Thursday, September 14, 2017

Mises stands between us and 1984

On this day in 1949 Yale University Press published Ludwig von Mises’s economic treatise, Human Action. Later in 1949 another book appeared, George Orwell’s 1984

Almost everyone has at least heard of Orwell and 1984.  The same is unfortunately not true of Mises and Human Action.

Both books are attached to their authors as if they were extended surnames.  Orwell is 1984, Mises is Human Action.  

Among the many who’ve read it, 1984 is regarded as a premonition of what could happen if the proclivities of the state are not checked.   

Among those who have studied it, Human Action is understood as what would happen if the proclivities of the state are checked.

It’s the difference between a slave and a free man, war and peace, poverty and prosperity, misery and the potential for happiness.  

A person cannot breathe in Orwell’s fictional world.  Aside from a tiny ruling elite, members of the society live impoverished lives with no hope of anything better.  They are ciphers, expected to obey and spied upon constantly to ensure that they do.  Society’s history and language are whitewashed in conformity with the state’s mission of total control.  War and hate are directed to serve state interests.  State informers are everywhere.  At the end Orwell’s hero, Winston Smith, himself betrayed by confederates, betrays his love for a woman for a sheep’s existence under Big Brother’s watch.  Winston Smith, the individual with thoughts of his own, who had dared fall in love, exists no more.

Many people will say 1984 or something close to it is where we’re headed.  They don’t like that direction, but feel powerless to change it.  They feel powerless because they’ve listened to government mouthpieces. They’re told by politicians and their friends that everything’s really okay.  Nothing wrong with a $20,000,000,000,000 debt.  Or a federal tax haul of $3,248,723,000,000 (2015).  Life is expensive.  We’ve got enemies everywhere, welfare needs everywhere.  This is how modern civilization works — you work, government takes.  But you’re in on the deal, too.  

Something’s missing.  It’s missing from people’s thoughts.  As it turns out it’s staring us in the face.

In Human Action Mises provided a comprehensive treatment of why civilization flourishes only when liberty flourishes in every area of life.  He wrote an unapologetic defense of laissez-faire capitalism, otherwise known as the free market economy.

Unhampered markets stand between us and 1984.  

In a letter to a reader in 1944, Orwell wrote: “I believe very deeply, as I explained in my book The Lion and the Unicorn, in the English people and in their capacity to centralise their economy without destroying freedom in doing so.”

Like interventionists generally, Orwell had a flawed understanding of economics. Earlier in his career Mises demolished the arguments of those recommending state control of the economy.  Socialist states establish a means of distributing consumption goods, since all productive goods are state-owned.  A certain amount is allotted to each person, usually in the form of coupons for a definite quantity of specified goods.  People can directly exchange these coupons with others, as a form of barter, if they please.  Indirect exchange will develop and lead to a universal medium of exchange — money.

But unlike money in a market economy, socialist money can only be exchanged for consumption goods.  Since production goods cannot be exchanged for money, there is no way to price them.  There is no way of knowing whether some proposed project would cover expenses, whether it would be a waste of resources or not.  As Mises concludes, 
we have the spectacle of a socialist economic order floundering in the ocean of possible and conceivable economic combinations without the compass of economic calculation. . . .
We cannot act economically if we are not in a position to understand economizing.
Under socialism, freedom is the freedom accorded a slave to obey or not.  As Mises writes in Human Action, “it means the unrestricted centralization and unification of the conduct of all affairs in the hands of one authority.”

In a tribute to Mises and Human Action delivered at the Mises Institute on this day in 1999, Lew Rockwell pointed out that at the time of publication 50 years earlier, it was widely believed FDR had saved the world from the Nazis and the Depression by entering World War II.  Given enough power, the state could do anything.
Ruling the land was a regime characterized by regimentation in intellectual, social, and political life. Human Action appeared in this setting not as polite suggestion that the world take another look at the merits of free enterprise. No, it was a seamless and uncompromising statement of theoretical purity that was completely at odds with the prevailing view.
If humanity has a future it will because people change their thinking and learn why freedom and free markets are indivisible, that any form of coercion is our enemy, especially when it pours forth from a monopoly institution.  The works of Ludwig von Mises, especially Human Action, will be indispensable for a civilized society.

