Incomes are Created, Not “Distributed”

by Don Boudreaux on October 7, 2011

in Inequality, Myths and Fallacies, Other People's Money

Regarding the recent rash of the anti-social sentiment called “envy,” one point to keep in mind is that the common use of the term “income distribution” (or “wealth distribution”) stacks the deck in favor of those people who are prone to envy – and in favor also of those politicians and pundits and community organizers agitators who are prone to feather their own nests by exploiting the propensity of many people to succumb to envy and to suppose that envy is a sound basis for government policy.

In market economies (which America’s still largely is), incomes and wealth are not “distributed”; they are created – and, hence, earned by their creators.

If the semantic convention were to refer, not to “income distribution,” but to “income creation,” then we’d have headlines (Or would we?) such as the following “Last year, the Top 10 Percent of Income Creators Created Even More Income than the Year Before.”

Such a headline is far less likely to conjure in readers’ minds images of prime-time-soap-opera demons who craftily steal money from the pockets of unsuspecting innocents.  But such a headline would be far more accurate than one that uses the term “distribution” in place of the more-correct term “creation.”

….

The above point is hardly original to me.  It’s been made many times in the past by many sensible people.  But it bears repeating.

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{ 335 comments }

Daniel Kuehn October 7, 2011 at 1:00 pm

This does not seem sensible, but maybe I’m missing something.

There’s a mechanism for creating income. Granted. I think everyone agrees on this. Once income is created that thing we call “income” has a certain distribution. What’s wrong with talking about “income distribution” then?

Population is created by reproduction. We talk about population distributions.

Rain is created by clouds. We talk about the distribution of rainfall.

Any data generating process is going to output a certain distribution of the data. So?

This just seems like a convenient way for you to say “when people talk about income distribution it makes me uncomfortable”. It doesn’t seem like much of an argument.

Michael October 7, 2011 at 1:13 pm

The problem, I suspect, is one of equivocation. “Distribution” does not refer only to the act of arranging a set of items; it may refer to the arrangement itself as well.

No serious thinker, in my experience, believes that income is distributed in the sense that Don is referring to. If they are, you certainly can’t arrive at that conclusion by their use of the word “distribution”.

vikingvista October 7, 2011 at 2:27 pm

The rhetoric is effective in the way Don writes BECAUSE of the ambiguity of the term “distribution”. And the problem isn’t with what serious thinkers believe. It’s what the minions of the socialist propagandists believe.

Fred October 7, 2011 at 1:14 pm

dis·tri·bu·tion/ˌdistrəˈbyo͞oSHən/
Noun:

1. The action of sharing something out among a number of recipients.
2. The way in which something is shared out among a group or spread over an area.

Definition 1 is the more commonly understood definition, and the connotation is that someone is distributing a fixed income. It implies a zero sum game.

Your argument presumes most people have taken a course in statistics, which is false.

Pete October 7, 2011 at 4:03 pm

Funny, I always read “income distribution” in the second, statistical sense.

It never occurred to me to think of some entity collecting up all the income and distributing it as he/she/it saw fit, kinda like some uber-payboss in a factory.

Harold Cockerill October 8, 2011 at 7:56 am

All the redistributionists use the second definition and it’s “the man” doing the distributing. That’s why they struggle against “the man”. Of course their answer is to give “the man” more power. God forbid we let “the market” work.

Daniel Kuehn October 8, 2011 at 8:55 am

re: “Funny, I always read “income distribution” in the second, statistical sense.”

I did too, and I think this is how most people talk about it.

Of course, one can “redistribute” it, and that might be wise or unwise. But “income distribution” is used in the statistical sense. The way in which it is presented and discussed makes this obvious.

Daniel Kuehn October 8, 2011 at 8:57 am

I don’t think you need a course in statistics to understand the second definition. My argument is precisely that “income distribution” refers to the second definition. Everyone earns a paycheck. They know it came from an employer they have an employment contract with. People aren’t idiots, they know they don’t get their check from some person that distributes all the money.

We do occasionally talk about the first definition, but we have a word we use for that: “redistribution”.

g-dub October 8, 2011 at 4:57 pm

“We do occasionally talk about the first definition, but we have a word we use for that: ‘redistribution’.”

The reason someone talks about the second is because they care about the first.

lowcountryjoe October 7, 2011 at 1:49 pm

Talking about the distribution of incomes makes me uncomfortable; I won’t deny this. I would be far more comfortable discussing the topic of income distribution if, simultaneously, the distributions of talent, time spent working, and desire/drive/intesity/focus [if it/they could be measured well] were also included in the same discussion.

Would you be comfortable discussing those distributions while discussing the income distribution?

Observer October 7, 2011 at 3:42 pm

lowcountryjoe

talking about distribution of income is very easy if one is honest on the subject. how income is distributed is always and solely a political question, for income distribution is determined by leverage based on the laws then in place. See my post below

Ken October 7, 2011 at 3:45 pm

O,

So my employer pays me what he pays me because of some leveraged law? Will you please point to which law this is? Would my employer still not pay me what he pays me if this law wasn’t in place? If not, why would I work for him when others would offer me that pay?

See Invisible Hand.

Regards,
Ken

Observer October 8, 2011 at 12:16 am

Ken,

You are too simple minded to understand, but there are minimum wage laws, state and federal, that cover all employees.

There are lots of laws about which you haven’t a clue such as laws that forbid discrimination in retirement plans. Thus, if an employer does X for high income employees it must do the same for low income employees. Since you won’t listen, I will not go on. My point is merely to show how uninformed you are.

Ken October 8, 2011 at 12:42 am

O,

That’s right. There are minimum wage laws to keep those dirty uneducated people out of the workforce. You can’t have all these unskilled people at work, can you?

And you wouldn’t want to discriminate against anyone. It’s unfair that a high school drop out can’t work as a doctor, right? Can you please tell me what law requires an employer to “does X for high income employees it must do the same for low income employees”? Does this mean that the law will force a hospital administrator to pay for a janitor to attend the AMA annual meetings, since it pays for its doctors to do the same?

Regards,
Ken

vikingvista October 7, 2011 at 5:22 pm

“always and solely”

Even you cannot possibly believe the absoluteness of this statement.

Observer October 8, 2011 at 12:23 am

vikingvista

the statement how income is distributed is always and solely a political question is 100% true under all conditions

The gov’t can tax 100% of your income, today, and give it all to me, tomorrow. That the gov’t only taxes you at 28% of whatever is a choice of the gov’t, as decided by Congress, not your choice

it is truly funny that libertarians do not understand how truly powerful government really is.

Greg Webb October 8, 2011 at 12:39 am

So, slavery has returned. If Congress has the authority to tax a citizen’s income by 100% and give that income to someone else, then what else could you call it but slavery. VV would effectively by Observer’s slave. But, Congress does not have such power because such power clearly violates the Constitution’s raison d’être to protect each individual’s right to liberty. Thanks, Observer for outing progressives as those desiring for a return to slavery and serfdom.

vikingvista October 8, 2011 at 1:48 am

“statement how income is distributed is always and solely a political question is 100% true under all conditions”

What was the political question involved with Madoff’s income? Al Capone? Pablo Escobar? Heidi Fleiss? How about the guy selling drugs on the corner? The WI kid peddling illegal fireworks to his MN friends? The undocumented Mexicans working for the local contractor? The guy selling Rolex knockoffs near Central Park? The $50 I prepay one of the neighbor kids to mow my lawn?

Guns and armies and tanks are indeed powerful. They are not omnipotent. Even the Soviet government did not have full control of its people, and most other governments don’t have nearly that kind of power, though many of their members would surely like to. Your general rule doesn’t resemble reality at all, but in particular, I want you to see that it quite clearly cannot even be a general rule.

“The gov’t can tax 100% of your income, today, and give it all to me, tomorrow.”

No, it can *TRY* to tax 100% of my income. Good luck with that.

“whatever is a choice of the gov’t, as decided by Congress, not your choice”

That’s right. What the gov decides to do is not my choice. I’m glad at least you are not one of those “will of the people” fools. I congratulate you. But there are ample examples to show that what the gov decides to do, it doesn’t always succeed in accomplishing.

“it is truly funny that libertarians do not understand how truly powerful government really is.”

Well, that’s just plain funny.

And just so the important point here is not missed, whatever rule the government sets for you and for me, does not dictate how productive or creating or desirable you are I will be. Same rules, same enforcement, same intention for two different people does not guarantee the same results. Clearly, there is something OTHER than government and politics that at least in part determines relative income levels between people.

Stone Glasgow October 8, 2011 at 4:29 pm

Observer, your point is a good one, but Viking is right. We are all ultimately slaves to our government, but even slaves can decide how much effort they will put into their work.

Govt is so powerful that it can take everything from everyone, like North Korea, but it isn’t so strong that it can make me do more than the bare minimum required to avoid the whip. Govt and private industry must work together amicably, and libertarians feel that slaves work better and faster if they keep as much of the tobacco they harvest as possible; statists believe they will work harder if more mounted watchmen are there, threatening to whip them.

vikingvista October 8, 2011 at 6:08 pm

“libertarians feel that slaves work better and faster if they keep as much of the tobacco they harvest as possible”

Sadly, this does seem to correctly describe most libertarians. Few of us oppose “slavery” altogether.

Daniel Kuehn October 8, 2011 at 8:58 am

re: “Would you be comfortable discussing those distributions while discussing the income distribution?”

I agree – I don’t see how you could talk intelligently about income distribution without talking about the distribution of talent, skill, productivity, etc.

EG October 7, 2011 at 2:12 pm

Well, if income is a measure of one’s productivity, then maybe we can call it “productivity distribution”.

vikingvista October 7, 2011 at 5:20 pm

I prefer “none-your-goddamn-business distribution”.

Josh S October 7, 2011 at 3:11 pm

The problem isn’t the statistical concept of distribution. The problem is that to the common person, it comes off as this idea that income is earned by the “nation” as a whole, then somehow distributed (by a monstrously unfair mechanism, of course), which is why that term “distribution of national income” is at once benign and poisonous.

Daniel Kuehn October 8, 2011 at 9:00 am

Nobody thinks that way Josh. People get paychecks. People know who that paycheck came from and why. People are not as stupid as you make them out to be.

“Income distribution” refers to the distribution of income across the economy.

We have a word for what you’re talking about: redistribution.

g-dub October 8, 2011 at 12:46 pm

Nobody thinks that way Josh.

Yes, they do. I hear it rather frequently.

Captain Profit October 8, 2011 at 12:58 pm

Lots of people think that way, Daniel. They believe that if you earn any sort of profit, you didn’t do it on your own, society helped you, therefore society owns a hunk of your earnings, and you are morally obligated to return society’s property to the state which will somehow make sure it’s distributed equitably across society.

SMV October 8, 2011 at 4:14 pm

I have to disagree as well otherwise people would not talk about the destructiveness of inequality.

Anotherphil October 7, 2011 at 3:43 pm

“Population is created by reproduction. We talk about population distributions.”

The problem is that its fairly obvious that babies don’t come from the government, even to children and thank God, the technology to create life extracorporeally as described by Huxley doesn’t exist or the powermongers would be appropriating that power too.

However, the nature of wealth, especially its existential aspects is hardly understood at all. The general public is profoundly ignorant about economic matters. That ignorance is reinforced by “retail nonsense” peddled by the likes of Krugman and just about every stock market prognosticator that can provide convincing narratives of every price move, but only ex post.

Most see wealth as originating from forceable distribution, rather than cooperation and production. As a result they they wealth as durable tangible, physical, divisible, storeable and posessed of fixed quantifiablility.

Once you start to see wealth as very ethereal products of the mind, you realize it is fragile, intangible, poorly divisible (corporate stock is just one compensating mechanism mechanism to divide assets/liabilities among owners, without the unworkable assigniment of title over individual assets/liabilities among those owners), unstoreable and its value is very relative to circumstance. That’s when you realize no external power can interject itself in the unimaginably complex processes that result in its creation without disturbing and diminishing it.

The left doesn’t understand this-they see wealth as things, rather than the use of things. They aren’t really to hard to understand once you realize that in spite of the oft repeated claim that they are above religion and superstition, they are really materialist and statist idolaters, thats all. (Living proof that when a man fails to believe in something, he doesn’t believe in nothing, he believes in anything)

Adam Smith identified two sources of value, trade and use. He provided the extreme examples of diamonds as having no value except (numismatic) trade and water except use. Yet today, by creating new uses for diamonds such as polishing and grinding, diamonds have great use other than to be sought as a token of affection and water, through value added activities such as purification and packaging is a commonly sold product.

Neither of those changes were possible without free inquiry and exchange and they emerged slowly, as products of profit-seeking initiative, rather than state edict.

Daniel Kuehn October 8, 2011 at 9:02 am

re: “The problem is that its fairly obvious that babies don’t come from the government… However, the nature of wealth, especially its existential aspects is hardly understood at all. The general public is profoundly ignorant about economic matters.”

It’s fairly obvious that income doesn’t come from the government either. People get paychecks. People are not stupid. They know that the government does not pay their paychecks.

I would have made this point in my initial comment if I had realized it needed making!!! If you guys think that the average person thinks the government determines their income, you all are nuts.

Anotherphil October 9, 2011 at 11:08 pm

Beyond the fact that there are literally millions of people for whom government is the sole provider, there is a widespread conception that government action is a necessary precondition to economic activity, wealth employment, or other attributes of economic behavior. I’m not even thinking about rent-seeking industries such as agriculture, green energy, etc.

Whether or not people think THEIR INCOME is from the government is irrelevant. Many, way to many think their economic well-being is the result of government ACTION. Politicians, routinely exploit and enhance this with “JOBS” bills, “Stimulus” bills, etc.

Anotherphil October 9, 2011 at 11:09 pm

Also, income is not wealth, please get the basics right before launching an indignant and misinformed retort.

txslr October 7, 2011 at 5:15 pm

So what is redistribution?

anthonyl October 7, 2011 at 9:04 pm

Distribution should not be misconstrued as income redistribution. The pattern of how money is distributed among populations is different than the act of interference of that distribution pattern by interested parties.

Rich Berger October 7, 2011 at 9:25 pm

As usual, you are missing something. The point that Don is making is that some mistakenly hear income distribution and think that someone is handing out the goodies. The winners are thus simply those who pushed to the head of the line. This is the view that is held by the simpleminded, like those at the “Occupy” protests.

Daniel Kuehn October 8, 2011 at 9:04 am

Who thinks this Rich? Who.

Who is not aware that their paycheck comes from a decision made between them and their employer?

Have you EVER come across ANYONE under this mistaken impression, Rich?

re: “The winners are thus simply those who pushed to the head of the line. “

Well, this would influence income in a lot of cases – would it not?

g-dub October 8, 2011 at 5:18 pm

rb> The point that Don is making is that some mistakenly hear income distribution and think that someone is handing out the goodies.

dk> Who thinks this Rich? Who.

I have more than a couple of low-brows on my facebook list that say crap like that on a nearly daily basis. They think (using some of their words) that the US is a fascist state where evil megacorporations and the rich control the government and wealth, and determine who gets what slice of the pie, and have a clever plan to take even more.

You are apparently quite cloistered.

John Dewey October 7, 2011 at 11:34 pm

There’s a mechanism for creating income. Granted. I think everyone agrees on this

No, I do not think everyone agrees there is a mechanism for creating income. At least, I do not believe everyone agrees on what that mechanism is or what those mechanisms are.

ben October 8, 2011 at 1:25 am

Daniel, the things you mention are not results of the actions of individual humans. Income is however.

