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.

How Reliable is CNBC’s Rankings of the Best Countries with Long Term Growth?

CNBC recently came out with a slide show depicting that troubles in the Eurozone and in the US has been prompting investors to search for new or alternative markets to invest in. And based on their selections mainly derived from demographics, natural resources or geography they came up with the following list:

10 Algeria

9. China

8. Egypt

7. Vietnam

6. Malaysia

5. Bangladesh

4 India

3 Peru

2 Ukraine

And the winner of CNBC’s best countries for long term growth…

…is the Philippines.

Given the endowment effect or home bias I should be screaming “yehey, buy buy buy the Philippines!”

Here is what CNBC has to say on the Philippines

1. Philippines

Projected annual growth: 7%

2010: $112 billion*

2050 projected GDP: $1.688 trillion

The Philippines has one of the fastest-growing populations in Asia. The population is set to jump by almost 70 percent over the next 40 years, and HSBC believes the combination of its powerful demographics and strong fundamentals will drive the economy to become the world’s 16th largest by 2050. That would mark a jump of 27 places from its current ranking of 43.

The country is one of the world’s largest exporters of labor, with over 9 million Filipinos working abroad, according to the latest data from the Commission of Filipinos Overseas. In 2010, almost $19 billion was sent back to the Philippines as remittances from Filipinos working abroad.

More recently, the country’s fast-developing business process outsourcing (BPO) industry has helped keep some of the workforce from leaving the country. Already 350,000 Filipinos are estimated to work in call centers, compared with 330,000 Indians, according to the Contact Center Association of the Philippines. The industry is projected to provide more than 1 million jobs within two years.

The economy’s focus on the services sector and domestic consumption, as well as a lower exposure to global financial markets, helped it to escape a recession following the 2008 global financial crisis.

It would seem as reductio ad absurdum to predict on long term growth based simply on variables of natural resources, demographics and or geography.

If these variables have been instrumental in generating prosperity, then the linkages should have been evident today.

Yet in looking at the world’s top 20 wealthiest nations based on per capita income from Wikipedia.org we see limited influences of abundant natural resources, young populations (demographics) or geography.

Why?

Countries with natural resources are usually afflicted by what is known as resource curse, which according to Wikipedia.org

refers to the paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. This is hypothesized to happen for many different reasons, including a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive activities).

In reality, the biggest reason why the resource curse occurs has been due to the cartelization of resource based industries by politicians and their oligarchic cronies. These have mostly led to a political economic regime that have been anchored on anti-competition regulations which inhibits external and domestic trade.

Also it would be pretty naïve to focus on geography when vastly improving modes of transportation have been reducing the attendant costs.

Transport, Insurance and freight costs as share of import cost have been on a secular decline

Mark Dean of the Bank’s International Economic Analysis Division and Maria Sebastia-Barriel of the Bank’s Structural Economic Analysis Division notes in the following study,

One of the most obvious costs to international trade is the cost of transporting goods from one country to another. Transport technologies are continually improving and transport services are also becoming cheaper through increased competition. The goods transported are also changing; some goods are now transported electronically, such as newspapers and magazines, due to improvements in communication technology and others are becoming lighter, for example mobile phones. All this should be reflected in lower transport costs.

In short, falling transaction costs diminishes the impact of geographic vantages.

Finally while I agree that “go forth and multiply” should generally be positive for the global economy; that link may not be obvious.

Most of the nations with the fastest population growth (table from Wikipedia) have hardly been the best economic growth performers. To the contrary most have been economic bottom dwellers.

The fundamental reason is that commercial activities have been severely restrained due to lack of property rights, deficiency in the rule of law, failure to protect contractual rights and limitations to voluntary productive exchanges. Also the political economic environment by many of these economies can be characterized as having been plagued by despotism and socialism. So the positive effects of population growth have been stunted, instead large populations morphs into a social burden.

Next, based on population growth, Indonesia has far outsprinted CNBC’s top 10 (chart from Google Public Data).

Indonesia has likewise been a resource rich country, and as our neighbor has been endowed with geographic advantages. So it would be a curiosity for me that Indonesia has been glossed over by CNBC.

And in terms of debt management, (chart from tradingeconomics.com) Indonesia has thus far bested the Philippines.

