John on July 24, 2011 at 9:03 pm
Today, Tommy Christopher at Mediaite posted a new Thom Hartmann clip in which Hartmann and AlterNet’s Joshua Holland are pushing a familiar criticism of the free market system. It’s the same one I criticized back in May. In any case, here is Tommy’s description of their view:
Hartmann and Holland are close to the mark when they say that consumers are the “real job creators,” but the truth is, “job creation” itself is a myth. Calling wealthy people “job creators” is like calling a puddle of water a “plant creator.” Jobs, like plants, are grown, and it takes more than a puddle of water. It takes seeds, soil, sunlight, and shade to grow a plant, and it takes a similar mix of factors to grow a job. Where Hartmann and Holland are close is that many more of those factors depend on the average working American than on the wealthy.
To grow a private sector job, you need a product or service (the seed), consumer demand (sunlight), capital (water), a capable workforce (soil), and legal protection for companies and consumers (shade). At a glance, this looks fairly balanced, until you realize that not only do we (working Americans) provide both the labor force and the demand, we also provide a good bit of the capital (through our purchases, through retirement investing, through the usurious fees and loopholes we pay), we elect and fund the government that provides businesses protection (and bails them out), and we even think up some of the products and services that businesses profit from.
I’m not sure which products “we” think up, Tommy never elaborates on that point. Whatever they are, they aren’t the majority of products or services. This is the critical flaw in the Hartmann/Holland theory of economics. Let’s adopt this metaphorical framework and look at an example of why it won’t work.
Seeds and DNA
Calling a product or service “the seed” is probably a fair enough metaphor with one important exception. In business, seeds are the product of intelligent design, not natural processes. Individuals or corporations develop a better seed, i.e. a product or service, which then generates its own demand. Contrary to what Holland and Hartmann believe, everything revolves around “the seed.”
Case in point: The idea for something like an iPad goes back at least to the Apple Newton which debuted in 1992. The idea was a good one but the DNA of the Newton “seed” was primitive. The processor was slow. The screen wasn’t in color. And worst of all it was expensive, $700 in 1992 for a device that was little more than an electronic day-timer. As a result, the demand for the Newton was not strong. In fact, it was considered a flop and eventually cancelled.
Jump ahead to 2010 and Apple introduces the iPad, a larger version of its iPod touch/iPhone. In some ways one can see how the device is derivative of the Newton. It certainly has some of the same goals, i.e. to revolutionize the computing experience by making it more intimate and portable.
Hartmann/Holland would have you believe that the least important factor in the success of the iPad 2 was the design (the seed). What really matters, they claim, is the demand of the public, money to produce it, a solid workforce and good legal structures (sun, water, soil and shade). But the Newton was produced by Sharp, a solid Japanese company. So the workforce and legal structures (soil and shade) were as good or better than those for Foxconn which produces the iPad in China. Apple was a successful company so it had the money to produce the device it wanted (water). All of which begs and obvious question:
Why didn’t the Newton sell?
If demand is like sunshine, shouldn’t it just be there for every product a company puts out? Yet it seems the skies were cloudy for the Newton. But the sun is clearly out and shining for the iPad. Why the difference?
The answer of course is the seed (and the price). The DNA of the iPad is significantly better than that of the Newton. The touchscreen is a big improvement over the clunky stylus. The A5 dual-core processor is a massive advance over the 20 MHZ RISC chip in the Newton. Indeed, parallel processing was something only available in supercomputers back in 1992. The iPad’s screen is bigger, has far higher resolution and is in color. Plus you can get the internet and store an entire library of films and music, none of which was possible in 1992. Most importantly, the price is exactly the same in unadjusted dollars. That means that if you account for inflation, the iPad costs about 1/3 what the Newton did in adjusted dollars.
The steady advance of computing that made all this possible is known as Moore’s law, i.e. computing power doubles every eighteen months. Actually the original Moore’s law had it doubling every two years but that turned out to be too slow. The important point is that Moore’s law doesn’t just happen like some force of nature. This isn’t random, this is intelligent design. Hundreds if not thousands of Ph.D’s did research to make the batteries, the silicon chips, the touchsceen display possible. None of this happened because people had an abstract longing for a handy personal computing device. An army of engineers working over two decades made it happen.They built the DNA of the iPad and the smart package it comes in. Without them it doesn’t exist.
Ultimatley, the seed is what matters. Everything else, the sun and water, flow from the work that went into producing good seeds. You can have all the good soil and shade in the world, but without a plan that results in great seeds, you get the Newton or the Zune. Granted, lots of smart people worked on those too but the resulting DNA wasn’t good enough and they were out-competed in the marketplace ecosystem.
Unfortunately, that’s what’s going to happen to the US on a global scale if people like Thom Hartmann and Joshua Holland are allowed to set policy for US gardeners.
Category: Energy & Economy |