Artificial Scarcities Are Not Wealth

by Don Boudreaux on September 23, 2011

in Complexity & Emergence, Trade, Work

In his essay that I addressed yesterday, Pat Buchanan writes:

You cannot have a rising standard of living when your highest-paid production jobs are being exported overseas.

I suspect that the above sentence strikes most readers as merely stating an obvious, indeed trivial, truth.  But it’s wrong.  And understanding why it’s wrong – why it’s wrong beyond its use of the familiar yet misleading notion that jobs are “exported” – is necessary to any informed discussion of trade.

Of course, what Buchanan means by writing “your highest-paid production jobs are being exported overseas” is that valuable tasks once done for domestic (say, American) consumers by fellow citizens are now done for domestic consumers by foreigners.  And Buchanan likely agrees that the reason for such a switch of who performs these tasks is that foreigners can now perform these tasks at lower costs than can Americans.

Let’s call the good that high-paid American producers once produced, but are now imported from low-paid foreigners, a “doohickey.”

Americans can now get the same quantity of doohickeys that they value by at least $X per unit – where $X is the price they paid for each doohickey when fellow Americans produced doohickeys – for a price of less than $X.  So Americans as consumers of doohickeys are clearly better off.

Also better off are those American producers who now sell more – or who fetch higher prices for their outputs – because at least some of the money American consumers now save when buying doohickeys is now spent on these other American-produced goods and services.

But there’s a deeper, more important, and less obvious point to grasp.

The reason Americans now import doohickeys is because Americans no longer have a comparative advantage in doohickey production.  And the reason Americans no longer have a comparative advantage in doohickey production is because their cost of producing nondoohickeys – goods and services other than doohickeys – has fallen relative to foreigners’ costs of producing nondoohickeys.  This is another way of saying that American labor applied to the production of nondoohickeys now generates more value than that labor would generate were it kept artificially in a protected American doohickey industry.

Americans’ comparative advantage at producing nondoohickeys – which is another way of saying Americans’ comparative disadvantage at producing doohickeys – means that the same amount of American labor previously used to produce only Y-amount of doohickeys can now produce enough value to allow Americans to acquire Y-amount of doohickeys plus even more doohickeys (or more of other goods or services that previously would have been unaffordable).

Looked at differently, suppose the Portuguese invent a revolutionary process for producing doohickeys – a process that now allows one unskilled worker in Portugal to produce the same quantity of doohickeys that once required the full-time work of 5,000 MIT-trained engineers.  (Note, by the way, that the essence of the situation doesn’t change if an American had invented this new process and commenced to employing a single unskilled worker in America to produce the doohickeys.)

Should we lament this development?  Would Americans really become poorer by importing low-cost doohickeys from Portugal?  (Or: Would Americans really be kept rich, and the American economy keep growing, if Uncle Sam slaps a prohibitive tariff on doohickeys and, thus, protects high-paid doohickey production jobs in America?)

Clearly not.

It’s true that 5,000 MIT-trained engineers would lose their high-paid jobs in the U.S. doohickey industry.  But is their labor so robotic, so narrow, so inflexible, so specific to doohickey production, that they have no other ways to earn good incomes?  No other way to produce other outputs?  Clearly not – for if it were, this labor’s opportunity cost would be near-zero.  And if this labor’s opportunity cost were near zero, it would be extremely unlikely that these workers would ever have been able to command high pay for producing doohickeys.

…..

In sum, paying people high wages to help the domestic economy cope with artificially created scarcities is not a recipe for economic growth.

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{ 167 comments }

vikingvista September 23, 2011 at 5:02 pm

Wow. Another top ten post. And I think you’ve had about 100 of them so far.

Slappy McFee September 23, 2011 at 5:17 pm

For your next CafeHayek pop quiz:

Jose and John each create a doohickey, under which scenarios are they made worse off?

A) They trade while located in Texas
B) They trade while John is in Texas, Jose is in Mexico
C) They trade while John is in Mexico, Jose is in Texas
D) They trade while located in Mexico

Ike September 23, 2011 at 5:20 pm

Was the trade in cash, and therefore potentially untraceable?

Slappy McFee September 23, 2011 at 5:21 pm

Black market gun trade. Operation Run & Gun.

Chuclehead September 23, 2011 at 6:01 pm

The answer is A, because when they are done trading, they are still in Texas.

MWG September 23, 2011 at 6:25 pm

ZING!

Dennis September 23, 2011 at 5:20 pm

Doesn’t Buchanan have a point? Some jobs who produce for example ‘services’ can be done cheaper by foreigners too, at an even quality-standard. The problem is that you export money from your country to another country for services. It means that less money is circulating in your country, money that would be used to invest or pay wages. In that context it means that high paid jobs that are exported mean a decrease of income and with that a better standard of living.

Jeremy September 23, 2011 at 5:28 pm

LOLZ

Ken September 23, 2011 at 5:28 pm

Dennis,

No, incomes are not decreased, nor do living standards decline.

Regards,
Ken

muirgeo September 24, 2011 at 12:57 am

Yes and he references the current economy as supporting evidence…

Ken September 24, 2011 at 1:08 am

muirgeo,

Americans do not have declining living standards, yet high immigration, both legal and illegal, so that’s an excellent piece of evidence against Dennis’s claim. Thank you for pointing that out.

Regards,
Ken

Russ Roberts September 23, 2011 at 5:33 pm

There will be fewer pieces of paper in America. But pieces of paper (money) are not what we care about. What we care about is what the pieces of paper will buy. If we keep out imports we will have more pieces of paper but they will buy less. You can see this if you think about only trading with people in your town. All the money stays in town. None of it escapes. But the money will not go very far. Cars will be very expensive. So will bicycles. And food. And so on.

Don Boudreaux September 23, 2011 at 5:36 pm

What Russ says.

Dennis September 23, 2011 at 5:48 pm

Yes, I understand that. But with countries the pieces of paper have a fixed value. If you export more than you get in, you can only make that up by importing money in the form of exporting other ‘stuff’ with a value equal to the one you imported. If you don’t do this your currency will decrease. Or you need other countries to put their money in your country asking for interest over their invested money, which causes debts.

Sam Grove September 23, 2011 at 5:52 pm

The pieces of paper never have a fixed value.

Dennis September 23, 2011 at 5:56 pm

They have a fixed value at that moment in time. Due to export and import this value can go up or down. In this particular case they go down because of more ‘goods’ being imported than exported.

g-dub September 23, 2011 at 6:37 pm

“They have a fixed value at that moment in time.”

Q: Do you understand what the word “fixed” means?
A: No.

vikingvista September 23, 2011 at 7:47 pm

g-dub,

Hilarious.

anthonyl September 25, 2011 at 9:44 am

Nothing ever has a fixed value!

vikingvista September 23, 2011 at 6:00 pm

The piece of paper has a fixed denomination, but prices in that denomination are almost never fixed. Items that are fixed must be forced that way, and are invariably in shortage or unwanted surplus. And even though their legal prices are forced to be fixed, their black market prices or barter ratios most definitely are not.

Karl Smith September 23, 2011 at 6:28 pm

Dennis is actually somewhat correct here.

That money leaving the country is contractionary is correct. That people care about the amount of money is circulation is also correct. Indeed, if you look at people’s reported happiness then over small ranges they are *more* concerned about the amount of money in circulation than they are about what that money can buy.

Why would I say that?

Well, per capita GDP in the United States is higher than it was in 1998. Consumption per capita is higher than it was in 1998. Net Assets of Households and Corporation is higher than it was in 1998.

Yet, satisfaction with the economy is lower than it was in 1998. I am also betting that if asked if they could be transported back to the economy of 1998, a fair number of Americans would say yes.

Part of the reason is that the US is suffering a monetary shock. One indeed, worsened by the effect that Dennis is speaking of.

In this case American’s bought lots of goods from China, particularly during the 2000s. However, the Chinese did not in turn by lots of goods from the Americans.

This meant the accumulation of large dollar holdings by the China in general and the Chinese government in particular. These dollar holding were then in turn invested in US Assets. One particular class of Asset that attracted a lot of investment was US Mortgage Backed Securities.

This caused the relative price of house financing to decline in the United States and ushered in a housing boom. However, for reasons that we can discuss but I think exceed what should go into this post, the Chinese government decided to switch out of MBS and into Treasury Bills in 2008.

The immediate affect of this was a simultaneous crunch in housing finance and rapid loosening in government finance. In theory this could have had no net effect on the US economy if the US government had expanded its borrowing to meet Chinese demand for US Treasury Bills.

However, this did not happen. The result then was a strong net monetary contraction inside the United States that manifested itself as a recession.

There is of course much more to this story, but this channel was a non-trivial part.

SweetLiberty September 23, 2011 at 6:49 pm

Karl,

I’ll show my Austrian leanings here and argue that had the government and the Fed not interfered so much, the US Mortgage Backed Securities wouldn’t have concentrated so much of the investment dollars from China in one particular area, and China’s capital investments would have been more diversified. But let us imagine for the moment that China’s accumulated wealth went not into an unsustainable bubble, but rather propped up several sustainable industries which added to the real wealth of this nation. In that event, the money China put back into the economy would be nothing but positive. It’s not the money, it’s what you do with it that’s important.

Methinks1776 September 23, 2011 at 8:37 pm

Good Lord.

ChrisN September 23, 2011 at 8:42 pm

“I am also betting that if asked if they could be transported back to the economy of 1998, a fair number of Americans would say yes.”

Ask them if they’d swap their iPad for a PC using a Pentium processor running at 133Mhz w/ 32MB of RAM.

The fact that China provided us so many cheap goods, whether toys for kids or inputs for manufacturing was a blessing to us. We are better off for it. The fact that they are willing to subsize our debt (albeit bad US econ policy) is good for us too. You know, they have a risk of losing money too, not just gains from US investments.

Economic Freedom September 23, 2011 at 11:09 pm

That money leaving the country is contractionary is correct.

That a contracting money supply would tend to increase the purchasing power of the remaining money units is also correct.

That people care about the amount of money is circulation is also correct. Indeed, if you look at people’s reported happiness then over small ranges they are *more* concerned about the amount of money in circulation than they are about what that money can buy.

Why would I say that?

Well, per capita GDP in the United States is higher than it was in 1998. Consumption per capita is higher than it was in 1998. Net Assets of Households and Corporation is higher than it was in 1998.

Yet, satisfaction with the economy is lower than it was in 1998.

