Video: Cafe Hayek's Don Boudreaux on The Hockey Stick of Human Prosperity

Cafe Hayek's Don Boudreaux explains the hockey stick of human progress.

(from Marginal Revolution)

The Virtue of Failure: Billionaire Sara Blakely’s Success Recipe

In the realm of capitalism, failures serve as stepping stones to success as I pointed out here here and here

Take for example, billionaire Sara Blakely, founder and owner of garment company Spanx, who in a CNBC interview said that a key ingredient to her career success emerged from her string of initial misfortunes.

CNBC’s Robert Frank reports

"What have you failed at this week?" Blakely recalled in an interview on CNBC's "Squawk Box" n Wednesday. "My dad growing up encouraged me and my brother to fail. The gift he was giving me is that failure is (when you are) not trying versus the outcome. It's really allowed me to be much freer in trying things and spreading my wings in life."

Blakely's embrace of failure has helped make her the youngest self-made female billionaire in America. The 41-year-old Florida native was selling fax machines door-to-door before she came up with the idea for Spanx, the body-shaping undergarments that have become a global sensation.

Her string of early career failures eventually led Blakely to the Spanx idea. She said wanted to be a lawyer but "basically bombed the LSAT twice," she said. "I ended up at Disney World trying out to be Goofy. They wanted me to be 5' 8", but I was 5' 6". They wanted me to be a chipmunk."

Ms. Blakely's determination in the face of the lack of knowledge and experience...

Like many entrepreneurs, Blakely said that not knowing industry practices—and the things that supposedly can't be done—is critical in starting a business.

"The fact that I had never taken a business class, had no training, didn't know how retail worked," she said. "I wasn't as intimidated as I should have been."

And a memorable gaffe...

Her rise was filled with little failures—some of them humorous. When she went to London in an early sales trip to promote the product, she was interviewed by the BBC. She described the benefits of Spanx by saying, "It's all about the fanny. It smooths your fanny, lifts and separates your fanny."

Suddenly, the interviewer lost all color in his face.

"I had no idea," Blakely said, "but fanny apparently means vagina in England."

The tolerance of or the virtue of failure is founded on learning and building from them

As American industrialist and founder of the Ford Company Henry Ford wrote as one of his Principles of Business

An absence of fear of the future or of veneration for the past. One who fears the future, who fears failure, limits his activities. Failure is only the opportunity more intelligently to begin again. There is no disgrace in honest failure; there is disgrace in fearing to fail. What is past is useful only as it suggests ways and means for progress.

On the other hand, in the world of politics, failure has frequently been used as an excuse for political agents to grab control of society.

Video: Gary North on the World's Transition to the Modern Economy

Via BBC's Hans Rosling, I have previously posted a video showing the modern economy's dramatic growth transformation which begun during the 18th century, from the agricultural age to the industrial era to today's post industrial information/digital epoch.

In the following video, Austrian economist Gary North expounds on Deidre McCloskey's theme that "ideas" or "rhetoric" or the "Bourgeois Dignity or Virtue" as the major force behind such monumental progress. 

As per Mr. North, Ms. McCloskey's theme signifies as, 

a change of attitude regarding entrepreneurship, and a change in attitude regarding innovation and personal wealth derived from innovation and entrepreneurship...

The argument is people’s attitude for the first time radically changed on the question of the legitimacy of personal wealth through entrepreneurial activities 

Mr. North adds two additional factors to the ideas or virtues of the pursuit of self-interests: one is ethics (view of right and wrong), which may have played a significant shift in the public's opinion, where acquisition of personal wealth became legitimate. Second is a shift of the view of the future (based on religious influences or what Mr. North calls as the "post millennialist eschatology"). 

In short, people's values and beliefs evolved overtime to reflect on the marginal changes on the course of actions undertaken which compounded to manifest on such progress.

Quote of the Day: Leading Myths About Entrepreneurship and Effective Start Up Communities

What are the leading myths about building more effective startup communities?

There are there common ones: 'We need to be more like Silicon Valley,' 'We don't have enough capital,' and 'Angel investors must be organized.'

