An overwhelming number of people (economists and normal) agree that government intervention and regulation of the market is necessary.  The key question is just how much.  A new situation with Apple Inc. may help frame a small corner of that debate.

As reported in the Business Insider article entitled Dropping Imagination Technologies gives us a rare look at how ruthless Apple can be, Sam Shead details a recent tiff between the giant California computer company and Imagination Technologies, a UK-based chip manufacturer.

According to the article, Apple was in a partnership with Imagination Technologies (IT) for the last 10 years for purchase of the latter’s GPU-based chip set and accompanying technology.  These purchases amounted to just over half of IT’s £120 million revenue and made it into something of a UK darling in the technology arena.  Their GPUs power Apple’s family of mobile devices including the iPad and iPhone and it partnership seemed like a marriage made in heaven.

Well the divorce proceedings are underway and it started, as in most cases, with covetousness.  Apple really wants to own IT’s GPU technology.  It tried to purchase the company, has poached some of its key executives, and finally issued a public message that they will be dropping IT in the near future.  The net effect was to tank IT’s stock by 65% and put the solvency of the 1700-person company in serious doubt.

Two questions are why does Apple want to own the GPU technology and why issue a public statement announcing the dissolution of the partnership well in advance?

To answer the first question, the article cites Benedict Evans, who makes the case that Apple, which already owns an industry-leading design for System on a chip (SoC – chips that control other chips), is now looking to acquire and control GPU-based technology.  Evans believes this will give Apple a competitive advantage in computational photography (a heading under which all the panoramic and motion features Apple advertises falls) and in machine learning.  That seems all well and good.  Apple believes that controlling the hardware it uses helps it control its own future.

But the answer to the second question is a bit more disturbing.  After failing to buy IT, Shead suggests that Apple’s strategy behind the public issuance of the divorce proceedings was to make IT vulnerable to outside purchase.  With its stock depressed, Imagination Technologies can now be acquired for far less of a capital outlay than before.  Apple has positioned itself to purchase IT on the cheap and to have its own management, which it lured away from IT, ready to step in and run it. In his piece, Shead aptly points out that this move by Apple sends

If you are uncomfortable with what seems unfair business practices then you are arrived at precisely the point where we can talk about government intervention and regulation of the market.   What role does the government have in this situation?  Are Apple’s practices part of a predatory stock manipulation or shrewd business sense?

Before answering, consider that Apple is not the chrome-plated squeaky clean company either it or its adherents like to pretend.  It has had a long history of putting out operating systems for iPad and iPhone that are devoid of the amenities its customer base take for granted on the Mac computers.  Apple sits back and watches the app development ecosystem and then swoops in for the next release with a built-in feature that mimics a popular app, thereby advancing its own intellectual property at the expense of the independent developer who had the idea in the first place.  This practice, sometimes call freesearch and development, should raise some eyebrows about the ethical standing of the ‘Cohort of Cupertino’.

Clearly the EU is already taking aim.  As Shead puts it

What Shead is referring to is the ongoing battle between Apple and Ireland, on one side, and the EU on the other.  The latter claims that Ireland offered Apple illegal state aid by setting the technology giant’s effective tax rate at 0.005% in 2014.  The former are claiming that the EU is “failing to act impartially”.  However, this particular dispute ends, it is clear that Apple is already in the government crosshairs across the pond.

But should it be?

What, if anything, is wrong with the above practices?  Apple is a big company.  It represents the intellectual capital and inventiveness of tens of thousands of intelligent and skilled people.  It’s market capital reflects the confidences of millions of investors.  And its products are bought by hundreds of millions of customers each year.  It is hard to argue, from this perspective, that society isn’t being served well.

Nonetheless there seems to be a sleazy nature about Apple’s business practices.  They swing their collective might around to get sweetheart tax deals.  They encourage development for their app ecosystem and then stamp out innovative teams by co-opting their intellectual property.  And now they are poised to do it on a large scale with Imagination Technologies, where, by their own actions, they may have spelled the end for a 1700-person tech company.  What’s more, is that it is uncertain, as IT points out, that Apple can develop its own GPU substitutes without deeply infringing on IT’s intellectual property.  So, from this perspective, it’s hard to argue that Apple should be allowed to bully its way around the market simply due to its size.

Where does the balance live?

Well, I think it doesn’t live in the government intervening, at least not directly.  Certainly, laws should protect Imagination Technologies’ intellectual property and the full weight of the court should be brought to bear if Apple infringes it in any way.  But should the government try to make nice between the companies?  I don’t think so.  Imagination Technologies knew what it was getting into bed with or it should have.  Whether they go out of business or manage to survive their divorce with Apple, the clarion call has already been sounded to all other businesses who think about partnering with Apple: be careful of doing business with them.  Some of these businesses would then seek deals with Google or Microsoft, neither of which are any more innocent and pure than Apple.  But these niche tech companies can play one giant against the other.  The market can correct itself if given a chance.

Government intervention would result in a quick fix but with two long term negative side-effects.  First it would stave off the needed competition between the tech giants.  Second, it would send the message “go ahead and screw up, the government will fix it” to all the smaller firms that they don’t need to be careful when they partner with the big boys.

Of course, there is another sector of this story that would ordinarily also contribute to market self-correction: the consumer.  Ordinarily, the PR associated with the tactics Apple employs would leave a foul taste in the mouths of customers and sales would drop.  The message would be sent by the most critical component of the market that these practices are not to be tolerated.  Unfortunately, I don’t think the Apple customer base is that enlightened.  As the Onion so aptly satire in their piece on the Macbook Wheel, the Apple customer may be a bit blind.

There were a lot of ideas running through my head as I pondered what to write about this month.  Some of the most reoccurring concepts centered around the ballooning student debt (1.31 trillion last year – the 18^th year in which it rose), the sluggish participation rate, and the general stagnation of wages and opportunities that seem to be the new normal.  Competing with these grimmer ideas were the job creation news (227,000 in January and 235,000 in February), which has been better than expected of late, and the success of a stock market that is clearly enthusiastic about the future.

Unfortunately, none of these felt right.  After all, March, being the month that straddles winter and spring, should be a time of hope and encouragement and not dry numbers and statistics of either the good or the bad or the ugly variety.

Fortunately, I found someone who was willing to do all the work for this column and to do it with a lot more skill than I can muster.  Someone who is both down to earth and charming at the same time.  I am speaking about Mike Rowe.

The former host of Dirty Jobs, Mike Rowe has become something of a spokesman for the importance and dignity of work.   During the eight seasons that Rowe worked on the show, he participated in a wide variety of jobs performed by “hard-working men and women who earn an honest living doing the kinds of jobs that make civilized life possible for the rest of us.”

