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Economic Growth Slashed Global Poverty to Historically Unprecedented Level – Article by Marian L. Tupy

Economic Growth Slashed Global Poverty to Historically Unprecedented Level – Article by Marian L. Tupy

The New Renaissance HatMarian L. Tupy
October 6, 2015
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According to the World Bank, for the first time in human history, “less than 10 percent of the world’s population will be living in extreme poverty by the end of 2015.” The bank has “used a new income figure of $1.90 per day to define extreme poverty, up from $1.25. It forecasts that the proportion of the world’s population in this category will fall from 12.8 percent in 2012 to 9.6 percent.”
Global poverty rate, official and baseline scenario, percent

As scholars have noted, historically speaking, grinding poverty was the norm for most ordinary people. Even in the most economically advanced parts of the world, life used to be miserable. To give one example, at the end of the 18th century, ten million of France’s twenty-three million people relied on some sort of public or private charity to survive and three million were full-time beggars.

Thanks to industrial revolution and trade, economic growth in the West accelerated to historically unprecedented levels. Over the course of the 19th and 20th centuries, real incomes in the West increased fifteen-fold. But the chasm that opened up as a result of the Western take-off is now closing.

Life expectancy at birth, West and the Rest, years

The rise of the non-Western world is, unambiguously, a result of economic growth spurred by the abandonment of central-planning and integration of many non-Western countries into the global economy. After economic liberalization in China in 1978, to give one example, real incomes rose thirteen-fold.

As Princeton University Professor Angus Deaton notes in his book The Great Escape, “[T]he rapid growth of average incomes, particularly in China and India, and particularly after 1975, did much to reduce extreme poverty in the world. In China most of all, but also in India, the escape of hundreds of millions from traditional and long established poverty qualifies as the greatest escape of all.”

Marian L. Tupy is the editor of HumanProgress.org and a senior policy analyst at the Center for Global Liberty and Prosperity. He specializes in globalization and global wellbeing, and the political economy of Europe and sub-Saharan Africa. His articles have been published in the Financial Times, Washington Post, Los Angeles Times, Wall Street Journal, U.S. News and World Report, The Atlantic, Newsweek, The U.K. Spectator, Weekly Standard, Foreign Policy, Reason magazine, and various other outlets both in the United States and overseas. Tupy has appeared on The NewsHour with Jim Lehrer, CNN International, BBC World, CNBC, MSNBC, Al Jazeera, and other channels. He has worked on the Council on Foreign Relations’ Commission on Angola, testified before the U.S. Congress on the economic situation in Zimbabwe, and briefed the Central Intelligence Agency and the State Department on political developments in Central Europe. Tupy received his B.A. in international relations and classics from the University of the Witwatersrand in Johannesburg, South Africa, and his Ph.D. in international relations from the University of St. Andrews in Great Britain.

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

Pope Francis vs. the Cure of Reason – Article by Edward Hudgins

Pope Francis vs. the Cure of Reason – Article by Edward Hudgins

The New Renaissance HatEdward Hudgins
September 27, 2015
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A young girl was recently interviewed on TV about her encounter with Pope Francis on his visit to the United States. She cried with joy as she described how he touched her on the forehead and offered a blessing. Now, she said, she might get the miracle she’s prayed for. Maybe someday she’ll be able to walk.

Who could not be moved by a crippled child who wants to be cured? But what is really wrenching is the fact that this child and so many others look to faith rather than science and reason.

Medical breakthroughs

On the same day the Pope was touching the little girl, a news story was circulating about a breakthrough in prosthetics. A brain implant has restored to a man with a robotic hand his sense of touch.

Another story in recent months documented technology that allows individuals to control their artificial limbs with their thoughts.

Some even express fears that bionic legs in the future could be so good that they will be preferred to the natural ones we’re born with.

The sightless have sought divine intersession to cure blindness since before the time of Jesus. A few days before the Pope toured D.C., a breakthrough was announced that involves applying a light-sensitive protein found in algae to the back of the retinas of eyes to, in effect, replace the rods and cones destroyed by certain diseases. The technique has been successful in mice and human tests are now coming.


This restorative treatment has welcome competition. Last month saw a man receive the first bionic eye implant.

And let’s not forget that deafness is in the process of being vanquished thanks to cochlear implants.

Free markets needed

Free markets, of course, if allowed to operate, will make what are now pricey, experimental medical technologies affordable for most, just as markets have allowed entrepreneurs to create and bring down the prices of computers, smartphones, tablets, Wifi, and all the hardware and software of the information revolution.

Handicapped individuals, like the girl who was so happy the Pope touched her, might have bright futures indeed. But they need to recognize that it is not faith that will make them whole. It is reason.

Human reason needed

It is the power of the human mind, especially in science and engineering, that has brought about the benefits of our modern world. Yet where are the parades, the speeches before Congress, and the celebrations that recognize the sources of such benefits and encourage reason and achievement as foundational values in our culture? Why do so many seek hope in faith and otherworldly miracles when real achievements—“miracles” of the human mind—are all around us? Why do so few understand that training minds and encouraging entrepreneurship is the best way to ensure a healthy, prosperous future? With all the enthusiasm we see for the Pope, where is the enthusiasm for the actual creators and achievers in our world?

Ironically, the Pope, in his economic ignorance, denounces the free market system that could cure that little girl. And he promotes draconian economic restrictions to fight hypothesized global warming, restrictions that would ensure that the poor he says he cares so much about will be with us always. The Pope—and all of us—indeed should empathize with that little girl. But he should be touting reason as the cure. This Jesuit Pope needs to read his Thomas Aquinas!

Those who are enthusiastic about the Pope’s visit because he inspires hope for a better world had better look to the real source of all our blessings: the human mind.

Dr. Edward Hudgins directs advocacy and is a senior scholar for The Atlas Society, the center for Objectivism in Washington, D.C.

Copyright, The Atlas Society. For more information, please visit www.atlassociety.org.

