Monday, February 26, 2007

EVERYTHING COMES AT A PRICE

Everything comes at a price, but the price you have to pay may not always involve money. At the very least, you still have to ask before you receive. And asking is not easy; there's a cultural style to asking, protocol, and it could be very embarrassing at times to ask your brother for help. So just because you may not pay money doesn't mean you don't pay a price in terms of at least taking the time and courage to properly ask permission to obtain someone else's private property.

Some people may say, "You only have to ask me once to come get coconuts off my land". Others may instead say, "You have to come and ask me every time before you pick coconuts off my land." Or some people may have strings attached other than just asking. They may want you to clean their plantation or cut their lawn in exchange for permission to get take the fruits of their labor.

Our culture revolves a lot around the "fa'amolemole" and the "fa'afetai", and the humbleness that goes into the understanding that you can't just take other people's stuff. People find value in cooperation and charity as long as it's on their terms, not those set by government. Controlling prices, however, negates that understanding and creates the assumption that people don't have a right to set the terms by which they will exchange their property.

The Togiola Administration and the Senate's price control measures are destroying the foundations upon which our culture and society operate. If the government doesn't respect an individual, group or business's property rights, then why should the average citizen? Perhaps the government's disrespect for private property rubs off on our youth who show an equal lack of respect when they throw trash around the island, stone street lights and spray paint bus stops.

The ASG operates as if it were not held by the same standards as the rest of us. If they had some integrity and some honor, they would humbly ask retirees and pension members before raiding their retirement fund over and over again.

Asking is relatively a small price to pay, but it goes a very long way. Please do it.

Friday, February 23, 2007

FAMILY VALUES

Could you imagine a family who was always in debt? Wouldn't we say that that family should prioritize their spending to pay their bills on time? Forgo the SUV, the church or the fa'alavelave, and keep their promises to exchange money for the goods and services they have received.

What if this family wrote to Samoa News to say that cutting spending on one habit or the other would only hurt the economy, because their dollars wouldn't be spent in this or that store? Would we consider that a valid excuse to bail them out time and time again?

If a family is not responsible for their own bills, wouldn't we see this irresponsibility spill over into other aspects of their lives? If not held responsible for payment, then by what standard would they be held by in school, in their community, in marriage and so on? I think that the rise of welfare has a correlation with the rise in dropouts, gangs, out-of-wedlock births and divorces. Irresponsibility is not good for the economy nor not good for your own personal life.

If a family could not set the example as being responsible and ethical citizens of our territory, paying their bills on time and focusing their resources on their priorities first, should we not treat their criticism of other families' irresponsibility and unethical behaviors with indifference?

A house that is inconsistent, irresponsible, unethical and hypocritical surely cannot stand.

The Senate is not a model for our families and our children to live their lives. I agree with Savai'i P. Amito'elau's suggestion of term limits for senators, but I believe the election process through district council provides us with safety from popular mood swings, whether they're right or wrong.

Monday, February 19, 2007

Ayn Rand at 100: When Will Businessmen Learn Her Lessons About Politicians?

Edward Hudgins and Fred L. Smith, Jr.


She called businessmen "America's persecuted minority." And today -- as has been the case at least since the start of the Industrial Revolution -- many businessmen and -women feel they are the victims of a special scorn directed at them not because they cheat or steal but, rather, because they grow wealthy through their own honest efforts by producing goods and services that they sell to willing customers. Politicians translate this disdain into higher taxes, regulations, and special criminal penalties on these producers.

On the centenary of her birth, Ayn Rand remains a unique defender of capitalism. She showed in both her magnum opus, Atlas Shrugged -- published in 1957 -- and in her non-fiction essays the disastrous effects of mixing politics with economics. But she went further than other laissez-faire advocates, emphasizing the moral foundations of economic liberty. In this way, she provided an even deeper understanding of how freedom is lost and how it might be protected or restored.


Beginning with the Basics

Most entrepreneurs do not appreciate just how desperately they need moral philosophy. For example, Microsoft founder Bill Gates, whose innovations produced the information revolution, found the Clinton administration's Justice Department prosecuting him for alleged unfair business practices. Gates knew he was simply trying to make a profit by leveraging sales of his software. But within days of his company's conviction, he was sitting next to President Clinton in the White House speaking about the importance of business charity, showing that he -- Gates -- is really a nice guy. Gates did not understand that he was perpetuating the unjust code that was perpetrating injustice against him.

Where thinkers start usually tells one where their philosophy will end up. Karl Marx was Rand's antithesis, and his premises still inform the thinking of statists of all parties today. Marx maintained that politics must start with the fact that "man must eat." We are ruled by our need for nourishment, by our stomachs, by the particular means by which we secure our daily bread -- through farming or working in factories -- by the tools that we do not so much employ as employ us. Since Marx treated men like cattle, his concern was not about the well-being of each individual; rather, he focused on the good of the herd, of "humanity" in general. Because material goods are a social, not individual, product, all property should be owned by "the people" as a whole, not by individuals, and wealth should be distributed not according to merit but, rather, according to need. Marx thought that in some future utopia, economic forces would somehow produce a "just" distribution of wealth, but until then a dictatorship would be necessary to do the job.

Ayn Rand was born in Russia on February 2, 1905, and witnessed the horrors and mindlessness of the communist revolution firsthand. It is thus no surprise that, in contrast to Marx, she began with the fact that "man must think." We humans -- unlike lower animals -- must create the means of our physical survival, and the only way we can do this is by using our reasoning minds to understand the nature of the world around us and to apply that knowledge to create the food, clothes, shelter, medicine, and everything else that we need not only to sustain our lives but to make them comfortable and enjoyable. Indeed, Rand defines "production" as the application of reason to the problems of human survival. The key to our survival is our brains!

