Ludwig von Mises, a mentor to Friedrich Hayek and a major figure in economics in his own right, set out his views on capitalism and inequality in a slender book (just 113 pages) called The Anti-Capitalistic Mentality. First published in 1954, and readily available online for less than $10, it is well worth reading today.

Mises’ treatise on why capitalism sits in the dock, falsely accused of various crimes against humanity, is a classic: bravely saying what still needs to be said. It offers a robust rebuttal to the jaundiced view of capitalism found (most recently and conspicuously) in Thomas Piketty’s Capital in the Twenty-First Century.

In The Anti-Capitalistic Mentality, Mises asks: Why do so many people “loathe” capitalism? He gives a threefold answer.

The first factor is simple ignorance. Few people credit capitalism for the fact that they “enjoy amenities that were denied to even the most prosperous people of earlier generations.” Telephones, cars, steel-making, and thousands of other advancements are all “an achievement of classical liberalism, free trade, laissez faire, and capital” — with the driving force being the profit motive and the deployment of capital used in the development of better tools and machines and the creation of new products. Take away capitalism and you wipe out most or all of the extraordinary progress that has been made in raising living standards and reducing poverty since the dawn of the Industrial Revolution.

The second factor is envy, the green-eyed monster, which causes many people to think they have gotten the short end of the stick. As Mises observes: “Capitalism grants to each the opportunity to attain the most desirable positions which, of course, can only be attained by the few … Whatever a man may have gained for himself, there are always before his eyes people who have outstripped him … Such is the attitude of the tramp against the man with the regular job, the factory hand against the foreman, the executive against the vice-president, the vice-president against the president, the man who is worth three hundred thousand dollars against the millionaire, and so on.”

And finally, the third factor is the unceasing vilification of capitalism by those who seek to constrain or destroy it. As Mises notes, the critics and anti-capitalists go on telling and re-telling the same story: saying that “capitalism is a system to make the masses suffer terribly and that the more capitalism progresses and approaches its full maturity, the more the immense majority becomes impoverished.”

Indeed, that is the story Piketty tells in his book, which has soared to the top of the New York Times and Amazon best-seller lists. Does inequality rank as the great defining issue of the twenty-first century? If you agree with Piketty, it does. He contends that disparities in income and wealth are spiraling out of control, setting the haves- against the have-nots. Without “confiscatory” taxes to create a new social and economic equilibrium, he warns, today’s democracies may ultimately collapse, taking capitalism and the capitalists down with them.

Piketty makes much of the seeming fact (some dispute his statistics) that those at the highest levels of income in the United States have claimed a sharply rising share of total U.S. national income over the past three or four decades. From there he leaps to the conclusion that the vast disparity in income between the top 1 percent and the bottom 90 percent will lead over time to the emergence of a new “patrimonial capitalism.” With nothing (save perhaps violent revolution) to worry about, the heirs to big fortunes will turn into a new class of rentiers, living off the rent they receive from owning land and other forms of capital.

In his analysis, it is set in stone that return on capital (r) outstrips economic growth (g), which means that the heirs to great fortunes stay on the fast track to even greater wealth – without even having to work – while the lower and middle class are condemned to economic stagnation or utter hopelessness. His little formula, r>g, is supposed to be one of the great takeaways from the book, but it points up one of the problems of presenting a far-too-static picture of how people behave in a competitive marketplace.

That would not have escaped Mises’ attention. Mises would have challenged Piketty’s assumption that the heirs to great fortunes would manage their money wisely, or that they would have the same success as others (more driven than they) in searching out the best investments. Mises maintained that “the dull and stolid progeny” of people who built business empires were likely to “fritter away” their heritage and “sink back into insignificance.”

Under a capitalist system worthy of the name (meaning, to Mises, a competitive market economy free of the crippling effects of state planning and controls); it is neither the powerful industrialist nor the rich investor who calls the shots; it is ordinary people in their capacity as consumers. Through their “buying or not buying,” consumers provide “a daily referendum on what is to be produced and who is to produce it.” They have the whip hand – the power to “make poor suppliers rich and rich suppliers poor.”