World’s Poor: “We Want Capitalism” – Post-Colonial Capitalism at the Bottom of the Pyramid – Article by Iain Murray

World’s Poor: “We Want Capitalism” – Post-Colonial Capitalism at the Bottom of the Pyramid – Article by Iain Murray

The New Renaissance Hat
Iain Murray
August 31, 2015
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In the forests of India, something exciting is going on. Villagers are regaining property taken from them when the British colonial authorities nationalized their forests. Just as exciting, in urban Kenya and elsewhere, people are doing away with the need for banks by exchanging and saving their money digitally. All over the world, poor people are discovering the blessings of bottom-up capitalism.

Sadly, though, developed country governments and anti-poverty activists ignore this fact and insist that developing nations need a paternalistic hand up. Both are missing an opportunity, because there are billions of capitalists in waiting at the bottom of the pyramid.

Next month, the United Nations will formally announce the successors to its Millennium Development Goals, the global body’s approach to poverty alleviation since the year 2000. These new goals will be touted as “sustainable.” The event will coincide with a visit by the pope, at which he is expected to concentrate on climate change and materialism as the greatest threats to the welfare of the people of the developing world.

Don’t expect to hear much on the way people in the Western world lifted themselves out of poverty: free-market capitalism.

The phrase “the fortune at the bottom of the pyramid” was coined by the late C.K. Prahalad, building on the work of Nobel laureate Amartya Sen. In his groundbreaking 1999 work, Development as Freedom, Sen pointed out that one of the most important aspects of development is freedom of opportunity, a vital part of which is access to capital and credit. Capital and credit, however, appear nowhere in the draft UN goals.

When capital is sufficiently available, would-be entrepreneurs at the bottom of the pyramid have demonstrated a willingness to launch new ventures and invest in their futures — that is, to embrace free-market capitalism to the benefit of all concerned.

There are several ways to ensure access to capital in the developing world, but the most important approach is to unlock the productive potential of the capital already available there.

Land Titling

In many countries, people could possess access to capital by virtue of the real estate they already occupy, but they are unable to prove ownership of the land due to inadequate land-titling systems or because of traditional forms of property ownership where everything belongs to the village chief. As Hernando de Soto explained in his book, The Mystery of Capital, land-titling reforms significantly benefit the poor, enabling

such opportunities as access to credit, the establishment of systems of identification, the creation of systems for credit and insurance information, the provision for housing and infrastructure, the issue of shares, the mortgage of property and a host of other economic activities that drive a modern market economy.

De Soto estimates that up to $10 trillion of capital worldwide is locked away unused because of inadequate titling systems. A recent study by the Peru-based Institute for Liberal Democracy (ILD), which De Soto heads, estimated Egyptian workers’ real estate holdings to be worth around $360 billion, “eight times more than all the foreign direct investment in Egypt since Napoleon’s invasion.”

Similarly, many local assets around the world remain in common ownership — in reality, owned by no one. Initiatives such as India’s privatization of forest resources seek to address this problem by enabling the titling of assets by indigenous peoples, who can then tap into those resources for access to credit to open up new opportunities. Estimates suggest that similar initiatives could be extended to 900 million plots of land across the developing world.

There are also exciting opportunities that could arise for the public recording and utilization of such capital through the distributed public-ledger system known as the blockchain, best known for its role in the development of bitcoin. Development of the blockchain for property recording and titling would significantly reduce both the transaction costs and the widespread corruption  associated with government-controlled titling systems. Significantly, De Soto’s ILD is promoting these initiatives.

Microfinance

Recent innovations have enabled the development of microfinance — access to small amounts of credit for specific purposes. Today, microfinance institutions all over the developing world provide small loans, access to savings, and microinsurance to families or small businesses.

By giving them access to proper investment capital and affordable financial institutions, microfinance providers help small- and medium-sized enterprises in developing countries to grow. Often, these businesses are so small that they can neither afford the interest rates on bank loans nor come up with the capital they need on the their own. When implemented correctly, microfinance loans empower their customers to invest, grow, and be productive, all of which contribute to diminishing poverty within communities.

One of the most prominent examples of microfinance is Muhammad Yunus’s Grameen Bank, first established in Bangladesh. According to a RAND Corporation study, areas where Grameen Bank offers programs saw unemployment rates drop from 31 percent to 11 percent in their first year. Occupational mobility improved, with many people moving up from low-wage positions to more entrepreneurial ones. There is evidence of increased wage rates for local farmers. Women’s participation in income-generating activities also rose significantly.

The Consumers at the Bottom of the Pyramid

Access to capital and credit enable new markets to spring up where none existed before. Entrepreneurial activity is unleashed. Consider one of Prahalad’s case studies of Nirmal, a small Indian firm that sold detergent products designed for rural village uses, such as in rivers. The products came in small packages at low prices suitable for Indian villagers’ daily cash flow. The company soon found itself with a market share equal to that of consumer-goods giant Unilever’s Indian subsidiary. Unilever responded by introducing similar products, thereby growing this new market. In the process, more environmentally friendly products were invented and sold, too.

As Prahalad points out, over four billion people in the world lived on an annual income of $1,500 or less (in 2002 dollars), with one billion living on less than a dollar a day. Nevertheless, based on purchasing power parity, this market represents an economy of $13 trillion or more, not that far off from the entire developed world.

The underdeveloped world is ripe for capitalism. The “unemployed” protestors of the Arab Spring were, in fact, small businessmen who were pushed to the breaking point by continually having their capital and profits expropriated by corrupt government officials, as De Soto points out. So, while the Western media portrayed the protests as being mostly about politics and freedom of expression, they were as much — if not more — about the freedom to do business.

Kenya: Mobile Phones and Payments

Despite corruption and bureaucracy, strong markets have grown up in developing countries. Kenya is a case in point. It leapfrogged the Western world’s development process for mobile communications technology. Kenyans went from having few telephones to virtually everyone having a mobile phone without needing the stage of landline infrastructure in between. A similar process is now taking place in personal finance.

