Faber-Mart

CNBC re-aired David Faber's two-hour special, The Age of Wal-Mart, Sunday and for the first time I saw it (I’ve never heard about it until now). Overall, I got the impression that the documentary was slightly slanted against Wal-Mart for two reasons. The first is simply that on two instances, the voice-over referred to the company’s goal of “world domination.” Faber’s word choice and tone was inappropriate; “world domination” can only be practiced by governments and evil geniuses. It requires the use of force, something Wal-Mart doesn’t have.

The absence of a core argument in favor of the company also rubbed me the wrong way (though I should blame Wal-Mart officials for that). While there was lots of talk about stores Wal-Mart drives out of business, there was nothing on the retail stores Wal-Mart encourages. The logic is simple: because Wal-Mart saves its customers money, people have more money to spend on other things. Because Wal-Mart can’t sell everything, completely separate companies get a boost.

For example, while Wal-Mart sells books, DVDs and music, selection of those things is very limited. These limitations are extended because the chain is willing to not sell certain titles. So while mom-and-pop hardware, grocery and electronic stores are run out of business, mom-and-pop book, movie and music stores (appropriately stocked) are enhanced. The outrage by these competitors isn’t so much generated because their businesses might close but because they aren’t willing to adapt to the changing business climate.

That’s Wal-Mart’s great contribution to society (not “keeping inflation down” as an interviewed retail economist said). Because they are so efficient, people as a whole get more. This is how economies grow.

Them Crazy Brits

We make fun of the British but sometimes they give us some good stuff: the Beatles, Monty Python and most recently, two students breaking our laws. I wonder if they're looking for some company.

The Brads Break Windows

The Broken Window Fallacy is a harsh mistress. She slithers in countless forms and wraps her tentacles around even the sharpest of minds. After each conquest she hungers for more, urging the bearer of her bad news to infect others.

So it’s not surprising that Brad DeLong agreed with Brad Plummer when he said that it doesn’t matter if Americans spend 40% of their income on health care via the private industry or the government. Alex Tabarrok challenged their conclusion saying,

To make the problem with Brad P.'s thought experiment clear suppose that we documented exactly how everyone spent their yearly income. Now we tax everyone 100 percent and provide them with exactly what they were buying before. Nothing changes, right? Wrong. At 100 percent tax there is no longer any incentive to work - thus no one works and nothing is provided. Everything changes.

Alex is absolutely right. Even if we assume that the government could collect such a daunting level of information and even if we assume that people are so bland they want exactly the same things at exactly the same times year after year and even if we assume that the government could peacefully enforce this exchange of work for things, Alex would still be absolutely right.

There’s a lot of tacit satisfaction that comes into play when people do the shopping themselves. For a lot of people shopping is socially stimulating, acts as leisure time and embodies a certain kind of discovery process that a state government could not replicate. On the supply side, manufacturers have a reason to make the things people need and they have an incentive to improve their product.

But if the government pays for your medical costs you have fewer choices and you loose some or all of the interpersonal relationship with your doctor. Doctors have little reason to exceed expectations. The incentive structure has fundamentally changed.

And because all those earlier ifs are big IFs, the problems multiply and the incentives change even more. The Brads are breaking classic windows: option A is no different than option B because we get the same thing either way. They don’t pay attention to what’s done with the money, and why people use it that way. Ultimately, society gets very different things.

Everyday Miracles

We are exposed to technological wonders everyday, so much so that really amazing things seem totally mundane. At Café Hayek, Don told us about flat-bottomed paper bags. Their free-standing capacity and necessity of hand folding made them a luxury item. Now my cats play in them.

It makes me think of Russell’s article on the cardboard box, or mine on purple. The number of everyday wonders is virtually unlistable: aluminum cans, books, plastics, tennis shoes, refrigerator magnets, staplers, batteries, scotch tape, aspirin… All of these things either didn’t exist or were incredibly expensive two hundred years ago. Now, I’m surrounded by them, use them generously, buy them on the fly and loose them without batting an eye. All of these were forged from the free market, not from governments. Free markets made them cheap and practical. Free markets improve them to this day. Makes you think what’s next.

Fonts for Everyone!

Here’s a lovely example of what happens when we’re not so concerned with copyright. It makes you wonder what stuff is lost when are (as is usually the case).

