Category Archive: Entrepreneurship
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Is it fair that CEOs get paid millions—even billions—while there are so many people still in poverty? Well, it depends! Watch the second entry in our question and answer series with Prof. Howie Baetjer.
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Is human blood a “public resource”? Prof. Peter Jaworski argues that your bodily fluids belong to you, and governments should let you sell them.
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Social justice advocates argue that it is “society’s” duty to eliminate pain and inequality wherever and whenever it exists. What is interesting is that I have never met Mr. Society. Society is composed of individuals.
What the social justice advocates really mean is that the government should redistribute wealth from rich individuals to lower-income and middle-income individuals.
In my classes, I use the example of my orthopedic surgeon friend and my neurosurgeon friend who earn very high incomes from their private practices — and from other business opportunities presented to them because of their expertise. I would love to earn what they do, but, as I say to my students, if I ruin an economics lecture, big deal! The worst that happens is that students get bored. When my surgeon friends make a mistake, their patients are permanently affected or they die!
So it shouldn’t be surprising that people are willing to pay a lot more to make sure those surgeons do their jobs well. And because surgery requires rare and difficult-to-learn skills, it shouldn’t be surprising that few people can become surgeons to compete in that market and bring the prices down. (In a world without government price-fixing and other interventions in health care, surgeons might earn less or more money than they do now, but I bet they’d still earn more than I do!)
So I have no problem with surgeons being paid more than me. It’s not immoral for them to earn a high income — they should be proud of it!
What is immoral is for the government to punish individuals like my friends, who have worked hard to become surgeons — or to punish individuals who became successful entrepreneurs and started businesses that made them wealthy. When someone works hard and their input even makes our lives better, why is it fair for politicians to begin taking money from them to redistribute it?
I worked hard to get a PhD in economics and I make a good salary as an economics professor. I also earn additional income from teaching more classes than required and from various speaking engagements. Why should my work efforts and the opportunities presented to me be penalized by the government?
When entrepreneurs become millionaires or billionaires it’s usually because they created a product or service that is useful or desired by others. Unless the entrepreneurs start getting crony privileges from the government, they can’t forcibly take money from their customers.
When a businessman or businesswoman makes a dollar, the world is better off because someone voluntarily traded their money for the good or service the business provides — it’s a win-win situation.Unfortunately, most of my students have been influenced by “progressive” high school teachers and professors. They come to my classroom with the belief that the businessperson “took” money from their customers and that they should feel ashamed for having so much money and such a big house or numerous fancy cars.
I try to balance my students’ education by arguing that perhaps businesspeople and entrepreneurs should be praised, and that “profit” is not a bad word.
Of course, I also make it clear that a supporter of true free enterprise believes it is immoral for the government to give subsidies to government organizations or to give specific corporations special protection. If a business cannot survive without government help, it deserves to die.
Financially successful individuals do not have an economic moral duty toward others. In fact, using higher taxes to punish surgeons or those in other fields who make very high salaries or business profits could discourage young people from pursuing these essential, challenging careers. That would lead to society having fewer excellent and talented surgeons and businesspeople.
I am not arguing that individuals should not help others, but that they should not be forced to do so through coercion by the government. Being charitable and giving away even a portion of one’s earnings should be an individual choice.
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What’s the evidence that economic freedom is beneficial for society? Prof. Antony Davies shows charts of the free market’s effects on unemployment, inequality, poverty, and even child labor.
Comments Off on Millennials are in a love triangle with capitalism and socialism
There’s been a lot of talk recently about how Millennials — the generation born between roughly 1980 and 2000 — think about economics. Much of it was sparked by the fanatical support for self-described “democratic socialist” Bernie Sanders from young people in the Democratic primary for president last year. Gallup found in April 2016 that whereas Hillary Clinton had a net favorability rating of -23 among 18–24-year-olds, Sanders’s score was +39.
A Harvard University poll administered at about the same time revealed how this has been translated into policy views. The survey reported that only 42% of Millennials supported capitalism. According to a contemporaneous Gallup poll, that was about 10 percentage points lower than the general population. The Harvard survey showed 33% of Millennials wanted socialism.
So Millennials have economic attitudes that are different from older Americans. But is their economic behavior different? Do they walk the socialist walk?
Here, the evidence is decidedly mixed.
Socialists tend to embrace public goods because all citizens can consume them. Millennials certainly like them. A Pew Research Center poll from June revealed 45% of 18–29 year olds favored a single-payer health care system. This was 14 percentage points higher than any other single age group.
Census data show millennials adopted health insurance more rapidly than any other age cohort when Obamacare began in 2014–15. I’m not entirely sure what kind of political philosophy this behavior illustrates, but it does seem to suggest Millennials embraced the Affordable Care Act, legislation most people believe moved health care in this country solidly to the left.
Recycling and Personal Consumption
Socialism, unlike capitalism, makes a virtue of constrained personal consumption. A major reason for this, of course, is that it is less suited to production. But the connection has helped fuse ecology to socialism in the platforms of left-wing parties across the globe.
