Capitalism Question

George Will has a great article at NRO on capitalism.  He puts the choice that Americans face this way:

In the accelerated churning of today’s capitalism, changing tastes and expanding choices destroy some jobs and create others, with net gains in price and quality. But disruption is never restful, and America now faces a decision unique in its history: Is it tired — tired of the turmoil of creative destruction? If so, it had better be ready to do without creativity. And ready to stop being what it has always been: restless.

You should read the whole thing but in case you don’t, we want to reinforce what he did say and note what he doesn’t say.  George has some nice examples of the changes that capitalism has wrought in the grocery business.  Capitalism leads to net gains with constant disruptions.  We would like to discuss two things that George does not mention in the article.

First, what is the alternative to capitalism?  A good analogy is earthquakes.  With capitalism you get small quakes all the time as the market reacts to new conditions.  Over time you get the results that George notices where, in just over a century, the A&P goes from zero to a 75 percent share of the grocery business to bankrupt.  The alternative is to try and forestall the little earthquakes.  The pressure still builds up and we get epic economic events like the former USSR, eastern Europe, and Venezuela to name a few.  Economic change is coming.  The question is how do you want it?

Second, George makes no comment but capitalism and open borders are not connected.  Folks try to connect the two because the Venn Diagram of the two groups of supporters has a substantial overlap but they are unrelated things.  We support the former but not the latter.

 

 

A Trip To The Dentist

The WSJ editorial on apprentices reminded us of last week’s trip to the dentist.  We support all manner of on-the-job training (OJT).  Formal education is an important part of building human capital but OJT is likely more important.  That’s why we were struck by this part of the editorial:

An especially odd objection is that apprenticeship training is a mistake because skills become out of date over time, especially later in one’s work life. But that’s a risk throughout the economy, and all the more reason to get young people skills to enter the job market now and build up savings for the future.

We agree with the first sentence that it is an odd objection but don’t see the second sentence as the answer to why.  Our current trip to the dentist compared to the one some years ago will explain why.

Some years ago our dentist had acquired technology that used a camera and what seemed to be CAD/CAM software (yup) to make a crown in-house.  It took lots of the dentist’s time but it was pretty cool to get the crown in one sitting.  Last week we went and got two crowns at once and the assistant did some of the CAD/CAM work.

Sidebar: We looked at the data on price changes in dental costs and were surprised by the continuing increases.  We wonder about the measurement of quality issues.  Some years ago we would have had four visits to the dentist to get two crowns and would have spent several weeks wearing those awful temporary crowns.  Although the crowns may not have increased in quality the service has.  End Sidebar.

The dentist or the CAD/CAM provider has trained the assistant to do some of the work.  The technology associated with work changes.  OJT is all of your life.  Accounting, dentistry, and welding will all change.  Some might even go away but if you continue to accumulate human capital you will find opportunities.  As the WSJ says in another editorial:

Lowering the cost of goods and services through automation allows capital—financial and human—to attack even harder problems. Wake me up when we run out of problems.

All manner of folks are solving problems.  Our dentist was able to save us three trips and a few weeks of discomfort.  Now the dental assistant is part of that.  Don’t neglect formal education because these things will eventually become part of it but we need to push OJT even more.

How Can This Be Right?

Kevin Williamson is his usual perceptive self at NRO when he says:

The Republican apparatus may be cowardly, craven, and more than a little corrupt, but it is not the main obstacle toward achieving meaningful conservative reform. The main obstacle toward achieving meaningful conservative reform is the same as the main obstacle to the success of the Libertarian party: Americans do not want what they are selling. The tasks of conservatives is to explain to Americans why they should. It will not be easy.

What is amazing is that he is right.  It has not been easy and it seems to get harder.  Kevin covers the the positive side of what Deidre Mccloskey calls the Great Enrichment.  Although he knows it well, in this article he does not bother to take the time to cover the failure of the alternative that we see so starkly in Venezuela.  Here is the December 2016 Venezuela travel warning from the US Government.  Here are some stories on the economic disaster in Venezuela.  Remember that Venezuela has the world’s largest oil reserves.

So we know that capitalism works and socialism doesn’t.  Why were the 2016 presidential nominees from both parties so repulsed by capitalism?  Why is capitalistic success a hard sell and the hope that socialism won’t fail for the umpteenth consecutive time an easy sell?  We try to stick at it but it is a challenge to point out the obvious over and over again.  We give Kevin credit for creating new and pointed ways to make the obvious obvious.

“Free” Health Care

We are thinking of exploring the Canadian Maritime Provinces this summer.  One of the political and cultural oddities is St. Pierre and Miquelon archipeligo which is French colony just off the coast of Newfoundland in the Gulf of Saint Lawrence.  The French got it from the UK in 1814 and it currently has a population of just over 6,000.  Wikipedia tries to explain the healthcare system:

Saint-Pierre and Miquelon’s health care system is entirely public and free.[58] In 1994, France and Canada signed an agreement allowing the residents of the archipelago to be treated in St. John’s [that is Newfoundland and should not to be confused with St. John, New Brunswick].[58] In 2015 St-Pierre and Miquelon indicated they would start looking for a new healthcare provider as recent rate increases by Eastern Health in Newfoundland were too expensive (increasing to $3.3 million in 2014 from $2.5 million in 2010). Currently Halifax, Nova Scotia or Moncton, New Brunswick are possible locations.[59] [Emphasis added.]

