Monday, July 25, 2016

Understand the Problem you try to solve

Charles Koch wrote: “The Closing of the American Mind,” an article that also came under the subtitle: “There are dangerous signs that the U.S. is turning its back on the principles of a free and open society that fostered the nation's rise.” It was published on July 22, 2016 in the Wall Street Journal.

In making his points, Koch quotes Matt Ridley who described the fusion of ideas that engender innovations as “ideas having sex.” He did so without adding the caveat that the species having fun must be the same or be close enough for fertilization to occur. Otherwise, the different species can be seminal all they want, and still end up producing neither fish nor fowl.

And yet, this is exactly the kind of insemination that Charles Koch has tried to perform. Here is the passage that tells where he went wrong: “Despite our enormous potential for further progress, a clear majority of Americans see a darker future. Some 56% believe their children's lives will be worse off than their own … I empathize with this fear. The U.S. is already far down the path to becoming a less open and free society”.

This says that the view of the American people is of one species, and the view of Charles Koch is of another species … and the twain is not conjugating well. It is that the people believe they are losing their industries and the future of their children to foreign societies which are less open and less free than America because of reasons which are different from what Charles Koch is implying.

On one hand, the public believes that the captains of America's industries – such as Koch and others – have determined they can make more profit relocating their businesses to those countries. And so, they used the openness and freedom of America's system to do just that … and they are getting away with it. On the other hand, pointing to the false intercourse he effectuated, Koch has tried to convince the readers that the American people accept his hypothesis so well, “promoting a free and open society ought to be the great moral cause of these times.” But these are two different species and the intercourse produced not even a stillborn.

Still, having made those arguments, Koch goes on to describe the kind of system he wants to see implemented in America. He makes a number of recommendations, among which is this one: “Government, which often has strong incentives to stifle the revolutionary advances that could transform lives, may be the most dangerous.” And this is how he displays his true colors. They boil down to showing that in the tug of war between big business and big government, he sides squarely with big business.

But he has a problem. It is that he says something at the very beginning of the article, and something at the very end of it which, when put together, demolish the point of his core idea. Here is what he says at the beginning: “I was born in the midst of the Great Depression.” And here is what he says at the end: “The transformations in my days have been astonishing, with marked improvement in well-being for all Americans.” Those transformations included the introduction of Social Security into the system.

The reality is that several opposing, even contradictory ideas have been generated in the debates that tackled the Great Depression, but two ideas were accepted by all sides. One pertains to the fact that the Depression was caused by the extreme laissez-faire climate that existed at the time. The other is that another depression was never repeated thanks to the Social Security and the general welfare systems that were instituted in response to it. That is, the Depression was caused by unregulated business. Calamity was averted by the intervention of government.

This tells us something we must always keep in mind when discussing the system of governance in relation to economics. When during a debate a participant takes the extreme position that business ought to be completely unregulated, or the extreme position that government ought to be in complete control of the economy – that debate should fold at once, and everybody go home. This is because the suggestions are too far removed from reality to be of any use.

The fact is that an economy is made of two parts: the production part and the consumption part. The economy functions at optimum capacity when the two are in equilibrium. Because many factors work at all time to upset that equilibrium, measures must be taken to restore it. This means, there are times when you'll have to favor business, and other times when you'll have to favor government.

It follows that to be useful, a debate on the subject must restrict itself to identifying the problem and prescribing a remedy that will favor which side; favor it by how much and do so for how long.

To have a permanent remedy that will address a problem inherent to international trade; I have argued that competition between nations ought to function like sport and not like war. The difference is that in sport, the loser does not die the way he does in war.

Consequently, there must be an international agreement allowing the nations to protect the industries they deem important to them – up to a certain percentage of consumption ... say, 30 percent or thereabout. The balance can be subjected to cut-throat competition, which is good for efficiency.

The creation of a mechanism that removes anxiety while retaining the incentive to compete should be considered seriously by those who seek solutions rather than adherence to dogma.