Category Archives: Free Trade

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

Free Market Organs: The Case for Capitalism in the Organ Transplant System

A 10-year old Pennsylvania girl by the name of Sarah Murnaghan could die within a few weeks if she doesn’t receive a lung transplant soon. There’s currently a petition on directed at HHS Secretary Kathleen Sebelius to alter the current policy so that Sarah is made a higher priority on the donor list because the clock is ticking at least somewhat faster than some who are ahead of her.

I’ll leave it to the readers to determine if this petition is the right way to go in the case of Sarah, but I think there is a much larger problem with the organ donation system that I believe could be addressed by the free market. Back in 2008, I wrote a post about why a regulated, above board organ market would be superior and much more moral than the current “altruistic” system. Some of my examples might be a little dated (Hanna Montana is all grown up now) but my overall point stands. Though this post is mostly about live donations, compensation going to an individual’s estate would give Sarah and countless others a much better shot at living.

Free Market Organs (Posted January 24, 2008)

Last week, Doug linked a post about British Prime Minister Gordon Brown’s support for a policy that would allow hospitals to harvest organs without prior consent of the decedent or his/ her family. In essence, the organs of all deceased British citizens would belong to the government’s healthcare system except for those individuals who “opted out” prior to death. The policy in the U.S. is an “opt in” approach rather than “opt out.”

Why is this distinction important? Answer: the presumption of ownership. If citizens have an option of opting in, this shows that individuals own their bodies; to suggest that an individual has to opt out shows that citizens’ bodies are property of the government (unless s/he makes an affirmative claim on his/her body).

The reason for Brown’s support for this policy is quite obvious: like just about everywhere else in the world, Britain is having an organ shortage. So if presumed consent is not the answer to solving the organ shortage, what is? Randolph Beard, John D. Jackson, and David L. Kaserman of Auburn University published a study in the Winter 2008 issue of Cato’s Regulation Magazine. The team studied the effectiveness of current policies aimed at maximizing donor participation and organ matching. Among the policies they analyzed were: increased government funding for organ donor education, organ donor cards (such as having the words “organ donor” on driver’s licenses), required request, kidney exchange programs, and donor reimbursement. None of the policies have come close to solving the shortage. The researchers estimate that roughly half of the potentially viable cadaver organs are ever harvested. With the exception of the inefficient kidney exchange program, one feature that all of these programs have in common is that they each rely on altruism on the part of individuals to donate organs without any sort of compensation.

The one solution which the researchers believe would be effective, monetary compensation to organ donors or their families, is illegal almost everywhere. In 1984, the National Organ Transplant Act was passed making it a crime in the U.S. for a surviving family to receive payment for their loved one’s organs. The law was passed mostly on ethical grounds without any consideration for what would happen to the supply of available organs. The researchers estimate that some 80,000 lives from 1984 to present have been lost because of the bill’s passage and other subsequent policies in the current “altruistic” system. The researchers further project that another 196,310 lives will be lost between 2005- 2015 (and this is what they consider a “conservative” estimate!).

As controversial as compensating families organs of deceased family members is, the thought of an individual driving to a hospital, removing an organ (such as a kidney), and selling that organ to someone in need of the organ for a profit is a complete non-starter. This shouldn’t come as a shock given that in today’s lexicon; the word “profit” is a dirty word. The people who scream bloody murder whenever people decide to “scalp” tickets to sporting events or tickets for Hanna Montana concerts (what’s the big deal with Hanna Montana anyway?) will not likely be in favor of selling vital organs. Anti-capitalist objections aside, free market buying and selling of organs appears to be the most practical solution.

Cato Institute’s Director of Bioethics Studies Sigrid Fry-Revere found that Iran is the only country that does not have an organ shortage and has not had a shortage in ten years. Why? Because Iran (of all places!) is one of the only countries where it is legal for individuals to buy and sell organs from live, voluntary, donations. Revere’s findings also revealed that even if all the viable organs were taken by force by the government from cadavers, there would still not be enough organs to provide an organ to everyone who needs one (Cato Daily Podcast dated January 15, 2008). Maybe the Iranians are on to something here? David Holcberg, writing for Capitalism Magazine agrees arguing in favor of a free market system for organs on both practical and moral grounds:

If you were sick and needed a kidney transplant, you would soon find out that there is a waiting line–and that there are 70,000 people ahead of you, 4,000 of whom will die within a year. If you couldn’t find a willing and compatible donor among your friends and family, you could try to find a stranger willing to give you his kidney–but you would not be allowed to pay him. In fact, the law would not permit you to give him any value in exchange for his kidney. As far as the law is concerned, no one can profit from donating an organ–even if that policy costs you your life. Patients’ attempt to circumvent this deplorable state of affairs has led to the emergence of “paired” kidney donations, an arrangement whereby two individuals–who can’t donate their organs to their loves ones because of medical incompatibility–agree that each will donate a kidney to a friend or family member of the other. But this exchange of value for value is precisely what today’s law forbids. Thus, under pressure to allow this type of exchange, in December the U.S. House and Senate passed The Living Kidney Organ Donation Clarification Act, which amends the National Organ Transplant Act to exempt “paired” donations of kidneys from prosecution.