Further, we are all unique individuals, of value as individuals, not merely as part of some collective, whether class, proletariat, or race. We each must think as an individual. But thinking is volitional, not automatic; we each must choose to exercise our mind, to discipline our appetite, in order to achieve our goals in life. In other words, we are masters of our own fates.

Those facts mean that wealth is not the product of some undifferentiated collective entity conditioned by the tools of production but, rather, of thinking individuals, some of whom produce more, some less. Thus, we as individuals in society with others must be free to act on our own judgment, to pursue our own well-being, as long as we do not initiate the use of force or fraud against others. In Rand's words, "Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned." Private property rights are indispensable. If we each must obtain permission from our neighbors or "society" to secure the physical means of our survival, we are all merely slaves to one another. In a capitalist society, all relationships and exchanges are governed by contracts between consenting parties. Thus, the purpose of government is limited to protecting the life, liberty, property, and contracts of citizens. Laws to achieve these goals must be objective, clear, understandable, and non-contradictory.

Thus, Rand offers a primarily moral rather than economic justification for free markets and limited government. While Rand's defense fits into the Enlightenment tradition of John Locke, Thomas Jefferson, and Adam Smith, it more explicitly and unapologetically founded freedom in an individual, rational self-interest that ultimately does not rely on some social justification. Further, she integrated her defense of capitalism not only with her ethics but also with epistemology; reason, our tool of survival, requires that individuals think and judge for themselves, requiring rights in a social context. In such a society, reason becomes the ultimate means by which individuals deal with one another.

By this moral standard, regimes that use force to redistribute wealth or regulate transactions between free individuals -- welfare states, socialism, fascism, Islamism, communism -- are as immoral as armed robbers and thus illegitimate.


Capitalist Heroes

Rand also departed from other defenders of capitalism in her recognition that entrepreneurs are not only benefactors of society but also are exemplars of the highest personal merit who should be celebrated. Perhaps only Horatio Alger, who presented enterprising individuals pulling themselves up by their bootstraps as heroes, was in the same category as Rand. But much of the sympathy for his characters came from the fact that they started poor and struggled to rise in the world. While Rand shows some of her characters following such a path -- steel magnate Hank Rearden in Atlas started as a laborer in an iron mine -- others she portrays as scions of the families of successful entrepreneurs, some of whom follow in the footsteps of their forebears -- Dagny Taggart and Francisco d'Anconia -- while others -- James Taggart -- betray them.

Rand turned on its head, for example, the complaint of reactionaries at the dawn of the Industrial Revolution that excellence and skilled crafts folks -- seamstresses, carpenters, blacksmiths -- were being replaced by factories with machines run by unskilled workers to mass-produce goods. Rand highlighted -- indeed, painted a romantic yet realistic picture of -- the excellence and organizational skills of manufacturers who, for the first time in human history, made it possible for even the poorest workers to afford products that would raise their living standards.


Moneymakers

One of Rand's most insightful distinctions is between the moneymaker and the wealth appropriator. Moneymakers must use their brains, creativity, and imaginations to determine how best to apply assets—land, labor, capital, technology -- to produce goods and services to satisfy the needs of willing customers. They are can-do individuals like Dagny Taggart in Atlas or inventors like Hank Rearden, who creates a new metal stronger yet lighter than steel. Today we think of the real-life inventor-entrepreneurs like Steve Jobs, who pioneered the personal-computer industry. Moneymakers conquer matter, not men. They have, in Rand's words, "The passion of a lover, the fire of a crusader, the dedication of a saint and the endurance of a martyr."

For Rand, moneymakers are creators just as much as are poets, artists, or sculptors. There can be beauty in poems, paintings, statues, or business plans. Moneymakers thus should be proud of their creations and love them as they might love their children—or themselves. One might say that the motivations of the moneymakers are pride and profits.

Rand's portrayal of individuals of ability in her novels was noteworthy for recognizing merit without falling into the equalitarian fallacy. She showed hardworking individuals at all levels of skill in many professions -- like Mike the construction worker in The Fountainhead, Pat Logan the train engineer and Gwen Ives, Rearden's secretary in Atlas -- who should be proud and who deserved admiration for their virtues. But she also understood that some individuals are more capable and produce more than others and, in the pursuit of their own self-interest, benefit us all. As a matter of moral justice, the less able but honest owe their benefactors thanks. In this, Rand stood against the predominant culture of twentieth-century America and the rest of the world -- found in novels, movies, magazines, newspapers, classrooms, and churches -- that pictured businessmen as scoundrels, heartless Scrooges, cheats, or thieves. In today's politically correct culture, businessmen still are almost the only group that it is okay to treat like villains, with little concern about an adverse reaction.


Wealth Appropriators

Rand contrasts such entrepreneurs with wealth appropriators who might get rich but not by actually creating anything of value. She places in this category politicians, businessmen who accept government favors or handouts, and, interestingly, businessmen who cut corners. The latter might in the short term acquire wealth before their customers discover that they have been sold inferior products or services. But in a free-market system, in the long run their bad reputation and better competitors will drive them out of business -- unless they enlist the help of government to protect them from those competitors and limit the choices of their customers.