One may almost pity the poor capitalist portrayed by Mises. However hard he might work or fast he might run, someone is probably gaining on him. At all times, other suppliers are striving to unseat the incumbents by discovering new and better ways of serving their customers. In comes a Wal-Mart or Target and out goes a Sears or K-Mart. It is a battle fought with an unending supply of fresh recruits, and it is never the case (as Piketty claims) that “The past (i.e. wealth accumulated from previous success) devours the future.” Rather, it is the future (whatever the next big thing may be) that replaces the present with something better.

In The Anti-Capitalistic Mentality, Mises states unequivocally: “Nobody is needy in the market economy because of the fact that some people are rich. The riches of the rich are not the cause of the poverty of anybody.”

Look at the fastest-growing countries in today’s world. Is there not a natural compatibility – as opposed to an inherent contradiction – between major advances in the standard of living in some countries and the ability of their most enterprising citizens to make spectacular gains? That is what has happened in China as a result of economic liberalization: the number of Chinese billionaires has skyrocketed (and is now close to the number of U.S. billionaires), while hundreds of millions of people inside China have worked their way out of poverty.

Is it true – as Piketty contends – that we are witnessing a hyperconcentration of wealth inside the United States?

It might be true if the people with the highest incomes remained the same from one year to the next – over an extended period of time. But they are not the same people. Just as Mises would have expected, it is an ever-changing cast of characters. A recent report from the Tax Foundation data shows IRS data on people reporting a million dollars or more in income over a nine-year period. Fully half of these people made a one-time-only appearance. Only 15 percent of them reported at least a million in income two of the nine years and only 5.6 percent made it all nine years.

There is no danger of an oligarchy of the rich taking shape here to rival the power and permanence of the landed aristocracies in the pre-capitalistic France and Britain. (Note: This assumes that governments do not intervene, as they have been doing, to favor certain groups and enterprises. For more on how government increases income inequality, see Frank Hollenbeck’s article on income inequality, and Andreas Marquart’s work on this topic.)

But there is something else to worry about – something that caused Mises to lose sleep. That is the thought that the natural tendency under capitalism “towards a continuous improvement in the average standard of living” will be stymied by a growing “absence of capitalism” due to “the effects of policies sabotaging the operation of capitalism.” Among those perverse policies, Mises pointed to credit expansion, gunning the money supply, and raising minimum wage rates. Still more, he railed against progressive policies that diminish individual choice and leave more and more economic decision-making in the hands the state. Mises’ greatest fear was that people would “renounce freedom and voluntarily surrender to the suzerainty of omnipotent government.”

Ironically, the most ardent proponents of big government are those who carry on the most about inequality. Do they want nothing more (to paraphrase Churchill) than an equal sharing of misery?

Andrew B. Wilson is a resident fellow and senior writer at the Show-Me Institute, a free market think tank based in St. Louis, MO.

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This presentation covers three main points: what caused the Great Depression; what caused it to go on for so long; and how did we finally get out of it.

Many believe that the cause was the stock market crash of 1929, which caused the Great Depression and a laissez-faire approach toward the crisis, ultimately making things worse. However, that is incorrect. In fact, while the crash started the crisis, it was a series of well-intentioned but poorly thought-out government actions that turned a sharp recession into a depression.

This presentation details how, in fact, President Roosevelt built upon the policies of President Hoover to combat the Depression. However, these policies did not get the country out of the Depression. In reality, it took a combination of events, including World War II, to actually end the Depression and restore strong economic growth. After watching this presentation, you will have a better understanding of that era in American history and the effects of public policy on the economy.

Download the slide show

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In his State of the State address on Tuesday evening (Jan. 17), Gov. Nixon mentioned jobs no fewer than 39 times.

By way of comparison, former U.S. President Ronald Reagan mentioned jobs only six times in his first State of the Union address in 1982 — when the U.S. economy was reeling from the effects of a downturn of comparable magnitude to the 2008-2009 recession.

In his 1983 State of the Union, Reagan mentioned jobs eight times, and then just five times each in his 1984 and 1985 addresses — delivered in the midst of the most robust economic recovery of the post-World War II era, a two-year span in which the United States added 7.3 million new jobs.

So perhaps the governor (and the current occupant of the White House) could take a less-is-more cue from the late president in thinking and talking about job creation.

