Tuesday, April 29, 2014

The Power Of Free Markets To Do Good

"Those of us who believe in the power of markets to do good must also believe in the power of markets to reduce harms - including the harms of pollution and climate change.  That work of market-driven harm reduction is being done right here."

David Frum

What is a free market?  A free market is one which is regulated by supply and demand.

What is supply and demand?  Supply would be how much of something (good or service) is available to the market and demand is the desire in a marketplace for that supply.





At least not in the long run.

Probably the best example of the power of markets to do good can be understood in the small book I Pencil.  The point of the book, which is a pamphlet really, is that nobody knows how to make a pencil.

A pencil is comprised of many things, many different materials, requiring the combination of many industries (wood, metal, rubber, graphite, paint, glue, etc.) to make it.  People in each industry have come together, each person entirely unknown to the other, to put their industrial production into the creation of such a thing as a pencil. 

The pencil says:  "There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work.  The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson."

HARMONY is the root of the meaning of the word INTEGRITY.  If you want an economy to act harmoniously, to act with integrity, then allow the lesson of the pencil to work!

Organize society in harmony with the creativity of millions of people industry to industry. 

Are there things harming humankind?  Pollution you say?  The market can eradicate pollution.  Simply encourage and allow profit making in its eradication!  Let supply forces to go to work!

That sounds like supply-side economics.  Actually all economics is supply-side economics, for demand cannot be satisfied until the market is supplied with a product to satisfy it!  

Is there a demand for an unlimited, cheap source of energy - say, cold fusion?  Like the car in the movie, wouldn't it be great to give the car the ability to do it's thing by sliding a little garbage into the tank?  If you are running low on power simply throw in a banana peel, a tennis ball and an old shoe and drive (or fly) around for another month!  Wouldn't that be something?

Markets can, and will, make cold fusion possible.  Right now there is a huge demand for it but little economic activity.  Why such little activity?  Because there is no supply!  Once that demand is supplied, more and more suppliers will enter the market, create differentiation of the original product, prices will come down, and people will be able to choose between cold fusion sources.  It will be like picking out tires, or T-shirts.

And so, as David Frum suggests, there is great power in markets to do good!  They can and will make things better.  I'm not sure there is much that markets cannot cure.

Remember though, markets cannot supply the demand for a free lunch.  You will have to work for that.

Wednesday, April 23, 2014

A Recipe For Disaster

 "In the early stages of the state, taxes are light in their incidence, but fetch large revenue. As time passes and kings succeed each other, they lose their tribal habits in favor of more civilized ones.  Their needs and exigencies grow, owing to the luxury in which they have been brought up.  Hence they impose fresh taxes on their subjects, and sharply raise the rate of old taxes to increase their yield.  But the effects on business of this rise in taxes makes themselves felt.  For businessmen are soon discouraged by the comparison of their profits with the rise in taxes.  Consequently production falls off, and with it the yield of taxation."

Ibn Khaldun (1332 - 1406)
                                 Economic philosopher and historian

That quote, from his book, The Muqaddimah, is an accurate description of economic activity in any age.

The Muqaddimah  is a comprehensive historical, sociological, cultural and economics book.  Its contents have been used in many eras by many economists to describe conditions at those times.

Indeed, that quote above sounds very much like the Laffer Curve, drawn at a restaurant table on a napkin to describe to Ford Administration officials what the implications of tax policies are, and what direction the administration should consider.  Dr. Laffer never took credit for the concept of his sketch, stating then that it had been proposed by Ibn Khaldun.

The Laffer Curve, and Khaldun's quote, demonstrate that there is an increase in revenues to the state only up to a certain point of taxation.  If tax percentages are imposed above that point revenues begin to decline, to theoretically fall to zero.  Of course 0% tax yields nothing to the state, and 100% cannot.  There is some point between at which revenues are maximized however, and that is the desirable point which gubments should strive for.  The Laffer Curve looks much like the nose of a rocket pointing upward and resting on a table.

As Khaldun suggests, businesses reach a point of discouragement when taxes get too high, and production falls off.  As production falls off employees are laid off.  As production and employment decline economic activity does as well, and an economy slides into recession or depression.  All for the wants of gubment.

Adding crushing regulations, economic restrictions, policy impositions, fees, top-heavy bureaucracy and huge gubment influence and oversight to those high taxes and what do you have?


Hence, as Khaldun suggests, the yield of taxation declines and gubment cannot pay for its bloated appetites, society is left with what?

Think carefully.

Tuesday, April 15, 2014

That Is Anti Free Enterprise

"By substituting the judgment of bureaucrats and political interests for the private knowledge of millions of entrepreneurs seeking the most productive use of labor and capital, government mis-allocates scarce resources that would be better spent increasing private-sector productivity - and along with it private incomes."

Jason Lewis

Why is that?  In an economy, what allocates scarce resources?


If you fool with the market, you fool with prices. 
If you fool with prices you fool with the allocation of scarce resources.
If you fool with the allocation of scarce resources you screw up and weaken the economy.


Why is gubment so very, very good at screwing up the economy?  (And that is one of the exceptionally few things any gubment is good at...) 

Because bureaucrats, councils, legislative bodies, lobbyists, indeed, any and all of the Wizards Of Wonderfully Smart cannot possibly know of or understand the gabillions of interactions that take place, all of the international connections that take place, all of the motivations and desires that take place to make even the most insignificant product on the market come TO the market!

Such bureaucrat information is limited only to the small political interest that small Wizard Of Wonderfully Smart has in mind.

Only the market is smart enough to do that.

The word "judgment" used in the quote above is used VERY loosely.

