Canada Reports: The Bank of 'Mom and Dad'

Originally a Facebook post - apologies for short catchy phrasing. 

Sometimes I'm awfuly harsh about Leftists - often in very polemic ways. I'm not very concerned with inequality or class systems - that's not my prime motivation. But for anyone who IS, however, I beg you to hear me out on this one.

Our Central Planning Board (=Central Banks) choose very low Interest rates little over a decade ago. This fueled a MAJOR Asset price boom, creating a major divide between haves and have-nots. People owning shares predominantly the wealthies) and people owning their homes (=middle class and above) suddenly had assets worth 2x, 5x, 10x their initial purchasing price. = a massive increase in wealth over a very short time period.

In 2008, after perverse U.S governmental incentives and GSEs, combined with collectivisation of mortage-debt spread across the financial world, the party was over - rapidly reduced demand for loans, the value of properties dropped and companies whose Income Statements were doped by too-low interest rates, and Balance Sheets heavy with debt went out of business.

What did Central Planners do? If your only tool is a hammer, every problem tends to look like a nail; so, they lowered interest rates AGAIN + printing trillions of dollars to effectively create negative interest rates, hoping that price indexes would skyrocket - some of that new money did put pressure on prices, but most of it went to properties and shares. Again, property prices bounced; share prices reach all-time-high even though the economies of US, Canada and western Europe are not much better than 5 years ago. Again, the haves are benefited while the have-nots can't afford neither house, nor savings, because their wages (=productivity) didn't increase because the government printed more money.

So the older middle-class generation, now safely and comfortably retired in debt-free high-priced dwellings pass on some of their assets to their children, so that they can get even a humble home for themselves. Again, have-nots don't have that luxury, and instead have to rent low-quality homes in neighbourhoods they don't like.
"Chances are being inherited", McLaren says; the younger generation's spending powers are artificially propped-up by the older ones who were lucky or insightful enough to be on the Boom to begin with. Now they're all tied to housing prices with new loans, and it's way harder for have-nots to get on the property ladder than 15 years ago.

""And don’t even contemplate a housing crash. If that happens, we’ll all be screwed.", McLaren finishes. Indeed. But Central Banks would rather repeat the cycle than let the inflated prices crash down to reasonable levels.

======= Interest Rates must up to prevent repeat of last 15 years. But Central Banks won't raise them, because majority of population are addictively dependent on them for their mere day-to-day survival. So interest rates will stay down, creating the same Asset Price Booms we've seen, forging the divide between haves and have-nots.

My point is: Seeing as how Central Banks and Governments over the last 15 years made a mess of asset markets, disproportionally harming the poorest in society, increasing the wedge between haves and have-nots, all of it being done to help the poorest to more employment - SHOULDN'T YOU ALL LEFTIST AND INEQUALITY-PEOPLE BE ON MY SIDE?!

Two Great News!

Two pieces of great news have come my way the last couple of days!

First, and foremost, I was accepted to the Students For Liberty's Liberty Fund Conference in Vienna, with the title Institutions of Liberty, an event taking place in late-October. I am honoured to form part of such a reputable event. The topic is displayed below:

"The 'Institutions of Liberty' conference seeks to address the relationship between freedom, markets, and culture in both a narrow and broad sense. While competitive markets lead to wealthier societies with superior opportunities for individuals to employ their talents and labor, questions remain for many regarding the proper cultural and moral underpinnings of markets."

This forms right in line with the Deirdre McCloskey serie starting with Bourgeois Virtue, where she argues that markets and capitalism not only makes us better off materially - but also spiritually. Since I'm currently reading her mesmerizing works, I'm obviously very keen on discussing these things with bright freedom-minded students.

The excitement and happiness over this opportunity had hardly faded when a second piece of amazing news came my way. I was accepted into the editorial staff of the Swedish Liberal Think Tank Frihetssmedjan to write articles on liberalism and freedom. I am still excited over this possibility, and probably aim to contribute a few pieces a week. My initial piece on Scottish Independence seemed to be have been well-received.

I am really looking forward to contributing to Frihetssmedjan and the liberal ideological discussions it poses.

Altogether, these two pieces of news are simply brilliant. We'll see how things move from here.

These are exciting times, indeed!

Review: 'The Tyranny of Experts' by William Easterly

William Easterly, a NYU Economist, is a major player in development economics and perhaps the biggest critics to how development agencies squander aid and ignore the rights of the poor. The subheading of his newest book, The Tyranny of Experts - Economists, Dictators and the Forgotten Rights of the Poor, indicates the particular interest his book deals with; The pervasiveness of the idea that a Benevolent Dictator could put their populations' rights and freedoms on hold in order for economic growth and prosperity to arise.