You may have heard the argument that Millennials are more environmentally conscious than the rest of us—they don’t use plastic shopping bags or flush the toilet, etc. A survey commissioned by Rubbermaid reported earlier this year that two-thirds of Millennials would give up social media for a week if everyone at their company recycled.
Interestingly, however, the data on behavior do not bear this out. A 2014 Harris poll conducted for the Institute of Scrap Recycling Industries (ISRI) revealed that whereas roughly a half of respondents over thirty said they “always” recycled, only a third of the younger group did.
Millennials talk about saving the planet for humanity, behavior a socialist mindset deems heroic, but they do not seem to be doing more than anyone else to secure our world’s survival.
Millennials also use public transportation much more than other groups. Over one-fifth ride a bus or train on a daily or almost-daily basis according to a Pew survey from late 2015. This was nearly double the proportion of any other age group.
Indeed, younger people seem to have much less love than their elders for that ultimate of American private goods, one’s own car. The number of licensed drivers in both the 24-29 year-old and 30-34 year-old cohorts decreased by about 10% between 1983 and 2014 according to the University of Michigan’s Transportation Research Institute. The drop for 18 year olds was a fifth. At the same time, everyone over 45 continues their love affair with the automobile.
This seems consistent with the socialist rejection of material goods, but whether this is correlation or causation is unclear.
Moreover, Millennials have almost single-handedly nurtured the “sharing” economy — a marketplace in which peer-to-peer transactions are facilitated by a software platform that permits participants to divide consumption, as exemplified by Uber and Airbnb. According to Vugo, 57% of all ridesharing customers are aged 25 to 34.
The sharing economy may sound quite socialist because it seems to eschew private ownership. But as Duke professor Mike Munger has pointed out, people in general wish to consume the services that tangible goods provide, not the goods themselves. The sharing economy in fact provides access to the services of more material goods than the user would otherwise have — whether that’s a five-minute ride in a car or a two-day stay in a house. Its fundamental principles, therefore, are capitalist.
A 2014 Bentley University survey of Millennials reported that two-thirds of respondents expressed a desire to start their own business. But Millennial behavior is different. An analysis by the Wall Street Journal last year found that the proportion of Americans under 30 who own a business has dropped by 65% since the 1980s. Millennials might say they want to be Mark Zuckerberg, but they’re not particularly entrepreneurial.
There does exist therefore a disconnect between Millennial economic attitudes and behavior. What explains it? The generation is intrigued by the idea of socialism. It embraces many of its values and the public policies that would bring it about. But Millennials’ behavior is ambiguous. Entrepreneurship in private enterprise is not a particularly appealing career path to them in practice.
Additionally, Millennials’ reduced consumption is probably as much a function of economic necessity as it is a sacrifice of their personal wants to some grand social plan. The Great Recession has left them playing financial catch-up. A Pew analysis of census data reveals 15% of 25-to-35 year olds still live with their parents. Traditionally that fraction has been around one tenth. A 2016 study by the left-leaning Center for American Progress found that Millennials make less than Gen Xers did in their early 30s. They only earn about the same as Boomers, who are 30 years older and 50% less likely to have graduated from college.
So perhaps there’s another explanation: When they appear to be rejecting capitalism, it’s often because Millennials are simply adjusting America’s core economic principles to new technologies and economic realities.
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Tech inventors switched from making missile systems for the government to making personal computers thanks to tax cuts. Watch more with Dr. Domitrovic.
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Property rights in a market economy can help us overcome negative externalities and create value for each other. Learn more with Dan Russell.
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One entrepreneur’s invention cut world poverty and revolutionized manufacturing. Learn more with Steve Davies
Comments Off on Entrepreneurs are evading regulations to bring you beer and marijuana cleanses.
This summer I’ve been enjoying a lot of microbrewery tours — even though the main attraction isn’t the “tour” I pay for, but the free beer that comes with it. In fact, the breweries must know that’s why people come. So why don’t they just drop this tour façade and sell us the beer?
Regardless of which brewery you visit, you pay a mere $10 for a pint glass with the brewery’s logo on it. As a thank you for purchasing the pint glass, they then grant three tickets you can redeem for free “samples” — which are actually full-sized beers.
There are also usually food vendors and live music. This atmosphere combined with the inexpensive libations draw sizeable crowds to these “tours” — where only a handful of patrons actually tour the facility.
But why do the breweries insist upon selling us the pint glasses, when most of us only really want what goes inside?
In conversation with the brewery owners, I learned that the breweries in my town aren’t legally allowed to sell beer directly to consumers in the way a bar can. But there’s nothing in the law preventing them from giving their product away.
In response to those incentives, they sell customers a pint glass (or charge them for the “tour”) and rent some of their property out to food vendors to subsidize the cost of getting their product into the hands of eager consumers without technically charging them for it.
It’s far from an ideal situation for these businesses, but it allows them to introduce new people to their product and to earn some revenue in the process — even if it’s less revenue than they could earn if they were allowed to just sell people the beer. It’s a clever arrangement, and a perfect example of evasive entrepreneurship.
