Economics Is Super Hard, Y’all (Part III)


[Mr. S begins:]

Again, you’re oversimplifying my argument—I never said MW solves all ills. I just argue that it can help put a lower cap on them in this country. I even stated that in my initial arguments—that increasing the MW was only one piece of several options the government should take to improve wages in the US. If anyone appears to be obsessed with the topic, it’s not me. In fact, if it wasn’t for your dead set principle against this reasonable action, I would have dropped this subject a while ago.

.

It’s not a reasonable action, and I’m obsessed with education on any matter, not just the minimum wage. If you told me Carbon is the twelfth element, I’d argue against that just as fervently.

.

But I will say we should not accept that the only options available in this world are either cripplingly low wages and slavery or starvation. Poverty is not the natural state of man.

.

Then why do you work for a living? If wealth were the natural state of man then you wouldn’t have to try to make a living. Nobody is born with riches just as nobody is born with a doctorate.

[May I take a moment to vent a little here? How is it possible for a man to so fundamentally misunderstand the universe that he believes poverty is not the natural state of man? If that were the case, it would mean that every child in the world is born inside a mansion made of solid gold and then is somehow removed from his wealth later in life. Are people in Sub-Saharan Africa poor because they just forgot to be rich one day? I mean, come on!]

.

In this day and age, it is society that creates that condition—whether through caste systems, or allowing unfair conditions to exist—society can choose how to treat its people. You may not believe this John but we, as a society, are better than that, and we’ve proven it. We can fight those types of inequalities by pushing back against governments and industries to make things better. We’ve seen it done in this country with the Progressive movement. We’ve seen it done in other countries as a counterbalance to the industrial revolution (http://en.wikipedia.org/wiki/Labour_movement).

 .

Unionization is estimated to cost the US economy almost a trillion dollars per year in lost growth (Source: Richard K. Vedder and Lowell E. Gallaway, “Do Unions Help the Economy? The Economic Effects of Labor Unions Revisited,” Government Union Review, Volume 20, Number 4, December 2002, Public Service Research Foundation.) That certainly is a counterbalance to the Industrial Revolution, which doubled the US economy from 1850-1900 (http://www.helsinki.fi/iehc2006/papers3/Carreras103.pdf) Forcing businesses to do what you want doesn’t benefit them or anyone else.

.

Letting corporations run things in Africa certainly hasn’t helped them get out of poverty, in most cases it has made things worse http://www.finalcall.com/artman/publish/world_news_3/the_exploitation_of_africa_s_land_and_people_5661.shtml—for centuries, the African people have been exploited by foreign industries (corporations of their time) for the sake of the industrial revolution—they unfairly cut up the continent into their spheres of influence, ruled with impunity, and forced the local populace to produce cash crops that, when the markets went down on those crops, caused mass starvation and poverty in Africa. A good book on the subject is World Civilizations from Adler, Philip J. & Pouwels, Randall L. World Civilizations, Fifth Edition. Wadsworth. Boston, MA. (2008). (chapter 37 and 38) http://www.amazon.com/World-Civilizations-Volume-Since-1500/dp/0495913022http:/www.amazon.com/World-Civilizations-Volume-Since-1500/dp/0495913022

.

I agree. Corporatism is an awful thing. That’s why I support capitalism. If governments don’t give anyone special treatment, we won’t have these problems.

.

The latest example of this exploitation has been the Chinese corporations that are closing out deals to currently strip Africa of its resources, following the long tradition of colonial Dutch, Belgium, British, French and German companies before them who didn’t give a damn about worker conditions and salaries. It is because their local governments couldn’t fight in the past and now aren’t fighting in the present for their people, that their rights to a higher wage and working conditions are curtailed.

.

Sub-Saharan Africa is poor precisely because those countries have some of the strongest governments in the world. (http://jarkesypolitical.com/wp-content/uploads/2014/01/Econ-Freedom-620×292.jpg)

(http://upload.wikimedia.org/wikipedia/commons/4/48/Ease_of_Doing_Business_Index.PNG)


(http://upload.wikimedia.org/wikipedia/commons/d/d0/2006-2007_Global_Competitiveness_Index.png)


(http://upload.wikimedia.org/wikipedia/commons/8/81/Percentage_living_on_less_than_%241_per_day_1981-2001.png)


Notice that extreme poverty has been falling everywhere except in those countries with the most economically restrictive governments. It is governments that infringe upon liberty and allow corporations to exploit people. The only power a corporation has, per se, is to offer you a product which you can voluntarily purchase; it has no further power except that which a government allows it. Nestle buys milk for its chocolate off of farms that were stolen by Robert Mugabe (http://www.iol.co.za/news/africa/nestle-defends-buying-milk-from-mugabe-dairy-1.459819), the leader of Zimbabwe. If he hadn’t stolen that land, Nestle would have to get its milk elsewhere.

