Quotes and pre-Christmas gift!

"Government's view of the economy could be summed up in a few short phrases: if it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

Now, Mises.org has this really funny quote generator in its articles and I found this one, labelled 'Tom Woods'. Ok, Tom Woods would probably not object to crediting himself with such a statement, but a quick googling tells me the origin of this quote actually was Ronald Reagan. Look at that. Gotta read up on Reagan at some point, I suppose. 

Then, on the hunt for nice quotes, I stumbled upon another beauty! Think about that, when the UK deficit is some £108 billion.

Merry Christmas, everyone!

"Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it."

- Richard Lamm

Thoughts on Welfare Spending

Hey!

Apologies for not posting in a while - exam periods with somewhat swapped focus.

Today I have two charts for you on the development of the British Government spending. Not actually government spending, but only spending that includes 'benefits' (i.e., transfers, child benefit, jobseeker's allowance, state pensions, sick/unemployed/disability benefits etc).

First, in real terms, how the 'Benefit Spending' has increased over the last 60 years in real terms (that is, cleared for inflation).



So, the UK government spends a whole lot more money on benefits than they've ever done - essentially a constant development seen as far back as this chart goes.

Well, that's a good thing, right? Nay, not necessarily - and from a libertarian perspective, probably not.
What we have to remember here is that every £ the government spends, is a £ taken from all of us through taxation. Arguably, every pound taken up in taxation reduces the private spending by another pound, other things equal.

But the GDP has grown, we're a lot more productive than 60 years ago, thus it makes sense we spend more money?

Sure, let's have a look on the next one.





This shows benefit spending as a percentage of GDP, that is including the economic growth seen since the late 1940s*. Of all the resources we produce, the government has never used such a large portion of those to spend on benefits across the board.

Bottom Line and Question of the Day!
Leftists and Statists always call for higher benefits/tax levels and more equal distribution of means and government expenditure. As these charts show, the levels of benefit spending has never been this high before.  And throughout this period, the left flank, the labour Unions, the socialdemocratic parties have all called for increased redistribution of funds.
Question: What is a decent level? Where is "good enough" for you?

My answer: 0. Remove. Reduce. Abolish.

Have a great Christmas, you all!


_____
* Sidenote: As GDP being the nominator here, a recession/economic downturn produces a spike in the chart, as seen in late 70s/early 80s, early 90s and recently from 2008 and onward. 2 reasons: GDP drops; and spending in the UK system increases.

Mainstream Economics - What were you thinking?

They rest of you students, do you experience some kind of deeply surpressed anger when your lectures focus on misguided topic or even tell you incorrect points?

I do. Normally in socialist topics such as Public Policy, but today - last lecture of the semester - I'm directing my critique towards Economics. First a disclaimer. My impression is that someone regarding Economics as a hoax and their practicioneers as evil advocates for capitalism, would be somewhat surprised by the fact that economists disagree on things. Yes, we do. Quite strongly.

Ok, so large parts of the prestegious education given in Economics is what's normally referred to as Mainstream Economics or Neo-Classical Economics developted and originated in association with University of Chicago (thus, Chicago School of Economics). They normally come out in favour of free markets and limited government intervention, thus the resemblance with us, Austrian Economists. From today's lecture, I'll highlight some points that set us apart.

Redistributing Wealth from Rich to Poor

Our lecture was making the point that, overall, from a societal point of view, taking £1 away from a rich person in order to give a poor person food, would be beneficial. This, on the grounds that the marginal utility increase for the poor guy would be a lot larger than the marginal utility loss of the rich guy. The way Neoclassicals would go about this is that such an action would produce better effects for all, thus worth doing. Some kind of utilitarian moral ground.

Anyway. For Austrians this is proposterous, and somewhat bothersome that a hundred students of economics might carry such a claim into their work-life, employing that knowledge. Why? Because such a statement would require you to make interpersonal utility comparisons. That is; compare how much utility person A derives from any event in comparison to how much person B derives from identical action. This is impossible, and where Neoclassicals' mistake lies. You simply cannot make such comparisons; it is inherently incorrect - and even if it weren't, how are you to measure that? Rather, who is to measure that? People prefer stuff, rather than value them according to a numerical, measurable list in their heads. Any kind of statements of the sort that "Person A gains 5 units of utility from playing a video game, and Person B losses 2 units of utility from producing such a game" is misguiding. Humans don't act that way: we prefer something over something else, a preferance that constantly changes. The only way we can conceive this, thus giving us economists something to work with, is through prices paid on a voluntary basis.

So, no, you can't conclude that £1 is more useful for a starving poor person than taking away £1 from a rich guy. Simply incorrect.

