Mon, 31 May 2004
The Labor Theory of Value
This dude on slashdot complains about "our purely
monetary system -- there is no measure for the labor hours, or the
quality of those hours, that go into the production of much of
anything. The cost of things that can't be measured monetarily is all
too often assumed to be "ZERO", but that simply isn't true. Even
freeware costs somebody something to make."
Marx had this theory for the source of value. At the time he was
writing, there was no consensus among economists for the source of
value. Why are diamonds
more valuable than water? They couldn't explain that, since
obviously water is more necessary to human life. They didn't have the
idea of marginal utility, so they were casting about for an
explanation. Marx's explanation was that the value of something came
from the labor that went into it. Water was easy to get, but diamonds
had to be mined from the earth.
Curiously, some people still believe that theory even though there
are numerous counter-examples to it. For example, it doesn't take
into account time preference. If all else is the same, people value
something now over something later. If I hide two packets of gold
coins, and offer to sell you their location, one of which you will be
told immediately, and the other of which you will be told in twenty
years, you will pay more for the first than the second. How can that
be, according to the labor theory of value? The same exact labor has
gone into each packet.
The slashdot dude has obviously made the same mistake. There is no
measure for the labor hours or the quality of those hours, that go
into the production of anything. That's not how you assign a
value to something. First, since value is relative, everyone assigns
their own value to something. There is no such thing a single
measurement of value. Second, you cannot assign a value to something
by looking at what it cost you. If the value of something was always
equal to its cost, nobody would ever sell anything for less than what
it cost them. Third, the way you find out how much somebody values
something is by looking to see what they will trade for it.
If something is not scarce, it is not an economic good, and you
cannot measure its value with anything, much less money.
Since it's not scarce, nobody will trade anything that is
scarce for it. Doesn't matter what: time, drugs, sex. Or even money.
Economics is not about money. It's about figuring out what people
will trade for what. So, what would you trade to get a copy of the
Linux kernel? Not the bits themselves, I mean the right to use or
redistribute the Linux kernel. What would you give up to get that
Answer: nothing, because you already have that right. It's not
scarce. Its value to you has nothing to do with its cost to you, or
to the amount of labor that went into it.
Posted [23:21] [Filed in:
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Tue, 25 May 2004
A Living Wage
Gonos, thinks that the minimum
wage should be doubled. It's currently $5.15, and he's quoted in
the May 24th Watertown Daily Times as saying that he would like it
"set higher than $10/hour". He's listed as having gotten his PhD in
Economic Sociology. I would call it instead Economic Fantasy.
Anyone is free to demand a living wage, of course. That's not what
George wants. He wants employers to be forced to have to pay a
minimum wage. The trouble with that idea is that no employer is
forced -- no employer can be forced -- to employ anybody.
Go to anyone who employs people at the minimum wage, and ask to see
their books. It's quite likely that most of them would refuse, but
you'll find one who will agree. Double the wages of anyone making the
minimum wage, and bring everyone else up to George's new proposed
minimum of $10. Suddenly the books won't balance. You can be 100%
sure that the employer will now be losing money. So go through the
expenditures, looking to see what can be cut so as to make the
business break even again. I can guarantee that there's only two
places to get enough money to cover the new costs: employees wages,
So, one way to pay the new living wage is to fire half your
employees. This is actually do-able. What you do is tell your
existing employees "At the end of this work week, the new living wage
law goes into effect. Half of you will lose your jobs, and the other
half will continue to be employed. The ones who will continue to have
jobs are the ones who have doubled the amount of work they get done in
the same amount of time. Have a nice week!" Your employees will hate
each other by the end of the week, but that's not your problem. This
is, by the way, likely not the solution that George expects will
The other possibility is to raise prices. The problem with doing
this, of course, is that not all work has to be done on the spot.
Some of it can be moved offshore. If employers suddenly have to
double their wage expenses, equally suddenly offshoring will grow.