Vodafone, along with its Kenyan subsidiary, Safaricom, developed m-pesa, a mobile payment and value storage system to be used on its phones. Transactions are capped at about $500, but crucially can be person-to-person, acting as digitized cash. Introduced in 2007, it had 9 million users — 40 percent of Kenya’s population — just two years later. By 2013, 17 million Kenyans were using it, with transactions valued at over $24 billion — over half of Kenya’s GDP.

M-pesa has in turn improved access to capital even more, and technology businesses are thriving all over Kenya as a result.

Kenya is not alone. The phenomenon is spreading to other African countries and to some South American countries such as Paraguay.

Environment, education, and health all benefit from wealth creation. Perhaps the real mystery of capitalism is that neither the United Nations nor the pope recognize the benefits it can bring to four billion of the world’s poor. Free enterprise and human welfare boom where governments allow new markets with access to capital and credit. That is all it takes to meet the UN’s development goals.

Iain Murray is Vice President at the Competitive Enterprise Institute.

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.

Eminent Domain for Private Gain Is Terrible and Cruel — Even When It “Works” – Article by George C. Leef

Eminent Domain for Private Gain Is Terrible and Cruel — Even When It “Works” – Article by George C. Leef

The New Renaissance HatGeorge C. Leef
August 18, 2015

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Despite a “success” story, eminent domain for economic development is a bad policy

Ilya Somin’s excellent new book The Grasping Hand on the infamous case of Kelo v. New London recently drew a negative response from a professor who defends the use of eminent domain for “economic development.”

In his letter to the editor of the Wall Street Journal, Wayne State University professor John Mogk took issue with Somin’s book and with Ed Glaeser’s favorable WSJ review. Mogk claims that they did not adequately weigh what he regards as a successful use of eminent domain to promote economic growth in Poletown, Detroit.

The New London redevelopment project that cost Suzette Kelo her little pink house was, Mogk admits, a fiasco. But, he says, we shouldn’t paint all eminent domain cases with that brush. He wants to buttress the case that the public welfare can be enhanced by using eminent domain to obtain land for projects that are supposed to stimulate the economy and create jobs.

Mogk believes that the apparent success of Poletown saves the day for eminent domain enthusiasts.

Here are three reasons for believing that he is mistaken.

First, as a policy matter, we either give the green light to property seizures for any “public purpose” conceived by politicians, or we prohibit them and limit eminent domain just to seizures for a clear public use. (That’s the language in the Constitution.)

We cannot have a rule that says, “Eminent domain may be used for economic development plans, but only when it actually produces net benefits.”

No one can know ahead of time whether a plan will “work” (which is to say, produce at least some of the promised gains) or utterly fail. In Kelo, the City of New London’s grand redevelopment plan fell through completely. Where neat, modest houses once stood, you now see only rubble and weeds. Nobody knew that would be the outcome when the plan was conceived.

Consider this analogy: The law forbids warrantless searches by the police, but suppose that, in some illegal searches, important evidence of criminal activity is found. Should we conclude that the Fourth Amendment’s warrant requirement can be discarded because there are some instances where we get good results from warrantless searches?

I don’t think that conclusion follows. And neither should we allow property seizures whenever authorities want to, just because those seizures sometimes have “good results.”

Second, Professor Mogk’s Poletown example isn’t as telling as he thinks. Perhaps it is true, as he writes, that most of the inhabitants were content with their buyouts. What I don’t think anyone can deny, however, is that for some of the residents, especially elderly people, the forced relocation was extremely disruptive and painful.

Outsiders like Mogk and the bigwigs at General Motors (who wanted the land for a new Cadillac plant) may have thought that Poletown was “declining,” but to the people who called it home, living there was their best option.

The right to quietly enjoy their property was taken away from them so that others might be more prosperous — GM stockholders and UAW workers, in particular.

We have to oppose the collectivistic philosophy that says it is permissible to use coercion against some individuals as long as those in power think they might thereby create a net utilitarian gain for more politically powerful (and usually much richer) interests.

Third, all that these economic development eminent domain takings can ever do is to redistribute where economic activity takes place. It cannot create any overall gain.

Let us suppose that the GM management was correct in forecasting an increase in demand for luxury cars. (It appears that they overestimated that demand, at least for their own vehicles, since the plant never employed nearly as many workers as they had said it would.) Free market competition to satisfy that demand would have led to increased output without Detroit confiscating land for a new GM plant.

If it hadn’t been able to resort to coercion to get the land, GM would probably have found other ways of increasing Cadillac production, but even if it couldn’t have done so, other auto-makers would have built more luxury cars. Auto jobs would have been created somewhere, and car buyers would have benefited without property owners losing.

Instead of proving that eminent domain can be a good economic development tool, the Poletown example is just another illustration of Bastiat’s broken window fallacy. Demolishing Poletown to build a new auto factory brought about visible benefits for some people, but only at the expense of benefits for others that would have otherwise occurred.

No, not every eminent domain seizure for economic development purposes is as pointless and utterly destructive as Kelo, but we still ought to stick with this rule: Government should protect property rights, not violate them. The government should do those few order-keeping functions appropriate to it and leave the allocation of resources and planning of production to people who risk their own money and cannot take what isn’t theirs.

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.

The Unseen Consequences of Zero-Interest-Rate Policy – Article by Ronald-Peter Stöferle

The Unseen Consequences of Zero-Interest-Rate Policy – Article by Ronald-Peter Stöferle

The New Renaissance HatRonald-Peter Stöferle
August 10, 2015
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In a dynamic economy, an action not only triggers just one effect, but always an entire series of different consequences. While the cause of the first effect is easily recognizable, the other effects often occur only later and no such recognition occurs. Frédéric Bastiat described this phenomenon in 1850 in his ground-breaking essay “What Is Seen and What is Not Seen”:

In the economic sphere, an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them …

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. Yet this difference is tremendous; for it is almost always the case that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Hence it follows that the bad economist pursues a small present good that will be followed by a great evil, while the good economist pursues a great good to come, at the risk of a small present evil.

