Tuesday, September 7, 2010

Underwear, bleach, and the rise of Sarah Palin

Something unprecedented happened during the eighteenth century, something that is a sharp dividing line between the modern world and what came before. The Industrial Revolution transformed first Britain, then Europe and the United States, and then the world.
It started with cloth making, where initially water power drove a set of rapidly evolving machine types that made cloth literally thousands of times easier to make. Prices plummeted, and consumption rose by a factor of 12 between 1770 and 1800. People's lives began to change, as now underwear was affordable to more than just the wealthy.

Then came steam and iron. James Watt invented the first really successful steam engine, but it was only unleashed when Henry Cort approached him with a "grand secret". Up until then, Iron was frightfully expensive, because manufacturing basically had to heat the molten ore until the slag floated off. Cort had figured out how to use Watt's engines to drive huge hammers to beat the slag out of the metal. He could make fifteen tons of wrought iron in twelve hours. Iron production soared by a factor of 150 between 1740 and 1852. The price of iron plummeted, to the point where it entirely changed architecture.

Something was in the air - creativity had been unleashed, and continued in the nineteenth century, infecting industry after industry: Bessemer and Steel, Tennant and industrial chemicals (chemicals manufactured in ton weights, like chlorine bleach), railroads, electricity, internal combustion, aviation, telegraphy-radio-television-Internet.
What was striking about this was that each industry would exhibit precisely the same growth characteristics. The "S" curve described a slowish initial takeoff, an exponentially rising growth period, and then a slow tailing off. All of these industries followed it in turn: cotton, iron, steel, railroads. What was key to the miracle that occurred between 1720 and 1990 was that as one reached the top of the curve and began to falter, a new industry emerged to drive things forward. Income per capita went from around $450 in what would become the United States (in 1700) to $18,300 in 1989.

In many ways, this seems to be spinning down. More and more industries seem to be in the top flat part of the curve. Fewer new industries are emerging with robust growth to pick up the slack. People look towards the future and do not see a doubling of real per capita national income. The Tea Party is a manifestation of this sense of pessimism.

We are told that the people are ignorant, and aren't smart enough to know what they're talking about. We're told this by an Educated Class with complex computer models of the financial system. We're asked, what do the hoi poloi know of the grand sweep of the world economic system?

I think that the feeling of dread is well justified, by a good view of the forest rather than the trees. And after all, the financial models didn't predict the 2008 collapse, so a little more humility might be called for. But in general, the critique is correct - people don't know what's causing this, just that they're unhappy. They see a change, which makes them unhappy. They don't know the cause.

Immodestly, I would like to say that I think that I do. It's related to the size of government, but the usual arguments over which side of the Laffer Curve we're on, or what the optimal rate of marginal taxes are pretty much beside the point. Something is slowing the system down, and it's not the 35% that the Fed.Gov takes off the top (OK, a little, but that's a second order effect).

Let's think about fast and slow. The Empire State Building was built in a little over 15 months. The World Trade Center (Tower 1) took 52 months, and that was in 1970. Today, Ground Zero is still a hole in the ground.

The reason is regulation (and its bastard child, litigation). That's the problem. We have buildings full of people that make us stop what we're doing, fill out forms in triplicate, and then wait months or years before we are allowed to pick up where we stopped. Think for a minute what this does. It pushes some of the middle of the S-Curve into the flat part, reducing the overall value of the industry, as resources get sidelined instead of being engaged in production. More damagingly, it pushes the next S-Curve to the right, increasing the time that it takes to bring a new industry online. Most damagingly of all, it possibly completely eliminates some S-Curves from appearing at all, because the risk is too high to attract investors.

It's not the tax rate, it's the regulation rate that's making the economy run down. Sarbanes-Oxley, passed in great haste after Enron's collapse, has all but destroyed the high tech IPO market. Think of that as S-Curves that never came into existence.

Big Business excels at managing the top end of the S-Curve, and they have big offices capable of dealing with the paperwork. Big Business doesn't mind regulation - in fact, if you believe (as I do) that Regulatory Capture is the equilibrium state of any government agency, Big Business uses regulation to hobble small but dangerous competitors. They get the Fed.Gov to do their dirty work, while they extract maximum value from the end phase of their old products. We pay for that in higher prices and lack of better alternatives.

Scale this up to cover the entire economy, as the government has tripled in the post war period, and it becomes obvious why we can't build skyscrapers any more. They don't seem to have trouble with this in Dubai - it's us that keeps us from doing it.

