These are two objections to what I've written at
Freedom? Liberal vs. Conservative, 3/01/09 and
Invisible Hand Drops Ball & Economics 101, 3/24/08

I originally posted these responses with the articles above. But they're important enough to deserve a separate article. The objections addressed here are essentially:

• 3/23/09: Libertarian Objection, 1st try: Government's had a hand in all market failures, so why blame the "free market" and not government?
• 3/25/09: Libertarian Objection, 2nd try: What's the proof that "conservatism" produces bad results? I can disprove so-called "progressive" anti-think: progressively taxing income is like progressively taxing intelligence & performance ... both produce dysfunctional results.

Links to sections on this page:
Path Dependence
The Rules of the Game
The Universal Human Paradigm and "Winning Strategy"

Libertarian Objection, 1st try, 3/23/09: "... name for me a single free market failure ... that was completely free of government fingerprints ... why blame one and not the other."

Subject: Huh?

Reading your article, "Freedom? Liberal vs. Conservative," reminded me very much of the Flat Earth Society's writings regarding lighthouses and "...absolute proof."  Of course, the Earth is round, I mean, check out the shadow on a full Moon.

Back on point, name for me a single free market failure.  Should be easy, right?  Now, now.  What I mean, just so there's no confusion, is name a single failure that was completely free government fingerprints.  I know: impossible.  So why blame one and not the other, hmmm?  Hint: he who RUNS it OWNS it.  Duh.

M. Scott Michaels

P.S. George Lakoff is a certified twit.

This e-mail reveals two things:

1. Writing "name for me a single free market failure. Should be easy, right? Now, now." indicates a belief that there is no such thing as a "free market" failure. There are; I describe them at Invisible Hand Drops Ball & Economics 101.  

2. The belief is that, when there's a failure, government had a hand in it and therefore should be blamed.

Further, this objection raises a vitally important point that I've not made clearly enough: Even if the "free market" were absolutely "free" and totally unregulated ("lawless"), there are specific mechanisms that cause it to fail ... without fail.

Here's my response:

The counterpart of the "Flat Earth Society" are the pathetic fundamentalists who believe in the infallible magic of "free markets" and "free trade."

Rather than understand the failures, ideologues argue, as you do, that it "just wasn't free enough."

Markets are more or less free depending on which one. It's true, government sometimes intrudes in ways it should not. Most often though, it doesn't get involved where it should or doesn't get involved in the ways it should.

In any case, even if there were completely free markets, they would FAIL for the reasons described at:
Invisible Hand Drops Ball & Economics 101, 3/24/08, "Conservative" economic policies deliver dysfunctional results. They should have the courage to admit that's what they want.

The comment that "George Lakoff is a certified twit" is a very intelligent and incisive comment ... not. A twit is someone who's annoying ... he certainly does annoy the ignorant, which it seems you are ... assertions with no logical argument.

Bob

Of course government gets involved when there are market failures. And it's true that there are policy failures; see Government Dysfunction. Indeed, many times policies do not address the root causes of the problems; government applies band-aids because it's unwilling to directly address "free market" failures. That unwillingness practically guarantees failure.

The root of the unwillingness? The U.S. has moved so far to the economic "right" that it blinds policy makers to what should be done: address systemic root causes, rather than applying band-aids to symptoms. For example, now government is giving trillions of dollars to banks with NO STRINGS ATTACHED. Is this government controlling business or business controlling government; that is, is it socialism or fascism?

Libertarian Objection, 2nd try, 3/24/09: "I can prove the fallacy of so-called "progressive" anti-think any day."

Subject: Huh? x 2

Where's your proof that it's conservatism that produces the effects you abhor?  I can prove the fallacy of so-called "progressive" anti-think any day.  Here's a hint: grade point average tax.  You're a Ph.D.  for chrissakes (well, on paper, maybe).  Pick a college, a top marginal rate, set up brackets—hell, model the damn thing after the US tax code if you want too—and figure out the "dysfunctional results' on yourr own.

As for Lakoff, a "twit" is a foolishly annoying person.  You missed the foolish part.  A fool is a silly or stupid person; a person who lacks judgment or sense.