DJB October 8, 2011 at 12:14 pm

Agreed Daniel, income is distributed, and wealth is created. The problem arises when pundits, politicians and their mindless minions fail to appreciate that in a market economy income distribution is dependent on the creation of wealth. They would much rather imply that income distribution is somehow a collusion between people with power and money and those who they wish to support or buy influence. The Irony is that this is exactly how income is distributed in a political economy.

Don Boudreaux October 8, 2011 at 5:34 pm

Daniel seems to be unaware that the use of the term “distribution” as I use it here – that is, as I use it in the way that it is popularly used – has a long provenance even in formal economics. He can consult, for example, Book II, Chapter 1 of J.S. Mill’s Principles and see that Mill himself uses the term “distribution of wealth” to mean the same thing that I infer in my post that people typically take this term to mean.

As someone says in another comment to this post, most people – contrary to Daniel’s inference – are unfamiliar with statistical jargon. They – including reporters and politicians – are not making claims about statistical distributions but, rather, about the process by which income or wealth is divvied up. Again, no less a scholar than J.S. Mill used the term (mistakenly) in this way, and one would have no trouble finding other eminent scholars who use the term in quite the same manner.

Moreover, even IF some handful of scholars, say Daniel Kuehn, use the term only to refer to the antiseptic technical meaning that it has in econometric textbooks, the fact that the term “distribution” is used in public discourse – even when the user means only the statistical meaning – it nevertheless hides the reality that income is created rather than divvied up.

Daniel Kuehn October 8, 2011 at 10:18 pm

There’s nothing technical about understanding that there is more of something in some place than in another place and that there are causes for there being more of something in some place than in another place.

Stop trying to spin what I wrote.

I gave the examples that I did precisely to show that this is NOT a technical concept that goes over peoples’ heads.

Daniel Kuehn October 8, 2011 at 10:22 pm

And in Book II Chapter 1 Mill is saying that the only reason why income is earned is because society allows it to be earned and kept: the institution of property rights.

Do you think he’s wrong on that? Would you disagree with Mill when he writes: “The distribution of wealth, therefore, depends on the laws and customs of society. The rules by which it is determined, are what the opinions and feelings of the ruling portion of the community make them, and are very different in different ages and countries; and might be still more different, if mankind so chose.”

Don’t you think institutions are important for understanding the distribution of income and wealth?

Daniel Kuehn October 8, 2011 at 10:35 pm

The point is this. I have yet to meet someone that thinks the government decided how much they earned or how much someone else earned. There are dumb people out there and I’ve met dumb people, but I haven’t met anyone that is under this impression. This whole line of argument is completely detached from reality and it’s amazing to me you can’t see that.

That you’re trying to pawn this off on a “statistical jargon” argument on my part is incredible.

Adam October 7, 2011 at 1:02 pm

Since I believe that our system doesn’t represent “true” capitalism, I think the Occupy Wall Streeters are very, very wrong in their demonization of capitalism, not to mention their ABSURD prescriptions for the problems they describe. However, I also think Don and others like him are too quick to assume that all income is “created” when there are far too many examples of golden parachutes, exorbitant pay, kickbacks, and political favors in the top x% (I think there are more examples of people who truly created that wealth, I’m just saying it’s not as simple as he says it is). If the choice were between the two sides, I’d choose Don, but I think both sides are disingenuous about how things actually work.

Shidoshi October 7, 2011 at 1:17 pm

Yeah. I tend to agree with that. Not a black and white topic.

Chris O'Leary October 7, 2011 at 1:23 pm

But how could crony capitalism be simultaneously the problem and the solution?

That’s what doesn’t make sense about the positions of the OWS people and the libs.

anthonyl October 7, 2011 at 9:15 pm

Cronies need a supportive government. A good Capitalist doesn’t. There oughta be a separation of business and state.

Will October 7, 2011 at 2:58 pm

“Golden Parachutes” sometime a company will spend 10s of millions to get rid of a bad executive than loose 100s of millions keeping them employed. The value added to the company is the easy and cheap way of getting rid of someone who is costing much more. (If only we could over Obama 100s of millions to leave instead of spending 100s of billions to keep him).

“exorbitant pay” don’t know what that means. How do you define it?

“kickbacks and political favors” is income created since the person receiving the kickback and political favor did something for the politician to earn it.

vidyohs October 7, 2011 at 5:24 pm

Income is created (earned) always. An envious looney lefty may not like the way it is created, but it isn’t his decision. The decision exclusively belongs to those from whom the individual earns/creates his wealth, whether the individual from whom the income is earned or created is a direct customer or an employer.

Adam October 7, 2011 at 5:48 pm

My comment was mostly related to financial companies in the wake of the financial crisis. I think executive pay would likely be less generous were companies not so regularly bailed out from the consequences of their own poor decisions. I have absolutely no problem if Sergey Brin, Tim Cook, Sam Walton, etc. take home hundreds of millions per year. When you create products that millions of people willingly pay for, you deserve to get rich and profits should be praised. When you are essentially granted a call option on huge paydays and have no incentive for prudence (many financial execs), that is a problem. And to be clear, it’s a government problem, though most people incorrectly attribute it to “capitalism.” The natural state of the world is not to have some overarching government body that chooses winners and losers and prevents people from feeling the effects of their decisions. That feature came about through government meddling.

Martin Brock October 8, 2011 at 7:50 am

If only we could over Obama 100s of millions to leave instead of spending 100s of billions to keep him.

Well, you could offer Obama millions to resign, and I’m not sure this offer violates any law.

But you can’t get rid of Obama effectively, because he’s entitled to his office for at least for years, short of Congressional impeachment, and he gets to issue all the massively costly decrees while he holds the office. That’s all in the Constitution. It’s a matter of law. Statesmen constructed the office deliberately centuries ago.

So why can’t a board of directors dump a lousy CEO without paying him millions to go? Ever think about that? Why would any board member in his right mind ever agree to hire someone on these terms? If you applied for a job on these terms, only fireable for incompetence after a massive payoff, what would you expect? It’s not like CEOs around the world work by the same rules. They don’t.

Observer October 8, 2011 at 5:57 pm

Martin

Thank you for your comments about the Bible and Caesar.

The great thing about the Bible is that many parts have many lessons

Anotherphil October 9, 2011 at 11:11 pm

Oh good grief, its obvious. Anybody that’s been a CEO is in a position to do major damage to a company after departure. It’s “hush money”, pure and simple.

Observer October 7, 2011 at 3:44 pm

all income is created, but how it is distributed is solely a political and legal question—see my post below

HaywoodU October 7, 2011 at 8:42 pm

gfy

Martin Brock October 8, 2011 at 8:09 am

You’ll raise fewer (legitimate) questions by using words like “solely” more judiciously. Income is a political and legal question to a very great extent, and the same people debating you here freely concede this point when the income distorting effects of an income tax are the issue, but “solely a political and legal question” only begs people to rebut you with a single counter-example, however insignificant.

Observer October 8, 2011 at 8:39 am

Martin

Illegal activity doesn’t create income under any gov’t. The idea of forfeiture is that the “income,” I would not call it income, is never the money or property of the crook: at the moment of the crime it becomes the property of the Gov’t.

If A steals from you and the gov’t catches him and seizes the money, the way you get it back is that the gov’t remits its forfeiture to you. That is the law, between the victim and the gov’t.

Money stolen from you becomes the property of the gov’t

Martin Brock October 8, 2011 at 11:31 am

O.K. I don’t dispute your point about lawful “income” and forfeiture, but you’ll raise fewer (legitimate) questions by using words like “solely” more judiciously.

I don’t refer to money stolen from me. I refer to a possession of mine that I freely exchange for some possession of yours because I prefer your possession to mine and you prefer my possession to yours.

Even if no state certifies these possessions, this sort of exchange is possible, and this sort of exchange must have preceded states. States appeared to resolve disputes over the possessions I call “mine” and you call “yours”, among other things. Right?

vikingvista October 8, 2011 at 6:16 pm

“Illegal activity doesn’t create income under any gov’t.”

No, actually it DOES under EVERY government. You think the only laws that exist are the ones that ban private theft?

Greg Webb October 8, 2011 at 9:06 am

Nonsense.

anthonyl October 7, 2011 at 9:09 pm

Any ideas on where those golden parachutes come from? Maybe a contract freely entered into by both parties. Too-Big-To-Fail probably plays a part in their creation.

Stephan October 7, 2011 at 1:04 pm

Hear. Hear. Can you please explain how somebody is creating income by juggling around financial assets?

Shidoshi October 7, 2011 at 1:21 pm

What is “juggling around financial assets”?

Martin Brock October 8, 2011 at 8:12 am

Selling a mortgage to Fannie Mae for example. Selling a credit default swap insuring a bond, aggregating many mortgages, issued by Fannie Mae for another. Anyone familiar with the mega-regulated finance business can list examples endlessly.

Methinks1776 October 7, 2011 at 1:30 pm

I probably can, but I need to know what you mean by “juggling around”.

Michael Anderson October 7, 2011 at 1:51 pm

Wealth is created by how effectively resources are allocated to meet the needs and desires of the public. People with wealth are willing to provide income to those who they believe to be wise in allocating (i.e. juggling) financial capital to satisfying the needs and wants with the highest rate of return.

morganovich October 7, 2011 at 2:20 pm

further, wealth is created by utilizing assets (especially money) well.

you put money in the bank. if it just sat there like scrooge mcducks vault, it would do nothing. if it is lent to someone, it gets put to useful purposes. you get a cut of that. it’s called interest.

if you have a pension, that money goes into a fund. there, it is put to work (by your so ludicrously described “jugglers”) in places where it can be productive. pricing and allocating capital is a VITAL role in an economy to put savers together with borrowers and create growth.

the invention of this sort of modern finance is what moved GDP growth from 0.8% a year to 4% a year in the countries where it propagated.

read your economic history. study holland and england and what capital markets did for them.

your use of the term “juggling” seems to demonstrate that you just flat out do not understand how this process works. it must seem to you like gunpowder and horses seemed to the aztecs: magic.

what, you think wall street gets paid for moving a pea around under walnut shells? who would pay for that?

the economy with the best allocated capital runs best. those who are best at allocating it are also good at getting paid themselves, but this hardly makes it a shell game. well allocated capital benefits everyone. it’s a social good.

Economiser October 7, 2011 at 2:24 pm

Well put. Off topic, does anyone know of any literature that analyzes the development of capital markets and the start of the industrial revolution? I wouldn’t be surprised if the one led to the other.

jjoxman October 7, 2011 at 3:02 pm

My best recommendation is the “History of Corporate Finance” by Barron & Baskin: http://www.amazon.com/History-Corporate-Finance-Jonathan-Barron/dp/0521655366/ref=sr_1_1?ie=UTF8&qid=1318014135&sr=8-1

Economiser October 7, 2011 at 4:27 pm

Thanks!

MT October 8, 2011 at 7:27 pm

Read bios of Thomas Edison and JP Morgan. I don’t have the titles handy, but have read good books on both. Great explanations of how the development of financial and industrial markets were intertwined. Also, fascinating stories in their own right.

Slightly off topic: Stephen Ambrose wrote an enjoyable book on the transcontinental railroad, but he was close to economically illiterate–a good read, but not for this topic.

DAB October 7, 2011 at 2:47 pm

“it must seem to you like gunpowder and horses seemed to the aztecs: magic.”
Still laughing five minutes after reading….thanks! :)

Methinks1776 October 7, 2011 at 3:37 pm

Stephan might have meant the type of very short term buying and selling that market makers do in order to provide liquidity.

In fairness to Stephan, he didn’t claim to understand it – hence, the question.

Pieces of companies are sold to the public in order to raise capital for further investment (which will hopefully lead to growth). Those pieces of the company (stocks) are traded in a secondary exchange.

A benefit of a secondary market in securities on public exchanges is that it allows shareholders to monetize their investment quickly. A secondary market also facilitates price discovery – ensuring that investors don’t buy or sell too far away from the fair value. The SEC’s machinations are all geared toward destroying price discovery and that hurts investors, but I digress. Obviously, the ability to quickly monetize investments and to always be able to transact at close to fair value, reduces the risk of the investing.

Lowering the risk of investment means that investors can demand a lower rate of return. This translates into a lower cost of capital for companies (otherwise known as a lower hurdle rate). Those companies can then invest in more projects. The economy grows.

Those who “juggle financial assets around” are either trying to figure out which companies are using resources best, rewarding them by increasing demand for their stock or we’re providing liquidity. If they’re right, they are rewarded and if not, they lose.

An exchange is an auction. Market Makers (MM’s) bid for shares and they offer shares to the market. This activity ensures liquidity in the stock and lowers transactions costs for investors. The MM hopes to make money on the spread – the difference between the bid and the offer. His actions ensure the market remains liquid and he corrects any deviations from fair value.

Stone Glasgow October 7, 2011 at 4:10 pm

Most people don’t understand what you mean when you talk about liquidity. You might elaborate on that.

Traders serve two additional functions, in addition to (or perhaps a side effect of) price discovery and liquidity. They lower price volatility, and ensure that “shelves are never empty.” If, for example, limited bottled water arrives at an earthquake site, but it is priced at one cent, it quickly sells out to the first people to market, and only a few people get water. If a trader buys all of it and offers it for sale at $1.00, raising his price as supplies fall, he is making sure that water is always available and never runs out — if you really need water it is always there.

Most people don’t see the value in a proper price, but it is more effective in keeping water on the shelf than indignant foot stamping and shaming the people who buy “more than they need” when the price is too low.

Methinks1776 October 7, 2011 at 7:48 pm

Stone,

lower volatility is indeed a function of liquidity.

Liquidity is simply the ability to sell an asset quickly and efficiently. “Efficiently” means without moving the price of the asset by acting in the market. The more bids and offers, the more liquid the market (think of an auction).

An example of a very illiquid asset would be a house. You can’t monetize the house very quickly and the transactions costs are monstrous. An example of a very liquid asset is Microsoft. With the click of a button you can buy or sell many shares instantly, without affecting price and at a very low cost (usually, the spread is a penny wide).

“Proper price” or “fair value” is very important. If you own stock XYZ, you don’t want to sell it too much below fair value. If you want to buy stock XYZ, you don’t want to buy it too much above fair value. If a stock is illiquid, your buying and selling activity could very well drive the stock far from fair value – you could be selling it too cheaply and buying it too dearly. This happens frequently in illiquid, hard to borrow securities.

Stone Glasgow October 7, 2011 at 8:59 pm

Yep. And “providing liquidity,” is a service that traders perform; they are accidentally making it easy to quickly buy or sell assets by trying to buy low and sell high. They are a classic example of how “greed” on a personal level benefits other people. One cannot benefit one’s self very easily without accidentally benefiting many other people.

It is a shame that so many people do not understand how professional trading benefits them.

Dan H October 7, 2011 at 9:03 pm

Half the people at JP Morgan don’t even realize this. But I do, which is why I embrace it that much more.

Mesa Econoguy October 7, 2011 at 9:21 pm

Yes, all of that, well said, plus prices, as we know, reflect information and different parties expectations as they trade, so there is constant information being passed in markets.

My volatility increases in direct response to the amount of beverage liquidity I am able to procure.

g-dub October 8, 2011 at 8:07 pm

Nicely put!