He praises the Enlightenment and its protection of individual rights, a statement that initially seems unrelated to his field ("what has rights got to do with feeding my starving family?", implicitly attacking critics that play such a position: "What good is freedom of speech, if you're starving?").
He then consistantly shows how Authoritarian approaches that ignore rights are counter-productive in producing development. How the authoritarian top-down view lost in the West, but remained dominant in Development Agencies (=World Bank, USAID, DFID), effectively preventing the Rest from growing richer.

He mentions outrageous examples that superficially seem well-intended (Gates Foundation or the Tony Blair Africa Governance Initiative), but result in horrendous persecution of poor people. Human Rights Watch showed how donor-funded food relief was used to blackmail opposition. International Development Agencies supporting a regime that jailed opponents and shot demonstrators. The Ethiopian government abused any imaginable right on part of their poorest by forcingly displace them, took villagers' land and leased to foreign investors.Tony Blair praised the alleged Ethiopian Government's rapid reduction of child mortality. Bill Gates mourned the death of Ethiopia's dictator Meles Zenawi, saying it "was a great loss for Ethiopia". Right. Not very benevolent.

I want to point out three topics that particularly spawned my interest: The Blank Slate, Spontaneous Solutions and the Probability Confusion.

Blank Slate.

The Blank Slate, Easterly describes, is the

mindset [that] tends to ignore history and to see each poor society as infinately malleable for the development expert to apply his technical solutions. The alternative would be to learn from history why each poor society is poor, to learn from history why other societies became rich, and to draw lessons accordingly for how to escape poverty.

The Blank Slate is the pervasive attitude in the field of Development to see poor countries as one unit, regardless of differences between them. It fosters the potential to give "One-Size-Fits-All" solutions that disregard history and disregard whatever circumstances lead to the current situation. It's the belief that one can simply erase anything previously occured and start over, forming societies or human beings into whatever you're currently trying to achieve.

Easterly says:

Blank Slate thinking thus opened the door for development experts to reject the utility of the West's history of individual rights and development as a precedent. If the Rest had nothing to learn from its own history, it also had nothing to learn from the West's history. 

Essentially, the Blank Slate, is the excuse development "Experts" can use for disregarding History. For disregarding the reasons for this:

Honestly, it's a very useful concept, applicable to many more areas than Easterly believed, I think.

Concious Directions vs Spontaneous Solution. 

Roughly translated into "Top-Down versus Bottom-Up" approaches. Initially a Hayekian point about dispursed knowledge, Easterly adds reasoning over innovations. Since Innovation means doing things differently, in a way previously unknown or undiscovered, you can't plan innovation as you simply don't know what the results of doing things differently (innovating) will be - so you can't plan for certain results to happen. There's no top-down planning involved in discovering anti-biotics, inventing steam-engines or cellphones.

The point is the same as that made repeatedly throughout this book. The top-down leaders and experts in technology do not have enough knowledge or incentives to get it right for the reality of what is happening at the bottom. 

He goes on, describing how ideas multiply exponentially, and how technological development feeds on itself into a snowball effect consisting of a) previous innovations/non-rivalrous ideas and b) population. Also, the amount of technology had in year 1500 is found to be a pretty good determinant of how much technology that area has today:

We confirmed that technology in 1500 predicts technology (and thus per capita income) today. In fact, 78% of the income difference today between Europe and sub-Saharan Africa can be explained by technology that was already in place by 1500. [...] So we find that a very simple theory of bottom-up innovation can explain many of the big facts about tehcnology around the world today. 

Here, Easterly also draws on Joel Mokyr's work on the British Industrial Revolution: "Intellectual innovation could only occur in the kind of tolerant societies in which sometimes outrageous ideas proposed by highly eccentric men would not entail a violent response against 'heresy'".

Argument simplified:
- Innovation fuels income/wealth
- Individuals with unalianable rights make innovation happen
= Top-Down approach to innovation and lack of individual rights are bad ideas if you're looking for higher incomes.

Probability Confusion.

This area deals with the _ONE_ objection I had while reading; What about the Asian Tigers (South Korea, Taiwan, Singapore, Hong Kong) and their miraculous growth over the last few decades? They were all run by "Benevolent Autocrats". The very existence of these countries seem to throw Easterly's great contribution out the window.

No, he says. We seem to think that autocrats create growth because of a psychological mistake where we confuse two opposite probabilities.

In his outstanding Chapter Thirteen "Leaders: How We Are Seduced by Benevolent Autocrats" he deals with that question as well as with the psychological biases that give credit to leaders while underlying causes might've been more obscure. He concludes:

It is because growth miracles are rare that the true statement 'most growth miracles are autocrats' is so very different from the false statement 'most autocrats are growth miracles'. This same psychological mistake contributes to stereotyping of certain unpopular minority groups. It could be true that 'most terrorists are Muslims', but it is definately not true that 'most Muslims are terrorists'. Prison statistics could indicate that 'most violent felons are black', but it is definately not true that 'most blacks are violent felons'. Racism has many toxic causes, but one of them is just the racists' incompetence at probability. The same incompetence makes us believe autocrats produce high growth."