So, Jason Lewis is saying that the factors of production in any economy are more effectively and efficiently employed by private sector individual and business interests.  Is that true?

Well, certainly!  There is no political motivation when one retains monies to employ in productive activity.  That is done in self interest!  Those monies are put at risk, with hopes and desires on the line.  That risk, hope and desire contributes to the economy, and to the whole!

When someone's money is "used" by any bureaucrat, there is no risk.  There is no individual hope on the line.  It contributes to what the bureaucrat wants it to.  It's some other person's money!  The bureaucrat throws the money out there and looks to get more!

They are looking for private incomes!


Tuesday, April 8, 2014

Free Enterprise Does Well and Keeps The Shop

"Well done is better than well said.  Keep thy shop and thy shop will keep thee."

Ben Franklin (1706 - 1790)

Free enterprise isn't about good intentions.
Free enterprise isn't about what we say we will do or what we say will happen.
Free enterprise isn't talk the talk


It truly is about doing well, and keeping the shop.

Free enterprise is about integrity.

Ben Franklin had such a succinct way of saying things.  The brilliance in his brevity is legendary.

If each in the cog of a free enterprise endeavor, in free enterprise economies, and there are innumerable cogs involved in the production of everything - if each cog would keep his shop, and do well, indeed do his best, and in the end the final whole is greater than the sum of its parts.

How is that?  The Invisible Hand.  The market is the great sifter.  It sifts relentlessly.  The bad are discarded in favor of those who do well and keep their shops.  There is no idle talk, or good intentions.  The market sifts for results.  The BEST results.

Only the best results thrive.

There are those who deride capitalism for this best result.  They deride how "harsh" and "unfair" capitalism is.  They say there is no "equality" in capitalism!  Well, of course not.  If we get out of something what we put in, if we reap what we sow, there will never be "equality" of result.  Obviously some will sow less and others will sow more.

The Bible has a similar quote - would that all "shops" would act in this fashion:

"Give, and it shall be given unto you; good measure, pressed down, and shaken together, and running over, shall men give into your bosom. For with the same measure that ye mete withal it shall be measured to you again."  (Luke 6: 38)

Consider THAT as a business model!  Woulda, coulda, shoulda that all businesses had that approach!

Another term to describe that sort of business is the Golden Rule.

Are these businesses out there?  I think they are!  Mostly small businesses, the bread-and-butter businesses, those who rely on the relationship and not getting done with the job at hand as quickly as possible.  Those who want CONTINUED business down the road.  They leave their signatures on every job, and that signature describes who they are.

Ben Franklin hit this nail in completely with one strike!  Properly endowed and pursued, free enterprise does well and keeps the shop.

Tuesday, April 1, 2014

Free Enterprise Blazes New Trails

"Do not go where the path may lead, go instead where there is no path and leave a trail."

Ralph Waldo Emerson (1803 - 1882)

That is the essence of free enterprise.  That is the essence of capitalism.

Reorganization, innovation, change, creative destruction, recombination, new, entrepreneurship, divergence, pioneering, improvement, greater efficiencies, increased productivity, rising tide - could we go on?

Are there any ideas in there that conflict with the human spirit of freedom, growth, personal challenge, and personal leadership?

There is not.

And this is what Emerson suggests!

However, who is it that takes the arrows?  Those who lag behind?  Those who mimic, and the pirates?  The scammers who play off of what has gone before, making something "new and improved" but worthless?

No, the pioneers take the arrows.

When the pioneers succeed despite the headwinds and storms the market rewards them greatly.  When they do not succeed the market leaves them in a heap, and crushed.

Who but the free market pioneers will stick their necks out?
Who but the free market pioneers will take the risks of reputation and property? 
Who but the free market pioneers will devise and implement, organize and reorganize, and experiment, experiment and experiment until success rears its wonderful head?

Then why do so many others feel entitled to any gained and earned pioneer rewards?

Why do so many others feel to be given windfall profits?

Windfall profits you say?  Only the capitalists and free market titans earn windfall profits!

Not so and that is untrue.  Those who think that are falling prey to "progressive" thinking of the left.  The left would have us all think that windfall is defined as unexpectedly large profits, unfairly earned.

Any entrepreneur who hits it big might reap rewards that exceed dreams, but that does not make those rewards unexpected!  Why would anyone risk it all on an idea they did not think would succeed?  Entrepreneurs fill their tanks with plans and hopes, and struggle, struggle, struggle toward fruition.  These rewards are NOT UNFAIR.  THEY ARE EARNED.

When bureaucrats think it is their place to TAX those rewards at unfair rates the tax becomes an unexpected reward, AND REWARDS TOWARD WHICH THOSE BUREAUCRATS AND GUBMENTS DID NOT PARTICIPATE IN CREATING.


When gubments earn huge percentages of someone's sweat and equity, all earned and striven for, that in and of itself is, by definition a 


Gubments benefit from windfall profits, entrepreneurs do not.  Entrepreneurs actually work for any profits.

Think carefully.  When free enterprise, entrepreneurial, hard-earned rewards are taxed, where would that money be better used:

By a business that uses the gain to employ more people and produce more of a wanted or needed product,
by a gubment that has demonstrated historically its ability to waste, squander, misuse and misapply it?

Which raises a higher tide - The Invisible Hand Of the Market, or the Not-So-Invisible Foot of Gubment?

Which blazes new trails - The Invisible Hand Of the Market, or the Not-So-Invisible Foot of Gubment?

I vote for the Emerson model - blazing a new trail, 
lifting a greater number,
 and leaving a good mark.