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When Governments Ignore Economics

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Men are not robots. If you change the environment in which they operate, they do not continue on down a pre-programmed path. They change what they do, they act towards specific ends, and their actions are based on what they believe will accomplish those ends. This is the essence of economics which is lost on politicians and liberals.

Whenever someone suggests a new government regulation or increased tax, they don’t take into account that people are not robots. They believe they can just increase taxes on the rich and sit back and collect the extra revenue. If people were robots this would work just fine, but they are not. By changing the economic environment, that changes people’s incentives. With the reward of entrepreneurial success diminished, fewer people will accept the risk that comes with starting or expanding their business. With the reward of high income reduced, fewer people will undergo the time, cost and work necessary to become a professional, such as a doctor. The results are higher unemployment, lower economic growth, fewer doctors and other professionals, and a lower standard of living for everyone.

These and other negative consequences never come into the calculations of the statists who recommend even more progressive taxation. This comes from a fundamental lack of economic knowledge. The laws of economics are as immutable as the laws of physics. Yet while no one considers building a spaceship without accounting for the law of gravity, people think they can ignore the laws of economics when making policy. Ignoring economics is the fatal conceit that dooms the policies of the left to fail.

Comments

booyalab 4 years, 8 months ago

I think people tend to hold progressive views for reasons other than a misapprehension of cause and effect. Politicians hold them to get votes. College students hold them to be popular. And so on.

booyalab 4 years, 8 months ago

Because typically the results of failed policies aren't apparent until sometime after the next election.

booyalab 4 years, 8 months ago

^That applies to politicians. With college students, the results of failed policies aren't apparent until after they have had time to grow up or read something outside of the liberal arts department at their school.

booyalab 4 years, 8 months ago

I think it's partially genetics, but also influence. George Orwell wrote some interesting essays on the English intelligentsia. It's remarkable how much they sound like modern "intellectuals".

This is a good one on nationalism http://orwell.ru/library/essays/nationalism/english/e_nat

I think if one looked at the progressive modus operandi using his perspective on nationalism it might explain their apparent apathy of economic law.

"The nationalist does not go on the principle of simply ganging up with the strongest side. On the contrary, having picked his side, he persuades himself that it is the strongest, and is able to stick to his belief even when the facts are overwhelmingly against him."

bstew34864 4 years, 8 months ago

You know Liberal One it never ceases to amaze me how many times I have to hear people praise the greatness of the "Market". Especially self appointed free market oracles such as yourself. There are so many errors of logic in the liberatarian mindset and philosophy that I do not have the energy nor the time to engage you in all of them. But, for arguements sake let me just touch on three.

Number One: If libertariansm is so great why are the happiest people in socialist countries. You know countries like Sweeden, Denmark, Switzerland, and Norway? These countries all practice to varying degrees Socailism, but they seem t be doing just fine. In every survey on wellbeing I have read these countries are always at the top. Why? Heck, even our northern neighbors Canada lean toward socialism and they seem to be doing just fine..

Number Two: People are a lot more like robots than you think. As Dan Areilly would say, they are "Predictably Irrational". Because of our programmed errors in logic, not to mention the power of our unconscious mind to predictably generate biases we as a species tend to make foolish assumptions and illogical judgements largely based on the sturcture of our brain. It is instinctive not to want to pay taxes if your brain has been constantly exposed to the notion that taxes are bad and that your individual success has soley been based on your individual prowess and hard work. From social science research we know this to be categorically false. No man is an island and without collaborative effort, luck, and societal institutions most people would not acheive their current level of success. i.e student loans, housing help etc,etc,. While government is not always perfect it does try to level the playing field to ensure those born into poor cicumstances have a decent opportunity to live a good life.

jafs 4 years, 8 months ago

I'd be interested in your response to the fact that countries with the happiest people tend to be more socialist, as bstew points out.

I'm not saying I think socialism is "the answer" or the best system, just to prevent that misunderstanding.

jafs 4 years, 8 months ago

Abortion, freedom of speech, etc. all exist here.

Only gay marriage on your list doesn't yet - do you really think that's the reason people are happier in Denmark?

I suppose it might explain why gay people might be happier there.

jafs 4 years, 8 months ago

According to some studies I've read, Denmark is the country with the happiest population.

Of course, that's not an absolute certainty.

Fossick 4 years, 8 months ago

The problem with bsew's assertion is that those countries that are the most socialist are not the happiest, unless North Korea or Zimbabwe or Cuba or Laos or Viet Nam are less socialist than Denmark. So while 'happy' countries can be somewhat socialist, it is manifestly not the socialism that is causing it.

And there are plenty of other things one can correlate happiness with, like a small nation size and ethnic homogeneity for the top nations, or even being in the Western Hemisphere for the top slice. http://news.bbc.co.uk/2/shared/bsp/hi/pdfs/28_07_06_happiness_map.pdf

6 of the top 7 nations have very cold winters. So maybe snow causes happiness? I know I like it. http://www.hongkiat.com/blog/20-most-happy-countries-in-the-world/

jafs 4 years, 8 months ago

There is a distinction between socialism and communism.

Many of the countries on your list are more properly seen as communist, with brutal leaders.

Brutal violent leadership is not a central tenet of socialism.

And, of course, many people think that real socialism hasn't been given a real try, due to the corruption and abuse of the ideas by those in power - e.g. Russia.

But of course you're right - there could be many other facets involved.

