Archives for posts with tag: Free market

“Between 1970 and 2010, the number of administrators in health care grew more than 3000%, while the number of physicians grew about 200%, according to the Bureau of Labor Statistics. During that same 40 years, U.S. health-care spending rose 2300%. Doctors’ fees account for only 8 cents of the health care dollar. Where do you think the other 92 cents are going?”  (Marni Jameson Carey, Focus on Health Coverage Misses the Point, Forbes.com, Oct 24, 2017)

A few years ago I was arguing that profit was overrated.
It seems that Forbes, a magazine which cannot be accused of any socialist tendencies, has reached a somewhat similar conclusion.

Even more interesting is the solution proposed by Forbes to the health care problem.

A return to the free market!

Free from what? Who says the American health care market is not free?
Well, click on the quote above and see what Forbes has to say about this…

But what happened? How did we get here?

Well, the free market described by Adam Smith was an environment where people used to fulfill their needs by selling their wares.
The butcher sold meat and bought everything else he needed, the brewer sold beer and bought everything else he needed, the baker… and so on!
OK, there  was a certain kind of competition which kept the things in check. The butchers competed against other butchers, the brewers…
And because of this competition, all traders – those who wanted to survive, anyway – streamlined their operations and became more and more efficient. Hence profitable.

I mentioned the link between the survival of a commercial enterprise and its ability to generate profit.
Apparently, it doesn’t make much sense to elaborate on this. Bear with me, please.

The whole point of the free market is the division of labor. Besides its freedom, of course.
Each of us does what he knows better and then we trade our respective wares. This way all of us fare better than if each of us would have had to produce everything each of us needs to survive.
In this scenario, competition – between ‘bakers’, for example – is actually a tool which makes it so that the market, as a whole, doesn’t waste resources. When the less efficient bakers are ‘encouraged’ to find something else to do, the entire market is better off. And so on.
In this sense, profit is only one indicator – and a very good one – of how able to survive is a certain commercial venture. But not the only goal of the entrepreneur who started/runs the enterprise. What he wants is to make an as good as possible living by doing what he knows best, in close collaboration with the other participants to the free market.

Adam Smith had written his books some two and a half centuries ago.
And the free market had served us well, for a while.
Just look at what we’ve accomplished in these two and a half centuries.

But, just as Forbes points out, things are no longer going in the right direction.

Why?

Simply because the market is no longer free!

Not only because some of the participants have become ‘heavy’ enough to crush all competition. This is only the lesser part of the problem.
The really big one, and so well hidden that it’s almost invisible, is that too many of us have become obsessed with the same thing. Money!

Life-of-modern-people

Profit has become THE absolute goal of everything we do. Too many of those who participate in the free market no longer want to collaborate with the others but simply want to get rich. By any (legal) means.

Some say this is a good thing.
They invoke Adam Smith’s words as a justification for their beliefs.

I beg to differ.

The simple existence of our current obsession has profoundly altered the very nature of the market. Which is no longer free.

Because WE are no longer free. When too many of us are obsessively concentrated on the same thing, they will necessarily disregard all other options. And the rest have no other option but to follow.

This is not freedom!

Mesmerized people can not be described, by outside observers, as being free.
Regardless of how they consider themselves.

 

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Before proceeding any further, let me introduce you to two other, more distanced, cousins of ours. Gorilla and Orangutan.

Orangutan leads a semi-solitary life in the Bornean and Sumatran Jungle. They are fairly large animals, males tip the scales at 200 pounds or so, and need a lot of food. They eat mostly fruit and, in times of scarcity, bark, flowers, insects and eggs.
It was their ‘eating habits’ which had shaped their social lives:
Food is often scarce in the rain forest and that is why the orangutan is a semi-solitary creature. In times of great abundance of food, orangutans may use the opportunity to socialize and gather in small groups.
Because they live solitarily, the young siblings must on one hand learn ‘everything’ before starting their adult lives and they don’t have anybody to learn from but their mothers. Hence they stick around for longest. A baby orangutan will nurse until about six and continue to live with their mothers for a few more years. Two or three for the males, five or six for the females – on top of everything else the females have to learn “mothering skills” and for them the only way to do it is to watch their own mother taking care of the next sibling.
As a consequence of all this, the females give birth only once every 8 years, “the longest time between births of any mammal on earth. (This results in only 4 to 5 babies in her lifetime.)” Not a very efficient survival strategy, for the species I mean…

Gorilla has adopted a different feeding strategy.
This is actually a joke. It wasn’t ‘the gorilla’ which has ever adopted anything, least of all ‘a survival strategy’. The ‘adoption process’ had been fueled by chance, had been ‘censured’ by  the realities of their living places and was later labeled as “evolution” by Charles Darwin.
Coming back to our distant cousins, gorillas are even larger animals than orangutans.
300-400 pounds, for the males, versus 200. Hence they need even more food.
An adult Grauer’s gorilla male is estimated to eat 30 kg of plants every day, an adult female about 18 kg.” The difference being that gorillas eat a lot of leaves.
When they have the opportunity to choose, they will surely pick up fruit but they are much more adapted to eating leaves than orangutans are. As a consequence they do not need to ‘spread around’ as thinly as orangutans do, the young can also learn from the rest of the pack so females can give birth every 4 years instead of every 8.

Is there any link between all this babbling and the stated subject of your post?

Actually yes.

As gorillas and orangutans are teaching us, together is easier than each by its own.
Being able to give birth every 4 years is a huge evolutionary advantage over having to wait 8 years before becoming pregnant again.

But this is not all we can learn from our cousins.
Male gorillas, at 300 to 400 pounds, are formidable defenders. Their only enemies, except for humans, are the leopards.
Compare 350 pounds with less than 100 for a chimpanzee/bonobo male.
That would be a good starting point to figure out why silver-backs – mature male gorillas who despotically reign over their 1 to 5 females – can afford to drive out their sons after they become sexually mature while the chimpanzee alpha males, who lead troops of up to 50 members, will allow other mature males to live by – and to have intercourse with some of the females living in the same group.
The second reason being that gorillas eat, almost exclusively, plant matter, supplemented with some insects, while chimpanzees form hunting parties in order to catch, kill and eat other animals, including monkeys. And one can ‘graze’ by himself while hunting is way easier in cooperation with others.

