Category Archives: Free Trade

Today’s Nasdaq Illustrates the Phenomenon of Creative Destruction

Those of you who are old enough to remember the dot com bubble bursting some 15 years ago might also remember the handwringing about how Microsoft was becoming a monopoly. Microsoft was the juggernaut that could only be taken down with antitrust suits by the federal government. Other companies simply could not compete with such a well-established corporation; the free market was inadequate.

Fast forward to where Microsoft stands today. The once seemingly invincible company has succumbed to the realities of competition and now finds itself in third place on the Nasdaq index.

James B. Stewart writing for The New York Times explains:

The Nasdaq composite that peaked at 5,048.62 on March 10, 2000, in what turned out to be the height of the technology bubble, bears little resemblance to today’s Nasdaq index. Of the top 20 Nasdaq companies by market capitalization in 2000, only four — Microsoft, Cisco Systems, Intel and Qualcomm — remain in the top 20 today. Eight no longer exist as independent companies, most as a result of bankruptcy or acquisition, and several are shadows of their former selves. The current Nasdaq composite index has only about half as many companies as it did in 2000.

“Joseph Schumpeter was spot on when he said capitalism is all about creative destruction,” said Richard Sylla, an economics professor at New York University’s Stern School of Business and a specialist in the history of markets, referring to the Austrian-American economist who described the phenomenon in 1942 in “Capitalism, Socialism and Democracy.”

In the intervening 15 years, a new generation of entrepreneurs, newly public companies and entire industries have emerged and seized the dominant positions in the Nasdaq index even as their predecessors faltered. Apple, now the world’s largest company by market capitalization, barely registered in 2000, and the first iPhone was not announced until 2007. Over a billion smartphones were shipped in 2014.

The chart below which accompanies the article illustrates this creative destruction of the past decade and a half quite clearly.
Capture

What this tells me is that no matter how large these corporations get, they cannot rest on their laurels. They cannot assume that just because consumers like their product(s) more than the competition today that the same will be true tomorrow. How many people use Myspace today as opposed to Facebook?

It’s the creative destruction of the free market – not additional regulations which ultimately allow consumers to have more choices.

Russia’s Ruble Problem is Temporary… And not Just THEIR Problem

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Russia’s been in something of a spot of bother lately. The decision by OPEC to continue elevated levels of oil production (in order to deliberately suppress oil prices, and drive higher production cost competitors out of the market), in addition to American sanctions, have caused the Russian ruble to plummet against the American dollar. Steps taken by Russian President Vladimir Putin and the Central Bank of Russia to halt this decline have not been effective, causing Putin to call what’s happening a “catastrophe”.

These reduced oil prices of course have many benefits to the US, beyond schadenfreude at Russias predicament. Fuel prices are the lowest they’ve been in almost ten years; which has had a positive effect on consumer prices overall, travel, and holiday spending during retail’s heaviest season.

So with prices at the pump going lower, and Putin struggling, everything’s all good, right??

Not really.

Here are a few reasons why we should be concerned at what’s happening right now:

* There’s a lot of arm-twisting going on both inside and outside OPEC – What’s really happening, is Saudi Arabia is effectively in a staring contest with weaker members of OPEC, and no one has the strength to end the standoff. These low prices are harming oil producers everywhere. The price can only be so low, for so long, before there’s so much pressure (both internally, and from other oil producing nations); that the Saudis will cut production, and allow the price of oil to rise.

* We’re due for an energy market correction – As I said above, this action isn’t just hurting Russia. It’s hurting Venezuela, Mexico, Norway, and all other oil-exporting countries, and it’s not sustainable. Speculation, aggregate demand increases, and softening of the Saudi position, are likely to bring the price back up within a few months, which benefits Russia in the long term.

* Vladimir Putin’s support is, and will remain, solid – Breathless articles in the Western press about Putin’s “challenge” possibly leading to his downfall are vastly overblown at best. For one, Putin knows who his key allies are, and they – the oligarchs in Russia – will be taken care of first. Furthermore, he is virtually synonymous with the once again powerful Orthodox Church, and his domestic policies (which basically amount to keeping the buses running on time and eradicating homosexuals) are still extremely popular. If push comes to shove, the Russian people will stick with him; partly because he’s their best chance against the west (and more importantly, China), and partly because if they do protest, they stand a good chance of not making it home (Putin’s history is clear in this). It’s just as well, because…

* There are no legitimate alternatives to Putin – Simply put, Russia’s liberals (and in fact all political factions other than Putin, and those even more hardline) are broken; either irrelevant and ineffectual, or small, hardcore sects, that hold little appeal for a nation that still remembers bread lines. Financial transparency? Human rights? These are things which, in the mind of a hardened nation, don’t pay the bills; and in the opinion of many Russians, may not be desirable, as they would benefit currently disfavored people (such as gays, and those of religions other than Russian Orthodox).