Those companies will not have to raise their prices, and the companies
that do will go bankrupt. This, too, is probably not what George
expects. Even if businesses manage to raise prices without losing
business (when has that ever happened?), who will have to pay
those higher prices? Yep, the same people earning the new living
wage. So, the calculations that went into the living wage will get
completely thrown off, and it will no longer be a living wage. George
seems not to have anticipated this effect.
I'm not sure what George expects will happen, really, but doubling
the minimum wage will also require the imposition of tariffs on many
imported goods, as well as new laws forbidding the exporting of
services. Laws do not lead to freedom. Laws lead to more laws.
Freedom leads to prosperity.
Posted [01:43] [Filed in:
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Mon, 24 May 2004
Let's get this out of the way fast: any minimum wage law is wicked,
and should be immediately abolished.
If that alone doesn't convince you, then let's get into details. A
minimum wage law says, in effect, that anybody whose labor is not
worth the minimum shall not be employed. Nobody would support a
minimum wage law if it were written that way. The Department of Labor
wage page says "The FLSA requires that most employees in the
United States be paid at least a minimum wage and overtime pay at time
and one-half the regular rate of pay after 40 hours in a workweek."
Minimum wage laws are supported by four sets of people:
- Employers who do not want to have to compete with other employers
who have lower labor costs.
- Employees who do not want to have to compete with other laborers
willing to accept lower wages.
- Employees, typically represented by unions, who can claim that
they are providing skilled labor, and should be paid more than a
worker hired at the minimum wage.
- Busybodies, who support "a living wage".
The classic example of an employer supporting the minimum wage is
the Northeast U.S. textile manufacturer. Textile mills were
originally built in America in the Northeast, where water power was
necessary and abundant. In time, water power became less important,
and textiles could be manufactured anywhere. Labor was cheap in the
South, and textile mills began to be built there, competing against
The Northeast mill owners did not want to have to compete with the
Southern mills. To raise everyone's costs to that of the Northeast,
they supported a minimum wage law. Rather than allow the South to
make textiles, and the Northeast workers move on to more profitable
activities, the Northeast textile manufacturers lobbied for a minimum
wage. In the end, they couldn't compete anyway, and most Northeast
textile mills have closed.
Employees want to be paid as much as they can, of course. They
will always have an incentive to have their own wages increased for
the same amount of effort. The wise employee will realize that they
are making a Faustian bargain. Their increased pay comes from
another laborer's unemployment.
Unions are a legal
monopoly on labor. A union will (at least in theory) take the
members dues and spend them in such a manner as to raise the members
wages enough higher to pay for the dues and then some. One of the
ways they can do this is by supporting minimum wage laws. Typically,
union members' wages are higher than minimum, sometimes by a factor of
two or three. They do this so that they can argue "Well, the minimum
wage is now fifty cents higher. Our members should get a raise of
Busybodies support minimum wages out of a sense of fairness. Some
of them adhere to Marx's labor theory of value. This is the idea that
labor produces all value, and so all profits should go to laborers.
It's obviously balderdash, but it's convinced some people. There's
also shouldness: nobody should have to work for such a low
wage. This is obviously true, but the economist needs to add her own
should: nobody should lose their job because of a minimum
wage law. Equally obviously true.
Some busybodies total up the costs of living the way they want poor
people to live, and call the wages necessary to pay thoses costs "a
living wage". Without further thought, they support a minimum wage
law to increase the wages to a "living wage." This is a "should"
rather than an "is", just as in the previous paragraph. Just as they
"should" get a living wage, neither "should" they endure the
consequences of forcing employers to pay a living wage.
Follow the money
A minimum wage coerces an employer to pay more in wages than they
are receiving in labor. Clearly, if the employer was receiving that
value in labor, free market competition would force them to pay the
wage for that labor. The money to pay wages in excess of labor
received does not come from nowhere. It is a new cost imposed on a
business. In a free market economy, in time, that cost will be
reflected in the price of the good. Go read about prices, costs, and value if you think
If nothing else changes, then, prices will rise to cover the
increase to the minimum wage. The effect would be for everyone in the
economy, including those formerly employed at the minimum wage, those
currently employed at the minimum wage, and unemployed people, to pay
for the increase. While the now-minimum-wage employees are
better-off, the already-minimum-wage employees and unemployed people
are worse off. They are paying more for things, but not getting any
more themselves, even though they're equally or worse as well-off as
the now-minimum-wage employees. This effect is ignored or dismissed
by proponents of minimum wages.
