MR. DRISCOLL:  Kevin, you mentioned the Apple iPhone a minute ago.  Your book begins with a marvelous update of an essay originally written in the late 1950s by libertarian economist Leonard Read, and later adapted in the ‘70s into a television segment by Milton Friedman, that’s pretty easily found on Youtube called “I, Pencil,” which you’ve updated with the Apple-friendly spelling of iPencil.

Could you talk a bit about that, and why both those who sell the iPhone, and so many who purchase them, want highly customizable twenty-first century technology in their day-to-day lives, and yet they want socialized healthcare and retirement schemes that are straight out of the 1930s smokestack era?

MR. WILLIAMSON:  Yeah, even before that.  Yeah, the — the iPhone — I’ve got one sitting here in front of me — is kind of an amazing thing when you think about it.  Not just because it’s a technological marvel, although we shouldn’t be as blasé about technological marvels as we are.  We’ve just gotten used to them.  You know, get a new one every six months.

But if you think about it, you know, I always think about the movie Wall Street, with Michael Douglas, and, you know, he’s Gordon Gekko, this Wall Street kingpin gazillionaire, master of the universe.  And he’s got this ridiculous Motorola cell
phone –

MR. DRISCOLL:  The giant brick.

MR. WILLIAMSON:  — in the size of a cinderblock.  You know, in 2011 dollars, that thing cost ten grand, and it cost about a thousand dollars a month to operate.  It had a talk time of something like twelve minutes.  Couldn’t play “Angry Birds” on it, much less trade a stock.  You know, you couldn’t give away a piece of junk like that now to the, you know, poorest kid in the country, because nobody would want it.

So in a very short period of time, we’ve gone from, you know, you could be a billionaire in 1985 and not have a cell phone as good as a iPhone — it just didn’t exist — to everyone’s got one now.  You know, the sort of thing that used to be a luxury for millionaires is now as commonplace as it can be.  Regular cell phone, you know, non-smart phones, lower end phones, are literally free.  Any cell phone provider in the country would be happy to give you one if you’ll sign up for service.  And of course the services have gotten very cheap too, compared to where they used to be.

So we have this one set of products that keeps getting better and cheaper, you know, every month, every six months, every — every year you’ve got a new generation of product and the prices fall.  But some things that are really important, like healthcare and education and retirement, just don’t follow that same trajectory.  And so I was looking to explore why that is.

Now, Read’s essay is one of my favorite things in the economics literature, “I, Pencil,” where he writes this autobiography of a number 2 pencil.  And he comes to a really interesting conclusion.  If you look at everything that goes into making pencil, you know, the graphite, the rubber, the brass for the ferrule, the wood, all that, and you take it one order of magnitude back from there, you know, the forestry techniques that go into making the wood; the mining woods that go into getting the metal out that you make the brass out of; the agricultural techniques necessary for producing the rubber and the mining for the graphite.  If you look at the machinery that’s necessary to do that and the technology that’s necessary to produce that machinery, something as simple as a number 2 pencil ends up being the process of a system that is so complex, that the complexity of it is literally incalculable.

You know, we have a modern thing called complexity science, where we study really, really complex systems and how order emerges out of them; things like evolution and how consciousness arises in the brain and that sort of thing.  And there are various levels of measuring degrees of complexity; and the system that produces the, you know, simple, humble, number 2 pistol — pencil, rather — is really beyond measure.

So we’ve got this thing that’s cheap and ubiquitous, and you know, it’s so cheap that if somebody asks you, can I borrow your pencil, you say sure.  You never even really worry if you’re going to get it back.  But it takes, you know, more capital than you imagine to make that system work, more expertise, and there’s more complexity in that system than you can really even calculate.

And the point that Read takes away from it is that you’ve got a system that produces pencils even though nobody knows how to make a pencil.  Various people have little pieces of the knowledge necessary to do that, but no one actually knows how to do it, much less something complex like an iPhone.

So then you’ve got 535 guys in Washington who say, oh, we’re going to plan healthcare for you, or we’re going to show you how to run education.  Well, these things are much, much more complicated than a simple number 2 pencil, and yet we’ve got these political bureaucracies and elected officials and especially presidents, are bad about this, who say well, we just had a panel of experts and we get the right guys in there with — put them in the a room, and they’ll smart and they’ll figure this stuff out; it’s just literally not possible.  It’s not even possible in principle for them to even understand the stuff that they’re pretending to solve, much less actually solve the problems.