It takes a village to make a pencil
(Some real-world economics, here)
In The Vision of the Anointed(p.254), Thomas Sowell powerfully observes that the manufacture of the lowly pencil is vastly beyond the capability of a single person. There are those who select, harvest and prepare the wood; those who find, extract, and prepare the graphite; those who shape and assemble the parts; those who package, transport, sell, etc. Each works within a limited “circle of knowledge.” The sum of these circles cannot possibly be invested in a single individual; further, the participants must must all work, autonomously, and voluntarily as a team. They probably work within a web of trusting relationships and formal contracts.
Politicians have no positive contribution to pencil making [my words, not Sowell’s].
Thursday, March 5, 2009
Thursday, February 26, 2009
Economics versus Politics
10.Economics versus Politics
[The modern flush toilet is an example of a development, not by politics, but by economics.]
(Many things that are possible are not worth attempting. Once something is seen to be worth trying, it quickly will be.)
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A few years ago, I was talking idly with a friend about life in Southern California. The conversation veered into some speculation about air quality and how it might be improved. His view was that oil companies and auto manufacturers should build a non polluting automobile. I voiced agreement, but added that what he was asking for was not feasible at that time, or in the foreseeable future. He said that surely, with all the resources at their disposal, such a project would be a “slam-dunk.” I said, in sort of a conciliatory fashion, “Sure, they can build a few on an experimental basis, to test some design concepts, but at this time full-scale production would not be possible. The final product would be rejected by the market as too costly. Such a venture would be an economic failure.”
My mention of economics sent him into a tirade: “Phooey on economics. In a case such as this, you can’t think of economics. It’s the air we’re breathing that matters.” I bit my lip, and moved onto a different subject.
I have reflected on that event many times. I concluded that my friend and I were using different definitions for “economics.” I was using the term in a general fashion meaning: being careful, using caution, employing economy in ones’ efforts. He was using it to mean money or greed.
This event sensitized me to the word, and I started listening carefully to other people whenever the word was used. I concluded that many people use the later definition. They conjure oodles of plunder if they learn that some enterprise is “economic.” A small number of people even think that an economic enterprise is immoral. Most people do not know the meaning of the word.
Thomas Sowell (Basic Economics, Chapter 1) defines economics as: The study of the use of scarce resources that can be used in different ways. For example, pine logs can be sawed into 2x4 house framing, or the same wood might be sawed into ½-inch strips for lattice work. As the result of a hurricane in Florida, attended by major losses in housing, the increased demand for structural 2x4 might cause shortages, or at least price increases, for decorative lattice all over the United States. Such a condition will persist until such time that the structural requirements are satisfied.
A mere definition of economics does little to illuminate its usefulness. Its primary practical use is to determine where to spend money. Before selling your house, you decide to spruce it up to make it as attractive as you can on your limited budget. You decide on a new paint job instead of a new roof. You figure the new paint job will add more dollars to the selling price than would a new roof.
Engineering practice includes economics as an important component. The study of economics within engineering concentrates greatly on evaluating two types of costs: capital costs and operating costs. Capital costs are the costs to build capital: equipment and factories. Operating costs are the costs of running a piece of capital equipment or a factory. Typical costs of running a Coca Cola bottling operation are: water, sugar, syrup, bottles, labels, bottle caps, electricity, labor, etc. For engineering work, many accounting methods (such as discounted cash flow) are employed. Engineering differs sharply from science in that engineering requires economics as a skill necessary to be used and employed in daily practice.
I like to think of free-market economics as the ultimate environmental tool: The cost of whale oil in the 1800s forced people to search for cheaper, more plentiful fuel. This led to the development of oil from the rocks: petroleum. In recent history, logging costs have risen leading to the use of galvanized sheet metal shapes in the place of 2x4 wood for studs. For clothing, synthetic fibers were developed as cheaper alternatives to natural fibers. In addition to being cheaper, synthetic fibers can be manufactured as thin hollow tubes, or star-shaped, or crescent-shaped cross sections. With natural fibers, you take what you get. Custom shapes were unforeseen during the early development of synthetic fibers. The use of many derivatives of petroleum as raw materials were unforeseen too.
Economics is a strong tool for democracy too. Every time we buy a product, we are voting with our money. Products with many supporters succeed. Poor, unsupported products fail.
Please note in Sowell’s definition of economics the requirement for different approaches. A result of this requirement is that the different approaches lend themselves to comparison. Subsequently, a selection can be made to use the most favorable of the alternatives. The mere choice of color scheme for a new home can affect its selling price: deep purple attracting fewer buyers than Navajo white.
The selection process often involves imponderable factors to which a dollar amount cannot be attached. One example would be a book publisher refusing potential business on the basis of the publisher’s religious beliefs. Questions such as: “Where do we want to be ten years from now?” often arise in economic evaluations. I have personally attended many meetings in which the hint of a safety issue has quickly and terminally scotched what initially seemed like a great idea. The hint of a pollution or public nuisance problem has the same effect. Never have I sat in a meeting where safety, the environment, or neighbors have been dealt with by a decision to either: ignore, cause harm, or proceed with a plan to deceive. Part of economics is the use of moral sensibility. If something is morally wrong, it is also uneconomic. The positioning of corporations, and industries as willful polluters and producers of environmental poisons is a lie told by the left to empower themselves by appearing to be morally superior. It has no basis in truth.
Once again, the true correlation is the reverse of what the lefties would have you believe: It is the socialist economies that have the worst track record regarding environmental destruction. Russia, Eastern Europe and China easily take the prize for environmental destruction. Even backward enclaves of socialism such as Mexico and Cuba are easily evaluated in this regard: Just look at them; just think about their water supplies.