You never have the case of nothing else changing, when you change
the price of something. Because goods and services produced by
minimum-wage employees are now more expensive, fewer of them will be
purchased. Fewer minimum-wage employees will be needed. This effect
is ignored or dismissed by proponents of minimum wages.
Labor is now more expensive. Whenever the cost of an input to
production changes, the manager of that production will re-evaluate
the production methods. It may be that a tool whose cost was formerly
prohibitive is now cost-effective. The McDonalds near me now has a
french-fry basket loader. They dump a big bag of fries into the
hopper, and it loads a specific amount into a fry basket. No doubt
the machine is cheaper to employ than the employee's time. This
effect is ignored or dismissed by proponents of minimum wages.
An employer may reevaluate his processes, and find that he can do
without the employee entirely. Perhaps a tool could be employed?
Perhaps the production process may be made more efficient? Perhaps he
can get other workers to work harder? This effect is ignored or
dismissed by proponents of minimum wages.
No matter how you cut it, somebody worse-off than the employee ends
up paying for the increased (above market) wages. That's a result of
economics, which is value-neutral. We could use our values to decide
that that's acceptable, fair, and moral. I don't think it is.
Minimum wage laws should be abolished solely because of that negative
Why didn't I notice this?
Right about now, somebody will say "there is no evidence that the
minimum wage law creates unemployment." They are fortunately quite
correct. The current minimum wage law doesn't lift wages much above
the market level. That means that they also don't create much
unemployment. You can point to the many people who have minimum wage
jobs, if you want. That won't help, because some of those people will
have minimum wage jobs anyway simply because the market price matches
Another reason you won't notice the unemployment caused by the
minimum wage is a very simple fact of human nature: it's hard to see
things that don't exist. We are biased by millenia of evolution to
notice things that exist, and disregard things that don't exist. It's
very easy to see minimum wage jobs. They're advertized in the
newspaper. People who are unemployed don't walk around with a sign
saying "Unemployed because the minimum wage went up." Everybody who
is alive today have ancestors who paid close attention to deadly
things that exist, and less attention to things they only imagine.
Also, when a minimum wage law destroys a job, it does so
stealthily. The loss of the job associated with an increase in the
minimum wage might happen many months after the wage increase.
Some people want the minimum wage to be much higher than it is now.
They would like to double the minimum
wage. The Haitian lace industry was destroyed (and the
livelihoods of thousands ruined) by application of a 1930's US minimum
wage law which doubled the wages of workers there. We could try that
experiment, but I wouldn't advise it. Any minimum wage law which
significantly increased the minimum wage would also significantly
increase unemployment. Thank your lucky stars that the existing
minimum wage laws have so little effect.
Update, 09Dec2003: David writes:
There is another issue with minimum wages not mentioned in your
entry, that of people assuming that banning something will make it go
In Australia, we have minimum wage laws and worker protection laws
similar to those in western europe. What happens when you say that
people can't legally work for less than a certain amount is that large
numbers of people start working illegally for less than the minimum
Before finishing my degree, I've worked as a delivery driver,
dishwasher, cleaner, kitchenhand, counterhand, coffeemaker,
night-filler, farm labourer and research assistant. For all but two
of those jobs I worked cash in hand, for around one third to one half
of the minimum wage. Thousands of others do the same.
Aside from being paid below the minimum wage, the real problem for
workers in this sort of situation is that they are effectively
excluded from protection under most worker protection, harassment and
injury compensation laws. I've seen people injured while working who
had to pay nearly a weeks wages for an ambulance to hospital.
Workers at the lower end of the economy are often the most
vulnerable to exploitation, and these laws usually make things worse
He is, of course, quite correct. Making jobs illegal doesn't eliminate the jobs, but it does take them completely out of the purview of the legal system.
Posted [23:52] [Filed in:
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The most basic result of economics is the law of supply and demand.
