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Failure Made Disney Great by Lawrence W. Reed

December 15, 2016, will mark the 50th anniversary of Walt Disney’s passing. Half a century later, I vividly recall the intense sadness I felt when I learned, at age 13, that he had died. It was as though I had lost a close member of the family. I doubt that I ever missed a single episode of his television show. I can still hear his avuncular voice in my head as if he had spoken to me just yesterday. I can’t think of a single movie he made that I haven’t seen and enjoyed immensely, multiple times.

What a phenomenal man Walt Disney was! A cartoonist and animator, businessman, filmmaker, theme park pioneer, and cultural icon, he may have manufactured more happiness in the world than any other man or woman of the 20th century. He was an American original and an American patriot, too. He deeply appreciated that liberty in America allowed him to invent, experiment, and ultimately succeed, as evidenced in this remark three years before his death: “To retreat from any of the principles handed down by our forefathers, who shed their blood for the ideals we still embrace, would be a complete victory for those who would destroy liberty and justice for the individual.”

The characters Disney and his colleagues created or popularized boast names that billions of people still know today: Mickey Mouse, Jiminy Cricket, Donald Duck, Goofy, Pinocchio, Snow White and the Seven Dwarfs, the Three Little Pigs, Peter Pan, Bambi, and Cinderella, to name only a few. His films include so many that are unforgettable — it’s no wonder he remains the record-holder (a total of 59) for both Oscar nominations and actual wins. Hundreds of millions of people have been enthralled by the movies that featured those characters, as well as by other Disney flicks like Old Yeller, The Absent-Minded Professor, Mary Poppins, Sleeping Beauty, and One Hundred and One Dalmatians. His company’s representative song, “When You Wish upon a Star,” evokes smiles from all ages in 2016, just as it did when Disney unveiled it way back in 1940.

Some people think that entrepreneurs build, innovate, and take risks just for the money they might make. To the imaginative Walt Disney, money was never the prime motivator. Not even close — though what could be wrong about that if it had been? Money paid the bills, but he hired his brother Roy to worry about it. Walt was driven by the sheer joy of creativity and the fulfillment that comes from bringing happiness to others. “It’s kind of fun to do the impossible,” he once said. These words from his dedication speech at the July 1955 opening of Disneyland in Anaheim, California, encapsulate his amazing spirit:

To all who come to this happy place, Welcome! Disneyland is your land. Here, age relives fond memories of the past … and here youth may savor the challenge and promise of the future. Disneyland is dedicated to the ideals, the dreams, and the hard facts that have created America … with the hope that it will be a source of joy and inspiration to all the world.

No one could do justice to the life of Walt Disney in a short article, so I won’t even attempt to. Allow me to zero in on one particular aspect that underscores why he’s a hero: he knew failure and how to learn and prosper from it. As he put it himself, “All the adversity I’ve had in my life, all my troubles and obstacles, have strengthened me.… You may not realize it when it happens, but a kick in the teeth may be the best thing in the world for you.”

In “The Importance of Failure” (Freeman, November 2011), economists Steven Horwitz and Jack Knych explained that permitting failure is just as important as allowing success:

For example, in 1921 Walt Disney started a company called the Laugh-O-Gram Corporation, which went bankrupt two years later. If a friend of Disney or the government hadn’t let him fail and move on, he might never have become the Walt Disney we know today.

More important than this individual learning process is the irreplaceable role failure plays in the social learning process of the competitive market. When we refuse to allow failure to happen, or we cushion its blow, we ultimately harm not only the person who failed but also all of society by denying ourselves a key way to learn how best to allocate resources. Without failure there’s no economic growth or improved human well-being.…

To the imaginative Walt Disney, money was never the prime motivator. 

Failure drives change. While success is the engine that accelerates us toward our goals, it is failure that steers us toward the most valuable goals possible. Once failure is recognized as being just as important as success in the market process, it should be clear that the goal of a society should be to create an environment that not only allows people to succeed freely but to fail freely as well.

Disney heard a lot about failure at the family dinner table before he ever failed himself. His father, Elias, tried twice to be a successful orange grower in Florida but couldn’t make it work. He flopped as a professional fiddle player in Colorado. He didn’t do much better farming in Missouri. Elias tried a lot of things to keep his family fed. That he never quit trying left a deep impression on young Walt.

Before he was 20, Walt Disney had to make several adjustments in his career. He drove an ambulance in France for a time, but when he returned to the United States, he couldn’t find a similar job. He decided to be an actor, then changed his mind in favor of drawing comic strips for newspapers. No luck there, either. Roy found him a job at a bank, but Walt didn’t find the work satisfying. From there, in 1921, he started his first company, the soon-to-go-bankrupt Laugh-O-Gram Corporation. Unable to pay his rent, he even ate dog food until he could get back on his feet.

In 1926, Walt’s prospects suddenly brightened with an animated series centered around a character he created, Oswald the Lucky Rabbit, but his luck ran out two years later when he lost the rights to Oswald to Universal Studios.

Stephen Schochet, author of Hollywood Stories: Short, Entertaining Anecdotes about the Stars and Legends of the Movies, notes some of Disney’s later misfortunes, big and small:

When Walt tried to get MGM studios to distribute Mickey Mouse in 1927 he was told that the idea would never work — a giant mouse on the screen would terrify women.

The Three Little Pigs was rejected by distributors in 1933 because it only had four characters; it was felt at that time that cartoons should have as many figures on the screen as possible. It later became very successful and played at one theater so long that the poster outside featured the pigs with long white beards.

Snow White and the Seven Dwarfs was sneak previewed to college students in 1937 who left halfway during the film causing Disney great despair. It turned out the students had to leave early because of dorm curfew.…

For the premiere of Pinocchio Walt hired 11 midgets, dressed them up like the little puppet and put them on top of Radio City Music Hall in New York with a full day’s supply of food and wine. The idea was they would wave hello to the little children entering into the theater. By the middle of the hot afternoon, there were 11 drunken naked midgets running around the top of the marquee, screaming obscenities at the crowd below. The most embarrassed people were the police who had to climb up ladders and take the little fellows off in pillowcases.

Even after Disney scored international fame for his film making, not all of his films made money. Pinocchio, Fantasia, and Pollyanna, for example, were all box office flops at first. Undaunted, Disney faced each disappointment by planning his next adventure.

“A person should set his goals as early as he can and devote all his energy and talent to getting there,” he said. “With enough effort, he may achieve it. Or he may find something that is even more rewarding. But in the end, no matter what the outcome, he will know he has been alive.”

While making movies, he found time for another challenge. It was literally in his own backyard, where he designed and built a miniature, half-mile-long steam railroad. The locomotive was big enough for him to personally ride on it. The project had its own trestle, overpasses, and even a 90-foot tunnel beneath his wife Lillian’s flowerbed. It inspired the railroad he later built around the perimeter of Disneyland.

Unable to pay his rent, Disney even ate dog food until he could get back on his feet.

Perhaps because he had learned from so many previous failures and disappointments, Disney burned the midnight oil to make his Anaheim theme park dream succeed. It was a financial success from the day it opened. Today, the Walt Disney Company is easily the world’s largest operator of theme parks in terms of guest attendance per year and is a $50 billion firm employing more than 175,000 people.

