The "Decline or Demise" of U.S. Farming?
"In this same vein, I would add that agriculture was once about half of total US GDP, whereas now it is only a small fraction, yet we feed ourselves and are a net exporter of food. Here again we see how tremendous productivity gains have enabled us to devote fewer and fewer resources to the production of essential goods. This is as it should be."
MP: The chart above shows agriculture's declining share of U.S. GDP using annual BEA data from 1947-2010. From a high of almost 9% of GDP in 1948, the agriculture sector's share of total output has declined steadily and fell below 1% by 2002. And yet we produce more food today than at any time in history and it's cheaper as a share of disposable income than ever before. Thanks to productivity gains, farm employment today represents only about 2.5% of total employment compared to more than 12% of America's workforce in 1950.
Going all the way back to the early 1800s, more than 80 percent of both U.S. employment and output were directly tied to a relatively inefficient (by today’s standards), labor-intensive agriculture sector of the economy. Food products were very expensive and consumed a large part of a typical household’s income. Over time, technology revolutionized farming, resulting in the same trends we observe today in manufacturing: huge increases in farm worker productivity, reduced farm employment, significantly lower and more affordable prices leading to a reduced share of food in both household income and national income (GDP).
And yet, when have you heard anybody claim that "U.S. farming is dead," or talk about the "decline or demise of America's agriculture industry?" Probably never. But a lot of people talk about the "decline of U.S. manufacturing" even though it's going through the same long-term trend as farming - jobs and output are declining as a share of GDP, but manufacturing output and productivity are increasing. And we're much better off because of it.
121 Comments:
Agriculture's share of the GDP declines and manufacturing's share of the GDP declines. This is to be expected because as we grow richer we don't necessarily consume more of everything; rather, we consume more things. Why is it then EXPECTED that government programs should grow along with GDP? (And if they merely kept pace we'd be celebrating it as austerity?)
Why is it then EXPECTED that government programs should grow along with GDP?
Why is it expected that a company's "overhead" (financial, managerial, etc.) grows as the company scales?
Heck, if all those typically vaunted employees at those companies are so great they shouldn't need CEOs or managers at all, right?
Not saying we should have ever growing government, but increasing specialization as an argument against government is fallacious.
Most of what government does today was not considered to be a part of government a century ago.
In 2010 Manufacturing had the biggest gain, by industry segment, of the economy. Agriculture and Manufacturing are still essential for the economy, and exports of both are driving current GDP growth.
It is odd that exporting nations have higher living standards than importing nations.
Is it possible for a nation to import its way to prosperity?
"Most of what government does today was not considered to be a part of government a century ago."
that is not an argument for anything either.
government spending as a % of GDP has been greater over the last 2 years than any time in US history (apart from the height of WW2)
the question is "is that a good idea" and what price it exacts. 40% of GDP is a VERY high number.
spending like that disrupts private markets immensely and spending half of it through debt issuance seems a nasty thing to do to future generations.
"It is odd that exporting nations have higher living standards than importing nations.
Is it possible for a nation to import its way to prosperity?"
apart from being factually inaccurate (the US is a net importer and has the among highest living standards in the world) this is also a foolish argument.
how can you wind up with more stuff if you are a net exporter? that means you are sending more out than you get in. that means you are accumulating FEWER goods, not more.
trade balance and wealth accumulation are not all that linked, and you cannot look at trade balance alone to determine prosperity trends. it depend upon the domestic economy as well.
it is quite possible to import your way to prosperity. go read your ricardo. it's all about comparative advantage.
if we stop making a low profit commodity like flat panel screens and instead deploy our capital and labor toward more profitable uses, then we are better off for buying our flat panels from abroad.
our economy will be more profitable as a result.
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Why is it then EXPECTED that government programs should grow along with GDP?
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More people doing more things, and inventing more ways to screw up, requiring more government intervention.
More people in closer contact with other people, creating more friction, and more complaints to be considered or mediated.
A lot of what the government does today involves things that were not even invented a century ago.
"More people doing more things, and inventing more ways to screw up, requiring more government intervention"...
hydra just out of curiosity have you ever read the Constitution?
If you have can you show which part mandates federal intervention for people 'screwing' up>
Farmers produce pretty much the same things as a century ago, only more of it and a lot more efficiently. Their reward is to be marginalized in the economy.
They don't even get measured on the same scale ("Non-farm employment grew last month..."), and farm earnings and payroll are miniscule.
I'm not sure it is in anyone's long term interest for this to continue. Yes, I get it, let the market eliminate enough farms and the remaining ones will do fine. But with many places locked in agricultural zoning, or environmental easements, if you cannot make money, how do you get out?
How much do you really want to let a small, but essential, part of the economy to decline?
And, if that is what needs to happen, why hasn't it? there must be a lot of unpriced activity out there somewhere.
"More people doing more things, and inventing more ways to screw up, requiring more government intervention.
More people in closer contact with other people, creating more friction, and more complaints to be considered or mediated."
this argument is not factually relevant.
those are tiny expenditures for government and have not been responsible to the increases in spending.
sure, you'd expect court costs etc to increase with population, but that fact is that such costs are not what is driving government spending.
If you have can you show which part mandates federal intervention for people 'screwing' up>
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I generally start with the preamble.
By screwing up, I mean screwing over other people, either deliberately or inadvertently.
You apparently believe that it is OK to treat other people in a way that you would object to. You apparently believe that profiting from such activity is not a zero sum game but is legitimate Darwinian business model.
What you have not done, as usual, is have anything direct to say about the quote you object to.
You do not agree that we have more people making and doing more things, resulting in more conflict, more lawsuits, and ultimately more regulation?
How many townhouse attic fires did we have to have before regulations were made, and subsequently enforced, requiring the fire wall to extend through the roof?
I don't like government reguolation, and I don't like neighbors that smoke in bed either, but if they wish to avail themselves of their constitutional freedome to do so in their own home, then I want the resulting problem to stay in their own home.
And I'm willing to pay my half of the price of the firewall, so that they get the same protection from me as I get from them.
morganovich,
that is not an argument for anything either.
In my mind, the fact that government is doing different things than it used to means that people expect different things out of government. People expect too much out of government, so it takes on too much. The argument from the left is that it only does the things that people want and that private markets haven't done well. The argument from the right is that there isn't much that government do well, so how could that be true? In my limited experience, neither side is that imaginative or intellectually honest (on average).
the question is "is that a good idea" and what price it exacts. 40% of GDP is a VERY high number.
spending like that disrupts private markets immensely and spending half of it through debt issuance seems a nasty thing to do to future generations.
I don't disagree with that.
it is quite possible to import your way to prosperity. go read your ricardo. it's all about comparative advantage.
If you can provide tradeable goods and services, you can provide wealth. It's about that simple. Paying for imports with loans or asset sales is quite possible but not sustainable. And that is part of the US story, but I don't think it is the dominant part. Measured GDP subtracts imports, and GDP is growing. The biggest negative structural opportunity I see in that story is if we're investing in the wrong things.
You could imagine an entire country's economy centered around manufacturing buggy whips, for instance: that would indicate a tough transition period to come! But I don't think that's our story, either.
sure, you'd expect court costs etc to increase with population, but that fact is that such costs are not what is driving government spending.
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I don't think so either. But aI would wager that virtually all of the things driving government spending today, started off or wound their way through the courts.
Like the townhouse firewall example. First you have a problem, then a regulation, then enforcement of the regulation. Then you discover you have to equip the firetrucks with jackhammers in order to break the firewalls when necessary.
The argument from the left is that it only does the things that people want and that private markets haven't done well. The argument from the right is that there isn't much that government do well, so how could that be true?
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Pretty much describes the situation, I think. Except in the first sentence, what we have government doing is as much what business wants government doing as what people want government doing.
History, I think pretty much falls on that side of the story. Townhouse builders could have put in firewalls without being forced to, but they didn't.
The second sentence, the argument from the right, doe not respond to the argument in the first sentence, but instead raises another issue, low government performance, as if it is first of all a given and secondly, an incurable illness.
"I generally start with the preamble"...
Are you sure you're reading the right preamble?
"You apparently believe that it is OK to treat other people in a way that you would object to. You apparently believe that profiting from such activity is not a zero sum game but is legitimate Darwinian business mode"...
And this silly rant has what to do with the Constituion?
"You do not agree that we have more people making and doing more things, resulting in more conflict, more lawsuits, and ultimately more regulation?"...
So now you switching to a local or state level, right?
Its rather hard to follow your meandering...
"I don't like government reguolation, and I don't like neighbors that smoke in bed either, but if they wish to avail themselves of their constitutional freedome to do so in their own home, then I want the resulting problem to stay in their own home"...
Hold a sec! Are still with the state/local level here or are you back to the national level?
I think you are one confused lad...
Hydra,
what we have government doing is as much what business wants government doing as what people want government doing.
Of course. :)
Townhouse builders could have put in firewalls without being forced to, but they didn't
I'm wary of this argument. Regulation and the market are both good at solving yesterday's problems, but the market alone is cheaper.
The second sentence, the argument from the right, doe not respond to the argument in the first sentence, but instead raises another issue, low government performance, as if it is first of all a given and secondly, an incurable illness.
Yes. Is that not what you've seen that people believe? Honestly, I don't think it's an incurable illness. Government services have a lot of room to redesign for better incentive systems and still remain governments.
The more serious criticism in my mind is that government ought to be as small as we can reasonably make it in order to avoid the tyranny of the majority.
"But aI would wager that virtually all of the things driving government spending today, started off or wound their way through the courts."
i think that's a wager you'd lose.
social security, medicare, medicaid, and military spending together account for 63% of spending. debt service is another 6.
those are not court driven expenses.
sean-
i would structure that argument a bit differently.
i'll quote tyler:
"A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy. "
this 200 year old adage is clearly occurring. when 50% of americans don't pay income tax, then a majority always sees new programs as "free stuff".
we all want free beer today but nobody wants to stay around and clean up after the party.
democracy is deeply flawed in this way. pure democracy is just a particularly nasty form of tyranny.
i am fearful that we currently have a class of politicians fomenting class war for personal gain. "the top 10% should take the other 90 out to dinner" is the sort of plan it's easy to get a democracy to agree to. this is why we need rights.
i agree with you that the right and left in this country are sort of a coke and pepsi choice. it's just a question of which kind of big intrusive government you want.
this leads into hydras point about business influence on government which, while true, is also only part of the picture. unions donate more than businesses do and extract more. each side is bought and paid for.
this will always be so so long as politicians have the ability to pass out goodies.
the only way to take business/union/religious/whatever influence out of politics is to take influence away from politicians.
it's a strong argument for small government.
sean-
GDP is a an increasingly flawed metric to use to measure economic output. its geographical fixation leaves out say, a factory you own in indonesia whose output is still controlled by an american. you would consider that money yours, why should it not be included in an aggregate? you'd include an overseas ford plant in the revenue number.
it also uses the misleading (X-I) component that says little about prosperity.
if i buy a TV from japan, i do so because i felt doing so would make me better off. running a "trade deficit" implies we are taking in more goods than we give away. isn't that a sign of accumulation?
it's a sign of beneficial transactions and need not be in any way unsustainable. it's also (potentially) a sign of hard asset accumulation.
buying a car does not make you less prosperous or less happy, it makes you more so. you freely trade money for something you value more. if this is true of an individual (and therefore all individuals), how can it not be true of a country?
there seems to be this pervasive myth that a trade deficit means we are somehow losing something. if i earn $100 a year and spent $3 on guatemalan coffee, i will always have a trade deficit, but i will also feel better off and will never go broke from it.
establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty ......
