Perspective on Living Standards

by Don Boudreaux on July 21, 2009

in Inequality, Standard of Living, Technology

When it comes to what matters most, I've long argued that income differences within modern market economies are irrelevant.

This short, fun YouTube video strikes much the same theme.

(HT Austin Buchanan)

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vidyohs July 21, 2009 at 7:30 am

How much better off does each of us have to be, for being better off to become irrelevant to the eye, the mind, and the happiness?

I am not saying I would turn down an opportunity to garner vast wealth, I am saying that at my point in life I simply do not know what I would do with it.

A nicer car, is a relative term.

A finer wine, is also a relative term.

A woman can only get so good looking and only so willing before the ultimate has been achieved, been there done that.

Making people jumping through hoops just to satisfy me, doesn't interest me. I have been an employee and an employer and I didn't like either one.

Now flying in my own commuter jet, well maybe I could find one thing to spend it on. Can you get a decent library into one of those things?

vidyohs July 21, 2009 at 7:30 am

Ooops, that should have been "making people jump through hoops".

Gil July 21, 2009 at 8:21 am

So are you essentially saying, Don Boudreaux, that income inequality in a society has no correlation (hence no causation) with the economic freeness in that society? Unlike, dgl's 'masterstroke', I'd suggest income inequality, if anything, ought to increase. Since low-productivity isn't rewarded in a free market society therefore such people are going to be poor whilst being in the same nation with billionaires.

Martin Brock July 21, 2009 at 8:30 am

The difference in consumption between a very wealthy person vs. a more common person is not the most salient point. Wealthy people exercise statutory authority. When they choose to consume very much, they organize resources to channel the product of many other persons to a few, and this organization is forcible.

When Communist Party Central Committee members reserve seaside villas for their "planning" meetings and otherwise organize an economy to serve themselves, everyone understands this point.

So I have no problem with vastly differing incomes in a market economy. These differences reflect the differing productivity of various organizations of productive means. We want more income flowing toward more productive organization, because this flow fuels growth of the more productive forms of organization.

We want reinvestment in these forms, not simply the greater personal consumption of the human governors. Great personal consumption of governors reflects the forcible organization of the governed to produce for the consumption of a few governors rather than for themselves.

Greater reinvestment, instead of the luxurious consumption of titular lords, increases the rate of progress toward more productive forms of organization for the consumption of the many human factors contributing to the production.

This I know, for The Wealth of Nations tells me so.

Seth July 21, 2009 at 9:37 am

Funny video. Thanks for sharing. The time traveler was reminiscent of Charles de Mar ala Better Off Dead.

Also reminds me of the Louis CK video posted here awhile ago, "Everything's Amazing, Nobody's Happy."

I fight this battle with family members who should know better because they lived pretty much the time traveler's time.

Methinks July 21, 2009 at 10:13 am

My grandmother was a time traveler of sorts.

Almost two decades after we arrived here from Moscow, my grandmother finally got permission to travel to America to visit us.

she got lost in my parents' middle class house and wanted to know how many families lived in it. Every gadget in the kitchen terrified her as her implements were not unfamiliar to a 19th century kitchen (the microwave in particular totally flipped her out). The clothes and hair dryers fascinated her. Riding in cars that weren't made out of the paper mache Ladas are carefully crafted from was unbelievable to her. The abundance of fresh fruit and vegetables and how inexpensive and NOT rotten they were astounded her daily. Upon her return to Moscow, she fell into a long and deep depression.

Somehow her lifelong contribution to a Great Society and workers' paradise didn't cheer her up and make her forget about the daily deficits of items even the very poorest Americans take for granted. Cue dg Lesvic about income redistribution and inequality.

BoscoH July 21, 2009 at 11:08 am

If government were more involved the way it should be, those three slackers would have a 64 terabyte time machine.

dg lesvic July 21, 2009 at 11:12 am

Gil,

You wrote,

"Unlike, dgl's 'masterstroke', I'd suggest income inequality, if anything, ought to increase."

I have never said that inequality ought to increase or decrease, but that the only thing an economist, as such, could say about it was that the market, always tending toward equilibrium, always tended toward the inequalities that would bring it about.