In 1998, we were enjoying an inflation-inspired dot-com boom with less than 5% unemployment and an exploding Dow. That’s why people have fond memories of 1998. Now we are suffering the recessionary aftermath of the dot-com bubble and the housing bubble — and we have the high unemployment numbers and stagnant growth to prove it.

Here’s a translation of your previous statement:

“The sobered-up dope-smoker’s vision is better now than it was when he was high in 1998; his appetite is better now than it was when he was high in 1998; he has more income now than in 1998 since he no longer spends it on dope. Yet satisfaction with his emotional state is lower than it was when he was a higher-’n-a-kite in 1998.”

Never would have figured that those on binges are usually most satisfied — even as they destroy themselves — when they binge.

I am also betting that if asked if they could be transported back to the economy of 1998, a fair number of Americans would say yes.

I’m also betting that if you asked dope-addicts if they could be transported back to an especially pleasurable trip to their personal Land of Nod in 1998, a fair number of them would say yes.

Part of the reason is that the US is suffering a monetary shock. One indeed, worsened by the effect that Dennis is speaking of.

In this case American’s bought lots of goods from China, particularly during the 2000s. However, the Chinese did not in turn by lots of goods from the Americans.

The Chinese re-spent the money buying U.S. producers’ goods: stocks, bonds, factories, real-estate. Those are goods. They also bought Treasuries.

This meant the accumulation of large dollar holdings by the China in general and the Chinese government in particular. These dollar holding were then in turn invested in US Assets.

Meaning: Money U.S. consumers spent on Chinese goods was re-spent by the Chinese back in the U.S.

One particular class of Asset that attracted a lot of investment was US Mortgage Backed Securities.

They didn’t “attract” lots of investment. The U.S. specifically pushed for the Chinese to buy more U.S. Mortgage Backed Securities in order to keep the housing boom awash in cheap financing. It was in the news.

This caused the relative price of house financing to decline in the United States and ushered in a housing boom.

China didn’t cause the boom. The boom had long been occurring. To sustain the housing boom, the U.S. encouraged China to invest in MBAs.

However, for reasons that we can discuss but I think exceed what should go into this post, the Chinese government decided to switch out of MBS and into Treasury Bills in 2008.

You mean when the Chinese began to to realize that MBAs were a bad investment because many mortgage holders would be unable to make payments?

See this lecture by Joseph Salerno:
The Financial Crisis and the Death of Macroeconomics
http://tinyurl.com/3fay9xl

lowonprozac September 24, 2011 at 1:38 pm

I’ll take Chinese goods over pieces of paper any day of the week. Most of the pieces of paper don’t exist anyway – they’re actually entries in an electronic ledger in cyber land.

Ron H September 26, 2011 at 12:36 pm

Methinks1776:
Good Lord.

I was looking forward to a rather longer response to that comment from you. :-)

kyle8 September 24, 2011 at 10:19 am

You have answered your own question. If a nation say China receives payment for goods in US dollars, then it must somehow re-exchange these dollars through investment or buying American goods in order to realize it’s profit.

SweetLiberty September 23, 2011 at 6:23 pm

Dennis,

You seem confused by money. If I pay a computer programmer for services in India with U.S. dollars because his services are cheaper than an American programmer, 1) I have more money to spend on other things I want with the money I saved which will employ American workers who produce goods or services I do value, 2) The programmer from India will trade his U.S. dollars for U.S. goods or services he values (unless he covets green pieces of paper with dead American Presidents on them). Eventually, the U.S. currency will find its way back home in the form of investments or direct purchases. No money is “lost” in these transactions.

What you should be concerned with is not the money, but the relative skill level of Americans. If the U.S. loses a comparative advantage in high-end services, it has more to do with an overall decline in education standards – standards which are set for most students by the Dept. of Education through public schools, as well as prohibitive immigration policy which dissuades the best and brightest from moving here which would make the U.S. stronger – NOT a decline in the money supply held by foreigners.

Karl Smith September 23, 2011 at 6:57 pm

Apparently I can’t reply to your comment under my comment. To keep things from getting too crazy I suppose.

Anyway, my short answer is that yes, if the world were different, then it would be different.

However, in the world that we live in the monetary policy of the US central bank and the Chinese central bank affect and are affected by trade, and affect and are affected by overall economic activity.

This creates a link between what happens in international trade and what happens in the domestic economy that would not exist in a pure exchange economy. Thus, when analyzing the effect of trade, you will err if you assume that we have a pure exchange economy.

SweetLiberty September 23, 2011 at 7:19 pm

Karl,

I don’t deny the trade link between China and the U.S., but I think any policy of substance must address the underlying disease, not the symptoms. Shifting focus to China for their investment strategy based on the dollars they accumulate for selling us items we want isn’t going to solve our economic woes.

vikingvista September 23, 2011 at 7:58 pm

Nice post, except the part about comparative advantage. A loss in comparative advantage in one thing is a gain in something else. In fact, it may not be a loss at all, as “loss” is usually conceived. Everyone always has a CA in something, regardless of education or training. CA just shows that it is best to specialize, and directs how it should be done.

Perhaps you meant “productivity”.

JS September 23, 2011 at 6:45 pm

Why don’t you grow you own food? You wouldn’t be shipping your money to others, making them richer and giving them the job you should be doing.

But wait, if you grew your own food, you wouldn’t have any money, would you? Instead of working for money and having some left over after buying your food, you’d exchange all your labor for your food and have nothing left over.

Likewise, if we had to make all the doohickies, we’d have to forego making all sort of other things. The net result is a society with less things, since we made a decision to expend more than we had to for doohickies.

Economic Freedom September 23, 2011 at 11:57 pm

It means that less money is circulating in your country, money that would be used to invest or pay wages. In that context it means that high paid jobs that are exported mean a decrease of income and with that a better standard of living

There is no “correct” quantity of money in an economy. The more money there is, the lower the value of any one unit; the less money there is, the higher the value of any one unit. Obviously, if there’s a contraction in the supply of money, nominal prices will have to decrease (which is another way of saying that the purchasing power of the monetary unit increases). The decline in prices, however, will also have to include the price of labor, i.e., wages. If government protection allows some wages to stay nominally high even after a monetary contraction — e.g., union wages — there will be unemployment.

Gil September 24, 2011 at 12:06 am

Aw shucks, why don’t some here argue that even if the U.S. does become poorer and loses its wealth to overseas competitors then that shows the people of the U.S. to be poor business operators as well reliance on government intervention? Or that the economy should be global so it shouldn’t matter where the best investment and employment opportunities are?

Ken September 24, 2011 at 12:36 am

Gil,

You’ve been coming to this blog for a while. Do you ever read any of the posts? Do you understand them? Do you understand what comparative advantage is?

The US does not “lose” wealth over seas as some jobs are outsourced. Comparative advantage isn’t that difficult to understand. Is it? Certainly you can understand the following:

If X > Y and S > T, where X, Y, S, and T are positive, then X + S > (aX + bY) + (cS + dT) where a, b, c, and d are positive such that 1 = a + b = c + d.

Outsourcing, just like technological advances, enrich us by moving capital away from activities that operate in the red to those that operate in the black.

Regards,
Ken

Gil September 24, 2011 at 6:23 am

Aw, shucks, I thought you would agree with me to an extent that the people and their government are driving U.S. wealth offshore by relying on intervention over free market values. In other words, if the U.S. government was overhauled to become laissez-faire and agreeable to Libertarians then the U.S.A. would be good place for investment and the wealh would be coming back.

Ken September 24, 2011 at 2:18 pm

Aww, shucks, I thought you’d use your brain. The US government isn’t driving wealth overseas. It’s changing, and very inefficiently, the comparative advantages.

Regards,
Ken

Erick September 24, 2011 at 2:42 pm

I do not agree: the elasticity of the jobmarket has it’s limits since people who have trained for job A, will, after their jobs are offshored, have to be trained for job B.
Therefore a timelag is created in the system during which demand falls until the new equilibrium is reached. If policies are not handled carefully this will lead to a vicious circle.
Therefore to remain competitive, the Western world has to invest in schooling, etc. NOW, otherwise generations will be lost until the new economic equilibrium between the erstwhile Third World and the erstwhile First World is found again.

Ken September 24, 2011 at 3:03 pm

Erick,

” the elasticity of the jobmarket has it’s limits since people who have trained for job A, will, after their jobs are offshored, have to be trained for job B.”

This is false. Much of what gets off shored require less skill, hence cheaper labor, letting high skilled people do high skill work, rather than having to toil away doing work that is better done by someone else. Engineering is a good example. The most difficult work done in engineering is design. The least skilled is fabrication. This is why it is best that Apple outsource their production lines. This allows their engineers to focus their skills on design

At a more basic level, this is why companies outsource cleaning crews rather than have their employees clean their own spaces. It wouldn’t be a huge burden for people to take out their own garbage and clean their own desks and vacuum the areas around their desks, but it is more efficient and BETTER for the employees and business to simply hire someone else to do all the cleaning.

“Therefore to remain competitive, the Western world has to invest in schooling”

This again is a false statement. The US has consistently ranked in the bottom, if not dead last, when compared to the other first world nations, yet it dominates the world economically. Economic freedom, allowing people to start any business they desire or to sell any product for which they can find a buyer, is THE most important attribute for economic success.

Forcing people to purchase an “education” they don’t need or want, through the ridiculous public school system the US, instead of allowing people to purchase the things they actually want HURTS Americans. Children, and Americans in general, would be better served by dropping the stupid laws restricting young people from working and requiring them to go to attend school.

Hayek’s The Use of Knowledge in Society does a good job of destroying the myth that scientific knowledge (the only type of knowledge that can be taught in schools) is the most important type of knowledge in an economy.

Regards,
Ken

Invisible Backhand September 24, 2011 at 3:06 pm

RegardsKen is truly the dwight schrute of cafehayek.

Greg Webb September 24, 2011 at 3:12 pm

Ken writes a well-reasoned, intelligent analysis of economic issues. IB makes a personal attack. Winner – Ken.

Ken September 24, 2011 at 3:20 pm

IB,

Being compared to Dwight Schrute is only an insult if your into the whole lefty hipster culture. Dwight is a conscientious and hard worker. He plays by the rules and expects others to do so as well. He runs a farm and is in tune with the earth to a far greater extent than any lefty hipster is. He is independent and far more self-reliant than anyone else in the office.

