Hazlitt’s Lessons

Nearly sixscore years ago, the great economic thinker and communicator Henry Hazlitt was born. Hazlitt is probably best known today for his book “Economics in One Lesson,” but his life also provides valuable personal lessons on how to advance the free-market ideas that make for a better world. Here are five traits Hazlitt exhibited that all of us who value economic freedom should seek to emulate.

Hazlitt was radical

Economist W.H. Hutt, in his wonderful little book, “Politically Impossible…?” talks about the role of the economist not as someone who merely looks for what is politically possible in the moment and recommends policies that are within that window, but someone who recommends what he knows is best even if currently improbable. If need be, Hutt adds, the economist may also offer a second-best option that is more palatable, but the good economist is duty-bound to make clear what the optimal policy is.

By so doing, the economist may not change policy in the short term, but he is shifting the window of what is politically possible by injecting into public discourse economically sound ideas. Additionally, offering the most radical idea makes all marginal improvements look less radical and therefore more acceptable to the public. Economists eager to be “in the room” with policymakers tend to abandon sound economic analysis in order to champion policies that will gain them popularity. They often end up as mere tools of the political establishment, generating studies to justify what’s good for politicians rather than effecting genuine social change.

Hazlitt resisted the lure of political praise and instead embodied the often uncomfortable role described by Hutt. Unlike some of his contemporaries in the Austrian tradition, Hazlitt was not an outsider, but was a popular and respected journalist and thinker. His radicalism had a cost. He had every incentive to play it safe and advocate toned-down positions more in line with the views of the day, but he did not.

In Hazlitt’s view, the role of the economist was to educate on how economics works and what various policies would do. He believed that an understanding of sound economics by the body politic was the long-term solution to bad policy, and that giving palatable half-measures to politicians would not move us closer to liberty.

Hazlitt wrote in support of an end to the government monopoly on currency and advocated a private gold standard. He thought poverty schemes should simply be abolished. His concern over Bretton Woods, which almost no one at the time opposed, created considerable tension in his office at the New York Times, but Hazlitt refused to endorse it, come what may.

“I don’t think it’s worthwhile,” he told an interviewer late in life, “if you haven’t made up your mind, to write a piece saying, ‘Well, on one hand, but on the other hand.'”

Hazlitt was practical

Hazlitt was radical in his ideas, but practical in his methods. His practicality did not come from compromising or trying to be liked by adopting popular ideas. Instead, it came in his approach and style. He wrote for average people. He wrote unpopular ideas in popular outlets.

Hazlitt’s outlets included not only the Freeman, but also the Nation, the Wall Street Journal, the New York Times, the American Mercury, Century, National Review, Newsweek and others. He was a literary critic of some renown, a financial reporter and an editorialist. Hazlitt’s review of Ludwig von Mises’s “Socialism” did much to popularize the book in the United States, and his review of F.A. Hayek’s “Road to Serfdom” resulted in Reader’s Digest publishing a condensed version.

Hazlitt once said of John Maynard Keynes that he was a brilliant and witty writer, but that, “We should never confuse wit with profundity.” Hazlitt had both and he used his wit and communication skill to convey the radical ideas of liberty so accessibly that “Economics in One Lesson” is still one of the most popular and powerful introductions to the basics of economic thinking.

Hazlitt was humble

Hazlitt’s humility is demonstrated by a somewhat paradoxical bit of evidence: his willingness to write on an incredibly wide range of issues and disciplines, despite not being a credentialed expert in any of them.

At age 20 Hazlitt wrote his first book, “Thinking as a Science.” He had no formal education, yet he had the temerity to write a book on how to think. In the years that followed, he wrote a book on the role of cultural criticism, he wrote fiction, he wrote on moral philosophy, education, economics and much more. This may seem a sign of arrogance at first blush, but I think it reflects a deep humility.

It’s safe to talk about areas on which you are credentialed. It’s a risk to put your opinions, no matter how well-thought-out, in front of the world on matters in which you are not considered to have expertise. It is likely, especially when you hold radical opinions, that you will get attacked and slandered for being a “hack.” To be willing to hazard this label, and to be confident enough in your ideas to openly explore other disciplines in the public eye takes humility. It is most often pride, not humility, which keeps us from putting our thoughts in the open for fear they might be imperfect or subject to ridicule.

Even if we lack experience or credentials, we can learn from Hazlitt and be unafraid to explore other disciplines and share insights. It takes humility to risk not being taken seriously.

Hazlitt was optimistic

What is fascinating about Hazlitt’s outlook is how bleak it sometimes was, while at the same time how optimistic about the prospects for improvement.

His novel, “Time Will Run Back,” portrays a 1984-esque world, a true dystopia where communism is global. Yet, unlike 1984 and other such stories, “Time” has a happy ending.