Rand's insights are particularly relevant in light of today's WorldCom and Enron scandals. She sees a moral system -- capitalism -- in which private-property owners deal with one another based on mutual consent that goes hand in hand with a business morality that, when practiced, not only leads to profits but also to the highest sense of pride, self-esteem, and self-fulfillment for businessmen and -women and entrepreneurs. The system tends to support this morality, but ultimately it is the breakdown of the objective moral code based on rational individualism that leads both to the deterioration of the free-market system and business ethics.

Here again Rand goes beyond the usual classical liberal or libertarian philosophy to show the moral basis of freedom. In Atlas, Rand shows not only businessmen and women as heroes but also as villains who indeed deserve scorn, particularly those who seek government aid to shield themselves from better enterprises. They seek not to conquer matter but, rather, other men, and their weapon is the initiation of force, with the government as enforcer.


The Sanction of the Victim

How do the most productive individuals, those who are responsible for a society's prosperity, find themselves abused by politicians and dishonest businessmen and women? Rand sees the key in morality, and she coined the phrase that best describes the root of the problem: the sanction of the victim. If entrepreneurs accept the premises of those who would tie their hands or punish them for their virtues, it is they who empower their enemies.

The sanction usually comes because otherwise honest entrepreneurs are either confused or actually accept the wrong moral premises. Some believe they must offer a social justification for their wealth. Most can easily do this. For example, they might point out that lower taxes on the wealthy will result in more capital to invest, which, in turn, will produce higher output, lower prices, and more jobs. Others will note that regulations hamper innovation. For example, government restrictions on the pharmaceutical industry mean that, on average, it takes a decade and costs some $800 million to bring new products to market, and those delays and high costs cause suffering and thousands of unnecessary deaths. Deregulation, with competing private firms certifying the safety and efficacy of products, would bring needed treatments more quickly to patients and save lives.

All of this is true but misses the moral point. Entrepreneurs work for their own profit and for love of their work. They need not give a social justification for their activities in the market any more than do workers who secure the highest salaries they can command for their labor or consumers who purchase the lowest-priced products with the quality they desire. Entrepreneurs, wage laborers, and consumers all act from self-interest and have a right to do so.

Rand understood that by accepting the moral premises of their opponents, entrepreneurs -- and all productive individuals -- open themselves up to unearned guilt that, in turn, is translated by politicians into public policies of persecution. Critics of capitalists ask entrepreneurs: "What are you doing to eliminate poverty? How can you take huge profits when so many people are poor?" These critics act as if the misery of others is caused by the wealth creators and that the more wealth they create and the more prosperous they become, the more guilty they become.

Entrepreneurs are tempted to point out the benefits to others of their wealth-creating activities. But it is crucial for the wealth creators also to answer: "It is the business of each individual to create the means of their own survival, to run their own lives, to learn from their own mistakes. It is not my duty to hold the world on my shoulders like Atlas and suffer for the sake of others -- and not for my vices but, rather, for my virtues." In other words, Rand understood that it is essential for entrepreneurs to assert their moral rights. In this way, they remove the sanction of their persecutors.


Techniques of Control

From this understanding of the moral foundations of capitalism and the moral worth of the entrepreneurs, Rand is able to offer crucial insights concerning the methods and motives of opponents of free enterprise.

Consider one situation in Atlas. Rand shows us a government issuing regulation after regulation, one piled on top of another -- a practice that has accelerated in Washington since that book was published. But Rand pointed out a crucial, usually ignored aspect of this strangulation of the entrepreneur. In one scene a government agent tries to blackmail steel magnate Rearden, who has refused to sell the government any of his new metal but who has broken government regulations concerning to whom, in what amount, and at what prices he could sell his metal. He observes that the agent should be upset because he, Rearden, has broken a rule. The agent replies: "We want them broken.... We're after power.... There's no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws."

Rand's description is not hypothetical but, rather, a depiction of how objective law is now routinely undermined. For example, a sausage-factory manager in Baltimore in the early 1990s complained that one government agency wanted him to wet-mop his floor every few hours while another wanted it dry at all times. Complying with one regulation would be violating another. The manager complained that, with a shelf six feet long filled with books of regulations, it was almost impossible before the fact to determine what it was legal or illegal to do. Or a Denver restaurant owner was told by federal agents to immediately put certain wheelchair ramps in his establishment lest he be fined, while the local government told him he could do no such thing before going through the long, drawn-out process of securing all local licenses. Again, the owner was damned if he did and damned if he didn't. As we have seen in recent years in the government's war against tobacco and its growing war against fattening and other foods of which political elites do not approve, the politically powerful have followed the techniques that Rand exposes in Atlas to exercise control over businessmen and -women.

Rand understood that these techniques undermined the cultural support for businesses. Most citizens think of laws as just, moral prescriptions that, for example, ban robbery, fraud, assault, murder, and the like. These citizens, who do not look too closely at the laws, might well believe that businesses that run afoul of laws indeed have done something immoral when, in fact, it is the laws themselves that immorally restrict individual liberty. The politically powerful need to create the illusion of legality as they manipulate and squeeze the entrepreneur. Then they can rant with moral indignation at businesses and generate such headlines as: "Businessmen break laws, exploit the public."


The Degeneration of Statism

Rand understood that moral codes have their own logic that those who accept them cannot evade. In a free-market system, with a sound business culture, capitalists must offer customers reasons to purchase their products. But what happens if governments interfere by redistributing wealth or limiting freedom?

In the 1950s, supporters of government intervention argued that individuals might fall into economic difficulty through no fault of their own -- perhaps through racial discrimination or so-called "market failures." They maintained that political elites could correctly analyze the nature of the problems, devise just solutions, and impartially implement them.

