Just a collection spot for things of interest about where on the Laffer Curve is the sweet spot. At what point is power so concentrated in the hands of petty government agencies that things start to slow down? At what point do economies thrive and overall growth is best for the greatest number of folks? I’d been planning to make a decent posting out of them, but a “Opera / YouTube Bug” has caused me to just toss the stuff here, half done…
England, Hong Kong, and Sir John Cowperthwaite
Even the French Quebecois recognize this Scottish Wisdom:
SIR JOHN COWPERTHWAITE, THE MAN WHO BROUGHT FREEDOM TO HONG KONG *
by Alex Singleton
Sir John Cowperthwaite was the main figure responsible for Hong Kong’s economic transformation, lifting millions of people out of poverty. While scholars like Milton Friedman and F.A. Hayek put an intellectual case for the free markets, it was Cowperthwaite who provided the textbook example showing laissez-faire policies leading to swift economic development. His practical example provided confidence to the Thatcher and Reagan governments, and was a key influence in China’s post-Mao economic liberalisation.
Cowperthwaite read classics at St. Andrews and Christ’s College, Cambridge. While waiting to be called up by the Cameronians (Scottish Rifles), he went back to St. Andrews to study economics. This Scottish education imbibed him with the ideas of the Enlightenment, especially the work of Adam Smith, who had been born nearby in Kirkcaldy. He was a liberal in the 19th century sense, believing that countries should open up to trade unilaterally. In 1941, he joined the Colonial Administrative Service in Hong Kong. When it fell to the Japanese, he was seconded to Sierra Leone as a district officer, before returning in 1946 to help the colony’s economic recovery. “Upon arrival,” the Far Eastern Economic Review put it, “he found it recovering quite nicely without him.” He quickly worked his way up the ranks and was made Financial Secretary in 1961, in charge of its economic policy for a decade.
Asked what is the key thing poor countries should do, Cowperthwaite once remarked: “They should abolish the Office of National Statistics.” In Hong Kong, he refused to collect all but the most superficial statistics, believing that statistics were dangerous: they would led the state to to fiddle about remedying perceived ills, simultaneously hindering the ability of the market economy to work. This caused consternation in Whitehall: a delegation of civil servants were sent to Hong Kong to find out why employment statistics were not being collected; Cowperthwaite literally sent them home on the next plane back.
One can only wonder at the degree to which AGW is a matter of “statistics” and ‘fiddling about remedying perceived ills”
Given how many time this particular experiment has been tried (central government control vs markets) and how regularly and universally the same answer has been found (free markets and minimal taxes lead to the greatest shared wealth creation); one can only wonder if the complete failure of the Anglo-Saxon and EU west to recognize “the virtue of it’s own historical creation” might be due to some more nefarious desire on the part of those “in power” to assure power and control in preference to wealth creation for all…
Milton Freedman on Robber Barrons
The problem with this “analysis” is pretty simple: Monopolists do NOT depend on willing buyers and willing sellers. The most direct example of this is that Standard Oil under old man Rockefeller demanded a tithe from the rail companies for each barrel of oil shipped by his competitors (or they would be run out of business). When you own most of the chips you can do things like that which harm your competitors and stand between those willing sellers and the willing buyers. No rail company could afford to have John D. as an enemy, so they were forced into raising costs for his competition and providing unearned profits to him. There are many such “predatory practices” that are forbidden by the antitrust laws and it is those practices that define what was evil about the Era Of Robber Barons. Yes, economic activity in total rose fast enough that everyone gained some; but that does not mean their were no Robber Barons.
Economics is a Social Science
When thinking about all these things, you will frequently run into a load of Economists with great theories and wonderful “scientific” proof for why their argument must be right. ( I know, as I am an economist by training and we had to study this stuff at great length.) At those times, it is valuable to remember what Mr. Feynman had to say about “Social Sciences”:
The “short form” for folks not wanting to watch the video is: ‘It isn’t in conformance with the actual requirements of science; so it’s basically just opinions dressed up in fancy talk’.
I would assert that “Climate Science” and especially model driven “Climate Science” is a “Social Science” for all practical purposes…
Unrelated Grab Bag
I have discovered a bug in Opera such that if you have “too many” youtube videos open, any video will load and play the sound, but the picture only moves if you wiggle the mouse over it… As I was prone to holding several videos open, this “caused issues”. (Thus the videos being collected into the above commentary posting). As I’d like to be able to watch videos without constant mouse wiggling, I’m sticking a couple of them here. Unrelated to the rest of the posting, but things that I think are important that I’m pondering (and may someday turn into a posting), stuck here so as not to tickle a bug (instead they can tickle a fancy ;-)
There’s a whole bunch of stuff, including some dwarf planets, orbiting out there a long ways on very eccentric orbits. Intending some day to make a summary posting of what they are and what they do, so this is here as a ‘marker’. One comet explodes when a CME hits it, another (Lovejoy) plunges into the solar ‘atmosphere’ and then comes back out again. Comet Haley ‘erupts’ when out near Neptune (and supposedly too far from solar warmth to do so). Comet Holmes also brightens dramatically on the exit cycle when a solar wind burst happens. And several more similarly blowing up when too far out and too cold to do so. Probably the most odd is Comet Linear that blows up with an X-Ray burst… touched by the electric finger of the sun/god they just explode with fragments separating at 20% of the comet velocity. There’s a lot to ponder here, and I’ve just not had time to ponder enough to make a posting out of it. Nice electric discharge patterns in plastic shown toward the end too.