* When you poke the bear… – Russia has shown that they will act with violence when it suits their desires; ask Georgia, Chechnya and the Ukraine about that… if they can pick their heads up long enough to speak. I’m not entirely sure we want to see the Russians become desperate, or feel truly threatened, economically or politically. At best, many lives may be lost or destroyed in small scale conflict, and the disruption of that inevitably comes with it. At worst we could see war with Russia and “the west” (under whatever pretext or theater in which it may begin); perhaps including support from China, splinter eastern Europeans, “enemy-of-my-enemy” Islamic groups; and governments around the world, who would have to pick a side in a war between the United States, and “anyone other than the United States”.

That’s a wild scenario, but not wild enough to be completely discounted.

In the end, I predict that Russia will ride this out, and wait for mutual interests in the oil industry to start wearing down the U.S. and Saudi Arabia. There could be some retaliation, leading some to guess at a second Cold War. However, ultimately, Russia doesn’t have sufficient economic clout to meaningfully damage the United States and its allies, without also causing greater damage to themselves.

Enjoy the gas prices (and laughing at Putin) for now, but understand that, most likely; prices (and the ruble) will swing back closer to their recent medians, by the end of February (March at the latest), with little or no long-term damage to Putin.

Christopher Bowen covered the video games industry for eight years before moving onto politics and general interest. He is the Editor in Chief of Gaming Bus, and has worked for Diehard GameFan, Daily Games News, TalkingAboutGames.com and has freelanced elsewhere. He is a “liberaltarian” – a liberal libertarian. A network engineer by trade, he lives in Derby CT.

Normalizing Relations with Cuba is Long Overdue

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Today, the White House announced that they were looking to thaw relations with Cuba for the first time since President John F. Kennedy severed diplomatic relations with Cuba in January of 1961, which preceded the disastrous Bay of Pigs invasion that following April. In their statement, the White House noted that fifty years of sanctions and other actions against Cuba have failed to achieve their stated means. This seems to be inarguable; ever since those severed ties, the relationship between the United States and Cuba has been highly antagonistic, with America using its financial and political clout to install strict financial sanctions against them, largely punishing them for adopting a communist government and aligning with the Soviet Union until the latter’s dissolution.

Under the terms laid out simultaneously by the White House and Cuban President Raul Castro, US residents could travel to Cuba for tourism, and Cuba would be allowed to accept United States credit cards. President Obama has also requested Secretary of State John Kerry to begin a review of Cuba’s standing on the list State Sponsor(s) of Terrorism, and some prisoners – most notably American Alan Gross – have been exchanged.

Of course, everything is not as cut and dried as Obama simply waiving his hands and saying “make it so”. For one, most Cuban sanctions are codified in American law, per Doug Mataconis. The number one opponent is going to be Senator Marco Rubio (R-FL), whose views echo those of many Cuban exiles and their family members who refuse to deal with Cuba so long as the Castro brothers are in power. Combined with Congress’s total inability to get anything done of note, there is going to be resistance before relations can be formally normalized.1 Naturally, when diplomacy is on the table, there is also a contingent of Americans – the hawks – that are not satisfied unless we’re blowing someone up.

Frankly, it’s well past time for us to normalize relations with Cuba. We had better relations with Russia – the number one antagonist in the Cold War – for a time than we did with Cuba, and all because of… what? The Cuban Missile Crisis, which we instigated with the Bay of Pigs invasion? Punishment for dealing with the Soviet Union back in the early 60s? Some assassination attempts against Presidents, by a country that we invaded? That stupid picture of noted murderer and tyrant Che Guevara being printed on T-shirts and postcards? Actually, that might be a really good reason after all…

Don’t mistake this for altruism. The intention here is definitely to line the pockets of private industry as the mandate’s stated goals of increasing internet penetration and American tourism start to take seed. There’s also the view that ending the embargo will hurt Raul and Fidel Castro as people start to realize the magic of capitalism, a view that seems to be shared by Hillary Clinton. Lastly, our request for Cuba to improve their human rights record is pretty funny, contextually speaking. But even if it’s bad for Cuba’s leaders, opening up relations with Cuba is not only the best thing for Cuba’s people, it’s the best thing for America, as well. We not only get a fertile ground for business dealings – a problem only for hard-core communists and socialists – but we look much better to the United Nations, now that it’s not just us and Israel holding out.

Ultimately, the end of the embargo, and the surety of the overall improvement to both the Cuban economy and the quality of life of its people, will prove one key point: America, and capitalism, won the Cold War, and it was a rout. The Soviet Union’s been dead for over twenty years, replaced by a plutocracy. Cuba will fundamentally change after holding out for decades purely out of spite. And other countries such as China are communist in name only. If the Cold War was a fight between American capitalism and communism, it’s over, and it was a slaughter.