If the demand exceeds the supply, the price will go up. If the supply
exceeds the demand, the price will fall. An indisputable observation
is that people are getting paid more and more. This has been true for
about the last four centuries. If you put these two things together,
then you have to conclude that we don't have an overpopulation problem. We have, in
fact, an underpopulation problem. It is not a new problem,
and it is not likely to go away any time soon.
Posted [10:06] [Filed in:
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The Unions are for the Unions
Just as in Lewis's The Last Battle, where "the dwarfs are for the
dwarfs", so, too, "the unions are for the unions". Make no mistake
about it, unions are not in any way public interest organizations.
Oh, they'll tell you how good they are for society. There's even a bumper sticker that
reads "Unions: the people who brought you the weekend." Don't believe
it for a moment.
One of the functions of a union is to monopolize labor. To the
extent that they actually succeed in doing so, unions are bad for
society in the same way that any monopoly is bad for society. In case
you haven't been following along on the play-by-play, it's because a
monopoly can charge
monopoly prices. A monopoly gets monopoly prices by restricting the
amount of production so as to move the price point to a more
profitable position. You can see, now, why unions are always
threatening to strike, and why unions are hard to get into.
A union doesn't have to form a monopoly to be useful. They can
still create benefits for their members by reducing transaction costs.
They can also contract for insurance, which is substantially cheaper
if you can supply the insurance company with a need-blind pool of
customers. They can administer a pension program. They can supply
social needs, like picnics and parties.
Unions claim to have coerced employers into reducing the work-week
to 40 hours (in the US; 35 in France and Germany). This probably
isn't the case. A union would have to have monopoly power over
all labor, and that's never been the case. I don't remember
the exact number, but even in the heyday of union power, they never
had more than 50% of the work-force as members. What's more likely is
that as people became more prosperous, they valued leisure over the
incremental hour of work. In a free market, people generally get what
they can afford. When blacks were freed following the US Civil War,
they worked fewer hours per day. Not because blacks are lazy, but
because they preferred leisure over the marginal value of those extra
hours of work. Freed of the need to make a profit for their owner,
they could afford the extra leisure.
Now I want to look at how unions form their monopoly over labor.
It's not pretty. A monopoly is hard to maintain, particularly when
it's over the efforts of individuals. Basically, some union members
were assigned the task of beating the crap out of people who weren't
union members, but did union work. Or burning their cars, or houses,
or whatever. Most of the methods for monopolizing labor involve
intimidation and/or actual violence.
Today, unions use the violence inherent in government to get their
monopoly. In most states, a workplace is either unionized or it is
not. If it is unionized, then you MUST be a member of the union to
work there, and you MUST pay union dues. A simple majority vote of
the workers is sufficient to unionize a workplace. The employer is
very strictly limited in what she can say about unions.
It gets worse: unions, through the voting bloc of their membership,
have extorted union workplace rules out of governments. As the
membership of unions in corporations has decreased, it has increased
in local governments. Yes, your taxes to go support unions whose
purpose is to benefit a small class of workers, and the hell with
everybody else. Outrageous? Enough to make you into an angry
economist? It has me.
Update Sun May 18: the head of the CWA local, Mark Seymour, has a
letter to the editor in today's paper, complaining about the
DANC fiber. He uses some good reasons,
but also a bad one (from an economist's perspective): because it might
throw some CWA union members out of work. Sorry, Mark, I count you as
a friend, but preserving your job is not a good reason to not
improve society. It so happens that we're arguing the same point, but
your reasons for doing so are not my reasons.
Posted [09:51] [Filed in:
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Unemployment. Sounds like an undesirable attribute, like
"undressed", or "unable", or "unstable", or ... "undesirable". It's
true that anybody who wants to be employed surely doesn't want to have
the label "unemployed". And yet ... there are nearly always jobs
being advertised in the newspaper. So why is there persistent
Another word for unemployment is leisure time. Sounds odd to put
it that way, but yes, someone who is unemployed can be said to value
leisure over all possible jobs. Leisure don't pay the mortgage, so
why would anyone prefer leisure over employment?