While this is both good news for the Philippines and Indonesia, the bottom line is that CNBC’s coverage hardly seems objective. There must be some undeclared biases in their methodology, such that even considering the few specious variables they can be amiss of other major potential contenders for investors, as Indonesia or Thailand.

And finally too much reliance on domestic consumption is unsustainable. This has been the Keynesian mantra embraced by mainstream media.

When excess consumption (government and private) in the Philippines will get manifested in the current account balance, which has still been positive today due to remittance and portfolio flows, the country’s declining debt to gdp trend will reverse and deteriorate.

Current negative real rates policies have already been adding to consumption activities via an artificially stimulated boom from domestic monetary policies by the BSP.

Yet the obverse side of a boom is a bust. And that’s hardly a long term positive growth proposition.

[As a caveat I don’t trust government statistics considering that almost two fifth of the Philippine economy is considered informal or underground or shadow. There are yet many factors not captured by statistical aggregates.]

Finally it should be a reminder that the key to prosperity is through attaining trade competitiveness (chart from the WEForum) via economic freedom or a deepening of the market economy or capitalism. The most competitive nations have almost reflected on the same standings as with the most prosperous nations.

To quote the great Ludwig von Mises

Capitalism is essentially a system of mass production for the satisfaction of the needs of the masses. It pours a horn of plenty upon the common man. It has raised the average standard of living to a height never dreamed of in earlier ages. It has made accessible to millions of people enjoyments which a few generations ago were only within the reach of a small elite.

Apparently, that’s not in the equation of CNBC. When reality is dealt with a blackout occurs.

Quote of the Day: Wealth is about Value

Wealth is merely the ability to get things that we want. Since most of us are not independently wealthy, we have to work to create things that other people want in order to get what we want. The most common way to do this since the dawn of the industrial revolution has been to work for someone who needs human labor to accomplish some end–an end that is valued by consumers…

The point is, our goal should never be to “create jobs”. Our goal should be to enable people to contribute something valued by other people. The value is the point, not the work. If someone finds a way to provide value to hundreds of millions of people and it requires no more effort from them than batting their eyelashes, that would be a win.

That’s from Adam Gurri (hat tip Don Boudreaux). We should emphasize on providing values and not just jobs.

Declining Fatalities of Natural Disasters

This should be another good news; despite the many accounts of natural disasters, the overall impact has been diminishing.

Writes the Economist, (bold emphasis mine)

THE world has succeeded in making natural disasters less deadly. Annual death tolls are heavily influenced by outliers, such as Haiti’s earthquake in 2010 (which killed more than 200,000) or the Bangladeshi cyclones in 1970 (300,000). But, adjusted for the Earth’s growing population, the trend in death rates is clearly downward. Economic costs, though, are rising as people and industrial activity cluster in disaster-prone areas such as river deltas and earthquake fault lines. The world’s industrial supply chains were only just recovering from Japan’s earthquake and tsunami in March when a natural disaster severed them again in October. The deluge in Thailand cost $40 billion, the most expensive disaster in the country’s history. J.P. Morgan estimates that it set back global industrial production by 2.5%. Five of the ten costliest, in terms of money rather than lives, were in the past four years. Munich Re, a reinsurer, reckons their economic costs were $378 billion last year, breaking the previous record of $262 billion in 2005 (in constant 2011 dollars). Besides the Japanese and Thai calamities, New Zealand suffered an earthquake, Australia and China floods, and America a cocktail of hurricanes, tornadoes, wildfires and floods. Barack Obama issued a record 99 “major disaster declarations” in 2011.

Yet the Economist has been reticent about the cause of the accounts of diminishing death toll of natural disasters: Rising global wealth.

Google Public Data

As Professor Christopher Westley writes,

the best protection against natural disasters is not an expansion of the public sector on an international basis, but wealth creation. It is no mistake that natural disasters, which are quite equitable in distribution between rich and poor countries, are more devastating to the poor than the rich. The establishment of a thriving private sector in Sri Lanka, India, and Indonesia is crucial for a quality of life to develop there that can withstand earthquakes and their aftermath as well as does the California coast.

Higher quality or standards of living allows people to take on more protection against prospective calamities.

Fruits of Capitalism: Welcoming the Industrial Internet

I have been repeatedly saying that the information age will radically change our lifestyles.