Feeding habits can explain quite a lot, isn’t it?

Let’s make a step further and turn back, as I promised in my previous post, to the differences between chimps and bonobos.
Well, bonobos hunt, just as efficiently as the chimps do, only they are less inclined to murder their neighbors.
Just one suspected killing observed during “92 combined years of observation at four different sites“, for the bonobos. In the other camp, 152 killings, 58 directly observed and the rest “counted based on detective work“, gathered over “426 combined years of observation, across 18 different chimp communities“.
The second difference, that I find interesting in the context of ‘capitalism’, is the size of the ‘colonies’. Bonobos live in way bigger groups than the chimpanzees. 100 versus 40 to 60, I’m not sure whether this had any impact over the relative fate of chimps or bonobos but it is surely relevant for how capitalism works. Stick around.

One more ‘animal story’ and I’ll wrap everything up.

“We previously reported that chimpanzees were unable to optimally select the smaller of two candy arrays in order to receive a larger reward. When Arabic numerals were substituted for the candy arrays, animals who had had prior training with numerical symbols showed an immediate and significant improvement in performance and were able to select reliably the smaller numeric representation in order to obtain a larger reward. Poor performance with candy arrays was interpreted as reflecting a response bias toward the intrinsic incentive and/or perceptual features of the larger array. In contrast, the Arabic numerals represent numerosity symbolically and appear to promote response choice on the basis of abstract processing of numerosity, with minimal interference from the inherent properties of the choice stimuli. The present study tested the hypothesis that, for mixed symbol-candy choice pairs, the requisite processing of the abstract numeral may foster a mode of numerical judgment that diminishes the interfering incentive/perceptual effects of the candy stimuli. The results were consistent with this hypothesis. Whereas performance on candy-candy arrays was significantly below chance levels, performance on numeral-candy choice pairs was significantly above chance and comparable with performance on numeral-numeral pairs.”

OK, OK, don’t shoot the messenger… those guys were writing a scientific paper, not a blog post… let me ‘translate’ it in simpler words.

There is a relatively simple psychological test involving two bowls full of candy.
One of them containing more pieces than the other.
The test consists of a child being asked to choose between those two bowls, after being told that the candy from the chosen bowl will be given to somebody else and the candy from the second bowl, the unchosen one, will be given to the child. The test is repeated a number of times and most of the children, 4 year olds and above, learn quite quickly to point to the bowl containing the smaller number of candy.
If, instead of children, chimpanzees are asked to choose between the two bowls, they continue to point to the bigger number of candy, even after the umpteenth repetition.
Now here comes the really interesting part.
Dr. Boysen and other scientists from Ohio State University, had previously taught a chimp, Sheba, not only to count but also to read numbers. One digit numbers…
When Sheba was subjected to the test, using real candy, she had responded exactly as the other chimps had done before her. She was unable to wrap her head around the notion that she will get the candy from the OTHER bowl. But as soon as the researchers had replaced the actual candy with digits written on small cartons… bingo! Sheba had become a lot wiser and had very quickly figured out that choosing the bowl with the smaller number (of candy) was a far better option.

Let me put two and two together.

Our cousins, the great apes, have given us a valuable lesson about cooperation.
Orangutans have to raise their offspring as single mothers. A very time consuming process which limits the number of siblings to 4.
Silver-backs don’t need much help to defend their families. So they can afford to drive off any potential competition… but they cannot hunt. Or do anything else ‘in concert’ with their peers.
Chimpanzees have learned to tolerate each-other, to a degree. They can form larger communities and engage in cooperative endeavors. Hunting and warfare.
Bonobos have developed a very efficient method to quell tension which may appear among themselves and to subdue rogue members of the community, without actually killing them. With no apparent benefit… except for us…

History is telling us, shouting at us even, that authoritarian regimes are short lived. Shorter and shorter lived, as we come closer to the present day.
Ancient Rome had lasted for almost a 1000 years. 2000 if we take Byzantium into account.
The British Empire was de facto dissolved, more or less peacefully, after less than 500 years, along with the rest of the European colonial empires.
The Russian Czarist Empire had buckled under its own weight after some four centuries, reinvented itself as the Soviet Union and faltered again after less than a century.
The rest of the ‘modern’ dictatorships have crumbled even faster, with only two notable exceptions: North Korea and Cuba.

Mighty commercial ventures, which had seemed impregnable in their heydays, are now almost forgotten memories. From the British East India Company to the now infamous ENRON…

Yet humankind, as a whole, had fared better and better.
OK, we did bring a lot of ‘man made’ misfortune over our own, collective head.
Only every little piece of that misfortune had been produced and inflicted in an authoritarian setting.

From Alexander the Great (?!?) to Hitler, history is full of ‘leaders’ who had somehow convinced their subjects to foolishly follow orders. Eventually, everybody got killed in the process. The leaders as well as the hapless subjects…
From John Law – ‘the son of a Scottish banker, a gambler and playboy who had killed a man in a duel‘ before insinuating himself at the top of France’s financial establishment during the first part of the XVIII-th century, where he had orchestrated a “system” closely resembling a Ponzi scheme – to Bernard Madoff, the economic and financial history is full of ‘tycoons’ who have led their their subordinates, and a considerable portion of the financial markets, to utter disaster.

And some of us still consider that ‘greed is good’… Maybe they should read again about Sheba and the candy bowls…

I can hear some of them protesting: “In the real world, there is nobody to switch the bowls! ‘Finders keepers, losers weepers'”
Yeah, right… tell that to some of those who had won the lottery… “About 70 percent of people who suddenly receive a windfall of cash will lose it within a few years, according to the National Endowment for Financial Education.

Then why are we still so obsessed with money?
Like Sheba was with those candy?
Why do we collectively continue to behave like a bunch of three years olds?

