Ideas Matter

Keynes's Magic Dipping Ladel

John Maynard Keynes probably didn't mean to supply justification for any road to serfdom. But he did. We're left with a mythology of job creation that only creates phantom jobs -- namely visible jobs contrived from the largess (but corresponding invisible job losses somewhere else). This is what happens when you divert resources from productive uses to less productive uses -- all in the name of "stimulating" the economy.

Capitalism: Reinventing Everything

It's Friday and thank you-know-who. I thought it would be sporting of me to drop some light-hearted fare on you. This Toyota ad is fun. But it has a kernal of truth we should keep with us after the laughter subsides. Watch it, then come back to us after the fold.

Mavens, Connectors, Evangelists - What are you?

Entrepreneurs create value in society. But there are different types of entrepreneurs. An interesting way of understanding types of entrepreneurs comes from Bijoy Goswami, Malcolm Gladwell and -- originally perhaps -- from the The Baghavad Gita. 

Recall that in Gladwell's The Tipping Point there were three basic behavioral types for spreading messages. But as Goswami points out in the video above, these “core types” hold in business, too. Indeed, in just about every sphere of life. The core types are Mavens, Relators and Evangelists (MRE).

Joseph Stiglitz: Nobel Laurels Tarnished

If you're going wear the Nobel Laurels, you'd better know what you're talking about. I don't think Joseph Stiglitz does in this case. And you can only hide behind those fading laurels for so long.

Silicon Valley or Austin: Whither the Tech Clusters?

Posting will be light until Wednesday. Your humble editor is in Silicon Valley, having left Austin for a couple of days. Weirdly, I ran across this video about the two tech clusters and wondered: What makes it more or less likely a tech cluster will emerge? Where are places like Silicon Valley and Austin headed given differences in their tax and regulatory climates?

Matt Ridley, Mobile Labor and Value Creation

Readers of this blog know that Matt Ridley is one of the few people for whom I'll break my five minute length rule. This talk is worth it, I think. It has tons of good stuff: trade and specialization; anti-Malthusian optimism and an evolutionary lens through which to see a world that is getting better all the time.

I was talking to my aunt the other night. She's a bright woman, but she lives in a rural area with relatively high unemployment. I made a passing comment about how importing more talent from abroad is a good thing. She replied: "But what does that do for our country? What about people still without jobs here?" My first response to what I saw as the protectionist instinct was: "That's not my problem." My less tribal, somewhat more cosmopolitan instincts don't see borders when it comes to goods, services, capital and people (with some exceptions). 

Steven Johnson: Ideas, Recombination and the Adjacent Possible

Hold on tight. We're going to talk about ideas (about ideas). So it could get complicated. But Steven Johnson is onto something in describing the way good ideas can happen. And I would argue that the more we pay attention to how good ideas can happen accidentally, the more we can be conscious -- at the meta-level -- of the way we're generating ideas. For if we do, we can accelerate the process of development for all sorts of good things in our lives.

Tim Ferriss: Applying Economics to your Work Life

Full disclosure: I've never read Tim Ferriss's book. I know, I know. I'm one of the only 15 people who hasn't bought The Four-Hour Work Week. So my response here will be just to the video. And what I found interesting about this idea is it's another example of applying economics inside your organization.

Senator B.S. and the "Made in America" Trope

Our friends at ReasonTV have a new video featuring Senator Bernie Sanders (D-VT), who recently beat up on the Smithsonian Institution for selling products made in China. Senator B.S. would have us all spend much more money on trinkets purportedly to "create American jobs." The man-on-the-street footage suggests how deeply embedded this fallacy has become. (An attractive Australian woman from the Cato Institute explains why mercantilism is dumb policy. Very clever indeed. I guess we'll let her stay and take one of our 'merican jobs -- along with Sergey Brin and Pierre Omidyar.)

Like the zero-sum fallacy, the make-work fallacy is a tough one to explain to the man on the street. Of course, if I had my druthers, the Smithsonian Institution would be auctioned off to the highest bidder. So when the lady on the street says "it is our tax dollars," she is not being totally unprincipled. But the basic idea of gains from trade eludes most people. So also does the make-work fallacy... How many times have we heard the allegory of the broken windows? About digging ditches with spoons? Or -- on protectionism -- how many times have we heard someone point out that if such policies are so prosperity-enhancing, perhaps we should buy only products from our own states? What about our own counties? (Great idea! reply the locovores.) Evidently, it's not been enough. We have to repeat and repeat and repeat...

 

Trade Creates Wealth? Opportunity cost, brain pain

Comparative advantage still hurts my brain, but Art Carden explains it well above. So if it hurts your brain, too, watch the video twice and it should hurt a little less.

At Free To Choose Network, we tried to come up with a phrase to capture the concept in a sticky way that requires a little less brain pain. We settled on a common saying: "Do what you do best and trade for the rest." But that, of course, doesn't capture the complete idea -- especially the bit about opportunity cost. That doesn't mean the phrase is not useful for getting kids started thinking along these lines. But it's just a rule of thumb. We acknowledge it's not sufficient.

Take, for example, some activities within an organization:

There is a mid-level manager who needs to send faxes. Understanding comparative advantage, the office secretary says the manager's time would be better spent working on his big (potentially profitable) project, not sending faxes. The secretary insists on sending them and the manager agrees.

A week later the manager returns and hands faxes to the secretary who then declines to send them. The secretary explains he's working on getting something wrapped up and sent to a major client by deadline that day. Suddenly, the opportunity cost to the secretary (and the organization) of sending faxes for the manager is much larger. It's better for the manager to send the faxes in this case.

Sometimes, it has less to do with who's "best" at sending faxes or doing projects. It's more an issue of what activity costs the organization a more profitable activity, at what time, and in what context.

So what is a sticky phrase for all this? I'll get back to you.