There is much to be learned from the sparingly few remarks that Ronald Reagan made about jobs in his State of the Union speeches.

With unemployment at 9 percent and headed to a peak of 10.8 percent, Reagan spoke in his first State of the Union of the need to unleash the private sector through lower tax rates and reduced federal spending: “Raising taxes will slow economic growth, reduce production, and destroy future jobs. So, I will not ask you to try to balance the budget on the backs of the American taxpayers.”

In 1983, he noted that “We’re witnessing an upsurge in productivity and impressive evidence that American industry will once again become competitive in markets at home and abroad, ensuring more jobs and better incomes for the nation’s work force.”

In 1984, as the economy was beginning to boom, Reagan delivered one of the most quoted lines of his presidency: “The problems we’re overcoming are not the heritage of one person, party, or even one generation. It’s just the tendency of government to grow, for practices and programs to become the nearest thing to eternal life we’ll ever see on this earth.”

In his fourth State of the Union — delivered February 6, 1985 — Reagan reiterated the principal themes from his earlier addresses, saying, “Every dollar the federal government does not take from us, every decision it does not make for us will make our economy stronger, our lives more abundant, our future more free.”

In contrast to Reagan’s extraordinary success in boosting employment following a major downturn, employment in Missouri continues to lag about 150,000 jobs behind where it was before the onset of the 2008-09 recession.

To his credit, Gov. Nixon did talk about the need for balancing the state budget, holding the line on taxes and “making government smaller, smarter and more efficient” — worthy goals, all of them. Without giving specifics, he also spoke of the need for “comprehensive tax credit reform.”
Unlike the late President Reagan, however, Gov. Nixon speaks of the private sector as if it were a willing but slow student — putting himself (and government) front and center in the role of providing much needed direction and encouragement to the dim-witted pupil.

Missouri Rep. Tim Jones (R- Dist. 89), who serves as majority floor leader, made a similar mistake in the Republican response to the governor’s address.

“A true leader fights for every job, every time,” Jones said.

If that were the case, we still would be “fighting” to preserve jobs in the buggy-whip industry.

The fact is, at both the state and national levels, jobs are continually created and destroyed and politicians and government leaders have no way of knowing from where the jobs of the future will be coming.

The real key to our future prosperity is freedom — the right of every individual to control his own labor and property. People are able to find their own way when freed from the shackles of overreaching and overbearing government.

Andrew B. Wilson is a resident fellow and senior writer at the Show-Me Institute, which promotes market solutions for Missouri public policy.

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It does not appear from the article that the owner is considering a relocation to Missouri. Perhaps if we did not have an income tax, he would think about hopping across the Mississippi River for his new corporate HQ. Who knows?

I didn’t like this line in the article:

Liautaud said he has been contacted by “multiple pro-business states” that made him feel “wanted and important.”

“I enjoy being courted and the process,” he said.

It is not the role of government to court select individuals. Government should set the tax rate as low as possible, let markets operate as freely as possible, and regulate as little as possible. Then economic opportunities will arise that people actually want, although those opportunities might not be what some economic development officials want. A charming, mixed-use condominium complex and upscale shopping district is not superior to a factory, a strip mall, or a nightclub if these other types of developments better satisfy people’s actual needs and wants.

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Show-Me Institute policy analyst Dave Roland provided this testimony to the Clayton City Council for a hearing held on May 12, 2009.

One of the reasons that America has long been known as the “land of opportunity” is that its citizens are understood to have the freedom to make decisions for themselves. Rather than having their lives dictated to them, as is the case in so many nations across the world, Americans engage in the pursuit of happiness by cultivating an extremely broad array of tastes and interests. We don’t have to enjoy the same kind of foods. We don’t have to listen to the same kind of music or watch the same television channels. We don’t have to have the same haircuts or wear the same types of clothing. We have the freedom to seek out the foods, music, TV channels, haircuts, and clothing that make us happy, and that is something to be celebrated!