We are getting some signs of confirmation

From the New York Times (bold emphasize mine)

the Internet is growing up and lifting its gaze to the wider world. To be sure, the economy of Internet self-gratification is thriving. Web start-ups for the consumer market still sprout at a torrid pace. And young corporate stars seeking to cash in for billions by selling shares to the public are consumer services — the online game company Zynga last week, and the social network giant Facebook, whose stock offering is scheduled for next year.

As this is happening, though, the protean Internet technologies of computing and communications are rapidly spreading beyond the lucrative consumer bailiwick. Low-cost sensors, clever software and advancing computer firepower are opening the door to new uses in energy conservation, transportation, health care and food distribution. The consumer Internet can be seen as the warm-up act for these technologies.

The concept has been around for years, sometimes called the Internet of Things or the Industrial Internet. Yet it takes time for the economics and engineering to catch up with the predictions. And that moment is upon us.

More…

From the same article…

Across many industries, products and practices are being transformed by communicating sensors and computing intelligence. The smart industrial gear includes jet engines, bridges and oil rigs that alert their human minders when they need repairs, before equipment failures occur. Computers track sensor data on operating performance of a jet engine, or slight structural changes in an oil rig, looking for telltale patterns that signal coming trouble.

SENSORS on fruit and vegetable cartons can track location and sniff the produce, warning in advance of spoilage, so shipments can be rerouted or rescheduled. Computers pull GPS data from railway locomotives, taking into account the weight and length of trains, the terrain and turns, to reduce unnecessary braking and curb fuel consumption by up to 10 percent.

Thanks to capitalism, the world has been turning immensely smarter and a far better place to live in.

Chart of the Day: Kim Jong il’s Heritage: North Korea’s Earth Hour from Poverty

North Korea has been one country that has practiced what environmentalists celebrate as “Earth Hour”. I have earlier posted this.

Seen from a satellite photo, while South Korea has been prominently lighted at night (lower portion), North Korea stands in the dark (upper portion) where the only place lit is that of the palace of Mr. Kim. [yeah equality]

But there is a fundamental difference.

The North Korean exercise has not been designed to fulfill environmental preservation goals but has been driven by dire poverty…

This can be seen by the above chart from Reason and Washington Post

Writes the Washington Post

During the early 1970s, North Korea’s economy stagnated, with GDP per capita flatlining until Kim Il Sung’s death. Then, in 1994, after Kim Jong Il took over, the economy started shrinking noticeably, per capita incomes fell, and the country became dependent on emergency U.N. food aid to stave off famines that had already killed as many as 3 million people. North Korea became, as Eberstadt puts it, “the world’s first and only industrialized economy to lose the capacity to feed itself.” (That said, there’s evidence that North Koreaw as growing weakly in the last few years of Kim Jong Il’s rule).

At the moment, North Korea’s per capita income is less than 5 percent of the South’s. As the Atlantic Council’s Peter Beck puts it, “Each year the dollar value of South Korea’s GDP expansion equals the entire North Korean economy.”

Overall I see several lessons

The thrust of most environmental politics has been directed at atavistic policies, or attempts to retrogress world conditions similar to the medieval times or to one of absolute poverty (ala North Korea).

Second, there is no exemplary way to achieve atavism than to adapt the paragon of statism/socialism/communism—Kim Jong il version. In North Korea almost everyone is equally poor and equally without lights, except the political leaders.

Third, the concrete evidence of attaining economic prosperity can be seen in the diametric paths of governance undertaken by two Koreas: South Korea’s capitalism or market economy vis-à-vis Kim Jong il’s brand of statism/socialism/communism.

Yet bizarrely, many fantasize about having successful economic development by the taking on the latter’s path.

Fruits of Capitalism: The Arrival of Commercial Space Travel (Fly me to the moon!)

It won’t be far when the moon will just be another tourist destination (and perhaps property rights will also be applied).

Commercial Space travel will soon be accessible to the public.

From the Wall Street Journal,

Fast forward to this October, when Mr. Branson and his children Sam and Holly christened Spaceport America, which advertises itself as "the world's first purpose built commercial spaceport" and is located about 55 miles north of Las Cruces, New Mexico. In typical outsize Branson fashion, the 61-year-old rappelled from the ceiling of the hangar—now called the "Virgin Galactic Gateway to Space"—and, while dangling in midair, chugged from a bottle of champagne in front of a large crowd to celebrate.