He is loyal and takes his friendships and relationships seriously. Because he expects the same from others in his life, he has few, but good, friends. And while he may be disagreeable to many people, when the chips are down, he can be counted on to do the right thing.

Regards,
Ken

Ron H September 26, 2011 at 1:05 pm

Ken

If X > Y and S > T, where X, Y, S, and T are positive, then X + S > (aX + bY) + (cS + dT) where a, b, c, and d are positive such that 1 = a + b = c + d.

LOL , I hope you realize you’ve missed your target audience.

vikingvista September 26, 2011 at 8:42 pm

But still, he’s right.

anthonyl September 25, 2011 at 9:39 am

No, because as a politician he should have no reason to suspect he could do anything about who has what jobs where.

Bret September 23, 2011 at 5:31 pm

It’s true that 5,000 MIT-trained engineers would lose their high-paid jobs in the U.S. doohickey industry. But is their labor so robotic, so narrow, so inflexible, so specific to doohickey production, that they have no other ways to earn good incomes?

That’s the question isn’t it. If those people are going to remain forever unemployed or can at best only find employment that provides sufficiently less value than the extra value provided by the foreign import of doohickeys, then the country is worse off in aggregate, isn’t it? At least until they die off.

Rick Hull September 23, 2011 at 5:41 pm

Bret,

Is the country worse off in aggregate? No, because the harm to the 5000 MIT producers is trivial compared to the benefit to countless consumers from cheaper doohickeys.

Bret September 23, 2011 at 6:39 pm

No.

A quick example, using a variant of comparative advantage, There are only two products in the world, widgets A and B and only two countries, 1 and 2, each of which has exactly two workers, one of which can make A and only A and the other B and only B. Initially, in country 1, the two workers make 4 widgets per day each and in country 2, they make 2 widgets per day each. No comparative advantage, so no (or exactly offsetting) trade.

Next step. The worker in country 1 who makes widget A invents a process and files a patent enabling him to make 8 of widget A per day instead of just 4. Remember the constraint that each widget maker can only possibly make their own widget. There is comparative advantage, but the advantage in country 2 accrues to the widget B maker at the expense of the widget A maker.

If the widget B maker in country 1 also invents a process enabling him to double output (and patents it), then the comparative advantage is evened out and there is no (or exactly offsetting) trade again and country 2 workers are in exactly the same situation as initially (they’re both making 2 widgets a day and there’s no trade). Both workers in country 1 are better off.

The above is without anybody losing their job. If one of the workers has to stop making widgets for some reason (like the MIT folk), then country 2 gets less well off in aggregate even though one of the workers is better off.

SweetLiberty September 23, 2011 at 6:58 pm

Bret,

Using your example, Country 1 and Country 2 do not trade with each other. So an improvement in Country 1 does not adversely effect Country 2 – they will continue to make the same number of widgets of A and B as always. You must add trade between the two Countries to the equation for comparative advantage to make sense.

kyle8 September 24, 2011 at 10:23 am

what you are leaving out it the more than doubling of widget production creates more absolute wealth, the surplus can be traded to other nations or used in industry to make other productions cheaper, even if someone is displaced, over time everyone will be better off.

SweetLiberty September 23, 2011 at 6:34 pm

Bret,

The alternative to innovation is stagnation. For example, once the automobile was invented, if America refused to lay-off thousands of displaced carriage workers and stable boys, those guys would still have jobs, but the country as a whole wouldn’t have moved forward into even more productive jobs. If 5000 MIT engineers are no longer necessary doing what they do, no amount of artificially propping up their jobs will ever move the country forward. They must either adapt or rely on charitable welfare, but the country is not better off protecting jobs that are obsolete.

Bret September 23, 2011 at 6:52 pm

Yes and no. One of Don’s constant refrains is that there is no difference between stopping trade with foreign entities and stopping innovation within the country. This is correct but potentially misses the point.

Creative destruction is extremely important. Both free trade and domestic innovation contribute to that process. The question becomes whether or not you can have too much of a good thing. If there are periods where creation cannot keep up with destruction, perhaps limiting one of the sources of destruction could be useful, in which case limiting trade would be better than limiting domestic innovation.

SweetLiberty September 23, 2011 at 7:06 pm

Bret,

Limiting trade does hurt the consumer who must pay more for products and services he would otherwise not have to with trade options. Remember, it is the consumer who sends entrepreneurs and innovators the market signals as to what is useful. By limiting the consumer’s options, you distort the potential for creative growth and therefore prolong inefficiency, thus leading to stagnation. Government can try to pick winners (like Solyndra), but would you really advocate throwing more good money after bad just to prop up a failed enterprise so that these workers can “feel” productive?

Craig September 23, 2011 at 7:50 pm

“If there are periods where creation cannot keep up with destruction, perhaps limiting one of the sources of destruction could be useful,”

But, why can’t creation keep up with destruction? Perhaps, limiting the causes of creation’s failure to keep up with destruction could be useful.

anthonyl September 23, 2011 at 9:18 pm

Creation results in destruction so the later can’t outrun the former.

Economic Freedom September 23, 2011 at 6:09 pm

Clearly not – for if it were, this labor’s opportunity cost would be near-zero. And if this labor’s opportunity cost were near zero, it would be extremely unlikely that these workers would ever have been able to command high pay for producing doohickeys.

In other words, there would be no reason for doohickey manufacturers to engage in a competitive bidding process for doohickey workers (which would tend to raise their wages), attempting to entice them away from alternative employers (such as the manufacturers of thingamabobs).

Excellent point. LIKE.

MWG September 23, 2011 at 6:37 pm

Don,

As always you offer a solid response with a great example, but (in your own words) ‘there’s a deeper, more important, and less obvious point to grasp…’

…and that is the question of basic individual rights to both property and free association. As an individual business owner I have a right to use my property ($$$$) to hire whomever I damn well please and it’s none of Pat’s or the Governments business.

It’s true that your argument (We’ll all be better off economically in the long run.) is an easier argument for Americans to swallow, but we should never loose sight of the fact that behind all economic arguments exist even more basic arguments related to individual rights.

JS September 23, 2011 at 7:01 pm

It is not a coincidence that collective utility and prosperity are best served when individual rights are supreme. Selfishness assures maximum collective efficiency.

Buchanan’s error is to see prosperity through the eyes of isolated groups of producers (labor, manufacturers, etc.) instead of from the perspective of consumers, such as Don described.

If a plant shuts down and 100 people lose their jobs, it is seen, and if in exchange 100,000 consumers are able to save some money, it isn’t seen. Buchanan sees the loss and is blinded by the gain. What he fails to grasp is that the gain always exceeds the loss, in the aggregate, or for the collective good. The money saved always creates new jobs. Greed takes care of that, unless, of course, you’ve been educated to believe that greed is not good.

JS September 23, 2011 at 7:16 pm

A true collectivist, advocate of the common good, should argue for individualism everywhere. Everything the individual does for himself helps the collective as long as he lacks the power to coerce others. Without that power, he is forced to service their needs by employing his maximum effort. Every person wakes up everyday with the only means of survival being found in servicing the wants of his fellow man. He is led to jobs that his fellows desire and to vocations they demand from him.

Everyone would love to enslave his fellows to accept from him an amount of effort less than his best, Surely, that is our nature, as the disutility of labor gives evidence. Every form of economic interference boils down to the desire of some to coerce others to accept less from them. Every topic discussed on this website can be logically reduced to that principle, with those who seek to coerce being logically exposed.

People who don’t know how the machine works can’t fix it. Count Patrick J. Buchanan among them.

MWG September 23, 2011 at 7:42 pm

We definitely agree, but I think there’s a disconnect. Perhaps its the objectivist in me, but I hate the term ‘collectivist’. Individualist arguments for free trade should always trump collective arguments. Don (and you) are both correct that we (the collective) are better off with free trade, but the ‘deeper point’ is that we (as individuals) have the right to free association and to our property.

Collectivist ideas are where the right meets the left and you get an insidious union of people like Ralph Nader and Pat Buchanan.

anthonyl September 23, 2011 at 9:30 pm

I have to wonder though why we end up with a government that simply won’t defend private property rights and then makes up pseudo-rights like the right to a job, the right to health care or the right to breath clean air, then does a terrible job of defending those too?

MWG September 24, 2011 at 2:08 am

Because of collectivist ideologies. Governments only legitimate role is to protect individual rights, of course you’ll have a hard time finding such limited government.

JS September 24, 2011 at 9:35 am

No offense to your beliefs, but the ethical defense of free markets is the weakest. You think that an ideological opinion can win a utilitarian economic debate, but it can’t. In fact, against people educated in the evolution of morals and human nature, you’d lose. It’s not so much that your ideology is of no merit as much as it is that holding it up as the supreme precept isn’t consistent with human nature and our innate drive to survive.

For the above reasons Ludwig Von Mises premised his maxim opus, Human Action, on foundations which did not include considerations of ‘natural law’, which encompassed your ideas of libertarian ethics. In fact, he rejected those ideas and went on to prove, through discursive reasoning, the utilitarian sumpremacy of his theories.

In proving that the application of his theories work best for a society under conditions of the individual ethic that you describe, he couldn’t be refuted by the collectivists who liked to claim that their systems would result in greater prosperity.

He proved that the ‘individual ethic’ works best, while you merely declare it as the best without specifically learning how to defend it pragmatically, and by suggesting that efforts to do so aren’t really necessary.

kyle8 September 24, 2011 at 10:27 am

JS, no you are just as wrong, freedom and liberty should be championed both on a moral basis and a utilitarian one.

Both arguments are valid, and both have a degree of strength to convince people, though perhaps different people in different situations.

MWG September 24, 2011 at 1:37 pm

@JS

As I said in my original comment, my argument is probably the least convincing to the average American. It is, however, the most important point to keep in mind from the ‘libertarian perspective’.

IOW, it’s great that we all benefit from free trade, but the most important point is that my individual rights are respected.

Krishnan September 23, 2011 at 8:09 pm

“It is a question of fairness. Why should some people enjoy paying less for dohickeys while the Americans who make dohickeys lose their jobs to foreigners? Everyone should pay more. So, if Americans lose jobs because someone else makes what we buy less expensive, we must level the playing field by making the consumers pay more”

(Who said it? Anyone who does not understand diddley)

Chuclehead September 24, 2011 at 1:04 am

We shouldn’t ban all importation of doohickeys, Just ban doohickeys from Cuba, North Korea, Iran, Portugal, and New Jersey (I got your doughickeys right here.)

