By all measures, June is the ‘summer’ month.  By popular rendering, June is the first month of summer following hard on the heels of the common entry into that season with the passing of Memorial Day.  By official rendering, June is also the official, astronomical start of the summer given that it contains the summer solstice when the day is as long as long can be.  And, by all measures, Americans are going to be paying more for their summer fun especially if that fun centers around food or driving anywhere or doing anything.  About the only thing that is cheap right now is talk so we’ll expend some of that tracing the roots of the current price hikes we all see.

System inflation was already rearing its ugly head back in September 2021 and at that time this column discussed the very real possibility that what was labeled as ‘transitory’ might be here for some time in post entitled Stagflation and the Phillips Curve.  Sadly, here it is nearly a year later and inflation has nestled into the American economic land scape for the long haul.  The question is why?

Contrary to some popular opinions, the core answer is not to be found in gasoline prices – they are merely a symptom.  Localized shortages, likes those experienced with the Colonial Pipeline shutdown, can drive prices up for a period of time but they can’t effect every sector in the economy.  But we don’t have shortages of gasoline, we have a systemic rise in the price of gas nationwide that is not due to ‘the rapacious greed’ of oil companies.  And, given that the price of gasoline figures into the cost of most everything else, higher transportation costs do get passed onto the consumer and so rising gas prices do have a compounding effect, even if they are not the root cause.

The other popular answer that inflation is a direct result of government spending hits closer to the mark but doesn’t quite get there either.  Fox Business showed a graphic very similar to the one shown below marking the steps of inflation over the last 15 months in attempt to indict the Biden administration’s ‘reckless spending’ as the culprit of high inflation.

The graphic is compelling (even though the box layout and connecting lines are bit confusing) but spending, in and of itself, cannot be the source of economy-wide inflation.

Excellent examples of counter-arguments are found each and every Christmas when some fad takes root and the latest ‘hot toy’ emerges.  To be concrete, no one could have foreseen the intense demand that the Nintendo Wii would command when it came out during the fall of 2006.  Each Wii became such a hot commodity that stores sold out and large resell market developed.  People who had the financial wherewithal to spend small fortunes threw cash around, thereby driving the price up in advance of Christmas day.  And yet, the economy as a whole didn’t suffer inflation.  Other, more modern, examples of ‘runaway prices’ include the Game Stop stock bump and the Dr. Seuss scare where prices of those commodities rose sharply but, nonetheless, did not trigger economy-wide inflation.

With that in hand, let’s return to the Fox Business argument and unpack it a bit.  If the graphic they provided seems to prove that government spending if the culprit but, as was just argued, spending itself can’t be to blame, how can we square these two different points?  The reconciliation lies in not what amount government spent or in what sectors of the economy that spending occurred but rather in how government acquired the money it spent.

When a given individual, household, or firm spends it either takes from its savings or it borrows from someone else’s in order to pay for what it wants or needs.  Government has a third option: it can simply print more money.  In exercising this third option, government typically triggers systemic, economy-wide inflation.  The following excerpt from a talk given Milton Friedman drives this point home.

During the course of the 15 months covered by the graphic above, the Federal Reserve expanded the money supply from approximately $15.5 trillion to $21.6 trillion, an increase of just about 40%.  In the article entitled, Inflation has Fed critics pointing to spike in money supply, author David J. Lynch does a nice job in making Friedman’s case that inflation is monetary in origin.

To be fair, Lynch also covers the counter-argument that the Fed is currently mounting by noting that:

That’s one reason that the Fed’s money creation isn’t driving inflation, according to many economists. Yes, there is a great deal more money stored in various forms. But it is moving through the economy more slowly than at almost any time in 65 years.

But this ‘velocity-of-money’ justification for severing the link between money supply and inflation seems hard to reconcile with the Fed now pushing to raise the prime rate.  Making money harder to borrow will result in an even lower velocity.  In addition, according to the article Small US Companies Lose Almost 300,000 Jobs Since February by Alex Tansi of yahoo!finance, there is likely a significant cost to small business growth with this approach:

So why not just contract the money supply?  There are several reasons.  First and the most important one is that such a course of action almost invariably triggers a recession.  Second, it isn’t at all clear that all types of money are equal.  Cash stuffed under the mattress is technically in the supply but is doing nothing to stimulate economic activity.  So, how much should the Fed cut and where?  These questions make it hard to find a precise procedure for taming inflation but it seems clear that statements like the one Lynch cites  from Fed Chair Jerome H. Powell that assert that

should be taken with a large grain of salt.  These statements sound a lot like the expert assertions from the early 2000s that said we were in a new economy in years leading up to the Great Recession of 2008.

Sadly, this is where the story stops.  It looks like we’re going to have to live with inflation for the foreseeable future and it looks like the ‘economists in the know’ are anything but knowledgeable.  My own money is on the monetary-supply theory precisely because it following Occam’s razor and it jibes with what we know are fundamental features of the economy.

It’s hard to believe that the United States, once not only able to feed itself (and perhaps overfeed itself) but also a large fraction of the world in addition, is now facing a shortage of baby formula.  This shortage does not necessarily mean that the ‘land of the free and the home of the brave’ is in decline but is more an indictment of the kind of short-sighted thinking so common in economically illiterate folk.  But first let’s begin with the facts.

According to the Washington Examiner article entitled Here's what's causing the baby formula shortage, the countrywide shortage, which started in late winter of 2021, regionally ranges from 30% to 50% at mid-May (likely has increased since then).

(Map source:  Infant Formula Shortage in US: Where Is Baby Food Hardest to Find?, Bloomberg)

The article provides a quantitative example of how changes in demand (or quantity demanded) has pushed the cost up by noting that a 12.4-ounce can Enfamil Gentlease, formula design for fussy or crying babies, is listed (at the time of the writing) on eBay for $55 ($45 + $10 shipping) compared to the normal grocery-store price of $19.

Several articles identify the groups hardest hit by the shortage.  The Washington Examiner piece notes that the shortage is “especially acute for parents of babies who require specialty formulas to address allergies, as well as gastrointestinal or metabolic conditions”, while the Everything You Need to Know About the Baby Formula Shortage, by Yahoo, states that “not surprisingly, the most affected parents are those on the lowest income…poorer women, infants and children, [who are on] WIC, which provides formula for a majority of [the] babies in low-income families.”  As a result of how the most vulnerable are being effected, most large retailers are rationing the supply to prevent hoarding.  For example, Target has been limiting purchases to 4 cans while the Walgreens and CVS limits are 3.

Okay, so the shortage is real and painful.  But then why is it happening.

The Washington Examiner article lists four reasons for the shortage:

1. weak production market unprepared for pandemic hoarding
2. decline in breastfeeding
3. recent supply chain problems
4. Abbott labs formula recall

Let’s look at what the experts have to say on each of these fronts and judge and critique.