The above passage is surely what most affected me in his 350-page masterpiece. He also explains the "Myth of the Hot Hand", a phenomenon in basket where you'd want to pass the ball to a player who has scored a lot, believing he'll score again. Over large series of probabilities, it simple isn't true. But if you point your finger at a few selected examples, then sure you could find players scoring over and over - just like you can find autocrats being in power while a country experienced miracolous growth.

His explanation for China, South Korea or Taiwan?
- Levels produce levels, changes produce changes. It's not the level of freedom that produces a certain growth miracle. It's the change in freedom that creates growth. China had massive changes in economic freedom following the reforms in late 1970s. Economic growth is about a percentage change in development, he says. Not about the absolute level of development. This would explain the rapid success of the tigers, although I realize the debate is far from settled just from this. Nevertheless, an amazing insight.

He finishes the books as splendidly as he started it, summing up its main points. Development is a bottom-up thing. Ignore individual rights in order to plan development is a double-failure. Not to mention that freedom is a value in and of itself. Beyond that, there are more fascinating chapters: his examination of development in China, Africa and Colombia; his local history of the Greene neighbourhood in New York, accidently binding some New York history into it. He describes the value of institutions by comparing the Maghrib traders in the Mediterranean to the Genoese. He compares the debates that never happend between Nobel Laureates Gunnar Myrdal and Friedrich Hayek as well as tracing the origin of development experts.

This is simply an amazing book.

The global double standard of rights for the rich and not for the poor is very much alive in the technocratic worldview of development. But this, too, could be a casualty of the Rise of the Rest and the spread of freedom. The disrespect for poor people shown by agencies such as the World Bank and the Gates Foundation, with their stereotypes of wise technocrats from the West and helpless victims from the Rest, may become increasingly untenable. Development may have to give up its authoritarian mind-set to survive. 

Pure Capitalism would lead to Armageddon: Startups/Funding

Banks, Funds and Starting Business

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

One recent objection I had regarding AnCap societies were that banks would never lend to you, unless you have substantial amounts of capital or income already - which then would never occur, because only the rich would have access to these. That is, nobody could ever start a business, unless you were already rich or had a company.

This last part, I already showed in Pure Capitalism would lead to Armageddon: Salaries above, is false.

Neither is the conclusion ("You could never start a business") because of that, accurate:

Simple because bank lending is not the prime source of fund for start-ups or SMEs. 

The top three sources of funds for Business are given below (Martin Zwilling provides an extended list of more opportunities). Crowdfunding is an amazing tool, probably moving up the ranks of importance in the future as it becomes more viral and used. 

1. Current revenue (indeed, assuming a business or income already)
2. Equity, (either your own or acquired through venture capitals, family, investors, Business Angels, networks etc)
3. Obligation & credit (either from banks and financial institutions or straight through the financial credit markets).  

The argument is simply flawed in all of its parts. 

That's some initial responses to why an Anarcho-Capitalist society (or even a Minarchist society) would not lead to the destruction of large chunks of the population, not even the poor, as I showed in the case of Kenya some weeks back. And we havn't even gone into the exciting parts of Private Law and Private Defense. Murphy has a great piece on that, if you're interested

Pure Capitalism would lead to Armageddon: Health Care

Health Care

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

Now things get tricker. I'd advise you to listen to Walter Blocks lecture on Health Economics for the full story. Free societies would probably organise health care as insurance schemes (which, technically, is what the State is doing, although mixing it up with other expenses); you pay a premium upfront, and when you're in need of certain health care measures, the insurance company will cover the costs according to the initial agreement. 

This normally unleashes a multitude of insults, mainly regarding how such systems won't work because they're not working in the U.S. 

False. The U.S health care system is not even remotely close to what a free society probably would create. It's completely jammed with government regulations, AMA (the most powerful Union in the U.S) restricting output and pushing prices up, and inflation/low-interest-environment killing the fixed-income business model of Insurance Companies. 

Another point that Walter Block addresses is what insurances cover. The comparison is Home Insurance; you only really use it for big things, such as earthquakes, heavy damages or in case your house should burn down. If a window breaks, you'd just hire someone to fix it rather than having an insurance policy covering that. But in health care, somehow the policy covers every singly visit to your physician (party, obviously, because prices are artificially jacked up) - obviously, such schemes are gonna need higher premiums. Which is why health insurance in the U.S. is so expensive. 

