The Ease of Defeating Derp Report (Niall Ferguson Edition)

As if to mock the current intellectual conversation on “derp”, Niall Ferguson has a new column in the Wall Street Journal arguing that regulation is the cause of all American decline. I am happy to report to you that, in this special Niall Ferguson edition the “ease of defeating derp” remains quite high.

Starts Ferguson:

Not everyone is an entrepreneur. Still, everyone should try—if only once—to start a business. After all, it is small and medium enterprises that are the key to job creation. There is also something uniquely educational about sitting at the desk where the buck stops, in a dreary office you’ve just rented, working day and night with a handful of employees just to break even.

“Everybody go become an entrepreneur” profoundly fails Kant’s categorical imperative. Also, mind you, this is the “Laurence A. Tisch” professor at Harvard telling us the virtues of “sitting at the desk where the buck stops, in a dreary office you’ve just rented, working day and night with a handful of employees just to break even”. Anyway, here’s Ferguson’s wisdom from his “experience” as a serial entrepreneur:

As an academic, I’m just an amateur capitalist. Still, over the past 15 years I’ve started small ventures in both the U.S. and the U.K. In the process I’ve learned something surprising: It’s much easier to do in the U.K. There seemed to be much more regulation in the U.S., not least the headache of sorting out health insurance for my few employees. And there were certainly more billable hours from lawyers.

Before I talk about this, let’s set context with this random quote from Ferguson’s article:

Consider the evidence from the annual “Doing Business” reports from the World Bank and International Finance Corporation.

Okay, Ashok, let’s “consider the evidence” from World Bank’s “Doing Business” reports:

Country/region 2013 2012 2011 2010 2009
Singapore 1 1 1 1 1
Hong Kong 2 2 2 2 2
New Zealand 3 3 3 3 3
United States 4 4 5 4 4
Denmark 5 5 6 6 5
Norway 6 6 8 10 10
United Kingdom 7 7 4 5 6
South Korea 8 8 16 19 23
Georgia 9 9 12 13 16
Australia 10 15 10 9 9

To use technical jargon, “ruh-oh”. So you’re telling me the three non-entitites that are “easier” than America have a sum total population less than… the New York metro area? Oh and what “regulation” does Niall Ferguson hate?

Why is it getting harder to do business in America? Part of the answer is excessively complex legislation. A prime example is the 848-page Wall Street Reform and Consumer Protection Act of July 2010 (otherwise known as the Dodd-Frank Act), which, among other things, required that regulators create 243 rules, conduct 67 studies and issue 22 periodic reports. Comparable in its complexity is the Patient Protection and Affordable Care Act (906 pages), which is also in the process of spawning thousands of pages of regulation. You don’t have to be opposed to tighter financial regulation or universal health care to recognize that something is wrong with laws so elaborate that almost no one affected has the time or the will to read them.

Because Obamacare and Dodd-Frank were both (!!!!!) passed in 2010, I imagine America’s ranking must have crashed from 4 to…. 5. (And it’s back down to 4, by the way).  For all its flaws, the Doing Business report is a lot more comprehensive than Niall Ferguson’s word. I bet Silicon Valley entrepreneurs are running away to “New Zealand, Australia, Singapore, Canada, Hong Kong and the United Kingdom” to create their billion-dollar startups. Oh and I hear the credit is oozing through Britain. Oh wait…

So not only does Niall Ferguson have the balls to cite a report that directly contradicts his opening speech, he goes on with irrelevant comparisons:

The decline of American institutions is no secret. Yet it is one of those strange “unknown knowns” that is well documented but largely ignored. Each year, the World Economic Forum publishes its Global Competitiveness Index. Since it introduced its current methodology in 2004, the U.S. score has declined by 6%. (In the same period China’s score has improved by 12%.) An important component of the index is provided by 22 different measures of institutional quality, based on the WEF’s Executive Opinion Survey. Typical questions are “How would you characterize corporate governance by investors and boards of directors in your country?” and “In your country, how common is diversion of public funds to companies, individuals, or groups due to corruption?” The startling thing about this exercise is how poorly the U.S. fares.

I think it’s “known unknowns” but, hey, as a neo-imperialist I’m sure you know Donald Rumsfeld way better than I (and, in that case, can someone please explain to me what the hell an “unknown known” is). But, because of people like Niall Ferguson, the decline of American institutions, incidentally, is secret. Regulation is bad in America, but it’s the fundamental distrust George Bush instituted to wage Niall Ferguson’s war that made it okay to start invasions with a lies, and from that we may never recover.

I don’t want to place the mantle of failed imperialism only onto Ferguson, but no one better embodies the neoconservative who knows so little of what it means to be an American, and to be a republic. It is the lying, militaristic, interventionist terror which Niall specifically endorses that has eroded our institutions.