Maybe because money have proved, over the centuries, to be very reliable tools?
Because profit has been a very good measure for a company’s ability to survive? If corroborated with other indicators, but that’s another story…

At some point I mentioned that capitalism only works if the market where its wares are traded is really free. Meaning that that market has to work under the rule of law and that nobody in that market should allowed to become so powerful as to dominate the others.

Well, that was a lie.
Actually, capitalism works anywhere.
Those running the late Soviet Union have tried to convince the rest of the world that monopolies might work.  Various ‘business men’, including some very successful ones, try to convince us of the same thing. “Competition is for losers” they say… OK, I can understand why they keep trying… That’s what the entrepreneurs are for! “To boldly go where no man has gone before.”
My point being that markets which are not presently free will become free with the passage of time. No matter what!
No political arrangement has ever been strong enough to contain a dysfunctional economy. That’s why the Soviet Union, and the rest of the communist camp, had crumbled. That’s why we have a crises every time the government, with the best intentions, abruptly intervenes in the economy. Or fails to do so and allows monopolies to exist for too long…

Capitalism actually works.
Look around us.
I could give you a myriad examples. I’ll settle for two.
Romania, which less than 30 years ago was struggling under the communist yoke, now has one of the fastest internet in the world.
Some 40 years ago, when my uncle had emigrated to America, long-distance  phone calls were so expensive that he barely afforded to call his mother more than twice a year… nowadays two people can chat for hours across the planet, for free, over the internet. With video…

How about we letting it do its magic without some of us trying to drain ‘undeserved advantages’ from the process?
And no, those trying to ‘drain undeserved advantages’ are not the real culprits for what is going on!
A really free market is not one where a big bully with a huge stick makes sure that nobody steals from its neighbor.
That would be the definition for a police state!
A free market is one where people organize themselves, hire a normal guy with a smallish stick to take care of thieves and then call him every-time when they see a robbery taking place.

Nowadays too many of us actually admire the thieves and try to bribe the guardian.
While the rest idly walk by, as if what’s going on under their own noses is not going to affect them in a very short while …

“America’s abundance was not created by public sacrifices to “the common good,” but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes. They did not starve the people to pay for America’s industrialization. They gave the people better jobs, higher wages, and cheaper goods with every new machine they invented, with every scientific discovery or technological advance—and thus the whole country was moving forward and profiting, not suffering, every step of the way.”

Ayn Rand

OK, she borrowed this idea from Adam Smith, without mentioning him… let bygones be bygones…

A more interesting endeavor would be to learn something from all this.

‘Abundance was not created by public sacrifices’.
Makes a lot of sense. In a free market everybody gets what they are offered, ideally in close accord to what each of them had brought to the market.

‘Abundance was created by the productive genius of free people who pursued their own personal interest and the making of their own private fortunes’.
Now, whose ‘productive genius’ are we speaking about here?

About Ford’s, for instance, or about that of his workers?

At the time, workers could count on about $2.25 per day, for which they worked nine-hour shifts. It was pretty good money in those days, but the toll was too much for many to bear. Ford’s turnover rate was very high. In 1913, Ford hired more than 52,000 men to keep a workforce of only 14,000. New workers required a costly break-in period, making matters worse for the company. Also, some men simply walked away from the line to quit and look for a job elsewhere. Then the line stopped and production of cars halted. The increased cost and delayed production kept Ford from selling his cars at the low price he wanted. Drastic measures were necessary if he was to keep up this production.

Tim Worstall, Forbes Magazine

Anyway you look at it, both Ford and his workers were acting as ‘rational economic agents’. Ford was paying them the going rates in the industry and they were putting in as little effort as they could afford to.

That went on until Ford came up with a ‘new idea’. “It can indeed be cheaper to pay workers more but to reduce the turnover of them and those associated training costs.” “The point is not so as to be paying a “decent wage” or anything of that sort: it is to be paying a higher wage than other employers. That gets your workforce thinking they’ve got a good deal (for the clear reason that they have got a good deal) and if the workers think they’ve got a good deal then they’re more likely to turn up on time, sober, and work diligently.”

Again, a very reasonable attitude displayed by both parties.
An attitude made possible by the fact that both the car and workforce markets were free.
Ford could hire anybody/sell his cars to whomever had enough money to buy them while his workers were free to leave their previous workplaces and accept Ford’s offer. Or leave him if they found a better one.

And let’s not forget the fact that Ford was not alone, at that time. At the turn of the XX-th century there were hundreds of automobile producers in the US alone and this was one of the reasons for which the workers could afford to be so ‘picky’ – specially those who had some experience.

In this situation – where the market was really free, each party taking good care of their own interest yielded excellent results.
Ford had became one of the leading car manufacturing corporations.
The diligent workers continuously improved their living standards.
The society, as a whole, prospered. And learned, or should have had, the long term benefits of commitment and mutual respect.

What happened after the market was no longer free?

Meaning that instead of hundreds of car manufacturers competing for the best available workers we had for a considerable number of years only three corporations more interested in short term profiteering rather than improving their products?
And instead of diligent workers striving to improve their skills we had union members more interested in their week-end barbecues?

“The U.S. government bailout of the auto industry lasted from January 2009 to December 2013. The Big Three automakers approached Congress in November 2008. They warned that, without the bailout, GM and Chrysler faced bankruptcy and the loss of one million jobs. Ford didn’t need the funds, since it had already cut costs. But it asked to be included so it wouldn’t suffer by competing with subsidized companies.

The Treasury Department invested $80.7 billion from the $700 billion authorized by EESA. It recouped all but $10.2 billion…”

Kimberly Amadeo, thebalance.com

Some of you might tell me that the Japanese car manufacturers operate along more or less the same guide-lines. ‘Cradle to grave’ employment for the workers, a rather opaque management never held accountable until too late…
A very correct observation.
Only there is a huge difference between the Japanese work-ethos and ‘the American Dream’. The Japanese have a long history of being told to ‘fit in’ while most Americans have gradually convinced themselves that ‘getting rich’ is the only possible solution for all their problems…

Considering that both Japan and America seem to have reached two different cul-de-sacs it wouldn’t be farfetched to suggest that both are doing something wrong.