TheYetiSpeaks 4 years, 8 months ago

.....and how does one measure happiness? Is that really quantifiable? Citizens are either content or in a state of unrest.

bstew34864 4 years, 8 months ago

Number three: If libertariansm is so great why is it that not one country practices this form of government? I know, it's those bad government bureaucrats that keep the pople ignorant of the great benefits of the free market. Uhh, wrong answer. No country uses libertariansm because it is not practical and it does not work in the real world. So you, Ted Kaczisnsky, and the National Review should get real and understand that the free market is not the answer to the challenges of the future. Granted, a well regulated market is beneficial but it has to be kept in check to limit the inevitable inequality that surely will arise. (look up Power Law and the Pareto Effect).

Thought Experiment: Most of us loves the KU Basketball team. But when you really think about it what exactly is it that we like about them. Now, most people would say we love their effort, hard work, but most importantly we love how they play as a team. Bill Self recruits great players from all over the country. Players who in High School were the "go to" guys on their teams. Most of these players had one thing in common...they were selfish. They took most of the shots and rarely played the kind of team defense the coach Self requires.

Are you starting to get my drift? Libertariansm is a selfish philosophy that places the focus on the individual. His needs and his wants. It is completely out of balance. On the otherhand a free market system that is well regulated by the government places an emphasis on the collective good, the community, or in the case of ku basketball te team.

So, everything we admire in collective effort whether it is the concept of heaven or great sports teams it always starts out with conern for others and working together.

Just ask Bill Self.

b

Lindsey Buscher 4 years, 8 months ago

"The laws of economics are as immutable as the laws of physics."

Care to name even one "law" of economics?

jafs 4 years, 8 months ago

"The laws of economics are as immutable as the laws of physics"

Highly debatable, at best, and most likely simply incorrect - in fact, the blog itself contains one of the main reasons why - people are not robots. Hence economics, which is a study of human behavior, cannot be as certain as hard sciences which deal with entities without will and choice.

jafs 4 years, 8 months ago

I'm not arguing in favor of "manipulating" people.

You correctly commented that people are not robots, and that changes in policies will affect how they act.

Given that people make a variety of choices, some of which are rational, and others not rational, and that we act under a variety of forces in society, including psychological ones, sociological ones, etc. it seems extremely unlikely to me that your claim is correct that economic laws are "immutable" and akin to laws of physics.

I'm not an expert in economics, of course, but I'd bet that any "immutable" law you find will have notable exceptions, and a variety of interpretations by different economists.

Just as would be the case with psychology, for example.

jafs 4 years, 8 months ago

I don't need to be an expert in economics to know that it's a soft science, and therefore less certain than a hard science, by it's very nature.

And, just for fun, hard sciences aren't as certain in many aspects as most people think - if you're interested in the subject, I'd recommend "The Structure of Scientific Revolutions" by Thomas Kuhn.

I don't agree with your framework about society and government, unsurprisingly. Society is a broad term for all of the people and institutions within it, so it includes government, as well as businesses, etc. in my view.

The question is what form of government works best at achieving what goals, and what goals we want to achieve. In my view, that's a complicated question without an easy answer. If pressed for my ideas, I think I'd say that each form of government does some things well and some badly, and that the ideal government would combine the good ideas from differing systems.

Your paragraph about rationality is not clear to me. People certainly have the ability to rationalize any choice, if that's what you're saying.

But, for example, when a highly educated person is convinced that a name-brand product which is demonstrably identical to a store product is superior, and is willing to spend 3-4 times as much money for it, that seems pretty irrational to me.

Of course, if they said that image is more important to them than reality, and that they wanted to impress people, or that spending more was a sign of their wealth and status, etc. that would make more sense. But that's not what they say.

This ties in with advertising.

jafs 4 years, 8 months ago

Sorry to be frustrating - that's not my intent.

And, obviously I don't think hard sciences are iron laws, as I mentioned that in my post.

Soft sciences study human behavior, which is far less determined than physical reality, and thus are capable of less certainty.

Of course - but he is demonstrably incorrect - if the ingredients are identical, one product cannot be superior to the other.

Fossick 4 years, 8 months ago

Actually, Jafs is correct on this one, at least as far as the 'certainty' of the law is in question.

Let's use your example: licensing. Yes, the price will rise. Now, tell us by how much. What is the exact price differential over what period of time that can be expected? We don't know.

Or my example: Gresham's Law. I can go to a bank in Lawrence and in 50 rolls of dines, I will probably not find one that is made of silver. Gresham knows why. But could I have predicted how long it would take at what silver price for all the silver coins to disappear? Not a chance. I know they will virtually disappear, but that is as certain as I can be. Still on rare occasions, one turns up, in apparent violation of the law.

But if I drop a rock, I can calculate within miliseconds when it will hit the ground. People are always doing weird things, like digging silver coins out of their dresser and spending them. Rocks are not.

Fossick 4 years, 8 months ago

"Hence the comparison is inapt."

Which, I believe, was Jafs' point in the first place.

Fossick 4 years, 8 months ago

I made the point, but if you'd like I'll spell it out. Jafs said, "economics, which is a study of human behavior, cannot be as certain as hard sciences..." and you just argued that we cannot know for certain what will happen economically if we do "x" except in broad strokes (e.g. prices will be higher, but we have no way of knowing how high) in the same way we can for physics.

