Tag Archives: Prosperity

Eat Once, Don’t Die?

      People so regularly like to spout off about the evils of capitalism and the depravity of the profit motive. Perhaps we should take a moment to gain some perspective on the matter. Human history has been dominated with periods of anti-capitalistic activities and economic structures. From the feudalist periods to the monarchies to just plain subversion to an eminent leader supposedly “ordained by God” (all three exhibit stunning similarities) and finally to an aristocracy (today we call this socialism or communism) there has been a constant throughout history when the rights of property were not identified and the profit motive was denied to the average individual.

     This constant in a world without property rights and capitalism was the motivating factor of human daily activities—eat once, don’t die. This could have been the daily motto for much of humankind throughout history—eat once, don’t die.

      Imagine this world without capitalism as people seem to fantasize about so regularly. Just imagine losing your car, your microwave, your smart phone, your internet, your air conditioning, your refrigerator, your television, your house, your job, running water, your toilet, the medicine you take to feel better (or, worse yet, the one you take to stay alive)…imagine losing your clothing and shoes in favor of animal hides to stay warm and more animal hides for your feet…imagine losing loved ones in their late twenties or early thirties, if you or them are lucky enough to live that long…imagine every day when you wake up your goal is not to merely be a pretentious ass that wishes a lack of luxury for others to make yourself feel equal, but instead you must struggle just to scrounge enough food for one meal for your family…imagine portioning that food out to your family not on the basis of fulfilling hunger, but on the basis of which family members would be more beneficial to survival if they have energy…imagine laying your head down at night being glad if nobody in your family died or not being surprised if one had.

      Imagine your daily motto was eat once, don’t die. This is the reality of the world before capitalism (and exists today outside of capitalisms reach); the human condition was that of strife, struggle, and immense physical and emotional pain. Is capitalism perfect? If by perfect you mean we all get to have what everyone else has regardless of effort, talent, or sacrifice…then no, it certainly is not. However, it is unambiguously clear throughout history that no economic system has ever brought more (or, I would argue any) people out of true poverty and complete squalor than capitalism.

P.S. By the way, capitalism and cronyism are in no way similar and the terms should not be used together, it makes people sound absurd to those of us who know better.

 

Trump is clearly no economist.

       There are a lot of Republicans these days embracing the anti-trade rhetoric of Donald Trump and, simultaneously, screaming about the ineffectiveness and unfairness of wealth redistribution through the welfare state. Interestingly enough, these two positions are equivalent to one another. You cannot be for trade protection (such as tariffs) and against wealth redistribution; they are fundamentally the same thing. Let me illustrate how.

   Wealth redistribution operates under the principal that government takes (forcibly, mind you) money from Susan and gives it to Tom. Susan is guilty of no crime besides being in an electoral minority, but nevertheless she incurs the wrath of Tom’s jealousy and greed of her accomplishments and higher earnings. Tom’s greedy vengeance is carried out by elected officials who are able to send men with guns to Susan’s house (if she doesn’t pay) to do what would be illegal for Tom to do himself, which is to steal from Susan.

     Now, this redistribution is all based on the premise that Tom should be allowed to do as he wishes (i.e. work less hours, invest less effort in his own skill set, and engage in more recreation) and still be provided with all the basic needs that life requires (including many that life does not require like cell phones, etc).   In effect, the welfare state makes inefficiency a right, one that can be subsidized. Productive capability is discounted in favor of lifestyle choice.

       This brings us now to trade protection and why the two things are indifferent. Let us imagine that Susan is now a consumer and Tom is a worker at an auto plant. We are told that tariff’s on foreign auto makers will “help” our economy (incidentally, zero of this claim is backed up by well-established economic principals or any evidence) so that Tom can keep his job and manufacturing will not be “shipped” overseas. Instead our government will place a 10% tariff on those evil foreign automakers that, for some reason or another, can supply us vehicles at a fraction of the price of Tom’s employer. If the foreign car is $20,000 and Tom’s car is $22,000 before the tariff, this new 10% tax (tariffs are taxes on consumers, by the way) will make them essentially the same price[i].