This sort of freedom is particularly good for American entrepreneurs, as it allows them to cater to the interests of different groups of people — and by serving the interests of their patrons, they end up serving their own interests through the profits they generate. As you all are aware, businesses succeed or fail based on their ability to provide goods and services that people enjoy. In the context of restaurants, if they make visiting their restaurant enjoyable by offering quality food and the environment that their customers want, they will succeed. If people don’t like the food or the environment the restaurant offers, it will either have to change or it will fail. Because American businesses are so plentiful and because they are allowed to be so diverse, the competition for customers makes it very likely that the customers’ preferences will be identified and reflected in a community’s businesses.

Of course, a restaurant’s style of cuisine is only one factor that goes into people’s decisions about where to eat. Diners may also consider the expense of the menu or the ambiance of the dining room, including whether the establishments permit smoking. For the one in five Americans who smoke cigarettes, this is a pretty big consideration — if a business doesn’t allow smoking, it may well lose 20 percent of its potential customers. But this same question may also be a big consideration for a number of nonsmokers, and many may choose not to go to a restaurant if it allows smoking.

Currently, the businesses in Clayton have the ability to cater to each of these groups, and they make their decision about whether or not to permit smoking based on what they perceive to be their customers’ preferences. As a result, there are a number of Clayton restaurants (such as Il Vicino, Café Manhattan, and Remy’s, to name just a few) who believe that they can attract more customers by promoting a smoke-free environment — they actually see it as a competitive advantage that they can offer something that other nearby restaurants do not! Meanwhile, a number of other restaurants believe that refusing to allow smoking in their restaurants will cost them more customers than they would gain by making such a change. It’s a balance that each establishment must evaluate for themselves. If these businesses choose wisely, they will prosper. If they choose poorly, they will suffer.

All of this having been said, I believe that there are really two issues at work with those who are promoting the proposed smoking ban. On the one hand, there are those who truly believe that secondhand smoke is so dangerous to the community’s health that it must be restricted for everyone’s good. I don’t have time tonight to discuss why this ordinance insufficiently meets that concern, so I hope you’ll go to www.showmeinstitute.org to see my thoughts on that matter. But the second issue, and the one that I believe to be far more common in this community, is that while a great many of Clayton’s nonsmoking diners are perfectly willing to tolerate smoking in restaurants, they do consider it an annoyance. They think they might enjoy their dining experience a little bit more if it were smoke-free — but, as of right now, the annoyance caused by smoking is not enough for them to give up the things they really like about their favorite Clayton restaurants. Keep in mind that no one is forced to patronize or work for restaurants that permit smoking. If people were seriously concerned about the health implications of others’ smoking in the restaurants they patronize or work in, they would demonstrate their concern by taking their business or their labor elsewhere. And, gradually, more and more restaurants would go smoke-free in response. But, as of yet, the vast majority of diners in this area haven’t done that. So, ultimately, I just can’t believe that most of the public support for this ordinance is really so much about protecting the community’s health as it is forcing all businesses in this town to conform to the preferences of only part of the population.

Forced conformity might make some people happy, but it is fundamentally un-American. It would be a poor decision for Clayton — or any city — to adopt such a policy based on this sort of thinking.

Related Links

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In the example of gasoline, which I do believe is unique, the demand could be high due to events not directly related to the price of gas, such as 9/11. Many bought gasoline on that day or the day after for fear that prices would rise in the future. What happened, however, is that some gas stations took advantage of the increased demand and jacked up their prices. […]

But gasoline is unique for many reasons: (a) demand is usually very high and relatively constant/predictable (b) practically speaking, one can only buy so much gasoline at one time (c) gasoline is a dangerous substance (d) gasoline is absolutely vital to the national economy (e) gasoline is product derived from an internationally traded commodity at which level prices already reflect speculation of higher/lower demand and supply.

None of these reasons is call for government intervention in gasoline markets. When the government intervenes in the market for a good by controlling the price, it causes artificial shortages and surpluses, and it also obstructs resources from being put to their highest use. Overall welfare is maximized when prices are allowed to represent relative values accurately.