Cutting the Fat

While protectionists may scream panic, I find the bankruptcy of Winn-Dixie—a chain of supermarkets—to be yet more evidence of creative destruction. As they blame Wal-Mart, it’s worth pointing out that the most vocal naysayers of any company tend to be their competitors (such as the crusades against Rockefeller, Vanderbilt and Microsoft).

Organic Food Can Kill You

When I wandered into the Health Section of a local grocery store, I discovered something curious: nearly all the food proudly displayed an “organic” label. Cereals, peanut butter, pasta, milk, cheese, potato chips, nuts—the list goes on and on. Celebrities and commentators often remark their wish to eat “organically” for health reasons. The association of “healthy” with “organic” even affects to our nation’s children: some Wisconsin and Minnesota schools are substituting conventional meals with organic ones.

The idea that “natural” is “better for you” is one of the leading myths of our time: organic food can actually be harmful. For example, organic farmers don’t use nitrogen enriching fertilizer—it’s a man-made chemical—they cover their crops with cow manure instead. The manure passes on various strains of bacteria to the food that grows in it, including E. coli O157:H7 which can get in the tissue of plants so it can’t be washed off.

Supporters downplay that very real danger (which kills hundreds of Americans each year) and emphasize unfounded concerns. They say the real point is that organic foods don’t have artificially created pesticides, which is true for the most part. But they don’t tell you that doesn’t matter. There is not one documented case of a person getting sick from pesticides. The farmers, who are exposed to huge quantities of the chemicals everyday, don’t get sick either. If what supporters of organic foods were saying was true, millions of farmers would have died a long time ago.

Pesticide fear mongering becomes even more ridiculous when you understand biology. Plants excrete natural pesticides called Halogenated Dimethyl BiPyrroles (HDBPs). We ingest about 10,000 times more of these pesticides than man made ones and we’ve been doing it for thousands of years. Yet people are living longer and longer.

The six billion dollar organic food industry loves touting junk science to support their smear campaign against technology. Organicconsumers.org now touts a recent study by the Danish Institute of Agricultural Sciences. According to the article, “rats [who] fed on organic food were slimmer, slept better and had stronger immune systems than others fed on conventionally-grown produce.” But slimmer doesn’t mean healthier, “sleeping better” is subjective and their immune system was probably enhanced because it was busy fighting off bacterial infections. The sample size wasn’t even large—there were only twelve rats per group. To make it statistically significant, each group needed at least 30.

It just shows that with sloppy science and unfounded claims, you can convince people of anything. You can even get them to think that chemicals are bad despite that people are nothing but leather bags filled with chemicals.

Public Places, Private Star Trek

Privacy (as a facet of property rights) is a sticky issue, one that gets rather confusing when considering freedom. In the Star Trek: DS9 episode, "Meridian," the B plot concerned an alien who had a crush on Major Kira—second in command of the space station. This alien hired Quark, the local bartender, to create a holosuite program featuring the Major.

A holosuite (or holodeck if you’re a TNG type) is a computer simulated environment that looks in feels like reality in every way. You can touch objects, feel them in your hand and have sex with them. That’s what this alien had in mind for holo-Kira.

So Quark had to scan Kira’s image. First he tried to lure her in a holosuite then he tried to take her holopicture with a handheld camera. Neither succeeded. From these attempts, Kira figured out what he was trying to do and that her image would be used to fulfill the lusting desires of someone else. She talked about it as if Quark was being immoral.

I started asking myself what her problem was. Sure it’s her body but it’s the alien’s fantasy. Denouncing the program would be like condemning him for thinking about Kira intimately. The only difference is the holosuite makes it seem more real, but that’s not enough to make it wrong.

Granted, if Quark were mass marketing the program, there’s a case that permission (and a cut of the profits) is called for. But I can’t help but wonder how far that rule should extend.

Consider celebrity status versus the rest of us. Dozens of tabloids take pictures of celebrities (and make money off of them) every week. But if you’re on Cops or Candid Camera, they need you to sign a release before they can show your face. What’s with the inconsistency?

On one hand, you could say celebrities are special cases because they are so powerful and influential. Imagine if politicians or movie stars could pick and choose when they’re covered in the press. Average citizens shouldn’t be held to those standards. But on the other hand, shouldn’t I know if the cops found out my neighbor sets trees on fire or beats animals (for example)? After all, much of what these people do are in the public eye and what prevents anyone from just watching it?

