New Deal or Raw Deal (Book Review)

Book Review, New Deal or Raw Deal by Burton Folsom, Jr., 2008 Threshold Editions (Davison of Simon & Schuster). 270pp plus notes and index

Conventional wisdom among many historians and educators is that Franklin D. Roosevelt's New Deal brought an end to the Great Depression of the 1930s. Those who look at the data realize that is not the case. However many have fallen back on less conventional but still popular “wisdom,” namely that World War II ended that depression. This book disputes both conclusions and in my opinion should be required reading in our schools. As many of our current politicians attempt to duplicate the New Deal we should inform ourselves about what really happened during FDR's administration.

Briefly Folsom shows, with copious notes and data, that the New Deal actually worsened and extended the depression. Furthermore though the war did reduce unemployment, major effects of the depression persisted until Harry Truman dismantled much of the anti-business climate FDR had created.

The book describes FDR's background which may have been the cause of his lack of understanding of business and economics, as well as his dishonest ways. His family on both sides demonstrated a lack of business sense. His father James inherited a fortune but barely maintained it, making a series of poor investments. On his mother's side his grandfather made money selling opium illegally to the Chinese. When he tried honest business he did so poorly that he returned to that illegal business. FDR was raised without being taught basic budgeting or anything else that would have prepared him to deal with financial problems.

FDR was a mediocre student, having a C to C+ average at Harvard. He concentrated on the social-political world of clubs, debates and journalism and ignored subjects like economics that might have prepared him better for his future career. At the same time he regularly misled his parents with out and out lies, claiming to have performed better than he actually did in sports and other events. For example after doing poorly in a race he told his parents he came in forth. He knew his parents would see the school newspaper which listed only the top three finishers. That disregard for truth was also manifest later when he would categorically deny having made certain statements he had in fact made.

The result of all that seems to be a future president who did not like business and did not understand economics. He was, however, very charismatic and persistent. Those characteristics governed his presidency.

The next section of the book discusses the causes of the Great Depression, why what might have been a short-lived economic downturn became the epitome of an economy in trouble. While those causes are complex the three major causes were the Smoot-Hawley tariff bill which caused retaliation from trading partners, very poor decisions by the federal reserve which cut back on the money supply at the worst possible time to do so, and refusal of other countries to repay debts incurred during World War I. (Smoot-Hawley contributed to refusal to pay those debts since debtor countries used that also as retaliation.) Though those causes happened before he took over, Roosevelt did not understand the causes so it is no wonder that his corrective measures missed the mark.

Roosevelt's response to the depression was to crack down on the very businesses that needed to do well in order to increase employment. One of his first measures was the National Industrial Recovery Act, NIRA, later shortened to NRA. That encouraged price fixing and even allowed major players to set prices with the force of law. Some smaller competitors went to jail for undercutting prices so determined. That drove many companies out of business, worsening unemployment.

Other measures such as the Agricultural Adjustment Act had similar effects. By law farm prices were set high with the resulting loss of business to farmers. Particularly bad was the undistributed profits tax which discouraged business investment.

While damaging the economy, FDR managed to gain power and get re-elected. That was due not only to his charm and charisma but also to the way he used the federal budget to influence (many would say buy) votes. States firmly in his favor or firmly against him got little federal money. Swing states were saturated with federal relief money and FDR's people made sure they knew where it came from. They also hired 300,000 WPA workers just before the 1936 election, then dismissed 300,000 soon after that election. Only someone with FDR's charm and charisma could have pulled that one off.

The result was that the depression continued at least until the start of World War II. Unemployment remained high and business was terrible. The war reduced unemployment by putting over 12 million men in the armed forces and many more to work building war materiel. However stock prices remained low and other economic indicators also failed to recover. That changed only when Truman became president and allowed the business climate to improve.

The last two chapters describe why historians have missed the mark on the New Deal, and how it continues to affect us today. Basically historians have mostly favored statism and have indulged in groupthink. Any historian deviating from the conventional wisdom will be dismissed as irrelevant. Meanwhile, the New Deal legacy of big government, high taxes, and distrust of business continues to harm us today.