I dare you to post this on your website, too.  You won't for the same reason that not one of the so-called "liberal" universities I petitioned extensively will enact the "Progressive GPA Tax."  They're scared.

P.S. When I went to "Invisible Hand Drops Ball & Economics 101", I was expecting some authority on the issue. Not you.  I laughed!

Sigh. These people really are hopeless. Here's my response to what he sees as a gottcha:

My proof? I specifically describe the mechanisms (averse selection, path dependence, externalities, delays, inelasticities, etc.) that lead to the results. While these are well-known, their effects are too often ignored.

My dictionary on my computer says simply "an annoying person."

OK, I will, as I posted your last e-mail. It really is helpful when "conservatives" display ignorance of how the world works.

You actually sent that GPA tax idea to universities? How embarrassing. It's not that they're scared; it's because it's an idea based on ignorance. A tax on income or wealth and a GPA tax would be completely different.

Now this GPA tax idea is foolish ... thanks ... How so? Vast spreads in the wealth of individuals develop even when all persons start with equal ability and resources. On the other hand, intelligence varies by individual from the birth, which allows some to get ahead thanks to their individual ability, not by chance.

That said, it is true that there's a well-known "halo effect" in business, schools, and universities that leads to those who get ahead getting even further ahead, even were they to all have equal ability.

This is due to the "path dependence" dynamic. See Wealth Happens on "path dependence". This and other archetypes are described in The Archetypes, Generic Structures & Examples from my course at Colorado Tech.

Regarding your "expecting some authority on the issue.  Not you." That's "conservatives" ... always looking to a higher authority, rather than the merits of the case.

Talk about laughing ... I love you guys ... :-D  :-D  :-D

Thanks again,
Bob

Would he read the Harvard Business Review article, Wealth Happens, on complexity theory or portions of Sterman's Business Dynamics on path dependence? Of course not. Better to ignore reality.

While this is amusing, it's also profoundly depressing. Ignorance is one thing; everyone is ignorant about many things. But willful ignorance is really stupid. 

From the Harvard Business Review article, Wealth Happens:

The finding suggests that the basic inequality in wealth distribution seen in most societies may have little to do with differences in the backgrounds and talents of their citizens. Rather, the disparity appears to be something akin to a law of economic life that emerges naturally as an organizational feature of a network.

... random returns on investment drive a counterbalancing rich-get-richer phenomenon. Even if everyone starts out equal, differences in investment luck will cause some people to start to accumulate more wealth than others. Those who are lucky will tend to invest more and so have a chance to make greater gains still. Hence, a string of positive returns builds a person's wealth not merely by addition but by multiplication, as each subsequent gain grows ever bigger. This is enough, even in a world of equals where returns on investment are entirely random, to stir up huge wealth disparities in the population.

Generic Path Dependence Structure: Once one entity (person, product, organization, company, or country) gets ahead, it's easier to get even further ahead because better performance provides more resources and a greater ability to improve performance. Tracing a "figure 8" path around these structures leads to the "see-saw" tipping further and further in the direction to the side to which it initially tips. The reason for the initial tipping may be by design or by random accident...

It is a natural dynamic. What he describes is known in system dynamics as "path dependence" and in systems thinking as the "Success to the Successful" archetype.

Seeing this natural process has led "conservatives" to believe that poverty is part of the "eternal order of things ... which never can be removed by legislation."

But that is not true; we need not condemn millions to poverty through no fault of their own. Economic "conservatives" do not want policies that avoid extreme poverty; they should have the courage to admit that's what they want.

This is not to deny that some individuals are largely responsible for their own problems. It's just that systems effects are way more powerful than they're given credit for being ... and libertarians deny systems effects even exist.

Many are told to take personal responsibility for their addictions that have driven them into poverty. But addiction is a human affliction, a trap that can snare almost anyone in one way or another.

In fact, our entire economic system is addicted to the quick fix. Addiction to growth, described in the Growth Facts of Life, has driven California to financial ruin and Colorado has followed in its path with its Proposition 13-like TABOR.