Perhaps you still see enough difference in those positions to argue further, but I do not.

jafs 4 years, 8 months ago

Isn't it even possible that prices will not rise with limited supply, if people can simply choose to go without that service, or do it themselves, or barter, etc.?

The more elastic the demand, the more likely that people will not be willing to pay more for the same service, it seems to me.

And, since demand is what drives prices, if people aren't willing to pay more, then prices can't rise without somebody going out of business.

I think we see this with gas prices - when they go up, voluntary demand falls, creating a counter force which discourages gas stations from keeping prices high.

jafs 4 years, 8 months ago

Sure.

The need for qualifiers like that is part of the uncertainty of economics, which supports my general view of it.

jafs 4 years, 8 months ago

A personal example.

We had a problem with our toilet yesterday, and there is a limited supply of folks who work then, so we had to pay someone time and a half to come fix it.

That meant we spent more money than I'm comfortable with given the amount of time and work he did, and in the future, I'm much less likely to call them again, and much more likely to try to learn more and fix it myself.

So there'll be less demand for his services, which may mean he'll have to lower his prices.

jafs 4 years, 8 months ago

Your original point was if supply is limited, prices will rise.

I just think this isn't set in stone, and depends of a variety of factors, including elasticity of demand, levels of disposable income, ability/time to learn skills, etc.

As I would probably view most economic concepts - they're useful, as are many other soft sciences, just not set in stone the way you portray them.

Another example - diamonds are very scarce. That fact doesn't increase my demand for them at all - I don't like the way they look, and would never pay the prices they command. Gold is more scarce than silver, but I think silver looks nicer, and don't buy gold. These sorts of variations among people are exactly the kind of uncertainties I'm talking about.

jafs 4 years, 8 months ago

If you can't have a conversation with me without insulting me, please refrain from engaging me in conversation.

jafs 4 years, 8 months ago

I didn't talk to you.

I commented on your blog.

For somebody that believes in freedom, you sure seem to want to control me.

I do think about my comments, and I don't "make stuff up".

If you feel it is a waste of time to discuss things with me, you are free to not do so.

And, for the record, I am intelligent, have a rather high IQ, went to a very selective high school, and graduated from a private college with distinction in the major, which required achieving a 3.5 GPA in those courses, and was on the dean's list for 2 1/2 years as well.

Also, despite many provocations, I generally can refrain from personally insulting people.

jafs 4 years, 8 months ago

If you want to discuss things with me, I need your assurance up front that you won't start insulting me.

Otherwise, I'm not willing to talk with you.

gudpoynt 4 years, 8 months ago

When the product of a private company is found to cause long term negative effects on health or environment, subsequently taking significant cost to mitigate those negative effects (oftentimes orders of magnitude greater than the cost to produce the original product), the private company rarely considers post-production "cleanup" costs when setting the price of their product.

So who, in your mind LO, should pay for the cleanup?

gudpoynt 4 years, 8 months ago

Do you suppose a tortfeasor will pay for such cleanups voluntarily?

gudpoynt 4 years, 8 months ago

Well what happens when the tortfeasor refuses to pay for cleanup voluntarily?

gudpoynt 4 years, 8 months ago

And would you not call those laws regulations?

gudpoynt 4 years, 8 months ago

You could leave it up to common law to deal with harmful production practices that lead to costly negative externalities.

However, common law is slow, and requires a great deal of resources by the plaintiff (who more often than not, will have significantly fewer resources than the defendent). Sometimes a class action is required.

Government regulation is one way of trying to reduce negative externalities preemptively by discouraging production practices that result in harmful externalities.

Do you have a non-governmental solution in mind that effectively discourages harmful production practices?

Are you content to deal with negative externalities only after they are realized and only after a significant population of affected citizens have pooled enough resources to take the offending company to court?

Why not try to nip the problem of costly negative externalities in the bud, and impose regulations that discourage the practices that lead to them?

I suppose you're content to sit back and let consumer demand force the discontinuation of harmful practices naturally, no matter how long that could take, if it ever comes to pass at all.

Or I suppose you're claiming that it is, in fact, government regulation itself that is preventing the market from doing this.

Still don't see what I'm getting at? Try to be a little less arrogant, and consider more modern adaptations of classical economic theory.

MyName 4 years, 8 months ago

There are major issues with this post that seem to stem from a lack of understanding of both Economics and (especially) Physics. Particularly the claim that: "The laws of economics are as immutable as the laws of physics" is ridiculous on its face. Economics is a model of human behavior that tries to reduce market activities to a set of numbers and then use higher Mathematics and Statistics to make assumptions about those activities. Physics is similar in some respects as it does include a way of modeling real world activities using Mathematics.

However, the key thing is that all of the laws that make up the theory behind Physics can be (and are) proven by experiments. Economics (especially that dealing with large market behaviors) can't say the same for the vast majority of its subjects. When it comes to the gold standard of Truths that you can use to build bridges and airplanes, Economics is about as useful as Baseball statistics. Economics didn't predict the '08 market failures, for example, and all the laws of supply and demand had to say about it was that at some point the supply of reputable mortgages was tainted to the point that no one could put a price on them with any certainty. This is the kind of thing that government has to step in and try and stabilize. Someone has to be the buyer of last resort or there ends up being a hole in the market.

staff04 4 years, 8 months ago

What is your position on the US raising the debt limit?

Fossick 4 years, 8 months ago

I liked this one:

“The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies...

Increasing America's debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”

-- Barack Obama, while voting against raising the debt limit, March 20, 2006.

