Posts Tagged ‘bureaucratic friction’

Friction

Thursday, January 1st, 2015

Dear Friends,

It seems to me, a bearing is designed to reduce friction so the shaft it holds can rotate with as little loss as possible, adding sand and thus more friction increases loss to the point the shaft fails in service. We all intrinsically understand that friction makes machines break and work less efficiently but for some reason we don’t correlate that effect to our economy. Just as the friction from sand, rust or a failed bearing reduces efficiency and eventually causes failure in a machine, economic friction from taxes, regulations, corruption and having interest rates set by unaccountable people with dubious alliances, all cause an economy to function less efficiently and eventually fail.

Economics to many seems like magic, giving economists the gravitas of Merlin, but like Merlin’s magic, economics is mere pseudo science. Economics tries to explain how an economy works, and prove it understands by correctly predicting future economic conditions, given present circumstances. A tall order by any standard. It’s fatal flaw is that one of the underlying functions of economics is the human being. We are instrumental to economic outcomes. Clearly, in any area of “science” that involves the human being our science is woefully inadequate, especially as compared to our grasp of physics, mathematics and lately astronomy.

It is our lack of perspective about ourselves that makes our research into ourselves, our nature and emotions, reactions, decision making, etc… so difficult. Without comprehensive knowledge of ourselves we cannot ever really call economics a science. Our lack of dispassion concerning ourselves results in our self interests driving our observations. It is self evident that every politician always wants more power, to do whatever she sought power for in the first place, therefore, given a choice of several options she will always choose the option that results in increasing her power, it is in her self interests. Each time this happens the friction to our economy is increased. The effect on the economic outcome of each person is small individually, but the cumulative effect is huge, and the friction adds up.

Money flows through the economy like hydraulic fluid, mechanical energy or electricity flows through a machine. In a machine the engineer strives to limit the resistance to the flow of whatever the energy the machine is processing. In an economy, the engineer is the government the blue prints, government policy. The engineer builds a machine to do it’s function as efficiently as possible but a bureaucrat builds the economy as inefficient as possible. That is because the engineer is using mathematics and physics to build her machine while the bureaucrat has only his self interest to guide him. No matter how schooled in economics he may be, the bureaucrat’s incentives are in the end, self interest. The same hold’s true for politicians only to a much greater extent.

Every tax, license, regulation, requirement, zoning law, etc… requires an entrepreneur to get a lawyer, which costs money and time, multiplying the friction of the initial rule. Where an engineer puts in a bearing a bureaucrat puts in a clamp that he can tighten at will. The politician has hands to grease, and his ability to grease those hands, is based on his ability to effect changes in economic friction. He can tighten down the clamp a bit, so only the largest company in an industry can turn a profit, returning hundreds to one to his corrupt backer, for her campaign donation. At every level of government, friction to economic operation is piled on, and our politicians lament the gap between the rich and the poor.

This is only one of the fundamental problems with the “planned” economy, and why the laissez faire economy does so well… friction. The planned economy is nothing but friction, bribes, restrictions, permissions, the list of impediments to operating a business efficiently, even with virtual slaves as workers are so pervasive, that instead of adding value at each stage of the manufacturing process the system actually destroys value. In other words, the cost of labor and other inputs become so high due to friction, the value of the manufactured good is less than the original cost of the raw material. All due to friction imposed by politicians, because economics is a pseudo science, in the hands of self interested politicians.

We all want a well functioning economy. A well functioning economy produces general prosperity, low crime, advancing standard of living as well as other social advantages like less racism, more virtuous people and a return to the nuclear family as the primary family unit, that is because in a well functioning economy, we are too hard at work getting ahead, to commit crime, if we are selling sofas we could care less if the buyer is African, Asian or space alien, it is the color of his money that counts, the effects of a well functioning economy are many and positive. The way to a well functioning economy then… is to remove friction from our economy.

