Categotry Archives: Business

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My Childhood as a Renegade Entrepreneur – Article by Derek Magill

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The New Renaissance HatDerek Magill
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For most of my life I wanted to be a businessman.

As early as preschool, I would insist on wearing only business attire to class every day. And by business attire, I mean I’d put on one of my father’s button-down shirts and tuck it in with a ridiculously oversized pair of slacks that my brother had worn.

When I got older this interest began to manifest itself in ways that caused conflict in class.

The Young Entrepreneur
In 4th grade, I made a little business out of reselling Livestrong wristbands after class. I made about $150 with this side business before the school told me I needed to stop. My classmates were disappointed because I was the only reliable source when it came to getting bands. Plus, I had recently started purchasing Freedom Bands, which were available in far more colors than the Livestrong yellow. Needless to say, my customers were always satisfied.

In 6th grade, I loaned a friend money for a cookie but insisted on there being a 25 cent interest fee tacked onto each day he failed to repay. It took him two weeks and he paid the amount he owed, plus interest, without complaint.

The school found out and my parents received a call home.

What I always found interesting was that there was never any sort of explanation offered as to why my behavior was “bad.” It was just simply against the rules.

My classmates loved my attempts at offering services, but there was always the ever-present, and often unseen, force of teachers and school administrators hovering nearby waiting to stop our transactions.

High School Antics
As the associated student body president, I was required to work in the student store. I developed a practice of accepting tips in the form of the spare change students didn’t want to carry around.

I had a jar on the counter, like any food establishment might, and I would casually suggest students leave their change after a purchase. This was an innocent, voluntary donation in which I’d make a little bit of money every day.

But of course, my teacher found out and her response was a swift write-up. Again, I was not told why my actions were wrong.

It’s Only Fair If Everyone Profits
One day, the administration decided to host a club fundraising festival where each club was allowed to sell one item purchased from a grocery store at lunch in order to raise funds for its club—the only time they ever broke the cafeteria monopoly.

I left campus to purchase 150 burgers from Wendy’s for $1 each. I then sold them for $5 per burger on campus, and gave away a free Arizona Iced tea with the burger, which undercut the two other vendors selling Arizona Iced tea.

We eclipsed the rest of the fundraising group that day by over 200 percent and the school accused us of cheating and being greedy.

They confiscated most of the funds and distributed it among the other students to make it more “fair.”

At last the truth had come out in full. It had taken almost eighteen years but I had the answer they had never given me before: my teachers hated the free market.

The administrators regarded commerce as dirty. They didn’t see the value I created for students who wanted something better than cafeteria food for lunch. They saw value that had been acquired at the expense of others.

As I look back now with more knowledge and experience, I’ve come to the conclusion that this experience was both beautiful and saddening.

As children, we are born capitalists. We have no deep philosophies or moralities but we organize ourselves naturally around mutual exchange because we recognize quickly that life gets better if we do.

We trade cards, toys, our lunches, and other things we value for the things our friends value and rarely do we have trouble working out disputes. We don’t do it because we care consciously about free markets — we don’t even know the concept. Nor do we need to. Markets don’t require everyone to know their importance consciously. They just require people to be left alone.

It takes a lot of schooling to kill these natural inclinations towards freedom. Teachers and administrators stop these interactions on the playground, and in the classroom they teach material that distorts and obfuscates the truth. The process of schooling is the process of taking our innate tendencies towards liberty and destroying them.

As my friend Isaac Morehouse wrote in a comment when I shared this story on Facebook:

Is it any wonder why Ayn Rand is making such a resurgence among high school students?

Derek Magill is a college dropout, marketer, business strategist and career expert. He is currently the Director of Marketing at Praxis and has consulted with companies such as Voice & Exit, the Foundation for Economic Education, Glockstore, Colliers International, Daily Caller, and Undertech.

Derek is the author of How to Get Any Job You Want.

This article was originally published on FEE.org. Read the original article.

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Kicking Out the Coders Is Not a Good Way to Reform Immigration – Article by Jeffrey A. Tucker

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The New Renaissance HatJeffrey A. Tucker
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Coding is a job you just can’t fake. Your stuff either works or it doesn’t. You can either do the job or you can’t. So ranking people according to skill is much easier. It’s a profession that is intensely competitive, and clearly not for everyone.

I can remember so well sitting around the lunch table with some employees at Google’s headquarters. Forty-five minutes in, everyone started getting antsy to get back to work. In the blink of an eye, they disappeared to get back to their desks. They are profoundly aware that performance is everything, and other great performers are ready to displace them at anytime.

Because the US is the world center of digital tech development, the demand for high-level coders has never been higher. Companies who employ workers don’t give a flying fig about your nationality. They want your talent now, from wherever you hail.

The Way In

US immigration policy has long accommodated this demand through a program called the H1-B, which pertains to skilled workers. The program permits 65,000 people with a college degree, and 20,000 with higher-level training, to work in the US for three years, during which time they can apply for green-card status. It is a harrowing life for those chosen, but it is better than being on the rejection list.

Each year more than a quarter of a million people from abroad file applications, some as thick as six inches. The chances of getting picked are good enough to keep hopes high but bad enough so that no one banks on getting in. And guess who picks the winners? It’s a lottery. A computer.

The whole system is ridiculously irrational, cruel, and self defeating, even if you believe in an America First immigration policy. Denying talented people jobs, infringing on the rights of businesses to hire whom they want, is an innovation killer. It causes the US to lose its competitive advantage, lowers economic growth, and denies all of us access to cool innovations that would otherwise make our lives better.

Even for the many critics of immigration, this program should pass muster. These people are not security risks. They aren’t going on welfare. They have the strongest possible incentive to acculturate, obey the law, and contribute mightily to American enterprise. What’s not to like?

The Way Out

So, yes, the program needs dramatic reform: it should be expanded many times over. However, the worst way to reform it is to restrict the program. In fact that seems unthinkable. And yet, we are learning with the Trump administration that nothing is unthinkable. Restricting the number of coders who have access to the H1-B program is exactly what the government is doing right now.