Today, the bankruptcy of the policies these statists hatched has been well documented. But Rand, who understood moral logic, saw the moral direction in which certainly mistaken but seemingly well-intentioned statism might degenerate.

Early in Atlas, the banker Eugene Lawson offers the typical "help-the-poor" justifications for his actions. He says: "If people needed money, that was enough for me. Need was my standard ... not greed." And "the heart was my collateral." The individuals he helped "were humble, uncertain, worn with care, afraid to speak."

In other examples, lobbyist-turned-economic-czar Wesley Mouch is described as "a man devoted to public duty." And Clem Weatherby, a government railroad regulator, says as he's extorting concessions from companies, "Our job is only to see that the people get fair wages and decent transportation."

Later in Atlas we see one direction of moral statist degeneration as looters do not bother to disguise their actions with high-sounding motives -- they replace rational appeals with force and pure muscle. For example, union leader Fred Kennan says, "If there aren't any rules to this game and it's only a question of who robs whom -- then I've got more votes than the bunch of you." And concerning his support for stringent economic controls, he says: "I'm not going to say that I'm working for the welfare of the public, because I know I'm not. I know that I'm delivering the poor bastards into slavery.... But they know that I'll have to throw them a crumb once in a while."

Today, many politicians abandon the "public interest" language that they use to justify why they take from one group to pay off another. The Democratic Party especially has become a collection of special interests -- unions, public-sector workers, so-called minority "leaders," environmentalists -- who simply want their handouts or special favors at the expense of others. This "We stole it and we're keeping it" attitude is exemplified by Senator Robert Byrd (D-W.V.), who several years ago bragged that he would bring a billion dollars in new federal spending to his state. He wasn't acting for some higher good -- he simply wanted his share of the loot.

In Atlas Rand also shows a second path down which statism was destined to go. We see, for example, characters like Lee Hunsacker, the resentful, petulant crybaby and failed factory owner, holding out his irrational emotions and the fact that he was a failure as the sign of his moral superiority.

We see today that part of modern liberalism has devolved to the cult of the victim. Those who are poor or handicapped, or who have had twelve kids out of wedlock and no father in the house, or who belong to a privileged "victim" group demand not only our money but our acknowledgment of their moral superiority to us as well. Their moral anger is supposed to be proof of their virtue, and the failure of others to try to assuage their spasms of self-righteousness is proof of their greed and selfishness. Rand, in the words of one of her characters, would respond that "you propose to establish a social order based on the following tenets: that you're incompetent to run your own life, but competent to run the lives of others -- that you're unfit to exist in freedom, but fit to become an omnipotent ruler."


Envy or Ecstasy

Rand's understanding of the nature of morality allows her to focus on one of the most serious but usually overlooked emotions that, to a greater or lesser extent, fuels those who oppose freedom and capitalism: envy. For Rand, envy is not simply a desire to obtain something that is not yours. That is mere theft. Envy is hatred of the good for being the good, a desire to deprive someone of what they have earned, whether material wealth or praise and admiration for some achievement. The special fury and hate that so many elected officials, cultural critics, and self-styled moralists bring to their denunciations of the rich and prosperous is not aimed at simply acquiring material wealth for themselves or for those who seem to be in need. Rather, it is to pull the achievers down. It is a resentment that stems from a recognition that many entrepreneurs are in fact better than others at creating wealth. But rather than being filled with admiration at their achievements and appreciation for the benefits that these entrepreneurs bestow on all of us, they offer them resentment.

We see envy especially in the general attitude around the world toward America and Americans. We are richer because we are freer, which, in turn, allows all individuals to excel, to realize the best within them, to take responsibility for their own lives, and that allows entrepreneurs to make us as well as themselves prosperous. The morally confused, weak, or malicious often seek to place the blame for their own unhappiness or poverty on the shoulders of successful. Rand called the world of the 1960s the Age of Envy. While perhaps some moral progress has been made in America since then, envy is still a moral choice that is found behind too many assaults on capitalism

Rand offered not only insights into statism but also the ethical antidote to the assault on free markets. Individuals must stand up for their rights. American businessmen and -women must reject unearned guilt and stop apologizing for creating the richest country on Earth. Those who value freedom must offer moral justice to entrepreneurs by celebrating their great achievements and recognizing that they should be proud of themselves. In a culture based on these values, politicians who offer to redistribute wealth or threaten to limit freedom would be treated like pickpockets or bank robbers, and thus would stick to their job of protecting the lives, liberties, and property of the citizens.

A century after her birth, it is appropriate for us to offer a "Thank you" to Ayn Rand for her insights, for her staunch defense of freedom, and for the radiant vision of human beings as they can and should be, of the joy and ecstasy that will result from those who follow a rational morality.








Ed Hudgins is the executive director of The Atlas Society. Fred L. Smith Jr. is the president and founder of the Competitive Enterprise Institute.


Copyright © 2004-2007, The Atlas Society. For more information, please visit www.atlassociety.org

Example of Our First President

Edward Hudgins


Originally publishing in The Washington Times.



George Washington unfortunately has become a cliché. For an older generation, he was too often treated as such a mythic figure that it was difficult to appreciate his true importance. In today’s politically correct society many treat him as a white, male oppressor. Most of us celebrate his birthday by shopping the sales at the mall. This is not a bad use of our time, but it is appropriate to take a moment to reflect on the real greatness of the real Washington and the moral lessons he taught us.