In the early 1900s Franz Oppenheimer posited the idea that wealth is acquired only by two means: 1) by political means, 2) by economic means. In Oppenheimer’s view, political activities include force, or the threat of force, but can include inheritance, or gift. In sharp contrast, economic activities exclude force.
Think of Oppenheimer’s observation as follows: A gold nugget is spotted in a stream by a miner. He pockets it. He goes into town and buys two mules with the nugget. The fellow who sold the mules is confronted by a thief with a pistol. The thief steals the nugget. Three transactions have occurred. The first two are economic. The third is political. If the last transaction had been a gift from the mule seller to his wife, it would still be classed as political.
Let’s look at another example. You buy wood at a lumberyard, and build bookcases for sale. You advertise in the local newspaper and sell several bookcases per week. Local regulations require that you collect tax and send the tax to the governing agency. What happens if you do not send in the tax to the governing agency? Quick answer: You are fined. What happens if you don’t pay your fine. Quick answer: You are put in jail. What happens if you resist? Quick answer: You are overwhelmed by armed officers of the court and put in jail. See, how political transfer of wealth can rely on force? It need not, but it may.
The distinction between economic activities and political activities is fairly easy to discern. The following table gives more examples. Note that the bond sale for road improvement (Item 3) is in the realm of both economics and politics.
Economics and Politics Side by Side(See table at the start of this blog.)
Greed is a primary motivation for laws that transfer wealth from those who produce it to those who are plunderers. A strong secondary motivation is envy. The force of envy can be so strong that rather than allow some other person to prosper, and perhaps participate indirectly in that prosperity, some people will prohibit others from prospering. An Argentine friend once told me of a fellow he knew who wanted to develop a talc deposit on his land. One of his neighbors saw him mining the talc and shipping it to a processor in Buenos Aires. The neighbor raised a stink, and the municipality served notice that the operation had to cease. Everyone lost; even the guy that complained. The miners were out of work. The trucker lost a nice piece of business. The processors had to start importing talc from Brazil, as they had prior to the brief operation in Argentina. Every package of talc sold to Argentines had to sell at a higher price. All this occurred because of the ego-driven envy of one individual, and the heavy hands of lawyers and politicians in the municipality.
Personalities, i-type, u-type
By now, the thoughtful reader has probably concluded that i-type personalities are best suited for careers in production and services, performing tasks that are driven by economics, and further, the u-types, lacking patience for details, and given to affable loquacity, and misplaced self confidence, feel an irresistible pull toward the political life. Because you, Joe Sixpack, probably loathe politics, and dedicate your skills in a field of economic endeavor, Joe, your i-type personality, and work in an economic enterprize constitutes a good match.
Our founders knew both politics and economics. They owned businesses and farms. More than a few were inventors, and had patents in their names. Today, very few politicians know anything about economics (in spite of all their posturing to the contrary), or have ever given it a thought. These modern politicians only know law: i.e., the use of force.
Economic activity requires the extraction of something from nature. This includes the chain of transfer from one owner to another. A horse breeder creates new horses. A corn farmer plants and harvests corn. The breeder and the farmer contract others for the sale of products. A merchant buys from one person and sells to another. These are all economic activities.
Prior to the 1966 congressional election, this country (the USA) was governed by economics. Since 1966 fewer and fewer decisions are based on economics. The 1966 elections resulted in a Congress that was overwhelmingly Democrat. Along with President Johnson, Congress passed a series of laws that made economic activities subservient to politics. Before 1966 millions of business people were the ones in charge of almost everything that happened in this country. Since then, large Federal and State bureaucracies have grown steadily. Year after year, these entities have imposed themselves in every facet of life, always under the guise of “helping” somebody (the consumer, the poor, the unemployed, the old, women, blacks, homosexuals, “undocumented” immigrants, etc.). The vision at work in the highest echelons is to create an organized society. This is the vision of our presumed masters – the vision of the anointed ones.
To gain an appreciation of how things have evolved, please examine the small table, below. A single day (22 April) for the years 1960 and 2003 are compared The data show the numbers of articles devoted to Economics and Politics contained within the Business Section of the LA Times, then versus now. Back in 1960 the Business Section devoted itself to reporting what was going on in business. The level of detail is amazing. The reports would include details on square feet when referring to a real estate deal and raw materials (bauxite) when referring to an aluminum company. On the other hand the same LA Times in 2003 reported as much on political matters (lawsuits, etc.) as on economic matters. A single day (22 April) for the years 1960 and 2003 are compared.
Controlling Human Activity
Passing laws is not the best way to govern human activity. Leave people alone to do their will as long as they don’t cause each other harm. This is freedom, USA style. In human affairs, one must always beware when trying to get others to do one’s will. Too often the result is the reverse of what had been hoped. The attempt to make medical treatment more widely available backfires more often than not. The reason is that coercion of doctors and suppliers is a disincentive, so if they can find an activity without the disincentive, they will pursue the alternate activity. More doctors, nurses and pharmaceutical manufacturers will be enticed into serving the health care industry by good pay, good working conditions, and freedom from threats. If these conditions are not met, then the parties involved may opt for another line of work or early retirement. If government regulations force insurers to provide services under conditions where the insurer is no longer being paid an adequate amount, then the insurer might reduce his payment to doctors and nurses, or alternately, the insurer may simply refuse to provide some kinds of coverage or quit a market altogether. I have seen big shifts in coverage. I have had insurers switched on me eight times in twenty years. I have seen doctors go from being well paid to being poorly paid, or forced to work 70 hours per week to maintain an affluent life style. When I was working in Cuernavaca, Mexico in 1995, often I would buy anchovies, crackers, etc. from a little hole-in-the-wall store down the street. The fellow who ran it was a man about 50 years old. He confided to me one day that he was a doctor. I asked him why he no longer practiced. He said working conditions were too tough for the pay, “Ya no aguantaba,” – too many patients, excessive work hours, too many heavy-handed bureaucrats.