Saturday, September 9, 2017

Price gouging and the generous free market

Gary North published members-only articles recently (here and here) discussing how Hurricane Harvey has affected economic life in Houston.  He makes an important point about prices and customers that I have not seen elsewhere.
Other things equal we know scarcity or high demand will drive prices higher.  Sellers of diamonds are rarely accused of price gouging but when prices for everyday commodities take a big leap in a crisis almost everyone calls it price gouging.  It’s an easy call: People are in desperate need of critical commodities, while certain suppliers are charging scalper prices.  Conclusion: The suppliers are craven profiteers. 

Wikipedia defines price gouging as “a pejorative term referring to when a seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable or fair, and is considered exploitative, potentially to an unethical extent.” Merriam-Webster says price gouging is “charging customers too much money.”  How much is “too much”?  What is “reasonable or fair”?

People don’t know, exactly, but they pass laws against it anyway.  The fine for gouging a senior citizen in Texas is $250,000; gouging someone younger is only $20,000.   Amazon has algorithms that suspend the accounts of sellers charging high prices relative to other sellers.  During Harvey’s onslaught in Houston, a photo on gritpost showed a Best Buy store posting $42.96 for a case of bottled water; Best Buy later issued an apology on behalf of the store.  

By the way, do we ever get apologies from government?

As they do during every emergency, free-market commentators have rushed to the scene to correct the public’s misunderstanding about price gouging.  Though their arguments are available to the public, the public never reads them.  Later, during the rebuilding, they’ll correct similar fallacies that sees economic windfalls in broken windows.  Once again the public remains pristine in its ignorance.

Customer Loyalty

Rather than make the case for gouging, North took a different approach.  
When we go to a supermarket, we do not argue over price. Everything is programmed into a computer, and it is all run by barcodes.  When a hurricane comes, a supermarket is not in a position to raise prices. In any case, a supermarket would not raise prices. It would make great profits for one day, and then it would lose customers on a permanent basis on the day after the hurricane blows through and blows out. People remember being gouged. . . .
State governments have laws against gouging. These laws are irrelevant. A seller knows not to gouge. He does not want to appear to be a bad guy. He knows that he will lose customers after the crisis. So, he sells at what the price was the day before the hurricane. He thinks long-term. He doesn't want to alienate people.
In rare cases, a seller may put up a sign: only one to a customer. Customers are generally in favor of this policy. . . .
Where there is no brand loyalty, you will see high prices immediately prior to a hurricane. This takes place, for example, in gasoline sales. There is no brand loyalty any longer for gasoline. . . They compete exclusively in terms of price. So, the day before the hurricane, some of them will raise prices unless there is a state law against it. They won't alienate long-term customers because they don't have any.
So what might a supermarket do during a crisis to keep its customers happy?

H-E-B is the largest grocer in Texas.  Shortly after Harvey “slammed into Texas as a Category 4 storm,” it managed to open 60 of its 83 stores in Houston.  

According to Scott McClelland, president of the chain’s Houston division, one of the stores had only five employees — “one stationed at the door as crowd control and four working the registers, trying to get people out as quickly as possible.”

A whirlwind of improvised and exhausting activity went on behind the scenes to maintain some semblance of normality.  What should the distribution centers ship immediately after a storm hits?  Bread and water.  A little later milk, bread, and water.  Then canned meat.  And batteries and tuna.  

Local employees were fighting the hurricane, so where do you get people to run the stores?  From nearby cities not affected by the storm.  “They hopped into cars and they just drove to Houston. They said, we're here to help.”  And they helped for 18 hours a day then slept at someone’s house.

H-E-B called suppliers and told them to ship toilet paper directly to the stores and bypass the warehouses.  They called Frito-Lay and told them to ship only their bestsellers.  H-E-B normally produces 50 varieties of bread; during the storm they cut it to three: white, wheat, and hotdog buns.  They did this and much more while working on relief efforts.  They sent mobile kitchens into the hurricane area to feed first responders and evacuees.  

