Archives for category: Economics

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The “Elio” seemed so promising. Named for Paul Elio, the Dreamer-in-Chief, the three-wheel concept is beguiling; the design, elegant. But the dream may be over.

Elio Motors was funded largely by advance reservations, a risky scheme in itself. And the delivery date for the three-wheeled totally-enclosed “cars” has been postponed several times, ultimate production delivery nowhere in sight.

As of January, the company was over a hundred million in the red, with no firm date for the production units, and nothing but a few test vehicles delivered, according to Jalopnik. Cedric Glover, the mayor of Shreveport, Louisiana, where the factory resides, insists that early consumer-investors are “waiting for nothing”:

If you look at Paul Elio from 2009, certainly by the time you get to 2011 and 2012, it’s clear that what he is in fact is a dreamer and a schemer. It leads one to ask, what was the actual motivation behind committing these facilities, this equipment to Paul Elio and the Elio operation.

Easy to answer: hope. Though I suppose it could have been a scheme, a fraud, from the beginning.

Trouble is, it is the nature of start-ups that the difference, on paper, between a fraud and a hopeful long shot is a mere hair’s width . . . right up until the moment of success — or failure. This is one reason why government regulation of start-ups is such a bad idea. It should be up to entrepreneurs, bankers and investors to provide the desired checks and balances.

But the story has not stood still. Government demands obeisance. According to KSLA News 12, dateline Jefferson Parish, Louisiana’s “Motor Vehicle Commission is accusing Elio Motors of operating as a manufacturer/dealer of recreational products without a license.”

First I heard of a license, and I’ve been following the story for some time. I wonder when Mr. Elio heard about that license.

The panel decided during a hearing Monday in Metairie to fine Elio Motors $545,000 for offering reservations for the future purchase of its 3-wheel vehicles.

The commission also ordered Elio Motors to obtain both licenses to manufacture and deal in Louisiana and to place all refundable Elio Motors reservations into a trust account within 60 days.

This is awfully late in the game to try to secure some exit strategy for investors. Indeed, the whole thing looks more like a simple shake-down, or perhaps a pretense to prosecute for fraud. That is, government-as-usual.

I sniff something more, though: the influence of competitor greed. As the company made in its statement informing of an appeal to the recent ruling, it makes no sense now to grab funds from the production process. It is sure to doom the whole project. Which I would not be shocked to learn is precisely what a lot of other businesses want.

Which would not be unheard of.

This is how it works, folks: licensing and registration is instituted to help current businesses keep out upstarts.

Par for the course for mercantilism, protectionism, progressivism or whatever we call the modern corporate state. The sanctimonious tone to the mayor’s cavils, calling the company founder a “dreamer and a schemer,” is a little hard to take. Where does the mayor think new products come from? Other mayors? They come from dreamers, schemers, wheeler-dealers.

I understand — there was a goofy odor to the whole emprise from the start. Though excited about the concept, I wondered at the initial promised purchase price, less than half of what the in-production Polaris Slingshot (see  below) goes for. Further, funding by consumer investment (pre-order reservation charges) is so . . . “not done” . . . except that it is: GoFundMe and Kickstarter and all those other crowd-funding operations have proven how well this sort of endeavor can go. Perhaps the fact that Elio didn’t use one of those hubs suggests the fatal glitch.

It is worth noting that automobile guru Eric Peters suggested last year another problem besetting the Elio: it is not an “electric car,” so it got very little play in the news. There is indeed a cultural conspiracy (that is, no real conspiracy at all; just groupthink) to snub innovations in internal combustion tech while promoting even goofier (and much-subsidized) “alt-fuel” auto technology.

Had the major media not fixed its collectivist head so firmly up its collective colon, perhaps Paul Elio would not be in his current predicament. And maybe, just maybe, we would be seeing the Elio on the roads by now.

twv

 

Polaris-Slingshot

The debate over whether “capitalism” should be used by libertarians and other supporters of free markets waxes rather than wanes. Last week,* Sheldon Richman published “Is Capitalism Something Good?” on Freeman Online. And I can see why Stephan Kinsella calls this an “extremely frustrating” debate. We never get very far.

