Post No. 133a: TV Program of Interest: Common Sense Principles for Troubled Times

As we type this, Professor Robert Frank of Cornell University is discussing his book, The Economic Naturalist's Field Guide: Common Sense Principles for Troubled Times, on C-Span2 Book TV. Click here to see a synopsis of the program. If you miss it, it will air again today, Sunday, September 6, 2009, at 5:00pm EDST.

During his discussion he discusses the conflict between individual logic and group logic, and ways to address that conflict. He also addresses how society might address behaviors which all humans recognize are bad for us, but we pursue anyway.

Post No. 108: Too Few Indians; Not Enough Chiefs

Something’s bothering us.

How in the heck did so many become experts on economic theory overnight, and declare themselves competent to expound on this tactic or that?

Not only are they economic experts; they can predict the future with certainty.

Lots of us have difficulty tracking a checking account balance.

We here at the Institute aren’t sure of much, other than tequila will make you stupid, vodka will make you delusional, and hanging out with more than one woman will make you broke.

And so with amazement, we have watched talk show hosts, pundits, and just regular folks like us, draw lines in the sand describing what happened, why it happened, and what is about to occur.

Where were these people before things started heading south? And why weren’t they running things?

We’ve operated businesses. Stuff’s tricky. We don’t pass judgment on others, especially those with larger /more complex operations.

One of the Logistician’s partners used to say that business people are happy if they get it right 51% of the time. 60% will make you wealthy.

And yet people with not even lemonade stand experience call others incompetent.

That’s not to mention those who’ve cornered the market on history and claim their view is historically accurate, while others are revisionist in nature, or worse yet, lies.

A symposium on the economy was recently held at George Washington University.

There were roughly 10-13 economists, journalists, former banking officials, and business professionals.

First, the group noted that over decades, our best and brightest were diverted or “distracted.”

Instead of pursing careers in science, bio-tech, and other technological areas, they spent time creating “innovative financial instruments,” and generated huge amounts of money, mostly for themselves, through leveraging.

Second, the question arose as to how the best and brightest from our top educational institutions managed to be at the center of this whole mess. This was not a collection of dullards.

Third, there was some sense that the captains of finance had little sense of social responsibility.

Fourth, no one attributed our economic situation as primarily due to one factor, a short period of time, one party, or one administration.

Even the least sophisticated amongst us should appreciate that:

1) The world hasn’t faced a similar economic crisis in our lifetime. There is no historical precedent. No one really knows precisely what to do;

2) This crisis seems to have been precipitated by an economic situation more or less defined by the availability of more capital than good deals;

3) There is no more “them” or “us.” We can’t get along without Chinese money and China can’t get along without the American market. We need a world wide coordinated effort… which is going to be difficult;

4) The economic policies of the last 8 (or 15, or 20, or 30) years got us to this point and did not produce the desired results;

5) When you find yourself in a hole, the first thing to do is stop digging;

6) There is no drug as addictive or powerful as easy credit and the promise of instant wealth;

Finally, we’ll pass on something from a buddy who should know. The main reason why Tim Geithner is flailing in the wind is he can’t consult the Street and the Big Banks because there are horrendous conflicts of interest. Treasury is also inadequately staffed for this reason, along with the fact that few have the guts to take on a task of this magnitude.

Much of the wailing and brow beating can largely be attributed to a few who became very rich during the last decade exploiting easy credit and nonexistent regulation.

They became hooked on the most powerful drug extant.

The rest of this public viciousness is nothing but political finger pointing.

Hunter Thompson once observed of Washington: “In a closed society, where everyone is guilty, the only crime is in getting caught, and the only sin is stupidity.”

Mark Twain, 100 years earlier, noted: “Few things are harder to put up with than the annoyance of a good example.”

We elected this man on the promise of change. Lord knows our economy is in desperate need of something different.

We at the Institute of Applied Common Sense ask only that those both for, and against, this change “get with the program.” If you have a better idea, let’s hear it.

If not, let’s tamp down the fervor, and give a new approach a chance.

After all, the stuff we did before obviously didn’t work.

Except, perhaps for the benefit of a few.

Post No. 79: Rethinking the Role of Government (Part 2) – or the “Real” Definition of Liberalism

Previously in our Post No. 77, we provided you with excerpts of Nobel Economics Laureate Milton Friedman’s book published in 1962, “Capitalism and Freedom.” The following additional excerpts are taken from that work. We told you that you’d be surprised about the definition of “liberalism” addressed by Friedman. With all of the talk about stimulating the economy these days, we'd be interested in where you stand after reading this. (If you did not read Post No. 77, you should do so now before reading this one.) You should enjoy this.

