Recently in Economics & Law Category

Has technological innovation ushered in a new era of communism?

Communism is the economic theory that describes production of goods under public ownership, their free exchange, and their free consumption by all members of the society according to their needs. That idea, as Ilya Vedrashko observes, is also as the core of Chris Anderson's latest Wired cover story, Free! Why $0.00 Is the Future of Business.

Vedrashko notes that there are "at least two answers to the question whether and how communism is compatible with capitalism" and concludes that "Anderson's are the ideas of Howard Sherman, a radical American economist." In his 1969 paper The Economics of Pure Communism, Sherman wrote:

Marx divides the post-capitalist era into two stages. The first stage is 'socialism,' in which there is public ownership of the means of production and payment of wages according to the amount produced by the worker. The second state is 'communism,' in which there is still public ownership, but worker receive goods according to 'need.' Now there are as many interpretations of the word 'need' as there are of 'communism.'…

Under pure communism, free goods would be produced under public control and ownership, and consumed by everyone according to his desires.

Compare this to Anderson's term "freeconomics."

The rise of "freeconomics" is being driven by the underlying technologies that power the Web. Just as Moore's law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.

Historically, we have thought of communism as public ownership of all enterprises by the government or the nation-state. But what if instead, as in Anderson's article, the goods and services were owned by private enterprises and distributed by a system that nearly eliminates the cost of distribution (i.e., the internet)?

There are indeed significant similarities between "pure communism" and "freeconomics." Because of this resemblance we can look at Sherman's three main problems with pure communism and see how they apply to the freeconomic model:

Almost everyone has heard economics referred to as "the dismal science." And if you took a course in macroeconomics you probably recognize that the appellation was given by the Scottish historian Thomas Carlyle. But what few people realize is that Carlyle coined the term in an 1849 magazine article titled Occasional Discourse on the Negro Question in which he denounced the two groups within the UK who championed the cause of antislavery: market economists and evangelicals.

Today we have become so accustomed to hearing criticisms of free market economics from socialists, Marxists, and other extremes of the political left that we find it difficult to imagine that it being opposed by conservatives. Attitudes toward the market economy, however, have less to do with the political spectrum than they do with the conception of who should retain control over economic life. Progressives, fearing that no one is in control and that powerful will take advantage of the weak, believe the state must step in to prevent inequitable and unjust outcomes. Conservatives (as we would define them today), by contrast, put their faith in the system itself and believe that left unhindered by the state, is sufficient to lead to the best possible end result. Libertarians, who view markets as morally neutral, contend that the individual, when allowed total liberty, will usher in the ideal end state. While all of these positions have some merit, they all ultimately fail when they leave out the most significant reason for putting our trust in the markets: because all control ultimately belongs to God.

Recognizing this fact, however, does not release homo economicus from all responsibility. A market is, after all, merely a mechanism for buying and selling goods and services. And while it is often viewed as highly individualistic and selfish, the fact remains that markets cannot exist without a network of humans in relationship with one another. As with all human interactions, though, our natural proclivity to sin can have a detrimental effect. Market forces and outcomes are prone to injustice and inequitable distribution precisely because man is by nature a sinful creature.

As Christians, we can never embrace any system or institution without being wary of how we are likely to abuse it for our own depraved purposes and rationalize our reasons for doing so. This is the primary reason we cannot fully embrace either a conservative or libertarian view of market economics.

"Money," said Wallace Stevens, "is a kind of poetry." As a Pulitizer Prize-winning poet and president of the Hartford Accident and Indemnity Company, Stevens was familiar with both free verse and the free market. So if Stevens is correct, and money is a kind of poetry, then who are our epic monetary poets, the "poets of the economy?"

As the mid-term elections draw near we will hear countless debates over who is responsible for the flourishing (if a Republican politician) or stangating economiy. But while the President and Congress play a significant role in shaping our material fortunes, we often give politicians too much credit. The true leaders, the poets, of the economy are often found far from Washington, D.C.