So again we are back where we started: why is it when we move from an on the spot format (fantasizing, seeing it on the street) to an organized medium (a picture, a holodeck program) do we assume that privacy is violated? The method shouldn’t matter, it’s the place. Recording in public is one thing, recording in a home is quite another. (Note that this does not mean I advocate the state to monitor its citizens in public…governments can’t be trusted with such unprecedented information.)

Rethinking Charity

People always look at me weird when I say I trust corporations more than NGOs, especially when it comes to science. I never understood why. In an excellent opinion piece for the Guardian, Dick Taverne cited polls that concluded “people do not trust scientists who work for industry because they only care about profits…Scientists who work for environmental NGOs are more highly regarded.”

But it is because scientists care about profits that I trust industry more—in order to get those profits the science has to work. There’s a much higher standard because millions of dollars are at stake. NGO scientists can’t make profits and don’t sell goods or services. They depend on donations and therefore they sell a very different product: fear. Most non-profits advocate panic because it’s the best way to raise funds quickly and since it doesn’t actually have to be true to work, shoddy science is rarely checked. In fact, fraud is (implicitly) encouraged. Environmental groups are the worst offenders (claims of DDT, greenhouse gases and genetically engineered food are all exaggerated and the panic is responsible for killing people).

Taverne points out all of this but he makes a fatal flaw. He says, “Motives are not irrelevant, and unselfish motives are rightly admired more than selfish ones.” The context convinced me he wasn’t thinking of selfishness (self interest at the expense of others) but trade (self interest with the cooperation of others). Thus the common claim: philanthropy is morally superior to pursuing profit.

But look at the world around you. We live in greater prosperity and opportunity not because people donated their time but because they sold it. The private sector makes the technology of our lives and entrepreneurs don’t labor 80 hours a week because they are saints. So what if there are rewards for contributing to exchange? Philanthropy has its own rewards, too (attention, satisfaction, getting a building named after you).

Trade is better—it’s responsible for more progress and it’s sustainable. It’s created more jobs, abundance and safety than all the donations in the world. Instead of thinking of philanthropists as holy men, we should treat them like lawyers—necessary and sometimes noble, but susceptible to immense corruption.<

Cataloging Corruption

Ok this is awesome. I’ve been slowly expanding my circle of libertarian blogs and I stumbled upon a lovely post at flying hedgehogs. Blogger Nikki (aka nikki—I don’t know why she has a distaste for the shift button on her keyboard; that’s a question for her, but I’m not going to judge) found a site that actually keeps track of farm subsidies. It’s like a holy grail for research!

For example, in my home county of Scott County, Iowa alone, 1,099 people received a total of $77,042,466 during the years of 1995-2003. That’s an average of $8,560,274 a year, $7,789.15 per person per year. And that’s just for corn! While the past two years were lower than the average (probably because, in part, my hometown is rapidly expanding, crowding out the farm land), it was increasing over those years: $4 million in 2002, $5.6 million in 2003.

The site lets you break down the numbers in all kinds of interesting ways but it all boils down to one central question: Where’s my cut?

Forged From Liberty

Congratulations to Don Boudreaux who published his first of many columns in the Pittsburg Tribune Review. This initial essay addressed the claim that slavery created capitalism—it was responsible for making the initial components that capitalists built on to make the wonders of today.

Don correctly pointed out that slavery existed for thousands of years but we only experience unprecedented growth after its destruction. Capitalism does not require slavery—slavery is only productive for mindless work because only then is it easy to monitor. In fact, slavery fundamentally doesn’t work with capitalism. Twentieth-century assembly lines were a kin to the farms of two hundred years prior, but they weren’t manned by slaves. The real question is: what is it about emancipation that makes it enhance society’s living standards?

Don offers a piece of the puzzle: freedom makes it easy for companies to expand. If a worker can quit one job and move to another unhindered, it reduces the barriers of taking the operations to the next level. Because the prospect of an industrial empire becomes more likely, competition becomes fiercer. This is to everyone’s benefit.

The monitoring and inflexibility of labor point to what slavery is: control. Centralized power. But knowledge is decentralized which is why markets work better when they are decentralized, too. A slave may see an opportunity to be more productive but he has no incentive to act upon it. A hired hand, however, might get a pay raise or a promotion so he goes for it. A slave may imagine a new or better way to provide a service unconnected with farming, but since she can’t leave her job the opportunity remains vacant. A free person, however, would act on her awareness.