Based on his experiences with these jobs and the celebrity that the show afforded him, Rowe has become something of an advocate for the dignity of work and the importance of a wide range of jobs that society has unfortunately judged as uncool.  And the great thing about him is, his sense of humor enables him to talk about serious subjects in a light-hearted fashion.

The one serious topic that Rowe focuses on is the skills gap that exists in this country.  What skills gap, you ask?  Well, the one Rowe has identified.  And what he has identified is that there are over 5.5 million blue collar jobs, seventy percent of which don’t require a four-year degree, that go unfilled because society deems those jobs as ‘uncool’ or as some ‘vocational consolation prize’.

And why should we believe him?  Well….

As Rowe often points out, these jobs not only pay well, generally, but they impart a sense of dignity and satisfaction to the people who hold them.  The ability to start a new day and accomplish something like hanging new drywall or rewiring a room or fixing a leaky faucet is a powerful thing.

If this basic joy were simply being passed over by people more interested in higher-paying but less-satisfying jobs (I’m thinking of lawyers here) that would be one thing. But as pointed in many places, including numerous times in this column, the real unemployment rate in this country is far higher than the measure the government presents each month.  Many students are graduating from four-year colleges with crushing debt and very little in the way of skills.  Rowe puts it succinctly when he says

So how to fix this skills gap?  Rowe also has some suggestions.  Primary amongst these is not to search for a job that matches our wish fulfillment but to pursue the opportunities.  In a video commencement address he narrated for Prager University, Rowe argues that the best thing a person can do is to follow opportunity not passion; to be open to a variety of opportunities in excellent careers:

And how did we get to this sorry state?  As Row explains to Tucker Carlson, the core problem comes from the lack of an underlying appreciation for work.  This lack of appreciation has its roots in the fact that we eliminated vocational training from high schools and have sold students on the idea that the only real success comes from earning a degree from an institution of higher learning.

As Rowe points out, guidance counselors all too often fail to talk about alternative careers.  Even the term alternate careers is demeaning, making it sound like something you settle for if you can’t hack it in higher education.

But as anyone who has ever experienced it knows, there are very few feelings in the world equal to the pride one gets when one finishes a job making something and can claim ‘I made that.’  Kudos to Mike Rowe for championing the dignity of work.

Some time ago I devoted a column to the predicament that a group of monks had found itself in when its collection of ‘scofflaw’ brothers began to sell handmade wooden coffins manufactured at their monastery (Of Monks and Coffins).  These ‘shady business men’ were finally exposed by the Louisiana Board of Embalmers and Funeral Directors.  This ‘fine establishment of honest pillars of society’ tried to use a set of state laws that regulate and license the funerary industry to block competition by the monks on the grounds that coffin making (i.e., the making of a box) should be regulated in the same way as the handling of human remains.  The tactic on display in this incident was a textbook example of how an entrenched group can use government regulation to intimidate and interfere with smaller companies as a way of stifling competition and protecting their own interests.

The regulatory burden placed on small businesses is a serious impediment to their ability to compete with well-established firms.  A business with 20 customers and 50 employees is unlikely to be able to afford the army of lawyers and compliance officers that a huge multinational corporation can field.  In addition, small businesses can’t muster the same lobbying interests nor have the same pull with Congress.  These concerns were widely voiced during the recent Senate Small Business and Entrepreneurship Committee hearing for the appointment of Linda McMahon for the Small Business Administrator.

The hearing had hardly begun when Senator Jim Risch (R-Idaho) had the following to say about the state of licensing and regulation facing the small business owner:

His perspective was shared across the aisle with both Democratic and Republican Senators pointing to smothering government regulation as the largest hurdle to small business success (the reader is encouraged to watch or listen to the whole hearing, which runs just shy of 2 hours).

This opinion is not confined solely to the legislative branch.  In a recent article entitled We Shouldn’t Have to Ask Permission to Work, Robert Fellner, of the Nevada Policy Research Institute, points out that a report  published by the White House Council of Economic Advisers, the Department of the Treasury, and the Department of Labor offered the same conclusion.  The report, Occupational Licensing: A Framework for Policymakers, states that when designed and implemented carefully, occupational licensing laws “can offer important health and safety protections to consumers” but that often “the requirements are not in sync with the skills needed for the job” and that the legal framework “creates substantial costs”.

Fellner puts flesh on these drab policy bones by citing specific cases.  He notes that Nevada is one of the most “onerously licensed” states in the nation requiring nearly 31 percent of its workforce to obtain governmental approval before being able to work.  For example, it is a criminal offense in Nevada to practice music therapy without a license.  I don’t know exactly what music therapy is (I thought that was what DJs do daily) but I find it hard to swallow that I face any health concerns and need government protection from fly-by night practitioners.  Equally nefarious are the barbers of Nevada.  By law, they are required to subject themselves to 890 days of education and apprenticeship, pass four exams, and pay fees of $140.  Consumers must demand that all of this rigmarole must be tolerated by the budding barber-to-be so that they can avoid a bad hair day.  But perhaps the most sinister of professions, lending itself to all sorts of fraud and posing a clear and present danger to consumers, is the practice of interior design.  These vultures wait for our most vulnerable moments in order to convince us to get a divan rather than an ottoman and so a rigorous form of regulation (which 46 other states are too backwater to realize they need) must be imposed.

It is easy to chalk all of this nonsense up to crony capitalism wherein an established business scratches a politician's back (in the form of contributions and lobbyist-funded junkets) while the politician returns the favor by imposing regulatory burdens that favor entrenched interests and exclude new interests with hard-to-surmount barriers to entry.  But this is only a fraction of the population.  Why do the rest of us tolerate this nonsense?

The answer to this question is difficult to pin down.  I have often argued with friends that licensing doesn’t necessarily protect us any more than we are in an unregulated market with free flow of information.  If licensing and regulation worked perfectly, then there would never be the need for medical malpractice insurance; no one would ever get sick from food poisoning at restaurants; complaints would never be filed against home contractors or auto mechanics; and, most importantly, Yelp or Angie’s List would never have been created.

If licensing and regulation aren’t a perfect shield against malfeasance then, clearly, they are meant to minimize the number of occurrences and the impact of each.  But a reasonable question, especially in this age of instant communication across social media, is whether it is better for the market to police itself, for no additional cost since all parties have ‘skin in the game’, than for a disinterested government bureaucracy to spend a great deal of taxpayer dollars doing this for us.