I've made a list of the five individuals and the five organizations that I think have had the greatest impact on the economy since World War II. The completely arbitrary criteria I've laid out for the "poets" is that they must have been born after 1900 and cannot be a politician or elected official; for the companies/organizations that they must have been created after 1900 and that they are still in operation today.

My list includes the following:

1. Alan Greenspan (b. 1926) - Former chairman of the Federal Reserve
2. Bill Gates (b. 1955) - Founder of Microsoft
3. Sam Walton (b. 1918) - Founder of Wal-Mart
4. Tom Watson, Jr. - Leader of IBM
5. Ray Kroc (b. 1902) - Founder of McDonald's Restaurants

1. Microsoft - developed software that had a significant impact on office productivity.
2. Wal-Mart Stores, Inc (1962) - transformed both retailing and corporate logistics
3. IBM (1924) - revolutionized mainframe computers and invented the personal computer
4. Bell Labs (1925) - invented the transistor, UNIX, C++ software, etc.
5. The American Legion (1919) -- pushed for the introduction of the G.I. Bill

What names would you include and why?

[Note: I reserve the right to update my list if I find an answer that I like better.]

For the past several weeks the blogosphere has been discussing the incidents involving the "Jena 6." The reporting on the events in Jena by the mainstream media has been disappointing, with the focus being placed on the emotional reactions and protests rather than on the relevant facts.

In order to facilitate a substantive discussion of the case, Laura Curtis and I have decided to make public several documents, including: the official statements from the students and coaches that witnessed the assault on Justin Barker; the statements of Mychal Bell and Jesse Beard; the police reports related to the Gotta Go and Fair Barn incidents; the motion for post verdict acquittal; and a portion of the hearing to deny bail to Mychal Bell.

Every effort has been made to scrub the documents of any details that might violate the privacy of the witnesses.

Misc. Documents

• Convenience Store Incident -- Police statements on the incident involving Robert Bailey, Jr. and Theo Shaw at the Gotta Go convenience store.

Court Documents

• Motion for post verdict acquittal [Note: Because Bell's case has been transferred to the juvenile court system, I've decided to pull this document.]
• Walters' Argument to Revoke Bell's Bail -- Provides the justification for the District Attorney's case for denying bail to Mychal Bell [Note: Because Bell's case has been transferred to the juvenile court system, I've decided to pull this document.]
• State of La v Munoz -- Explains the criteria for determining whether an instrument (i.e., a tennis shoe) can be deemed a "deadly weapon."

Statements of the Accused

• Mychal Bell's statement
• Carwin Jones statement
• Jesse Beard's statement

Witness Statements

• Witness Statement Names Index
• Witness Transcript List -- a PDF containing transcripts of all of the following witness statements.
• Justin Barker [victim] (Sheriff's Department Statement)
• Witness E.S. (Sheriff's Department Statement)
• Coach J.M. (Written Statement)
• Coach B.L. #1
• Coach B.L. #2
• Anonymous student (Written Statement)
• Witness K.S. (Student Statement Sheet)
• Witness J.H. (Student Statement Sheet)
• Witness J.L. (Student Statement Sheet)
• Witness J.L. (Sheriff's Department Statement)
• Unnamed Witness (Written Statement)
• Witness J.H. (Sheriff's Department Statement) (Part B)
• Witness J.H. (Sheriff's Department Statement)
• Witness D.R. (Sheriff's Department Statement)
• Witness L.E. (Sheriff's Department Statement)
• Witness L.J. (Student Statement Sheet)
• Witness D.P. (Student Statement Sheet)
• Unidentified Witness (Part B, Part C, Part D) (Student Statement Sheet)
• Witness K.R. (Student Statement Sheet)
• Witness C.N.H. (Student Statement Sheet)
• Witness M.H. (Student Statement Sheet)
• Witness A.J. (Student Statement Sheet)
• Witness C.P. (Student Statement Sheet)
• Witness M.W. (Student Statement Sheet)
• Witness M.M. (Student Statement Sheet)
• Witness J.O. (Student Statement Sheet)
• Witness J.C. (Student Statement Sheet)

Almost everyone has heard economics referred to as "the dismal science." And if you took a course in macroeconomics you probably recognize that the appellation was given by the Scottish historian Thomas Carlyle. But what few people realize is that Carlyle coined the term in an 1849 magazine article titled Occasional Discourse on the Negro Question in which he denounced the two groups within the UK who championed the cause of antislavery: market economists and evangelicals.

