Best wishes to those of you in the path of Hurricane Sandy. Stay safe and, assuming you still have power, below are a few things to think about while you wait out the storm.

Some people are trying to find the silver lining in light of Hurricane Sandy by making some claims that we may see GDP increase or at least stay the same. Here are some resources that examine this so-called “silver lining” mentality when it comes to both man-made and natural disasters:

• The Broken Window Fallacy (video)
• “That Which is Seen, and That Which is Unseen” by F. Bastiat
• “Destroying Property Does Not ?Promote Economic Prosperity“

On a lighter note, have you ever wondered if fantasy football and economic freedom are connected somehow? Here’s a light-hearted and informative article called “Touchdown for Freedom.”

Have you found any interesting articles or video clips that can help us better understand economic freedom or MBM? Leave us some links in the comments.

Free speech is one of the mental models we learn about from free societies. Recently, I was asked for some sources on free speech, so I figured I might as well share them with all of you. First, I want to give you a little bit of context for these sources. I’m an economist by training, so when I first started studying MBM, I had to learn (and continue to learn) quite a bit about other disciplines that MBM has drawn from, including psychology, management, history, and law (along with how economics specifically fits into MBM). Free speech was one of those mental models that I thought I knew something about, but it turned out to be a rich and deep topic of which I only had a surface understanding. Below are the sources I found most useful in exploring this mental model.

•  On Liberty by John Stewart Mill – specifically the first half of chapter 2, which is call “Of the Liberty of Thought and Discussion.”
• “The Republic of Science” by Michael Polanyi — especially useful for exploring standards on free speech.  
• Free Speech: A Very Short Introduction — I offer this with the disclaimer that there are some examples of offensive speech used as examples of what does or does not qualify as free speech in the US.
• These guides are about free speech in higher education specifically, usually by start with some general thoughts about free speech. Also, I found them useful in helping me understand some of the practical implications  free speech rights.

What sources have you found useful when learning about free speech? What questions or thoughts come to mind about free speech?

As with all influences on MBM, not every single part of these sources are consistent with the values and beliefs in the MBM philosophy. MBM draws on lessons, ideas and best practices from thinkers and disciplines to understand how humans achieve societal peace, prosperity and civility. When reading original works that influenced MBM or sources that are educational, I encourage you to critically evaluate what is consistent and inconsistent with the MBM philosophy.

Free speech

I know many of you have read parts of Frederic Bastiat’s The Law. Perhaps one of his most famous observations from this book is the concept of legal plunder (or what some of you may have heard described as profiting by the political means).  Below is a short and amusing clip that attempts to capture the essence of Bastiat’s observations and arguments about legal plunder. For those of you who are familiar with Bastiat and/or the mental model of profiting by the political means, I’d like your feedback on if the clip accurately portrays Bastiat’s point of view or the mental model of profiting by the political means.

What do you think of the video? Does it reflect what you know to be true of Bastiat’s work? Does it clarify or confuse the issue of profiting by the political means?

Last week I wrote about there-ought-to-be-a-law thinking. A similar thing often happens in organizations — be it a business or a sports team or a reading group — I call it there-ought-to-be-a-rule thinking. I’ll admit I’ve had conversations along this line of thought. Once I worked at a stodgy finance-focused establishment with a dress code requiring hosiery if one wears a skirt.  A co-worker wore bright blue tights with a business suit. She was following the dress code. A colleague came up to me and said, “There ought to be a rule against such awfully colored tights.”

Instead of thinking there-ought-to-be-a-rule, perhaps we should be thinking “What’s the market-like alternative?” For instance, in a free market, people are free to wear bright blue tights to do business. As a customer, if I don’t like those tights I can send a message to the supplier — either by exercising  free speech and telling her or by taking my business elsewhere. Either way, the supplier gets a pointed message from the specific customer that she is doing something I don’t like.