The most common argument I’ve heard in opposition to a market solution, particularly applied to health care, is that such an approach would lead to the lowest bidder, and “you don’t want to trust your health to the lowest bidder, do you?” was the inevitable response.  My retort is that I always trust my health to the lowest bidder when I look for the cheapest, reputable place to replace my brakes.  Nonetheless, this argument has never worked for me.

It took some years before I put two and two together.  What I had forgotten was that people generally don’t value things that they don’t pay for.  This tried and true maxim is really well summarized by Vox’s wonderful short on just why wine tasting is bunk.

What is fascinating is how the wine tasters valued the wine when they knew it was expensive.  Their assessment was adapted to match their expectation that “you get what you pay for.”  And while this little psychological reflex may be harmless or even amusing in the world of luxury goods, it is positively harmful in the world of licensing and regulation.

One of the most puzzling aspects of the last 10 or so years of economic and political discourse in the United States is the growing affection towards socialism and collectivism.  Forget the obvious historical lessons that the former soviet bloc taught the world about the failures and incompetencies of socialism.  After all, the Berlin wall fell in 1990 and the Soviet Union dissolved just over a year later – events far too distant in the past to resonate with a culture habituated to instant gratification.  What boggles the mind is how the social-media generation can look past the ongoing misery in North Korea or Cuba

and the incredible collapse of Venezuela.  These events are happening in the here-and-now and, surely, should be part of the digital discussion.

I’ve often wondered how to explain the discrepancy between the ‘slights’ that draw public attention to the ‘benefits’ of socialism (free college being a recent favorite) and the serious and wide spread problems that show the deep social and economic costs of that system.  How can relatively small first-world issue, such as the pain of student debt, dominate the social media sphere while reports of widespread misery, such as interviews with average Cubans, who report that new toilets typically cost 2 years of wages, receive almost no attention?  Is it a product of willful ignorance, poor education, fear of new ideas outside the comfort zone, myopic focus on self at the expense of others, simple unawareness, or some combination of these?  And while I don’t expect that one answer will apply in every situation, I am convinced that most cases are largely explained by a poor education and an over-emphasis of the self at the expense of neighbors.

Oddly enough, I think this conclusion is strongly supported by the large and growing popularity in board games.  This idea occurred to me over the recent Christmas holiday when I had ample time to play lots of board games with economically savvy friends.  Many of the situations that arose drew snarky comments about the economic leanings of the game designers, how particular moves smacked of socialism, and so on.

Let there be no mistake, I am a fan of board games, especially the European style games like Catan, Princes of Florence, Ticket to Ride, and so on.  Board games are a favorite pastime at my household and the holidays always afford ample time to gather everyone together to play.  Ordinarily, I analyze the game mechanics and strategy in a bid to win, but due to the many comments flying around, I began to think about board games within a greater context.

I began to realize that, while they are fun, many board games may be contributing to the problem of economic ignorance rather than helping it.  The reasons, in a nutshell, are two.  First, a large majority of board games typically are built around an economic mechanic, such as growing a civilization or increasing trade, and provide players with a bank from which to draw funds periodically during the game.  The bank comes as starting equipment with no recognition what the money contained represents nor where it comes from. Second, board games are often adversarial and zero-sum, in which the gain of one character comes at the expense of the others.

These two notions fly in the face of economic realities.  As I’ve covered elsewhere, money in banks are not simple piles of currency used to prime the pump at the ‘beginning of the game’.  Money represents the storehouses of the collective labor/time and expertise of untold numbers of people who have come before.  We draw on this collected effort every time we get a loan, draw a dividend, or receive interest.  We contribute to the pool every time we buy stock or make a deposit in our accounts.  As a society, we grow wealth together, a point best exemplified by the parable of the pencil – which brings us to the second point.

As the rule, not the exception, we benefit by cooperation and not by competition.  We not only draw on the collected financial wealth of our society but also on its collected intellectual wealth.  Specialization and the division of labor can’t work without each of us sharing our talents and expertise with each other.  This observation is not meant to dissuade one from the idea that competition is bad – it is not.  Competition is the mechanism by which we decide on those goods and services that best serve society; but it needs to be recognized for what it is – an essential ingredient for vetting new ideas against old – but not the norm for everyday life.

At this point, we can return to the central conjecture that board games contribute to the overall misinformation of how the economy truly works that many people suffer from.  As a case in point, consider one of our current favorites, the game called Machi Koro.

The basic theme of the game is that each player has just been elected mayor of a small town (that’s what machi koro means) and their goal is to grow the town into the largest city in the region by building developments and public works and by ‘stealing’ from the neighboring coffers.  The game mechanic is built around the payout that these investments yield when the active player roles a die or dice.  The investments come in four types, designated by their background color.  Blue investments payout upon any matching role while green ones only yield an income when the active player gets a match.  The payouts come from the bank with no connection as to why the investment produced a return.  Red and purple investments operate analogously to the blue and green, with activation coming either on any turn or from the active player, respectively, with one difference.  The resulting money comes not from the bank but from one’s opponents.

The red investments feature mostly eating establishments with names like Sushi Bar, Café, and Pizza Joint.  The idea being that the unlucky player who activated them on his role is being charged for eating out.  As bad as the red properties are, the purple investments are far more debilitating.  Featuring large public works with names like Publisher and Tax Office, the purple properties can positively cripple your economy.  Since they activate last in priority, a purple establishment can take profit out of a player’s hands seconds after it is earned.

Don’t get me wrong, Machi Koro is absolutely fun and I highly recommend it, but it is a poor model for the economy.  Each player is not required to do anything to earn the money that comes their way.  No customers exist whose needs must be satisfied, no voters must be courted, no supply chains, no production tradeoffs, no distributing or marketing of goods – in short no cooperation with anything or anyone else.  Of course, it is the competition that makes it fun to play but, under no circumstances should it be thought of as a model for the real thing. Perhaps the only thing it gets correct, is the burdensome nature of taxes and crony capitalism.

So, what to do about board games?  Well, it is important to recognize that the games that are popular are so because they reflect something we like.   They reflect our ideas and values rather than causing them.  So, continue to play them and have fun.  And if you can slip into some discussion about how the economy really works then you’ll be a winner regardless of the final score.

This Thanksgiving I thought I would focus on an aspect of the economy, one for which I am extremely thankful and which doesn’t get a whole lot of attention:  the division of labor.   For the past several Thanksgivings, this column has focused on the lessons of private property that the pilgrims experienced (the hard way) as they tried to setup a life in the new world.  This time around, I thought it would be appropriate to examine the division of labor as one of the central pieces that make up a voluntary economy.