Cancer and electric fields:
Turns out you can cure cancer with low intensity electric fields as they disrupt cell division via causing that whole spindle / chromosome sorting process to get halted. Also leaves me wondering what the laptop is doing to cell divisions in my lap… but that’s another issue ;-) It does imply, though, that there are a large number of new technical areas waiting to be developed unrelated to cancer. Use of low level electric fields to play with genes in selecting varieties of crops, or potentially in bacterial control or mutation / selection. Can biochemical production be influenced by impressed fields? (Think zymurgy: cheese, wine, beer, even some drugs and chemicals are made via fermentation. Could an impressed electromagnetic field change the products? The rate? Give an on/off switch? Could two different bugs be mixed, one subject to turning on / off at the ‘right times’ and the other left free running? Sourdough bread has a race condition between yeast and lactobacillus, if you could turn on/off the lactobacillus you get finer and easier control of the quality of the bread, as one hypothetical…) This just leads in so many directions…
And, just for amusement, the Torah Code says Romney will be the nominee and probable President:
Against odds of 1,379 to 1, the axis term MITT ROMNEY at it minimum ELS has PRESIDENT at the same skip in a 1-column matrix that only has 17 letters in it (see the yellow background in the top matrix). As is shown after the spreadsheet below, when MITT ROMNEY is found at the second lowest ELS, it still takes only 20 letters in two columns to show PRESIDENT parallel to MITT ROMNEY. The larger matrix shown (377 letters) includes OBAMA, but it was not worth the expansion to include his name as this matrix only appears against odds of 113 to 1.
Somehow I have to think that it’s just a simple consequence of “unlikely things do happen all the time” and the basic assumption that things can only happen ‘by accident’ in their statistical probabilities that is the error. The “clear text” is not a random set of letters, so the ‘hidden text’ ought not be random either, IMHO. Then again, it has a remarkable “postdictive” power ;-)
Oh, and it dumped a couple of more inches of rain on my head yesterday / last night and the spouse reports even MORE snow on Mount Hamilton, so I’m off to see if I can get another picture or if the clouds are too thick… Snow in springtime in Silicon Valley? Yeah, I’m sure that’s because it’s warmer… /sarcoff>;
With that, I can clear some tabs on my browser, see videos again (already tested and it worked! Yay!), and folks can have some interesting stuff to ponder while I continue to not make a decent posting out of them ;-)
One other related cure that I’ve just become aware of: When you irradiate the eyes of young mice (of a breed that intentionally are prone to glaucoma) the glaucoma never develops. In fact, irradiating a single eye prevents glaucoma in that eye only. So far, this seems to work by killing the “invading” monoclonal cells that wind up attacking the optic nerve, but the mechanisms are still far from well-understood. Here’s an article; I have the underlying paper:
===|==============/ Keith DeHavelle
My assumption is that the Laffer Curve sweet spot depends on the particular economy and the culture around it. It probably varies within a narrow range with business cycles and unexpected circumstances such as natural disasters. Theoretical determination of it likely is impossible.
You have to be very careful about trying to perform any analysis on the whole “robber baron” thing as there is a lot of sour grapes involved and this has been put down in a lot of history books and has become “truth” over the years. To do any kind of serious analysis, one would have to go back to the papers of the times, papers on all sides of the issue. The original Sherman Act was a typical “Progressive Era” piece of legislation. John D. Rockefeller actions would have been much later. Much of what we read now is based on FDR’s war on business and his extending of the Great Depression through regulations that introduced artificial inefficiencies. A good part of Roosevelt’s program was propaganda, from which we still suffer to this day as most of his propaganda of the time has now become “truth”.
Generally an economy will “route around” damage done by such things as Rockefeller’s tax on shipping competitors’ oil. It might have been a brand new railroad coming into existence that shipped only the oil of his competition or maybe it would have resulted in the faster advancement of pipeline technology to avoid the use of railroads altogether. But much of what we read today of that era is little more than the political propaganda of the 1930’s that has been enshrined to this day as “fact”.
Here’s some additional reading: http://www.fff.org/comment/com0904e.asp
We have examined this question extensively at The Two Minute Conservative. Input “Gensis Curve” or “Laffer Curve” on our website at http://adrianvance.blogspot.com
Thanks for the message here, E.M. I was especially impressed by the first video and the economics that Sir John Cowperthwaite employed in Hong Kong.
Oliver K. Manuel
1] On Sir John Cowperthwaite and the size and intrusiveness of government:
As the size [and by extension the system of taxation necessary to support it] of government and the Political sphere of society grows disproportionately in regard to the Economic and Cultural spheres of society, necessarily it begins to disrupt the desirable system of checks and balances between the Political, Economic and Cultural spheres. Growth of the Political Sphere starts to usurp the authority and power of the other two spheres which deprives the Economic and Cultural spheres of the power and authority to restrain governmental excesses and keep society as a whole in balance and free. This is very, very bad situation when it begins to develop because government has a virtual monopoly on coercion, and can quickly develop into some form of tyranny.