“Government can never duplicate the variety and diversity of individual action. At any moment in time, by imposing uniform standards in housing, or nutrition, or clothing, government could undoubtedly improve the level of living of many individuals; by imposing uniform standards in schooling, road construction, or sanitation, central government could undoubtedly improve the level of performance in many local areas, and perhaps even on the average of all communities. But in the process, government would replace progress by stagnation, it would substitute uniform mediocrity for the variety essential for that experimentation which can bring tomorrow’s laggards above today’s mean.

“This book discusses some of these great issues. Its major theme is the role of competitive capitalism – the organization of the bulk of economic activity through private enterprise operating in a free market – as a system of economic freedom and a necessary condition for political freedom. Its minor theme is the role that government should play in a society dedicated to freedom and relying primarily on the market to organize economic activity.”

* * *

“It is extremely convenient to have a label for the political and economic viewpoint elaborated in this book. The rightful and proper label is liberalism. [Emphasis added.] Unfortunately, “As a supreme, if unintended compliment, the enemies of the system of private enterprise have thought it wise to appropriate its label, [footnote omitted]” so that liberalism has, in the United States, come to have a very different meaning than it did in the nineteenth century or does today over much of the Continent of Europe.

“As it developed in the late eighteenth and early nineteenth centuries, the intellectual movement that went under the name of liberalism emphasized freedom as the ultimate goal and the individual as the ultimate entity in the society. It supported laissez faire at home as a means of reducing the role of the state in economic affairs and thereby enlarging the role of the individual; it supported free trade abroad as a means of linking the nations of the world together peacefully and democratically. In political matters, it supported the development of representative government and of parliamentary institutions, reduction in the arbitrary power of the state, and protection of the civil freedoms of individuals.

“Beginning in the late nineteenth century, and especially after 1930 in the United States, the term liberalism came to be associated with a very different emphasis, particularly in economic policy. It came to be associated with a readiness to rely primarily on the state rather than on private voluntary arrangements to achieve objectives regarded as desirable. The catchwords became welfare and equality rather than freedom.

[Paragraph break added.] “The nineteenth-century liberal regarded an extension of freedom as the most effective way to promote welfare and equality; the twentieth-century liberal regards welfare and equality as either prerequisites of or alternatives to freedom. In the name of welfare and equality, the twentieth-century liberal has come to favor a revival of the very policies of state intervention and paternalism against which classical liberalism fought. In the very act of turning the clock back to seventeenth-century mercantilism, he is fond of castigating true liberals as reactionary!

“The change in the meaning attached to the term liberalism is more striking in economic matters than in political. The twentieth-century liberal, like the nineteenth-century liberal, favors parliamentary institutions, representative government, civil rights, and so on. Yet even in political matters, there is a notable difference.

[Paragraph break added.] “Jealous of liberty, and hence fearful of centralized power, whether in governmental or private hands, the nineteenth-century liberal favored political decentralization. Committed to action and confident of the beneficence of power so long as it is in the hands of a government ostensibly controlled by the electorate, the twentieth-century liberal favors centralized government. He will resolve any doubt about where power should be located in favor of the state instead of the city, of the federal government instead of the state, and of a world organization instead of a national government.

“Because of the corruption of the term liberalism, the views that formerly went under that name are now often labeled conservatism. But this is not a satisfactory alternative. The nineteenth-century liberal was a radical, both in the etymological sense of going to the root of the matter, and in the political sense of favoring major changes in social institutions. So too must be his modern heir.

[Paragraph break added.] “We do not wish to conserve the state interventions that have interfered so greatly with our freedom, though, of course, we do wish to conserve those that have promoted it [.] Moreover, in practice, the term conservatism has come to cover so wide a range of views, and views so incompatible with one another, that we shall no doubt see the growth of hyphenated designations, such as libertarian-conservative and aristocratic-conservative.

“Partly because of my reluctance to surrender the term to proponents of measures that would destroy liberty, partly because I cannot find a better alternative, I shall resolve these difficulties by using the word liberalism in its original sense-as the doctrines pertaining to a free man.”

Post No. 77: Rethinking the Role of Government

Due to the current economic situation in which we find ourselves, many expect President Obama to have government monitor and regulate more areas of our lives, similar to the approach taken by FDR following his election. Many are concerned that this might amount to government control of various industries, and have even gone so far to label such policies as “socialist” in nature.

We here at the Institute read anything and everything. We are often reminded of a comment from a prospective colleague, to whom we considered extending an invitation to join us as a fellow. Upon informing him that we considered all works to be of equal value, and that we reviewed them all, he responded that he only examined those works which supported his views and positions, since to do otherwise would be a waste of his time, and therefore inefficient.