In a world of complete communism, where even the mention of any ideas of capitalism has been wiped from history books, a man who has nothing but an open and inquiring mind single-handedly discovers the free-market through reason, trial and error, and brings it back.

This is perhaps the best insight into how Hazlitt saw the world—no matter how far off current policies are from freedom and economic progress, so long as there are open and inquiring minds, the truth of sound market principles has a chance, and if given a try, will prevail.

Even in the worst of possible worlds, the tiniest bit of economic understanding could ultimately triumph over collectivism, which was born out of ignorance. Put another way, ideas can save us.

Hazlitt’s outlook makes plain that, far from being in Ivory Towers away from the trenches, what we are doing—educating in economic principles—is, in fact, the front lines of the fight for liberty.

“The Conquest of Poverty” ends with this:

The irony is that the very miracles brought about in our age by the capitalist system have given rise to expectations that keep running ahead even of the accelerating progress, and so have led to an incredibly shortsighted impatience that threatens to destroy the very system that has made the expectations possible.

If that destruction is to be prevented, education in the true causes of economic improvement must be intensified beyond anything yet attempted.

Despite voicing frequent despair at the policies of his day, Hazlitt remained optimistic about power of ideas. He was confident that ideas, not politicians and interests groups, were the ultimate driving force in social change.

Hazlitt was persistent

Henry Hazlitt fought for the principles of liberty until he died at age 98. In his essay, “The Task is Ours,” Hazlitt reminded that whatever field the libertarian specializes in, “He MUST take a stand. He cannot afford to say nothing.” He goes on to quote Mises in “Socialism:”

Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping toward destruction. Therefore, everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interest of everyone hangs on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.

At a 70th birthday dinner in his honor, Hazlitt gave a grim recounting of the state of liberty before reminding:

[N]one of us are yet on the torture rack; we are not yet in jail; we’re getting various harassments and annoyances, but what we mainly risk is merely our popularity, the danger that we will be called nasty names. We have a duty to speak even more clearly and courageously, to work hard, and to keep fighting this battle while the strength is still in us…. Even those of us who have reached and passed our 70th birthdays cannot afford to rest on our oars and spend the rest of our lives dozing in the Florida sun. The times call for courage. The times call for hard work. But if the demands are high, it is because the stakes are even higher. They are nothing less than the future of liberty, which means the future of civilization.

In his book “The Way to will Power,” Hazlitt advises:

Before you make any formal resolutions whatsoever, make certain that you genuinely desire to carry it out. Let there be no doubt that the end you have in view is so desirable or advantageous that it will outweigh all desires and advantages or all other ends that are likely to have to be foregone or abandoned in order to attain it. In short, be sure you are willing to pay the price.

Hazlitt was and did. His life provides an inspiring lesson for all who value freedom. Let’s endeavor to be as radical, practical, humble, optimistic and persistent in our efforts to advance the principles of liberty as Henry Hazlitt was for 98 years of life.

This post is adapted from a presentation given to the Association of Private Enterprise Education

You’ll Never Become What You Look Down On

A good friend told me he has a theory that our subconscious protects us from things we view as bad.  This sounds great, and it probably is most of the time, except when we disdain the very things we want.

How many people want wealth, but talk and think about rich people as bad?  If you consider famous people vapid and shallow, your subconscious will protect you from becoming well-known.  If you think well-read people are pretentious, you’re acquisition of knowledge will be hampered.

Consider the power of your inner self to keep you away from the traits you don’t like.  It might help you overcome envious or spiteful feelings towards those who have what you really want and thus free you up to obtain it.

Luxury and Voluntary Redistribution

Watching Mr. Selfridge with my wife last night I was reminded of an under-appreciated feature of free-markets.  The wealthy subsidize beauty for the less well-off by patronizing luxury retailers.

Selfridge’s, a pioneer in the development of department stores, is a purveyor of fine goods.  The upper crust are its clientele.  Yet one of the things that made the store famous is available to the general public for free: it’s beautiful and dramatic window displays.  The sale of expensive goods to wealthier individuals is the goal, but thanks to the dollars from those customers and the desire to get more of their business, the store goes to great lengths to display their wares in an appealing and provocative way.  The result is a positive externality for every passerby on the streets of London.

Other luxury items have the same effect.  If you can overcome the urge to envy, you notice that high-end cars and buildings make the world around us more beautiful and enchanting.  Market detractors often fret about negative externalities in a free world, but how often do they account for the immense richness experienced by all, thanks to the wealth of some?

Our sense of life is made up of many things, including the aesthetic environment in which we dwell.  The seemingly extravagant expenditures of the wealthy can create surroundings overflowing with creativity and elegant design.  If you’ve never enjoyed the art of a neighborhood full of houses you couldn’t afford and landscaping you’d never dream of, I recommend taking a drive through one.  Put prejudice aside and let the sensory magnificence seep in.  Humans are amazing creatures who can shape our environs in amazing ways – I’ll be damned if I’m going to let those with nice stuff be the only ones to take pleasure in it!