Milton Recht September 23, 2011 at 8:17 pm

Lower wages in a foreign country are not the reason that manufacturing of a product declines in the US and increases in a foreign country and becomes an import.

Labor cost is about only 10-15 percent of manufacturing cost in the US. The US is a capital-intensive country. Each US worker, whether in farming or manufacturing, can produce a lot due to our heavy use of machinery. US worker productivity led to our high standard of living.

Capital and the complementary labor are allocated in the US to their most productive uses. These are the manufacturing and farming goods for which we have the highest international comparative advantages. The US exports these goods. It imports the remaining goods it wants after capital and labor are allocated to their most productive uses in the US.

Labor and capital in the US go to their most productive uses in a hierarchical fashion, until capital and labor are fully allocated. Goods for which it is not economically efficient to allocate capital and labor get imported.

The remaining manufactured goods, even if the US has an international comparative advantage (lower comparative wages, etc.), are not produced in the US, and are imported, because the US can more efficiently produce other goods for the world and domestic markets.

The market, labor and capital reallocations are the negative effects of this process. Government and union intervention can impose barriers to changes in resource use but it cannot stop it.

Certainly, since Ricardo’s time, economists understood that a domestic economy benefits if it can allocate its resources to manufacture a good with a higher relative comparative advantage. Even if it is a low cost producer of goods it imports, as long as it has a bigger comparative advantage on the goods it manufactures, the domestic economy benefits from imports. See Wikipedia or any economics site on the web about comparative advantage and trade.

While unions are often blamed for high labor costs, it is their rigidity, their inefficient seniority linked demands, and other union rules, which causes the most problems. These union characteristics make other capital, labor investments more attractive, and impede the reallocation of union members.

Lower US labor costs for a doohickey do not guarantee a domestic US manufacturer, if there is a more productive use of those resources in the US. It can be beneficial to the US to import a good for which it is the low labor cost producer, if there is a better domestic use for that labor and capital.

Becky Hargrove September 23, 2011 at 8:20 pm

Give me little doohickey house pieces I can buy to put together a little doohickey house, and watch me thrive!

Richard Stands September 24, 2011 at 2:29 pm

Give me a comparative advantage and place to freely make these doohickeys, and I shall improve the world.

- Ourchimedes
(apocryphal: might have been Theirchidedes.)

nailheadtom September 23, 2011 at 8:47 pm

A couple of days ago I took a detour on my way home from work to visit St. Paul Saddlery on James and West 7th in St. Paul, MN. In business since 1908, the company is one of the few still manufacturing horse harness for carriage and draft teams. It’s operated by a descendant of the founder, a guy named Gary, who toils alone in a room full of antiquated machinery that cuts, stitches, punches and bangs on leather. I thought it might be interesting to converse with Gary for a little while and get some perspective on a business that’s a remnant from another era. He was pretty pessimistic about the harness business and business in general. When I inquired about leather tanning, the process that produces his raw material, he said that US hides were shipped overseas for tanning, that little of that was done here and like everything else, our manufacturing capability was sadly relocating to foreign locations.

I mentioned that in my earlier years I had worked in a packing house. That working in the hide cellar, step number one in turning the exterior of a cow into leather, was regarded as the worst possible job in the plant and employment there considered punishment by those unfortunate enough to be sent there. That I had never had any ambition to work in a tannery. That I knew no one who had ever expressed such an ambition. That no child had ever told me that their goal in life was to become a tanner. That I would be very much surprised if a domestic tannery could attract permanent employees. And that the nation’s fixation with college education didn’t include courses in leather production. For some reason this put a damper on the conversation and I soon left.

Jim September 25, 2011 at 1:10 am

I worked in a packing house as well. I can think of at least 3 jobs off the top of my head that are worse than the hides, and i am sure no one wants to hear about them:)

Michael E. Marotta September 23, 2011 at 9:30 pm

We could go to Patrick Buchanan’s house and live there as servants, performing all kinds of Upstairs Downstairs tasks like polishing his non-silverware, starching and ironing his tablecloths (and underware), waxing his floors and ballastrades, trimming his roses (after we plant roses). He probably has at least one family rec room that would make good quarters for us, or better still, we could build a shed in back for ourselves, say, eight or ten of us. Living at his place, eating there, of course, we could probably get by on $15,000 a year, maybe less. Of course, there would be the problem of the fearful master, but it would create a lot of wealth, according to him.

Don Lloyd September 23, 2011 at 10:01 pm

High wages per se are NOT a benefit and not a source of a general higher standard of living. If John has a higher wage than Tom, then he can bid goods and services away from Tom with his higher purchasing power. What counts is each worker being utilized in his most productive employment making thing that consumers most desire or that manufacturers need to make things that consumers most desire, and being paid a market-determined wage.

Regards, Don

muirgeo September 23, 2011 at 10:20 pm

Does what Don wrote and the reality of our economy seem at all in conflict to anyone? Anyone? No one notices any discrepancies? It all makes sense to you …. it’s perfectly coherent is it? Hmmmm….

Sam Grove September 23, 2011 at 11:12 pm

It seems likely to me that you don’t grasp Don’s point.

Methinks1776 September 23, 2011 at 11:29 pm

It seems likely to me that you have just made the understatement of the millennium.

muirgeo September 24, 2011 at 1:05 am

No I understand his point…. it being that our free trade policy is making us richer…. But I live in this thing called the real world. We are not getting richer but in fact on the verge of global financial collapse… not counting China of course… our bestest trading partner… who is apparently suffering because we are ripping them off so bad paying so little for all the plastic they sell us.

So his point is not what’s hard for me to understand. Where I have a problem is understanding how to ignore the real world. I just can’t grasp that. I guess I need further inculcation… but I am trying

Greg Webb September 23, 2011 at 11:21 pm

Yes. Let me know when you finish reading “Economics in One Lesson,” George. After comprehending that book, you should be able to comprehend Don’s post.

Methinks1776 September 23, 2011 at 11:31 pm

After comprehending that book,

Mission impossible.

brotio September 24, 2011 at 12:35 am

:D

Yasafi might be the only person on the planet dumber than Tom Cruise.

Greg Webb September 24, 2011 at 1:15 am

No, that can’t be possible…can it?

muirgeo September 24, 2011 at 1:18 am

I’m about a third of the way through. It’s a good summary but nothing new and just more of the easily refuted arguments seen here.

Hazlitt complains of demand siders not thinking through their arguments and oversimplifying… then he goes on to do just that with his own arguments…. In fact his chapter on trade was almost exactly like this post of Dons.

Demand siders have it right. Supply siders are zombies holding on to dead ideas. The evidence is as strong for demand side economics as it is for antropogenic climate change and evolution by natural selection. Interestingly climate change deniers and creationist tend to also be free market supply siders…. it’s all about them believing whats convenient and having brains wired for a bit more self indulgence and less altruism. It’s genetic in other words so I’ve stopped blaming them for what they have no control of. You guys have no more choice of understanding reality than my cat does of understanding the moon.

Greg Webb September 24, 2011 at 1:29 am

It appears that methinks1776 was right. Economics in One Lesson was too difficult a book for you to comprehend. I take back my earlier comment on investing too. You really should just hide your investment money in the mattress. For if you cannot understand simple economics, then you cannot understand investments or risk.

g-dub September 24, 2011 at 1:34 am

“It’s a good summary but nothing new and just more of the easily refuted arguments seen here.”

If it is so easy, why don’t you do it? Stop holding back, dude!

Greg Webb September 24, 2011 at 1:39 am

George, I found my copy of Economics in One Lesson, and am willing to help you out. Re-read Chapter I The Lesson and Chapter II The Broken Window, and we will discuss tomorrow.

muirgeo September 24, 2011 at 9:26 am

I’ll tell you right now what is wrong with his broken window argument. He assumes it applies in all circumstances… it doesn’t. When the economy is slow like it is now with little demand disasters force money through the economy. No one suggest that it’s a way to fix the economy… to have disasters but it’s clear when money is holed up at the top and the huge middle class is out of jobs, in debt or saving then we need to look at the middle class and get more money in their hands even if it means increasing taxes on the wealthy who ARE making record profits and NOT creating jobs like the supply siders claim they do.

The current state of our economic affairs blows so many of his/ your arguments OUT OF THE WATER. The wealthy don’t create jobs… demand creates jobs and demand comes from people with jobs and good wages.

My God Greg… we have the lowest effective tax rates, we have “free trade”, we have the lowest effective corporate tax rates, we have minimized unions, we have had republican presidents 20 of the last 30 years. All those things you guys say should get the economy moving and look where we are. We are not doing REALLY good…. we are not doing PRETTY good…. WE ARE in the worst economy since the last time Coolidge and the republicans pushed their free market tripe on it.

That’s pretty damning of your position and yet you push on cocky that you have all the answer with out a shred of introspection.

Who is being unreasonable hear? I am doing better than 10 years ago… I suspect you are too but you need to look at the bigger picture and that’s what I think you guys have a problems with.

http://www.ibtimes.com/articles/216909/20110920/poverty-rate-america-poor-families-america-american-poor.htm

More than a third of young American families with children were living in poverty last year, according to an analysis of U.S. Census data that offers the latest indicator of spreading poverty in America.

Greg Webb September 24, 2011 at 11:18 am

George, I see that you did not take the time to do as I asked. Please re-read Chapter 1 The Lesson and Chapter 2 The Broken Window.

With your latest rant, you do not appear willing to learn to economic principles, which is what you indicated that you wanted to do in a previous post. To learn, you have to be willing to listen and comprehend, rather than immediately trying to dominate the conversation with an emotional tirade filled with incorrect conclusory statements, silly personal attacks, and non sequiturs. Do not pretend that you want to understand economics if all you want to do is bore me with your normal political rhetoric designed to advance the short-term interests of special interest groups.

Methinks1776 September 24, 2011 at 11:30 am

With your latest rant, you do not appear willing to learn to economic principles, which is what you indicated that you wanted to do in a previous post.

Greg Webb,

He’s been saying that since 2006. You are witnessing the result of nearly 6 years of Muirdiot’s version of “learning”. Based this information, what is your expectation of his future “learning”?

Greg Webb September 24, 2011 at 12:37 pm

George, you said, “I’ll tell you right now what is wrong with his broken window argument. He assumes it applies in all circumstances… it doesn’t.”

It does. You are pretending at knowledge again. The broken window lesson is basic microeconomics principles. And, while there are macroeconomic problems, there are only microeconomic solutions.