I have somewhat mixed feelings about Prof Boudreaux' argument, for, in a way, it plays into the Left's hands. For denying inequality tacitly admits that there's something wrong with it, and, therefore, with the market itself, for it depends upon inequality.

“No system of the social division of labor can do without a method that makes individuals responsible for their contributions to the joint…effort. If this responsibility is not brought about by…inequality of wealth and income…it must be enforced by…direct compulsion…by the police." Ludwig von Mises

So, Gil, it is not my point that inequality is bad or immoral. That is the Left's point. Rather than an endless argument over what is moral or not, why not simply point out that their policies are counterproductive and therefore immoral by their own standards?

JohnK July 21, 2009 at 12:09 pm

Income inequality gives me incentive to work hard knowing that I can raise my standard of living.
If everything was equal I'd have no reason to get out of bed.

Martin Brock July 21, 2009 at 12:13 pm

"If this responsibility is not brought about by…inequality of wealth and income…it must be enforced by…direct compulsion…by the police."

Property is always enforced by…direct compulsion…by the police. Other possession is "not property" definitively. A thief possesses what he holds, but only a lawful holding is "property", and lawful holding is precisely what the police enforce. A producer holds what he produces, until a proprietor claims it from him.

No law of nature, or even of market economics, implies that a lawful holding (in the statutory sense of "lawful") somehow reflects a contribution to production. Property is a matter of legal entitlement, not productivity. Locke might have wished for legal entitlement reflecting productivity, and I might share this wish with him, but these wishes are irrelevant.

Martin Brock July 21, 2009 at 12:26 pm

Income inequality gives me incentive to work hard knowing that I can raise my standard of living. If everything was equal I'd have no reason to get out of bed.

This "incentive" explanation of the benefits of inequality seems reasonable to a limited extent, but it doesn't explain the benefits of market organization on a large scale. Markets don't organize resources effectively because lords of propriety have greater "incentive".

Markets organize resources efficiently because only profitable organizations (organizations adding value) may persist and more profitable organizations grow faster than less profitable organizations. An incentive to pursue profit is necessary, but an unlimited entitlement of lords to consume the profit of organizations they govern is not.

JohnK July 21, 2009 at 12:46 pm

"but an unlimited entitlement of lords to consume the profit of organizations they govern is not."

What's the alternative?
Government confiscation?

I see Bill Gates using much of his wealth for charitable purposes, when the government would just waste it.

I guess a difference is that you can't use bribes to influence Gates' charitable giving, but you can use bribes to influence politicians.

James July 21, 2009 at 12:57 pm

"but an unlimited entitlement of lords to consume the profit of organizations they govern is not."

Ya, I don't understand this statement either. If you don't allow consumption above a certain point, how many people are going to continue to create above that certain point? Who delineates that point?

Daniel Kuehn July 21, 2009 at 1:00 pm

Martin Brock -
RE: "An incentive to pursue profit is necessary, but an unlimited entitlement of lords to consume the profit of organizations they govern is not."

But in a market, there is no "unlimited entitlement". There is a market for managers to govern their organizations. Or if it's some sort of proprietorship than so called "excessive" profits are going to encourage market entry, which will erode profits.

I'm not wholly unconcerned with inequality – maybe it does have negative social consequences. Maybe it doesn't. But one thing is for sure – inequality is a market signal. To the extent that we're worried about inequality for other reasons and to the extent that we do something about it, we're dulling a market signal – and that has consequences.

Martin Brock July 21, 2009 at 1:21 pm

What's the alternative?
Government confiscation?

A threat of government confiscation is an alternative, a progressive consumption tax for example. Essentially, we have a progressive income tax, and we have individual, tax deferred investment accounts (similar to IRAs and 401ks) with unlimited contributions.

This threat transfers very little entitlement over expenditure to central authorities. It vastly curtails this entitlement in fact, and that's the whole point of it.

The tax itself (excluding the investment accounting) could be much simpler than our current income tax, because all income could be treated equivalently. Special treatment for dividends, capital gains, gifts and the rest would be unnecessary, since any income in any amount could be sheltered from all of the tax.

This threat doesn't offend my libertarian sensibilities fundamentally, because I already support governmental threats enforcing property rights. The threat only checks authority already established by existing threats.

I see Bill Gates using much of his wealth for charitable purposes, when the government would just waste it.