Education and Bike Riding

If the goal of education is to prepare young people for living, then an ideal program would look very different from most of what is now called education.

Earlier this week I wrote about the need for children to have a free space within which to grow in tastes, talents, will and ideas before they feel the full weight of a world that will try to mold them. This free space is there that they may grow strong and ready to handle the world, not to keep them from it for life. If education is meant to play a similar role – a partially simulated reality to prepare students for the “real world” – it seems a highly successful education would have two features we almost never see:

1 – It would be incredibly short

2 – It would be very hard to tell when it ended

If the goal is to prepare for life – i.e. to make education unnecessary – the faster the simulation can transition into the real, the better. And if living well is the aim, it would seem odd to spend a lot of time learning how in a simulated world and then abruptly be sent out into the real world without dabbling in it with increasing frequency until it began to replace education.

Imagine if we taught kids how to ride a bike the way we try to teach them how to have a career. We’d start by showing them pictures of a bike when they’re young. We’d teach them to say the word bike, then spell it, then write it neatly. We’d have them draw a picture of a bike. We’d have them measure the perimeter of a picture of a bike. We’d have them write stories about people riding bikes. We’d ask them to share what kind of bike they want when they grow up.

When they reached their teens, every once in a while someone would show them a real bike and describe what riding it is like. They wouldn’t be allowed to touch it, and certainly not to own or ride one. In fact, anyone who let them would be subject to serious legal trouble. Then, after seventeen or eighteen years of this (never more or less), we’d have a big ceremony congratulating them and ourselves at their successful completion of bike riding prep.

They’d be allowed to ride now, but it would be looked down upon. Instead, they’d be encouraged to hone their skills and really learn to ride by paying tens of thousands of dollars to spend the next four years getting drunk and hearing specialized bike-related knowledge. They’d hear the history of bikes, mostly from professors who hate bikes. They’d hear about the ecosystem where the rubber trees grow that go into bike tires, except any connection between that ecosystem and the actual building and riding of bikes would be deemed in poor taste. They’d learn a great many other things and come away with a certificate declaring their level of bike preparedness.

We’d celebrate and buy them something (but not a bike). Then they’d go out and try to obtain a bike in a highly competitive market. If they were able to purchase one, they’d have to learn, for the first time after two decades of studying but never trying, to ride.

If at any point in this decades-long process a child decided they’d learned all they needed, quit, and picked up a bike to start riding, it would be deemed a miserable failure. Even though the stated goal is to get them riding, it’s not their ability to ride that determines the success of the system, only the number of students who complete it. Figuring out how to ride and riding before the appointed time is a sign of trouble and rebellion, and would be discouraged at all costs.

This is obviously a stupid way to teach bike-riding, yet it’s how we train kids for life.

Imagine kids blending learning with working from the time they were ready and willing to work. Imagine kids moving from reading to doing the same way they go from training wheels to two wheels – quickly, and often without a lot of fanfare or even a clear-cut transition. Imagine allowing some skinned knees, some wobbly attempts, some bumping into the neighbors mailbox while trying to figure out how to navigate the world. Think of the sheer joy and freedom kids experience when they can fly through the neighborhood on two wheels, and imagine how much greater when they can create value, exchange, cooperate, buy and sell on their own ability and will.

Instead we force kids into a simulated world for decades, then celebrate their completion of our programs, regardless of whether they’ve actually gained what they need to succeed. Then we let them wander the world for the first time, trying to learn in months what we prohibited them from trying for years.

Why do the social norms about education persist when they are so blunt and detrimental to so many kids?

Current Reading List

What I’m reading, or about to start reading (or re-read, or pick up and finish). Chances are, the list will accumulate new additions faster than I remove completed books. The ability to not finish every page in a book is one I’m trying to hone – without it, I’ll never cover all I want to!

Envy

Phi

The Collected Works of Armen A. Alchian

Young Pioneers

The Problem of Political Authority

A Pattern Language

An Apostle of Peace: The Radical Mind of Leonard Read

Moral Principles and Political Obligations

Two Cheers for Anarchism

The Origin of Consciousness in the Breakdown of the Bicameral Mind

The Job of a Parent: Create Free Space

Neighbors, ideologies, governments, social norms and other institutions and beliefs work to create a sense of duty and loyalty in individuals from the day they are born.  Even if some of these institutions and ideas turn out to be good, early fealty to them is often based on guilt for who a person is, shame at what they do, fear of retribution, or ignorance of alternatives.  One of the jobs of a parent is to act as a barrier between these pressures and their kids.

When people call a child “sheltered”, it’s usually meant derogatorily.  But a good shelter is what all kids need.  Not walls that keep them in, but walls that keep some of the strongest forces that seek to mold them at bay.  A seedling needs a protected area in which to gain strength and deep roots before it can weather the strongest winds and weeds.