I’m not sure where the division of labor was first noted in the historical record, but it is clear that human society has organized itself for millennia around the idea of a person training to learn a set of narrowly-defined skills  and then working within a ‘trade’ that allows them to apply those skills effectively.  There are at least three basic, fundamental reasons for why specialization helps.

First there is always a setup, an overall cost for getting things in order.  This cost includes the time spent on the learning curve wherein the tradesman learns the specific set of skills required and the capital required to support the activities.  Since it is a non-reoccurring cost it will be ‘cheaper’ when amortized over a large number of the same tasks.  This ensures that the cost passed on to the consumer will be smaller, and thus more economical, when spread over multiple items.  The only way to realize these per-unit savings is to have experts devote their time to reaping this benefit.

Second, there is the fact that with practice comes speed.  A person who focuses his time on a limited set of tasks becomes much faster, since he is not distracted with the need to ‘change gears’ in his thinking or actions.  The increased speed results largely from the fact that the uncertainty and the wrestling with what to do and when is taken out of the activity.  An excellent example of this is the speed that results from someone who knows how to type using all ten fingers compared with the hunt-and-peck typist.  The net result is an improvement in overall productivity.

The third reason that specialization thrives is that with practice also comes innovation.  The expert has a chance to see the same operations over and over; to experience what works well and where improvements in the process can be made.  As a result, new techniques, materials, or processes and organizations are more likely to occur to the expert compared with someone only tangentially familiar with the trade.

Adam Smith noted the amazing effects of the division of labor in his An Inquiry into the Nature and Causes of the Wealth of Nations (which most people shorten to simply The Wealth of Nations).   In Chapter 1, Smith notes:

A conservative estimate of the gain that results from this specialization is to over-estimate the non-experts output at 10 pins/day and to under-estimate the 10-man factory at 40,000 pins. The gain is then a factor of 400 per person.  This is but one aspect of what can be achieved by the division of labor guided by what Smith termed the Invisible Hand; the social benefits that result from individual pursuit by members of an economy of their own rational best-interests.

There is an interesting consequence that results from the division of labor; no man really knows how to make anything.  By this is meant that no man can really know how to start purely from natural resources and, by expending his time, effort, and knowledge, build even the most modest of modern objects that society as a whole takes for granted.

In a famous essay entitled I Pencil, Leonard E. Read explores the complex set of operations, events, processes, and connections required to make something so ‘mundane’ as a pencil.  Written in 1958, the essay emphasizes four points about the pencil and, by extension, the economy as a whole:  1) its creation is contingent on innumerable products and services that precede it, 2) no single mind knows all of these products and services nor knows how to put them together, 3) its creation is a miracle of the Invisible Hand, and 4) that men and women can accomplish amazing things when free to try.

Unfortunately, the essay is a bit old fashioned in its language and lacks what is probably the most essential element in today’s modern, hyper-stimulated world: pictures.  To this end, I thought it would be fun to try to give a visual interpretation.

So, start with the pencil:

nice, simple, no moving parts.  And it is easy to build one of these, right? All one needs is wood, some graphite for the ‘lead’, a bucket of paint, some rubber for the eraser, and a bit of metal to hold it on the end.

But wait!  How does one put all these components together?  One needs a factory.  And how does one get the components to the factory?  One needs a truck, and the roads upon which to drive, and fuel to power the engine.

And how does one get the truck?  Well…, a truck is made of steel, iron, glass, copper, rubber, and so on.  So one needs all these materials; a means to transport these materials from the factories that made them to the factory that builds the truck; fuel to power each factory and the trucks used to transport them (yep – you need trucks to build trucks). The number of linkages is truly mindbogglingly complex and intricate.  And we actually haven’t even touched upon the services side of things, like operating a distribution network, running a store, or marketing and advertising.

Even abstracting the pictures of the objects away until nothing is left besides labels and links doesn’t help in the final analysis.  The following image is an attempt to capture only some (the barest few) of the most superficial connections, and it is already hopelessly complicated.  The web-work of the economy is truly beyond the understanding of any human or group of humans.

And yet, there are some who think that the central planning can be done by a core group of wise and intelligent bureaucrats who are smarter than their fellow citizens.  Those who think this way are not intelligent or honest enough to look at the interconnectedness of the economy and realize that it is beyond the scope of human understanding.   As for me, I’ll continue to trust in the Invisible Hand and be thankful for it.

Last year around this time, I posted a column, entitled Candy and Wealth, where I explored what is meant by wealth.  The basic premise is that wealth is built on an individual level – that one man’s garbage is another man’s treasure.  The mechanism for proving this was the candy game where a variety of candies were distributed amongst a group of children at random.  Before any trading was allowed, the children were asked about their satisfaction level.  After being allowed to trade amongst themselves, the children were again asked about their satisfaction level and, even though the number of candies had not changed – only their distribution among the population, the satisfaction level across the board had risen.

In other columns, the notion that no party ever trades with another for parity has been discussed.  In a nutshell, suppose that A has n goods and B has d dollars and that A and B agree to a transaction that trades their supplies.  The fact that n goods were exchanged for d dollars does not mean that the value of the n goods was d dollars any more than it means that d dollars can buy n goods.  A and B enter into a trade precisely because A believes that the d dollars are more valuable than the n goods and B, conversely, because he believes the n goods are more valuable than the d dollars.  All trades work this way.

And yet how do we reconcile these ideas with the price and going market rates and bookkeeping that we see perpetually and ubiquitously around us?  Simply put, the price and market rates are the sensations or nerve impulses in society as a whole that send messages of pleasure and pain to the body politic saying ‘do more of this’ or ‘stop producing that’ and so on.  Bookkeeping acts as the collective memory of the previous transactions in addition to providing the required insight into entities such as publicly-traded corporations.

In no way, should those two ideas be confused, but in almost all circles that is precisely what we do.

Case in point is the book Double Entry: How the Merchants of Venice Created Modern Finance, by Jane Gleason-White.

Gleason-White opens and closes her book with a lament about the inadequacy of the GDP.  Her view is that the GDP is an ‘all-important’ number that sets world-wide policy about how resources are valued, produced, and consumed and by whom but which fails to take into account the really important things about life.  To quote Gleason-White:

I actually think she has a point here; that is to say that I agree with her conclusion.  Unfortunately, I don’t agree with her argument that supports this conclusion nor do I agree with her solution.  The reason being that she spends much of the book conflating the monetary value exchanged during a transaction with wealth in much the way I discussed above.

Central to her storyline is that the origin of these flawed numbers lies squarely with the invention and promulgation of double-entry bookkeeping, a feat of which she attributes the central role to a medieval monk by the name of Fra Luca Pacioli.  For those who don’t know, double-entry bookkeeping is an accounting method whose inherent structure error-checks financial and capital transactions into which any enterprise enters.  It is sort-of a monetary checksum whose ‘balance’ assures that no gross mistake has been made.  It is to economics like what recorded measurements are to science; it is a way of keeping track.