      So, now Susan (and everyone else) must pay $2,000 more per vehicle for Tom to remain employed (not to mention increased sales taxes, etc.) in his current occupation. If Susan chooses to purchase the foreign car, the government will profit after placing no value into the production of said vehicle much like the mobster running a protection racket. If Susan chooses to purchase the car Tom makes, she will pay a greater price to subsidize Tom’s relative inefficiency; because, if Tom were as efficient as the competition, his autos would be priced accordingly. Tom gets to keep his job that he is not as good at as the competitor is while everyone that purchases a car pays more to ensure this. The government has then taken money from every consumer (a tax) and given it to Tom to subsidize his inefficiency (we could just as easily call this welfare…see paragraph 3, sentence 2).

       If 50,000 people buy a car in a given year, the result is $100M that cannot be spent elsewhere or saved for the future (either choice is an investment in economic growth). Incidentally, this most adversely affects those families making relatively less money—that is right, the much maligned middle class and poor; rich people are not concerned with trivial little tariffs and will buy the foreign car anyway if they want to.

       If you think (rightly) that a redistributive tax hurts the economy by reducing consumption, which in turns reduces the amount of production required, and thus lowers employment you cannot simultaneously think a tariff—which accomplishes the same thing at an even greater cost—will not hurt the economy. Well, you can…but it is no less fantasy than unicorns or Bigfoot. Holding this belief would have led the government to ban the car to protect the wagon builder or ban the light bulb to protect the candle maker. Mass production of food through technological advances would have been outlawed so we could maintain the same volume of farmers, plow makers, and ox breeders (a decision which would have increased the likelihood of starvation due to poor conditions, a concern we no longer carry as humans in the U.S.).

       We must resist the urge to fall into emotional, unsupported arguments—such as those being made by Donald Trump—that tariffs will help the American worker and engaging in trade is bad. I know what you may be thinking now: “we want trade, but fair trade.” Did I get that right? That is hogwash, too. In no way, does us buying goods at a cheaper price—enabling us to consume more and thus produce a wider array of products ourselves—ever, never , never, ever hurt us. If this principle is true, why not only buy things from within your town, or county, or state and really help your local economy boom? If you think unemployed people in your town just need a chance, quit buying things from the mall, Walmart, or Amazon. The reason you do not do this is that you know deep down it is malarkey. Politicians like Trump can use nationalistic hubris to motivate an adverse response that goes against your own best interest. History has known another politician who was effectively able to do this…Adolf Hitler.

Welfare Recipients: Moochers or Rational Actors?

      Often, people who accept and stay on welfare are accused of being mere moochers. To some extent, they do exhibit the primary characteristic of greed: the desire for something that belongs to someone else by compulsion or collusion instead of a trade of value. However, to leave it as simply as that fuels the lack of understanding as to how to remedy the welfare state problem that exists in America today.

      First, let me state it rather directly: people who seek out and stay on welfare for seemingly indefinite periods are rational actors. This may shock some people, baffle others, and even irritate a few; however, that does not diminish the fact it is true. A rational actor is someone who is concerned about their own prosperity and makes choices with the goal of maximizing this objective. In fact, all people are rational actors; we just do not always quantify what prosperity means in the same way as others do.

    The hazard at this point is to be side-tracked by a lengthy discussion that dispels the idea that humans are altruistic (which is the alternative to rational choice), but I will (mostly) avoid that for the time being. Instead, I will use a commonly cited example of altruism and explain briefly why it is incorrect. Fire fighters are often used as examples of altruistic actors; however, they get paid (rather well in many cases), have excellent work schedules, girls tend to like them, and society often idolizes them. Is there risk involved? Of course, but they face great risk—as we all do—by getting in their cars to drive to work. This idea that fear is a primary factor in all people’s decision-making is driven by those who place increased value on personal safety. To a person that is a natural thrill seeker or one that loves accomplishing things others may not dare, being a fire fighter is not altogether frightening or discouragingly risky. It is, instead, a rather rational choice.