It’s crucial that this safe space we create for our kids be full of windows and doors – opportunities to explore the very forces that we want to provide a buffer for.  Kids are curious, and the more they have access to information and ideas in a context without coercion, fear, ignorance, guilt or shame, the better conclusions they will draw about them, and the more equipped they will be for the world.

It’s harder than it may seem to create this space.  I think of the times when, far from protecting, I act as an amplifier of the forces of the world.  When your child loudly asks a question considered embarrassing by the mores of the day, it’s very easy to shut them down or project your own embarrassment on them.  It’s not easy to take all the social heat yourself, shield it from your kid, and respond generously.  When kids naively explore the world, we should let them, rather than cajole them into the conventional conclusions and behaviors.

Kids will run into the norms of the world, no doubt about it, but at least parents can ensure they don’t get smacked with it in the sanctuary of their own homes.  Don’t let the walls of your house be those coming in on them, before they have strength to resist.  Let your kids be expansive and boundless!  That’s how they’ll gain strength and identity and an ability to respond to the world around them with ease and freedom.

Process vs. Content

I spent the weekend at a conference discussing education, and what kind of program or curriculum is ideal for young students.  It struck me how easy it is to overestimate the role of the content of an educational program and underestimate the role of process.

One professor said he’s noticed that teachers who teach courses on comic books are no less likely to get students thinking about important concepts than those who teach philosophy.  The key is the quality of the teaching.  A good teacher can help students discover truths using a wide variety of curricular materials, where a poor teacher can’t wring enlightenment out of the best.

The process also matters in other ways.  Who owns the education of the individual?  If it’s the individuals own responsibility, and they primarily bear the costs and benefits, you get something much different than when students are a third party to a transaction between others.  Some self-selection, a level of interest on the part of the student, the freedom to direct their own inquiry – these are process related and are probably more important than the content of the education.

Process also maters to the method of how the individual educational processes are determined.  Do a small number of students or educators or bureaucrats determine what kind of system everyone will go through, or are myriad competing methods allowed to emerge?

It’s easy as a parent to worry too much about what books my kids are reading, what lessons their learning, and other content concerns.  I need to be reminded from time to time that kids are curious and eager to learn just abut anything if the process is conducive.

First, Do No Harm

Last summer I had a trip to the emergency room that highlighted one of the perversities of the medical industry in the United States: Health practitioners are prevented from helping patients because of regulatory hurdles erected by the state at the behest of vested interests.

We were on vacation in a small town on the shore of Lake Michigan, and I experienced some intense stomach pains. When the pain persisted, I wondered if it might be my appendix and decided to hazard a trip to the ER to get it checked out. Fortunately, my appendix was fine and the pain subsided not long after I arrived at the hospital. Unfortunately, my experience in the ER was painful for other reasons.

I arrived late at night to a small but clean new building. There were only two other people in the ER waiting room and there were several nurses and hospital personnel on hand to take my information. I was in the system and seated in no time.

Then I waited for an hour and a half.

Given that effective pricing mechanisms are not available to the hospital, the long wait actually makes sense as a way to weed out the more frivolous ER visitors. Hospitals are required to see everyone who comes in, and virtually no one pays directly for their health services, so the incentive is to abuse the ER with visits of low importance. Making patients wait a long time is one of the only means available to the hospital for reducing low value visits. Indeed, one of the two patients there before me left during this time.

Finally I was admitted. A very energetic 30-something nurse took my vitals and inquired to the nature of my visit. I discussed my abdominal issues at length, and he looked very thoughtful and excited, like an engineer relishing the challenge of a puzzle he knows can be solved. He asked a slew of good questions, some of them unexpected to me. He looked pleased in a Sherlock Holmes kind of way.

Now I was excited. I could tell he had several ideas about my condition. He said, “Well, you have to wait for the doctor.” He paused and lowered his voice a bit, “but I can tell you that I don’t think you’re in serious trouble … I’ve got some really good ideas on what’s going on and what you can do about it. I’ve seen and experienced what I think you’re dealing with.”

This was great news! I’ve had on and off unexplained stomach issues for a number of years, so I was eager to hear his thoughts. I asked him to elaborate and he looked a little dismayed. “I’m not a doctor. It would be outside of my professional boundaries if I told you more. The doctor will be in soon.” Then he left.

I was irritated, but glad at least that he seemed so energized and full of ideas. I was hopeful he’d talk to the doctor—and the doc could share his thoughts. I waited.

I waited some more.

After 45 minutes, I wandered into the hall (revealing hospital gown and all) looking for signs of life. I rounded a corner and came to a room where six or seven nurses were hanging around chatting. I asked if the doctor had forgotten about me. They casually said he’d come soon and returned to their chit chat. I went back to the room. At this point the pain had subsided quite a bit, and after my vague conversation with the nurse, I was convinced I was not in danger. Still, I wanted his thoughts. The nurse poked his head in again, seeming to feel sorry for me and, showing signs of frustration said, “Sorry, the doctor will be here soon. Hang tight.”