.

There is next to no chance of individuals negotiating with Chinese major firms, as there was no negotiating with colonial countries in the past. Yet you say it’s these same forces that are somehow going to pull these countries out of poverty. I call shenanigans on that one. Sorry.

 .

I didn’t say that corporatism ends poverty. For the thousandth time, capitalism is a system of voluntary exchange of goods and services. That is what ends poverty. Governments have existed since the dawn of time and poverty was never reduced until the emergence of the free market. If governments could pull people out of poverty, then they would have succeeded by now. In a free market, if someone doesn’t like the presence of a foreign company, he can choose not to support it. Without the coercion of corporatism, a corporation has no power to force a consumer’s hand.

.

First, this video by Hans Roslings never once mentions or credits capitalism as the reason for these gains in life expectancy and wealth.

.

For one thing, he does in fact mention the industrial revolution and colonies gaining independence as factors. For another thing, so what? I was asking you to think for yourself.

.

Now, I won’t say that capitalism didn’t in fact help change the dynamic and bring up the average (note I said average) cumulative wealth of world populations, but if you look at the mean, which is where the weighted average is, its highly favored toward the upper income levels amassing the greatest amount of wealth, and there are wealth disparities within many of these recently wealthy countries.

.

That’s why those countries need more freedom. There is a parabolic relationship between freedom and income inequality; after a certain point, the level of income inequality goes back down. (http://www.jrap-journal.org/pastvolumes/2010/v43/v43_n1_a5_bennett_vedder.pdf) You can see that relationship not only in the US, which this study examines, but also globally. Failing to see the parabola, however, will result in a graph that shows barely any relationship at all. (https://fbcdn-sphotos-c-a.akamaihd.net/hphotos-ak-ash3/t1.0-9/p417x417/1797954_749246701776421_2116777659_n.png)

.

There are multiple commentaries on this inconsistent distribution of wealth by the IMF, https://www.imf.org/external/pubs/ft/fandd/2001/12/wade.htm , http://www.imf.org/external/np/speeches/2010/110110.htm.

 .

First of all, that second commentary is false in its claim that wealth disparity dramatically increased before the great recession.

1960877_760459517321806_401772754_o

What little increase there was occurred because of the Fed messing with the interest rate. (https://www.youtube.com/watch?v=CndlDequKus)(mirror) Second, the claim that inequitable wealth distribution causes a lower standard of living is completely false. It is based on a logical fallacy called post hoc, ergo propter hoc (after this, therefore because of this). Income inequality and wealth distribution are merely side-effects of economic freedom, as is the standard of living. When you look at the numbers you’ll see that poorer countries not only have more income inequality, but also less wealth overall. Now, it is true that the poorest 10% of the population will have the same percentage of wealth no matter what country they’re in (http://upload.wikimedia.org/wikipedia/en/a/a7/Economic_Freedom_Charts.png), but in a free country that percentage represents a larger number, and increased mobility means that the poor needn’t stay poor. (http://www.usnews.com/opinion/blogs/economic-intelligence/2012/09/25/why-we-should-care-about-americas-fading-economic-freedom) Trying to more equitably distribute wealth or income is foolish because it can’t be done. “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a higher degree of both.” -Milton Friedman

Third, that first commentary claims that inequality is worsening around the world. This is not true (http://www.columbia.edu/~xs23/papers/pdfs/World_Income_Distribution_QJE.pdf).  The first commentary mentions that the IMF and World Bank don’t consider income and wealth inequality to be a problem–those two are correct in saying so, because what matters is how well people are doing, not what percentage they have. I’d prefer to live in a country where the poorest 10% have clean water and clothing than to live in a country where the poorest 99.9% have neither.

.

It’s clear that with increased wealth, many of those same countries that came out of average poverty also have a severe gap between the wealthiest and poorest in their own countries. Even Mr Rosling mentions as much in the video. And that’s the problem—that’s where capitalism fails—it spreads the wealth too unevenly, concentrating it in very few hands.

.

Based on what evidence? The gains of the 1% don’t come at the expense of anyone else. (http://taxfoundation.org/sites/taxfoundation.org/files/docs/standalone_paf_12.png)

The rich get richer or poorer along with everyone else, provided you have capitalism and not corporatism or socialism. And besides, who cares if it distributes wealth unevenly? If someone gets paid $1,000 and I get paid $500, I’m still better off than I was before I got paid. That’s the point of capitalism; it makes everyone better off than they were before. “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” -Winston Churchill. The most poor countries have more income equality than slightly richer countries because everyone is equally poor. Would you rather that 15% of the population be better off, or 0%?

.

Especially when those hands influence outcomes to keep themselves in power –either through influencing governments, setting up restrictive work systems, crushing competition through monopolies to restrict mobility and worker options.

