The Itch

When I created The Persistent Itch (and its predecessor found at joel.froese.com/blog,) I intended it to be a travelogue—for the benefit of friends and family back home (and myself, so that I didn’t have to repeat the same thing to everyone via phone, IM, or separate emails.) Despite promising myself that I would continue to write after I returned home, there just hasn’t been much incentive to do so. I enjoy writing topical posts, but they do require more effort, and—since my primary audience is no longer reading this blog—I see no reason to do so.

The remaining three topics I promised you on March 14th, as well as a further theory on economic development and a scathing review of Michael Moore’s Sicko that I’ve been meaning to write, have been put on the back burner indefinitely.

I say all this to say that I am returning The Persistent Itch back to its roots; on Thursday I fly to Vienna to meet my girlfriend, and then we will fly on to Split, Croatia where we will meet friends for a week of sailing the Dalmatian Coast down to Dubrovnik. Expect glowing reports and stunning photographs starting next week.

In family news, the Froese family grew by two within the last three weeks as Jordan (left) was born to Micah and Debora on July 6th and Hutch (right) was born to Simon and Sarah on the 19th. All of the babies, parents, grandparents, and uncle are happy and healthy!

The real digital divide

The “digital divide” is supposedly a socio-economic division that is propelling young, rich and middle class kids into a wonderful, new, technology-based economy, while leaving behind lower classes—especially those growing up in the developing world. Earnest crusaders are bridging this gap by setting up computer labs in schools and community centers for disadvantaged youths, and even building $100 laptops for kids in the developing world. This is admirable, and I appreciate anyone giving their time and money to help disadvantaged kids, however I wonder: what is this really helping? Now these kids can create their own Facebook page and copy and paste from Wikipedia for their school projects like their more affluent peers—is this really a step in the right direction? By virtue of the fact you are sitting here reading my ramblings (and I have spent time writing them for this forum) we know that the Internet is more often just a time waster. The cynic in me (and I am probably not alone) looks at the picture below, and braces for an onslaught of even more 419-style email spam.

No, the real digital divide is a generational divide; its victims are often otherwise successful and affluent professionals, business leaders, “old-economy” corporations, and even entire sectors that just don’t get it. The most obvious example is the music and film industries; as entertainment is increasingly being distributed and delivered digitally, traditional distributors and retailers of these goods are becoming increasingly irrelevant. Instead of finding sensible ways of delivering this content to consumers (meaning cheaper and more convenient,) they have balked—either by ignoring the reality of how music is being “consumed,” or by proposing ridiculous schemes whereby consumers are locked into a particular technology, yet given no significant discount for buying this crippled product. Let’s face it, it is technologically impossible to create a format that can be played on a variety of players from different manufactures and—at the same time—be hacker-proof.

Therefore, I predict that the traditional distribution channels for music will shrivel up and eventually die, as the industry continues to push for more onerous restrictions (namely Digital Rights Management [DRM] schemes, constraints on the types and number of playback devices an individual can use, and limitations on sharing music among friends,) all of which will drive consumers to “pirating.” What will eventually replace the current “music labels,” will be an E-bay like marketplace where consumers buy music directly from the musicians—cutting out the middle man—at a fraction of the current retail price. Musicians will gladly allow consumers to freely share their music with friends, as this will grow their audience.

Likewise, the sale of movies will have to radically change as the general population will have access to ever increasing bandwidth, meaning high-resolution movies will be able to be delivered via the Internet. Certainly movie theaters/cinemas will continue thrive as they have through the advent of TV, VCR, and DVD. But if the movie studios think they can retail movies for the same prices as they do DVDs—which is what they are trying to do now—then they are kidding themselves. A downloaded movie has to priced at least half of what a DVD costs since you are providing your own storage, and no longer have access to a real, physical backup copy of the movie. [2016 Update: It looks like I didn't see the streaming revolution coming.]