Rationale here being that if you would have an insurance policy that covered every tiny damage to your house, it'd be awfully expensive - just like health care is today. Thus, in a free society, probably, people would use health insurance for big things like cancer, broken limbs, having a baby etc rather then for catching the flue or regular check-ups. This would then consistute smaller premiums, being affordable to the average person (there's a great Mises Daily that deals with how people organised Welfare before the Welfare State)

Pure Capitalism would lead to Armageddon: Education

Education

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

Without government providing and financing education, there would be no education. We'd all be stupid and illiterate, right? That's usually the normal claim, and it has some appeal to it - who would pay for all this expensive education? It's not like regular Joe-s on the street can pay thousands of pounds worth of education just like that. Better government do it?

Not really. Education greatly enhances ones productivity, that is what constitutes your wage rate (see post on Salaries above). People with engineering knowledge of how to build a house, would be a lot more valuable to a House Developing company than would an illiterate 25-year-old autarkic farmer - thus, his wages would be higher than said autarkic farmer (assuming such farm activities doesn't yield immense amounts of returns). 

So, if your future wages would be higher (and especially when that's a sure deal, such as the above example) there'd be people willing to supply that fund (eg: banks, financial institutions, the entire financial system..) because you'd be in a position to pay that back after completing your education. 

Essentially, the exact same reasoning that occurs in Student Loans for Higher Education today (students know that their productivity will be enhanced, thus their take-homepay compared to what McDonalds currently offers them would be substantially bigger, and they can then make simple calculations to find out that it is beneficial for them to take on these loans).

Education in a free society would simply be the same thing, even in primary and secondary schooling (even more so, because productivity increases from illiterate to literate are among the biggest increases of all).

Pure Capitalism would lead to Armageddon: Housing

Housing

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

Housing is a commodity like any other. 

The reason we have messed up housing markets, and riddiculous prices are three-fold: 

1. Massive credit expansion fueled by fractional reserve banking, artificially low interest rates and money-printing by the central banks. 
2. Government restrictions on where to build, how to build, application process, regulations of size and price levels.
3. Price ceilings: Government says that for certain rentals, you cannot charge above a certain amount. Effect: fewer rentals will be a) constructed, b) put on the market. 

Essentially: we have crazy housing prices because (1) above pushes prices up, creates bubbles which we saw in the financial crisis and (2) because demand for housing outstrips supply, where potential supply has been strangled by government interventions, and (3) yet again supply being strangled by government interventions.

In a free society, none of the above would occur, housing would be constructed in accordance with consumer demand like any other product. Quality, size and prices would probably differentiate to a larger extent than today, increasing supply so that prices for housing would come down. 

Perfect example of Government Failure. Not even remotely an effect of markets or capitalism. 

Pure Capitalism would lead to Armageddon: Salaries

Salaries

This is a series of objections, starting with the common misconception that capitalism and freedom would hurt everyone, especially the poor, creating unheardof poverty for all. See the initial post here and the entire category here.

In AnCap, business would pay employees the minimal amount possible, just to make them stay alive, say 10p/hour - so we'd all be poor. Right?

Of course not. 

In a free society, salaries would be set according to the Discounted Marginal Value Product (DMVP); that is, every input in production (land, labour, capital) recieve payment according to their discounted marginal contribution to production. If, all things equal, an additional employee contributes to production £20/h, his salary would tend to equal the discounted value of this. 

In non-econ language: Let's say an employee produces value to your firm roughly equal to £20. If you pay him £25, you're making losses and would eventually fire him/go bankrupt yourself. If you're paying him £10, your competitors could offer him the very same job for £15, still reaping the benefits that employee provides - then some other competitor would offer him the same job for £18 etc. You get the hang of it - essentially the opposite of the old Marxian claim of "Race to the Bottom" applied on salaries. The effect is that salaries tend to be bid up to their value (ignoring the temporal effect and discounting for it). 

Conclusion: Salaries in a free society would equal what the employee contributes. That is, notions of "we would all work for essentially no wages" are rubbish predictions and are not features of a free society. 

Note: Today, large chunks of what employers pay for having employees are taken away in taxes - not only the visible income taxes, but also payroll taxes the employers has to pay the government simply for hiring you. In a free society, these costs would vanish and your salary would be the full amount instead of a government-reduced amount. Why? Because that's the firms' costs of hiring you, that's what you are "charging them" for your services, although the government reaps large chunks of that. 

Pure Capitalism would lead to Armageddon

Time to address one of the critiques laid against any promoter of freedom, any defender of capitalism, any advocate of free markets. We’ve all heard it:

What about the poor? The Sick?

“In your society the poor and weak would be exploited, forced to work for essentially no wages, have no health care, die of lung diseases at 35 because of crappy non-regulated air, and never get any education.”

Obviously, if that were the case – then yes, I finally understand the “YOU’RE A HORRIBLE PERSON” reaction to any mention of Freedom or Anarcho-Capitalism. And I’d agree: anyone who profes such a society is indeed an awful person.