Jimo 4 years, 8 months ago

Unfortunate Truths:

  1. Increasing tax rates increases tax revenues as predictably as 1+1=2 (as long as politicians aren't bribed to write in 'loopholes'.) Periods of American history with the highest tax rates overlap periods of maximum economic growth and opportunity.

  2. It's laissez-faire zealots who believe people are robots (although the common term is 'zombies') - believing that human beings are exclusively motivated in everything they do by money (except when they don't fit the laissez-faire straightjack and are derided as 'irrational'). If your mother fed you at her breast, it was only because she could see the moneymaking angle of such action.

  3. Increased government taxation causes real world human beings to work harder and generate more economic activity (at least up to a point - the point they achieve their actual economic needs, not their 'rich and famous' delusions).

  4. Most of the entrepreneurs in the world live in very poor countries. Their ubiquity does not lead to national prosperity as real world observation makes undeniable.

  5. Big government increases the ability (and real world occurrence) of people to take economic risks by creating bridges to allow time for risks to pay off, greater certainty for economic conditions, and safety nets to lessen the shock of failure. (How're those debtors' prisons working out for yuh?)

  6. Economic motivations are social and are unaltered by universal taxation schemes. That is, they're relative, not absolute. Having a trillion dollar bank account is meaningless when the minimum wage is $1T/hr.! E.g., a 75% marginal tax rate (common for virtually the entire post-war era in America) won't change the social pecking order one iota -- the #1 richest man will still be #1, the same with #2, and on and on. Result: zero change in the incentives "to become" anything. Query: how do socialist countries lacking "incentives" manage without doctors? Answer: they don't! What a stupid question. They have plenty of doctors.

  7. The results of laissez-faire ideology are clear: higher unemployment, lower economic growth and a lower standard of living for the middle class. America in the 1920-30s and again in the 1990s-2000s provide irrefutable evidence of this. In contrast, the golden era of 'Let it to Beaver' America was marked by the precise opposite approach: highly progressive taxation of wealth, an activist government openly working to help the middle class. The wealthiest nations on earth -- not the U.S., which is well on the path to third-world status -- wouldn't give these laissez-fiaire, hair-brained schemes of the time of day. Indeed, there isn't a story in history of a poor nation becoming wealthy eschewing governmental policy and regulation - not the U.S., Britain, Germany, Sweden, Japan, Korea, or China.

There never has been at any time in any place anywhere on earth a "free market" - only in the 'thought experiments' of a laissez-faire charlatan.

jafs 4 years, 8 months ago

When somebody can't engage in conversation and debate for long without resorting to insults, this shows the weakness of their argument and/or perhaps reveals a character flaw of some sort.

jafs 4 years, 8 months ago

I don't do that.

You seem to have some sort of problem if somebody doesn't repeat your exact words - again, for a believer in freedom, you certainly seem to be somewhat controlling.

If you want to discuss things with me, and feel it's worth your valuable time, then you should be able to do so without insults.

jafs 4 years, 8 months ago

I quoted you verbatim and with quotes in my first comment on this blog, so "you never quote me directly" is untrue - if I were you, I might start calling you a liar now.

Nobody else that I discuss issues with on these comments requires that I quote them directly, and I don't require that of anybody.

I'm not trying to twist your views by paraphrasing them - it's a common mode of discussion for most people.

And, once more, with emphasis, requiring somebody to quote you directly is quite controlling - if you really believed in freedom, you wouldn't do that.

jafs 4 years, 8 months ago

Good luck with your issues.

I am glad to discuss ideas with you if you are able and willing to stop insulting me personally.

Otherwise, I'm not willing to do so any longer.

I mean no insults when paraphrasing, it's just a common way of discussing things for most people.

If you really think I'm rude and insulting, then you shouldn't talk to me anymore, of course.

Have you noticed that our conversations invariably get to this point after a few rounds, with you accusing me of this?

All of the subject matter we've been discussing is suddenly absent, which is unfortunate - that's what I'm interesting in discussing.

"you never quote me directly" is untrue, given that I did so in my first comment - according to your rules of discussion, you must be a big fat liar.

I. on the other hand, would give you the benefit of the doubt, and assume you're simply mistaken, as people are sometimes.

bstew34864 4 years, 8 months ago

Liberal One,

Like I stated earlier, I really don't understand the libertarian philosophy. Well, I understand it, but I don't understand why we should take it seriously if it has no chance to succeed in the "real world".

I do appreciate the libertarian concern for individual rights, but those of us on this blog believe there has to be some balance with the common good.

When you constantly stress "voluntary participation" that sounds great, but in essence it creates a free-rider problem similar to the Tragedy at the Commons.

Since we can go back and forth with "research" and "data" let me once again try another analogy.

Most of us like to watch sports. And we like to watch different sports. What makes each sport different? The rules. The rules of a respective sport determine the desireable qualties of the players, coaches, and drives their behavior. Without rules there would only be chaos. Once the rules are determied successful sports have refs who enforce these rules. This ensures a fair playing field for all of those involved. These refs should be objective and there primary incentive is to ensure everyopne plays by the agreed upon rules (not incentivized by dreams of wealth). Take the rules away and you would have refs making up rules as they went along with little consistency. Take the refs away then the game would be dominated by the most powerful. Only by having the rules to set the parameters and the refs to enforce them can you truly have a great sport where everyone has a fair chance at success.

