November 2008 – NICKBAILY.COM

Will Obama Usher In a Socialist Economy?

And so on. I think the latest round of ignorant economic arguments have started to drive me a little bit crazy. There’s an ongoing sort of battle in economics, more accurately pop economics, or theories of business and policy, that seems to find it impossible to argue without resorting to what I’d call a corner solution. Or said another way, the “it’s all based on this one thing, and everything else doesn’t matter” type solutions. And to me it tends to be instructive to note who advances these arguments, and what their interests are.

It’s not surprising that the entrepreneur class would gravitate towards a theorist who postulates that said class is the root of all virtue and creator of all value, like a Joseph Schumpeter, or the many others since, and their passel of magazine covers and business books sold in an airport near you.

The entrepreneur class finds this interesting.

As an aside, I most certainly enjoy articles that say people named “Nick” tend to me more attractive and successful. For some reason such arguments resonate strongly with me.

It’s not surprising that the vast classes of salaried employees might have gravitated towards the Labor Theory Of Value. It’s not shocking that as the industrial revolution came into full swing, the allure of communism was extremely attractive for large numbers of people around the world. It postulated that the vast masses were the root of all virtue and creator of all value.

The vast masses found that interesting.

It’s not surprising that people who already had successfully acquired wealth and paid quite a bit in taxes gravitated towards people like Arthur Laffer and supply side theories. It’s hardly a shock that people who the market had deemed to be winners would advance the theory that the market is always right, and that it always distributes resources with perfect efficiency. People like Lucas and Sargent and Friedman on the academic side, or Ayn Rand (god help us all) on the pop culture side said that the rentier class was the root of all virtue and creator of all value.

The rentier class found that interesting.

There’s an entire industry devoted to privatization of everything. They’re not interested in discussing the details, asking if privatizing X really leads to more efficiency. Hard to figure out why, until you notice, of course, that they’re the ones looking forward to getting their hands on the assets. You could argue that the private sector does everything more efficiently. It’s a good way to get a contract providing armed soldiers to the US military at 10 times the cost of just having actual, you know, soldiers do the same job.

The advocates of privatization find that interesting.

It’s sure hard to figure out how these theories spread, isn’t it. The reality of course is that a well functioning economy is created by a mix of inputs. Corner solutions don’t work. Total state ownership of the means of production (communism) strips incentives and leads to corruption and terrible allocation of resources. We’ve established that didn’t work. Well sort of, China hasn’t done too badly lately has it, and they are nowhere near an open economy.

In contrast total privatization leads to a mafia state, an oligarchy of one dollar = one vote. Check out what happened in Saipan and the Marianas over the last couple decades for a good idea of what a privatization and entrepreneurship utopia looks like. It’s not so good.

Here’s a quick two theories, let’s throw them out:

1) Markets are probably the most efficient and effective way of allocating resources and creating wealth.

2) Markets almost never work properly without some oversight and command of state authority.

Here’s the kicker: Ideas #1 and #2 are not incompatible.

Prosperity requires effective flow of capital and capitalists and the ability for people to have incentives to innovate and invest and assume risk and reap rewards. It also requires government intervention where market failures occur (like making sure insurers are properly capitalized, or to break up monopoly situations) and to stimulate things that the private sector can’t or won’t efficiently create because of excessive time horizons, risk, coordination issues, or capital requirements (things like the interstate highway system, the internet, air traffic control, etc, for example).

It also requires a properly compensated, healthy, educated, and stable workforce. One that’s able to make rational decisions, live with some risk mitigation to income or life events, and not constantly subject to monopsony pricing of their wages. Not only does it lead to increased efficiency, and greater wealth for all classes, it does have the not at all insignificant side effect of keeping those excluded from the economic system from scaling the iron gates and running up on the lawn with guns drawn. As they say.

It’s been an amazing and historic week. An inspiring one, no matter which side of the aisle you’re on. I would hope. But it’s sad to see that the same tired arguments prevail, on the right, but on the left as well sometimes.

Capitalism is dead. Long live Capitalism. No we can’t have national health care it’s socialist. Multi-national corporations are evil. All rewards are due to the innovative class, labor is valueless and fungible.

And so on…

The reality is that entrepreneurs, bankers, investors, academics, inventors… and yes, government regulators, bureaucrats, factory workers, and cashiers all contribute to prosperity. All or nothing attitudes are kids stuff.

Or more often, the refuge of those who have a vested interest in advancing the interests of the group they most identify with. As it’s been said, It is difficult to get a man to understand something when his salary depends upon his not understanding it.

Or more accurately a story about blogging as it relates to real estate, that ran in today's New York Times.

Yup, that's me. I remember vividly — this must have been more than a few years ago — listening to my friend Jason Calacanis say something to the effect of "If your company doesn't have a company blog you're an idiot. Every company must have one, and it's one of the most efficient and effective ways of communicating with your customers. If you're not doing it, it's a giant missed opportunity." Or words to that effect. At the time I figured it might have been a bit of hyperbole, and of course at the time Jason's day job was building and promoting a company entirely composed of blogs, it wasn't a neutral point of view.

But it was a comment that really stuck in my head for awhile. How? Why? Do people really care and want to read what's effectively a newsletter? Learn about your office party, or how excited you are about your new product rollout, or what you think about your industry, or the latest interesting article you read somewhere?

The answer is yes, and I think Jason (yet again) has proven to be highly prescient. I guess it's the same thing I said in the story that leads off this post. It's a way to really communicate with your audience in the first person, it's a medium well suited to a unique mix of information, opinion, and personality. When a blogger is well informed and has the background necessary to contextualize information it's one of the best ways to keep your finger on the pulse of some thing, someone — or some company. Your company. A concept anyone with customers, and prospective customers, would be wise to consider.

The concept is not new, but apparently, it's still news.

Month: November 2008

Slice of Life @ Shanghai, Sunrise

In which I bastardize the phrase “Corner Solution”

And now, I will blog about a story about blogging.