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The Invisible Hand in a Global Economy

In The Wealth of Nations, Adam Smith introduced the concept of The Invisible Hand. Buchholtz puts it this way: “…market competition leads a self-interested person to wake up in the morning, look outside at the earth and produce from its raw materials, not what he wants, but what others want. Not in the quantities he prefers, but in the quantities his neighbors prefer. Not at the price he dreams of charging, but at a price reflecting how much his neighbors value what he has done.” In other words, this self-interest drives creation of something of benefit to someone else – and to society in general!

The Invisible Hand, in a sentence, states that “The market place will not support a business that does not proffer a good or service that is more valuable than the sum of its raw materials.” In other words, if it costs you $50 to make a table but nobody will buy it for more than that, you go out of business and the resources are used by someone else. This is actually a preservation of scarce resources in a more efficient way than any central planning committee could manage!

That’s a policy that is more relevant in our times than “from each according to his means, to each according to his need.” For right now, many of us are living beyond our means and we are all in need of something. In our global economy, as our society of consumers grows and diversifies, we increasingly cede control of these resources from our local economies to the global one. So others are making resource allocation decisions for materials we may want for ourselves.

Not only that, we have a problem with the residue of the production of things. Pollution is the residue. The problem with pollution is that it does not function according to the Invisible Hand. For the person who buys the good that led to the pollution, the individual cost he pays is low compared to the value he receives. But for the person who hasn’t acquired that product, the pollution is only harmful. The cost is infinitely high. This is called the tragedy of the commons.

The true cost of producing a good, therefore, is the cost of producing it without negatively impacting ANY parties who receive no benefit. In other words, the only by-products or side effects which exist must be directly proportional to the amount of value received. One way to assure this is to force companies to produce zero pollution, with the by-product being a higher cost to the consumer.

I read somewhere that making a H2 actually causes less pollution than making a Prius. For a second I’d like to forget about whether that’s a fact or not and just suppose it is true – I’m trying to make a point. The consumer would have a choice between two vehicles which reflect the true costs of production. What about the gas you might ask. How about a gas tax which is used to fund carbon sinks around the country? Again, it’s about reflecting the true costs in the price.

Why haven’t more environmentalists adopted Smith as their champion? A law based on his work might well require a manufacturer to produce zero pollution that couldn’t be safely locked away somewhere. It would be in the same spirit as anti-trust legislation: protect the market forces and let them regulate. And it would be very simple to enforce, too. I can see a time when it would be unthinkable for a country NOT to have these laws in place.

Rock Star 3: Obama’s World Tour

The news is all aflutter with Obama news. The reporters get downright giddy when talking about him like they’re teenage girls and Obama is John, Paul, George and Ringo rolled into one. I half expect them to start weeping and rending their hair. OK, maybe that’s slightly exaggerated but you can’t help but feel like at least Ireland and England have a crush on the new President.

I’ve seen two different news programs call him a “rock star“. Didn’t McCain take a lot of crap for calling him a rock star in the campaign? Well he’s certainly a popular guy over here. It’s a nice feeling to have the world approve of my President (and by proxy, me) rather than hurl epithets at him (and by proxy, me). I notice a difference in peoples’ attitudes – mostly that they don’t take every opportunity to bash America and our politics. I just hope that the treatment doesn’t go to his head.

Oh look, more coverage of Obama. This one shows his car leaving Buckingham Palace 3 days ago. Wow, it’s shiny and black and the windows are dark and it’s got two flags. Here’s another one about Obama appealing to NATO to support the war on Afghanistan. The anchorwoman has a sympathetic voice, clearly she feels that NATO should help out. What a difference a year makes.

His picture is off the TV so I’ll get back to my point. So as I was saying, I hope all this praise and fawning doesn’t go to his head. Many rock stars lose their way after getting such treatment when on tour.

Obama is back on TV. No, I’m not kidding. The story about disagreements in NATO over the new head focus on Obama and his “road show” in town-hall meetings. Oh, there’s a mention of the point of the story – disagreements within NATO. Picture of Obama as they talk about Germany and Turkey arguing. Talking about one of Obama’s speaches now. The only time other world leaders have been mentioned are “so and so talked with Obama,” “this guy said hello to Obama and smiled,” “Obama knows this guy’s name,” etc.

Obama won a book award in London. Short story, but apparently the book was wonderful.

TV is off now. Obama warned North Korea not to launch their missile. No mention of what the missile is for, surrounding countries’ stance on it or North Korea’s stance. Just a short couple of lines.

OK they’re on to another topic. It’s too easy to get distracted. So I hope our President doesn’t lose sight of his primary objective: taking care of America. A lot of rock stars have gone that way. They forgot about the music and became the celebrity like Sammy Haggar or everyone from Metallica. Or they just went a bit nuts after their meteoric rise. Ozzy Osbourne, Michael Jackson, Keith Moon, Mick Jagger, etc. Or they felt like they couldn’t fail and put out a country album. I’m looking at you, Neil Young.

Mr. Obama, don’t let this happen to you. Remember, you have been tasked with helping us on this side of the Atlantic. Help get our economy back on solid ground, “establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” Do us proud.

Unofficial American Presidential Poll

If Europeans were to decide the next American President, they would overwhelmingly choose to elect Obama rather than Bush. So far not a single person I’ve talked to would vote for Bush for a third term. And who’s that other fellow who’s running?

Of course this all ignores the fact that Bush can’t be reelected. And it ignores the fact that no matter who promises what, both McCain (oh yeah, that’s his name) and Obama just as likely to break as to fulfill their promises once elected. It’s the same as nearly any politician. Just ask the French about Sarkozy.

My personal choice is to vote for whoever has the most integrity and will make choices that I would agree with if I had that level of information. Too many people think that what they hear or read about, often in highly partial tones, is the only relevant information.

I try to point these things out and to explain that there’s really not a candidate that most Americans would say represents all of their views and opinions. That’s an argument in favor of having more parties as they do in most places in Europe.

FYI, I don’t want to come across like I’m making fun of the Europeans (and some other nationalities) I’ve met on my trip who don’t realize that Bush can’t be re-elected. Americans just take it for granted that no President can be elected to more than 2 terms, but I nearly always have to point that out over here.