Anotherphil October 7, 2011 at 4:30 pm

How do people make wealth “juggling around” tangible assets? Other than the occasion reference to “middlemen”, does anybody ever get exercised about retailers, warehousers, breakbulk operations, transporters and the like?

Note the materialist superstition inherent in the phrase.

99er October 8, 2011 at 12:27 am

There you go Stephan. You’ve just had it explained to you how people who juggle finacial assetts around are important and helpful… by a bunch of people who juggle financial assetts around.

Greg Webb October 8, 2011 at 12:41 am

Hey George, you forgot to change your name back to Muirgeo.

brotio October 8, 2011 at 9:49 pm

What’s the 99er handle about? Is that recognizing that you’re a muirpocrite and have a larger CO2-footprint than 99% of the heretics?

Martin Brock October 7, 2011 at 1:18 pm

Your income from a Treasury security that you own is redistributed tax revenue as a matter of fact, and income from a Treasury security hardly exhausts income of this sort.

ErikOlsen October 7, 2011 at 2:08 pm

Interest paid on Treasury securities is not redistribution. It is payment for the service of credit. Redistribution occurs when taxes are collected and then “redistributed” to others for no goods or services, such as social security, welfare, medicare, medicaid etc.

Martin Brock October 7, 2011 at 3:18 pm

Interest paid on your Treasury security is certainly redistribution. The state takes from me and distributes to you, and you have done me no credit service. On the contrary, rather than extend me credit, you have paid statesmen forcibly to seize produce from me and distribute it to you. Your other option, betting on my productivity by extending credit to me, is riskier, so you pay the protection racketeers for their services instead.

vikingvista October 7, 2011 at 3:40 pm

There is no way to escape the essential involuntary nature of state action. And isn’t the product of any forceful confiscation properly called a “redistribution”?

Martin Brock October 8, 2011 at 8:21 am

I have no problem calling confiscation (“forceful” is redundant) “redistribution”, and I live in a country in which the state directly controls 40% of output (state spending at every level is 40% of GDP) and indirectly controls far more, and while living in this country, I participate in countless debates with “libertarians” telling me how free it all is and how income, particularly the income of the wealthiest proprietors, who are most influential within the state, is all about satisfying free markets with productivity. What the f**k?

vikingvista October 8, 2011 at 4:29 pm

Redundancy for emphasis. Most nonlibertarians either don’t or won’t see the essential violent nature of the state, so I like to beat them over the head with it.

State action is extensive and influential, and it is a mistake to think it is not. But it is also a mistake to think free actions, even as they play off of the results of state manipulation, is not also influential. This accounts for much of the differences between the nontotalitarian socialist states, ours included.

I’m not sure where you find the libertarians you speak of. The one’s I find are almost all the glass half empty types. It seemes to be conservatives, liberals, Republicans, and Democrats who turn pollyannish whenever their guy gets into office.

Stone Glasgow October 8, 2011 at 4:42 pm

Martin, it isn’t that libertarians don’t understand that the wealthiest people are often the people with the most friends in government. It is only the proposed solution to that problem that differs.

Statists want to hire more watchmen to make sure that businessmen are not unfairly benefited by government actions. Libertarians want to reduce the power of the state to the point that businessmen won’t even try.

vikingvista October 8, 2011 at 6:24 pm

Stone,

Right. The rich and powerful (meaning centralized state power) are always one in the same, either because the rich buy the power, or the power makes people rich. Increasing the power only exacerbates this problem, and government efforts to make people less rich, or to try to strip the rich of influence, only increases the power. There is only one solution–reduce and disseminate the power.

Jim October 7, 2011 at 7:26 pm

I would argue that by definition the state should not be able to borrow. Period.

Practically, borrowing has another catastrophic disadvantage in a democratic state; it allows elected officials to divorce costs from benefits.

Martin Brock October 8, 2011 at 7:19 am

Even saying that state’s “borrow” abuses the language. Extending credit to organize resources more productively is an honorable, essential business in a free enterprise economy, but states don’t participate in this business. States don’t borrow. States sell entitlement to tax revenue.

Jim October 8, 2011 at 4:42 pm

Exactly. As you described in earlier detail, the concept of state borrowing is akin to my 15 year old getting a loan at the bank based on my allowance to him and then trying to use the money to help me add an addition to the house, for which I’ve been saving.

vikingvista October 8, 2011 at 4:34 pm

That divorce creates the demand curve for government expansion that is illustrated in the Cato Policy Handbook. This is why the Reagan era neocons who dismissed the danger of deficits were so wrong.

Martin Brock October 7, 2011 at 1:19 pm

The word “distribution” in this context comes from mathematical statistics, not from the politics of envy in which you participate here.

Michael October 7, 2011 at 1:44 pm

+1

Ken October 7, 2011 at 2:22 pm

The point isn’t the semantics of “distribution”, but “income distribution”, which is the same thing as “productivity distribution”.

In other words, “income distribution” conjures up the image of a fixed amount of wealth that is distributed unevenly throughout the population. This leads some to believe that this uneven distribution is due to simple theft or coercion or both.

Completely missing from that discussion is the link between income and productivity. The fact is that income is directly related to productivity, thus changing “income distribution” to “productivity distribution” doesn’t change anything. Except now it doesn’t conjure up the idea that people who earn more do so unfairly, but rather they earn more because they produce more.

Regards,
Ken

DAB October 7, 2011 at 2:50 pm

Ken,

Don’t waste your time. I suspect Martin already knows the intent of the post and I’m sure he well gets its meaning. His refusal to acknowledge it openly derives more from his ideology than his common sense.

Martin Brock October 7, 2011 at 3:09 pm

You have no idea what my ideology is.

“Income distribution” has nothing to do with envy unless the person discussing the term has some kind of political agenda.

Martin Brock October 7, 2011 at 2:56 pm

As a mathematician, “income distribution” conjures up no more in my mind than “height distribution” or “temperature distribution”.

In a political text, libertarians routinely discuss distribution by theft and coercion, particularly when discussing taxation. Since the state at every level directly controls forty percent or more of GDP in the U.S, I can only conclude that a lot of income is “distributed” in this sense.

“Income is directly related to productivity” is either a tautology or a fiction. If income measures productivity, then every state bureaucrat and welfare recipient is productive.

Income is related to productivity. Income is also related to entitlement. A given dollar of income typically is related to both, and sorting one from the other is a very complicated, politically charged business.

Ken October 7, 2011 at 3:06 pm

Right, [a]s a mathematician, not an ordinary person. I am a mathematician, too, and understand the technical definitions of “almost surely/always”, “essentially”, along with “distribution”. None of those terms are thought of in common usage the way mathematicians use them. My favorites confusion causing mathematical terms, though, are “rational”, “irrational”, and “imaginary”.

“Income is directly related to productivity” is either a tautology or a fiction.

It’s a tautology.

Income is also related to entitlement.

That’s a wealth transfer due to the idea that the “income distribution”, i.e., “productivity distribution”, is flawed.

Regards,
Ken

Martin Brock October 7, 2011 at 3:13 pm

“Income distribution” is not a term you often hear while drinking beer at Archie Bunker’s Place. You might hear “fat cats” or, rarely, “the top one percent”, but you don’t often hear “income distribution”.

If you think the “income” (or “productivity”) distribution is flawed, then you obviously have an envy problem.

Ken October 7, 2011 at 3:30 pm

Ha! In what bubble are you living? Those terms are thrown out all over the place. They’re used to foment class warfare and resentment against those who have more, i.e., politicians use envy to gather ever more power at the expense of liberty for the ordinary person.

I don’t think the productivity distribution is flawed. People like Obama, Reid, Pelosi, and every other democrat I can think of think this distribution is flawed, so set out to “correct” it with redistributionary policies.

Regards,
Ken

Martin Brock October 7, 2011 at 5:26 pm

If you think that income is tautologically identical to productivity, and if you think that statutory entitlement to an income is flawed, then you think that the income/productivity distribution is flawed.

Ken October 7, 2011 at 6:22 pm

I do not consider wealth received from transfer programs like SS, welfare, etc. to be income. They are wealth transfers. Income is the total dollar amount (including all benefits, so total compensation) a person receives in exchange for the products he provides.

Regards,
Ken

Martin Brock October 7, 2011 at 7:25 pm

O.K. You think that a receipt of wealth that shall not be called “income” is flawed, so you have an envy problem.

Ken October 7, 2011 at 7:53 pm

MB,

“You think that a receipt of wealth that shall not be called “income” is flawed”

Yes. Thinking of welfare, or any other wealth transfer, as income is ridiculous. When I was a child and my father bought me clothes, food and provided shelter, do you think this counts as income for me? When he periodically gave me money to play video games or buy myself a toy, was that income for me? Of course not. Similarly, if I go to anyone, including a government bureaucrat, today as an adult and he buys me something or simply gives me money, it is not income.

Income is earned through wealth creation, i.e., being productive.

“so you have an envy problem.”

I do have problems with people being envious of me because I am so productive. I have a problem with these envious people colluding with people who command armed units to take my wealth away and use it for their own ends.

Regards,
Ken

Martin Brock October 8, 2011 at 7:28 am

Regardless of what you think ridiculous, welfare benefits are “income” in common parlance. Others think a multi-million dollar bonus paid to the CEO of a too-big-to-fail bank after a massive taxpayer bailout is ridiculous, but the bonus is income to the CEO regardless. It certainly isn’t outgo.

I think many patent license fees are ridiculous, because the patents discourage innovation and impede productivity rather than the opposite, but these fees are also income. We could discuss productivity destroying effects of various forcible proprieties all day long, but we won’t, because we don’t want to offend the proprietarians masquerading as libertarians.

Income does not measure productivity as a matter of fact. Some income follows productivity. Other income does not. Much income measures entitlement instead.

Ken October 8, 2011 at 1:10 pm

MB,

CEO’s bonuses are reflective of services rendered in voluntary trades. It’s income.

Patents encourage income by guaranteeing the inventor of a new product a return on the research and development costs. Since it costs almost a billion dollars to develop a new drug, but typically only a few dollars to manufacture the drugs, why would anyone develop drugs knowing they lose a billion dollars? I can only conclude you know very little about human nature and economics, i.e., incentives.

As you measure income, productivity doesn’t measure productivity, since you foolishly think theft is “income”, but as I do, it measures it tautologically.

Regards,
Ken

Martin Brock October 8, 2011 at 1:49 pm

I was not a voluntary party to any trade of mortgage backed securities for entitlements to tax revenue, but these trades did benefit too-big-to-fail banks and increase the income of the banks’ CEOs, so your assertion is false as a matter of fact.

Patents don’t guarantee inventors anything. They guarantee patent holders things, and even in statutory theory, a patent holder is the first person or corporation in line at the patent office with an application for a forcible monopoly over the production of a specified category of goods. If you invent the same thing independently, even if you can prove your independent invention with prior art, even if you can prove that the first entity in line at the patent office saw your prior art before applying, a patent doesn’t guarantee you anything. It rather threatens to harm you if you exploit your invention without the consent of the patent holder, as a matter of fact.

People develop drugs that cost only a few cents to manufacture without patent monopolies as a matter of historical fact, and most of the cost of “developing” a new drug these days is the cost of satisfying regulatory requirements that a drug be “safe” and “efficacious”, not the cost of developing the drug per se.

In reality, the cost of copying an invention typically is higher than cost of reinventing, so patents add no value to the creative process. The best discussion of this subject I’ve seen lately is here.

I don’t measure income. I use the word “income” as various state officials and bloggers use the word. The bloggers speak of Steve Jobs’ “income” for example, and they only report figures on income tax returns and the like. I do the same.

Specifically, I nowhere ever identify “theft” with “income”. You simply play a childish, rhetorical game here.

W.E.Heasley October 7, 2011 at 2:06 pm

“….one point to keep in mind is that the common use of the term “income distribution” (or “wealth distribution”) stacks the deck in favor of those people who are prone to envy – and in favor also of those politicians and pundits and community organizers agitators who are prone to feather their own nests by exploiting the propensity of many people to succumb to envy and to suppose that envy is a sound basis for government policy”. – Don Boudreaux

Let’s see, envy as sound basis for government policy, as proposed and supported by many politicians and pundits and community organizers agitators would fall in the category of the “Dopeler Effect”.

Dopeler Effect: The tendency of stupid ideas to seem smarter when they come at you rapidly.

Economiser October 7, 2011 at 2:20 pm

> Dopeler Effect: The tendency of stupid ideas to seem smarter when they come at you rapidly.

*Like*

Will October 7, 2011 at 2:34 pm

I would like to state that distribution is not the only word politicians use to their advantage. The word income is also misunderstood. Income is nothing more that the value placed on scarce resources one provides another and that is usually measured in dollars. For your typical employee it is the value an employer places on the employee’s labor which is estimated at the output provided to the employer. So yes all income is created by the one who earns it. It does not exist otherwise. Politicians focus on the dollar amount without looking at the value exchanged for that dollar. They imply that their is a set income for everyone and the greedy take what belongs to someone else and that gives them votes. If I flip and sell hamburgers at a rate of 10 per hour and a co-worker can flip and sell hamburgers at a rate of 20 per hour who is creating more for the employer and will have better income after a few months. Clearly I am not as valuable to the company. It is easy to get my vote by claiming the coworkers is taking something that belongs to me even though I would never be able to flip as many hamburgers as him and the company would not have the extra sales from 10 more hamburgers if they had two of me and one of him.

vikingvista October 7, 2011 at 2:34 pm

An even more egregious phrase than “income distribution”, with a less legitimate claim to ambiguity, is the false possessive “nation’s income”.

Miko October 7, 2011 at 2:36 pm

Wordplay aside, it should be noted that the claim that all wealth goes to those who create it is false anyway. As libertarians like to point out, a society with a government is necessarily not going to achieve the goal of having income go to those who create it since the government manipulates the market through things like tariffs, patents, granting of title to land, the cartelization of credit, and the monopolization of the money supply. All of these things tend to redistribute wealth from the people who create it to the rich and powerful, so incomes in America (or any society with the misfortune to have a government) are very much distributed.

Will October 7, 2011 at 2:37 pm

great point

vikingvista October 7, 2011 at 3:47 pm

Each individual act must be judged on its own. Income is earned through voluntary acts, unearned through involuntary acts. The latter constitute “redistribution”, as it is usually conceived, and is a wealth loss and disincentive. The former is wealth creation. Societies will always and everywhere be comprised of both types of acts.

So really, the question is one of scale. I think even today, by far, most income is earned in this country. But increasingly, income is redistributed, and people are even making fortunes from it.

Economiser October 7, 2011 at 2:43 pm

“Distribution” implies a third party distributor who is somehow outside and above the economy. That’s a big part of the problem.

Martin Brock October 7, 2011 at 2:59 pm

So if income is log-normally distributed, then Mr. Log Normal is somehow outside and above the economy distributing income to people?

robert_o October 7, 2011 at 3:48 pm

Your average person thinks Mr Log is a lumberjack.

txslr October 7, 2011 at 4:56 pm

I happen to know Mr. Log, and he’s not normal. In fact, he’s skewed!

vikingvista October 7, 2011 at 5:25 pm

Yeah, but have you seen Mrs. Log? Man is she bimodal!

Randy October 7, 2011 at 3:02 pm

I take the point. But it does seem to me that while wealth must be created, income can be stolen.

Randy October 7, 2011 at 3:04 pm

Strike that… I guess wealth can be stolen too. So its just semantics, and the idea stands.