1 – I would not be surprised if a Republican controlled Congress put the brakes on this for at least two years so as not to give Obama credit.

Christopher Bowen covered the video games industry for eight years before moving onto politics and general interest. He is the Editor in Chief of Gaming Bus, and has worked for Diehard GameFan, Daily Games News, TalkingAboutGames.com and has freelanced elsewhere. He is a “liberaltarian” – a liberal libertarian. A network engineer by trade, he lives in Derby CT.

Self-Ownership, Voluntaryism , and the Non-Aggression Principle as Explained in 2 Videos

In the course of an election year, its very easy to get caught up in the minutia of the various campaigns and election year issues. This is not to say that these issues are trivial; there were very many issues this election cycle which deserved the attention they received.

That said, I tend to think that immediately after an election is a perfect time for reflection. What is it we believe and why? What are our first principles and are we communicating these principles effectively?

I’ve read from various places that we are coming close to a “libertarian moment” or perhaps one is already underway. I do not know one way or the other to what extent this is true but I find that because outlets like Salon, Slate, and Alternet of the Left and a few anti-libertarian outlets on the Right are spending so much energy trying to convince their readers that such a moment isn’t happening quite encouraging. If libertarian ideas were not gaining at least some momentum these outlets would ignore us as in years past.

Of course these outlets do not make any effort to portray our ideas accurately. Its almost as if they go down the list of logical fallacies and hope their readers won’t do any independent research.

So what are the first principles of libertarianism then? This is a very big question, one which libertarians will often disagree. My view is that the first principles are self-ownership, voluntaryism, and the non-aggression principle (fellow TLP contributor Chris Byrne has a slightly different take worthy of consideration).

The videos embedded in this post do an excellent job illustrating these principles, especially for people who are not very familiar with them. The first video, which I have shared on various other occasions, is called “The Philosophy of Liberty.”

Pretty simple right? Share that video with your friends who get their information from Salon. They may still disagree and say that individuals should be looted taxed to promote social justice and egalitarianism but at least they will be exposed to these ideas.

This second video by Stefan Molyneux called “Voluntaryism: The Non-aggression Principle (NAP)” is slightly more advanced taking NAP to its idealistic conclusion (Molyneux is an outright anarchist and makes no bones about it on his podcasts).

Is this all Utopian pie in the sky? Perhaps. Humanity has a long way to go before we can begin to think about beating swords into plowshares. But this does not mean that we can’t each do our part to move in this direction. Upon closer examination, what it really boils down to is following the Golden Rule, only resorting to violence defensively and as a last resort. This principle remains true whether the issue is foreign policy, local policing, or your own home.

Windowpanes, Pencils, and Paperclips

A few days ago I wrote something on facebook that bears repeating here:

A comprehensive understanding of the pencil problem, combined with a thorough understanding of the broken window fallacy (and its inputs and corollaries… Hazlitt for example), makes a pretty good inoculant against socioeconomic lies and stupidities.

Although they are implied by the conditions above, perhaps one should also specifically reference the scale and complexity problems, the perfect information fallacy, the perfect man fallacy, and the law of unintended consequences…

Some of our readers may be unfamiliar with the pencil problem.

In comments, the novelist Ryk Spoor provided a decent explanation, which I’m going to paraphrase here, with my own edits and revisions (and the addition of the last bit, about planning and control):

No one man, can make a pencil, or at least a pencil which could be sold economically.
In general terms, the pencil problem, is that even simplest and most common objects in our civilization generally require an immense number of people and inputs; to not merely build, but manufacture and sell in sufficient numbers, to make it worthwhile to build them cheaply (or at least so that they can be sold economically).

The applies to everything from cars and computers, to pencils, to paperclips.

If you wanted ONE paperclip, it would be an epic undertaking, from locating the appropriate ores, refining them, turning them into steel, figuring out how to draw the steel into the appropriate size of wire, and then finally producing the paperclip from that wire. The amount of effort involved in it would be months of your labor, assuming you had the talent and resources to do it at all.

Instead, you go to a store and buy a 100ct box of them for a dollar; or even at minimum wage, a few minutes of your time for a hundred of the things.

Multiply that by all the different types of goods and services in a modern civilized society, and it starts to become clear just how many people, in how many different specialties, with how much infrastructure, are needed to keep everything running.

Given that scale and complexity, it should also be clear how impossible it would be to plan, control, and manage, anything approaching a national economy or infrastructure centrally; or in fact in any way other than as devolved and decentralized as possible.

The original statement of the problem in this way came from an essay by Milton Friedman (which was a restatement of an earlier essay, “I, Pencil” from Leonard Read, which was a restatement of Hazlitt, which was a restatement of Bastiat and back down the chain).

A video of Friedman explaining the problem:

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

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