For decades, cities have been proclaiming themselves the next Silicon Valley. That’s nonsense — cities — and the entrepreneurial leaders — should focus on creating the best startup community for their city, based on the unique attributes of their city. Learn from the amazing things in Silicon Valley, but instead of trying to be like Silicon Valley, be the best Boulder, or best Chicago, or best New York, or best Portland. You already have an identity as a city — you don’t need to be Silicon Alley or Silicon Slopes.

Next, there never is a balance between supply and demand of capital. Entrepreneurs shouldn't worry about this — instead they should focus on creating amazing companies. Capital will always find amazing companies. While there are many things that can be done over time to attract more capital to a region, the biggest thing is for entrepreneurs to actually go create some significant companies.

Finally, related to this is the notion that angel investors should be organized into formal angel investor groups. While this can be helpful, it’s often extremely harmful and stifling, as many angel investor groups try to look like small venture capital firms rather than acting like helpful angel investors.

(bold original) 

This is from Brad Field and Rich Florida as quoted by Paul Kedrosky at the Kauffman Foundation’s Growthology blog.

My comments:

On the myth of the next Silicon valley.

What is needed is an intensely competitive environment that will foster and reward the virtues of failure or risk-taking that encourages innovation.

In other words, entrepreneurship thrives best on economic freedom.

On the the fantasy of the equilibrium of capital.

The same argument has been used to justify government’s role on public works or infrastructure spending.

Economic freedom nurtures capital accumulation. As the great Ludwig von Mises reminds us “Progressive capital accumulation results in perpetual economic betterment.” As noted in the above quote, capital and great companies will co-exist, given an environment that is conducive to business or business friendly.

On groupthink in terms of Angel investors.

Groupthink, as explained before, reduces critical, creative and independent thinking as well as  individual responsibility and discipline, all necessary ingredients for entrepreneurship.

Groupthink fallacy applies not only to Angel investors but to the financial markets, as well as to other social activities, specifically magnified in politics.

Remember, entrepreneurship is foremost an art before it is science.

Survey: China a Marxist Country with Blossoming Capitalist Sentiment

It appears that the average Chinese has been more accommodative to capitalism than Americans.

From Bloomberg, (bold mine)

Survey respondents in the officially Marxist country were slightly more supportive of capitalism than people polled in the U.S. Seventy-four percent of Chinese surveyed said they either completely or mostly agreed with the statement that most people are better off in a free-market economy, compared with 67 percent of Americans.

More proof that the ongoing political struggle in China has been about the emergence of the politics of entrepreneurship or economic freedom.

15-Year Old Wonderkid Dramatically Improves Pancreatic Cancer Tests

Talk about the magnificence of human capital.

From Make: (hat tip Professor Mark Perry) [bold mine]

Maryland young maker Jack Andraka isn’t old enough to drive yet, but he’s just pioneered a new, improved test for diagnosing pancreatic cancer that is 90% accurate, 400 times more sensitive, and 26,000 times less expensive than existing methods. Andraka had gotten interested in pancreatic cancer, and knew that early detection is a challenge. He gleaned information on the topic from his “good friend Google,” and began his research. Yes, he even got in trouble in his science class for reading articles on carbon nanotubes instead of doing his classwork. When Andraka had solidified ideas for his novel paper sensor, he wrote out his procedure, timeline, and budget, and emailed 200 professors at research institutes. He got 199 rejections and one acceptance from Johns Hopkins: “If you send out enough emails, someone’s going to say yes.” Andraka was recently awarded the grand prize at the Intel International Science and Engineering Fair for his groundbreaking discoveries.

Additional thoughts:

Access to technology has vastly been improving people’s capability to acquire knowledge, learn and pursue innovation: All it takes are the WILLPOWER or the PASSION to attain a goal, and importantly, the courage or having a constructive perspective of failure.

Youthful Andraka seems like another Steve Jobs in the making: focusing on matters of personal (or career) interests or “what you love” than of the traditionalism and conventionalism.

Talk about extreme determination and persistence: 199 REJECTIONS!!!

Mr. Andraka’s experience demonstrates how conventionalism abhors the unorthodox—where what works has not been reckoned as the priority, but of the conventional mindset, methodology and standards.

Nevertheless it took only ONE acceptance to prove that his theory has been viable and aptly got recognized for it.

What an accomplishment for a 15 year old! Jack’s parents must be so proud of him.