Washington exemplified the spirit of early America. He was in his heart and for most of his life a farmer and an innovator who developed new crops and agricultural techniques. He valued the production of wealth as a worthy goal in life. But he also understood that the freedom to produce often must be fought for.

Washington was the general who won America’s independence from Britain, then one of the world’s strongest powers. It was an incredible feat. In 1777, when he marched his 12,000 ragtag volunteers to winter camp at Valley Forge, their prospects were as bleak as the bitter weather. Some 2,000 men died from the brutal cold and from sickness. But the volunteers persevered in large part because of Washington, who forged them into a formidable army. He was no great orator but he had the inspiring words of Thomas Paine read to his frozen troops: “These are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph.” This certainly is an appropriate epitaph for Washington and the Continental Army soldiers who ensured the survival of the United States.

Washington’s achievements reflected his outstanding moral character. He set for himself the highest standards in everything he did and thus became exemplar for his associates and his fellow countrymen. Indeed, when he presided over the Constitutional Convention, he spoke little. It was his example -- the fact that the other delegates were in the presence of Washington -- that kept those delegates on their best behavior and inspired them to look to the good of the country.

But Washington was not some ever-frowning moralist; he enjoyed life, whether at a dance or dinner party or just riding through his beloved Mt. Vernon estate.

Washington hardly considered himself a philosopher like his friend Thomas Jefferson. But he lived his philosophy. For example, he was born into a slave society but his experiences in life led him appreciate the evils of that institution. He freed his slaves at his death.

Perhaps Washington’s most important legacy was his attitude towards political power. After his victory over Britain some suggested that he be made king of the new America. He adamantly refused. He wanted to return to his farm. In this he followed the example of the retired Roman Senator Cincinnatus who was called away from his farm by a Senate that gave him absolute power to defeat an invading army. As general, Cincinnatus accomplished his goal in a matter of weeks and then, with total power, the esteem of his people and an army in his hands, gave up his position and returned to his plough. Sculptor Jean Antoine Houdon’s statue in the Virginia state house, the only one Washington every posed for, depicts him as a general setting aside his sword and returning to civilian life.

Illustrative of his deep integrity, Washington resigned from the Cincinnati Society, an organization for Revolutionary War veterans, because he feared it would create in the new nation a hereditary class of nobles. Washington believed that individuals should be honored for their own achievements, not for the achievements of their ancestors.

Washington, our first president, set the example for future presidents by limiting himself to two terms in office. He is reputed to have said, "Government is not reason, it is not eloquence -- it is force! Like fire, it is a dangerous servant and a fearsome master." This is an understanding that too many American citizens and politicians have lost.

George Washington indeed should be honored by all Americans today as he was by Henry Lee who wrote at the time of Washington’s passing that he was “First in war, first in peace, and first in the hearts of his countrymen.”





Copyright © 2004-2007, The Atlas Society. For more information, please visit www.atlassociety.org

Wednesday, February 14, 2007

Costly Advertising Can Make Pharmaceuticals Cheaper?

Stuart K. Hayashi

Tali, I found an article I thought was interesting, and I wanted to ask you about your reaction.

A common smear against pharmaceutical companies is that they should be faulted for charging higher prices for their drugs on account of the millions of dollars they spend on sappy TV commercials.

(One TV commercial I find particularly annoying in its phoniness is the one where there is this bunch of young women at this party and one of them gives a ridiculously technical lecture about how to take a certain type of birth control pill. To explain why this woman is being so technical, the commercial has her say, "I didn't go to medical school for nothin'!" That was really contrived, because she doesn't talk like a doctor at all; she sounds more like a corporate lawyer . . . most likely because a lawyer had to oversee how her lines were written.)

Anyhow, writer Wayne Dunns explains that a pharmaceutical firm might actually be able to lower the prices of its products by spending millions on advertising:

The expense of advertising actually lowers the product's cost, in the long run, just as the expense of electricity and machines used in the product's manufacture results in the finished good being more, not less, affordable. [ . . . ]

Certainly the cost of advertising drugs is passed on to the drugs' consumers, just as the cost of advertising cars is passed on to the cars' buyers. But the purpose of advertising is to expand the customer base by informing more people of the product's existence and virtues. The more consumers a company attracts to its product, the more it sells. The more it sells, the less money it must make per unit sold in order to be profitable. Advertising generally attracts more customers, which might allow the company to charge less in anticipation of making more money through increased volume.

I hadn't thought of that before. What do you think?





Edit on Sunday, April 1, 2007: When I first published this post, I forgot to include a link to Wayne Dunn's article. --S.H.

Saturday, February 10, 2007

Economics and the Theory of the Intrinsic Value of Natural Resources

Stuart K. Hayashi

Tali, in your previous post, you wrote:

Wealth is made. Wealth is not some pie in the sky where dog-eats-dog to get the biggest share. If you want more wealth, produce goods and services people want to trade their goods and services for.


Dude, nobody will believe you when you say that human beings can create and add new quantities of wealth to the quantity already existing -- nobody except for a quasi-Ayn Rand lover (that is, not somebody who necessarily loves Ayn Rand, but would love Ayn Rand if he read her).

The reason why nobody will believe you (except for me, the Ayn Rand lover) is that the vast majority of people believe in what I call "The Theory of the Intrinsic Value of Natural Resources." This theory has gained new life because of the New York Times best-selling book Collapse by the overrated UCLA biologist and Pulitzer Prize winner Jared Diamond (see reviews of it here and here).