I strongly recommend this book. There are eerie parallels between what FDR did and what many Democrats want to do today. We should study the effect of the New Deal before trying to repeat it.

Book Review, No Apology bt Mitt Romney

No Apology, The Case for American Greatness by Mitt Romney, St Martin's Press 2010, 309pp plus index

I don't think there is any doubt that Mitt Romney plans to run for president again in 2012 and this book can be regarded as laying out his campaign agenda. However even without that it is a book well worth reading. Today our president is often called the “apologizer in chief.” Many in our government seem offended by the idea that the U.S. is anything special, some going so far as to claim that we should become subservient to the UN. This book provides a breath of fresh air in that regard. Romney makes it clear that he believes a strong United States is good for the entire world, besides being good for our citizens.

As described in this book, the U.S. has been the light to the world in terms of both freedom and technological progress. Our actions drove the Soviet Union to break up and our example has inspired people throughout the world to seek freedom. Meanwhile we have put a man on the moon, developed computers, many medical technologies, etc. While the U.S. is not perfect, it is a shining light on a hill to the rest of the world.

The author describes four strategies (as he calls them) competing in the world today:

1. Economic and personal freedom exemplified by the United States.
2. Economic but no personal freedom, exemplified by China.
3. Use of oil and other natural resources to attain world domination, exemplified by Russia today.
4. The jihad theory of the fanatic wing of Islam that wants to force their version of Islam on others...

Only the first, both economic and personal freedom, will satisfy our citizens, and only that strategy will lead to happiness, freedom, and real progress in the countries where it is practiced.

Today we face serious challenges from the other three strategies, all of which are practiced by tyrants who seek world domination. However the U.S. has never sought world domination, instead we freed and helped nations such as Germany and Japan after we defeated them in wars forced upon us. That is one reason we are an example to the world. However we must face the reality that there are tyrants in the world and those tyrants want to dominate us and destroy our way of life. In Romney's (and my) opinion, the current U.S. leaders are not facing up to that reality. He lays out his own plans for dealing with them.

Domestically we also have problems, including economic freedom, education, and health care. Romney is clear that the Obama health care plan (passed after this book was written) is very different from the Massachusetts plan established while he was governor there and he believes the Obama plan is terrible.

In terms of education, he describes many real reforms that have been effective but are generally blocked by teachers' unions. We should remember that those unions represent their members. They have no duty to represent students or parents and of course do not represent those people. Here Romney believes in hard data and analysis thereof. He believes teachers and administrators must be held accountable and he has data to show results when such is done. In fact he says that there is nothing wrong with teaching to the test if the test really measures what students should be learning. He also wants to encourage more students to study math, science and engineering, areas where the U.S. is falling behind.

Related to education, Romney believes that our economy will fall behind unless we improve education and produce more graduates in the sciences and engineering. We produce many rock stars, actors etc. but must import scientists and engineers. In fact he wants to change the current rules that allow foreign students to get advanced degrees here only on the condition that they leave the country after graduation. That policy deprives us of exactly the people who could move our economy forward.

The author does maintain a positive note throughout. While he describes the problems we face, he also points out that we have faced and overcome problems in the past and the people can do so again.

My biggest criticism of this book is that it does not say much about he author's belief about our constitution. I would have liked to see a description of his belief in the constitution and what he expects in judicial nominees. After all, he belongs to a religion which holds that constitution as at least partly inspired.

Romney clearly believes that the U.S. can and must remain strong, but he also states that the Democratic Party is working against that. “On almost every policy issue that would have an impact on our nation's strength [the Democratic Party] chooses the course of weakness. It justifies the choice by insisting that it is attempting to help the disadvantaged, but in reality, surely the most important thing we can do for the disadvantaged is to sustain a strong, prosperous, and safe America. Too often, I fear, the Democratic Party is focused less on the disadvantaged than on union bosses, trial lawyers, environment extremists, and the self-interested who want higher government benefits for themselves paid for by higher taxes on others.” (p290)

I recommend that all citizens read this book before the next presidential election. Even should Romney not be the Republican nominee, it lays out some points that we should consider. Should he win that nomination it will describe what we can expect from him.

