The Lesson of the Pencil (Bumped)

In the first chapter of Free to Choose, as well as in the accompanying video, Milton Friedman briefly discusses Leonard Read’s famous essay, I, Pencil. Friedman elaborates at greater length in the video below.

As Friedman says, no one in the world knows how to make a pencil, at least not entirely from scratch. To make a pencil from scratch would require knowing how to mine the ore to produce the steel to make the saw that cuts the tree that provides the wood, and so on and so on. No only does no single person possess this knowledge, but we daresay there is probably no collection of even 1,000 people who could together provide the required knowledge.

Once we think about it, we realize that even the humble pencil is a very complex thing. But is that the whole lesson of the pencil? Is the lesson merely that a seemingly simple thing can involve great complexity? What is it about the production of the pencil that is so remarkable?

It is that the price system can coordinate the diverse and voluntary activities of all of the many people involved in the production process without orders being given or a plan being imposed by a single, overarching authority. Indeed, no system of command and control, such as employed by the military for example, could successfully coordinate all the activities required to make a pencil. On D-Day in 1944, Allied forces managed–barely–to execute the most complex military plan in history, but Allied high command could never have managed to produce from scratch a simple pencil without the help of markets and prices.

Trump on Outsourcing

Gizmodo discusses a recent Trump speech at Liberty University:

First, in the span of a few sentences, he insisted that he’d impose a 35 percent tax on businesses producing goods overseas while claiming to support free trade. At the end of his rambling, decidedly non-MLK-themed speech, he said this:

“We’re going to get Apple to build their damn computers and things in this country instead of other countries.”

A few questions:

  1. If such a change occurred, what would happen to the price of IPhones?
  2. Would moving all of Apple’s production to the USA make Americans richer?
  3. Would the Apple plants consisting of fully robotic assembly change your answer to #1 or #2?

Observations on Singapore

We just got back from 10 days in Singapore, where we presented some of our research at an economics conference. This was our first time in Singapore, the second-freest economy in the world. Here are a few of our observations.

  • Singapore’s airport must be the most opulent in the world, with retailers representing every imaginable high-end fashion brand such as Cartier, Louis Vuitton, Burberry, Armani, etc. For ordinary travelers not interested in high-end shopping, the airport offers reclining chairs, free computers with internet access, and good food, reasonably priced. There’s even supposedly a swimming pool on the roof, although we did not go up there to verify.
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Singapore’s skyline.

  • In order to cut down on traffic, the government makes owning a car extremely expensive, about 4 times the cost in the U.S. Thus a big Mercedes or 700-series BMW costs well over $300,000. Even a crummy Ford Focus goes for about $70,000. Despite the soaring costs, we saw many high-end luxury cars on the road.
  • Owning a car is impossible for ordinary people, but fortunately public transportation is excellent. Singapore maintains a clean, convenient, and still-expanding subway system. Taxis are abundant and a 15-minute ride costs only about $8, including tip.
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The merlion, symbol of Singapore.

  • Most impressive from our point of view are Singapore’s ‘food centres,’ where 100 or so different vendors offer so-called Hawker food:  local specialties reflecting Chinese, Malaysian, and Indonesian influences. Working out of tiny stalls smaller than a food truck, vendors whip up amazing dishes, like Laksa noodle soup, and sell them for typically only 3-4 US dollars. A plate of roast duck costs less than McDonald’s does in the U.S. The most popular dish is ‘Hainan chicken rice,’ which consists of marinated and sliced chicken breast served cold over rice. The desire to eat chicken cold is perhaps stimulated by Singapore’s hot climate.
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Maxwell Food Centre, near Singapore’s Chinatown

  • The food centres also offer a remarkable variety of delightful beverages, including ‘Tiger’ beer, a good local brew, as well as a wide array of fresh juices made from various exotic and tropical fruits like mango, dragon fruit, and ambarella (our favorite). The most popular drink is fresh-squeezed sugar cane juice.
  • Singapore lies quite close to the equator, and has no distinct seasons. The weather is the same almost every day–about 90 degrees and very humid, often with an afternoon rain shower. Despite the tropical climate, we saw no flies or roaches at the open-air food centres, and not a single mosquito in 10 days of being out and about.
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Cargo ships wait to enter Singapore’s busy harbor.

  • In ten days in a bustling city of 6 million, we saw only three police cars and one motorcycle cop. During our entire stay, we can’t recall hearing even once a police or fire siren.
  • Singapore must be the most ethnically diverse community in Asia. Although 70 percent Chinese, there are substantial minorities of Malaysians, Indonesians, and Indians. Muslim women with head scarves mix freely in public with Chinese girls in mini-skirts. The different groups seem to get along fine, at least for now.
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A cat sleeps on the hood of a $350,000 Mercedes in a Muslim neighborhood of Singapore.

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Cool Wealth Map

Somebody put together this cool map showing average wealth per adult across European countries. Wealth, which is a stock measured at a point in time, is not to be confused with income, which is a flow measured per unit of time. Wealth has a higher variance across individuals, and apparently also across nations, than does income.

