Posts Tagged hidden liabilities

You Can’t Plan a Market: Transforming Culture from the Bottom-Up

The White Man's Burden by William EasterlyWhy has post-Soviet Russia not panned out to be the bustling, prosperous economy that the freedom folks predicted it would be? Is this the fault of the free market, or is there something deeper at work?

This week at AEI’s Values and Capitalism, I examine the question, channeling economist William Easterly to make the case that “you can’t plan a market.”

Although many Western tinkerers wrongly ignore the structural limitations in improving developing economies, many on the opposite side make the mistake of pretending that the structural stuff is a cinch.

I argue that it isn’t:

In our modern, polished system (with the wear-and-tear steadily increasing), we are tempted to look at other countries and think their problems are simple enough to be fixed by scribbling a couple solutions on paper and circulating it through the right hands. Even for free-market types, there is a rash assumption that all it takes is a magical structural concoction and a semi-functional government to get a poor country in motion.

Forget the individual habits and beliefs of the people on the ground. Forget the spiritual and cultural factors that limit or propel that society forward. Forget the psychological damage caused by previous (or current) totalitarian rule. “Just give them a market,” we say, “and let them be.”

As I say in the piece, “spontaneous order is not spontaneous order unless it is spontaneous.” Even in America, lest we forget, our thriving economic system did not come from the wave of a magical capitalism wand. Look no further than the 19th century to behold the painful and chaotic emergence of what we know today (and appreciate it).

To demonstrate this lesson, Easterly’s book points to several key market components that are difficult to “invent,” particularly from the top down: trust, property rights, social relationships/unity, peace, etc.

Such features — what Nick Schulz and Arnold Kling call “intangible assets” — must originate from Read the rest of this entry »

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WALL-E vs. the Jetsons: Materialism and Technological Progress

Jetsons, WALL-E, technology, progress, innovation, Jeffrey TuckerIn my most recent post at Common Sense Concept, I build on Jeffrey Tucker’s piece on the Jetsons and innovation, focusing on the bleak alternative to healthy modernization. As I argue, the society may very well result in the misaligned World of WALL-E.

For Tucker, the Jetsons represent a healthy view of technological progress — one in which the more important human struggles still remain largely intact, with the material stuff staying secondary:

The whole scene — which anticipated so much of the technology we have today but, strangely, not email or texting — reflected the ethos of time: a love of progress and a vision of a future that stayed on courseIt was neither utopian nor dystopian. It was the best of life as we know it projected far into the future.

Yet there is another possibility we all should be wary of.

Here’s an excerpt from my response:

This distinction about a society that “stays on course” is what separates the World of the Jetsons from the World of WALL-E, a realm in which humans assume the role of virtual robots, controlled by their possessions, consumed by their leisure, and subsequently doomed to an existence of myopic and self-destructive idleness.

Instead, the World of the Jetsons is one in which human potential is unleashed. There is a “love of progress,” but such a love is not detached from higher responsibilities and does not confuse or pervert the moral order. For the Jetsons, the stuff remains stuff and life moves on, whether that entails personal goals, family development, community engagement, or a relationship with God (one can only hope, George!).

So what separates the two?  If both worlds experience drastic technological improvements, what changes the people within them? How can we Read the rest of this entry »

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Government Grinches: How Economics Saved Christmas

How the Grinch Stole Christmas, Dr. Seuss, Art Carden, economicsArt Carden recently wrote a creative spin on Dr. Seuss’ famous holiday story, in which he illuminates what the Grinch’s behavior tells us about property rights.

In Carden’s approach, the Grinch’s disapproval of Whoville’s holiday joyfulness could represent any number of private-sector resentments, but the parallel that seemed clearest to me was with the government’s disapproval of our financial decision making.

Here’s a little taste:

On Christmas Eve Night, the Grinch went to town
He stole all the presents, he took their wreaths down
He stole their Who Hash, everything for their feast!
He swiped their Who Pudding!  He swiped their Roast Beast!
He looked at his sled loaded up with Who snacks
‘Twas quite an efficient Pigovian tax!
Then late in the night, when he got to Mount Crumpit
For he’d taken the load, and he threatened to dump it
The Whos, with one voice crying out in the night
Screamed “bring back our stuff!  You haven’t the right

At the end, Carden sums up his point effectively, pointing out that economic value need not (only) come from the material realm:

The holiday season brings specials galore
They teach us that Christmas can’t come from a store
Reflect, as you watch them, as day turns to night
On good economics, and property rights.

Read the poem in its entirety here. Happy Friday! Read the rest of this entry »

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From Poverty to Prosperity: Human Ingenuity and the Triumph over Scarcity

From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Triumph over ScarcityLet’s say there’s an apple. I want to eat the apple and you want to eat the apple. Both of us can’t eat the same apple. We can divide it. We can determine who is more hungry. We can figure out who is willing to pay a greater price for it. We can find out who wants the core and who wants the seeds. But no matter how much we deliberate, we cannot share the apple in its entirety.

Economics used to be about how to distribute the apple most efficiently, but the world is changing. Although physical resources remain scarce, human innovation has flourished to the point where we can do much more with much less, and few have bothered to explain how or why.

Arnold Kling and Nick Schulz try to tackle this phenomenon in their new book, From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity. In the book, the authors try to grasp this new way of thinking by terming it Economics 2.0. Where Economics 1.0 saw the market as a means for allocating scarce resources (e.g. apples), Economics 2.0 sees the market as a mechanism for channeling innovation and triumphing over scarcity.

In the beginning of the book, the authors use laundry (of all things) to illustrate the difference. Economics 1.0 would try to explain how it might be more efficient for you to outsource your ironing to someone else. Economics 2.0, on the other hand, doesn’t look at the tangible items in the equation (the number of shirts, the cost of an iron, the cost of dry cleaning, etc.). Instead, Economics 2.0 is primarily concerned with the potential for innovation. For example, what about permanent press? What about wrinkle-free shirts?

As the authors explain:

Thanks to technical progress, many shirts today do not need to be ironed at all. Perhaps in another decade or two they will not need to be washed. Given the likely progress of nanotechnology, there is a good chance that shirts manufactured in 2020 will be ‘permanent clean.’ That’s Economics 2.0.

Another way to look at this is through what Kling and Schulz call the “software layer” of an economy. While Economics 1.0 is concerned with tangible inputs like labor and capital, Economics 2.0 is concerned with the intangible factors, such as collective intelligence, the existence of property rights, and levels of corruption. You can have all of the right hardware for a Read the rest of this entry »

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