Mr. Branson is still radiating enthusiasm. "We've got just short of 500 people now signed up to go, which is actually more people than have been up to space in the history of space travel, and we hope to put those up in our first year of operation," he says, predicting the first commercial flight by "about next Christmas," although he acknowledges that there have been many delays.

He hopes "to get the price down so that hundreds of thousands of people out there will have the chance to become astronauts; not just, you know, a very, very few wealthy people." Tickets today cost $200,000, with deposits starting at $20,000. The Virgin Galactic website enjoins interested parties to "contact one of our Accredited Space Agents around the world."

What's so important about an expensive, suborbital joy ride, I ask? "If it was just about the joy ride, that would be exciting enough in itself," Mr. Branson says, leaning forward in his chair. "But the fascinating thing about adventures like that" is that when people "push the limits" and see "what they're capable of, other byproducts come that they hadn't even thought of at the time." He proceeds to tick off an impressive list.

And the prospective space travel industry has shown signs of being driven by competition which will likely drive prices down…

From the same article

Mr. Branson isn't the only businessman exploring private spaceflight. California's XCOR Aerospace, for instance, is building the Lynx rocket plane, which will also carry passengers and payloads. Test flights are scheduled for late 2012. Unlike SpaceShip Two, the Lynx takes off from a runway and doesn't depend on a carrier ship, so it has lower operating costs. Tickets start at $95,000 and the company may even beat Mr. Branson into suborbital space, if Virgin Galactic continues to have delays.

Yet exotic travel in the future might also include deep sea travel…

Space isn't the only frontier Mr. Branson is exploring. Virgin Oceanic plans to launch a one-person submarine in 2012 to "journey to the deepest part of each of Earth's five oceans." And "we hope to be going 10,000 foot further down than Everest is high. So it's going to be quite an eerie, six- to seven-hour trip heading down. But scientists are frothing at the mouth with the possibilities of what we could discover," Mr. Branson says. "In the history of mankind," only two people have ever been below 18,000 feet and the ocean is "twice as deep" as that.

The beauty of capitalism isn’t just because of these wondrous technological innovations, but for these products and services to be made available for a broader spectrum of people.

As Joseph Schumpeter once wrote,

Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.

Once space travel goes online, prices one day will get low enough to cater to people like me or the middle class.

Capitalism has made living in this world exciting.

Cuba Opens Door to Capitalism

In a world of bizarre contradictions, while Wall Street Occupy protestors hanker for socialism—perhaps Cuban style—Cuba appears to be inching her way towards Capitalism by laying the seeds of private property.

From the New York Times,

Cuba announced a new property law Thursday that promises to allow citizens and permanent residents to buy and sell real estate — the most significant market-oriented change yet approved by the government of Raúl Castro, and one that will probably reshape Cuba’s cities and conceptions of class.

The new rules go into effect on Nov. 10, according to Cuba’s state-run newspaper, and while some of the fine print is still being written, the law published on Thursday amounts to a major break from decades of socialist housing. For the first time since the early days of the revolution, buyers and sellers will be allowed to set home prices and move when they want. Transactions of various kinds, including sales, trades and gifts to relatives by Cubans who are emigrating, will no longer be subject to government approval, the new law says.

“To say that it’s huge is an understatement,” said Pedro Freyre, an expert in Cuban-American legal relations who teaches at Columbia Law School. “This is the foundation, this is how you build capitalism, by allowing the free trade of property.”

Cuban officials would disagree; they argue that they are carefully protecting socialism as they move toward economic reform, and the new law includes some provisions that seem aimed at controlling both speculation and the concentration of wealth. Owners will be limited to two homes (a residence and a vacation property) and financing must go through Cuba’s Central Bank, which will charge fees, which have not been determined. And a tax of 8 percent will be split by the buyer and seller.

Nonetheless, experts and Cuban residents — who have been expecting the law for months — say the law’s implications are likely to be far-reaching. In a country defined by limited change and pent-up demand for freedom of all kinds, they argue, the law will probably open a Pandora’s box of benefits and risks.

Of course politicians will hardly admit to their policy failures. Nonetheless, Cuba’s latest market based reforms will likely be modeled after China’s communism draped with capitalism.