Randy October 7, 2011 at 3:09 pm

And thinking about the twerps demanding an end to capitalism (and consequently an increased emphasis on entitlements), I find myself suddenly not worried so much by the fact that I will soon be collecting my entitlements – from them. The arrogant little communist pricks – let ‘em pay.

Observer October 7, 2011 at 3:39 pm

what a crock

markets do not, have never, and will never either create or distribute income.

all distribution of income is a political question, depending on the laws in place and being enforced at that time.

Take a very simple example

A borrows money from B, opens a restaurant, and hires C,D, and E to work in the restaurant. The restaurant is wildly successful.

A starts out making lots of profits. He pays 6% interest to B, every month. A never makes enough to reduce the principal on the loan.

C,D, and E wise up and join a union. To avoid a strike and shutdown, A agrees to pay C, D, and E a living wage and doubles their salary. A’s income goes down but he still makes a good profit and can pay the interest to B, so he stays in business.

One day A is sick and forgets to pay his lender B. B forecloses and seizes ownership of the restaurant. A, now destitute, can be found on the street selling pencils. C, D, and E still have their jobs and living wages. B now his interest and A’s profits.

Question: Did A ever create any value, or was all the value created only by B, C, D, and E? A had the idea of the restaurant and made it happen, but he has nothing because the law let B foreclose and its let C, D, and E join a union and earn a living wage.

This illustrates my principle: its not markets that distribute income, its leverage arising from the laws in place at any particular moment. No one is ever paid based on what they are worth.

Dan H October 7, 2011 at 3:42 pm

“markets do not, have never, and will never either create or distribute income.”

This quite possibly the dumbest comment of the day. Woefully dumb.

I think even muirgeo would acknowledge that markets create and distribute wealth, but he would object to how it occurs or what the best system of governance is for said market.

You are not very smart. Yes, that was an ad hominem attack. You deserved it.

Observer October 7, 2011 at 3:59 pm

Dan

it is you who are woefully dumb. markets are artificial abstracts created by law (politics)

laws, in our society, as the sole determinate of how income is created and distributed.

Take the most simple example. Laws can prohibit all interest on money loaned. Ta da: no more interest income. People may try a work around but only to the extent the law permits (i.e, people with capital may become partners). This also affects distribution of income for the lender, as partner, may become liable for all the firms debts, whereas, before, as lender, her liability was limited. And on its goes.

Or, the law may permit slavery. In that instance I could just buy you, force you to work, and keep the earning of the sweat of your brow for myself.

In sum, the law (politics) make structure the market any damn way it wants. There may be more optimal structures depending on ones goal. For example, if one wants to maximize output, being concerned only for a few, you go for slavery. Bush has explained the advantages and disadvantages in one of his famous quips.

After about 2000 years we came to learn that lending money at interest was likely better than having forced partners but more recently we have learned that you cannot let lenders get to big to fail, if you go that route.

Of course, being woefully dumb, all these lessons have escaped you

Dan H October 7, 2011 at 4:05 pm

Hmmm…. no… markets are not created by laws. They exist in both the absence and presence of government law. I’m pretty sure there are laws banning a market for drugs, but the market still exists. Laws distort markets. They don’t create them.

Michael October 7, 2011 at 4:17 pm

I knew I should have refreshed before I hit reply…

Observer October 7, 2011 at 4:33 pm

Dan

1) you leave out the rest of the story

2) our laws on drugs certainly shape the market. I would argue there is not market, just criminal behavior. The seller cannot enforce the price in any court.

3) in the alternative even the illegal “drug market” has law, albeit private and self-help

4) sans an enforcement mechanism (law or self defense), there is never a market

5) without “law” who could lend money at interest, sell over distance, insure, construct or build anything. The certainty of law is what makes anything more than hand to hand barter possible.

6) your kinds of “markets” existed for tens of thousands of years and mankind lived a subsistence existence. It was the introduction and development of contract law in England and Scotland that gave us the modern world and with it true “markets.”

7) For example, based on the insights of Adam Smith about the importance of insurance and spreading risk, contracts law created a market for insurance in England that existed no where else.

Good research has shown that this risk spreading was very important to England’s growth

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1801664

This, for example, is why every economist should support Obamacare. By forcing all to be insured it spreads risk, increases the capacity for us to take risk, and will therefore lead to economic growth. How effective will obviously depend on other variables, but the obvious potential payoff is tremendous

Dan H October 7, 2011 at 4:45 pm

This is wrong on so many levels I don’t even know where to start. It’s really not worth replying. Even Paul Krugman would disagree with your view of markets. You really don’t understand economics, do you?

vikingvista October 7, 2011 at 5:38 pm

“there is not market, just criminal behavior. The seller cannot enforce the price in any court.”

Activities do not need to be legal to be a market, and markets exist without any court enforcement.

You simply do not understand what a market is.

Stone Glasgow October 8, 2011 at 6:44 pm

Observer,

Even two men alone on an island can have a market, trading fish and coconuts. Laws and property rights are always there, defended by each man and his spear-point.

Each man defends his property with the implied threat of violence, today that threat of violence has been moved to an external enforcement agency (police, courts). This allows men to own what they cannot actively defend with their own weapons, and allows trading over long distances by transferring paper titles instead of physical asset. The rule of law is an improvement, but is not necessary for trading and property rights to exist.

Stone Glasgow October 8, 2011 at 7:29 pm

Observer, you are correct regarding Obamacare in stating that forcing everyone to be part of the system will lower the per capita cost of the insurance. This is one reason that group insurance for companies is cheaper per person. It avoids the risk that only sick people will purchase health insurance, and allows companies to price insurance based on actual disease rates without calculating the probability that a new customer is already sick.

Many people feel it is immoral to force people into the group system, but this is somewhat strange; they don’t feel it is immoral to force everyone into military-protection “insurance,” that is funded in exactly the same way. We are all forced to pay for universal military protection, and the cost is lower, per capita, because we are all forced into the plan.

If each citizen were able to choose to purchase protection or not (ignoring the free-rider problem), military “insurance companies,” would have higher per person costs to defend its customers. People living in areas more susceptible to enemy attacks would be more likely to purchase protection, just as people more likely to get sick are more likely to purchase health insurance. The same “self-selection bias” problem exists in pricing insurance against international violence.

Additionally, if one is against universal health, one should also be against universal police forces, because people with larger families or more assets in need of protection enjoy more benefits relative to people who don’t own anything, have no children, and live in safe neighborhoods. If each of us should pay individually for health insurance, surely we should all pay for police and courts based upon how many of our children and assets they are required to protect.

If one claims that he should be free to choose to live with the risk that he may be hospitalized, without insurance protection, should he not similarly demand that he be free to choose life without the protection of police? Should he not be free to select the level of police protection he desires, so that he is free to avoid paying for services and accept the risk that his home may be burgled?

Michael October 7, 2011 at 4:10 pm

markets are artificial abstracts created by law
snip
Laws can prohibit all interest on money loaned

There are actual laws that prohibit the production, sale, and possession of cocaine, and yet, there are still suppliers of, and consumers of, cocaine.

Markets are natural phenomena.

txslr October 7, 2011 at 5:36 pm

What you write here makes no sense to me at all. It is an interesting fact that humans are the only animals we know of that engage in mutually beneficial exchange with one another. Chimps can be taught to exchange with humans, but not with other chimps. This appears to be genetic, and such exchanges go back to the dawn of man. Indeed it is a necessary condition for specialization in production. Hence, our ancient ancestor who exchanged an arrowhead for meat was engaged in what I would consider a market transaction in the absence of government, law or written language – perhaps even spoken language.

It seems natural to suppose, then, that laws of contract and property arose in order to facilitate orderly trade in markets that already existed (like arrowheads for meat). This makes much more sense than assuming that there were no transactions, that someone conceived of trade and specialization in the abstract and invented law to make it happen, no?

Observer October 7, 2011 at 8:13 pm

txsir

as you can see by the energy put into the exchange there is really something else going on.

The “always a market” types have an unstated agenda. If you concede that “markets” are “natural” or whatever, then they attempt to rationalize the outcome of today’s distribution of income and “natural” all in order to preserve the status quo (and the flow of income to those favored by the current political order). 150 years ago, before the Civil War the identical argument was made in favor of slavery (i.e, there has always been slavery, slavery is the natural order, slavery is in the Bible, etc.).

My point is that whatever happened before the dawn of civilization is meaningless and uninformative. In the modern society markets are totally the creation of politics/law and that our politics and laws determine our winners and losers not some invisible “hand.”. The way this work is the concept of leverage. In our markets you get not what you are worth but what you can obtain through leverage. For example, I borrow money at 6%. and interest rates drop to 4% I still have to pay 6% because the lender has leverage. She can go to court and the Courts will make me honor my contract and pay 6%. Without the Courts the “market” means nothing.

Dan H October 7, 2011 at 8:29 pm

God you are a f*cking moron.

Slavery is a distortion of the free market. Like any other distortion, it requires governmental law and the use of force to ensure market distortion. In fact, slavery only existed precisely BECAUSE of governmental law. The natural state of man is freedom. He is free until someone initiates force against him thereby compelling him to do something he wouldn’t do if left up to him. Markets exist in spite of your laws. Your laws only distort and bastardize markets and induce the moral hazard. True markets exist both in the presence and absence of force. Ask yourself this: “Could slavery exist in the absence of force?”

You know what? I’m done. You are a fucking moron.

g-dub October 7, 2011 at 8:46 pm

In the modern society markets are totally the creation of politics/law…

Moronic nonsense.

txslr October 7, 2011 at 9:40 pm

Observer,

This seems to me to be a new point. Previously you held that markets are always creations of government and law, now you say that this is true only in modern times. However, even this modified assertion is untrue. A more common mechanism for enforcement is reputation and continued access to markets. For example, eBay oversees millions of market transactions and government involvement to enforce agreements is extremely rare. Indeed, given the cost of submitting a grievence to the courts and the value of the vast proportion of the items traded on eBay, it is transparently obvious that the government will seldom be involved. eBay uses reputation and the resultant access to buyers and sellers to enforce agreements.

If you look closely at the operations of even the most advanced markets you will see that the active involvement of the government is generally unnecessary. Futures markets, for example, require initial and maintenance margins in order to ensure performance. And before a commodities futures contract can be taken physical, the parties must post full margin or the position will be liquidated. This is all enforced by the exchange, a private entity that exists to carry out the operations of a marketplace without the intervention of the government.

When government intercedes in a market it is much less likely to be to enforce the terms of voluntary transactions than it is to attempt to coerce some outcome that neither the buyer nor seller had in mind or wished.

robert_o October 7, 2011 at 3:50 pm

|> No one is ever paid based on what they are worth.

Ever? Really? It never happens, not even accidentally?

Observer October 7, 2011 at 4:34 pm

not that you or anyone can prove

you can only assume a definition and then say that the income meets the definition, but the definition is totally artificial

vikingvista October 7, 2011 at 3:51 pm

“markets do not, have never, and will never either create or distribute income.

all distribution of income is a political question, depending on the laws in place and being enforced at that time.”

So when I give one of the neighbor kids $50 to mow my lawn, and the income distribution is shifted by $50 in his direction, what is the political question involved? Who is enforcing it? And if that is not a market, what is it?

J. W. October 7, 2011 at 5:04 pm

Good questions.

Observer October 7, 2011 at 8:19 pm

a gift of $50 is not a commercial transaction—no market is involved.

If you promised to pay you neighbor $50.00, and didn’t pay, the Courts would enforce your promise and make you pay the $50.00. This threat of court action is “leverage” which makes you live up to your promise.

A minimum wage law that made you pay at least $50.00 to any one who mows your yard, subject to going to prison, would be “leverage” that forces you to pay anyone who mows your yard $50.00

The gov’t can make as many or as few laws as its deems best to make you pay for you to have someone mow your yard. The gov’t can require you to have insurance, in case the yard mower gets hurt. Otherwise, those of us who are tax payers might have to pay the medical costs, etc. for taking care of the person hurt mowing your yard. Such a law, like most laws regarding markets, are intended to prevent what most on this blog want to do: free ride (hire someone as cheaply as possible and escape all consequences) (often called socializing costs).

HaywoodU October 7, 2011 at 8:55 pm

This is getting downright silly.

txslr October 7, 2011 at 8:57 pm

Exchange for mutual benefit is a natural behavior of humans. Sometimes enforcement of agreements is required, so we grant government a monopoly on the application of violence to that end, and we develop laws to guide that application.

Sometimes people will attempt to expropriate the government’s monopoly on violence in order to accomplish objectives other than enforcement of voluntary agreements. For example, some people may use the threat of government violence to coerce others to fund the health care for people who mow lawns. Spreading the cost of gardeners’ health care across the population shifts that cost to individuals who are not party to the lawn mowing transaction, lowering the price that must be paid by the lawn owner to the mower. That is to say, a portion of the cost of getting your lawn mowed has been socialized and is now being paid by people who don’t even have lawns.

People on this blog would generally advocate NOT socializing these costs. They would prefer to contract directly with the gardener without the intervention of the government and the shifting of costs unto uninvolved third parties.

Observer October 8, 2011 at 8:48 am

txsir

so you want to make insurance illegal?

spreading risk is extremely beneficial to economic growth. I have posted the research, elsewhere. it is one of many reasons why the “economists” on this blog have no idea what they are talking about.

txslr October 8, 2011 at 2:00 pm

Observer,

Of course I don’t want to make insurance illegal. There is nothing in what I wrote that could possibly suggest that I do.

vikingvista October 8, 2011 at 1:59 am

“a gift of $50 is not a commercial transaction—no market is involved.
If you promised to pay you neighbor $50.00, and didn’t pay, the Courts would enforce your promise and make you pay the $50.00. This threat of court action is “leverage” which makes you live up to your promise.”

1. It isn’t a gift. It is a trade–$50 for mowed lawn, as I said.

2. I prepaid the kid, and I’m not about to go to court over $50. What I will do, is refuse to hire that kid in the future. So, tell me again how the court controls this?

“A minimum wage law that made you pay at least $50.00 to any one who mows your yard, subject to going to prison, would be “leverage” that forces you to pay anyone who mows your yard $50.00″

I wasn’t even thinking of minimum wage, nor do I or most people in these kinds of agreements care. Okay, I will offer to pay him $2, even if it takes him all day, minimum wage be damned. Now I ask you again, where is the politics?

“The gov’t can make as many or as few laws as its deems best to make you pay for you to have someone mow your yard. The gov’t can require you to have insurance, in case the yard mower gets hurt.”

Fine. I don’t have insurance. I’m still going to offer $2 to the neighborhood kids. Now what? Happens all the time. Call the police, and expect to hear chuckling in the background.

“Otherwise, those of us who are tax payers might have to pay the medical costs, etc. for taking care of the person hurt mowing your yard.”

Again, neither I nor the kid give a damn. It just so happens, the kid’s parents privately bought great private insurance, so you have nothing to worry about, no that is irrelevant.

“Such a law, like most laws regarding markets, are intended to prevent what most on this blog want to do: free ride (hire someone as cheaply as possible and escape all consequences) (often called socializing costs).”

Well, the kid likes the deal, I like the deal, and neither you nor anyone else either knows about it, or is affected by it. Neither one of us is going to engage a lawyer for a $2 lawnmowing deal, so whatever laws there are, we neither know nor care. So, I ask you again, what are the politics 100% controlling this income?

It’s so childish. You think because a law is passed to do X, X is going to happen. Time to wake up to reality.

vikingvista October 7, 2011 at 3:52 pm

“No one is ever paid based on what they are worth.”