My favorite of Richman’s points is lexical:

At the semantic level, capitalism is an unfortunate word when applied to the free market. It suggests a privileged status for capital over other factors of production, which is not the case in a free market. A capitalist is not a believer in capitalism but rather an owner of capital. One can be a socialist capitalist, that is, one who owns capital while favoring a system called socialism.

In my younger days of argumentation, people would sometimes accuse me of being a capitalist. Well, in those younger days I was broke. I had no savings. I had nothing to invest, and invested in nothing but my own mind. So I would correct them: “Hey, I’m near the poverty line. No enjoy-capitalismcapitalists down here! Besides, I support laissez-faire because it regulates businesses: It enforces a rule of law that disallows businesses from demanding I pay for their goods if I don’t want their goods, or pay more than I would under competition, which laissez faire also enforces. I am not a capitalist, because I insist that we keep capitalists in their place.”

This is the basic truth about the word: A “capitalist” was first known not as a defender of any system, but as one who had money to invest, or investments that returned money. It is logically odd, then, to use the word “capitalism” to identify a system whose supporters  could very well be not capitalists!

I’m not quite in the same place as I was in those days, and don’t take that rhetorical tack as often. I have a long history of being leery of the word. I cannot remember Herbert Spencer, whose general approach I admire, making a pitch for “capitalism” as a system. (His witty acquaintance Henry Makepeace Thackeray first used that term in this fashion. He was no anti-capitalist, but he was an ironist, and I won’t wager on what the precise meaning of his intent.) But Ayn Rand, notoriously, did. She published a book under her name entitled Capitalism: The Unknown Ideal. When Spencer and Rand appear at odds, I long ago learned to side with Spencer.

But there are some things to be said in favor of “capitalism.” For one, it is known. It is less cumbersome than, say, “free enterprise,” a phrase that traditionalists conservatives have abused for years, as a synonym for the Main Street variety of crony capitalism.

I recently argued** for an open, inclusive use of the term capitalism. Capitalism describes any system with private means of production and a labor market. Existing forms of capitalism are, in most every case, dirigistic — that is, subject to multiple and dominating government controls. But the less government direct, micromanaging control you have, and the more the whole system rests upon a rule of law, the more it exhibits the libertarian ideal of laissez faire. Yes, another French term . . . but it’s a lot better known than dirigisme.

The sad truth of the situation is that dirigisme is the letter and spirit of modern law far more than laissez faire is.

So we can continue to use the term “capitalism” as long as we are clear about its modifier, dirigistic or laissez-faire.

However, let’s be frank: All terms have been contested and are therefore contestable. Every term has its problems of connotation as well denotation. “Laissez Faire” suffered under Herbert Spencer’s able attack as “That Miserable Laissez Faire.” We all know what’s happened to “liberalism.” And “Libertarianism” has been caught in a tug-of-war between, uh, pro-capitalists and anti-capitalists for a long time.

Such it is in ideological debate — and yes, every one of us who espouses some policy or some regime or another is an ideologue. None of us are above that (despite Marx’s attempt to squelch the term low in the echelon of epistemics).

For the same reason, we must use the words in circulation, no matter how tainted they may be. We have only a limited ability to influence their meaning. The meanings are “out there,” in the realm of intersubjectivity, if not objectivity, where truth is said to reside.

So, the term “capitalism” is not one that I’d fight much over. “Liberal,” on the other hand, is a great term to defend. I like to call modern so-called liberals by a much more apt term: Prodigal.

But most people don’t know what that means, either. And that’s mainly because most people are sloppy users of language who can write whole sermons on a contested word without once looking it up.

A prodigal is someone who spends too much, too extravagantly. Prodigality is the excess of which “liberality” is the virtue. Which fits an observation of Leonard Read’s from about the time I was born: A liberal, today, is liberal only in the sense that he’s liberal in spending other people’s money. Similarly, a progressive, today, notoriously believes in no form of progress other than the growth of the state.

It’s the prodigal advocates of dirigisme that we must oppose, today. I’m not sure giving them the word capitalism is the way to wrest victory from their rapacious desire to take, take, take from the liberalism of yore.

In fact, there’s not much I’d give them. Not even their pretense to good intentions.

