How Children Learn the Humanity of Trade

My older children attend a self-directed learning center for unschoolers a couple of days a week. I love to hear the stories they share about what they do during the day. Classes are offered and are generated based on the young people’s interests, but they are entirely voluntary. Kids can attend classes or do their own projects, either independently or collaboratively, during what is known as “open hangout.” No one directs the hangout. Adults are present to facilitate and help if needed, but they don’t orchestrate the children’s work and play. The kids are free to create at will.

One creation that has been ongoing for months during open hangout is the development of a marketplace and its associated currency, known as myafo. It turns out, some of the kids want to tax the businesses in the marketplace “because that is how it is.”The kids create myafo using crayons and hot glue to make colorful, round gems and then use this currency to “buy” items that are produced for sale in the myafo marketplace. It’s been interesting to hear about the evolution of this economy and its unit of exchange, including the successes and setbacks.

Lately, as the marketplace gains popularity among the young people at the learning center, there have been discussions about creating a central bank and the potential issues related to that. There have also been conversations about power and control. Not surprisingly, one discussion that piqued my interest related to taxes. It turns out, some of the kids want to tax the businesses in the marketplace “because that is how it is.”

Forced Generosity

Others have more magnanimous reasons for taxation, such as using the taxes as a method of charity to allow kids who are new to the center, or who attend irregularly, to fully participate in the marketplace by receiving an allotment of myafo out of the collected taxes. It was called a charity tax. Some children disagreed with the tax idea and suggested that everyone be encouraged to voluntarily donate some of their myafo to help the newcomers. After all, forced generosity isn’t charity; it’s coercion.

It will be interesting to see how the myafo marketplace matures and how the kids address conflicts related to their growing economy. The issues they grapple with are big, and even we adults haven’t figured them out in real life. I am glad to see that dialogue and debate are central to the young people’s decision-making and that it is all completely child-driven. Trade is a fundamental process of human betterment.The kids, who range in age from about six to 14, created this project all on their own, with no adult prompting and no adult interference. It reveals how the idea of peaceful, voluntary cooperation through trade is something humans gravitate toward. Indeed, they have for millennia.

The history of trade dates to prehistoric times, as individuals sought to improve their well-being through trade. Someone has something to barter or sell that someone else wants to barter or buy, and both parties are better off as a result of the exchange. Trade is a fundamental process of human betterment. As it has spread during modern times, particularly when unencumbered by kings, dictators, and other central powers, free trade has led to growing global prosperity and astonishing reductions in poverty.

Trade

FEE’s Dan Sanchez goes so far as to say trade is what makes us human and quotes Adam Smith, who wrote in The Wealth of Nations of humans’ “propensity to truck, barter, and exchange one thing for another.” Smith continues:

It is common to all men, and to be found in no other race of animals, which seem to know neither this nor any other species of contracts. (…) Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that.

If you or your children are curious about the history of money and exchange, I highly recommend this Outschool.com class taught by Tom Bogle, as well as the Netflix original series Origins and its episode on “Money, Banks, and The Stock Market.” And definitely check out FEE’s fantastic Common Sense Soapbox episode “Voluntary Trade is Win-Win!

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Get Off the Pendulum: The Trap of Reactionary Thinking

When I was younger, I used to enjoy riding Pharaoh’s Fury at the Coastal Carolina fair. This big sphinx-headed boat swung back and forth on a mechanical arm, terrifying and thrilling the riders, and (in our imaginations) we thought about what it would be like if it went upside down – dumping us all out.

This ride is much like how most people and cultures do their thinking about values in politics, religion, and cultural norms. We swing in one direction, then another, then back again.

For a while one major viewpoint dominates. That viewpoint oppresses or annoys a strong minority until it eventually creates a strong reaction and a pendulum swing in the other direction. Cultural control comes into the hands of the new majority, which oppresses or annoys the new minority, and the cycle begins again.

You can see the pendulum in action in a society’s relationship with religion: when religion dominates, secularists react (see the antitheist movement), and when secularism dominates, religionists react (see the fundamentalist movement). I’d argue that the intensity of both antitheism and fundamentalism are driven by feelings of disenfranchisement and oppression (and therefore more vulnerable to lazy thinking) rather than *just* differences of opinion.

