The "I, Pencil" problem

This is a prelude to a reply to Jason's post Expropriate Goldman Sachs, though it may not look like it at first.

http://www.citehr.com/244044-pencil-sculptures-amazing-work.html

Many economics teachers know I, Pencil, a 1958 essay by Leonard Read, who had earlier set up the Foundation for Economic Education. The idea is that Read is taking dictation for a pencil (yes, for a pencil, not with a pencil--I don't know what Read was writing with, maybe it was they very same talking pencil he was writing about ... this is starting to get a little too much like Alice in Wonderland). Anyway, Read is telling the story of this humble pencil, a pencil who wants us to understand "the miraculousness which I symbolize," which can be seen in the fact that "not a single person on the face of this earth knows how to make me."

Read (or the pencil) isn't just talking about the workers in the pencil factory. There are also the people cutting the trees that will provide the wood, the people mixing graphite with Mississippi clay to make the "leads," the miners who dig up the ore for the metal bit that holds the eraser (I learned from this essay that it's called a ferrule), the people who transport all these various components. And then there are the people who make all the different kinds of machinery used in all these far-flung parts of the process. And the people who make the beds and the kitchen pots for the logging camp ... You could play this game all night.

All of these things come together to make a pencil, yet no single person is in charge of the whole thing. By chance, it occurred to me a couple days ago (before I read Jason's post) that Read's fable is actually an excellent example of how an economy is an ecosystem--I don't think he meant it that way, but I think that's what it is.


Take one of my favorite illustrations of an ecosystem, the temperate rainforests of the Pacific Northwest. The most obvious element is the trees themselves: they're routinely 200 feet tall (very impressive for a guy who grew up in New England where the native trees weren't that tall to begin with, and almost all of what we see today is second or third growth). And of course the trees are important, capturing most of the solar energy that feeds all the life in the forest, and holding the soil in place with their roots, and providing habitats up and down their trunks and branches.

But there are lots of other roles as well. There are the fungi that live in the soil, gathering nutrients and "trading" them to the tree roots in exchange for sugar. There are the decomposers that move in when a tree (or anything else) has died, breaking it down and making the nutrients available for new life. And there are the animals, unintentionally propagating the plants by eating their seeds and then answering nature's call.  My favorite piece, though (and the most delicious) is the Pacific salmon.

http://en.wikipedia.org/wiki/Salmon

This fish hatches in forest creeks, makes its way downstream, turns from a freswater fish to a saltwater one, spends two to five years swimming around the North Pacific eating shrimp (that's where its flesh gets its pink/red color), then heads back into the river that first brought it to the ocean, then finds its way up, sometimes along more than 1,000 miles of river, to its natal stream. If it makes it that far, it will mate and die, and its offspring will do it all over again.

http://en.wikipedia.org/wiki/Salmon

They don't all make it, of course. Along the way, some of them feed bears and other animals. Even those that do still die after spawning, and then they feed the other animals. And the animals defecate and they die, and it all gets decomposed and turned back into soil for the plants to use, ... (Bruce Brown narrates this whole system wonderfully in Mountain in the clouds: a search for the wild salmon.)

So here's something as miraculous as making a pencil, and having certain similarities. A complex process with many components, spread out over a great distance, with each component just living its life, with nobody in charge, no component even conceiving of the whole process, and yet the result is a salmon (and a forest, and bears, and ...)

Read almost makes the analogy himself:

I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree. [emphasis in original]

Instead of "human necessity and desire and in the absence of any human master-minding," try "differential reproductive success and in the absence of any divine intervention," and the parallel is clear and beautiful.

There's a point to this narrative, because it turns out what's really worrying this plucky little pencil, what keeps him up nights scribbling away, or relating his marvelous origins to passing economists, is that freedom is under threat from ... people's faith in the post office. I'm only slightly exaggerating:

Once government has had a monopoly of a creative activity such, for instance, as the delivery of the mails, most individuals will believe that the mails could not be efficiently delivered by men acting freely. And here is the reason: Each one acknowledges that he himself doesn't know how to do all the things incident to mail delivery. He also recognizes that no other individual could do it. These assumptions are correct. No individual possesses enough know-how to perform a nation's mail delivery any more than any individual possesses enough know-how to make a pencil. Now, in the absence of faith in free people—in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity—the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental "master-minding."

I don't know that people think "only the government can deliver the mail." Maybe in 1958 that was a common thought, but now with FedEx, DHL, UPS, not to mention email and the internet, a moment's thought would probably suggest that the private sector can deliver mail. Anyway, it's an interesting point, that people will see the complexity of the economy and wrongly think that it requires conscious direction from government. But then Read jumps the shark:

[W]here men have been left free to try, ... they deliver each four pounds of oil from the Persian Gulf to our Eastern Seaboard—halfway around the world—for less money than the government charges for delivering a one-ounce letter across the street!