I’ve actually gone out on a tangent with this rant on the entertainment industry. What I really wanted to say is that I have had the experience of helping people with their websites both at home and abroad, and I’ve noticed that otherwise successful business people of a certain age want their websites to look like a slick brochure. The result is a lot of websites with text in graphics, 100% Adobe Flash sites, and other obvious self-sabotage. On the Internet, content almost always trumps presentation: just look at the minimalist design of ultra-successful sites like Google and Craig's List.

Furthermore, what is more important nowadays is to be part of the Internet community rather than an “island” website unconnected to the rest of the net. In fact, it turns out that many individuals and small organizations simply don’t need their own website. An individual or artist/band will find that a MySpace profile is more useful and easier to create and maintain. Likewise, a professional will find LinkedIn to be more useful for networking, and even small net-based retailers would find Cafe Press, Yahoo! Store, or even Ebay to be a more efficient way to list and sell their merchandise. Hmm, Joel.Froese.com is up for renewal in May; I wonder if I really want to renew it now. [2016 Update: Indeed, I couldn't justify the $35/year price, and have let my original website expire.]

Petroleum: your all-natural, organic choice in energy

With trouble in the Middle East and gas prices approaching $3 per gallon, everyone is concerned about fuel prices. However, it seems most Americans have not changed their driving habits or dumped their gas-guzzling SUVs. Instead we are looking for salvation in biofuels (ethanol and bio-diesel) and hydrogen/fuel cell technology. What is conveniently forgotten is the cost of these technologies—both economic and environmental. The process of making biofuels generally consumes more than half of the energy that it produces, and is only feasible because of government subsidies. Worst of all, using agricultural resources for fuel instead of food means our grocery bills will increase—most adversely affecting the poor. Agricultural land, although plentiful, is a finite resource, as are the nutrients in that soil—which ironically, are usually supplemented by petroleum-based fertilizers. One insightful farmer noted “The ethanol craze means that we're going to burn up the Midwest's last six inches of topsoil in our gas-tanks.”

To me, it seems strange that ethanol and bio-diesel are considered a renewable, “green” energy source. I’m not an environmentalist; I just like pointing out the intellectual dishonesty of championing biofuels as a preferable alternative to petroleum. In terms carbon output, the only difference for biofuels is that the cultivation of inputs (corn, sugar, or switchgrass) supposedly offsets the burning of the resulting fuel later; however, in most cases, the land used to cultivate these crops would have some kind of carbon-sequestering plant life on it in any case. Furthermore, ground-level pollution from biofuel use and manufacture shows few advantages over petroleum. The fact of the matter is that biofuels are manufactured in a factory, whereas petroleum is naturally produced by the earth over millions of years from basically the same inputs. Granted, crude oil must be refined before it can be used (as gasoline, diesel, and other petrochemicals) but this processing is minimal compared to the manufacture of biofuels; in other words, switching from petroleum to biofuels requires expanding the capacity and/or number of already unpopular fuel plants (be they refineries or ethanol plants.)

The other alternatives for mobile/portable fuel are batteries, fuel cells, and hydrogen. These zero-emission energy sources sound great until you look at the source of the energy required to charge the system or extract hydrogen from water or other compounds (often petroleum.) Certainly real, renewable energy sources like wind, water, and solar power would be great, but realistically these sources contribute only a small percentage to the total electricity used in the US, and—for practical reasons—this will remain so for a long time; electrical power will likely continue to be produced mainly from the dirtiest source of energy: coal.

Therefore, I propose that the most sensible course of action is to continue to use this perfectly natural source of energy for as long as we still have it. By virtue of the fact that oil is becoming scarcer, the market will automatically reward makers of more efficient vehicles, engines, and other processes that use petroleum. Eventually, even more expensive alternatives energy sources will become economically feasible to develop—and without artificial incentives!