This is how capitalism works, North tells us.  
Profits come from efficient service of customers. The hardest sale to get is the first one. The money is made through repeat sales.
Repeat sales will continue long after Houston dries out.  Loyalty will run the gamut from customers, to employees, to employer, to suppliers.   
The owners of the store have established their reputation. Having a good reputation is basic to establishing the long-term profitability of any enterprise. . . .
This is how the free market works when it works profitably. There are business people who do not understand fundamental principles, but they are rarely rich and successful. They go for the short-term profit, and they do not survive in the long term.
Reputation is crucial. Short-term profits are not. Charging people 30% or 40% more because of a hurricane is an unwise policy for a store that expects to be in business a week after the hurricane. This is not just theory. This is economic reality. The senior managers in this company understood how the free market works. They took advantage of an opportunity. They did not take advantage of customers. They will wind up with lots more opportunities and lots more customers.
Response to Irma

As Hurricane Irma bears down on Florida and the southeast at the time of this writing, we’re seeing companies as well as private Americans providing disaster relief for the millions of evacuees.   

Comcast has opened “137,000 Xfinity WiFi hot spots free of charge to Florida residents, including non-Xfinity customers. . . . Non-customers will be able to renew their complimentary sessions every two hours through Sept. 15.”  

U-Haul is offering “30 days of free self-storage and U-Box container usage to residents who stand to be impacted by” Irma.  Check the link for more details.

Airbnb is encouraging hosts to open their homes free to evacuees and is waiving the normal booking fees. 

The major airlines capped prices for evacuees.  JetBlue is increasing the number of flights out of affected cities and is “waiving cancellation and change fees for existing reservations.”

Finally, the nonprofit SPCA “is offering veterinary care and basic pet supplies at no cost” to evacuees with pets who are are in New Orleans.

Saturday, September 2, 2017

Whatever happened to the space race?

In the wake of Sputnik I’s success on October 4, 1957, in which the USSR could stake claim to having built the first artificial earth satellite, a cosmic shift in perception took hold.  Whatever advantages US society might have as measured by individual freedom, it came up short when stacked against Soviet science and technology.  

Soviet space superiority was on display 32 days later when Sputnik 2 launched with Laika, a dog found roaming the Moscow streets who died a few days after takeoff.  Telemetry data recorded during her orbital flight showed a cabin temperature reaching a high of 109 °F.  She suffered long before dying, giving Americans another reason to hate the commies.  
Not only did Sputnik II carry the dog, which suggested that the Soviets were thinking about putting human beings into space, the final stage of the rocket had remained attached to the satellite—which meant, incredibly and ominously, that the Soviet rocket had managed to put a six-ton weight into earth orbit. The United States, on the other hand, was working on a grapefruit-sized satellite weighing three and a half pounds. — Apollo, Charles Murray & Catherine Bly Cox, 2004 [my emphasis]
The final humiliation came the following month when Vanguard TV3 blew up on the launch pad at Cape Canaveral.  According to Murray and Cox a Soviet delegate to the UN needled the US as to whether it would be interested in receiving aid earmarked for “undeveloped countries.”

A shocked American public demanded answers.  There were no answers, only public schooling, bridge clubs, GM, pizza, Annette and Elvis.  The government started subsidizing math and science majors, and formed two bureaucracies, ARPA (later DARPA) and NASA.  When the US launched its 30-lb. grapefruit called Explorer 1 on January 31, 1958, the all-out space race between the two countries shifted into high gear.

The winner, as we’ve read and heard, was the US when three astronauts made a round-trip voyage to the moon in 1969.  It was a triumph of a can-do ethic, requiring the sweat and intelligence of some 400,000 individuals during peak years to put Armstrong and Aldrin on the moon’s surface.  As one writer recently put it, “Although the plucky astronaut crew made the feat look easy, NASA knew better: This was easily the most perilous voyage in history.”  

Even that is an understatement.  Among the challenges of sending men to the moon is the deadly Van Allen radiation belt astronauts would pass through for an hour each way.  After discovering the belt in 1958, Dr. James Van Allen stated in Scientific American that “somehow the human body will have to be shielded from this radiation, even on a rapid transit through the region.”  But apparently NASA found a way around it.  NASA claims the trajectory and 17,000 mph speed of their spacecraft spared the astronauts from significant exposure.  On Apollo 11, NASA’s greatest fear was whether the lunar module could launch-to-rendezvous with the orbiting command module, which would then return them to earth.  It was considered so forbidding President Nixon had a disaster speech ready in case it failed.

Did capitalism defeat communism?

