Economics video of the week: On Wealth Creation

In today’s video, Yaron Brook discusses the “zero-sum game” fallacy in economics in this PJTV interview. This interview is based on themes developed in Dr. Brook’s recent article on, co-authored with Don Watkins. Recorded June 17, 2011.


“We’ve heard it a million times: the rich get the pie, the poor get the crumbs. But Yaron Brook and the Front Page team explain why there is no “wealth pie” waiting to be sliced. We make our pies, so get out your cookbook.”

via: The Ayn Rand Center for Individual Rights

Recommended links:

The economics of disaster after devastation in Japan

“Japan will be poorer, for this disaster,” said Peter Morici, a business professor at the University of Maryland.

Toyota Motor Corp., the world’s biggest automaker, tumbled 7.9 percent after saying it would suspend manufacturing at its domestic plants through Wednesday — a production loss of 40,000 cars. Other manufacturers forced to halt production, such as Sony Corp. and Honda Motor Co., also slumped.

Much has been said in the aftermath of the earthquakes (the biggest with an intensity of 8.9 in the Richter Scale) and tsunami (with waves >10 meter high) that hit Japan last Friday.  First, the headcount of deaths has already reached 10K people and thousands more are still missing.  The first estimates on the economic impact stroked world’s stock markets and the price of petroleum fell in estimations of Japan’s industrial paralysis.

However, some economists would argue that the destruction caused by these natural disasters had something positive at the end of the day. Such is what had previously said Lawrence Summers, president emeritus of Harvard University that “It may lead to some temporary increments, ironically, to GDP, as a process of rebuilding takes place. In the wake of the earlier Kobe earthquake, Japan actually gained some economic strength” Many other economist believe the same as Mr. Summers and the reason is that an enormous influx of liquidity is to enter Japan’s long stagnant economy.  Already, Japan’s central bank pumped a record $184 billion into money markets and took other measures to protect a teetering economy today, as the Tokyo stock market nose-dived followed the devastating earthquakes and tsunami.  Afterward, large scale reconstruction plans are to start and billions of dollars would be pumped to reconstruct the country.  Overall, this huge reconstruction investments could trigger the recovery of Japan’s economy.

So, is everything going to be better?

Japanese culture and attitudes toward disasters has always been identified with the adjectives “pro activity, benevolence, cooperation and honesty”.  As such, looting has not occurred and reconstruction has started after only 3 days of the disasters.   However, the economy is not going to recover positively from this disasters no matter how much money is pumped into the economy to reconstruct by private companies or public investment.

Why is that the economy will continue suffering?

The destruction of business and public services had been working efficiently under market laws. This means that there is no relation to “creative destruction” and destruction occurred because of natural disasters.  Creative destruction applies only to businesses that were not competitive and as such, disappeared to open new investment in new industries and technologies.  A good example of creative destruction was how American Car Industry should have disappeared after the 2008 financial crisis to allow for more competitive companies (bailouts avoided it causing long term inefficiencies and economic loses to the US).

The reconstruction of Japan will require billions and this would surely ignite the tentacles of governmental interventionists agencies under the fallacy that the earthquake and tsunami were good things for Japan.  Government interventionism always deems disaster good to the system since it allows them pump more taxes and extort more money from private businesses.

Rebuilding Japan will be a hard and difficult work and estimates of the are at up to 15 trillion yen ($183 billion) — about 3 percent of gross domestic product.  Credit Suisse’s Shirakawa said in a report the direct economic losses such as property destruction could total 6 trillion yen ($73 billion) to 7 trillion yen. Indirect losses such as lost production will probably be higher.  The costs of reconstruction are at a high loss for the Japanese people and the rest of humanity.  This historical moment will again open the doors for collectivist ideologies that consider the sacrifice of individual rights to benefit the public good.

Evidence and history has shown that reconstruction and investment is more quickly, effective and has better long term effects if kept private and in respect of individual’s rights.  Lord Acton’s essay “The fallacy of the broken window” is a great example of how destruction is not always positive and of how reconstruction should be organized by a government that respects an individual’s right to his rights and property.  It is now our obligation to remind this to leaders of world governments.

Here’s a great video explaining it,

Video: The broken window fallacy

Remember the Swine Flu chaos?

Here’s one more example of how Google Trends could be a useful tool to tell if something has been researched, talked or studied long enough to avoid a problem (in this case a pandemic health problem).

Image of Google Flu Trends (February 15th, 2011)

In the last 5 years there hasn’t been much news on swine flu in the news. Now the US and the rest of the world is trying to find out a way of stopping the pandemia; if lucky they will get to stop it soon enough before more people dies. A vaccine won’t be ready in the near future and once again the government seems to be failing to “miraculously solve” our problems.