The rules if you haven't guessed is the constitution and the refs are the government. You can't have one without the other.

From my vantage point, it seems as though libertarians just want to have the rules but no refs. From a purely logical point of view this desire is unattainable. Not the least of which is that it runs in direct opposition to human nature and sounds more like a sequel to "Lord of the Flies" rather than a viable form of government.

Remember, if men were angels...

p.s. thanks for the lively topic

bstew34864 4 years, 8 months ago

By the way,

Economics is not physics. But, I will say that in terms of identifying organizing principles human behavior has some of the predictability associated with the "hard" sciences. An excellent book regarding social physics is called the "Social Atom" by Mark Buchannon.

For my money field of economics is ready for a complete overhaul. The primary problem with traditional economics is that calculations are based on th "rational decision making" model of human behavior. Many economist now know that this view of man is mostly wrong. Instead the fields of complexity science, evolutionary psychology, and network theory have led to a complete new view of human decision-making.

So, while we might not be robots in the traditional sense we are certainly predictable in our behaviors at the unconscious level. Just ask the folks at Dillons, Walmart, and Target. Think the products and the layout of their stores is by chance? Think again. It is all based on the neuroscience of consumer behavior. Ever wonder why Best Buy is expanding and Office Depot is going out of business? Walk in their stores and take a moment to become aware of your subtle emotions. Best Buy energizes you while Office Max seems unorganized and depressive. This is not by accident.

In essence, we are predictable robots motivated by the interplay of our genes, unconscious biases, and the relevant social situation.

Finally, the strongest emotions humans have is fear (it is what allowed us to survive in those hunterer-gather groups some 60 to 100 thousand years ago on the African Savannah. Yep, that's right we are all Africans. I'll leave that for another discussion).

However, our most powerful virture is fairness (once again without fairness our ancestors would have never made it out of Africa).

A progressive tax policy as its main goal tries to reduce inequality or status differences which when taken to an extreme cause all sorts of problems for the respective society. Read a book called the "Spirit Level" to read the fascinating research on this topic. So, with a progressive tax policy liberals try to address inequality by increasing fairness which inturn starts to minimze the fear felt by those on the bottom.

Again, coutries that practice egalitariansm seem to be doing pretty well. It make you go hmmm,,,

b

jafs 4 years, 8 months ago

I agree that we are "somewhat" predictable as a group, and that the "rational consumer" idea is inaccurate.

But that changes with awareness, both self-awareness and awareness of manipulation.

The more self-aware and aware we are, the freer we become and, perhaps, the more rational our decisions become.

For example, I'm pretty aware of how advertising manipulates people, and so I'm relatively immune to it compared to many others. The same would be true of store layout, etc.

camper 4 years, 8 months ago

"yet people think they can make policy without regard for the laws of economics as if they are non-existent."

Liberty, I thought you believed that Economics was a "social science" and that things cannot be scientifically proven through economics because experiments cannot be conducted.

Has your opinion changed on this?

camper 4 years, 8 months ago

So you can have an economic law without conducting an experiment to prove its validity?

jafs 4 years, 8 months ago

It's fascinating how when you scratch the surface of a logical, freedom loving person, you find much that is opposed to that - charged emotion, and the desire to control others.

Macrobiotic theory has a saying - the bigger the front, the bigger the back - which seems apt here.

camper 4 years, 8 months ago

When Governments ignore economics, you might get one of these extreme results:

1) The government decides the allocation of resources and essentially you have something like communism. In this system the government has little ability to determine market forces and what the people desire. Here is where you might be making fighter planes when the people really want a pair of jeans and good bread.

2) Powerful corporate monopolies control resource allocation and due to sheer size, competition is inhibited, there are barriers to enter the market, and prices, quality of product are easily controlled by the largest. Free enterprise is severely limited as a result. Ruling power may somewhat be described as an Oligarchy.

The United States economy is somewhere between these two. Thank god.

camper 4 years, 8 months ago

Continued.

And because of this, I believe the government has the following responsibilities, which ironically help to preserve freedom and free enterprise:

1) Establish rule of law and protection of property - If you don't have this, not many will be willing to participate. 2) Regulate and mitigate externalities - These are consequences of economic activity that are felt by parties not participating in the transaction. It is the stuff that flows downstream. Pollution is a prime example. The government has a responsibility to minimize these externalities. 3) Long term investment in research that do not necessarily fit an economic model because profitability is long term. Medical research, NASA, and investment in other scientific research are examples. Long term benefits are stategic and well worth the investment. 4) Provide rules where ownership is collective as opposed to private. A prime example is the necessity of regulating the fishing industry. If a governing body does not do so, resources will not be conserved. Nobody owns a school of bluefin tuna. 5) Provide goods that provide public good or utility. This can be argued as I sure have see on these pages. But they are things like fire, police, education. social security, health care, mass transportation etc. 6) Regulation and oversight of money supply, banking and financial markets, and securities. 7) Last but not least......and sure to make some cringe. To provide a public safety net to help minimize severe dowturns in the economic cycle. These are things like unemployment benefits and yes, economic stimulus.