Even as our republican form of government is founded upon a dynamical system of checks and balances, so too does the health of our society as a whole rest on a dynamical system of checks and balances between the Political, Economic, and Cultural spheres, a concept known as Social Threefolding. [crash course here: http://en.wikipedia.org/wiki/Social_threefolding%5D What we have been experiencing for the last sixty years is a gradual centralization of power and authority in the Political sphere in general, not just the centralization of political power from the local and state levels to the national level – and soon the international level. This is, again, very bad for freedom, but good for people who like to tell other people what to do and get rich themselves in the process.
2] On taxation in general:
I remember, twenty years ago it must be now, Bruce Williams saying [I’m paraphrasing from memory], ‘At a low level of taxation, any system of taxes works well; at high levels of taxation, no system of taxation works well’. Smartest thing I have ever heard on the subject.
3] On Friedman and the myth of robber barons:
Speaking as someone who has been inside [as the entertainment] of a number of the ‘cottages’ at Tuxedo Park, if you listen to what Friedman actually says, even as he says that the 19th century robber barons were a myth, he is unable to dispute their existence, he merely pooh-poohs them.
I tend to agree with E.M. on the subject of monopolies. The existence of a monopoly is a symptom of the breakdown of a free market, it is no longer free but a coercive market, which is exactly what makes a “robber baron” a ROBBER baron. It is also a symptom of a breakdown of social threefolding in that the Economic Sphere which should not have coercive power [should be kept in the hands of the Political Sphere, but guarded by the Economic and Cultural spheres]
4] On R. P. Feynman:
One of the smartest/wisest men I know of. We now seem to be ruled by pseudo-scientists of the economic and social theorist types, and who have no internal means to discover when they are wrong.
5] Comets and the Electrical Universe:
Fascinating. Shows us yet again how little we actually know when compared to what we THINK we know. The systematic failing of even the very straightest science is how precarious the current state of the Science actually is. It is very easy to lose sight of what broad windows exist for being astonished when we say we really don’t know what this or that really is. Comets really dirty snowballs in space? nobody believes THAT anymore! [but we all did right up till last month when we would have laughed you out of the room if you suggested otherwise]
6] On Tumor Treating Fields
This is wonderful news! something I wasn’t previously aware of. This will undoubtedly cause some consternation though in the pseudo-scientific fields of alternative health and cancer treatment who have been insisting for years that even small electromagnetic fields CAUSE cancer [back to the dark ages!] and the way to cure it is with magnets.
The only monopolies we have ever had are government created monopolies. AT&T was the largest of them. Your local power company is likely another if it isn’t outright owned by the government. Your cable company might be yet another.
Standard’s share of the market was in steady decline from the turn of the 20th century. By 1911 when it was ordered broken up, its market share was at 64% and it had over 100 competitors (wiki says including Gulf, Texaco, and Shell). So apparently a business with 64% market share but over 100 competitors is a “monopoly”? Ironically, it was the breakup that made Rockefeller rich. The breakup created Exxon and Mobil. Rockefeller was by that time no longer managing things but had a lot of stock. The breakup resulted in him becoming even richer than he had been before as the stocks of the new companies took off.
Microsoft Windows’ market share is 91.9%. Why isn’t it an “unreasonable monopoly”?
I think you’ve got your history a bit skewed. See:
Or look up “Standard Oil trust” the precursor to the Standard Oil Company…
So the notion that alternative pipelines would spring up runs headlong into Monopoly Practices and Coercion.
Note that date. 20 years after the formation of Standard Oil…
We tend to forget in the present day, just how all pervasive those Trusts and Monopolies could be. Also note that the several families involved took their profits and bought loads of shares in the railroads so that they could extend their influence even further. The end game of such a process is a single ownership block with complete control of several industries. So that “build your own railroad” runs smack into the other guys already owning the land, rights of way, etc.
It was exactly those kinds of prevention of competition from rail and pipelines that was held to be “unfair competition”. In essence, you are saying fair competition would have arisen, but it can not in a context of unfair competition. This is not theory it is history.
Oh, and don’t trust the wiki… Per Gulf and Texaco:
Remember that Gulf was founded in 1901, so ten years later when Standard was broken up, it was a very young start up, not the major we see today.
Now the biggest problem isn’t that there were 100 “competitor” wannabees, it was that they were unable to compete. Look at that list. What pipeline do you use? What rail? Notice that the “competitors” (even with antitrust laws) have largely been bought up by parts of the old Standard. Notice that 90% ish size. That means all the “competitors” combined were in the single digits. (and busy getting crushed…)
Per Mr. Gates and Micro$oft:
The law does not forbid the existence of a monopoly, it forbids “unfair practices” or what are commonly called “monopoly practices in restraint of trade”. Microsoft was found guilty of same in the EU, and remedies were prescribed. IMHO, insufficient ones.
Mr. Gates takes much for his playbook from Standard Oil. Including forbidding other companies from selling, requiring that a company sell a copy of his software (even if not wanted) for every machine shipped, bundling (you MUST buy it all) and much more. That our government has not done what the law requires does not mean Microsoft is clean… I suspect that it is because our government found it convenient to have one company that would put in the backdoors and ‘access’ it wanted and made a ‘deal’; but I can’t prove it. There are just some things that look wrong unless lit from that angle…
So remember: It is not being a Monopoly that is wrong, it is being an evil non-competitive bastard about it using “unfair practices” that eliminate competition.