You said, “When the economy is slow like it is now with little demand disasters force money through the economy.” There is demand, but 16 years of idiotic fiscal and monetary governmental policies have created a huge oversupply of housing in the United States. Now, that governmental policies encouraging housing demand no longer fool people into thinking housing is a great investment, people are looking to liquidate their investments in housing or in securities related to housing. When supply exceeds demand, prices fall. As prices fall, people are feeling less wealthier than before and are looking for certainty before investing or spending too much for consumer items. The government’s continued floundering to “appear” like they are doing something useful has caused people to wait even longer to invest or buy new things. The solution is not a great disaster. The solution is for government officials to stand there and look pretty, and let people accept reality of their financial loss in housing and get back to making a living and enjoying their lives.

You said, ” No one suggest that it’s a way to fix the economy… to have disasters…:

Then, why do you keep bringing it up?

You said, “but it’s clear when money is holed up at the top…”

Conclusory statement. Do you have any objective, verifiable evidence supporting your conclusion? And, don’t post some silly link to political rhetoric. Rather, you read the article, summarize, and cite legitimate sources for your data.

You said, “and the huge middle class is out of jobs, in debt or saving…”

I agree that the middle class in this country, unlike the rest of the world, is huge. They are not, however, all out of jobs. They might be in debt, but the government has been giving incentives for people to take on consumer, particularly housing, related debt. So, do you really want to fix past problems created by government policies with new government policies? At what point will you realize that both liberal and conservative meddling is designed to benefit political cronies to the detriment of all American who are not their cronies?

You said, “then we need to look at the middle class and get more money in their hands…”

Why? How about leaving them alone to think through and resolve their own problems, which were created by other government policies designed to help them. Those previous polices, in the short-run, looked like good ideas and appeared to help many Americans, but in the long-term they created the mess we have now.

You said, “even if it means increasing taxes on the wealthy who ARE making record profits…”

Why do you think that it benefits the middle class if corrupt politicians have more money from anybody to spend to help out their political cronies? Solyndra is a good case of crony capitalism. Taxpayer money was funneled to corrupt friends of BHO. No one benefited. The economy did not benefit. The middle class did not benefit. More people are unemployed than before. The only ones who benefited were progressive politicians who got kickbacks of taxpayer money and now will prosecute the Solyndra executive officers, while pretending that the politicians had no idea that corruption was going on with Solyndra.

You said, ” and NOT creating jobs like the supply siders claim they do.”

Wealthy people, like all people, create jobs. They do so because they have the desire and ability to buy things. But, when you start threatening to confiscate their hard-earned money, they move it into family trusts, charitable foundations that they control, and offshore. This just keeps government from getting at the money. It has the unfortunate side effect of limiting what they can spend.

You said, “The current state of our economic affairs blows so many of his/ your arguments OUT OF THE WATER.”

Another silly conclusory statement.

You said, “The wealthy don’t create jobs… demand creates jobs and demand comes from people with jobs and good wages.”

Jobs are created when someone says I can build this product or offer this service, and enough consumers will value my good or service so that they will buy it at this price so that I can make a living and buy some of the things that I want. The problem with your solution is that “value” is determined by government officials who cannot correctly determine value for other people. For example, corrupt politicians valued the “promise” of Solyndra. But, in reading a prospectus about Solyndra, I knew it was a bad investment and could never market a product that I, as a consumer, would want. The concept of “value” to individual consumers is what you are missing. For what is valuable to one may not be as valuable to another. To the government official, the promise of Solyndra was valuable because it made the government official “feel” good. But, to me, it was just nonsense. History has proven me correct and the government official wrong. The question is who should decide what is valuable and what is not.

You said, “My God Greg… we have the lowest effective tax rates, we have “free trade”, we have the lowest effective corporate tax rates, we have minimized unions, we have had republican presidents 20 of the last 30 years.”

What do these things have to do with anything?

You said, “All those things you guys say should get the economy moving and look where we are.”

No, it was bi-government politicians of all stripes wanting to help people that lead to silly fiscal and monetary policies that lead to the boom and the bust in the real estate markets. I do not trust these “caring” politicians. Why do you?

You said, “We are not doing REALLY good…. we are not doing PRETTY good…. WE ARE in the worst economy since the last time Coolidge…”

Yep, and all courtesy of your “caring” big-government politicians. But, let’s see reality too. The US economy is still the biggest, most vibrant, and wealthiest economy in the world. Much better than anywhere else. All due to the fact that idiotic and controlling politicians cannot suppress the economic activities of 300 million individual Americans.

You said, ” and the republicans pushed their free market tripe on it.”

More silly, unfounded political rhetoric. The Republicans, like the Democrats, positioned themselves as “caring” people who could “save the world” through their silly fiscal and monetary policies. And, they, along with big-government Democrats, created the hosing boom and bust that we are currently suffering from.

You said, “That’s pretty damning of your position and yet you push on cocky that you have all the answer with out a shred of introspection.”

No, your position is damned because you want to empower the same “caring” government politicians that brought us fiscal and monetary policies that created the real estate boom and bust as well as crony capitalism like Solyndra. And, you say more of the same is the answer without proper introspection of previous, now clearly failed, fiscal and monetary policies.

You said, “Who is being unreasonable hear? (sic)”

You are. It is unreasonable to expect that giving applause-seeking politicians more money to spend and more power to wield over individuals will not work. We have been trying it since the 1930s and it have failed every time. As then-Secretary of the Treasury Henry Morgenthau testified before Congress, “We have tried spending money. We are spending more than we have ever spent before and it does not work … After eight years of this Administration we have just as much unemployment as when we started … And an enormous debt to boot!”

You said, “When you I am doing better than 10 years ago… I suspect you are too but you need to look at the bigger picture and that’s what I think you guys have a problems with.”

No, your solutions are the failed solutions of the past. See above. You commit the two common fallacies of economic analysis:

1. You focus on the selfish interests of select groups rather than all Americans and

2. You consider only the short-term effects of the policies that you advocate rather than the long-term effects on all Americans.

You said, “More than a third of young American families with children were living in poverty last year, according to an analysis of U.S. Census data that offers the latest indicator of spreading poverty in America.”

George, first, you data needs to be sound. Anybody with cell phones and cars are not living in poverty. Real poverty can be found in the multitudes of people living in China, India, and Africa where having enough food on the table and living in a tin shack with a dirt floor is a problem.

Many young Americans having a rough time of it (not poverty) have been lead to believe by misguided governmental policies and overly permissive parents that they are entitled to something that they have not earned. As a result, they want live by their emotions and not accept personal responsibility for their actions. They have babies before they can afford them, then expect that parents, grandparents, or taxpayers to pay to keep them in a lifestyle that their parents, grandparents, and taxpayers had to earn, through sacrifice, over a lifetime. It’s wrong, and the misguided politicians and the overly permissive parents should be punished, not the taxpayers.

brotio September 24, 2011 at 1:11 pm

You are pretending at knowledge again. – Greg Webb @ Yasafi

Bwahahaha! You get my “Quote Of The Day Award”!

BTW: The rest of that response was excellent, and informative. Thankyou.

Greg Webb September 24, 2011 at 1:16 pm

Methinks1776, you said, “He’s been saying that since 2006. You are witnessing the result of nearly 6 years of Muirdiot’s version of “learning”. Based this information, what is your expectation of his future “learning”?”

None. He has the ability, but, like all who advocate similar nonsense, he would rather be a useful idiot for the political elite than an advocate for liberty.

Greg Webb September 24, 2011 at 1:32 pm

Thanks, brotio! Have a fun weekend!

lowonprozac September 24, 2011 at 2:22 pm

@muirgeo – if you’re truly interested in helping the poor, I’d suggest you find a better definition than what the census gave you:
http://www.heritage.org/research/reports/2011/09/understanding-poverty-in-the-united-states-surprising-facts-about-americas-poor

anthonyl September 25, 2011 at 10:04 am

Excellent post answering muirgeo!

Greg Webb September 25, 2011 at 10:58 pm

George, you really should read “Economics in One Lesson”. It’s a fabulous book! You would learn a lot about how the real world works if you read it with an open mind.

Babinich September 24, 2011 at 6:04 am

“The evidence is as strong for demand side economics as it is for antropogenic climate change”

Now you’re doubling down on the ridiculous.

How does more wasteful government spending and taxing the middle class stir demand?

APG? Please this is far from settled except to the close minded who discard the scientific method whenever convenient.

Methinks1776 September 24, 2011 at 8:37 am

People, it seems we must rescue a cat in Vacaville.

brotio September 24, 2011 at 1:11 pm

:P

Greg Webb September 24, 2011 at 1:33 pm

LOL!

JS September 24, 2011 at 9:42 am

When Hazlitt thought of the name for his book, he didn’t know Muirgeo.

Invisible Backhand September 23, 2011 at 10:52 pm

This anecdote doesn’t scale well. The economy can easily absorb 5,000 unemployed workers.

But in the 2000′s:

- zero net jobs created in USA

- while the US based multinationals eliminated 3 million jobs here

- while the US based multinationals created 2.4 million jobs overseas

So the USA’s ability to absorb job losses is saturated.

Meanwhile, for icing on the cake, from 2007 to present Texas created 279,000 jobs, and 81% of them were taken by immigrants.

Clearly, we’ve hit a boundary condition where the textbook rules don’t apply any more.*

* "This is not official Soviet doctrine, you are free to disagree."
-- Lyutyy, Rota 9

Methinks1776 September 23, 2011 at 11:03 pm

Clearly, when you can’t figure out why you’re getting fat on a steady diet of six cakes, two chickens and a bucket of fries daily, it’s time to declare that the rules of gravity no longer apply.

Invisible Backhand September 23, 2011 at 11:05 pm

You gotta love the Rota 9 quote though, right?

Methinks1776 September 23, 2011 at 11:17 pm

Yes.

You’ve strung together a bunch of random information for a cherry picked time period to come to an unsupported conclusion (again). Do you not understand that or do you think everyone else is too dumb to notice?

Invisible Backhand September 24, 2011 at 10:04 am

You didn’t actually rebut anything, but that’s par for you.

Methinks1776 September 24, 2011 at 11:21 am

The only rebuttal to moronic drooling is pointing out it is moronic drooling. My work here is done.

Invisible Backhand September 24, 2011 at 2:59 pm

You didn’t actually rebut anything, but that’s par for you.

g-dub September 24, 2011 at 1:46 am

If you’re going to be stupid, at least try to be funny.