The "addiction to growth" dynamic explained: Growth with insufficient taxes brings in some immediate income, but not enough to cover long-term infrastructure costs as people move into an area. Those addicted to growth advocate even more growth to increase the tax base. But this only adds to the infrastructure backlog over the long-term.

Folks, such "economic growth" is what libertarians and other economic "conservatives" love, but it's the same structure as addiction to drugs, which they deplore as an individual weakness for which individuals must take "personal responsibility."

But they will not take personal responsibility for their policies creating infrastructure backlogs. No, they blame the financial problems in California on liberals who promote environmental protection that increases costs and makes the region less competitive. But environmental pollution is a redistribution of the costs of doing business onto the public; it's socialism on the cost-side -- a redistribution that should not be allowed.

We can change the dynamic to counteract some of the inequality. This can be done

• With progressive income taxation,
• by taxing capital gains and dividends at least at the rate that income is taxed (why discourage work relative to investment),
• by not stealing regressive Social Security taxes for use in the general fund, and
• by reducing regressive sales taxes.

For an experiential proof of path dependence, one only need play the game, Monopoly. In this game it's not necessarily the most intelligent or hard-working who wins; it can simply be the person who goes first, thereby getting ahead, and because of path dependence thereby getting even further ahead. On Monopoly strategy:

Monopoly involves a portion of luck, with the roll of the dice determining whether a player gets to own key properties or lands on squares with high rents. Even the initial misfortune of going last is a significant disadvantage because one is more likely to land on property which has already been bought and therefore be forced to pay rent instead of having an opportunity to buy unowned property.

Exploiting path dependence is a well-known business strategy for increasing market share. Ways to exploit path dependence:

• Switching costs: And it comes into play when one product is more in use and switching costs make changing to a better product unattractive. That's how the QWERTY keyboard layout prevails over possibly more efficient layouts (e.g., Dvorak).
• Network effects: It comes into play when network effects make one product more attractive than another, not because it's a better product, but because it's used by more people and there are advantages to using what others use. That's how the Microsoft Windows OS overwhelmed Apple's OS.
• Economies of scale: And it comes into play when one product is used more than another, even when it's not a better product, economies of scale make it cheaper to produce. That's how units with the VHS format overwhelmed those with the better quality Betamax format. Plus, there were also network effects: more people with VHS machines made it easier to echange VHS tapes with others.

Greater cumulative production thanks to greater market share gets companies further down the experience curve to reduce costs and get even more market share. Exploiting this is why products are often initially sold at a loss, with companies betting that more cumulative production will result in more learning to reduce costs to below break even.

Path dependence explains the evolution of economic clusters as described in Principles of Economic and Workforce Development. Also see sections of A Systems Thinking Perspective on Manufacturing & Trade Policy.

And it explains how successful quality initiatives at Analog Devices almost sank the company due to the tight coupling between manufacturing and engineering. See “Unanticipated Side Effects of Successful Quality Programs: Exploring a Paradox of Organizational Improvement” by John Sterman, Nelson Repenning, and Fred Kofman at MIT.

Examples are abundant. One has to wear impenetrable blinders to not see them even when they're pointed out (see examples, with causal loop diagrams, in my Wealth Happens article).

The path dependence dynamic accelerates when, as in the U.S., investment returns (capital gains and dividends) are taxed less than wages. Why would that be? The argument is that taxes discourage "investment" (which is often not investment at all, but speculation or gambling). However, why have higher taxes on wages to discourage work even more than investment?

The "Rules of the Game" evolve to favor those with wealth & power to give them even more wealth & power.