Mexico prides itself on having laws that prohibit the cutting of trees. Because of this, no one in his right mind dares plant a tree on his land lest some day he be prohibited from removing it. Even when a sprout is seen, it is removed. Result: fewer trees planted, fewer trees all around.
The state of California wants more, cleaner and cheaper power. Their efforts are backfiring. Investment money that wanted to enter California in 1999 for construction of power plants has found other places to go now that power generators are subject to witch hunts. Put yourself in the shoes of a retiree sitting in his broker’s office. He knows that investment in power companies has traditionally been a secure investment: steady growth, well-established business. He tells his broker, “I want to shift some of my holdings in Wal-Mart to two or three major power producers, but I don’t want any power producers having a big stake in California.”
Get it? The investment is not going to California – yet California is precisely where the money is needed.
It was Adam Smith who set the path prior to the 1966 Revolution. Prior to that event, this country was run anonymously by millions of businessmen. This country was guided by the “invisible hand” of each of us seeking his/her greatest return on a combination of talent and effort.
Is it pure coincidence that the most prosperous countries (or commonwealths) in the world adopted in some form Adam Smith’s vision? These countries are: Australia, Canada, Great Britain, New Zealand, and United States. Is it pure coincidence that countries who originally embraced Adam Smith’s vision, Chile and Argentina, went from prosperity to poverty after dismissing Adam Smith’s ideas?
Marxists have no use for the general study of economics. Their own economic theory is considered to be the one, true view of the world, so no further study is needed. Marxism is a dogma. They believe free-market economics is immoral. Alarmingly, the Marxist view is quite popular these days. It is becoming more popular in the USA day by day.
Full blown Marxism has been practiced in Russia, Eastern Europe, China, Cambodia, Cuba and a few other places. Light Marxism has been practiced in many parts of the world including Western Europe, India, Latin America and Africa for many years. These later regions do not think of themselves as “light” Marxists, or “partial” Marxists. They think of themselves as anti-capitalist. For the most part they think Adam Smith was a babbling idiot or madman. In their mind an economy cannot operate without someone from on high pulling levers and guiding it.
Mexico prides itself on having laws that prohibit the cutting of trees. Because of this, no one in his right mind dares plant a tree on his land lest some day he be prohibited from removing it. Even when a sprout is seen, it is removed. Result: fewer trees planted, fewer trees all around.
The state of California wants more, cleaner and cheaper power. Their efforts are backfiring. Investment money that wanted to enter California in 1999 for construction of power plants has found other places to go now that power generators are subject to witch hunts. Put yourself in the shoes of a retiree sitting in his broker’s office. He knows that investment in power companies has traditionally been a secure investment: steady growth, well-established business. He tells his broker, “I want to shift some of my holdings in Wal-Mart to two or three major power producers, but I don’t want any power producers having a big stake in California.”
Get it? The investment is not going to California – yet California is precisely where the money is needed.
It was Adam Smith who set the path prior to the 1966 Revolution. Prior to that event, this country was run anonymously by millions of businessmen. This country was guided by the “invisible hand” of each of us seeking his/her greatest return on a combination of talent and effort.
Is it pure coincidence that the most prosperous countries (or commonwealths) in the world adopted in some form Adam Smith’s vision? These countries are: Australia, Canada, Great Britain, New Zealand, and United States. Is it pure coincidence that countries who originally embraced Adam Smith’s vision, Chile and Argentina, went from prosperity to poverty after dismissing Adam Smith’s ideas?
Marxists have no use for the general study of economics. Their own economic theory is considered to be the one, true view of the world, so no further study is needed. Marxism is a dogma. They believe free-market economics is immoral. Alarmingly, the Marxist view is quite popular these days. It is becoming more popular in the USA day by day.
Full blown Marxism has been practiced in Russia, Eastern Europe, China, Cambodia, Cuba and a few other places. Light Marxism has been practiced in many parts of the world including Western Europe, India, Latin America and Africa for many years. These later regions do not think of themselves as “light” Marxists, or “partial” Marxists. They think of themselves as anti-capitalist. For the most part they think Adam Smith was a babbling idiot or madman. In their mind an economy cannot operate without someone from on high pulling levers and guiding it.
Other Places on the Globe
The degree to which Marxism is practiced correlates very well to the economic depths to which a country sinks: the greater the Marxism, the greater the poverty. Russia and China lost tens of millions of lives to starvation while agriculture was administered by the State. Cuba is now a shell of what it once was. India’s recent advances can be traced to a relaxation of the economic controls. Taiwan and Hong Kong were leagues ahead of mainland China until the mainland started experimenting with free market economics. Any relaxation in China was bound to be beneficial after the brutal repression of the Mao years. Unfortunately, most of China’s industry is under control of the military (As was the case in Germany in the 1930s and 1940s.) Stay tuned.
A marvelous experiment was inadvertently carried out in Europe after WW II. Germany was split into four parts. One part was developed under socialism. The other parts were developed under various degrees of Adam Smith economics. After 40 years, the differences were remarkable, and easily seen to favor Adam Smith’s freedom. In spite of this, the Marxists and other breeds of anti Smith fanatics continue to vilify free market economics. What is frightening is that they continue to win more and more adherents. Mexico is in a downward spiral, but rather than loosen up the controls abhorred by Adam Smith, they continue tightening, becoming more and more rigid. Although they broke away from one party rule in 1998, they continue to wear the same anti Smith (organic structure [see previous footnote]) blinders. The “new” president, Vicente Fox, employs the same worn out economic model that was used by the previous political party. All these politicos are leopards unable to change their spots. They all dislike Adam Smith’s economics. They all try to revive some form of an “organic” economy. This is the cause of poverty in their lands. This is the cause of all friction between men.