Inventions, innovations and entrepreneurship rarely—if ever—originate from the enslaved. They might have the knowledge, but they lack the ability and incentive to act on it. But free people not only have the ability and incentive to act on opportunities, they have the ability and incentive to search out new ones. The more free minds at work, the better off we all are.

Walls that Prevent Walls

Virginia Postrel at dynamist.com commented last week about the seemingly constant state of construction in LA. “Whether public or private, construction projects here drag on endlessly. Why, I have no idea. There do seem to be a lot fewer people working on any given project, and sometimes no one at all.”

I lack the tacit and local knowledge to answer her question but it sounds like the work of construction unions. LA’s one of the most socialist cities in America and it would not surprise me if unions pressured legislation to set their wages high. That would stretch company coffers forcing them to limit the number of employees. Thus the construction goes on and on…

The Market Really Works

Some people say that professional players are paid “too much.” Obviously they’re wrong.

Child Proofing Death

You know there’s something wrong with society when volunteer thought police are lauded as heroes.

A recent article reported that an Ontario woman infiltrated a chat room in time to alert police to stop consenting adult from having sex and killing themselves. For this Valentine’s Day, Gerald Krein of Klamath Falls, Ore. invited 31 women to his home to perform sexual favors for him and then commit suicide. He’s been trying to get them to do this for five years. Now he’s being charged with solicitation to commit murder.

The origin of the West’s hatred of suicide can be traced back all the way to the Catholic Church in the tenth century. According to The Straight Dope,

English common law distinguished a suicide, who was by definition of unsound mind, from a felo-de-se or "evildoer against himself," who had coolly decided to end it all and thereby perpetrated an infamous crime. Such a person forfeited his entire estate to the crown. Furthermore his corpse was subjected to public indignities, such as being dragged through the streets and hung from the gallows, and was finally consigned to "ignominious burial," as the legal scholars put it--the favored method was beneath a crossroads with a stake driven through the body.

Similar laws were common through out most of Europe and today, virtually every country punishes those who take (or try to take) their own life.

Note that the origins of this law were based on religious ideology and legal plunder of the deceased’s property. Now the tyranny of the child proof society is responsible; because a few vocal citizens don’t like the idea, no one is allowed to.

The Prosperity Surplus

I’ve got some great news—the “trade deficit” reached an all-time high in 2004; net imports are as high as 5.3% of GNP—the most of any industrialized country.

Why is that great news? Lots of reasons.

It shows that Americans are so wealthy, we can afford to import all of these great goods from all over the world.

It’s a sign that America is taking its role as a cosmopolitan country to new heights as more and more cities get access to more and more foreign culture.

It demonstrates that in light of all the protectionist rhetoric and scare tactics, industrialists aren’t being deterred to bettering the economy.

It captures the countless jobs created—some through the efficiency gains and others through the construction and financing opportunities as our currency re-enters the economy in the form of capital investment.

Indeed, 13,000 fewer people filed for unemployment last week than the week before last.

It is evidence that capitalism is spreading, and with it prosperity, as people in foreign countries rise out of poverty and into a world of productive invention and entrepreneurship.

And because the trade deficit isn’t a deficit, we don’t have to repay it; at the end of the day everyone gets extra stuff.

When you go through the economics and look at the data, you discover the only bad part about this facet of the economy is ignorance that’s taken over the discussion.

Laughing All the Way To the Political Discourse

Perhaps it’s because Jerry Seinfeld’s in town. Perhaps it’s because it’s Friday Night Standup on Comedy Central. Perhaps it’s because anti-capitalist argument are so backwards, they’re funny, but I had a idea for something society really needs: libertarian comedians.

We do have some—Penn and Teller, Dennis Miller, Dennis Leary, Drew Carey (more here), but we don’t have enough and those we do have rarely make libertarianism part of their act. I’ve often said that the single biggest barrier to freedom is rhetoric (though not in so many words). The fact of the matter is, while the evidence favors liberty, the language favors control (aka “safety”).

Comedians, by the very virtue of their job, transform complicated ideas (or stories) into concise, funny sentences. They’re easy to remember and they make sense. Liberating the peoples of the world requires us to take back the debate. We need comedians to give us the pithy phrases we can pass on to others.