I don't particulary see the above (7) things as being socialism as some of the fear mongers will have you believe. They help to even out inefficiencies of market forces. I do not think the market is the sole solution to all of society's needs and problems. It provides for a great deal of them, and is preferable. It is Utopianisim to believe fully in one model and not recognize inherent inefficiencies.

camper 4 years, 8 months ago

Not sure what you mean by moral hazards. Places that lack some of the seven above are places that you'd find in 3rd world countries where corruption and poverty is ramant. Mexico at best. I suppose this is the Libertarian model though? Wonderful.

camper 4 years, 8 months ago

Mexico? Sure don't see a lot of regulations down there. I would think this country would be heaven for "zombies" like you.

camper 4 years, 8 months ago

I said "a lot", not "any". Read more closely. What regulation they have is not enforced well. Mexico has little infrastructure in rural areas, poor public education, a poor system of tax collection, and much poverty. And much corruption. Very much because of poor government.

camper 4 years, 8 months ago

LO. Arguing with you is like a dog chasing it's tail. So I'm not going to do it. I am going to thank you for writing the blog however. It has initiated good debate. I meant no disrespect. But I kindly disagree with some of your points. Not all of them though. Over and out.

camper 4 years, 8 months ago

I won't read too much into this comment. You use the word "kill" up above. Kind of creepy. Maybe I should take my own advice and move along.

camper 4 years, 8 months ago

I don't really consider this an adult conversation. Anyone who has an opinion that differs from your viewpoint is (albeit willingly) subject to your harshness.

camper 4 years, 8 months ago

True thuja. The people who are getting paid off are the pseudo economists like Rush Limbaugh. He has a choir to preach to, millions of listeners, and a contract worth many millions. Politicians are no better. What is happening here is that they basically find an economist that will support there view. This can be done easily.

true_patriot 4 years, 8 months ago

This brand of trickle-down radical economics has been tried in many parts of the world since it came in from the crackpot fringe in the 1970's and it has only ever had destructive effects. It destroys middle classes, it creates vast poverty, and dramatically polarizes wealth into a few at the top holding most of it and the rest of the masses at the bottom holding a sliver of it.

It is ridden with contradictions and misappropriations of once-sound economic principles that simply do not hold in a global economy or when turned upside down by those fighting for the wealthiest in the world even at the theoretical level, but now that we've seen it in practice, it is proven to be a failure.

seriouscat 4 years, 8 months ago

Economics is a fascinating topic and I never tire of it. I do think there is a lot of merit to the libertarian way of thinking and am glad that people like LO, as annoying and obnoxious as they are, challenge people to actually examine their assumptions a little more than they probably would otherwise. Libertarianism is a lot more closely related to communism/socialism than most people realize. They are two sides of the same anti-establishment coin and I have a lot more respect for anyone who can argue effectively for either theory than those who refuse to exercise their brains and simply accept face value status quo.

BUT, I just can't abide certain libertarian tenets, the main and most obvious one being that if industry is unrestrained by labor and safety regulations, equilibrium is achieved, rights are protected, everyone fairs better and labor conditions will always improve. As long as the human capital pool from which industry acquires labor is significantly bigger than what they require, workers are viewed as more or less expendable and will be abused.

Mining practices are an especially poignant example of what industry does to workers and the environment when left to its own devices. Even 150 years after the 'Molly Maquires' rose in protest against conditions where kids as young as seven-years old kids were working fourteen-hour days, six days a week in unsafe mines, among many other well documented and horrific labor practices, mining companies STILL abuse workers, flout safe practices, and throw up dangerous dams made of silt that expose entire regions of people to total disaster. If one examines the behavior of multi-nationals once they open shop in regions of the world with little to no regulation for protecting people and the natural resources upon which they depend, it's painfully clear that industry is not and has never been in the business of 'collaborative effort' at all.

Plus libertarians have a marketing problem. If one looks at libertarianism it is way more two-dimensional than one would guess just by talking to the typical lib. For example, business would be unfettered by regulation, but workers and individuals would also be unfettered in exposing them to punitive measures for bad practices. Most people are thinking of gigantic, immortal, all powerful corporations and according to LO, corporations are a product of the state and under true libertarianism would not exist. I think part of the problem most people have with industry is how much it 'gets away with' . Maybe if libs talked more about the abolition of corporations, limited liability, reasonable tort enforcement and a strong blindly just court system to handle the ridiculously litigious society that arises under such a system, they wouldn't seem like such shills for industry. I'm all for natural consequences.

seriouscat 4 years, 8 months ago

Wouldn't there be far fewer lawsuits after doing away with all the ridiculous laws that are used to extort businesses?

I don't think so. Lawsuits used to be far more common and petty they and they were taking on ridiculous proportions. It took the tort reform in the 80's putting caps on payouts, requiring arbitration etc...lawsuits against professionals and businesses have been in steady decline. Remember ambulance chasers? Why does the US have 80% of the world's lawyers? I'm not saying I agree with the tort reform that accomplished this, but I do know that before government regulation stepped in, the US was BY FAR the leader in litigation.

Well that's because the government protects industry. Get rid of government protection and there's 99% of the problem solved.

That would be great! But it's pretty unrealistic to assume that government will ever NOT protect industry. Follow the $$$

*As long as workers are free to leave and aren't in infinite supply, employers will have to offer competitive wages and working conditions. *

This is only true for SKILLED labor. Ya think the all the dead miners wouldn't have left in a heartbeat? Plus you libs would even get rid of age restrictions, immigration laws etc. as if destitute immigrants (which they literally shipped in by the train car full in your fave time...1860-1890s) and kids can come and go as they please. Ridiculous. The only time I'm aware of when conditions for the peasant class unilaterally improved across the board due to competition for labor and products was right after the black plague wiped out half the population.

seriouscat 4 years, 8 months ago

Litigation is far more common today than it ever has been. And going back to the 1980s for a supposed libertarian model to compare to is just silly. Come on, you should know better than that.