A similar phenomenon can be seen with the consequences of artificially suppressed interest rates and monetary stimulus: in the short term, they appear to have positive effects, the long term effects are, however, disastrous. If one studies these processes closely, it becomes clear that the underlying problems cannot be solved by global zero-interest-rate policy (ZIRP), but that this instead undermines the natural selection process of the market.

With artificial stimulus like ZIRP, we only end up with a situation in which governments, financial institutions, entrepreneurs, and consumers who should actually be declared insolvent all remain on artificial life support.

In line with Bastiat’s thoughts, numerous fatal long-term consequences of zero-interest-rate policies can be identified, but are generally ignored:

  • Conservative investors by nature come under increasing pressure with respect to their investments and take on excessive risks in light of the prospect that interest rates will remain low in the long term. This leads to capital misallocation and the emergence of bubbles.
  • The sweet poison of low interest rates leads to massive asset price inflation (stocks, bonds, works of art, real estate).
  • Structurally too low interest rates in industrialized nations due to carry trades lead to the emergence of asset price bubbles and contagion effects in emerging markets.
  • Changes in human behavior patterns occur, due to continually declining purchasing power. While thrift is increasingly mutating into a relic of the past, taking on debt comes to be seen as rational.
  • As a result of the structurally too low level of interest rates, a “culture of instant gratification” is created, which is among other things characterized by the fact that consumption is financed with credit instead of savings. The formation of wealth becomes steadily more difficult.
  • The medium of exchange and unit of account function of money increases in importance, while its role as a store of value declines.
  • Incentives for fiscal discipline decline.
  • Zombie banks are created: Low interest rates prevent the healthy process of creative destruction. Banks are enabled to roll over potentially non-performing loans practically indefinitely and can thus lower their write-off requirements.
  • Newly created money is neither uniformly nor simultaneously distributed amongst the population. This results in a permanent transfer of wealth from later receivers to earlier receivers of newly created money.

Conventional monetary policy — that is, the promotion of credit creation by lowering interest rates — reaches its limits once the “zero-bound” is reached. In order to continue the spiral of stimulus, “unconventional monetary policy” becomes ever more important. The multitude of “newfangled” monetary policy measures is seemingly only limited by the imagination of central bankers, whereby recent years have shown that central bankers can be extraordinarily creative. That this phenomenon is nothing new, is inter alia shown by this observation by Ludwig von Mises in 1922:

But an increase in the quantity of money and fiduciary media will not enrich the world. … Expansion of circulation credit does lead to a boom at first, it is true, but sooner or later this boom is bound to crash and bring about a new depression. Only apparent and temporary relief can be won by tricks of banking and currency. In the long run they must lead to an all the more profound catastrophe.

Ronald-Peter Stöferle is a Chartered Market Technician (CMT) and a Certified Financial Technician (CFTe). During his studies in business administration and finance at the Vienna University of Economics and the University of Illinois at Urbana-Champaign, he worked for Raiffeisen Zentralbank (RZB) in the field of Fixed Income/Credit Investments. In 2006 he began writing reports on gold. His six benchmark reports called “In GOLD we TRUST” drew international coverage on CNBC, Bloomberg, the Wall Street Journal, The Economist and the Financial Times. He was awarded “2nd most accurate gold analyst” by Bloomberg in 2011.

This article was originally published by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

The Gig Economy Makes Karl Marx’s Dreams Come True – And It’s All Capitalism’s Doing – Article by Max Borders

The Gig Economy Makes Karl Marx’s Dreams Come True – And It’s All Capitalism’s Doing – Article by Max Borders

The New Renaissance HatMax Borders
August 4, 2015
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When Joe Average steps out of his car after completing his shift for Lyft, he does so on his own terms. Nobody tells him when to start. Nobody tells him when to stop. The siren song that is prime time pricing might have coaxed him off the couch, but ultimately it was his call. And with the rest of his day, he’s going to go fishing. You see, Joe loves to fish — even more than he loves making money. After dinner, he might take some time to criticize the second season of True Detective.

Would ole Karl Marx have been happy with this result?

In The German Ideology, Marx wrote,

For as soon as the distribution of labour comes into being, each man has a particular, exclusive sphere of activity, which is forced upon him and from which he cannot escape. He is a hunter, a fisherman, a herdsman, or a critical critic, and must remain so if he does not want to lose his means of livelihood; while in communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic.

Marx should be delighted — oh, except that it’s capitalism, not communism, that’s allowing Joe to be a fisherman and a critic on his own terms.

The sharing or “gig” economy is not only disrupting the way people live and work; it’s dividing the left considerably.

On the one hand, you have the nostalgic leftists who want Joe to work a nine-to-five job and skip the fishing. You know, like people did in the 1950s. As Freeman columnist Steve Horwitz writes, presidential candidate Hillary Clinton

longs for a time like the 1950s when workers had the structure of the corporate world and unions through which to lobby and negotiate for pay and benefits, rather than the so-called “gig” economy of so many modern freelance employees, such as Uber drivers. “This on-demand or so-called gig economy is creating exciting opportunities and unleashing innovation,” Clinton said, “but it’s also raising hard questions about workplace protection and what a good job will look like in the future.”

Joe already told us what a good job looks like. It’s one that lets him spend time fishing and criticizing.

More confusing (or confused, perhaps) is Paul Mason’s writing in the Guardian. He lauds “postcapitalism,” which has all the hallmarks of a society Clinton is worried about:

Postcapitalism is possible because of three major changes information technology has brought about in the past 25 years. First, it has reduced the need for work, blurred the edges between work and free time and loosened the relationship between work and wages.

Bingo. The gig economy. But does it make sense to give capitalism a different name? I suppose one could. After all, Marx coined the term. But Marx’s definition of capitalism is a system based on private ownership of the means of production. Has that dynamic fundamentally changed?

Far from it. The sharing economy is simply decentralizing power by allowing ordinary people to use their own small-scale means of production. By solving coordination problems and lowering transaction costs, technology is augmenting capitalism.