.

Which, again, is why the free market is such a great idea. If the government doesn’t allow anyone to influence it in matters of restricting life, liberty, or property, no harm can be done.

.

Since you like to quote Adam Smith so much, here’s a good quote from him ““The disposition to admire, and almost to worship, the rich and the powerful and…neglect persons of poor and mean condition…is the great and most universal cause of the corruption of our moral sentiments.”

 [ed: from The Theory of Moral Sentiments]

.

I don’t admire the rich. But I also don’t harbor resentment against them just because they have more money than I do, anymore than I resent those with more cats or better eyesight. How am I injured by someone being better off than I am? I say, “Live and let live.”

.

You’re going to have to explain that “Capitalism renders greed harmless” comment at some point—that makes absolutely no sense to me, given the facts on the ground.

.

Capitalism is a system based on the voluntary exchange of goods and services. If one or both parties do not wish to participate, they are free to make such a choice. If Taco Bell wants to sell me its alleged “beef” tacos and I don’t want to buy them, Taco Bell’s only recourse is to advertise and try to convince me. A Blackwater (or other PMC) employee can’t shoot me without being tried in a court of law just like anyone else–businesses have no (legally protected) power under a free market. Google can’t collect your information without you voluntarily using its products; the NSA collects your information without your consent. Amazon uses drones to deliver packages; the president uses drones to murder people. Capitalism renders greed harmless because corporations have no power except that which the government gives them, and no money except that which the consumer pays them voluntarily. I don’t know what “facts” you’re referring to that show otherwise. Corporations didn’t put Jews in concentration camps or drop atomic bombs on Japan. Rather, they rebuilt Japan after FDR destroyed it.

.

As to your comment about socialist propaganda in my government school education….Are you talking about high school? I don’t know where you went to high school, but my education in high school was very intellectually challenging, where my teachers (who were both very liberal, and both very conservative) encouraged much debate and discourse of the material

.

Well there’s your first problem: You believe that liberals and conservatives are on opposite sides of the spectrum. The Rep and Dem parties both want statism; the only difference lies in how they want to carry it out. (https://scontent-a-sjc.xx.fbcdn.net/hphotos-frc1/t1.0-9/q71/s720x720/1654356_742937129074045_978281334_n.jpg)

And even when they disagree, it’s only out of spite. Democrats wanted to shut down Gitmo just after Bush left in 2009 but by 2012 they changed their minds, because Obama is a democrat. (https://freecomputerviruses.files.wordpress.com/2014/04/5e048-bkapecocyaa24of-large.png)

 Republicans liked the ACA when it was written by Mitt Romney but hated it when Obama passed it. When the two parties aren’t having a spite-fest, however, they only disagree on superficial details. What happened is that you were conditioned to think inside the box. You and I were taught to frame every political debate within the context of the state. Therefore when Dems want to raise welfare to $967 Billion but Reps only want to raise it to $935 Billion dollars–a difference of less than 5%–, you consider them diametrically opposed, and that is going to skew every debate you have.

[I also discussed this false dilemma in a recent article update.]

.

—I never felt they were giving me some mindless propaganda that they didn’t personally believe in. The difference is, they gave me context, and in the context of the time, that picture of corporate –government forces of the 19th century still holds today. Now I will say that I am completely with you on corporate cronyism. It has always been a problem when companies try to influence or get special treatment from governments. I have never been for that type of influence of government—Examples: Wall Street writes its own laws (through lobbyists) and waters down enforcement, they have a revolving door on the Treasury and Justice Department that fills it with corporate CEO’s that don’t have the public’s interest in mind, corporations pump money into congressional campaigns to influence issues and policy. But you and I completely diverge on what’s causing the problem. The problem is not government. It is the corporate interests and money trying to corrupt government. If you see collusion and influence of government—you don’t get rid of the government because it is deficient and has loopholes (that’s like throwing the baby out with the bath water; It’s like having a fire in a house, and trying to demolish the house rather than put out the fire). The problem is the corporations—you go after the corporations that are trying to create a culture of crony capitalism. You shut down the loopholes in the government system, using things like campaign finance reform, and accountability in elections, and make government work for the people, not the corporations.

.

So the government is controlled by corporations, and you want to use corporate-controlled government to fix corporate-controlled government? That is an absolutely insane leap of logic. If corporations influence government now, what makes you think they won’t influence the reforms as well? Saying we should go after corporations is akin to saying we should blame an escaped tiger for eating zoo patrons instead of blaming the zookeeper who let him out of the cage. Corporations have no power except that which government gives them. The only way to make government work for the people is by holding them accountable for their actions. The constitution doesn’t grant the government the authority to pay subsidies or let the Fed print fiat currency or do most of the other things it does. If these few laws aren’t followed, how will additional laws help?