I waited another 45 minutes. Nothing.

I was tired, feeling better and getting grumpy. I had no cell signal, and I knew my wife was worried. I wandered the hall one last time with no result, so I decided to leave.

As I drove back to the cottage, I couldn’t help thinking of the frustrated nurse who seemed to have some helpful information he was dying to share with me but couldn’t. Why couldn’t he? Because he’s not a state-licensed doctor, and state-licensed doctors have made sure they are the only ones allowed to provide certain information.

The public justification for medical licensing laws is that they protect patients from bad service. The idea that state bureaucracies are the best way to guarantee good service is laughable. Just visit the DMV. The laws do offer protection, but not to patients. They protect doctors’ economic interests from the competition of other health practitioners with less training who might offer services at lower cost. This is an ethical problem for the medical profession.

The famous medical creed, “First, do no harm,” means that doctors ought not intervene with a patient if the intervention might cause more harm than doing nothing. But what about legal intervention? Left alone, I would have happily paid the nurse for his insight into my discomfort. He would have happily offered it. The doctor’s cartel, far from doing nothing, intervened with the long, blunt arm of the law and prohibited this interaction from taking place. In doing so, they caused harm to me by denying me information that could prove valuable to my health. In this case, it was not an emergency, but it very well could have been. There are instances of medical services prohibited by regulations that cause severe illness or death.

In South Carolina, where I now live, a law was recently passed banning midwives from assisting in home births if the mother has previously had a C-section or is otherwise considered a “high-risk” birth. The nurses and doctors advocated this law. It reduces the growing competition from the more personal, convenient and far less expensive home birth practitioners. Of course you can’t reasonably make it illegal for so called high-risk mothers to have home births across the board, because sometimes it just happens. So the law only makes it illegal for a midwife to assist. The result has been an increase in unassisted high-risk home births and an increase in medical problems as a result.

In both cases, the doctors’ lobby violates the creed to do no harm. Rather than letting people follow their planned course of action, professional associations concerned with the economic interests of their members run to the state and demand intervention that prohibits voluntary exchanges and does harm to the patients.

Milton Friedman argued long ago against medical licensing because it raises the cost and reduces the accessibility of medical services. Not only is it a bad practice for these economic reasons, but it is unethical as well. If doctors have an ethical obligation not to interfere with a patient when it might do harm, they should start by opposing state licensing regimes that do just that.

Originally posted here.

Commerce is Better Than Education

I’ve recently read several essays on education by some of the American Founders.  These writings have in common a belief that good education will promote civility, manners, advances in agriculture, manufacturing, and morality.  It seems to me effect is confused with cause.

It’s not education – at least not formal education or schooling – that produces industriousness and social cooperation, but social cooperation and industriousness that increases knowledge and education.  Commerce is the great civilizing force in the world.  The greater and freer the extent of trade, the more scope individuals have to exercise and explore their abilities and the greater the incentive to obtain knowledge of value to them.

When people are free to reap the rewards or pay the costs of their endeavors, they have every incentive to improve.  This incentive leads to advances in industry, arts, and even culture and values.  Peaceful, mutually beneficial transactions bring the greatest returns, and these require knowledge and respect for other cultures, proficiency with products and processes, and constant adaptation and learning.

When commerce happens, the incentive exists to become educated.  No one need impose an educational plan on their neighbor, and no one has the ability to know what kinds of knowledge their neighbor needs.  We over-estimate the role that education plays in determining the kind of world we live in.  In reality, markets do most of the heavy lifting, and education follows and fills in the well-worn paths etched by exchange.  You could expend all the energy in the world trying to ensure more young people learn your favorite subject.  But if the market signals excellent returns in a different field, people will flock their despite what they’ve been trained in.

We needn’t fret so much about what kind of educational systems exist around us.  We do need to do everything we can to ensure free exchange is unhampered, and myriad educational opportunities will flower as a result.

The Remnant

Sometimes what you do has no immediate impact. Sometimes it has no visible impact at all. But, if its something you love, and doing it brings you fulfillment and peace, there’s value in it. Not only value for you in the act of creating or doing, but if you genuinely feel in ‘flow’, it’s a sign your working in and around truth, and that cannot help but impact other truth seekers.

You may never have the pleasure of seeing others appreciate it. You may never have evidence that what you do has changed the world. But if it’s true, it has. Albert Jay Nock reminds of the story of Isaiah, who’s job was not to reach the people all around him. It was to speak to the Remnant.