Personal IRONY of NeoClassicals 

Lecturer: I don't like working for the government.
Student: Why not?
Lecturer: I did research in a consulting project once, where we came to a conclusion only to find that the government refuted the findings. "That's wrong, we can't use that", they said. I don't want to work for someone that decided the outcomes before I've made the research.

Seems credible, right? That's funny, because that's exactly what Austrians accuse NeoClassicals for;

Walther Block uses the example of his PhD studies at University of Chicago on the effects of Minimum Wage, and found that sometimes minimum wage was correlated to increased employment - contrary to what the NeoClassicals normally concludes. He checked his numbers, but they were correct. What did his supervisor say? "Block, you moron! Do it again, get the correct result!".

Funny that my lecture refuses to work for the government, on the grounds that they only want a particular outcome of any study, and then goes on lecturing NeoClassical Economics, which is guilty for the exact same charge.

"In the Exam you're not required to show comprehensive knowledge

- You're required to show textbook knowledge"

Ok, do I even have to assert this one? Lovely way of showing the NeoClassical idea that everything is the way they've once concluded it to be, and diverting from that renders you 0 points on an exam. Funny, especially when so much in their teachings is made on epistemologically senseless grounds.

Another day at University. It never ceases to surpise you, does it?

On Unions again - Some Objections

Sometimes I get objections that have so many different issues intertwined. Not to say that socialists are always this way, but I tend to run into socialists that argues using so many different statements and topic at once, that whatever comes out is a mish-mash of rhetorically well-sounding rubbish. Unfortunately.

Anyways, I had a friend of mine replying this to my post on Union Strikes the other day:

"This makes me genuinely angry. Some things can't be left to the market. Your definition of employment lacks one very important point: stability. We have to, as a society, compensate some things so that humans are viewed as humans, and not commodities. You would never pay for librarians if there was a volountary cost, yet we all agree that they are an important institution for culture and education.

Do you have any idea how many people have died for the right to organize unions? How much the opportunity to strike has changed the working and living conditions of workers everywhere? When you are a craftsman or local farmer or whatever, your customer is your employer, and you have leverage by your self. But in a post-industrial world, most workers have very little power over their bosses. That's a necessary trade off for effectivity. Unions is the only leverage most workers have. The government allows strikes as a guarantee of stability. There are certain jobs that nobody would ever train for if there wasn't the opportunity to organize. In your ideal world, everyone would be a farmer, we'd have no culture and the world would only support a fraction as many people as there are today."

Here are my replies. I tried to be brief, but failed. I'll work on that. 

1) Some things can’t be left to the market you say. Like what? And why is that? If the market is more efficient than the state in providing shoes, massage, food or homes that people desire, why would the state suddenly be a much better actor in healthcare or education? I’m still to find any area where the state outperforms a free market, essentially in any respect.

2) Humans, commodities and stability. I’m not sure what stability has to do with it, but everything IS a commodity (or rather a service), whether you like it or not. Only thing is, in socialist Sweden we made sure some of these services are provided free of charge for the user, under the communist dogma that everyone deserves x according to y. In no way does a view of services mean humans are less humans. We are the carries, providers, recievers, producers etc of these services, essential to the process.

3) Librarians. First, not everyone agree librarians are important institution for education/culture. Libraries, knowledge and books might be, but hardly librarians. Besides, in a free market, if people would demand libraries in their current forms, that would be provided. I don’t know about you, but I’d be willing to pay quite substantial amounts to have a properly-working library accessible to me.

4) People dying for Union Rights. Ok, you made this argument in the sense that BECAUSE people died for something, it is worth preserving. I strongly disagree; people have died for all kinds of things (anti-gay, rallying against women entering the work force, stopping migrants etc), and none of that means it’s a good thing. What I DO think you were trying to say was that because loads of people valued the rights to unionize so much as they actually died for them and because they perceived that to help them in the past (and the present), we should be thankful for their sacrifice. I disagree in that regards as well. Unionized workers cannot produce better salaries in any other way than creating employment for others. The working conditions in the past were indeed improved, but not because the Unions demanded it and fought for it, but because it made economic sense for business to change. What kinds of jobs are you arguing ‘nobody would train for’ if not for Unions? In a free market services are values and provided according to what people are willing to give up for them. In a sense, there CANNOT be such jobs, because employers would raise wages/conditions until people accepted them, thus leveling out the “nobody” part of it.

5) Leverage against employer. The only leverage workers have is quiting. Provide your services to someone who values them differently. If whatever demand you’re making is a sensible one, the employer could see to that, and improve. If not, you'd have to value if whatever inconvenience is worth whatever difference another employer would provide. If it is, your option is leaving. No need to Unions, no need for strikes, no need for messing around waving signs and pretending you're fighting for something. You're wasting and destroying resources. Nothing more, nothing less. 