So you might ask: how can something be free and too expensive?  Well, it can’t happen monetarily.  But what is true is that they have a public healthcare system.  That means that the costs are not charged directly to the user of healthcare.  Typically, the users are charged non-monetarily by the need to queue up or the unavailability of services because the folks that pay have to limit costs somehow.  The question remains: why would anyone think that public healthcare is free?

 

Corbyn Tries Rhyming

UK Labour leader Jeremy Corbyn is looking for ideas.  It looks like Jeremy is going for ideas that have been well tested.  The WSJ reports:

In a throwback to the politics of the early 1980s in Britain, the manifesto listed commitments to nationalize railways and water companies and to increase taxes on corporations and the top 5% of earners.

The 128-page document also promised to raise the minimum wage and to create a National Investment Bank with regional branches to finance small-business lending, policies the party hopes will strike a chord with voters wearied by years of sluggish earnings growth and a long squeeze on public spending.

So Jeremy plans to nationalize, tax, and try and pick winners.  It is about as full blown socialism as it gets.  We know what will happen.  Socialism has destroyed Venezuela.  Do we really need a link for Venezuela?  OK but you really need to read more.  Remember that it has the largest oil reserves in the world.  Maggie saved the UK from socialism a few decades ago:

On moving into 10 Downing Street, Thatcher introduced a series of political and economic initiatives intended to reverse high unemployment and Britain’s struggles in the wake of the Winter of Discontent and an ongoing recession.[nb 1] Her political philosophy and economic policies emphasised deregulation (particularly of the financial sector), flexible labour markets, the privatisation of state-owned companies, and reducing the power and influence of trade unions. Thatcher’s popularity during her first years in office waned amid recession and high unemployment, until victory in the 1982 Falklands War and the recovering economy brought a resurgence of support, resulting in her decisive re-election in 1983.

There seems to be disagreement about who said, “History doesn’t repeat itself but it sometimes rhymes.”  Everyone would want credit for such an insight.  We see the socialist, fascists, Communists, and others trying slightly different versions.  It doesn’t work and it won’t.

The persistence of socialism given its record of failure is amazing.  It is easier to understand the hostility towards capitalism despite its success.  Envy is a powerful force in the world.

Blues Learning The Hard Way

In Illinois the newspaper is learning even though the politicos are a lagging indicator.  In Connecticut the politicos are being taught a lesson.  We shall see what learning takes place.  WTNH, News8 says:

Connecticut’s state budget woes are compounding with collections from the state income tax collapsing, despite two high-end tax hikes in the past six years.

It means the current budget year, which ends in just two months, is now seriously in the red and next year’s deficit has ballooned to $2.2 billion.

It’s happening because the state of Connecticut depends too much on its wealthy residents, and wealthy residents are leaving, and the ones that are staying are making less, or are not taking their profits from the stock market until they see what happens in Washington.

The total budget is $41 billion so a $2.2 billion deficit (other reports have it a little lower) is a big deal.  Who would have thought that individuals react to tax policies?  Our only quibble with the report is that we would have changed despite in bold to because of.

Now the question is what will the political leaders and people of the Nutmeg state learn from all this?  Will they try to prevent wealthy residents from leaving like the US tries to prevent corporations from leaving?  Or will they just ride the swings described by the governor:

Governor Malloy added,  “The reality is that in Connecticut we get most of our money from very few people and that can produce some very wild swings.”

It is unclear if the Governor is getting wisdom or just trying to make a politically viable excuse.  It is up to you Connecticut.

Growth In Blue States

Blue States are capable of growth in their thinking and thinking about economic growth of their cities and states.  Here is an excellent editorial (yup, it is an editorial rather than a syndicated column) entitled “Stifling Growth In Illinois” from the Chicago Tribune:

Raising the minimum wage isn’t just a cost driver involving workers in the lower pay brackets. It forces wages up throughout the pay scale.

We know, we know. Raising the minimum wage sounds noble. But discouraging businesses from hiring entry-level workers is a particularly bad idea in a deadbeat, debt-ridden state that can’t pay its bills and leads the nation in outmigration while every Midwestern neighbor is gaining in population. One more time: Illinois desperately needs to expand its economy. To create more jobs, to grow more taxpayers. Pass another piece of legislation that disadvantages Illinois businesses, and lawmakers might as well hang a “going out of business” sign on the Capitol doors.

Sidebar: As a border state do we want Illinois badly governed or well governed?  If Illinois prospers is it good for us because, among other things, they can afford to visit?  Or is it better if all their productive citizens and organizations move elsewhere as the editorial notes with close by being more likely.  We don’t know any evidence on this issue.  It is an interesting and difficult question.  End Sidebar.

It even quotes Milton Friedman.  People and institutions in the bluish states and even deeper blue cities can think rationally when they want.  Here is to the Chicago Tribune!  May they point Illinois and Chicago in the right direction.