In recent days, immigration authorities announced a seemingly small change in what applications will be considered valid. No longer will coding be considered a “specialty occupation.” Further, the Justice Department announced that it will be conducting close investigations of tech companies that rely on the H1-B program for its coders. They are looking to make sure that companies are not denying Americans jobs in the search for quality candidates.

On the first point, this is a completely arbitrary administrative change, enacted without any Congressional vote or public comment. It’s the very embodiment of an independent bureaucracy run amok and acquiescing to political pressure from the regime in power. As for the investigations, here is a clear example of a hard truth: restrictions on immigration ultimately give more power to the state to oppress its own citizens.

What’s especially bizarre here is that this program has absolutely nothing to do with the nightmare scenarios of teeming masses of pillaging, raping terrorists pouring in across leaky borders that formed the basis of Trump’s anti-immigration rhetoric during the election. He did criticize the H1-B program in passing but most observers figured that he was once again out on his usual limb, speaking on issues about which he knew nothing.

What’s more, there is not even a job displacement issue here. If Google wants to hire a programmer from abroad, it can do so with the H1-B program or simply by contracting abroad (which is not currently restricted, thank the Lord). As an American citizen coder, with whom do you want to compete? A foreign resident making $200K or a foreign worker paid $100 an hour? The former represents a much higher cost to American business, so the arrangement gives the greatest possible advantage to existing citizens. (Special thank you to FEE president Lawrence Reed for making that point to me.)

In the first months of the Trump presidency, we’ve yet to see any action on health care or taxes, two issues that drove millions to the polls to vote for him. But on immigration, there’s been plenty of action. The bureaucracy is on overdrive, denying visas, keeping out qualified workers, instituting new forms of country exit controls, and even mandating forms of extreme vetting that could compromise your own communications with your friends in Europe and the UK.

On this topic, there seems to be absolute focus. But to what end? Success will only lead American business to be less competitive, less innovative, less able to forge a brilliant future for all of us. What is the goal here? Just to keep people out? How can anyone truly believe that this objective alone is a path toward greatness?

Even for critics of immigration policy, the H1-B program represents the right kind of immigration. It is about skills, invitation, and the right of business to employ the most talented people. Something has gone very wrong with an administration that seeks to dismantle something that should obviously be dramatically expanded.

Here’s a final issue that irks me. Government is demanding the most extreme forms of vetting, investigation, and compliance on the part of business, even as no one is more affected by labor choices than business itself. But as for itself, the government is completely satisfied with the most random system of all for selecting who gets in and who is kept out. Government has outsourced its job to a pair of dice.

Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author. Read the original article.

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Markets Are Breaking Down India’s Caste System, Turning Untouchables into Millionaires – Article by Malavika Nair and G. P. Manish

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The New Renaissance HatMalavika Nair and G. P. Manish
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This year marks the 25th anniversary of liberal reforms in India that led to the dismantling of many socialist economic policies and the end of the draconian License Raj. Liberalization has changed life for many in India over the past couple of decades, although much more remains to be done. Just the middle class alone has exploded from 30 million people in 1991 to 300 million in 2014.

So this is a good occasion to tell the story of perhaps the most unexpected beneficiaries of these reforms: the rising Dalit millionaires. In recent years, many thousands of so-called “untouchables,” or Dalits, members of the lowest group in the Indian caste order, have risen out of poverty to become wealthy business owners, some even millionaires.

By taking advantage of the greater economic opportunity brought about by market reforms, these Dalit entrepreneurs provide us with an important example of the power of markets, not just to bring about economic emancipation, but to fight deeply entrenched social discrimination.

The Plight of the Dalits

The Indian caste system is an ancient and complex social order that divides society into groups based on a somewhat rough division of labor. The Dalits belong to the lowest group, below the four-tiered hierarchy of priests, warriors, merchants and artisans. Traditionally, Dalits were relegated to a life of doing “dirty” jobs such as cleaning floors and toilets or handling garbage: hence gaining the name “untouchable” as others would refuse to come into contact with them.

Since one’s caste was determined by birth, and it was impossible to switch castes throughout one’s life, being born an untouchable meant a lifetime of being trapped in a low income “dirty” job with very low social status. Marriages would only take place among caste members, and hence one’s children would be faced with the same hurdles brought by the untouchable identity, leading to systematic discrimination locked into place for generations.

It isn’t surprising that the Dalits consistently rank near the bottom of poverty statistics in an already poverty-ridden country. The term “poorest of the poor” would be an apt description of their socio-economic status in general. For decades, this made them the targets of several affirmative-action programs as well as many a politician looking to champion a cause.

While affirmative action has helped some get ahead, it has by no means been a panacea. For as long as all industry was state-controlled and subject to extensive licensing, the state effectively made all production decisions and awarded licenses to a few chosen oligarchs. This meant that opportunities for entrepreneurship and business were slim to none, and affirmative-action programs only served to redistribute pieces of a fixed pie from one to another.

Slumdog Millionaires

But there is a new heartwarming trend of entrepreneurship and self-help among Dalits since the liberal reforms in India, especially in urban areas. A visit to the Dalit Chamber of Commerce website (see also the Facebook page) reveals slogans such as “Fight Caste with Capital” and “Be Job givers, not Job seekers” as well as a spokesperson who favorably cites the invisible hand, a la Adam Smith! This voluntary Chamber of Commerce, set up in 2003 to bring Dalit entrepreneurs together, currently has 5,000 members whose enterprises jointly boast over half a billion dollars in sales revenue. The actual number of entrepreneurs in the population is much higher.

To what do they owe their success? Fascinating new qualitative research that tracks the life stories of several of these Dalit entrepreneurs reveals a common thread. The opening up of production processes to market forces created new opportunities like never before. Starting small and scraping together resources and capital, many of these Dalits now run business empires that actually provide employment to upper caste members.