Weak Production Market Unprepared for Pandemic Hoarding: unlikely

The pandemic ‘officially’ began in mid-spring of 2020 with the ‘flatten the curve’ edicts coming out in April of that year.  Disposable goods, like toilet paper, were certainly in short supply initially and some segments of the public reacted by buying (i.e., hoarding) immense amounts.  But by the fall of the 2020, manufacturers began to respond – after all their job is to make and sell products in order to make a profit – and the amounts of all goods returned to near-pre-pandemic levels.  The Washington Examiner article even cites (in the discussion of another possible reason) “The supply of formula was relatively stable in the first half of 2021, but by July, the availability of formula on shelves began to dip, according to Datasembly.” So while it is certainly the case that there is some hoarding happening now, it is unlikely that it is anything other than a public reaction to the recent-developing shortage that can be blamed on the pandemic.

Decline in Breastfeeding: unlikely

There are two facts (noted above) that speak against this possibility.  First, the change in a family attitude to a pregnancy or a recent birth is not something that ‘changes on a dime’.  A time scale of years not months is what is needed to see large swings in demographic trends like the percentage of mothers who want to breastfeed.  Second, as discussed above, the supply of baby formula was described as “relatively stable” in the first half of 2021.  The only way that a decline in breastfeeding could have happened so quickly would have been a scenario like the following: suppose the CDC had said that breast milk was now poisonous due to COVID and breastfeeding was ‘contraindicated’.  Under this, admittedly ridiculous claim, one could see large segments of breastfeeding mothers abandoning their regimen and starting a run on the stores.  But there a scenario like this would have been public knowledge and mentioned in the article.

Recent Supply Chain Problems: possibly but small impact

Until recently, the term ‘supply chain’ was known only to a few insiders who cared about manufacturing and production.  It is now a buzz phrase akin to the ‘devil made me do it’.  Nonetheless, there are some plausible and implausible reasons being laid at the feet of supply-chain woes.  In the Washington Examiner article they do list a plausible scenario involving worker unavailability.  Here we find the first of the four governmental failing that help explain the shortage.  The government has incentivized workers leaving the workforce due to COVID by subsidizing people staying home.  The workforce participation rate (graph from BLS) has yet to reach pre-pandemic levels

The article also seeks to blame the war in Ukraine for having a role in hampering imports but this is a unlikely effect as the regulations for importing baby formula are quite restrictive (more on this in a bit).  So, overall, supply chain issues are likely having a small effect on the delivery of more baby formula.

Abbott labs formula recall: root cause

Here we finally get to the root cause of the formula shortage and we will find ample evidence to lay three very big failings at the feet of government.  The single biggest and by far the clearest cause of the baby formula shortage is the FDA’s continued shutdown of the Abbott Nutrition’s manufacturing plant in Sturgis, Michigan.  The FDA stopped production in February after receiving complaints of infections due to Cronobacter sakazakii bacteria and possibly Salmonella, in four babies from September 2021 to January 2022, according to the Washington Examiner article.   According to the article The baby formula shortage is getting worse, by CNN, a former employee filed a whistleblower complaint documenting his concerns for safety problems at the plant. According to the article:

The article entitled Abbott says two months for baby formula to hit shelves amid US shortage, by US News and the Guardian, added that: “In all four cases [of baby illness and death], the state, the FDA and/or CDC tested samples of the Abbott formula that was used by the child,” it said. “In all four cases, all unopened containers tested negative.”

Nonetheless, the plant remains shutdown leaving parents to scramble for ways to feed their babies.

The next governmental misstep was the lack of awareness of the repercussions of shutting off a major supply of formula and failing to be nimble in adjusting the infrastructure by relaxing the restrictions against importing baby formula from overseas.  Clearly, children in other countries grow up to be healthy and relatively happy and yet these governments (often ones being offered as paragons in other settings) aren’t trusted to supply oversight in producing baby food.

The fourth governmental misstep is perhaps to most startling: telling parents of newborns not to create their own home-made formula as it is dangerous.  Really?  Is starvation less dangerous?  Just what do the bureaucrats want parents to do?  Should they hunt around from store to store in the hopes of finding the ‘golden can’ of formula, all the while wasting precious resources on what is likely a fools errand?

The Unseen Cost the Underlying Cause

The underlying cause of these four failings on the part of government is the very problem that Frédéric Bastiat decried in many of his famous discourses on the ‘unseen cost’. The agents of government can clearly feel the ire they would draw if they didn’t provide subsidies for workers sidelined by the pandemic but they can’t see that an over-indulgent application incentivizes lower work force participation.  They can see the accusations that would be hurled towards them if a few ‘infected’ cans of domestically-produced or a few containers of ‘sub-standard’ foreign-produced formula end up in circulation but they feel no heat in turning off the supply.  They rest easy in knowing they did their due diligence in telling parents that there is no home-made substitute for breast milk or ‘approved’ formulas and no single thought of starving babies affect their sleep.

Of course, the bureaucrats are not really to blame.  The system incentivizes them to act this way and they respond.  They give us the regulatory structure we want.  The fault dear reader lies not in them but in ourselves for being willing to cut off our ‘economic nose’ to spite our ‘economic face’.  The only way to fix this wretched state of affairs is to continuous remind ourselves that there is never an entirely correct choice in economics.  Since scarcity is involved in every aspect, every choice involves a trade-off.

Scarcity.  The very term conjures up images of long lines of people hoping to get food from empty shelves in the old Soviet Union or the proverbial barren landscape devoid of growth and warmth that features just as often in romantic poems from a hundred years ago as in the dystopian motion pictures of modern times.  But we while we should continue to enjoy the melodramatic images of such works of art as T.S. Eliot’s the Wasteland or Suzanne Collins' the Hunger Games, the word scarcity should actually summon mundane images of our day-to-day lives since each of us lives with scarcity simply because we can't get everything we want.  And for such humdrum settings such as one's ordinary life being a vehicle to convey economic (or any kind of) wisdom, no better medium exists than the standup comedy routine at the hands of a skillful comedian.

The specific comedian who will be the featured player of this installment is Larry Miller.  Larry is a well-known comic who is famous for some of the most hilarious and insightful routines like the 5 Levels of Drinking or The Secret of Skiing.  He is also, by his own admission, a character actor and, to anyone whose had the pleasure to see him in Pretty Woman, For Richer or Poorer, or 10 Things I Hate About You, a very good one at that.

Back to economics.  Larry has a wonderful way of encapsulating the essential character of things within a very funny message (his mannerisms don’t hurt the presentation either).  To wit, consider this terse take on the economy.

In the space of about a minute he lays out the universal scenario for scarcity: on one hand, the want or need for a good or service and, on the other hand, the lack of resources to make or to trade for the good or service being sought.  And the good news didn’t stop there.  He boldly went on to proclaim the final piece of the puzzle, the fact that often the scenario doesn’t have a happy ending and the desire remains frustrated and unfulfilled.