Sincerely,

John Pepin

I Pencil and Complexity Theory

Monday, October 14th, 2013

Dear Friends,

 

It seems to me, the most commonly known analogy in economics is, I Pencil. This narrative shows that the capitalist system produces things of such complexity it would be impossible for a central authority to do it. Moreover this story illustrates what can be produced at extremely low cost opening up their availability to the masses of people. What is not well known about I Pencil. is that it also illustrates the complexity theory of economics. This is a very important point that the writer of I Pencil couldn’t have known because complexity theory had not been invented. What makes this important for the average person to understand is that it shows the futility of government control over an economy. If we as a people understood this very important concept, we would stop undermining our own economic prosperity by electing progressives, who only seek power and authority over everything.

 

I Pencil. is a story of how a pencil comes into being. If you or I set out to make a 10 cent pencil the cost to us would be extraordinary. The cedar in a pencil is from the Appalachian mountains, the graphite and glue from where ever they are cheapest made, the paint from China, the eraser from rubber made in south America and the brass ferrule from who knows where. For you or I to gather all these components and assemble them into a pencil would be prohibitively expensive, yet they are produced by the market system so cheaply they can be thrown away, if the eraser is worn. All the inputs are from diverse parts of the world, made by diverse people for diverse reasons. The point is they are all available to the capitalist to produce something that is fundamentally different in kind from the original inputs.

 

All of the advancement of Western society has been through the innovation of the market system. Innovation that is made possible by the diverse products the market provides. As new products are made available by the market more innovations are available to the entrepreneur. If graphite were not available the pencil would not be possible. People, not governments, make innovations. Governments stifle innovation through regulations that, while well meaning, serve to undermine the availability of new products. This is usually done to protect some job or politically favored industry. The result is always lower wages, lower productivity and high unemployment. All add up to a lower standard of living.

 

The various inputs to a pencil are manufactured probably for other reasons than to make pencils. Glue is made for furniture and a myriad of other reasons by the glue industry. These divers industries can also be considered components in the complex system that is the market or an economy. These diverse actors in the economy are interdependent, are able to learn, they communicate, and they respond to their environments, IE, the demand for their products versus the cost to manufacture them. Firms within industries are another example of complex actors that lower the granularity of the approach. Each has an interest in creating new products that can be used in new ways.

 

As new products come onto the market more products can be made or perhaps made cheaper. Like the mechanical loom made it possible for the laborer to have a wool coat, because coats became cheaper, new products allow entrepreneurs to come up with new products and services that further improve the lot of Man. The new products are different in kind from the inputs. Like a pencil is different in kind from rubber sap, graphite or cedar, new products that could have never been predicted emerge from old and newly made available products. No one ever born, let alone a bureaucrat, could have predicted that an innovation devised by Bell Labs, the transistor, coupled with another Bell Lab invention, PCM, would enable the innovations we live with today.

 

Just as the digital computer is different in kind from the transistor the transistor must have been invented before the computer would be possible. The original innovation as well as the emergent innovation could only come about under a system of bottom up emergence into a viable product. Once government eliminates the complex system of the economy, breaking it to the whims of the political elite, innovation will necessarily stop. The standard of living of the people of the world will stagnate and then decline. We see this in every nation that has risen up under capitalism and fallen under socialism. England used to be the world’s super power until it destroyed itself with socialist regulation. Japan rose under laissez fair capitalism and now is grinding to a halt under socialistic friction, Hong Kong has maintained laissez fair market regulations and continues to see a steady increase in the standard of living of it’s inhabitants as well as huge immigration.

 

The best way to understand this fact is by watching human emigration. The mass of people move from places where the markets are limited by regulation for whatever reason, socialist, religious, protectionist or any other, to places where the market system is more free to work. That they often undermine the market in their new homes by calling for protectionist measures, socialist “fairness” or demand religious exceptions, is a tragic consequence of freely moving people. That governments go along with these anti market regulations is a sure sign of the decline of that nation. Soon the people will vote with their feet to leave that weakened magnet and are drawn to the new country that has embraced laissez fair. Let it work, should be the motto of every nation on the planet, because it works.

 

 

Sincerely,

 

John Pepin