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Nope, pretty sure I got the right one.
Local, state, or national, bad government intervention costs money. So does inadequate intervention. Good intervention sometimes turns bad later: unintended consequences.
The costs and benefits change over time, and need to be constantly revisited.
Total cost = production cost + external cost + government cost.
If you can't convince me you are interested in lowest total cost, then I doubt you are working for the right thing. Obsessing on government expense is only 1/6 of solving this problem, since benefits count as negative costs.
A strong argument for small government sounds like concentrating the problem.
A dictatorship is a small government.
I think that what you mean is one with fewer powers.
Properly define and record property.
Protect it equally for all persons.
Unions donate more than businesses do and extract more. each side is bought and paid for.
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The unions are willing to pay more.
Sounds like a free market.
But, as I pointed out, all they can buy is votes. Therefore democracy offers a brake against this kind of purchase, just as capitalism makes it possible.
http://www.ssa.gov/OP_Home/rulings/rulfind3.html
List of court rulings on social security.
Most all of our history and literature from 200 years ago centers around urban areas but back then 80% of our population was on the farm. That was a very tough existance. Forget about GDP numbers let us be grateful that so many people now can lead much stressless and much longer lives. Hurray for technology and ingenuity.
Norm: I have photos and ledgers from the farm 100 years ago. 14 people working a field that I now do by myself. The field itself does not produce muchore than then, but it takes less labor and more capital. Overall, I'm nit sure I enhances my life more than it did theirs.
morganovich,
The blog ate my homework, again.
Summary:
1. Yes, GDP is flawed.
2. Democracy requires a culture of personal integrity and a preference for lean government to last
3. Government is a giveaway, but to the rich as much as to the poor
4. Don't overstate the progressivism of taxes:
http://krugman.blogs.nytimes.com/2011/04/22/zombie-tax-lies/
sean-
i think that basing the stability of democracy upon the "personal integrity" of its citizens is pretty much always a recipe for failure.
there will always be those who want something for nothing and they will vote for it. this creates a prisoner's dilemma for everyone else: jump in and become a part of the gravy train problem or get fleeced by those who do.
a successful democracy must be based upon inalienable rights, not hopes of virtue.
i also think krugman is way off base on that claim.
the US has the most progressive tax system in the OECD.
http://mjperry.blogspot.com/2011/03/us-has-most-progressive-tax-system-for.html
taxes here are extremely "progressive" and we have a larger portion of the population paying no net federal income tax than any other oecd country as well.
this is a serious problem for a democracy. those with no skin in the game will always vote for more spending. when that number exceeds 50%, well, then you have a consistent majority doing so. politicians are only too happy to pander to such, especially as they can promise future benefits without having it hit the budget lines today due to the absurd cash accounting system our government uses. (GAAP budget deficit is about $7tn, nearly 1/2 of US GDP).
"A dictatorship is a small government.
I think that what you mean is one with fewer powers."
that is what is generally meant by "small government". i think you are just splitting hairs here and being cute with definitions.
"Sounds like a free market."
no, it is the exact opposite. if you and i agree to a transaction, that is a free market. if my friend and i gang up on you and buy a politician who will force you to give us your stuff against your will, that is not a free market at all. that is coercive abuse of power.
and your list of social security court cases seems irrelevant. so what? they did not create the system nor are they what are driving the lion's share of the cost increases. that's coming from actuarial and demographic issues.
when SS was implemented, the average life expectancy was 65 meaning that the average recipient got 0 years of benefits. now it's what, 86? so the average recipient gets 21 years and climbing. add in cost of living adjustments, and that's what's driving the spending, not court cases about baby sitters.
morganovich,
also think krugman is way off base on that claim.
the US has the most progressive tax system in the OECD.
I've seen stats both ways, and frankly, all providers are quite biased. As best I can gather, it is relatively progressive, but off of a smaller tax base as a percentage of GDP than most in the OECD. And yes, income tax is very progressive until you get into unearned income and capital gains.
there will always be those who want something for nothing and they will vote for it. this creates a prisoner's dilemma for everyone else: jump in and become a part of the gravy train problem or get fleeced by those who do.
The left would claim that the right is for setting up the same dilemma for contributors to charity.
Those with no skin in the game will always vote for more spending. when that number exceeds 50%, well, then you have a consistent majority doing so.
I agree: skin in the game is important. And having taxes be "hidden" is not much better than not being taxed from that perspective. But you might be surprised by how many poor people would refuse any charity: no one wants to think of themselves as worthless or useless (not that accepting charity means you are useless: the reasons for needing charity are situational).
Without virtue, a minimalistic and legalistic government is the best we can hope for. With virtue, it's the least we can accept.
I think the institutions we build to help one another are of great benefit to us: I would prefer for fewer of them to be attached to government, but then we end up with a prisoner's dilemma again. So one way or another, pride in virtue *is* required for a truly prosperous nation.
morganovich,
Again, the link you provided refers to income taxes, not *all* taxes.
if you and i agree to a transaction,
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There is that pesky "if" premise again.
At one time workers "Agreed" to transactions that left them as virtual slaves in company owned towns.
As far as your premise goes your assertion is correct, but we KNOW that when people go buy a politician to protect them against the predations of the "free" market, it is because they value the protection more than they value the "freedom" they had.
A free market depends of meeting the needs and the values of the cdustomers, and in some cases the government does this better than enterprises.
What you are suggesting is that corporations should be free to organize, but customers and labor should not have the same freedom.
In fact, persons and businesses have gon to government over and over again, asking for more and different protections, and your message is, "You don;t really ant those protections, they are bad for you and cost you money: trust me."
the lion's share of the cost increases. that's coming from actuarial and demographic issues.
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Government is not driving those either. Why should it get the blame?
All of those court cases involve who gets what and under what conditions. Property rights, in other words. It all comes down to defining aqnd protectiong peoples proeperty from unfair incursions.
You apparently see that as an incursion on your right to promote any kind of "deal" you can get someone to submit to, in which submission counts as agreement.
a prisoner's dilemma for everyone else: jump in and become a part of the gravy train problem or get fleeced by those who do.
===================
Huh?
The prisoners dilemma is that if either one plea bargains he gets a good deal and the other a bad deal. If both plea bargain then both get an even worse deal, because there is now twice the evidence.
I don't think you can expand the dilemma from two to many, because the marginal oosts change so greatly. As the pool gets larger the risks go down, and the costs don't go up all that much.
sean-
you are wrong about that. the oecd data includes all FICA taxes as well.
http://www.taxfoundation.org/blog/show/23856.html
i know that the "progressives" like to argue that FICA is regressive, but even including it, we are still hands down the most "progressively" taxed nation in the developed world.
you notion of LT cap gains etc is also already included in this figure, so that really has no bearing either.
and trust me, you'd much rather be living off investment income in europe than here. you pay ZERO taxes on offshore investments in most countries. that US is a huge tax haven for europeans. you will get no such breaks here.
"The left would claim that the right is for setting up the same dilemma for contributors to charity."
i don't understand what you are arguing here.
"Without virtue, a minimalistic and legalistic government is the best we can hope for. With virtue, it's the least we can accept"
while a nice ideal, i think that the way our democracy is headed makes it pretty clear which side of the virtue dichotomy we fall on.
"The prisoners dilemma is that if either one plea bargains he gets a good deal and the other a bad deal. If both plea bargain then both get an even worse deal, because there is now twice the evidence."
exactly.
we are all better off if no one buys politicians. but, if you suspect that the other guy will, then your dominant strategy is to do so as well. thus, you consistently wind up at the low equilibrium as opposed to the high one.
alternately, you can think of it as an arms race (which is itself a form of prisoner's dilemma). if hey buy senators, you need to too. so they buy more. so you buy more. repeat until you get 40% of GDP in government spending then collapse under fiscal irresponsibility.
"Government is not driving those either. Why should it get the blame?"
because it administers the program and is not taking economic reality into account while so doing.
times have changed. the program needs to change. yet politicians do nothing and wait for bankruptcy as the costs spiral out of control.
further, government created the program.
if i punched holes in your roof and then you complained a week later when it rained and you got wet, would you accept my excuse that it was the rain, not me that caused the problem?
"There is that pesky "if" premise again."
that's a senseless point.
voluntary transactions are voluntary transactions.
the fact that you would not make choices that others have/do/will is irrelevant.
it's up to them.
to say anything otherwise is to invite fascist control and take away someone's rights.
i'm not saying anything at all about customers and workers. they can do what they like and organize if they like so long as they do not impinge upon the rights of others.
i have no problem with unions. what i have a problem with is the law that allowes them to force a company to hire only union workers and to force workers against their will to join and pay dues. that encroaches on the freedom of others.
if they want to bargain collectively, fine, but to force those who do not want to to accept the results is coercive and antithetical to freedom.
you are also arguing on both sides of this issue again. companies and unions alike go to government to get things the free market will not give them. they get these things coercively, which is to say they get the government to force you to give me something i want.
that is not the role of government.
the rest of your argument is so tangled and illogical that i honestly cannot make heads of tails of it.
morganovich,
you are wrong about that. the oecd data includes all FICA taxes as well.
From the two links:
The first column shows that the top 10 percent of households in the U.S. pays 45.1 percent of all income taxes (both personal income and payroll taxes combined)
Paris reveals that when it comes to household taxes (income taxes and employee social security contributions
So, not included are sales taxes and property taxes, nor are state and local taxes, all of which are less progressive.
Again, compare that with this:
http://www.ctj.org/pdf/taxday2011.pdf
The rich(er) pay most taxes, but not as much as reputed compared to income when all is considered.
And yet, that jibes ok with the other numbers.
"The left would claim that the right is for setting up the same dilemma for contributors to charity."
To the extent that you believe income redistribution has any merit at all, you want it institutionalized, not voluntary. Encouraging generosity punishes the generous, but if everyone contributes, it's "fair"... again, if you believe in contributions to the poor.
Myself, I don't believe government should be the keeper of the nation's morality, but the point is easy enough to understand.
while a nice ideal, i think that the way our democracy is headed makes it pretty clear which side of the virtue dichotomy we fall on.
Then, on average, we deserve what we're getting. There are many theories on merit and how you deal with the socioeconomic majority, but you must deal with them somehow. Maybe going back to the Victorian era would work better for us, but I think it's kind of sad if that's the best we can do.
sean-
"So, not included are sales taxes and property taxes, nor are state and local taxes, all of which are less progressive."
but this is not so. the wealth pay far more property tax. in many places, the rate kicks up over a certain value, and regardless, they have more expensive homes and so pay more than their neighbors. they also tend to pay higher income taxes in many states as well as "luxury taxes" on many items that no one else faces.
also, property taxes are MUCH higher in places like europe than the US as are VAT's. i suspect that including them in the comparison would make the US look MORE not less progressive in comparison.