In democratic systems like ours, it is in moments of crisis that civilians demand government intervention on their private rights. Those interventions include telling what we should do, how and when. Borders are closed and commerce declines. History has shown that this tendency has been present all over the last 4,000 years. Are we heading to the same mistakes or at least very similar ones?

It looked like the flu pandemic the world had been dreading for 50 years: A virus, seen only in animals for several decades, had made the leap to humans and, more ominously, had passed from person to person.

Yet for the first time in history, scientific knowledge and government funding might be able to stop the flu in its tracks, saving a million lives at risk. Within months, Americans were lining up to be vaccinated against the virus. Then, in another triumph of nature’s unpredictability over human planning, the flu virus simply disappeared.

Incubated in pigs but not seen in humans since the 1920s, swine flu broke out in February 1976 at an Army base in New Jersey.

However noble the sentiment, the National Swine Flu Immunization Program, announced by President Gerald Ford just a month after the virus had been identified, became a public-health debacle that probably cost more lives than it saved. (read more: Deja Vu: Politics greeted outbreak of swine flu in 1976).

The power of intellectuals

“Sowell (Thomas Sowell) points out that intellectuals want others to be forced to submit to their ideas, while remaining blithely oblivious to their negative results.” John Swayze’s comment in Facebook

This is exactly what is happening with a long list of so-called intellectual in what you may consider the socialist and colectivists groups of Guatemala regarding a Constitutional reform proposed by a group of academics in ProReforma.  The proposal aims to correct some of Guatemala’s Constitutional Articles that violate the rights to property, individual freedom, and that seeks to create better checks and balances, and government controls.

Guatemala is today one of the most corrupt  and dangerous countries of the world.  Daily, dozens of men die because of crimes in populated areas of the country and every day it is a lot harder to keep a business open without suffering the consequences of corruption.

I have lived here for 25 years and I can truly say that we are not doing better.  Criminals have taken control of government and corruption is widespread.  ProReforma is the only viable solution proposed by an intellectual elite since the 80s.

Stossel y la rebelión de Atlas en el 2010

John Stossel es uno de los periodistas independientes más importantes de los Estados Unidos.  Trabajó como creador y conductor del programa 20/20 en la cadena de televisión ABC News durante muchos años.  El programa 20/20 se popularizó rápidamente en los Estados Unidos y el mundo entero por su efectiva y carismática difusión de las ideas de la Libertad y los principios de los Padres de la Independencia estadounidenses.  Por este motivo, John Stossel recibió un doctorado honoris causa por la Universidad Francisco Marroquín en el año 2008.

A partir del año 2010 Stossel mudó su programa al canal de noticias Fox News Channel y el primer programa salió al aire el 07 de enero de 2010.  Este programa fue dedicado a estudiar la novela “La rebelión de Atlas” escrita hace más de 50 años por la filósofa ruso-americana Ayn Rand.

A pesar de tener más de 50 años de haber sido publicada, la novela es el día de hoy un bestseller alcanzando ventas record en el año 2009.  Desde su publicación, la novela ha vendido más de 7 millones de copias y tan sólo en el primer trimestre del año 2008 había vendido ya más de 300,000 copias.

La novela, medio siglo después de haber sido escrita, es considerada por muchos una predicción clara y fehaciente de la coyuntura política y económica actual de Estados Unidos y el mundo entero.  En la novela, líderes empresariales y genios creadores deciden irse al paro y alejarse de una sociedad que los condena.  En esa sociedad descrita por Ayn Rand, los dirigentes gubernamentales fomentan la colectivización de la propiedad privada, la redistribución de la riqueza y la interferencia gubernamental en la economía.  Así, las decisiones tomadas por el gobierno de Barack Obama y por otros gobernantes del mundo luego del inicio de la crisis financiera en el año 2008 empezó a concretarse tal y como la novela de Ayn Rand relata.

Los gobernantes, empezando por el gobierno de Barack Obama, intervinieron la economía en un afán por “rescatar” a empresas que habían demostrado ser ineficientes, a bancos que habían malversado dinero de sus acreedores y cientos de millones de dólares han sido entregados desde el año 2008 para rescatar a empresas alrededor del mundo.

Ayn Rand desarrolló una filosofía a la que nombró Objetivismo.  Esa filosofía considera al hombre como un fin en sí mismo y su sistema filosófico se fundamenta en la búsqueda de la felicidad de los individuos a través de los principios de una sociedad capitalista.