Gates can "waste" as well, but I'm happy for Gates to pay the same income tax that I pay, even less. I don't mean the same percentage. I mean the same dollar amount or less. I want him taxed only on his consumption, and he can easily consume at my level or less without any risk to his health or well being. If he skips the skydiving, he's arguably better off in these terms with less consumption. If his income is a billion dollars but he consumes no more than I, I'm happy for him to pay no more tax than I.

"Charity" in my way of thinking is an investment with an expected negative yield, so I don't a "charitable deduction" from a progressive income tax. I only include it within the accounting for investment.

Obviously, any distinction between expenditures (like "consumption" vs. "investment") requires accounting for one or the other or both. The form of progressive consumption tax that I favor does not require any detailed accounting for consumption, only for income and investment. Taxing authorities then retain some regulatory control over what constitutes "investment", but common juries hearing tax evasion cases effectively hold most of this authority, so the authority is less centralized than it seems.

I guess a difference is that you can't use bribes to influence Gates' charitable giving, but you can use bribes to influence politicians.

You can, especially if you're a politician yourself. You wouldn't likely bribe Gates with an offer of money, but you might bribe him with an offer of intellectual property regulation favorable to his established rights.

BoscoH July 21, 2009 at 1:26 pm

Totally off-topic, but our host is featured in a new Reason.tv video.

Martin Brock July 21, 2009 at 1:37 pm

But in a market, there is no "unlimited entitlement". There is a market for managers to govern their organizations.

The market is the best regulator, but markets exist only within a framework of forcible propriety, and proprietors have every incentive to game this framework, so they routinely do. The market's regulation doesn't concern me. It's the statutory framework defining what's "proper".

Or if it's some sort of proprietorship than so called "excessive" profits are going to encourage market entry, which will erode profits.

No law of market organization implies that any level of profit encourages market entry. Any number of factors can discourage market entry regardless of profit.

If I'm a software developer at Microsoft, I don't compete with Windows by branching the source code at the XP version (before the "enhancements" in Vista), even if I wrote much of this code myself, because this competition would land me in jail.

That Microsoft profits from Vista is beside the point. That consumers might prefer an alternative path from XP forward is also beside the point. Markets may not choose this alternative, because it's illegal.

But one thing is for sure – inequality is a market signal.

I agree. I have no problem with unequal income.

To the extent that we're worried about inequality for other reasons and to the extent that we do something about it, we're dulling a market signal – and that has consequences.

A progressive consumption tax only "does something about" vastly unequal consumption, not unequal flows of income and the related signals.

In fact, the tax vastly decreases the greatest inequality of income by slashing the income of Congress. Bill Gates is not the wealthiest man on Earth by a long shot. Every U.S. Congressman is far wealthier. Obama is wealthier. Bernanke is wealthier. Geitner is wealthier.

Martin Brock July 21, 2009 at 2:03 pm

Ya, I don't understand this statement either. If you don't allow consumption above a certain point, how many people are going to continue to create above that certain point?

As JohnK notes just above you, Bill Gates has not remotely consumed to the extent of his entitlement and presumably never will, so we have at least one individual for whom personal consumption is not the relevant incentive.

Many other incentives exist, you know. Natural creatures are instinctively territorial and acquisitive. Beyond a certain point, being the king of a bigger hill is just an end in itself.

Some of the very best athletes on Earth spend countless hours and vast potential income to earn Olympic medals. What is their incentive? How does your theory account for this behavior?

Even if Gates would not pursue profit without an entitlement to consume all of it, his exit from the game makes no difference, because countless other competitors would replace him for only a fraction of this entitlement to consume. The existence of these people is not merely theoretical.

Who delineates that point?

The same authorities delineating the boundaries of Gates property rights. Gates' personal productivity doesn't delineate these rights. Gates doesn't produce intellectual property law. He doesn't even produce the intellectual property he's entitled to govern.

muirgeo July 21, 2009 at 2:38 pm

When it comes to what matters most, I've long argued that income differences within modern market economies are irrelevant.
Don

I am amazed that the two worst market crashes following the two most recent extremes of income inequality give you no pause. How sure are you about the above statement? You couldn't tell the difference from a college professors, graduate students, and a bona fide American billionaire? They all live in the top 5% of income earners. What about the other 95%. Ever been to Flint Michigan or New Orleans…East St. Louis? Are they visible from the tower?