To quote the great Ludwig von Mises in Liberalism (p.87),

The continued existence of society depends upon private property, and since men have need of society, they must hold fast to the institution of private property to avoid injuring their own interests as well as the interests of everyone else. For society can continue to exist only on the foundation of private property. Whoever champions the latter champions by the same token the preservation of the social bond that unites mankind, the preservation of culture and civilization. He is an apologist and defender of society, culture, and civilization, and because he desires them as ends, he must also desire and defend the one means that leads to them, namely, private property.

(hat tip Justin Ptak Mises Blog)

Entrepreneurial Knowledge and Failure as Virtue

Entrepreneurial knowledge and the societal acceptance of failure should be seen as stepping stones or building blocks to economic progress.

From the Wall Street Journal Blog (bold emphasis mine)

Economists at Harvard University and Massachusetts Institute of Technology have just released what they claim to be the crystal ball of economics: a model for predicting a nation’s future growth more accurately than any other techniques out there.

“The Atlas of Economic Complexity” ranks 128 nations based on their “productive knowledge” — the skills, experience and general know-how that a given population acquires in producing certain goods. Countries with a high score in the report’s “economic complexity index” have acquired years of knowledge in making a variety of products and goods and also have lots of room for growth. Essentially, the more collective knowledge a country has in producing goods, the richer it is — or will be.

The 364-page report, a study led by Harvard’s Ricardo Hausmann and MIT’s Cesar A. Hidalgo, is the culmination of nearly five years of research by a team of economists at Harvard’s Center for International Development.

“The essential theory … is that countries grow based on the knowledge of making things,” Mr. Hausmann said in a phone interview. “It’s not years of schooling. It’s what are the products that you know how to make. And what drives growth is the difference between how much knowledge you have and how rich you are.”

The above seems quite applicable to the Philippines. As I have been pointing out, four out ten college graduates are unemployed and about 13% of college graduates emigrate.

The Philippine economic predicament has hardly been about the lack of education but mainly the inadequacy of the relevant entrepreneurial knowledge or “knowledge to make things”. And most importantly, a conducive environment for entrepreneurs to underwrite on such risks.

And because risk-taking is an integral part of the market economy, the outcome of either success or failure is indispensable. Failure should also be seen as capitalist virtue from which entrepreneurs can build on, learn and innovate from.

This excerpt from an insightful article by Professor Steve Horwitz and Jack Knych at thefreemanonline.org (bold emphasis mine)

Economists, especially those of the Austrian school, often emphasize how entrepreneurs discover new knowledge and better ways of producing things. But entrepreneurial endeavors frequently fail and the profits thought to be in hand often don’t materialize. According to the U.S. Small Business Administration, over half of small businesses fail within the first five years. But failed entrepreneurial activity is just as important as successful entrepreneurial activity. Markets are desirable not because they lead smoothly to improved knowledge and better coordination, but because they provide a process for learning from our mistakes and the incentive to correct them. It’s not that entrepreneurs are just good at getting it right; it’s also that they (like all of us) can know when they’ve got it wrong and can obtain the information necessary to get it right next time.

On this view failure drives change. While success is the engine that accelerates us toward our goals, it is failure that steers us toward the most valuable goals possible. Once failure is recognized as being just as important as success in the market process, it should be clear that the goal of a society should be to create an environment that not only allows people to succeed freely but to fail freely as well.

The seeming preference by the Philippine society to focus on mass ‘public’ education and on the growing web of regulations will serve as constant source of perpetual socio-economic frustrations because these policies have not been dealing with the fundamentals of the problem: Mass graduates in a political environment that seems unfriendly to business or to entrepreneurship which only places additional strains on current unemployment figures.

Yet fear of failure converted into public policies known as public goods or safety nets encourages political dependency, abdication of personal responsibility, indolence and importantly the curtailment of civil liberties.

From the economic dimension, this implies diversion of scarce resources from productive activities. The obverse side of each safety net underwritten or regulation imposed means employment losses somewhere.

In focusing on the wrong factors evidently we get the wrong outcomes. Worst, since current woes reflect on the failures of political policies, the effect has been noticeably widespread. Yet politicians tend to pass the blame on someone else.

Unfortunately, accountability from these policy failures has practically been absent or are imperceptible from the public’s perspective. In other words, the opportunity cost from each political action have been intangible, unseen or unnoticed by the public.

Thus, the underlying populist tendency to the current social ills has been to ask for more of the same wrong prescriptions or ‘doing the same thing and expecting different results’ a quote on insanity prominently attributed to Albert Einstein.