It is that last point, that denial of many of our wants is inevitable, which modern thought finds disturbing.  So disturbing, in fact, that many of us delude ourselves in thinking that is just shouldn’t be this way.

Sure, it’s fun to laugh at his characterization of ‘people in Washington’ who, upon realizing that they can’t afford the Ferrari they very much want, choose to order not just a single red one but enough red ones so that every member of the House and the Senate (hence the number 535) can be seen cruising around Dupont Circle in theirs.  But we should be careful about how far we throw our scorn, as these ‘people’ represent us and, as a quote attributed to H.L. Mencken says

We should be laughed right alongside these ‘people in Washington’ precisely because most of us think we ‘deserve’ not to have to say to ourselves “therefore I won’t get one.”

To illustrate this point, consider this brief anecdote.  There was as old show that often aired on PBS called Economics USA, one of the many shows in the line of Annenberg CPB-funded educational programs (now branded under Annenberg Learner).  The episode in question (now seemingly lost with the modern revision) compared and contrasted two men who had started on the assembly line.  One of them accepted a position as a manager and moved up to a higher paying job but with greater responsibility.  The other wanted to stay on the assembly line but begrudged the first one making more money than he did.  This worker said something to the effect that “it wasn’t fair that those guys made more money” and he wondered why only they should have more when ordinary guys like him deserve “a boat and two houses” too.  Okay, maybe not the height of comedy but the shear willful disregard made me laugh.

Perhaps this anecdote isn’t universal enough to convince the skeptical reader.  Consider this brief clip from the Charlie Brown Christmas in which Sally, Charlie’s younger sister, asks her older brother to help her write a letter to Santa.  After some polite if perfunctory remarks to that jolly old elf, Sally’s dictation takes a “commercial” turn in which she begins listing all the things she deserves for Christmas and ends with the famous line “All I want is what I have coming to me! All I want is my fair share!”

There you have it: the entire tension in our modern economy is boiled down to the competition between “Therefore I won’t get one!” and “All I want is my fair share!”

Of course, in days of yore when people really were poor and labored in bad conditions, the rallying cry to get a fair share did have a moral spine.  But in today’s advanced standard of living, it isn’t easy to side with Sally over Larry.  Too often Sally’s position is simply a sanitized way of saying I want not only what my neighbors have (even if they worked harder than I did), I want more.  And thus, envy rears its ugly head and green eyes.

I call it envy because it is frankly hard to call it anything else.  The key to many decisions made by ‘rational actors’ in the economy seem to hinge far more making sure one comes out ahead of everyone else rather than that one has what one needs or has earned.  And much of our modern life emphasizes it.

We see baseball players holding out for more money just to be able to brag that they have the bigger paycheck.  We see people buying products they don’t need for more than they can afford just to ‘keep up with the Jones’. We see young people accumulating enormous levels of debt just to say they went to college.  All throughout these examples the common theme of envy weaves its way through, and advertisers make sure to stir the pot by continuously pushing a message that is best summarized as an old radio thirty-second spot succinctly put it “You know you want it; you know you deserve it!”.

While I am sure I don’t know how to determine who deserves what, I am sure that we would all be a lot better off if we behave much more like Larry and far, far less like Sally.

Most everyone knows what the term ‘illiteracy’ means, even those who can’t read and the shame of illiteracy is so great that people often go to great lengths to hide the fact that they can’t read  – a feat best pulled off by the functionally illiterate (consider the made-for-TV movie Bluffing It starring Dennis Weaver).  The city of Baltimore even went to great lengths in the late 1980s and into the 1990s to declare itself ‘the city that reads’ since alarmingly large number of the citizens were functionally illiterate.

A smaller class of people feel shame at being illogical.  In certain quarters, a lack of self-reflection and internal consistency in how one argues is often excused by appealing to feelings.  “I’m passionate about it” or “it doesn't feel right” are common enough excuses used to exempt the arguer from the burden of rationality and accountability.

By the time we get to innumeracy, the shame has all but vanished, all pretense to having to excuse oneself for a lack of a vital societal skill has dropped away, and in its place is a particular pride in this particular brand of ignorance.  The inability to deal with mathematics and, especially, large numbers is seen as a badge of honor.

But the proverbial three monkeys of ‘see’, ‘hear’, and ‘speak’ no evil have nothing on the alarming mix of the above three styles of ignorance to form the alarming way in which modern citizens consumes matters economic.  For the purposes of this article, I’ll call this tripart, lethal cocktail of ignorance rampant economic ignorance (REI).

Case in point, the widespread claims that the oil companies are price-gouging.

To be clear, I am not definitively claiming that the oil companies are not price-gouging but I strongly doubt it for the simple reason that I can’t then explain what they were doing when prices were low.  What I am claiming, with dispositive evidence, is that the average person who holds that position is indulging in merry mix of innumeracy and illogical thinking with a dash of functional illiteracy thrown in to spice things up.  In what follows, I’ll go through some of the evidence offered (there is simply too much to be comprehensive) and point-out those items that caught my eye.

Let’s start with the  REI on display in Politifact’s article entitled (as far as one can tell) Yes, oil companies are reporting record breaking profits. But it follows pandemic-fueled losses.  In this article, author Andy Nguyen attempts to ‘fact-check’ a Facebook post that reads

To start, Nguyen only mentions in passing that Dan Price was the CEO of a company “that made headlines in 2015 when it raised minimum salaries for employees to $70,000” but doesn’t discuss that Price is likely a less-than-honest authority on any aspect of the economy base on the many criticisms heap on this ‘headline event’ of 2015 (see The Gravity of a Minimum Wage for a summary).

Nguyen this proceeds to provide a serviceable but somewhat disjointed context in which to place the rise in gas prices.  Somewhat annoyingly, he fails to provide the following graph

the original of which can be found here.  While this graph is far from perfect, it does demonstrate that gas prices were rising significantly over calendar year 2021 (year-to-year increase from approximately $2.25/gallon to $3.35/gallon) at an average increase of about 9.2 cents/gallon/month compared with the 35.5 cents/gallon/month increase in 2022.  The lack of analysis here speaks of innumeracy.

Next Nguyen fact checks Prices assertion that the US only receives 1% of its oil from Russia and finds that assertion wanting in that the number is a factor of 3 lower than the truth.  To this correction I say so what.  Without proper context it is impossible to tell whether a 1% or 3% (whichever it may actually be) drop in quantity supplied is significant.  What is needed is the elasticity of the crude oil market – a fact seemingly ignored.  Chalk one up for illogical discourse.