But, if we do end up defending the word “capitalism” now and then, let’s not univocally ever defend capitalists, as such. Not any more than we defend wage laborers or entrepreneurs or professionals. Any person from any group, no matter how good, can stray to the point of demanding special favors from governments, bailouts and subsidies and the like. Besides, I’ve known a number of asshole capitalists, not a few who did not bother placing themselves above the practice of petty fraud as modus operandi. Shun them, even if (insofar as they cannot be caught in their frauds) one grants them their rights to trade and, in general, live their asshole lives.

Now that I think of it, one could generally hate capitalists, but love the system.*** Laissez faire is a form of regulation, a check upon business power. The rule of law, in which rights to liberty receive general protection, is an amazing defense against rapaciousness. Indeed, that’s probably the reason why most people oppose it. They want to act rapaciously while pretending to act nobly.

Ah, anti-capitalist capitalism! Not, I gather, a great motive force for progress or political reform or revolution. But there’s a t-shirt slogan in there somewhere.

twv

* This article first appeared on The Libertarian Standard on April 20, 2010. A very few words have been changed or elided in this reprint, and one new link placed.

** This “recent” argument was reprinted yesterday at this location.

*** The sheer number of possibile takes on “capitalism” is the result of a general confusion over the meaning of the word, Daniel Kian Mc Kiernan explained a year after I wrote the above. I will have to address his points in a future essay. One of the reasons to unearth and repost these blog entries is to provide an excuse to consider Mc Kiernan’s perspective.

A number of writers from across the political spectrum have been writing about the word “capitalism” recently.* What does it mean? Do we have what it signifies? Does talking about such a seemingly vague thing increase our understanding?

enjoy-capitalismJohn Stossel argues that we don’t live under capitalism, unless you modify the word to mean “crony capitalism.” His essay “Let’s Take the ‘Crony’ Out of ‘Crony Capitalism’” makes a very familiar case:

The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.

The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.

But it’s fair to say that crony capitalism created the economic mess.

This is all very well and good. Accurate in its own way. But I am not sure we should give in to either libertarians who want to defend free markets or statists who want to bury them in red tape. “Capitalism” isn’t a word that means just one thing, just as “democracy” isn’t a word that means just one thing. One usage isn’t obviously better than another. Thackeray’s coinage serves more than one master.

I support laissez-faire. It’s a great and noble — and ultra-civilized — policy. But laissez-faire isn’t the only form of capitalism. Indeed, the dominant form has always been some form of dirigisme, or piecemeal state control of market activity.

So, I suggest letting everybody use the word “capitalism” in a broad sense, as an economic system featuring a large degree of private property both at the consumer and producer levels, wide market interaction in both consumer and producer goods, and fully developed labor markets.

It nevertheless remains the case that laissez-faire is more capitalistic than dirigisme. For, the more state control of markets, the more limitations on private property — particularly with command-and-control regulation, rather than rule-of-law oversight — capitalism morphs into socialism. The more government you have, the less the capitalist element dominates.

To put this more straightforwardly, capitalism is defined by the features that laissez-faire unreservedly supports: private property, freedom of contract, markets in capital goods, and contract labor. So, though dirisgistic capitalism is indeed capitalism, laissez-faire capitalism is “more capitalistic,” by the standards of its very definition.

There is one sense that this understanding, however, is not true. That’s the sense in which dirigistic capitalism serves capitalists, that is, people with money. It is a truism of government that it rarely serves all, equally. And it is also a truism that money talks in politics. So, dirigistic capitalism amounts to little more than plutocracy.

This sad truth comes as a shock to those who hail from the left. Those leftists who propose to make capitalism more dirigistic often merely serve as useful idiots for the very rich. Businesses have a long history supporting mercantalist policies, policies that so-called “progressives” thought “regulated business.” Instead, regulations most often help business cartelize, even monopolize, their positions. Getting the upper hand is something many businessmen attempt, and attempt through government.

Such operations have taken many forms, from anti-trust (which actually makes businesses less competitive) through micromanaging regulation to outright subsidy.

It can be quite amusing to watch a standard-brand leftist make all the arguments necessary for businesses to trump their market competition. The trump being, of course, government.

This was most entertainingly seen in the recent bailouts, where it was a whole class of bankers and intermediaries who were aided, not the general run of market participants. Indeed, bankers’ jobs and intermediaries’ jobs were made secure, and their fortunes restored, while the economy lurched out of control and into double-digit unemployment. Such is the logic of dirigisme: Not very logical.