Para conocer más el impacto de la obra escrita por Ayn Rand los invito a escuchar el programa que contó con la participación del banquero y emprendedor John Allison III, con Yaron Brook, presidente del The Ayn Rand Institute, con C. Bradley Thompson de la Universidad de Clemson y con el editor de la Reason magazine, el sr. Nick Gillespie.

Part 2. Q and A on Ayn Rand’s ideas with Mr. Bhaskar Patel

In a previous post, we discussed some questions with Mr. Bhaskar Patel regarding Objectivism.  In this post, we’ll continue exploring other important questions raised by Mr. Patel and you are invited to raise your own objections and refuttals.

Objectivism is a philosophy developed by the Russian-American philosopher and novelist Ayn Rand.  This philosophy holds that reality exists independent of conciousness and that man’s moral purpose is to pursuit happiness.  In order to do so, man needs government not to interfere on his decisions and only to protect his individual rights and private property.  Objectivism holds that individuals are not sacrificial animals, and as such they should never live for others or ask others to live for them.

Now, we’ll go to review Mr. Patel commentaries and questions:

  • Capitalism ensures survival & growth of the fittest. There is a winner and a loser. The winner may become greedy to the exclusion of the rest.

It is not Capitalism that ensures the survival of the fittest; it is Nature that ensures that the fittest are to survive.  Capitalism is a moral social system that allows for humans to be happy, and free to cooperate and satisfy their needs.  As a matter of fact, Capitalism is the only social system that could enable men to freely decide to help and protect those humans that in nature would have surely died (the physically and mentally ill, elderly, orphans, etc).

In today’s world, it is government who supposedly helps and aids those men and women who lack the ability to protect themselves and ensure their survival.  Unfortunately, this welfare services granted by government have allowed for parasites to also abuse of the system and doesn’t create an incentive for men to live by themselves.

  • Have you ever seen the purest form of ‘capitalism’, as you describe it herein above, exist or succeed on a broad scale? why not?

As Ayn Rand wrote and Ludwig von Mises acknowledged in the book “Theory and History“,  Laissez-Faire Capitalism has never existed.   The closer humanity has been to Laissez-Faire Capitalism was during the a short time of the last two decades of the XVIII century.  This happened after the Constitution of the United States of America was signed and allowed for a social system as such to exist.  However, decades passed and it never came to be a functioning social system in the United States.

Government intervention and the introduction of mercantilist privilegies couldn’t be avoided (they were the rule in the rest of the world) and the United States felt trap of it.  Today’s economy is a mixed economy system in which the principles of capitalism (freedom and protection of individual rights, a small but efective government, and others) are non-existent.

  • Ms. rand may have considered certain elements or aspects of religion as evil but it is also a source of tremendous inspiration and healing in this world. How can you ignore it if you’re serious about curing the ills that harm our world.

Ayn Rand considered religion to be “a blind belief, belief unsupported by, or contrary to, the facts of reality and the conclusions of reason.”  As such, she said it was the greatest enemy of reason and humanity.  Religion is a dogmatic belief by faith in any explanation of reality.  As such, religion is NOT Ethics and it is wrong to consider its teachings as the origin of morality, good and ethical behavior.  The ills and harm done by other men in the world can only be “cured” if men respect each other and aren’t forced to sacrifice for the benefit of others.  Men are not “good” or “evil”, it is on their own to choose what to do.  Human’s need no religion to act ethically, they only need to understand reality and act accordingly.  More than inspiring and healing the world, religion has been used to create many harm and kill millions of men in the name of mysticism.

  • Did Ms. Rand lead/live her adult life as she prescribed it? If not, why not?

Ayn Rand said that her philosophical system was a recognition of reality and of human’s nature.  As such, any men could try living rationally, coherently and happily.  For her, a men that lived under those principles should be considered a hero, a hero that could actually exist outside fiction and romantic books.  Many of her critics questioned her, she was a human and as such she wasn’t perfect.

Ayn Rand was known for her consistency and for being a radical defensor of her ideas.  She never allowed herself to be surrounded by parasites and asked always for men to be the best they can be.  I consider her to have lived consistently to her ideas.  There are two biographical works that could be a good idea reading; you could start by checking this article wrote by The Economist under the title “The life and views of Ayn Rand. Capytalism’s martyred hero“.

  • If you exclude the US & Canada, do you know of any significant bilateral relations for diplomacy and international commerce that is a win-win situation

Of  course, during the XIX and XX centuries many bilateral agreements were signed by countries in the areas of commerce, defense and government cooperation.  Still, most of diplomacy is dealt bilaterally (without UE, NATO, UN, etc. interference).

