Thomas Jefferson
Citizens can’t be ignorant about the economy if they expect to remain a free people. A person’s right to use the fruits of their labor as they wish is a key tenant of liberty and a bedrock principle of the Framers. For they knew that without a right to one’s property there is no liberty. They also knew (see Madison’s Federalist #2, par. #2) that individual citizens must cede some liberty to government in order to have a functioning society. Jefferson cautioned citizens, who grant some of their liberty to government, that they must be informed and vigilant to ensure that their government remains constrained to its limited role.
Each day citizens lose more liberty because they don’t understand the impact of government economic interventions. Thomas Paine and Thomas Jefferson are both credited with saying “That government is best that governs least.” Nowhere is it more true than when applied to meddling in the commerce among free people.
What is an economy? There is general agreement that it is a system for the production, distribution, and consumption of goods. Under this definition socialism and capitalism are types of economies. In the socialist system the government owns the means of production and manages the economic activities of its citizens. In the capitalist system citizens own the means of production and exercise their free will as to how they will engage in economic activities.
So, what is a system? In the spirit of Russell Ackoff, a “purposeful system”, such as an economy, is one in which entities (people, their tools, and their organizations) interact with each to achieve a common goal. Participating in the US economic system are citizens, institutions, and government. Citizens participate to satisfy their needs; institutions participate to create wealth (business) or to help distribute wealth (social institutions); government participation is limited (or should be) to providing infrastructure that enables commerce and provides safety. In essence, therefore, an economy is a system that provides for the needs of a nation’s citizens and creates wealth for society.
Dr. W. Edwards Deming was a giant in the field of systems thinking, especially as it relates to quality. His teachings apply to an economic system quite well, and that is where we turn our attention.
Tampering with a system, according to Dr. Deming, is to change it without understanding the underlying sources, as well as amount, of variability. All systems have natural variability, which is sometimes called “The Voice of the System”. When natural variability is mistaken for a problem and a change made on that basis the system will become even more variable. For this reason, tampering with a system always causes more problems than it solves.
An archer, who shoots arrows at a target, provides a good illustration of this principle. The bow, archer, and arrow are the entities of the system. When shooting arrows outdoors, the environment in which the system must perform, such as a gusting wind, can impact the archer and arrow. When the wind blows the archer will have trouble remaining steady to sight on the target. The wind will buffet an arrow in flight, which may cause an otherwise good shot to miss the bullseye. Small differences in the manufacture of the bow and arrows cause some variability as well. Where the archer places the arrow in the bow will not be precisely the same each time and that will cause small differences in the results. Even more sources of variability in the archer’s performance, such as crowd pressure, time limits on a shot, or even the illness of the archer on a particular day, can be identified. So clearly there are a number of uncertainties in, and affecting, this system.
The archer can only follow a process of putting the arrow in precisely the same place each time, sighting the same way each time, and releasing the arrow consistently. The archer might be able to compensate for steady winds after a shot or two. Practically speaking some variables, such as changing wind directions or speeds, are random and for these the archer can apply no effective corrections. Indeed if the archer tries to correct for uncertainties that can’t be measured or are even unknown, the archer’s performance will be worse. This is the idea behind Dr Deming’s tampering -- do not compensate for variation that is not understood or is natural in the system.
To illustrate this point, Dr. Deming created The Funnel Experiment. This experiment, including a simulator, is explained: Click Here The experimental apparatus is a funnel, a stand, and a target on a table. The funnel is mounted on a stand and lined up as precisely as possible over a target. The goal of the experiment is to hit the target with the marble. The marble won’t always hit the target and so experimenter moves the funnel after each trial so that the marble hits as close to the target as possible every time. As it turns out every rule for moving the funnel makes matters worse and not better. This is because the deviations from hitting the target are caused by the system’s arrangement and no adjustment in targeting will improve the outcome. What is needed is a change to the system. One change would be to lower the funnel so that it is closer to the target.
This same concept applies to economic systems for which governments do not understand the variability or sources of variability. Any change they make to improve economic performance creates more variability in the system. Bubbles and busts that occur across the entire economy are caused by government tampering (e.g. moving the funnel) and not by the normal business cycles as is often asserted.
Moreover, when there are busts the government grabs more regulatory authority for itself or it passes more legislation to fix a problem that it created in the first place. As Jefferson said, “The natural progress of things is for liberty to yield and government to gain ground”. Clearly elected officials justify more government power to solve the problems that their tampering creates. Citizens who are not informed about economic systems fail to understand that they lose liberty in hopes of gaining economic security that government can not provide.
This is an admittedly technical piece, but as Jefferson says citizens can’t be ignorant and free. Informed citizens must demand that the government stop tampering with the economy in order to preserve their freedoms.
Elko Mike
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