 [extra image to break up wall of text]

.

Using thousands of years of unfair conditions and treatment as a justification for current unfair conditions and treatment is wrong. It’s called lowering the bar. Society is meant to advance and improve itself, not justify continued failings by accepting the status quo.

.

You test my patience. I never said that employers mistreating employees is justified. I said that despite the harsh conditions of the 19th century, these workers were still better off than they would have been without such employment, despite what we’re taught in school (https://mises.org/daily/1685). According to economist Peter Rodriguez, when adjusting for inflation the average American income was roughly $5,000 per year in 1900. This might seem terribly low, but at the standards of the time it was extravagant, and the average American was wealthier than the average citizen of any other nation in the world. (Why Economies Rise or Fall, chapter 1)

.

Now as to this theory—and it is only a theory—that monopolies cannot form naturally, that somehow they are only fostered by the government, seems to ignore clear examples like US Steel and Standard Oil and the Telephone companies which are considered natural monopolies.

.

US Steel was never a monopoly. At its peak it controlled only 67% of the steel industry. And the only reason the companies eventually forming US Steel were able to rise to prominence was that they competed well. Thomas Woods, Jr. explains, (http://www.lewrockwell.com/2011/07/thomas-woods/beware-unfettered-capitalism/) “Andrew Carnegie almost single-handedly managed to reduce the price of steel rails from $160 per ton in the mid-1870s to $17 per ton in the late 1890s. Given the importance of steel to a modern economy, that massive price reduction yielded greater wealth and a higher standard of living for everyone. Carnegie was so efficient, in fact, that the 4000 people who worked at his Homestead plant in Pittsburgh produced three times more steel than the 15,000 workers at Germany’s Krupps steelworks, Europe’s most modern and renowned facility…. In 1899 there were sixty-seven petroleum refiners in the United States, only one of whom was of any consequence. Over the next decade the number increased steadily to 147 refiners. Until 1900 the only significant competitor to Standard was the Pure Oil Company, formed in 1895 by Pennsylvania producers with $10 million capital…. By 1906 it was challenging Standard’s control over pipelines by constructing its own. And in 1901 Associated Oil of California was formed with $40 million capital stock, in 1902 the Texas Company was formed with $30 million capital, and in 1907 Gulf Oil was established with $60 million capital. In 1911 the total investment of the Texas Company, Gulf Oil, Tide Water-Associated Oil, Union Oil of California, and Pure Oil was $221 million. From 1911 to 1926 the investment of the Texas Company grew 572 percent, Gulf Oil 1,022 percent, Tide Water-Associated 205 percent, Union Oil 159 percent and Pure Oil 1,534 percent.” Despite this innovation, competitors were still able to out-innovate Standard Oil and by 1911 its market share had fallen drastically. This was and is typical of many great companies. They may dominate the market because they won over consumers, but are always eventually out-innovated and fall. Finally, if you had read the article I linked before (https://mises.org/daily/5266), you would have read “competition was common and especially persistent in the telephone industry … Baltimore, Chicago, Cleveland, Columbus, Detroit, Kansas City, Minneapolis, Philadelphia, Pittsburgh, and St. Louis, among the larger cities, had at least two telephone services in 1905. (Burton N. Behling, “Competition in Public Utility Industries” (1938), in Harold Demsetz, ed., Efficiency, Competition, and Policy (Cambridge, Mass.: Blackwell, 1989), p. 78.)” The only Monopoly that formed without government help was the board game.

.

http://www.investopedia.com/articles/economics/08/hammer-antitrust.asp. The article you provide mostly talks about utilities, which I will admit, can be influenced by Government bidding and regulation to keep competition limited. But that’s not a clear basis to judge all monopolies. The argument in your link is presented by a group of economists called “Austrian Economists”. I’ve heard of them before—they’re the same geniuses who said that austerity policies –where you starve government spending—would help grow the economy during recession. This advice happened to be followed by the UK and EU initially after the 2008 crash and it sabotaged both the UK and EU’s recovery—both went into a double dip recession after following those policies.

.

You forgot to add “(citation needed)” to the end of your claims. The UK did not have a double-dip recession (http://uk.news.yahoo.com/britain-never-double-dip-recession-163000673.html#o62QsJV). Also, does this look like a significant reduction of spending to you? (http://images.mises.org/6451/figure4.png).

Saying that Europe employed austerity measures which backfired is like saying that Elvis died because he was malnourished. Europe’s so-called austerity measures were a reduction in song only (https://mises.org/daily/6451/Is-Austerity-Responsible-for-the-Crisis-in-Europe). The UK was the only country that employed significant reductions and it was the only one that didn’t suffer a double-dip recession. Isn’t that a coincidence?

 

Next page: Two schools of economics butt heads.

Leave a Reply, Win Candy! (not really)

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s