In politics, a culture of ‘insanity’ seems to be the norm.

The European Central Bank as Symbol of Capitalism?

Today’s headlines reads “Rallies vs. Corporate Greed Sweep World” (Inquirer, Agence France-Presse, Associated Press) [emphasis added]

Other than Rome’s, the demonstrations across Europe were largely peaceful, with thousands of people marching past ancient monuments and gathering in front of capitalist symbols like the European Central Bank in Frankfurt.

My auto impulse response: WTFAYTA??!!

To save you precious seconds from searching, the acronym is the internet slang of "What The F*** Are You Talking About?"

Don’t these media guys know that…

Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.

…is the 5^th of the 10 measures of Marx-Engels Communist manifesto????

So how the heck does a ‘communist’ institution metamorphose into a symbol of capitalism???

Mises Institute’s Jonathan M.F. Catalán has a nice apropos cartoon depicting a past protest against the Aldrich Plan in 1912 or the proposed formation of the US central bank

The parody presciently portrays what has been happening today: a political economy based on Too big to Fail Banks-central banking-welfare/warfare state or a central bank-led cartel.

The ECB as a symbol of capitalism serves as telling evidence of how media has either been totally ignorant or complicit to the political propaganda aimed at shifting the culpability away from the government to everyone else.

The snowballing populist protest has rightly been directed at central banks, but media and many people and even some protestors don't get it: Corporate greed exists because of the symbiotic political relations with Political greed.

The lyrics below from Depeche Mode’s 1983 song ‘Everything Counts in Large Amounts’ seems event relevant

The graph on the wall
Tells the story of it all
Picture it now see just how
The lies and deceit gained a little more power
Confidence - taken in
By a suntan and a grin

The grabbing hands grab all they can
All for themselves - after all
The grabbing hands grab all they can
All for themselves - after all
It's a competitive world

Celebrating Unsung Heroes of Capitalism: Wilson Greatbatch

From analyst Andy Kessler at the Wall Street Journal (emphasis added)

Wilson Greatbatch, 92, died this week a wealthy man. Investing $2,000 of his own money way back in 1958 and tending a garden to feed his family, Greatbatch invented the pacemaker. He licensed it to Medtronic, a company now valued at $36 billion that sells and continues to improve pacemakers and defibrillators. Greatbatch did his part to improve society, create wealth and increase, quite literally, our standard of living. But apparently that's not enough. President Obama suggested under a Cincinnati bridge this month that "if you've done well . . . then you should do a little something to give something back."

Give something back? Greatbatch did well specifically because he provided something that society needed. His and Medtronic's profits are what you and I are willing to pay above costs for these life-enhancing devices. This is true of Apple iPhones and Genentech Herceptin and Google Maps and Facebook Likes.

Ever since the mid-19th-century era of so-called Robber Barons, this country has had a philosophical divide over the role of business in a democracy. It's time to set the record straight.

History has proven that the road to increased standards of living and wealth was built on productivity—doing more with less. It was the Industrial Revolution that got us out of the growing fields and into factories, which allowed us to pay for roads and teachers and civil servants. And now the move out of factories into air-conditioned offices is creating anxiety. It shouldn't. Labor replacement is productivity. James Spangler's vacuum cleaner. The Walker brothers' dishwasher. Clarence Birdseye's flash freezing. DuPont's Kevlar. And John Simpson's guidewire catheter for angioplasty and heart stents—the list goes on. Each invention generated wealth because it improved our lives, not because someone "gave back."

Thanks Mr. Greatbatch, RIP.

I hope that people will learn to treasure those whom have truly contributed to our wellbeing through the markets.

Asia’s Demographic Inequality

Demography isn’t destiny, so argues the Economist, (bold emphasis added)

INVESTORS are often lured to countries like India and Vietnam by their demographic promise—by their fast-growing population of workers and consumers. Likewise, investors in China often worry that it “will grow old before it grows rich”. Demographics are not destiny, but they are a noteworthy determinant of economic potential. Youngsters and retirees do not work, which harms growth directly. And because these dependants make a claim on a country’s income without adding to it, they also depress savings, thereby slowing the accumulation of capital and the growth of productivity. In its latest Asian Development Outlook, the Asian Development Bank calculates the contribution of Asia’s youthful demographics to its economic success over the past decade. The bank also projects the impact of a greying population on Asia’s growth from now until 2030.