Walt Disney’s legacy is deeply embedded in our culture and for good reason: he knew how to entertain. He produced lasting and happy memories for people in nearly every nation. And he never, ever quit. His advice to young people is as commendable today as it was when he offered it more than half a century ago, in part because it’s also the way he lived his own life: “Do a good job. You don’t have to worry about the money; it will take care of itself. Just do your best work— then try to trump it.”

For additional information, see:

Lawrence W. ReedLawrence W. Reed

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Follow on Twitter and Like on Facebook.

AUTHORS NOTE: This is the final essay in my formal, weekly Real Heroes series, which began in April 2015. I wish to thank the many readers who sent me encouraging notes after reading one or more of my articles that made an impact in some way. It’s a theme I’ll likely return to in this Friday spot with some frequency, though I now welcome the time to write about some other things as well. In the coming weeks, FEE and a publisher will be announcing the details of a mass-market paperback, due for release in bookstores in September, which will present approximately 40 of my Real Heroes essays.

Why We Need to Make Mistakes: Innovation Is Better than Efficiency by Sandy Ikeda

“I think it is only because capitalism has proved so enormously more efficient than alternative methods that is has survived at all,” Milton Friedman told economist Randall E. Parker for Parker’s 2002 book, Reflections on the Great Depression.

But I think innovation, not efficiency, is capitalism’s greatest strength. I’m not saying that the free market can’t be both efficient and innovative, but it does offer people a strong incentive to abandon the pursuit of efficiency in favor of innovation.

What Is Efficiency?

In its simplest form, economic efficiency is about given ends and given means. Economic efficiency requires that you know what end, among all possible ends, is the most worthwhile for you to pursue and what means to use, among all available means, to attain that end. You’re being efficient when you’re getting the highest possible benefit from an activity at the lowest possible cost. That’s a pretty heavy requirement.

Being inefficient, then, implies that for a given end, the benefit you get from that end is less than the cost of the means you use to achieve it. Or, as my great professor, Israel Kirzner, puts it, If you want to go uptown, don’t take the downtown train.

What Is Innovation?

Innovation means doing something significantly novel. It could be doing an existing process in a brand new way, such as being the first to use a GPS tracking system in your fleet of taxis. Or, innovation could mean doing something that no one has ever done before, such as using smartphone technology to match car owners with spare time to carless people who need to get somewhere in a hurry, à la Uber.

Innovation, unlike efficiency, entails discovering novel means to achieve a given end, or discovering an entirely new end. And unlike efficiency, in which you already know about all possible ends and means, innovation takes place onlywhen you lack knowledge of all means, all ends, or both.

Sometimes we mistakenly say someone is efficient when she discovers a new way to get from home to work. But that’s not efficiency; that’s innovation. And a person who copies her in order to reduce his commute time is not an innovator — but he is being efficient. The difference hinges on whether you’re creating new knowledge.

Where’s the Conflict?

Starting a business that hasn’t been tried before involves a lot of trial and error. Most of the time the trials, no matter how well thought out, turn out to contain errors. The errors may lie in the means you use or in the particular end you’re pursuing.

In most cases, it takes quite a few trials and many, many errors before you hit on an outcome that has a high enough value and low enough costs to make the enterprise profitable.) Is that process of trial and error, of experimentation, an example of economic efficiency? It is not.

If you begin with an accurate idea both of the value of an end and of all the possible ways of achieving that end, then you don’t need to experiment. Spending resources on trial and error would be wasteful. It’s then a matter of execution, which isn’t easy, but the real heavy lifting in the market process, both from the suppliers’ and the consumers’ sides, is done by trying out new things — and often failing.

Experimentation is messy and apparently wasteful, whether in science or in business. You do it precisely because you’re not sure how to answer a particular question, or because you’re not even sure what the right question is. There are so many failures. But in a world where our knowledge is imperfect, which is the world we actually live in, most of what we have to do in everyday life is to innovate — to discover things we didn’t know we didn’t know — rather than trying to be efficient. Being willing to suffer failure is the only way to make discoveries and to introduce innovations into the world.

Strictly speaking, then, if you want to innovate, being messy is unavoidable, and messiness is not efficient. Yet, if you want to increase efficiency, you can’t be messy. Innovation and efficiency usually trade off for each other because if you’re focused on doing the same thing better and better, you’re taking time and energy away from trying to do something new.

Dynamic Efficiency?

Some have tried to describe this process of innovation as “dynamic efficiency.” It may be quibbling over words, but I think trying to salvage the concept of efficiency in this way confuses more than it clarifies. To combine efficiency and innovation is to misunderstand the essential meanings of those words.

What would it mean to innovate efficiently? I suppose it would mean something like “innovating at least cost.” But how is it possible to know, before you’ve actually created a successful innovation, whether you’ve done it at least cost? You might look back and say, “Gee, I wouldn’t have run experiments A, B, and C if only I’d known that D would give me the answer!” But the only way to know that D is the right answer is to first discover, through experimentation and failure, that A, B, and C are the wrong answers.

Both efficiency and innovation best take place in a free market. But the greatest rewards to buyers and sellers come not from efficiency, but from innovation.

Sandy IkedaSandy Ikeda

Sandy Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism. He is a member of the FEE Faculty Network.

Tech Sector Bears Brunt of Capital Taxes, Random Regulation by Dan Gelernter

According to our president’s final State of the Union, we’ve recovered from the economic crisis and now enjoy the strongest, most durable economy in the world. Obama does acknowledge that startups and small businesses may need some help, so he wants to reignite our “sprit of innovation” — which he plans to do by putting Vice President Biden in charge of curing cancer.

But the problem facing startups is not a lack of innovation. We are being killed by the economy, which, for those of us who have to live in it, is not good at all. Young entrepreneurs may have spent last year working hard, innovating and building, only to find their companies are worth less now than when they started.

The market is adjusting downwards. Valuations are sinking. The investors I’ve spoken to feel the Fed’s free-money policy has created a dangerous over-valuation of companies and stocks and, now that the rates are coming back up, the air is being let out. 2015, they say, was a tough year because we knew this was coming. 2016 is going to be even tougher.

There is something else weighing on the minds of entrepreneurs and investors alike — regulatory uncertainty. No startup can deal with compliance by itself — not even software companies with no physical products to sell. Startups have to hire lawyers and compliance experts to help them, and this is money we’re not spending on product development or marketing or making our prices more competitive.

The way Obamacare is being implemented, for example, makes our hair white. The rules seem to change with bureaucratic whim; various parts of the law are suspended by executive order. How will we comply next year, and what will it cost? Nobody knows.

In the meantime, the Democratic candidates for President are proposing large hikes to the capital gains tax, which increases effective risk for investors and depresses valuations. Will these hikes ever take place? We don’t know, and that uncertainty carries an additional price.

We’re already seeing more investors decide to weather the storm on the sidelines, keeping an eye on their current affairs and declining to invest in companies they would have snapped up a year ago. A tech startup with a working product will find it harder to raise money today than it would have two years before with nothing but a concept. Not only are we faced with a weak market now, the trend is even more disturbing.

The problem is easier to diagnose than to repair. As an entrepreneur, I’d like to see less regulation and lower taxes. And not just lower taxes on the companies themselves, but on the people who can afford to invest in them. This may come as a surprise, but it’s the hated “one percent” that invests in startups and helps entrepreneurs’ dreams come true. When taxes cut deeper into the pockets of the wealthy, it most negatively affects us — the entrepreneurs and the people we would have hired — not the wealthy.