May Jack Andraka’s tribe increase.

Quote of the Day: Bourgeois Virtues

Give a woman some rice, and you save her for a day. That’s the simplest form of what Christians flatter themselves by calling “Christian charity.” Give a man some seed and you save him for a year. That’s the plan of investment in capital, tried for decades in foreign aid, without much success. But give a man and a woman the liberty to innovate, and persuade them to admire enterprise and to cultivate the bourgeois virtues, and you save them both for a long life of wide scope, and for successively wider lives for their children and their grandchildren, too. That’s the Bourgeois Deal, which paid off in the Age of Innovation.

This brilliant passage is from Deirdre McCloskey’s 2010 landmark volume, Bourgeois Dignity page 449 as excerpted by Professor Don Boudreaux at Café Hayek.

Graphic: The Virtue of Failure

The incredibly creative Ms. Jessica Hagy has a great illustration of what I have been lately discussing about as the virtues of failure (which she calls 2nd (and 3rd, and 4th) chances are vital)

Bottom line: Failure, generally, brings about improvisation via learning.

(of course there will always be exception to the rule—as some people adamantly refuses to learn from repeated failures, mostly political authorities and their zealots. Albert Einstein called this insanity—doing the same thing over and over again and expecting different results.)

The Virtue of Failure

Here is a helpful career tip from my favorite marketing guru Seth Godin

Too many MBAs are sent into the world with bravado and enthusiasm and confidence.

The problem is that they also lack guts.

Guts is the willingness to lose. To be proven wrong, or to fail.

No one taught them guts in school. So much money at stake, so much focus on the numbers and on moving up the ladder, it never occurs to anyone to talk about the value of failure, of smart risk, of taking a leap when there are no guarantees.

Well tolerance of failure is a trait dovetailed for market economies.

In socialist countries anyone’s willingness to lose would have been substituted for dependence on the state.

That’s why productivity and innovation is hampered. People have not been motivated to take risks. Losses are perceived as stigma. Regimented conformity displaces competitive thinking.

Also as emphasized by Mr. Godin, gut is a character that is hardly learned from school.

Quote of the Day: In Liberty, Institutions Matter

However that may be, the main point about which there can be little doubt is that Smith's chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst. It would scarcely be too much to claim that the main merit of the individualism which he and his contemporaries advocated is that it is a system under which bad men can do least harm. It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they now are, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid. Their aim was a system under which it should be possible to grant freedom to all, instead of restricting it, as their French contemporaries wished, to "the good and the wise."

The chief concern of the great individualist writers was indeed to find a set of institutions by which man could be induced, by his own choice and from the motives which determined his ordinary conduct, to contribute as much as possible to the need of all others; and their discovery was that the system of private property did provide such inducements to a much greater extent than had yet been understood. They did not contend, however, that this system was incapable of further improvement and, still less, as another of the current distortions of their arguments will have it, that there existed a "natural harmony of interests" irrespective of the positive institutions. They were more than merely aware of the conflicts of individual interests and stressed the necessity of "well-constructed institutions" where the "rules and principles of contending interests and compromised advantages" would reconcile conflicting interests without giving any one group power to make their views and interests always prevail over those of all others.

[bold highlights mine]

The great Friedrich von Hayek, in Individualism and Economic Order, debunked the need for individual reformation—as peddled by mainstream media “I am start [of change]” as a way to progress but is no less than a disingenuous camouflaged way of promoting collectivism predicated on organized and mandated violence—but for people to live in freedom under the parameters of established institutions which protects and advances a system of property rights. [hat tip Professor Pete Boettke]

And a possible enabling factor for this would be the rhetorical, ideological and cultural acceptance by the public or the "Bourgeois Virtues" for such institutions to emerge as Deirdre McCloskey has theorized.

Asians are World’s Top Blog Readers

That’s according to Comscore.com

Global analysis of the Blog category revealed that Japan led all markets in blog engagement, with the average visitor in Japan spending more than an hour (62.6 minutes) visiting blogs in June. South Korea ranked second with an average of 49.6 minutes on blog sites, followed by Poland at 47.7 minutes.