Regulation stifles innovation - quick, name the last revolutionary program that came out of the Department of Education. That effectively transfers wealth from future generations (our children and grandchildren, who will have lower standards of living). The recipients of that transfer are government employees - those folks that read and file your application (in triplicate) and the Big Business that captures the regulatory agency.

We have made so many layers of cruft - allowed so many barnacles to grow on the bottom of the ship - that we're noticeably slowing down. People feel it. People are nervous, because they think it's going to get worse. And while the current Congress and Administration are pouring gasoline on that flame with Health Care "Reform" (written by Big Pharma, the Insurance Companies, and the AMA), I'd like to point out that the Republicans ran Congress and the White House when Sarbanes-Oxley passed.

One way to look at things is that it's been a good long 300 year run. Too bad it's over, nothing lasts forever. Get used to stasis, with fewer and smaller S-Curves, and get used to declining living standards as Big Business and a bloated government take every more from National Income, immizerating the masses.

A different way to look at things is government regulation didn't give people affordable underwear, or Bleach to keep them clean. Get out of our way, and we'll do it again. The tax rates are annoying, but the buildings full of busy balls-and-chains telling us that we'll hear back from them in 3 to 6 months are infuriating.

UPDATE 7 September 2010 11:22: Lissa leaves a good comment that I didn't really make a convincing Sarah Palin connection. While the Tea Party is still pretty leaderless ("bottom up" is a better term), Palin more than anyone is the face of the movement. That certainly can change, but the visceral reaction of the Governing Class towards her strongly suggest that they see her as its leader.

Besides, the post title wouldn't have been nearly as good without her ...


ASM826 said...

Yup. The very core of what I have been posting about since mid-summer. I have using anecdotes, you have struck the nail on the head.

Paladin said...

Don't worry, Borepatch.

Their system at the economic blackjack table is just about to pay off... all they need us to do is front them another measly $50 billion and we'll all be living easy.

Anonymous said...

Most of the big, brand name companies in this country, primarily the ones that manufacture things, would not be possible to start in the current regulatory environment.

In fact, in many of those industries, the established players are complicit in this state of affairs. It's easier for them to regulate their competition out of existence than it is for them to compete on a level playing field.

And it's the established companies that have the money to donate to the politicians and bureaucrats who make the rules.

Between OSHA, the EPA, the IRS, professional training and licensing requirements, liability insurance, self-employment taxes, etc etc etc ad nauseum, it is virtually impossible for an individual with limited resources to start something from the ground up.

And it's a damn shame because there's no telling how many potential Henry Fords, William Harleys and Arthur Davidsons, that have never reached their potential as a result.

doubletrouble said...

Packed full 'o smaht, this one is.

Why do I not read/hear this kind of analysis in the "hard" media???


Eagle said...

Software patents.


Borepatch said...

Doubletrouble, it's because the media didn't have a dad who wrote a book on the Industrial Revolution, and they never had discussions of "Turnip" Townsend at the nightly dinner table.

Now you know why I'm so strange ...

Burt, I'm not opposed in principle to software patents (full disclosure: I'm named on one as one of the inventors). But you're right, that the Patent Office has been entirely captured by big business, which uses these to stifle startups.

Lissa said...

"There oughta be a law" is one of the scariest phrases around.

BTW, did I miss the Palin tie-in? Or was it just implied rather than explicit?

Divemedic said...

The problem is that the country is being run by positive feedback. We are now oscillating out of control. IMO, we have passed the point of no return.

Things are going to get VERY ugly as we descend and the Chinese rise. At some point, the Russians will feel the pinch, as they hate and fear the Chinese more than we do. Then things get interesting.

We are seeing history in the making.

GuardDuck said...

Way full of smart bp.

One of the causes of Rome's decline was the economic stagnation brought by the imperial bureaucracy. China was stagnant and unchanged for centuries because of the palace functionaries.

The Ottomans, the Mamluks, Ptolomics, Seculids, Persians, Hittites, and Babylon.

Vibrant, powerful civilizations whose very organizational strength which allowed their growth and longevity were brought low and weak by the overuse and growth of that organization.

Borepatch said...

GuardDuck, that comment is packed full of smart. Nice.

NotClauswitz said...

This is like that "Connections" show - you are like "Ted Burke."

I'm named in six patents as one of the inventors - the company that owned them no longer exists and the current owners are merely a holding shell, a financial-stream gateway for licensing the technology.