Essel July 21, 2009 at 2:48 pm

Isn't market based consumption a sort of re-investment itself? If I have acquired vast amount of wealth, I can re-invest it in the means that got me that wealth in the first place, or in a luxury car or a villa. It just turns out that they are different means of re-investing. And if my spending on ultra luxury items aids development of new technology that makes more normally priced items cheaper or better (or both), and improve everyone's standard of living, is that not a form of voluntary tax I am paying to improve the society? Income inequality should not be a concern, it does not mean much.

Brad Morrison July 21, 2009 at 2:52 pm

While the linked examples in the original post are interesting, they hardly illustrate the broad assertion that income differences within modern market economies are irrelevant. To wit, there must be more qualifying terms following the word "within."

The example of the seminar is well taken, but it shows only how income differences within seminars are irrelevant. The comparisons of haberdashery are interesting, but the assumption is that every person being considered can afford semi-formal clothing, whether from a discount suit store or from a custom tailor.

What about the diet and daily activities of the billionaire, versus those of the graduate student? These are likely irrelevant because of the difference in age rather than the difference in income.

What if we compare the billionaire to a day laborer of the same age? Now the diet is surely very different, as is the access to medical care. Exposure to sunlight is likely another factor.

I find it to be an interesting exercise to consider these differences in a real context, versus the sterilized assertions of those who have already distilled their aspects into a term, i.e., the Gini coefficient.

Granted, I have arrived late to what seems to be a long-standing discussion. Perhaps what is meant by "income differences" is "income differences between the middle class and the wealthy." Surely anyone can see that the difference in income makes more and more of a difference in quality of life as the scale moves downward. If I make $10,000/year and then increase my income to $20,000/year, I will certainly change my lifestyle–unless I'm frugal and find a way to save most of my increase.

This conveniently brings us to the most important aspect of differences in income: Assets and true wealth. What a person wears to a seminar–which can be assumed to address a financial topic, and therefore demands a business suit–has absolutely no reflection on his or her net worth.

Consider that the graduate student's suit was borrowed, or rented, or bought from a resale shop. Clothes do not make the man; they merely make the man's appearance.

And we should all know by now that appearances can be deceptive.

Brad Morrison July 21, 2009 at 2:52 pm

While the linked examples in the original post are interesting, they hardly illustrate the broad assertion that income differences within modern market economies are irrelevant. To wit, there must be more qualifying terms following the word "within."

The example of the seminar is well taken, but it shows only how income differences within seminars are irrelevant. The comparisons of haberdashery are interesting, but the assumption is that every person being considered can afford semi-formal clothing, whether from a discount suit store or from a custom tailor.

What about the diet and daily activities of the billionaire, versus those of the graduate student? These are likely irrelevant because of the difference in age rather than the difference in income.

What if we compare the billionaire to a day laborer of the same age? Now the diet is surely very different, as is the access to medical care. Exposure to sunlight is likely another factor.

I find it to be an interesting exercise to consider these differences in a real context, versus the sterilized assertions of those who have already distilled their aspects into a term, i.e., the Gini coefficient.

Granted, I have arrived late to what seems to be a long-standing discussion. Perhaps what is meant by "income differences" is "income differences between the middle class and the wealthy." Surely anyone can see that the difference in income makes more and more of a difference in quality of life as the scale moves downward. If I make $10,000/year and then increase my income to $20,000/year, I will certainly change my lifestyle–unless I'm frugal and find a way to save most of my increase.

This conveniently brings us to the most important aspect of differences in income: Assets and true wealth. What a person wears to a seminar–which can be assumed to address a financial topic, and therefore demands a business suit–has absolutely no reflection on his or her net worth.

Consider that the graduate student's suit was borrowed, or rented, or bought from a resale shop. Clothes do not make the man; they merely make the man's appearance.

And we should all know by now that appearances can be deceptive.