Regulation remains erratic, and the policies of the next administration cannot be foreseen. 2016 is going to be a hard year for the startup. Investments will continue to decline until investors see a stable market. And they’re not looking at one right now. Companies will die as a result, and not for lack of innovative ideas.

Dan Gelernter

Dan Gelernter is CEO of the technology startup Dittach.

The Rise of ‘Reality Capitalism’ by Wendy McElroy

If pop culture is a leading indicator of social change, one emerging TV genre should be applauded. It is a flood of reality shows that focus on the daily dynamics by which self-made people conduct business: Pawn Stars, Ice Road Truckers, American Pickers, Deadliest Catch, Hardcore Pawn, Yukon Gold, Storage Wars, and others.

I call it “reality capitalism,” and it is the polar opposite of crony capitalism.

They display people taking risks and prospering (or not) through hard work and good judgment. They embody the opposite of cronyism because government privilege is nowhere to be seen.

Some aspects of the programs feel contrived, but what matters is that small businessmen and working people are elevated to a status that used to be reserved for those featured on Lifestyles of the Rich and Famous.

Fans tune in to see whether Mike and Frank (American Pickers) will find a “honey hole” as they travel America. Perhaps a barn in Rhode Island will contain a rare Harley or one of the old metal gasoline signs that sells in a flash in their Iowa shop. Viewers groan in amused exasperation as Rick (Pawn Stars) flaunts arcane facts about the antiques people bring in. The items and negotiation are fascinating, and the businessmen are thoroughly likable because of the honesty, humor, and respect with which they treat sellers.

The shows also explain the simple mechanisms of the free market. Mike and Frank discuss the end-price they will put on items and tell the seller why they need to buy at approximately 50% of that figure. The words “gas money” come up frequently. Rick’s favorite phrase is, “I’m taking all the risk.” Then he comments on overhead and how long an item might take up room in his store. In both programs, the buyer sometimes pays more than the asking price because he knows the true value of a good and does not want to cheat the seller. The fairness is not only a matter of ethics but also good business: it establishes trust.

The reality capitalism genre can be roughly broken into two categories: entrepreneurs who are business owners, and working people who struggle to prosper against the odds.

Yukon Gold features small mining crews who search for gold in the Yukon during its four-month window of opportunity. Machinery breaks, nature strikes, and crew members fight against their own discouragement. Ice Road Truckersfollows truck drivers who confront frozen lakes and treacherous situations as they haul loads across Arctic areas of Alaska and Canada. Both shows focus on why the people assume work in such terrible conditions: money. Most of them are after a better life for their families.

They are entrepreneurs who gamble with their own time, money, and energy to establish businesses through which everyone profits. They are people who overcome obstacles for a chance for their families to prosper. It is heartening to see society’s true heroes receive the acknowledgement they deserve.

Wendy McElroyWendy McElroy

Contributing editor Wendy McElroy (wendy@wendymcelroy.com) is an author, editor of ifeminists.com, and Research Fellow at The Independent Institute (independent.org).

Everyone Is Talking about Bitcoin by Jeffrey A. Tucker

I’m getting a flurry of messages: how do I buy Bitcoin? What’s the best article explaining this stuff? How to answer the critics? (Might try here, here, here, and here.)

Markets can be unpredictable. But the way people talk about markets is all too predictable.

When financial assets go up in price, they become the topic of conversation. When they go way up in price, people feel an itch to buy. When they soar to the moon, people jump in the markets — and ride the price all the way back down.

Then while the assets are out of the news, they disappear from the business pages and only the savviest investors buy. Then they ride the wave up.

This is why smart money wins and dumb money loses.

Bitcoin Bubbles and Busts

It’s been this way for seven years with Bitcoin. When the dollar exchange rate is falling, people get bored or even disgusted. When it is rising, people get interested and excited. The challenge of Bitcoin is to see through the waves of hysteria and despair to take a longer view.

In the end, Bitcoin is not really about the dollar exchange rate. It is about its use as a technology. If Bitcoin were only worth a fraction of a penny, the concept would already be proven. It demonstrates that money can be a digital product, created not by government or central banks but rather through the same kind of ingenuity that has already transformed the world since the advent of the digital age.

When the Bitcoin white paper came out in October 2008, only a few were interested. Five years would pass before discussion of the idea even approached the mainstream. Now we see the world’s largest and most heavily capitalized banks, payment processing companies, and venture capitalists working to incorporate Bitcoin’s distributed ledger into their operations.

In between then and now, we’ve seen wild swings of opinion among the chattering classes. When Bitcoin hit $30 in February 2013, people were screaming that it was a Ponzi-like bubble destined to collapse. I’ve yet to see a single mea culpa post from any of these radical skeptics. It’s interesting how the incessantly wrong slink away, making as little noise as possible.

For the last year, the exchange rate hovered around $250, but because this was down from its high, people lost interest. What is considered low and what is considered high are based not on fundamentals but on the direction of change.

What Is the Right BTC Price?

The recent history of cryptocurrency should have taught this lesson: No one knows the right exchange rate for Bitcoin. That is something to be discovered in the course of market trading. There is no final answer. The progress of technology and the shaping of economic value knows no end.

On its seventh birthday, Bitcoin broke from its hiatus and has spiked to over $350, on its way to $400. And so, of course, it is back in the news. Everyone wants to know the source of the last price run up. There is speculation that it is being driven by demand from China, where bad economic news keeps rolling in. There has also been a new wave of funding for Bitcoin enterprises, plus an awesome cover story in the Economist magazine.

Whatever the reason, this much is increasingly clear: Bitcoin is perhaps the most promising innovation of our lifetimes, one that points to a future of commodified, immutable, and universal information exchange. It could not only revolutionize contracting and titling. It could become a global currency that operates outside the nation state and banking structures as we’ve known them for 500 years. It could break the model of money monopolization that has been in operation for thousands of years.

Technology in Fits and Starts

Those of us in the Bitcoin space, aware of the sheer awesomeness of the technology, can grow impatient, waiting for history to catch up to technical reality. We are daily reminded that technology does not descend on the world on a cloud in its perfected form, ready for use by the consuming public. It arrives in fits and starts, is subjected to trials and improvement, and its applications tested against real world conditions. It passes from hand to hand in succession, with unpredictable winners and losers.

Successful technology does not become socially useful in the laboratory. Market experience combined with entrepreneurial risk are the means by which ideas come to make a difference in the world at large.

Bitcoin was not created in the monetary labs of the Federal Reserve or banks or universities. It emerged from a world of cypherpunks posting on private email lists — people not even using their own names.

In that sense, Bitcoin had every disadvantage: No funding, no status, no official endorsements, no big-name boosters. It has faced an ongoing flogging by bigshots. It’s been regulated and suppressed by governments. It’s been hammered constantly by scammers, laughed at by experts, and denounced by moralists for seven straight years.

And yet, even given all of this, it has persisted solely on its own merits. It is the ultimate “antifragile” technology, growing stronger in the face of every challenge.

What will be the main source of Bitcoin’s breakout into the mainstream? Commentary trends suggest it will be international remittances. It is incredible that moving money across national borders is as difficult and expensive as it is. With Bitcoin, you remove almost all time delays and transaction costs. So it is not surprising that this is a huge potential growth area for Bitcoin.