How do you determine “what they are worth”?

Observer October 7, 2011 at 4:10 pm

vikingvista

worth is an issue for philosophers and has nothing to do with economics. ( And philosophers will tell you they cannot answer the question–all they can do is sometimes say what is unjust, or unfair).

the economic questions are ones of efficiency and paradoxes and short and long term views. You aim at distributing income so as to lead to the maximum output of goods and services, over the long run.

For example, since talent and brains are random, a society concerned about the long run wants all of its children healthy and educated. Thus, policies that distribute income to everyone so that their children are healthy and educated are likely far better than policies that concentrates wealth in a few and which, in the long run, deprive us of the talents of all our people.

They say that there are poor people who won’t work because they are paid too much and rich people who won’t work because they are not being paid enough. I have never meet such people. My line of work is to try to help both kinds—they present themselves with lots of problems, but these flaws, never

Dan H October 7, 2011 at 4:12 pm

“worth is an issue for philosophers and has nothing to do with economics.”

Ha ha ha ha ha ha ha ha ha ha ha ha ha

Ken October 7, 2011 at 5:08 pm

Apparently dollars, yuan, yen, euros, etc are issues for philosophers and have nothing to do with economics.

Regards,
Ken

Michael October 7, 2011 at 4:21 pm

worth is an issue for philosophers and has nothing to do with economics.

You realize that economics was founded by a philosopher, no?

( And philosophers will tell you they cannot answer the question–all they can do is sometimes say what is unjust, or unfair)

If they cannot determine was is worthy, then is seems axiomatic that they would not be able to determine was in unworthy.

You speak in platitudes.

Observer October 7, 2011 at 4:55 pm

then is seems axiomatic that they would not be able to determine was in unworthy.

No, thinks probably to evolution, good psychology studies show that broad parts of the population can identify and agree on what is unfair or unjust.

This is the skill and insight used by great plaintiff trial lawyers to achieve fair compensation for people killed, maimed, and destroyed by corporate greed. They do not talk about justice. They talk about it being unfair or unjust not to compensate Sue for the loss of Bill.

vikingvista October 7, 2011 at 5:16 pm

“good psychology studies show that broad parts of the population can identify and agree on what is unfair or unjust.”

How do you personally judge right and wrong, through reason or a popularity poll?

vikingvista October 7, 2011 at 5:03 pm

“worth is an issue for philosophers and has nothing to do with economics.”

Wrong context. Value is subjective, so the use of the word “worth” always has an explicit or implicit “to whom”. When you ask about whether someone is paid what they are worth, you are asking if they are paid what they are worth *to the market*. And the market is just people bidding for transactions.

So the answer to whether or not a person is paid what he is worth is simply: “In a free market, yes, always and by definition.”

Observer October 7, 2011 at 8:23 pm

thinking that there is some invisible hand determining value is a platitude

I speak in sound principles.

Observer October 7, 2011 at 8:28 pm

there is no free market

it is a false statement, on the scale of describing space as a vacuum, when it is not.

never has been one, never will be one, so the question has no meaning

a market requires that one be able to enforce a promise of future performance. implicit in letting someone judge is that the judge will have her own idea about what would be unfair or unjust

vikingvista October 8, 2011 at 2:02 am

“thinking that there is some invisible hand determining value is a platitude”

1. If it were a platitude, then I would’ve heard of it. I haven’t (until now), so it isn’t. In addition, it is false.

2. Now stop the diversion, and respond to what I posted. Value is subjective. You have not even touched upon a philosophy education if you have not encountered this.

“I speak in sound principles.”

I’m seriously trying to hold back the laughter. But don’t push it.

vikingvista October 8, 2011 at 2:20 am

“there is no free market

it is a false statement, on the scale of describing space as a vacuum, when it is not.

never has been one, never will be one, so the question has no meaning”

I’ll try to be generous here. If you mean, that there has never been a significant interval of time, in any significant population of interacting people, where each and every action taken was free from the violent influence of other people, then you are almost certainly correct.

But clearly, there is a difference between an a person taking an action free from the violent influence of others (like a man alone), and taking one that is influenced by another’s violence. There clearly are both free and non-free actions. The set of free interactions between individuals comprises the free market. The fewer the violent actions, the MORE free the market. It is a relevant distinction with practical consequences. Whether you personally like the consequences or not is immaterial.

“a market requires that one be able to enforce a promise of future performance.”

Well of course it doesn’t! Just use your noggin for a minute. Yes, government third parties are used for that purpose, but the absence of third party enforcement does not abolish all markets. Frequently, people engaged in market interactions choose not to rely on government enforcement even when they can, both because government enforcement is commonly inefficient and unfair, but also because it can be more efficient to structure an agreement so that it never has to come to that. Even a conventional statist who believes that territories not under the control of a government authority are horrible violent chaotic places, still recognizes that people continue to trade and negotiate there.

This is very basic stuff. Reputation, escrow, collateral, sequential transactions, private insurance/bonding, private arbitration, etc. The market has devised numerous ways to enforce agreements without the government. Of course the biggest enforcement is simply that the two people involved both WANT the outcome. Trade is spontaneous, government or not.

Martin Brock October 8, 2011 at 11:59 am

never has been one, never will be one, so the question has no meaning

Apparently, there has never been a space-time obeying Euclid’s laws, and apparently, there never will be one, but I wouldn’t say that Euclidean geometry has no meaning.

Euclidean geometry is a useful abstraction. For most purposes, it is more useful than non-Euclidean geometries, because the non-Euclidean geometries are less intuitive and more difficult to comprehend and to apply, even if they are more universally “true” in some sense.

So when Rosenberg began an episode of Econtalk a few weeks ago by comparing economic theory to geometry, I knew I was in for a treat, and Rosenberg didn’t disappoint me.

I’m an unapologetic libertarian, because I believe, for largely theoretical reasons, that a very free economy is more useful (in the “utilitarian” sense) than a very unfree economy; however, I don’t agree with Don that the U.S. economy qualifies as “very free”, and I agree with you (I think) that a small change in a very unfree economy, even in an apparently “freer” direction, doesn’t necessarily increase utility.

I’m also a bleeding heart libertarian. In fact, I adopted this label for myself decades before the linked site appeared, and I believe I invented it independently of anyone else, but I promise not to sue anyone for violating my intellectual property rights.

vikingvista October 7, 2011 at 5:05 pm

“philosophers will tell you they cannot answer the question”

Philosophers long ago answered the question conclusively and for always: value is subjective.

vikingvista October 7, 2011 at 5:09 pm

“You aim at distributing income so as to lead to the maximum output of goods and services, over the long run.”

No YOU aim at that. I aim for people to live as free as possible from the violent intrusions of other people. You cannot strive for both. It just so happens that my aim also results in awe-inspiring prosperity both in scale and distribution, whether “maximum” or not.

vikingvista October 7, 2011 at 5:13 pm

“society concerned about the long run wants all of its children”

Society has neither a concern, nor a child. Individual people have their own concerns, and they are too legion, different, and dynamic for anyone to possibly ever know.

Observer October 7, 2011 at 8:39 pm

How do you personally judge right and wrong, through reason or a popularity poll?

First, I read the the Bible. Beyond that, I follow the rules of President Truman and Charles Munger.

The issues here are not matters of right and wrong. As Jesus said, Render unto Caesar what is Caesar’s. For example, taxes are not theft, they are trust funds and the price of civilization.

If you would read Munger and Truman you would come to understand that what makes you mad are Psychological Misjudgments and errors.

In large part we are where we are because the Rich never let the Democrats correct mistakes and both parties are trapped by special interests. Mostly, our problems are the result of too little democracy. Robert Dugger has a series of comments on his web site that explain the political capture very well:

Structural trap is evidence of political decay The political scientist Samuel Huntington first identified the problem of political decay in 1965. He offered it as an answer to why the developing world was modernizing economically but reverting to
authoritarianism politically. His mentee, Francis Fukuyama, recently extended this concept to present-day America.
Political decay occurs when political systems fail to adjust to changing circumstances. There is something like a law of the conservation of institutions. Human beings are rule-following
animals by nature; they are born to conform to the social norms they see around them, and they entrench those rules with often transcendent meaning and value. When the surrounding environment changes and new challenges arise, there is often a disjunction between existing institutions and present needs. Those institutions are supported by legions of
entrenched stakeholders who oppose any fundamental change.

vikingvista October 8, 2011 at 2:27 am

“The issues here are not matters of right and wrong. As Jesus said, Render unto Caesar what is Caesar’s. For example, taxes are not theft, they are trust funds and the price of civilization.”

First of all, judgement isn’t an option. Deny it all you like, you perform it all the time. You believe taxes are not wrong. That’s your judgement. The point is, in your prior post you claimed it was some sort of community consensus. Here you contradict that claim, as you must. Such a claim is always a contradiction, as judgement is an individual faculty.

How one person treats another is typically the subject of morality. You think it is right for some people to gang up on peaceful innocent parties who are minding their own business, and to employ whatever level of violent force is necessary to confiscate their property. That is your moral judgement. You believe that is the cost of civilization. I believe it is a cost to civilization.

Stone Glasgow October 8, 2011 at 3:32 am

Well said, Viking.

Martin Brock October 8, 2011 at 12:19 pm

As Jesus said, Render unto Caesar what is Caesar’s.

“Render unto Caesar” is code for “Get this idolatrous picture of Caesar out of God’s temple, because Caesar is no god.” This interpretation is very clear in context, but the saying is almost always quoted out of context.

Here’s the context from Mark 13-17 (NIV). The account in Matthew is practically identical.

Later they sent some of the Pharisees and Herodians to Jesus to catch him in his words. They came to him and said, “Teacher, we know you are a man of integrity. You aren’t swayed by men, because you pay no attention to who they are; but you teach the way of God in accordance with the truth. Is it right to pay taxes to Caesar or not? Should we pay or shouldn’t we?”

But Jesus knew their hypocrisy. “Why are you trying to trap me?” he asked. “Bring me a denarius and let me look at it.” They brought the coin, and he asked them, “Whose portrait is this? And whose inscription?”

“Caesar’s,” they replied.

Then Jesus said to them, “Give to Caesar what is Caesar’s and to God what is God’s.”

The inscription on the denarius (a Roman coin) explicitly called Caesar “divine”.

For example, taxes are not theft, they are trust funds and the price of civilization.

That’s not remotely what the passage in Mark suggests. It’s practically the opposite of the genuine Christian tradition.

Martin Brock October 8, 2011 at 12:22 pm

I thought very much as you do at one time, Observer, and my thinking hasn’t really changed very much.

Martin Brock October 8, 2011 at 12:41 pm

Correction: That’s Mark 12:13-17.

Darren October 7, 2011 at 5:55 pm

You aim at distributing income so as to lead to the maximum output of goods and services, over the long run.

This is not a subject for economics either. This is merely policy and depends on the subjective values of those making the policy.

Will October 7, 2011 at 4:06 pm

A created value to every customer that ordered breakfast, lunch and dinner.

B created value by providing A with resources he/she would did not have that one his/her own and A valued those resources by paying 6% interest. B gave to A because B did not have the resources or know how to run a restaurant and believed A could do it sufficiently to justify the risk which B valued at 6% return. B is not in the business of running a restaurant which is why B gave A the money, so I doubt be would foreclose on one missed payment.

C,D,E provided value to A by cooking, waiting, etc worth the wages even at the living wages.

A , B, C, D, and E created income for themselves by working in a market. Without it, A could not have gotten from B to give to C, D, E and all the customers who enjoyed a meal. Everyone was better off as a result.

Methinks1776 October 7, 2011 at 4:15 pm

OMG.

1.) If A’s restaurant is so profitable, why can’t he repay the principal?

2.) If A didn’t want to pay CDE more, then he could have fired them and hired non-union labour. The law (you are so fond of) allows that. Mighty big of them.

3.) If A decides to double CDE’s wages, then that means they are producing more than he is paying them (see? producing).

4.) B does not foreclose on A if A forgets a payment. A and B came to an agreement on the covenants of the loan. A may be contractually obligated to pay a higher interest rate if he misses a payment, but B does not foreclose.

5.) B doesn’t foreclose for another reason – B is not a restauranteur. He’s a financier. He wouldn’t know how to run a restaurant. He knows full well that if he forecloses, he’ll have to sell the building for scrap and he’ll not have his loan returned to him.

6.) Important lesson: B lends to A because he thinks A is capable of running the restaurant better than any other restauranteur he could lend to. If B were as good at running restaurants as A, then B would be a restauranteur.

Michael October 7, 2011 at 4:30 pm

1.) If A’s restaurant is so profitable, why can’t he repay the principal?

And wildly profitable at that. I don’t think wildly or successful means what he believes they do.

Observer October 7, 2011 at 4:49 pm

Methinks1776, who doesn’t think

1) it doesn’t matter why A hasn’t repaid the principal. The purpose of the assumption is merely to set up a default by A. Let’s take a pretty real life example. A lives in Texas in the United States. His mother, aged 50, has need for a major operation to save her life and no insurance, savings, income, or assets, so A takes his money and pays for his mothers health care. He has being using his profits to pay for her support and the mortgage on her home since the start of the Lesser Depression, when she lost her job.

2) unions work when they have leverage. CDE had leverage, so A could not replace them

Skip to 4–you are right, A and B could have a loan document that has a right to cure, etc., but A lives in a state that has no protection for borrowers and B offered the loan on the condition that if A missed a payment by 5 minutes B could foreclose. B is a follower of Ayn Rand and views A as a human parasites because he needs to borrow money. In sum, you just proved by point: the distribution of income is determined by the laws enforced in the market. When A missed the payment, B used the state’s courts to foreclose.

Your other points are just made up. I could counter. A’s only idea was creating the restaurant. C, D, and E can run the restaurant, w/o A once they know A’s ideas (A has no patent or copyright protection for his ideas)

In sum, my hypo proves that one can have a great idea and even implement such and end up with nothing, depending on the laws that create the markets in which you operate.

Will October 7, 2011 at 5:11 pm

It is true that business do fail, but to say that A ends with nothing is missing the point that for the entire time A had the restaurant he was creating goods and service making a living without which he would truly have had nothing.

Rugby1 October 7, 2011 at 5:40 pm

@ Observer

“A’s only idea was creating the restaurant. C, D, and E can run the restaurant, w/o A once they know A’s ideas”

That is one of the worst statements I have ever heard. So now that Steve Jobs is gone do you think Apple will be the same? Do you really think that once someone understands how to run a business it is forever successful. By making that statement you are basically admitting you misunderstand the power of innovation. You seem to think that businesses operate in a vaccuum. It’s like you have no concept of economic history.

As an aside your “hypo’s” are ridiculous. You are like the law school professors who try to continue bringing about the most absurd propositions ever. I am betting you have never worked in a business (I am sure you will now claim otherwise) and remain cloistered among the ivory towers of academia.

Methinks1776 October 7, 2011 at 7:35 pm

Your hypo proves that you are an irredeemable moron. You can’t understand basic concepts of trade-offs and it’s clear that no matter how many logical arguments you face, none will penetrate for further consideration. I don’t have a jackhammer strong enough to crack this much stupid.

Observer October 7, 2011 at 8:44 pm

Rugby1

Looks like you left you brains on the field

The purpose of the model is only to show that politics/laws determine how income is distributed, nothing more less.

It is not about how to start a business or run a business

You obviously cannot reason abstractly.