Of course I am all for conservation of all our natural resources; I am particularly irritated by the thoughtless waste that is characteristic of American society. Particularly when it comes to petroleum, this waste is directly responsible for making us dependent on some of the most reprehensible governments in the world, simply because they have the majority of the world's crude oil reserves. I say let’s tap the ANWR and other verboten reserves within our territory; there is no reason to let this perfectly good resource go to waste. Our current policy regarding these reserves are as if you were to go down to your wine cellar, (assuming you have such a thing) notice that racks are starting to look a little empty, and then swear off your finest, well-aged wines forever in favor of cheap domestic beer.

Cooper River Bridge Run

On Saturday, the 30th Annual Cooper River Bridge Run—a 10 km foot race—took place in Charleston, South Carolina. I had heard about this event for many years, but never considered it because I am not a runner. This year, my father decided to participate. He instructed his daughter-in-law to register him for the event, but then registered himself on the website as well. This meant that there were two runner’s packets available, and I felt had no choice but to participate despite having not trained at all—outside a few Hash House Harrier runs every other week.

We left Columbia at 5:00am in order to arrive in Charleston with plenty of time to get prepared—which was a good thing, because getting the runner’s packets from the friend who picked them up turned out to be quite challenging. Despite this hitch, we were ready an hour before the start time, and made our way to the start line in Mount Pleasant to join over 40,000 other runners and walkers who were lining up for the event. Understandably, I was anxious knowing that, despite having the option of walking the course, I would get caught up in the spirit and competition of the event and run 6.2 miles with absolutely no training—and suffer the consequences afterwards (which I am, as I write this on Sunday.)

The magnitude of this event is difficult to fully convey; with 40,000+ competitors, there seems to be an endless line of people ahead and behind you. When the official start time came, and the clock began ticking away, I was not able to get over the start line for another three and a half minutes. Throughout most of the event, competitors spanned all 4 lanes of the road—we were racing 20+ wide!

I felt amazingly good for the first 3 miles; I ran 10-minute miles up to this halfway point (which also coincided with the peak of the namesake Cooper River Bridge.) However, on coming down the bridge into Charleston, my knees started hurting, and I was forced to walk. Despite the pain, I couldn’t stand watching hundreds of people go by me, so I would alternately run and walk for the rest of the race.

Some people take this 10K less serious than others; I saw all kinds of whimsical costumes. The following all participated in this event: some girls in hoop skirts, a group of people in banana costumes and in bowling pin costumes. I saw two brides, one of which actually was wearing a short wedding gown and carrying a bouquet; her husband (or fiancé) was running beside her in a tuxedo t-shirt. At least two marines in BDUs, combat boots, and carrying 55 lbs of weight in a backpack. However, my favorite was a group of guys dressed as bulls followed by a group of girls in white (al la “running of the bulls” in Pamplona, Spain—except they should have been in front of the bulls.)

I crossed the finish line at 1:08:38, making me the 12,540th finisher (out of 28,641.) My father (middle) was 13.5 minutes faster, and placed 14th in his age group. My niece (right) was 25 seconds faster than him with an official time of 54:38.

We had lunch in the beautiful, historic district of Charleston, and then spent the afternoon on Folly Beach. The water was a bit too cold, but the weather felt almost summer-like. All in all, it turned out to be a wonderful day; even the pain is a “good hurt”; I know this makes me stronger!

Insurance is a rip-off

Before you get the idea that I just figured this out (and because of my business education,) let me assure you that I’ve been of this opinion for quite a long time now. I’ve just recently become aware of otherwise intelligent people around me buying silly insurance policies such as extended warranties and mobile phone insurance—I thought everyone was already aware of what a waste of money these are. As Groening, et al derisively had Homer say when Dr. Nick restored his stupidity in episode BABF22: “Extended warranty? How could I lose?”

Before we begin, let me be clear about my thesis: insurance is too often assumed to always be a prudent purchase that demonstrates the purchaser is a grown-up, responsible adult. I therefore propose that, at least as a first approximation, we assume that insurance is always a bad investment since, by definition, the average buyer—in the long run—will pay more in premiums than he or she will incur claims (otherwise the insurance company would go out of business, right?) Furthermore, since we can't predict catastrophic events, we can never time when to buy a policy (or let it lapse.) Therefore we commit ourselves to a periodic (most often monthly) expense for the rest of our lives, and this is the worst part: we never see this money again... it's really gone...we could have saved it or at least spent it more prudently, on something that would benefit us or our family now.