Thanks, and have a nice day.

Invisible Backhand September 24, 2011 at 10:06 am

If you’re going to be stupid, at least try to be funny.

You could start by following your own advice.

Methinks1776 September 24, 2011 at 11:26 am

g-dub does not meet the first condition (stupid), thus has no obligation to be funny. Yet, he is still funny. A winning combination. You are stupid and not funny – an all around loser. Improve your game.

Invisible Backhand September 24, 2011 at 3:02 pm

I notice between directing the servants, running your home business you want to hire 3 more people for, and your day job as an economist, you still have time to be at cafehayek all day. I think you are making stuff up.

Methinks1776 September 24, 2011 at 11:07 pm

It’s hardly shocking that a slothful moron who dedicates his life to trolling is shocked by someone who can accomplish more than one task per year.

Josh September 23, 2011 at 11:09 pm

This is the basic story they teach in econ 101. Execpt that it seems to apply only to manufacturing. (The whole concept of comparitive advantage.)

Most of the American economy isn’t manufacturing, or creating stuff for export. Most of it is other stuff that could be done cheaper here, but cant because most labour is bound by the borders they were born in. IE you cant get cheap 3rd world labour to do alot of things we want done.

What this suggests is that manufacturing will go to the countries with the lowest wages AND the lowest cost of shipping to the consumers.

We will never get haircuts to all come from chile due to them having a competitive advantage in it. We wont be going to Brazil for banking, or Russia for linoleum installation. We wont have Canadians specializing in being teachers or nurses for us. The story only applies to the manufacturing sector, which like I said is a small slice of the whole.

Methinks1776 September 23, 2011 at 11:28 pm

IE you cant get cheap 3rd world labour to do alot of things we want done.

It has become popular to travel to India for heart surgery and to Costa Rica for plastic surgery. China is expected to be a new destination for surgery as some American doctors have opened practices there for that purpose. Investment banks have taken to hiring research assistants in India and customer care call centers are there too.

Josh September 23, 2011 at 11:57 pm

Yes, no one has any care for the labor market. Companies will seek to avoid it if at all possible. Technology is making this more and more possible. The average American will resent that and see it as a violation of the social contract. Politics will become more and more radical on both sides. What happens when we invent robots to do virtually any job? Wont the unemployed masses demand a share of the huge wealth being created by the capital holders?

Methinks1776 September 24, 2011 at 12:13 am

I take it you’re past the “this only works for manufacturing” argument now and on to the “ATMs are evil” argument?

g-dub September 24, 2011 at 1:43 am

“What happens when we invent robots to do virtually any job?”

“Hit man” is a job.

As an engineer willing to program, I’ll be programming the robots. Watch you back.

brotio September 24, 2011 at 12:42 am

A friend of mine went to Thailand for dentistry. It cost him about 1/3 of what it would have cost to have the repairs done here, and he got a CO2-spewing vacation to an exotic locale as a bonus. AND he’s not a member of The Church of Anthropogenic Global Climate Change (formerly known as The Church of Anthropogenic Global Warming), so I’m sure Cardinal Torquemuirduck: Grand Inquisitor for The Church will be praying for Mother Gaia to bring on that Tidal Wave of Crude.

cmprostreet September 24, 2011 at 2:53 am

Josh,

If non-manufacturing trade is impossible or unlikely, why try to stand in its way? Tilting at invisible windmills?

Greg Webb September 23, 2011 at 11:27 pm

Good post, Don. Everyone, including corrupt politicians and stupid commentators like Pat Buchanan, need to understand Comparative Advantage. My guess, however, is that corrupt politicians and stupid commentators already understand Comparative Advantage, but know that their target audience that will vote for them or buy their columns does not understand it.

Karl Smith September 23, 2011 at 11:57 pm

Economic Freedom

I will just start a new thread down here, so we can discuss here.

So in the dope analogy, what we want to explain is why the dope smoker was higher in 1998 than he is today.

To continue your analogy, you say that in 1998 he was on a binge. But, a binge of what? If it is consumption, then he is consuming more now. If it is illusionary GDP per capita, then he has more of that now. If it is the illusionary wealth via portfolio prices then he has more of that now.

What was it that the dope addict was high on then that he does not have now?

On how the market for MBS went down I think that the narrative you presented is not quite right, but in any case it is beside the point.

Again – and this is key – the question is: what happens in the world that *is*. It could be the case that the US government intentionally imposes capital restrictions on international currency flows in an effort to punish US workers. But, if that were the world, then that would be the world. And, policy analysis would need to reflect that fact.

In the world that we are in, there is a US congress. There is industrial policy. There is a Federal Reserve. There is a China Investment Corporation. The Yuan is pegged to the Dollar. The Chinese government holds down consumption by lowering the return of household savings.The US government subsidizes the purchase of housing. And, so forth.

Most importantly, wages and prices do not adjust instantly to equilibrate markets.

Policy analysis needs to reflect those facts.

Josh September 24, 2011 at 12:07 am

Real estate prices ( and other prices) are out of whack. Same with wages in the US I belive. If the fed stoked inflation this would help reset those, as well as help with ballance sheet debt, government, household and to a lesser extent corporate. It would create a lower real interest rate environment, and spur consumer spending due to inflation expectations, and improve commodity prices which could lead to investment and jobs. I think it is in the works.

Methinks1776 September 24, 2011 at 12:20 am

Inflation has made Zimbabwe the richest country in the world. Debasing the currency is always a winning strategy.

Greg Webb September 24, 2011 at 12:27 am

LOL! Works every time it’s tried. Just ask Argentina and Brazil.

brotio September 24, 2011 at 12:43 am

LMAO!

Chuclehead September 24, 2011 at 12:53 am

Robert Mugabe for Fed Chairman!

Methinks1776 September 24, 2011 at 8:29 am

You mean Gideon Gono.

Methinks1776 September 24, 2011 at 8:32 am

Yes, I too find it a little sad that I know who the Bernanke of Zimbabwe is.

Greg Webb September 24, 2011 at 1:44 pm

I find it sad that I know who the Gideon Gono of the United States is.

Methinks1776 September 24, 2011 at 11:01 pm

LOL!

Josh September 24, 2011 at 1:11 am

har har

Economic Freedom September 24, 2011 at 9:17 pm

So in the dope analogy, what we want to explain is why the dope smoker was higher in 1998 than he is today.

He had access to more dope at a cheaper price, thanks to monetary expansion. Normally, if our dope-fiend wanted to binge, he would have to voluntarily abstain from spending his own income on other things. He would have to save. He could then spend those savings on dope. Under conditions of monetary expansion, he is led to believe that he has enough money to spend on dope without the prior necessity of abstaining from spending on other things.

To continue your analogy, you say that in 1998 he was on a binge.

Yes.

But, a binge of what? If it is consumption, then he is consuming more now.

There’s a huge difference between the kind of consumption that ensues when interest rates are artificially driven down by means of central bank credit expansion, and the kind of consumption that follows from gains in productivity leading to an increased supply of goods and overall cheaper prices for everything. The latter is called “economic progress” and “real growth.” The former is called a “boom” and a “bubble.” Completely different phenomena. Real growth is real progress; boom-growth is illusory progress because it inevitably leads to a bust, and always results in capital consumption. The bust phase is when the bingers realize that they’ve been misled into spending their much-needed rent money on much-desired dope; now they don’t have enough for dope OR rent. What to do? They have to start selling off the stereo, pawning their watches and jewelry, and firing the domestic help (nannies, maids, gardeners, etc.). This liquidating phase is an unpleasant but necessary phase of economic readjustment.

What was it that the dope addict was high on then that he does not have now?

He was high on mistakenly consuming his own capital: his rent money, his retirement savings, his children’s college fund, money reserved for domestic help around his house, money reserved for paying the phone bill and utility bills, etc.

On how the market for MBS went down I think that the narrative you presented is not quite right, but in any case it is beside the point.

It’s all in print and easily available. Bloomberg had a number of articles on the US “urging” China to buy MBS for the sake of keeping the housing bubble inflated.

Again – and this is key – the question is: what happens in the world that *is*.

It’s quite apparent what is happening in the “world that is.” Everyone sees it, except, perhaps, those in complete denial, or those whose economic self-interest depends on keeping things the way they are.

It could be the case that the US government intentionally imposes capital restrictions on international currency flows in an effort to punish US workers. But, if that were the world, then that would be the world. And, policy analysis would need to reflect that fact.

In the world that we are in, there is a US congress. There is industrial policy. There is a Federal Reserve. There is a China Investment Corporation. The Yuan is pegged to the Dollar. The Chinese government holds down consumption by lowering the return of household savings.The US government subsidizes the purchase of housing. And, so forth.

You confuse politics with economics. That, by the way, is very much the essence of Keynesianism, both “neo” and “paleo.”

Most importantly, wages and prices do not adjust instantly to equilibrate markets.

Market equilibration is hampered and slowed to the extent that individuals are prevented from making their own freely-chosen “course corrections” in their economic relations with other individuals precisely because of interventionist policies by congress and the Federal Reserve.

Policy analysis needs to reflect those facts.

One major difference between Keynesians and Austrians is that the former rest content with “policy analysis” and then presume that what’s needed is “yet more policies” from congress and the Fed, but with better advice by hired Keynesian consultants to provide “yet more analysis.” By contrast, the policy analysis by Austrians consists in comparing a present state of affairs under present interventionist policies by congress and the Fed to a past state of affairs when there was no intervention, or to a possible future state of affairs when such interventions will have been abolished. It then shows that a state of affairs under intervention is worse than a state of affairs under non-intervention even from the standpoint of those advocating the intervention. The policy recommendation by Austrians is: end, abolish, or reverse the interventionist policies by congress and the Fed.

Let’s face it, Karl. Under a system of laissez faire and non-intervention, there’s no economic need to hire a Keynesian consultant to “advise” on policy, or provide “analysis” as a guide to future intervention. It’s pure Public Choice Theory: Keynesians have a self-interested economic motive to promote notions about a benevolent and effective pro-active government intervention in the economy. Stigler quipped that economists drank the Keynesian Kool-Aid when they discovered they could make a lot more money as “policy consultants” than they could as mere academics teaching the timeless truths of Adam Smith and David Ricardo.

By contrast, Austrians live by these two maxims:

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

and,

Political Economy: so much to know; so little to do.