Not the one legislation that is meant to bring peace of mind to the millions of uninsured Americans who, by the way, won’t have the courage to give up wage-work to “start a business”, as Niall would have them do, without universal guarantee. But his only refrain to randomly-selected reports with meaningless indices is, literally, “In every single category, Hong Kong does better”. Well, no freaking shit a port city of 7 million with finance as its sole industry does better than the whole of America.

This man just doesn’t get it:

Yes, we Americans have the right to be stupid if we want to be. We can carry on pretending that our economic problems can be solved with the help of yet more fiscal stimulus or quantitative easing. Or we can face up to the institutional impediments to growth I have described here.

In fact, if there was such an adjective as “American”, Niall Ferguson is the last person that would come to mind. I’d like to see him produce one prominent intellectual who suggests “fiscal stimulus or quantitative easing” are all America needs. Niall fights against a straw-man to create an argument of smoke and mirrors.

Folks, this man believes America should imperialize the world and bear the white man’s burden. If one thing has poisoned our institutions, it is such neoconservatism. Indeed eroding trust in America’s institutions and a burgeoning regulatory state is bad for economic growth, but this should be argued in a measured manner. America is still leads the world in an innovation ecosystem that is unlikely to be surpassed any time soon. Cass Sunstein offers a way to a smart and effective regulatory state. But two, long, bills do not a declining country make.

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24 comments
  1. ‘Not the one legislation that is meant to bring peace of mind to the millions of uninsured Americans who, by the way, won’t have the courage to give up wage-work to “start a business”, as Niall would have them do, without universal guarantee.’

    Speaking of self-refutation, how do you explain the millions of Americans who have done just that…prior to Obamacare being passed?

    It’s pretty obvious that you aren’t one of the people who have ever had the experience of which Ferguson writes. Nor did your idol Brian Arthur when he wrote;

    ‘Steering an economy with positive feedbacks so that is chooses the best of its many possible equilibrium states requires good fortune and good timing—a feel for the moments at which beneficial change from one pattern to another is most possible. Theory can help us identify these states and times. And it can guide us in applying the right amount of effort (not too little but not too much) to dislodge locked-in structures.’

    We who have actually been participants in the economy as entrepreneurs don’t know whether to laugh, or cry, at such stupidity.

    • I hesitate to reply because I never said anyone is my idol, and you persistently bring it up.

      Sorry, “fewer people”. Universal, general, insurance helps entrepreneurship, other things equal. Other things aren’t equal, but I believe here the benefits outweigh the costs.

      Nope, I didn’t have the experience about which Ferguson writes. That’s why I’m relying on evidence he himself cites. Oops, looks like that doesn’t work.

      • ‘…other things equal. Other things aren’t equal, but I believe here the benefits outweigh the costs.’

        Classic; Don’t confuse me with facts, when I’ve got my religious beliefs in support.

  2. lb 22 said:

    Patrick, I have started a business, and Ferguson is full of shit. I like the fact that business is regulated by government. I appreciate the fact that my competitors, no matter how powerful, have to follow the same rules as me.

    By the way, I started my business in Canada, where I didn’t have to worry that taking such a risk could result in my three-year old (who has a fairly serious existing condition.) losing access to healthcare. I can assure you it made a huge difference in my ability to take the risk. Certainly in pre-Obamacare US, I could not have done it, because I would never have been able to get insurance for my son if I quit my job. I’m sure that in the US there are lots of people who are well off enough that they can quit their jobs, and who have no children, or serious health concerns to worry about, so they are able to start a business.

    • Do you suppose would be competitors to your business are as enthusiastic about the roadblocks the government puts up to protect your position?

      Also, you are quite wrong that your three year old would be denied ‘access to health care’ in the USA. In fact, quite a few Canadians have found it necessary to come to the U.S. to get care denied to them in Canada. Some of them have been friends of mine.

      • Berto said:

        What’s the problem with keeping business honest? Their primary concerns are profit and return on investment. Do you really need me to cite the tens of thousands of instances where crimes were committed to meet those two objectives?
        Now, if you’re criticizing the use of corporate lobbyists to write legislation which provide artificial barriers of entry into markets, then I completely agree.
        ——————————————————————————————————————————-
        Here’s the deal corporate America: You want to provide goods or services at a price we think is reasonable, we’ll buy them. You want to provide employment where we feel the compensation is worth our time and effort, fine. Other than that, we owe you nothing. Pay your taxes for the government educating your labor market, enforcing contracts through the court system, and patent protection, and kindly STFU. And if you keep whining, we’ll take that patent protection away.

      • There’s no ‘problem with keeping business honest’, the question is what is the best way to do that. You yourself have explained it well; competition. The consumers will patronize those businesses they feel are honest and avoid the others. Regulation that keeps competition down will hinder the best method we know of to, ‘keep business honest’.

