The War On Bullshit

A lot of folks are watching the escalation in terrorism along the Pakistani-Afghani border, the growing tension between Iran and Israel, and the pronounced anti-Americanism the world over, and they fear war. There is a movement of doomspeakers who believe our end is coming - or at least some turbulent years - where we will be forced to continue fighting in the Middle East.

I’m not one of them. Here’s what I’m afraid of: innovation. I don’t fear us being attacked by disorganized fundamental religious nuts from the desert; I fear a much quieter and more subtle threat. America may fall, but it won’t be through force of arms; we’ll just be left in the dust technologically and then methodically bought out by Eastern Asia. Don’t believe me? Here’s a few reasons why Eastern Asia, in particular China, will own your ass soon.

4. Eastern Asia has more meat.

They simply have so many people in parts of Eastern Asia, that they don’t have to worry about preserving the life and good health of their workforce. They can just replace them. Same goes for military might. Allied military leaders during World War II thought the Russians were bad, sending legions of cannon fodder until the bodies just piled up and they had to climb over them to keep attacking. There are enough people in China that their top 25% in just about any field outnumber the U.S. and Canada combined. There’s no shortage of muscle and meat in the Far East.

3. China has a lot of damn money.

To give you an idea, here’s the top four economies in the world: the United States, Japan, Germany and China, in that order. But here’s the difference between China and the the rest of us: they are rapidly growing. While the United States’ GDP has continued steadily to grow in small increments, China’s GDP growth in 2007 was 11.4%, compared to our 2.2%.

There is also the concern of public debt. The US owes about 9 trillion dollars to the rest of the world, mainly China. I’m not as strong on economics as Kavan, perhaps, but these are disturbing trends to see. China expands, while we stagnate. Wonderful.

2. We are a bunch of lazy hedonists who have forgotten how to do anything.

Just think about this: Steve in Oklahoma thinks guitar is real damn cool. He goes to a friend’s house, picks up his guitar, and realizes whoa, this crap’s hard. I’m not gonna learn this. Instead, he gets his parents to buy him Guitar Hero and becomes a master of the little-plastic-Fisher-Price-pseudoguitar-thingy. Meanwhile, in China, Steve’s counterpart isn’t playing guitar or Guitar Hero. He’s probably working in the factory that produces Guitar Hero, making the brainrot American kids consume on a daily basis.

How many 16-year-olds do you see anymore working to pay for their car, or trying to save money to go to college in a few short years? Not too damn many. Half our citizenry doesn’t ever have a source of employment before finishing their B.A. - paid for by mommy and daddy.

This is not the case in Eastern Asia. Reading census data from the People’s Republic is an interesting thing; one thing you may notice is that when the labor force is examined, it is from age 15 and up. That’s because 15 is the age these people start working. I’m not for shipping our kids off to the mines at 12, but you know what? Take away the video games, make them mow the damn lawn, and for God’s sake don’t give them some stupid idea that they should never have to work before graduating college.

1. Wal-Mart is gonna sell us out.

When was the last time something you bought at Wal-Mart said “Made in America” on it? Probably a long time ago, since about 70% of products sold at Wal-Mart are made in China. According to another report, Wal-Mart has exported about 1.5 million jobs to China. How are they an American company? So one of our country’s largest employers isn’t even remotely American anymore, great. You might think I’m a nutso conspiracy theorist, but picture this and tell me it’s not frightening: straw rice-field hats on smiley faces.

Last week I wrote about the difference between big government and big market intervention. The purpose here is to change the debate from the impractical (should government be big or small?) to the useful (what services, exactly, should government run?) I promised an answer to the latter, more meaningful, question, and today I deliver.

1. National Defense

Anybody who has read Machiavelli will understand why government has to run the military. It’s quite simple really: if the military were independent from the government, whoever was in charge of the military could take over the government. Yes, concentrating military power also enables tyranny, but assuming military power is concentrated, it is pretty clear that it must be run by government, not private industry.

2. Critical Infrastructure

Certain services are necessary for a functioning society: running water, electricity, and transportation are typical examples. Without these things, society collapses. Leaving it to the market to provide things like electricity is too risky because of the asymmetry of penalty when things break.