When Joe drives for Lyft, for example, his car is still his car. And now more of his time is his, too. Capitalism, even as Marx defined it, hasn’t fundamentally changed. But the use of technology to awaken sleeping private capital is allowing the system to evolve — and rather nicely if you’re Joe Average, or one of thousands of other workers like him.

Now, I’m not saying that there is nothing interesting going on in the electronic commons. Ideas are being configured and reconfigured in the networked economy. Many of those ideas are being taken out of the intellectual-property regime, thanks to open sourcing, and this can be a good thing. There are fierce debates about whether intellectual property (claims to property in ideas and in nonscarce goods) is justifiable. But passing over those debates, more and more open-source technologies are coming online for exploitation by everyone.

Do open sourcing and the creative commons take us to postcapitalism?

I don’t know. But fundamentally, as long as the process is voluntary and carried out peacefully by a community of cooperators, who cares what you call it? Should we be upset that the guy who founded Lyft is getting rich from the tech? Some people are, because they see the accumulation of wealth as taboo. But Joe’s life is better than it would have been in the absence of Lyft. The company allows him to live more of the life he wants to live.

As long as Joe Average is happier, who cares what Hillary Clinton thinks?

Max Borders is editor of The Freeman magazine and director of content for The Foundation for Economic Education (FEE). He is also author of Superwealth: Why we should stop worrying about the gap between rich and poor. A writer and innovator with a decade of experience in the non-profit world, Max works daily towards a condition of peace, freedom and abundance for all people.

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.

The Pathway to Faster Cures – When It Comes to Life-Saving Drugs, We Need More Than Modest Reform – Article by Bartley J. Madden

The Pathway to Faster Cures – When It Comes to Life-Saving Drugs, We Need More Than Modest Reform – Article by Bartley J. Madden

The New Renaissance Hat
Bartley J. Madden
May 26, 2015
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Rob Donahue used to ride horses. He was a modern-day cowboy until he was stricken with amyotrophic lateral sclerosis (ALS). Now his muscles are weak. He can’t ride horses anymore. And his condition is worsening quickly. ALS will degenerate Donahue’s neurons and nervous system, and he will probably die in less than five years.

Another ALS sufferer, Nick Grillo, is trying to change all that. He’s put together a petition on Change.org to urge the FDA to fast-track approval of a new drug, GM-604, that would help people like Donahue and others like him.

“People can’t wait five, ten, 15 years for the clinical trial process,” said Grillo. “Things need to happen much quicker.”

But ALS is just one illness, and GM-604 is just one medicine. There are thousands of Americans suffering — many with terminal illnesses — while waiting on the FDA approval process.

Paradigm change

A paradigm change is essential because FDA culture has led to a situation where it costs an average of $1.5 billion and 12 or more years of clinical testing to bring a new drug to market. Medical innovation cannot thrive when only very large firms can afford to research and develop new drugs.

Another problem is that the FDA’s first goal is not to maximize innovation, but to minimize the chances that an FDA-approved drug leads to unanticipated adverse side effects and negative publicity. In particular, the FDA’s efficacy testing requirements have resulted in an ever-increasing load of money and time on drug developers. We can’t count on FDA bureaucrats to fix the broken system they created.

Even Congress, whose cottage industry is to regulate, admits that the current FDA system is a roadblock to fast-paced innovation. Congress’s own 21st Century Cures Initiative has led to many good ideas for delivering medical treatments, but even if successful, these ideas would bring only incremental improvements.

Americans deserve a bold plan to achieve genuine large-scale change enabling us to live longer, healthier, and more productive lives. And most importantly, we need a mechanism for allowing patients to exercise choice consistent with their own preferences for risk.

Congressional hearings: the missing seat at the table

The missing seat at the table is for someone who represents freedom — that is, the right of patients, advised by their doctors, to make informed decisions as to the use of not-yet-FDA-approved drugs.

Freedom in response to suffering and subjugation is a powerful rallying call. The Women’s Right to Vote constitutional amendment in 1920 and the Civil Rights Act of 1964 were not about incremental improvements; each was a paradigm change that brought forth a different and better future.

Absent from the congressional hearings over health care, however, has been a freedom agenda, specifically one designed to eliminate the FDA’s monopoly on access to new drugs.

Venture capitalists, where have you gone?

We hear very little about those who suffer and die because they were not able to access drugs stuck in the FDA’s testing pipeline, or about drugs that were never brought to market because FDA procedures made the development costs too high. There is an invisible graveyard filled with people who have died because of drug lag and drug loss.

The FDA’s deadly over-caution is why venture capitalists shy away from investing in biopharmaceutical startup firms. Venture capitalists are willing to take big risks on ideas that may fail. But failure due to regulatory risk is just too big a hurdle to overcome. Capital providers have other opportunities, even if those opportunities don’t involve cures for disease.

High costs and slow innovation are the hallmark of a monopoly. And, as medical science continues its rapid pace of innovation, the cost of lost opportunities for better health will increase even faster. The solution is to introduce consumer choice and competition.

Free to choose medicine

Three self-reinforcing principles are needed to bring rapid innovation to the biopharmaceutical marketplace.

First, we need a free-to-choose track that operates independently of the FDA and runs alongside the conventional FDA clinical testing track — a competitive alternative. After a new drug has successfully passed safety trials and shows initial effectiveness in early clinical trials, a drug developer could request that the drug be available for sale. Such an arrangement would allow for new drugs to be available up to seven years earlier than waiting for a final FDA approval decision.

Second, free-to-choose treatment results, including patients’ genetic data, would be posted on an open-access database. Patients and their physicians would be able to make informed decisions about the use of approved drugs versus not-yet-approved drugs. The resulting treasure trove of observational data would reveal, in real time on the Internet, which subsets of patients do extremely well or poorly using a particular new drug. This broad population of users — in contrast to the tight similarity of clinical trial patients — would better inform the biopharmaceutical industry, yielding better R&D decisions and faster innovation.