The Economist takes a different direction. It speculates that Bitcoin technology will be mostly useful as a record-keeping device. It is “a machine for creating trust.”

One idea, for example, is to make cheap, tamper-proof public databases — land registries, say, (Honduras and Greece are interested); or registers of the ownership of luxury goods or works of art. Documents can be notarised by embedding information about them into a public blockchain — and you will no longer need a notary to vouch for them.

Financial-services firms are contemplating using blockchains as a record of who owns what instead of having a series of internal ledgers. A trusted private ledger removes the need for reconciling each transaction with a counterparty, it is fast and it minimises errors.

We Need Bitcoin 

No one knows for sure. What we do know is that we desperately need this as a tool to disintermediate the world, liberating us from the governments that have come to stand between individuals and the realization of their dreams.

In 1974, F.A. Hayek dreamed of a global currency that operated outside governments and central banks. If governments aren’t going to reform money, markets would need to step up and do it themselves. Bitcoin is the most successful experiment in this direction we’ve yet seen.

And that is true whether or not your friends and neighbors are talking about it.

Jeffrey A. Tucker

Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook.

Obama Administration Declares War on Franchisors and Subcontractors by Walter Olson

In a series of unilateral moves, the Obama administration has been introducing an entirely new regime of labor law without benefit of legislation, upending decades’ worth of precedent so as to herd as many workers into unions as possible.

The newest, yesterday, from the National Labor Relations Board, is also probably the most drastic yet: in a case against waste hauler Browning-Ferris Industries, the Board declared that from now on, franchisors and companies that employ subcontractors and temporary staffing agencies will often be treated as if they were really direct employers of those other firms’ workforces: they will be held liable for alleged labor law violations at the other workplaces, and will be under legal compulsion to bargain with unions deemed to represent their staff.

The new test, one of “industrial realities,” will ask whether the remote company has the power, even the potential power, to significantly influence working conditions or wages at the subcontractor or franchisee; a previous test sought to determine whether the remote company exercised “ ‘direct and immediate impact’ on the worker’s terms and conditions — say, if that second company is involved in hiring and determining pay levels.”

This is a really big deal; as our friend Iain Murray puts it at CEI, it has the potential to “set back the clock 40 years, to an era of corporate giants when few people had the option of being their own bosses while pursuing innovative employment arrangements.”

  • A tech start-up currently contracts out for janitorial, cafeteria, and landscaping services. It will now be at legal risk should its hired contractors be later found to have violated labor law in some way, as by improperly resisting unionization. If it wants to avoid this danger of vicarious liability, it may have to fire the outside firms and directly hire workers of its own.
  • A national fast-food chain currently employs only headquarters staff, with franchisees employing all the staff at local restaurants. Union organizers can now insist that it bargain centrally with local organizers, at risk for alleged infractions by the franchisees. To escape, it can either try to replace its franchise model with company-owned outlets — so that it can directly control compliance — or at least try to exert more control over franchisees, twisting their arms to recognize unions or requiring that an agent of the franchiser be on site at all times to monitor labor law compliance.

Writes management-side labor lawyer Jon Hyman:

If staffing agencies and franchisors are now equal under the National Labor Relations Act with their customers and franchisees, then we will see the end of staffing agencies and franchises as viable business models.

Moreover, do not think for a second that this expansion of joint-employer liability will stop at the NLRB. The Department of Labor recently announced that it is exploring a similar expansion of liability for OSHA violations. And the EEOC is similarly exploring the issue for discrimination liability.

And Beth Milito, senior legal counsel at the National Federation of Independent Business, quoted at The Hill: “It will make it much harder for self-employed subcontractors to get jobs.”

What will happen to the thriving white-van culture of small skilled contractors that now provides upward mobility to so many tradespeople? Trade it in for a company van, start punching someone’s clock, and just forget about building a business of your own.

What do advocates of these changes intend to accomplish by destroying the economics of business relationships under which millions of Americans are presently employed? For many, the aim is to force much more of the economy into the mold of large-payroll, unionized employers, a system for which the 1950s are often (wrongly) idealized.

One wonders whether many of the smart New Economy people who bought into the Obama administration’s promises really knew what they were buying.

This post first appeared at Cato.org.

Walter Olson
Walter Olson

Walter Olson is a senior fellow at the Cato Institute’s Center for Constitutional Studies.

New York’s Taxi Cartel Is Collapsing — Now They Want a Bailout! by Jeffrey A. Tucker

An age-old rap against free markets is that they give rise to monopolies that use their power to exploit consumers, crush upstarts, and stifle innovation. It was this perception that led to “trust busting” a century ago, and continues to drive the monopoly-hunting policy at the Federal Trade Commission and the Justice Department.

But if you look around at the real world, you find something different. The actually existing monopolies that do these bad things are created not by markets but by government policy. Think of sectors like education, mail, courts, money, or municipal taxis, and you find a reality that is the opposite of the caricature: public policy creates monopolies while markets bust them.

For generations, economists and some political figures have been trying to bring competition to these sectors, but with limited success. The case of taxis makes the point. There is no way to justify the policies that keep these cartels protected. And yet they persist — or, at least, they have persisted until very recently.

In New York, we are seeing a collapse as inexorable as the fall of the Soviet Union itself. The app economy introduced competition in a surreptitious way. It invited people to sign up to drive people here and there and get paid for it. No more standing in lines on corners or being forced to split fares. You can stay in the coffee shop until you are notified that your car is there.

In less than one year, we’ve seen the astonishing effects. Not only has the price of taxi medallions fallen dramatically from a peak of $1 million, it’s not even clear that there is a market remaining at all for these permits. There hasn’t been a single medallion sale in four months. They are on the verge of becoming scrap metal or collector’s items destined for eBay.

What economists, politicians, lobbyists, writers, and agitators failed to accomplished for many decades, a clever innovation has achieved in just a few years of pushing. No one on the planet could have predicted this collapse just five years ago. Now it is a living fact.

Reason TV does a fantastic job and covering what’s going on with taxis in New York. Now if this model can be applied to all other government-created monopolies, we might see genuine progress toward a truly competitive economy. After all, it turns out that the free market is the best anti-monopoly weapon ever developed.

Jeffrey A. Tucker
Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook.

Are CEOs Overpaid? by Gary M. Galles

Are corporate managers and CEOs overpaid?

Many politicians rail against “overpaid” corporate managers. But these attacks overlook the issues of risk and uncertainty.

Workers agree to compensation before performing their work. Consequently, their compensation reflects not a known value but their expected value when arrangements are made.

Managers who turn out more productive than expected will have been underpaid, those less productive than expected will have been overpaid. But examples of the latter don’t prove managers are generally overpaid.

As performance reveals productivity, competition will also bid compensation of superior managers up and inferior managers down. And we must consider the present value of that entire stream, not a given year’s results, to evaluate managers’ productivity versus pay.

No manager is always right, but not every mistake is proof that they’re overpaid. They are paid for superior, not flawless, judgment — fewer mistakes, but not no mistakes.

That is another reason top managers of large enterprises will be very highly compensated. A 1% higher probability of being right on a $1 billion bet is very valuable, and even more so for a $10 billion bet. But even the best will err sometimes, so mistakes don’t prove shareholders are overpaying for managerial judgment.