I’d also suggest looking into the “Common Carrier” laws that came out of the Robber Baron era as well. They came about precisely because the use of rail, pipeline, and similar transportation local monopolies can be used as J.D. R. did. You see this story being reborn as an attempt by telcos and cable companies to monopolize your internet access and tell you what you can download (‘net neutrality’).
Realize I had to learn Economic History. LOTS of hours of this stuff. I’ve still got the text books on the shelf (somewhere ;-). This isn’t hypothetical. It’s history, case law, and well documented.
In many ways the early Progressive Era did good things. It was a needed and appropriate response to the Robber Baron Era. It has just gone way too far the other way. So it, too, has been corrupted by too much power.
That the Progressive Agenda morphed into Socialism and eventually went ‘way crazy wrong’, does not erase that it rose out of real needs and did real good early on; nor does it erase the cruel history of the Robber Barons.
(At this point I find myself once again on familiar territory… arguing for the ‘moderate middle’ and taking arrows from all sides :-( It’s really a simple point, but one that almost nobody seems to like: No person or agency can be allowed to have a majority of power. There must always be a ‘countervailing power’. If not, you end up with “power corrupts” and things go to Hell. It doesn’t matter if the “too much power” is held by a Government, a Robber Barron, or a Commissar or a Labor Union – or even the public directly as a Direct Democracy. And that is why no one likes to hear it. Because it means that everyone is told “No, not even you get power to have your own way”.)
So the Democrats all think me a “Conservative Republican”. And I do lean to a more conservative Libertarian bent… but…
Now folks here are being jarred awake by my defense of Anti-Trust laws and vilification of Robber Barons… They, too, must be kept from seizing power.
( I just haven’t had to make that case as we DO have the anti-trust laws and the Robber Baron Era is mostly past – Modulo Mr. Gates and some of his friends and modulo the attempt to recreate them in Banking via the Too Big To Fail Bailouts… so it looks like that time is coming again…)
So no, I’m not in favor of totally unregulated free markets. And no I’m not in favor of “Big Business” or “Big Oil” unrestrained. And no I do not hold All Things Progressive to be Evil.
(At this point everyone commences sharping knives and pitchforks as I’ve said the Pope Is Not Infallible during Mass ;-)
On a scale of 1 to 10 with 1 being completely unregulated free markets and 10 being communism; I’d be about a 3. The “Regulated Mixed Market Capitalism”. The USA was there about 1963 under Kennedy. Briefly moved toward a 4, then back to a 3 under Reagan. Right now we’re about a 5 headed for 7. (Technically we’re just at the very first rung of Lange Type Socialism headed for Third Way Market Socialism). For reasons that escape me, most folks advocate for either a 1 (probably as they have never lived under unregulated markets and think that is what we had in the early 20th Century, when they ended in the 1800s.) or argue for something out in the Socialist / Marxist range ( 7 to 10 ). IMHO, probably because it sounds good and they don’t see the errors / propaganda and don’t know enough economic history.
At any rate, arguing for a “3” is a lot like trying to justify the virtues of “sleeping around on the pill” when surrounded by “Abstinence” folks on one side and folks who extol the joys of being “a little bit pregnant” on the other. It’s hard to convince the first ones that you are not damned to hell for being unpure, and it’s hard to convince the second group that they are going to have “problems” sooner than they think… (Yes, I’ve thought a lot about live defending the moderate middle… maybe too much ;-)
OK, now everyone load up and all of you can throw your rocks at the same time… I’m just going to hunker down under this concrete slab here ;-)
Very interesting and thought provoking to combine known unknowns and known knowns with multiple solutions in one thread. That we are now only just starting to enter the period of discovery seems to allude many who think we know just about everything.
This twenty first century, that alas I will miss most of, will either become the biggest disaster yet suffered by mankind, or the greatest period of discovery that leads to freedom and well being of all. It is a 50/50 bet at the moment. Great post Chief
I haven’t time to get into the weeds right now. I think, though, that the gov’t-established monopoly awarded along certain paths to the RAILROADS — preventing competing companies from laying track (or pipelines) along nearby parallel paths — was the key to the oil company’s control of flows. So if memory serves, the “Trusts” would be evidence less a breakdown of the market system and more an exploitation of the authoritarian system.
Recently the “Trans-Texas Corridor” was in the news here; a Rick Perry scheme to enable one-stop shopping for rail. road, pipeline, utility lines, etc all along one path from north to south of the whole state, (with some talk of extending the corridor north as far as Chicago). Explicitly the goal was to take authority away from cities and counties so that companies could only negotiate with (bribe) one set of officials to get access to the pathway.
E.M. you might be interested in the contempory (to Rockerfeller) writings of Henry George and his modern zealots. Georgists, like Marxists, are a bit crazy, but have some entertaining ideas.
I’m sure you’ve all seen at least parts of a good old-fashion “Log Rolling Contest”. My take on where we are at the moment is (vis-a-vis 1929) where you see the guy (or two;-) running as fast as they can to regain their just lost center of balance, their arms are winding in the air faster than a GE Jet Engine, they’re head and backs are a little off center and beginning to move out over the water and not back over the log, faster and faster move their arms and feet, then –this is where we are now in the Land of the Free and the Home of the Brave– one leg is kicked high in the air and….
