Economics & Finance

“Protocols” and Wealth Creation

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Here’s David Brooks, writing in The New York Times:

In the 19th and 20th centuries we made stuff: corn and steel and trucks. Now, we make protocols: sets of instructions. A software program is a protocol for organizing information. A new drug is a protocol for organizing chemicals. Wal-Mart produces protocols for moving and marketing consumer goods. Even when you are buying a car, you are mostly paying for the knowledge embedded in its design, not the metal and glass. (via Isegoria)

Read the whole thing. The argument that Brooks is making here is very similar to the argument made by Rich Karlgaard of Forbes, which I critiqued in my post myths of the knowledge society.

In summary: The 19th and 20th centuries were also “knowledge economies” (in Karlgaard’s formulation) or “protocol economies” (in the Brooksian terminology). The value of a Boulton & Watt steam engine was not in the “stuff” it was made out of (which could be purchased for a far lower amount than you would pay for the steam engine itself) but rather for the design knowledge contributed by James Watt and the manufacturing process knowledge (protocol knowledge) contributed by Matthew Boulton..and for innumerable additions to that knowledge base by their employees. To take a more recent example, the early 20th century assembly line as implemented by Henry Ford, and the kinds of precise work planning and industrial engineering developed by Taylor and the Gilbreths, certainly represent “protocols” just as much as do Wal-Mart’s supply-chain management procedures.

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Paying Higher Taxes Can Be Very Profitable

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Chevy Chase, MD, is an affluent suburb of Washington DC. Median household income is over $200K, and a significant percentage of households have incomes that are much, much higher. Stores located in Chevy Chase include Tiffany & Co, Ralph Lauren, Christian Dior, Versace, Jimmy Choo, Nieman Marcus, Saks Fifth Avenue, and Saks-Jandel.

PowerLine observes that during the election season, yards in Chevy Chase were thick with Obama signs–and wonders how these people are now feeling about the prospect of sharp tax increases for people in their income brackets.

The PowerLine guys are very astute, but I think they’re missing a key point on this one. There are substantial groups of people who stand to benefit financially from the policies of the Obama/Pelosi/Reid triumvirate, and these benefits can greatly outweigh the costs of any additional taxes that these policies require them to pay. Many of the residents of Chevy Chase–a very high percentage of whom get their income directly or indirectly from government activities–fall into this category.

Consider, for starters, direct employment by the government. Most Americans still probably think of government work as low-paid, but this is much less true than it used to be. According to this, 19% of civil servants now make $100K or more. A significant number of federal employees are now making more than $170,000. And, of course, the more the role of government is expanded, the more such jobs will be created, and the better will be the prospects for further pay increases.

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“Bastiat’s Iceberg” — an article by Sean Corrigan

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“Bastiat’s Iceberg,” is a fascinating article on economic crisis, recommended by The Cobden Center (“for honest money and social progress”).

Toby Baxendale, at The Cobden Center, on 21 December 2009, writes: “Sean Corrigan of Diapason Commodities Management packs more sound applied economics into this report than ever.” It’s an interesting way to think about the economics of Hayek’s “extended order” and the dangers of commanding it to reorganize itself.

Download the report —this will trigger the download of a 1.6 MB pdf file.

Baxendale’s summary & commentary.

Corrigan, on planners (chateau generals) and entrepreneurs (frontline officers), from the article:

In their Olympian disdain for the little man whose very breath they nonetheless now yearn to regulate, they are congenitally oblivious to the truth that the World can thrive without them: that, absent their heavy-handed interference, its form is highly articulated, intrinsically adaptable and — yes — partly redundant, but therefore gratifyingly robust.
 
These Planners who so plague our modern lives are all, at root, chateau generals, arraying their coloured counters in textbook fashion in the sandbox; serenely isolated from the mud and gore at the front; disastrously behindhand in their decisions; hopelessly divorced from the harsh realities of the fray — all failings which, of course, do not discourage them in the least in their pretence at deciding the destinies of the many.
 
The shrewd commander of the storm-troop, by contrast, is ever alert to the fact that the ‘want of a nail’ is emblematic of military failure and so remains conscious of the importance of logistics — of the necessity for the smooth functioning of that extensive rear-area ‘Tail’ … to the delivery of combat power by the armed ‘Teeth’ in the battlezone. He also lives by the dictum contained in von Moltke”s lapidary phrase that ‘no plan survives first contact with the enemy’ and so knows that there is always a need for hands-on officership, for what we might usefully call an ‘entrepreneurship of war’.
 
If even the starchy Junkers of the Prussian army could learn to delegate as much responsibility as possible right down to men with their noses in the dirt — a doctrine known as ‘Auftragstaktik‘ — why is it that, in civilian life, a drearily intrusive economic prescriptivism has been able to live so far beyond its many failures in the crucible of history?

http://explorersfoundation.org/glyphery/492.html

December 25, 2009

Nicely Put

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The current Barrons (12/28) has an interview with fund managers Kevin Duffy and Bill Laggner, two guys who seem to have a gift for expressing themselves well and concisely. A few excerpts:

Barron’s: You’ve said that perhaps the most redeeming feature of capitalism is failure. Please explain.

Duffy: Any healthy system needs a way to correct error and remove waste. Nature has extinction, the economy has loss, bankruptcy, liquidation. Interfering in this process lengthens feedback loops. Error and waste are allowed to accumulate, and you ultimately get a massive collapse.

Capitalism is primarily attacked by two groups: utopians who wish to impose a more “compassionate” system, and political capitalists who want to enjoy the fruits of success without bearing the pain of failure. They use the coercion of the state to gain privileges, at the expense of everyone else.

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Put Up or Shut Up

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I haven’t been paying much attention to the whole Copenhagen climate summit debacle because my doctor told me that I should watch my blood pressure. Good advice, as even the few details that have leaked through my self-erected Wall of Silence threatens to blow the top of my head off.

A few weeks ago, back on Dec. 11, it was announced that the European Union was going to pony up $10.5 billion for aid to developing countries so they would be able to fix power-wasting infrastructure, and invest in cleaner technology.

But that cash wasn’t going to be passed out all at once. It was going to be doled out over three years. If my grade school math skills haven’t degraded away to nothing, then it seems to me that the EU will spend $3.5 billion per year.

It may be simple enough in concept, but it certainly isn’t enough in reality. The figure needed to actually make a dent in the increasing amount of pollution produced by the developing world will start at around $100 billion a year. And that money will have to be raised and passed around every year for pretty much forever!

Where is that kind of scratch going to come from?

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