Finally, we get to an analysis record profits for the oil companies.  However, there is no way to make an apples-to-apples comparison.  Consider the constantly shifting ways in which the ‘profitiability’ of the big four oil companies of BP, Chevron, Exxon, and Shell are described:

• Exxon Mobil made $23 billion in profit for 2021
• Chevron… reporting in January that it made $15.6 billion in revenue for 2021…
• BP reported it made $12.85 billion in 2021…
• Shell made significant profits in 2021, earning $19.29 billion for the year…

Anyone who has ever bothered to take the time to read a company financial disclosure form would know that ‘revenue’ is a well-defined term that may, or may not, mean the same as the vague term ‘earnings’ and that neither is ‘profit’ and that there are many possible meanings for ‘profit’.  And let’s not even speak about how the word ‘made’ is totally ambiguous.  Score several for illiteracy.

Since most people are complaining about profit, I looked at two possible definitions: 1) gross profit and 2) net income common stockholder.   I tabulated these data for calendar years 2018-2021 (the years in which the money was earned and not in the years reported) from Yahoo Finance (e.g., Exxon data), cross-checked with SEC filings available in TD Ameritrade and present both raw data and inflation-adjusted data using the schedule of 1.8%, 3.1%, and 7.9% to express 2020, 2019, and 2018 dollars in 2021 terms based on estimates found here.

For gross profit we have

where company is identified by its ticker symbol (BP = BP, CVX = Chevron, XOM = Exxon, SHEL = Shell).   The numbers in the parentheses represent the market capitalization in millions as of 3/18.  Only Chevron showed an increase in gross profits and the amount is extraordinarily hard to see.

Likewise, the plot for net income common stockholder (expressed simply as net income)

shows little in the way of obscene profit-taking.  Only Exxon posted a marked, but still small, increase in this definition of profits.

Where is the pricing gouging in these plots?  Beats me.  Neither of them show little in the way of ‘soaring’ or ‘vastly improved’ numbers spewed forth by the media.

So, how did the oil company execs and consumer advocates come to both agree on the ‘underlying truth’ of record profits (although each group interprets what that assertion actually means)?  I think there is ‘Bootleggers and Baptists’ phenomenon going on here.  Oil execs want to talk profits up so that investors will invest in ‘a bright, industrious company with a shiny future’.  Media pundits and consumer watchdogs want to talk profits up so that the narrative of evil, price-gouging corporations will prompt governmental action.  However, as the data clearly, show, if there are huge profits being made then they are well-hidden indeed.

As a final thought, one may ask oneself how can we all learn to think through these issues better?  The only way I can see if for all of us to prioritize stamping out REI.  Maybe with a campaign, perhaps with a slogan like “Thinking economics is fundamental”.

There are lots of reasons to celebrate February.  We have President’s Day commemorating the birthdays of our two most important holders of that office (Lincoln was born on the 12^th and Washington on the 22^nd).  There’s Groundhog Day in which curious (and sometimes drunk) sit on the edge of their seats to see if that beloved rodent Punxsutawney Phil spots his own shadow thus heralding 6 more weeks of winter. And the romantic amongst us even go so far as to celebrate Valentine’s Day in which amorous desire takes corporeal form as a baby cherub decorating expensive tokens of affection bedecked in crimson and pink.  But no other event is as anticipated, as hyped, or as watched as the Super Bowl.

This year’s game featured the NFC’s Los Angeles Rams, led by Matthew Stafford, against the AFC’s Cincinnati Bengals, led by Joe Burrow.  The game was a true defensive struggle with the Rams coming out on top in the last few minutes of the game edging out the Bengals by a score of 23 to 20.

As one of the most watched sporting events in the world, the Super Bowl, with its promise of big money and enduring fame, certainly offers plenty of material for economic analysis.  The usual spate of questions covers topics like how much a 30-second advertising spot sells for or whether public-funded stadiums offer a return on investment.  But rather than focus on these areas, which get picked over every year, it seemed a lot more fun to consider the personal economics of the players.  Just what were the sacrifices they were willing to make made (i.e., the opportunity costs they were willing to pay) and just how far were they willing to go to win at an elite level.

This is the very question that Robert M. Goldman started asking back in the early eighties.  Goldman’s Dilemma, as the general form of the question is now known, has various ways of being stated but all them pose a ‘magical’ way for an athlete to excel in the immediate time frame while suffering horrible repercussions latter down the line.  The original form of his question goes:

**If I had a magic drug that was so fantastic that if you took it once you would win every competition you would enter from the Olympic Decathlon to the Mr Universe, for the next five years but it had one minor drawback, it would kill you five years after you took it, would you still take the drug?" **

Goldman’s claim is that when he asked various athletes in the power-lifting and bodybuilding sports roughly half of them answered the question yes.  Later research seems to either claim that the question as a whole is nonsense or to argue against the numbers being so large but it isn’t clear whether the differences are due to which sport is polled, or changing attitudes to winning, or just general issues with the sampling.  What is clear is that there is ample evidence from most major sports that some athletes are willing to go to great lengths to win.

What is more interesting than the possible implications that Goldman’s Dilemma has with respect to doping in sports is that fact that game theory provides a successful framework to explain how even the possibility that one competitor is doping can incentivize others to break the rules even when they may not be inclined to do so on their own.

To see that let’s suppose that most athletes at the professional level are approximately equal to each other in drive, training, skill, and innate talent.  The major distinguishing factors are then a set of intangibles headed up luck – luck when it comes to injury, team membership, or some other circumstance.

Case in point is Matthew Stafford the quarterback for the Rams, playing in his first Super Bowl.  Prior to this appearance in the big game, Stafford was the starting quarterback for the Detroit Lions from 2009 to 2020.  During these 11 years, he showed incredible resiliency and creativeness, often turning a busted play into a gain just by improvising using a combination of his athletic talent and his grit.  Nonetheless, he only made 3 playoff appearances with the Detroit Lions, each one a loss.  In 2021, he was traded to the Rams where his regular season performance was statistically on par with his 2011 season with the Lions (41 touchdowns in both years; 5,038 v. 4886 passing yards and a passer rating of 97.2 v. 102.9 for 2011 and 2021, respectively).  This time, however, the result was a Super Bowl win in his first season with his new team.

Since the intangibles make a big difference in being on a perennial loser (i.e. the Detroit Lions) versus a winner (i.e. the Los Angeles Rams) its no wonder that some players are willing to dip into the shadowy side of sport training for a little boost.  And for those doubters who think this too far-fetched consider the Tour de France.

Interestingly, game theory can give a model that matches this observed behavior even in one of the simplest games – the prisoner’s dilemma.  To see this let’s consider two athletes, one from the Cincinnati Bengals and one from the Los Angeles Rams.  Each is considering whether or not to take performance enhancing drugs (PEDs).

For the sake of this argument, we will assume that both players are evenly matched and only intangibles like luck or circumstances out of their control govern whether one will prevail of the other on any given Sunday.  In this situation, we will assign each player a payoff value of 1 since neither is coming out a loser, on average, with respect to the other.  Symbolically, we will denote this payoff as $T_c$, where the subscript ‘c’ reminds us both players are clean.

