Category Archives: Economics

Expanding the bureaucracy and the fallacy of the slippery slope

Those who oppose minor and perhaps reasonable expansions to the power of the government on the grounds that that power will inevitably be expanded abused are not necessarily committing the fallacy of the slippery slope.  Extensive precedent has shown that once any task is institutionalized in a government agency, it will forever have a lobby which is dedicated to expanding its purview and budget. No matter how rigidly and narrowly the original mission is defined, the continuing employment and power of the bureaucrats responsible for it becomes an end in itself. Perhaps one of the simplest examples of this is the list of United States Federal Agencies.

Operating independently of market constraints, the bureaucrat has no obligation to prove his efficacy or any continuing need for his services, nor any need to balance the value of the service he provides against the cost. He works tirelessly to find new crises which must brought under his control or to worsen (usually by means of perverse economic incentives) the very problem he is tasked with solving.

In the aggregate, the mass of bureaucrats in any given society work subvert the energy of the remaining productive people until civilization disintegrates into hyperinflation and bankruptcy. Their intentions may initially be purely benign, but their work requires ever greater degrees of evasion and mass brainwashing as they search for victims and enemies in ever wider circles of society.

No matter how trivial the problem to the solved, once a political solution is attempted, the issue can only be expected to become worse and more expensive. Can you think of a single instance when a bureaucracy resolved the issue it was tasked with solving and fired itself?

It should be noted that this trend also manifests in large corporations, whenever it becomes so large and vertically integrated that individual departments are able to operate outside the pressure of the market and thus outside the pricing mechanism as a means of valuing services.   Fortunately, the wealth destruction of corporations in a free economy is limited by its revenue, and it need not exhaust the entire wealth of a society in order to it collapse.

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Filed under Economics

On "Special Interests"

It is truism today that “special interests” are to blame for economic problems and corruption. But “special interests” are only a symptom, not the cause of the disease.

In a populist democracy with a mixed economy, every group that participates in the political system is a “special interest”, with the incentive and the power to use the political system to extract benefits for its members at the at the expense of everyone else. Corporations, unions, disease-awareness organizations, “minority” groups, and anyone who organizes around a common cause has the power believes that their fate or cause is more legitimate, important, and “special” than that of everyone else.

The welfare and regulatory systems are the primary means to coercively redistribute property and confer monopoly benefits to various groups. In a mixed economy, everyone is constantly on the defensive against organized groups extracting benefits from him, and on the offensive attempting to use the coercive power of the state to extract benefits from others. Interventionism creates a vicious cycle hardly unique to corporations: first a lobby tries to extract special privileges from some politically neutral group, the group hires lobbyists to defend itself, and ends up using the influence it has gained to extract privileges at the expense of another neutral group, which must defend itself in turn.

The existence of “special interests” is just a symptom of the disease: the growth of government power to a degree that allows those in power to violate our rights and steal our property for the benefits of their constituents. Populist “maverick” politicians who claim that they will “fight special interests” and “change the culture in Washington” are just attempting to subvert the power of the state to favor their particular constituency. Campaign finance regulations are just monopoly privileges created by the political élite to hide corruption from the public and make it more difficult for those without political connections and money to get elected and in order to defend themselves or join in the looting.

The only solution to the problems caused by interventionism is to end interventionism – to separate government and economy. Take away the power of the government, and you will remove both the incentive and the power of the “special interests.” As long as governments try to control people and businesses with laws that go beyond the protection of property rights, the “special interests” will have the incentive to control governments.


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Filed under Economics, General

Are patents stifling innovation in mobile devices?

In 2007, I wrote why software patents are not a good idea.  It’s easy to find examples of patent abuse but its not often to find a company that uses patents that stifle a whole industry.  Such may be the case with the Apple iPhone.

I purchased an iPhone shortly after it came out, because I recognized that it was a revolutionary device.  It was not a case of superior specifications, as many devices have better hardware.  It didn’t even run on the latest 3G network until the second generation.  Rather, it was a superior design, which featured an intuitive user interface that did not try to compete on the number of features but on usability.  Apple fully deserves the billions of dollars it has made and will go on to make from its device.