Daniel Kuehn July 21, 2009 at 3:02 pm

Martin –
I agree on the consumption tax, though I have doubts that consumption is more important than income in discussing inequality. And there are entry barriers for managers of large organizations – but I don't see how they're significant compared to failures in other markets. I would be the last person to say that markets always work well, but I don't see any reason to doubt the relative efficiency of the market for organizational management.

muirgeo -
Great graphic – I saw this the other day in a McArdle/Wilkinson/Klein exchange. I don't think it's a coincidence either… something some guy wrote about seventy years ago on the diminishing marginal propensity to consume and it's effect on aggregate demand or something like that. None of this should be surprising. And the relationship between income inequality and stagflation shouldn't be lost on us either. There are consequences for distorting market signals.

Ignoring income inequality is silly. We know consumption and savings behavior is related to the level of income. We know how important aggregate (yes, I used the "a" word) consumption and savings is, so we should assume that the distribution of individual levels of income is going to be important. It is precisely the incongruence between consumption inequality and income inequality that makes income inequality so consequential in the way that muirgeo suggests.

S Andrews July 21, 2009 at 3:11 pm

I know two scientologists who went to mental asylum – so all scientologists must be crazy.

S Andrews July 21, 2009 at 3:39 pm

BTW, I have alternate explanation for imbecile muirs chart, giving the benefit of doubt for it's accuracy.

Period 1913-1933: Government inflation ( Feds creation and artificial monetary expansion ), and Fed being in bed with finaciers helped the bankers and financiers make bets using cheap money provided by the FEDERAL reserve – which ended badly just as it did recently. Most of the elites lost their wealth was wiped out by the market during the correction of 1929-1933. Then FDR unconstitutionally confiscated people's gold and put us back on a pseudo gold standard, which was sustainable because gold was devalued by almost 75%.

Again government funded New Deal and War spending helped the financiers and big business in the late 30s and early 40s. Followed by the end of WW2, when federal budget was cut to 1/3 of it's war spending levels, setting off a boom, there by reducing the tax burden on the common man and business. Kennedy tax cuts of the early 60s helped again alleviate the income difference.

This was followed by massive spending spree of the Kennedy-LBJ administrations as the new great society programs and war in Vietnam, and sending man to the moon, which eventually made U.S default on it's obligations to pay in gold – in 1971. Removing last vestiges of the gold standard. All restrictions on monetary expansion has been completely removed. 5000 year era of commodity standard ends – of course this is inconsequential according to "mainstream" economic "experts".

Loose money policies pursued during LBJ years were shifted into highgear during the 70s. THe inflationary policies of the government during the 70s helped the rich ( inflation is taxation without legislation ).

Followed by an era of relatively tighter policy during the 80s. Followed by the takeover by Easy Al, Mr. Serial Bubble Blower, Greenspan, who was once a follower of that enemy of the Fed – Ayn Rand. Help the financiers with easy money to make speculative bets using OPM. The correction of 2000-02 would have corrected the income imbalance if the government had not interfered again, by making it easy to make speculative bets using OPM – welcome to the new Greenspan, Bernanke era.

The solution – Audit the Fed – get rid of it – replace centrally "planned" monetary policy with market's monetary policy.

dg lesvic July 21, 2009 at 3:42 pm

Will somebody please wake me up when this is all over.

muirgeo July 21, 2009 at 4:17 pm

S Andrews,

Sounds like some common ground. Those that control money set up a system that concentrates wealth which results in economic collapse.

It's all about control and how to take their ower away. Being so incredinbly wealthy is ultimatly about control and power. There is no reason a liberty seeking society should allow such massive accumulations of wealth. But you guys ultimatly defend them saying we shouldn't tax the rich. Do you have a better solution?

“The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, (and) more selfish than bureaucracy. It denounces, as public enemies, all who question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe…corporations have been enthroned, and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few, and the Republic is destroyed.” – Abraham Lincoln

“If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations that will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.” – Thomas Jefferson

Daniel Kuehn July 21, 2009 at 4:20 pm

S Andrews -
I don't know if that's an alternate explanation so much as a complementary one. And I don't know of any mainstream economists who think going off the gold standard was inconsequential – just not necessarily as consequential or consequential in the same way that you're thinking of. I'm also not so sure about your account of the 40s – the biggest growth in real GDP was during the war – it was somewhat flat immediately following the war. I don't dispute the idea that private demand recovered after the war and did a good job replacing public demand – I'm just not sure about the assertion that somehow everything got better because government spending went away. I'd also quibble a little with your history of Greenspan's tenure. I'm not a big fan of his, but I think the real expansionary policy during his tenure came from Asian savings rates, rather than the federal funds rates.