1. If the level of demand is high and constant already, then why should the government focus on protecting it from volatility? Price “gouging” is simply a misleading term for supply and demand. By increasing their prices in response to higher demand, gas station owners are simply capturing excess consumer surplus.
2. All resources are scarce and finite. This is not an attribute that is unique to gasoline.
3. The role of government doesn’t entail protecting individuals from products that they consume voluntarily. Practically every activity or product can be potentially harmful — smoking cigarettes, consuming raw milk, crossing the street — and individuals weigh the risks against their associated benefits. There is a risk that the gas station will ignite when I am filling my car with gas, but if I don’t fill it up, I can’t easily get places.
4. Gasoline may be an important source of energy in the status quo, but substitutes exist (e.g., electricity, ethanol, geothermal, etc.). If the price of gasoline increases in the future, this will provide an incentive for entrepreneurs to seek other substitutes and to improve relevant processes.
5. This is another attribute that is not unique to gasoline. A considerable percentage of the goods and services that people consume are internationally traded. Should the federal government protect the price of bananas or wine from volatility? It would not be feasible for the federal government to regulate prices in all of these markets.

Prices coordinate individual action efficiently by communicating relative scarcities and preferences, as I have discussed previously. However, government officials knock the price system out of equilibrium whenever they decide to subsidize or restrict an economic activity. When the government knocks the price of a good or service out of equilibrium, it results in a misallocation of resources. In other words, resources no longer go toward their highest use.

Changes in price are important for allocating scarce resources. This is why the price for plywood increases during hurricanes — individuals living in disaster-ridden areas have a higher demand for plywood than, say, a person building a treehouse elsewhere in the country. Because the former individual has a more critical need for the resource, he or she is willing to pay more for it. Those who think that the price has grown too high will refrain from buying the product, which leaves more available to be purchased by those with a higher willingness to buy. In the absence of externalities, a sudden rise in price levels does not represent market failure, so even theoretical economic rationales for government intervention don’t apply.

The post Government Should Not Be in the Business of Preventing Price Gouging appeared first on Show-Me Institute.

Later this month, Gov. Jay Nixon will travel to Taiwan and South Korea in order to lobby to them to buy Missouri agricultural exports. Previously, I discussed how this would lead to the subsidization of foreign consumers by Missouri taxpayers. From an article in the Kansas City Star:

On Wednesday, Nixon announced that a trade mission planned for Dec. 10-16 was expected to produce a letter of intent with Taiwanese businesses that will agree to buy Missouri corn, soybeans and other products during the next five years.

At a rate of about $120 million of exports a year, the new agreement would outpace the $69.1 million worth of exports Missouri sent to Taiwan in 2009.

The governor is traveling to Taiwan with the intention that it will influence their government’s public policy decisions. My fingers are crossed that the direction of this knowledge transfer will be in the reverse. Policymakers in Missouri can learn much from Taiwan.

Hopefully, this trip will serve as an opportunity to learn that Taiwan has developed rapidly and meets the needs of its citizens well because it enforces public policies that embrace the free market. If the state government in Missouri were to remove itself from arbitrarily picking winners and losers in the market, the economy would achieve a greater rate of growth. As I have commented before, centrally planned economies have not worked historically, and there is little reason to believe that they will work any differently in Missouri.

I encourage the governor to watch Free to Choose, a multipart PBS television series by Milton and Rose Friedman from the early 1980s that communicates how the economy benefits from free-market principles. Perhaps it would make for good viewing on the flight to Taiwan. (And he might be further interested to know that Arnold Schwarzenegger, a governor from another mother, provides a commentary to the updated 1990 version of the series.)

The first episode, in which Dr. Friedman visits Hong Kong, is particularly relevant to this trip to Taiwan. Friedman explains that Hong Kong has experienced success because it has established basic economic policies that are rooted in free market principles — principles that would benefit Missouri as well. From Friedman’s narrative:

This thriving, bustling, dynamic city, has been made possible by the free market — indeed the freest market in the world. The free market enables people to go into any industry that they want; to trade with whomever they want; to buy in the cheapest market around the world; to sell in the dearest around the world. But most important of all, if they fail, they bear the cost. If they succeed, they get the benefit and it’s that atmosphere of incentive that has induced them to work, to adjust, to save, to produce a miracle. This miracle hasn’t been achieved by government action — by someone sitting in one of those tall buildings and telling people what to do. It’s been achieved by allowing the market to work. Walk down any street in Hong Kong and you will see the impersonal forces of the market in operation.