Yet something curious has happened. When Apple introduced the iPhone, those who recognized its revolutionary potential expected the innovations and design concepts it introduced to percolate to the rest of the industry.  To an extent, that is happening, but key iPhone technologies -a capacitive touchscreen with multi-touch, a 3-axis accelerometer, proximity sensors, graphics acceleration integrated integrated into the UI, and a number of other key innovations have not been found in competing products.  Part of the reason for this has to do with the particular culture and expertise found at Apple, but its indisputable than the 200+ patents covering the iPhone have gone a long way to discouraging competitors, who offer alternatives lacking key features – until now.

Palm, the company who created the first popular PDA is coming out with the Palm Pre, the first device to brazenly infringe many of the key iPhone patents.  Apple is already making threatening gestures, so an apocalyptic legal battle is almost certain.  Palm is the first company to go against Apple head on because  its status as the one-time leader in the PDA and mobile phone market makes it the only company capable of challenging Apple’s leadership.  While the Palm Pre clearly borrows ideas from the iPhone, the iPhone itself uses many of the innovations first patented by Palm as early as 1996.  Today Palm is a marginalized has-been for whom the Pre is a desperate gamble to save to company, but it still has the patent portfolio of a market leader.

The question of who is the bigger infringer in this battle is besides the point.  The issue is that the patent system is limiting innovation to large companies who have established sufficiently large patent portfolios to pose a credible threat of retaliatory patent lawsuits.  The best that new competitors can hope for in this environment is to be aquired by the giants or to establish their own patent portfolios – rather than create products than people want to use.


Filed under Economics, General

… In economic matters, most people, including most politicians, mainstream economists, and investors unconsciously follow Dewey’s philosophical principles: reality is ultimately driven by social consensus, and the success or failure of markets depends only on the optimism or pessimism of consumers and investors. This is more than the belief that wishes and prayers affect reality – this is a belief that one’s wishes are reality – if only enough people share the delusion.

(From What you need to know about the economic “crisis”)

Two more examples:

“As long as no one knows about it, the counterfeit money we print doesn’t really exist:”
“The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.”

“As long as we ignore the problems in your economy, they won’t really affect us:”
“South Korea set a rare and controversial example over the weekend by arresting a popular blogger who was accused of undermining the financial markets [by correctly predicting economic downturns] but worshipped by many Koreans as an online guru.”

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January 15, 2009 · 5:05 am

Full report. From: The New Clarion.

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December 18, 2008 · 2:38 am

Yaron Brook: Why Unregulated Capitalism Is Moral

Watch more great videos at the Ayn Rand Institute channel on YouTube

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Filed under Current Events, Economics, Philosophy

"The Anticapitalists: Barbarians at the Gate" – Larry Sechrest

(You can skip to the lecture’s beginning at 5:40.)

By the way, the introductory quote is from Ayn Rand’s 1970 essay “The Comprachicos.” The text is:

Observe also the intensity, the austere, the unsmiling seriousness with which an infant watches the world around him. (If you ever find, in an adult, that degree of seriousness about reality, you will have found a great man.)

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Filed under Economics

Do compact fluorescent lights really save energy?

Earlier this month, Congress passed a law which will essentially force the public to switch to compact fluorescent lights. (CFLs)  Environmentalists and light bulb makers joined forces to boost power and profits, and perhaps sue the competition out of existence.Some people object to the narrow light spectrum and toxic Mercury content of CFL lights, but I don’t care about those things.  I have replaced most of the incandescent lights in my apartment, and plan to eventually replace the rest.  What I question is not the usefulness of CFLs, but the premise that switching to them will “save energy.”

As with most goods and services, the price of a utility influences the quantity I am willing to pay for.  When the price of gas doubles, I reconsider taking road trips, and try to be more efficient with my driving.  Likewise, when the price of electricity falls, I am more liberal with my power consumption.   Compact fluorescent lights lower the cost of lightning in two ways: they use one quarter of the energy, and they last ten times as long.  These innovations encourage greater usage of lighting.

I have a spiffy IKEA lamp behind my couch, but because I don’t have a light in my ceiling fan, it needs to be extra bright.  Furthermore, the geometry of my living room makes it annoying to walk behind the couch every day to turn it on.  By switching to a compact fluorescent light, I was able to get a 100 watt equivalent light in a 60 watt socket, and thanks to its efficiency and long life, I just leave the light permanently on.  I am enjoying greater convenience, but I don’t know if I am saving any energy.