It is a younger counsin of Karl Marx's Labor Theory of Value. According to Marx, the value of a good or service is contingent solely upon the amount of manual labor that went into producing it. By that standard, manual laborers should get all the revenue, and the money that the entrpreneur takes in is what he stole from the laborers. (See "The Bloodsucking Businessman Myth.")

Marx' labors theory of value overlooks the fact that, if entrepreneurship were as unimportant as Marx said it is, then no technological progress could occur. A day laborer alive today is no stronger than a caveman who lived in 2 Million B.C. And yet the average day laborer living today produces more per-capita output today than his Stone Age counterpart. (See Jean-Baptiste Say's Treatise on Political Economy, Book I, Ch. 7.)

Economist Angus Maddison shows that, even after adjusting for inflation, per-capita output for an average day laborer vastly increased from 1500 to 1800 to 1950 in England and Europe, and every increase in output came from improvement in machinery.

Marx's rebuttal is that all factory machinery was created by laborers, and thus every increase in output spurred from factory machinery must also be credited solely to manual laborers and not to entrepreneurs.

But, again, Marx ignores that those machines weren't designed solely by muscle labor -- they had to be designed by the human mind: that is entrepeneurship and specialized knowledge (often called "Knowledge capital" by management professors).

James Watt, inventor of the modern steam engine, was not substantially stronger than any of his laborers. Suppose he had 30 employees building his steam engines. Even if those 30 employees hired a 31st worker, but did not have a James Watt around to show them his designs for the steam engine or to manage their activities, they would not have been capable of manufacturing steam engines, and thus would not have been able to use steam engines to improve output among other manual laborers. The same principle applies if those original 30 workers hire 70 more manual laborers but no entrepreneur or inventor like James Watt.

Thus, since 1800, the entrepreneur has been indispensable for the production of any machinery used in the private sector that has increased the per-capita output of every manual laborer.

Anyhow, that's the Labor Theory of Value and my refutation of it.

However, Marx's Labor Theory of Value has been replaced by the radical environmentalists' Theory of the Intrinsic Value of Natural Resources (TIVNR).

The Theory of the Intrinsic Value of Natural Resources (a term I coined) goes as follows: Mankind does not create any wealth at all. All the wealth that can ever exist has already existed since mankind's beginning, because all wealth ultimately comes from non-renewable natural resources. So, in the long run, once all non-renewable natural resources are used up, no more wealth can be created.

Do you think, for example, that oil companies create petroleum? That they produce it?

Well,"rock oil" isn't an invention. It's a natural resource that cannot be renewed in a single man's lifetime (or even over ten generations). Once we use up all of the petroleum, it's gone. We're screwed, industrial civilization collapses, and we go back to the Stone Age.

The same goes for coal. And fresh water.

According to the environmentalists, because our wealth comes strictly from natural resources, and because our natural resources are limited (and often non-renewable), our pie of wealth must be constantly shrinking. We have not yet experienced doomsday, they say, but we are bringing it closer and closer the more we consume; we're living on borrowed time.

Think about the pie you bake. When you take a slice and eat it, does that slice grow back? Hell, no! It's gone. And when the last slice of the pie is gone, then the pie does not replenish itself. It's gone for good. That, say Malthusian environmentalists, also applies to the natural resources being used up by heavy industry.

Environmentalists say that the non-renewable resources that go to making our goods and services are a scarce pie, which means that our wealth does exist in a fixed amount that is constantly shrinking. When you sap up all the petroleum, it won't grow back. You cannot use a factory to mass-produce more petroleum.

Okay, what Jared Diamond's Theory of Intrinsic Value in Natural Resourcse ignores, just as Marx's Labor Theory ignored, is that natural resources -- just like manual labor -- are completely incapable of producing sustenance for anybody without the involvement of entrepreneurship: that is, the use of the human mind.

Before scientists, engineers, inventors, and entrepreneurs like George Bissell discovered that crude oil could be used as a fuel, nobody wanted crude oil. If a farmer found crude oil on his farmland, he was angry. The crude oil destroyed his crops, and he couldn't sell the worthless crude to anybody.

And crude oil was worthless until scientists like Abraham Gesner discovered methods of harnessing it to serve our human needs. The same goes for the simplest livestock: cows were completely useless until cavemen discovered that they could be used as suitable food.

Contrary to anti-capitalists: neither manual labor nor natural resources have any kind of intrinsic worth. Their value is predicated upon the extent to which they serve the ends of survival and happiness for sapient beings. Kant's ridiculous "Categorical Imperative" doesn't apply to natural resources or livestock. I don't have to value a cow for its own sake; the goodness of a cow is determined by the benefit the cow confers upon me. The same goes for a redwood tree. Even the economic value of gold is determined primarily by the uses that people can find for it.

How can a natural resource have intrinsic worth? Consider the definition of the very term "resource." A "resource" is something that is to be used to serve some sapient being's end. If a resource were not to be used, then, by definition, the word "resource" would contradict its meaning.

Despite what Malthusian environmentalists say, free enterprise is the key to preventing resource depletion.

Every society that was destroyed by resource depletion -- many American Indian tribes, the Maya, the Rapa Nui peoples, the Ancient Romans, the Soviets -- was not destroyed by overproduction in free markets, but by the fact that its own collectivism, and its own failure to allow entrepreneurs to reap the rewards of their efforts, removed the incentives of many individuals to find creative solutions to resource depletion problems.