A Good (Economic) Doctor?

Suppose you’re sick and have had a mild fever for a couple of days. A friend tells you about a wonderful new doctor. This physician has a great personality and wonderful bedside manner. His credentials sound good and he promises the most effective treatment. You set up an appointment. The doctor examines you and prescribes the latest medication, one reputed to solve your problem quickly. Very nice – except that your temperature goes up and you feel worse for a week. However the doctor is so nice and has such a good personality that he is able to comfort you.

Now next year you get the same sickness but that doctor is not available so you go to a different one. This guy is not nearly as personable. Worse yet, he refuses to prescribe any medication saying that your illness will clear up on its own in a few days. You argue that you need treatment but he continues to refuse so you go away angry. However within two days you are again well.

Which of those doctors is really competent? Which should you trust next time you get a similar disease? If you answered the second, go to the head of the class – and be prepared to endure criticism for that choice.

“What's that?” you say. Nobody would continue to trust a doctor who makes things worse. Are you sure about that? Some actually prefer a physician who provides emotional support to one with less personality but better medical skills.

Now change the situation a bit. This time the patient is the national economy, disrupted by business failures and unemployment. Shouldn't we prefer an economic “physician” who refuses to provide ineffective treatment? Isn’t that better than comforting words accompanied by counterproductive solutions? Yet it is nearly an article of faith today that the measures that have failed repeatedly are the only solution to our economic woes and that the “do-nothing physician” is either incompetent or uncaring, probably both.

Our history has several examples of economic problems, both with and without federal intervention to fix those problems. That intervention has a terrible track record, yet most people assume it is necessary. That track record began with the intervention leading up to and during the Great Depression. Prior to that time we had suffered many economic downturns, all short-lived. Then Hoover and congress reacted to the stock market crash of 1929 with punitive tariffs, wage controls, and other intervention. Roosevelt increased the government controls. Interestingly, unemployment was trending downward when the Smoot-Hawley tariffs were imposed which means that the treatment was not applied until the patient was already improving.

In fact unemployment was never higher than 10% before those government measures. However by a year after that intervention unemployment rose to nearly 30% - and remained above 20% for nearly three years thereafter. The patient was worse but the doctor claimed his treatment was working. In fact the depression did not end until World War II intervened.

Contrast this with Reagan’s action (or lack thereof) after the 1987 stock market crash. Reagan refused to intervene and as might be expected was excoriated for that. Politicians and the news media publicly called him everything from inept to uncaring. We can only imagine the unprintable words they used in private. A lesser man would have caved to the pressure but Reagan held firm. His stubbornness was followed by sustained growth and low unemployment.*

What is hard to believe is how effectively the proponents of government economic intervention have sold their bill of good. Today it is considered axiomatic that government should manage the economy although there is essentially no evidence that government has ever done so effectively. We keep insisting that the doctor should act, even after his treatment repeatedly worsens the illness.

Only when voters demand that government cease meddling will our economy recover quickly from the normal ups and downs of this natural world.

(For more information on the benefits of avoiding inappropriate action, see
http://hallillywhite.blogspot.com/2009/06/dont-just-do-something-stand-there.html)

*The intervention by Hoover, Roosevelt and congress, and Reagan’s different approach are documented on pp 70-74 of Thomas Sowell’s book, Intellectuals and Society. Contrary to popular belief, Hoover did intervene and was in fact rather proud that he considered himself the first president to deal with a deteriorating economy.

A Market Economy

Last time I pointed out some major problems with a managed economy, problems, which are and promise to remain intractable. Human ability simply does not extend to being able to manage even a small part of the economy, much less the entire thing.

“But wait,” some will say. “What about the problems of a market economy? Don't private companies create surpluses by over production or shortages by underproduction? Don't they sometimes have quality problems or even have to lay off employees?”

All that is true. A market economy is messy for several reasons, most of which also provide advantages to the citizens. There are good reasons to prefer a market economy.