There is Thomas Barnabas who was born into a family of bonded laborers, all eight of whom lived in a one-room house. Thomas recalls being thrown out of an upper caste friend’s home as a child after eating and drinking there because he was “untouchable.” They then proceeded to purify and wash the floor where he sat and threw away the dishes from which he ate.

Thomas now owns an industrial waste recycling and disposal business that has an annual sales revenue of $2.3 million and employs 200 people (including many upper caste members) outside the city of Chennai. He strove to fulfill an unmet demand for the processing of industrial waste generated by large corporations like Samsung, Dell, and Mercedes that set up manufacturing facilities in India after liberalization.

Or there is M.M. Rao, who was just one of two children to get an education in a family of bonded laborers with eight children. His family was so poor that they could not afford to buy shoes. His mother and sister were forced to walk barefoot to work in a nearby town.

Rao now owns a group of companies that specialize in construction, especially in the telecom sector, with a sales revenue of $7.4 million in 2010 alone. He was able to use his education as a civil engineer to start a small sub-contracting business laying telephone cables for large companies after the liberalization of the telecom sector. Owing to the quality of his work as well as his business acumen, he was able to grow that small sub-contracting business into what it is today.

Sushil Patil grew up in a 200-square-foot house in a slum, and his father was a laborer in a factory where he was discriminated against for his low caste status. Sushil was able to complete his engineering degree only because his father had to request the college dean to waive the fees that they could not afford to pay. He recalls, “I can never forget my father bowing before the dean, that hit me hard.” He now owns a construction and engineering company with revenues of $45 million a year. His main business is to handle the construction of power plants for major power companies. He has friends who still live in the slum that he grew up in and hopes to construct a charitable hospital that will offer medical services free of charge to the poor.

Markets Break Down Barriers

These stories constitute but a tiny sliver of many thousands, if not more. They lead us to an interesting question: how is it exactly that markets fight social discrimination? Markets work in very different ways than the obvious and visible hand of state-driven policies. While the state seeks to outlaw and abolish caste identity by making discrimination illegal, markets work in quiet and invisible ways by making caste identity irrelevant.

Competition brings about the existence of meaningful and relevant alternatives that raise the opportunity cost of discrimination for everyone participating in the market. It is in an entrepreneur’s economic interest to hire and contract with those who have the highest marginal productivity regardless of their caste identity. For if he does not, his competitor might potentially steal away profits that he could have earned. The more open and competitive a market, the more true this holds.

Once liberal reforms were put in place, they created choice and opportunity for many like never before. Market forces unwittingly brought about economic and thus social progress for society’s poorest and most discriminated against.

But can we go as far as saying the caste system has withered away? Not at all. It is unfortunately alive and well, especially in the rural areas where 68% of the population still lives, despite its being legally “outlawed” for decades.

Can we say that discrimination melts away in a market setting? Not necessarily. Anyone is free to discriminate on the basis of caste identity, even in a market. However, the greater the economic opportunity out there, the greater the chance that the cost of discrimination will be borne by the discriminator himself, not the one being discriminated against.

This is not true under socialism. When the state has a monopoly over all production and its chosen oligarchs (employers) sell to a captive market, discriminating against a certain group of people does not have negative economic consequences for the employer, but only for the ones being discriminated against. Naysayers claim that this rise among Dalits is marginal and not representative of Dalits as a proportion to the total population of the country. Some are getting ahead, but most are still left behind.

While this may be true in terms of numbers, the fact that this has happened at all is nothing short of marvelous. It’s not a coincidence that there were no Dalit millionaires emerging under socialism. It is a direct consequence of the underlying institutional setting. The Dalits exemplify the theory of the so-called poverty trap: being locked into a low-income equilibrium for generations. And yet, given a little opportunity and choice, we see many leaving a life of poverty and social discrimination behind to become well-respected business leaders and philanthropists.

Most encouraging is the recognition among them that it is the invisible hand of the market that has been instrumental for social and economic progress in their community. It is a step in the right direction for the future of classical liberalism and its role in alleviating poverty at a time when many who are more fortunate seem to be forgetting or ignoring its importance.

References

  1. The unexpected rise of Dalit millionaires: Swaminathan Aiyar
  2. Capitalism is changing caste much faster than any human being: Shekhar Gupta
  3. Defying the odds: The Rise of Dalit Entrepreneurs: Devesh Kapur, D Shyam Babu, Chandra Bhan Prasad
  4. Capitalism’s Assault on the Indian caste system: Swaminathan Aiyar, Cato policy paper
  5. 5. Dalit Chamber of Commerce website: www.dicci.org.

Malavika Nair is an Assistant Professor of Economics in the Johnson Center for Political Economy at Troy University. She is also an associated scholar of the Ludwig von Mises Institute.

G.P. Manish is an Assistant Professor of Economics in the Sorrell College of Business and a member of the Manuel H. Johnson Center of Political Economy at Troy University.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the authors.

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Our Media-Driven Epistemological Breakdown – Article by Bill Frezza

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The New Renaissance HatBill Frezza
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How do we know what we know? Philosophers have pondered this question from time immemorial. Julian Jaynes, in his classic book, The Origin of Consciousness in the Breakdown of the Bicameral Mind, speculates that before the development of modern human consciousness, people believed they were informed by voices in their heads. Today, an alarming number of people are responding to voices on the Internet in similarly uncritical fashion.