If the average consumer’s monthly lightning budget is fixed, they might compensate for the higher efficiency and lifespan of CFLs by increasing their lightning usage to completely offset any energy reduction.  This would be especially true if consumers are forced to switch to CFLs by legislators rather than a desire to save energy costs.  Much as auto safety regulations can lead to reckless behavior, forcing consumers to switch to more efficient lights might actually increase their energy usage.


Filed under Economics

Real entrepreneurs don’t take bribes from the state

The Israeli government is trying to lure back some of the hundreds of thousands of Israeli expatriates with “tax breaks, employment and small business loans.”  The campaign is set to cost $36 million a year.  Israeli politicians must realize on some level that their best and brightest citizens are leaving in growing numbers because their grant experiment in utopian socialism has turned out to be a total failure.  What they failed to consider however, is that to the extent that the campaign is successful, it is will bring back the wrong kind of people: those who value a short-term bribe over freedom and entrepreneurship unhindered by the interventionist state.


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Filed under Economics

Traffic Jams and Bread Lines

On my daily drive to work, I am greeted by a crawling, sprawling traffic jam on the other side of the freeway. I can’t imagine what it must be like to spend an hour or more of one’s life every day in the ridiculous drudgery of a traffic jam – I would go insane if I had to get up at 5 am for the commute, like some of my coworkers. (Luckily, I was able to find an apartment that allows me to be at work in six minutes.)

The sight of thousands of victims inching forward in mind-numbing drudgery reminded me of a similar scene from my childhood in Soviet Ukraine. A few times a month, I would go visit my grandmother in the city, and we would spend a day buying groceries.

A day was necessary, because much of it was spent in line for bread, fish, or the rare “exotic” foods like plums or oranges. Once, we waited four hours for some dried figs, only to find that they had all been sold to the revered yet much-reviled war veterans. I remember someone yelling at the store vendors and accusing them of keeping some figs for themselves and of their apathy towards our fig-less plight. The vendors shouted curses back with the same enthusiasm. Their apathy was indeed obvious, though I would not realize why until many years later.

Why should have Soviet bureaucrats care about how long we had to wait for non-existent figs? Why should the bureaucrats in charge of the Dallas roads care about the lives squandered away in the daily commute?

I know who did care about our plight: the bazaar merchants who sold us chickens and potatoes. They were tough bargainers, but they were very interested in meeting the wants of their customers. The American supermarket is a bazaar on a grand scale, where I can not only find dried figs 24/7, but a dozen other fruits I have never heard of.

We trust entrepreneurs with our bread, so why don’t we trust them with our roads? To a politician, each traffic-plagued driver is a liability, to be appeased by a some highly visible but most likely useless project. How might an entrepreneur look at a traffic jam, if the State did not monopolize transportation?

To an entrepreneur, each tired and miserable driver is a goldmine, an income opportunity waiting to be exploited. The misery of the driver is an unmet need, a value waiting for the right mind to come along and provide it. The idea of a traffic jam would be obscene in a free market: millions of unsatisfied consumers are an irresistible magnet for the right investor.

Are our roads really as bad as Soviet bread lines? They certainly get far more funding (from money taken from more productive enterprises), but the incompetence can be staggering.

I tried to go the bike shop across town today, and ended up stuck in traffic. The lane on the right of me was a HOV lane. It was created by city politicians with good intentions, I’m sure, but since the vast majority of drivers ride alone, it only ends up constricting the lanes available for traffic. Once the volume of cars per lane reaches a critical mass, the traffic slows to a crawl. Do you think political pressure or a calculation by a traffic expert made that decision? Federal funding regulations require new city highways to dedicate an HOV lane, despite studies (from the very highway I was driving) that indicate “a 41-56 percent increase in injury accidents.” Does anyone care?

On the right side of the highway, several lanes on the left were closed for an accident earlier in the day. It had taken most of the day to clean up, and the roads were still closed several hours after the accident. A hundred thousand drivers were stuck in traffic, but who cares? Certainly the police in the cars blocking the road didn’t, and neither did the road workers. Why should they – they are stuck at work, so why should commuters get home any sooner? Maybe they were waiting for someone in dispatch to wake up, or perhaps they preferred to wait till traffic died down to drive home themselves.

By the time I made it to the bike shop, it had closed, so I stopped by to meet some friends at a sandwich place. It was getting late, and the waitress looked busy and tired from long day, but when I walked in, she walked over, smiled, and asked, “How can I help you?” Sure beats waiting in line for figs.

(Read more on how private roads could work.)


Filed under Economics, General, Politics