For almost 30 years now Japan has been running in circles. She hasn’t completely lost her edge but hasn’t performed as it used to.
The most worrying indicator – for me, at least, being the fact that they have given up ‘making’ children. As if the present generation doesn’t have much hope for/expectations from the future.
For almost 30 years now the American people has allowed a huge trench to grow larger and larger in their mist. The haves on one side, the have-nots on the other and the rift so wide that they are no longer able hear each-other. A present day Henry Ford would have no idea about how much to pay his workers in order to obtain similar results to those achieved at the start of the XX-th century…

Is there a ‘common cause’ that might explain what’s going on on both sides of the Pacific?
How about both cultural and economic spaces experiencing a somewhat similar decrease in individual liberty, the phenomenon having rather different causes in each of the two cases?

First of all, ‘dedication to duty’ can take you only that far. It is very useful for those wishing to ‘close a gap’ but acts similarly to an ankle weight for those who are in the position to attempt to ‘take the lead’. ‘Dedication to duty’ focuses the attention of the team to ‘obeying the rules’ while ‘taking the lead’ means leaving the ‘straight and narrow’ and venturing into the unknown.
These two situations imply completely different mind frames.

Secondly, those who venture outside the ‘safety of the perimeter’ need to follow a simple rule.

“Leave no man behind”.

” “When you have a conscript army and you can always replenish it just by adding more people, you don’t really have to care about whether they’re happy with what they’re doing,” Springer said.

Now the military had to care about its soldiers as individuals, and the idea that it would never leave them behind became something of a familial bond.

“It’s kind of a contract with the service,” Springer said. “You promise to serve us, we promise not to leave you.” “

 

You see, time and time again history has hinted to us that freer societies fared better, ceteris paribus, compared to ‘tighter knit’ ones.
For example, subjected to the same communist knut, Poland came out differently than my native Romania.

And while most people agree about Poland being in a better shape than Romania, there is very little agreement about a possible explanation.
Just as most people agree about ‘liberty is good’ while each of those people derive different meanings from the very concept of freedom.

Since it is so hard to coordinate ourselves about the meaning of a ‘simple’ word, how about taking the liberty to ‘agree to disagree’ and turn our attention to another concept?

Mutual respect.

Just think about what liberty would mean without mutual respect.

Can you imagine the liberty of someone driving a M1 Abrams tank on a highway?
Can you imagine what would happen if the driver of the tank wouldn’t treat the others with utmost respect? What would happen if the outraged others would band together and wait for the ‘mad’ driver to burn through his last drop of fuel?

You see, people who have more respect for the rules than they have for each-other end up belonging to a society so tightly knit that it has immense troubles whenever it has to cope with unforeseen situations. Adapt to change.  Confront a catastrophe…
For example, the Soviet Union, Japan and the US have a considerable number of nuclear power plants and have experienced a number of failures. The tightly knit Soviet Union and Japan have displayed commendable individual acts of heroism in the aftermath of such incidents but it was the more individualistic US who has somehow ‘ducked’ any serious experience of this kind.

On the other hand, I see potential trouble when I hear people stating that “My right to swing my fist ends where your nose begins”.
On the face of it, this sounds perfectly reasonable.
Only the whole thing absolutely depends on both individuals involved in it having comparable reach. Do you really think that a guy with twice the ‘wing-span’ of his opponent would continue to stick to this rule if the by-standers would not band together to stuff it down his throat?

My point being that no ‘market’ is really free if its freedom relies primarily on a set of rules instead of depending on a healthy dose of sincerely upheld mutual respect among the participants to that market.
In this instance ‘free’ and ‘freedom’ are perfectly interchangeable with functional/sustainable.

The communist centrally planned economies had failed abysmally  simply because the powerfuls of the day had nothing but contempt for those under their rule.
Japan’s strict set of rules about what constitutes proper behavior in each situation seems to act as a brake whenever decisive action is needed.
America’s new mantra, ‘greed is good’, has time and time again produced speculative bubbles which have inevitably ended up badly. Under its spell, the market actually looses every shred of liberty. Exactly as a hypnotized group of people think of themselves as being free while sheepishly obeying the orders of their herder.
I gather you all know what ‘herd behavior’ means…

Compare Ayn Rand’s words to Adam’s Smith original idea.

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

See what I mean?

Smith sees all ‘market goers’ as equals who freely address each other while Rand applauds “the productive genius of free men” who, in pursuit of “their own private fortunes” had the magnanimity to bestow upon “the people better jobs, higher wages, and cheaper goods with every new machine they invented, with every scientific discovery or technological advance”.

I, for one, fail to detect any shred of actual respect towards “the people” in the behavior so laudatory described by Rand.
And I’ll let you be the judge whether her description fits the current ‘state of the nation’.
Anywhere on the planet, not only in the US.

“and thus the whole country was moving forward and profiting, not suffering, every step of the way.”

jobless men keep going

 

Each of us tries to deliver themselves from the misery of this world.

We attempt that at the intersection of three realities.

The ‘hard’, the ‘virtual’ and the ‘socially constructed’.

The ‘hard’ one is what Marx called ‘the objective reality’. Whatever exists outside our individual minds. Whatever doesn’t need any confirmation from any of us.
For instance, a rock can very well lay on the bottom of the sea without any conscious agent being aware of its existence. No one might ever become aware of its existence but that actually doesn’t matter. Same thing goes for a man made piece of furniture. The original craftsman might die, the owner also,  and the ‘thing’ might be forgotten in a warehouse – or attic – without its existence, ‘in the hard reality’, being jeopardized in any way.

The ‘virtual’ one is whatever each of us makes of what happens around them. It consists of three, separate yet interdependent, ‘ingredients’. The ‘perceived’ realities, the ‘intended’ realities and the ‘engines’ that make all of them possible – our conscious selves.
I’m speaking of ‘realities’ because each of us is different from all others – hence ‘sees’ slightly differently from all others, cannot inhabit the same place in space – hence ‘sees’ the world from a slightly different perspective, doesn’t have the same goals – hence entertains different intentions.