As Jesuit scholar John Culkin pointed out in his seminal 1967 Saturday Review article, “A Schoolman’s Guide to Marshall McLuhan,” “We shape our tools and, thereafter, they shape us.” Examining history through this lens, one can identify seven great epochs in mankind’s intellectual and social evolution.  Each is characterized by the way a new technology changed not only how we think about the world, but our actual thought processes. These are:

1) Spoken language, which first led to the primacy of mythology;

2) Written language, which bequeathed to us holy books and the world’s great religions;

3) The printing press, which spread literacy to the elites who went on to birth the nation state, the Reformation, the Enlightenment, and the U.S. Constitution;

4) The telegraph, which transformed pamphlets and broadsheets into modern newspapers, whose agenda-setting influence goaded America to “Remember the Maine” and become an imperialist power;

5) Radio, which placed broadcast propaganda at the service of central planners, progressives, and tyrants;

6) Television, which propelled the rising tide of the counterculture, environmentalism, and globalism; and

7) The Internet, a nascent global memory machine that puts the Library of Alexandria to shame, yet fits in everyone’s pocket.

Reason’s primacy is a fragile thing.

At each transition, the older environment and way of thinking does not disappear. Rather, it adopts an extreme defensive crouch as it attempts to retain power over men’s minds. It is the transition from the Age of Television to the Age of the Internet that concerns us here, as it serves up an often-toxic brew of advocacy and click-bait journalism competing to feed the masses an avalanche of unverifiable information, often immune to factual or logical refutation.

Rational epistemology holds that reason is the chief test and source of knowledge, and that each of us is not just capable of practicing it, but is responsible for doing so. Reason flowered when the Enlightenment overturned the ancient wisdom of holy books, undermining the authority of clerics and the divine right of kings. Wherever reason is widely practiced and healthy skepticism is socially accepted, error becomes self-correcting (rather than self-amplifying, as under a system based on superstition), as new propositions are tested, while old propositions get reexamined as new facts come to light.

So now that the voices have returned to our heads, we are inadequately prepared to defend against them.

Yet, reason’s primacy is a fragile thing. As increasingly potent electronic media confer influence on new voices, formerly-dominant media and governing elites fight a rearguard action to regain their status as ultimate arbiters of knowledge and what matters. Goebbels proved that a lie repeated loudly and frequently in a culture that punished skepticism became accepted as truth. We all know how that turned out.

Revulsion at the carnage of the Second World War crested with the counterculture revolution driven by the first TV generation. By the time the dust settled, its thought leaders had grabbed control of the academy, reshaping it along postmodern lines that included an assault on language that critics dubbed political correctness. This was intentionally designed to constrain what people can think by restraining what they can say. The intention may have been to avert a repeat of the horrors of the 20th century, but the result was to strip much of the educated populace of the mental tools needed to ferret out error.

So now that the voices have returned to our heads, we are inadequately prepared to defend against them. Digitally streamed into every nook and cranny of our ubiquitously connected lives, these voices are filtered by our own self-reinforcing preferences and prejudices, becoming our own in the process. The result is an ongoing series of meme-driven culture wars where the shouting only gets louder on all sides.

So we come back to the question: How do we know what we know?

What causes crime? Is autism linked to vaccines? Should GMOs be banned? Is global warming “settled science”? These are more than factual questions. Responses to them signal identification with an array of ever more finely differentiated identity groups set at each other’s throats. For those who wish to divide and rule, that’s the whole point.

In a cruel irony, this global outbreak of media-induced public schizophrenia has even empowered jihadists bent on taking the world back to the 10th century using the idea-spreading tools of the Internet to challenge a Western Civilization rapidly losing its mojo.

So we come back to the question: How do we know what we know? At the present time, we don’t. And therein lies the problem.

Bill Frezza

Bill Frezza is a fellow at the Competitive Enterprise Institute and the host of RealClear Radio Hour.

This article was originally published on FEE.org. Read the original article.

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Globalization’s So-Called Winners and Losers – Article by Chelsea Follett

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The New Renaissance HatChelsea Follett
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A recent Washington Post analysis has argued that political events as diverse as the Brexit and the rise of Donald Trump can be explained by a “revolt” of the world’s economic “losers.”

Before proceeding, it is important to keep in mind that all income groups in the world have seen gains in real income over the last few decades. That said, some have gained more than others. Between 1988 and 2008, for example, the lowest gains were made by people whose incomes fit beteen the world’s 75th to 90th income percentiles. That includes much of the middle and working class in rich countries.

The Washington Post calls the people in this group the bitter “losers” of globalization. But, are they?

follett1There are at least two problems with characterizing such people as “losers.” First, it seems to suggest that income growth rate matters more than absolute income level. Yet a person in the 80th income percentile globally would not want to trade places with or envy someone in the bottom 10th percentile, despite the latter’s much higher income growth rate.

Consider real GDP per person, adjusted for differences in purchasing power, in China and the United States. Between 1988 and 2008, China’s per person GDP grew by over 340 percent. America’s per person GDP, in contrast, grew by “only” 40 percent. China may be making gains more quickly, but it would be wrong to argue that the United States was a “loser,” for American GDP per person in 2008 was $52,704 and China’s $8,104.

chinagrowth

Poor countries are seeing faster income gains partially because their starting point is so much lower—it’s a lot easier to double per person GDP from $1,000 to $2,000 than from $40,000 to $80,000.

The second problem is that the Washington Post piece suggests that the incredible escape from poverty that has occurred in poor countries during my lifetime has come at the expense of the middle classes in the developed world. (This is a fascinating reversal of the more popular, but equally inaccurate, opinion that the Western riches came at the expense of poor countries).

Thus, the Washington Post piece claims, “global capitalism didn’t always work so well for workers in the United States and Europe even as—or, in some cases, because [emphasis mine]—it pulled hundreds of millions of people out of poverty everywhere else.”

Fortunately, prosperity is not a zero sum game.

When trying to understand the “winners” and “losers” of globalization, it is important that we do not compare income growth rates over the last few decades with some imagined ideal. Instead, we should compare income growth to what would have happened in a world without globalized trade. In such a world, hundreds of millions of people would have remained in extreme poverty. And the middle class of the developed world would also have made fewer gains. Just look at the amazing reduction in price of consumer goods that we have collected at HumanProgress.