That does not happen in free enterprise for the following reason: a peaceful entrepreneur -- that is, an entrepreneur whose costs are not contained by any commission of theft or poisoning on his behalf by either private parties or by any government -- must exercise creativity in peaceably staving off resource depletion in order to contain his costs.

When an entrepreneur uses a natural resource, it's not like he gets it completely free of charge. He has to pay for the timber or metals taht he uses, just as he has to pay his workers.

And even if an entrepreneur were able to claim ownership over some natural resources through homesteading rights, he would still have to pay people to utilize processes that will convert those natural resources into tools that he can use (for instance, even if an entrepreneur were able to claim ownership over a forest, and he wanted the forest so that he could use its contents to build houses, he would still have to pay men to cut down those trees and convert them into timber.)

Thus, every unit of natural resources -- just like every unit of manhours -- that the peaceful entrepreneur uses as an input represents a cost to that peaceful entrepreneur. The higher the costs are, the lower the profit margin is.

Thus, to increase his profits, the peaceful entrepreneur must exercise creativity in discovering methods of extracting greater output out of ever-smaller and ever-fewer inputs of natural sources, human labor, and the capital that was created from prior mixtures of natural sources and human labor and entrepreneurship.

That's exactly what happened with copper wire. Back in 1970, environmentalist Paul R. Ehrlich screamed that mankind had exhausted Earth's copper deposits by using up too much copper to build electrical wires. The copper "pie" was being "eaten up" and soon nothing would be left. And it's not like you could wave a magic wand and make copper appear out of thin air.

Resultantly, the drainage of copper supplies led to copper increasing in price. In order to contain their costs, entrepreneurs -- the ones who purchased copper for their own uses -- sought methods of finding a cheaper copper substitute that would work just as effectively in creating electrical wires to be used in satellites and computers.

And so the entrepreneurs took advantage of the discovery of scientists and engineers that fiber-optic cables -- made from glass, which, in turn, was made from sand -- conducted electricity even more efficiently than copper . . . and at a lower cost to them!

So industries switched from using copper to cheaper, more powerful fiber-optic cables. In so doing, they used up fewer and fewer grams of natural resources for every unit of wattage that powered their machinery. And so they got more output with lower costs by using up a smaller amount of natural resources for every unit of output.

And guess what: because of that advance, the demand for copper dropped. Adjusting for inflation, copper is cheaper now than it was in 1970. And more tons of copper are on the market today than in 1970.

As Ronald Bailey observed in 2001:

Let's take a look at a few concrete examples of dematerialization, or the "reduction of material use per unit quality of life." A copper wire can transmit 24 voice channels or about 1.5 megabytes of information per second. Far thinner and lighter optical fiber can transmit more than 32,000 voice channels and more than 2.5 gigabytes of information per second. The first American communications satellite, Telstar 1, was launched in 1962 and could handle 600 telephone calls simultaneously. Modern Intelsat satellites can handle 120,000 calls and 3 TV channels at the same time.

Miniaturization and its cousin "lightweighting" are pervasive. Consider heavy vinyl phonograph records being replaced by CDs -- and now, by immaterial MP3 files. Since the 1970s, the weight of the average car has fallen by 25 percent. Food cans are 50 per cent lighter than they were 50 years ago. A flexible plastic pouch that replaces a steel can reduces the packaging weight by 93 percent. Plastic soda bottles are 30 percent lighter than they were in the 1970s -- which were already much lighter than the glass ones that preceded them. Similarly, plastic grocery bags are 50 percent thinner than they were 20 years ago and lighter than the paper bags they replaced. The invention of the steel frame building did away with structures that needed heavy thick walls to support their own weight.

Functionality is increasing throughout the economy as well -- as computers get smaller and faster, air conditioners, refrigerators, furnaces, and all manner of appliances become more efficient and longer-lasting. [...]

Of course, some things can't be miniaturized -- food, for example (fans of nouvelle cuisine may beg to differ). Yet food can be produced more efficiently, which is what has happened. Hence, corn yields per acre in the United States have more than tripled since 1950. Improving crop productivity is based entirely on technological improvements such as fertilizer, pesticides, and better seeds.

"How Much Land Can Ten Billion People Spare for Nature?" That's the question Paul Waggoner, a distinguished scientist from the University of Connecticut Agricultural Experiment Station, used in the title of a 1996 article in the journal Daedalus. He concluded, "If during the next sixty to seventy years the world farmer reaches the average yield of today's U.S. corn grower, the ten billion will need only half of today's cropland while they eat today's American calories." If Waggoner is right -- and all signs are that he is -- the future will be populated by fat people who will have plenty of wilderness in which to frolic.

Land is a non-renewable resource, right? You can't just grow more land. Yet even the carrying capacity of land has increased over the Industrial Revolution. A single acre of farmland existing today grows more food per person than that same acre would have in 1800. Likewise, back in 1800, architecture was not yet advanced enough for the construction of skyscrapers. If a 2-story building on X square feet of land could house 30 people in A.D. 1800, then, today, a 50-story building sitting on the same X square footage of land can house 750 people.

So, comparable to their Marxian forebears who fixated on manual labor, today's environmentalist worshippers of the Theory of the Intrinsic Value of Natural Resources fixate on natural resources while ignoring that true wealth comes from the entrepreneurship that gives meaning to the manual labor and natural resources.

Free enterprise is the ultimate tool in fighting against resource depletion, because profit motivation in a free market provides rewards to humans for finding ways of taking smaller and smaller crumbs of "the pie" and applying scientific ingenuity toward making those "crumbs" even more "filling," "nourishing," and "nutricious" than the bigger pieces that mankind had consumed in the past.