When things get out of balance terrible, and sometimes funny, things happen. If you’re one of the guys on the log, it ain’t too funny. Life is about balance. Everything is about balance.
That is true. But oil consumption in 1904 was tiny. By 1911 Standard’s market share was down to 64% and competitors were growing as oil consumption was increasing. When a product first “comes out” or is first starting to be used, it isn’t unusual for one company to be the primary source of it. If it “catches on” and starts to become more widely used, alternative sources become available. This is was already starting to happen with Standard. Their market share was in decline by the time they were broken up. Fairly rapid decline, too.
There is a reason why Standard’s oil was in rapid decline, as well. Until 1901 most oil production in the US was in Pennsylvania and Ohio. In 1901 Gulf Oil hit a major “gusher” at Spindletop. That field owned by Gulf and Texaco was soon producing 100,000 barrels of oil a day (dropping quickly to 10,000 barrels a day) but the Texas oil boom was on and Standard had real competition. There was very little domestic demand for oil products other than kerosene in the US. In 1901 when Standard’s market share was in the 90’s of percent, total US oil production was 190 thousand barrels per day. Almost all of that from Pennsylvania and Ohio. In fact Pennsylvania represented most of the oil production in the entire world at that time. By 1911 US oil production was at 604 thousand barrels a day and Standard’s market share was down to 64%. By 1921 oil production was at 1,294 thousand barrels a day with Pennsylvania and Ohio accounting for a greatly diminishing percentage of that total. In other words, as production came on line in Texas and California, Standard’s share of total production was in decline anyway, in fact it was in rapid decline. The anti-competitive measures that Standard was using were basically “flailing” as it tried to stem increasing competition from outside of its operating area.
Interestingly, it was the breakup of Standard that then allowed Rockefeller and his other Standard investors to then capitalize on these new markets. Instead of having one company, they now owned several! These “new” companies could then expand into those markets and compete with Texaco and Gulf. It was really a big illusion which on the surface appeared to create a breakup of a large company that was already in decline when in reality it created several companies, all owned by the same investors (a share of Standard oil got you shares in Standard of Ohio, Eastern Standard (Exxon), Mobil, and several others).
So basically, the breakup of Standard Oil was actually a way to CONTINUE an effective monopoly by the same investors over even more oil. It doesn’t matter if I have one company owned by 10 people or 10 companies owned by 10 people. The same 10 people own them.
Pennsylvania oil production peaked in 1891 or so at around 88 thousand barrels / day. Total US production was 149 barrels/day in 1891. By 1911, Pennsylvania production had dropped to 8 million barrels per day with US production at 604 thousand. Ohio’s record production year was 1896 when it hit 66 thousand barrels/day. So when Standard Oil had nearly the entire market share, its fields were producing nearly all the oil in the US. Once oil was discovered in Texas and California, Standard’s share of the total oil produced went into rapid decline.
The breaking up of Standard Oil wasn’t so much the busting of a monopoly as it was a way for Standard’s investors to get rid of the “bad blood” that Standard’s earlier policies had created and create new companies that could now enter the new markets. They made more money after the breakup of Standard than they had made before.
If you look at who the majority shareholders were of Eastern Standard and Mobil after the “breakup”, it is the same list of people who were majority shareholders of Standard before the breakup because shares of those companies were issued according to one’s ownership of shares in Standard just as the original shares of the “Baby Bells” were issued according to one’s holdings of AT&T.
The “breakup” of Standard was a win/win for both the politicians and for Rockefeller. It could look like the politicians were “doing something” and it catapulted Rockefeller into being the richest man in the world, which would not have happened if Standard had not been broken up.
By the way, we have the same thing going on today. The Obama administration blocks the building of a pipeline that would carry oil that is currently being carried by Warren Buffett’s railroad, Burlington Northern.
Thanks E.M for the extended comment on the history of the Oil Trusts, I think it is well worth promoting to a post of its own – you certainly put enough work into it.
I’ve been away from the party working on fisking Baudrillard for my own blog [still not done] but have some more to say here first before I set to work on a more thorough fisking of Friedman elsewhere.
All of the discussion of the larger economic forces surrounding the rise and fall and resurrections of Standard Oil, while interesting in itself, makes no comment at all upon the human suffering and misery [not to mention inefficiencies in the market] produced by the coercive, unfair, and anti-competitive business practices of Rockefeller and other Robber Barons of his [or our own] day.