"Encouraging generosity punishes the generous"
i don't understand this. how does this "punish the generous" so long as they are participating in willing transactions?
i see your point about the left wanting redistribution to be involuntary, but what does that have to do with punishing the generous?
"Maybe going back to the Victorian era would work better for us, but I think it's kind of sad if that's the best we can do."
this is a straw man. going back to the Victorian era? that's never going to happen. Americans today on food stamps live better than the Victorian upper middle class.
the real question is: are our social programs working? the answer is pretty clearly no. they are not accomplishing what was intended, have created a culture of dependence, and are going to bankrupt us.
"There are many theories on merit and how you deal with the socioeconomic majority, but you must deal with them somehow. "
why? what is it that needs "dealing with" for the majority?
that's an awfully totalitarian sounding view. the majority can deal with themselves. they need no one to do it for them.
morganovich,
but this is not so. the wealth pay far more property tax.
Absolutely, but not relative to income. Unless you think that people spend higher and higher percentages of their income on housing as they get richer. I don't think that's true.
And yes, VATs tend to be regressive unless certain types of goods are rebated, and I don't know if that's true.
All I'm saying, is these are the numbers I see reported, and they're not as progressive as you imply.
i see your point about the left wanting redistribution to be involuntary, but what does that have to do with punishing the generous?
People measure their wealth and well-being relative to their neighbors. If they are generous and their neighbors are not, they may not feel they can offer enough to make a difference, and feel like fools for trying if those around them don't participate.
It sounds like wishy-washy psychology, but I think most people give to charity because they believe they should (internalized social pressure) than because of personal desire.
the real question is: are our social programs working? the answer is pretty clearly no. they are not accomplishing what was intended, have created a culture of dependence, and are going to bankrupt us.
I agree we have encouraged a sense of entitlement, and entitlements (in healthcare, specifically) are what are scheduled to bankrupt us.
Americans today on food stamps live better than the Victorian upper middle class.
I'm speaking in terms of culture and economic structure, not standard of living.
why? what is it that needs "dealing with" for the majority?
The disenfranchisement of the masses (perceived or real) is quite dangerous to societies. Currently it's focused at our government. If it weren't focused at our government, it would be focused at businesses and rich individuals.
Working class people are not very happy, and I think all of us have a vested interest in solving that problem, if it is solvable.
Sean
"To the extent that you believe income redistribution has any merit at all, you want it institutionalized, not voluntary."
No you don't. The institutionalized method has failed miserably. This excellent resource will convince you why that is so. Used ones are really cheap from Amazon sellers.
I assume you are almost finished with your previous reading assignment. :)
Don't you believe people should be free to give or not give as they see fit? I seem to remember in one of your earlier comments, you mentioned helping a troubled or needy 18 year old by offering him yard work, or some such. That seemed to be an excellent example of voluntary help. Don't you think it was more valuable than a government handout, and more 'fair' than forcing me to help pay his way?
"Encouraging generosity punishes the generous, but if everyone contributes, it's "fair"... again, if you believe in contributions to the poor."
I have a problem with the words "encouraging", "punishes", and especially "fair" in the above.
Who should be doing the encouraging?
How are those who are generous punished? If I feel a need to help, I will help. I don't feel punished if others aren't doing the same. We should all do what we want to do with our property, and that includes giving it away to whoever we wish, if we wish.
Then, there's that overworked word "fair". What is fair about being forced to give some of my property to someone I don't know, for reasons I may not agree with? Perhaps the term "equally abused" is a better way to describe forced redistibution, rather than fair. What's fair, is to be left alone.
"Myself, I don't believe government should be the keeper of the nation's morality..."
We certainly agree on that.
Sean
"The disenfranchisement of the masses (perceived or real) is quite dangerous to societies. Currently it's focused at our government. If it weren't focused at our government, it would be focused at businesses and rich individuals."
And government is working hard to redirect thet focus.
"Absolutely, but not relative to income"
i don't think that is true. i think they pay more. homes are not that much cheaper, incomes are lower, and prop tax rates are 2-3X ours.
you have any data to support your claim? i'd be very surprised if it were true.
there is no question that people tend to think about their welfare in relative terms, but that does not make it good or rational to do so. i used to TA a class in experimental economics (game theory for econ). we would use mico econ classes as guinea pigs. there was a game we played where the two outcomes were: 1. you get $5 and i get $7 or 2. you get $3 and i get $2 or come such. people consistently choose less money just to outperform their partner.
this is a fundamental competitiveness that exists in humans. we have lots of instincts that we'd be better off ignoring. they key is to make sure we do not support such harmful instincts in our institutions. we all wind up worse off for doing it.
the "disenfranchisement" of our middle class is a myth. our class mobility is the highest in the world. our middle class becomes our upper class quite consistently. you can always stir up anger in a recession, but mostly, it's just political point scoring and cheap populist class war.
i don't think this: "Currently it's focused at our government. If it weren't focused at our government, it would be focused at businesses and rich individuals." is true. yes, you have one segment of the country saying this, but you have an even larger chunk listening to this government and blaming the wealthy and corporations etc. this is being actively encouraged by the very politicians who made the mess. they are the final ascendancy of alynsky's ideas: cause a crisis through bad government, blame the private sector, foment class war and mistrust of markets, step and in tax and regulate, cause another crisis, etc.
it's a perpetual motion machine for fascism.
regardless, what is it you think needs to be done about it?
you seem to feel that something needs dealing with. can you be specific? i don't really understand what you are proposing here.
morganovich,
regardless, what is it you think needs to be done about it?
you seem to feel that something needs dealing with. can you be specific? i don't really understand what you are proposing here.
I'm actually a little fuzzy here. I think the left exists in order to address a legitimately identified problem: disparities in income and opportunity create significant social tensions and engender corruption and crime. I don't like the left's solution to the issue, but I think the right is incorrect to dismiss it as a problem. I'm not sure what the answer is.
Ron H.,
No you don't. The institutionalized method has failed miserably. This excellent resource will convince you why that is so. Used ones are really cheap from Amazon sellers.
I'll take a look, but I'm not convinced that the institutionalized approach has categorically failed.
I assume you are almost finished with your previous reading assignment. :)
No, I'm behind on a number of things right now, and real life takes precedence. But I haven't forgotten. I probably should even be spending as much time as I do on blogs like this one ;)
Don't you believe people should be free to give or not give as they see fit?
I'm of two minds here. Prima facie, yes, people should be free to choose according to their own values, and shared burdens should be as light as possible in order to maximize each person's abilities to act according to their own values.
On the the other hand, there are certain qualities in culture that can be treated like public goods, such as a climate of honesty and a lack of crime.
My mother went to a (Catholic) high school where lockers weren't used because you could trust other children simply not to steal or abuse the properties of others. Do you know how few bad apples it takes to completely destroy such a climate of trust?
If you could band together with others and create such a climate (one person can't do it), would you? Taking aside the question of government.. not everything can or should be propagated to that level where membership is partially involuntary, would you be willing to trade away some level of freedom to achieve a better local climate? That's the kind of institution I'm thinking of.
The left wants to elevate those kinds of choices to government every time and bind everyone to it. That seems wrong, but that doesn't invalidate the power of institutions freely joined.
Don't you think it was more valuable than a government handout, and more 'fair' than forcing me to help pay his way?
Yes, it was more valuable. There are a lot of concepts being mixed here: institutional vs personal motivation, institutional vs personal delivery, the legitimacy of implicit contracts, what "fair" means (a concept most 4 yr olds understand enough to desire), whether ends justify means, etc.
Then, there's that overworked word "fair". What is fair about being forced to give some of my property to someone I don't know, for reasons I may not agree with?
Here is the question of the value of freedom relative to community. From some people, being forced to do anything for the good of the community is anathema. For others, a healthy community (what good is a person on his own?) is of such value that anyone refusing to contribute for the sake of improving the whole is a parasite.
Although I lean towards personal freedom in that trade-off, I can actually see both sides. The best reconciliation I can make is that freedom of association trumps any desires of community. A community that you don't voluntarily choose to associate with can ask nothing of you, but if you choose to join a community, that represents a contract.
Since "choosing to join" a country is relatively involuntary, its legitimacy to ask things of you is greatly weakened.
"I think the left exists in order to address a legitimately identified problem: disparities in income and opportunity create significant social tensions and engender corruption and crime"
i disagree with this.
the best way to maintain low social tension is class mobility and give people confidence that they can better themselves and their children.
the best way to do that is growth.
the left actually tends to make these tensions worse (whether through ignorance or design is debatable). consider a european social democracy. they have lower standrds of living than americans. they have far fewer possessions and are not nearly as rich. they also have virtually no class mobility. that is the price of leveling a society as they do.
the irony of these leftist dogmas is that the create the problem they claim to want to solve. the more they level, the more they have to because they take away the social mobility that generally plays that role in terms of relieving social tension.
you can have high growth, high mobility, and unequal accumulation, or you can level wealth and lose the first two.
in the long run, everyone winds up worse off. sweden's middle class are poorer than the US poor.
if you look at the US historically, we had much lower social tension than europe back when we had a tiny government and no attempts to level wealth.
attempting to redistribute wealth actually creates the tensions you seem to feel it alleviates.
my feeling is that there is nothing here to "deal with". people do best when they deal with themselves. i do not view wealth redistribution a a legitimate role of government.
keeping people from starving is one thing, but buying them air jordans and Tivos is another.
morganovich,
you can have high growth, high mobility, and unequal accumulation, or you can level wealth and lose the first two.
There's some truth here, but that overstates the case. Sweden may have poorer citizens than the US, but they seem to have less crime, less social tension, and less stress (more happiness).
Looking at the costs socialized countries pay is quite valid. Ignoring the benefits they gain is not intellectually honest.
Just like ignoring the data from the link I posted based on your anecdotal understandings. I'm not saying it's gospel, I'm just saying that you're basically just shooting holes in what I said based on your preferences, not data.
"For others, a healthy community (what good is a person on his own?) is of such value that anyone refusing to contribute for the sake of improving the whole is a parasite."
this is very treacherous ground. if bill gates never gave away a penny but instead just ran microsoft and blew the money on solid gold toilets etc, does that make him a parasite?
he created enormous wealth for his employees. he created dozens of products that hundreds of millions of people have used. how is that parasitic? who was harmed? everyone who bought his products did so because they thought they were more valuable than the money they traded for them.
what is is you feel he NEEDS to contribute? who will make and enforce such a judgment?
"Taking aside the question of government.. not everything can or should be propagated to that level where membership is partially involuntary, would you be willing to trade away some level of freedom to achieve a better local climate? "
no. absolutely not. 100 times no. this is the rationale of a fascist. this is where totalitarianism comes from.