The ‘socially constructed one’ comprises the aggregate consequences of our efforts. Intended and unintended. Known to us and unknown by us.  Belonging both to the physical and metaphysical realms. As in both the Egyptian pyramids and language being parts of the socially constructed reality.

Please note that the first and third ones are ‘objective’ in Marx’s terms while the second in purely subjective.
It is also worth noting that the ‘hard’ reality is not immune to our efforts and that the ‘socially constructed one’ becomes ‘harder’ with the passage of time. The pyramids dotting the banks of the Nile constitute a very good example of our ability to change the ‘hard’ reality while the Catholic Church – one institution among many – is a good example of a metaphysical construct resilient enough to survive for two millennia.

Another very interesting ‘social construction’ is the concept of liberty.

I find it very interesting because it is simultaneously ‘objective’ and ‘subjective’, ‘natural’ as well as ‘man-made’.
It is objective in the sense that it continues to exist no matter how many individuals subject themselves to abject spiritual slavery.
It is subjective in the sense that each of us understands freedom in their own way.
It is ‘man made’ in the sense that we have coined the concept and minted the words used to describe it.
Yet it is ‘natural’ since we all are made of flesh and blood and need to breath in order to stay alive. And yes, it is us who have invented the dog-collar and the leash we use to restrain the liberty of our dogs. Exactly because it is natural for them to try to be as free as possible.

Since this is but a blog post I’ll fast forward to what I had in mind for today.

The free market.

Which is, evidently, a socially constructed institution.
Supposedly, a place which miraculously transforms “private vices” into “publick benefits“.

Well, I’m afraid that those who have convinced themselves that ‘greed is good’ have understood nothing of Bernard Mandeville’s stark warning.

A market may be fueled by ‘greed’, or even by (evil)’vices’, but it is the freedom of those who partake in that market which keeps everything in check.

The communist centrally planned economies were also fueled by individual lust for power. They failed simply because no small group of people is smart enough to master such complicated matters nor humble enough to see/accept its limitations.

The very same lack of freedom has produced the financial crises of 2008.

‘Greed is good’ is nothing but a rationalization of the current obsession with monetary rewards over the very shortest time frame coupled with a blatant disregard for the longer term consequences of our actions.

And as any drug addict can confirm – whenever they are not ‘feeling high’, entertaining any obsession means loosing one’s freedom.

In reality, actually free markets are fueled by trust, not by greed.
And (self)governed by the fact that each participant is free to define/pursue its own interest and react to anything that is happening inside the market’.
Unfortunately, current markets are no longer free. Not that much because of governmental intervention but mainly because too many of the participants are blindly chasing the same narrowly defined ‘interest’.

“But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

Smith’s words could not have been any clearer. Each of the participants to the free market wants something different from the market and each of the participants trusts the others to provide those different somethings – as long as the buyers can satisfy the sellers, of course. Nobody gets robbed while everybody gets whatever specific things they had come for.
In modern terms this would have been described as an ‘everybody wins’ situation.

Compare this with the contemporary mantra.
‘Profit maximization’.
Everybody chasing the proverbial ‘fast buck’
‘Enjoy the moment’ & ‘forget about tomorrow’.

And we continue to kid ourselves about the ‘freedom’ of our markets…

Even funnier is how we have twisted Mandeville’s warning to fit our own narrative.

“Millions endeavouring to supply
Each other’s Lust and Vanity …
Thus every Part was full of Vice,
Yet the whole Mass a Paradise …
The bees, however, are not satisfied to have their viciousness mixed with their prosperity. All the cheats and hypocrites declaim about the state of their country’s morals and pray the gods for honesty. This raises the indignation of Jove, who unexpectedly grants the hive its wish.
BUT, Oh ye Gods! What Consternation,
How vast and sudden was th’ Alteration!
As Pride and Luxury decrease,
So by degrees they leave the Seas.
All Arts and Crafts neglected lie;
Content, the Bane of Industry,
Makes ’em admire their homely Store,
And neither seek nor covet more.

In this way, through the loss of their vices, the hive at the same time lost all its greatness.

Now comes the moral:
THEN leave Complaints: Fools only strive
To make a Great an Honest Hive.
T’ enjoy the World’s Conveniencies,
Be fam’d in War, yet live in Ease,
Without great Vices, is a vain
Eutopia seated in the Brain.

Fraud, Luxury and Pride must live,
While we the Benefits receive. …
So Vice is beneficial found,
When it’s by Justice lopt and bound;
Nay, where the People would be great,
As necessary to the State,
As Hunger is to make ’em eat.

Apparently, Mandeville’s verses do not make much sense.
Why would a hive which had successfully purged itself off all vices find itself in a far worse situation after the cleansing?

Let’s first try to understand what those vices were.

Millions endeavouring to supply
Each other’s Lust and Vanity …
Thus every Part was full of Vice

Let me remind you of the fact that Mandeville had lived, and written, during the same period when the Puritans were trying to impose their strict moral code on the rest of the British society. And for the Puritans any attempt, made by ‘millions’, to supply ‘each other’s lust and vanity’ (a.k.a. various personal needs and fancies) was ‘vicious’ in itself.

The point of the whole thing being that it was not the absence of vices which had brought down the hive but the obtuse single-mindedness with which the vices had been banned. A line of thought very much the same with Durkheim’s ‘normality of crime‘.

And not very much different from our current obsession with (short time) profit!

 

 

“the world is not a ‘global community’ but an arena where nations, non-governmental actors and businesses engage and compete for advantage…Rather than deny this elemental nature of international affairs, we embrace it.”

Rings a bell?

Sounds too neoliberal for you?

I’m afraid we are dealing with a huge communication problem here.

For some ‘competition’ has become a dirty word while some others interpret it according to their, narrow, ideology. To fit through their horse blinkers.

To make my point I’m going to use Valentine Wiggin’s Hierarchy of Foreignness. For those of you who are unfamiliar with Orson Scott Card’s work, Valentine is one of the main characters in Ender’s Game.