       How does this relate to the welfare state? In a very important way, it highlights how people value things differently, some place great value on safety, some on personal “glory,” and others place increased value on wealth accumulation. People who accept being on welfare for extended—or indefinite—periods of time clearly have a high value on security. Additionally, it is likely they place a high value on rest or recreation. When we value recreation over wealth the ability to be free of the burden of work is much more important than having things or money. Conversely, those who value wealth are happy to trade hours of the day for success.

      Here is a scenario to illustrate why welfare recipients are rational actors. Let’s imagine a man named Jim—and his family—are on a myriad of assistance programs that net him the cash equivalent of $26,000/yr and he is offered a job making $32,000/yr. Will he take it? Let us look at the considerations that enter into this decision. First, Jim will have to take 40 hours of his week and trade it for $6,000/yr (that is $500/mth or $2.88/hr). On top of that Jim will have to pay payroll taxes and possibly (unlikely at that income level) income taxes. Would you do that? Ahhh, I can hear the ethical argument now…an argument that I fully sympathize with. So, let’s put it in different terms, if you made $30,000/yr working part time and got offered a full time job for $36,000/yr and this job entailed increased costs, would you take it? It is highly unlikely that you would, unless other considerations enter into your decision such as entry into the job of your dreams.

      People stay on welfare perpetually because they literally cannot afford to get off of it. Things like poor education, increasing minimum wages for entry level occupations, and an increasing menu of programs make this problem worse all the time. Individuals make choices based on individual circumstances, as they well should. What we must do is avoid continuing to lash out at people making a perfectly rational choice; instead, we would be much better served by actually trying to remedy the circumstances which drive these choices. Expanding the welfare state perpetuates the (relative) poverty it intends to cure and reduces the alternatives people have to staying mired in the muck of our burgeoning welfare state. And to completely answer the title question, they do qualify as moochers as well.

Unions are cartels that should be subject to anti-trust laws

        Most people are familiar with the general idea of anti-trust laws and proceedings; but, as with many things the devil is in the details. A major problem that underscores this greater issue is a lack of understanding of the exact nature of labor. People often think of labor and capital as having a protagonist/antagonist relationship and this misconception is quite profitable to labor leaders and their political allies. However, the pervasiveness of this misconception does great harm to those who directly control labor—individuals; particularly those individuals who have the lowest skill levels which are most often the poor, minorities, and young people. People see laborers as having no leverage in the business relationship and thus assign laborers a more limited value.

        First of all, there are two primary factors of production: labor and capital. Labor is the efforts of people in producing goods and services for trade. Capital describes the accumulation of machinery and tools (often thought of monetarily) that are used in the production process. Neither factor holds a distinctive advantage over the other as a general rule, but differing circumstances can tip the scales of control to one or the other.

        This can be seen throughout history and even today. For example, there was a period in time when labor was so highly demanded (thus, labor held the advantage) that employers would wait outside of prisons to hire people as they were released. In the modern day, people who hold strong skills in computer programming or web design (etc.) can command significant salaries and benefits. These are not the instances that the media and politicians focus on; instead they choose to highlight the false narrative of the minimum wage and the “plight” of entry-level, low wage workers. This misses the reality of the damage done by labor unions by creating a sleight of hand, parlor trick.

         We—rightly—prosecute the collusion (cartelization) of business (owners of capital) if they join together to fix prices or production levels in a manner to extract much higher profits from the market than the competitive (more often the monopolistically competitive) value of their outputs. However, when it comes to labor unions, who collude openly on a national scale and across industry sectors (e.g. SEIU and AFL-CIO), we see that not as being an extortion of the consumer as we do in the capital example. Instead, we see labor unions—simply groups of individuals colluding to monopolize and thus increase their market power artificially—as merely protecting their members from an otherwise predatory institution. This is not the reality when it comes to mega-unions. The reality is that they are utilizing their control of one of the two primary factors of production in the same way businesses do when they collude; therefore consumers pay significantly higher prices which would resemble monopoly level pricing.