Thus, I call on libertarians everywhere to try to crack a joke that makes a point. Share them with others. Shout them from the rooftops. Rent billboards. Here’s a website to get you to start thinking succinctly about individualism.

Stossel v. Schottel

It’s funny how things can work out.

I mentioned in an earlier post I’m reading John Stossel’s new book, Give Me a Break, a journey of Stossel’s ideological development and overview of why libertarianism makes sense in today’s society. I took a break from the chapter of trivial lawsuit as the author started targeting disability rights lawyers. Absent-mindedly, I visited overlawyered.com—an excellent site I often forget to visit (probably because I’m afraid of being swamped with legalese).

Lo and behold, the triviality knows no bounds: James W. Schottel Jr. filed a lawsuit against NBC’s “The Apprentice” this week because having “excellent physical health” was a prerequisite for audition. Citing the Americans with Disabilities Act, Schottel who’s confined to a wheelchair, calls the requirement “discrimination.”

Yes, I’m sure Donald Trump hates the handicap. It has nothing to do with the mobility required of an executive (like visiting a construction site), or the ease of communicating with others (talking to a handicap person can be physically and psychologically awkward for some customers), or that the Donald would require long hours that would be physically taxing. And I’m sure that I’ve considered every possible nuance of running a major company and there aren’t some relevant scenarios where health makes a difference.

Even if Trump was stupid enough to believe the PC bullshit that the handicapped are precisely the same as everyone else, it wouldn’t matter. He’s hiring someone for his company. He could require all applicants to have mustaches, experience in at least one threesome and wear Velcro sneakers. If he loses a good applicant in the screening process, that’s his loss.

Instead, taxpayers have to pay for this lawsuit and basic economics tells us there’s no reason for the suit in the first place. The plus side is at this rate, we’ll be able to sue for stupidity and I’ll be first in line to give Schottel his own.

Adding the Ads

Fabio Rojas posted this article at Marginal Revolution, in which he challenges the conclusions of Slate’s Timothy Noah concerning Super Bowl ads.

Noah wrote that such ads aren’t worth the million-dollar price tag; companies could reach more people for less. Both Noah and Rojas try to explain why companies run ads anyway. The former claims it’s a forum for the ad agencies, the latter points out it’s good for company prestige. Assuming the conclusions are true, I would have to go with Rojas, who offers an excellent real estate analogy.

But I question the validity of Noah’s dismissal in Super Bowl ads. The goal of advertising is not to merely reach people but to get their attention. Even the best ads are worthless if the audience is in the kitchen making a sandwich. But Super Bowl ads are special and command attention like no other; some 20% (I think that number is right; correct me if not) of Super Bowl watchers are watching just for the ads. Attention is built in and that’s powerful.

It doesn’t stop there. Prior to the Super Bowl (and in the aftermath) we “get” a preview (or review) of the ads from the news networks, reaching a whole other market for free! (In fact, the media may need to pay to show them.) Of course, not every ad will get this bonus, but some do.

Another reminder that the world is more complicated than mere numbers.

Controversy in Colorado

In case you live under a rock (or in Beloit) the country is up in arms over some words by a little known professor in a university in Colorado.

Prof. Ward Churchill defended the terrorist attacks on 9/11, comparing the trade and technology workers at the WTC to Nazis, though he admits others (firefighters, passerbys) were genuine victims. The controversy seemed to come out of no where—the paper he wrote when he first compared the “technicians of Empire” to Adolf Eichmann (who crafted the Holocaust) was back in 2001, just after the attacks. I think he recently refused to apologize (conservative radio shows have been complaining about him since the essay), igniting the current media frenzy.

I don’t agree with Churchill on a lot of levels. Trade and technology aren’t elements of Empire, they counter it (Hitler’s speeches were stuffed with communist language and free trade creates free societies). No one deserves what happened to us on 9/11. It was not just, it was not suitable.

But he has a right to be wrong. He even has a right to be loud. The First Amendment is one of this country’s greatest gifts to its citizens. It shouldn’t be limited to uncontroversial speech, as many people seem to think.

But conservatives have a point—Churchill works for a state university; taxpayers pay (according to Churchill) seven percent of his salary. In part, he is employed by the people, so shouldn’t he soften up just a bit if they want him to? Setting aside the inherent corruption and inefficiency that comes with state spending conservatives point to yet another reason to shrink the government. When taxes pay for services rendered, then any who benefit can be put under the most severe of public scrutiny and have their freedoms slowly stripped away.