If, for example, the power fails in the entire city you live in, for three days. The power company loses a 365/3 = less than 1% of its potential revenue for that year. Meanwhile, the tens of thousands of businesses in the city that require electricity ALL lose three days’ revenue, many people don’t get paid because there’s nothing for them to do at work, and the whole city basically shuts down. And nobody can sue to recoup their losses because an unregulated power company could write a software-like end-user license agreement that says they’re not responsible for power failures.

Free-market enthusiasts will fallaciously claim here that somehow the market will provide uninterrupted service to those willing to pay for it, but this is not backed up by the facts. The barriers to entry for a competing power company are enormous when there is already an incumbent power company with the huge installed base of capital equipment. You would need to raise billions upon billions of dollars just to get a new power company off the ground, and many people wouldn’t pay the extra cost for a guarantee of no blackouts.

Therefore, critical infrastructure such as power companies must either be government owned or heavily regulated.

What else is critical infrastructure? If you look at the dependencies between modern life and services and then among the services themselves, critical infrastructure would include at least the following things: electricity, transportation infrastructure (e.g., roads, rails in airports), public transportation (e.g. buses, trains, planes), telecommunication (e.g. phone and Internet), running water.

Yes, I am implying that government should run or heavily regulate companies that provide phone, Internet, bus service, flight and so on. It is frightening but true that electricity depends on telecommunication, telecommunication depends on and electricity, running water depends on electricity, transportation depends on all three, and we as a society fundamentally depend on transportation, telecommunication, electricity and running water. Subjecting these services to market forces is inherently risky.

3. Any industry in which economic consequences undermines efficiency or morality

In some cases the quest for profit will, from a societal perspective, have an unacceptable cost in either efficiency or morality (although this often applies to critical infrastructure, here I refer to non-infrastructural cases).

As an example of profit interfering with morality, two cases come immediately to mind: health care and education. In an unregulated, privatized healthcare environment, the care a person receives is proportional to their wealth. I’m going to go out on a socialist limb here and claim that sick people deserve treatment, regardless of their income. Moreover, the care received by children should not be determined by whether they were lucky enough to be born to rich families. Similarly, all children have a right to a good education regardless of the wealth of their parents. Of course I recognize that rich kids will always have advantages poor kids do not (although the reverse is true is well), can you imagine the problems with a fully-privatized education system? The rich kids go to the expensive schools with all the good teachers and equipment, the poor kids would be lucky to learn to read. It would be classism in its worst form.

As an example of economic consequences destroying efficiency, consider auto insurance. Where I live, there is one auto-insurance monopoly, owned by the the government. When I moved here I was shocked at how low the insurance premiums are. The key is that insurance companies waste millions fighting with each other in court. When you only have one insurance company, and two people have an accident, they just send an investigator to figure out who’s at fault and act accordingly. You can contest it in court, but most people don’t, and piles of cash aren’t wasted on lawyers.

Conclusion

In conclusion, I have identified three classes of industries or services where Government should either regulate heavily or take over entirely: national defense, critical infrastructure, and industries that, left to themselves, will produce unacceptable consequences from a moral or efficiency perspective. In the third and most complex case, the extent of government control should not exceed that required to eliminate immoral or inefficient consequences.

Comments on my recent post about problems with the Free Market = Fair Distribution Hypothesis have led me to an interesting conclusion:

People confuse government size with degree of market interference.

These are not the same thing. Libertarians seem to be for small government and low regulation, while socialists are for big government and high regulation. But there are other possibilities.

Government size is related to the number of people employed by government, the number of departments and divisions, the size of the government’s budget, the number of social programs. Extent of regulation is related to the number of laws, their effects, and the extent of enforcement. The size of the government is somewhat related to the extent of regulation, in the sense that a tiny government would not be ale to enforce a huge base of legislation, but this link is tenuous since the majority of government employees are not strictly dealing with enforcement.

Let’s consider the two issues separately.

First, regulation: high or low? Since I’ve already established the reasons to believe that free market economics does not lead to fair distribution of wealth (which is the whole point), we need governments to regulate to the extent necessary to correct the weaknesses of the market. Given that these weaknesses are so substantial, I would call this high regulation.

Second, big government or small? If one agrees with the sentiment that private companies are more efficient, it would seem logical to keep government as small as possible. But this is only half an answer – the real question is, what services should be provided by government instead of industry?

I’ll tackle this issue next week. In the meantime, what do you think should be run by government?