There are many fine sources on the internet for examples of double-entry bookkeeping (my favorite is Accounting-Simplified.com’s treatment) and, while the concept is straightforward in theory, the intricacies can be difficult in practice.  The situation is made more difficult by the fact that the particulars differ a bit between cultures.  I’ll be focusing on the so-called Accounting Equation Approach, but all the methods have the same general feature.

The core concept in double-entry bookkeeping is that every transaction must have two accounts into which it is recorded – what I will call the ‘to’ and the ‘from’ account.   It is much like a physics problem where energy or momentum of two colliding billiard balls is tracked.  The gain in energy or momentum in one system is offset by an identical loss in the other, since energy and momentum are conserved.

For example, suppose I buy a computer and I pay for it with cash.  To the untrained mind there is one transaction: the purchase of a computer.  But under double-entry bookkeeping, there would be two accounts involved (thus double the entries).  In the first account, I would add a debit to the assets account to show the acquisition of the machine and I would add a credit to the cash account to show the payment of money.   The double-entry record would then look something like:

There is some ‘arcana’ (at least to me) as to when something is a debit versus a credit.  This is where the Accounting Equation Approach gets its name as the following mnemonic (it’s not really an equation)

Assets – Liabilities = Capital

with debits having the following effects:

• Increase in assets
• Increase in expense
• Decrease in liability
• Decrease in equity
• Decrease in income

while credits reflect:

• Decrease in assets
• Decrease in expense
• Increase in liability
• Increase in equity
• Increase in income

I haven’t wrapped my brain around this schema and, fortunately, neither must you dear reader (unless you want to be a CPA).  My critique of Gleason-White’s over-broadening of the pros and cons of double-entry bookkeeping can be understood with a simple example.

On the positive side, Gleason-While lauds double-entry bookkeeping as the enabling force of the Italian Renaissance and the Industrial Revolution (amongst other world events).  She even suggests that there is a good case for saying that it gave rise to capitalism itself.  On the negative side, she lays the corporate villainy of such bad actors as Enron, WorldCom, and the Royal Bank of Scotland (to name but a few) at the feet of this Venetian accounting style, presumably because they could ‘cook the books’ in a complicated way that was hard to detect.  And, of course, she holds her central complaint about double-entry bookkeeping to the dehumanization of profit that it promotes (flawed numbers of GNP and GDP which rule our lives).

Before refuting these claims, it is interesting to note that she stays provocatively mum on the subject of how many corporations actually use double-entry bookkeeping without committing fraud.  Perhaps she just assumes that they all do and we haven’t caught the others yet.

Now on to the refutation.  And for this I will again return to the candy game.  In the figure representing the candy trading game, each of our children would open an asset account to start and would debit it for eight pieces of candy, either by listing the different kinds separately (e.g. Yellow’s candy asset has 2 peppermints, 2 magenta, 2 orange, 1 green, and 1 cyan) or simply as eight pieces.  In the credit account he might enter ‘time at school’ to account for how he came by his stash.  After the trade, he would enter transactions that account for his trading 2 magenta, 1 green, and 1 cyan for 2 orange and 2 peppermint.  The books must balance but nowhere is there a place to track that his enjoyment has increased.  His increase in wealth is totally invisible to double-entry bookkeeping.

Suppose, instead, that money is used as a medium of exchange, and yellow sits on his candy stash (that’s why it is all hard candy – those things never go bad).  Let’s say he waits until the pieces he wants have dropped in price and the pieces he has have gone up.  The next transaction will show that his cash holding have increased but only a fool would say that that makes him wealthy.  The real wealth comes in his enjoyment of the candies he likes and his real loss of wealth comes in the delayed gratification he endured while waiting for the finances to be in his favor.

Double-entry bookkeeping is blind to all of that structure, as well it should be.  It is a memory of what has happened and not a measure of what is here and now.  This realization makes Gleason-White’s assertion that only the accountants can saves us now ludicrous.  No!  Only proper economic thinking about the difference between wealth and money can help.

I’m not sure if the academic economists pay attention to the start of football season but they should.  I’m also not sure that they play videogames, particularly MMORPG, but they should as well.  The reason for these recommendations is not that the practitioners of the dismal science need some fun.  I am sure that they do but that’s beside the point.  No, my recommendations stem from the fact these both of these pastimes occupy a huge amount of people time and wherever there is people time involved economics is close behind.

Consider, for example, that at the beginning of each football season, there is a wonderful and voluntary establishment of a huge host of microeconomies on a scale nomies roeconomies antion to the a scale undreamt of by Adam Smith or Milton Friedman.  Of course I am talking about the establishment hundreds of thousands or, perhaps, millions of fantasy football leagues usually filled with anywhere from 8 to 16 teams, most bearing creative or absurd names.

For those who don’t know, the owner/manager of a fantasy football team selects players from the existing rosters of the 32 teams that comprise the National Football League.  The standard recipe is that the points a player earns during a game are credited to the fantasy football owner’s team.  In addition, the players also earn their fantasy team points for performance milestones such as 0.1 points for every 10 yards rushing or every 10 yards receiving, although this later advancement was only widely adopted once fantasy football moved from newspaper box scores to the internet (yes, sadly, I am that old and I have been playing fantasy football for over 25 years).  To be complete, the concept of player requires some clarification.  To simulate the importance of the defense and special teams (punt and kickoff returns), the idea of a ‘player’ is extended to include an entire team’s defensive and kick return units.  Point come from touchdowns scored on kick returns and defensive scores (pick six, safeties, etc.) and from performance milestones such as interceptions, fumbles recovered, and points allowed (lower being better).

A possible team configuration might be (and unfortunately is)

Team owners draft based on a pre-determined order that usually snakes forward and back every other round so that an owner with a low pick in one round has a high pick in the next round and so on.  Players are the exclusive property of the team to which they belong and every owner must fill out a roster that has representation in the key skill areas:  quarterback, running back, wide receiver, tight end, place kicker, and defense/special teams.

And so we arrive at the first set of the many economic lessons provided by fantasy football: the ideas of scarcity, constraints, and substitution.  As the number of teams in a league increases the ability of each team to have more than one or two exceptional players decreases.  Owners are forced to fill in required positions with players that aren’t top of the line.  There is simply no way to stack a team with only quarterbacks or placekickers (generally the two highest scoring positions).  In addition, owners must find credible backups to handle the bye weeks where some teams don’t play and to mitigate the possibility of a serious or even season-ending injury (yes Adrian Peterson and Danny Woodhead I am lamenting your loss).