Marketing Creates Value

Near the end of the classic movie “It’s a Wonderful Life,” George Bailey saw reality in a whole new light. He glimpsed a world in which he was never born and realized just how important he was to those around him. This experience instantly and dramatically changed George’s outlook on life. In a matter of minutes, he transitioned from attempted suicide to pure joy at the fact of his own existence. No material facts changed. George Bailey was still stuck in Bedford Falls. He was still hard of hearing. He was still in deep legal and financial trouble. The angelic Clarence did nothing to improve the external condition of Mr. Bailey’s life, but he saved it nonetheless. He saved it with marketing.

Marketing is often criticized as being deceptive, slimy or at least economically wasteful. How could anyone justify a $2 million dollar Super Bowl ad about a bottle of Coke? Skepticism of marketing springs from an overly narrow and simplistic view of value. In the real world, the line between the real and perceived characteristics of an economic good is all but nonexistent. Our knowledge of and beliefs about goods are just as much a part of their value as anything that can be weighed or measured.

Economists have long understood that value (in the economic sense) is subjective. There is no universal formula to determine how much a good or service or experience is worth, because each person has different tastes, preferences and needs, and each will value things differently with changing circumstances. This means that how we feel about a good and what the good is made of are equally important in determining its value to us—i.e. how much satisfaction it brings. If making a better mousetrap can make lives better, so too can making people feel more confident in their mousetrap. This is not trickery; it’s value creation. Confidence in my mouse trap might help me sleep better at night and enhance my quality of life in a very real way.

We’ve all seen news stories about blind taste tests. They are meant to reveal consumer stupidity and branding smoke and mirrors. I recall reading about customers given a cheap beer and told it was a more expensive brand. They reported that it tasted much better than what they were told was the cheap beer, but was in reality the more costly. When they were told the opposite, the results reversed.

The report was framed as some kind of “gotcha” moment, as if a great hoax had been revealed. Why should these results be surprising? If you’ve ever picked up a glass of milk, thinking it was water, and taken a swig, you’ll understand. Even if you like milk you are likely to spit it out. Your beliefs about what you are consuming prepare your brain and your taste buds for a certain experience. The knowledge you have about what you ingest literally changes the experience of consumption. Try smoking a good cigar while stressed or in a hurry and see if it tastes even remotely similar to the same cigar when you have an hour to kill with nothing on the mind.

They say marketing is all about the sizzle, not so much about the steak. Why shouldn’t it be? Steak without sizzle is little more than raw meat; carrion fit for vultures and wild dogs. Steak beautifully plated and garnished creates more value for the person consuming it. Sight, sound, smell and taste are all part of the experience, and the brain is the crucial interface. Even if you have a purely utilitarian approach to eating and care only for the sustenance, you can’t ignore the mind. What you believe about your food actually affects how much it satisfies you.

My father suffered a closed head injury many years ago which affected, among other things, the communication channel between his brain and his digestive system. His brain always tells him he is hungry, no matter how much he eats. It is a near full-time job to convince him that he is full and doesn’t need any more food—that’s some serious marketing. In fact a great many people without head injuries resort to all kinds of tricks and techniques to convince themselves of the same thing in order to stay trim.

I recall talking to a friend who had no taste for coffee. I convinced her to try a sip only after closing her eyes and letting me describe step-by-step the growth, cultivation, harvesting and roasting process. She admitted that, while she still didn’t love it, she began to enjoy the taste a good bit more and understood why I love it so much. I know of people who can no longer stand the taste of meat because they observed the operations of a meat-packing factory. The meat did not change, yet its taste changed with their knowledge and feelings about it. The value of the product radically shifted with a change in perception.

If marketing makes us love a product more, and therefore makes us happier, it has indeed created value. Love for a new car comes not only because it is red, weighs 2,500 pounds and has four doors—all things that can be measured objectively—but also because it is safe, one-of-a kind, and edgy, all subjective to the person experiencing it. The purely informational role of an advertisement is no more valuable than its ability to make us proud of what we purchase. But how valuable is it?

We can get a rough idea of the minimum value created by marketing in dollars and cents. This does not, of course, measure the subjective value to each consumer, but it reveals how much value consumers placed on the marketing in money terms. If a marketing campaign costs $10 million and it results in an additional $11 million of revenue, we know that it has created more than $1 million in value, as judged by those who willingly spent money on the product. If the campaign made the product more valuable to more people and induced them to buy more or buy at a higher price, that is a reflection of the fact that the consumers felt the product and associated satisfaction created by marketing was worth more than the money they gave up to get it. Real value was created. If it was not, people would not have willingly parted with their money in exchange for the good. Better marketing can often be a cheaper and more effective way of improving a good and making people happier than altering the product itself.

Goods and the knowledge and feelings that come with them cannot be separated. New tile floors and soft lighting may be just as important as variety and good service at a clothing store. An inspiring ad campaign may bring just as much happiness as new features on a smartphone. This is no scandal, but a fact of the human experience of reality.