Jim October 7, 2011 at 7:53 pm

After reading observer’s latest reply to methinks, I no longer believe Observer understands what a market is. The scenario could be replaced without government.

in that case, A would be destitute, and CDE would run the restaurant, perhaps in co-ownership with B. So what? it happens with some regularity.

Jobs stole most of the technology he used in his computers. So did Gates. He ‘stole’ it from the inventors who did not value it and put it to better use (eg Xerox developed the graphical interface and the mouse years before Jobs saw it, but Xerox employees could not convince their executives it was useful). Just as companies do when they buy cheap useless farm land and become rich by mining the ore beneath it.

I no longer understand Observer’s point. Markets, or many buyers, determine prices of products in demand. As in all things, one’s choices often determine how fruitful ideas are, and who benefits from them. How is that in any way dependent on government laws or repudiate worth?

Observer October 7, 2011 at 8:46 pm

Jim

You can buy farmland cheap only if the gov’t will enforce your contract.

If you cannot undertand that a contract means nothing without the ability, from gov’t, to enforce such, I cannot help you

Rugby1 October 7, 2011 at 8:55 pm

Oh that’s cute.

You utilize ceasless hypos to create model scenarios. When I question that assumptions underpinning your hypos or theories depending on how you want to use the word, you then knock out my questioning by saying it was reasoning in the abstract.

In essence you have shown yourself to be pretty stupid.

Moreover you have made SEVERAL statements articulating something pretty close to the labor theory of value. You can move the goal posts all you want (that’s what people utilizing endless hypos like to do) but in the end of the day you have shown yourself to be a silly fraud without a modicum of intelligence.

By the way, I see you did not respond to my characterization of you living in Academia. Its difficult when the truth strikes home.

Observer October 7, 2011 at 9:18 pm

I am not an academic

The labor theory of value is totally stupid

My observations are totally value neutral. Before you change a mechanism you have to understand how it works.

I will give you one example, albeit you are too dumb to understand.

There is pretty good evidence that the reason why Unions work is that they let Worker A know what Worker B is being paid. Thus, Worker A can tell Owner O, I work as hard and well as B, I should be paid what B is worth.

As unions have disappeared, workers has less and less information about what co-workers are paid (especially elsewhere) so they do not know there worth, etc.

If a market were free, wouldn’t the worker and the owner have the same information. So if the owner knows what the other employees are being paid and if the owner knows what other employers are being paid, shouldn’t the worker have the same information?

That would be a freer fair market than what we have today, and reduce a lot of the leverage Owners now have

The point is the rules of the game determine the winner. The rules of our game are leading to very bad outcomes.

Seth October 7, 2011 at 5:31 pm

“but he has nothing because the law let B foreclose”

A has nothing because he broke the agreement he made with the lender.

Observer October 7, 2011 at 8:53 pm

until the law enforces the promise A is still in possession of the restaurant and getting its profits, instead of B.

Without a Court to foreclose and give the restaurant to B, A’s promise, if broken, means nothing.

Thus, B has leverage because he has Court that will enforce A’s promise.

If the Courts would say, B, even though A promised to pay as per example, your getting the promise was unfair and we are not going to enforce A promise then B doesn’t get the restaurant. IOW, the market is what the law will enforce.

It is fundamental that A can ask the government not to enforce the promise, just as it is fundamental that B can to the same. It is right in the Constitution, the Right to Petition the Government for Redress of Grievances. Anyone, anytime, anywhere can Petition the Gov’t saying that some situation is unfair or unjust and asking the Gov’t to do something. They can ask Congress, the President, or the Courts.

Seth October 7, 2011 at 11:28 pm

If A’s promise didn’t mean anything, the lender would not have agreed to lend (or donate) to him.

You’re not far off about markets being laws. Just not the laws you envision (which is legislation). Markets are governed by sets of emergent laws (norms and customs) as Don describes in this video (http://www.youtube.com/watch?v=LPn84m1pvh4).

Value is created when parties trade with each other. The most value is created when that trade is voluntary on both sides. The voluntary nature of the trade ensures that value is created for both sides — otherwise, why would they trade?

They don’t trade because of those laws. They trade to make their lives better.

Observer October 8, 2011 at 9:37 am

value is not created by exchange: value is exchanged by exchange. A reason that exchange is useful is that it permits specialization, which increases efficiency: The idea that if A spends all of his time making hammers A can make more hammers than if A only makes one and then A makes one pot and then A makes one blanket. A could exchange one of his hammers with B, who only makes pots and C, who only makes blankets. Without efficiency exchange accomplishes nothing. If there is no efficiency in A, B, and C specializing, then exchange between them does not create “value” A would make his hammer, pot, and blanket and B would do the same.

Seth October 8, 2011 at 3:21 pm

There would be no reason to trade if value wasn’t created in the process.

Winfred October 7, 2011 at 3:59 pm

Holy mother of abject idiocy!!!!

ROFLMAO

Wow…. statistics (distribution curves) are supposedly, somehow, mutually exclusive to the creation of their variables?

Winfred October 7, 2011 at 4:19 pm

“If the semantic convention were to refer, not to “income distribution,” but to “income creation,” then we’d have headlines…”

I think it would be better if political nutters refrained from trying to redefine established statistical terms.

What next? Median should be replaced with “not the average”?

Winfred October 7, 2011 at 4:23 pm

Again… I would like to thank everyone for providing me with more stupidity in one place at one time since the the Intelligent Design movement fizzled.

Please recommend the other web sites you freaks comment on, one that’s just as active, and, preferably, far less full of cowards who run away from logical challenges

Dan H October 7, 2011 at 4:25 pm

I’ll let Methinks handle this… she’s way more crafty with troll-busting responses than I am.

Michael October 7, 2011 at 4:32 pm

We could just stop feeding trolls…

vikingvista October 7, 2011 at 5:19 pm

I agree. This troll is off his lithium.

Seth October 7, 2011 at 5:48 pm

‘…preferably, far less full of cowards who run away from logical challenges.’

Can you point us to a logical challenge you have made?

Methinks1776 October 7, 2011 at 7:33 pm

Allow me, Seth. His lodjuhkul chalundges went something like this:

“LOL more stupidity LOL in one place at one time LOL since the the Intelligent Design movement fizzled. LOL. LOL. LOL.”

I think it just cuts and pastes it into every post.

Sam Grove October 8, 2011 at 2:07 am

Let’s call him LOL-ly

Greg Webb October 8, 2011 at 9:21 am

Winfred, please set up a separate debate blog and state a coherent, logical proposition, and I will be happy to debate you. You appear to be the typical cowardly, big-mouthed libtard/regressive who is unable to do anything more than make silly personal attacks, straw man arguments, non sequiturs, prevarications, illogical statements, and incoherent ramblings.

Invisible Backhand October 7, 2011 at 4:41 pm

Incomes are Created, Not “Distributed”…anti-social envy…In market economies (which America’s still largely is), incomes and wealth are not “distributed”; they are created – and, hence, earned by their creators.

I remember a time..I think it was yesterday..when everyone on this board was fawning over a George Will column. Elizabeth Warren attacks positions nobody holds, of course nobody builds a factory by themselves, something like that.

Today those who don’t have an equity position have been forgotten faster than a toddler forgets a broken toy. The ‘wealth creators’ are the stars of the show again and the purely ceremonial lauding of the peasants has been packed away again for another year while the galtian elite watch their slave made DVD players. Being against slavery is soooo last week, darling.

muirgeo October 7, 2011 at 5:11 pm

“In market economies (which America’s still largely is), incomes and wealth are not “distributed”; they are created – and, hence, earned by their creators.”

Don I just love this logic. We are told by the libertarian sect… who are YOU to decide what income is earned and what is not… yet apparently only Don is omniscient enough to make the proclaimation that indeed these massive fortunes were earned. That in spite of the MASSIVE HUGE amount of evidence to the contrary showing all sorts of rent-seeking and rule changing and policy making that more likely explains a lot of these higher incomes and there total non-relation to doing anything productive.

Also I love how when we are talking about the “good things” in our economy it’s because we are “still a market economy” yet when anyone mention the ills of the economy it is because we are a near communist state. Or say the idea of raising the top tax rate to what it was with Clinton yet still well below what it was with Reagan then it becomes all our ills are related to the fact that we are on an apperent precipice of rolling over into communism. LOL

Winfred October 7, 2011 at 5:28 pm

“Don I just love this logic.”

What logic?

Observer October 7, 2011 at 9:04 pm

evidence to the contrary showing all sorts of rent-seeking and rule changing and policy making that more likely explains a lot of these higher incomes and there total non-relation to doing anything productive.

you left out all the studies the show the dollars returned for minimal lobbying expenses

and you did mention, for example, and the people here don’t understand that by getting Scalia and the other conservative judges that the Securities Industry has stolen trillions because they may now lawfully aid and abet a fraud and profit from the same

every one asks why no criminal prosecutions over all the mortgage fraud. In 1995 the Supreme Court made it legal in a case called Central Bank of Denver

Bill October 7, 2011 at 5:16 pm

One of the issues introduced at or near the beginning of introductory classes in economics is that any economy, regardless of the system used to organize economic activity, is confronted with these scarcity-related and intertwined questions: what to produce, how to produce, and for whom to produce. I still remember Milton Friedman’s observation that there are those who are sympathetic to having voluntary exchange in markets answer the “what” and “how” questions, but who still want to use something other than the market to address the “for whom” issue.

Winfred October 7, 2011 at 5:26 pm

English as a second language?

Winfred October 7, 2011 at 5:33 pm

Really… if you pathetic half-wits want to hi-jack the vocabulary of statistics…. you need to aim for “significant” …

Alas… that I have to look high and low to find threads like this is refreshing.

You disgusting bigots are clearly in the minority.

James N October 7, 2011 at 6:05 pm

Danth’s Law!

muirgeo October 7, 2011 at 5:35 pm

“If the semantic convention were to refer, not to “income distribution,” but to “income creation, then….”

So if the headlines read that the top income creators were those who created it by lobbying congress the most with an almost 100 fold profit for each dollar invested …THAT would make more sense to you?

But I guess when you are living in the filth of the rent seeking zones its hard to argue why the county you live in is one of the richest in the nation and just coincidently lies close to Washington D.C. What a coincidence…. but the omniscient have indeed proclaimed all is earned. Yeah.. correct the semantics…that’ll fix the problem.

99er October 7, 2011 at 5:36 pm

Wow great post!

Methinks1776 October 7, 2011 at 8:43 pm

Muirdiot, your picture is still up.

Dan H October 7, 2011 at 8:49 pm

Ha ha ha ha!

99er October 8, 2011 at 12:39 am

It WAS a great post…. what can I say.

Th professor living in the richest rent seeking county in the country proclaims from on high all is earned… deal with that.

Again GREAT post…. blew the professor out of the water. No rebuttal is possible because his post is horrendously ridiculous and arrogant.

Greg Webb October 8, 2011 at 12:43 am

So says the delusional, applause-seeking regressive. LOL!

Methinks1776 October 8, 2011 at 7:57 am

Oh, Muirdiot……

HaywoodU October 7, 2011 at 9:03 pm

Simply fantastic!

Greg Webb October 7, 2011 at 11:28 pm

George, now you are pretending to be someone else congratulating yourself for pretending at knowledge! That’s hilarious!

Ken October 7, 2011 at 6:23 pm

the top income creators were those who created it by lobbying congress

Assuming your conclusion is bad logic.

Regards,
Ken

Stone Glasgow October 7, 2011 at 5:37 pm

People can make a living in two ways:

1. Creating new wealth (Farming pigs)
2. Taking wealth that already exists (Hunting wild pigs)

Talking about a “distribution” of income is appropriate for talking about how the spoils of war will be divided after a successful raid on a neighboring village, or determining how meat will be divided after a successful hunting trip.

Leftists and socialists are stuck in a primitive mindset, unable to see that wealth can be created. Rich men are not wealthy because they did not share the fruit of a successful hunting trip; they are wealthy because they created a farm.

Darren October 7, 2011 at 6:05 pm

I’d say it’s both. The problem is those who have no qualms about destroying the former for the sake of destroying the latter.

Martin Brock October 8, 2011 at 8:36 am

Of course, it’s both. Stone is simply sticking his nose up the a** of every rich man for laughably obvious reasons. Saddam Hussein had golden toilet seats in his Presidential palaces, so he was indisputably rich, but according to Stone’s absurd generalization, he was rich only because his farm was so incredibly productive. Windsor Castle is also evidence of Elizabeth’s diligent farming.

But not in the land of the free and the home of the brave. We title anyone “noble” by statute here, so everyone is precisely as rich as he should be, even while the state directly controls 40% of GDP. Orwell would be proud.

Martin Brock October 8, 2011 at 8:37 am

Correction: We don’t title anyone …

Stone Glasgow October 8, 2011 at 3:56 pm

Hussein was rich because he took what already existed — taxing the men who built farms. One can still become very wealthy by stealing from others.

There are still only two ways to earn a living — creating value or taking/stealing value.

Ken October 7, 2011 at 6:07 pm

3. Claiming a portion of the farmer’s pigs in the name of The King/Society.

Stone Glasgow October 7, 2011 at 6:58 pm

That’s called “taking wealth that already exists.”

Martin Brock October 8, 2011 at 9:22 am

And taking wealth that already exists makes many people rich.

Stone Glasgow October 8, 2011 at 3:57 pm

That’s correct.

Winfred October 7, 2011 at 5:53 pm

Let me see if I’m tracking the right wing bigotry correctly…

Those who do not agree with your already obviously failed laisez faire economics are just jealous!

Could you morons be a little more tired and cliche, regurgitating your brainwashing?

Darren October 7, 2011 at 6:06 pm

Could you please go and be an idiot on some other site? Thank you.

g-dub October 7, 2011 at 8:50 pm

I’m sure he’s got many irons in the fire.

Winfred October 7, 2011 at 5:56 pm

What is illsutrated here by all the comments… other than the the mindless parroting of so many vapid propaganda talking points (brain washing), is that the right wing psychotic morons abhor facts.

They don’t refute the income distribution… the freak out and cry foul that anyone dare mention it.

Winfred October 7, 2011 at 6:00 pm

For the sake of amusement…

could one of you half-witted bigots explain what you think “income distribution” means? Seeing how the idiot you’re mindlessly agreeing with hasn’t!

kyle8 October 7, 2011 at 6:14 pm

Distribution of class, intelligence, and wit is something you obviously missed out on.

Seth October 7, 2011 at 11:50 pm

Not sure I’ve ever seen anybody get so up-in-arms about the idea that statistics lingo may not be fully understood by non-statisticians.

I’ll take a shot. Income distribution is the aggregation of incomes into defined population groups.

What I find troubling is how quickly folks present such distributions as rationale to support coercive redistribution.

Winfred October 9, 2011 at 1:30 am

Wow… this actually a comment I can do something with

“What I find troubling is how quickly folks present such distributions as rationale to support coercive redistribution.”

Are all laws “coercive”, or is it just when we make the cheaters play by the same rules as everyone else has too?

Seth has summed-up one of the right wing hyperbolic and delusions… that the rich are somehow victims.

Unfortunately going straight to bad-mouthing the prescription, without acknowledging the problem, does nothing to provide an alternative prescription that he might feel is more appropriate.

What Seth is essentially saying, contrary to reality, is that he that he doesn’t think the consolidation of wealth is a problem.

It is a problem…. not just because it’s destroying are economy either, but because it has taken-over our government, and robbed us of democracy.