        I”m on your side, but I’m not sure you are.

      • Patrick, we agree that competition is largely good. My support for universal healthcare doesn’t come from a skepticism of markets as much as the idea that they just don’t exist in healthcare. Huge information asymmetries and captive demand (you can’t make a rational choice that examines all possible options when you’re having a stroke) ruins the possibility.

        I am for more competition as far as pharmaceuticals are concerned, however. Though I disagree with most of the liberals who want to severely undermine patents, as the US is by far the biggest innovator for medicine.

      • Nathanael said:

        It is not possible to get necessary care denied to you in Canada without doing something egregious.

        Therefore I certainly believe that “quite a few Canadians have found it necessary to come to the U.S…..[in order] to get care denied to them in Canada. ” Because it’s hard to get care denied to you in Canada. To do so, you must first *flee the country* and move to the US. The Canadians aren’t willing to give their free health care to Americans!

        Yes, I’m being snotty, but, Mr. Sullivan, your anecdotes are beyond nonsense — I am quite sure your friends made them up, and if you dug into them further, you’d discover that none of them had been denied necessary care (except perhaps necessary care of the sort which is routinely denied by every insurance company in the US) — and also, you need to learn to write.

        In the US, lb22′s three-year-old would be denied access to health care. Stone cold fact. You obviously don’t know anything about US health care at all.

        Those of us who are actual entrepeneurs, as opposed to fraudulent entrepeneurs like Mr. Sullivan, know how things actually go. Pre-Obamacare, you had to be either crazy or already rich to be an entrepeneur in the US. Here in the US, I can name a dozen people off the top of my head who would prefer to be running their own businesses but have corporate jobs solely for the healthcare. This does not happen in Canada.

        Also, competition doesn’t keep businesses honest. It’s quite possible for them to all be dishonest. Ask Americans what they think of the many competing used car dealers.

    • Patrick, we agree that competition is largely good. My support for universal healthcare doesn’t come from a skepticism of markets as much as the idea that they just don’t exist in healthcare. Huge information asymmetries and captive demand (you can’t make a rational choice that examines all possible options when you’re having a stroke) ruins the possibility.

      I am for more competition as far as pharmaceuticals are concerned, however. Though I disagree with most of the liberals who want to severely undermine patents, as the US is by far the biggest innovator for medicine.

      • Of course competition exists in health care, I just heard a radio advertisement a few minutes ago for an eye care clinic. That’s even allowed in Canada. You need to learn to stop regurgitating dogma.

      • How could I have missed it. If it doesn’t agree with your worldview it’s “dogma”. Address one of my points, instead.

      • Excuse me? One of your points was that there’s no competition in health care. I easily showed that that is wrong. Even health insurance, in the USA, came about through competition; Blue Cross and Blue Shield were business ventures from physicians and hospitals.

        Regulation’s contribution has been to increase the costs of that insurance by restricting competition.

      • Nathanael said:

        There’s no competition in necessary health care. Gratuitous, cosmetic, luxury health care — stuff like “eye care clinics”, sure, there’s a market, but I don’t care about that.

        When you’re sick and have to go do the doctor because you’re sick, there’s no competition. You go to the closest doctor who’s open, pretty much.

  3. Berto said:

    Agreed for the most part, Patrick. But I’d feel better if consumers patronized businesses that are honest, not those “they feel are honest.”
    And we’re both on the same side, if you’re against regulation that keeps competition down, instead of just regulation which keeps business honest. As I explained earlier, yes we definitely need to tell business lobbyists to STFU. They’re the ones who write legislation which keeps competition down. And besides, not listening to businesspeople is a win-win.

    • Indeed. and the point of this article wasn’t a defense of regulation as much as that of the idea that regulation is the cause of all American decay, as Niall Ferguson tries to submit. Just not the case…

  4. How silly of me, I should have known you’re on the side the good regulation and against the bad kind. Have you any familiarity with the history of our Interstate Commerce Commission? Our Civil Aeronautics Board? The Federal Communications Commission? They were all sold as ‘good regulation’, but the results were to hobble competition and stick Americans with higher prices and fewer choices.

    Btw, do you ‘feel better’ about government employees telling consumers which are the honest businesses?