The answer: The "Rules of the Game" are fixed. The old saying, "He who has the gold rules." is true. John Sterman describes this self-reinforcing feedback process in Business Dynamics, Systems Thinking for a Complex World:

The larger and more successful an organization, the more it can influence the institutional and political context in which it operates. Large organizations can change the rules of the game in their favor, leading to still more success-and more power. [The Figure at right] shows the resulting golden rule loop [R1]. The golden rule loop manifests in many forms. Through campaign contributions and lobbying, large firms and their trade associations can shape legislation and public policy to give them favorable tax treatment, subsidies for their activities, protection for their markets, price guarantees, and exemptions from liability. Through overlapping boards, the revolving door between industry and government, and control of media outlets, influential and powerful organizations gain even more influence and power. In nations without a tradition of democratic government, these loops lead to self-perpetuating oligarchies where a tightly knit elite controls a huge share of the nation's wealth and income while the vast majority of people remain impoverished (e.g., the Philippines under Marcos, Indonesia under Suharto, and countless others). The elite further consolidates its control by subsidizing the military and secret police and buying high-tech weaponry and technical assistance from the developed world to keep the restive masses in check. Even in nations with strong democratic traditions these positive loops can overwhelm the checks and balances designed to ensure government of, by, and for the people.

For more on how the system is biased toward the wealthy: Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill) by David Cay Johnston (2007).

I've lost all hope of trying to convince such ideologues. No amount of facts and logic will suffice to penetrate such strong ideological blindness. The worldview that sees only individuals, in which they've invested so much, would collapse. On this worldview, see There's No Collective or Social Reality and Problems: A Society's or An Individual's?

This isn't only a problem for economic fundamentalists; it's a universal human challenge that often makes unlearning more difficult than learning. From Learning as an Integrating Concept for a Successful Company Strategy:

Personally and organizationally, unlearning the technique, or formula, that made us successful is perhaps the most difficult task of all. On a personal level, Tracy Goss [in The Last Word on Power, New York, NY: Currency Doubleday, 1996, p. 35] calls this our "Winning Strategy," which is a result of what she terms the Universal Human Paradigm, defined as:  "There is a way things should be. And when they are that way, things are right. When they're not that way, there's something wrong with me, with other people, or with the world."

This Winning Strategy is a lifelong, unconscious formula for achieving success which we learned from childhood onward. "It constrains our ability to create the future we desire and it controls and limits our lives, because we respond to interpretations of events, not to the events themselves. It focuses our attention and shapes our actions, thereby determining what's possible and not possible for each of us."  It creates our ultimate confirmation bias and, in fact, creates our reality. 

Eventually, the Winning Strategy that brought us success becomes the very thing that brings failure.

This Universal Human Paradigm and "Winning Strategy" apply as much to nations as to individuals. The success the U.S. has achieved has been, in large part, to its Winning Strategy of using the power of the "free market's" Invisible Hand that balances supply and demand via price, service quality, and product quality feedbacks.

Unfortunately, with this success this has come the problems described above. We're at the point where desperate clinging to the Winning Strategy that brought national success is, not only our greatest impediment to further success, but also what has brought us over the brink of economic collapse.

Can we evolve as a nation to and overcome this mental prison? Ken Wilber, in A Brief History of Everything (1996, p. 30.) writes: says, “Evolution is a process of transcend and include, transcend and include.” To evolve, we must transcend a laissez-faire "free market" ideology and include policies that allow market forces to properly function. It's ironic; current "free market" policies actually obstruct the effective operation of market forces to properly balance supply and demand.

Note: Organizational Evolution addresses the "transcend and include" challenge that organizations face as they grow.

What this means for our economy is we need to use market forces where they work, but also adopt policies to deal with "free market" failures.

For example, when costs of a product are not internalized in the product, the market cannot properly value choices. Examples:

• Costs are not internalized when we allow pollution ... the public either pays the cost of cleanup or pays by suffering negative impacts on health.
• Costs are not internalized or when development is allowed that does not pay impact fees to cover the costs of all the infrastructure required to serve the new growth. See the Growth Facts of Life.

Such evolution is difficult because giving up a "Winning Strategy" feels like a death threat. After all, our "Winning Strategy" brought us success, kept us alive, and what made us who we are. It's understandable that we tend to cling to them so strongly. And it's dangerous, because it makes us prisoners of our own thinking. Our greatest strength has become our greatest weakness.

Because these mental prisons are so powerful, it's impossible to convince true believers who have elevated belief in the infallibility of the "free market" to the status of religion.

What is possible is to post their writings for all to see to allow independent judgement by those who are not ideologues of the extreme economic "right" or "left".

Sigh.