For one thing, a free market facilitates innovation by allowing, even encouraging, individuals and businesses to take risks. Any time large numbers of people take risks some are going to lose. However some will win and those winners drive progress. That is one reason most of our inventions, from electric lights to personal computers, are the product of market economies. That innovation is a messy process, one that often offends those who like to control everything, but it does work to our benefit.

Controlled economies can produce a few showpiece projects such as the Soviet space program, but they do not produce the consistent advances that come from free markets. Indeed controlled economies militate against innovation. They tend to protect existing industries which requires that they discourage competition from innovative newcomers. Computers, for example, have essentially wiped out the typewriter industry and eliminated the jobs of people who used to build typewriters. Could the personal computer have been developed successfully in a country where bureaucrats allocate resources and determine which products will be produced? That is unlikely, and it would certainly have taken longer under such constraints.

The fact is that older products will always have a larger constituency than will innovative ideas. The new ideas start small and must compete with established enterprises, many of which have significant clout with government authorities. The people who depend on older industries will always outnumber those who want the innovation to move forward. This effect also plagues corporations with most large companies finding it difficult to be truly innovative. (I intend to write a blog on that subject soon.)

A related benefit of the market is that it prunes the deadwood. Inefficient, non-competitive enterprises fail and their resources become available to those that are more to the taste of the consumers. In a controlled economy, such deadwood is often protected and continues to waste resources.

Another benefit of a market economy is that it is more effective than one that is controlled from the top. Individual business owners or managers are closer to their customers than are government bureaucrats. They are more likely to notice changes in customer preferences and to react accordingly. If a city is plagued by a particularly hard winter, the local shoe store is likely to order up more boots and warm socks while the local clothing store stocks warm coats and other clothing. The bureaucrat, removed from the scene, may just send the same merchandise as was sold last year.

The local store owner has not only the knowledge but the motivation to meet customer needs. If he doesn't do that, his business will decline and he may face bankruptcy. However the bureaucrat is a third party decision-maker, he neither wears the shoes from the local store nor loses money if they do not sell. His incentive is to meet the quotas someone else imposes on him.

The effectiveness of a market system means that market systems often create a land of plenty for the people. While controlled economies such as the USSR or China (before the introduction of market reforms) are typically plagued by shortages, free markets such as the U.S. often face the problem of surpluses. As a consumer, I prefer a surplus.

Yet another reason to prefer a market economy is freedom. In a market economy, each person has a right to seek the employment of his choice, subject only to opportunity and his ability. Then he can spend his money as he prefers. Nobody sets a quota of so many bakers, so many movie stars, or so many carpenters. Nor does any bureaucrat decide what kind of shoes a logger or an office worker shall wear. In fact, if a computer technician wants to wear hiking boots to work, he is free to do so as long as his boss does not object – and many have done just that (a source for several jokes about such employees*).

In my opinion, freedom is the most compelling reason to prefer a market economy. The United States of America was founded on the belief that individuals are free to make their own decisions. Handing economic decisions over to the government eliminates a most important part of that freedom. Our work, where and how we live, indeed most important aspects of our lives are all controlled by our economic decisions. We have the right to make those decisions for ourselves. We should defend that right from well-intentioned politicians.

Oh Lord, protect us from those would protect us from ourselves.

*One such joke claims that no good computer operator would ever engage in any sport that requires changing clothes. That eliminates sports such as tennis or jogging. However hiking or mountain climbing are OK and many such employees wear their lug soled boots to work in case a mountain should suddenly spring up in the middle of the computer room.

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Intellectual Arrogance and a Managed Economy

Last time I told about Bessie, the pony who was smart enough to open gates and steal grain but not wise enough to know that such antics could get her in trouble. She died painfully by eating seed oats, treated to kill pests. Like Bessie, we humans can be too smart for our own good. While we should not shrink from difficult tasks, we should also realize that there are some things that remain beyond our ability. That is probably nowhere more apparent than when we try to manage things we cannot fully understand. One such area is the economy.

“But wait,” you say. “We have lots of economists in this country. Surely they understand the economy.”