"give up your rights for the good of the whole" is the road to subjugation. it's not effective or moral. it is totalitarianism. it's how democracy becomes tyranny. 75% vote that 25% should take care of them. how is that fair or just?
freedom comes from rights, not democracy.
i'd be VERY careful with that sort of coercive collectivist common good thinking. it sounds an awful lot like what made communism fail so miserably.
the "invisible hand" of self interest is not a perfect system, but it's certainly the least bad one we know of.
sean-
"but they seem to have less crime, less social tension, and less stress (more happiness)."
do you have anything to back that up? that sounds an awful lot like armchair anthropology.
i know there are "world happiness indexes" and all that, but they are terribly subjective and tend ot favor small, homogeneous countries (like denmark). assuming that the happiness stems from the economy is tenuous at best.
look at the list of top happiness:
http://www.peterhorn.dk/ExecutiveMagazine/Stoppress/061031_world_map_of_happiness_denmark_on_top.asp
they are all highly homogeneous places. that's the key variable. the economic systems in that group are polyglot, unlike their populations.
i used to do a bit of business in stockholm and get out there a couple times a year.
i found the people there to be bland and stunningly unambitious. trying to get a swede to work hard and take a chance is like trying to get a parisian to be a vegan.
this is the direct result of leveling incomes. they gain so little from incremental work and risk, they that just don't see it as worthwhile.
in a generation or two, you breed ambition and innovation out of the culture.
sweden is a backwater and likely always will be.
is that really the sort of society you want to emulate?
"Just like ignoring the data from the link I posted based on your anecdotal understandings"
what link and to which understandings are you referring?
sean-
here's another way to consider leveling:
imagine a high school class that has no grades. sure, perhaps the students might feel less stress and envy and so on, but they will also achieve less, strive less, and have lower motivation to do well.
is that really a better system?
it becomes even worse if you use say, a "progressive grading curve".
if you get a 95 and i get a 65, we tax you 15 points and give 10 to me.
now i get a 75 and you get an 80.
imagine the impact this would have on your motivation to study hard.
it's even worse if you use pure communism.
i believe this is an apocryphal example,
http://matthewchan.com/2009/10/04/classroom-experiment-on-socialism-and-spreading-the-wealth/
but i have been involved with economics experiments using a similar structure and with similar results.
it's amazing how bad a society gets when you decouple rewards from work.
i don't think there is any free market issue that is even of the same magnitude.
morganovich,
this is very treacherous ground. if bill gates never gave away a penny but instead just ran microsoft and blew the money on solid gold toilets etc, does that make him a parasite?
No (i was using hyperbolic language), but I wouldn't really respect him.
what is is you feel he NEEDS to contribute? who will make and enforce such a judgment?
Ask him. Bill Gates actualy has a lot of interesting answers in that regard. For instance, he's pretty much against the idea of being able to pass along an estate to his children.
no. absolutely not. 100 times no. this is the rationale of a fascist. this is where totalitarianism comes from.
So in order to be able to go out with friends, you wouldn't occasionally go out to a restaurant you despised. To join the Bar Association, you have to have to sign off on an ethical code. Those are examples of the kind of choices I'm taking about. But your answer doesn't surprise me.
I'd be VERY careful with that sort of coercive collectivist common good thinking. it sounds an awful lot like what made communism fail so miserably.
I agree one sohuld be very careful in such talk. But the fact that it's possible to abuse people by taking advantage of the social instincts of humans doesn't mean that they have no value.
i know there are "world happiness indexes" and all that, but they are terribly subjective and tend ot favor small, homogeneous countries (like denmark). assuming that the happiness stems from the economy is tenuous at best..
Well those and and npr special that references them were my references, so you've discounted them. Suicide rates are lower there, I think.
in a generation or two, you breed ambition and innovation out of the culture.
There's a lot of amazing open source and GPL stuff out of that area: people do a lot of things that aren't motivated purely by profit. In the software world, they have a lot to offer. I'd rather live here than in a socialized country, but I think it's fair to point out that it hasn't exactly wrecked them.
what link and to which understandings are you referring?
The tax statistics link that as the source of Krugman's data.
http://matthewchan.com/2009/10/04/classroom-experiment-on-socialism-and-spreading-the-wealth/
I understand your point, but that is an indoctrination example, not an experiment. Grade inflation in colleges already *is* socialized grading.
A better example of what socialized countries actually *do* is help students that are failing find something they're good at. The point is helping people find a place where they're happy, not just giving them what they want: that always fails.
It's amazing how bad a society gets when you decouple rewards from work.
Yes, but you can also wreck someone by trying to get an extra few percentage points of performance from them. Much better to let them feel ok without those few percent. Competition is necessary: a hyper-competitive attitude can actually be destructive.
i don't think there is any free market issue that is even of the same magnitude.
Not from the perspective of someone that has financial security.
"I'll take a look, but I'm not convinced that the institutionalized approach has categorically failed."
I now realize that I misspoke. After reading the rest of your latest comment, I realize I was using "institution" to mean government institution, and involuntary giving.
Yes, voluntary institutions are fine, in fact they are one of things I use to argue against the use of government force.
The whole key, for me, is the concept of voluntary. If I can leave the group when I wish, then all is well. I understand that I lose any benefits of membership if I quit.
"On the the other hand, there are certain qualities in culture that can be treated like public goods, such as a climate of honesty and a lack of crime.
My mother went to a (Catholic) high school where lockers weren't used because you could trust other children simply not to steal or abuse the properties of others."
This is interesting. IMHO we, as humans, are hardwired to want more than we have, and to compete with others to get more than they have. The game theory class morganovich described supports this idea. I also believe this includes stealing from others.
The counterbalance to this is our need to belong to a group. The disapproval of the group and our possible loss of status, or even expulsion from the group usually outweighs our instinct to steal.
Thus, we won't steal from our own tribe, but it's OK to steal from "others".
In your Catholic school example, this fear of group disapproval, combined with the concept of sin, punishable by God, acts as a powerful constraint on behavior. This may be a more powerful deterrent than locks.
"Do you know how few bad apples it takes to completely destroy such a climate of trust?"
Very few. The usual solution, however, to use lockers, insults us all by assuming we are all thieves. There may not be a perfect answer, as humans aren't perfect.
On an unrelated issue, current airport security nmeasures assume that we are all terrorists.
"If you could band together with others and create such a climate (one person can't do it), would you?"
If voluntary, yes I would.
"...would you be willing to trade away some level of freedom to achieve a better local climate? That's the kind of institution I'm thinking of."
Yes. If I chose to do so, and could later un-join.
"The left wants to elevate those kinds of choices to government every time and bind everyone to it. That seems wrong, but that doesn't invalidate the power of institutions freely joined."
I agree.
"For others, a healthy community what good is a person on his own?) is of such value that anyone refusing to contribute for the sake of improving the whole is a parasite."
This attitude assumes a "group conciousness" that can decide what is best for individuals, better than they can decide for themselves. This usually translates to: "I know what is best for you, and how best to spend your money."
"The best reconciliation I can make is that freedom of association trumps any desires of community. A community that you don't voluntarily choose to associate with can ask nothing of you, but if you choose to join a community, that represents a contract."
I agree. (emphasis mine)
"Since "choosing to join" a country is relatively involuntary, its legitimacy to ask things of you is greatly weakened."
Again, I agree. I had no choice as to my place of birth, my parents can't enter into a contract for me, and the remedy, if I don't like it, isn't to move somewhere else.
Sean
PS:
I don't think all of our hardwired instincts are bad. For instance, I also believe most humans are hardwired for compassion, and a desire to help others who are in need. There's plenty of evidence for that also.
"keeping people from starving is one thing, but buying them air jordans and Tivos is another."
...and this is best done voluntarily, at a community level. (at least the keep from starving part)
Ron H.,
Wow, actual agreement! :)
Very few. The usual solution, however, to use lockers, insults us all by assuming we are all thieves. There may not be a perfect answer, as humans aren't perfect.
No, I don't think there is. But this is one of the reasons why I think honor is the basis of civilization: without it, no contracts can hold, and you have to assume everyone is willing to cheat you. You can never afford the overhead to check everyone, so places with high corruption basically just don't work.
For instance, I also believe most humans are hardwired for compassion, and a desire to help others who are in need. There's plenty of evidence for that also.
There is because it's a survival trait. But if sociopathy becomes a socially tolerated trait, you'll see a lot more of it.
"keeping people from starving is one thing, but buying them air jordans and Tivos is another."
...and this is best done voluntarily, at a community level. (at least the keep from starving part)
Probably. I'm still thinking this one through.
This comment has been removed by the author.
Sean
"Wow, actual agreement! :)"
Actually, I think the only thing of any importance we DON'T agree on, is collective vs. individual.
"But this is one of the reasons why I think honor is the basis of civilization: without it, no contracts can hold, and you have to assume everyone is willing to cheat you.""
Perhaps it's a free market transaction. I will honor your property rights if you will honor mine. A voluntary exchange that makes both parties better off. It seems to work pretty well, for the most part. We write contracts so that everyone involved clearly understands what the conditions are.
[community level] "Probably. I'm still thinking this one through."
It would seem that individual needs could be better determined at a local level, preferably in face to face encounters, like your own example of offering work to someone who needed help.
In fact, I'm beginning to believe that government at any level above county or maybe small state, is too large to function in people's best interest.
The original 13 states had a good idea in creating an agent to manage what they saw as common functions, but it has since gotten way out of control, despite the careful constraints placed on it initially.
Ron H.,
Actually, I think the only thing of any importance we DON'T agree on, is collective vs. individual.
I'm a Christian. Any serious reading of the Bible indicates both are important. :)
And I've seen a lot of examples of institutional power and institutional memory in action. As a computer design engineer working for a certain large blue company, I've seen in action that a bunch of smart people don't always make a good team, and a good team is more effective than a bunch of smart individuals not working together. That's one of the things that has allowed Americans to compete successfully with Asians that are just as smart, just as educated, more motivated, and carry 1/5th the salary.
It would seem that individual needs could be better determined at a local level, preferably in face to face encounters, like your own example of offering work to someone who needed help.
Distribution decisions should obviously be local, but my very limited knowledge, I think organizations like The United Way walk a good balance there between broad reach and local effect.
"Ask him. Bill Gates actualy has a lot of interesting answers in that regard. For instance, he's pretty much against the idea of being able to pass along an estate to his children."
that's an irrelevant answer. bill is free do do as he likes. my question was, if he chose to keep it all, how does that make him a parasite? he got rich making products that people want. if that is your definition of a parasite, then you seem to believe that all commerce is parasitic.
"but I think it's fair to point out that it hasn't exactly wrecked them."
sure it has. sweden is a backwater full of the unambitious. a couple of open source hackers doth not a society make.
they are very poor relative to the US, have a stagnant society, and will keep losing ground to us.
their "happiness" comes from homogeneity, not socialism.
i did look at krugman's data. it's just flat out wrong. his source is just making stuff up best i can tell. note that they do not source their information from any legitimate source.
there is just no way that this is correct.
the top 1% pay 38% of income tax. this is the loins share of taxes people pay.
you're going to need to show me some actual data with some actual sourcing for me to believe that. the CTJ stuff is sourced from some paper from an social advocacy group that is not available. sorry, but i need to see something more definitive, especially Giovanni what a political muckraker krugman is.
"So in order to be able to go out with friends, you wouldn't occasionally go out to a restaurant you despised. To join the Bar Association, you have to have to sign off on an ethical code."
these are totally orthogonal examples.
to go to a restaurant with friends is still my choice. no one forces me. would you accept being jailed if you didn't join your friends at a steak house despite being a vegan?
the bar association is a guild that ought not exist. membership should be voluntary.
you spoke before of coercion for social good. these issues are totally different.
i'm discussing the difference between choosing to give $10,000 to charity vs being thrown in prison if you refuse to. your examples having nothing to do with what we were discussing.