I concur that demographics represent only part of destiny. The economic destiny of every nation depends on the extent where people are allowed to accumulate and use capital efficiently (via economic freedom and free trade).

Celebrating Unsung Heroes of Capitalism: Keith W. Tantlinger

From the New York Times (bold emphasis mine)

Nearly six decades ago, Keith W. Tantlinger built a box — or, more accurately, the corners of a box. It was a seemingly small invention, but a vital one: it set in motion a chain of events that changed the way people buy and sell things, transformed the means by which nations do business and ultimately gave rise to the present-day global economy.

Mr. Tantlinger’s box, large, heavy and metal, is known as the shipping container. Though he did not invent it (such containers had been in use at least since the 19th century to haul heavy cargo like coal), he is widely credited with having created, in the 1950s, the first commercially viable modern one.

The crucial refinements he made — including a corner mechanism that locks containers together — allowed them to be hefted by crane, stacked high in ships and transferred from shipboard to trucks and trains far more easily, and cheaply, than ever before.

Thus, without ever intending to, Mr. Tantlinger, an engineer who died at 92 on Aug. 27 and who had long worked out of the limelight, helped bring about the vast web of international trade that is a fact of 21st-century life. More than any other innovation, the modern shipping container — by turns venerated and castigated — is now acknowledged to have been the spark that touched off globalization.

In short, Mr. Tantlinger's propagation and commercialization of the shipping container, which he did not invent but refined on, signifies as one of the main instruments used in international trade. Or our access to a wider variety of products has partly been facilitated by his efforts.

Thanks Mr. Tanlinger.

Quote of the Day: The Limits of Innovation

Advancement is limited only by the extent of individual creativity. A decade or two from now you will enjoy the fruits of someone else’s idea, that you yourself simply could not have imagined prior to its development.

So, while the future is not necessarily picturesque, neither is it as dark as some people suggest it may be. We live in an age that places a premium on knowledge. This represents a giant step forward.

This is from Jonathan M.F. Catalán at the Mises Blog with bold emphasis mine. Mr. Catalán seems to be on a roll with a series of impressive articles as this

Bottom line:

For as long as people are allowed to unleash their creativity on the marketplace, innovation and economic progress will continue in spite of government intrusions

Video: Consumer Surplus From Internet and Mobile Technology

Consumer surplus, according to Wikipedia.org, is the "difference between the maximum price a consumer is willing to pay and the actual price they do pay. If a consumer would be willing to pay more than the current asking price, then they are getting more baenefit from the purchased product than they spent to buy it they are getting more benefit from the purchased product than they spent to buy it." (italics added; hat tip Professor Russ Roberts)



The video shows how people tend to see consumer surplus from modern technology powerful enough for them to 'refuse' a ($1 million) monetary offer in exchange for withdrawing access to these technologies. [my guess is that polls aren't taken seriously]

Yet, ironically, the same people in the video would wait for falling prices from new innovative products in order to adapt to them.

Also, the video shows the vital role played by the "rich" in the diffusion of these newly discovered technologies into society, or how the rich, as buyers of the first order, creates incentives for producers to mass produce for widespread use.

The beauty of laissez faire capitalism.

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.

Tornadoes and Technology

From Patrick Michaels at the Forbes (ht: Don Boudreaux)

Despite 2011, there’s strong evidence that we are saving a tremendous number of lives with modern technology.

After the 1953 disasters, developers of weather radar convinced Congress to support a national network of detectors known as the WSR-57 (for 1957), a very acceptable machine for picking up tornadoes capable of causing significant damage. By the mid-1970s, WSR-57′s pretty much covered the tornado-prone regions of the nation.

An interesting thing happened to tornado frequencies. Before the WSR-57 went online the number of reported tornadoes averaged about 500 per year nationwide. By the time the network was complete, we leveled out around 800. Tornado death frequency–the number of fatalities per million–dropped precipitously. This was an unqualified technological success.

This only demonstrates how capitalism via technological advancement has helped saved many lives.

The Ten Growing and Dying Industries in the US

The Wall Street Journal compiles a list, from a study of IBIS World, of the rapidly growing industries, as well as, dying industries in the US.

First the sad news.