Japan was also among the top markets for Blog category penetration with 80.5 percent of its online population visiting blogs in June. Taiwan ranked highest globally with 85.5 percent of its online population visiting blogs, followed by Brazil (85.2 percent reach), South Korea (84.9 percent reach) and Turkey (81.9 percent reach).

There could be many interpretations from the above survey.

For one it shows of the deepening extent of web based information acquisition most possibly at the expense of traditional media.

Another, the breadth of readership has been globalized and has not been limited to developed economies.

Next, more and more people are learning to appreciate blogs as one of the principal web based sources of information.

From a marketing point of view, the above represents as high growth markets which any enterprising bloggers could capitalize on.

Lastly, the above dynamics can be seen as increasing manifestations of the democratization of information and knowledge, or of the intensification of the information or knowledge revolution.

As the great Friedrich von Hayek once wrote,

The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

The knowledge revolution should serve as catalysts to the development of transformational ideas that could promote innovation via the ‘Bourgeois revaluation’ or heightened appreciation of the benefits of free market or laissez faire capitalism.

The knowledge revolution and increased social connectivity should also deepen specialization (division of labor) and encourage more voluntary trade and commerce.

And importantly, attune greater number of people towards more decentralized path or way of social interactions, which alternatively means to wean away from the vertical flow (e.g. mass education, mass media) or structures (e.g. centralized bureaucracies, mass production) or lifestyles (e.g. 9-5 work schedules, mass cultures) derived from the industrial age template.

These material changes are hardly appreciated by the public but will persist as the world evolves.

UPDATE: My blog's readership departs from the comscore survey, where most of my readers come from Northern America, UK and the Philippines, as one would observe from the lower right column of this blog. My experience may be shared by many local bloggers too.

Nonetheless my comments above have been mostly premised on the comscore survey.

Cities, Mathematics and Human Action

Below is an interesting talk by physicist Geoffrey West at the TED forum on Cities.

Some points he makes;

-It’s hard to kill a city.

-He places tremendous emphasis on the scalability phenomenon where he connects size with social impact, e.g. bigger city bigger wealth more AIDs

-However he says that optimism bias tends to prevail over the city’s growth dynamics where people tend to see ‘wonderful things and forget the ugly and bad’

-He rightly points out that social networks are key to the growth of cities; ‘We are the city’ which is a result of people’s “clustering interaction”.

-Further he says that for cities to develop it needs ‘faster innovation in a continuous basis’.

-Lastly he says that he can predict the size of a city or company given the sublinear scaling from ‘sigmoidal growth’

Here are my thoughts

It’s interesting to see how mathematically inclined people try to quantify people’s actions.

In the past killing a city or a decline of relevance or marginal utility of a city comes in the form of war (Nineveh, Babylon, Selucia, Carthage, Rome, Pagan and Angkor Wat as examples), change in economic patterns (introduction of Cape Good lead to the decline of Venice) natural calamity (Pompeii) or cyclical-behavioral-political elements- such as overconfidence, which led to overexpansion or lack of diversity (fall of Rome).****

In addition, scale does not automatically translate to magnitude.

In history, autonomous small cities played vital role as Amalfi, Cadiz, Goa, Batavia, Geneva, Abu Dhabi and Monaco.*** Today we have semi-independent city states as (pre-China) Hong Kong and Singapore.

Social network is indeed important. But Professor West does not specify how social network would result to “clustering interaction”. Are cities politically or economically driven?

In the past, strong arm societies depended on the capability of leaders, such as Alexander the Great, Attila the Hun, Genghkis Khan, Timur, Akbar, and Kublai Khan***. When they passed away so did their respective empires and cities.

History shows that many cities emerged from trading routes and proximity thereof, particularly in coastal areas (Tripoli, Sidon, Carthage, Athens, Marseille, Syracuse, in recent centuries Venice, Famagusta, Genoa, Constantinople, Kafffa, Lisbon and etc.)***

Many factors are involved in city dynamics: some of the important ones are economic growth cycles, legal systems, economic freedom, infrastructure, adherence to property rights, (in the past) military power [Assyrians, Romans, Mongols], political climate or conditions (interaction between minority and majority, in the past conflict resulted to dislocations which have caused diasporas of Jews, Huguenots, Armenians) innovation and intellectual tolerance.