Third, some drug developers would want to provide free-to-choose drugs in order to quickly demonstrate that their drugs were effective, thereby enhancing the ability to raise needed capital. For patients who need insurance reimbursement and for developers seeking formal FDA recognition of their drugs’ safety and effectiveness, another kind of incentive is needed. That is, FDA observational approval would be based on treatment results reflected in observational data posted on the open-access Internet database.

In the foreword to my 2012 book, Free to Choose Medicine: Better Drugs Sooner at Lower Cost, Nobel Laureate economist Vernon Smith wrote, “These three design components for patient/doctor control of medical treatment are both innovative and soundly based. With this conceptual blueprint, legislation could be crafted to promote both expanded consumer choice and the discipline of choice to the long-term benefit of society.”

Opposition

FDA proponents would bolster the fear that “unsafe” drugs could flood the marketplace. But the FDA cannot define what is “safe.” Only patients with their unique health conditions, treatment profiles, and preferences for taking risk can define what is safe for them. That is what freedom is all about: individual choice. Keep in mind that the likely large number of free-to-choose patients with widely varying health conditions would yield uniquely useful safety data superior to safety readouts from clinical trial data.

The free-to-choose medicine plan is voluntary and would not disturb those who want to use only approved drugs. A reasonable implementation schedule would first allow the new system to be used by patients fighting a life-threatening illness, as they are the ones most in need of access to the latest drug advancements.

Biopharmaceutical firms likely to oppose such a plan would include larger firms who consider their expertise in dealing with the FDA bureaucracy as an especially valued competitive advantage over their smaller competitors. We should expect support from firms with a high level of scientific skill, but limited skill and resources in dealing with FDA bureaucracy. Nevertheless, even those firms initially opposed should question their current business models, which produce sky-high prescription drug prices and the very real chance that government at some future point will impose price controls. Why not set into motion an alternative that can lead to radically lower development and approval costs with concomitant lower prescription drug prices while maintaining industry profitability levels?

Trial lawyer organizations will be expected to contribute mightily to defeat any freedom-based legislation. They do not want Americans legally taking personal responsibility by way of voluntary contracts, even if there are life-saving benefits to be had.

Patients are the ultimate beneficiaries of competition, and they are a powerful force for those who want a fundamental restructuring of the FDA. Right-to-try state laws are designed to allow those dealing with life-threatening illnesses access to not-yet-approved drugs. These laws’ enormous popularity indicates that a well-run campaign could generate similar support at the federal level for free-to-choose medicine.

Freedom should be part of the national debate on 21st century medical legislation. For that to happen, we need to give freedom lovers and chronic sufferers a seat at the table.

Every American should have the right to make informed decisions that can improve health or save lives. Freedom is not something to fear; it is the best route forward to a more innovative, efficient, and humane medical system.

Bartley J. Madden is a founder of Tomorrow’s Cures Today.  His website is www.LearningWhatWorks.com.
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This article was originally published by The Foundation for Economic Education.

Speaking Truth to Power: Jimmy Lai – Article by Lawrence W. Reed

Speaking Truth to Power: Jimmy Lai – Article by Lawrence W. Reed

The New Renaissance Hat
Lawrence W. Reed
May 4, 2015
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For years, a bust of John James Cowperthwaite sat prominently in the foyer of Jimmy Lai’s Next Media office in Hong Kong, along with others of economists F.A. Hayek and Milton Friedman. If that’s all you ever knew about Jimmy Lai, you could at least surmise that he loves liberty and free markets.

Cowperthwaite had been the architect of Hong Kong’s free-market miracle. He started with a destitute rock and turned it into one of the world’s freest and most prosperous economies. (Indeed, I’ve suggested that he deserves to be recognized annually and everywhere with a Cowperthwaite Day on the anniversary of his birthdate, April 25.) Jimmy Lai is precisely the sort of individual that Cowperthwaite had in mind when he decided that entrepreneurs, not central planners, should drive an economy. Because of what Cowperthwaite had done, Jimmy Lai found a hero himself. And Lai, too, would go on to do great things.

Of the characteristics most often identified with successful entrepreneurship, Jimmy Lai possesses them all in abundance. He is a self-starter who takes initiative (and risk) with enthusiasm. He’s creative and intuitive. He’s passionate and tenacious. Where others see problems, he sees opportunity. He’s a visionary, both in business endeavors and for society at large. He doesn’t hesitate to defy conventional wisdom when it points to a dead end. Whatever he undertakes, he musters the courage to act. He puts his all — money, time, and energy — where his mouth is (and where his convictions are).

On paper, Lai’s early life would seem unlikely to produce a “real hero.” He was born in China the year before it fell under Mao Zedong’s dictatorial rule. Lai was smuggled out of the country and into Hong Kong at age 12. In the absence of child-labor laws, which would have ensured his deprivation there, too, Lai went to work in a garment factory for $8 a month. Fifteen years later, he bought his own garment factory and built it into the giant known as Giordano, now a leading international retailer. Lai’s boundless entrepreneurial zeal, free to operate within Hong Kong’s laissez-faire business environment, yielded jobs for thousands and consumer goods for millions.

But in 1989, Beijing’s infamous Tiananmen Square massacre set Jimmy Lai on a new course. With Hong Kong scheduled to be transferred from British to Chinese rule in just eight years, Lai knew that maintaining traditional freedoms under Beijing’s rule would be a challenge. So he ventured into media, creating what soon became the territory’s largest-circulation magazines, Sudden Weekly and Next. In spite of Beijing’s coercion of advertisers, Jimmy Lai’s tabloid-style newspaper, Apple Daily, is still the premier voice in Asia for the freedoms of speech, press, and enterprise.

Jimmy Lai does not shrink from controversy. The Communist Party of China, he wrote in a 1994 column, is “a monopoly that charges a premium for a lousy service.” He defended the student demonstrators when they went into the streets by the hundreds of thousands in late 2014 in defense of democracy. He routinely exposed corruption in both government and business, including the especially toxic brand of corruption that arises when the two get in bed together. He sold Giordano, the apparel firm he founded, to save it from Beijing’s intense pressure, but he refuses to this day to renounce his principles.