It is a fundamental in international relations to have reciprocity and equal benefits for any agreement, treaty and compromise.  In multilateral relations this cannot by applied and allows for different benefits and obligations from the participant countries.  It was only after the Great Depression that many countries turned to multilateralism.

  • Without Government tax-rebates, subsidies, incentives, protection etc, do you believe private sector will invest in technologies, or utilities, or infrastructure projects or medicine? I am not taking about a small-business here?

Craig Biddle, editor of The Objective Standard, proposed that a new system of private contributions could emerge after taxes, subsidies, and government welfare is eliminated.  I recommend you to check this video of the lecture “Morality of Capitalism” in the segment were he answers a question regarding tax payments and common will (link to lecture).  Although I disagree with some of his points regarding private cooperation, he does make a good point explaining that it does is possible for our society to live happily without the current taxation system and cooperate.

  • What is the source of ‘capitalism’? Who provides it? How did they accumulate it?

This is my favorite question.   Capitalism is a social system based on and derived from ethics. As such, it based on and derived from a metaphysics.  This metaphysics is that reason is man’s basic tool for survival and rationality is his highest virtue.  Capitalism has a moral imperative in which all of its members have their life as the standard of value.  It is philosophy that provides for it and individuals who take it into practice.  For Capitalism to exist, men need to eliminate all mysticism and altruism.  Men need to have reason as man’s only mean of perceiving reality and has his only guide to action.

Q and A on Ayn Rand’s ideas with Mr. Bhaskar Patel

A couple weeks ago I started an interesting discussion with Mr. Bhaskar Patel, a General Manager that lives in Houston, Texas.  He’s member of a LinkedIn Group about Objectivism and the ideas of Ayn Rand.

Our discussion is condensed in the following post and I am sure some of our commentaries will be of your interest.

  • How will you apply Rand’s Objectivist Philosophy in China, Africa, parts of the middle-east or South-east Asia

Objectivism is a complete philosophy and as such, it studies fundamental problems that concern humanity.  Objectivism is not a philosophy for Western Humans (if anything like that truly existed).  No matter if culture is different; the following principles of Objectivism still apply a) of reality exists independent of consciousness; b) individuals are in direct contact with this reality through sensory perception; c) Human beings can gain objective knowledge from perception through the process of concept formation and inductive and deductive logic; d) that the proper moral purpose of one’s life is the pursuit of one’s own happiness.

  • How is ‘Capitalism’ misunderstood in many parts of the world; & what are you able to do about it

Capitalism is misunderstood since it is interpreted by a socialist discourse.  George Reisman wrote a great Treatise on Capitalism in which he explained what capitalism really is.  I recommend you to check it.

Currently, the discourse about what Capitalism is, goes as this: it is a system of wealth creation by control of the means of production by powerful men (it seems we forgot to acknowledge that those men wheren’t rich before).  It is known as an economic system (not as a social system) that doesn’t has moral principles on which to hold it.  The Socialist discourse explains that Capitalism answers solely to the survival of the fittest and that the fittest has always been the powerful and wealthy.

What we can do to teach people is to show them that A) Capitalism is the only social system that is moral since it considers individuals happiness as its moral standard.  B) Capitalism is the only system that depends of win-win commerce for everyone in order to be sustainable and expand.  C)  Capitalism is a social system that needs a government that will ensure that individual’s rights are protected.  D) It is a system that depends on education of the principles of economy to its members and in keeping them safe and healthy; therefore, while it won’t grant free education and health it will spontaneously provide it by private institutions and benevolence.  E) Capitalism is a social system that will enforce peace and disincentive the use of force.

  • What happens if/when ‘people’s philosophy that is consistent with their own pursuit of happiness and liberty’ can’t or don’t co-exist

If you mean what happens when you have a Buddhist neighbor whose neighbors are Jewish and Catholics; the answer is that nothing will happen if they respect each other.  If these people freely decided to live and work in an area were culture is different they do so because in their own scale of values they were earning a lot more of something.  Now, if they were forced to live together then we have to ask ourselves who’s the one who forced them to coexist? why?  At some point, the only power capable of forcing people to live together is a government that doesn’t respect it’s citizens rights of freedom.  This is the example of what is going on right now in Middle East, Kashmir, parts of Africa.

  • When will we learn that ‘freedom’ includes & can exist only when it includes freedom for all but not freedom to hurt,snatch, steal, lie, defraud, etc nor freedom to en-slave, or to enforce practices or principles in the name of a religion

Freedom is a negative right that enables people to do anything they want except violate other’s rights and their freedom.  That being said, we’ll learn this economic principle only when the government we established respects this right and doesn’t violate it.