A few individuals in select industries would benefit from protectionism, like the U.S. sugar industry does now. But on average everyone would be poorer, just as in 2013 Americans collectively paid 1.4 billion dollars more for sugar than they would have without protectionism. (The U.S. manufacturing industry, it may be worth noting, would not be among the “select industries” to benefit—most manufacturing job losses have come from mechanization rather than outsourcing, and have been offset by new jobs in other sectors).

Thanks to trade and exchange, people in all income percentiles have made real gains, and living standards for the middle class in advanced economies have soared in ways not captured by looking at income alone. America’s middle class is getting richer, and the people in the world’s 75th to 90th income percentiles are also winners.

Chelsea Follett is the Managing Editor of HumanProgress.org, a project of the Cato Institute which seeks to educate the public on the global improvements in well-being by providing free empirical data on long-term developments. Her writing has been published in the Wall Street Journal, Newsweek, and Global Policy Journal. She earned a Bachelor of Arts in Government and English from the College of William & Mary, as well as a Master of Arts degree in Foreign Affairs from the University of Virginia, where she focused on international relations and political theory.

This work by Cato Institute is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.

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Why Modern Luddites Are Attacking Uber Drivers – Article by Mateusz Machaj

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The New Renaissance HatMateusz Machaj
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Earlier this year, a number of Uber cars in Poland came under attack by a group of vandals who were likely taxi drivers. In general, these types of vandalism have a long tradition in human history and have contributed to keeping populations’ general living standards at very low levels.

Attacks on Uber drivers are simply the latest chapter in a long story of efforts to intimidate and destroy innovators who are moving markets and societies in new and unfamiliar directions.

Reactions to Early Machines
For a very long time, separation of grain from the chaff was done in a very primitive manner. The process took weeks, involved hard working men, hard working women feeding them, and also children working as additional helpers. Finally, someone invented a threshing machine that allowed farmers to get rid of all this hard work: the machine could do the job much faster with less physical labor involved.

The change happened contrary to what many historical books claim: the move to threshing machines did not occur because of the patent system put in place 150 years before the change. It happened because social and political forces were too weak to stop it from happening.

Beginning in the eighteenth century in Europe, the entrepreneurial class was growing. They were a group of small profit-driven innovators interested in selling various products, and beating their competitors to markets. This “Great Change” was driven forward by many cultural, religious, political, legal, and technological factors.

At first, threshing machines were very imperfect. They didn’t always work well, and they also were expensive. There was a lot of room for improvements, and for making them better, faster, and cheaper. As they were slowly improved, it quickly became apparent the new machines were more efficient than the old manual methods. It was only a matter of time until someone would realize that steam engines could be combined with the threshing machines.

Not surprisingly, threshing machines were not welcomed by everyone. Swing Riots flared up and the Luddite movement attempted to crush technological innovation. Despite such obstacles, the entrepreneurs won out, paving the way for the future chain of market innovations, well symbolized by the modern farmer sitting in the modern air-conditioned tractor (with a good stereo system). Over the past two hundred years, agricultural workers were reduced from more than 80 percent of workers to less than 5 percent.

Economic Growth and Social Change
One of the big mysteries of human history is the question of why rapid technological and innovative growth started only around the nineteenth century. Many new ideas and technological changes were present for ages (and invented centuries before). Other cultures introduced many new innovative ideas as well.

Some steam engines were even being used in ancient times. They were applied in narrow places, however, due to social and political circumstances.

One early example of political resistance is related to us through the Roman Emperor Vespasian’s opposition to new labor saving innovations. Faced with the prospect of replacing workers with machines, Vespasian reputedly said: “You must let me feed my poor commons.”

Vespasian’s reaction is understandable; it is hard to predict what will happen in response to innovations that make certain job skills obsolete. And it’s not just the workers who fear the change. The ruling class, faced with an idle and unemployed population might also fear social upheaval.

The words of Peter Green summarize many of these concerns:

The ruling class were scared, as the Puritans said, of Satan finding work for idle hands to do. One of the great things about not developing the source of energy that did not depend on muscle power was the fear of what the muscles might get up to if they weren’t kept fully employed. The sort of inventions that were taken up and used practically were the things that needed muscle power to start with, including the Archimedean screw. On the other hand, consider that marvelous box gear of Hero’s: it was never used. That would have been a real conversion of power. What got paid for? The Lagids tended to patronize toys, fraudulent temple tricks in large quantities, and military experiments.

Naturally, human history is complicated and subject to many different factors. Nevertheless, there appears to be some truth in the argument that fixed social and political structure did not favor society open to the widespread adoption of innovation. Otherwise, it is hard to explain why so many new technical discoveries were not applied for so long, even though science and intelligence supplied them centuries before. We had to wait for the new political and social arrangements that either were tolerant of new innovations, or were unable to stop them.

Uber and Beyond
Everywhere we look, we see both the creative and destructive power of innovation. First threshing machine sellers lead to reductions in agricultural employment. Later, tractors killed the threshing machines. Telegraph and railway killed communication systems that relied on horses. Cars destroyed the horse industry. Mass production of textiles destroyed the demand for hand-crafted items. Big stores destroyed smaller shops, now discount shops (in parts of Europe) are destroying big stores. Video rentals hampered the cinema industry, now Netflix and others killed video rentals, while Napster’s success (despite its illegality) predicted a coming end to the old music industry. China’s growth and cheap efficient outsourcing reshaped traditional industries in developed countries. (From an economic perspective there is no difference between hiring cheaper labor or hiring a better machine.)

Dell smashed the traditional computer industry with eliminating many middle men. Ikea did something similar in the furniture industry. The internet destroyed regular newspapers, while Google smashed the marketing industry. Amazon destroys bookstores around the world, while Uber is doing the same with the taxi industry.

Economic progress decreases employments in one place, allows for creation of new ones, even in the service sector. During the process of liquidating employment positions, huge economic development is capable of multiplying per capita production within one generation, positively affecting all social classes.