The congress says that kidneys can be exchanged without sending anyone to jail; how thoughtful. While this is an encouraging step in the right direction, why won’t our elected officials go the rest of the way? Is it the potential risks for the donors? Holcberg points out that the risk for a healthy person dying from donating a kidney is about .03% and usually live normal lives without reducing his or her life expectancy.

No, I suspect the objection to selling organs is more rooted in the overall distain far too many people have towards capitalism. It’s simply unethical to make a profit off of something that someone else “needs” whether its gasoline, Hanna Montana tickets, or a kidney. Only the “privileged” will be able to buy organs if such a system were adopted, they would argue.

Even if this were true, denying a person the right to purchase an organ to save his or her own life should not be subject to a vote or someone else’s ethical hang-ups. If I want to remove a kidney and sell it to a willing buyer for $30,000 (or whatever the going market rate is) I ought to have that right. Why must we assume the government has the right to tell us what we can do with our bodies whether it’s selling our organs by our own choices or government taking them from us after we die without prior consent? Our individual rights of life, liberty, and property demand that we have the ability to make these choices for ourselves.

A Question of Labor Scarcity

Cory Doctorow started the New Year with a very interesting piece on the “roboticization of the workforce”. The whole article is worth a read, but it brings up a disturbing question:

But here’s the thing that neither of these articles — or even Bruce’s acid observations — touches on: once technology creates abundance, what possibilities exist for distributing the fruits of that abundance such that the benefits are more evenly felt?

There are plenty of people who will suggest that collectivist economics and centralized redistribution are the answer. Given the last century of history, that’s not an option I like. Take a look at Doctorow’s nightmare scenario:

We’ve been talking about an increase in productivity producing an increase in leisure for a long time, but instead, the “winner take all” world of Brynjolfsson and McAfee often seems to produce a “winner” class that works itself into an early grave by running 100-hour work weeks at astounding payscales, and a much larger “loser” class that works itself into an early grave by working 100-hour weeks in shitty, marginal, grey-economy jobs, trying to stitch together something like an income.

This is bad. However, the nightmare scenario that evolves under socialism is invariably worse. Instead of a winner class created by skilled, high-value work, a winner class develops from people who successfully gain control of the redistribution machine. Giving power to those who covet it is rarely a good idea, but usually unavoidable. The United States was built with a system of government shaped by this insight. By and large, its citizens have profited from keeping checks and balances on power seekers, even as the power seekers have eroded them.

A class of power seekers in control of an economic redistribution machine that replaces labor markets would not be subject to checks and balances. By controlling what people have, they would have absolute, unchecked power. Worse, power seekers tend to be the least sensitive to the wants and needs of the people they control. Even worse, most power seekers see others as resources to be exploited for their benefit.

Terrifying, isn’t it? Surely, we can avoid this by making sure the right people are in charge. Nope, sorry. Eventually, those who want power will take over the redistribution machine. It’s a certainty. Those who seek power will overcome the will of the rest to keep them out. It’s the consistent thread in human history.

The real problem is that we’re approaching a point where the labor market as it’s structured will collide with the efficiency gains caused by technology. If most labor is not scarce enough to allow workers to earn enough to support themselves and their families, how does society respond? How do supporters of economic liberty respond? What new mechanisms can be devised that allow ordinary people to continue to participate freely in the markets for goods and services without the wealth earned from the labor market?

This is stuff supporters of economic liberty need to start thinking about now. Our opponents have a ready answer that people will be drawn to despite its historic failures. Without an alternative from us, tyranny of the default will result in actual tyranny.

I, Pencil: The Movie

The Competitive Enterprise Institute is working on a film series based on Leonard E. Read’s 1958 essay entitled: I, Pencil in which the author makes the claim “[N]ot a single person on the face of this earth knows how to make me [a pencil].” The video below is their animated adaptation of the essay (I, Pencil: The Movie). For those of you who are unfamiliar with the essay, its one of the best explanations of how spontaneous order works IMO. For those who have read the essay, I think you will enjoy this video as well.

The Modern Republican Party is a Special Kind of Suck (Part 1 of 3)

Barack Obama’s Record of Suck
Four years ago, Barack Obama was elected the 44th President of the United States. He promised hope n’ change from the failed policies of George W. Bush. His policies were going to lower the debt, reduce unemployment to around 5%, become the “most transparent administration in U.S. history,” close Guantanamo Bay, and restore the damaged international relations around the world.