The next lesson centers on the concept of comparative advantage.  The different skill positions have very different drop offs in terms of points.  The top of the line quarterbacks (e.g. Tom Brady or Drew Brees) may earn 25 points/week but the drop in points is such that the 16^th quarterback may earn only 30% fewer points (18 points/week).  The top running backs may only earn 19 points/week but the drop is steeper at nearly 37% fewer points (12 points/week).  Since an owner must field two running backs and good running backs are harder to find, there is a comparative advantage to taking running backs before quarterbacks, even though the quarterback position scores more points.  If an owner gets two top-flight running backs and one mid-tier quarterback he stands to earn 56 points/week compared with 49 points/week with a star quarterback and mid-tier running backs.  Taking into account the relative scarcity of running backs, makes the analysis swing more heavily towards drafting them above passers.

Another very useful lesson driven home by fantasy football is the notion of opportunity cost.  Generally, it will turn out that an owner will have a glut of good players in one position, say receiver, and a dearth in another, say running back (again my heart aches over Adrian Peterson) or quarterback.  The smart owner will no doubt wish to trade from his surplus to fill his lack.  Sometimes this will result in what, on the surface, looks like an inequitable trade.  Issac M. Morehouse details in a fun and very readable post a story of how a trade that was beneficial to him was vetoed by the commissioner of his league because the later judge it to be unfair.  Morehouse was willing to give a 25 point/week-player from his roster in exchange for a 15 point/week-player in order to fill a gap.  The fact that the point total seemed lopsided (giving up 25 points/week for 15 points/week) didn’t take into account the opportunity cost that Morehouse would suffer by not being able to field an entire roster.

Okay, I’ve obviously made a case for fantasy football being a tool to teach economics but what can academic economists – the guys who teach this stuff at the university level – hope to learn?  Well, the short answer is that all of these fantasy football leagues are as close to an ensemble of repeatable experiments as economists are ever likely to get.  Each league of similar type is one trial in a huge self-organizing experiment where the participants want to win and strive against each other and the economic realities to do so.  The fact that the size of a given league is small is offset by the great number of copies that exist.  I don’t know if professional economists are studying fantasy football but I do know that it has been bandied about.

And if sports isn’t their thing there are tons of choices from the realm of videogames.  In particular MMORPGs, which typically have high incentives built in that reward time played with levels, achievements, and the like, are especially attractive.  And since the players are in the real world, even if their imaginations are in cyberspace, and they spend real time (and sometimes real money) commodities in the virtual space often become real commodities.

During the Warcraft craze 5-10 years back, one could but high level characters on eBay.  Specialized merchants cropped up who offered to either deliver a high-level character directly to the customer or take a customer’s existing character and level it up.  These services were exchanged for payment in real-world dollars, which reflected the time and skill of the leveler.

Even the so-called casual gamer can engage in virtual economies of differing complexities.  Members of my own family are partial to Neopets and the various mixes of capitalism and socialism that can be found within that universe.

Regardless of the form a pastime takes or the venue in which it is embodied, real time is spent by real people, who, maybe without even knowing it, are forming lots of microeconomies that can teach us all some big lessons.

Often in macroeconomics analysis we hear about favorable and unfavorable business cycles, of the ebbing and flowing of macroeconomic forces of aggregate supply and demand that can sail a fleet of businesses into new waters teeming with fish or pitch them onto a reef.  But there is another and more interesting business cycle which some recent experiences have put firmly in my thought.

The stage for my experiences can be set with one simply phrase – back to school shopping.  Like millions of parents across the United States, I found myself in the position of hauling one of my kids and a not-insignificant subset of his position some 350 miles north to college.  I have made this particular trip many times, laden with pounds and pounds of teenage possessions.  But what made this trip particularly interesting was it was the first time one of mine had housing in an unfurnished apartment, which was being shared between him and 3 other young men.  Thus a routine return-to-college trip suddenly transformed into something akin to engineering a permanent move to a new city.

Since my vehicle was the family car and not a rented U-Haul, the necessities of furnishing a new apartment had to be done once we had arrived and that meant purchasing lots of furniture in a short time from stores that I don’t normally visit or have never patronized before.  And that is where the lesson really begins.

Looking for bargains (who doesn’t) and being in unfamiliar territory led us to visit a chain that had once been mighty in days gone by and was now transformed into something more akin to a bottom-feeder.  I won’t mention the name for the very reason that doing so contributes the very ‘business cycle’ that this column is about.

This store, a mere shadow of what it once was during its former glory days, offered nice products, a bit on the cheap side, but nice.  That said, neither the quality of the goods nor the quality of the shopping experience could really compare to its higher-end competitors.  Nonetheless, we found some suitable choices at prices we could live with and so the deals were struck, trunks were loaded, and so on.

After having delivered and installed these items in our son’s room, we got into talking with the parents of the other boys, who, like us, were trying to furnish the apartment with as little cash outlay as possible – paying tuition tends to do that to a parent.  We recommend the chain we had just visited and off the others went to give it a look.

Hours passed before they returned bearing goods from one of the competitors.  When we asked what they thought about the store we recommended we got an interesting answer.  It seems that the other parents had gone and had actually seen a set of table and chairs that would work for the shared kitchen at an agreeable price.  What had stopped the deal from happening is that they wished to talk to someone about the goods and, after waiting 20 minutes, they had decided that the customer service was terrible and they took their dollars somewhere else.

As they were narrating their experience, I realized that when we were shopping in that store I hadn’t really seen any employees around.  The store, for the most part, was devoid of employees.  A few were at the registers, a few more at the snack bar, and I saw a manager moving to and fro keeping an eye on things.  But I didn’t see employees circling different areas (e.g. electronics, apparel, etc.).   There just wasn’t that many people supporting the day-to-day operations.

As I reflected on this realization, I found myself led to two different conclusions.

First, it makes perfect sense that the number of employees for a store such as I described earlier should be minimal.  An institution trying to hang on to the low end of the market share can’t cut goods or the size of the store.  The only thing they can cut is people cost.  They need to offer less in the way of services in order to keep operating costs and consumer prices down and, in doing so, stay competitive.

Second, the necessity of cutting personnel costs drives customers and, more importantly, dollars away.   As the shopping experience falls so does the traffic into the store and the probability of moving goods.

And so it is easy to see how a vicious circle can form that drives businesses out of business.  It starts when a business stops growing, either due to management missteps or changing tastes or new technology, and begins to lose customers.  As the cash flow beings to dwindle, the business need to cut back on goods and services, which usually results in an accelerated loss of customers, which in turn accelerates the descoping.