By increasing American imports to countries like Taiwan, China, and India, the rising living standards in those regions will continue, and this will lead to the demand for more American goods. This change does not require the lead of the government, however. It happens spontaneously and incrementally in unrestricted markets. Missouri could achieve a higher annual rate of growth if it stopped subsidizing and protecting favored industries and instead let the free market work.

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This is a message that he has communicated frequently of late. From an article in the Missouri Watchdog:

New state Sen. President Pro Tem Robert Mayer, a Republican from Dexter, said discussion on tax credits “needs to happen.” But when pressed on how soon that discussion would take place in the upcoming session of the Missouri General Assembly, Mayer demurred.

“First, we need to get to work on job creation and see what we can do there,” Mayer said.

Government programs that are intended to induce job creation and economic activity have negative unintended consequences, such as crowding out private investment. This is a concept that Henry Hazlitt discusses in his classic work Economics in One Lesson, a book that I encourage policymakers in Missouri to read. Even though the book was first published more than 60 years ago, at present the lesson it teaches is no less relevant:

When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. Instead of thinking only where bridges must be built, the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? lt soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries. […]

[The bridge] is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $1,000,000 the taxpayers will lose $1,000,000. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been per­mitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, radio technicians, clothing workers, farmers.

Basic economic forces, not government programs, determine job creation. Only by getting out of the market can the government truly further its goals of job creation and productive economic activity.

In his comments, the senator sets up a false choice between job growth and tax credit reform. Job creation will occur when the overall cost of doing business in the state decreases, and this can be partially accomplished by reining in tax credits and widening the tax base. Once employers don’t have to subsidize other companies or prop up entire industries with their tax monies, they will be able to hire more people and grow their businesses.

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I find it interesting that Dairy Management is funded by levies imposed on farmers, while the federal government has paid hundreds billions of dollars in subsidies to farmers. Two market distortions do not a free market make; instead, they further distort the market. A simpler and more efficient way for the government to decrease dairy consumption would be to eliminate subsidies to the dairy industry. This would cause consumer prices to rise naturally, which would in turn lead individuals to consume less. There are many problems in public policy, and a great number of them are government-created. The solution is not more government, but less.

I also find it morally questionable interesting that Dairy Management focuses on exporting the very products that have been deemed too unhealthy for domestic consumers. Again from the article:

Dairy Management, which reported expenditures of $136 million last year, also received $5.3 million that year from the Agriculture Department to promote dairy sales overseas.

When the government subsidizes one thing and taxes another, individuals change their consumption as a consequence. No one knows the optimal mix of goods and services — your guess is as good as mine (or as good as a government official’s, for that matter). Individuals could achieve higher levels of welfare if they were allowed to choose for themselves the bundle of goods and services that they consume.

Incidentally, the Show-Me state has historically played an instrumental role in propping up dairy prices. From the first article (emphasis added):

For years, the federal government bought the industry’s excess cheese and butter, an outgrowth of a Depression-era commitment to use price supports and other tools to maintain the dairy industry as a vital national resource. This stockpile, packed away in cool caves in Missouri, grew to a value of more than $4 billion by 1983, when Washington switched gears.

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The latter half of DIY U is about the many ways in which innovators (“edupreneurs”) are trying to give students new and better options. Established educational institutions want to sell students a big (and usually very expensive) bundle of education and credentials, but innovators are trying to unbundle those services and sell them separately at much lower cost–or even giving them away.

For example, there is Western Governors University, an online university that costs students less than $6,000 per year. WGU was formed in 1999 and instead of simply following the usual procedure of organizing academic departments in the traditional fields, officials convened a council of employers and asked, “What is it that graduates you’re hiring can’t do that you wish they could?”
[…]
All of this is about unbundling. If you walk into a grocery store wanting just one or two items, you can get just those items. If you want just one of two items of education, you shouldn’t have to buy a whole cart-full of courses. Kamenetz likes the idea that individuals should be able to customize education to suit their particular needs and desires. So do I.

One big problem, though—in a society that has become credential-crazed, how do people who get their education in unstructured, informal ways (I thought of writing “non-traditional” but when you think about it, this idea is very traditional, going back to the ancient Greeks) show that they have a base of knowledge? College degrees don’t necessarily betoken any learning, but they’re better than trying to explain that you got a lot out of the various topics you studied online when the employer insists on a B.A.