Josh September 26, 2011 at 11:07 am

evryone with a brain knows how important it is to adjust the money supply in a fiat currency regime. Thats intervention. Interest rates are the major tool used for that. How can you create a fiat currency and then not “intervene”?

Ron H September 26, 2011 at 2:17 pm

Josh

Perhaps you missed the following sentence from Economic Freedom’s excellent comment:

The policy recommendation by Austrians is: end, abolish, or reverse the interventionist policies by congress and the Fed.

That recommendation to “end, abolish, or reverse” would include the fiat currency, and the Fed itself.

dsylexic September 24, 2011 at 1:13 am

“But is their labor so robotic, so narrow, so inflexible, so specific to doohickey production, that they have no other ways to earn good incomes? No other way to produce other outputs”

well,this is true for many workers.the IT workers in america get paid 90k USD for the same work that someone in india can do for 15000 or 20000 USD.the 90k they earn is because of solely their citizenship and location and not comparitive skills. such people are bound to complain when their jobs are lost.
such vocal fellows would like to get a free ride as much as possible

Economic Freedom September 24, 2011 at 8:10 pm

the IT workers in america get paid 90k USD for the same work that someone in india can do for 15000 or 20000 USD.the 90k they earn is because of solely their citizenship and location and not comparitive skills.

This has nothing to do with comparative skills between IT workers in the US and IT workers in India. It has everything to do with the fact there’s more intense competition in the US for the IT worker’s skills than there is in India.

Though wages, like all prices, are ultimately set by the supply of labor and the demand for its services, there’s an upper limit to how high wages for a particular skill, in a particular job, can go. The upper limit is set by how much additional revenue is brought into a firm by the hiring of one more worker. In econ-jargon, that “one more worker” is called the “marginal worker”, and that additional revenue he brings in is called his “Marginal Revenue Product” or MRP. The upper limit of a marginal worker’s wages will be determined by his MRP discounted by the going rate of interest — the discount being a function of how long the entrepreneurs and owners of capital would have to wait for the additional revenue to appear in their production cycle. (In other words, if a marginal worker’s MRP is $100/month, and the “social rate of time preference”, or “interest rate”, is 5%/month, then the upper limit of the marginal worker’s wages will be $100 discounted by 0.05 = $95. The worker can, of course, agree to accept less than that, but if the employer agrees to pay more than that, he would be losing money.)

Since the US is so much wealthier than India, there is greater demand overall for IT services. This means that the MRP of the marginal IT worker will be much higher in the US than his counterpart’s MPR in India. In other words, hiring one more IT worker in a US firm can bring in greater additional revenue to that firm (because there are more people able and willing to pay for those additional IT services throughout the rest of the US economy) than the additional revenue that can be brought into an Indian firm when it hires one more IT worker.

So it’s not just how much an employer is willing to pay that determines an IT worker’s wages; it’s also how successful — how wealthy — is the rest of the economy apart from IT workers.

dsylexic September 25, 2011 at 12:51 am

i am not even speaking of the different markets ie india vs USA.
microsoft india and US engineers both produce for the world markets and not their own country.so their marginal contribution to the company’s revenues or profits are identical. they are serving the same market,so you make a good case for IT workers serving Indian markets making less than American workers alone -which i agree with.

Economic Freedom September 25, 2011 at 1:21 am

i am not even speaking of the different markets ie india vs USA.
microsoft india and US engineers both produce for the world markets and not their own country.so their marginal contribution to the company’s revenues or profits are identical.

Which only means that the upper bound of their POSSIBLE wages are the same (assuming the rate of time preference in India is the same as the time preference in the US — which is highly doubtful). It doesn’t mean that the employer in India will be willing to offer the same as the employer in the US for the sake of BIDDING AWAY the marginal Indian worker from his alternative job offers — many of which would not be producing for a world market. In sum: the US employer is willing to bid higher because the marginal IT worker in the US has more and better alternatives (because the US economy overall is stronger than the Indian economy) than his peers in India.

It’s all consistent with my earlier post.

Don Lloyd September 25, 2011 at 12:59 am

This all sounds mostly on the mark.

…”Though wages, like all prices, are ultimately set by the supply of labor and the demand for its services, there’s an upper limit to how high wages for a particular skill, in a particular job, can go.”…

You also need to consider the supply of money in the economy. If the world were made up of relatively isolated islands, even (maybe especially) if gold were a common medium of exchange, then identical islands would tend to have wages (and other prices) that varied with their supply of money/gold. The initiation of significant trade between two such islands with large discrepancies in money supply would almost certainly lead to significant price inflation in one and significant deflationary contraction in the other.

Regards, Don

Economic Freedom September 25, 2011 at 2:01 am

You also need to consider the supply of money in the economy. If the world were made up of relatively isolated islands, even (maybe especially) if gold were a common medium of exchange, then identical islands would tend to have wages (and other prices) that varied with their supply of money/gold.

Each country’s nominal wage rate would vary in accordance with its own supply of money; but the real wage rate — the purchasing power of each unit of gold — would depend on productivity: how much stuff (like “doohickies”) could be produced by each worker per unit time.

The initiation of significant trade between two such islands with large discrepancies in money supply would almost certainly lead to significant price inflation in one and significant deflationary contraction in the other.

No. The actual process was identified long ago by the economist/philosopher David Hume and dubbed “the price-specie flow mechanism.” It’s an important insight into understanding how the Classical Gold Standard (adopted by most of the west between the end of the Napoleonic Wars [1815] to the start of World War I [1914]) functioned.

If there are two countries, A & B, each on a gold standard, but one of them (e.g., A) inflating its currency for various political reasons, overall prices in A would tend to rise. By comparison, therefore, imports from B would be cheaper (assuming for the sake of example, no import tariffs or other protectionist measures). As consumers in A spent their local currency on imports from B, exporters and manufacturers in B would start to amass reserves of A’s currency (just as China now has reserves of US dollars, because so many US consumers spend their dollars on Chinese imports). A’s currency is not accepted locally in B, so B has to re-spend its reserve of A’s currency in A — there’s nowhere else to spend it. Now, as A inflates its currency and overall prices rise in A, B will notice that its reserves of A’s currency is depreciating in value. So instead of buying products in A produced by citizens of A, B will opt instead to buy A’s reserves of gold: because the amount of goods one can buy as measured against a unit of gold will remain more or less constant.

Thus, gold will begin to flow out of A and into B as a consequence of A’s inflating its own currency. That’s the “price-specie flow mechanism.”

Eventually, citizens of A will see this outflow of gold and will put pressure on their elected officials to stop inflating their currency. When the currency inflation stops, the flow of specie from A to B will stop.

So while the Classical Gold Standard did not completely stop countries from inflating their currencies, it at least provided a means to apply the brakes to its advance and acceleration. As you can see, there’s no “deflationary contraction” in B as a result of A’s inflation.

Dennis September 24, 2011 at 3:54 am

I want to apologize for misusing the word ‘fixed’. I’m not a native speaker of English and i couldn’t come up with another word at 0:02 at night…

JoshINHB September 24, 2011 at 10:15 am

And the reason Americans no longer have a comparative advantage in doohickey production is because their cost of producing nondoohickeys – goods and services other than doohickeys – has fallen relative to foreigners’ costs of producing nondoohickeys.

In an idealized world that comparative advantage / disadvantage would be the result of market forces and be a sign of overall increased efficiency and increased division of labor.

For example, 100 American doohickey producers would be replace by 50 American thingamajig makers that trade for the production of 100 foreign doohickey makers, leaving 50 former American doohickey producers to create a whatchamacallit industry.

In reality the comparative advantage results from government intervention in both trading countries, not market forces and does not represent increased efficiency or increased division of labor.

For example, the US trade deficit is increased by theologically driven restrictions on free enterprise within the US (in the form of environmental, labor, land use and other regulatory schemes and taxes) and mercantilist policies on the part of foreign governments in the form of suppressing the value of their currencies.

To claim that the 2nd case of government intervention driving trade deficits is equivalent to the first case of market forces resulting in greater efficiency and increased division of labor requires a belief that government intervention leads to greater efficiency.

Jim September 24, 2011 at 2:39 pm

Allow me to propose indirect support to Don’s post.

There are now more lawyers and bankers in the US than engineers. As regulation and crony capitalism rises, it has tended to hurt manufacturing and reward banking and the legal profession. We get more of what we reward.

From visiting 100s of manufacturing plants in the US, I am not as convinced of American domestic inability to compete in manufacturing as some others. But there is little doubt that interest in doing so on US shores has declined.

Simon September 25, 2011 at 12:20 am

The inanity of this board is incredible, and I see why Muirgeo is frustrated. The argument, in post after post is the following: “people can buy more cheaper s***, so their life is better than it was before, no exceptions.” If I have an argument that strays from this incredibly materialist definition of quality of life, I am told to read Economics in One Lesson by Henry Hazlitt. Am I missing anything?

Ken September 25, 2011 at 12:24 am

Simon,

Yes, you’re missing the basic point: freedom.

Regards,
Ken

Economic Freedom September 25, 2011 at 2:44 am

The inanity of this board is incredible, and I see why Muirgeo is frustrated.

LOL! Now there’s a statement that inspires confidence!

The argument, in post after post is the following: “people can buy more cheaper s***, so their life is better than it was before, no exceptions.”

And the argument from you and Dr. Hackenbush in post after post is that “it would be better for the economy if people could only buy more expensive s***, so that the producers could get more money from their higher prices, spend it, and boost the rest of the economy.”

To understand why this is nonsense, try reading Economics in One Lesson by Henry Hazlitt. It’s a free PDF download from the Web. You’ll also find a PDF version at the Mises.org site.

Simon September 25, 2011 at 12:28 am

Freedom is an illusion and anyone who is not a religious mystic or an idiot realizes this. The question is what you are using this word to mean. Is it just the absence of other people working through the government to force you to make concessions on private property? I can sympathize with this, but lets be specific.

Ken September 25, 2011 at 12:50 am

Simon,

Freedom is an illusion? Care to expand on that?

Regards,
Ken

Greg webb September 25, 2011 at 12:52 am

Freedom is real. It is control that is the illusion.

Simon September 25, 2011 at 12:30 am

But even if that absence from government intrusion, I would add that you can achieve that by living on your own Thoreau style in the wilderness So what it really seems to be then is the freedom to have force used to protect other people from taking your private property. Again, I can sympathize, but it doesn’t sound so romantic anymore does it?