Four years later, Obama has increased the debt by $6 trillion (the national debt is now over $16 trillion), kept unemployment hovering around 8% for nearly his entire first term despite his Keynesian efforts to stimulate the economy, and punished whistleblowers for daring to shed light on what has arguably been one of the least transparent administrations in history. Guantanamo Bay is not only still open but now with Obama’s signing of the NDAA, even American citizens can be taken there and detained indefinitely without charge or trail. If this wasn’t enough, the Obama administration also developed a “secret kill list” from which drones search for and kill targets from that list– including American citizens, who are sought out in Yemen, Pakistan, Libya, Syria, and who knows where else without any Constitutional authority whatsoever.

Then there’s “Fast and Furious,” an operation of Eric Holder’s Justice Department in which the BATFE purposely gave weapons to Mexican drug cartels resulting in untold deaths including a Border Control Agent by the name of Brian Terry. Obama has since invoked executive privilege to protect Holder from congress getting too close to the truth.

Finally, there are the terrorist attacks in Libya and Egypt on September 11, 2012. Rather than admit the obvious, President Obama and his administration lied to the American public concerning the nature of the attack claiming the attacks came from spontaneous protesters who were angry about an obscure YouTube video that “slandered” the prophet Mohammad.

A Special Kind of Suck
This is only a thumbnail sketch of the failures and malfeasance of the Obama administration in one term of office. Today the news should be about the Romney/Ryan transition team after a slam dunk landslide victory. But that is not the news today, is it? Yes, the Republican Party sucks but for the Republican challenger to be beaten despite Obama’s record, an advantage the last Republican challenger did not have, that takes a special kind of suck.

How exactly did the Republican Party achieve this special kind of suck? That is the question political observers are asking and what the party needs to answer if the GOP wants to win future elections. Reflexively, many on the Right are blaming the main stream media for its pro-Obama bias. There’s no question the MSM was more critical of Romney than Obama. They downplayed team Obama’s missteps but never missed an opportunity to report each and every gaffe of team Romney. Romney was also running against history – America’s first black president. While this is all true, it’s also true that Republicans won control of the House in the 2010 midterm elections on a wave of Tea Party fervor. The MSM had just as much of an Obama/Left wing bias then as they do now yet the Republicans gained ground. What was different this time?

Mitt Romney, the Nominee of Suck
No doubt, Gov. Mitt Romney is probably getting most of the blame and he deserves much of it. That being said, the reasons Romney failed to beat a failed president go well beyond Romney or his campaign. Maybe, Romney is a good place to start though.

Rather than make a choice that would be a champion of the limited government issues Republicans claim to care about (like say Gary Johnson or Ron Paul), the GOP decided they would go with Mitt Romney. Never mind that he authored the forerunner to ObamaCare (RomneyCare) or that he was a political chameleon (does anyone seriously think he made a principled change, as opposed to a political calculation, on abortion when it was time to run in 2008?). No, Romney was “electable” and by gosh, it was “his turn.”

Much of the destructive foreign policy of the Obama administration was right in line with what Romney said he would do. Romney had no problem with the NDAA, Guantanamo Bay, the secret kill list, or renewing the Patriot Act, therefore; these areas which were ripe for criticism were off the table. Other than the question of defense spending, they seemed to both have identical policies concerning Iran acquiring a nuclear weapon and both pledged they would “stand with Israel”…whatever that means. In the foreign policy debate, the moderator handed Romney a golden opportunity to go after Obama on the recent terror attacks but decided not to do so. On another occasion, Romney did casually bring up Fast and Furious in response to a question about gun control but didn’t ask Obama some of the hard hitting questions many Americans were dying for Romney to ask.

On domestic issues, Romney allowed his opponents to define him as an out of touch millionaire who didn’t care about the 47% of the people he determined wouldn’t support him. Romney did a very poor job of defending free market capitalism* in general and his record both as governor and as a businessman in particular. When asked about the alleged gender pay gap in one of the debates, rather than explaining that the statistic doesn’t actually compare women and men of comparable occupation or work experience he said he asked for “binders full of women” from which he picked to be in senior positions when he was governor of Massachusetts. The Democrats took that line and demagogued** the hell out of it and made it part of their “war on women” mantra. If Romney didn’t want to go through the trouble of explaining why the gender pay gap is a myth, he could have respectfully asked Obama why the women on his staff and why female staffers for Democrats in the Senate are paid far less than their male counterparts. Another hanging curveball that Romney didn’t even take a swing at.

The Romney campaign was ultimately a campaign of missed opportunities; a campaign in which the candidate failed to make the case that he would be a better alternative to the incumbent. When asked how his “numbers would add up” concerning his economic policy, his answer was basically “trust me, the numbers add up.” Barack Obama could get by with his slogans and his platitudes as MSM dutifully filled in the details. But to run against an incumbent who the MSM clearly supported, the challenger apparently made the mistake that the MSM would do the same on his behalf. When you are running against an incumbent and the MSM, you better understand that you have to explain your positions yourself (particularly in the debates) rather than hope others will carry your message for you.

*Though really, I’m not sure how much Mitt Romney really believes in free market capitalism given his desire to start a trade war with China.
** Frankly, I never quite understood what their criticism was in this instance. Was it just that “binders full of women” sounds funny?

Part 2

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