Anonymous said...

Good, good, good, Finally, finally, fianlly.
Somebody is writing about the real problems of this country.
I have come to the conclusion that even if you cut off the head of the dragon (dimocrats) the body of the dragon will remain; rotting and stinking up the place.
Yes we need to continue to eradicate the head socialsit and his ilk; but we cannot forget the MILLIONS of government workers that will fight tooth and nail to keep their jobs. AND will use their jobs to thwart our efforts to return to the constitutional way of living.

Keep up the good work of peeling through the layers of ideas.


SiGraybeard said...

Wicked smaht, Borepatch, and an excellent example of why I come here everyday. Same compliment to GuardDuck, as well.

I have often thought, and I think even said so in comments here, that we could throw out 90% of the CFR without negatively affecting the quality of life of anyone in America. Except the surplus bureaucrats. I know that in some circles that makes me a crazy anarchist, but I'm not. It's just that the closer you are to the idea factory, the more you see how oppressive these regulations, and the fear of litigation are.

I just wanted to point out that the regulations themselves are following the same sigmoid growth curve. That S-shaped curve is the fundamental shape of how things grow; it's how weeds, bacteria, prairie dogs and government regulations grow. I believe in sophomore biology they called the phases lead, log and lag, for lead-in, logarithmic and lagging.

Dedicated_Dad said...

Great post.

One point I think deserves more attention/elucidation is the simple fact that Big-Corp, Inc. -- via their pet lap-dogs in CONgress and the state equivalents -- use The Law to cut the lean/mean competition.

This is true across ALL LEVELS and ALL TYPES of business. No better example than "The War on (some) Drugs." How many lives must be made less pleasant at best, or RUINED at worst, in the name of their profits?

Imagine the BILLIONS lost to The Liquor Lobby if - instead of his nightly visit to the Stop-N-Rob for his 12-pack, he could pluck a flower from a plant in his garden instead!

Imagine the BILLIONS lost to "Big Pharma" if - instead of countless "mood lifters" and "pain killers" (not to mention anti-emetics and etc) people were free to grow the same plant?

This example aside, most such regulations are directly intended to make it impossible for the lean-and-mean to even get started. They force the upstarts to follow all the same bloated, bureaucratic nonsense that the big companies do, and further deprives The Market and its customers of real choices!

Maybe I'd prefer to buy my bread 1/2 price, accepting the odd grain of sand in exchange for the savings.

A lawsuit was just lost by Ryobi - the plaintiff asked for $250k, the Jury gave him 1.5MIL.

Why? Because their cheap, tabletop saw didn't include a newly-patented invention which INSTANTLY stops the blade on contact with flesh. In the process, the blade and saw are destroyed - as all that energy must go SOMEWHERE. Most saws would have to be totally redesigned to use it, and the mechanism itself is very expensive.

MOST people - like me - buy a small "portable" or "benchtop" model because (1) we don't use it but rarely and (2) we lack both space and capital to invest in a "top of the line" machine.

This suit will now force every manufacturer to eliminate their "bargain" lines, and only sell the new, redesigned, "super-safe" models -- all because some jackass was both too stupid to keep his hands out of the blade, and too narcissistic to accept responsibility for his stupidity.

Another point: Regulations are - as noted - strangling business to death. Add unions to the mix, and it becomes damn near impossible to make ANYTHING in the US any more -- at least at a price most consumers will pay -- so the factories move overseas where such do not exist.

Did we protect the environment by moving factories to China - where there are basically NO pollution regs?

Do these people understand that Chinese pollution will eventually end up in OUR air and water?

Further, what will happen -- not if, but WHEN -- tensions between us and China begin to escalate?

What will we wear on our backs and feet?

What have you bought lately that is 100% US-sourced?


Do you know we can no longer make ANTIBIOTICS in our Nation?

Think on that one for a bit.

"Ugly" isn't a strong enough word for what things are going to become - and SOON.

Do you know we only have TWO facilities left in the US to make smokeless powder?


Currently, they're running 24x7 trying to keep up with demand from the .mil use in I&A. Imagine if (actually WHEN!) we have to fight a REAL war?

Now consider what will happen -- in every city in our Republic -- when the .gov is finally forced to cut back on "entitlement programs" and certain hogs are denied further free access to the trough and given no choice but to root or die.

Every city in our land will burn. Imagine NOLA post-Katrina, replayed in every city nationwide.

Got preps?

God help us -- and God Save Our Republic!!

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