In December 2014, he revealed that he was stepping down as publisher of Apple Daily and chairman of Next Media to devote more time to family and personal interests. A month later, and for the second time, unknown assailants firebombed his home. He remains under intense scrutiny from Beijing, which regularly employs ugly rumors, threats of litigation, and other nefarious means to undermine his influence.

Earlier this year, Lai told the New York Times that he never planned to make his media empire into a family dynasty. His six children (ages 8 to 37) are not in line as heirs to that business or its leadership positions. “I don’t think I should ask my kids to inherit my business, because they can’t start where I did,” he said. “I was from the street. I’m a very different make of person. I’ve been a fighter all my life.”

Whatever the future holds for Jimmy Lai, friends of liberty everywhere can count him as one very brave man.

For additional information:

In the Freeman:

Lawrence W. (“Larry”) Reed became president of the Foundation for Economic Education (FEE) in 2008. Prior to that, he was a founder and president for twenty years of the Mackinac Center for Public Policy in Midland, Michigan. He also taught Economics full-time and chaired the Department of Economics at Northwood University in Michigan from 1977 to 1984.

He holds a B.A. degree in Economics from Grove City College (1975) and an M.A. degree in History from Slippery Rock State University (1978), both in Pennsylvania. He holds two honorary doctorates, one from Central Michigan University (Public Administration—1993) and Northwood University (Laws—2008).

This article was originally 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.
Repeal, Don’t Reform the IMF! – Article by Ron Paul

Repeal, Don’t Reform the IMF! – Article by Ron Paul

The New Renaissance Hat
Ron Paul
April 5, 2015
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A responsible financial institution would not extend a new loan of between 17 and 40 billion dollars to a borrower already struggling to pay back an existing multi-billion dollar loan. Yet that is just what the International Monetary Fund (IMF) did last month when it extended a new loan to the government of Ukraine. This new loan may not make much economic sense, but propping up the existing Ukrainian government serves the foreign policy agenda of the US government.

Since the IMF receives most of its funding from the United States, it is hardly surprising that it would tailor its actions to advance the US government’s foreign-policy goals. The IMF also has a history of using the funds provided to it by the American taxpayer to prop up dictatorial regimes and support unsound economic policies.

Some may claim the IMF does promote free markets by requiring that countries receiving IMF loans implement some positive economic reforms, such as reducing government spending. However, other conditions imposed by the IMF, such as that the country receiving the loan deflate its currency and implement an industrial policy promoting exports, do not seem designed to promote a true free market, much less improve the people’s living standards by giving them greater economic opportunities.

The problem with the IMF cannot be fixed by changing the conditions attached to IMF loans. The fundamental problem with the IMF is that it is funded by resources taken forcibly from the private sector. By taking resources out of private hands and giving them to IMF bureaucrats, the US federal government distorts the marketplace, harming both American taxpayers and the citizens of the countries receiving the IMF loans. The idea that the IMF is somehow better able to allocate capital than are private investors is just as flawed as every other form of central planning. The IMF must be repealed, not reformed.

The IMF is not the only US institution that manipulates the global economy. Over the past several years, a mysterious buyer, identified only as “Belgium,” so named because the buyer acts through a Belgian-domiciled account, has become the third-largest holder of Treasury securities. Belgium’s large purchases always occur at opportune times for the US government, such as when a foreign country sells a large amount of Treasuries. “Belgium” also made large purchases in the months just after the Fed launched the quantitative easing program. While there is no evidence this buyer is working directly with the US government, the timing of these purchases does raise suspicions.

It is not out of the realm of possibility that the Federal Reserve is involved in these purchases. The limited audit of the Federal Reserve’s actions during the financial crisis that was authorized by the Dodd-Frank Act revealed that the Fed actively intervenes in global markets.

What other deals with foreign governments is the Fed making? Is the Fed, like the IMF, working to bail out Greece and other EU countries? Is the Fed working secretly to aid US foreign policy as it did in the early 1980s, when it financed loans to then-US ally Saddam Hussein? The lack of transparency about the Fed’s dealings with overseas central banks and foreign governments is one more reason why Congress needs to pass the audit the fed bill.

By taking money from American taxpayers to support economically weak and oftentimes corrupt governments, the IMF distorts the market, enriches corrupt governments, and harms both the American taxpayer and the residents of the counties receiving IMF “aid.” It is past time to end the IMF along with all instruments of American interventionist foreign policy.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

Decentralization: Why Dumb Networks Are Better – Article by Andreas Antonopoulos

Decentralization: Why Dumb Networks Are Better – Article by Andreas Antonopoulos

The New Renaissance Hat
Andreas Antonopoulos
March 8, 2015
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“Every device employed to bolster individual freedom must have as its chief purpose the impairment of the absoluteness of power.” — Eric Hoffer

In computer and communications networks, decentralization leads to faster innovation, greater openness, and lower cost. Decentralization creates the conditions for competition and diversity in the services the network provides.

But how can you tell if a network is decentralized, and what makes it more likely to be decentralized? Network “intelligence” is the characteristic that differentiates centralized from decentralized networks — but in a way that is surprising and counterintuitive.

Some networks are “smart.” They offer sophisticated services that can be delivered to very simple end-user devices on the “edge” of the network. Other networks are “dumb” — they offer only a very basic service and require that the end-user devices are intelligent. What’s smart about dumb networks is that they push innovation to the edge, giving end-users control over the pace and direction of innovation. Simplicity at the center allows for complexity at the edge, which fosters the vast decentralization of services.

Surprisingly, then, “dumb” networks are the smart choice for innovation and freedom.

The telephone network used to be a smart network supporting dumb devices (telephones). All the intelligence in the telephone network and all the services were contained in the phone company’s switching buildings. The telephone on the consumer’s kitchen table was little more than a speaker and a microphone. Even the most advanced touch-tone telephones were still pretty simple devices, depending entirely on the network services they could “request” through beeping the right tones.