Evasive entrepreneurship is when individuals develop innovative ways to circumvent laws and regulations to pursue profit. When the formal rules of a society make it costly for individuals to voluntarily exchange with one another, it is not surprising that individuals begin to invest time and resources in figuring out how to sidestep these laws.
As in the brewery tour example, evasive entrepreneurship sometimes provides us with delightful products or services that may never have existed or found their market in the absence of certain rules. The citizen’s band (CB) radio, for example, became widely employed as a means to avoid cops during the mid-1970s after a national speed limit of 55 mph was implemented in an attempt to manage the oil crisis.
The low speed limit reduced the incomes of individuals working in the trucking industry, as slower travel speeds meant truckers could accept fewer jobs. Truckers soon began to utilize CB radios to communicate with one another and inform each other of police locations along the highway. Even non-commercial drivers joined in on the CB radio trend.
Now, the CB radio had existed for decades prior to the implementation of the national maximum speed limit, but consumers didn’t have much of a use for them before the appearance of that law. And the radios’ popularity rapidly faded after that law was repealed.
The Pot-Concealment Industry
Similarly, the federal prohibition of marijuana use has resulted in a wide variety of products that exist solely to help consumers hide evidence of their illegal activities. Hollow books, fake soda cans, and other creative containers allow consumers and distributors to conceal the product.
Consumers can also purchase cleansing drinks and other products that promise to help them pass a drug test. Without the laws that render recreational pot consumption illegal, consumers would not be willing to pay much for any of these things.
In the midst of an economy with institutions that are otherwise sound, evasive entrepreneurial activities can help facilitate mutually beneficial transactions between consumers and producers that are made too costly by certain aspects of the legal and regulatory code.
But if a society has weak property rights or dysfunctional political institutions, evasive entrepreneurial activities may manifest in less pleasant ways. For example, in a country with a burdensome maze of red tape standing in the way of entrepreneurs who want to open a business, bribery might become prevalent to the point that bureaucrats expect bribes and are unwilling to do their jobs without them.
Organized crime syndicates are another example of evasive entrepreneurship that became possible because of alcohol and drug prohibition. Because producers of illegal products cannot rely on ordinary police officers, lawyers, and judges to protect their property rights, they must come up with alternative ways of ensuring that people who steal from them are punished in such a way that deters others from attempting to do the same.
So, instead of pressing charges against thieves and using the court system, mafias and drug cartels invest in violence. The more violent and frightening their reputation, the more hesitant people will be to steal from them in the future. Without the laws prohibiting drug transactions, there would be little need to resort to violence.
Even when evasive entrepreneurship is targeted toward productive activities, it’s still important that it directs scarce resources toward rule evasion instead of other, more highly valued activities.
All of the workers, machines, and raw materials that go into the production of unwanted pint glasses and items that help people pass drug tests could have been channeled toward other uses (like making more beer). While it’s easy to identify the things that exist because of evasive entrepreneurship, it’s impossible to know which things that would have been made instead in a freer world. We will never be able to know what those resources would have been used to create if they hadn’t been used to evade.
Comments Off on Highlights from our Reddit AMA with Professor Michael Munger
Last week, Professor Michael Munger joined us on Reddit for an “Ask Me Anything” conversation as part of the Learn Liberty Reddit AMA Series.
Dr. Munger is an esteemed Professor of Political Science, Economics, and Public Policy at Duke University. He has authored/co-authored 7 books and over 200 scholarly articles. A long-time friend of the Learn Liberty project, he frequently contributes to our blog, and has starred in nine Learn Liberty videos.
Check out some highlights from the AMA below.
I think we have become more not less tribal. The Downsian conception of parties is as an information shortcut: people “choose” the party that on average is closer to most of their policy positions. But we seem now to have gone the other way: party allegiance is stronger, and prior. And THEN I infer my policy positions from my tribal allegiance. It really does suggest some problems for traditional rational choice theory. But that’s why Public Choice, and the work Bryan Caplan (for example) is so useful: we should expect that people are stupid about politics. But they aren’t stupid because they are stupid; they are stupid because they are smart!
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Israel Kirzner showed us how entrepreneurs make the world better: they specialize in discovering missed opportunities. To learn more about entrepreneurs, click to watch.
Comments Off on Reddit AMA with Professor Michael Munger of Duke University
This Tuesday, the Learn Liberty Reddit AMA Series continues with Michael C. Munger, Professor of Political Science at Duke University.
UPDATE: The AMA is now live!
Prior to his tenure at Duke, where he chaired the Department of Political Science for 10 years before coming to serve as Director of Undergraduate Studies, Professor Munger has also taught at Dartmouth College, University of Texas—Austin, and University of North Carolina—Chapel Hill, and served as a staff economist at the US Federal Trade Commission.
He is a long-time friend of the Learn Liberty project, a regular contributor to our blog, and star of a whopping nine Learn Liberty videos! Mark your calendar and join us for the conversation at Reddit.com this Tuesday, July 11th at 3:00pm ET where you’ll have the chance to ask him anything!