Let’s start with the basics: insurance is a financial instrument used by individuals and organizations to protect themselves against a risk (a greater potential financial loss.) You pay a (relatively) small amount of money over time to protect yourself against a possible catastrophic monetary loss. The insurance industry hire actuaries to determine the likely amount and frequency of payouts, adds their (hefty) profit margin, and comes up with the premium to the policyholder. (Granted, this is a simplified view.) Therefore, before we even get into paying middle men (agents/brokers) and for insurance fraud, you will always pay more in the long run with insurance than without, unless you happen to be one of the few exceptions that does indeed experience a catastrophic loss that the carrier actually covers (and, by definition, you can't possibly know if you are going to suffer a catastrophic loss.) To those that say “I know that I'm a unlucky person, so I will buy the best insurance”, I hear “I'm a careless person” and rest assured the insurance company will learn this and cut you off before long.

HEALTH
This is probably the most sensible—and, in fact, prudent—insurance out there. Since you can quickly incur tens or even hundreds of thousands of dollars of expenses due to a serious illness or injury in the US, you need to protect yourself from the financial devastation this would create. Note: despite the perception that insurance is required to be treated in our mostly private health care system, insurance is actually for protecting your assets and credit standing after being treated for a major illness or injury. Even the prestigious Mayo Clinic regularly serves the indigent local population of Rochester, Minnesota knowing they will never be paid for their services. This is the law in the US; hospitals cannot refuse service to anyone in need. Of course, this causes a major problem; hospitals must charge those that can pay more to offset these losses. As a result, conscientious people with health insurance are underwriting the whole system.

Therefore, it is reasonable to propose a reform that would include everyone in the coverage and payment pool. However, I am not naïve enough to think that a single-payer system would necessarily put a dent in our outrageous health care costs (17% of GDP!) I am afraid that trading the corporate profiteering of our current (private) model for the bureaucratic inefficiencies of a single-payer system would do little to reduce cost; sadly, limiting (that is rationing) health care is the only way, and Americans will not stand for this—so expect no change here.

By the way, dental insurance is overrated; suppose you visit the dentist every six months for a cleaning and pay $70 each visit. With insurance, you may pay only a $10 co-pay, and the insurance plan may have negotiated a lower price—let’s say $50. So their payout is at least $100 per year; what do you think they will charge you (or your employer) as an annual premium? I don’t think it would be a stretch to assume that it would be more than $140—so where is the savings?

LIABILITY
The second prudent choice in insurance is liability insurance for your home, vehicle, and business. In our litigious society, you could lose everything in a court judgment, even if you are not at fault by any reasonable person’s estimation. The solution to the growing cost of liability insurance (especially professional malpractice insurance) is tort reform—but I don’t see that happening soon, since our legislators are usually lawyers, and the legal community has immense influence in government at all levels.

LIFE
Life insurance was designed to allow a family to live on with the same standard of living after the death of the breadwinner. This can still make sense for a modern, dual-income family, but these policies are being over-sold. The most egregious example of this excess is the marketing of policies for children; I find this disgusting! How can money ever alleviate the anguish of losing a child? Generally, you should only buy term life insurance to cover the loss of family income from yourself and/or spouse until your children are of age; in this age of equality of the sexes, your spouse will be able to support himself/herself after that, right? I see no reason why a family member’s death should be treated like a lottery windfall—in fact I find this concept revolting.

I understand that a funeral can be costly, but it’s not an open-ended expense; you can cap this under $5000—something that could be covered by a “rainy day” fund—money that is accumulated when it is no frittered away in premiums to an insurance company for an occurrence that is very unlikely to happen to a relatively young person.