"fact that it's possible to abuse people by taking advantage of the social instincts of humans doesn't mean that they have no value."
this too seems totally irrelevant. i'm talking about the dangers of a government that says "surrender your liberty and rights for the common good".
that's the road to subjugation.
your point has nothing to do with what we were discussing. frankly, i'm not even sure it makes sense.
"A better example of what socialized countries actually *do* is help students that are failing find something they're good at. The point is helping people find a place where they're happy, not just giving them what they want: that always fails."
this is where you and i seem to differ fundamentally. i believe it si the individual's job to find happiness, not the government's. your attitude on that strikes me as incredibly paternalistic. such systems always wind up reducing freedom.
but you are also missing the point. that grades experiment is relevant to redistribution economic policies. i think you missed the relevance of the analogy. just as students will not work if they do not get to keep the rewards, neither will workers do so. why start a company and take all that risk and do all that work if there are no rewards? sweden has no meaningful start up culture at all for precisely this reason.
"Yes, but you can also wreck someone by trying to get an extra few percentage points of performance from them. Much better to let them feel ok without those few percent. Competition is necessary: a hyper-competitive attitude can actually be destructive."
again, your paternalism is showing. people make there own choices on this. the prizes from "everyone gets a prize day" are meaningless. so care, some don't. i work in a hyper competitive industry and love it. who are you to tell me what is destructive? you make your choice, i make mine, and the government stays out of our way. what's so difficult about that?
as son as you say, well, i'll take your prize money and give it to the lsoer, you are messing with incentives.
you cannot level your way to prosperity, you can only do that through growth. if you redistribute the pie, then you get less growth. over time, this makes everyone worse off. that's why our poor as as well off as most of the European middle class.
you are sacrificing all of our welfare on the false altar of "equality of outcomes".
"Not from the perspective of someone that has financial security."
this is a false premise. there would be more financial security if there were less government interference.
morganovich,
. my question was, if he chose to keep it all, how does that make him a parasite? he got rich making products that people want. if that is your definition of a parasite, then you seem to believe that all commerce is parasitic.
No, I was using hyperbole. But if you are happy and secure but not giving anything to people who aren't, I have no respect for you.
you spoke before of coercion for social good. these issues are totally different.
Look, we're going off track. Read the stuff between myself and Ron H. I think accepting ethical limits, etc., to *voluntarily* join a community is a good idea.
They are very poor relative to the US, have a stagnant society, and will keep losing ground to us.
their "happiness" comes from homogeneity, not socialism.
This is too vague and subjective to argue.
i did look at krugman's data. it's just flat out wrong. his source is just making stuff up best i can tell. note that they do not source their information from any legitimate source.
And MP's listed sources are *completely* unbiased? Eh. Maybe I'll go look something up. Look, I accept that taxes are progressive: I just think it's overestimated how much so they are. I'd actually like to see a flatter tax base, I just don't think it would make as much difference as you might think.
your point has nothing to do with what we were discussing. frankly, i'm not even sure it makes sense.
It's certainly a fair distance from what you seem to be talking about.
. i work in a hyper competitive industry and love it. who are you to tell me what is destructive? you make your choice, i make mine, and the government stays out of our way. what's so difficult about that?
Look, there's solid evidence on this stuff in psychological terms. Stress kills.
Look, when I talk about institutions, I'm not always talking about government. Paternalism in voluntary institutions sometimes makes sense. I agree that being subjected to government "paternalism" is a bad idea.
you cannot level your way to prosperity, you can only do that through growth.
I agree, in principle, assuming social stability.
if you redistribute the pie, then you get less growth. over time, this makes everyone worse off.
Over the long term, this is true on average. Some countries have made the choice to sacrifice more growth for redistribution than the US. This has cost them, and I'm not advocating we behave like them. But it hasn't cost them to the extent that you imply. Honesty requires that observation.
this is a false premise. there would be more financial security if there were less government interference.
That's demonstrably not true in the short term. Financial security would be greater at a lower level of income. In the long term, it may be true if the welfare state is unsustainable (and there's certainly reason to believe a strong welfare state is unsustainable).
morganovich,
I realized I'm still ducking your question:
. my question was, if he chose to keep it all, how does that make him a parasite? he got rich making products that people want. if that is your definition of a parasite, then you seem to believe that all commerce is parasitic.
I would say that your economic value to others is roughly what you give minus what you receive plus the environmental good of having your service available to market. If you behave honestly, keep your contracts, make fair trades (not based on using information advantage to trick an "opponent"), and your services are valuable, you don't have to donate anything to be a net gain to have around. If you do that, you don't "owe" anything more. If you do that and show the slightest compassion and generosity to those around you, I would happily have you around too. But my moral respect for you will grow relative to how much you help others relative to your capability.
The left might additionally say that part of what you receive is the environmental benefit of your society and what the government has done for you, and so extracting payment from you is reasonable. They would say the goals of having a peaceful and just society justify a certain paternalism: supporting orphanages, food stamps, inner city job training, early education and day care, boys clubs, community centers, housing subsidies, etc. Most people on the left are not in favor of a "payment for living", generally giving you money because you don't make money. Most people know that's not "fair".
Most people would consider a society that has those things more pleasant to live in than one that doesn't, and would like all those that might be affected by the benefits to participate in the costs. I would say that these are valuable and that institutions that can kick you out for not paying the membership fees are quite moral, but that the government is not morally the ideal agency to provide most of these services.
Does that make sense?
morganovich,
Here's another link that basically matches the Krugman data (yes, it's from a Berkeley paper):
http://elsa.berkeley.edu/~saez/piketty-saezJEP07taxprog.pdf
I've looked back and noticed that my writing (grammatically and stylistically) has been pretty bad when addressing you in this thread. My apologies.
Sean
"Distribution decisions should obviously be local, but my very limited knowledge, I think organizations like The United Way walk a good balance there between broad reach and local effect."
There are many fine organizations that do good work. One of my favorites is the Salvation army. I believe the bell ringers are all unpaid volunteers, and something over 90% of the money collected, actually helps those in need. Some organizations provide a surprisingly small percentage of their collections to the needy.
Charity Navigator has good info on many charitable organizations.
"As a computer design engineer working for a certain large blue company, I've seen in action that a bunch of smart people don't always make a good team, and a good team is more effective than a bunch of smart individuals not working together."
Would that be the Itty Bitty Machine co?
A business is just another voluntary, highly structured organization with very specific goals, and members agree to promote those goals by working for the company. I would expect group cooperation and action to be the norm. I would also expect some to be in charge of directing activities and providing guidelines and rules.
You have voluntarily joined this instutution, and can un-join if & when you wish. That might be a really dumb choice, but it is available to you.
I have no problem with voluntary actions or organizations, only with government forced activity like paying part of my income to people I don't know, who may have specific needs not addressed by an automatic check each month.
Nor do I don't want to help people pay for a showerhead that limits the amount of water they can use, or lightbulbs that require a visit from a hazmat team if they are broken.
"the top 1% pay 38% of income tax. this is the loins share of taxes people pay."
Do you mean that when someone pays this much, they feel like they've been kicked in the loins?
Sean
"I would say that your economic value to others is roughly what you give minus what you receive plus the environmental good of having your service available to market."
Actually, a great way to determine a person's economic value to society, is to add up how much they have been paid. Another less accurate method might be to estimate their net worth. By this measure, Gates has been one of the highest contributors ever, as he's been paid tens of billions of dollars for the benefit he's provided.
Keep in mind that every cent he has made has been eagerly handed to him, and we are all better off because of him.
I doubt many of would have the great jobs we have, (had, in my case) if he or someone like him hadn't come along. We should each probably take a minute each day to say a little silent prayer of thanks for our good fortune that Gates was born. I might even zip off a little thank you note to his parents.
Actually, it's hard to say whether administering a charitable fund, or supporting the entire solid gold toilet industry is more valuable. There are benefits no matter how Gates spends his money. His biggest talent seems to be as a high tech entrepeneur and business man, and that's most likely where the most benefit would come from, but it's his to spend any way he wishes.
"If you behave honestly, keep your contracts, make fair trades (not based on using information advantage to trick an "opponent"), and your services are valuable, you don't have to donate anything to be a net gain to have around."
This all sounds good except the "information advantage" part. Do you not believe there should be patents, or copyrights, or IP protection laws? It seems to me that information advantage is the very essence of inovation and competition. Without it, poor morganovich and many others might be out of work.
"And MP's listed sources are *completely* unbiased? Eh."
Speaking of morganovich, in all fairness, you should know that he questions MP's sources every day.
Sean
"The left might additionally say that part of what you receive is the environmental benefit of your society and what the government has done for you, and so extracting payment from you is reasonable.
But I haven't asked for most of those "benefits". I can't mow your lawn and then knock on your door and demand payment.
They would say the goals of having a peaceful and just society justify a certain paternalism:
Who decided on these goals? They didn't ask me for any input, and I didn't get a vote, but now they expect me to pay. They've mowed my lawn and now...
"supporting orphanages, food stamps, inner city job training, early education and day care, boys clubs, community centers, housing subsidies, etc."
These are all things that can be, and have been provided by private charities and mutual aid societies.
By the way, I understand that any measurable benefit of early education is gone by the end of first grade.
Most people on the left are not in favor of a "payment for living",
What about the earned income tax credit (EIC)? This is a giveaway because your income is low.
"Oh, you didn't earn very much last year? You poor thing. Here! Have some of Sean's money. He has more than he needs."
"What's that?"
"Oh no, we don't need to ask him, we'll just take it. After all, we know what's best."
Ron H.,
Actually, a great way to determine a person's economic value to society, is to add up how much they have been paid
Value to society includes value to self, so that would be correct to the first approximation. What I said about value to others is also correct, I think. The jobs he helped create are part of the environmental benefit I mentioned, but he doesn't get 100% credit.
If it hadn't been for Bill Gates, Ken Olson, Steve Jobs, or some other magnate would have been in the same position.
We should each probably take a minute each day to say a little silent prayer of thanks for our good fortune that Gates was born.
Windows is pretty bad software, just as the x86 instruction set architecture is one only a mother could love. MS Office actually *was* better than its competitors, but Microsoft's success is pretty good example of market inefficiency, IMO. Without Gates, we'd still have personal computers, but they'd be Amigas, PDPs, Macs, or something else. And 95%+ of the jobs would still be there.
There are benefits no matter how Gates spends his money
True if he spends it, but very Keynesian.
This all sounds good except the "information advantage" part. Do you not believe there should be patents, or copyrights, or IP protection laws?
They are way too strong. There's a fine line between encouraging innovation and just adding overhead to the economy. We're on the wrong side of that line. Chris Tolkien doesn't really deserve royalties throughout his lifetime for his father's work. Design patents on the shape of a headlight or the position of an icon probably do more harm than good, and 99% of software patents are ridiculous. Patent trolls have theoretical value but most seem to just be extortionists. The DMCA has some value, but it's mostly overhead. The vast majority of patents, etc., are on essentially trivial evolutionary changes that anyone can work around anyway. The idea that you're literally not allowed to decrypt a file you "own" on your computer or DVD without theoretically suffering men in black coats? No, I'm not at all thrilled about the state of imaginary property in general, despite my father practicing patent law himself.