In a smart network like that, there is no room for innovation at the edge. Sure, you can make a phone look like a cheeseburger or a banana, but you can’t change the services it offers. The services depend entirely on the central switches owned by the phone company. Centralized innovation means slow innovation. It also means innovation directed by the goals of a single company. As a result, anything that doesn’t seem to fit the vision of the company that owns the network is rejected or even actively fought.

In fact, until 1968, AT&T restricted the devices allowed on the network to a handful of approved devices. In 1968, in a landmark decision, the FCC ruled in favor of the Carterfone, an acoustic coupler device for connecting two-way radios to telephones, opening the door for any consumer device that didn’t “cause harm to the system.”

That ruling paved the way for the answering machine, the fax machine, and the modem. But even with the ability to connect smarter devices to the edge, it wasn’t until the modem that innovation really accelerated. The modem represented a complete inversion of the architecture: all the intelligence was moved to the edge, and the phone network was used only as an underlying “dumb” network to carry the data.

Did the telecommunications companies welcome this development? Of course not! They fought it for nearly a decade, using regulation, lobbying, and legal threats against the new competition. In some countries, modem calls across international lines were automatically disconnected to prevent competition in the lucrative long-distance market. In the end, the Internet won. Now, almost the entire phone network runs as an app on top of the Internet.

The Internet is a dumb network, which is its defining and most valuable feature. The Internet’s protocol (transmission control protocol/Internet protocol, or TCP/IP) doesn’t offer “services.” It doesn’t make decisions about content. It doesn’t distinguish between photos and text, video and audio. It doesn’t have a list of approved applications. It doesn’t even distinguish between client and server, user and host, or individual versus corporation. Every IP address is an equal peer.

TCP/IP acts as an efficient pipeline, moving data from one point to another. Over time, it has had some minor adjustments to offer some differentiated “quality of service” capabilities, but other than that, it remains, for the most part, a dumb data pipeline. Almost all the intelligence is on the edge — all the services, all the applications are created on the edge-devices. Creating a new application does not involve changing the network. The Web, voice, video, and social media were all created as applications on the edge without any need to modify the Internet protocol.

So the dumb network becomes a platform for independent innovation, without permission, at the edge. The result is an incredible range of innovations, carried out at an even more incredible pace. People interested in even the tiniest of niche applications can create them on the edge. Applications that only have two participants only need two devices to support them, and they can run on the Internet. Contrast that to the telephone network where a new “service,” like caller ID, had to be built and deployed on every company switch, incurring maintenance cost for every subscriber. So only the most popular, profitable, and widely used services got deployed.

The financial services industry is built on top of many highly specialized and service-specific networks. Most of these are layered atop the Internet, but they are architected as closed, centralized, and “smart” networks with limited intelligence on the edge.

Take, for example, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the international wire transfer network. The consortium behind SWIFT has built a closed network of member banks that offers specific services: secure messages, mostly payment orders. Only banks can be members, and the network services are highly centralized.

The SWIFT network is just one of dozens of single-purpose, tightly controlled, and closed networks offered to financial services companies such as banks, brokerage firms, and exchanges. All these networks mediate the services by interposing the service provider between the “users,” and they allow minimal innovation or differentiation at the edge — that is, they are smart networks serving mostly dumb devices.

Bitcoin is the Internet of money. It offers a basic dumb network that connects peers from anywhere in the world. The bitcoin network itself does not define any financial services or applications. It doesn’t require membership registration or identification. It doesn’t control the types of devices or applications that can live on its edge. Bitcoin offers one service: securely time-stamped scripted transactions. Everything else is built on the edge-devices as an application. Bitcoin allows any application to be developed independently, without permission, on the edge of the network. A developer can create a new application using the transactional service as a platform and deploy it on any device. Even niche applications with few users — applications never envisioned by the bitcoin protocol creator — can be built and deployed.

Almost any network architecture can be inverted. You can build a closed network on top of an open network or vice versa, although it is easier to centralize than to decentralize. The modem inverted the phone network, giving us the Internet. The banks have built closed network systems on top of the decentralized Internet. Now bitcoin provides an open network platform for financial services on top of the open and decentralized Internet. The financial services built on top of bitcoin are themselves open because they are not “services” delivered by the network; they are “apps” running on top of the network. This arrangement opens a market for applications, putting the end user in a position of power to choose the right application without restrictions.

What happens when an industry transitions from using one or more “smart” and centralized networks to using a common, decentralized, open, and dumb network? A tsunami of innovation that was pent up for decades is suddenly released. All the applications that could never get permission in the closed network can now be developed and deployed without permission. At first, this change involves reinventing the previously centralized services with new and open decentralized alternatives. We saw that with the Internet, as traditional telecommunications services were reinvented with email, instant messaging, and video calls.

This first wave is also characterized by disintermediation — the removal of entire layers of intermediaries who are no longer necessary. With the Internet, this meant replacing brokers, classified ads publishers, real estate agents, car salespeople, and many others with search engines and online direct markets. In the financial industry, bitcoin will create a similar wave of disintermediation by making clearinghouses, exchanges, and wire transfer services obsolete. The big difference is that some of these disintermediated layers are multibillion dollar industries that are no longer needed.

Beyond the first wave of innovation, which simply replaces existing services, is another wave that begins to build the applications that were impossible with the previous centralized network. The second wave doesn’t just create applications that compare to existing services; it spawns new industries on the basis of applications that were previously too expensive or too difficult to scale. By eliminating friction in payments, bitcoin doesn’t just make better payments; it introduces market mechanisms and price discovery to economic activities that were too small or inefficient under the previous cost structure.

We used to think “smart” networks would deliver the most value, but making the network “dumb” enabled a massive wave of innovation. Intelligence at the edge brings choice, freedom, and experimentation without permission. In networks, “dumb” is better.

Andreas M. Antonopoulos is a technologist and serial entrepreneur who advises companies on the use of technology and decentralized digital currencies such as bitcoin.

This article was originally published by The Foundation for Economic Education.