This is part of a series of micro-blogs by Professor Galles responding to frequently asked questions on economic issues. If you have a question, emailAnythingPeaceful@FEE.org. 

How Minimum Wages Discourage Entrepreneurship by Donald J. Boudreaux

In a letter to the Wall Street Journal, Brian Collins asks, “Do you truly believe that absent any increase in the minimum wage that Wendy’s or any other business will suspend efforts to develop and implement new forms of automation that promise to reduce staff levels?”

The answer is “no.” Contrary to Mr. Collins’s implication, however, this fact does nothing to excuse raising the minimum wage.

Even in a world in which market forces naturally promote automation, raising the minimum wage has two pernicious effects.

First, it causes the rate of automation to be faster than it would be if the minimum wage were not raised. That is, raising the minimum wage results in automation being introduced at a rate that is too fast given the size of the low-skilled labor force.

Second, raising the minimum wage destroys incentives for entrepreneurs and businesses to find ways to profitably employ workers whose limited skills prevent them from producing hourly outputs valued at least as high as the minimum wage.

The first effect throws some low-skilled workers out of jobs that they would otherwise retain, while the second effect ensures that no one has incentives to find ways to profitably employ these and other low-skilled workers.

If it is inhumane to outlaw the profitable employment of those workers whose skills are the least valuable, then the minimum wage is deeply inhumane.

If the government instituted a minimum wage of $100 per hour and, therefore, made unlawful the profitable employment of all those people whose skills are too meager to enable them to produce at least $100 worth of output per hour, there would be a national uproar — and rightly so.

Yet when the government implements such a policy but in a way that outlaws the profitable employment only of people whose skill-sets are among thelowest, relatively few people object and many people — especially “Progressives” — applaud the policy as humane.

How sad. And how especially sad that many economists today, who above all should know better, lend their authority to such an inhumane policy.

A version of this letter first appeared at Café Hayek.

Donald J. Boudreaux
Donald J. Boudreaux

Donald Boudreaux is a professor of economics at George Mason University, a former FEE president, and the author of Hypocrites and Half-Wits.

Clinton’s Startup Tax Will Crush New Businesses by Dan Gelernter

Hillary Clinton has announced that she will, if elected, raise the capital-gains tax to a maximum that equals the highest income tax bracket. She hopes to promote long-term investments by penalizing short-term ones with a tax rate that gets lower the longer an investment is held, reaching the current 20% rate only after six years.

This, Ms. Clinton says, would allow a CEO to focus on the company’s true interests rather than just making the next quarter. It is, unfortunately, exactly the sort of plan you would expect from someone who has never started a company — and who doesn’t seem to know anyone who has.

The CEO of a startup is unlike the CEO of an established business. He is not the head of a chain of command: he is the spokesman or agent of a few colleagues, entrusted for the moment to represent them. The startup CEO has one primary job, which is raising money. It is the hardest thing a young company has to do — and it is an unending process.

Most germinal startups never raise any money at all. The ones that get seed funding are already breathing rarified air, and can afford perhaps a day of celebration before they start pursuing the next round.

The picture is especially tough for tech startups. A startup that builds software doesn’t have any machinery or physical supplies to auction off if the company fails. This means that banks won’t make the kind of secured business loans of the sort small companies traditionally get.

As a result, tech startups are wholly reliant on a relatively small number of investors who are looking for something more exciting than the establishment choices and are willing to take a big gamble in the hope of a big, short-term payoff. Though Ms. Clinton’s proposal would only affect those in the top income bracket, she may be surprised to learn that those are the only people who can afford to make such investments.

Professional investors think in terms of risk: they balance the likelihood of a startup’s failure against the potential payoff of its success. Increasing the tax rate reduces the effective payoff, which increases risk. Investors can lower that risk by reducing the valuation at which they are willing to invest, which means they take a larger share of the company — a straightforward transfer of risk from investors to entrepreneurs.

Ms. Clinton’s tax therefore will not be borne by wealthy investors: it comes out of the entrepreneur’s payday. The increased tax rate means a risk-equivalent decrease in the percentage of the company the entrepreneur gets to keep. And that’s just the best-case scenario.

The other option is that the tax doesn’t get paid at all, because the investor decides the increased risk isn’t worth it — the startup can’t attract funding and dies.

That sounds melodramatic, but it is no exaggeration. A startup company never has more offers than it needs; it never raises money with time spare. Even a slight change in the risk-return balance — say, the 3.8% which Obamacare quietly laid on top of the current capital-gains — kills companies, as investors and entrepreneurs see the potential upside finally shaved past the tipping point.

A tech startup has short-term potential. That is a major part of the attraction to investors, and that makes Ms. Clinton’s proposal especially damaging. In the tech world, we all hope we’ll be the next Facebook or Twitter, but you can’t pitch that to an investor. A good tech startup takes a small, simple idea and implements it beautifully.

The most direct success scenario is an acquisition by a larger company. In the app world — and this is the upside to not having physical limitations on distribution — the timescale is remarkably accelerated. A recent benchmark example was Mailbox, purchased by Dropbox just two months after it launched.

Giving investors an incentive to not to sell will hurt entrepreneurs yet again, postponing the day their sweat equity finally has tangible value, and encouraging decisions that make tax-sense rather than business-sense.

If Hillary Clinton really wants to help entrepreneurs, she should talk to some and find out what they actually want. A lower capital-gains tax — or no capital-gains tax — would be an excellent start.

Dan Gelernter

Dan Gelernter is CEO of the technology startup Dittach.

Who Is Doing More for Affordable Education: Politicians or Innovators? by Bryan Jinks

With a current outstanding student loan debt of $1.3 trillion, debt-free education is poised to be a major issue leading up to the 2016 presidential election.

Presidential candidate Bernie Sanders has come forth with his plan for tuition-free higher education.

Senator Elizabeth Warren supports debt-free education, which goes even further by guaranteeing that students don’t take on debt to pay other expenses incurred while receiving an education.

Democratic Party front-runner Hillary Clinton is expected to propose a plan to reduce student loan debt at some point. And don’t forget President Obama’s proposal to provide two years of community college to all students tuition-free.

While all of these plans would certainly increase access to higher education, they would also be expensive. President Obama’s relatively modest community college plan would cost $60 billion over the next decade. What makes this an even worse idea is that all of that taxpayer money wouldn’t solve the most important problems currently facing higher education.

Shifting the costs completely to taxpayers doesn’t actually reduce the costs. It also doesn’t increase the quality of education in a system that has high drop-out rates and where a lot of graduates end up in low-paying jobs that don’t use their degree. Among first-time college students who enrolled in a community college in the fall of 2008, fewer than 40% earned a credential from either a two-year or four-year institution within six years.

Whatever the other social or spiritual benefits of attending college are, they don’t justify wasting that so much time and money without seeing much improvement in wages or job prospects.

Proponents of debt-free college argue that these programs are worth the cost because a more educated workforce will boost the economy. But these programs would push more marginal students into college without any regard for how prepared they are, how likely they are to graduate, or how interested they are in getting a degree. If even more of these students enter college, keeping the low completion rates from falling even further would be a challenge.

All of these plans would just make sure that everyone would have access to the mediocre product that higher education currently is. Just as the purpose of Obamacare was to make sure that every American had a health insurance card in their wallet, the purpose of debt-free education is to make sure that every American has a student ID card too — whether it means anything or not.