Argentina in 1900 was ranked 5th in prosperity in the world: i.e., they were 5th in GNP (gross national product) per capita. Today, Argentina ranks close to 105th. Again, the economic model being used is anything contrary to Adam Smith, something having the state involved in crucial places, sometimes just plain Marxist. During the 90s, Argentina underwent a hesitant experiment with free market economics. Some state-owned industries were sold, but the government controls were not meaningfully changed. A few things, notably telephone service, improved, but the old culture of heavy-handed government did not fade away. Argentina remained non competitive in world markets. Then, true to form, they began fiddling with the peso, behind the scenes, in world markets. When the crash inevitably came, of course, they vilified free market economics. The same thing is currently happening here in the USA with the Democrats announcing, daily, that capitalism does not work, and “markets have failed.”
Prospects for Argentina continue to be gloomy. Nestor Kirchner, elected in 2003, ran a campaign loaded with Marxist promises. One of his first official acts was a meeting with the well-known, sagacious economic genius, Fidel Castro. Next Kirchner undertook a hunt for aging military personnel who had participated in the “dirty war” (1970-1980). How this will raise the standard of living of the average Argentine man or woman is not clear. Plainly, Kirchner’s mind is capable only of handling politics, not economics. He will mention economics in every third sentence, but not in the sense of seeking an economic outcome, but instead, using a buzzword, with the intent of inserting a political component into something economic in nature. Something that should not be contaminated with politics.
To gain an appreciation of the huge and tragic distortions that exist in the mind of the deluded, clueless, and all too numerous Latin American, one must read Manual del Perfecto Idiota Latinoamericano (translation: Manual of the Perfect Latin American Idiot). (See Plate 1 for an image of the title page.)The title is tough and harsh, meant to be so by the authors. They describe a fellow who believes every bit of anti-Smith tripe, without question. This fellow might have a good job in a bank, might be a fairly moral person, but goes through life with the dogma of Marxism implanted between his/her ears. The main characteristic of this individual is the failure to discern the truth when the lies are so blatantly obvious. He is a blind follower of the leader that can best delude. The book mentions that pure, unrestrained capitalism was experimented with in the 19th century, but was abandoned because it took over all other forms of economic expression. Duhh! No wonder. It is so much better than a politically guided system.
How did the anti Adam Smith culture ever take root in Latin America?
The answer is: via studies at national universities. I have a copy of a book that was used at the university of Buenos Aires in the 1930’s that heaps scorn on Adam Smith [“He was just a theorist.”], and goes page after page building a case for creating an “organic” economy. The title of the book is Economía Política (translated as Economic Policy, or Economics via Politics).
To see images of the Front matter on these books, go back to the web page and click”Plate1."
The book was written by a German (Austrian?) professor named (in the Spanish edition): Dr. Federico von Kleinwachter. He is listed as a professor at the “Universidad de Czernowitz,” and member of the “Academia Rumana.” My copy of this book goes on to say that this is the translation from the 4th German edition, translated by “Gabriel Franco, Profesor auxiliar de la Facultad de Derecho de la Universidad de Madrid.” The editor was Gustavo Gili. Printers: Guinart y Pujolar of Barcelona. Date: 1929. See Plate 1(B)
This book was written before Mussolini and Hitler, and while the seeds were being sown for WWII. At the time this book was being swallowed by future lawyers, judges, businessmen, and politicians, the future dictator, Juan Peron, was in Italy as military attaché from Argentina.
The Kleinwachter book was apparently a guide used throughout Latin America and, even though it has probably been lost from conscious thought, serves as the guide to this very day (29 Jan. 2006).
In this way the economies in Latin America wallow in failure. And, instead of embracing Adam Smith, and climbing out of poverty, all the
powerful political movements cry for greater extremes of state control, more and more Marxism.
It is as though the wreck that was WWII had never happened as far as the political operatives in Latin America are concerned. As a matter of fact, Kleinwachter cites many examples of failure of market economics that occurred during the First World War (WWI) to show how markets cannot function on their own. At the time he wrote his book the dismal failures in Russia, Eastern Europe, Maoist China, and Cuba were either just beginning, or had not even begun being played out.
Is it any wonder Latin America is so poor? Not knowing their own history is condemning them to repeat it. Here are some events that took place around the time the book was written (in German), translated into Spanish, and subsequently put to use in Argentina, and presumably other counties in Latin America.
WWI: 1914-1918 USSR beginnings
1917, a period of great
expectations for Utopian ideas
4th edition in Spanish 1929
Spanish civil war 1936
Juan Peron in Italy 1936-1939
Marxism (and fascism) are all political. Economics is just a concept Marxists use to obtain political power. In reality, a Marxist does not give a hoot about standard of living. If they did, they would seek to duplicate the economic successes of the United States, West Germany, Japan, South Korea and Chile. Milton Friedman would be consulted instead of el maximo lider. Marxism is easily sold to the masses, but it only brings a higher standard of living to those in the ruling clique. It’s support by the masses shows how easily the common man can be gulled. Please note the statement in the Subtitle of Bye-Bye Sweet Liberty:(We were gullible)
So what works? The magic word is husbandry. Husbandry brings a better standard of living to all, from rulers down to commoners, every time it is tried it succeeds. Husbandry requires knowledge ,(see Chapter 11.) Husbandry does not favor a big ego.
Husbandry is a word rarely heard these days. Originally the word was applied to breeding domestic animals, and building the sizes of herds of cattle, horses and sheep. Today its meaning is more general.