– An utlänning was defined as a stranger recognized as human from the same planet as a subject, but of a different nation or city. Utlänning means “foreigner” in Swedish.
– A främling was defined as a stranger recognized as human, but from a different planet than a subject. Främling means “stranger” in Swedish.
Raman were defined as strangers recognized as “human”, but of another sentient species entirely. The term was only ever used to refer to the entire species as a whole rather than an individual member. Although not a common word, it may be constructed in Swedish from rå + män, where rå indicates “coarse,” “raw” or “crude” (not refined), and män means “man” or “person.”

Varelse were defined as true aliens; they were sentient beings, but so foreign that no meaningful communication would be possible with the subject. Varelse means “creature” in Swedish.
Djur were non-sentient beings. They were capable of independent thought and action, but their mode of communication could not relay any meaningful information to the subject because the djur itself lacked the capacity for rational thought and self-awareness. Djur means “animal” in Swedish.

It’s simple to understand that this hierarchy is based on the ‘subject’s’ ability to communicate with the ‘foreigner’. But not exclusively! The whole thing also depends on both parties willing to accept the other as a ‘partner’.

In fact the entire Ender’s Game series is about Humankind wagging an all out war with an alien civilization, only to discover that the conflict was produced by a colossal misunderstanding.  Neither of the belligerents had recognized the other as ‘raman’ and, as a consequence, both had treated the other as ‘varelse’. And, eventually, the humans prevailed. The book was written by one of us…
Read the whole series, you’ll have a surprise at the end!

Coming back to ‘competition’, let me remind you that it is nothing else but the most comprehensive form of cooperation.

Not only that the participants do something in common – they all obey the same set of rules and cooperate in throwing out the cheaters – but they also help each-other to become better at whatever they are competing about.

Savvy?

What would any competition turn into if too many participants would no longer obey the rules?

Act as djurs? Obsessed by their own wishes and behaving disdainfully towards all others?

 

“If democracy and open societies depend on constantly providing their citizens with more wealth tomorrow than today, then the Western world — and soon enough the whole world — is in for tough times.” (Zachary Karabell, Forget Dow 20,000 — the Boom Times Are Over. Is Democracy Next?, Foreign Policy, 2017/01/26)

Shouldn’t we ‘back track’ and try to identify what and when, if any, we’ve done wrong before attempting to go any further?

The author identifies, with surgical precision, the stepping stones that have led us to where we are now.

We, in the West, have grown to associate material affluence with capitalism, democracy and liberalism.
In the process, we got “addicted” to a special kind of ‘economic growth’,  the one measured in monetary terms.Lately, after people no longer had as many children as they used to – which, supposedly, is going to hinder and eventually halt ‘economic’ growth, things are no longer seen in the same light.
The economic boom in China and recent developments in Philippines, Turkey and a few other places which “have seen a surge in nationalism of late, a questioning of democracy and skepticism about liberalism even as economic growth has been strong and deep”  are adding to the confusion.
Even “more surprising is the erosion of support for democracy and the norms of liberalism — even of capitalism — in the United States, France, Spain, Greece, and elsewhere”.

He also identifies, with equal precision, some of the barriers that prevent us from seeing the wider picture.

That we haven’t yet developed a clearer understanding of what liberalism and democracy might be. In his own words they still are “adolescent concepts relative to the tenure of recorded history”.
Then there is the matter of how we understand ‘economic’ growth.
“Politicians and governments rise and fall based on how successfully they have been seen to address the problem of wealth and jobs — not the problem of food, shelter, health, and quality of life.”
“we know no other way to assess economic strength and societal success except by the metric of growth. Three hundred ago, the metric was armies and territory. Today, it is GDP, jobs, and wages. You could craft a lovely society with zero growth, but nobody would believe it if GDP, jobs, and wages were shrinking and the rewards remained unevenly dispersed.”
And it’s not only a matter of understanding but also one of perception. “How people react to inequality is hardly straightforward; the populist wave that elected Trump doesn’t yet mind a billionaire cabinet. But the perception that some are reaping rewards at the expense of the many is deep and strong; that, too, was a line almost verbatim in Trump’s inaugural address.”
Which perception leads to a certain way of seeing things. “We clearly are able to provide basic material needs to everyone. But in the developed world, we are failing to provide a sense of security even while most people’s lives are de facto more secure.
On top of this, there is “anger”. Produced by the “evidence that we have the ability to meet our collective needs and wants” corroborated with the “ample evidence that many countries lack the political will or social consensus to make that happen”.

So, what next?

In Mr. Karrabell’s terms, we need to brush off skepticism, fear and anger – since they “are not themselves barometers of the future” – and …

“The greatest questions for the coming years is whether material stability is enough to mitigate against political chaos and societal decay.”

I’m sorry but I really don’t like this kind of ‘wait and see’ attitude.
It doesn’t make much sense to bother about something that will happen outside your sphere of influence, does it?
Place a bet, if you are a betting guy, and go back to whatever you might be able to actually do!

How about rephrasing that question?

What is it that might bring about the “political chaos and societal decay” we are so afraid of?

Now is the moment for me to make a confession.
I’ve altered, just a little bit, the narrative.
While Mr. Karrabell did mention “anger”, he only said about it that it was “evident” – without providing any cause for it. It was I who associated that anger with the “ample evidence that many countries lack the political will or social consensus” to “meet our collective needs and wants”.
The way I see it there is no way that any country might ‘meet our collective needs and wants’, no matter what amount of ‘political will or social consensus’ might be involved in the process. Not in the longer run, anyway.
All communist regimes – which were, declaratively, trying to accomplish exactly that – have failed. Abysmally.  Not because, in reality, all of them did nothing but cater for their ruling elite but because all of them used to be run according to a ‘central plan’.

And stop calling China a ‘communist’ regime. Or Vietnam, for that manner. As long as the ‘means of production’ are more or less private, and their owners free(ish) to use them as they see fit, those countries are not ‘communist’. They might not be entirely free but they are not at all ‘communist’. Venezuela, for instance, is a lot more ‘communist’ than China.