DISABILITY
There is normally some kind of disability coverage in a life and/or health insurance policies, but what is becoming more popular is short-term disability policies to “help pay the bills” while one is out of work due to an injury/illness. While this sounds to be a prudent policy for working class people, it is just one more drain on their already overstretched budget. From what I can tell, the rise in popularity of this type of policy is due entirely to the massive advertising campaign of one particular company and it’s spokes-duck.

HOME
Since most homeowners have a mortgage on their property, the lender usually requires homeowner's (fire) insurance; they know that if your home were destroyed, (or uninhabitable) you would have little incentive to continue making mortgage payments. This is reasonable; most people don’t have an extra $50,000-$100,000 lying around to rebuild a house in this case. However, I see no reason to pay extra to insure the content of you home—you really don’t have to replace all that junk you’ve collect over the years, do you? The same goes for renter’s insurance; if your apartment burns down—taking your nice, new flat-screen TV with it—you certainly would appreciate having a policy that would let you replace this. However, can you honestly justify paying a monthly premium to protect this and other non-essential belonging against something that is such a rare occurrence?

AUTO
Liability insurance is required by the state (to cover damages/injury you may cause), and a lender will require you to buy collision (your own fault) and comprehensive (acts of nature) insurance. Eventually though, you will own an automobile outright, and I posit that by this time you will be financially secure enough to self-insure repairs to your own car. It will really hurt when you dent your own bumper and have to pay for it out of your own pocket, (especially if it’s a brand new car) but you will certainly save money over the course of your lifetime.

RECOMMENDATIONS
This list could go on and on, so I will just stop here and say that every other type of policy (at least for individuals) is a waste of money! All these other policies and add-ons add up and start to cost real money, and worse—it is a recurring expense that you will pay every month for the rest of your life. You are much better off to set aside this money in a “rainy day” fund for several reasons:

1. If no major calamity ever transpires, you still have the money.
2. This “rainy day” fund will eventually become a sizable investment that starts earn money on its own, that then can be used for other purposes (college fund, real estate down payment, retirement, etc.)
3. Best of all, you will never have to jump through hoops and fight for a payout.

So, here is my recommendation on what policies to buy:

• You need health insurance, but go with the highest deductible you can; you will get less in payouts, but the lower premium costs will offset this.
• If—and only if—you have dependents, and you contribute significant finances or labor (child care) to your family, buy term life insurance for yourself and/or spouse, so that your family can live in relative comfort in the unlikely event of your early demise. Once these “dependents” are independent, cancel the policy.
• Ensure you have liability insurance to shield you assets from seizure by court judgments; this means home, car, and malpractice if applicable.
• Carry insurance that the state and your lender may require for your home and car, but run the numbers on the cost and possible benefit of any additional insurance.
• Generally speaking, don’t buy any other kind of insurance; especially don’t insure anything you can live without.
• Always shop around.

A lot of insurance companies market themselves as a comprehensive service that “takes care of you” in a time of need (e.g. arranging a rental car after an auto accident); I don’t understand why anyone would want to pay extra for this (oh, you don’t think they incorporate that into their premiums?) I just want a bare bones insurance company that just processes legitimate claims as efficiently as possible. I will talk more about this later, in my “Responsible Insurance Company” post.

DISCLAIMER: This should not be construed to be professional financial advice; it is merely a thought-provoking suggestion for intelligent and financially disciplined individuals.

The Persistent Itch is back!

To my few remaining faithful readers I apologize for not writing in over a month now. February is my first month-long break in blogging since January 2005; I will try not to let this happen again. To that end, I’ve come up with 5 new topics, which I may flesh out and publish over the next 5 weeks or so.