Husbandry practiced by previous generations has gotten us to the world in which we live today. It was the nurturing of our capital goods that has given us lifesaving drugs, inexpensive travel, computers, televisions, telephones, abundant food, and . . . via automation, work that generally is no longer mind-numbing drudgery.
The political left (opponents of Adam Smith) take a disdainful view of capital, and of its husbandry. The record is clear. For example, when the leftists’ darling, Emiliano Zapata, took over and burned perfectly good, economic sugar refineries in central Mexico, the political left cheered loud approval. (Never mind that this put many people out of work, caused deprivation and shortages.) When Salvador Allende became president of Chile, the government assumed ownership of the copper companies. Then, the suppliers to the (government) copper companies were driven into bankruptcy when the copper companies refused to pay for materials provided by the suppliers. It was classic liberal hubris. Whether it is burning of capital or forcing bankruptcies, the leftists’ record with husbandry is dismal.
California’s phony energy deregulation is a kissing cousin of what went on in Chile under Allende. PGE and Edison, under the PUC (California Public Utilities Commission) are in the same situation as the Chilean suppliers: The utilities have to provide something, but by government dictate, will not be fully compensated for it. Just as surely as with the suppliers in Chile, our utilities must go broke. We won’t reach dire straights as quickly as the Chileans did, but we’ll get there soon enough.
The lack of husbandry will have the same effect that Zapata had on the sugar refineries, but will take longer. Witness the existing crumble of infrastructure: decaying schools, classrooms in prefab buildings, rolling blackouts, highway congestion, poor roads, and even Angels Flight. The PUC could not even make sure that the Angels Flight operated safely. Bureaucrats are lousy at husbandry.
Parallel lesson: The only way to sell a product the public doesn’t want is via a legally enforced monopoly. Governments like monopolies as long as they are in charge of them such as the monopoly on education. The educational establishment only has a market because the money to fund it is taken by force (taxes), and the clients are forced to accept the product (by law), from an organization that fosters monopolies (teachers unions, monopolistic establishment of curricula, monopolistic control of school books). If they had to sell their product the same way as Corbin Motors, the school system would have gone out of business a long time ago.
Husbandry requires that adequate budgets be provided for maintenance and growth. Husbandry requires technical competence in matters such as accounting, engineering, design, and construction. Husbandry is derailed by political correctness. Husbandry abhors what the left likes to call “social consciousness.”
In the L.A. Times, under the headline Feathers Fly in Hollister After Sparrow’s Nose Dive, we find a story that illuminates the subject of Economics quite appropriately. It tells about a family in the small town of Hollister in northern California who set about producing a small electrically powered vehicle (called the Sparrow) in the late 1990’s. They were successful in raising capital during the dot-com boom, eventually producing about 300 vehicles, each having a price tag of 14,000 dollars. Since these vehicles were 2-seaters and still were in the development stage, there were few buyers. The company that developed and produced these cars, Corbin Motors, Inc., went bankrupt.
They need not have. As an engineer familiar with energy generation and transmission, I can assure you that these people and their investors would have avoided their losses had they simply consulted a trained engineer, not for engineering advice, but for economic advice. I’m reasonably sure they consulted lawyers and bankers for political advice. Why did they not consult an engineer for economic advice? Who knows? maybe they did, but they didn’t employ one, because they thought the engineer would use some agenda-driven jive. They believed that those awful oil companies have all the engineers all bought and paid for. Note to Corbin investors and future investors in similar ventures: Engineers are economic animals, not political animals.
I’m constantly reading letters to the editor and listening to people on radio talk shows who insist that the big automobile companies and the big petroleum companies conspire to keep electric powered vehicles off the market. Could this have been a factor in the wild behavior of the investors and the directors of Corbin Motors?
Such negative statements probably were effective. Probably even statements by the teacher/educator establishment, years earlier, had its effect too. In my own mind, I don’t doubt that the investors and directors had been poisoned against rational thought by being set on a course to hate big business.
As a final illustration of Economics vs. Politics, consider a furniture factory. Part of their operation consists of staining and applying varnishes to their finished wares. Some of the coatings they use emit volatile solvents into the air; floor washes sent to drains enter the sewer and go to the sewage plant. Several of their raw materials and by-products (such as sawdust) are fire hazards. The political solution here is to pass laws forbidding emissions beyond a certain amount, mandating sprinklering in the fire hazard areas, mandating disposal of waste materials in special landfills for hazardous materials. In most cases, these mandates are not needed. Does the owner really want to risk his investment by not installing fire fighting equipment? Does he want to lose valuable solvents and create fire hazards by not minding his varnishes? Does he want to risk law suits? Does he want to be regarded as a bad neighbor? Of course not.
If government were to help by providing free advice on methods to cut solvent losses, if government were to give tax credits to encourage varnish collection and shipment back to varnish producers, the forces of economics would work to reduce waste varnish, without the need of inspectors, paperwork and government intrusion. If government would encourage industrial research and development via tax breaks. If … well, if government would allow economics to come into play, we’d all be more prosperous.
The economic solution is to make, knowledge, loans, or tax incentives available to associations of furniture manufacturers and paint manufacturers so that they have a reason to explore process improvements. This is never done. Instead an official is sent to the site to write up infraction notices, and the business is driven to China. Nowadays, it seems, the political route, not the economic route is taken.
In the USA we have seen over the last forty years, the political approach does not work. Sure pollution has been reduced, but it has been at the expense of our manufacturing industries. Our manufacturing has gone to Latin America and the Orient. The environmental destruction has been relocated, and is worse than ever. I am an eyewitness to manufacturing in Latin America. I can certify that the relocated operations are far less safe and far more noxious to the global environment than before they were relocated. This is one more example of the pointy headed “planners” getting it all wrong.