GOODS AND SERVICES

A popular saying in economics goes something like this, “You can only trade for goods and services with goods and services.” So if you’re able to look pass the dollar signs, you’ll see that everything comes back to barter trading. But if it simply comes down to barter trading, then why do we need money at all?

If you make wheelbarrows for a living, it’s likely that you would only want to trade that product as a whole. If you only made wheelbarrows just to break it down to trade its parts, then you probably wouldn’t be in the business of making wheelbarrows to begin with. However, not everyone needs a wheelbarrow, and not everything you need is worth trading an entire wheelbarrow for. A loaf of bread for a wheelbarrow? Better start breaking that wheelbarrow down.

Wheelbarrows are not easy to break down, nor doing so would reward your hard work building it. Moreover, its parts are not of equal value. Meaning you’re not likely to get for its handles what you’ll get for its wheel or for its bolts or for its screws. The problem with the wheelbarrow, or any product for that matter, in the world of barter trading is that it’s not easily divisible into equal parts of equal value to trade for what you want and need.

There is a good that solves these problems: precious medals (silver and gold). Valued for their decorative purposes, one can also easily divide it into equal parts of equal value. A quarter of silver will always equal a quarter. These efficiencies, along with the fact that they’re very durable, make trading for gold and silver a near necessity.

The only downside to metal is that it’s heavy to carry around. Nonetheless, businesses formed to “serve” that problem. These businesses would secure your metal deposits and issue you redeemable notes. No need to mention that these businesses are called “banks” and the notes called “money”.

That’s our monetary system in a nutshell, and I hope that draws further discussion from others like MajaC, especially concerning the formation of the Federal Reserves and government monetary policy. But I like to draw some very significant conclusions from the fact that money facilitates trade, making “barter trading” more efficient.

Wealth is made. Wealth is not some pie in the sky where dog-eats-dog to get the biggest share. If you want more wealth, produce goods and services people want to trade their goods and services for.

Wealth is the property of those who produce it. Tax cuts are not giveaways; tax cuts are about letting people keep more of what they produce.

If you want to create more wealth, you let people keep more of what they produce (very low taxes) and get out of the way of their production (low regulation and bureaucracy).

The ASG, especially the Fono, likes to think they’re entitled to what we produce by virtue of whichever self-serving laws they pass. Raising their allowances by 100%, going on trips around the world and to Honolulu , and then proposing to increase Governor Togiola and Lt. Governor Sunia’s pay to $100,000 and $95,000 respectively. And what value in goods and services do we receive in return?

Nothing.

Friday, February 02, 2007

WE ARE OUR OWN ENEMY

We should be proud of our family and friends in government who have worked plenty years at the ASG and who continue to put their blood, sweat and tears into what they do. Many are professionals who come from all walks of life and are very committed to their jobs. But our families' and our friends' job security shouldn't come in the way of moving forward on enacting good policy that will benefit all people of American Samoa in a real and substantial way.

For far too long we lived under the false assumptions and assurances that the canneries were going to stay forever and that the only direction federal funding was going was up. These two sources of revenue have funded the ASG graciously, sparing our politicians from the responsibility of building a real economy. An economy that doesn't force mainland taxpayers to fund our way of life or bribe an entire industry with tax/wage credits.

But how can any of our people aspire to follow in the footsteps of our forefathers and be pioneers in a brave new world of industry when our government does everything to discourage us from becoming self-reliant and independent? From high taxes to unjustifiable custom fees to complex licensing requirements and burdensome bureaucracy to competition from our very own tax dollars. All in the name of the mighty "free lunch" that our politicians somehow believe they are still capable of handing out.

Yet the market has proven time and again in many places once thought impossible to do the impossible. Places like Hong Kong in East Asia and Estonia in Eastern Europe, where people live with rising prosperity alongside a government that does little more for its citizens than to govern. But here in American Samoa, we've asked our government to do everything, and as a result, suffered from the corruption, nepotism and a lower standard of living that comes from an entity that doesn't like competition or troublemakers who embrace the honorable profit-motive.

But how would our politicians supplement their dangerous spending if their precious government departments, which we all thought were for "the people", were not around to guarantee their loan and bond measures. And notice how our politicians' own pay is never up for consideration to help raise the minimum wage, better our schools, assist the poor and the disabled, purchase a new antenna or a new faleo'o for the Fono. A 100% increase in Fono allowances can never be a 50% increase or a 25% increase.

We all have family and friends in the ASG and we should be proud and confident in the work they do. We should have faith that if they are truly qualified, they can make it in a private sector setting versus a government one. Unfortunately, our politicians are more concerned with further gaming the status quo system to benefit their own relatives at the expense of our future, and this is totally unacceptable!

We have met our enemy, and he is us.

Talifaitasi Satele

My One Complaint About 'Atlas Shrugged'

Stuart K. Hayashi

Note: Another version of this previously appeared in The Fiftieth Star. See here. --S.H.


February 2, 2007, marks 102 years to the day of Ayn Rand's birth. That day of the month is of particular importance in American culture because, every February 2, if a politician crawls out of his hole and sees his shadow, we will have 60 more years of the welfare state.

As for Miss Rand's magnum opus, I enjoyed every syllable on each of the 1,087 pages of the paperback edition I read. The prose sparked vivid images that made me feel as if I were gazing upon an exquisite painting.

I was so enthralled by the grandeur of it all that I was quite sad to see it eventually come to an end.

And so I have only one complaint about Atlas Shrugged:

It was too short.