• Insurance is a rip-off. Your premium is always going to be greater than your average expected loss.
• Bio-fuels are unnatural. Actually, good old crude is the all-natural (organic) choice in fuels.
• New business idea: Responsible Insurance Co. The challenge: come up with objective criteria that could be used to legally select a low-risk pool of policy holders—resulting in substantially lower premiums for these “responsible” individuals.
• New business idea: The Global Warming Fund. OK, I get it, global warming is real. Now where can I invest to make money from the inevitable consequences. Seriously, I'd like to see people putting their money where there mouth is—betting for climate change.
• New business idea: Ante-Diamonds. Because diamonds are a girls best friend…we need a substitutes for “Blood Diamonds”

As far as life in Columbia, South Carolina goes: I feel like it is summer already. Daylight savings time began on Sunday—meaning I bicycle with a group of friends every Tuesday and Thursday night now—and the weather so far this week is cooperating (today it will be 82F – 28C!)

On Capitalism

Monday night, I watched an interesting documentary on PBS called Power of Choice: The Life and Ideas of Milton Friedman. The late Dr. Friedman was one greatest proponent of laissez-faire capitalism in the 20th century, and—thankfully—had the clout to be heard in Washington and around the world. I am convinced that much of economic boom of the past century is directly attributable to him.

Then, on Tuesday, I read a short article entitled “The Hard Rain That’s Falling on Capitalism” written by Ben Stein in the New York Times. I found this story through Reddit.com—a website which also lets you comment on the featured stories. I had been meaning to formulate my thoughts on capitalism for some time, and in responding to the mostly left-leaning critics, I finally got a start. However, newer stories are constantly making their way to the top on Reddit, and by the time I wrote these comments, most of the debate here had already subsided; therefore I will expand on my theories and observations here.

The criticism usually leveled at capitalism—and the US in particular—by the left and anti-globalists, is generally that this system only makes the rich richer (and by extension the poor get poorer.) Their proof tends to be pointing out specific cases of corporate corruption and other malfeasance, and instances of excessive compensation for top management. What they seem to suggest by this is that there was an idyllic time in the past characterized by more compassion and transparency in commerce.

With the exception of a few true, ideological communists, I think we all agree that the problem is not with capitalism as such, but corruption and the lack of transparency. This is especially egregious when big businesses use their influence extract subsidies from government or to induce the government to create barriers to new entrants (foreign or domestic) in their particular industry. Then there is the internal corruption, where management—usually through creative bookkeeping—steals from the corporation and, by extension, the shareholders and other stakeholders of the company. I admit this is a real problem, but I don’t believe it is an endemic or growing problem. I assume that this has always been going on; it was just not spoken about as much. I dare say the farther you look back in our history, the more corruption and back-room dealing you would discover—meaning the economic climate was less fair and transparent at any time in the past.

This is why, whenever a corporate scandal is uncovered, I gain—not lose—confidence in the business world. I believe the reason we hear more and more about these scandals is not because they are occurring with more frequency, but because the press is becoming more vigilant—uncovering and reporting more cases of malfeasance than ever before. The logical result would be fewer and fewer occurrences of malfeasance over time, since management knows they are being more closely watched. Pessimistically, it also means that future malfeasance will be more esoteric and harder to detect, but like with spam and viruses, it is a cat and mouse game between the good guys and the bad—alternately one-upping each other. If nothing else, this vigilance means the repertoire of deceptive practices available to unethical managers is constantly shrinking.

Let’s take the Enron debacle for example—could this happen again? Well, certainly not in the exact same way. More importantly though, the complicity of auditing firms in such scandals has been forever broken. Arthur Anderson is now defunct. Don’t you think that this has put the “fear of god” in the remaining big-3 accounting firms? This was a beautiful example of the free market at work—no government intervention was necessary; these firms now clearly understand their only really important asset is trust—specifically their reputation. If shareholders don’t trust an auditor, they will not approve them, and they will quickly lose all their clients—ending up bankrupt like Arthur Anderson. Certifying that the books of a client are accurate is no longer just a formality; it’s putting your reputation—and therefore your existence—on the line for these firms.

This trend toward greater transparency is self-perpetuating. It improves investor confidence, and investment naturally gravitates to its most efficient and profitable use.
The financial markets in London are a perfect example; previously characterized by widespread back-room dealing, they have recently been cleaned up, and are seeing a boom that is making them the premier international financial marketplace.