This negative feedback loop has only two ends.  Either the company finds just the right combination of new goods and services to offer or it goes under.  And it seems that the later outcome is more usual compared with the former.   It takes a lot of hard work and luck for a business to reinvent itself once public perception has gone the other way and both of those require that the business stay afloat while the reinvention takes place – and that means capitol.

Capitol to continue the supply chain so that goods stay on the shelf.  Capitol to keep employees working the business and keeping the customer service high.  Capitol to create and air advertisements that hopefully change the consumer attitude towards the business.  And if that capitol isn’t available, the vicious cycle will just pull a business down.

Indeed, there is a lot of truth in that old saying that it takes money to make money.

It is hard to imagine two cars further apart from each other than the Ford Pinto and Tesla Motors’ Model S (or take Model X or 3 – the discussion works with any of these).  The former is synonymous with the bad designs and sub-standard manufacturing that became the hallmark of Detroit’s ‘affordable cars’ in the seventies and eighties.  The latter is a testament to how high-tech designs and advanced production can be married into a space-age, ultra-luxury vehicle for this digital world.  Running on gasoline, the Pinto possessed not a single integrated circuit outside of its sound system, and the very idea of onboard computer control was laughable at the time of its launch.  Powered by state-of-the-art electric batteries, Tesla vehicles have sophisticated computer controls that enable adaptive lighting, self-parking, and a host of other perks as every-day features.

And yet, there is one very disturbing commonality between them that transcends the mere similarity that both are four-wheeled motor vehicles.  Both cars will go down in history as object lessons on the danger of withholding safety information from the marketplace.  Before exploring this topic, I want to make it clear that I am not implying that the Tesla is unsafe, nor am I asserting that the Pinto was, either.  As I hope to make clear below, it isn’t even clear how to define what unsafe means.  Rather, the central point is whether each manufacturer, Ford and Tesla, worrying about how the safety of their vehicles would be perceived, actually hid relevant information from the marketplace.

Each of us can relate to the concept of concealing embarrassing or unflattering information from the world around us.  When it comes to our personal lives, each of us is entitled to a degree of privacy.  But even this cherished concept has limits.  Is it reasonable to be able to hide every fact of our private lives from an employer?  Doesn’t the employer, who is buying our labor, have a right to know if there are any outside issues that will compromise our ability to deliver?  Likewise, don’t we have a right to know certain facts about the people for whom we will work?  Wouldn’t you like to know if your boss has had a history of embezzlement or sexual harassment?

The situation is even more pronounced when talking about a product or good.  When contemplating buying a product, the consumer should be able to make an informed decision about what the product can do for the price required to procure it versus the risk; what it can’t do, what its limitations are, how reliable it is, how soon it will break, and so on.  In economic terms, what we are talking about is the need to have relevant information in order to be able to adequately judge cost versus benefit risk.  The need to mitigate risk with limited information is a major driver in economics decision making, even if the abstract theory is not well understood.

It is the idea of being well-informed, of having all the relevant information, that goes to the heart of both the Pinto and Tesla in their presentation to the public.

The Pinto

The Ford Pinto was a subcompact car that was sold for model years 1971-1980.  While comparable in design and safety to its contemporaries in its class (in fact having a better safety record than most), the Pinto achieved a distinction in automotive history that the others failed to capture – it became known, ever after, as an ‘evil car’ that was a ‘fire trap’, and Ford, at the time, was perceived as a callous car company that put profit over human life.  These verdicts resulted from the confluence of three factors (taken from the Wikipedia article and the factual summary provided in The Myth of the Ford Pinto Case, by Gary T. Schwartz).

First, during their design of the Pinto, Ford Engineers decided to put the fuel tank behind the rear axel rather than on top of it.  This was a conscious decision made to afford the consumer more trunk space.  The trade-off was that the fuel tank was prone to rupture in the event of a rear-end collision, causing a fire hazard to the occupants.  The risk of tank rupture was increased by other design decisions that limited the size of the ‘crush space’ and significantly reduced mechanical structure that would have provided reinforcement to the space surrounding the gas tank.

Second, a tragic case occurred in May 1972 when Lily Gray gave a ride in her Pinto to her teenage neighbor Richard Grimshaw.  The car stalled in a highway lane and was rear-ended.  Gray died due to the crash and subsequent fire, and Grimshaw suffered horrible injuries.  The Grimshaw family subsequently sued Ford, and the resulting discovery revealed documents that put Ford into a bad light.

Third, public opinion was significantly molded and shaped by an article that appeared in the September/October 1977 issue of Mother Jones entitled Pinto Madness by Mark Dowie.  The article starts with the inflammatory accusation

This article turned public opinion very strongly against the Pinto and led to the National Highway Traffic Safety Administration (NHTSA) demanding Ford recall the Pinto despite the fact that years earlier NHTSA had concluded that there was not enough information to warrant even opening an investigation.

What swayed public opinion and cemented the legacy of the Pinto were internal memos from Ford that seemed to paint the picture that Ford thought it would be cheaper to pay settlements to those killed and injured than it would be to retool the factories to make the car safer.  This led Dowie to say

In contrast to Dowie’s outrage over cost-benefit analysis, Gary T. Schwartz, in his article, entitled The Myth of the Ford Pinto Case, remarks that

Schwartz also goes on to note that

In short, the Ford Pinto was done-in more by the perception that Ford withheld vital information than by the actual risk the car posed to its occupants.

The Tesla

Fast forward nearly forty years.  While the technology may have changed, the human equation has not.  This time the issue of withholding vital information from the marketplace falls squarely on the Tesla Motor Company.  At issue is again a perception of safety and what responsibilities the manufacturer has to warn its customers.

To set the stage, we need to step back a bit to the fall of 2014.  In an article dated October 9, CNET’s Wayne Cunningham gushes over the new features of the Model S, in particular, the set of advanced driver assistance features that enable adaptive cruise control and lane keeping assist.  Cunningham notes that each Model S bears a forward-looking radar and camera and panoramic ultra-sonic sensors that enable the vehicle to ‘see’ speed limit signs and follow ‘curvy’ lane lines.  Tesla Motors branded this new feature Autopilot, which, according to their website,

All this advertising sounds great but the fly in the ointment came about 18 months later, when on June 30, 2016, Tesla revealed that someone had lost their life in a traffic accident on May 7^th with Autopilot enabled.