No they don't, at least not in the detail necessary to manage everything for our benefit. Nobody does. There are just too many factors for any person or group of people to get a handle on all of it. That is one reason that managed economies like that in the Soviet Union were such failures. By trying to determine how much of each product would be produced they created shortages of every commodity except misery. The intent was good but the task was beyond human ability. The economy is just too complicated and interwoven to be managed efficiently.

Consider even a small segment of the economy, something like shoes. How would you manage the production of shoes for your country? Obviously you need to know how many are needed and in what sizes. You would look at numbers of children and adults, how many male and female and of what ages are in the populace. However that is only the start. People need different kinds of shoes, some for the office, some for construction work, some for farming etc. Children need shoes suitable for play and everybody should have some suitable for exercise.

What about preferences? Are you going to allow different styles? Will you provide for hikers, skiers, boaters and other special needs? If so how will you determine how many of each should be produced? Will the country's rulers get better shoes than the janitor in the school? There are probably hundreds of shoe types possible, each needed in twenty or more different sizes. Produce too many of a size or type and some go to waste, too few and someone goes without.

Even if you are able to determine how many shoes of each type and size to produce, your task has only begun. Where will you get the raw materials, the equipment, the facilities, and the workers to make those shoes? You need leather for the uppers so you need to be certain that enough cattle are slaughtered to provide that leather. In the process you may upset your co-worker who is trying to provide enough milk for the country. You may also upset another co-worker who manages meat and is already plagued with an excess. You need machinery for your shoe factories, but for that you compete with another co-worker who is trying to equip coat factories.

Those problems multiply for every component of your shoes. Shoe manufacturing draws on nearly component of the economy, mining, machinery, agriculture, transportation, etc. Furthermore, each component you need raises similar questions. The farmer cannot produce cows for your leather without feed and land for those cows. The land that provides his hay can also be used to produce carrots, potatoes, cabbage etc.

The result is that the entire economy is tied together by competing supply chains. A change in any demand can cause shortages or excesses in seeming unrelated commodities. An extra demand for ice cream can cause farmers to keep marginal dairy cows instead of sending them for slaughter. That can cause a shortage of leather which in turn causes a shortage of baseball gloves. Children with no baseball gloves may turn to other pursuits and cause shortages of other toys. Meanwhile manufactures of baseball bats may suddenly find that they have produced more than the market will consume.

That sort of thing spreads throughout the economy. Every item in the grocery store requires a myriad of inputs before you put it on your table, and every one of those inputs competes for resources with other things.

In theory all that is governed by mathematical rules called differential equations. However even the simplest differential equations require calculus and can be difficult to solve. The equations that govern the economy are not simple, they can involve hundreds of terms and many of those terms are not precisely known. Worse yet, because of the interdependence in the economy, all those equations are coupled together. You cannot solve just one, you have to solve nearly all of them at the same time. The math required would be horrendous, even if we knew enough to write the equations.

So do you think you could successfully manage shoe production for a country, or even a village? If not, think of the difficulty of managing an entire economy, all those complicated equations with terms not precisely known, all of them coupled together. No wonder managed economies don't work. In fact it doesn't work to manage even part of an economy. Because of the interconnectedness of the whole, you cannot change one part without causing changes throughout. Many of those changes will be unanticipated and often your best intentions will create problems.

Unfortunately that difficulty (impossibility really) does not prevent some from trying to impose a managed economy on their countries. There are people with enough intellectual arrogance that they think they can do it. I believe that arrogance comes from a combination of lack of understanding of the problem and what Sowell calls the unconstrained vision, or the vision of the anointed. Such people simply do not recognize their own limits and thus feel free to overstep their abilities at the expense of the citizens.

A market economy clearly has its problems but those are seldom as severe as what a group of smart but unwise people can do if they try to replace it with a managed economy.

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The Simple Life, Part 2

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A couple of days ago I discussed how our complex society allows us to live simple lives. It takes the efforts of many people even to provide the number 2 pencil for which we pay only a few cents. Yet nobody deliberately organizes all those people to do the work. Each simply does his job in order to be paid. Most don’t even know that they are helping to make pencils.