If one of these players decides to take PEDs, he perceives that he will win most of the time and this payoff we will denote as $W=4$.  The other player, being soundly defeated, will have a converse payoff of $L=-4$.

Finally, if both players take PEDs, they will again be at a stalemate but they will have suffered damage to both their bodies (assuming PEDs are harmful) and to their reputations should they be discovered as ‘cheaters’.  The payoff here will be $T_d = -1$ where the subscript ‘d’ reminds us that both players are ‘dirty’.

The full payoff matrix looks like:

Up to inconsequential things like the actual numerical values used and the names provided, this payoff matrix is functionally identical to the matrix for the prisoners dilemma.  The fact that $ W > T_c > T_r > L$ guarantees that there is only one pure strategy – both players take the PEDs in order to not ‘lose’.

Does this analysis mean that every athlete succumbs to the pressure and that every sport is rife with cheating?  The obvious answer is of course not.  First of all, the real-world situation is much more complex as there are more than two players and more than two possible outcomes.  Far more important than those observations is the fact that the above payoff matrix implies that each player sees the world in exactly the same fashion and arrives at the same payoff values (or at least values consistent with the inequality that ranks a win at any cost as the most desirable outcome).  The assumption that the payoffs are known and agreed upon by all players is the single greatest weakness that game theory and its adherents have to contend with.  Nonetheless, the economic psychology that would lead some subsets of athletes to cheat and what changes need to be made to minimize this possibility make game theory at least a good, if not exactly a super, starting point.

If you live in the northern stretches of the United States, the winter season brings the distinct possibility of shorter days, colder temperatures, and snow. And with snow also comes the possibility of snowmen, snow angels, snowball fights, white Christmases and so on. But there is also a downside to all this white beauty, the annoying need to cleanup afterwards. However, there is a way to even turn what is typically a boring and even exhausting job into a good reflection on the role that incentives play in the behavior of an individual in an economy. This observation doesn't come from a profound and deep analysis of the impact of meteorology on productivity but was a direct consequence of too much snow and not enough shovelers.

A particularly bad fall covered the area in which I live under 6 or 7 inches of very heavy, very wet snow. The kind of snow that rips branches from their tree and splits trunks in two. The kind of snow that makes roofs creak under the strain, even the steeply pitched ones. The kind of snow that paralyzes governments and strands motorists on highways and byways.

Needless to say, that after the snow had stopped falling and the trees stopped breaking under the strain and the cars stopped being buried came the requisite plowing and shoveling. And the hours wore on as I unearthed (unsnowed?) the walk up to my front door and the sidewalk in front of my house and my driveway and even the four feet of the street in front of it, where the plow truck created a picturesque icy speed bump, presumably to add some excitement in what was otherwise an uneventful day. During those hours I had a long opportunity to consider just what made me and all the other guys on my street motivated enough to do this wearisome and thankless job.

Of course, there are ordinances, regulations, and laws that require homeowners to clear their property, but I doubt that was the primary motivation or even a motivation at all. At least in my case, and I am willing to hazard in the case of my neighbors as well, the motivation was one of house and civic pride. We love and care for our properties. We have skin in the game. It was in the best interest of each household to clean up.

As a result, all the sidewalks of my development, from every bit that hugs the perimeter and to every bit that snake its way through every interior road was clear of snow within 6 hours after the last flake drifted to the ground. Normal life resumed and any resident could walk from one end to the other free of cold, white impediments. Our common areas were collectively free because each of us owned a little slice.

This outcome is in stark contrast to my experiences living in an apartment complex in a nearby town. The apartment complex was big enough that probably the same amount of or more people lived there than all the single family homes where I am now. And the common area was certainly smaller in terms of sidewalks and paths. Nonetheless, almost every resident waited on the landlord’s management company to remove the snow. As a result, apartment dwellers would often be snow bound for a day or more compared to the much more rapid dig out on the order of two to four hours for the home dwellers.

Of course, this snow phenomenon is not new. Economists often talk about how well-constructed incentives motivate people to perform above and beyond what they would do otherwise. For example, endangered species (e.g. rhinoceroses) are better protected from poaching when someone owns the animals rather than just allowing them to be shielded by common protection. The outcomes are better when people have skin in the game. And the ‘skin’ need not even be financially based. Sometimes the incentive takes a more intangible form like the recognition for civic pride that is used to motivate companies to ‘own’ sections of highways that they keep clean.

So, there you have, an economics lesson brought to us by the combination of mother nature and human enlightened self-interest. Who said winters were all bad?

Life often offers us microcosms – little systems that we can examine that reflect the behavior of the whole.  The economy is no different in this regard and often small behaviors and patterns found in a single market reflect larger ones found macroeconomically across the entire webwork of markets.

Case in point, the activities and behaviors found currently in academic peer review of scientific results give an excellent example of how cooperation is not always a good thing, demonstrating in concrete (albeit small) ways the wisdom of the old economic warning

This adage’s attribution remains clouded in mystery with some claiming its origination with Benjamin Franklin at the founding of the United States

Image source: commons.wikimedia.org

while others maintain that it was said by Alexis de Tocqueville or even someone else.

It doesn’t really matter who uttered this maxim.  Whether Franklin said this or whether someone else did or it just arose from the body politic, there’s no denying that it contains an essential truth about cooperation within the economy as a whole.  Namely, that there is a distinction between the kind of cooperation that benefits all members of a society and those kinds of cooperation that benefit only a subset of individuals at the expense of everyone else.

Before delving into the problems with scientific peer review, let’s take a few moments to talk about the good kind of cooperation.

The Federal Reserve Bank of Dallas has a nice discussion of cooperation entitled Free Enterprise: The Economics of Cooperation.  They note that cooperation is desirable, since it pushes “back the limits of scarcity” but that the since scarcity is an unavoidable and fundamental aspect of all economies, competition will inevitably arise.

It is these two forces, when properly mixed, that create the positive dynamic that drives a market economy with cooperation manifesting itself in the division of labor and competition manifesting itself as the creative destruction of the marketplace.  Both forces provide needed efficiencies so that the boundaries of scarcity are progressively pushed back further and further.  Each of these forces, in its own way, makes the best use of the available information within an economy so that the highest value utility for a given set of resources can be achieved.

Cooperation is the mechanism that best circulates existing information.  It creates the environment in which people can share their experiences and their knowledge on the best ways to use existing resources to make the goods and services we use.  The drawback to cooperation is that it doesn’t offer the strong incentives needed to create new knowledge.

In contrast, competition provides the incentives needed for people to discover new knowledge and new methods.  It also provides, through the free-market price mechanism, the innumerable messages an economy needs to be able to decide what is working and what is not.  Its weakness is that encourages compartmentalization and segregation of knowledge.  A healthy economy needs both competition and cooperation working together in proper blend to increase our know-how and to properly share the scarce resources we have.