But I haven't asked for most of those "benefits".
We discussed this, and I agreed that government legitimacy on these items is iffy. I'm more explaining the left than advocating for it.
These are all things that can be, and have been provided by private charities and mutual aid societies.
The left's preference for doing these things through government derives from the fact that government can usually drum up more money than private charities with less overhead spent on fund-raising. And of course, they think they can control government better than charities. So see above ;)
Ron H.,
Would that be the Itty Bitty Machine co?
No, think a lighter shade of blue :)
I have no problem with voluntary actions or organizations, only with government forced activity like paying part of my income to people I don't know, who may have specific needs not addressed by an automatic check each month. .
The right attacks government on two fronts: morality and efficacy.
On the morality front, I mostly agree with you.
On the efficacy front, a political process tends to make very bad decisions and set up non-competitive organizations with poor incentive structures. But really, that's not an unsolvable problem.
It seems that in any true liberal, there's an element of the ends justifying the means.
Sean
"On the morality front, I mostly agree with you.
On the efficacy front, a political process tends to make very bad decisions and set up non-competitive organizations with poor incentive structures. But really, that's not an unsolvable problem."
This sounds like you agree with me on this front also. And, you're correct. The problems can be easily solved by just reversing the political process. :)
Sean
"If it hadn't been for Bill Gates, Ken Olson, Steve Jobs, or some other magnate would have been in the same position."
You're correct, of course, I should have said "or someone like him", but since he was the one in the driver's seat, he usually gets credit.
"Windows is pretty bad software, just as the x86 instruction set architecture is one only a mother could love."
No argument here.
"MS Office actually *was* better than its competitors, but Microsoft's success is pretty good example of market inefficiency, IMO."
You're right again, damn it.
"Without Gates, we'd still have personal computers, but they'd be Amigas, PDPs, Macs, or something else. And 95%+ of the jobs would still be there."
I think it would be something else, and somebody else. I also doubt that as many people would use computers. As bad as it is, Windows lets people who can't even program a DVR, operate a computer and access the internet. Most other systems require just a tad of technical ability.
"There are benefits no matter how Gates spends his money
True if he spends it, but very Keynesian."
I didn't understand that.
"The left's preference for doing these things through government derives from the fact that government can usually drum up more money than private charities with less overhead spent on fund-raising. And of course, they think they can control government better than charities. So see above ;)"
Yes, fund raising by stealing money at gunpoint involves very little overhead. The massive expenses come from the distribution bureaucracy.
The left sure likes control, that's for sure. The thought that something might happen successfully without government interference drives lefties nuts.
Ron H.,
You're correct, of course, I should have said "or someone like him", but since he was the one in the driver's seat, he usually gets credit.
Bill Gates is truly brilliant, and he deserves a lot of credit for the success of his company. It's the fact that making solid products wasn't the primary ingredient in that success that irritates me.
I think it would be something else, and somebody else. I also doubt that as many people would use computers. As bad as it is, Windows lets people who can't even program a DVR, operate a computer and access the internet.
The phrase that comes to mind is "Windows '95 = Mac 89". I don't know if that's true, though, since when I played tech support in college, Macs were pretty flaky and not that attractive. Microsoft and Intel both developed the skill of incremental improvement, and despite all the crud underneath have gotten relatively decent on the surface since. But my Commodore 64 was a superior machine all around to our 8086 from a user perspective.
"True if he spends it, but very Keynesian."
I didn't understand that.
If Bill doesn't spend the money, it does less than if spent (although it still presumably is invested and so provides some benefit). The idea that spending is beneficial to an economy regardless of what it is spent on is inseparable from the base model of Keynesian-ism. You simply can't believe one without the other.
The massive expenses come from the distribution bureaucracy.
Yes. Which can be streamlined with sufficient pressure. But it's not the efficiency of spending that bothers me, but what is being invested in, which is usually wrong.
The left sure likes control, that's for sure. The thought that something might happen successfully without government interference drives lefties nuts.
Only for the really entrenched. For most, it's just a matter of who they like or trust. But yes, attraction to the control, the idea that a certain level of money can be *guaranteed* to be spent in a way a liberal desires, that certainly fits.
"If Bill doesn't spend the money, it does less than if spent (although it still presumably is invested and so provides some benefit). The idea that spending is beneficial to an economy regardless of what it is spent on is inseparable from the base model of Keynesian-ism. You simply can't believe one without the other."
OK, I see: Another poor choice of words on my part. "Spend" is not the right word. I didn't mean to suggest that all spending is equally useful. What I meant was that his plan to use his wealth through the B&M Gates Foundation, might be of less overall benefit to society than, for example, his supplying venture capital to promising startups. In fact, any investing would likely produce more wealth than his consumption, as has proven himself to be very good at creating wealth.
I believe Keynes would say that all spending is of equal benefit, and that increased government spending can compensate for a decrease in private spending, and it doesn't matter what that spending is on. I believe this is rubbish. By that logic, government paying one group of people to dig holes, and another to fill them back in, is as good as private actors buying shoes, or going out to dinner.
"Yes. Which can be streamlined with sufficient pressure."
Where would the pressure come from? Incentives are not the same in government, as in private business. Without a profit motive, there is no bottom line to protect, and failure doesn't mean going out of business. We have seen government agencies grow bigger and bigger over time, while providing less service.
Ron H.,
I believe Keynes would say that all spending is of equal benefit,
I'm sorry, but that is not true. If the operative problem is a lack of demand, distributing money would actually increase GDP in the short run. And the pattern of spending past the first level of money transfer would be determined by the market, so that's where the famous filling holes argument comes from. But I'm pretty sure the argument was never that the benefit would be equal to spending the money wisely.
and that increased government spending can compensate for a decrease in private spending,
Yes, he would say that. And in theory, under certain circumstances, I agree. The paradox of thrift argument is simple and easily understood. The conservative argument of supply-side equivalence doesn't seem serious to me. Whether it should and whether those circumstances can be successfully and reliably identified, I'm not so sure.
In fact, any investing would likely produce more wealth than his consumption, as has proven himself to be very good at creating wealth.
I like Mankiw's argument that no serious economist can be a supply-sider or demand-sider. Economics is both supply and demand.
Where would the pressure come from? Incentives are not the same in government, as in private business.
I thought you worked in a large company? In both cases, the pressure comes from the consumer. Government programs lack incentives when the goal is not clear, when competition isn't allowed, and when the government isn't allowed to kill a failing program. The problem with government programs, as with a number of large businesses, is that the consumer is far from the program and the institution refuses to compartmentalize profit and loss centers (so they all live until the whole things goes under). That's not inherent to the concept of government, just to our tradition of how such things should be run. You could run government more like RCA or more like GE.
Sean
"Yes, he would say that. And in theory, under certain circumstances, I agree. The paradox of thrift argument is simple and easily understood. The conservative argument of supply-side equivalence doesn't seem serious to me. Whether it should and whether those circumstances can be successfully and reliably identified, I'm not so sure."
I believe we have been here before, but in any case, here's what Hayek had to say on the subject. Basically he showed that Foster and Catchings failed to understand the function of capital and interest in the economy, and that the "paradox of thrift" doesn't exist.
Without deferred consumption, no growth is possible.
"If the operative problem is a lack of demand, distributing money would actually increase GDP in the short run. And the pattern of spending past the first level of money transfer would be determined by the market..."
Distributing money will indeed create economic activity, but where does the money come from? Taxes, borrowing - taxes in the future - or, inflation, a devaluing of the currency which is worst of all. There are no other sources of government spending.
"I thought you worked in a large company? In both cases, the pressure comes from the consumer."
I worked for the Itty Bitty Machine co.
"Government programs lack incentives when the goal is not clear, when competition isn't allowed, and when the government isn't allowed to kill a failing program."
How about government monopoly education? The goal here seems fairly clear, but with no direct competition, costs go up over time with no improvements in the product.
Failure, as we define it, doesn't exist in government programs. When's the last time a program you know of killed because it cost too much or failed to meet its goals? The usual excuse for failure is hat not enough money was spent.
"The problem with government programs, as with a number of large businesses, is that the consumer is far from the program and the institution refuses to compartmentalize profit and loss centers (so they all live until the whole things goes under)."
A large business this poorly run may be killed by competition. Not so with government programs.
"That's not inherent to the concept of government, just to our tradition of how such things should be run. You could run government more like RCA or more like GE."
Government is nothing like business. Monopoly status and lack of profit motive removes incentives from government.
What government agency or program can you point to that wouldn't be cheaper and more efficient as a private business, assuming they needed to exist at all?
Ron H.,
Basically he showed that Foster and Catchings failed to understand the function of capital and interest in the economy, and that the "paradox of thrift" doesn't exist.
Unless I completely misread this, he didn't show that at all. Basically he showed that "the paradox of thrift" had as a natural opposite force "the force multiplier of investment". Which dominates would be situational based on two scales:
1. Are there more dollars chasing good investments or more good investments (defined by resulting in a measurable productivity bump) chasing dollars.
2. Are people saving in order to invest or in order to buffer against bad economic times (you may saving *is* investing, but that's not necessarily true for banks)
No, the paradox of thrift is real, as is the power of capital. These are not inconsistent positions. Which one dominates is debatable, which is perhaps why people still argue about it.
Ron H.,
How about government monopoly education? The goal here seems fairly clear, but with no direct competition, costs go up over time with no improvements in the product.
That's a good example. First, there is *not* a clear goal. Instead, there are many competing goals: achieve high average test scores, favor the brightest, favor the unfortunate, favor the handicapped, favor special ed, favor minorities, protect children's egos, protect teacher's work environments, perform racial integration, nurture local community, teach civic duty, avoid cultural favoritism, handle troublemakers, please teacher's unions, teach cultural history, please taxpayers, avoid hurting the egos of troublemakers or parents, .. etc, etc. etc, etc.
And yes, competition is stifled to meet some of those goals, although charter schools are perhaps beginning to change that part at least.
Is it any wonder we're not happy with education when we don't even know what we want from it?
Ron H.,
A large business this poorly run may be killed by competition. Not so with government programs.
Agreed, but that's a matter of tradition and politicians not being willing to state goals. It's not an inherent problem to organizations in the role of government.
Progressives like Obama constantly rail about this very issue, but their solution is to set metrics and kill failing programs.
Many businesses really are no better: they simply fail, and if they are big, it takes awhile. Government has become like a large corporation run by committee, and its future will play out in the same fashion: reform or finally go completely broke.
Sean
"Progressives like Obama constantly rail about this very issue, but their solution is to set metrics and kill failing programs."
What failing programs has Obama killed? I can't think of any. I CAN, however, think of a successful program he killed, and that is the school voucher program in DC.
Would you kill Dept. of education?
How about DOE, which has 16k employees, and 93k contract employees, or about one for every 3000 people in the US. My city of 150,000 should have 50 DOE employees, if they were spread evenly accross the country by population. Exactly what service do I get from so many people? Energy policy? Why do I need energy policy?
What about agriculture? A lobbying agency for large ag businesses. Wouldn't we be better off with out it?
What about TVA, which drove 3 reagional power companies out of business during the 1930s? Is there some need for it anymore?
