F.A. Hayek, along with other thinkers and building on the works of other philosophers, put forth the idea of spontaneous order.

Spontaneous order, in a short description: order coming out of seeming chaos that is the result of action and not planning. One example I was once told of is that of a campus. Whereas the location of the buildings and pathways is the result of human planning, those pseudo-paths that form on the grass from people individually walking the path of least distance is the result of human action. Another example is language. Spanglish never had a chance because, as much as a bunch of people wanted to design a language, language is the spontaneous generation of people acting over time. A more familiar, closer example is that of Adam Smith’s Invisible Hand.

An example of a path spawned from human action and not human design.

Spontaneous order is used by some to argue that freer markets are a better way of allocating resources than any central planner could ever dream of. When governments try to disrupt the spontaneous order of society, they risk making things worse. Pouring salt on the wounds, governments try meticulously to solve the problems of disrupting spontaneous order by, you guessed it, disrupting the spontaneous order even more.

I came across a great example the other day of an entity trying to realign spontaneous order after disrupting it. It was in the movie Back to the Future. In it, Marty McFly goes back in time and accidentally makes his mother fall in love with him. This screws up the properties of time and Marty slowly becomes “unborn”. He needs to undo this and get his parents back together. Think of the “Butterfly Effect” here.

Like governments, Marty got in the way of how things were “supposed to happen”. Although most people don’t agree with how things are “supposed” to happen, Hayek would say that the best spontaneous order is the one that happens based on voluntary exchange of individuals in a system with legal equality. Unlike governments, Marty was able to correct the spontaneous order (only to be followed by a myriad of challenges, laughs, and excellent actions scenes in the second and third parts of the trilogy).

Governments, it seems, tend to do the opposite. Austrian economists would argue that all of the world’s ills (ok, maybe not all of them) come from the government disrupting spontaneous order through manipulation of the money supply. But I’ll give a more relevant example: minimum wage. Assume, for just a second, that my thoughts on minimum wage are correct: it creates a surplus of workers instead of its intended consequence of just raising the wage of workers. To combat this unemployment, the government raises welfare benefits which, as any cross-country comparison shows, creates a higher level of the natural rate of unemployment.

Maybe there were too many assumptions necessary for that example to be convincing. But I think you can probably think of an instance where government’s “cure” is worse than the disease – the disease it happened to have created. Plus, I figured it was about time for a more lighthearted post.

I finished Joseph Stiglitz‘s Globalization and Its Discontents. In Stiglitz’s words, it argued that:

The Problem is not with globalization, but with how it has been managed.

Here are the thoughts I jotted down while reading it (yes, there are a lot of them):

  • Stiglitz acknowledges the benefits of privitization and how, when necessary criteria are met regarding property rights and good government, private firms operate better than government.
  • The IMF ruins capital by controlling the money supply.
  • Rich countries practice hypocritical protectionism by using things like the IMF to make developing countries lower trade barriers while not doing so themselves. I couldn’t agree more.
  • His claims supporting the “infant industry argument” aren’t too compelling.
  • “The reason that Wal-Mart is successful is that it provides goods to consumers at lower prices.”
  • Believes the invisble hand doesn’t exist because the critera implied by it – perfect information, perfect competition – aren’t there. But he fails to explain why market economies are better at dispersing resources than centrally planned ones. In other words, he doesn’t disprove Hayek’s theory of spontaneous order.
  • He blames a lot of the East Asian Crisis of the 90’s on currency speculators. I am very suspicious of this.
  • Stiglitz met with Chinese government officials to discuss their transition to a market economy. No one (rightly) ever accuses Stiglitz of being an aid to the Tianeman Square Massacre. But for some reason Naomi Klein accused Milton Friedman of being complacent to Pinochet’s human rights violations because Friedman had a 40 minute meeting with Pinochet’s advisors. Naomi Klein is such an idiot.
  • Stiglitz thought that Alan Greenspan cared too much about inflation. This book was written in 2001, before the current economic crisis. Most people now accuse Greenspan of letting a huge bubble be created by extremely loose monetary policy. I just thought that was interesting.
  • His recommendation for a “gradual” approach to the market-oriented reforms in poor countries: “Development encompasses not just resources and capital but a transformation of society.” I think this can be applied to Iraq –  we can’t force our values on countries.
  • People getting richer helps the environment.
  • Makes a case in the “Way Ahead” chapter for preserving local cultures. I disagree tremendously. I think that as long as cultural change is caused by voluntary actions, whatever happens shouldn’t be altered. (If Japan suddenly only had American food because that’s what the consumer demand was, why is that bad?)

Stiglitz’s book was pretty good in convincing me that the IMF and World Bank are counter-productive. But I’m excited to hear some rebuttals to his other ideas about globalization from Jagdish Bhagwati’s In Defense of Globalization, which I’ll read next.

Anyone who has read Globalization and Its Discontents is encouraged to criticize the points I made or add their two cents in the comment section below.

Government is not in the business of subsidizing dreams.

I went to an independent coffee shop this afternoon, excited to re-read Road to Serfdom. I glanced across the street at a bustling Starbuck’s. The coffee shop I was in had nobody in it.

I love small coffee shops compared to Starbucks, Dunkin Donuts, or any other lame generic chain store. In fact, I worked at one last summer called the Unicorn Cafe. It served only organic food, had great customer service, had a superb atmosphere, and was the perfect chilled-out place that I like to go to for coffee or coffee-like beverages. But why do small coffee shops struggle while there seems to be a Starbucks on every corner?

The popular response is that Starbucks cheats or has an unfair advantage. They sell their coffee for cheap because their enormous size makes it possible to do so. Or, their brand name gives them a leg up because people recognize that most Starbuck’s are essentially the same quality and price, whereas an independent coffee shop can be hit or miss. Most people just like an assurance of some level of coffee, one might say.

I think these arguments are pretty weak. First of all, Starbuck’s isn’t that cheap. In fact, quite frankly, I think it’s a ripoff. I can’t give any hard data, but I feel like it really doesn’t undercut competitor’s.

Second of all, the fact that Starbuck’s gives some sort of brand assurance should not be seen as something detrimental or unfair. In fact, I think it’s an often overlooked positive characteristic of chain stores. Starbuck’s (apparently) has built up a good enough reputation for their coffee in terms of quantity and quality that people will choose it over smaller coffee shops. Unfair? Maybe. But it’s definitely good for consumers.

Also, the brand-assurance argument only applies when people are traveling or in unfamiliar territory. Otherwise, they have just as much freedom to try small coffee shops and make their judgment. In the long run, the coffee shops that please the most customers stay in business. When it comes to downtown Wilmette, I’m going to presume that the vast majority of customers there are local, unless the Bahaii Temple has dramatically increased Wilmette tourism this summer.

I remember a high school english teacher of mine complained that when she wanted a cup of coffee she didn’t have many choices. She said she could really only choose between a few chains because small coffee shops were few and far between, alluding to some sort of corporate predatory actions. But if people don’t patronize small coffee shops enough to keep them afloat, why should they stay in business? Before people assume that the corporations are taking over due to unfair advantages, try to think why they might be succeeding.

Since Starbuck’s is flourishing in Wilmette while small coffee shops aren’t doing as hot, I have to think that Starbuck’s is doing something right. I’ll continue to patronize small coffee shops as long as they exist in my town (if they’re good). My business is like a “vote” in the marketplace. And if enough people don’t vote with me, my candidate (that small coffee shop) goes out of business.