This might be a good example, if mail delivery involved nothing more than dumping all the letters in the hold of a giant ship, and maybe we could try that. You might get birthday wishes meant for someone named Hilda, and they might arrive around her birthday in January instead of near yours in July, but since you will eventually have a birthday, I'm sure you can enjoy the wishes meant for Hilda in place of something meant for you. Likewise, it shouldn't be a problem that your mortgage statement has gone to Bill in Sarasota, nor that you have received the cancer screening results for someone named Fred (the results were positive--it would be good of you to find out who he is and track him down to let him know so that he can start treatment).

It seems like Read is making a serious point, yet he's complaining because the post office can't match the delivery costs of a bulk item carried in a ship from one point to another, when it's engaged in the information-intensive delivery of millions of individual items, each with a unique starting point and end point. This isn't apples and oranges--you will notice that those are both fruits--this is apples and ... I don't know, dinosaurs? And he's mocking the dinosaur for not having a thin, edible skin covering delectable flesh.

And yet that's not the most important problem with his comparison. Read is complaining that the same 4¢ that can move four pounds of oil across the ocean is what the post office will charge for taking a letter across the street (a first-class stamp in 1958 was 4¢, and had just gone up that year from 3¢ (Thanks, intertoobz!), so maybe Read was particularly incensed at the outrageous expense). But he conveniently overlooks the fact that 4¢ would also get your letter from a post office in the back of a general store in the Florida swamps to a small town in a valley nestled in the Cascade Mountains of Washington state. Could the private sector match that? Does it provide that service today for 45¢?

I spent the first half of my senior year of college, Autumn 1988, in Moscow studying Russian. One evening I was invited to spend a Jewish holiday with friends of an emigré acquaintance, and at some point the host turned to me and said, "There's something about your system I don't understand." (Just one thing? You're doing pretty well.) "Say I have a truck. I could buy a piece of furniture, a dresser, in town, for 5 rubles, drive it out to a village in the countryside, and sell it for whatever price I wanted?"

"Well, whatever price people in the village would be willing to pay."

"But isn't that ... exploitation?" This was one of the dirtiest words in the Soviet-era lexicon.

"Maybe, but what if I had a truck, and you were offering your dresser for 20 rubles, there'd be nothing stopping me from taking a dresser out to the village and offering it for 15 rubles. And then perhaps you would offer yours for 10. It's competition."

"That's crazy!"

For decades, people in the Soviet bloc were taught that capitalism was bad, without really understanding what markets are, how they work, what they do well vs. what they do poorly. They were taught that communism had superseded capitalism and markets in their countries, and someday it would inevitably triumph in the West as well. And at some level this teaching stayed with people, even those who wanted to leave, as this gentleman did. And even those who were more actively opposing the regime.

By 1974, when Andrei Sakharov was already a dissident, he wrote a piece for the American magazine Saturday Review, titled "The world in half a century." His vision has the world neatly divided between urban and rural, in defined percentages. The population was likewise cleanly split--I think the numbers were 75% in the cities, 25% in the countryside, and on weekends the city people would slough off their urban cares and head out into the nicely organized countryside to restore their battered senses. At some level, the virtues of the planned economy were so second-nature to Sakharov that the inclination to plan other people's lives outlived his faith in the particular planners of his country.

It would be simplistic to call our situation a mirror image of Soviet indoctrination, not to mention insulting to the people who faced very serious risks and punishments for talking about things the rulers didn't want discussed--Jason and I can trade posts on when and why it might be good to increase government's role in the economy, and our greatest risk is that someone will leave an IRATE POST In ALL cAPS !1!!1 (oR MOStLY caPS). "I, Pencil" is not government-required reading, and people can (and do) teach economics from a variety of perspectives.

But "I, Pencil" and similar writings have nonetheless done some damage. A significant portion of the American public seems wedded to a simplistic notion of "market - miraculous; government - incompetent, corrupt." Analogously to well-indoctrinated Soviets, we "know" that government is bad without really understanding how an economy works and the role that government has in it. And if you look at the range of ideas admissible on the Sunday morning "serious" talk shows, you can see the limits of our discourse. The "public option" for health insurance had pretty broad support in 2009, but not enough to overcome the weight of our culture's assumption that private is good and public is bad.

When you pay 45¢ to get a letter across town, you're subsidizing a person who's paying 45¢ to get a letter from Florida's swamps to Washington's mountains. You may think that's unfair, and you're entitled to that feeling, but there are good arguments for doing it. How do you make a group of people feel like a Nation? And in a democracy, where we presumably want an informed citizenry with equal access to information and the ability to discuss things, we might just want to make it the same price to exchange thoughts on paper with a person across the country as with someone in the next town over. And we might want it available to everybody, on equal terms, without having to subscribe or sign up for some sort of package deal.

That's a service that the market simply can't provide: if FedEx tried to force its local-mail customers to subsidize its long-distance customers, UPS would offer local-only service at cost, and FedEx would be left with only the expensive, long-distance mail.

It's not true that "only the government can deliver the mail." But if we want universal mail service for a flat rate, anywhere in the country, it does indeed have to be done by the government, or by a private company so tightly regulated that it might as well be the government. This is basic stuff and it applies in other areas as well. But it's hard to have a sane discussion about it in public, much less in Congress, because we have an "I, Pencil" problem.