TSA, DHS, I could go on with this acronym soup. Agencies are created in responce to some perceived need, and they never go away, but only grow. If they are like businesses why aren't they dead and gone?
Sean
"That's a good example. First, there is *not* a clear goal. Instead, there are many competing goals:"
Once more I wasn't clear. I appreciate these opportunities to improve my writing skills :)
I should have written: "The goal of government monopoly SHOULD be clear. None of the many things you listed should be goals of education.
One of the MANY problems is that those who pay aren't direct customers, so have little say about what the system does or doesn't do.
At the very least, IF there is to be public education, and IF it is to be taxpayer supported, the money allocated for each student should attach to the student, not their address.
This system, like so many other government enterprises, is costing more & more, with out corresponding improvements in product. The usual rational is that more money is needed. I say BS. Competition for those student's dollars would drive down prices, and increase quality of education just as it does in any private business. Profit motive is necessary. Incentives matter.
Sean
"Unless I completely misread this, he didn't show that at all."
I believe you did, or you may have stopped reading too soon. Please try reading it again, from about the middle of the page, where you will find the quote:
"Increased capital in proportion to labor is the only means of producing more without the number of workers increasing."
From that point on he explains that savings makes capital available for productivity gains, which means more capital per worker, which causes prices to drop, which means that workers have more spending power even if wages don't go up. That's the source of the additional buying power. It's an adjustment to a new level of productivity. Demand need NOT fall due to an increased propensity to save.
Please also do yourself the favor of reading at least chapter 24 "The Assault On Savings" of this most excellent book. I know you are busy, but you will thank yourself for taking the time. :)
"Basically he showed that "the paradox of thrift" had as a natural opposite force "the force multiplier of investment"."
What is "the force multiplier of capital"?
"Which dominates would be situational based on two scales:
1. Are there more dollars chasing good investments or more good investments (defined by resulting in a measurable productivity bump) chasing dollars.
2. Are people saving in order to invest or in order to buffer against bad economic times (you may [say] saving *is* investing, but that's not necessarily true for banks)"
I believe you are describing the influence of interest rates on savings and investment, something ignored by Foster & Catchings.
Basically, a higher level of saving would cause banks to lower interest rates on loans, to encourage borrowing, and a lower interest rate on savings, as there is enough money available to loan.
Just the opposite would occur with a lower level of saving, as banks would raise interest rates on both savings and loans.
This results in automatic regulation of interest rates in a free market, something not available to us with the FED distorting prices.
Ron H.,
From that point on he explains that savings makes capital available for productivity gains, which means more capital per worker, which causes prices to drop, which means that workers have more spending power even if wages don't go up. That's the source of the additional buying power. It's an adjustment to a new level of productivity. Demand need NOT fall due to an increased propensity to save.
I get all that, and none of it affects my point in the slightest. What they describe is real, but does not effect the existence of "paradox of thrift effects".
Even if all productivity improvements come from capital (rather than, say, method improvements), that doesn't mean all investment pays off or that people with capital can find things to invest in that make sense. If they can't you can actually end up worse off... with say, a housing bubble, or an education bubble. If capital formation is not the *limiting* factor, even if you get some return, you want less savings/investment relative to demand.
Ron H.,
Agencies are created in responce to some perceived need, and they never go away, but only grow. If they are like businesses why aren't they dead and gone?
Because they are like badly run divisions of a larger badly run business. If a divisions mission is unclear, it's hard to say it failed. I'm not saying government should be in all these things, but what it is in should be purpose oriented, with measurable goals and a kill condition.
None of these are true, and I wouldn't trust our government to provide such services: it doesn't know how. I just think it's important to understand why, and competition incentives aren't the whole story.
Ron H.,
What is "the force multiplier of capital"?
Flowery language for the ability of capital to increase productivity. Militaries use "force multipliers" to describe weapons that make small numbers of people highly deadly (like nukes).
Ron H.,
I should have written: "The goal of government monopoly SHOULD be clear. None of the many things you listed should be goals of education.
Actually, I disagree. Some of them should. Teaching kids culture, history, music, and how to think are important. But you illustrated the problem beautifully: people disagree on what they want, and that's why choice is important.
But don't say schools or teachers fail because they're dumb or lazy. It's not just an incentive problem: they're face with an impossible problem.
Sean
"Actually, I disagree. Some of them should. Teaching kids culture, history, music, and how to think are important."
History, music, and how to think are not on your previous list, unless you think including them with etc. etc. is good enough. If you wish to disagree on this point, please pick one or more of the items you mentioned previously.
What does "teach cultural history", mean? Is that a "diversity" thing? Whose cultural history would you teach, and to what end? That seems more like a family or community interest.
Actually, I would consider some of the items you listed to be indoctrination, rather than education, and the safety issues would best be addressed by expelling offenders.
"But you illustrated the problem beautifully: people disagree on what they want, and that's why choice is important."
Exactly: and they would get just that if schools competed for parents business as private businesses do. Think of the many different grocery stores appealing to different interests. If I wasn't happy with a particular school, I would take my child - and my money - somewhere else.
"But don't say schools or teachers fail because they're dumb or lazy."
I didn't say that. You will soon run out of straw at this rate.
I said that the one-size-fits-all government monopoly school SYSTEM, is failing, because the correct incentives are missing.
"It's not just an incentive problem: they're face with an impossible problem."
It's only impossible within the current system.
Sean
"I get all that, and none of it affects my point in the slightest."
Wow! I didn't realize we were so far apart on this. If you really mean that, I don't know what value there is to continuing. I don't have the skills to present my view any more clearly, and if I cite the work of others, you may accuse me of appealing to authority.
"What they describe is real, but does not effect the existence of "paradox of thrift effects"."
Initially, yes, if there was a sudden change in savings rate, but as incentives matter, that would only happen in response to some unusual change in, say, interest rates caused by Fed interference, and would have only a temporary effect until the adjustments in productivity and prices had occurred. Otherwise, savings rates change slowly, and adjustments occur apace, so no real change in demand is seen.
"Even if all productivity improvements come from capital (rather than, say, method improvements), that doesn't mean all investment pays off or that people with capital can find things to invest in that make sense. If they can't you can actually end up worse off..."
All of that is true at all times, with or without a change in savings rate, and the paradox of thrift depends on a change in savings rate to cause a change in demand, right?
"...with say, a housing bubble, or an education bubble. If capital formation is not the *limiting* factor, even if you get some return, you want less savings/investment relative to demand."
You are again ignoring interest rates. In a free credit market - which we know doesn't exist - interest rates would control savings and borrowing rates. As lenders reserves built up, they would lower interest rates to encourage borrowing and discourage savings. With the Fed interfering, this doesn't work as it should.
I'm assuming that you don't blame the current recession and its attendent lower demand on excess rates of savings.
The recent housing bubble was caused primarily by interest rates held artificially low by the Fed, encouraging more borrowing than there should have been. Yes, there were many other contributing factors, but that has to be one of the biggest.
The Fed justified (and still justifies) the low interest rates as a way of stimulating business activity and growth, and it does that, but the demand that is signalled, isn't really there, so eventually a correction must occur. The problem is not so much insufficient demand, as it is excess supply caused by erroneous interest rate signals. Low interest rates signal a surplus of savings, which isn't really there.
The higer education bubble is also caused by government interference in the form of easily available student loans, at riduculous interest rates and terms, various grants, and scholarships. When you subsidize something you get more of it.
Sean
"Because they are like badly run divisions of a larger badly run business."
Yes to everything you said, but that large, badly run business would soon be gone, unlike government agencies that live on past any possible usefulness.
No matter how badly run, a business must produce a profit eventually, or it will cease to exist. Not so with government. Taxpayer money is always available.
"Flowery language for the ability of capital to increase productivity. Militaries use "force multipliers" to describe weapons that make small numbers of people highly deadly (like nukes)."
I've only ever heard this term used in reference to military, never in an economics discussion, so I wasn't sure what exactly you meant by it.
It is exactly this "force multiplier of capital", along with the controlling effect of interest rates, that keeps a change in savings rates from affecting demand.
Foster and Catchings didn't account for these, and assumed a closed system in which growth in one area meant loss in another.
Ron H.,
nitially, yes, if there was a sudden change in savings rate, but as incentives matter, that would only happen in response to some unusual change in, say, interest rates caused by Fed interference, and would have only a temporary effect ...
I agree that such effects would be relatively transient in nature (relative to the long term view).
and the paradox of thrift depends on a change in savings rate to cause a change in demand, right?
I'm not sure the causality is right, but both happen, and they are related.
You are again ignoring interest rates. In a free credit market - which we know doesn't exist - interest rates would control savings and borrowing rates. As lenders reserves built up, they would lower interest rates to encourage borrowing and discourage savings.
This does happen, except that the response information of the system (interest rates and rates of return) are way too slow, and you get big swings relying on this mechanism. It's a classic control systems problem, one you've encountered if you ever tried to keep turning up the heat in the shower until it's comfortable. Unless you slow yourself down, you just get hot and cold swings. Keynes put that down to "animal spirits", but it's much more basic than that.
So yes, interest rates are the feedback mechanism, but history before the Fed records that they don't achieve desired results either.
Yes, there were many other contributing factors, but that has to be one of the biggest.
Agreed.
The problem is not so much insufficient demand, as it is excess supply caused by erroneous interest rate signals.
I agree, actually. But don't confuse the specific problem with the general problem! The specific problem is bad signaling caused by the Fed. The general problem is that signaling is bad regardless.
If people really *knew* there weren't good investment opportunities, they wouldn't inflate these bubbles. And then they *might* spend more, applying capital that couldn't be invested. This would legitimately increase economic activity relative to the investment choice. But then again, they might not. The individual incentives don't align with say, GDP maximization.
The higer education bubble is also caused by government interference in the form of easily available student loans, at riduculous interest rates and terms, various grants, and scholarships. When you subsidize something you get more of it.
Agreed! But again, don't confuse the specific problem statement with the general problem statement.
Ron H.,
Foster and Catchings didn't account for these, and assumed a closed system in which growth in one area meant loss in another.
Foster and Catchings didn't account for this, and so didn't understand why the paradox of thrift is a bounded problem.
Ron H.,
Foster and Catchings didn't account for these, and assumed a closed system in which growth in one area meant loss in another.
Foster and Catchings didn't account for this, and so didn't understand why the paradox of thrift is a bounded problem.
Or to put in it another way, you're right. But the truth is, if the *effectiveness* of investment can be removed from the occasion, the system behaves as if it *is* closed. When is that the case? For the incremental dollar that doesn't find a good investment.
"This does happen, except that the response information of the system (interest rates and rates of return) are way too slow, and you get big swings relying on this mechanism."
Can you support this with examples? They should be during some period when there was no central bank, especially the Fed, and no unusual government controls, such as during wartime. In other words, during a time when interest rates responded entirely to supply and demand.
There's no reason I can think of for rates to swing wildly or slowly under these circumstances. A bank could change their own interest rates as frequently or by as much or little as they pleased, based on their own reserve experience.
"It's a classic control systems problem, one you've encountered if you ever tried to keep turning up the heat in the shower until it's comfortable. Unless you slow yourself down, you just get hot and cold swings."