We might compare this economic organization to a human body. Countless cells perform specialized functions, most with no central direction. Lung cells move oxygen into the blood and remove carbon dioxide waste, receiving in return the nourishment they need for their own lives. Yet those lung cells are certainly unaware that the oxygen they provide sustains the heart, the brain, the muscles and other tissues. Likewise cells in the stomach and small intestine digest food and move it into the blood, providing nourishment to every part of the body. Yet the stomach cells know nothing of how their nourishment is used, they only do their job in exchange for the oxygen and other things they need. That goes on throughout the body; different cells form organs that do their jobs without knowing how the products of their work are used. In exchange those cells receive the nourishment and waste-removal services they need to live.

Whether you believe in evolution or divine design, your body is a wonderful system. Now suppose you are approached by a gifted surgeon who offers to make a few improvements. He thinks it is not fair for the brain and heart to get first call on available oxygen and food. Surely the feet deserve as much consideration as does the brain, after all your feet help the whole body get around. Why is the body so arranged that when you get cold circulation slows to the feet and they get cold while the brain and heart stay warm and nourished? To each according to his need and the feet have needs just as does the brain.

Would you accept such modifications of your body? Probably not, who could foresee the unintended consequences of his “improvements”? It would be worse if the person offering to operate were a lawyer instead of a surgeon. Yet we have politicians worldwide insisting that they know best how to improve economic matters.

The interesting thing is that a great number of those politicians are lawyers and very few ever seriously studied economics. Somehow they seem to think that knowledge of legal matters qualifies them to tell the rest of us how to run our businesses. In fact the U.S. government has just appointed a new chairman for General Motors – and that man has no experience in the auto industry. We can hope for the best, after all that company has a major effect on our economy. However I’m afraid I can’t be very optimistic in this case.

Why should government dictate business practices? Many think that such control will lead to fairness and prosperity, but why should that be so? Such a belief requires that government officials be:

a. Able to consider all the appropriate factors and make wise decisions, and

b. Moral enough to put the needs of others above their own.

I do not believe we can trust any mere human to meet those requirements. The economy is so complex that no person can understand all its details. How does he compensate for weather that affects crops? How does he allow the risk taking necessary to developing new products without also allowing waste? How does he distribute compensation to best motivate people to do what will benefit the population? Such a person will face many more questions, all unnecessary if individuals are left free to manage their own affairs.

Nor can we trust people in power to be totally altruistic. They are quite as human as the rest of us and just as subject to temptation – nay more so because their positions of power protect them. I find it amazing how many people complain about greedy business executives and yet are willing to trust their welfare to government employees. They seem not to realize that those government employees are quite as human as are the businesspeople.

Is the free market perfect? Of course not, there are greedy executives and other problems. However the market at least allows a choice. If you don’t like the cars Ford makes you can buy a Chevy or Toyota, or even not own a car at all. Government allows no such choice. Don’t like public schools? Too bad. You can send your children to a private school but you still have to pay for the public school you do not use. It’s as if you had to pay Ford when you buy that Toyota.

Government is necessary for some functions. We need national defense as well as a local police force. We need a road system and it is not practical for private enterprise to provide it. However when government starts meddling in affairs that the people themselves can manage, we are headed for trouble. That is why a country like Soviet Russia, with tremendous natural resources, became so poor under communism. Well-intentioned people “performed surgery” on their system and the result was poverty and misery for the vast majority of the people.

Before we ask government to meddle in our economic system we should think about what might be the result. It is likely to be as bad as having that surgeon change the way our bodies work.

The Simple Life of You, Part 1

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Some people complain about how complicated life has become today, they long for the simple life of earlier times. There is even a pretty good movie about the subject (“The Simple Life of Noah Dearborn” with Sidney Poitier). Unfortunately that simple life wasn’t so simple. Consider a typical day in my life compared to that of my great-grandparents who lived a hundred years ago on a farm in the western U.S.