The way money is spent is dictated solely by the person who possesses it. If your money has been taken “legally” by a politician, he gets to determine how it is spent. You don’t. He (or she) might even choose to spend it to crush you and put you out of business. In an Adam Smith economy, and an economy where the power of government is exceedingly limited, you get to keep almost all of your money, and you keep the knuckle-dragging politician on a leash. Yes, there is too much money in politics, and it should not be; it should be in your bank account.
Who makes decisions about money being spent? Whose money is used?
A marvelous experiment was inadvertently carried out in Europe after WW II. Germany was split into four parts. One part was developed under socialism. The other parts were developed under various degrees of Adam Smith economics. After 40 years, the differences were remarkable, and easily seen to favor Adam Smith’s freedom. In spite of this, the Marxists and other breeds of anti Smith fanatics continue to vilify free market economics. What is frightening is that they continue to win more and more adherents. Mexico is in a downward spiral, but rather than loosen up the controls abhorred by Adam Smith, they continue tightening, becoming more and more rigid. Although they broke away from one party rule in 1998, they continue to wear the same anti Smith (organic structure [see previous footnote]) blinders. The “new” president, Vicente Fox, employs the same worn out economic model that was used by the previous political party. All these politicos are leopards unable to change their spots. They all dislike Adam Smith’s economics. They all try to revive some form of an “organic” economy. This is the cause of poverty in their lands. This is the cause of all friction between men.
Argentina in 1900 was ranked 5th in prosperity in the world: i.e., they were 5th in GNP (gross national product) per capita. Today, Argentina ranks close to 105th. Again, the economic model being used is anything contrary to Adam Smith, something having the state involved in crucial places, sometimes just plain Marxist. During the 90s, Argentina underwent a hesitant experiment with free market economics. Some state-owned industries were sold, but the government controls were not meaningfully changed. A few things, notably telephone service, improved, but the old culture of heavy-handed government did not fade away. Argentina remained non competitive in world markets. Then, true to form, they began fiddling with the peso, behind the scenes, in world markets. When the crash inevitably came, of course, they vilified free market economics. The same thing is currently happening here in the USA with the Democrats announcing, daily, that capitalism does not work, and “markets have failed.”
Prospects for Argentina continue to be gloomy. Nestor Kirchner, elected in 2003, ran a campaign loaded with Marxist promises. One of his first official acts was a meeting with the well-known, sagacious economic genius, Fidel Castro. Next Kirchner undertook a hunt for aging military personnel who had participated in the “dirty war” (1970-1980). How this will raise the standard of living of the average Argentine man or woman is not clear. Plainly, Kirchner’s mind is capable only of handling politics, not economics. He will mention economics in every third sentence, but not in the sense of seeking an economic outcome, but instead, using a buzzword, with the intent of inserting a political component into something economic in nature. Something that should not be contaminated with politics.
To gain an appreciation of the huge and tragic distortions that exist in the mind of the deluded, clueless, and all too numerous Latin American, one must read Manual del Perfecto Idiota Latinoamericano (translation: Manual of the Perfect Latin American Idiot). (See Plate 1 for an image of the title page.)The title is tough and harsh, meant to be so by the authors. They describe a fellow who believes every bit of anti-Smith tripe, without question. This fellow might have a good job in a bank, might be a fairly moral person, but goes through life with the dogma of Marxism implanted between his/her ears. The main characteristic of this individual is the failure to discern the truth when the lies are so blatantly obvious. He is a blind follower of the leader that can best delude. The book mentions that pure, unrestrained capitalism was experimented with in the 19th century, but was abandoned because it took over all other forms of economic expression. Duhh! No wonder. It is so much better than a politically guided system.
How did the anti Adam Smith culture ever take root in Latin America?
The answer is: via studies at national universities. I have a copy of a book that was used at the university of Buenos Aires in the 1930’s that heaps scorn on Adam Smith [“He was just a theorist.”], and goes page after page building a case for creating an “organic” economy. The title of the book is Economía Política (translated as Economic Policy, or Economics via Politics).
To see images of the Front matter on these books, go back to the web page and click”Plate1."
The book was written by a German (Austrian?) professor named (in the Spanish edition): Dr. Federico von Kleinwachter. He is listed as a professor at the “Universidad de Czernowitz,” and member of the “Academia Rumana.” My copy of this book goes on to say that this is the translation from the 4th German edition, translated by “Gabriel Franco, Profesor auxiliar de la Facultad de Derecho de la Universidad de Madrid.” The editor was Gustavo Gili. Printers: Guinart y Pujolar of Barcelona. Date: 1929. See Plate 1(B)
This book was written before Mussolini and Hitler, and while the seeds were being sown for WWII. At the time this book was being swallowed by future lawyers, judges, businessmen, and politicians, the future dictator, Juan Peron, was in Italy as military attaché from Argentina.
The Kleinwachter book was apparently a guide used throughout Latin America and, even though it has probably been lost from conscious thought, serves as the guide to this very day (29 Jan. 2006).
In this way the economies in Latin America wallow in failure. And, instead of embracing Adam Smith, and climbing out of poverty, all the
powerful political movements cry for greater extremes of state control, more and more Marxism.
It is as though the wreck that was WWII had never happened as far as the political operatives in Latin America are concerned. As a matter of fact, Kleinwachter cites many examples of failure of market economics that occurred during the First World War (WWI) to show how markets cannot function on their own. At the time he wrote his book the dismal failures in Russia, Eastern Europe, Maoist China, and Cuba were either just beginning, or had not even begun being played out.
Is it any wonder Latin America is so poor? Not knowing their own history is condemning them to repeat it. Here are some events that took place around the time the book was written (in German), translated into Spanish, and subsequently put to use in Argentina, and presumably other counties in Latin America.