Luckily, this isn’t the case. Far from it.

Just to start off with a few explanations; what happens in western Welfare States today harms the poor a lot more than the rich; inflation hurts their savings, reducing purchasing power and real value of their salaries (especially in third-world countries); VAT taxes, income taxes and payroll taxes (some 75% ofall tax sources where I come from) are predominantly payed by poor people; Corporate welfare, including bailouts, subsidies, kickbacks, regulations or tax breaks moves money from poor people to wealthy corporations and their leaders.

This is what we see today. And it hurts the poor. If you associate anything above with “Capitalism” or “Free Markets” you’re dead wrong and your hostility towards Capitalism is comprehensible. Inaccurate, of course, but comprehensible.

If you do, however - THIS IS YOUR LUCKY DAY!

All of the above are effects of government. Of Politicians. Yes, sometimes business leaders and lobbyist can distort the economy by influencing politicians enough to gain personal benefits at the expense of other groups in society - something economists call "Rent Seeking"; Luigi Zingales does a great job explaining this. But this can only occur if governments have power to do such things. In a minarchist state, for instance, such actions wouldn't have much effect - simply because the state isn't allowed to have influence over subsidies or particular regulations or tax breaks. 

This leads us to the ONE pre-requisite you’ll need to follow the reasoning below: The Broken Window Fallacy. You can ignore me, hate me, detest my ideology, horror my convictions and mock me all you want but if I can ask you one thing only, it would be to learn what the Broken Window Fallacy is. 

Explained a few hundred years ago by Federic Bastiat, it has followed economics since that day. Don’t be discouraged, though, most PhDs in Economics today are probably unfamiliar with it (Art Carden, 3 minute youtube explains the key element in terms of destruction - but it is equally applicable for any action).

"That which is seen - That which is unseen":

 Roughly explained: Whenever you do something (spend money, tax people, subsidise activities etc), we can perhaps see the effects of that. Say, if we subsidise farmers to grow crops, more crops might be grown by farmers. This we see. What we don't see (=the UNSEEN) is what that money would've done in the absense of such a subsidy: build house, buy books, produce shoes. These things we don't see, because they were never created.  Essentially, Bastiat points to the Opportunity Cost of any action.

This applies to all of the topics dealt with below: If the Government taxes some people in order to provide health care for others, we can see the health care provided but we cannot see the damage from taxation as vividly. What would have been done in the absense of such interventions? Maybe the taxed money would have gone into research, finding a cure to cancer. Maybe they'd set up a charity providing free health care to anyone... or maybe they'd produce amazing tools that reduced production costs of current health care by say 50%?

The point is that we don't know what we're losing out on. Because of taxation, regulation etc these things, inventions and productions never come into being. They constitute that which is unseen, just like the non-produced tailor services in the video above, or books or shoes in Bastiat's original example, which can be found at Bastiat.org.

(To be fair, any future description of economic realities lack for knowledge, in the very same way the spectators of ‘Broken Window Fallacy’ can’t see the unsold books, unproduced shoes etc; they simply never existed, thus cannot be seen. I cannot know exactly how people would react and organize their lives if I change major variables such as the composition of the State - but we can however make educated guesses and have a hunch.)

I have organised these to form part of a series, so every topic is dealt with in its own post. All of them can be found below and they will probably be extended whenever I find entertaining objections to other topics Enjoy!

Salaries

Housing

Education

Health Care
Banks, Funds and Starting Business

Occupy and Tea Party - Two sides of the same coin?

This morning I watched an hour-long interview with Chicago School Economist Luigi Zingales, where he discusses 'Crony Capitalism' and makes an interesting comparison between the Tea Party-libertarians and the Occupy-Leftists.

The full interview can be found here.

The short story:

There's "Crony Capitalism" around, especially in the US. Rent-seeking that involves personal favours or relationship to the political power is too profitable, almost/often more profitable than the actual work business do.

The Leftist see this as an inherent problem and want to remake the system, overthrow the system; such an approach normally involves large chunks of regulation, nationalisation, bonus/bail-out limits etc. Essentially, "Crony Capitalism is bad - let's remake the system, turning it 'good'".

The Tea Party/Libertarians also see Crony Capitalism as a large problem. The answer: reduce public and state power, making political connections less important, reducing incentives for lobbying.

Question is. In what state would corruption, nepotism and crony capitalism be more likely to occur? In a large state with lots of power, or in a small minimum state with very little influence over business matter?

Quite obvious.