Milton Friedman in this video makes makes a point of the difference between zero-sum and positive sum practices with regard to Capitalism, which is a good point; however, the types of business practices exemplified by Rockefeller the Elder and the other robber barons – who’s myths he is unable to make go away – were not positive sum practices, coercion in any form is not positive sum. New wealth was created, yes, new opportunities were created, new people became wealthy, all true, but all at a very real and very human cost in the form of the misery and exploitation of millions. One could analyze the practices of golden age of industrialism [and those of today] as a form of taxation by industrialists on their employees in the form of wages never paid and suffering created, if you make that analysis it begins to look very much like the negative sum scenario that Friedman describes at minute 9:05:
Capitalism’s regressive tendency towards monopoly, ‘gaming’ the rules, cheating, making it impossible for your competitors to compete, [we won’t even get into outright fraud and bribery] are all negative-sum strategies that are the ‘sine qua non’ of the “golden age of the robber baron and the slope-browed-retro-troglodyte of any age. Fortunately society has begun to progress to the point where most people in western society expect positive sum interactions – you know – the famous ‘win win’ scenario. This is good, this is a real cultural achievement – it is also difficult to hold. Friedman says in closing:
I will link back to the points I made above where I touched on the benefits of the Threefold Social Order, as being necessary to keep society as a whole from falling into the hands of the tyranny of one of those three spheres: the Political, Economic, and Cultural. No, economic system is capable of policing itself, it falls upon the Political and Cultural Spheres to act as the checks against the imbalances of the other. Free markets in general and Capitalism in particular are wonderful, I agree with Dr. Friedman on almost every point he makes except this, Capitalism cannot police itself.
Capitalism is an amoral system, that is it does not require a high state of morality to make it function, as does Marxism. Marxism, large scale Marxism, always falls into totalitarianism because it is based on an unrealistic human psychology [as of the 21st century] this is why Marxism in all of its variations simply does not work without massive coercion at every level, it requires everyone operating the system to operating at a very high level of altruism in all spheres. Capitalism on the other hand works at the level of morality of the people who operate it, it can be either ugly or benign, depending solely on the level of moral and ethical development of the people who operate the system.
Maybe it is the abstracting nature of the mind of an economist that is to blame, but Dr. Friedman [and others still living] systematically discount the real, actual and specific misdeeds of real, actual and specific industrialists that lead to the real, actual, and specific consequences for the public at large and gloss them over with a wave of the hands.
This is why people like Dr. Friedman, people who should know better, do a great evil [and I mean Evil with a capital ‘E’] when they dismiss the moral responsibility of the people with the most power and control over the system’s responsibility to act morally with a wave of their hand. They give permission for the evil that men do, simply because they lack the insight to know that it does not HAVE to be this way. Where is it writ large that people HAVE to treat each other like jerks? Free markets and Capitalism can be as benign as we choose to make it, will be exactly as Evil as we each decide to make it.
I’ll leave you with a transcript I prepared of the Friedman video from minute 7:00 to the end so you can decide for yourself if the good doctor contradicts himself.
7:00 – So, the robber baron myth is a myth, one that should be deflated. It gets its appeal from a common fallacy that what is one man’s gain is another man’s loss. Of course it is true that many men became wealthy during that period, there were robber barons, people are people, some are good, some are bad, some are in between. And, some people did try to mistreat other people, that is part of the course of history unfortunately.
7:38 – But, the main part of the story here is that the process whereby some people became wealthy was also the process that opened up the country and provided the opportunities for millions of other people to have a modest confidence and improve their own lives. It was the robber barons who were instrumental in building the railroads that joined the country together who were instrumental in developing the industries of this country, there by providing the opportunities for the ordinary man to improve his lot in life. Everyone can benefit, you can have some people become wealthy not at the expense of other people, but by enabling other people to become wealthy.
8:25 [emphasizing with his hands] – We had robber barons then and we have robber barons today, but there’s a big difference between the robber barons then and the robber barons today, the robber barons then primarily could get their money only if people freely gave it to them. They got their money by selling a service and nobody had to buy it, and if people bought it it was because it was a better service than it was before. The robber barons today are in large part able to get their money by sending a policeman to take the money out of your pocket. Now that’s a figurative expression, not a literal expression, but how do you get wealthy today? by getting government assistance.
9:05 – If you look at where modern wealth comes from, it almost always comes from political influence which enables you to get benefits at the expense of the public at large. Now, that IS a zero sum game, when the money is transferred from some to others through force and coercion on the taxpayer then it need not be to one man’s benefit is also the other man’s benefit
9:34 [waves hands dismissively] – Robber barons will always be with us, the crucial question is whether we have a form of economic organization in which one robber baron keeps the other in check, or whether we have a form of economic and political organization in which one robber baron can help the other robber baron at the expense of the public.
There go those the gravy trains in Queensland Victoria
@R. de Haan: Perhaps this is the consequence of the recent Aussie floods not forecasted by Global Warming´s Pope “AL Baby”. Fortunately some of them, after being washed by the torrential rains are beginning to wake up.
@ w.w.wygart “This is why people like Dr. Friedman, people who should know better, do a great evil [and I mean Evil with a capital ‘E’] when they dismiss the moral responsibility of the people with the most power and control over the system’s responsibility to act morally with a wave of their hand.”
Very good point. One problem with homo sap sap’s ability to conceptualize classes is that we too often place responsibility for evil with the class instead of with the individual actors. Instead of saying “J.P. Morgan and Rockefeller” we say “Robber Barons.” Instead of saying “Governors Terminator and Moon-beam” we say “the State of California.” Instead of saying “Bernanke” we say “The Fed.” I have no idea whether natural disasters are the result of God’s will, but I do know that all human actions are done by human individuals, not by groups, not by classes, not by legal fictions. If we get Carbon Cap and Trade, it is because individuals wished it so; the “government” did not do it. Same with monopoly businesses, taxes, health care, freedom or justice, and every other human endeavor. Some one or some ones did it and bear responsibility, not some abstract set.