The Dallas Fed cites two examples of how picking the wrong blend leads to an unbalanced interplay between these two opposing forces.

As a warmup, consider their first example, in which they consider a first come/first served mechanism of sharing resources.  A common example of this is the long lines we’ve seen for people to buy the new release of the iPhone.  This approach incentivizes people to cooperate by forming a queue in which to wait and to compete by seeing who can get there first and wait the longest.  Sadly, both of these outcomes are almost entirely worthless.  The competition doesn’t provide any benefit as nothing new is learned or discovered.  The cooperation side, beyond providing proof that people can coexist without killing each other, it is also without benefit as the line-waiters have been essentially idle during their wait instead of pursuing so useful (if only to them) activity.

Their second example brings us much closer to understanding the staying power of the above economic warning on cooperation.  In this example, the sharing of scarce goods is performed by a government that distributes them. Proponents of government distribution typically justify this method as a way of ensuring that the neediest amongst us get the good and services they deserve.  But, as the Dallas Fed correctly identifies, “the rules of government distribution don’t eliminate competition, they just change the type of competition that occurs.” The fact that an identifiable set of people now control how resources are allocated leads to a warped competition in which lobbyists either persuade, cajole, or otherwise incentivize government officials to make outcomes in their favor.  What they didn’t identify is that this approach also incentivizes an equally warped form of cooperation.

Under government control, cooperation frequently becomes collusion.  For example, it is well known that government regulatory power tends to encourage established firms to spend effort keeping existing regulations in place as a barrier to entry to newer firms.  Government entitlement programs tend to habituate the receivers in a multi-generational cycle of dependency.  And so on.

In the world of modern scientific exploration, government holds the purse strings for grants and announcements of opportunity.  Government officials not only write the terms of these solicitations but also judge the worthiness of every proposal.  Much of the judgement exercised in deciding the merits of a proposal comes from the biases and the preconceptions of these officials.  As a result, there is a premium placed on ‘exciting new studies’ and ‘concepts that generate buzz’.  A researchers end product, typically a portfolio of scientific papers, often becomes a swamp of p-hacking through statistics combined with group think wherein the accepted orthodoxy is reinforced rather than challenged.  William Wilson’s article Scientific Regress discusses the serious issues that have arisen under this system wherein an alarmingly large percentage of papers are simply wrong or irreproducible.

The question is then what is it about the system that allows this type of intellectual snake-oil sales to continue?  The answer is that the citizens (i.e., scientists) of this microcosmic republic (modern, government-backed, scientific enterprise) have figured out that they can vote themselves money by supporting each other in publishing.  Where once there was a healthy balance between competition and cooperation, the trend now is to rely heavily on collusion.  You help me get published and I’ll help you and we’ll all benefit directly by seeing our numbers of publications, times cited, impact factor, and so on increase.  By colluding, we all stand a better chance to receive government funding.

This self-serving behavior is reinforced by a constant mantra about how important science is and how we need to follow the science and how only the most ignorant of us reject the settled science (a as unscientific concept as there ever could be), etc.  The result is that the ‘republic’ of science has heralded it own end.  Ben Franklin, our nation’s first premiere scientist must be turning over in his grave.

It is a yearly tradition in this blog to simultaneously discuss 1) what makes Thanksgiving worth celebrating and 2) to set the record straight by articulating the first point clearly and refuting the nonsense that tries to drown it out.  This year’s column is no different, although the message comes in particularly well-worded argument by Dinesh D’Souza… but more on that later.

First, just what makes the holiday worth celebrating? (Hint it isn’t a day off, turkey dinner with friends and family, football games, or Black Friday – although the first three of those are nice.)  It is the idea that economic freedom, specifically in the form of private property ownership and voluntary exchange of goods and services, is the ‘magic’ that makes us all prosperous.  Of course, the ‘secrets’ to this magic are nothing more than the recognition that different people are made differently, have different interests and abilities, and, above all, different drives, and the faith that people, left to their own devices, will generally want to cooperate to the betterment of all.

Second, just why does the record need straightening out?  Well there are two reasons.  On one hand, there is simply a lot of misinformation that clutters up the idea landscape.  This economic noise distracts and deceives people from understanding and appreciating what economic freedom means; from appreciating that they control much of what happens in their lives.  This ignorance not only spawns poor decision making it also contributes to the overall unhappiness of any afflicted by it.  On the other hand, there is a certain class of people unwilling to trust that their fellow citizens can manage their own affairs.  This professional busybody class is always poking its collective nose into everybody else’s affairs seeking to dictate and control things that aren’t any of their business.  Ironically, but not unexpectedly, these type of people never subject themselves to the autocratic rule they wish to subject others under.

The story of the first Thanksgiving (nicely summarize here) centers around the Pilgrims realizing that private property and economic freedom matter (see also How Private Property Saved the Pilgrims).  Sadly, this fundamental message is warped and twisted – sometimes innocently, sometimes maliciously – with off-the-mark commentary and argumentation that simply ‘doesn’t follow the science’ (the dismal science of economics that is).  A previous post dealt with some of the most distressing criticisms of the holiday and tried to set some small corner of the record straight but there is always a need for more.

This is where Dinesh D’Souza comes in.  I recently came across a lecture he made in which he presented ideas that solidly support just why the real story of Thanksgiving is worth remembering.  He didn’t tie these ideas directly to the pilgrims so that will be the contribution I provide here.

The tale that Dinesh tells involves a valet car attendant who parks cars at a luxurious resort.  On average the attendant works 10 hours in a day for which he makes $150 ($15/hour).  Over the course of that day he parks 100 cars (10/hour) at the price of $30/car.  The total revenue the resort earns $3000.

D’Souza then discusses how the Marxist looks at what he perceives as an inequity:  the valet, as the main agent, is the one providing the service with his labor but he is only getting a small fraction (5%, in fact) of the revenue.  D’Souza goes on to say (although some inference is needed as there is a cut in the edit) that once the operating costs are subtracted there is still a substantial profit that flows to the owners (the capitalists) which bypasses the valet entirely.  He summarizes Marx’s objection as centering on the fact that the capitalist (precise definition to follow) has already had his recompense through the interest and that the profit should go to the laborer as he is the only one actually producing a ‘good’ in this scenario.

D'Souza then goes on to point out the obvious flaw in this argument.  In Marx’s point-of-view, the capitalist’s only function is to provide the financial power to start the business.  D’Souza correctly points out that the owner (or what he calls capitalist with a more widely expanded definition) does far more than supply working money.  The owner provided three essential ingredients that make his portion of the profit much higher than that of the valet’s:

• Conception – the owner conceived of the idea of the resort with the necessary appeal to attract people willing to pay $30/day to have their car parked
• Realization – the owner turned the conception into reality by organizing the countless details, large and small, that make an idea a reality
• Protection – the owner gets paid last and provides a bulwark against the ebbs and flows of the business cycle to labor thereby giving labor the security of steady wages at the expense of lower profit.