The great irony is, Churchill uses the First Amendment to claim the country is oppressing its citizens (and other citizens) through capitalism. Oppressive empires don’t have freedom of speech, Ward. That’s why they’re called "oppressive."

How to Shrink the Government

While reading John Stossel’s newest book about big government, I came up with an idea to reliably shrink government.

Libertarians usually demand that the government dismantle existing programs, a difficult feat because the incentive for congressmen to keep them is so strong. Shrinking the government would take decades and span numerous administrations, each with their own agendas and reasons to forget the whole deal.

What’s needed first is a way to stop government expanse (thus preserving the shrinkage victories of past administrations). What I proposal is a pair of constitutional amendments. The first requires a 100% (or 95% to make it more politically feasible) vote in both congressional chambers to raise existing taxes or introduce new ones (but not to lower or remove taxes), plus the normal presidential signature. Let’s call it the Wealth Amendment. The second is an amendment that creates an exception to rules governing amending the Constitution; changing the Wealth Amendment requires a 100% (or 95%) vote in both chambers, instead of the usual two-thirds, plus the presidential signature.

The idea is, it’s now easier to shrink the government than to grow it. And because this requires just one cooperating president paired with just one cooperating Congress, it’s much more feasible relying on many more politicians putting the needs of the many over that of the few. Admittedly, it’s still difficult but by adjusting the incentive structure, it could actually work.

(I'm sure this is not a new idea; I'm curious if our readers could direct to anyone that might have proposed this before me.)

Farming for Socialism

A day after newspapers reported budget cuts in farm subsidies, a group of state planners, who claim to be economists, released this report, authored by Mike Duffy, Neil Harl and Darryl Ray. The draft by Iowa State's Leopold Center for Sustainable Agriculture reads like a communist manifesto, pathetically cloaked in free market language and riddled with economic fallacies. According to the Center: higher incomes, not higher productivity, creates economic growth; the government is the best source to assessing the safety of food; corporations hurt the environment as they create “industrial food;” vertical integration is bad for the economy; and trade helps firms but hurts local people, who should be compensated.

Sometimes the report contradicts itself. It says food costs too much in third world countries (as much as 75% of income) and then calls oversupply bad, because it reduces prices.

The report is drowning in problems (mostly economic, historical and managerial) and their conclusions are similarly ridiculous. After considering a few ideas to counteract these “evils,” the report begins its answer by returning authority to the Secretary of Agriculture which “would enable the Secretary to function as every CEO of a major corporation does when confronted with overproduction—to reduce output temporarily in accordance with market signals.”

This solution is supposedly “the option that is the most attractive from a cost perspective and least likely to cause widespread economic and financial trauma for the agricultural sector.” All that’s needed in the law itself is a little “fine tuning.”

After building on greater and greater misconceptions about the market and its need of taming, the authors eventually conclude what’s really needed is a global agricultural czar to oversee a “global food and agriculture policy.” Under this plan, Americans will finally understand the everyday horror in the developing world and during the Soviet famines of the early 1920s and 1930s. Here’s to international understanding!

Sick of Sicknesses

From drug addiction to road rage, medical organizations love calling various human behaviors diseases. And why shouldn’t they? It’s great rhetoric for drawing attention to their respective organizations and it makes it a lot easier to get funding for various studies. And the best part is if something’s a disease, people don’t commit it, they suffer from it. The irresponsible become victims.

The possibilities and benefits of disease labeling are so alluring, I’m sadly not surprised that a British psychological group now claims there is real sickness to being lovesick. Psychologist Frank Tallis wrote in the Psychologist magazine, “Many people are referred for help who cannot cope with the intensity of love, have been destabilised by falling in love, or who suffer on account of their love being unrequited.”

Having your heart broken is painful, no doubt. We’ve all been there. But saying there are people who literally “cannot cope,” are “destablised” and “suffer” cheapens the pain of real victims with real diseases. It also bids dollars away from finding a cure to legitimate illnesses in order to study and “treat” these scares. If I had something to gain from this chronic mislabeling, I’d call it a disease. Instead, I’ll just term it cruel.

Where's the Canadian Beef?

