Tuesday, June 14, 2011

Some thoughts on Economics.



Recently Ferdinand Bardamu put up quite a good post arguing the merits of a guaranteed living income. Voxday has also put up a couple of good posts arguing against the merits of unconditional free trade. Both have taken positions that I support with some reservations, but what is interesting to see is just how much opposition they have had from conservatives, particularly economic libertarians.

Assuming all other variables are held constant, economic liberalism is the best way to maximise growth and world prosperity. Free trade, prudently minimal regulation of the market, property rights and "sound money" are the best way to increase wealth. I think many economic libertarians think along the similar lines when they criticise the two above mentioned bloggers. The problem with many of these libertarians though is that they can't see past the "economics" of the question and recongise that economic activity does not exist in isolation but is intimately intermeshed  in the social and political dimensions of the real world.

Take for example the concept of a minimal living wage.  There is no doubt in my mind that setting a "floor" on wages will result in the non-viability of certain business arrangements. In other words, there will be less business activity and hence smaller economy by doing this. However having decent minimal wages means that there are less destitute on the streets, less child labour, less proclivity for social revolution and less incentive for crimes of need.

Socialism was not born in a vacuum. It's fertile feeding ground were the poor, especially the labouring industrial poor,  swelling in multitude with the idustrialisation of Europe and America.  The resentment felt to their capitalist masters may have been justified or not, but it was a resentment that was exploited to assist the birth of Socialism.

Efficient capital allocation is only possible in a society of human beings that allows it. If the society puts a stop on it, capitalism dies. Therefore the primary aim of any good capitalist is to ensure that society remains in such a state that allows capital allocation to the degree in which it is possible in that particular society. The good capitalist wants to avoid the capitalism that pisses the majority of the people off.

Likewise, free trade is another example of their inability to see the bigger picture. I'm all for free trade but it needs to be recognised that free trade has its trade offs. The more free trade the more interdependent the countries become and this in turn limits the independence of a country. Australia is a strongly pro-human rights country, except when it comes to China. Perhaps it being our biggest trading partner has something to do with it?

The point I'm trying to make is much like the point I was trying to make on my post on Engine Failure.
Ensuring that the "economic engine" runs long term probably means running the engine at sub-maximum potential,  the limiting factor not being the "economics" but the other parameters and components which make up the economy.

This difference between the maximum theoretical and the maximum practical economy is the "price" we pay for system stability.  I think it is money well spent.

9 comments:

Anonymous said...

How is not having a low paying job going to reduce destitution, or crime?

The Social Pathologist said...

If the job pays below subsistence levels then "alternative" sources of income will be sought.

Anonymous said...

Its interesting that socialism made its greatest forays in countries where feudalism still practically reigned.

Libertarianism invariably leads to feudalism.

Simon Grey said...

"Take for example the concept of a minimal living wage. There is no doubt in my mind that setting a "floor" on wages will result in the non-viability of certain business arrangements. In other words, there will be less business activity and hence smaller economy by doing this. However having decent minimal wages means that there are less destitute on the streets, less child labour, less proclivity for social revolution and less incentive for crimes of need."

Maybe America is the exception, but the exact opposite has been true. Minimum wage law has led to higher unemployment, increased poverty among the underclass, and, as a result, higher petty crime. It's hard to compare homelessness rates before and after minimum wage laws took place. There is still a decent amount of child labor, mostly related to drug gang activity, part of which is due to the incentives created by America's legal system.

There is a welfare system in place, but its not as robust as it once was, mostly because taxpayers didn't want to feel like their money was being used to feed deadbeats. Thus, benefits and terms were scaled back. However, the current system is decent to most poor people, but that doesn't stop them from committing crime, or does it quell political activism. In fact, the system fosters dependence, which leads to more political activism. Whether that leads to social revolution remains to be seen, but I doubt that political activism is unfriendly towards it.

Anyway, my point is that minimum wage/income laws backfire and cause more damage than they would supposedly prevent. For further reference, see The State Against Blacks by Walter Williams.

The Social Pathologist said...

@Simon

Minimum wage law has led to higher unemployment, increased poverty among the underclass, and, as a result, higher petty crime

With the abolition of a minimum wage,it is theoretically possible then to be employed at a rate that is below subsistence level. This is obviously a loosing proposition and a point at which choosing to be employed is irrational.

The problem with the anti-minimal wage position is that it assumes that full employment can be achieved with everyone earning a greater than subsistence wage.

Even Victorian England, that great bastion of capitalism, without any legislated minimum wage, could not achieve full employment. Large numbers of the destitute still had to be handled by poor houses, parish run organisations, which as a rule, ran at a loss. Public charity will always be with us.

I do however agree that current welfare arrangements are socially destructive and a lot of the problem stems from giving people money for nothing. People need to have it constantly reiforced that money is earned. The living wage needs to be worked for, not given.

Anonymous said...

No system works well with dumb mean people. You need smart moral folks. If you pay the dumb mean folks to breed, they will consume you. Just can't do it. People have to compete. Socialism was about workers. We can't forget that. Workers of zero marginal productivity may as well be non workers. Sooner or later we have to go back to a model that is going to select for good traits.

Anonymous said...

"Even Victorian England, that great bastion of capitalism, without any legislated minimum wage, could not achieve full employment. Large numbers of the destitute still had to be handled by poor houses, parish run organisations, which as a rule, ran at a loss. Public charity will always be with us."

Fine, what matters is the rate. 1% losers we can deal with. 20% we can't.

Anonymous said...

"With the abolition of a minimum wage,it is theoretically possible then to be employed at a rate that is below subsistence level. This is obviously a loosing proposition and a point at which choosing to be employed is irrational."

When the average productivity of workers is lower than what is required to sustain them, then what? The world is literally filled with such places.

Alex Quinn 82 said...

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