Cafe Hayek: Means Are Not Ends

by DON BOUDREAUX

Here's a letter to Salon:

In your interview of Jaron Lanier you quote a passage from his book Who Owns The Future — a book in which Mr. Lanier laments the modern economy's facility at making available at very low cost many goods and services whose production in the past required a great deal of human labor: "At the height of its power, the photography company Kodak employed more than 14,000 people and was worth $28 billion.  They even invented the first digital camera.  But today Kodak is bankrupt, and the new face of digital photography has become Instagram.  When Instagram was sold to Facebook for a billion dollars in 2012, it employed only 13 people.  Where did all those jobs disappear?  And what happened to the wealth that all those middle-class jobs created?"  ("The Internet destroyed the middle class," May 12).

Mr. Lanier sounds profound, I suppose, to people unfamiliar with history.  So let's re-write Mr. Lanier's prose just a bit in order to put his fears in historical context:



"At the height of its power, agriculture employed 90 percent of the population and produced output worth vastly more than half of U.S. GDP.  It even invented countless plant hybrids and animal breeds.  But today nearly all farms of the past have gone bankrupt (or, seeing the economic writing on the wall, were transformed to other uses).  Agriculture today employs only about one percent of the workforce.  Where did all those jobs disappear?  And what happened to the wealth that all those good agricultural jobs created?"

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

(For the pointer to the Salon piece on Lanier, I thank Steven McDuffie.)

By Mr. Lanier's logic — and, to be fair, he's hardly the only person who sees the world as he does — we'd all be made much wealthier if, suddenly, each gallon of water for human consumption had to be manufactured using many workers.

(For the pointer to the Salon piece on Lanier, I thank Steven McDuffie.)

By Mr. Lanier's logic " and, to be fair, he's hardly the only person who sees the world as he does —  we'd all be made much wealthier if, suddenly, each gallon of water for human consumption had to be manufactured using many workers.

Walter Williams on Race in Economics & his Life

 

Reflecting on The Socratic Imperative

            by KEVIN CZARZASTY

            Socrates pioneered the philosophy of questioning.  He explained that there are two ways of teaching.  On one hand, I can be told an answer, and then memorize it.  On the other hand, if I'm asked a question, I must then look inward to find an answer True to myself.  The more questions, the more full-proof a given premise.  While the memorization happens all too much, self-exploration is falsely labeled as useless.  We're too obsessed with thinking about what we do know; we're not concerned enough with wondering about what we don't
know. 

            The Athenian government persecuted Socrates for corrupting the youth with questions, and because he preached critical thought, he was given the choice between exile or death by poison.  In
hopes that his message would be heard, or maybe repeated by FTCN thousands of years later, Socrates drank the toxic Hemlock, and died a man of virtue.

            Tragically, Socrates seems to have failed.   Today, many know his name, but few hear his lesson, and even less live by the man's prophecy.  Why are we so afraid to question?  What's so Bad about curiosity?  The most curious people in the world are kids, and they're arguably the smartest. Consider how much knowledge kids retain in their first three years.  Indeed you have to feed and clothe, but through their own experimentation, they learn to move, interact, and survive independently.  Children are conditioned by their environment, but it is their curiosity that enables them to function within the environment.

            Perhaps we shouldstart analyzing governance in a curious manner. Similarly, maybe our government should not mimic the Athenians, but instead encourage and even practice critical thought.

Einstein on Teaching

Millennials are Bigger Savers than Babyboomers

            A USA Today article shows that unlike Babyboomers, Millennials are more geared towards savings.  What impacts might this trend have in the future?  As the Federal Reserve continues to manage markets and rely on stimulated spending, the future generations may not be as willing to spend.  Could this fundamental shift in behavior lead to a fundamental shift in banking?

What is an Idea?

 

FEE: After The Welfare State (Book Review)

            by LANCE LAMBERTON

            You�re at a cocktail party. You strike up a conversation with a stranger, and if you�re liberty-minded or concerned with economics, you might express skepticism about the viability of the current welfare state. Thanks to U.S. entitlement programs, unfunded liabilities threaten a fiscal tsunami. 

            Your conversation partner expresses dismay, however. Without such programs, she says, millions will be without food, shelter, and of course health care.

            Prior to reading After the Welfare State, I would meekly have argued for private charity to replace centralized entitlement programs. I would probably have outlined a boilerplate plan for entitlement reform that would make the welfare state at least sustainable. And while private charity can and should play a greater role, I would be hard pressed to make a convincing case that it could meet all of the needs of a modern industrial society, especially one that has become addicted to entitlement spending.

            Tom G. Palmer�s book showed me I needed only to look to history�a history nearly wiped clean by the welfare state. 

            Beginning in the late eighteenth century, friendly societies arose to address the needs of a growing population. As the Industrial Revolution created new markets and new wealth, it also saw the advent of organizations designed to solve myriad social problems and form the ties of true community. Self-governing �friendly societies,� both in Great Britain and America, developed spontaneously, providing mutual aid and welfare services without government support or involvement.

            It�s difficult to imagine today just how these aid societies flourished. By the late nineteenth century, membership had expanded to include millions, cutting across all racial and ethnic divisions. These voluntary, self-funded associations provided all manner of social welfare services, including death benefits, old-age homes, orphanages, healthcare, and savings for retirement and disability�just to name a few. Moreover, friendly societies were able to achieve their mission without the moral hazard endemic to the current welfare state (in which benefits are dispensed to recipients based on static income formulas rather than considerations about circumstances).

            With mutual-aid societies, membership was contingent on adhering to generally accepted codes of behavior, with aid provided to members who fell upon hard times through no fault of their own, such as an unavoidable job loss, injury, or prolonged illness. Wife-beaters and the chronically lazy were often expelled, or not admitted in the first place.

            Consequently, with friendly societies and their derivatives dominating the provision of social welfare services, the demand for welfare by public and private charities was miniscule compared to today. According to one of the book�s contributors, David Beito, in 1930 �less than 4 percent of New York�s aged depended on either public or private charity.�

            All this was to change rather dramatically with the rise of the welfare state, which was initiated in the modern era under Otto von Bismarck�s Germany in the late nineteenth century. As a blatant power grab by Chancellor Bismarck, the intent was to make the German people dependent upon, and thereby loyal to, the State. In pursuit of what he unabashedly called �State Socialism,� not to mention ambitions to dominate Europe, Bismark declared, �Whoever has a [state] pension for his old age is far more content and far easier to handle than one who has no such prospect.�

            Unfortunately, Bismarck�s welfare state concept soon found ready acceptance in Britain and the United States. They saw full American expression during FDR�s New Deal. In 1911 England passed the National Insurance Act, which came at a time when membership in friendly societies was growing at unprecedented rates. These were doomed to wither and die, however, as the state formed a tax-fueled charity monopoly.

            While the welfare state has succeeded in supplanting voluntary self-help associations, the net effect has been far more pervasive. It ensnares not just the poor and needy by trapping them in a life of hopeless dependency, but it also mires us in debt and deficit spending. The bulk of government spending is for so-called �entitlements,� which are meted out to current recipients across income quintiles. The tab is passed onto generations not yet born.  

            Palmer warns that we have about 10 years left to correct the current fiscal imbalance before the welfare state implodes. The government will have to repudiate these unfunded liabilities or accept rampant inflation, crippling taxes, and a lower quality of life. If and when that day comes, we will at least have this book to point to a way out�one that balances our fiscal solvency with concern for the least fortunate among us. History can be a guide for how we survive and prosper after the welfare state.