     Furthermore, just as other monopolies who do not enjoy regulatory protection by government which controls market entry, they induce others to enter the market and capture their market share by offering superior products at lower prices [note: natural monopolies that do not rely on regulatory control of market entry do exist; however, they are quite rare]. The effects of the monopoly, outside of government intervention, are often limited in their scope. We can see the results of this in the automobile market where, as trade restrictions relaxed (which is good for the US consumer), the foreign car producers began to rapidly grow against the domestic ones which were plagued by higher than natural equilibrium labor costs and diminishing relative quality (as a way to fight costs) versus the competition. The eventual result was that all those people who owned and controlled the labor factor of production in the car market and enjoyed higher than appropriate levels of profits (pay and benefits) ended up dropping their long run incomes to zero as new competitors entered and captured market share. From a labor perspective, these new market participants would include southern state workers who drew in production facilities as well as foreign workers (via outsourcing).

      Additionally, areas densely populated with people who enjoyed this monopoly level pricing for their labors collapsed as the monopoly structure of their labor force declined. Their government, bloated on the excess of extracting unrealistic levels of profits in their labor force from other areas in the country, could not sustain the drop in tax revenues and have essentially become ghost towns (Detroit’s population in 1950 was 1.8 million and is approximately 700,000 today). Also, the greater than equilibrium labor cost overall in markets like Detroit due to unionization of the auto industry crowded out other industries making Detroit perilously dependent on one industry.

        The real long-run winners in the equation have been the labor unions themselves (not their members) and the politicians who have enjoyed control of their votes and contributions for many years. The losers in the short run were workers that did not gain entry into those industries and, in the long run, all the people of areas once dominated by big labor production. People often say that unions were once a good thing and that somehow is supposed to justify the existence of mega union entities; however, I find that logic to be severely flawed. Instead, I argue that unions are still positive things when they are constrained to plant (or perhaps firm) level entities. This reduces large scale collusion while granting the owners of labor a more even position in the negotiating process without giving them unfettered control of the production of certain markets completely. Owners of a particular firm control all of the capital for that firm, but no single laborer controls all of the labor for a firm; therefore, an alliance of firm level labor can be positive without being punitive to consumers or damaging to the industry sector. Also, compulsory inclusion in unions should not exist because this removes the competitive nature of markets which allow a fair blend of profits to capital and labor simultaneously, while ensuring maximum marginal value to the consumers.

Liberty is the Root of Our Prosperity

     Without liberty, we lose that which makes America unique among the nations of the world, in both the past and the present.  It can hardly be said to be a coincidence that the most free people in the history of humanity have also become the most wealthy and powerful; but there are those who would wish to convince people that it was not our liberties which opened the door to prosperity…no, they would offer that prosperity was attained despite these freedoms.  What a lucky break it has been, then, that the nation where its people are free to imagine something greater and free to expect a return for their labors are the people who have exercised tremendous ingenuity and an incredible work ethic…go figure.  Imagine how many Steve Jobs, Henry Fords, or Nikola Teslas may have been lost to history in communal nations where it was the government’s job to determine people’s aptitudes or their worth to society and thus assign them their tasks?

    A common argument (read: excuse) of the collectivists is that we are a product of our resources; and yes, we do have those in abundance relative to some nations.  However, I would argue that our resources did not define us as a people; instead, we defined our resources.  Upon the ratification of the Constitution, the framers did not find a map to resources with a multi-lingual set of instructions for how to develop machines and methods to utilize them.  It was the liberty to develop, to invent, to discover, and ultimately to earn a reward for our labors that drove generations of Americans to develop those resources which would eventually increase the living standards of much of the entire planet.  That is not inconsequential, nor is it coincidental; that is a staggering feat for the ultimate benefit of all of humanity.

      I often ponder as to why our economic progress and achievements, due greatly to our level of freedom, is something to be ashamed of; particularly when we wonder why kids do not try to excel at school.  Is there not a link between denigrating success and a dwindling amount of it?  Perhaps instead of hiding from our prosperity, we should embrace the fact that we are the engine of advancement for the entire globe; then, just maybe the children of this generation and the next may return to aspiring for more and settling for nothing less than whatever it is their individual dreams may conjure.  The true “arrogance” of America is to enjoy the fruits of labor and the results of our capitalist, free-market society (at least it used to be) while simultaneously acting as if those were not significant accomplishments.