WWI: 1914-1918 USSR beginnings
1917, a period of great
expectations for Utopian ideas
4th edition in Spanish 1929
Spanish civil war 1936
Juan Peron in Italy 1936-1939
Marxism (and fascism) are all political. Economics is just a concept Marxists use to obtain political power. In reality, a Marxist does not give a hoot about standard of living. If they did, they would seek to duplicate the economic successes of the United States, West Germany, Japan, South Korea and Chile. Milton Friedman would be consulted instead of el maximo lider. Marxism is easily sold to the masses, but it only brings a higher standard of living to those in the ruling clique. It’s support by the masses shows how easily the common man can be gulled. Please note the statement in the Subtitle of Bye-Bye Sweet Liberty:(We were gullible)
So what works? The magic word is husbandry. Husbandry brings a better standard of living to all, from rulers down to commoners, every time it is tried it succeeds. Husbandry requires knowledge ,(see Chapter 11.) Husbandry does not favor a big ego.
Husbandry is a word rarely heard these days. Originally the word was applied to breeding domestic animals, and building the sizes of herds of cattle, horses and sheep. Today its meaning is more general.
Husbandry practiced by previous generations has gotten us to the world in which we live today. It was the nurturing of our capital goods that has given us lifesaving drugs, inexpensive travel, computers, televisions, telephones, abundant food, and . . . via automation, work that generally is no longer mind-numbing drudgery.
The political left (opponents of Adam Smith) take a disdainful view of capital, and of its husbandry. The record is clear. For example, when the leftists’ darling, Emiliano Zapata, took over and burned perfectly good, economic sugar refineries in central Mexico, the political left cheered loud approval. (Never mind that this put many people out of work, caused deprivation and shortages.) When Salvador Allende became president of Chile, the government assumed ownership of the copper companies. Then, the suppliers to the (government) copper companies were driven into bankruptcy when the copper companies refused to pay for materials provided by the suppliers. It was classic liberal hubris. Whether it is burning of capital or forcing bankruptcies, the leftists’ record with husbandry is dismal.
California’s phony energy deregulation is a kissing cousin of what went on in Chile under Allende. PGE and Edison, under the PUC (California Public Utilities Commission) are in the same situation as the Chilean suppliers: The utilities have to provide something, but by government dictate, will not be fully compensated for it. Just as surely as with the suppliers in Chile, our utilities must go broke. We won’t reach dire straights as quickly as the Chileans did, but we’ll get there soon enough.
The lack of husbandry will have the same effect that Zapata had on the sugar refineries, but will take longer. Witness the existing crumble of infrastructure: decaying schools, classrooms in prefab buildings, rolling blackouts, highway congestion, poor roads, and even Angels Flight. The PUC could not even make sure that the Angels Flight operated safely. Bureaucrats are lousy at husbandry.
Parallel lesson: The only way to sell a product the public doesn’t want is via a legally enforced monopoly. Governments like monopolies as long as they are in charge of them such as the monopoly on education. The educational establishment only has a market because the money to fund it is taken by force (taxes), and the clients are forced to accept the product (by law), from an organization that fosters monopolies (teachers unions, monopolistic establishment of curricula, monopolistic control of school books). If they had to sell their product the same way as Corbin Motors, the school system would have gone out of business a long time ago.
Husbandry requires that adequate budgets be provided for maintenance and growth. Husbandry requires technical competence in matters such as accounting, engineering, design, and construction. Husbandry is derailed by political correctness. Husbandry abhors what the left likes to call “social consciousness.”
In the L.A. Times, under the headline Feathers Fly in Hollister After Sparrow’s Nose Dive, we find a story that illuminates the subject of Economics quite appropriately. It tells about a family in the small town of Hollister in northern California who set about producing a small electrically powered vehicle (called the Sparrow) in the late 1990’s. They were successful in raising capital during the dot-com boom, eventually producing about 300 vehicles, each having a price tag of 14,000 dollars. Since these vehicles were 2-seaters and still were in the development stage, there were few buyers. The company that developed and produced these cars, Corbin Motors, Inc., went bankrupt.
They need not have. As an engineer familiar with energy generation and transmission, I can assure you that these people and their investors would have avoided their losses had they simply consulted a trained engineer, not for engineering advice, but for economic advice. I’m reasonably sure they consulted lawyers and bankers for political advice. Why did they not consult an engineer for economic advice? Who knows? maybe they did, but they didn’t employ one, because they thought the engineer would use some agenda-driven jive. They believed that those awful oil companies have all the engineers all bought and paid for. Note to Corbin investors and future investors in similar ventures: Engineers are economic animals, not political animals.
I’m constantly reading letters to the editor and listening to people on radio talk shows who insist that the big automobile companies and the big petroleum companies conspire to keep electric powered vehicles off the market. Could this have been a factor in the wild behavior of the investors and the directors of Corbin Motors?
Such negative statements probably were effective. Probably even statements by the teacher/educator establishment, years earlier, had its effect too. In my own mind, I don’t doubt that the investors and directors had been poisoned against rational thought by being set on a course to hate big business.
As a final illustration of Economics vs. Politics, consider a furniture factory. Part of their operation consists of staining and applying varnishes to their finished wares. Some of the coatings they use emit volatile solvents into the air; floor washes sent to drains enter the sewer and go to the sewage plant. Several of their raw materials and by-products (such as sawdust) are fire hazards. The political solution here is to pass laws forbidding emissions beyond a certain amount, mandating sprinklering in the fire hazard areas, mandating disposal of waste materials in special landfills for hazardous materials. In most cases, these mandates are not needed. Does the owner really want to risk his investment by not installing fire fighting equipment? Does he want to lose valuable solvents and create fire hazards by not minding his varnishes? Does he want to risk law suits? Does he want to be regarded as a bad neighbor? Of course not.