Of course, being a part of an organization isn’t exactly one-to-one with the free market. I can’t refuse to work with a colleague because I think her tights are not very professional. However, I can think about what would happen in a free market and do something like it. The obvious connection is to talk to the colleague (like free speech in a free market). What else can we learn from the free market to apply to this situation (or a similar situation)? When have you found a market-like alternative to there-ought-to-be-a-rule?

Ann’s Note: I’m not saying we should not have rules. Instead, I’m asking that we reevaluate our urge to default to making a rule when we don’t like something instead of finding a market solution. As always, feel free to challenge all of these ideas in the comments or send me an email.

Rules of Just Conduct

Have you ever heard something on the news and thought to yourself, “There ought to be a law!”? I’ve become a bit dismayed that this phrase has become an acceptable form of showing distaste with something (imagine if we outlawed everything a few individuals found distasteful!). Instead, I wish we had a norm to say, “What’s the market solution?” Okay, that’s probably not a cool enough phrase to become every day use, but I hope you get my point.

For instance, I heard  a quick blurb on the news this morning about the TV Networks taking the FCC to court over fines for inappropriate material. Regardless of where you stand on the censorship issue, let’s me just focus in on one sentiment I’ve heard come through strongly: parents need decent TV stations so they don’t have to worry about their kids watching TV. What happens if we apply the what’s-the-market-solution strategy instead of the there-ought-to-be-a-law thinking? I’m guessing if we were all sitting around having a cup of coffee, we could think of dozens of other ways to serve parents who want decent programming for their kids to watch.

My biggest problem with there-ought-to-be-a-law thinking is it implies that a few people who make laws have all the answers and know what is right. If we can switch to what’s-the-market-solution thinking, it implies we (as in normal, everyday people) have say in what happens. Also, it enables us to tap into vast networks of ideas and knowledge because we’d have thousands (millions?) of entrepreneurs thinking about solutions. More than likely, we’d have multiple solutions from which to choose.

I’d like for you to leave me some comments with recent events that had you (or someone you know) saying, “There ought to be a law!” Let’s see if we can take some of these things and ask “What’s the market solution?”

Ann’s Note: I’m not saying we should not have laws. Instead, I’m asking that we reevaluate our urge to default to making a law when we don’t like something instead of finding a market solution. As always, feel free to challenge all of these ideas in the comments or send me an email.

Beneficial Rules of Just Conduct, economic freedom, Free Markets, hypothetical, knowledge, Norms

Happy New Year! I thought I’d start out the new year on the blog by going back to some free market classics. It’s amazing how essays I’ve read before seem new again after some time. Try revisiting “I, Pencil” this week. This time around, a quote from the introduction stood out to me.

“The lesson of “I, Pencil” is not that error begins when the planners plan big. It beings the moment one tosses humility aside, assume he knows the unknowable, and employs the force of the State against peaceful individuals. That’s not just a national disease. It can be very local indeed.”
- Lawrence W. Reed in the Introduction to “I, Pencil” the 50th anniversary edition

Lately, I’ve been thinking about centralized planning in organizations. It’s true organizations plan — sometimes a few people plan for hundreds or even thousands of people within an organization. Sometimes it is a competitive advantage for an organization to have centralization of planning for particular resources. Sometimes there is a competitive advantage for an organization to have planning decentralized.

If I had to guess, I would say most organizations tend to over centralize planning (note: I just took a wild guess it may not be true!).  At what point does centralized planning become too much like central planning in society? What would be some signs an organization may be over centralizing planning? Use the 5 Dimensions to help guild your comments.

Humility, Science of Liberty, Spontaneous Order

Before you watch the video below, take a moment to consider some quotes about knowledge.