Therefore, my main assertion is that we are now seeing an emergence of truer, more open, equitable, and much more transparent capitalism—not just in the US, but also around the world (even China and left-leaning South American governments see the benefit of a free market.) Furthermore, this embrace of true (and global) capitalism is what is responsible for the exponential growth that we have seen in the world economy in the last 10-20 years. This boom is being felt not only in the industrialized world, but also throughout much of the developing world—particularly Asia. The result is that infrastructure is being built and the economies of the countries are growing faster than under any other economic regime/philosophy. Even the supposedly “exploited” workers of the developing world are earning more and are accumulating more valuable possessions than their forefathers could have imagined. I challenge you to find a more prosperous time in history.

In regards to the growing income gap between the rich and the poor, I can’t believe this is a result of poor getting poorer; the rich are simply getting richer at a faster rate—deservedly or not. And this group of super-rich is larger and more diverse than ever. Back in the day, there was only a handful of super-rich in the US; these families are household names today: Rockefellers, Vanderbilt, Carnegie, Morgan, Getty, et al. Today you have all kinds of innovators and entrepreneurs from unknown families (even from groups that were previously discriminated against) becoming fabulously wealthy.

For comparison, let’s go back to the idyllic “good old days” of yesteryear. A middle class working family lived in a tiny (by today’s standard) 2-bedroom saltbox house, had one car, never traveled by air, had no credit cards, no cable TV, no cell phones, no computers, no Internet access, etc.—all these things we now consider necessities and whose monthly payments now suck dry the wallets of the middle class. The working class is not poorer today; they are just stricken with affluenza.

The ultimate argument for capitalism is its results; find me an economic system that not only created the greatest amount of raw, economic power this world has ever seen, but also given nearly all strata of society more purchasing power and therefore a more comfortable life. This last part is very important to remember when we begin discussing real wages of the working class, which have supposedly been flat or even declining in the US since the 1970’s. The homes, cars, appliances, and especially electronics we buy today are many times better (in terms of quality, efficiency, durability, etc.) than anything you could buy in the 70’s, and certainly not as manifoldly expensive. Technological advances can explain only part of this effect; I am convinced that we have—and continue to—see an incredible increase in the value of goods we purchase over the years due to efficiencies realized thanks in large part to more open and transparent global capitalism. This “Wal-Mart effect” in fact makes us richer, and it is not sufficiently reflected in the usual empirical statistics.

Any argument against capitalism, would by definition propose an alternate (or at least modified) economic system. And again by definition, any system besides a pure, laissez-faire capitalism would require some type of government or at least collective controls that would introduce distortions into the marketplace—either placing more or less value on a resource than it would naturally be entitled to. I am not advocating pure capitalism, I only want to make you think: what aspect of the economy is so important that we need to tinker with it (and be more likely to screw up rather than improve), and who (politicians, bureaucrats) can we trust with these decisions? We have seen that concentrated central planning—namely communism—has failed miserably; where would you set the limits? Many people hold up European (and especially Scandinavian) socialism as the perfect balance between capitalism and communism, and in a lot of ways it is hard to argue with: they have the lowest poverty rates, highest wages, and—amazingly enough—export more value per capita than low cost, export-oriented Asian countries. (This is because they produce higher-end products and operate more efficiently largely due to their excellent educational and vocational training systems.) However, I am convinced that this supposedly most advanced economic system is not the answer for the developing world. Just as with your personal finances, you can’t spend your way into long-term prosperity.

Here is my 6-step program to economic prosperity for developing countries:

1. Tackle corruption.
2. Throw open the floodgates of laissez-faire capitalism to build wealth.
3. Institute a low, flat tax rate.
4. Invest tax revenues into infrastructure and education.
5. Add regulations slowly.
6. Add social programs as tax revenues allow.

I see doing this in any other order as “putting the horse before the cart.”

Well, that was longer than I expected it to be! Sorry for rambling on; I guess I should organize this a bit better, back it up with research, and write a more coherent article, but that’s not going to happen realistically!