If government were to help by providing free advice on methods to cut solvent losses, if government were to give tax credits to encourage varnish collection and shipment back to varnish producers, the forces of economics would work to reduce waste varnish, without the need of inspectors, paperwork and government intrusion. If government would encourage industrial research and development via tax breaks. If … well, if government would allow economics to come into play, we’d all be more prosperous.
The economic solution is to make, knowledge, loans, or tax incentives available to associations of furniture manufacturers and paint manufacturers so that they have a reason to explore process improvements. This is never done. Instead an official is sent to the site to write up infraction notices, and the business is driven to China. Nowadays, it seems, the political route, not the economic route is taken.
In the USA we have seen over the last forty years, the political approach does not work. Sure pollution has been reduced, but it has been at the expense of our manufacturing industries. Our manufacturing has gone to Latin America and the Orient. The environmental destruction has been relocated, and is worse than ever. I am an eyewitness to manufacturing in Latin America. I can certify that the relocated operations are far less safe and far more noxious to the global environment than before they were relocated. This is one more example of the pointy headed “planners” getting it all wrong.
The way money is spent is dictated solely by the person who possesses it. If your money has been taken “legally” by a politician, he gets to determine how it is spent. You don’t. He (or she) might even choose to spend it to crush you and put you out of business. In an Adam Smith economy, and an economy where the power of government is exceedingly limited, you get to keep almost all of your money, and you keep the knuckle-dragging politician on a leash. Yes, there is too much money in politics, and it should not be; it should be in your bank account.
Who makes decisions about money being spent? Whose money is used?
The Rot of Politics reaches Museums and Foundations too
Where do museums fit? Are they economic endeavors? Or are they Political Operations? A: Today, they are largely political. Even the Smithsonian Museum is a showcase to the wonders of Government. This was not true in 1964. The Wright brothers have been banished to the broom closet, keeping company there with Charles Lindberg. You can see the Spirit of St. Louis hanging about 4 stories above you. Nowhere to be found are Lindberg’s flight suit, flashlight, log book, etc---- Items of prominence back in 1964. The Wright brothers display shows nothing of their calculations, none of their test data from wind tunnel experiments, no castings and molds for building engines. Instead there were some pictures taken at Kitty Hawk, and a full-scale model once again suspended overhead, about four stories up. Then, of course, scattered about were Mercury, Gemini, and Apollo capsules and a 20-minute movie on the space program. The emphasis on government programs was unmistakable. We are to suppose that NASA invented the airplane. The designer of the exhibits was probably thinking: “Individual developments in flight and space were accidental and not worthy of honor in this hallowed place. The real conquerors of flight and space were engineers at NASA and politicians on ‘the hill’ that funded NASA.”
Two museums that dropped off the face of the earth: Gettysburg (Rosensteel), and the Smithsonian. Sure there are buildings there that purport to be museums, but they are buildings with a few cutesy, politically correct, meaningless objects. Those old display cases jam-packed with genuine rusted, bent, stained pieces that actually were caressed by the hands of explorers, warriors, and inventors are gone. Just like the Cherokee fiddle and the fool who played it: gone.
When I took the wife and kids to Gettysburg in 1989, I kept telling them about this great museum with all this stuff that really gave an idea of what happened in certain parts of the battlefield. I told about the heaps of human bone fragments taken in the vicinity of the stone fence on cemetery ridge, at the top of the hill where Pickett’s charge was stopped. Why, there was even on display seven pairs or bullets that had collided head-on in mid air and had fused together. Much to my surprise, the Rosensteel museum was gone. There was a visitor’s center run by employees of the Federal government. The old scale model of the battlefield was set up there, but the thousands of genuine pieces from the battle were gone.
Foundations
Similar to the museums, private foundations, funded through private endowments are now controlled by political operatives. Henry Huntington and Alfred P. Sloan surely are having heartburn down in their graves. Mr. Huntington carefully and specifically stated in his will( a document that must have been reviewed by the best legal minds available) that his estate was to be enjoyed by others (the general public),in perpetuity (forever, sin fin), free of charge. But, guess what? Today’s administrators are enjoying revenues from admission tickets. The excuse is the Trust needs money to make additions. But in all truth, the appearance is that the trustees needed new boats and cars.
Two museums that dropped off the face of the earth: Gettysburg (Rosensteel), and the Smithsonian. Sure there are buildings there that purport to be museums, but they are buildings with a few cutesy, politically correct, meaningless objects. Those old display cases jam-packed with genuine rusted, bent, stained pieces that actually were caressed by the hands of explorers, warriors, and inventors are gone. Just like the Cherokee fiddle and the fool who played it: gone.
When I took the wife and kids to Gettysburg in 1989, I kept telling them about this great museum with all this stuff that really gave an idea of what happened in certain parts of the battlefield. I told about the heaps of human bone fragments taken in the vicinity of the stone fence on cemetery ridge, at the top of the hill where Pickett’s charge was stopped. Why, there was even on display seven pairs or bullets that had collided head-on in mid air and had fused together. Much to my surprise, the Rosensteel museum was gone. There was a visitor’s center run by employees of the Federal government. The old scale model of the battlefield was set up there, but the thousands of genuine pieces from the battle were gone.
Foundations
Similar to the museums, private foundations, funded through private endowments are now controlled by political operatives. Henry Huntington and Alfred P. Sloan surely are having heartburn down in their graves. Mr. Huntington carefully and specifically stated in his will( a document that must have been reviewed by the best legal minds available) that his estate was to be enjoyed by others (the general public),in perpetuity (forever, sin fin), free of charge. But, guess what? Today’s administrators are enjoying revenues from admission tickets. The excuse is the Trust needs money to make additions. But in all truth, the appearance is that the trustees needed new boats and cars.
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