Needless to say, we withdrew the invitation to join us, since his view of information was inconsistent with our philosophy. Probably 10-20 times a week, we come across something that makes us re-think issues about which we have previously written. This blog, like the Constitution, constitutes a “living document.” (Snicker.)

While visiting friends last evening, we came across “Capitalism and Freedom” by Milton Friedman, a Nobel Laureate in Economics. Published in 1962, our reading of this relatively thin volume made us rethink some of the comments which we made, and those made by others, about our current economic situation. You may find the following excerpts to be of interest. Keep in mind that the book, a collection of papers presented at various lectures, was published in 1962. In a subsequent post, we will provide you with other excerpts from the book, including the original meaning of “liberalism.” You’ll be surprised.

"In a much quoted passage in his inaugural address, President Kennedy said, “Ask not what your country can do for you – ask what you can do for your country.” It is a striking sign of the temper of our times that the controversy about this passage centered on its origin and not on its content. Neither half of the statement expresses a relation [,] between the citizen and his government[,] that is worthy of the ideals of free men in a free society."

"[Paragraph break added.] The paternalistic “what your country can do for you” implies that government is the patron, [and] the citizen the ward, a view that is at odds with the free man’s belief in his own responsibility for his own destiny. The organismic, “what you can do for your country” implies that government is the master or the deity, the citizen, the servant or the votary. To the free man, the country is the collection of individuals who compose it, not something over and above them."

"[Paragraph break added.] He is proud of a common heritage and loyal to common conditions. But he regards government as a means, an instrumentality, neither a grantor of favors or gifts, nor a master or god to be blindly worshipped or served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive."

"The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather “What can I and my compatriots do through government” to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom?"

"[Paragraph break added.] And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect? Freedom is a rare and delicate plant. Our minds tell us, and history confirms that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, [and] it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they are not corrupted by the power they exercise, the power will both attract and form men of a different stamp."

"How can we benefit from the promise of government while avoiding the threat to freedom? Two broad principles embodied in our Constitution give an answer that has preserved our freedom so far, though they have been violated repeatedly in practice while proclaimed as precept."

"First, the scope of government must be limited. Its major function must be to protect our freedom both from the enemies outside our gates and from our fellow-citizens: to preserve law and order, to enforce private contracts, [and] to foster competitive markets. Beyond this major function, government may enable us at times to accomplish jointly what we would find it more difficult or expensive to accomplish severally."

"However, any such use of government is fraught with danger. We should not and cannot avoid using government in this way. But there should be a clear and large balance of advantages before we do. By relying primarily on voluntary cooperation and private enterprise, in both economic and other activities, we can insure that the private sector is a check on the powers of the governmental sector and an effective protection of freedom of speech, of religion, and of thought."

"The second broad principle is that government power must be dispersed. If government is to exercise power, better in the county than in the state, [and] better in the state than in Washington. If I do not like what my local community does, be it in sewage disposal, or zoning, or schools, I can move to another local community, and though few may take this step, the mere possibility acts as a check. If I do not like what my state does, I can move to another. If I do not like what Washington imposes, I have few alternatives in this world of jealous nations."

"The very difficulty of avoiding the enactments of the federal government is of course the great attraction of centralization to many of its proponents. It will enable them more effectively, they believe, to legislate programs that – as they see it – are in the interest of the public, whether it be the transfer of income from the rich to the poor or from private to governmental purposes."

"[Paragraph break added.] They are in a sense right. But the coin has two sides. The power to do good is also the power to do harm; those who control the power today may not tomorrow; and more important, what one man regards as good, another may regard as harm. The great tragedy of the drive to centralization, as of the drive to extend the scope of government in general, is that it is mostly led by men of good will who will be the first to rue its consequences."

"The preservation of freedom is the protective reason for limiting and decentralizing governmental power. But there is also a constructive reason. The great advances of civilization whether in architecture or painting, in science or literature, in industry or agriculture, have never come from centralized government. Columbus did not set out to seek a new route to China in response to a majority directive of a parliament, though he was partly financed by an absolute monarch."

"[Paragraph break added.] Newton and Leibnitz; Einstein and Bohr; Shakespeare, Milton, and Pasternak; Whitney, McCormick Edison, and Ford; Jane Addams, Florence Nightingale, and Albert Schweitzer; no one of these opened new frontiers in human knowledge and understanding, in literature, in technical possibilities, or in the relief of human misery in response to governmental directives. Their achievements were the product of individual genius, of strongly held minority views, of a social climate permitting variety and diversity."