The answer is simple enough: because they're waiting to find a
better job. Someone who has taken an inferior job will be hindered in
finding and getting a better job. Rather than get stuck in an
inferior job, they refuse labor.
Let's say it right out: there will always be unemployment in a free
market. The "natural" level of unemployment is affected by a number
of things: the likelihood of someone finding a better job than any of
their choices, their savings, whether they have other means of support
(e.g. relatives), and their non-discretionary expenses. This level of
unemployment is called "structural unemployment." The only way to
eliminate this type of unemployment is to take away people's freedom
to work at the job of their choice.
Another possibility is simply that labor is not desirable. Take as
an example my wife, Heather. She has worked part-time as a bookkeeper
for the local food coop, and could surely work full-time elsewhere as
such. My income as a consultant makes it unnecessary for her to work.
The incremental value of her salary is below the value of her leisure
time to the family, so she doesn't work.
Now comes the truly interesting thing: how do you measure
unemployment? The answer can only be that you can't. Someone who has
the attribute "unemployed" has that attribute solely in their head.
If they want a job and don't have one, they're unemployed. If they
don't want a job and don't have one, they're at leisure. The only way
to tell the difference, all the work of the Bureau of Labor Statistics aside, is to
ask. Conduct an opinion poll.
Unemployment is in the mind of the beholder. Remember that the
next time you hear authoritative-sounding figures about
Posted [09:45] [Filed in:
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People are, like, massively confused about "trade deficits",
y'know? So often you hear this or that pundit pontificating about how
horrible it is that we have a trade deficit with one country or
another. We currently have a trade deficit with China.
It's more or less meaningless to compare the volume of goods sold
by Chinamen to Americans against the volume of goods sold by Americans
to Chinamen. They have very little to do with each other. Often you
can make sense of trade issues by bringing them home. If it makes
sense in your family, then it makes sense in international trade (if
only because countries tend to act like two-year-olds!)
Let's say that you are a student at the University of Illinois at
Chicago (UIC). You have a trade deficit with them. You buy more from
them than you sell to them. Assuming that you can get the necessary
tuition money, does anybody perceive this situation as a problem? The
trade deficit could go on forever. Certainly there are some gradual
students who would prefer that state of affairs.
Note the assumption, though. To make the previous paragraph true,
I had to assume that you had a source of tuition funds. Where are the
tuition funds going to come from? Let's say that you are very good at
something, and you can do that thing well enough to earn enough money
to pay the tuition, whilst still leaving you enough time for college
classes. You could stay in college forever and have a permanent trade
deficit with UIC.
In case that's not clear enough, consider that you have a permanent
trade deficit with the supermarket that you buy your food from. They
are forever selling you things, you are forever paying them, and yet
you NEVER offer to sell them anything. Nobody has a problem with
this. Nobody is decrying the trade deficits that customers everywhere
have with stores. Of course not, because the concept is just wrong.
Another way to look at it: your employer has a trade deficit with
you. You are constantly providing services for him; he is constantly
paying you; and you rarely if ever buy anything that you produce for
Do you see why a "trade deficit with China" is a confusing idea?
It has, at its core, an assumption that we are ultimately bartering
with China -- that the sum total of goods we sell to them must be
equal in value to the sum total of goods they sell to us. But we can
sell things to Japan, who sells things to China, who sells things to
us. That makes for three trade deficits and yet lots of happy
A trade deficit with everybody
Some people are less confused than others. They worry, instead,
about having a trade deficit with everybody. Let's go back to our
example. Let's say that we constantly shopped; had a trade deficit
with every store we enter. To keep this relevent to international
trade, let's say that we used our personal IOUs to pay (being a proxy
for dollars). As long as we redeem our IOUs faithfully, stores will
continue to accept them. If they pile up too excessively (trade
deficit with the world), people are going to be reluctant to accept
our IOUs. In the parlance of international trade, our IOUs (currency)
will decrease in value. The dollar will fall against other
currencies. Foreign products will be more expensive in dollars than
they were. Our exports will be cheaper.