The right wing morons are a bunch of classist bigots that need to stop fetishizing the wealthy, hating on the needy, and wake-up to the fact that the class-warfare is on, has been for some time, and we’re losing.

We’re at a cross-roads. The rest of the planet is calling us a failed state, a banana republic, a plutocracy.

What the right wing morons don’t seem to understand is history.

Throughout history, every aristocracy as consolidated the wealth, squeezed the working class into poverty doing it, ruined the economy, and left the nation they ran saddled with impossible debt.

There are two ways to counter this dystopic progression, and that is with gradual and modest social reforms…. or we can wait until the people reach a snapping point, grab their cleavers, drag their wealthy rulers into the streets, and unceremoniously dismember them.

Winfred October 9, 2011 at 1:33 am

…or we can wait until the people reach a snapping point, grab their cleavers, drag their wealthy rulers into the streets, and unceremoniously dismember them.

dismissing the anger and outrage as class envy isn’t going to stop it either.

vikingvista October 7, 2011 at 6:01 pm

Is it time for an exception to the no ban policy yet?

Winfred October 7, 2011 at 6:06 pm

Feeling your stupidity?

Ken October 7, 2011 at 6:07 pm

No, yours.

Punk.

vikingvista October 7, 2011 at 6:11 pm

Do yourself a favor and leave until you’ve recovered your self-respect and filled your lithium prescription.

LowcountryJoe October 7, 2011 at 6:33 pm

I agree here. This is much too much of an abuse to the senses…it is bad enough to put up with a muirgeo or an invisblebackhand but this clown has taken liberties way too far across the line. I would fully endorse the wielding of the ban hammer or an outright deletion of many of Winfred’s comments. A feedback loop should be put in-place in this instance to keep this thing in between the ditches.

muirgeo October 7, 2011 at 6:39 pm

“In market economies (which America’s still largely is), incomes and wealth are not “distributed”; they are created – and, hence, earned by their creators.”

So in other words, you lazy unemployed, you fools with no homes, you idiots who can’t afford college and you bankrupt college graduates with no jobs, you homeless worthless mothers, you in the ever enlarging poverty class, you ding dongs with underwater mortagages and you slackers in foreclosure, you jackasses trying to raise a family on minimum wage…. the esteemded professor has spoken and indeed the markets too. You deserve your lot so stop your whiming and complaining.

Randy October 7, 2011 at 7:00 pm

Yep, that’s pretty much right. So what’s your point?

muirgeo October 8, 2011 at 12:58 am

Hmmm…. just good to know who are the modern day Tory, Redcoat, King George supporters.

Greg Webb October 8, 2011 at 1:04 am

Nah, George. You are the one who wants big government run by Kings like George III, while the citizens (who are too stupid to rule themselves) are serfs. The Redcoats were the coercive arm of King George’s big government.

brotio October 8, 2011 at 2:10 am

Exactly right, Greg.

You may not have been patronizing this Cafe when Yasafi referred to St Franklin of Roosevelt as a Righteous Ruler. “Righteous Ruler” tells you all you need to know about Yasafi’s political philosophy.

muirgeo October 8, 2011 at 8:55 am

Nope, Greg I want it run by the 99ers. You guys have clearly sided with the fascist 1% ruling elite… thinking you can tell the rest how they have no right to order society while you and they are doing just that.. They are onto you like revolutionaries on King George.

Put YOUR message and my message out there in front of all 100 % and you get your butt kicked… just like King George and his Tory supporters who were sent packing…

Ken October 8, 2011 at 10:42 am

Oh, Georgie, why bother with the message, if you’re so sure of the outcome?

Come on, stop playing around the margins. There’s only a handful of us “Flat Earthers and Civil War reenactors” (as put on another forum by someone a lot like you, albeit of somewhat better character…faint but heartfelt praise) standing between you and the President and Dr. Warren and your utopia of sharing.

Prairie Fire. Then you’ll have your ground swept clean, and you can even rename the capital something more suitable. Like Omelas, maybe.

Come on. It’ll be *easy*. What are you lot waiting for? You want to make history, or just make noise?

Greg Webb October 8, 2011 at 7:46 pm

Nope, Greg I want it run by the 99ers. You guys have clearly sided with the fascist 1% ruling elite

Fascists are big government people like yourself, George. In fact, fascists were often called national socialists. In our big debate, you clearly lamented that the people were learning the Constitution and challenging the corrupt politicians and their political cronies. That’s what fascists (i.e., big government types hate — limits on their ability to acquire power over others in order to steal from them.

thinking you can tell the rest how they have no right to order society while you and they are doing just that.. They are onto you like revolutionaries on King George.

And, that is what fascists do, George. They want to order society to centralize power in the hands of a few at the expense of the many. And, that is what King George wanted to do.

Put YOUR message and my message out there in front of all 100 % and you get your butt kicked… just like King George and his Tory supporters who were sent packing…

More incoherent babbling, George? You, President Obama, Elizabeth Warren, and all big government types will be getting your butt kicked by the voters, just like your namesake King George did during the American Revolution.

Winfred October 7, 2011 at 6:39 pm

ahhh… the battle cry of the rhetorically impotent cowards:

BAN HIM!!

I wear it like a merit badge.

Will October 7, 2011 at 6:55 pm

If you are so set that everything said is wrong and that everyone is just parroting the brain washing we have received, educate me with a logical argument. What is income and where does it come from?

Winfred October 8, 2011 at 3:08 pm

What does defining income, and where it comes from, do to refute or support the delusional and paranoid opinion that a mere statistical term (distribution) is somehow a liberal conspiracy, born of envy, stacking the deck against the wealthy?

Logically… if I were to make a logical argument, educating you, that you all are parroting the brainwashing you received, that argument would have something to do with identifying the nature of the propoganda and it’s purpose…

Of course..I don’t think I need to explain the obvious that this explicit effort to disappear words and replace them with others, which meet with ideological approval, is quite literally what Orwellian New Speak does.

Will October 9, 2011 at 11:39 am

IF you don’t know what income is you can not do any meaningful analysis on it. That is the whole point. The word distribution is manipulated by socialist thought to imply that it exists independant of the people who create it for themselves. They flaunt the statistics of income “distribution” without knowing what income is. Take baseball for example. You can come up with all kinds of theories on how unfair the batting average distibution is across the MLB. But batting average is created by the individual batters. You can argue that the number 1, 2, 3 and 4 batters with higher averages are taking hits that belong to the batters with lower averages like 6, 7, 8 hitters, but when it comes down to it, batters earn their hits based on their effort to create hits. There is not some magical number of hits shared by all baseball players. The total number fluctuates based on individual preformance. Just because you can discuss the distribution of hits and batting averages across the entire MLB does not mean that it makes any sense. Income is not some finite thing to be shared by everyone, therefore any talk about distribution is meaningless except to provide polititians with a weapon to manipulate voters to stay in power.

LowcountryJoe October 8, 2011 at 10:03 am

“I wear it like a merit badge”

Is it because you’re a social misfit who thrives on negativity?

Greg Webb October 8, 2011 at 10:13 am

LOL! The cowardly statist makes silly personal attacks, rambles incoherently and illogically, uses straw man arguments, and then proudly announces that he wears the call to ban him like a merit badge. President Obama and Elizabeth Warren will soon proudly wear the same merit badge when the voters vote to ban them from government.

Ken October 8, 2011 at 10:37 am

“I wear it like a merit badge.”

Well, when it’s all you got….

Winfred October 7, 2011 at 6:41 pm

As much as I like to talk about me…

back to the topic….and knowing you half-witted morons will take that in itself personally….

Distribution is a statistical term.

Don’t you think it’ s just a tad Orwellian to change the empirical terms to political terms?

txslr October 7, 2011 at 7:33 pm

Thanks. What is redistribution?

g-dub October 7, 2011 at 8:52 pm

what it isn’t is random.

Winfred October 7, 2011 at 6:44 pm

Come on you sh!t-for-brain morons….

You apparently love this asinine post.

Defend it!!

Winfred October 7, 2011 at 6:51 pm

Do any of you bigoted morons want to actually debate this “distribution” vocabulary issue?

Why to you F$cktards bring it up if you’re too stupid and cowardly that you’re going to run away like a dog with its tail between legs?

What was your excuse last time… I’m troll…

Don’t discuss the actual topic because it’s the troll!!!

ROFLMAO

Slowly… Americans are waking up to just how ugly, disgusting, and problematic you pathetic hateful morons are.

You hate Government.

You hate the needy.

You hate reality.

You hate education.

You hate critical thinking.

You hate.. hate.. hate… hate…

Not once has any of you disgusting morons advanced any prescription, let alone done so based on the workable and promising nature of humanity.

Dan H October 7, 2011 at 7:07 pm

Take a breath, tweaker. Let’s look at this assertions one at a time.

“You hate Government.”
Only when it oversteps its bounds. Governments are instituted by men for protection from force and fraud from my neighbor. Those are the only two legitimate functions of government I can 100% agree with.

“You hate the needy.”
No, I don’t. I would venture to say I am much more charitable than you.

“You hate reality.”
If you knew what reality was, you wouldn’t be a dumbass.

“You hate education.”
Nope. I love education. I read all the time. Can’t get enough of it!

“You hate critical thinking.”
Wrong again. I love critical thinking exercises. But when an exercise in critical thinking is built upon a false premise – as are your posts – it annoys me and I choose not to participate in the drill.

Methinks1776 October 7, 2011 at 8:53 pm

Why bother? This thing is so full of self-loathing and so high on meth it can’t contain itself. Let it die a natural death – likely at a meeting of skinheads. Until that happens, let it twist in the grip of its own powerlessness. Do you really care what slithers through the mind of a roach?

Mesa Econoguy October 7, 2011 at 9:27 pm

Muirtard multiple personality disorder.

Randy October 7, 2011 at 6:57 pm

Just realized what draws the anti-freedom crowd here. They want respect.

I mean, they don’t have to win the debate in order to steal. They’ve already got the guns and they’re already stealing. So the argument they really hope to win is that they should be respected for the stealing. And the best way to deny them the respect they seek is to simply state the facts while ignoring their rationalizations and insults. Don and Russ have been doing it right, and I think that I’ve been doing it mostly wrong. Ah well, live and learn.

Methinks1776 October 7, 2011 at 8:58 pm

Randy, my husband thinks its a sign of the blog’s growing prominence and the growing threat libtards statists feel from libertarian minded people. There’s nothing the left hates more than liberty. The right is no big champion of it, but the left is murderous.

I have a hard time agreeing with conservatives on certain issues and, judging from the reaction of establishment Republicans to Tea Party candidates, they also feel threatened by libertarian ideas, but I can’t help but notice that not one of them has tried to carpet bomb the blog

Dan H October 7, 2011 at 9:11 pm

“its a sign of the blog’s growing prominence”

Great. I can see it now. Next time Don goes on Fox Business, one of the Info Babes won’t be introducing him as “Professor of economics at George Mason University, Dr. Donald Boudreaux”, but rather as “Blogger at the hit site CafeHayek.com, Don Boudreaux”.

txslr October 7, 2011 at 9:16 pm

Somehow I imagine he’ll be introduced as “carrier of the wisdom of txslr”, but maybe that’s just me.

Randy October 7, 2011 at 10:01 pm

Methinks,
Sounds about right. I’m not sure what to make of the Republicans lately. They seem to have an organization that they aren’t quite sure how to use. Which is actually hopeful, because the old Republican party of religious moralists and militarists was a wicked combination, and in the new organization there may actually be room for classic liberals. Time will tell. But the Democrats are moving rapidly and steadily towards classic socialism/progressivism. In them I see a real potential for reeducation centers and defacto eugenics.

Ken October 8, 2011 at 10:48 am

The Republicrats are every bit as interested in protecting their rice bowls and privileges as are the Demopublicans. The difference between them is *exactly like* the difference between Tide (brought to you by Procter and Gamble) and Cheer (likewise).

Does that make me a “shadow government” conspiracy theorist? Not a bit of it. I merely observe that politicians are, as a rule, people who:

1. Are adept at simultaneously bribing Peter with the promise of Paul’s money, and vice versa, and

2. Have a taste for minding other people’s business.

If history teaches us anything at all, it is to be wary of the type.

Randy October 8, 2011 at 2:32 pm

Agreed.

Greg Webb October 8, 2011 at 3:09 pm

Yep.

Methinks1776 October 8, 2011 at 5:54 pm

Demopublicans

I hope you don’t mind if I steal that, Ken.

Ken October 8, 2011 at 9:38 pm

I stole it from a friend from whom I first heard it 30 years ago, Methinks, so steal away! :)

Mesa Econoguy October 7, 2011 at 9:28 pm

Likely true, and they get none from me.

Winfred October 7, 2011 at 7:02 pm

I just realized that you’re not actually debating George WIll’s point.

Stupid hateful cowards…. who couldn’t explain the working parts of a brick if their life depended on it.

Seriously..instead of being so many cowardly morons… at least say George Willl ROCKS!!!

Winfred October 7, 2011 at 7:07 pm

“Just realized what draws the anti-freedom crowd here.”

I just realized why there are so many name-calling flame-baiting right-wing psychotic stupids here.

They don’t ban the trolls.

This is you classic case in which the trolls have a popularity contest, demanding the banning of others simply because those other not only dont agree with them, but challenge the idiocy.

Will October 7, 2011 at 7:13 pm

If you are so set that everything said is wrong and that everyone is just parroting the brain washing we have received, educate me with a logical argument. What is income and where does it come from?

This is the second time I asked because I don’t think you saw the first time based on the multiple rants. I would really like to know what you say.

Will October 7, 2011 at 8:19 pm

Waiting…but maybe I made my point.

Sam Grove October 8, 2011 at 2:15 am

You are awfully boring.

Greg Gilman October 7, 2011 at 7:36 pm

Must we really refer to the executives who blew up Bear Stearns, Lehman, AIG etc. as “income creators” as we explain their extraordinary personal wealth rather than say they found a way to get income distributed to them?

OK then. “Job creators” was getting old anyway.

Methinks1776 October 7, 2011 at 9:12 pm

Greg,

None of the executives at the firms you list were paid with taxpayer money. In what way were they not income creators?

Stone Glasgow October 8, 2011 at 4:03 pm

Gosh Methinks, don’t you understand? They are just moving beans around. That’s not productive; they are obviously stealing from innocent people, somehow, if they aren’t being productive.

Dan H October 7, 2011 at 8:02 pm

Don and Russ,

One of your posts must have been featured on a prominent liberal blog, because the comments from some of those who disagree have reached a degree of stupid that Carrot Top couldn’t even reach.

Remember the good ole days when we were busy debating Rothbard vs. Mises, et al, and every once in a while slapping down muirgeo when he’d drop a deuc, err, umm, comment on the site?

anthonyl October 7, 2011 at 10:07 pm

I guess some of us came a little late to the party. I heard someone slam Rothbards theory of utility as being to numberphobic. But Mises thought it was useless to ascribe measurement to value and I buy his reasoning. Are there some advances in utility theory that say it’s ok to tag a number on value? -That value can now be “measured?”

Dan H October 7, 2011 at 10:13 pm

Ughh… now you actually have me thinking. That’s a good question and I’m way too many cocktails deep to offer you a good answer and not as well read on either Mises or Rothbard (I’m only 24) which is why i come to this site. But these Rothbard-Mises debates were the sort of debate I used to love about this site. Now the gates have opened to the trolls. They make me want to drink more cocktails.