Right, in my world everyone would be a farmer. Not quite. How did the world move from such a society in the 1700s to a countless times more affluent one today? Unions? State interventions? Hardly. Free markets, trade, globalization, business. In my world, defined as a free market without state regulations or interventions, we’d likely see similar improvements. 

University Unions on strike AGAIN

Ok. Apparantly some of the University Unions are on strike today (again, since they shut the Library down just a few weeks ago).  So, here we go.

I'm not a fan of Unions, big surprise, and I'll explain why. But first we have to begin with what an employment is. An employment occurs when someone (employer) values the services someone else could provide (employee) higher than the cost for that service (wage + social costs). Likewise, an employee voluntary sells such service when the value of the wage exceeds the cost affiliated with that service (time, unpleasantness, opportinuty cost etc). If some of these conditions are unfullfilled, there's no employment. Essentially, employment is a voluntary exchange of goods and services just like anything else (additionally, there's a bunch of regulations and government restrictions for that when employment occurs, but that's beside the point). It is also influenced by the demand of such services relative to the accessability to it, that is supply.

Only this far, striking would make little sense. If you, as an employee feel you can provide better services elsewhere or you're selling your service for too low amount, the only action for you is leaving. Go to the place that'll value your abilities higher/more accurately. Stop messing around waving signes, playing socialist revolution. Consequently, if you prefer the wage payed to you for the service you provide over whatever your alternative might be the action is staying. Provide that service, and stop hindering the lives of others (in this case, students who require access to the Library; you could even argue that the Unions are liable to reimbursing the tution-paying students for losses due to the strike, but that's also a bit beside the point).

Ok, second of all, now let's consider the points and demands the Union's actually making. The core of it, like most strikes, involves increased payroll. The argument is that 1% increase in salary is actually a cut, because current UK Inflation is at around 3%, thus the salary recieves is worth ~2% less than a year ago. That is correct, in real terms it is a pay cut. And they argue that to be unfair, especially since the UK Universities aggregate surplus is £1 billion a year, or something like that.

Here we have a few issues. First of all, pooling all the surplusses of the 150+ Universities in the country is greatly misleading, but obviously screaming "1 BILLION A YEAR" sounds a lot more intimidating than the actual truth. What's the real deal? So, let's have a look at Uni of Glasgow Financial Statements for 2012:


Uni of Glasgow Financial Statement 2012
Income               £440m

Expenditure       £430m

Surplus:               £10m
Margin:                2,27%

This income consists of some £150m straight from governmental funds, making the income rather risky; political instability, changes of government budgets or conditions for student loans etc can occur rapidly, putting the University's financial position at risk. Hence, if the Scottish Government decided to cut Higher Education expenditure by some 10% or so, the University will be showing red digits. Apart from that, if faced with a reduction of students, not even substantially large, same thing would happen; red digits.

But still, £10, can't the margin be reduced a little? On the contrary, arguying from a financial stability point of view, it should be increased. Tesco, for instance, runs with 5-6% profit margins, and financially healthy companies such as H&M or Apple carries some 40-50% profit margins. Definately no, 2,27% margin is not excessive in any way.

Following that line of thought, if the margin is low already (and virtually can't be reduced), what effects would an increase of wages have? Three options: 1) fire some staff, while others get their salaries increased, 2) allocate more funds to wages than other University costs such as facilities, technology, library etc, 3) demanding more money from the government (essentially, increased taxation).

If 1), you redistribute money from some people to pay others, 2) you reduce the service/usefulness of facilities, university buildings, lecture halls etc, 3) through taxation, you take money from everybody in Scotland, in order to pay for University staff. In either case you're taking money from other groups in order to met your demands, some of which could arguably be a lot worse of an outcome than a general ~2% pay cut. Typical Union thinking.

So consider the entire argument for a bit. The bottom line for this strike is that "University Staff deserves more". That, in turn, relies on the propositions that they can't "make their ends met", implying that they're underpaid. From quickly googling the avarage salaries of Uni of Glasgow staff, I found digits of around £15 000/year for the lowest paid staff (somewhat around the levels of relative poverty line, which I discussed the other week). Probably not accurate for all serviced the staff provide, and I'll look for some more digits later today when I talk to the strikers. Putting that amount into comparable sites such as Global Rich List, gives us the following result:
£15 000 amounts down to top 3,23% income-earners world wide. I hear 'Solidarity'? 'Decent wage', you say?

Ok, striking per se, is absolutly preposterous and riddiculous. BUT, even considering the Unions' demands, the picture turns even uglier; people, top 3%-earners in the world, are refusing to fullfill their commitments on the ground that they're underpaid. For real? Is that some kind of sick joke? An insult to anybody else earning less than that?

To the rest of the world, or anyone with a pair of working glasses, that's like Bill Gates (or any other super-wealthy guy) refusing to work because he finds his wage too low. Get real, and stop striking.