Very political, though.

The great rule of capitalism is that everybody’s worth differs in differing contexts. Laissez-faire is a form of regulating capitalism by the rule of law, trying to set a political limit on the value of human beings. In laissez-faire, the political value of people are equalized by their equal rights to liberty and free contract. But under dirigistic capitalism, the fluctuating value of human beings is re-introduced into the political system because rights no longer regulate human interaction, micromanaging policy-makers do. So everything goes up for grabs.

Under dirigisme you get the general exploitation of the politically weak by the politically powerful — two classes that continually shift, according to the deals and machinations of politicians. You get what Anthony de Jasay calls “the churning state.”

I have no special love for the term “capitalism,” and see no great and overriding reason to shore it up. I just want people to be able to talk to each other about the realities of the current (and past) social world. Capitalism obviously exists in some form today. But it is obviously not laissez-faire capitalism. What we are blessed with and suffer under is dirigistic capitalism.

Two French terms. Why not?

It should be remembered, though, that dirigisme is the ancient, traditional state practice. It flows naturally out of the limited-access society’s basic deal: Tough guys provide order, and in “exchange” we — each of us — gets a fairly stable, quasi-guaranteed place in that state, however lowly.

The idea of laissez-faire, though perennial, is much newer, and quite revolutionary. It is deeply associated with the idea of a rule of law, and its main feature, on the personal level, is personal freedom, the ability to choose what you do in life.

It is always amusing to me how advocates of dirigistic capitalism so readily devolve into advocates of ancient political notions of status. Both centrist Republicans and Democrats tend to move in that direction, and leftists, in particular, keep reviving ancient notions of class and “my station and its duties.”

The great thing about laissez-faire is that it allows us that opportunity to throw off the shackles of time and chance and programming, it conjures up the ability to remake oneself, correct course. This allows for a great amount of progress and flexibility. But stability? Nothing can be guaranteed.

Those who want guarantees of place and position, they tend to hate the freedom in laissez-faire. They don’t want government to “let others act” within the confines of a rule of law, they want more regulation.

Ah, regulation!

The lifeblood of dirigisme. The command structure of socialism. The inheritance of the conquerors who established the first states. At one with military orders, the darling of bureaucracies, the goal of most politicians. It is coercion instantiated in its most paradigmatic act.

The paradigmatic acts of laissez-faire, on the other hand? First, the trade; and, second, being held responsible for one’s own actions.

But I’m more than willing to admit that “capitalism” fits a broader history than the ideal of laissez-faire. So the word must be modified. “Dirisgistic” will do. I offer it to those reasonable people — see, for instance, Stephan Kinsella in his recent essay “Capitalism, Socialism, and Libertarianism” — who wish to keep their terms straight and move beyond semantic disagreement to substantive argument.

And perhaps more French words could be found for the varying degrees of control that have characterized American market life.

twv

* This essay was originally posted April 16, 2010, on The Lesson Applied, by Wirkman Virkkala. A very few changes have been made to the original text.

According to rumors, some of the President’s Goldman-Sachs economy czars gave him a good talking-to.

Donald Trump had bolstered his political standing, in part, for pushing two policy positions, both of which resonate with many (though not necessarily the same) Americans:

1. Trade deficits are bad . . . and are caused by a too-strong dollar.

2. Taxes on businesses and investments should be cut to encourage growth.

The Goldman-Sachs folks informed him (the rumor mill has it) that doing the second (2) would likely subvert the first (1) by strengthening the dollar.

Economist Bob Murphy (on Contra Krugman) notes that Trump’s lack of understanding here is hardly surprising, since only by studying economics would one see the connection, follow the chain of cause and effect that far. One would not learn this “by running a business.”

Most of everybody’s economic understanding and policy is on this level, because economics is not necessary to success in most enterprises.

Arguably, lack of economic understanding has long been a prerequisite for success in politics. People like to hear simple untruths stated boldly.

twv

IMG_3535

One does not normally insure against chosen and regularly incurred costs, like fill-ups and oil changes in cars . . . or haircuts, waxes, and contraceptive devices on people. When insurance companies’ policies do cover regular, pre-injury/-illness purchases, they are not economically engaging in an insurance contract. They are offering a payment system, a kind of premium savings plan.