The current state of affairs is not the end of history. Those companies, innovative today, will be endangered tomorrow. Even Jeff Bezos, creator of Amazon.com, admits Amazon won’t last forever:

Companies have short life spans. … And Amazon will be disrupted one day. I don’t worry about it ’cause I know it’s inevitable. Companies come and go. And the companies that are, you know, the shiniest and most important of any era, you wait a few decades and they’re gone.

Mateusz Machaj, PhD in economics; is a founder of the Polish Ludwig von Mises Institute. He has been a summer fellow at the Ludwig von Mises Institute. He is assistant professor at the Institute of Economic Sciences at the University of Wroclaw.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

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Demagoguery vs. Data on Employment in America – Article by Tyler Watts

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The New Renaissance Hat
Tyler Watts
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Demagogue politicians love to play on popular fears that low-wage foreigners are “stealing” good-paying American jobs by way of outsourcing and globalization. The claim is made by nativists and protectionists of all political stripes, whether leftists complaining of a “rigged economy” or rightists speaking of other countries “beating us” economically.

A sound economic analysis of the claim about job losses due to international trade should address two questions: First, is it true that the US has lost jobs due to trade (or other factors)? Second, is this phenomenon good or bad overall for the US and world economies?

On the first point, it can appear as though the US has lost jobs. For example, as Figure 1 shows, manufacturing employment in the US has declined by about 2 million from pre-Great Recession levels, and is down by over 7 million, or 37 percent, from the all-time high reached in 1979.

Figure 1: Total Manufacturing Employment, 1940–2016

watts1

The problem, though, is that by looking at manufacturing in terms of jobs, we’re missing the full picture of industrial production.

Nevertheless, the demagogues still argue that, even though high-paying service sector jobs have more than replaced lost factory jobs, “we don’t make things here anymore” and we should lament this. This oft-heard refrain is patently false. We don’t make certain things, such as garments, toys or electronics, because global free trade and technological advances tend to shift America’s output into those industries in which our comparative advantage is greatest. But Americans do indeed make things — quite valuable things.

This can be seen in Figure 2, which shows the US Industrial Production Index for the “de-industrialization” period. After the expected steep decline following the Great Recession of 2008–2009, US manufacturing has slowly bounced back and is now producing more products, in value-added terms, than ever before. Indeed, this index, which consists mainly of manufacturing, has grown by over 100 percent since the 1979 peak in manufacturing employment.

Figure 2: Industrial Production Index for the United States, 1979–2016

watts2

In other words, thanks to productivity gains, we need fewer workers to make more stuff.

From an economic perspective, nothing could be better news. US manufacturing creates 100 percent more value with 37 percent fewer workers. Creating more value with fewer workers means we’re more efficient than ever, or put another way, more productive than ever. These awesome productivity gains have many sources, especially in the form of technological advances in areas like software, robotics, and communications. Globalization and outsourcing have also played a role, as they allow American workers a greater degree of specialization in those sectors where our productivity edge is largest.

The good news gets better, though: not only have we gained jobs on net, but jobs have grown faster than the population over time. Since the 1979 peak in manufacturing employment, the US adult population grew by 53 percent, whereas employment grew by 59 percent, as shown in Figure 3.

Figure 3: Population Growth vs. Employment Growth Since 1979

watts3Source: Federal Reserve Economic Data

Despite these generally positive facts, some still contend that we’ve replaced “good” manufacturing jobs with lousy service sector jobs. Well, of course it must be true that, if we’ve lost manufacturing jobs, but gained jobs overall, then all of the job gains must have come from non-manufacturing sectors. And indeed the service sector, broadly defined, has seen employment growth of 90 percent since our 1979 benchmark. But beware of making hasty earnings assumptions about a sector that employs nearly 124 million people. To see whether the newly-created “service sector” jobs really don’t pay as well as the vaunted manufacturing jobs, we need to drill down into the employment and earnings data. What we’ll find is that a large majority of the new service sector jobs pay just as well or much better than manufacturing jobs.

Table 1 presents Bureau of Labor Statistics data on the 15 largest sectors and sub-sectors of the US economy, which together represent over 96 percent of the total net increase in payroll employment for the post-peak manufacturing jobs era (1979 to 2016). This might come as a surprise to the anti-globalization crowd: despite the loss of 7 million manufacturing jobs (and some mining, logging, and utilities sector jobs), we’ve seen a net increase of nearly 53 million total jobs. Of these net new jobs, fully 62 percent of them feature, as of January 2016, average hourly earnings equal to or greater than current average hourly manufacturing earnings. In other words, most of the 53 million new jobs pay the same or better wages than the demagogues’ benchmark “good” manufacturing jobs. So we lost 7 million good jobs, only to gain about 32 million equal or better-paying jobs, along with about 19 million lower-paying jobs (about 38 percent of net new jobs pay less than manufacturing).

Table 1: Employment Changes and Current Earnings by Sector

watts4Source: Bureau of Labor Statistics

We’ve established that, despite a major decrease in employment in the manufacturing sector, we’ve gained many more jobs than we’ve lost in the past 35 years or so, and that most of these new jobs pay better to boot. Economic changes, while painful in the short run, have brought gains in output and employment not only for the US, but for the rest of the world as well. Overall, this is good news for the US and world economies.

So, as the campaign season heats up, let’s not be misled by baseless arguments about America “losing jobs” or other countries “beating us” at trade. Trade is a positive sum game, and the benefits for both the US and world economies are, shall we say, “yuge.”

Tyler Watts earned his PhD in economics at George Mason University in 2010. He currently teaches economics at East Texas Baptist University and runs the Institute for Economic Education (see YouTube channel here), a public outreach focused on integrating economics with a Biblical worldview and providing unique teaching tools for high school and college economics students.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

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This Crazy 100-Year-Old Law Makes Almost Everything More Expensive – Article by George C. Leef

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The New Renaissance HatGeorge C. Leef
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It’s time to repeal the absurd, costly “Jones Act”

The 2016 presidential campaign so far has featured almost no discussion of downsizing the federal government. Americans would benefit enormously if we could get rid of costly old laws that interfere with freedom and prosperity, and future generations would benefit even more.