The goal is to import as much as you can, and export as little as
you can. "Buy low, sell high" is not new financial advice. People
will help us import by giving us some credit (by taking our
money/IOUs), but only if we have a history of paying back the credit.
In order to do this, we have to create products that other people want
to buy. To the extent that we do this well, we won't have to export
much (work hard) to get the imported goods we want.
There are other ways to get people to redeem our IOUs/dollars. We
could sell ownership in our businesses. That has happened -- a LOT.
Several reasons for this: 1) American businesses are very productive.
We make very efficient use of capital. 2) Ownership is very secure in
America. Businesses don't get expropriated like they do in other
countries. 3) The dollar is widely accepted. Because of #1 and #2,
Russians will accept dollars from Gambians. 4) The dollar has been
fairly stable of late. We haven't been printing up new dollars since
Reagan's presidency. That makes the dollar a reasonable currency to
If people are willing to buy businesses in the USA, then just like
a supermarket, we can have a trade deficit with the rest of the world
forever. We need to stay productive, but it's not the bad thing that
some pundits posit. We can keep creating new businesses to sell to
foreigners until the cows come home.
Posted [09:41] [Filed in:
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Wed, 19 May 2004
Stupid AP Inflation Headline
Sigh. Some non-economist writer was given the task to write about
inflation and botched it. Or, to be
fair, some idiot editor got hold of the article and wouldn't let go of
it until he had thoroughly screwed it up. "Wholesale prices up 0.7
percent in April, showing inflation on the rise". It's not just the
headline that they botched, either, because the first paragraph ends
in "... providing fresh evidence that inflation is awakening after a
Inflation is not a general rise in prices. Inflation will
cause prices to rise, but other things can also cause prices to rise.
For example, everything gets transported somewhere, so if the price of
transportation rises, prices will generally rise. Inflation is,
instead, caused by an inflated supply of money. If you read farther
on in the article, you'll see that the real inflation rate is only
0.2%, in line with analysts' expectations.
Posted [17:29] [Filed in:
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Tue, 18 May 2004
Speculators in the oil futures market
According to NPR, one of the forces driving up gasoline prices are
speculators in the oil futures market. From the way they said it, it
sounded to me like they thought that speculation was a bad thing.
It's not. Speculation is a good thing.
Prices do more than simply determine how much you pay for
something. They also carry information. When something gets more
expensive in a free market, that indicates that the demand for it has
risen without a corresponding rise in the supply. This has two
effects. First, it rewards the people who were careful to own the
thing which is now in demand. Second, it causes people to husband
their supply of that thing.
Everyone expects us to run out of oil. My entire lifetime people
have been anticipating the day when we'll finally "run out of oil."
That day has not yet come and never will. We'll never run out--we'll
just run out of oil that anybody is willing to pay for. So, the price
of oil will rise in the future because of increased demand
and lessened supply. The trouble is "when".
The function of a speculator is to tell is when oil will get more
expensive. If they think oil will be more expensive in the future,
they'll buy an option to purchase oil in the future at a fixed price.
If everyone chooses wisely, the price of the options plus the fixed
price of the oil will be the future market price of the oil. The more
people who want these options, the higher the price for them will be.
So, when people think oil will be more scarce, more valuable, and
command a higher price, they'll bid up the options.
A speculator brings the future into the present. Sometimes the
future is unpleasant (higher prices for oil). This leads some people
to call for laws limiting speculation. This is merely shooting the
messenger. If the speculators are right, oil will be more expensive,
and the sooner we start acting that way, the better. Speculators who
have bought oil (or an option to buy oil) now when it's relatively
cheap will make a profit by conserving it until it's more valuable
later. If speculators are wrong, they'll lose money. Speculators who
are consistently wrong will go broke. That's one of the pleasant
effects of a free market -- people who screw up lose their chance to
screw up in the future.
Now, imagine instead if the price of oil was controlled by a
government. Governments are typically short-sighted, where "short" is
defined as the period between now and the next time they have to get
elected (term limits help ensure the short-sightedness of a
legislator--no need to think beyond the limit on your term). If the
government sets the price lower than a free market including
speculation, then people would consume oil at a higher rate. That
would lead to shortages, and radically higher prices. If the
government set the price higher, then people would consume oil too
slowly, and miss out on some of the value of present consumption.