“Civilization advances by extending the number of important operations which we can perform without thinking about them.”
A. N. Whitehead

I am a lead pencil… I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove… not a single person on the face of this earth knows how to make me.
“I, Pencil” by Leonard Reed

“…the individuial benefits from more knowledge than he is aware of. It might be said that civilization begins when the individual in the prusuit of his ends can make use of more knowledge than he himself acquired and when he can transcend the boundaries of his ignorance by profiting from knowledge he does not himself possess”
[The Constitution of Liberty, page 22]

“Left to his own devices he couldn’t build a toaster. He could just about make a sandwich and that was it.”
Mostly Harmless by Douglas Adams

Now that you’ve seen Thomas Thwaites’s incredible attempt to make his own toaster, what strikes you about the knowledge needed to make a cheap toaster? What knowledge did he draw on to make his toaster? What knowledge did he draw on that he probably didn’t realize wasn’t explicit knowledge? (Here’s a hint since I couldn’t figure out an elegant way to phrase that last question: I’m thinking of things like using a leaf blower or microwave and the knowledge needed to make those tools.)

NPR reported on something near and dear to many of us–fees that banks charge us.  It seems that every time I withdraw money from an ATM or look at my bank statement, I walk away with a scowl mumbling something along the lines of “that’s how they get you….” 

And it seems like it’s getting worse.  Apparently, it really is.  Why is that? 

One explanation is that banks are getting greedier.  But, assuming human nature hasn’t spontaneously changed for a small segment of the population (i.e. assuming that bank owners are no more or less greedy than any of us, and that they are no more or less greedy than they were five years ago), this doesn’t seem like a very strong argument.

One factor at play seems to be the environment in which the banks are operating.  Unlike human nature, that is one thing that has changed in the past few years.

Federal rules will cap the amount banks can charge merchants at about 24 cents per transaction, down from an average of 44 cents.

It’s the latest regulation imposed on banks. Last year, strict rules on credit cards limited when they could raise interest rates and virtually eliminated customer fees for going over credit limits. Then the Federal Reserve tightened rules for when and how often banks could charge for checking account overdrafts.

But each regulation aimed at reducing the costs for consumers has chipped away at bank revenue — and left banks going so far as to make the customer pay for services that had been offered at no charge. [Emphasis added -ed]

In fact, according to this study [PDF], regulations have gone up in many aspects of our lives in the past few years.  From 1980-2000, the U.S. was very economically free in terms of how regulated we were as individuals (after all, it’s somewhat inaccurate to say that a “bank” or a “corporation” is regulated–at the end of the day individuals work in and own these things, so individuals are regulated).  Compared to almost all other countries in the world, in fact, the U.S. ranked between 2nd and 4th most free during those 20 years in terms of regulations.

However, since 2001, our economy has become increasingly regulated (both absolutely and relative to other countries).  Last year we were ranked 17th most free in terms of regulations; this year we are ranked as 20th.  That’s a drop of over 15 places in less than a decade!

As we saw with banks and checking fees, regulations tend to increase the cost of business, which can ultimately increase the costs of things you and I buy every day.

I wonder what other regulation-generated costs are born by us each day?

Bank of America, Charges, Fees, Regulations

In honor of the Economic Freedom of World Report release earlier this week, today’s links are all about economic freedom. (Here’s a reminder for those of you who want a refresher on economic freedom.)

The Mercatus Center has a video showing how economic freedom has changed in the US since 1970. Scroll to the bottom of this article to see the quick clip.

Learn Liberty has a video clip of one of the authors of the Economic Freedom of the World Report explaining more about economic freedom.

Here’s a Forbes.com article with some charts and a video explaining more about this years’ Economic Freedom of the World Report.

I know there’s been lots of talk about the Economic Freedom of the World Report. Leave any related links you’ve found in the comments. Have a safe and happy weekend.

Have you seen this video about prosperity and it’s relationship with economic freedom?

I and a few colleagues give a presentation that is basically this video with a lot more detail. We frequently get the following four critiques. How would you respond?

• Country X has large government programs and is prosperous (typically Sweden, Canada, the Netherlands, etc.); economic freedom suggests that relatively small governments are better: ergo, the hypothesis about economic freedom leading to prosperity is wrong.
• The average person isn’t helped by economic freedom–only the wealthy are, as shown by the increasing income gap.
• Country Y is very poor, but their poverty is due to issues other than economic freedom.
• Issues other than economic freedom have more of an impact on prosperity (type of government structure, political involvement by average person, education levels, etc.).