You can especially see the pendulum in action on norms around gender roles and masculinity/femininity. For a long time, men (they still do in most cases) held and abused power over women. Fortunately for everyone, some women got pissed off and produced feminism. At some point, the swing toward feminine empowerment began to (at least appear to) correspond with a deemphasis of masculinity and a deconstruction of the important social role of males and masculinity. That has produced another swing in the direction of revived masculinity – some fantastic, but some unhealthy and unhealthily angry with feminism. In any case, if this reaction succeeds, it may only trigger another swing back in the other direction.

You can see the pendulum on a macro scale as well as in the micro scale of individual thinking. Everyone seems caught up in one reaction or another to the swinging of the belief pendulum. Perhaps you’ve gone through changes in your own beliefs. How often were you shifting your beliefs because of a sense of annoyance, or boredom, or anger, or contempt?

Of course, thinking on a pendulum is stupid. Thinking based on reaction and based on majority/minority belief status blinds you to complexity and to the actual merits of arguments.

And unfortunately, unlike a pendulum limited by Newton’s laws, the pendulum of reactionary thought in politics and philosophy can continue to swing wider and further out with each cycle – until everyone falls out of the ride (to borrow the earlier metaphor).

There are alternatives.

If you use discernment, you’ll watch to separate out your reasoned beliefs from your reactionary/emotional/tribal ones. When you do that, you’ll be surprised how non-partisan and hard-to-categorize your beliefs become.

Maybe the left has good things to say about unjustly-acquired wealth. Maybe the right has good things to say about individual skill and responsibility in building wealth. Maybe the right answer includes and transcends (to borrow a phrase from Ken Wilber) both.

Maybe the feminists have good things to say about structural injustices toward women. Maybe the masculinists have something good to say about the importance of independent manhood.

Maybe the secularists can teach us something about being. Maybe the religionists can teach us something about the ground and sacredness of being.

When your beliefs can become this nuanced and non-tribal, you can be insulated from most of the worst effects of the social pendulum. But always watch out for what irritates you in others’ beliefs and actions. The irritation will always be there, but you can’t let it push you to change much in your values – or at all in the values that matter most.

Originally published at JamesWalpole.com.

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Yep, These People are Stone Cold Crooked

Did vice president Joe Biden threaten to withhold $1 billion in US loan guarantees from the Obama administration if the Ukrainian government failed to remove a prosecutor whose investigation targets included Burisma Holdings, a gas company on whose board Biden’s son, Hunter, sat? Yes. He’s publicly admitted it.

Did president Donald Trump pressure Ukraine’s president, Volodymyr Zelensky, to re-open corruption investigations into Burisma in general and the Bidens specifically? Yes. He’s publicly admitted it.

Let us briefly pause while partisan Democrats and partisan Republicans, supporters of Biden and supporters of Trump,  get the screams of “false equivalency!” out of their systems.

I’ll even entertain the notion. Maybe Joe Biden was just worried about corruption in Ukraine and not throwing his vice-presidential weight around to protect his son. Maybe Donald Trump is just worried about corruption in Ukraine and self-dealing by American politicians, rather than cynically abusing his presidential power to have foreign governments torpedo his political opponents.

OK, now let’s get back to the real world where, as Lord Acton wrote, “power tends to corrupt; absolute power corrupts absolutely.”

Or, as President Trump tweeted about his accusers, and has he’s established concerning himself over the course of decades, “these people are stone cold crooked.”

The basic facts of both sets of accusations are undisputed by the accused. What’s at issue is their motives.

Those with power (including one of its forms, wealth) tend to act to preserve that power. As the amount of power requiring preservation increases, so does the temptation to use that power in corrupt ways to protect and expand it.

The positions of president and vice-president/potential president, entail considerable power. Suspecting corrupt motives on Biden’s part, Trump’s part, or both, is not only not beyond the pale, it’s perfectly reasonable.

The emerging scandal may cost both Trump and Biden their 2021-2025 presidential ambitions. It could conceivably even cost Trump several months of his current term if the House impeaches and the Senate convicts (the former looks increasingly likely, the latter seemingly unlikely).

But the problem goes deeper than the ambitions or personal moral compasses of Donald Trump and Joe Biden. The problem is power itself. We’ve ceded far too much of it to politicians, and the executive branch in particular has co-opted far too much of what we’ve unwisely ceded to the state in general.