Rather than denigrate it as some kind of fraud or waste, we should applaud good marketing. Not only does it enhance the value of the products we buy, it enhances our quality of life even when we don’t buy the products being marketed. TV ads are often funny and entertaining. Billboards and magazine ads are sometimes works of art. Good marketing is a free gift to all, and it makes all our lives better. A world without marketing would be dull and far less fulfilling.

Altering our perceptions of reality is one of the best ways of improving our quality of life. It’s powerful stuff. Clarence saved George Bailey’s life with a recasting of the facts, and set him out with a full heart ready to take on the world. The creative efforts of marketers everywhere have the same power to make our lives richer and better.

Originally posted here.

Ask Where Things Come From

Yesterday, I came across this quote:

“America: Less than 5% of the world’s population, consumes over 25% of the world‟s resources.”

This is meant to shock and shame.  How selfish of the people living within this geographical area to consume so much!  That sentiment may be warranted if life were some kind of reality TV show with everyone stuck in a house with a fixed pool of resources, but it’s not.  If we really want to understand the world, we need to ask a key question: where do those resources come from?

They come from production and trade.  Everything that is consumed must first be produced.  There ain’t no such thing as a free lunch.  In order for people in the borders of America to consume stuff, they must obtain it.  They can produce it themselves or trade something else they have produced for it.  In a free market, every exchange is voluntary.  In order for both parties to agree to trade, both must consider themselves better off after than before.  Because economic value is subjective, both walk away wealthier than before because they gave up something they valued less than what they got.

Now that we know some basic economics, what does the statistic about consumption tell us?  It tells us that, in order to consume a lot, American’s must have produced a lot.  It means what they produce must be more valuable to their trading partners than what they consume.  In other words, it means they are creating value for the world.

There is an exception to the rule that more consumption happens after more value creation.  Consumption can also happen after resources are taken by force, outside the operations of the market.  This fact is illustrated by another quote I came across yesterday on a list of common economic fallacies.  The commenter said a common fallacy is,

“Not asking where ‘G’ comes from.”

In macroeconomics, wealth is often measured (somewhat dubiously) in GDP.  The typical formula for measuring a nation’s GDP is: C+I+G+(X-M).  In this equation, C means private consumption, I is investment, G is government spending, X is exports and M is imports.

There are plenty of problems with this formulation, but leaving those aside, the math tells you that increasing any of these addends increases total wealth.  This is what leads many to advocate for increased government spending as a way to grow the economy.  To the true believers, any spending will do.  John Maynard Keynes famously suggested that the Treasury should stuff jars with bank notes and bury them in abandoned coal mines to be dug up again.

But where does G come from?  Government produces nothing, it only takes.  Every penny in the G category was taken from C or I.  This would not seem problematic at first for the economy as a whole, much as individual taxpayers may not like it, because the sum would remain unchanged.  Except that, as we have been reminded, economic value is subjective.

A dollar taken from someone and spent on her behalf is less valuable to her than keeping that dollar.  If this were not so, she would have given it up voluntarily.  People put their resources to their highest valued use, according to their own scale of value.  Any time resources are taken by force, value is destroyed.  Further, the choices people would have made would send signals rippling through the economy, telling entrepreneurs and producers what to produce more and better of.  When government puts resources to their uses, it signals entrepreneurs and producers to create more of what government wants, which diverts production and innovation away from the areas most valued by the citizenry.

The common problem in both scenarios – assuming the a high rate of US consumption means less for everyone else; and assuming an increase in government consumption means more for everyone else – is a failure to examine causal connections.  Static snapshots of data – whether a percentage of world consumption or GDP – tell us nothing about the ongoing relationships in our world.

These relationships have patterns and feedback and adaptations.  The data comes from somewhere, and it’s more than a simple path; it’s the result of a complex and constant churning of causes producing effects.  Freezing this dynamic process in time and measuring where a bunch of stuff is can’t tell you whether the process is just or efficient, or what the results will be over time.

Before you make data-based judgments about systems in the world, understand where the data come from.  What does the process look like that produced it?  What are the causal relationships?  What happens to the data through time?  Citing a lot data might make you feel smart, but if you accept data alone as proof of cause, it’s only a feeling.

The Birth of an Idea

Just because something is inevitable doesn’t mean it’s easy.

I used to think having an idea I believed in was the hard part, and once I had it, acting on it would be easy.  When you get an idea that you know you must act on – a thought you must put into words, an expression you must create – and you know there is no choice but to bring it into being, the real challenge starts.  It’s a process not dissimilar to pregnancy.