The news reaction, while so far more measured than the Mother Jones piece on the Pinto, still sought for the sensational angle.  For example, consider the opening paragraphs in the article What Tesla Autopilot crash means for self-driving cars by Greg Gardener

And like the Pinto case, there are competing explanations for the accident.  According to a report by the Associated Press, the fault in the crash lies with the car’s cameras being unable to distinguish the white tractor trailer with which it collided from the brightly lit sky behind.  Another report suggests that the radar system on the Autopilot is tuned to disregard overhead signs and that, as a result, its input to the autonomous decision-making was disregarded even if it had sensed the truck.  When questions of liability are involved, there is likely to be no end of speculation and controversy.

As a result of the accident, Tesla Motors is being investigated by three government agencies: The National Highway Traffic Safety Administration (NHTSA), The National Transportation Safety Board (NTSB), and the Security and Exchanges Commission (SEC).  NHTSA’s involvement is natural.  NTSB’s involvement, while a bit out of the ordinary, is reasonable since NTSB seems to be keeping its eye on autonomous driving features being developed.  The reason for the SEC being involved smacks of the ‘profit before people’ angle that reared its head in the Pinto case.  Tesla and Musk are being investigated for insider trading because they failed to report the fatality on May 7^th before they sold $2 billion in stock on May 18^th.

As these various threads weave together to form a tapestry, it will be interesting to see just where the line is drawn on what Tesla should have told its investors and its customers and when.  Their advertising copy certainly makes Autopilot sound bulletproof.  They don’t warn the consumer of its limitations; and not just the ones being attributed as the core causes to the May 7^th accident.  As far as I can tell, Tesla does not point out that Autopilot can’t keep the vehicle in a lane on a road with no lane markings.  Many of the back roads and small highways in the nation don’t have clear markings, and how Autopilot will respond in these cases is unknown.  Of course, the more Tesla points out these limitations, the less appealing Autopilot will seem.  So where is the balance between too much and too little information to be struck? Only time will tell.

Switzerland just flirted with their own version of the social experiment that has already worked oh so swimmingly for the company Gravity Falls:  guaranteed outcome regardless of the performance.  Flirted but not consummated.  Swiss voters overwhelmingly rejected a proposal to grant each citizen the security of certain level of income regardless of personal station or level of responsibility or work ethic or any of those things that society wishes to incentivize with profit.

So, does this mean that Switzerland is not the social democracy that much of the rest of Europe is?   Well, that is not a safe conclusion to make.  While there seems to be a germ of common, economic sense in the average Swiss, the fact that the proposal made it up for a national referendum is worrisome.  So too are some of the explanations for why the measure was defeated by a 3-to-1 margin.

Before digging into the analysis, some words are in order to describe what that proposal actually proposed.

According to the BBC, the central notion was that each Swiss citizen would receive a stipend each month from the government in an amount of $2,500 USD for basically, well…, breathing.  In addition, for each minor child that is also sucking in air, the caregiver would receive an additional $600 USD.  (Please note that the figures cited here are rounded down from their actual values.)

Let’s take a moment to look at this.  A single person would make a gross income of $30,000 for just hanging out.  A married couple would make $60,000 for just hanging out with each other.  If they start having children then the value goes up.  A family of four would then ‘earn’ $88,000.  Not too bad.  Certainly it pales in comparison with the approximately $55,200 average net salary for a working individual (or $110,400 for a family of four) under the current rules, but then again, the recipient of the proposed windfall would not have to deal with that pesky work thing.

For those wondering if a fairer comparison would use the average gross salary, realize that about 1/3 of gross income goes to the government, whereas this ‘free money’ would also be free of taxes since it is provided by the government, who, no doubt, already took its cut – or so its supporters likely think.   The picture further tilts towards disengagement from honest work when one realizes that average incomes are always skewed towards the high end by the few very larger earners (bankers, CEOs, and entertainers).

Thankfully, the Swiss recognize that such a method is a fast way to disengage people from working.  However, it is fun to think about what would have happened if the measure had passed.

The first day after passage would find not much had changed.  The same number of Swiss would go to work as had gone the day before.  This would last until the first checks were cut, shipped, and cashed.  Then suddenly there would be more money chasing the same number of goods.  So, step one is inflation.

Now everyone is more miserable, and the hard workers would start looking around for someone to blame.  It won’t take long for some of them to act on their resentment and quit – equity theory at work.  They would lose their salary, but would have the guaranteed money to fall back on.  Now things may briefly get a bit better, as the inventory will not immediately fall, but a lesser amount of money is now chasing the same number of goods.  Thus inflation drops.  So, step two is a modest recovery.

But the recovery can’t last for very long.  For when the inventory shrinks, the number of goods will as well since there are now fewer people working.  So here comes inflation again.  Here comes more resentment by those who kept working.  And, no doubt, some more workers will drop out.

And the cycle repeats itself, with the only result being an ever-shrinking GDP and an ever-growing misery.

This pattern has been seen time-and-time again, starting with the classic story of the near failure of the Plymouth Plantation, to the case of Gravity Falls, where a minimum salary prompted some of the best and most valuable employees to up and leave.  Other cases include the Soviet Union, Zimbabwe, and like economic situations.  When the profit incentive to work is lost, so is the society as a whole.

What was really interesting were the arguments both for and against the Swiss measure as cited by the BBC.  On the pro-loafing side, the proponents claimed that

Okay, let’s think about this for a bit.  Who maintains the machines?  Perhaps other machines, which are, in turn maintained by still other machines.  Switzerland must have machines all the way down.  Oh, wait!  There must be human workers who maintain the machines.  And what about improvements?  Surely, even the fine country of Switzerland must have problems.  Perhaps the supporters of this idea might put their energies into curing cancer, or helping the poor, or… well, you get the picture.

Now, the fact that there are slackers who want a free lunch presents no surprise.  Every society has them.  The fact that they were able to mount enough effort to get this measure up to a referendum is mildly unexpected but, given Swiss law, still not shocking.  The real shock came in the governmental response.

The BBC quotes one Luzi Stamm, a supposed right-wing member of parliament, as opposing the proposal by stating

Right wing, huh?  More like right out to lunch.  This quotation is perhaps one of the stupidest things I have ever heard.  What does being on an island have to do with it?  The Pilgrims were effectively on an island and their communal economics nearly killed them.  And the Earth is the most ideal definition of an island you can get.  Isolated by space, with nobody getting on or off (except by birth and death) the planet has the most perfectly implemented closed borders.  So, following Stamm’s logic, we should all print ourselves money and, theoretically, it will all work out.

Thank goodness there are still hard working people in Switzerland with some sense in their head.  No sooner had this measure’s defeat become news than we started hearing rumors that Washington D.C. was starting to explore the possibility of the same kind of handout.  Whether the people of the nation’s capital have sense remains to be seen.