@Jason Calley But what if an individual of a group of them agree that something should be done to get their loans paid back by their client-monarchies and they think that the best way to do it is to get the direct control of the economy/power?, and thinking about how to achieve this goal they arrive at the conclusion that a kind of institution should be founded where those wishing to have power/money and not having any could be very collaborative…..and an ideology should be implemented, preferably one which involve many of the desires of such group of people, like “liberty, fraternity and equality” and where such an ideology would substitute religion as to dethrone also the root and justification of all power/money of Monarchy: The Church.
By controlling those necessarily not so educated men it could be possible for them to attain their goals.
Oh Dear, I’ve done it now… Such an interesting discussion, and I’m a bottle of Chardonnay too far around the bend to contribute adequately… Well… I’ll give it until tomorrow and then I’ll catch up. But for now, ’tis a fair discussion we’ve got going on here…
The basic problem, as I see it, is just that we have a Hobson’s Choice of sorts. Which Evil Bastard do we wish to exploit us? The Evil Bastard who is called a ‘Robber Baron’ as he is not in the employ of anyone but himself? The Evil Bastard who is a called a ‘Royal’ due to a fantasy sold to a generation many lives ago? The Evil Bastard who is called a ‘Public Servant’ as he can tell the Very Best Lies to the majority of the people? Or the Evil Bastard who is a composite of the worst greed in all of us in the synthetic person of the ‘Will Of The Public’ via a democratic vote? In all cases, we get the Evil Bastard telling us how to live our lives, and stealing the wealth of our creation.
In no case can we have a system of ‘free and equal individuals living a life of liberty’, as that inevitably leads to the Evil Bastard Robber Baron where “Fattest Wallet Wins” and a world of non-equals with many thrall to the few with the fattest wallets.
Have I mentioned lately that Economics is called “The Dismal Science” for a reason?
Do I have a solution? A way for all of us to live free and yet equal lives? Sadly, no. Best I can offer is the idea of a generally free market, but where the worst Robber Baron practices are forbidden and where those born into positions of power and wealth have to take a bit of a hit on the inheritance, just to prevent an inherited ‘fattest wallet wins’ world in perpetuity. Yet, we need investment, and a cruel fact of life is that “propensity to invest” increases with individual wealth. So if we penalize the wealthy too much, the consequence is under investment in our collective future and we all lose… So at best we can have a ‘modest penalty’ on such inheritance of ‘fattest wallets’. Enough to help ‘share the wealth’ but not so much as to reduce the ‘propensity to invest’ and impoverish us all.
So we need a world where all are free, but some are penalized just a little for being too successful, and thus a bit less free than others. Where all are equal before the law, except those who are most powerful who must be a bit less equal, but not too much less… Yet those more powerful are very unlikely to accept being made a bit more poor and being a bit more penalized than others.
So can you spell conundrum?
Sigh. Some times I wish I’d become a sewage plant worker. At least then you expect what you will be dealing with each day…
Very nice E.M.
I see matters a little differently.
I think the electorate not entirely understands how much power they really have.
At this moment in time we see some folks waking up.
I really think the claim that Americans in the end make the right decision after they have tried everything that’s wrong.
We now see a supreme Court in Action and they are taking on EPA and ObamaCare.
Just give it some more time.
The elections are only beginning and Australia is a very nice example what happens to a Government leader who lies and comes up with policies that harm the country.
The transformation from a nation of believers into a nation of skeptics has been remarkable.
Hopefully the drugged and hysterical electorate in the USA can bring it’s self to make a similar 180 degree turn away from the brink.
I’m quite optimistic we will see something to that effect.
“Sigh. Some times I wish I’d become a sewage plant worker. At least then you expect what you will be dealing with each day…”
Although you can always micro manage your own shit I think you’re dong fine.
In fact with your blog you’re one of the people helping people to make the 180 degree turn.
You have more influence and impact than you think you have.
So don’t be to modest about it.
Just write that first book.
The pessimist always hopes the optimist is right, he just finds it difficult to believe that anyone so stupid can be right given the facts as they are currently known. (I don’t think the American Public is awake and aware of what’s happening, I really don’t think the Austrailans are either;-)
PS: It really doesn’t matter who the President or PM is. It matters most who your local Representative is.
I think the Australians know exactly what’s happening in their country, despite a biased MSM and a totally rotten political class lying between their teeth.
They van completely destroyed the leading party.
In Europe unfortunately all what local Representatives can do is micromanage futile subjects.
All directives and regulations now come from Brussels.
The US however still make a fair chance to make the 180 degree u-turn.
I have no illusions about hard times ahead but I think it can be done although the choice between
Obama and Mitt Romney isn’t a real choice at all.
Here’s where we see a similar situation in the UK
This helps too
I visit lot’s of blogs and sites including those of the MSM.
I also read the comments and for me it is clear people are waking up.
MSM articles about CAGW, if they allow posters to leave a comment are burned down to the ground. This is a sea change compared to a few years a go.
Even the CAGW bastions like Germany and the Netherlands are shaking.
German television this week had a great documentary about the crooked dealings of WWF in Borneo completely destroying WWF and the bio fuel mandate of the EU.