So, how does this narrative tie back into Thanksgiving?  Well, the same passions and resentments that showed up in the valet’s Marxist criticism of the resort’s profit were on display in Plymouth all those years ago.  However, Marx’s facile explanation in terms of the friction between labor and capital doesn’t work so well for the case of the Pilgrims.  The capital for the founding the Plymouth Plantation came from the Company of Merchant Adventurers of London, who remained behind in the old world and, thus, were as far away as conceivably possible at that time (separated by the Atlantic in the early 1600s).  If Marx’s view were correct, why didn’t this laborer’s paradise work from the first go?

William Bradford, who chronicled the events in the fledgling colony, identified how working in common was ‘found to breed much confusion and discontent’.  That the most able bodied complained that they had to ‘spend their time and strength to work for other men’s wives and children without any recompense’.  Where is the worker’s utopia that Marx promised once the worker was freed of the shackles of capital.

In 1623, Bradford took the bold step of abolishing communal labor in favor of private ownership and responsibility.  He turned each family into owners of their own land and a bounty ensued.  In other words private not communal ownership corrected the problem.

To be fair, some of Marx’s observations about the exploitation of the some for the enrichment of others are valid.  Adam Smith also raised concerns about these situations and, as a moral and just society, we should look for mechanisms to address these things.  But the answer, contrary to Marx, isn’t ridding ourselves of private ownership.  Rather, we should be expanding opportunities for more people to own some part of the economic means of production.  As a society, we should offer opportunities for the valet (assuming he is resentful of the role he plays at the resort) to open his own business.  In short, we should reject Marx and embrace Bradford.

On September 4^th of this year, David P. Goldman wrote an intriguing article for Asia Times, entitled Stagflation rears its ugly head in US payroll data.  Goldman presented time series data for job growth (blue curve labeled ‘Payrolls’) side-by-side with data over the same period for wage rates (orange curve labeled ‘Earnings’).  Both series are presented on a normalized scale indicating that the data should be interpreted as roughly percentage changes.  The data show both localized regions (Dec. 2020, Apr. 2021, and Aug. 2021) and mild overall negative correlation between the two curves.  When job growth was down (Nov. to Dec. of 2020) wages rose and when job growth was up (Dec. 2020 to Mar. 2021) wage rates fell.

These observations led Goodman to conclude that stagflation was just around the corner; a conclusion that should scare anyone who had the misfortune of living through the 1970s.

For those who don’t know, stagflation is a period of time in which an economy experiences both high inflation and high unemployment, the latter of which signals slowed or stagnant economic growth.  Prior to the onset of stagflation in the United States from about 1973 to its final defeat in 1984, a firmly entrenched point-of-view in economics circles was that stagflation was impossible because the unemployment rate and the rate of inflation were inversely correlated, with unemployment high when inflation was low and vice versa.

Roughly speaking, the argument to support this beliefs goes as follows.  When unemployment is high, the amount of wages within the economy falls and there are too few dollars chasing too many goods.  The lower relative spending power across the economy necessitates a drop in prices and inflation drops. When unemployment is low, the amount of wages in the economy rises and, conversely, there are too many dollars chasing too few goods.  This time the higher relative spending power causes prices to rise and inflation increases

The empirical data that was used to justify this viewpoint comes from what is now known as the Phillips curve.  The Phillips curve, which was published in 1958 by the economist William Phillips, consists of a scatter plot where each point consists of the unemployment rate and percentage change in wage rates for a given year.  The data for the original plot

Image by Houdinipeter - Own work,CC BY-SA 4.0, Link

show what seems to be a nonlinear negative correlation between these two measures.  The Phillips curve uses the percent change in wage rates as a proxy measure for inflation.

These observations seemed to convince many people that economic policy could rely on a single knob to simultaneously adjust unemployment and inflation.  However, the economy exhibits behaviors more complicated than a simple, approximate one-to-one relationship between unemployment and inflation.

In 1967 and 1968, economists Milton Friedman and Edmund Phelps began arguing that the Phillips curve was a short term trend that resulted from conditions that were not universal.  Friedman’s work centered on the roles of government fiscal and, in particular, monetary policy played in keeping inflation and unemployment under control.

The mathematical structure that Friedman and company used to explain when the conditions are just right for using the Phillips curve (or rather the concepts behind it) is rather complicated and basically involves the recognition that there are two types of unemployment – a natural or structural unemployment, which reflects the fact that at any instant there will be people in the work force who are transitioning from one state of employment to another, and a deviation from this state due to economic uncertainties and fluctuations.  That said, the fact that the Phillips curve can’t hold always is easily seen by the initial heuristic arguments used to support it.

There is simply no reason to believe that when unemployment is high that there would be fewer dollars chasing more goods so that inflation should be low.  Those unemployed workers must have been making goods or providing services to somebody before they became unemployed.  Therefore, there must be occasions where the number of goods falls faster than the unemployment rate raises and inflation must kick in.  Likewise, when the economy is at full employment (meaning that the unemployment rate is at or below the structural rate) workers have more money but they are also producing more goods to be chased.

In any event, whether the theory is understood (or even if it is sufficient to explain all the events of the macroeconomy) is not important because facts bore out the predictions and models roughly 5 years after Friedman and Phelps work in the late 1960s.

In 1971, then President Richard Nixon put into place price and wage controls that shocked the economy.  About 2 years later, in 1973, OPEC cut worldwide oil production.  The US economy went into a recession with high unemployment and high inflation.  The pain of those years is well remembered by those of us who lived through (even and odd days for buying gasoline being one of the most vivid examples).  The stagflation pain persisted for nearly a decade with mortgage rates climbing from a range of 7 to 8 % in the early 1970s, to 16.6% in 1981 (according to Rocket Mortgage’s article Historical Mortgage Rates From The 1970s To 2021: Averages And Trends For 30-Year Fixed Mortgages) – a crushing reality immortalized in comedy in the movie Ghostbusters.

Thankfully, Freidman’s message that inflation is primarily controlled through monetary policy independently of the role that fiscal policy plays in unemployment took hold and decades of prosperour growth followed on the heels of the malaise the US experienced during the bulk of the stagflation era.

Nonetheless, the idea that inflation and unemployment go hand-in-hand persists to this day.  As discussed in an earlier post entitled What Does the Fed Do Now?, even as late 2017 there were people who seriously believed that a single policy could serve to meet the two macroeconomic goals of sustained growth and reasonable prices.  Interestingly, the Fed has, since the time of the publication of that blog, taken down their Chair the Fed game.  A visitor to that old link is met instead with the following message

Whether this change indicates that the Fed has completely abandoned their previous stance on correlation between unemployment and inflation (the concept behind the Phillips Curve) or whether it was simply politic to stop publicizing it remains to be seen.  Hopefully, like Goldman, they are looking out for the beginning signs of stagflation and are willing and able to make decisions that keep it from doing more than rearing its ugly head.