I keep hoping that someone will manage to put this question squarely to the candidates in either party: “What laws would you seek to repeal if you were the president?”

There are so many laws that ought to be repealed, including countless special interest statutes that benefit a tiny group while imposing costs on a vastly greater number of Americans. But if candidates need an idea of where to start, one such law is the Merchant Marine Act of 1920, also called the “Jones Act.”

The Act requires that all shipments between American ports to be done exclusively on American ships. As Daniel Pearson explains,

Its stated purpose was to maintain a strong U.S. merchant marine industry. Drafters of the legislation hoped that the merchant fleet would remain healthy and robust if all shipments from one U.S. port to another were required to be carried on U.S.-built and U.S.-flagged vessels.

The theory behind the law is musty, antiquated mercantilism — the notion that the nation will be stronger if we protect “our” industries against foreign competition.

Imagine how strong we would be if there had been a Jones Act for automobile transportation. Would Americans be better off today if the Detroit automakers had remained an oligopoly by keeping out all of those Hondas, BMWs, and Hyundais? Obviously not — yet this logic has handicapped US shipping for 96 years.

A recent op-ed in the Honolulu Star-Advertiser nicely explain the absurd consequences of this law. The writer just wants to buy a cabinet, but “although the cabinet was made in Taiwan, it could not be off-loaded in Hawaii, but rather had to be shipped to the West Coast, then loaded onto an American ship for the costly backward journey to Hawaii.” Tons of time, fuel, and expense wasted, all thanks to the Jones Act.

We get a more comprehensive view of its costs from a report by the Government Accountability Office (GAO) last September. The report, titled “International Food Assistance: Cargo Preference Increases Food Aid Shipping Costs,” shows the heavy cost of the law. The GAO, known for its non-partisan, straight-shooting approach, found that the Jones Act increased the cost of shipping food aid by 23 percent.

What does that mean? Between 2011 and 2014, the taxpayers had to fork over an extra $45 million to ship food for USAID. With Washington’s prodigious spending, we’ve gotten used to the idea that amounts under a billion are too small to bother with, but that is the wrong way to look at things. Even if we didn’t have a constantly increasing national debt, we ought to root out every needless federal expenditure.

Treading very delicately, the GAO states that, because the Jones Act “serves statutory policy goals,” Congress should merely tweak it so that aid agencies can find less costly shipping. But the federal government has no constitutional authority to be in the business of international aid, and carving out a special exemption for this would simply help the government avoid the consequences that it is inflicting on everyone else. Congress should simply repeal the protectionist law entirely.

The Jones Act also distorts our energy market and leads to higher prices than otherwise. Writing at The Federalist, trade attorney Scott Lincicome points out that, due to the law’s restrictions, only thirteen ships can legally move crude oil between US ports, and those ships are “booked solid.” As a result, shipping American crude from Texas to Philadelphia costs more than three times as much as it would cost to send it all the way to Canada on a foreign vessel.

One of the Act’s few congressional opponents is Arizona Senator John McCain, who pointed out in this testimony that Hawaiian cattlemen who want to sell livestock on the mainland “have actually resorted to flying the cattle on 747 jumbo jets to work around the restrictions of the Jones Act. Their only alternative is to ship the cattle to Canada because all livestock carriers in the world are foreign-owned.”

Hawaii is especially hard hit by the Jones Act, but other states and territories that depend heavily on water-borne shipping also suffer. Consider Puerto Rico: a 2012 study by the New York Fed found that it cost about $3,063 to ship a 20-foot container from an east coast US port to Puerto Rico, but shipping the same container to a foreign destination, such as Jamaica, would cost only about $1,687. Because it is an American territory, the poor island pays almost twice as much to import American products.

For nearly a century, we’ve paid more at the pump, more for goods, more in taxes, and even more to do charitable aid, all because of this ancient special interest law.

All that the Jones Act accomplishes is to guarantee a market for costly, unionized American shipping. It is similar in purpose to the Davis-Bacon Act, which guarantees a market for high-cost unionized construction (as I explain here).

Such special interest laws are never good for the country as a whole, but they are passed and maintained because their lobbyists are crafty, knowledgeable, and highly motivated, while the voting public is mostly ignorant.

It takes a spotlight and presidential leadership to get rid of them. Will any of this year’s crop take up the challenge?

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

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Oil Prices Too Low? – Article by Randal O’Toole

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The New Renaissance HatRandal O’Toole
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Remember peak oil? Remember when oil prices were $140 a barrel and Goldman Sachs predicted they would soon reach $200? Now, the latest news is that oil prices have gone up all the way to $34 a barrel. Last fall, Goldman Sachs predicted prices would fall to $20 a barrel, which other analysts argued was “no better than its prior predictions,” but in fact they came a lot closer to that than to $200.

Low oil prices generate huge economic benefits. Low prices mean increased mobility, which means increased economic productivity. The end result, says Bank of America analyst Francisco Blanch, is “one of the largest transfers of wealth in human history” as $3 trillion remain in consumers’ pockets rather than going to the oil companies. I wouldn’t call this a “wealth transfer” so much as a reduction in income inequality, but either way, it is a good thing.

Naturally, some people hate the idea of increased mobility from lower fuel prices. “Cheap gas raises fears of urban sprawl,” warns NPR. Since “urban sprawl” is a made-up problem, I’d have to rewrite this as, “Cheap gas raises hopes of urban sprawl.” The only real “fear” is on the part of city officials who want everyone to pay taxes to them so they can build stadiums, light-rail lines, and other useless urban monuments.

A more cogent argument is made by UC Berkeley sustainability professor Maximilian Auffhammer, who argues that “gas is too cheap” because current prices fail to cover all of the external costs of driving. He cites what he calls a “classic paper” that calculates the external costs of driving to be $2.28 per gallon. If that were true, then one approach would be to tax gasoline $2.28 a gallon and use the revenues to pay those external costs.