But the basic MV=PQ dynamics of your post I do agree with, and I think they complement my point about the muirgeo's chart, and the relationship between high inequality and depression on the one hand and artificially low inequality and stagflation on the other hand. That Keynesian MPC argument doesn't need to contradict the monetarist quantity of money argument like you seem to assume it does. I've certainly never had a problem holding both views simultaneously.

Daniel Kuehn July 21, 2009 at 4:22 pm

Ah muirgeo, you had to take Jefferson's one major intellectual blindspot and exalt it :) too bad.

S Andrews July 21, 2009 at 4:25 pm

I'm also not so sure about your account of the 40s – the biggest growth in real GDP was during the war -

I wasn't talking about GDP growth, instead, I was talking about income inequality and how government fiscal and monetary policies cause it. BTW, I am not a big fan of charts like this, I was only pointing out that statistics and chart very seldom settle a philosophical argument – people see what they want to see in the chart.

S Andrews July 21, 2009 at 4:26 pm

because gold was devalued by almost 75%

Oops! It was the dollar that got devalued.

dg lesvic July 21, 2009 at 5:01 pm

Zzzzzzzzzz

S Andrews July 21, 2009 at 5:09 pm

As for the Asian Savings Glut hypothesis, Robert Murphy has an interesting take – here

Robert July 21, 2009 at 5:11 pm

One of the greatest pieces on Inequality by Mises:

http://www.thefreemanonline.org/featured/inequality-of-wealth-and-incomes-2/

DAVE July 21, 2009 at 6:55 pm

I would appreciate if of the readers (muirgeo included) would care to enlighten me as to the following:

How would Bill Gates having his property and assets confiscated from him to the point that his net worth is on par with your average American, help me?

Martin Brock July 21, 2009 at 7:42 pm

Isn't market based consumption a sort of re-investment itself?

No. The distinction between "consumption" and "investment" is well established. Both are expenditures, and some expenditures fall on a fuzzy boundary between the categories, but one is not simply a subset of the other. An input is not an output. Organizing resources to produce goods is not equivalent to consuming the goods.

If I have acquired vast amount of wealth, I can re-invest it in the means that got me that wealth in the first place, or in a luxury car or a villa.

The car or villa is not investment, even if it's a rarity that could appreciate. While you own it, you consume its value exclusively, and that's the essence of "consumption" definitively.

If you buy a villa to let rooms in it or open it to the public as a museum, that's more like investment, because you organize the resource for use by others rather than consuming it yourself. The others then consume it, but to you, it is an investment.

If you let rooms in the villa and also live in it, the villa is both your consumption and your investment. You might need an accountant to sort that out for you.

It just turns out that they are different means of re-investing.

No. They aren't. You conflate investment with consumption here. The distinction is meaningful. We have two different words for good reason. Blurring the distinction makes nonsense of vast areas of economic theory.

And if my spending on ultra luxury items aids development of new technology that makes more normally priced items cheaper or better (or both), and improve everyone's standard of living, is that not a form of voluntary tax I am paying to improve the society?

Yes, it could be, but that's a separate issue. The line between consumption and investment is not always bright. Tax deferred investment already exists, so courts already make these distinctions.

If you design a novel structure, you can demonstrate the utility of the design by selling architectural drawings for example. The structure needn't be a villa. It could be a tiny house. A growing market for tiny houses exists in fact, and builders do sell plans, prefabricated materials and complete structures.

I'm not a tax attorney, but the proceeds of these sales are clearly the yield of an investment in R&D, and you presumably could claim an investment exemption of some kind, even if you spent the R&D funds designing the first house for yourself. I have no problem with that.

Income inequality should not be a concern, it does not mean much.

I don't know what "should" means to you here. You're making some kind of value judgment, but you aren't making it explicitly.

I claim that organizing vast resources, including the labor of many people, for the consumption of a few has less utility than organizing the same resources to produce for the consumption of many, particularly the many laborers contributing to the production.

Fundamentally, laborers should be entitled to a market exchange of the labor of others for their labors, not simply an exchange of their labor for the marginal value of non-human resources held by titular lords. That's the value judgment I'm making, and it's a classically liberal value.