Socrates is famous for saying (translated from the Greek, of course) that the unexamined life is not worth living. Unfortunately for us (but certainly not Socrates or Plato) there was no social media in Ancient Greece and, equally unfortunately, that pearl of wisdom seems to have fallen by the wayside in our digital age. Case in point: small minds trolling about in today's hyper-charged hypersensitive Twitter-verse using the apparatus of modern life to condemn capitalism. Using goods and services that are the result of countless free-market decisions, these clowns sit comfortably in a lofty, little perch from which they dish out small, vapid critiques of a system that produced the very infrastructure they use to condemn it. The irony here is beyond anything that could ever have been produced by the thinkers of the Academy and the Lyceum combined.

To fully drink in the incongruity, consider for a moment all the various economic spheres that have to converge to allow a disgruntled, twenty-something-year-old the ability to level criticism against the luxury in which he exists. To be concrete, let’s examine some of infrastructure needed to put up a simple video on YouTube. This analysis is, in some sense, a modern retelling of that venerable article, I Pencil, by Leonard E. Read written in 1958, which shows that literally no one knows all the steps in making something as simple as a Number 2 pencil.

Our scenario will start with our disgruntled content maker, no doubt living in his parents’ basement, with a heart filled with bitterness and a skull mostly devoid of marketable skills but rife with fears (how will I pay my student debt?) and with regrets (why did I ever get that degree in medieval Grail romances?). Having just finished eating dinner (a dinner he did not grow or hunt or even prepare), he washes his hands, uses the toilet, trundles to his air-conditioned cubby, flips on the lights, and logs into his laptop, at which point he is ready to pepper the internet with his injective against capitalism.

Those simple actions just describe touch upon some of the most important of the economic sectors. The folks at Simplicable, in an article entitled 23 Sectors of the Economy, define what an economic sector is and list their taxonomy. Depending on one’s purpose, other kinds of divisions are possible and common (e.g. academic economists only see four sectors). These details don’t matter as much as the fact the activity that takes place, regardless of dividing lines, are entirely or mostly capitalistic, meaning that private individuals own the means and make the decisions for what is produced, how much is produced, and who gets to consume.

Start with the house itself. Building a house is far more complex than building a number 2 pencil since a house is a set of subsystems or units, each at least as complex as a number 2 pencil, that that all need to work together. First there's the foundation and the actual structure that holds everything up; an incredible mix of concrete, wood, and metal; each serving its own purpose; each bearing its own load. The wood comes from trees in a forest and must move through an intricate webwork of supply chains and activities just to result in a 2x4.

Next, for a house to be considered even remotely habitable in this modern age, it will need electricity. Raw metals, typically copper, will have to be mined and then transported to a plant where it will be transformed into various gauges of wire and various components required for residential use. Circuits will run between the main and various rooms designed to use (one-phase here and two-phase there) and circuit breakers will have to be installed according to codes (a 20-amp breaker here a 30-amp breaker there) that allow us to safely use something that could easily kill us.

Then there's the common need for a heating, ventilation, and air conditioning (HVAC) system. There must be a way getting fresh air into the home, keeping the place heated when it gets cold, and it's highly unlikely that a college-trained intellectual would ever consent to live in a house without air conditioning so we'll check that box too. An HVAC system, all on its own, is a very complicated interplay between multiple economic sectors. Miners find the raw materials that eventually find their way into the sheet metal that is bent to particular specifications to produce ducts, and furnace manifolds, and so on. Certain houses will need specialized lines for handling natural gas safely along with ingenious pilot lights or other auto-ignition systems that enable the system to turn off and on without human intervention. And we can be sure that our YouTuber will want to avail himself of the sophisticated furnace filters that use an internet-of-things approach to automatically notify you when the dirt level demands their replacement (perhaps they will even sponsor his channel). Can’t waste time wondering whether the filters should be replaced when you should be out saving the world from the evils of the profit motive.

The simple action of eating dinner and then washing up afterwards involves multiple economic sectors as well. Agriculture efforts are needed to grow the organic quinoa and free-range chicken he insists on enjoying. A transportation network of trucks, boats, and planes is needed to take harvested goods to the processing plants and then to the supermarkets for his parents to buy.

Then there is the financial sector that enables his parents to put gasoline in their hybrid and drive to the local market where they pay with cash-back or points-reward credit card. This infrastructure, which allows them to enter a store, pick 32 specific items, checkout and drive home without ever handing over any cash goes completely unnoticed. This very same infrastructure also enables the mortgage on the house, the insurance premiums and payouts, and numerous other transactions, large and small that keep the household running smoothly.

Going hand-in-hand with the financial sector is retail. The ability to have innovative people realize an idea into a product that betters our lives would not be possible without the financial underpinnings of investments. These investments permit businesses to higher labor, design new goods and services, and purchase the assembly plants and distribution centers that turn these designs into things we consume. Companies, like Amazon and Apple, use this retail model to continually feed our man with the electronic products he craves; the ones that will allow him to make that one viral video that will change the world.

But no economic sector is, perhaps, as important to our modern-day hero than the utility sector. Ignore for the moment (as does he) the fact that this sector pumps the fresh water that he and his family need to drink and bath straight into the home (no trips to a well for someone whose mission is to save the world from private enterprise). Rather, focus on the those ever-so-vital electrical interactions that make modern life possible: the power that runs the air conditioning and the washing machine and the dish washer and the refrigerator; as well as the signals skipping to and fro bringing connectivity to the social media platforms that will carry his liberating manifesto to all the oppressed so that they may throw off the shackles of their high standard of living.

This narrative, of course, only scratches the surface. There are countless other ‘capitalist-enabled’ interactions that this poor deluded soul engages in. Retail stores, like Home Depot and Lowe's, provide the basic products like carpeting and the drywall that make his house comfortable. Vendors, like Hobby Lobby or Home Sense, provide the decorations and little knick-knacks that make a house a home. There are also the countless innovations, from fiber optics to CCD cameras to compact microphones, that connect to his laptop for the express purpose of making a video in which he can decry, with a huge helping of hubris, the evils of the system that enables his incredible style of living.

In the end, instead of having a hero of the people we have a person totally devoid of self-reflection or even an awareness of the bigger community into which he belongs who rails on social media about the inequities of the system and who speaks affectionately for communism. And all because it is easier to look at the capitalist system and find within it the conspiracy that explains his failures than it is for him to own them. Maybe he should have gone to a vocational school where he could have learned to weld. He wouldn’t be as plugged in to the revolution but at least he wouldn’t be living in his parents’ basement.