But there are changes coming in higher education that can actually solve some of these problems.

The Internet is making education much cheaper. While Open Online Courses have existed for more than a decade, there are a growing number of places to find educational materials online. Udemy is an online marketplace that allows anyone to create their own course and sell it or give it away. Saylor Academy and University of the People both have online models that offer college credit with free tuition and relatively low examination fees.

Udacity offers nanodegrees that can be completed in 6-12 months. The online curriculum is made in partnership with technology companies to give students exactly the skills that hiring managers are looking for. And there are many more businesses and non-profits offering new ways to learn that are cheaper, faster, and more able to keep up with the ever-changing economy than traditional universities.

All of these innovations are happening in response the rising costs and poor outcomes that have become typical of formal education. New educational models will keep developing that offer solutions that policy makers can’t provide.

Some of these options are free, some aren’t. Each has their own curriculum and some provide more tangible credentials than others. There isn’t one definitive answer as to how someone should go about receiving an education. But each of these innovations provides a small part of the answer to the current problems with higher education.

Change for the better is coming to higher education. Just don’t expect it to come from Washington.

Bryan Jinks

Bryan Jinks is a ?freelance writer based out of Cleveland, Ohio.

Is Politics Obsolete? How People Outpace Politicians by Max Borders and Jeffrey A. Tucker

Hillary Clinton talks of cracking down on the gig economy. Donald Trump speaks of telling American corporations where they can and can’t do business abroad. Bernie Sanders says we have too many deodorant choices. They all speak about immigrants as if it were 1863.

What the heck are these people talking about?

More and more, that’s the response many people have to the current-day political speeches and rhetoric. It’s a hotly contested election, somewhat like 2008, but this time around, public engagement is low, reports Pew.

That’s no surprise, really. Whether it’s the leftists, the rightists, or everyone in between, all of these politicians seem to be blathering about a world gone by — one that has little to do with the 21st century. If they’re not tapping into people’s baser instincts of fear and nativism, they’re dusting off 20th-century talking points about creating “good jobs.”

Maybe there was a time when the political culture seemed to keep up with the pace of innovation. If so, those times are long gone. The rhetoric of electoral politics is exposing the great rift in civic life.

The tools we use every day, the technologies we love, the way we engage each other, the means by which our lives are improving are a consequences of innovation, markets, community, and globalization — that is, by the interactions of free people. Not by politics. And not by the systems politics creates.

The political election is a tired old ritual in which we send our hopes and dreams away to distant capitals. Why do we outsource them to politicians, lobbyists, and bureaucrats: people who are trapped in a system that rewards the worst in people? What’s left of governance is logrolling, spectacle, and unwanted interference in the lives of everyone else.

Politicians seem more concerned with putting the genie of innovation and entrepreneurship back in the bottle than doing anything meaningful. After the election, we try our best to ignore them and get on with life.

Politicians seem more concerned with putting the genie of innovation and entrepreneurship back in the bottle than doing anything meaningful.

In 2012, US voters reelected Barack Obama, and now we’re gearing up to elect someone else. Candidates will talk about their visions and their wonderful plans for the country. But in the last three years, virtually none of the incredible, beautiful upheaval we’ve seen has had anything to do with the presidency or with anyone politician’s plans.

In fact, when you think about what government has done for us in recent years, only one new program comes to mind: Obamacare. Opinions vary on whether that program has been deeply disappointing or an unmitigated disaster.

Now, take a step back and observe the evolution of commercial society and how it is bringing us unprecedented bounty. The digital sector of emergent, market-generated, people-driven, technology-fueled innovation is fulfilling human aspirations and spreading useful services to people in all walks of life. National borders seem ever more arbitrary. Surprises await us around every corner. Our political systems can claim credit for none of it.

And yet, we are once again being asked to turn to politicians to drive progress.

Consider how much our lives and technologies have changed since the last presidential election. Smartphone ownership has gone from 300 million to 2 billion, meaning that most of the population of the developed world — and large parts of the rest — now have access to a wireless supercomputer in their pockets. As a result, we are more in touch than ever.

There are now dozens of ways for anyone to keep in contact with anyone else through text messaging and video, and most of the services are free. Transportation in cities has fundamentally changed due to ridesharing and app-based systems that are outcompeting municipal taxis. Traditional travel lodging has been disrupted through mobile applications that turn every empty room into a hotel, and finding permanent lodging is easier than ever. You can find the ratings for any service or establishment instantly with a click or a tap, long before you purchase. You can feasibly shop for and buy a house without ever having stepped inside of it.

Cryptocurrency is becoming a viable alternative to national monies, and payment systems on distributed networks are being customized for peer-to-peer exchanges of property titles.

The mass distribution and availability of mobile applications with maps means that you are never lost, and, moreover, that you can be intensely aware of everything around you, wherever you are or wherever you are planning to be. Extended families that are spread out over large geographic regions can stay constantly in touch, chatting and playing games.

The way we help our neighbors and communities is improving. We can contribute to charitable causes with just a click. We are closer to our neighbors and their needs — whether it’s a missing cat, a call for a handyman, or childcare for Saturday night. We can be on the lookout after a break-in and share video of the perpetrators instantly.

The way we consume music has fundamentally changed. We once bought CDs. Then we downloaded particular tracks and albums. With Internet everywhere, we now stream a seemingly endless variety of genres. The switch between classical and indie rock requires only a touch. And it’s not just new music we can access, but vast archives and recreations of music dating to antiquity. Instantly.

Software packages that once cost thousands are now low-cost downloadable apps. Many of us live in the cloud now, so that no one’s life is ruined by a computer crash. Lost hardware can be found with built-in tracers — even stealing computers is harder than ever.

Where we work no longer matters as much. 4G LTE means a powerful Internet connection wherever you are, and WiFi on airlines means staying in touch even while above the clouds. Online document signing means total portability and the end of the physical world for most business transactions. You can share almost anything — whether grocery lists or whole writing projects — with anyone and work in real time. More people than ever work from home because they can.

News is now crowdsourced through Twitter and Facebook — or through mostly silly sites like BuzzFeed. There are thousands of competitors, so that we can know what we want to know wherever we are. Once there was only “national news”; now a news event has to be pretty epic to qualify, and much of the news that we are interested in never even makes old-line newspapers.

Edward Snowden revealed ubiquitous surveillance, escaped prosecution, and now, thanks to technology, has been on a worldwide speaking tour, becoming the globe’s most famous public intellectual. This is despite his having been censored and effectively exiled by the world’s biggest and most powerful state. He has a great story to tell, and that story is more powerful than any of the big shots who want him to shut up.

Pot has been effectively legalized in many American cities, and the temperature on the war against it has dropped dramatically. When dispensaries are raided, the news flies all over the Internet within minutes, creating outrage and bringing the heat down on the one-time masters of the universe. There is now a political risk to participating in the war on pot — something unthinkable even 10 years ago. And as police continue to abuse their power, citizens are waiting with cameras.

Oil prices have collapsed, revealing the fallacy of peak oil. This happened despite pressure in the opposite direction from every special interest, from environmentalists to the oil industry itself. The reason was again technological. We discovered better and cheaper ways of drilling, and, in so doing, exposed vastly more resources than anyone thought accessible.