Neither Joe Biden nor Donald Trump should have ever had control over billions of dollars in aid to Ukraine’s government in the first place. If the US does dispense foreign aid (it shouldn’t), the job of the White House is to cut the checks as directed by Congress.

The US, after decades of creep toward dictatorship, is there. The executive branch has seized plenary power because Congress has failed to jealously guard its prerogatives and the Supreme Court has failed to zealously protect our rights.

The authoritarian dystopia into which we’ve fallen, not the specific details of a dictator’s or would-be dictator’s abuses,  is the problem. If we don’t solve it, we solve nothing.

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The Fault Is Not in Our Stuff But in Ourselves

Bruce Sacerdote‘s NBER Working Paper, “Fifty Years of Growth in American Consumption, Income, and Wages” provides a nice update on the measurement of CPI Bias.  The punchline should be obvious, but it’s great to hear such an eminent economist say it: “Meaningful growth in consumption for below median income families has occurred even in a prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor.”

Highlights:

Table 3 shows estimates of annualized growth rates in wages by decade. The first column shows growth in real wages using CPI deflation. This column show real wages fell by 0.8 percent per year during the ten years January 1975-January 1985 and fell by 0.6 percent per year during the ten years ended in 1995.10 In the subsequent two decades wage growth is positive 0.8 percent per year and 0.7 percent per year respectively.

The next three columns calculate growth in real wages using a) PCE adjustment, b) an assumption of 20% upward bias in CPI growth, and c) Hamilton/ Costa adjustment to CPI. The picture looks progressively more optimistic as we move from left to right. PCE adjustment still has negative wage growth in the first two decades (75-85 and 85-95) but the decreases in real wages are smaller. Hamilton/ Costa bias adjustment implies annual real wage growth of 1.4% during 1975-1985, .2 percent per year during 1985-1995, 1.4 percent during 1995-2005 and .8 percent in the most recent decade.

The table in question:

More:

Consumption for below median income families has seen steady progress since 1960. My preferred point estimates are based on CEX measures of consumption where the price index has been de-biased following Hamilton and Costa. These estimates suggest that consumption is up 1.7 percent per year or 164 percent over the whole time period. These estimates of growth strike me as consistent with the significant increases in quality and quantity of goods enjoyed by Americans over the last half century. And my conclusions are consistent with the findings of Broda and Weinstein (2008). Estimates of slow and steady growth seem more plausible than media headlines which suggest that median American households face declining living standards.

The bias adjusted estimates also provide a more positive outlook on real wage growth in the last 40 years than standard media headlines. PCE adjusted wages appear to have grown at .5% per year during 1975-2015 while the de-biased CPI adjusted wages grew at 1% per year over the same time period.

Key caveat:

Importantly these estimates do not tell us anything about why wages grew more slowly than GDP or why inequality increased. CPI bias does not explain decreases in labor’s share of income (Krueger 1999) or the associated rise in inequality (Pikkety and Saez 2003). Adjusting the price index downward leads to higher estimated real wage growth and higher estimated real GDP growth.

The big unanswered question:

What I do not address here is why Americans feel worse off if consumption is actually rising. There are at least four important explanations that may be at work. First, I am only examining consumption within very large sections of the income distribution and there may be specific groups (for example less than high school educated men) for whom consumption is actually falling. Second, it’s possible that the quality of some services such as public education or health care could be falling for some groups. Third, the rise in income inequality coupled with increased information flow about other people’s consumption may be making Americans feel worse off in a relative sense even if their material goods consumption is rising. Fourth, changes in family structure (e.g. the rise of single parent households), increases in the prison population, or increases in substance addiction could make people worse off even in the face of rising material wealth. A deep future research agenda would be to understand how America has lost its sense of optimism about living standards and whether the problem is one of consumption, relative consumption (relative to other people) or something entirely different.

My favorite candidate for “something entirely different”: false consciousness.  Most people embrace a dogmatic pessimistic ideology, and believing is seeing.  Hedonic adaptation amplifies the problem.  After all, it’s easier to deny that your standard of living is great than to admit that you’re unhappy despite your affluence.  The fault is not in our stuff but in ourselves.