To quote the legendary investor Marc Faber***,

A dynamic society arises where there is also intellectual tolerance freedom of conscience, social mobility, freedom of ideas, and the expression of ideas which may be hostile to established beliefs or to the government. Where intellectuals, scientist, and philosophers were persecuted, imprisoned, tortured or murdered, they fled. But it is in their know-how on which progress depends.

Deidre McCloskey would call this the Bourgeois Virtue.

And it is upon this climate of free interaction by people which induces Professor West’s innovation dynamics.

An example from the local setting:

In the Philippines, Manila as the Philippines’ capital played a pivotal role economically (Manila-Acapulco Galleon Trade) and also had been politically important; under American rule Daniel Burnham planned a government center spanning Luneta to Taft which almost like every centrally planned projects failed.

Today, Manila’s relevance has been apparently declining, in terms of population growth and per capita income.

While Manila still has the second largest population second only to Quezon City, the growth rate has been stagnating and relatively underperforming against a vibrant Quezon City according to the 2007 census. The fastest growth rate is seen in Taguig, Paranaque and Kalookan City.

Manila still has the largest population density

However, in terms of per capita GDP, Manila ranks 5^th to the following order Makati, Mandaluyong, San Juan and Muntinlupa (Wikipedia).

The obvious point is that city scale and magnitude while having some correlation does not exhibit strong causation. The huge gap in Professor West’s talk is how social interaction has led to city dynamics.

I have stated why I am a skeptic of centrally planned urbanization as this runs contrary to the forces of technology enabled decentralization. The obvious evidence can be seen in several 'huge' but empty ghost cities in China which are products of politically induced bubble cycles.

Finally Professor West says that he can predict growth dynamics of companies and cities from “sublinear scaling”.

My guess is by now he should have bettered the record of Warren Buffett as an investor.

I am reminded by the admonitions of the great Ludwig von Mises of relating natural sciences with social or human actions,

Nothing could be more mistaken than the now fashionable at­tempt to apply the methods and concepts of the natural sciences to the solution of social problems. In the realm of nature we cannot know anything about final causes, by reference to which events can be explained. But in the field of human actions there is the finality of acting men. Men make choices. They aim at certain ends and they apply means in order to attain the ends sought.

***Nury Vittachi Doctor Doom Riding the Millennial Storm

We are Living in the Best Years in over Two Thousand Years

The Economist has this interesting population weighted chart which shows that much of human history and progress has been happening during the 20^th century up to the present.

The Economist writes, (bold emphasis mine)

Since there are almost 7 billion people alive today, it follows that they are making seven times as much history as the 1 billion alive in 1811. The chart below shows a population-weighted history of the past two millennia. By this reckoning, over 28% of all the history made since the birth of Christ was made in the 20th century. Measured in years lived, the present century, which is only ten years old, is already "longer" than the whole of the 17th century. This century has made an even bigger contribution to economic history. Over 23% of all the goods and services made since 1AD were produced from 2001 to 2010, according to an updated version of Angus Maddison's figures.

The chart reveals how growth in population has coincided with economic output expansion.

And second and most importantly, that human progress from the last century through the current millennium has been exponential.

Perhaps Professor Deirdre McCloskey’s “Bourgeois Revaluation” accounts for as the pivotal factor for such astounding acceleration in the rate of progress.

As Professor Don Boudreaux writes of Professor McCloskey’s thesis, (bold emphasis mine)

Only when merchants, tinkerers and practical seekers of profit in markets came to be respected -- and to be widely spoken of with respect, even with admiration -- did the social status of the bourgeoisie increase enough to make membership in that group desirable to large numbers of people. And when this Bourgeois Revaluation happened, innovation skyrocketed.

It's this innovation -- mad, fevered, historically off-the-charts amounts of innovation -- that really is what we today call "capitalism."

I am glad to have lived in this generation and to be a part of and witness such magnificent phenomenon unfold before our eyes.

And I guess that despite all the risks and the prospective afflictions which could interrupt or disrupt on such trends, the best is yet to come. I think that we are transitioning towards the information age that should characterize even faster rate of innovations under more decentralized settings (governance included).

Remember, such feat came in spite of the 2 World Wars and the gruesome tragedies of the failed experiment of communism in the 20^th century.

The above should serve as good tidings for our progenies.