Dan H October 7, 2011 at 10:16 pm

I’m not sure if there are advances in utility theory per se, but I think with advances in technology and increases in liquidity, we come ever closer to actually being able to “measure” utility. It’s one of those things that really bends my mind (the whole Rothbard-Mises thing). Trust me, once I actually get a vacation, it’s on the reading list.

Ken October 8, 2011 at 10:52 am

I’m comfortable, at least for now, with the idea that the measure of value is willingness to pay. However, willingness to pay is demonstrably contextual and subjective.

Trying to measure value absent context is like asking, “How long is a piece of string?” Utility varies — sometimes from meter to meter and minute to minute.

Greg Gilman October 7, 2011 at 9:51 pm

Methinks,

My point was that they destroyed far more value than they created, blew up their companies and got rich doing it.

Dan H October 7, 2011 at 10:07 pm

I assure you they would have become much richer if their companies had thrived as opposed to watching their companies sink.

If you have a problem with CEO compensation, go ahead and buy stock int he company and voice your opinion at the next shareholder meeting.

Methinks1776 October 7, 2011 at 10:11 pm

Greg,

That’s certainly debatable. It may be true but I haven’t the numbers in front of me to determine that.

What if a person has a long and successful career, amasses a fortune, becomes CEO of a company and then makes a mistake that blows the company up. Will you still say that all of his income is unearned? I believe you would think that he earned the income in his previous career.

My point is that you can’t make the blanket statement you made. It’s just not that simple.

anthonyl October 7, 2011 at 9:59 pm

There is not one aspect of the market that will stop functioning if you strip away government. Society will continue to prosper at an accelerated rate.
Take away the market from government and there will be no use for the government because there won’t be any civilization to coopt. I know, it’s all platitude but the market is an emergent system of social cooperation through the calculation of prices. Government is something else.

Randy October 7, 2011 at 10:22 pm

I agree, though I wouldn’t use the word “government” to describe our “leaders”. It isn’t and they’re not.

Ken October 8, 2011 at 11:03 am

Randy is getting into Randolph Bourne country here, and has a point.

Does one think it mere coincidence that the “War on…” metaphor has become so pervasive? War on Poverty, War on (some) Drugs, the energy and inflation crises of the ’70s as “the moral equivalent of war,” War on a Noun…in Bourne’s formulation, the effect of war is to make government and the State one and the same (or claim to be, anyway).

Observer October 7, 2011 at 10:35 pm

anthonyl thinks, “There is not one aspect of the market that will stop functioning if you strip away government.”

forget thought experiments.

why don’t you go to Mexico and drive around with a $1,000,000 in cash, sitting in the open on the back seat of your car, looking to buy drugs. Another idiot on this blog said that drug sales were free markets.

Report back on your success.

My bet is that you end up in the a replay of the opening scene of No Country for Old Men, but then, that is a free market. No rules, rob, steal, kill, and murder as you wish

Dan H October 7, 2011 at 10:40 pm

I’m, I would suppose someone would sell you a lot of drugs for that kind of money. So what’s your point? It validates what I said.

No seriously, you really are a moron. My blood pressure is actually going up because you are way out of your league. Notice muirgeo’s silence, anyone? It’s because he at least understands the most basic fucking concept of a market.

Observer October 8, 2011 at 9:07 am

Dan H

You do not understand the basic concept of a market. A market is what the law will enforce. No law (i.e., Mexico) no market.

Your blood pressure is going up because you cannot handle the truth. It means that you have to admit that modern life is political, that you have to engage every day in politics, politicians, elections, and the stuff you on this blog call dirty, sleazy, crooked, dishonest. You want the invisible hand to because you are lazy, intellectually and otherwise. There is no invisible hand. Their are governments and laws. Like a pizza chains says, Better politicians and laws, better life and economy. The gov’t is never going to disappear because, even if you sell something on Ebay you have to stop some from robbing you on the way home from the post office. No gov’t is going to give up power over markets. Read the Federalist Papers. The reason for the Constitution was the Commerce Clause, to give Congress the power to regulate markets. There was no Bill of Rights in the Constitution.

Look at Europe. By issuing Euro without sufficient control over the markets they have created a monster. The pressure is immense to add more power to a central gov’t and it is going to happen.

Dan H October 8, 2011 at 10:20 am

“You do not understand the basic concept of a market. A market is what the law will enforce. No law (i.e., Mexico) no market.”

But you are wrong. You can make the argument that contract law and things of that nature make markets more efficient and remove some risk, but they do not CREATE a market.

g-dub October 8, 2011 at 12:10 pm

A market is what the law will enforce.

You can repeat this nonsense all you want. Repetition won’t make it true, but repetition will make you look like a moron, rather than someone who made a one-off mistake.

Markets are a custom developed in an evolutionary sense — a natural selection of what aided individual success, and probably even species success. “Trade” (a market) involves interpersonal rules of conduct where boundaries of object control are recognized by the relevant individuals. More shortly, this is a recognition of property rights: “who owns what.” The rules of conduct already existed, and it is rare that voluntary parties in the overwhelming percentage of trades need any aspect of outside enforcement to go their happy respective ways after the trade. (For one thing, the transaction costs of involving an “outside” authority to settle minor disputes are simply vastly too high for most trades.)

The customs of interpersonal conduct were strong and regular enough that they became embedded into law when solving disputed claims of property ownership. This sort of law is called “customary law” for the obvious reason that it is a response to established custom. The custom came before the law, where the law then provides a sort of formalism. (Obviously the interesting cases were the “boundary cases” where some uncertainty in property rights did exist.)

In other cases, a governmental institution may establish a statute to handle overwhelmingly common aspects of marketplace action. Again, the law came after the need, and was in many cases probably created for basic utility and uniformity. The advantage (utility) of regularity is not a statement of needing “enforcement.”

In some cases it is true that legislators will try to force particular marketplace results by statute. This is a recognition that the marketplace already existed. Where considered too onerous by the parties involved in otherwise voluntary trade, enforcement would be required. This is the sort of condition favored by those who want to control economic results. This is only “customary” in the sense that some humans really do seem to have a strong drive in disrespecting other’s natural sphere of control. That is, the desire to control others to serve their own wants.

Ken October 8, 2011 at 11:04 am

“forget thought experiments”…followed by a thought experiment.

And you thought quality entertainment was hard to come by.

Greg Gilman October 7, 2011 at 10:34 pm

Dan

Far too many corporate CEO’s run the company for their own benefit rather than their stockholders benefit. Election of corporate CEO’s for the most part is based on the Soviet model: you can vote yes or no for one set of candidates. Few companies are transparent enough to know what CEO compensation really even is. Good luck trying to change policy by going to the meetings. Does that work for you?

Dan H October 7, 2011 at 10:37 pm

“Few companies are transparent enough to know what CEO compensation really even is.”

Well if they’re a public company, then they’re pretty much 100% transparent, aside from IP and trade secrets. At least their compensation plans for their officers are 100% transparent.

vikingvista October 8, 2011 at 5:29 am

And if you don’t like a non transparent business model, then don’t buy shares. Problem solved.

Methinks1776 October 7, 2011 at 11:12 pm

Ah, the agency problem. A thorny one.

Ken October 8, 2011 at 11:06 am

Indeed. If one wanted to argue that corporate boards are clubby, cartelized mutual back-scratching glee clubs and perloo societies (apologies to Walt Kelly), that is at least a conversation that could be had, and a premise from which we could derive testable hypotheses.

Greg Gilman October 7, 2011 at 10:56 pm

Dan

If you think public companies are “pretty much 100% transparent, aside from IP and trade secrets” you have a lot to learn about modern accounting. You might be surprised by some of the things they do with stock options, fringe benefits, off balance sheet vehicles.

Greg Webb October 7, 2011 at 11:45 pm

Don, thanks for the excellent post on income creation. Income is earned by creating value for consumers. Redistribution is the politically-correct term for stealing income earned by others to give to envious corrupt politicians and there cronies.

House of Cards October 8, 2011 at 12:47 am

Calling someone envious is, for many, close to slanderous. In the bible, they use the world covetousness, and it is one of the sins of the Ten Commandments. Maybe someone could sue you, but since you don’t name names, you can probably get away with it, unless there can be a class action lawsuit. But since a lawsuit by 200,000,000 people whom you’ve slandered would net about 1 cent per person, I don’t think it is worthwhile. I’ve yet to see you slander the rich by calling them greedy pigs at the trough, though I may be mistaken. I don’t think they would sue you either because they would net less than a penny each. They’d figure that you were a blowhard anyway. So, you get away with your bad, insulting behavior because it is too costly to get an injunction against you, and the 1st amendment may protect you anyhow.

House of Cards October 8, 2011 at 12:53 am

*thou shalt not covet thy neighbour’s wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that is thy neighbour’s

Greg Webb October 8, 2011 at 12:59 am

Nah. It is not slanderous. It’s truthful. And, the truth always wins in a defamation of character lawsuit. I see that you don’t understand the first amendment guarantee of freedom of speech either.

House of Cards October 8, 2011 at 1:04 am

I’m aware that the truth of an allegation is an absolute defense to defamation. But, to date, no one has invented an envy or greed meter that works. People claim that lie detectors work, though I doubt it.

It takes having legal knowledge to understand the ramifications of defamation.
http://en.wikipedia.org/wiki/Defamation

ArrowSmith October 8, 2011 at 3:37 am

One could argue that patent law is a form of rent-seeking. But shouldn’t companies have the right to protect their IP?

vikingvista October 8, 2011 at 5:26 am

The human mind, through creation, innovation, and invention, is used by people to impart great value to property. But those activities are not themselves property. People should be free to use their minds to alter and use their property. IP is the forceful restriction of those freedoms–an initiation of force.

Ken October 8, 2011 at 11:09 am

A fair question, ArrowSmith. It hasn’t been my area of inquiry, but I can tell you that they have a periodically riotous time discussing that very topic at mises.org.

I have had other fish to fry, but I expect to have to educate myself and make up my mind on it eventually.

Greg October 8, 2011 at 7:19 am

Don,

Why does it have to be either or? Why can’t we acknowledge that a lot of corporate leaders get a big portion of their income simply from their position of power whether or not they create income. Look at what miserably failed CEO’s are given. We are quick enough to recognize rent seeking in government here. Why can’t we also acknowledge it also often happens in business even when government is not to blame?

Winfred October 8, 2011 at 3:00 pm

With respect to other histograms and distribution curves…

Should we call it “Age Creation” instead of Age distribution…

Perhaps it’s a liberal vocabulary hi-jacking conspiracy when we call them ‘grade distributions’ in schools…. ‘grad creation’???

LOL

This is why you idiots aren’t going to win the next round of elections… you’re so insanely stupid and delusional that you run-off anyone with half a brain.

Greg Webb October 8, 2011 at 3:11 pm

This is why you idiots aren’t going to win the next round of elections… you’re so insanely stupid and delusional that you run-off anyone with half a brain.

So says another overly-emotional, incoherent supporter of President Obama and Elizabeth Warren.

Sam Grove October 8, 2011 at 8:15 pm

“LOL”

LOL, LOL, LOL, LOL, LOL, LOL, !

What have you been inhaling?

Ken October 8, 2011 at 9:43 pm

After a while, it starts to sound like “FEGELEIN! FEGELEIN! FEGELEIN! FEGELEIN! FEGELEIN!”

But hey, we shouldn’t overlook, in our levity, the fact that this is clearly the crowning moment of Winifred’s life — someone is paying attention — glory hallelujah, at long last — to he, she, it, they, or them.

LowcountryJoe October 8, 2011 at 11:14 pm

Damn! Even your own kind picks on you. No wonder why you started to come over here! Of course it probably doesn’t help that you’re likely nuttier than squirrel shit.

Winfred October 8, 2011 at 3:17 pm

While this Orwellian New Speak agenda, replacing the statistical term with an ideologically favored term which is meaningless with respect to the statistic, is amusing… it’s nowhere near as funny as some of the other right winger dog whistles and New Speak.

Some of my personal favorites in the right wing New Speak lexicon… approved by the Right Wing Ministry of Information:

Pre-baby.

Does that make the rest of us pre-corpses?

Clean Forests initiative?

Clean Coal?

Taxation = theft?

Evolution is really a religion??

But Semantic Inanity Award goes tooooo……I kid you not…. wait for it….

the effort rewrite the bible and remove all the wrong words liberals have secretly been introducing to it.

http://conservapedia.com/Conservative_Bible_Project

LowcountryJoe October 8, 2011 at 10:58 pm

You could really use a new bag in this thread, Winfred; you’re trying to cram way too much bullshit into the one you’re currently using. You’re comments are dull and you’ve sufficiently mischaracterized who many of us regulars are and the general positions many of us share. Why don’t you make the attempt to settle down and try holding a rational discussion in your effort to persuade? Or maybe you really are here to just try and disrupt. If that’s the case, you’re not going to get much out of it…it may even backfire on you if you’re identity is ever discovered; not even people sympathetic to your particular viewpoints will condone and respect this kind of juvenile behavior/trolling.

Winfred October 8, 2011 at 3:23 pm

Speaking of buzz words and dog whistles which whip you morons into drooling frenzy…

What’s up with a bunch of half-wit red-neck slacked-jawed trailer trash screaming “class envy?”

LOL

Market Johnson October 8, 2011 at 5:14 pm

In the perfect world of Mr. Don Boudreaux, an entrepreneur with 90% of the wealth would create senseless products, advertise them to convince a consumer with the other 10% of the wealth that he needs them, price them above what that consumer can reasonably afford, then create intentionally complicated financial instruments with which to convince the consumer he can actually afford it for a low monthly payment of a self-determined financial future, when in actuality they extract all the wealth from that consumer without the consumer even knowing it, because the entrepreneur is the only one who understands how that financial instrument works. So the entrepreneur who once had 90% of the wealth has all of it save for that created by the extra work the consumer now has to do just to maintain his previous standard of living. And that extra work is called social benefit. See! Everyone is better off!

Methinks1776 October 8, 2011 at 6:02 pm

In what way were derivatives (i.e. “complicated financial instruments”) used to make the consumer buy anything?

Since you are one of the masses and not the “elite entrepreneur” you describe, then, according to your logic you’re too stupid to understand what products you want and can afford. Anyone that dumb can’t possibly be described as “intelligent and educated”.

LowcountryJoe October 8, 2011 at 10:40 pm

n what way were derivatives (i.e. “complicated financial instruments”) used to make the consumer buy anything?

Market Johnson must actually believe that normal, everyday people were purchasing the very same insurance contracts that would pay-out once they defaulted on their own mortgages. Or, this was a poorly done rant with no direction and that revealed the author’s ignorance on this topic. If it was the latter, I can understand it. If it was the former, it was so brilliant that I didn’t understand it and want to know how I could have gotten in on some of that action.

Market Johnson October 8, 2011 at 5:24 pm

On that note, that will be my last reply here. I will no become a creator of social benefit by never reading a word on this site ever again, making both myself happier and the scores of rationalizers of pure selfishness that post here happier by no longer forcing them to confront the idea that there really are intelligent and educated people who believe in (and know that there is) more than just rampant consumerism as the source of all happiness.

LowcountryJoe October 8, 2011 at 10:43 pm

What social benefit have you provided; other than being a verbal punching bag for those who can actually follow arguments?

vikingvista October 9, 2011 at 5:38 am

“rampant consumerism as the source of all happiness”

What is it like to live in such a dense fog of misconception? Do dancing gnomes plant simbelmynë in your toenails?

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