Why would they do that? Sometimes to attract customer with a convenience — an expensive convenience they expect to make money off of. But also for another reason: because they are compelled by law.

The corruption of the insurance industry by government policy has been ongoing for decades.

Especially in medical markets.

How? At a fundamental level.

Economist Friedrich Freiherr von Wieser (Social Economics, 1928, p. 149) noted that there are three kinds of “binding compensatory contracts”: exchange contracts, insurance contracts, and social contracts. Wieser noted that insurance contracts sometimes look like social contracts, sometimes like exchanges. But the resemblance to explicit social contracts is that they mimic the widespread effects usually aimed at by social contractors, but through private exchanges. An ingenious invention. Insurance provides a public good by private means. The core nature of insurance contracts Wieser explains thusly:

Its purpose is to distribute the effects of loss over many private economies. It has attained great importance in developed economies. But it has to do only with the security of the economic body, not with its creation.

Wieser did not examine this form of contract in detail. He also, in developing economic theory, put aside discussion of the social contract:

One should expect that it be adopted to the integration of the social economy. Nevertheless in its effect it has been overshadowed by the exchange contract, which although as a rule is made only between two parties, has manifested itself the coördinating instrument that binds individual economies into the national economy.

This manifestation of unexpected and unintended coördination puzzles many people. Which is perhaps one reason why, as Wieser’s student F. A. Hayek suggested, we witness much social distress regarding — and political pressure to undermine and control — market order. The coördination provided by markets is “spontaneous,” as Hayek metaphorically put it (“inadvertent” is more exact), and its mechanisms and processes mysterious, in no small part because of its inadvertence. Folks balk at accepting an unplanned order.

This is especially true of insurance contracts, which often seem “unfair.” For example, I was a very good and safe driver as a young man, ages 16–28. Never an accident. Never even a complaint. But an appreciable number of my peers drove recklessly (but not “wrecklessly”!), skewing the actuarial tables that make insurance bets doable, so my insurance rates were high. Young women, on the other hand, had far lower rates — despite my personal knowledge of many dangerous young female drivers.

But I understood the unfairness, and rallied through. Meanwhile, during that same period, feminists pushed through in my state regulations that forced insurers and their customers to pay equal rates, disregarding the sexes. Young women tend to have more medical issues, especially regarding pregnancy — which, one should note, are usually the result of free choices, not wholly accidental events — and thus are greater risks for insurance companies, requiring higher rates.

But . . . unfair!

For some reason, feminists did not push for a forced equalization of auto insurance rates.

So, consider what that regulation did: it increased the pool of insured people, bracketing out of consideration reliable data upon which insurance businesses calculated profitable rates. So, it decreased the information content of insurance rates — prices, really — and made the business decisions less efficient, and less capable of adding efficiency over the course of time.

And by equalizing men’s and women’s rates, it swept into the mix a mostly non-insurable expense: pregnancy and birth. One insures for things out of one’s control. And, except in case of rape, one can choose not to engage in sexual intercourse, the activity that causes pregnancy. So, under modern regulatory requirements, more and more people are swept into the pool with more social contract problems associated with such pools: that is, “the tragedy of the commons.” When some gain at the expense of others, they tend to opt to do just that. A common resource subject to individual exploitation tends to degrade, as has been understood since the time of Aristotle, but clarified by William F. Lloyd, Garret Hardin, and Richard Stroup. In the case here made as an example, what would normally be unforeseeable and insured-for is now intermingled with eventualities placed under a woman’s or couple’s control. Thus they are able to game the system and free ride off of it. Basically, shifting their avodiable medical expenses onto other people who do not choose to produce babies.

This jiggering with the insurance industry basics changes its very nature. But not without costs.

And it is certainly not limited to just the one example. Tax policy, regulation and now subsidy have been contriving to turn medical insurance contracts wholly into social contracts. And politicians and activists have succeeded in convincing many simpletons and distracted citizens into thinking insurance should cover events that no honest business would cover — events such as already existing disabilities, or expenses that are wholly voluntary.

Remember: One cannot “insure” against the present; one cannot “insure” against controlled outcomes. It is only future uncontrolled events with assignable probabilities that make sense to insure. Only these eventualities that can make for stable, long-term and sustainable and efficiently provided buffering of the effects of loss or injury.