Outlawing speculation is like trying to outlaw the future.
Posted [16:06] [Filed in:
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Wed, 05 May 2004
Greed and Envy
If you're reading this blog, then you find economics interesting (I
can't imagine why you would read it otherwise). I hope, then, that
you will take this next lesson to heart. Do not mix moral judgement
with technical description. Many times you will hear people talk
about the greedy rich and the envious poor. These terms should be a
marker that says "The following has nothing to do with economics and
everything to do with morality."
People are people, and it's very hard not to have feelings about
facts. There is definitely a place for acting on these feelings.
However, if you are trying to pin down these facts, to find out what
the truth is, you cannot let your feelings get in the way. To pick on
the issue of the minimum wage, you might think someone heartless if
they tolerate wages too low to buy basic necessities. If you stop
there, if you act on those feelings, you will not come to the truth of the matter.
It is very tempting to call the rich greedy and the poor envious
(although obviously the same person is unlikely to do both at the same
time). It is very easy to conclude that, because someone continues to
create value beyond their basic needs, that they are greedy. It is
also wrong. It is very easy to conclude that, because someone wants
someone else to pay for their basic needs, that they are envious. As
judgements of rich people and poor people, without reference to the
facts of the specific individuals, they are likely wrong. As economic
pronouncements, they are certainly wrong, because economics does not
make judgements of those forms, and when economists do that, they have
taken off their economist hat, and should expect no special protection
Ken Mortenson comments.
Posted [20:38] [Filed in:
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Better Health Care
It should be clear that Health Care is an economic good. That is,
it is a scarce good, in short supply. I noticed something
interesting about Health Care today. I heard a story about the
women's march on Washington on NPR. Some women were reported to be asking
for "Better Health Care". Google says that that phrase appears about
65,900 times on the web. The very existance of that phrase points to an
effort to turn Health Care from an economic good into a political
good. That is, one which cannot be purchased, but which is available
(at some level of quality and supply) to everyone.
Ponder this: have you ever heard of a Campaign for Better Hot Dogs?
Or the Better Blue Jeans Taskforce? No, of course not, because those
are economic goods are supplied via markets. There are many different
amounts, kinds, and prices of these goods available to purchasers.
Some of these are markedly poor quality, yet they are purchased anyway.
There are a set of people who do not understand economics. I will
call them "Good Hearts", because they are generally good-hearted
people who mean well. Good Hearts do not understand that everyone has
a fixed amount of resources at any point in their life. Everyone has
to make decisions about how to allocate those resources. Everyone has
choices, and an opinion about those choices. There is in essence no
way for anyone to make someone else's choices for them, because you
would have to know the person's opinions as well as the choices. I
mean, everyone can tell a funny story about an inappropriate gift that
they received, right?
Some people, who are usually called poor people, have to choose
from mostly unattractive choices. This really bothers the Good
Hearts. Unfortunately, rather than try to make more choices available
to poor people, they seek to eliminate all of the unattractive
choices. This is done on the assumption that if poor people have no
unattractive choices left to them, all their choices will be
This assumption is wrong.
Instead of having only attractive choices, poor people are left
with fewer choices, or even no choices. This has the unfortunate
problem of interfering with their ability to maximize the utility of
their total set of choices. In other words, life sucks, then you die.
For example, the Good Hearts don't like it when poor people have to
live in poor quality housing. So, to make sure that poor people don't
have to live in (say) a house with only one or two outlets per rooom,
building codes specify that outlets must be every six feet, or eight
feet, or ten feet of linear wall. What this does, though, is not to
ensure that poor people have high quality homes, but instead to ensure
that poor people have no homes at all.
There are many instances of regulations like this, which force a
minimum level of quality upon people. There are no circumstances
under which this makes people's lives better. All of these
regulations should be repealed. Not for the sake of the rich, or the
sake of the middle class, but for the sake of the poor, so they have
more choices in how to allocate their very limited resources.
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