The Bush administration is looking to reopen the Canadian border after officials discovered mad cow disease in May of 2003. Democrats are calling this “a disaster,” but I fail to see how. While I’m sure it’s a legitimate concern, the panic surrounding it speaks pure politics. A single case makes blaring headlines and politicians scream protectionism—all too conveniently.

Importing cattle will hurt American ranchers as the price of beef falls (something the Secretary of Agriculture is quick to point out). What these politicians fail to point out is the meat packing industry would benefit from the open borders; jobs are created here, destroyed there and consumers win. And if you’re clever, you’d notice that that packing industry would have a lot to lose if Canadian beef had mad cow disease. Apparently their confident it’s clean and I’d take an industry’s vested interest over a politician’s scare tactics any day.

Generation Next

Why do politicians think they are the legitimate architects of everything? Shortly after the State of the Union, minority leader Senator Harry Reid went on NBC challenging Republicans that the government isn’t doing enough to create the “next economy.” Reid cited past examples of when central planning supposedly succeeded in creating the next economy—the interstate in the 50s and the internet’s initial stages in the 60s.

Reid needs to learn some history, and some economics. Eisenhower’s highway plan was riddled with corruption and waste—typical of any government program. Saying it’s responsible for economic growth is deceiving for it suggests that such an important industry tool could not have been born from private property. Just because the government created the highways and the people used them does not mean these interstates were the best solution to solve the private sector’s transportation problem. Firms have proven they are far better at providing goods to the people. There’s no reason this principle can’t be extended to roads.

For the Internet, note that Reid cited programs in the 1960s, though that part of the Information Age didn’t spawn until 30 years later. Why? Because creating the Internet to point of being profitable requires lots of computers, which means computers have to be widely available. It’s the personal computer—not the Internet—that’s the main thrust behind the Information Age. This wonder that started the “new” economy was a private development.

Reid assumes that if the government didn’t connect these two machines, no one else would, the result of either arrogance or stupidity. While the Internet got its start in government, its main advances—such as the browser and most languages computers use to work the Internet—were private developments.

No one knows what will be the next big thing. While we can point to advances that might play an important everyday role in our lives, we don’t know when they will do so. We don’t know all the ways the “next economy” will affect us and what will be important. That knowledge rests in the minds and expectations of millions of people. Thus governments can’t effectively construct economies; economies have to be grown.

Sunrise, Sunset

Every news network today was a buzz with the Fed’s decision to raise the federal funds rate (FFR) by a quarter of a point, yet not one of them went into much discussion about what it means. The banking industry has huge ramifications throughout the entire economy and the interest rate is one of it central mechanisms. Let’s take a moment and unravel what today’s news really means.

The interest rate is basically the price of money, reflecting the time preference of lenders and borrowers. If the rate is 3%, then $1,000 now will cost you $1,030 later. Borrowing money is useful for economic development because it provides the funds needed to expand production. The FFR is the rate which banks charge each other. Since banks can always borrow from other banks to have the money lend to customers, changes in the FFR directly change the interest rates for consumers and businesses (which are used to build factories, start businesses and so on).

The Fed claims it needs to adjust the FFR as to create a balance between growth and inflation. What the Fed doesn’t tell the public is that its constant meddling in this vital tool for economic growth causes instability and recessions.

This is the Austrian theory of the business cycle. By artificially lowering the interest rate, businesses borrow and expand their production (the boom), thinking the lower interest rate is due to people saving more. If businesses produce more, people will take money out of the bank and use it to spend on the new goods and services. But because these consumer cash reserves don’t actually exist, the businesses won’t sell any of these goods (the bust) and recession—or worse—will set in. Firms will have loans without any way to repay them. This theory was first proposed by Ludwig von Mises, who used it to predict the Great Depression. He was the only economist at the time who foresaw the collapse.

Today we see a similar pattern. The Fed pushed the FFR down to about 1% to counterfeit a boom after 9/11). Its recent increases (six since last summer) are attempts to hold back inflation amidst a recovering economy. But the FFR is still just 2.5%, hardly enough to staff off the bust that will inevitably follow the oncoming (and false) boom. While Americans are celebrating the newly expanding economy, we should watch our back; in 20 or 30 years, it’ll be 1999 all over again.

Watching the Watchers

I’ve just discovered a new blog—EnviroSpin Watch—which tracks the often trumpeted-up claims of environmentalists. Definitely worth a look.