But, to repeat, tax law, regulations and now subsidy — by state and federal governments — have so twisted the industry that it now is a badly run redistribution scheme, something one would normally expect from governments pretending to enforce “social contracts.”

Wieser’s “coördinating instrument” of the exchange system, and the pricing (in this case) of insurance rates, has been scuttled by people more comfortable with the seemingly “rational” — but much more ungainly and discoördinative — government policy. Also, the instrumentality of force quickens the vindictive soul, spurring folks to demand a great cause — fairness, justice. Which allows, naturally enough, for the heady mix of self-righteousness and outright oppression (for what else is forcing others?) as well as the precious social signaling that moral crusades engender.

But because information is thereby decreased, and the tragedy of the commons introduced into the industry, society is corrupted, hobbled, injured.

The very opposite result, you might think, of medical insurance policy.

And witless Americans carry on with the fiction and lies. As if they were being smart and wise. Anyone who repeats the current wisdom about medical “insurance” — such as demanding “coverage” for a wholly voluntary aid, like contraception — is a dupe or a liar.

twv

IMG_3239

Friedrich von Wieser portrayed at top, in sketch; the current blogger immediately above.

You know a person isn’t serious about opposing child labor if they keep up bringing sweat shops but never mention farm work.

Traditionally, had children not worked on family farms, many families would have starved. Personally, I worked on our family farm without recompense, growing up, and also worked on other farms for money. Before I came of age. I know that this was good for me, and everyone else knows this too.

img_0056My mother grew up in the Great Depression. She was one of the family breadwinners — as a child. Only an evil person would regard this as exploitation and wrong to the point that it should have been illegal.

A close friend of mine and I both spent time picking fruit in the summers. We earned a few bucks. This was good for us, even at ages nine, ten and eleven.

Now, in the state due south of where I live, such child labor is unlawful. Or so I’m told. I do know that illegal Mexicans pick most of those crops. Progress?

Harping on sweat shops and factory work by children makes moderns feel good about themselves. It is much like imagining themselves as great opponents of slavery — despite their lack of interest in slavery rampant, today, in the Islamic world.

Harping on sweat shops and factory work by children means never having to think about context, progress, wealth creation, or even what actual conditions in most of these situations were really like. I have never met a progressive who talks about this who has read one word of the current scholarly literature on the subject. They are merely repeating stuff pushed to them by brainless high school teachers and Marxist college professors.

Every time I mention that rates of child labor were plummeting prior to child labor being regulated and then prohibited, I get blank looks or eyebrows of incredulity.

Some day these uninformed ideologues may realize that they are merely ignorant buffoons parroting dogmas of little value.

By then, though, they will have supported dozens of insane regulations and deceitful politicians.

twv

The origin of a thing or practice does not always and obviously provide strong clues to the reason for its growth and then for its survival. Theories of ethics, for example, are littered with monocausal accounts of “the foundations of ethics” that fail to separate the various distinct causes and levels of operation.

Take that very institution (or human endeavor, or practice) we call “ethics” or “morality” — consisting of rules, ideals, norms, and reasonings and rationales for action. Its origin may be seen in the simple need to influence human behavior, of self and others. Think of the body of ethical precepts as a toolkit. But the reasons why one ethical system flourishes and others wilt may have surprisingly little to do with the aim of the moralizers who cook up, repeat, and transmit their normative notions. And those reasons may not be the same as their explicit justification.

These distinctions can often only be seen as we pass through time, as various stages of the social life of the memes become evident. (Maybe we should speak of the ordinal, not cardinal, virtues!)

IMG_3224Similarly, the first people to adopt a belief, habit or good are very different in nature from later adopters. The distinction between early-, mid- and late-term adopters is of huge importance for understanding fashion and other consumer behavior, as well as ideologies. Businesses that do not figure in these different consumer bases will suffer. Critics who do not understand this will find themselves irrelevant. Voters find themselves . . . stuck with bad candidates and poor policies.

On a macro level, this trend in consumption allows the masses to benefit from investments that they themselves would never make, nor would ever, alone, entice from capitalists. Only the strong preferences and spending of early adopters allow the success of many goods that later circulate to everybody. In effect, late adopters and skinflints are “subsidized” by the early adopters and the prodigal.