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The Great Successor: Inside North Korea

I highly recommend Anna Fifield’s The Great Successor.  It’s full of information about not only the life of Kim Jong Un, but what’s happened inside North Korea since his ascent to the Red Throne.  Most readers will be shocked by her description of the North Korean hell-state, but that’s all old hat to me.  Here’s what surprised me in Fifield’s book:

1. Kim Jong Un didn’t just attend a fancy English-language school in Switzerland.  After his expat guardians – his maternal aunt and her husband – defected, Kim was actually switched over to a German-language Swiss public school.  Weird.

2. Kim’s top interest as a boy was basketball.  His eagerness to befriend American basketball stars really is the fulfillment of a childish dream.

3. “Kim Jong Il spoke in public only once, and then only a single phrase, during his entire seventeen years in power.  ‘Glory to the heroic soldiers of the Korean People’s Army!’ he said during a military parade in 1992.”  Kim Jong Un started giving lengthy public speeches almost immediately.

4. Kim Jong Un has deliberately fostered a revolution of rising expectations:

North Koreans “will never have to tighten their belts again,” the Great Successor declared when he delivered his first public speech, marking the occasion of his grandfather’s one hundredth birthday.  Kim Jong Un told the bedraggled populace that they would be able to “enjoy the wealth and prosperity of socialism as much as they like.”

5. Kim’s execution of his uncle Jang Song Thaek was part of a much larger purge.  “Dozens, perhaps even hundreds, of Jang’s associates disappeared around the same time.  Some of them were not just purged from the system but more likely executed.  Those outside North Korea at the time fled.”  Note: This probably means that the runners’ families were sent to slave labor camps or executed.

6. Just as Stalin stole Trotsky’s economic plan after purging him, Kim went on to implement Jang’s vision of watered-down Deng-style economic reforms.  The Communist elite now openly enjoys a much higher standard of living.  Some of this gain is trickling down to the commoners.

7. Kim Jong Un is eager to win over the millennial elite with capitalist luxuries and entertainment.  “It was fun to be a rich kid in Kim Jong Un’s North Korea.  The richest kid of all was making sure of it.”

8. Kim rushed to get a credible nuclear deterrent, then declared himself satisfied.  And his behavior seems consistent with his intentions.

Just a week before his summit meeting with South Korea’s President Moon, Kim Jong Un delivered a speech to a Workers’ Party meeting in Pyongyang in which he declared the “byungjin” or “simultaneous advance” policy to be over.  He no longer needed to pursue nuclear weapons – he had achieved them.  He declared an immediate end to nuclear tests and intercontinental ballistic missiles launches…

From now on, Kim Jong Un said, he would be focusing on a “new strategic line.”  He would be concentrating on the economy.  And for that, he would need an “international environment favorable for the socialist economic construction…

In 2013, he had boldly elevated the economy to level pegging with the nuclear program after decades of “military first” policy.  Five years later, almost to the day, he was unequivocally making economic development his top priority.

Before reading this book, I was already 85% confident that Kim Jong Un would rule North Korea for life.  Now I’d go up to 90%.  Despite his youth, he’s a skilled tyrant.  However, I’m not quite as pessimistic about the fate of the North Korean people.  Kim has dramatically relaxed the regime’s war on consumerism, and it is very hard to confine this rising abundance to the inner circle.  People who think Kim will give up his nuclear arsenal are dreaming (or lying); while he lives, the best nuclear outcome we can hope for is “Don’t ask, don’t tell.”  Kim may die young due to poor health; he might even be assassinated, though I doubt it.  When he dies, North Korea – and the world – will get to throw the dice one more time.  Until his death, however, Kim will stay the course.

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Is There a Market for an ISA Marketplace?

I love the idea of better and clearer markets in everything.

There already are markets in everything, but most lack clear information flow, have fuzzy incentives, and weak to no liquidity or money prices.

Individual earning potential is no different. There is so much that could be done to better allocate money across time slices to get capital to its highest time value location for individuals. When you need money isn’t always when you have it and vice versa. I’ve blogged before about a world where you can sell shares in yourself and securitize your future potential wealth.

But I want to know who would do it.

I want a marketplace where individuals can share their info and sell shares to one or many investors.

It’s gonna be hard to test the demand. It’s a new category and requires a lot of comfort with the idea, not to mention some parameters and assurances that legal issues won’t kill it. How to test quickly and easily if there are enough people who’d try it on both sides of the market?

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