But let’s return to the countries that might attempt to make it so that ‘our collective needs are met’.
How are they going to do that?
First of all, those in charge – the government, right? – would have to determine what those ‘needs and wants’ are and only then make the necessary arrangements for them to be met. But not more than that, because that would be wasteful.

Do I hear any chuckles? You figured out that those ‘willing’ countries would have to use the same ‘central planning’ system that has already led to the failure of the communist regimes?

How about re-framing the whole situation?
How about the “ample evidence” mentioned by Mr. Karrabell suggesting that too many countries – including the one that has recently inaugurated Mr. Trump as President – no longer have “the political will or social consensus” to allow their citizens enough real freedom and enough real opportunities to pursue their own “needs and wants”? As they see fit?

Then shouldn’t we next try to understand the process through which the erstwhile ample opportunities have been curtailed?

As I mentioned before, I’m going to use the ‘back-walking’ method.

First step, anger. We really need to loose that. Nothing good ever came out of it.

Specially when considering the next steps, perception and understanding. If we allow anger to cloud our thinking both perception and understanding will yield errors instead of knowledge.

Which brings us to our obsession with (monetary measured) growth. Could this obsession be explained by the fact that money is the easiest thing to distribute but also the easiest thing to hoard? Panem and circenses eventually failed… Why do we still see hoarding money as a legitimate goal (after amassing more than one could ever spend, with the entire family, in a hundred years)… beats me.
But explains what’s going on.
As long as enough of us see hoarding money as a legitimate past-time, more and more people will engage in it. More exactly ‘try to engage’ in it. And this is the very behavior which produces ‘bubbles’. As in ‘market bubbles’. And, eventually, crashes.

But not only crashes. Misconceptions also.

“There is little evidence that democracy and liberalism (and capitalism) in their current form are the best or only conduit for providing for economic needs and wants for all. If they were, there would be less roiling discontent.”
My point being that none of those, in any form, are ‘conduits’ for anybody to provide, through them, anything for anybody else.
Democracy, liberalism and capitalism, together, determine the three dimensional ‘space of opportunity’ where we, human individuals, try to provide for our own needs. If allowed to, of course.
It fact it is not the “politicians and governments” mission to “address the problem of wealth and jobs”. In a full-fledged liberal democracy the government does nothing but guards the freedom of the economic market  and the safety of the citizens – including their ‘human’ rights and private property.

As for capitalism… it doesn’t provide anything. Lest of all “incentives”. People provide incentives. Capitalists provide their employees with incentives to work and politicians provide the capitalists with incentives to engage in such or such enterprises or to refrain form others. And while the first kind of incentives, those provided by the capitalists themselves, work as intended – increase productivity, that is, if employed wisely, the latter end up curtailing the freedom of the market. Which can no longer work smoothly enough. This being the moment when opportunities disappear for the ‘man in the street’ and when those ‘connected’ to the government start to ‘flourish’.

You see, real capitalism is not as much about money as it is about trust.
Trust that your business partner – well, most of them – is going to fulfill his end of the bargain, not try to rip you off. Trust that if things go wrong – in the rare event that he does try to rip you off – the government will move swiftly on your behalf.

That’s all.
That’s what Deng Xiaoping meant by ‘I don’t care about the color of the cat, all I care is for it to catch the mouse’. That’s why the Chinese imported capitalism works. Because the Chinese government has learned that the market cannot do its job, in the longer time frame, without a certain dose of ‘liberty’.
The problem being that China is but an exception. Along with a few other examples, mostly in South Asia, they are the very few countries whose authoritarian governments have learned to refrain from interfering too much in their economies.

Looking back in time, ‘back-tracking’ that is, we’ll notice that capitalism has emerged in places where the entrepreneurs had both considerable individual liberty and enough wisdom to refrain themselves from trying to con their business partners. Otherwise the whole (budding) economic effervescence of the time would have very quickly been smothered by greed.
Think of the Medieval Venetians trading with the Arab merchants of the time. This being the reason for why the oldest surviving bank in the world, Monte dei Paschi di Siena, is based in Italy – the least centralized country in the Medieval Europe.
Or think about how a hand shake used to be enough to seal a deal between two Americans. Some time ago… nowadays you need an army of lawyers to buy a car… not to mention the flurry of official permits needed in most cases…

So, what we need to do, if we want to continue to be a source of inspiration for the rest of the world, is to restore democracy, liberalism and capitalism to what they used to be. Dimensions which described the space of opportunity that used to be open for all of us.

OK, hindsight is always 20-20… or so they say…
I’m afraid that what I just described was an idealized mental construction but I’m sure that you got my drift.
After-all, if the Chinese were able to learn it from us … we’ll surely be able to restore it to its old glory.
Or else…

http://foreignpolicy.com/2017/01/26/forget-dow-20k-the-boom-times-are-over-is-democracy-next/

I recently shared this meme on my FB wall:

when_i_was_poor_and_i_complained_about_inequality_they_said_i_was_bitter_2014-07-23

This is what happened next:
No two people are the same.“”That’s why I prefer equal opportunities instead of equality.
No two opportunities are the same. What you might consider an opportunity I might pass up. It’s a very diverse world we live in, a wide one in which hopefully everyone can be accommodated.

‘Can be’ or ‘will be’?

And who is the real looser here?

Let’s see what the broad picture looks like:

The world’s super-rich have taken advantage of lax tax rules to siphon off at least $21 trillion, and possibly as much as $32tn, from their home countries and hide it abroad – a sum larger than the entire American economy.”

Meanwhile

education debt

And what’s wrong with that?!?
Everyone has the right to do what ever he wants with his money and why should anyone expect to be educated for free?!?

OK, let me put it differently.

Every society is like a big community, even if its members do not share an intimate knowledge of each-other.
At least theoretically an overwhelming majority of any nation share the same set of values and the same goal – the long term survival of both the population and the afore mentioned set of values.

Now please consider which society would be better at the game of survival:

One which would make it easier for as many of its members to develop as much of their individual potential as possible or one that would make it easier for a small number of its members to spirit away so much wealth that the rest would remain crippled?