Defending the 1% - a story of legitimate wealth

This is the 5th part of the "Leftie Serie" which I created after attending the People & Planet Conference on the 8th of March 2014. 
Here are links to the other posts: Feminist Economics, Inequality, Financial Crisis, Layoffs vs. Bonuses

I hear a lot of talk among Lefties about the "top 1%", the richest in society. Especially the last few years with the Occupy movement where these issues have been heavily discussed. The idea is that the richest 1% make so much more money than does the poorest, or even average worker in a country - and for some reason that this should be unjust, unfair and bad. Fair enough: the argument has some appeal to it - why should anyone make riddiculous amounts of money, when workers at McDonalds are payed minimum wage?

The discussion can be prolonged even further, considering the 1% of the 1%, that is, the top 0,01% of income-earners. In the U.S, the limit for entering this exclusive club is around $10m/year. Quite a hefty salary. Are they worth it?

Greg Mankiw, a Harvard economist I'm somewhat in love with, wrote a longer piece about income and inequality (here), where he presents compelling reasons for why the premises of the arguments of the left are incorrect, thus invalidating the arguments. The shorter New York Times version can be found here.

Interesting is his comparison to the main actor in the block-buster Avenger, payed an astonishing 50 million dollars. However, that represents only 3% of the total revenue of that movie. Or, to put it differently, for every $8 ticket someone payed for going to the movies to watch his performance for two hours, 25 cents went to the actor. Is that "overpayed"? Riddiculous amounts? Hardly, and few people would disagree. The effect that happens, Mankiw argues, is that globalisation and technological improvements means billions instead of millions can watch such a movie; that Apple products are sold to a market of billions instead of millions. Surely, because of the pure scale itself, salaries for those kinds of people skyrocket.

Mankiws words are well-expressed:

"People are similarly unperturbed when they learn that in 2013, E.L. James, author of the 'Fifty Shades of Grey' triology, earned $95m or that in the same year the basketball star LeBron James earned $56 million in salary and endorsements. When people can see with their own eyes that a talented person made a great fortune fair and square, they tend not to resent it." - Greg Mankiw, NY Times

Problem is, the rest of the 1% (or the 0,01%), make money in ways that people don't intuitively understand, using their talents in ways people don't see how that generates a great fortune. The problem is thus not that some people are handsomely paid; the problem is that their critics don't understand why.

Hence the "Deserving 1%" or "Legitimate Wealth". 

The Invaluable Socialist Logic part #2 - Perspective

Link to the first part of Socialist (lack of) Logic

One of these socialist features of University Life is portrayed in certain subjects; sociology is the prime example, but also Public Policy, a subject I had the great (mis)fortune to study last semester. When basing its raison d'être on the right of Government to control and intervene, it obviously becomes very biased toward socialist frameworks/attracts students with those values. Not to mention all the students mopping around about 'intersectionality' or staff going on strike every other day. Where are all the freedom-minded students?

Anyway, here's a fun example from Public Policy course of last semester.

Apart from continuously reading from Fredrich Engels, taking his words for granted, my lecturer had such a striking example of socialist logic:

Before Industrial Revolution
First she explained to us a view of 18th and 19th century Great Britain, before the technical and economical changes of the Industrial Revolution. She depicted an awful environment, vividly describing how poor women in rural areas had to spend their entire day on sewing tiny, tiny laces which were used for table decorations in Upper-class homes. For this, they made the equivalent of 2 pence. Oppressive, horrible life, lots of them became huckle-backed and blind from working in the dark. Let's just neglect the discussion of historical accuracy of this description and take it at face value.

After Industrial Revolution
Now machines were invented that could do 10-20 or even a 100 times what these women had been capable of doing in a day. My lecturer, consequently, condemned the change in society, arguying that these poor women no longer could spend their entire days on sewing laces, because machines took their jobs - and they became unemployed! Horrible, oppressive unemployment.

You'd think that if sewing these tiny laces all day, which were sold for essentially nothing, was such a horrible treat, finally getting rid of it and being able to dedicate yourself to somethink less harsh - that'd be a good thing. Nono, not in Socialist Logic. Whatever happens, whatever the reason, the oppression of poor workers is taken as given. Also, it's a terribly convenient position to take; when workers do a, they're oppressed. When they finally are relieved from doing a, they're oppressed. Falsifiability, anyone?

Especially awkward is this description of 19th century life when the lecturer appropriately forgot to mention that the standard of living between 1780-1860 increased some 150% for regular poor people like these. Well, well. Nobody accused socialists for being thorough. Or even coherent.

Socialist Logic: Everything is always bad and capitalism is oppressive. Period. Especially when capitalism/globalisation over the last 20 years lifted some 900-1000m people out of poverty. Awful, really.

Invaluable Socialist Logic - Inequality

Link to the second part of Socialist (lack of) Logic.

Socialists' main concern normally is equality, or rather its opposite; inequality. To them, it's the most horrible feature of capitalist societies, and they regularly use studies like The Spirit Level to get their points across; more equal societies are better societes (Also where analogies to Scandinavia are plentiful). They also heavily rely on the measure called GINI coefficient, which shows income distribution/equality throughout a country (0 = everyone has the same income, 100 = one person has all the income; most western countries have GINIs between 20-40)

Anyway, let's have a look at how perverse the effects of equality might turn out.