This element of capitalist development is integral to fulfilling one of its defining functions, mass production for the masses. Attempts to “rationalize” the economy in a social engineering way often assume an egalitarian customer base, and thus start with the lower rungs of development kicked away from the ladder of progress.

“Price discrimination,” particularly what amounts to  intertemporal price discrimination (what is the exact technical term? I wonder — separate time-frame equilibria?), is key to the functioning of markets.

Many class resentments and tensions come from a lack of acceptance about this diversity in human judgment and consumer function.

And much confusion results from mixing up the nature of the origins, the persistence, and the expressed and unexpressed rationales for any human practice or institution.

twv

Illustration courtesy James Littleton Gill, My Monster Problem — and Ours

The problems here addressed are so huge that one simple blog post, indicating them as if with a wave of the hand, hardly does them justice. Clearer statements can be made later, or elsewhere — and no doubt have been, by others.

img_3081(from The Lesson Applied, December 1, 2011)

The good folks at Coca-Cola really want to innovate. They probably admire the late Steve Jobs. They’ve lots of neat ideas. Helping polar bears is one of them. So, to honor the polar bears (or at least ballyhoo their cause and plight), Coke folk changed the color of the can of their main product, Coca-Cola™. They made it white. You know, “polar” color.

And then came the uproar.

Coke buyers didn’t like it. Many returned the product, thinking that it was either Diet Coke (whose silver can is, actually, very similar to the new white can) or else a modified product. A few Coke drinkers said that the drink tasted different. There was general confusion, as reported in the Wall Street Journal:

Mel Cyr, a 17-year-old Coke drinker from Sheboygan Falls, Wis., said she and other teenagers attending this week’s National 4-H Congress in Atlanta scratched their heads after seeing the white cans. “You can’t change something that’s classic,” said Ms. Cyr.

4-H delegates from Wisconsin said their chaperone was mistakenly served a regular Coke on the flight to Atlanta from Milwaukee after requesting Diet Coke. “The flight attendants were really frustrated” and apologized for the mix-up, said Sara Harn, 17, of Brooklyn, Wis.

Obviously, this is another innovation from Coca-Cola that didn’t take — reminiscent of the infamous “New Coke” of a few decades ago. Coca-Cola’s clientele was so negative that the august Atlanta company switched plans, and is now switching back to the red cans we all know and love, far ahead of schedule.

A lesson for us all. Consumers are sovereign. You can innovate up and down your line, but if consumers aren’t buying, you aren’t selling.

The doctrine of consumer sovereignty was defended, in the 20th century, by two curmudgeonly economists, W.H. Hutt and Ludwig von Mises. The word choice was spot-on. “Consumers are sovereign” doesn’t mean that producers are meaningless. But the sovereign(s) have the last word; it’s the sovereign who must be pleased.

And that’s what capitalism is all about.

This lesson is probably hard on the innovators at Coca-Cola. Take the lame ending of that Wall Street Journal article:

But Ed Rice, the 81-year-old chief executive of Ozarks Coca-Cola/Dr Pepper Bottling Company, a longtime Coke distributor in Springfield, Mo., thinks the white can was innovative and engaged consumers. He downplayed confusion between the cans.

“If you put the cans side by side and blink, you might have to take a second look,” said Mr. Rice, who loaded his first Coke truck in 1945. “But I think there’s a distinct difference.”

Yes. But not distinct enough.

And besides, the customer is always right. Well, right in the one way that matters most on the market, right in being sovereign.

12/01/2011

In the early and middle 1980s, “comparable worth” became a celebrated cause of the feminist left. The idea was to equalize wages among occupations, particularly between, for example, a well-paid occupation that tended to be manned mainly by men and a more poorly remunerated occupation mainly performed by women. The examples given at that time were often truck drivers vs. secretaries.

I witnessed several public debates on the subject, way back then. And having just begun to study economics, I quickly came to regard proponents of the “comparable worth doctrine” (CWD) as utopian lunatics. Their glee in concocting regulatory schemes was over the top, and their arguments were always and in each case economically illiterate. They looked upon all wages as mere artifacts of custom and power, never productivity. Notions like “marginal product” and “imputation” and even “supply and demand” never rose to coherence, or even the level of mere mention.