In the Netherlands the PVV party, Geert Wilders, now is openly making the case for a return to the Dutch Guilder and a break up of the EU.
Similar voices are heard from the top of the German Bank and the current Spanish Government.
One year ago any opposition against the Euro and the EU was regarded as cursing in the church.
No, the climate is changing and a firm majority of the people in the EU is against the bail outs and the Green policies. In fact they are totally fed up with the EU.
What helps is the current situation in Iceland.
Why Iceland won’t join the Euro
BTW, in the next 2012 Rio Earth Summit Brazil will lose the property of its Amazon Basin for ever, it will be declared a “World Heritage”, making possible the best and biggest “business” EVER, far better than the invention of the Credit Card by the same group of people: THEY will pay from US$20 to US$30 per jungle hectare/year, as “Carbon Credit” and will sell each hectare, each one “capturing 5,500 tons of CO2 as “Carbon Share” at a price of US$25-US$30.- PER TON of captured CO2. …
@ E.M. “In no case can we have a system of ‘free and equal individuals living a life of liberty’, as that inevitably leads to the Evil Bastard Robber Baron where “Fattest Wallet Wins” and a world of non-equals with many thrall to the few with the fattest wallets.”
Good points… Consider this. In the real world, the predations of Evil Bastards (“EB”) are generally only tempered by two things: the certainty of retaliation, and (eventually) aging and death. Sweet reason and human compassion do not motivate them — that’s why they are EBs. So, punishment and old age.
For punishment, perhaps we should adopt some system of justice where ALL corporate actions are the responsibility of the managers. The Chinese are not shy about this. When a corporation does something criminal like put poisons in baby milk, you do not just see the corporation pay damages and restitution; no, the CEO gets a bullet in the head. That concentrates the mind wonderfully (but briefly). So, firstly, make sure that individual humans are punished for damages inflicted by businesses. Individuals make all decisions and are the only entities with that magic attribute “purpose.” I suppose that if we humans actually make artificial intelligence that AI entities will be subject to punishment as well.
Old age and death… Setting that up for privately owned businesses is not hard — God already arranged that. Dust to dust, etc. It is possible for an individual to rise from nothing to become a first rank, large scale EB in one adult lifetime, but it is rare. More often, EB get a good start from inheriting a billion to start with, so yes, I think you may be right, a hefty “death tax” for individuals. I find it philosophically unpleasant but I am trying to kill off a long line of EBs.
How to “age” corporations? We could just say, “No corporations allowed to live longer than 50 years.” On the other hand, how about a sliding corporate tax scale, set so that somewhere around 50 years (roughly the same length of time that a human is in the work force) the tax rate hits 100%? Heck, have it go past 100% after that and start eating up capital until the corporation goes bust. RIP.
Jason Calley says:
29 March 2012 at 12:31 pm
I support your view of punishing CEO’ who do wrong although not the Chinese way but simply by trial but if I may say so the remainder of your posting is utter BS.
With all due respect but even the most hardened apparatchik has thought of a concept like that.
So I take it as a joke.
We all know that products and services have a life cycle.
But a company that successfully markets those products and services, adapts through time and survives, should continue to do so even if the company gets 500 years old. Just imagine we close down a company like Triple M which was a mining company for starters and now moves at the forefront of product innovations.
We still have some very old companies in Europe. Some still in the business of producing rather innocent products like Belgian Bon Bon’s (Chocolates) or the odd brewery of a local beer.
But we also have some remnants left from the VOC, companies that started with a few ships transporting guano, later coal and today producing energy for millions of people.
And they are doing a great job if I may say so.
Others started as black smith’s and now produce steel.
Most of them have required the title “Royal” and carry their “sign Est. 1731” or whatever year mentioned, with pride.
And I would like to keep it this way because these companies are a constant reminder that good entrepreneurship is a matter of looking at the long term as a policy.
These companies and their management still have values, opposed to the hit and run entrepreneurs
we currently see in our banking sector and those who mounted the Green Gravy Train and still fail after burning millions of tax money within a year after their company took off.
In contrast to these goons, the old companies take great care for their workers, they take great care for their clients and they don’t easily fall for the fancy trends of our times like the derivative and CDS madness or Green policies that are now at the root of the current crises.
In fact these companies are the last islands of common sense in a crazy world and I wish we had more of them,
What’s very nice to observe is that these old school entrepreneurs among their trusted circle still do business without signing a contract. They just shake hands and have a drink sealing the business.
You still find them in Amsterdam, Hamburg and many of the cities that are part of the chain of “Hanze towns”.http://nl.wikipedia.org/wiki/Hanze
I am a sucker for this kind of traditions.
Remarkably most of the old companies last year has said goodbye to their home banks.
Our banks they said, can no longer be trusted.
When a sweets producer in Kleve, Germany (the oldest in the market) wanted to expand and invest in new machinery they introduced their own private bank that allowed them to finance their company with private capital.
They paid a stiff interest rate of 8.5% on a five year lone but rather chose to pay more interest so they could keep their independence from predatory banking schemes.
They took in over 100 million Euro from private citizens within three day’s. Today this example is followed by many more companies with great success.
They’re simply bypassing the entire rotten financial system where people like Corzine sow havoc.