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 ...