The Dying Industries

According to the WSJ Blog,

The dominance of the Web and digital media also puts Newspaper publishers, record stores and video-rental companies on the list. Meanwhile, photofinishing also takes its place among the top 10 dying industries thanks to the growing influence of digital photography.

Cheap imports are blamed for a decline in mills and apparel manufacturers. Companies that rent formal wear are also counted among dying industries amid both competition from abroad and lower prices making owning your own formal wear a more attractive option than renting.

The only clear recession casualty that makes the list is manufactured home dealers. The housing boom led to a surge in the industry, but now years after the bubble burst the sector has continued to struggle.

I have a different view from the political correct undertones of the above narrative.

The dying industries illustrates how the US economy has been evolving from commoditized (highly price sensitive) low value industries to high value technology based industries.

Now for the good news.

The Sunshine ‘Thriving’ Industries

Again the WSJ Blog

Unsurprisingly, the list is led by the tech and environmental sectors, which take up eight of the ten spots. There’s some good news for some of those in the top 10 dying industries. While wired telecom carriers dominated the dying list, voice over Internet protocol leads the list of thriving industries, illustrating the shift from one technology to another. Similarly, while newspaper publishers are among the dying industries, Internet publishers are counted with the thrivers.

Meanwhile, demographic shifts are also adding to the list of fastest-growing industries. Insurance-claims adjusters are in a growing sector as the Baby Boom generation ages. Unfortunately, a growing population also increases the need for prison guards, as correctional facilities make the list of thriving industries.

I observe two major factors from the fast expanding sectors:

One: creative destruction has been working her wonders.

Second: favored government sectors has been benefiting from political largesse.

As for creative destruction, let me quote Joseph Schumpeter Capitalism, Socialism, and Democracy (1942) (p. 83)

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. [emphasis added]

Bottom line: Despite segments of cronyism, the dynamic process of ‘Creative Destruction’ plays a very substantial role in providing benefits to consumers.

In short, capitalism still weaves her magic despite the US government’s very visible hands.

Has the Magic of Technology Ebbed?

Marketing guru Seth Godin thinks so. He writes, (bold emphasis mine)

Arthur C. Clarke told us, “Any sufficiently advanced technology is indistinguishable from magic.”

Head back to the 1800s with a Taser or a Prius or an iPad and the townsfolk will no doubt either burn you at the stake or worship you.

So many doors have been opened by technology in the last twenty years that the word “sufficiently” is being stretched. If it happens on a screen (Google automatically guessing what I want next, a social network knowing who my friends are before I tell them) we just assume it’s technology at work. Hard to even imagine magic here.

I remember eagerly opening my copy of Wired every month (fifteen years ago). On every page there was something new and sparkly and yes, magical.

No doubt that there will be magic again one day... magic of biotech, say, or quantum string theory, whatever that is. But one reason for our ennui as technology hounds is that we’re missing the feeling that was delivered to us daily for a decade or more. It’s not that there’s no new technology to come (there is, certainly). It’s that many of us can already imagine it.

The current generation, whom have been key beneficiaries of the transformative technological innovations, may seem to be less appreciative of the contributions of technology to our current welfare. That’s because technology has been giving us constantly more for less.

Thus, the diminishing returns on expectations from the impact of technological progress: the perceived loss of magical touch.

But I think it goes more than that.

Perhaps most people may be a lot less familiar with the antecedent of today’s state of technology. Or, people may have forgotten the roots of today’s progress: our ancestors compounded efforts or actions.

As the great Ludwig von Mises once wrote, (bold highlights mine)

Nobody denies that technological progress is a gradual process, a chain of successive steps performed by long lines of men each of whom adds something to the accomplishments of his predecessors. The history of every technological contrivance, when completely told, leads back to the most primitive inventions made by cave dwellers in the earliest ages of mankind. To choose any later starting point is an arbitrary restriction of the whole tale. One may begin a history of wireless telegraphy with Maxwell and Hertz, but one may as well go back to the first experiments with electricity or to any previous technological feats that had necessarily to precede the construction of a radio network. All this does not in the least affect the truth that each step forward was made by an individual and not by some mythical impersonal agency.

When people forget about history; the contribution of a multitude of individuals in today’s progress through the years, then they became less appreciative of the blessings that has been happening.

Many people today seem to think that the progress from technology is just a given. It is not.

For as long as people are allowed to trade, trade will then function as the main driver of technological progress.

Writers like me will try to keep that magic alive.