MARKETS WILL RAISE ALL BOATS!

And if the market is in another country that can use that produced ware, wants to purchase that produced ware, and can become itself more productive or satisfied with that produced ware, why stand in the way of the entrepreneur who wants to offer that created and produced ware for sale?

For certainly, we have learned from history that when a country cannot produce for itself what it needs for its own markets, or its people need for their own satisfaction, it will find a means of taking it.

And history says that without the rising tide, with the next rising sun we may see another Rising Sun.

Tuesday, May 15, 2012

Calculating The Market

"Every innovation makes its appearance as a 'luxury' of the few well-to-do.  After industry has become aware of it, the luxury then becomes a 'necessity' for all."

Ludwig von Mises (1881 - 1973)

Ironically, the very year Dr. von Mises died, I was studying economics in college and really, really wanted a calculator.

The two most prominent manufacturers were Hewlett Packard and Texas Instruments.

The HPs were very expensive, and difficult to use.  I found them impossible!  To merely calculate 2 + 2 required many key strokes, and to my mind their process was not the least logical.

Texas Instruments (TI), however, had a straight-forward calculation keyboard.  It was also less expensive.

I say less expensive, but to me, and my friends, it was a difficult purchase at best.

We waited and waited for the price to come down.  My target price was $58. That would be approximately$300 in today's dollars.  Not huge, but for a college student difficult.

Very few of us had calculators!  So few, that in statistics class (where we had the infamous "Stat Lab," with calculators available for all) no calculators were allowed in class since so few had them.  Unfair advantage, you know!

The calculator we all wanted to buy was the TI SR-10.  You can see from its photo that it did very little really.  And it had really small red numbers!

But it was the "slide rule" calculator!  It could do everything a slide rule could do!  Only quicker!  We all had slide rules.  They did not help in statistics class very much.

In statistics tests the average grade was about 48.  Most stat calculations required adding huge columns of numbers.  Taking data required "A" numbers, "B" numbers, "A+B", "AxB", even more depending on the question, and each with more calculations.  Each row had to be brought to a number, each column added to a number, and each of these numbers plugged in to formulas, some of which are as long as your arm.  Do you think on a test you are going to get all those calculations right?  No way.  But, if we followed the formulas and demonstrated we understood which formula to use in answer to a question, we got full credit.  A 50 could be an A!

Let's say we had a simple question which asked for the probability theory development of a small population of cannibals and how much variance (or dispersion) from the mean a collection of shrunken blond heads varied, as statistical data points spread out over a large range of values, when compared to all shrunken heads in general.

A few numbers would be given on the test.  We had to develop the rest.  No problem!

$\sigma=\sqrt{\frac{\sum_{i=1}^n a_i^2}n-\left(\frac{\sum_{i=1}^n a_i}n\right)^2}$is the Basic Standard Deviation formula.  It is pretty simple, but from it one is required to develop variances, correlations, and

$\sigma = \sqrt{\frac{1}{N}\left[(x_1-\mu)^2 + (x_2-\mu)^2 + \cdots + (x_N - \mu)^2\right]}, {\rm \ \ where\ \ } \mu = \frac{1}{N} (x_1 + \cdots + x_N),$a summing notation for Discrete Random Variables  or even

$\sigma = \sqrt{\int_\mathbf{X} (x-\mu)^2 \, p(x) \, dx}, {\rm \ \ where\ \ } \mu = \int_\mathbf{X} x \, p(x) \, dx,$
Continuous Random Variables ...

Whew!  Well you get it.  A calculator sure could come in handy!  Now look at that calculator up there!  What does it do?  VERY LITTLE!  And something similar is given out today as key chains!  Dr. von Mises predicted that!

Making Life More Difficult

"Those who torment us for our own good will torment us without end, for they do so with the approval of their consciences."

C. S. Lewis (1898 - 1963)

Notice how those who would interfere with the free market, thinking they can do it better themselves, make life more difficult in doing so?

Notice how those who would create bureaucracy on top of bureaucracy, thinking the new one will make things better yet, make life more difficult in doing so?

Notice how those who would regulate the free market to death, thinking the regulation does it better than a trillion decision makers can do independently, make life more difficult in doing so?

Notice how those who little by little chip away at freedoms and liberties, thinking that they can do better for the individual or the family than they can do for themselves, make life more difficult in doing so?

Notice how those who would do all those things above, thinking they can do "it" better (no matter what "it" is), do so in such a wasteful manner that their fixes cost more than anyone anticipated and they need more money, so taxes have to go up to fund more and more and more as "it" grows more and more and more, make life more difficult in doing so?

Remember Mr. Jefferson's prescient quote.  He could say this BECAUSE, AS A STUDENT OF HISTORY, HE UNDERSTOOD BUREAUCRACIES, AND WHAT THEY CAN DO, AND CANNOT DO:  "I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them."

All of the above is a short list that could be added to interminably.  It is wastefulIt is inefficient.  It is all done with the approval of the consciences, as Jack Lewis said.  It has a common thread.

These statists, as they busily go about doing their doings, MAKE LIFE MORE DIFFICULT IN DOING SO.

Tuesday, May 1, 2012

A Different Pareto Principle

"Democratic government has this fundamental problem:  In broad terms, 20 percent of the people do most of the productive work and create most of the nation's wealth, but the other 80 percent command a heavy majority of votes."

Thomas G. Donlan

Well, this is certainly another view of the 1%!

It is also another take on the old "Pareto Principle," that everyone learns about in Econ 101 - the old 80/20 rule.

This doctrine stems from the 1906 statement of an Italian economist named Vilfredo Pareto.  He observed that 80% of the land in Italy was owned by 20% of the people.  He was also a gardener, noticing that 80% of the peas in his garden came from 20% of the pods.

Considering this a natural occurrence, in both ways, he came up with his 80/20 economic principle.  Looking around at business activity, society incomes, a company's sales, and so forth, it is pretty much true all across the board!

Generally speaking, in business, 80% of the profits come from 20% of the products; 80% of the sales are produced by 20% of the sales people; 80% of the profits come from 20% of the customers.  This goes on.  In this country the top 20% of income earners pay just over 80% of the taxes.  Again, this goes on.

This 80% of Mr. Donlan's less productive people has pretty much held true if you average out the last many presidential elections.  Just in the last three the winner in 2008 won 27%, in 2004 won 83% and in 2002 won 85% of the 3113 counties in the country.  Not naming names, but looking at an election map breakdown by county, does that not appear to hold true for the most productive counties in each election versus the least productive?  WHAT A CONTROVERSY THAT INTRODUCES!

For some time now, I have said that in this country the debate is no longer between left and right, or conservative and liberal (a misnomer).  It seems to me that the real debate is between the producers and non-producers, achievers and non-achievers, and those who give and those who feel entitled to be given to.  Note which group gets pandered to the most!  Note which group makes the most noise!  Note which group creates the most election controversies!

Thomas Donlan is the editorial page editor of Barron's, The Dow Jones Business and Financial Weekly, and is based in Washington DC.