“Accreditation and assessment, the source of the ‘sheepskin effect’” she writes, “is proving the toughest nut to crack.” Innovation may crack it, though. Today, students can compile and publish a portfolio to demonstrate their knowledge and capabilities by using free software like WordPress and Drupal. Since the college degree is no longer a very useful screening mechanism, if a few employers would start saying to applicants, “Don’t show us where you’ve taken courses, but instead show us evidence that you’ve learned something that would be useful here,” the dam may break quickly.

Notice what is absent in this vision of the future of higher education. It involves no government subsidies, regulations, or even institutions. What makes it work is voluntary cooperation and the free market’s fabled discovery process. Students will learn more at far less cost. Laissez-faire will produce enormous benefits if existing institutions don’t strangle the educational freedom movement in the cradle.

Of course, the “traditional” college is primarily a product of tremendous government subsidization. Very few people attended colleges prior to World War II, but attendance rates skyrocketed in the late 1940s through the 1960s with soldiers using G.I. Bill funding to obtain degrees, and their Baby Boomer children — often funded by the newly created Pell Grant — following soon thereafter. Attendance rates continued to grow to the present, but now many of those who attend college never finish, and the focus of college has shifted from a liberal education to a form of halfhearted career training. Ending these subsidies could put emphasis back on older forms of education, like apprenticeships and trade schools, which could focus on practical arts without betraying their stated missions.

The post The Future of Higher Education? appeared first on Show-Me Institute.

So if Ford develops an all-new vehicle, it’s investing about $3 billion before it even builds the production line and hires and trains the workers to put the vehicle together.

Woe is Ford! It has a high cost of production! Boo hoo!

I have no sympathy for the company and its high cost of production, given that it made $2.6 billion in profit in the second quarter alone and forecasts even more growth in the immediate future. (By comparison, the $150 million in tax credits that the Missouri legislature decided to give Ford is just a drop in the bucket!) Cars and trucks may be costly to produce, but they are also associated with high marginal revenues that cover this cost.

The debate on subsidizing Ford could benefit from a refresher on the theory of the firm.

This $3 billion investment for a new vehicle is a one-time upfront cost, and because Ford produces vehicles in very large quantities, that cost is diffused. Ford is making billions of dollars in profit, so we know that the marginal cost of producing a car is lower than the marginal revenue. Ford is a firm that operates in (what is supposed to be) a competitive industry; the perfect competition ideal is illustrated in the following graph:

Ford in the Short Run

If, perhaps, Ford finds that the marginal cost of producing a vehicle is lower than the price it can charge, it will lose money and will eventually choose to leave the market. Other firms that are able to produce the good at a lower average cost will enter the market instead because they can realize profit. This is how the competitive environment is supposed to work.

It would be beneficial if, instead of providing subsidies to profitable companies like Ford, the Missouri state government took a laissez-faire approach. Consumers would benefit, because they would be able to purchase goods at a lower cost instead of subsidizing private firms with their tax dollars. Producers in other industries would also benefit, because they would not be forced to compete at an artificial competitive disadvantage.

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I have a different perspective on the story. Although the city is cracking down on selling pretzels at that particular intersection, it is not banning the sale of pretzels in any other location. According to a recent story by Fox 2 on the subject, the city will take a laissez faire approach in the future:

“We’re not out looking for them, we didn’t put it on our hot list, I don’t have an inspector driving by every day. Our inspectors have plenty to do,” [Streets Director Todd Waelterman] explains. “You know if someone comes out here starts selling again and we receive a complaint, we’ll be back. If we don’t receive a complaint, we’re not planning on coming back.”

In this situation, the policy of looking the other way has many positive consequences. South City doesn’t become a generic, pretzel-less area; it can retain a feature that’s specific to Saint Louis. It secures a job for the vendors, and also generates business for a locally owned firm. Additionally, consumers win because they can get a pretzel fix without driving too far out of their way. Furthermore, instead of cracking down on pretzel vendors, the city can concentrate on bigger issues, like reducing crime and fixing the streets.

I applaud the city for taking a hands-off approach, and I hope that this is predictive of a larger trend of encouraging entrepreneurial activity in Missouri.

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