It would be nice to say the country’s unflagging entrepreneurial spirit was aroused and won out over the Soviets, but the facts are otherwise.  In 2011, on the 50th anniversary of JFK’s 1961 speech that ignited the Apollo program, The Economist reminded the world of a stark reality:
He [Kennedy] set out to make America's achievements in space an emblem of national greatness, and the project succeeded. Yet it did not escape the notice of critics even at the time that this entailed an irony. The Apollo programme, which was summoned into being in order to demonstrate the superiority of the free-market system, succeeded by mobilising vast public resources within a centralised bureaucracy under government direction. In other words, it mimicked aspects of the very command economy it was designed to repudiate.
Kennedy’s advisers had assured him beforehand that with adequate funding reaching the moon could be done, that there were no major technological hurdles to overcome.  He thought the public needed Apollo to restore American pride, though personally he didn’t care that much about space.  By 1963 he was convinced the US was no longer in the shadows of the Soviets technologically, but he was concerned about the exponentially-expanding Apollo budget — as were his critics.  

He was also trying to defuse tensions between the two nuclear-armed countries and had made progress in that regard with the settlement of the Cuban missile crisis and the test ban treaty.  He sent feelers to Moscow to see if there was interest in a joint moon project and given the encouraging response made a proposal in the UN on September 20, 1963 calling for cooperation.  Shortly before his death JFK told NASA chief Jim Webb to “find ways of doing this.”  Talk of cooperation ended after Dallas, and as space policy author John Logsdon told an interviewer, “Apollo became a memorial to a fallen president.”

Adding yearly spending for the Apollo program, 1959-1973, yields a total of $20.4 billion or $109 billion in 2010 dollars.  Was it worth it?  According to Slate, quoting Erik Conway, historian at the Jet Propulsion Laboratory: “The Apollo program only had a majority public support—over 51 percent—for the few months around the 1969 moon landing. That’s it. Otherwise, it was less than 50 percent.”  In the 1960s a billion dollars was a lot of money.  Spending billions to go to the moon was seen as an expensive joyride.  Again quoting Conway: “The basic facts are that every year after 1964 Congress cut the NASA budget. Why did they do that? Well, the reality simply was that the public support wasn’t there.”

There was also a warfare - welfare state under development during this period, competing for NASA’s claim to the tax haul. And without a perceived market entrepreneurs had no interest in a project of Apollo’s magnitude. 

Yet many people who view Apollo as a waste concede that it was an enormous engineering achievement.  The problem was it stopped: Apollo moon missions were moments without momentum.  As one viewer lamented, “Sadly, it turns out that what everybody thought would be a new epoch after the moon walk didn't last much longer than the moon walk itself.” 

Step by step, ferociously 

Today, technology has caught up with dreams, and certain entrepreneurs believe space projects could pay off.

Making the space headlines now are tech billionaires, especially Jeff Bezos and Elon Musk and their respective companies, Blue Origin and SpaceX.  Many articles have been written about the technical merits of their achievements but missing from most is the distinction between a political entrepreneur (Musk) and a market entrepreneur (Bezos).  Hardly surprising, since the distinction is lost on most commentators.  Musk, like the 19th-century “Robber Barons,” has a chummy relationship with US government officials, especially John McCain.  

“Every time McCain makes a move in the space industry,” writes Steve Sherman at Townhall, “you can expect to see SpaceX as the beneficiary. Why would that be? Could it be the $10,000 that the SpaceX PAC donated to Senator John McCain this cycle or the $1,780,000 SpaceX spent on lobbying in 2015 of which a large percentage was spent on the National Defense Authorization Act of 2016 that Sen. McCain co-sponsored and was signed into law.”

Jeff Bezos, on the other hand, recently disclosed he is selling $1 billion a year in Amazon stock to finance his space venture firm.  Bezos wants to move heavy-industry manufacturing to space and colonize the solar system, but he insists on doing it “step by step, ferociously.”

Musk wants to colonize Mars and needs money to do it.  “Ultimately, this is going to be a huge public-private partnership,” he said.  Ultimately, he’s going to fleece the public once again in an attempt to make his project work.  True to form, Mr. Musk.  

What was once a government vs. government space race is now a crony capitalist vs. a market capitalist space race.  Let’s make the ethical distinction loud and clear: For the first time since space exploration began one of the competitors doesn’t have his hand in your pocket.

The State Unmasked

“So things aren't quite adding up the way they used to, huh? Some of your myths are a little shaky these days.” “My myths ? They're...