The only problem is that most of the so-called external costs aren’t external at all but are paid by highway users. The largest share of calculated costs, estimated at $1.05 a gallon, is the cost of congestion. This is really a cost of bad planning, not gasoline. Either way, the cost is almost entirely paid by people in traffic consuming that gasoline.

The next largest cost, at 63 cents a gallon, is the cost of accidents. Again, this is partly a cost of bad planning: remember how fatality rates dropped nearly 20 percent between 2007 and 2009, largely due to the reduction in congestion caused by the recession? This decline could have taken place years before if cities had been serious about relieving congestion rather than ignoring it. In any case, most of the cost of accidents, like the other costs of congestion, are largely internalized by the auto drivers through insurance.

The next-largest cost, pegged at 42 cents per gallon, is “local pollution.” While that is truly an external cost, it is also rapidly declining as shown in figure 1 of the paper. According to EPA data, total vehicle emissions of most pollutants have declined by more than 50 percent since the numbers used in this 2006 report. Thus, the 42 cents per gallon is more like 20 cents per gallon and falling fast.

At 12 cents a gallon, the next-largest cost is “oil dependency,” which the paper defines as exposing “the economy to energy price volatility and price manipulation” that “may compromise national security and foreign policy interests.” That problem, which was questionable in the first place, seems to have gone away thanks to the resurgence of oil production within the United States, which has made other oil producers, such as Saudi Arabia, more dependent on us than we are on them.

Finally, at a mere 6 cents per gallon, is the cost of greenhouse gas emissions. If you believe this is a cost, it will decline when measured as a cost per mile as cars get more fuel efficient under the current CAFE standards. But it should remain fixed as a cost per gallon as burning a gallon of gasoline will always produce a fixed amount of greenhouse gases.

In short, rather than $2.38 per gallon, the external cost of driving is closer to around 26 cents per gallon. Twenty cents of this cost is steadily declining as cars get cleaner and all of it is declining when measured per mile as cars get more fuel-efficient.

It’s worth noting that, though we are seeing an increase in driving due to low fuel prices, the amount of driving we do isn’t all that sensitive to fuel prices. Real gasoline prices doubled between 2000 and 2009, yet per capita driving continued to grow until the recession began. Prices have fallen by 50 percent in the last six months or so, yet the 3 or 4 percent increase in driving may be as much due to increased employment as to more affordable fuel.

This means that, though there may be some externalities from driving, raising gas taxes and creating government slush funds with the revenues is not the best way of dealing with those externalities. I’d feel differently if I felt any assurance that government would use those revenues to actually fix the externalities, but that seems unlikely. I actually like the idea of tradable permits best, but short of that the current system of ever-tightening pollution controls seems to be working well at little cost to consumers and without threatening the economic benefits of increased mobility.

Randal O’Toole is a Cato Institute Senior Fellow working on urban growth, public land, and transportation issues. O’Toole’s research on national forest management, culminating in his 1988 book, Reforming the Forest Service, has had a major influence on Forest Service policy and on-the-ground management. His analysis of urban land-use and transportation issues, brought together in his 2001 book, The Vanishing Automobile and Other Urban Myths, has influenced decisions in cities across the country. In his book The Best-Laid Plans, O’Toole calls for repealing federal, state, and local planning laws and proposes reforms that can help solve social and environmental problems without heavy-handed government regulation. O’Toole’s latest book is American Nightmare: How Government Undermines The Dream of Homeownership. O’Toole is the author of numerous Cato papers. He has also written for Regulation magazine as well as op-eds and articles for numerous other national journals and newspapers. O’Toole travels extensively and has spoken about free-market environmental issues in dozens of cities. An Oregon native, O’Toole was educated in forestry at Oregon State University and in economics at the University of Oregon.  

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What Are Your Odds of Making It to the 1%? – Article by Chelsea Follett

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The New Renaissance HatChelsea Follett
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They’re better than you think

Your odds of “making it to the top” might be better than you think, although it’s tough to stay on top once you get there.

According to research from Cornell University, over 50 percent of Americans find themselves among the top 10 percent of income-earners for at least one year during their working lives. Over 11 percent of Americans will be counted among the top 1 percent of income-earners (i.e., people making at minimum $332,000) for at least one year.

How is this possible? Simple: the rate of turnover in these groups is extremely high.

Just how high? Some 94 percent of Americans who reach “top 1 percent” income status will enjoy it for only a single year. Approximately 99 percent will lose their “top 1 percent” status within a decade.

Now consider the top 400 U.S. income-earners — a far more exclusive club than the top 1 percent. Between 1992 and 2013, 72 percent of the top 400 retained that title for no more than a year. Over 97 percent retained it for no more than a decade.

HumanProgress.org advisory board member Mark Perry put it well in his recent blog post on this subject:

Whenever we hear commentary about the top or bottom income quintiles, or the top or bottom X% of Americans by income (or the Top 400 taxpayers), a common assumption is that those are static, closed, private clubs with very little dynamic turnover. …

But economic reality is very different — people move up and down the income quintiles and percentile groups throughout their careers and lives.

What if we look at economic mobility in terms of accumulated wealth, instead of just annual income (as the latter tends to fluctuate more)?

The Forbes 400 lists the wealthiest Americans by total estimated net worth, regardless of their income during any given year. Over 71 percent of Forbes 400 listees — and their heirs — lost their top 400 status between 1982 and 2014.

heirsSo, the next time you find yourself discussing the very richest Americans, whether by wealth or income, keep in mind the extraordinarily high rate of turnover among them.

And even if you never become one of the 11.1 percent of Americans who fleetingly find themselves in the “top 1 percent” of US income-earners, you’re still quite possibly part of the global top 1 percent.

Cross-posted from HumanProgress.org.

Chelsea Follett (Chelsea German) works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

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