I get up in the morning, flip a switch and have light instantly. Grandpa would get up and light a lantern. He had to refuel that lantern regularly with coal oil. The coal oil had to be transported by train or horse-drawn wagon to the store nearest to him.

If its winter my thermostat keeps my house at the temperature I chose. I can even have it allow the house to cool while I sleep and then warm it up just before I get out of bed. Grandpa had to chop wood, then feed it into a stove and build a fire to warm his house. If he was lucky he might buy coal and not have to chop the wood.

An indoor toilet takes my body waste away and I don’t even have to think about it. Grandpa had to dig a hole and build an outhouse over it. In winter, he and Grandma had to expose their nether regions to the cold every time nature called.

I turn take a shower in warm or hot water, heated without my even thinking about. In that shower I use soap I buy from the store. Grandma would heat water on the stove for a once-a-week bath for the family. She used ashes to make that soap herself. The water was either pumped from a hand-dug well or hauled from the creek.

I might make my breakfast using food purchased with one quick trip to the store. If my wife decides to make pancakes she uses a mix and an electric griddle. Grandma had to get up early, light the stove, mix the ingredients, and cook breakfast over that wood or coal stove. Many of those ingredients came from the cow, chickens and pigs they cared for, or the crops they raised.

The rest of a typical day is similar, my great-grandparents daily lives were much more complicated than mine. They had to know how to care for animals, plant, care for and harvest crops, butcher a pig, build a fire in the stove and on and on and on. They were very self-sufficient but that self-sufficiency required a wide variety of skills. My daily life, on the other hand, does not require nearly that diversity of skills. The gas company sees to it that I have gas to heat my house. The electric company provides the electricity to turn on my lights, wash my clothes, and power my computer. Other businesses provide for my other needs and desires.

In effect I have delegated most tasks to professionals, including the butcher, the electrician, the baker etc. That frees my time so I can do my own specialized work. The fact that I live in a complicated society allows me to live a simple life. Grandpa’s life was complicated because he lived in a simple society. I may add complexity to my life by the job I do or the activities I participate in, but that is my choice. The necessary tasks of daily living are much simpler for me than they were for my great-grandparents.

As an example of how I benefit from our complicated society, consider the number 2 pencil with which I so unthinkingly write notes to myself (I seldom write them to others because my handwriting looks like an explosion in an ink factory). A simple item, easily made, right? Nope. The production of that pencil is a complicated process, involving the work of people in many parts of the world. I’ll not attempt to describe it here, but I do suggest that you read “I Pencil” by Leonard E. Read. You should be able to find it easily on the Internet (another complexity of our society which can simplify our search for information). That little story is a bit dated but still describes the complexity of making pencils. Of course more advanced products require even more complexity in their manufacture. It would be mind-boggling to list all the people who have contributed to the computer on which I’m writing this.

And just who provides overall organization for all the people who make my pencil? Who decides that the logger should provide cedar, the miner provide copper and zinc for the ferrule, that the man in Ceylon (Sri Lanka) should dig out the graphite, all to produce a pencil? Nobody. Each does a job to earn his living and most don’t even know the ultimate use of what they produce. The logger doesn’t care if that tree he just cut is going to shingle a house, make pencils, or some other use. His motivation is the paycheck he gets, not my ability to write a note to myself. It is the same with the man digging the graphite. He may not even know how to write, but does know that he will get paid for his work.

As Adam Smith said, “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

Our society and economy has developed over time to provide for our wants. If people in a certain town want more bread, that provides incentive for the existing bakery to increase production or for a new baker to set up shop. If the only bakery in town overcharges, a competitor is likely to see the opportunity and set up shop to sell at a lower price. In the technology area, if a company can produce a new product at a price people are willing to pay, that product will help the company make a profit, to the benefit of both customers and the company.

Books can and have been written on this subject, but here let us simply remark that our society has evolved in such a way as to provide most of what we need at a price we are willing to pay. Nobody directed that evolution, it just happened as different people found that they could profit by satisfying the desires of others.

Our question today is what we do with this complex, self-organizing machine we call the economy. I’ll get to that soon, but probably not tomorrow since I want to use my next blog to celebrate Independence Day.