Ken September 25, 2011 at 12:48 am

Simon,

Are you saying that without a government the only way people can exist is a Thoreau type of existence? People can’t cooperate towards common goals without government? Seriously?

Regards,
Ken

Simon September 25, 2011 at 12:31 am

Sorry misphrased that. First sentence should be: if if by freedom you mean the absence of government intrusion….

Simon September 25, 2011 at 12:54 am

Ken,

I appreciate your pleasant tone, and I apologize for mine. No I do not believe the only way people can exist together is with government But using the word freedom in place of absence from government intrusion is troubling, in my opinion, because we are all constrained each moment by the circumstances we find ourselves in and are thus not ever truly free. If a child is born today to poor parents his freedoms are significantly less than one born to rich parents.

Ken September 25, 2011 at 1:01 am

Simon,

“If a child is born today to poor parents his freedoms are significantly less than one born to rich parents.”

False. We all have the choice to learn what we can and work hard. Wealth isn’t freedom. Having more wealth doesn’t make you more free.

Also, saying that we live a constrained existence isn’t saying anything at all. It’s like saying since we can’t do whatever we imagine, we can’t be free. But freedom is about making decisions to better ourselves and our lives within those constraints.

Also, please use the “Reply” button, instead of simply filling out the comments at the bottom of the page. It makes any discussion much easier to read.

Lastly, don’t apologize for your tone. You can use whatever tone you think is effective. You won’t offend me with your tone.

Regards,
Ken

GiT September 25, 2011 at 8:37 am

The most basic definition of freedom is absence of constraint, not ‘ability to do particular things x, y, and z given constrains l, m, and n, which I choose on the basis of some particular set of philosophical, moral, or pragmatic criteria a, b, and c.’

If freedom is absence of constraint, then the ability to do whatever one imagines is the maximal degree of being free, because at that point one is free of any and all possible constraints. (Actually, one would still be constrained by one’s imagination. So absolute freedom would require absolute knowledge of the possibilities for action along with the ability to enact anything.)

But absence of constraint is not a binary. It is not the case that you are simply either constrained or free. You are always ‘free of’ certain constraints and ‘bound by’ others. As such, ‘being free’ is only ever ‘being relatively more or less free,’ meaning ‘relatively more or less free from constraint.’

If we want to talk of freedom as a binary (free/not free), we have to speak of it relative to some set of constraints. You have to declare a criterion of bifurcation between freedom and unfreedom.

And that was Simon’s point.

But when talking about freedom generally, we have to accept it as a scalar – not a binary – variable, and as such anything which increases the possibilities available to you makes you more free.

So if wealth makes more things possible for you (if it removes constraints) it is necessarily more ‘freeing’ than poverty. Freed from constraint, you are relatively more free. It’s tautological.

Ken September 25, 2011 at 1:00 pm

GiT,

If freedom for humans is defined as the absence of contraints, then no human would be free, ever. There are physical and biological constraints that dictate what we can eat, how far we can move in a given day, how much we can actually do and learn in a given day. I think it’s clear to anyone here on this site that freedom is the freedom from coercion by another human being, not just a government.

So wealth does NOT make you more free. Poverty is not a coercive situation. Using freedom as you and Simon seem to be using it distorts what is proper and improper for a government. The role of a government is NOT to ensure equal opportunity nor equal outcomes. It is to ensure freedom from coercion or as free from coercion as possible.

Regards,
Ken

GiT September 25, 2011 at 3:47 pm

Whether a human is ever maximally free is irrelevant, and the inability to be maximally free is not an argument against taking the meaning of words seriously and being precise and specific in our use of them.

That no one can be omnipotent does not prevent me from speaking of the powerful and the weak.

That no one can be omniscient does not prevent me from speaking of the knowledgeable and the ignorant.

That no one can be perfectly equal (read identical) to someone else does not prevent me from speaking of the equal and the unequal.

That no one can be totally free does not prevent me from speaking of the free and the un-free.

In each case in order to make the distinction I must posit a criteria. Knowledgeable /of what/? Empowered /to do what/? Equal /in what qualities/? Free /from what constraints/? At liberty /to do what things/?

What matters is whether humans are ever made relatively more or less free, or whether they are free-of, or free-to-do, certain things.

When you tell me that freedom refers only to freedom from (willful) coercion, you are offering a criterion by which to transform an infinite scale into a yes or a no.

You are positing a particular definition of political freedom. In doing so you also explicitly limit freedom, specifically, the freedom to coerce. That such a freedom makes others unfree is no detriment to its making cops and governors and princes more free.

If you are talking about a libertarian conception of political freedom, then say so. Do not try and tell me that the only meaningful conception of freedom, either in a general sense or in a political sense, is the libertarian conception of political freedom, because that is simply untrue.

Meaningful does not mean prudent or moral or generalizable or anything else. It means intelligible. So if I want to say freedom is freedom from want I am offering an intelligible definition, even if freedom from want is an impossibility. (I would note that the early references to freedom referred specifically to freedom from slavery and /from sin/, no more possible on the Christian account).

If I want to say freedom from hunger is an element in fashioning the criteria for political freedom, I am not failing to talk about freedom. I may be failing to talk about your principled definition of political freedom, but I am quite clearly talking about freedom.

If I want to say that a man threatened at the point of a sword is as free in his choice of death or slavery as a ship captain forced by a storm to choose between abandoning his cargo or abandoning his life, insofar as in each situation the man is still able to exercise the faculty of choice and act with intention and will, I may be a consummate Hobbist but I am still speaking of freedom, specifically, conative liberty – the freedom to intend – even though I am not speaking of your political freedom – freedom from willful coercion – or a broader existential freedom – freedom from the fear of immediate death.

If what makes a definition of freedom a political one is the possibility to enact what it permits and prevent what it forbids equally for all in the political community, then it is clear that even if the libertarian conception of political freedom (freedom from coercion/freedom to do anything but coerce) is the most practical or just or constraint-minimizing definition of political freedom, it is not the only possible one.

In the aggregate man is as fickle as nature and freedom from coercion can be no more guaranteed than freedom from want. But both can be approximated through human endeavor. And it is that which we endeavor to guarantee to each other in common which counts as politics, whether those be bare libertarian rights or full on socialist entitlements.

You disservice your own beliefs in arguing that wealth does not increase freedom. What is economic progress other than the progress of man from the most brutal constraints to the most awesome powers and diverse choices – which is to say an unrivaled contribution to that which man is at liberty to do? The force of the libertarian argument lies in its claim to, at one and the same time, minimize constraints both human and natural.

Simon September 25, 2011 at 6:43 pm

@ GIT. Couldn’t have said it better myself.

Ken September 25, 2011 at 11:02 pm

GiT,

That no one can be omnipotent should prevent you from thinking you know who the weak and powerful are and coercing one to slave for the other.

That no one is omniscient is a gross understatement. Have you any idea who I am, what I do, what I want out of life, and how to structure my life so that I may attain these goals? Of course not. I’m not talking about omnisicence. I’m talking about knowing another human being that intimately. That you can’t speak intelligently on these matter for more than a four or five people (if even that many), should give you pause when you think you’re speaking about knowledge.

“If I want to say freedom from hunger is an element in fashioning the criteria for political freedom, I am not failing to talk about freedom.”

Yes you are failing to talk about freedom. You are now talking about a fairy tale world where human bodies don’t need energy to function.

“In the aggregate man is as fickle as nature and freedom from coercion can be no more guaranteed than freedom from want.”

Of course, you can work towards a world that minimizes freedom from coercion. However, by the nature of humanity, you can never minimize want.

“In the aggregate”

In the aggregate almost all information is lost, so much so that the ability to talk intelligibly is lost.

“What is economic progress other than the progress of man from the most brutal constraints to the most awesome powers and diverse choices”

Economic progress is the accumulation of wealth.

Regards,
Ken

Fred September 26, 2011 at 11:30 am

“If I want to say freedom from hunger is an element in fashioning the criteria for political freedom…”

Freedom from hunger means access to food.
Where does the food come from?
Who produces it?
Who pays for it?

If the purpose of government is to combat injustice, and if plunder is an injustice, who does the farmer go to when the government plunders his food in order to satisfy another person’s “freedom from hunger”?

Dan H September 26, 2011 at 2:59 pm

I had no idea Ellsworth Toohey was a fan of Georgia Tech.

vikingvista September 25, 2011 at 9:11 pm

Simon,

You’re the victim of sophomoric and very old sophistry. “Freedom” can only be advocated under the presumption of choice. It therefore pertains only to entities capable of choice–humans. As a moral principle, its domain is entirely the realm of human choice and human action. Specifically, freedom is about how one human chooses to act toward another.

Given that necessary context, a man alone on an island, even if pinned beneath an immovable boulder, is 100% free. The action of any man in society not forcibly inhibited or compelled by another is a free action. This is because the freedom under discussion is the freedom amenable to pursuasion–the freedom from the deliberate forceful actions of other people. Because what it represents is a void–the absence of deliberate coercion–such freedom has a universality–it is conceivable for all people to simultaneously experience it. It exists, is a long-understood well-formed concept, and is without inherent contradiction.

The argument you make, which I found among the most uninteresting of Phil 1000 level discussions, is a deliberate diversion from context, presumably for fear that the original context was leading somewhere undesired–such as into a deep questioning of the most precious justifications for mistreating one’s fellow man.

A sincere argument against freedom advocates is simply this–argue why it is better to force a peaceful person against his will, than to leave him alone. This does lead to intersting discussions. But claiming freedom is an illusion, or nonexistent, or impossible, or is a poorly formed concept only reveals vulnerability to a bad, if common, rhetorical ploy that has been debunked countless times.

Josh September 26, 2011 at 11:19 am

The poor believe they are coerced by those with wealth, those with wealth belive the poor coerce them with the power of government.

Both are true.

vikingvista September 26, 2011 at 8:49 pm

There is some truth in what you say, but I can’t tell if you are taking issue with something that I wrote.

dwall September 25, 2011 at 2:27 am

we have a small fraction the community banks we had when they offered personalized service and direct analysis of the value of the assets backing loans. The end of the govt bubble started with Obama and Soros friends at Great westen expanding alt-A. to the breaking point before they dumped them on Wachovia. The Govt and Soros and other billionaires continue the attack with the latest effort being the disaster FrankDodd. Someone better wake up to FrankDodd or our economy will grind even slower while supporting a new huge 30 billion + bureaucracy intervening in every business. Econ is only one aspect. They are seeking control of all points of transactions Friedman and Hayek be damned.

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