At the very time when oil and gas seemed untouchable, we suddenly saw electric cars becoming viable options. This was not due to government mandates — regulators tried those for years — but due to some serious innovation on the part of one remarkable company. It’s not even the subsidies, such as they are, that are making the difference; it’s the fine-tuning of the machine itself. Tesla even took it a step further and released its patents into the commons, allowing innovation to spread at a market-based pace.

We are now printing houses in one day, vaping instead of smoking, legally purchasing pharmaceuticals abroad, using drones to deliver consumer products, and enjoying one-day delivery of just about everything.

In the last four years, the ebook became a mass consumer item, outselling the physical book and readable on devices within the budget of just about everyone. And despite attempts to keep books offline, just about anything is now available for download, putting all the world’s great literature, in all major languages, at our fingertips.

Here we go again, playing “let’s pretend” and electing leaders under the old-fashioned presumption that it is politics that improves the world and drives history forward.

And speaking of languages, we now have instant access to translation programs that allow us to email and even text with anyone in a way he or she can understand regardless of language. It’s an awesome thing to consider that this final barrier to universal harmony, once seen as insuperable, is in the process of melting away.

These are all ways in which the world has been improved through markets, creativity, and free association. And yet, here we go again, playing “let’s pretend” and electing leaders under the old-fashioned presumption that it is politics that improves the world and drives history forward.

Look around: progress is everywhere. And it is not because we are electing the “right people.” Progress occurs despite politics and politicians, not because of them.

Max Borders

Max Borders is the editor of the Freeman and director of content for FEE. He is also cofounder of the event experience Voice & Exit and author of Superwealth: Why we should stop worrying about the gap between rich and poor.

Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World. Follow on Twitter and Like on Facebook.

Who Is Building the Private, Peer-to-Peer Marketplace? An Interview with Sam Patterson

Sam Patterson (sam@samuelrpatterson.com) is an author and technology enthusiast from Virginia. He has written about decentralized technologies such as bitcoin and OpenBazaar. Sam recently cofounded a company called OB1 to help build the decentralized marketplace OpenBazaar.

The Freeman: Your project, OpenBazaar, has been awarded $1 million in seed funding so far. Congratulations. What is it, and what does it do?

Patterson: OpenBazaar is an open source project to create a decentralized marketplace online where anyone in the world can buy or sell any goods or services with anyone else in the world, for free, using bitcoin. A few of the core project members (including myself) recently started a company called OB1, which received the funding in order to hire full-time developers and make OpenBazaar a reality.

Online commerce today is mostly centralized; companies own websites where users visit to buy and sell things. Those companies charge fees, monitor their users’ data, and censor their transactions based on their own rules and on behalf of the government.

OpenBazaar is different. Instead of relying on a centralized third party, trades occur directly between buyers and sellers. Users install peer-to-peer software on their computers, similar to bitcoin or BitTorrent, and this connects them to other users running the same software. They transact in bitcoin. Since there’s no middleman, there are no fees, no collection of data, and no censorship of trade.

The Freeman: Some people will object to OpenBazaar by saying it’s not transparent — that it will help criminals thrive. How do you answer such charges?

Patterson: Some have inaccurately labeled us as an evolved Silk Road — an underground drug marketplace. This is absolutely false, for many reasons. The Silk Road was centralized and run by a small group for profit. It catered to a specific group of people who traded in illicit goods.

In contrast, OpenBazaar is a decentralized marketplace, not run for profit. It doesn’t cater to any group, or any type of trade, but is open for all users to buy and sell anything they want with each other. It’s a much bigger vision than these narrow dark markets.

We expect that use of OpenBazaar will reflect markets in society. There will be some users who engage in activity that is morally or legally objectionable, but the vast majority of users will be engaging in positive and constructive trade. We don’t know exactly how people will use OpenBazaar to better their lives, but we believe that it will, and we can’t wait to see it happen.

The Freeman: What are the implications of this kind of technology for the world’s poorest people?

Patterson: Most of the existing centralized market platforms that I mentioned earlier don’t focus on the developing world, or even if they do, the payment methods used aren’t accessible for many of the world’s poor. Bitcoin requires no credit checks to use; an Internet connection and computer are all that’s needed. OpenBazaar is the same as bitcoin in this sense. It costs nothing to join and use, and the trade is direct between buyers and sellers; there are no middlemen to take a cut. We hope that by lowering the barriers to entry for online trade, OpenBazaar and bitcoin will bring millions of new users into the online economy.

The Freeman: What are the implications of this kind of technology for most of our readers — that is, wealthier Westerners?

Patterson: Establishing a protocol, client, and network for people to directly engage in trade with each other allows for more efficient transactions. Sellers on eBay who use PayPal regularly pay up to 10 percent fees on each sale. Those are 0 percent on OpenBazaar.

OpenBazaar is also more private. Instead of the centralized platforms getting all the information about your buying or selling habits, now that information is only available to the parties you directly engage with.

Also, if some of your readers are already bitcoin users, OpenBazaar is the first decentralized platform for them to spend their decentralized money. Many value decentralized technology simply because it takes power away from the gatekeepers in our world.

The Freeman: How do you market OpenBazaar? How do you build culture around it?

Patterson: We haven’t needed to market OpenBazaar so far. The bitcoin community is very excited to see it built. Once we look to go beyond bitcoin users and into the broader e-commerce space, then we’ll need to consider how to market ourselves. Likely, it will be around the lack of fees, which is compelling to retailers who have small margins.

Our culture is one that supports free trade and voluntary interactions in society. The ability to engage in trade directly with someone in person is a great thing, and it’s a shame that hasn’t been possible online — until now.

The Freeman: How flexible, robust, and “anti-fragile” is this system — especially with respect to predatory states who will likely try to foil its development?

Patterson: OpenBazaar is very robust, similar in design to bitcoin or BitTorrent. Because it’s run locally on users’ computers, there’s no central point of failure to attack. We don’t anticipate that OpenBazaar will face opposition from governments any more than other online platforms have; they have the same tools at their disposal to go after individual storeowners. But they cannot take down the whole system at once, unlike the existing platforms.

The Freeman: When will OpenBazaar be ready to use?

Patterson: We plan on publishing the first full release in November this year. The code is open source so developers can view it any time at our Github.

The Freeman: Thank you for speaking with us, Sam.


The Freeman

The Freeman is the flagship publication of the Foundation for Economic Education and one of the oldest and most respected journals of liberty in America. For more than 50 years it has uncompromisingly defended the ideals of the free society.

The Politics of Nostalgia: Why Does the Left Want to Take Us Backwards? by Steven Horwitz

One of the more curious developments in the last couple of years has been left-wing nostalgia for the economy of the 1950s.

Don’t political progressives usually portray themselves as being on “the right side of history” — representing, as the term suggests, the march of “progress”?

Not when it comes to the economy.

Paul Krugman has written a number of columns over the last decade about how much better things were in the middle of the 20th century. More recently, we have presidential candidate Hillary Clinton making a major economic policy statement in which she longs for a time like the 1950s when workers had the structure of the corporate world and unions through which to lobby and negotiate for pay and benefits, rather than the so-called “gig” economy of so many modern freelance employees, such as Uber drivers. “This on-demand or so-called gig economy is creating exciting opportunities and unleashing innovation,” Clinton said, “but it’s also raising hard questions about workplace protection and what a good job will look like in the future.”