Today we have become so accustomed to hearing criticisms of free market economics from socialists, Marxists, and other extremes of the political left that we find it difficult to imagine that it being opposed by conservatives. Attitudes toward the market economy, however, have less to do with the political spectrum than they do with the conception of who should retain control over economic life. Progressives, fearing that no one is in control and that powerful will take advantage of the weak, believe the state must step in to prevent inequitable and unjust outcomes. Conservatives (as we would define them today), by contrast, put their faith in the system itself and believe that left unhindered by the state, is sufficient to lead to the best possible end result. Libertarians, who view markets as morally neutral, contend that the individual, when allowed total liberty, will usher in the ideal end state. While all of these positions have some merit, they all ultimately fail when they leave out the most significant reason for putting our trust in the markets: because all control ultimately belongs to God.

Recognizing this fact, however, does not release homo economicus from all responsibility. A market is, after all, merely a mechanism for buying and selling goods and services. And while it is often viewed as highly individualistic and selfish, the fact remains that markets cannot exist without a network of humans in relationship with one another. As with all human interactions, though, our natural proclivity to sin can have a detrimental effect. Market forces and outcomes are prone to injustice and inequitable distribution precisely because man is by nature a sinful creature.

As Christians, we can never embrace any system or institution without being wary of how we are likely to abuse it for our own depraved purposes and rationalize our reasons for doing so. This is the primary reason we cannot fully embrace either a conservative or libertarian view of market economics.

"There are three conversions necessary,” said Martin Luther, “the conversion of the heart, mind and purse." Of these three the "purse" is often the most obdurate. The biblical word for conversion is “metanoia”, a Greek term meaning a change of mind. A change of mind and our way of thinking, however, becomes notably more difficult when it comes to issues of money and wealth.

Surprisingly, while Jesus often talked about the subject, we generally lack a theological foundation for our views on money. Too often we Christians simply baptize the economic assumptions that align with our side of the political spectrum. I’m no exception, of course, but because it is often easier to remove the speck from someone else's eye than to remove the log from one's own, I wanted to use an example from my friend Dan Edelen.

His post caught my attention because it was ostensibly about “economic justice issues.” Instead of being about the poor, though, the post was about injustice to the middle class. In his conclusion he writes:

[Note: This article was originally posted in June 2004.]

In an article critiquing Samuel Huntington�s book on immigration, Francis Fukuyama makes an interesting observation about the �new Protestants�:

[Huntington�s] chapter describing "core" Anglo-Protestant values ends up focusing almost entirely on the work ethic: "from the beginning," he writes, "America's religion has been the religion of work." But who in today's world works hard? Certainly not contemporary Europeans with their six-week vacations. The real Protestants are those Korean grocery-store owners, or Indian entrepreneurs, or Taiwanese engineers, or Russian cab drivers working two or three jobs in America's free and relatively unregulated labor market. I lived in Los Angeles for nearly a decade, and remember passing groups of Chicanos gathered at certain intersections at 7 a.m. waiting for work as day laborers. No lack of a work ethic here: That's why Hispanics have pushed native-born African-Americans out of low-skill jobs in virtually every city where they compete head-to-head.

This "work ethic" hasn't always been a fact of history. In fact, until the Protestant Reformation, work wasn�t considered to be an intrinsically valuable enterprise. Greek and Roman cultures held both manual and mental (skilled) labor in low regard. And during the medieval period, the Catholic Church considered �profane� work to be beneath the �sacred� monastic life. (The official position has since changed. See Pope John Paul II's Encyclical on Human Work for the most current stance on the issue.)