Let's say we have a country consisting of 100 people. They're all poor, with very little means to get around, living below the PPP $1,25/day (Extreme Poverty Line), with all the bad stuff associated with poverty: disease, low life expectancy, high child mortalities, undernurished etc., etc. Quite bad. On the other hand, however, because they're all more or less equally poor, this country is gonna score very low on GINI, say 5-10.

Now, let's introduce something else. For different reasons, say capitalism or globalisation, 10 of these people start selling their crops abroad, invent some machinery that's terribly useful for foreign people etc. For whatever reason, these 10 people are now a lot wealthier, makes substantially more money, build nice houses for themselves and whatnot. If we ignore spillover effects that socialists generally criticize capitalism for not having, what's going to happen with the GINI indicator? It will soar. Completely fly through the roof. We'd be talking numbers of 60, 70, 80. A riddiculous increase in inequality.

According to the socialist interpretation of GINI, this new country is a horrible place. Inequality, some rich people are extremely wealthy while others are on the brink of starvation. But what has actually changed? Capitalism lifted 10% of the population out of poverty, increasing the standard of living for 10 people - while the rest are still at their previous level. According to Socialist ideals, this country went from equal (and bad) to unequal (and worse), even though only 90 people instead of 100 are in extreme poverty. For all intend and purposes, 90 people starving rather than 100 people starving is an improvement, regardless of what the GINI says.

Since capitalism and globalisation is doing just that, why stop it?

My point here: focus on equality, income distribution or the GINI-coefficient is misleading. It doesn't tell the story and is rather useless to explain lives in different countries. Socialists should stop using it as an argument to why capitalism is bad. Especially when capitalism  over the last 20 years has lifted a billion people out of poverty.

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. 

Response to Josh:

Hi, Josh and everyone else!

Finally I've time enough to get through a bunch of questions Josh asked me about a week ago, in my post on libertarian ethics. He made several claims and had a few relevant questions I'd like to address. So, here's an overview and a brief elaboration on each topic.


On Moral
Josh claimed that 'moral' was misplaced as far as philosophical terms are concerned, on the grounds that "sense deep down" does not form a logically coherent argument. I am inclined to agree, but then again, what is moral if not a deeply rooted sense or conviction of what is virtuous/desireable etc? Put into context, what's stopping me from robbing my neighbour's house is not only the cost and consequence I might have to pay if the police catches me; there's something else, there's a conviction within me that stealing is inherantly wrong, and that I want to live my life according to different standards. Perhaps that's not the exact definition of 'moral' from a philosofical perspective, but that's my understanding. Feel free to correct me.

Distinction between 'force' and 'violence' 
In Josh's comment, he includes into the concept of 'force' other types of influence over people, such as persuasive, economic or intellectual. My answer is simple: such concepts are catagorically differt influences. The three of them involve a use of the agent's mind, letting him ponder advantages or disadvantages with, ultimatly leaving the choice down to rational considerations; that is, the way everything in humankind works, when we buy, consume or take up a work. When violence (or threat of violence) is introduced, that natural process in human brain is put on hold. Under the assumption that a human being prefer any scenario where he/she lives to any scenario where he/she dies, there's no barganing, there's no reasoning involved when violence is introduced. That's the essential difference between the two catagories of "force".

Now, I know whole bunch of socialist that will object that the very same conditions apply for people choosing to take up a job (that is, some kind of economical force) because if they don't, they starve and ultimatly also die. This, altough being a close alegory, carries a vital difference; that force/limit/condition is set by nature, inherent in our existence and something we cannot overlook or remove. Violence, on the other hand, is introduced by human action and is by no means a necessity for human survival.

If you'd want to walk the other concepts, persuasive and intellectual 'force', you'll end up in a confusing debate where everything eventually turns into a persuasive force (your parents, religion, legal system, cultural traditions etc), thus refraining from personal choice or freedom to form your own life. I fundamentally refrain from such a claim, but that's beside the point. Simply, the only way Josh can be accurate in his reasoning regarding this point is to refrain from all personal choice.


On the topic of Best Interest
As part of the above mentioned argument, Josh involved the concept of 'best interest'. How are such interests to be determined, especially if not by the agent himself, as Josh's reasoning requires him to? Is there any kind of divine, omniscient creature/body that could inform us about such interests? Not really. Unless you make what economists call "interpersonal utility comparisons", you cannot determine the "best interest" of other people. I'd argue that such comparisons are impossible, thus reaching the point where the best agent for your own interest always is your personal being.