I could be wrong but I have always thought that the US was chock-full-o-lawyers because of less regulation and an emphasis upon the rights of person and property. Besides you are incorrect that it's far more common now. My source is a retired judge who stated just Monday on the radio that tort reform restraining lawsuits from being brought has significantly reduced litigation since it was enacted. Also, I wasn't "going back to the 1980s for a supposed libertarian model to compare to" I was pointing the fact that litigation was at an all time high when it was less regulated.

Let's look at it a different way though. Libertarians would say that it makes more sense to do away with drunk driving laws, and that if someone's property is damaged it is irrelevant that it's due to drunkenness and the value of the property should be the focus; the wronged would then use the civil court system to recover monetary damages. Only if damages to person resulting in injury happened would it then become criminal. Is that about right? You don't think that would lead to more litigation?

The average workweek declined from 61 hours a week in 1870 to 48 hours a week in 1929. From 1860 to 1890, real wages for average workers increased by 50%. And don't forget that workweek hours were declining, so it was probably closer to 60%. The purchasing power of a worker's paycheck increased as much as 90% in some areas, and at least 60% from 1820 to 1860.

While all this may be true it's also true that these time also coincided with what most today would consider unacceptable working conditions for those at the bottom of the socioeconomic ladder, especially kids and immigrants. The crux of the libertarian philosophy is that to a certain extent, children and immigrants being exploited and disposed of is a regrettable side effect of a full steam-ahead economy. This is where I think most people, myself included, part with the libs. Better a slower economy where the 'little people' have strong protection from exploitation than to simply sacrifice the virgin to the kraken so everyone else can enjoy another TV or car for cheaper.

seriouscat 4 years, 8 months ago

On the job deaths decreased from 428 per million workers in 1930 to 214 per million in 1960, prior to the creation of OSHA, which was created in the 1970s. Occupational injuries are at an all time low of 59 per 1,000 employees, however they have not gone down at all since the creation of OSHA

Yeah, OSHA is a kind of a joke and so are many other current agencies. You are preaching to the choir on that point. My main issue is the ideological end that libertarianism will take us; from over-regulated/badly regulated to not regulated. There is a middle ground somewhere in there and I think it's more realistic and productive to focus on that than upon ideological purity.

seriouscat 4 years, 8 months ago

Agh! I don't try to reconcile anything! You completely missed the point!

Even if it's a fact that things may have been improving for the majority, there were still 1000's of exploited workers...many of them children, and that it's immoral to sacrifice all the most vulnerable members of our society to a faster economic engine.

camper 4 years, 8 months ago

"Antitrust law, which is really anti-competition law"

Not in my opinion. Laws that restrict monoplies can benefit competition. In fact, large corporate monopolies are just as bad government monopolies. Consumers have fewer choices. Prices tend to go upward the lower # of competitors there are. Total monopoly is certain to raise consumer prices and decreasse product quality if few businesses have a corner on the market. One airline company would not be good for the consumer for instance. A collection of smaller companies tend to find ways to improve utility and efficiency and is preferable. Aside from the advantage of economies of scale, I cannot see how monopolies might be good.

camper 4 years, 8 months ago

"Monopolies are a creation of the government".

Not in my opinion. Monopolies are most often created by acquisitions and mergers....not by the goverment preventing entry for other companies. In the industry I'm in (which is a near monoply) many new companies enter the market frequently. If they are of any substance, they are arquired by the big boys, and most often the unique quality this smaller business had is often lost.

camper 4 years, 8 months ago

"Monopoly- 1) A market in which the number of sellers is so few that each seller is able to influence the total supply and the price of a good or service. 2) a major industry in which a small number of firms control all or a large portion of its output"

Economics 11th edition - McConnel

camper 4 years, 8 months ago

The only thing you have proven is that your theories are full of holes.

camper 4 years, 8 months ago

"The labor pool has always been smaller than what is required"

You might have a hard time convincing those who are out of work right now with almost 9% unemployment, not including those who are under-employed. "Always"? Seriously, I find it hard to believe that in the 1930's the that the labor pool was smaller than what was required....in that time of low demand and over capacity.

I think you might be making stuff up.

camper 4 years, 8 months ago

"The unemployment during the 1930s was caused by artificially inflating wages"

Not in my opinion. Unemployment was created because of overporduction. There were too many goods and not enough demand. Too few dollars chasing too many goods. And of course there were other reasons, but that is another topic.

camper 4 years, 8 months ago

Says law is supply creates it's own demand. Yes, I've heard of it, and it is not an absolute. This law is not true if market forces (and humans) do not desire the utility of this supply. This makes overproduction possible.

camper 4 years, 8 months ago

"Once the economy has a chance to liquidate the malinvestments created during the boom, labor and capital would be reallocated and unemployment would have come down"

Agreed, but as you seem to indicate... there is a temporary misalignment of labor and supply until this capital reallocation occurs. Therefore temporary overproduction and unemployment occur. This is what we are experiencing right now. Say's law by the way is no longer considered an absolute economic principal though it has merit.

camper 4 years, 8 months ago

"Only overproduction in some segments of the economy, not the economy as a whole. "

Undersupply in some segments is not quite enough to make up for the oversupply. Unemployment would not be so high if this were the case. When you break things into segments as you do, you must also accouunt for the time it takes to train and/or relocate to a better segment. This will correct itself, as you say, but in my mind temporary overproduction is still prevelent when viewing the labor variable.

camper 4 years, 8 months ago

Sadly, during the depression, there was an oversupply of livestock. Not because people were over-fed, but because they had not the means to buy food. Animals were slaughtered and discarded. This is another way that supply does not always create it's own demand.

camper 4 years, 8 months ago

"The oversupply was caused by government intervention, not the market."