One which would use the very concept of a ‘free market’ as broadly as possible – make sure that as many as possible of its members enjoy the widest possible autonomy – or one that would allow the ‘never as free as advertised’ market to degenerate into the ‘winner takes it all‘ situation we are bound to reach if we continue on our present course?

How could enough people afford to ‘wander around’ for long enough to find the opportunities that would fit them if they are saddled at birth with a huge burden – the ever burgeoning national debt?
Would enough people risk to take on any additional debt (in order to prepare themselves to make better use of the opportunities they might find) if too many of those opportunities, even if met diligently, do not pay enough to ‘eat’ AND pay back the debt?

How is a society going to survive, let alone thrive, if a lot of ‘opportunities’ (social needs) end up being ‘plugged’ by unfitting/under-skilled/’less than enthusiastic’ individuals? Or not at all?

On the ‘supply side’, what do you think of those who choose to dodge paying taxes?
On the ‘demand side’, what do you think of those who squander public money as if there is no tomorrow?

So what should we be talking about? Equality or Equal Breadth of Opportunity?
About the Bed of Procrustes or about a ‘Free Market’ where all participants are simultaneously autonomous and fully aware of their responsibility for their children’s future?

Deflation ‘for dummies’.

azizonomics

Consumer prices may not be deflating as quickly as Labour’s electoral chances did earlier this month, but — even after £300 billion of quantitative easing — price deflation for the first time in more than half a century is finally here. The Bank of England continues to throw everything at keeping prices rising at close to their 2 percent target. Yet it’s not working. And this is not just about cheaper oil. Core inflation has also been dropping like a rock.

I argued that “deflation was looming” for Britain last year, and feel a little vindicated that it has come to pass. But I don’t feel at all gratified about the thing itself.

In a highly indebted economy such as Britain’s — where private debt dwarfs government debt — deflation is a dangerous thing. Past debts — and the interest rates paid on those debts — are nominally rigid. Unless specifically…

View original post 451 more words

And this is precisely what makes us human!

What? No mention about us being the only species that is able to make rational choices?

Nope.
First of all we are not the only ones, chimps and computers – among others – are also able to ‘reason’, in variable degrees.
Secondly, and way more important, reason is nothing but a tool. And tools are very, very important but not essential. Just as our hands and feet, they are extremely useful but being able to use them isn’t enough to make us human.

I was led to this understanding by the rapid succession of three events. The ALS Ice Bucket Challenge, the book lists mania that has currently engulfed FB and the eulogy read by Barak Barfi for his friend Steven Sotloff.

The Ice Bucket Challenge shows that we care, the fact that we post lists of books on FB so that complete strangers can gouge our personalities (real, pretended or a little bit of both) means that we are aware (of our public image) and Steven Sotloff loosing his life to a bunch of criminals while doing his best “to give a voice to people in war-torn lands” demonstrates that humans dare to do what they feel is right even when confronted with mortal dangers.

Still unconvinced?

Can you spell Stephen Hawking? And do you think that being able to spell proves you are human? Are you sure… chimps can do that too, you know? (Well, to a degree and using a computer, but still! http://researchnews.osu.edu/archive/chimps.htm)
Now, have you ever heard of the ‘obedience experiment’ carried out by Stanley Milgram? Although aware of the potentially dangerous  consequences of their actions only about 33% of the participants dared to contradict the ‘authoritative figure’ that was apparently in charge of the whole thing. And even more interesting is the fact that nowadays experiments like these would be considered illegal/unethical preciselly because of their effects on the participants. Check the first one.
Let’s go back to Stephen Hawking. He is the owner/operator of one of the finest minds ever endowed to a man. His reason is as precise as that of a computer while his imagination goes way beyond the limits of the Universe and way down into the realm of the invisible. And yet, what did he do when he found out he’ll soon loose the use of his limbs and will eventually need a machine to help him breathe? When he slowly became aware that those horrible things were actually happening to him?
Did he allow his beautiful mind to go berserk in self pity – the pinnacle of ‘caring for his own self’, the self preservation mania that is aggressively conquering more and more ground?

Or did he dare to continue with what he thought it was right for him to do?

You’ll rightly tell me that he couldn’t have survived if he wasn’t immensely lucky. That he was born in an era when technology was advanced enough, that he had already proven himself so material resources needed for his survival weren’t a problem, and that he had met the right people. True. But he did more than merely survive. He continued to create. To bring new ideas and understanding into the world.

– ‘OK’, jumps another one of you, ‘but what’s the difference between him an Hitler, lets say, or any other dictatorial sociopath that uses immense resources and top technologies to impose his understanding of the world on the rest of the people’?

Well, another excellent question!
A long time ago I had read something to the tune of: ‘Had Hitler been born in Britain he would have ended up in a loony bin, not running the show into the ground’. (I’m awfully ashamed for not being able to remember who said/wrote this nor internet savvy enough to identify the author.) The idea is that for a dictatorship to take hold you need way more than a guy, no matter how intelligent, powerful and devious. You also need a considerable number of people who dare not express dissent whenever they dislike/disagree with anything.

The point is that all three members of the triad that makes my title are equally important.
Being aware of the needs and caring for those around makes for a very good and obedient slave in the absence of daring while being a self conscious and uncaring dare-devil is meeting the first two requirements for becoming a dictator.
What happens with someone who dares and cares (mainly about himself, but not exclusively) while he is only marginally aware of the wider repercussions of his actions? Does the notion of ‘mad scientist’ ring any bells? Or ‘executioner’?

In fact if all three legs of the triad were equal the individual described by that triad would behave in a considerate and respectful manner towards all people, irrespective of social status, wealth or even age. In political terms that person would actively, persistently and politely reject any form of authoritarianism while in economic terms it would be a staunch defender of the free market. 

Image

“God cleans up your past, fixes your present and makes sure your future will be bright.”

I’d rather put it a little differently.
God offers you indeed all these generous opportunities but doesn’t do your part too.
It’s you that has to perform the hard work needed to put them in practice.

So stop ‘liking’ or whatever you were doing and start building your future.

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