To protect Americans from the uncertain future, Clinton promised she would “crack down on bosses that exploit employees by misclassifying them as contractors or even steal their wages.”

In an economy where technology has enabled people to have a great deal more flexibility with their workdays and independence with their work choices, it’s now the “progressives” who are complaining about the economic organizations that have been agents of more efficient resource use, expanded choice for workers, and cheaper goods for consumers.

In short, the progressives are complaining about what would otherwise be called progress.

And let’s not let the conservatives off the hook here either, as they demonstrate their own nostalgia for an economy of the past, with cheers for Donald Trump’s anti-immigrant and anti-trade tirades and for his general love of dirigiste policies. Immigration and trade have also expanded the range of work available, lifted millions out of poverty through better-paying jobs in the United States, and enriched the rest of us through more affordable goods and services.

What’s particularly amusing about both sides, but especially the progressives, is how wrong they are about life for the average American being better back in the 1950s, including how much more secure they were. In a terrific paper for the Cato Institute, Brink Lindsey effectively demolished Krugman’s nostalgia with some actual data about the economy of the 1950s. He pointed out that the increase in income inequality since then noted by so many progressives is largely overstated, and that the economy they are nostalgic for is one that restricted competition in a variety of ways, mostly to the benefit of the politically influential. Limits on immigration and trade, in particular, prevented the 1950s economy from achieving the reductions in cost and increase in variety that we associate with our economy today.

Does anyone really want to go back to the stagnant, conformist, more poverty-stricken world of the 1950s?

It is more than a little ironic that modern progressives are nostalgic for the very economy that GOP front-runner Donald Trump would appear to want to create.

As I argued in a recent paper, when we look at the cost of living in terms of the work hours required to purchase basic household items, most goods and services are far cheaper today than in the 1950s. The equivalents of those items today are also of higher quality: think about the typical household TV or refrigerator in 1955 versus 2015. These substantial decreases in cost have had another effect. They have made these goods increasingly accessible to the poorest of Americans. American households below the poverty line are far more likely to have a whole variety of items in their homes than did poor families in the 1950s. In fact, they are more likely to have those things in their houses than was a middle-class American family in the 1970s.

When you also consider the number of goods that weren’t even available in the 1970s or 1950s, from technology like computers and smartphones, to innovative medicines and medical procedures, to various forms of entertainment, to a whole number of inventions that have made us safer, healthier, and longer-lived, it’s difficult to argue that things were better “back then.”

The effect of all of this change driven by increased competition is that our world is one in which the middle class and poor are better off, and the gap between poor and rich as measured by what they consume has narrowed substantially. Does anyone really want to go back to the stagnant, conformist, more poverty-stricken world of the 1950s?

Politicians do. And here’s one reason why: back then, it was easier to influence and control people’s economic lives. Progressives with a desire to shape their ideal economy aren’t happy with the world of freelancers, Uber, and independent contractors.

The economy of the 1950s and 1970s had organizational focal points where politicians could exercise leverage and thereby influence the lives of large numbers of citizens.

I’m thinking here of the auto companies in the 1950s, the oil companies in the 1970s, and any number of industries where large firms were created by restrictions on domestic and foreign competition, which were easy points of contact for politicians with a desire to control, and which had corporate leaders who were happy to reap the benefits of corporatism.

In a world of Uber, Airbnb, and all the rest, there are no central points of leverage. Facebook produces no content, Uber owns no cars, Alibaba owns no inventory. More important: Uber has no employees, only contractors. If you are Clinton or Trump, or even Krugman, there’s nowhere to go to exercise your power or to drum up support from workers in one place. There’s nothing to grab hold of. There are just people trading peacefully with each other, enriching everyone in the process.

The real irony, once again, is that what this decentralized economy has produced is more freedom and more flexibility for more workers. The same progressives who railed against the conformism of the 1950s a decade later are now nostalgic for what their predecessors rejected and are rejecting exactly the “do your own thing” ethos their 1960s heroes fought for.

The “gig” economy works for people who want options and who want flexible hours so they can pursue a calling the rest of the day. Or perhaps they want to spend a few hours a week driving an Uber because Obamacare caused their employers to cut their hours at their other job.

Whatever the reason, this economy offers the freedom and flexibility for workers, and the benefits for consumers, that represent the progress progressives should love. That progressives (and conservatives) with power are fighting against it tells you that they are much more concerned with power than with progress.

Nostalgia is a dangerous basis for making policy, whether left or right.


Steven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

California Government Puts Uber on Blocks by Jeffrey A. Tucker

The California Labor Commission, with its expansive power to categorize and codify what it is that workers do, has dealt a terrible blow to Uber, the disruptive ride-sharing service. In one administrative edict, it has managed to do what hundreds of local governments haven’t.

Every rapacious municipal taxi monopoly in the state has to be celebrating today. It also provides a model for how these companies will be treated at the federal level. This could be a crushing blow. It’s not only the fate of Uber that is at stake. The entire peer-to-peer economy could be damaged by these administrative edicts.

The change in how the income of Uber drivers is treated by the law seems innocuous. Instead of being regarded as “independent contractors,” they are now to be regarded as “employees.”

Why does it matter? You find out only way down in the New York Times story on the issue. This “could change Uber’s cost structure, requiring it to offer health insurance and other benefits, as well as paying salaries.”

That’s just the start of it. Suddenly, Uber drivers will be subject to a huge range of federal tax laws that involve withholding, maximum working hours, and the entire labor code at all levels as it affects the market for employees. Oh, and Obamacare.

This is a devastating turn for the company and those who drive for it.

Just ask the drivers:

Indeed, there seems to be no justification for calling Uber drivers employees. I can recall being picked up at airport once. Uber was not allowed to serve that airport. I asked the man if he worked for Uber. He said he used to but not anymore.

“When did you quit?”

“Just now,” he said. Wink, wink. He was driving for himself on my trip.

“When do you think you will work for Uber again?”

“After I drop you off.”

That’s exactly the kind of independence that Uber drivers value. They don’t have to answer any particular call that comes in. They set their own hours. They drive their own cars. When an airport bans Uber, they simply redefine themselves.

They can do this because they are their own boss; Uber only cuts them off if they don’t answer a call on their mobile apps for 180 days. But it is precisely that rule that led the commission to call them “employees.”

That’s a pretty thin basis on which to call someone an employee. And it’s also solid proof that the point of this decision is not to clarify some labor designation but rather to shore up the old monopolies that want to continue to rip off consumers with high prices and poor service. No surprise, government here is using its power to serve the ruling class and established interests.

This is exactly the problem with government regulations that purport to define and codify every job. Such regulations tend to restrict the types and speed of innovation that can occur in enterprises.

The app economy and peer-to-peer network are huge growth areas precisely because they have so far manage to evade being codified and controlled and shoe-horned into the old stultifying rules.

If everyone earning a piecemeal stream of income is called an employee — and regulated by relevant tax, workplace, and labor laws — many of these companies immediately become unviable.

There will be no more on-demand hair stylists, plumbers, tennis coaches, and piano teachers. The fate of a vast number of companies is at stake. The future is at stake.

For now, Uber is saying that this decision pertains to this one employee only. I hope that this claim is sustainable. If it is not, the regulators will use this decision to inflict a terrible blow on the brightest and fastest growing sector of American economic life.


Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.