Wrong. Oversupply was caused largely because the market for US agricultural projects in Europe dropped sharply after WWI. The market changed drastically. Farm bureau efforts was an attempt to remedy this (right or wrong). American farmers had the same acreage allotment however, but they no longer could ship as much quantities overseas. Thus a glut was created.

true_patriot 4 years, 8 months ago

I used to be a Libertarian but then I realized it's an impossible philosophy. The reality is that we are all inescapably bound together, particularly at the kind of populations we are at today, and need to band together with some degree of organization.

To further complicate things, the corporate world and government have become so intertwined at so many levels that anyone stuck in the quaint meme of "big gub-mint is bad, business is good" is well and truly trapped in an illusion from the past, if it ever really existed. If the two are different aspects of the same process, it's a mistake to treat one as a bogeyman and the other as a savior. It's not even about ratio, it's about how intertwined they are at many levels.

camper 4 years, 8 months ago

It is obvious that you have not been to very many beaches. Sure I've been to some as you describe, but there are many beaches where "chaos" does ensue. Fights, drunken behavior, you name it. You can find this kind of stuff at many beaches. In fact mostly at the ones where there is little regulation (ie rules). The kind where you can drive your car, drink beer, etc. Chaos ensues often!

camper 4 years, 8 months ago

Nope, there were also fights about where one might put there stuff. Especially when bikinis are added to the equation. Face it, your beach analogy is not working. Think of some better example of self organization. Church is one that I can think of if I might throw you a bone.

true_patriot 4 years, 8 months ago

I see you are still trapped in the illusory meme that sees government and the private sector as two different entities.

And I've read Hayek before but have moved beyond that. Perhaps you would benefit from reading "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too" by James Kenneth Galbraith for some modern economic analysis that more closely matches the economic universe we find ourselves in today. http://amzn.to/hEkbQk

Interestingly, the economic model you seem to support is technically considered a form of liberalism. Strange irony.

kansanbygrace 4 years, 8 months ago

Heard a great one just this morning. Moderator asks, "How far in advance can today's economists predict economic changes?" the Economist responds, "Six months ago."

kansanbygrace 4 years, 8 months ago

I recognized the housing bubble's reality in 2002. By 2004 it was in full flush. It doesn't take an economist to realize that a ballooning backstock of unsold houses, financed by institutions who made a killing from every house built, taking their cut out of cash flow and passing the risk on to the consolidators, is not subject to market influence. The more authentic economists recognized these risks in the '80's when the crush of deregulation kindled disaster after disaster. By the year 2002, the train was already out of control and blasting toward oblivion at breakneck speed.

jayhawklawrence 4 years, 8 months ago

A lot of young people want to study economics and political science. I sincerely hope they do not.

Economics is a very fascinating field, but if you let an economist run the government or your company you will probably end up bankrupt. The same can be said of lawyers who become politicians.

Focus on math and science as best you can and become a well read person. Learn how to sell. Take a selling course and practice gaining confidence. Surround yourself with talent and smart people.

Find a good company to work for to gain experience and then start your own.

Somebody told me that nobody ever got rich working for a living. Something to really think about.

Then after you become successful and get to know the many incredible and successful people out there, you can sit back and listen to the latest fad economist or politician blab about how much they know about nothing at all.

jayhawklawrence 4 years, 8 months ago

While I agree with a lot of things you say Liberty, I can see also that there are some controversial things you have said that are opinions and not facts.

What I do agree with is that everyone should study economics and anyone handling money should have studied economics. That is why every business degree and mba program that I have seen requires some economic coursework.

For example, I have worked in the manufacturing sector for decades and almost every manufacturer believes strongly in free trade. But the same number will tell you that the trade we are involved with is almost never fair trade which makes free trade impossible.

So why do we call it free trade if it isn't?

I think the question answers itself when we look at the problems in government.

jayhawklawrence 4 years, 8 months ago

A lot of issues are just not black and white issues. A lot of issues which need a lot of study and attention become politicized and debated to the point where no one can be objective or even rational anymore.

That is the problem with isms. They often times become a handy replacement for common sense.

That is why economists and politicians and lawyers love isms.

One of the most controversial decisions in recent years is the subcontracting of defense contracts to other countries and the bidding war on military transport planes.

And the costs keep rising....

true_patriot 4 years, 8 months ago

Speaking of a concrete need for regulation: http://www.guardian.co.uk/environment/2011/jan/06/bp-oil-spill-deepwater-horizon Latest analysis shows corporate negligence, poor leadership (despite sky-high salaries and bonuses) and a likelihood that this kind of preventable man-made disaster will indeed happen again unless these kinds of companies are better regulated.

I would also recommend "The Big Short" by insider Michael Lewis for a readable and highly educational inside look at how the increasingly unregulated economy got exploited until it broke. It explains some of the relevant exotic financial instruments extremely well yet reads like a human interest high-tension drama.

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