It was the Protestant reformers, particularly Luther and Calvin, who helped change the attitude toward work. Both men believed that work was a calling and a means in which believers were able to serve God. This view radically transformed the economic systems and became ingrained in the Reformed worldview and eventually carried over into other strains of Protestantism. During the 18th century, for instance, John Wesley became a a fervent exhorter of work. The evangelist even preached a sermon in which he encouraged believers to �gain all you can; save all you can; give all you can.�

"Money," said Wallace Stevens, "is a kind of poetry." As a Pulitizer Prize-winning poet and president of the Hartford Accident and Indemnity Company, Stevens was familiar with both free verse and the free market. So if Stevens is correct, and money is a kind of poetry, then who are our epic monetary poets, the "poets of the economy?"

As the mid-term elections draw near we will hear countless debates over who is responsible for the flourishing (if a Republican politician) or stangating economiy. But while the President and Congress play a significant role in shaping our material fortunes, we often give politicians too much credit. The true leaders, the poets, of the economy are often found far from Washington, D.C.

I've made a list of the five individuals and the five organizations that I think have had the greatest impact on the economy since World War II. The completely arbitrary criteria I've laid out for the "poets" is that they must have been born after 1900 and cannot be a politician or elected official; for the companies/organizations that they must have been created after 1900 and that they are still in operation today.

My list includes the following:

1. Alan Greenspan (b. 1926) - Former chairman of the Federal Reserve
2. Bill Gates (b. 1955) - Founder of Microsoft
3. Sam Walton (b. 1918) - Founder of Wal-Mart
4. Tom Watson, Jr. - Leader of IBM
5. Ray Kroc (b. 1902) - Founder of McDonald's Restaurants

1. Microsoft - developed software that had a significant impact on office productivity.
2. Wal-Mart Stores, Inc (1962) - transformed both retailing and corporate logistics
3. IBM (1924) - revolutionized mainframe computers and invented the personal computer
4. Bell Labs (1925) - invented the transistor, UNIX, C++ software, etc.
5. The American Legion (1919) -- pushed for the introduction of the G.I. Bill

What names would you include and why?

[Note: I reserve the right to update my list if I find an answer that I like better.]

Earlier this year, the U.S. government's implemented the Medicare Part D drug subsidy program which provides prescription drug coverage for the 42 million elderly and disabled Medicare beneficiaries. With the government now footing the bill, it is expected that the demand for prescription drugs will increase dramatically over the next several years.

In the short term this is good news. Higher demand means more profits which drives stock prices even higher, improving the economy and 401Ks. But the long term consequences may prove to be detrimental. Some financial analysts caution that the program could become a costly expense that could entice the government into imposing price controls on medicines.

There is a solution, however, that could benefit the government, the pharmaceutical companies, and, most importantly, the taxpayer. Rather than bore you with elaborate detail (which I admittedly don�t know), I will simply sketch out in brief outline how the system would work:

If the boy is father to the man, then I was raised by a profligate dunce. Even though I had learned the power of compound interest in high school, I foolishly squandered my trivial savings at a time when the "eighth wonder of the world," as Albert Einstein called it, would have had the greatest impact. Had I invested a mere $2,000 in an index fund at the tender age of 22, I would now be $40,000 richer and well on my way to being a millionaire by the time I reach retirement. Economists might say my choice was rational, but it certainly wasn't optimal.

Fortunately, I had a distant relative--Uncle Sam--that occasionally stepped in to save me from my own economic incompetence. For example, during my first week of Marine Corps boot camp I had to fill out a form in which I had the choice to "opt out" of the Montgomery GI Bill. If I did not check the box I would have $100 a month deducted from my pay for six months and in return I would have $36,000 to use for college. Although several of my fellow recruits chose not to participate, the majority of us took the lazy way out and left the box unchecked. That act of sloth made me $35,400 richer.

My experience was an example of an action taken by what The Economist refers to as the "avuncular state": "worldly-wise, offering a nudge in the right direction, perhaps pulling strings on your behalf without your even noticing." Advocates of this form of paternalistic governance include behavioral economists who term such approaches "asymmetric paternalism", "benign paternalism", "cautious paternalism", or as Cass Sunstein and Richard Thaler, two University of Chicago professors who published an intriguing paper on the topic call it, "libertarian paternalism":