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Some online comments questioned how the figure for the UK could be as high as $320K. First, it must be remembered that the median might only be half as high as the average. Most Brits, therefore, probably possess net wealth of no more than about $160K. Second, just a moment browsing London real estate prices reveals that housing alone accounts for a substantial amount of wealth. The problem for the Brits, however, is that the only way for them to benefit from their housing wealth would be to relocate somewhere cheaper. They’d have to sell the London flat and buy a condo in Florida.

The real puzzle for us is how Ukraine can be just $1K (and several other eastern countries less than $10K). Ukraine is certainly poor, but it does have about $8K annual income per adult, and wealth usually exceeds income. Furthermore, residential real estate alone would seem to be worth more than $1K.

The only explanation we can think of is that domestic wealth might be offset by substantial foreign debt. Or maybe the figure is just not accurate.

In any event, the difference between east and west is dramatic. This might reflect the lingering effects of 20th century communism. But a more accurate demarcation might be the hajnal line.

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Happy New Year!

2016 can’t possibly be any wackier than 2015, can it? Although we suppose there’s always a chance, especially since the major media will spend the whole year until the first Tuesday in November embarrassing themselves by trying to drag the Clinton Crime Family across the finish line. And the scary thing is that they stand a good chance of succeeding. As Bette Davis said in All About Eve, we’re in for a bumpy ride.

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Why Does Yale Hate the First Amendment?

Ami Horowitz put together a short video of folks on the Yale campus signing a petition affirming their support for freedom of speech, religion, assembly, petition, and…oh, who are we kidding? They signed a petition to remove protections for all those freedoms by repealing the First Amendment. Horowitz claims he obtained 50 signatures in just an hour. Such is the commitment to liberty exhibited by America’s contemporary intellectual elites.

In his 1951 classic God and Man at Yale, William F. Buckley exposed Yale’s increasing alienation from America’s traditions of liberty. As early as 1951, the rot had started to set in. We doubt, however, that in 1951 anyone could easily have obtained on the Yale campus signatures to repeal the First Amendment. America’s Ruling Class is steadily losing its republican virtue, and that does not bode well for the future of freedom in America.

Why Does the GOP Hate Due Process?

We’ve written previously about campus kangaroo courts that are routinely violating the rights of men accused of sexual assault. These tribunals are turning back the clock on justice by hundreds of years by denying men due process and the traditional rights afforded the accused. The violations of traditional rights include:

  • No right to an attorney
  • No cross-examination
  • No right to face your accuser
  • No right to be judged by peers
  • No discovery process
  • No ‘reasonable doubt’ standard of guilt

The impetus for setting up these campus star chambers comes from a 2011 ‘Dear Colleague’ letter from the Office of Civil Rights of the U.S. Department of Education. The letter itself has no force of law; it is not a law passed by Congress, nor is it valid administrative law. But it may as well have the force of law, because universities fear to disobey it because so much of their funding comes from the federal government. Even leftist institutions such as Harvard Law School are appalled by the lack of due process, but reluctantly accede to the policy.

Note also that while the stated purpose of the policy is to crack down on campus rate, in effect it does the opposite because it makes universities the only place in America where rape is not treated as a real crime to be handled by the police and the justice system. Imagine if corporate America tried to handle rape allegations internally using it’s own tribunals. “Miss Allen has accused her supervisor Mr. Burns of raping her while on their last business trip to Cucamonga. No need to call the police! We’ll just put together a committee and hold a meeting in the conference room. If the committee decides based on preponderance of evidence that Mr. Burns is guilty, we will fire him, or maybe just suspend him for awhile.” The outrage would be real and justified. So if the process would be outrageous in the corporate world, why should academia be any different?

Now, when the rights of the people are violated by unelected bureaucrats thousands of miles away, what should happen is that the people’s elected representatives should step in to restore the people’s rights.

So what are our elected representatives in Congress doing about the ongoing depredations of Education’s Office of Civil Rights? Well, in the omnibus spending bill approved this week, the Republican-controlled Congress rewarded the Office of Civil Rights by increasing its budget by 7%. We don’t know about you, but our last pay raise was nowhere near 7%. In a more just world, the budget for the Office of Civil Rights would be ZEROED OUT.

Remind us again why it’s important that Congress remain in the hands of the GOP.

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The Fed’s Rate Hike

We called it.

From the Dayton Daily News, Tuesday, December 15.

Do you expect the Federal Reserve to hike rates this time or not and why?

Marc Poitras, associate professor in economics, University of Dayton:

Yes. “At this point the markets seem to be expecting an increase, so to accommodate that expectation, the Fed will go along with an increase, but will offer only a minimal dosage: 25 basis points.”

 

ratesWe were also one of the three out of seven panelists who predicted correctly back in September that the Fed would not raise rates at that time.

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House Masters Agree to Change Title

From the Harvard Crimson:

The masters of Harvard’s 12 undergraduate residential Houses have unanimously agreed to change their title, a term that some students criticize as associated with slavery and has come under scrutiny as debates about racism take hold of college campuses nationwide.

College and House administrators will soon meet to select a new name to replace the “House master” title, according to Dean of the College Rakesh Khurana, who informed the Faculty of Arts and Sciences of the decision at its monthly meeting on Tuesday. Khurana, himself a master of Cabot House, said he will inform the College of the new title early next year.

If they televised the announcement it could well be sponsored by Visa.  Next up: a golf tournament in Augusta?