Martin Brock July 21, 2009 at 7:56 pm

How would Bill Gates having his property and assets confiscated from him to the point that his net worth is on par with your average American, help me?

I'd first like to know who in this forum has suggested such a thing.

Martin Brock July 21, 2009 at 8:09 pm

I would be the last person to say that markets always work well, but I don't see any reason to doubt the relative efficiency of the market for organizational management.

A market in managerial labor is irrelevant to any point I've made.

Suppose the state just granted monopolies to corporations in automotive, telecommunications, energy, agricultural and other industries, after the fashion of fascist states in the twentieth century, and suppose that a managerial hierarchy in each industry were free to set a wage structure for managerial labor, awarding higher incomes to managers higher in the hierarchy, in proportion to some measure of the productivity of industrial divisions they govern for example.

A market for managers in these statutory cartels would still exist, but that's beside the point. This market wouldn't improve the efficiency of the cartel structure one iota, because the problem is not inadequate smarts on the part of the management. If we could clone Einstein and place the clones in charge of all of these cartels, the system would still be woefully unproductive compared with a competitive, market system. Isn't that what Hayek demonstrated?

The problem is not the native intelligence or any other individual characteristic of individuals managers. The problem is that central planners cannot be omniscient enough to plan production in this sort of cartelized system, no matter how natively intelligent or schooled in abstract managerial theory they are.

In fact, managers making decisions by casting lots or reading Tarot cards, in a dynamic, competitive market system, would outperform the cartelized system.

Martin Brock July 21, 2009 at 8:20 pm

In other words, the Invisible Hand of the market is like the Blind Watchmaker of evolution by natural selection. See Michael Shermer's The Mind of the Market for example.

JohnK July 21, 2009 at 8:29 pm

There are two types of people in this world.

Some trust government, and others do not.

SaulOhio July 21, 2009 at 8:41 pm

muirgeo just doesn't get that correlation does not mean causation. The fact that inequality, measured in money terms, rises before market crashes is perfectly consistent with the Austrian business cycle theory. As the supply of money and credit expands, people who are well connected in the financial world get richer for a while. Its not the inequality that causes the crash. Both are consequences of credit expansion.

vidyohs July 21, 2009 at 8:45 pm

Has any one but me ever wondered if Don Boudreaux and/or Robert Russel ever taken over the Martin Brock blog or the Daniel Kuehn blog like those two take over the Cafe Hayek?

Martin Brock July 21, 2009 at 9:05 pm

Get over yourself, Vid. I sometimes go for weeks without posting here. I was on vacation last week and hardly posted. I've probably posted fewer words than you since I started here. Talk about the pot calling the kettle black. Do you ever look in the mirror?

Martin Brock July 21, 2009 at 9:09 pm

Agree completely with SaulOhio. Gross inequality is a creation of the state, so I wonder why nominal "libertarians" defend it so adamantly.

S Andrews July 21, 2009 at 9:18 pm

Gross inequality is a creation of the state, so I wonder why nominal "libertarians" defend it so adamantly.

I used Muirgeos chart to show that it is a creation of the state. I know that DG Lesvic repeatedly argued that state programs of redistribution will cause more inequality. So don't paint all libertarians with the same color.

Martin Brock July 21, 2009 at 9:40 pm

I wonder why some nominal "libertarians" defend it so adamantly. I'm a nominal "libertarian" myself, and I wasn't discussing myself.

Babinich July 21, 2009 at 9:46 pm

Posted by: muirgeo on 07/21/09 @ 4:17:12 PM

"There is no reason a liberty seeking society should allow such massive accumulations of wealth. But you guys ultimatly defend them saying we shouldn't tax the rich. "

Do you have ANY idea about the meaning of the word "liberty"?

Martin Brock July 21, 2009 at 10:13 pm

It doesn't mean that statutory authorities are free to exercise their entitlements.

Babinich July 21, 2009 at 10:17 pm

Liberty: "freedom from external (as governmental) restraint, compulsion, or interference in engaging in the pursuits or conduct of one's choice to the extent that they are lawful and not harmful to others".

C'mon, spin it…

vidyohs July 21, 2009 at 10:21 pm

Umm, Martin, okay fewer words? Oh yeah.

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