Property Rights
Somehow it seems that at the bottom of whatever libertarian approach I take on a particular issue, I find property rights. I believe that's because property rights are the most essential - and arguably the only - feature we come into this world with, involved in every transaction between people. Unless you want to argue that the purpose of humankind as a whole is to be decided by some kind of divine authority who controls everything, you'd have to admit property right over our own self; the blood flowing in the body I call mine, is rightfully mine, the bodyparts connected to it aswell. Hence, the mind I use for every simple or hard task is mine to control, use, advance and enter agreement with others with.

Josh's argument here is that property right "have forced someone else not to have access to it". That's a fallacy for several reasons. First, as seen above, what my blood, mind or body is does not limit the property rights of other people's minds, bodies or blood. Secondly, when inventors invent object x, have they done so at the expense of other people who didn't invent x? If I carve a bow out of a tree, make some arrows and this invention renders me a better hunter (thus allowing me to survive to a larger extent), was this made at the expense of all those who didn't invent such an instrument? No, not at all. Hence we conclude that because my mind is my property, whatever my mind creates is also my property, free to trade with whomever I want for whatever end I find worthwhile. From that, property rights for most things can be established. That moves us to the next issue; enforcing them:


Property Rights, Enforcement and Thrid party 

"And how are private property laws to be enforced without the use or threat of force? Also, how do they resolve the conflict of two people's rights (where the two cannot come to agreement) without the initiation of violence, if not through a third party who has been designated as arbitrator?"

To resolve the conflict of property rights and costs involved in whatever transaction, you wouldn't have to go further than the simplest insurance disagreement on, say a car crash, or even regular disagreement between corporations. Because legal actions are costly in terms of money, time and effort, both parties prefer solutions that can be reached without such measures. Especially in contacts between insurance companies; they are very well aware that such conflicts will arise in the future, and court costs for every single transactions simply does not make sense. What's the bottom line here? Parties involved have strong incentives to solve issues of property rights without the involvement of courts. Thus, there's no need for external force to resolve most conflicts.

I'm currantly reading an interesting piece on just this issue, The Not So Wild Wild West, about property rights among whites and Indians in the Great Plains during the 19th century (You can find it at the Uni Library). Before reading it, I had the view that some kind of third party external force was required to maintain order. The author argues that this was not the case in the first 50 years of contact between Indians on the Great Plains and white settlers; property rights evolved on its own, they were respected by both sides and within groups, and trade flourished where Indians for example traded pieces of land for exotic good carried by the Whites. On the contrary, wars and violent conflicts between whites and Indians didn't occur until basically after the American Civil War, when the US had a standing army performing the role of a "third party". Why was this? Essentially because violence is always a negative zero-sum game, not in the interest of either party, while trade creates benefits for both parties. When the US standing army was present, however, the cost of warfare was moved from individual settles to the US government, thus reducing the transaction cost for such measure on behalf of the individual settler, making violence a viable option.

Also, property rights were upheld by mutual respects and voluntary cooperation between and within associations/tribes.

My bottom line with this is that external third party might very well be the cause of violence rather then a protector from it.


Libertarian, Minarchist and Anarcho-Capitalist Approach

This a bit of a grey zone, and I suppose Josh has a point that I perhaps mixed the concepts in my initial post. Originally, the libertarian approach involves a small state for certain ends (such as courts, police or Military; a minarchist argues the minimal state concievable (normally State involves some element of Nightwatch State, but generally not all of them) while Anarcho-Capitalist approach refrains from any kind of state. I've also heard people arguing that Libertarianism would be some kind of category including minarchist and anarcism approaches. Tricky.

I have to admit that my understanding and reasoning between these concepts varies. They all have valid points and I'm not entirly sure which one I prefer. In this sense, I'd agree with Josh, when he argues that my initial post is more inclined towards anarcho-capitalism than towards libertarianism.


The Idea of a Social Contract

Josh argues that since I'm part of a society, I implicitly agreed to the rules set up by such society. If I'm not mistaking, that idea comes originally from Rousseau, though I'd argue to refute it entirely on the follow grounds:
For contracts to be of any value, there has to be internal and external elements; that is, someone/-thing is included in the contract, and if not applying to some conditions, they are excluded. This normally involves a choice on the part of the individual. A contract (may it be letting, selling goods, taking up employment etc) may be broken, and I can choose to walk away from such a contract. That's the core of it. For such a contract to exist within a society, there must be the option of opting out of it, that is leave and not live under the conditions such a contract puts forward. Does that exist?
Simply, no. The moment I leave the domains of UK State, I enter some other State. While within those states there are no options for me to leave the conditions, refrain from state benefit and not paying taxes etc. There simply is not a choice, thus you cannot argue the case of a social contract. 

_________

I probably forgot some elements of these questions, but I'm fairly certain this is long enough for most people to opt out of reading it, anyways. Further questions will hence have to be dealt with in other posts.