  • What should be done in the US about the Social Security Benefits, VA, Medicare, Medicaid, the Unemployment-benefit, K-12 Public School Systems etc

Ideally it should have never been a government industry.  Since it is, and it is a huge government structure that employs thousands of people you cannot eliminate it in just one day.  What should be done is the following: A) Educate all Americans on why it is wrong to have a government that “freely” gives Social Security Benefits, VA, Medicare, Medicaid, the Unemployment-benefit, K-12 Public School Systems, etc.  Once they learn it and understand the philosophical reasons why it is wrong then you could start a process of elimination of those structures and a privatization of the system.  Spontaneously, as you teach people that having these services provided by a private industry they will start hiring them from private institutions and competition will grow, prices will fall and more options will be available in the market.  This same process has happened in every other industry and there’s no reason why we would think that it won’t happen in health and education.  Curiously, many countries in Latin America have more private schools and universities than State owned schools.  The same happens about private health services and medical insurance.

  • Should Canada or UK abolish the single-payer health care program.

Of course they should.  This should be done by a process that will surely take the life of at least one generation; but it should be done.

  • What about the status of undocumented migrants in the US

Well, this is a long story.  Undocumented migrants in the US have been the enablers of the progress of the US for generations.  It is a country built by innovative immigrants that decided to go independent and become rich.  There are many examples of immigrants that became wealthy and their descendants now appear in the most important magazines and newspapers of the US.

However, there were a couple of those Americans who started to fear they were going to lose the power they had.  They decided that America wasn’t anymore a country built for the smartest, most capable and more creative humans.  As such, the US government started considering undocumented migrants as a lower class of humans and what we see today is its outcome.

First, the US government needs to ratify that immigrants are humans and have the same rights as the rest of Americans.  Second, you have to enable a legalization system for those immigrants that have shown for many years to be productive, stable, hardworking people.  They should be able to be legal as soon as possible! You need people like this to be a richer and wealthy country!

Those men and women who are undocumented and haven’t shown to be productive men should be warned that either they make a change in their status quo or they will be asked to go back to their countries.  You want the best men you can get to be in your country; you don’t need those men who are going to feed from your welfare nor your neighbors’.

  • What about the ‘refugee’ programs in several nations in the Western Europe or the North America

Refugee programs were an international instrument created to help those civilians that were menaced by a government that discriminated against them because of their culture, ethnicity, social status, etc.  These people needed to be protected not because they were foreigners, but because they were humans that had no opportunity to defend themselves.  If you are a member of a country founded on the principle that that the proper moral purpose of one’s life is the pursuit of one’s own happiness you are going to protect and defend any individual that asks for your help; in as much as you can help them.  It is true that those refugees need all your help; they only have a bag and some clothes; it is in your right to help them by giving them the tools to work and create wealth.  They are surely going to be a workforce that may be needed in your country’s industries.  It would be wrong to keep them isolated and living out of your welfare without any incentive to work and make a living.  I’m sure there are plenty smart minds in those refugee camps that could be a benefit to your country.

  • Is there any role for UN, IMF, the World bank etc in Ms. Rand’s world or that of her followers

Ayn Rand believed that the UN enabled communism to spread in the world.  I agree with her and consider it one of the most disastrous organizations ever created.  The UN is now corrupt and is a place were dictators and so called democrats sit to discuss how to split the world to who is more powerful and has petro-dollars.  I believe in bilateral relations for diplomacy and international commerce; you need bilateral reciprocity in order for a win-win game to happen.  Being part of any multilateral organization only allows for countries to lose their sovereignty.  It should be curious that is the European Union the biggest multilateral organization since they are the ultimate expression of how socialism has taken control of everything.

  • ‘Contradictions’ are all around us; I know well that Ms. Rand’s world enables the best and brightest of us to succeed beyond any limits and to celebrate our successes with our friends, families, communities and nations. However, she didn’t deal with the issues of the business of religion or affirmative actions or quotas for minorities in almost every developed or developing nation on this planet.

Ayn Rand didn’t deal with religion or affirmative action because she considered them to be evil and wrongdoings that existed only to destroy humanity.  Affirmative action exists only because some leaders think that there are different classes of humanity –some are better and some are lower-.  Religions have always existed because they were created as social instruments to control people’s minds by offering them an escape to their earthly sufferings and ills.

I’d love discussing these and more questions with you and I hope that this comments will be of some help.

Best regards,