If you have been trying to get pregnant for some time, it is a relief when you do.  But things don’t get easier just because the eventual child is all but inevitable.  You have the knowledge that birth is coming.  You also realize how much has to be done between here and there.  There are moments of panic when you consider you have no nursery, no diapers, no baby clothes, no stroller, no idea what challenges may come, no knowledge of all the things you might have to do to care for the child.  There are other times when you feel completely at ease, resting in the knowledge that what you have created will come to fruition in due course.  You have a vision of life with a child, and you know that vision will be fulfilled and somehow everything you need to get done will get done.  Of course, you still have to do it.

The seed of an idea that moves you, once planted, will – must – grow.  You know it must be created, expressed, brought into the light.  But how many things are there to do first!  How can you handle them all?  How can you fill that space between now and then with the things that must precede the birth of the idea?  How can you prepare to raise and nurture it once it emerges?  Yet you know you will, because the idea is going to happen, just as the child is going to come.  Nature must run its course.

The mental, emotional, and spiritual challenges of pregnancy reveal the unique process of moving from potency to act; from knowledge of a new life, through gestation, to birth and beyond.  The near inevitability of the outcome is joyous and overwhelming.  Being ‘pregnant’ with an idea has many similarities.  It’s right to experience the tension between complete relief that the new creation is coming, and uneasiness with the knowledge of all that must happen first.  Your job is to do two contradictory things at once: relax and let it happen, and actively ensure the process and preparations move forward.

Bad Arguments Against Immigration

Originally posted here.

The Economic Argument
Arguments against immigration on economic grounds basically boil down to “They took our jobs!”. Some feel that allowing people to freely cross borders will result in a flood of low-wage labor that will “steal” jobs from natural born citizens. Labor is a factor of production, just like raw materials or financial capital. Restricting the flow of capital and labor will always decrease economic prosperity. Access to more resources – human or otherwise – always increases wealth and opportunity. If this does not make sense to you, I recommend Frederic Bastiat’s “What is Seen and What is Unseen”, chapter 7, as well as his brilliantly satirical “Candle Maker’s Petition”

The Culture Argument
Others argue that immigration must be restricted in order to protect the nation’s unique cultural heritage. I submit to you that any culture which must be maintained by force is not an authentic culture and is probably a bad one. Cultures freely arise because they provide benefits to those who participate in them. Cultures are always changing. Getting government in the business of protecting culture is dangerous and counter-productive. First, who gets to define what constitutes culture? Bureaucrats don’t have the best track record in such matters. Second, do we really want to live in a culture that is forced upon us by government prohibitions, restrictions and mandates?

The Welfare Argument
Advocates of limited government sometimes argue against immigration on the grounds that immigrants make use of the welfare state and increase the cost of government. State-sponsored welfare programs are a problem. Stopping immigration because immigrants might use welfare programs treats one tiny symptom, not the problem itself. If you routinely tossed open cans of tuna on your front lawn and found the neighbor’s cats hanging around your property, would you try to ban cats or would you clean the up the fish?

Though I think the vast majority of immigrants immigrate for jobs, freedom and opportunity, I’m sure some come and make use of government handouts (though less than U.S. Citizens, and likely less than they pay in taxes). The handouts are an attractive nuisance and should be addressed on their own merits, not by attempting to ban the free movement of people.

The Safety Argument
Some argue that allowing easy immigration will bring bands of criminals into their country and make them less safe. First, if something is a crime it is already, by definition, illegal. Threats to life and property are already supposed to be addressed via the existing police and justice system. Putting up a wall and stopping anyone from crossing it on the grounds that some of them may be criminals is ludicrous. By this logic, governments should perpetually engage in random home searches because they might discover criminal activity.

Closed borders probably don’t stop criminals, but let’s pretend that they could; if we could keep foreign criminals out by keeping out anyone foreign, what would we gain? We’d have spent tons of resources keeping out foreigners, most of whom aren’t criminals, and we’d have that many fewer resources to fight domestic crime. Banning people from movement because some of them may be criminals is even dumber than banning gun ownership because some people may use them for crime.

A Better Argument
Freedom to immigrate can be defended from several angles, but I believe the most important argument is based on rights. Imagine you and I have pieces of property that share a border. You wish to traverse my property and I wish to let you, but lawmakers prohibit it. What business do they have dictating whether we can make decisions about our own property? Sure, they were democratically elected, but what business do others have of voting to determine how you and I peacefully use our property?

What if government issued a decree that business owners were prohibited from hiring anyone born on a Tuesday? It’s no different when they prohibit hiring anyone born in another country. Shouldn’t the business owner be free to hire whom he wishes? If an individual wishes to travel, work, buy, or sell peacefully and all other parties involved agree, why should government prohibit it?

When you think up other arguments against immigration, ask yourself why they should not also be applied in state to state immigration? City to city? Home to home?

At bottom, I think much anti-immigration sentiment comes from a fear of people unlike us. I support anyone’s right to be prejudiced, or to associate only with those of like culture. But putting that attitude into public policy not only hampers wealth and progress, it violates my right to associate peacefully with whom I choose.