  5. Berto said:

    And you continue to agree with me, Patrick. All those government oversight institutions you cite have had bad regulations written for them by business lobbyists. So, once again, the easy solution is we stop listening to business and stop having them write legislation.
    ——-
    ” Btw, do you ‘feel better’ about government employees telling consumers which are the honest businesses?”
    I’m for government oversight of business. Go back and read my 2nd paragraph from my reply on June 12th at 4:07 AM if you’re still confused on this stance.
    ——-
    Finally you’re also confused on what drives up insurance costs. The biggest factor is low return on the insurance companies investments. That is why, for instance, medical malpractice insurance premiums increased dramatically during the early 2000s recession even though medical malpractice outlays by insurance companies decreased during the same time period. The insurance companies weren’t paying out more, they just weren’t seeing the same profits due to the recession decreasing the ROI on their investments. So in order to keep their profits up, they increased the premiums doctors paid on malpractice insurance.
    BTW, how do you feel about repeating the insurance companies “dogma”?

    • Well, if it’s such an easy solution, why does it never seem to happen that regulatory agencies escape being captured by the ‘regulated’?

      Again, you don’t seem to agree with yourself. Why, if consumers can choose which businesses to patronize, do they need regulators?

    • Also, you do realize, don’t you that insurance is a very heavily regulated industry?

  6. Berto said:

    “Why, if consumers can choose which businesses to patronize, do they need regulators?”
    Because the consumers would have to be informed. Are you saying disreputable businesses will inform consumers of their underhandedness? More likely they will obstruct, misinform, and try to “market” their way out of letting consumers know everything about them. But since you’re pushing for transparent businesses, where consumers will know everything they need to know about a business before making their choices, I’ll let you propose that solution to private businesses. Good luck with that.
    ————————
    “Well, if it’s such an easy solution, why does it never seem to happen that regulatory agencies escape being captured by the ‘regulated’?”
    Because politicians are small-time crooks, and they keep getting snowed by the big-time crooks (i.e. businessmen). You solve that by having free and open elections (no pol will owe a business a thing, since businesses are no longer funding elections) and then holding politicians feet to the fire.
    ———-
    Yes, I do know that about insurance. Again, legislation written by insurance company lobbyists to set artificial barriers of entry into their market.
    BTW, no charge for the education I gave you on what drives insurance company premiums up. I’m a sweet guy like that, and it’s a better world when more people are truly informed.

    • So, you’ve again transformed your arguments. You claimed it was ‘an easy solution’. Now you note the power of entrenched interests and hand wave away the problem of dealing with that, by saying we just need ‘free and open elections’. Well, we have those. How do you suppose Obama got to be President. What has he done to remove the power of business interests? Health insurance companies helped write Obamacare. Bankers wrote Dodd-Frank.

      And, how ‘easy’ would it be to change our election laws? To, say, repeal the Electoral College–an amendment to the Constitution?

      Another instance of hand waving on your part is your attempt to evade answering my query about how government bureaucrats would know better which businesses are honest. Wouldn’t the people who actually deal with them first hand know better? You seemed to recognize that earlier when you wrote; ‘You want to provide goods or services at a price we think is reasonable, we’ll buy them.’

      What’s happened between then and now to make you change your mind?

      And yes, it would be a better world if people were better informed. Especially if their reading comprehension could be improved. You say that, ‘BTW, no charge for the education I gave you on what drives insurance company premiums up.’

      But, in no way did you refute what I said, which was, ‘Regulation’s contribution has been to increase the costs of that insurance by restricting competition.’

      You actually gave me one example of exactly that, when you said, ‘…in order to keep their profits up, they increased the premiums doctors paid on malpractice insurance.’ Absent regulation keeping the number of malpractice insurance companies down, that doesn’t happen. Lower cost providers would enter and take the business for themselves.

  7. Luke said:

    A few observations from a non-American.

    It’s a bit weird to the rest of us that employers have to provide healthcare. I recently became self-employed. I didn’t even think about healthcare.

    It’s a bit weird that NF mentions Dodd-Frank (or whatever). Small scale entrepreneurs aren’t going to be starting banks. You need shedloads of cash, so paying some lawyers is not a big deal.

    He (and commenters here) ignore a blindingly obvious advantage to doing business in the US- a large and wealthy market. That’s much more of an an attraction/drawback than the legal system. (Look at China – no shortage of people ploughing in money.) You can be crap on regulation, but people will still invest there. NZ has to be fantastic to get anyone interested at all.

    Two related points – US is never going to be “the best” at anything as it’s a big place. Biggest maybe, but some small country somewhere will always have better healthcare or whatever. But please don’t refer to small countries as “non-entities” unless you want the Mitt Romney prize for being pointlessly offensive. What did NZ ever do to offend you? (I’m not from there.)

    More battering of Ferguson needed IMO.

  8. Nathanael said:

    For reference, an “unknown known” is basically derp. And I mean that *literally*. An “unknown known” is something which everyone else knows, which you would have known if you’d bothered to look it up, but which you don’t know because you’ve chosen to be a derpy idiot.

    Donald Rumsfeld was dealing with a lot of “unknown knowns”, because he was a derpy idiot. and they are what caused him to start and lose the Iraq War.

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