I remember one absurd discussion, where a young man argued against a then-current objection commonly made to the CWD — that comparing truckers to secretaries was comparing apples to oranges. (That is, the occupations were different enough that no wage equalization effort could make sense.) He said that the beauty of CWD was that (quoting from memory) “we mix the apples and oranges and get fruit punch, and then divvy out equal amounts!”

You see what I mean by economic illiteracy.

Now, I did not go on to become an economist. It never became my job to investigate the statistic artifacts of the period to test the doctrine. Or any other. But I did notice that in the State in which I lived, the CWD became the official doctrine of one institution: government.

My guess is that many a low-wage government and contractor job were upped to a higher level, according to some “comparable” “worth” (of a labor theory of value variety) and that taxes were quickly increased to cover.

It might be good to check to see whether this did actually happen. I would be surprised if it did not.

I am getting at something here. There is a difference between government wages and business wages. They are figured and set differently. Unlike in the market sector, politicians can and do set State employee wages. And take credit for the hikes.

The taxes? They tend not to talk much about the taxes hiked to pay for the greater drain on resources. In markets, wage hikes must be merited by business success in voluntary markets, within a context of competition for scarce consumer attention. In politics, the checks and balances are much less integral with the process. There is a high degree of arbitrariness to government worker remuneration.

I suspect something similar happens in government regarding minimum wage jobs. I know of a number of positions paid by tax funds through contracts with the state. Many of them — particularly the temporary ones — are minimum wage jobs. (Elder care, some seasonal fishery services, and a few others come to mind.) When the minimum wage requirement is raised, budget requirements are raised, and politicians shrug “cost of living” and approve a budget hike, leading directly to raised contract worker wages.

We often say, with varying degree of inaccuracy, that “consumers pay” for minimum wage hikes. (Consumers do pay, but usually indirectly.) More accurately, taxpayers pay. Quite directly.

twv


One of the more interesting arguments for socialism is the argument from sectoral successes, that is, with particular socialistic enterprises, the prime example being roads. As libertarian economist Walter Block chided Milton Friedman once, Friedman’s support for public roads amounted to a “road socialism.” And most folks, upon hearing that, would raise an eyebrow and pull out of the driveway and say, “if this be socialism, make the most of it.” That is why socialists bring up the roads as an example of how all-sector socialism could work. 

And they have a point: our road system is awfully socialistic. Of the main features of socialism, it has all but two*: the economic good, road access, is not now provided on an egalitarian or needs basis, but instead (1) to all permitted drivers as much as they want, (2) funded by a fairly efficient set of use taxes, on fuel and licensing, etc.

Now, Professor Block has done important work showing not only that private roads do work and have worked, here and there, and could work if universalized. But, let us admit it, his (and similar) writings notwithstanding, road socialism has not been a complete disaster, and is widely popular, unquestioned.

Does road socialism provide a good blueprint for generalized, all-sector socialism? No. But instead of providing the many usual reasons given, I will suggest another way to look at it.

Road socialism in America is an excellent example of how we tend to “regulate a commons”: ruthlessly and with special attention to prosecution (and overburdening) of the poor.

Have you ever been to a traffic court? It is apparent: every unwanted or slightly dangerous behavior is criminalized. The cops are oppressive. The rules are numerous. And the system is exploitative, often nothing more than a shake-down operation. Pleading before the court, the general run of those who challenge the system tend to be abject in their petitions. And the general theme of oppression stinks up these venues, as the states and municipalities nickel-and-dime the least successful in our society.

Think of that system writ large!

On the private roads, there is a perceptible tendency for road owners to provide help, not deliver beat-downs and stick-ups. Road service is more useful than cops, in most cases. Suggestions and highway engineering that encourage safe driving have been found to be more effective than patrolling, but our commons regulators insist upon tickets, property confiscations, and even prison terms.

So there you have it. Road socialism provides a blueprint for social tyranny.

For the good of society at large, the roads should be privatized, just to make life more peaceful and less deadening. Driving need not be regulated by fear. The fact that our most socialistic sector of society is run along  authoritarian and exploitative lines should indicate what a bad idea imitating public roads would be for yet more sectors of society.

Go to traffic court, and come to your senses: no more of this! No more socialism. Please.

twv


* Not counting sector limitations, of course.