That only happens to me once or twice until I'm familiar with the shower, then I can easily adjust it correctly with little trouble. I can't imagine banks having trouble for long with their interest rate adjustments. Keep in mind that all banks could independently adjust their own interest rates, so it wouldn't be an overall increase or decrease.
"So yes, interest rates are the feedback mechanism, but history before the Fed records that they don't achieve desired results either."
See above request for references. I believe you will find that some type of government interference has been involved in almost all distortions that cause business cycles.
"I agree, actually. But don't confuse the specific problem with the general problem! The specific problem is bad signaling caused by the Fed. The general problem is that signaling is bad regardless."
While certainly not perfect, I believe the market can do a much better job, as many individual signals would exist, not just the single, blunt, one-size-fits-all hammer the Fed uses.
"If people really *knew* there weren't good investment opportunities, they wouldn't inflate these bubbles. And then they *might* spend more, applying capital that couldn't be invested."
But they WERE good investments until reality caught up to them. Low interest rates, increases in the money supply, loan approval almost automatic, and unrealisticly favorable terms, caused an artificial level of demand, which like night follows day, caused prices to rise. This in turn caused overbuilding, and overbuying, and at some point it had to end.
"...GDP maximization."
I'm more than ever convinced that GDP is not a good measure. For instance, during WWII, GDP was very high, but people certainly weren't better off. The huge increase in government spending shot GDP through the roof, but didn't translate to higher standards of living.
[higher education] "Agreed! But again, don't confuse the specific problem statement with the general problem statement."
The general problem seems to be government involvement in financing education. Like with everything else, if you subsidize something, you will get more of it. In this case, at a higher price.
Sean
"For the incremental dollar that doesn't find a good investment."
I what state do you envision this dollar existing? In a savings account, as a bad investment, or maybe as cash in a mattress?
Ron H.,
Can you support this with examples? They should be during some period when there was no central bank, especially the Fed, and no unusual government controls, such as during wartime. In other words, during a time when interest rates responded entirely to supply and demand.
I didn't spend too long looking at this, but there was no FED in the 1800's and the figures at the end look pretty bouncy to me:
http://finance.wharton.upenn.edu/~rlwctr/papers/9109.PDF
Ron H.,
That only happens to me once or twice until I'm familiar with the shower, then I can easily adjust it correctly with little trouble.
In other worse, you memorize the position the dial needs to be in or make your adjustments at a rate slower than the response time.
I can't imagine banks having trouble for long with their interest rate adjustments.
The analog in the banking problem would be leaving interest rates deliberately a little high and adjusting them downward slowly and upwards quickly. Is that what they do? It seems the profit incentives all run the other way.
Keep in mind that all banks could independently adjust their own interest rates, so it wouldn't be an overall increase or decrease.
And if they're smart, the rate of interest charged corresponds with the risk of the loan.
Ron H.,
I'm more than ever convinced that GDP is not a good measure. For instance, during WWII, GDP was very high, but people certainly weren't better off. The huge increase in government spending shot GDP through the roof, but didn't translate to higher standards of living.
If I remember, you criticisms here were around rationing and other lack-of-choice symptoms. So how about productive capacity and freedom of choice? What else would you measure?
But they WERE good investments until reality caught up to them. Low interest rates, increases in the money supply, loan approval almost automatic, and unrealisticly favorable terms, caused an artificial level of demand, which like night follows day, caused prices to rise. This in turn caused overbuilding, and overbuying, and at some point it had to end.
And you really think these cycles didn't happen without government intervention? I agree that government intervention can make them worse. Keynes said governmental intervention was supposed to be counter-cyclical. Greenspan's intervention was essentially pro-cyclical. The results are obvious. If you say we can't trust anyone to reliably make the right decisions at the FED, I can mostly agree, and that's a reasonable argument against the FED. If you say that there are no right decisions, I can't buy that.
Ron H.,
I what state do you envision this dollar existing? In a savings account, as a bad investment, or maybe as cash in a mattress?
Most likely these days is the savings account, which means it's a bank mis-investing or sitting on cash.
If there's enough slack in the labor market and enough buffer to invest later, then incremental dollars should go straight to spending (if economic growth is the goal). That should mean pulling the dollars out of the bank account or liquid investment and buying something. The Keynesians propose to tax it out of the holder and spend it instead.
Neither will fix underlying structural spending patterns, but if there are business that could have buyers if only people were not too afraid to spend because of negative economic signaling, spending could shorten a recovery period.
Is identifying and reacting to that situation high risk for moderate gain? Perhaps so. But again, there's a difference between saying we shouldn't do something and saying there's not even a basis for argument.
Ron H.,
Pretty tangential, but too fascinating not share:
http://www.youtube.com/watch?v=u6XAPnuFjJc
Sean
"Pretty tangential, but too fascinating not share:"
Wow. What a neat video. thanks.
I see that 5.5 million viewers have seen this.
The comments are interesting: apparently, depending on one's ideology or initial point of view, different conclusions can be reached.
I think I already knew that beyond some level of well being, additional financial reward isn't enough to motivate.
Sean
"Most likely these days is the savings account, which means it's a bank mis-investing or sitting on cash."
But PEOPLE aren't saving too much, the government injected money into reserves to bail out banks. If it's not having its intended effect, maybe it wasn't the right action to take.
I think a lot of deleveraging and paying down of debt has occurred. That suggests that credit has been overextended as a result of artificially low interest rates.
There is also the effect of uncertainly. Not knowing from day to day what destructive action government might take, makes it hard to commit to the future with any confidence.
"The Keynesians propose to tax it out of the holder and spend it instead."
This seems like a really bad idea, but they are doing just that by inflating the money supply, thus reducing the value of dollar denominated holdings, and fixed incomes.
"If only people were not too afraid to spend because of negative economic signaling, spending could shorten a recovery period."
If government got out of the way, would that be more likely to happen? Keep in mind that some amount of adjustment is necessary after a boom, but government action seems to prolong that period.
Some say the Fed has done a good job of smoothing out boom & bust cycles, but I can't imagine how they reach that conclusion.
"I didn't spend too long looking at this, but there was no FED in the 1800's and the figures at the end look pretty bouncy to me:"
I couldn't draw any definite conclusions from your cite, but, like you, I didn't spend much time with it.
There may not be any good answer to the question I posed, because when I look more closely, I see that there is no period of unmolested banking in US history.
There have been 3 periods of central banking, periods of war when government controls were in place, and a period of national banks after 1863. Even during the so called "free banking" period from 1837 to 1863, when there was no federal control, heavy regulation by individual states precludes any notion of free market banking.
Additionally, there have been times when the US was on the gold standard, with interruptions to allow wartime inflation, various manipulations if the value of the dollar, as well as periods without a gold standard.
The variable nature of the value of currency would also affect interest rates, so I don't see a clear answer.
Sean
"In other worse, you memorize the position the dial needs to be in or make your adjustments at a rate slower than the response time."
Yes. I memorize a position that assures me that I will begin showering in my comfort zone, with only small incremental corrections perhaps necessary to reach absolute perfection.
Only during the short initial calibration period of an unfamiliar shower am I exposed to potential leaping and shrieking due to temperature levels outside of that comfort level. :)
Ron H.,
But PEOPLE aren't saving too much, the government injected money into reserves to bail out banks. If it's not having its intended effect, maybe it wasn't the right action to take.
Ok, so you've moved on from the question of whether stimulus would ever do any good to whether it would do good now.
And if the problem is debt overhang due to economic hangover, the answer would seem to be as you described for the current situation: no, you can't stimulate demand among those with debt and expect any positive results.
But keep in mind who's asking for stimulus and the prescription starts to make sense. Debt overhang is mostly in housing, and it's mostly associated with people with lower incomes. The left's prescription is for the well-off to spend more (or fund the government's spending more). And there actually may be some benefits to chase here, although I couldn't size them.
But if your driving goal is redistribution rather than overall growth, stimulus is a no-brainer.
This seems like a really bad idea, but they are doing just that by inflating the money supply, thus reducing the value of dollar denominated holdings, and fixed incomes.
If inflation were to really take hold that would be so, but it hasn't yet. Krugman's liquidity trap model makes sense and has predicted well here. Obviously you can't play this game for ever, but in this matter Krugman's model, if not his prescriptions, appear to be correct.
Some say the Fed has done a good job of smoothing out boom & bust cycles, but I can't imagine how they reach that conclusion..
The say there have been fewer recessions over time after the establishment of the Fed than since before, and the 1800's are usually used as the comparison period. But I can't judge that claim.
I couldn't draw any definite conclusions from your cite, but, like you, I didn't spend much time with it.
I agree that the data aren't terribly clear at a glance, and I really should be working...
Sean
"The analog in the banking problem would be leaving interest rates deliberately a little high and adjusting them downward slowly and upwards quickly. Is that what they do? It seems the profit incentives all run the other way."
I don't know how this is done in actual practice, but their profit is the spread between the rate they charge and the rate they pay, and the fees charged to originate a loan. Maximizing that spread is their goal, rather than any concern about the actual rates. This is in theory only, of course, as we know banks seldom keep loans they originate.
Their only reason for encouraging or discouraging savings would be to maximize lending and minimize reserves. Without a one-size-fits-all government reserve requirement, each bank could decide what reserve level they thought they needed to stay solvent. The success or failure of other banks would be an excellent guide.
"And if they're smart, the rate of interest charged corresponds with the risk of the loan."
Correct. This hasn't been the case lately, due to government interference. Low interest rates are possible when taxpayers assume the risk.
Ron H.,
Their only reason for encouraging or discouraging savings would be to maximize lending and minimize reserves.
Fair enough, but this means that banks won't guard against the boom and bust: they'll participate.
Sean
"And you really think these cycles didn't happen without government intervention?"
I know that they did, but my impression is that for the most part, the corrections happened sooner in the cycle, were less severe, and shorter in duration.
It's been noted that the recession of 1921 included all the same fundimentals as the one that started in 1930. One huge difference was the complete lack of government intervention in 1921.
"I agree that government intervention can make them worse. Keynes said governmental intervention was supposed to be counter-cyclical. Greenspan's intervention was essentially pro-cyclical. The results are obvious."
So what do you think the problem was? Was Keynes wrong, Greenspan stupid, or something else?
"If you say we can't trust anyone to reliably make the right decisions at the FED, I can mostly agree, and that's a reasonable argument against the FED."
That IS my belief, as no one can possibly have enough information to make correct decisions, and lack of sufficient feedback, or refusal to believe the message of that feedback, causes bad measures to stay in place too long. Even Federal Reserve chairmen see what they want to see, and have trouble believing they are doing harm.
"If you say that there are no right decisions, I can't buy that."
Well there ARE right decisions, but we don't usually know what they are, and no group of clever, very smart "experts", can possibly know enough to decide what is best for 300 million people. Maybe the best we can do, while not a perfect solution, is to allow people to decide what is best for themselves.
After hearing Bernanke's speech, I'm more convinced than ever, that the Feds operate in an ivory tower, surrounded by oceans of data, and wielding brilliant formulas that they - and many others - believe will provide correct solutions. Too bad the real world isn't more compliant.
He sounded unapologetic, and confident that his course was correct, despite massive evidence to the contrary. I could hint at sinister motives, but that's a different discussion.
Ron H.,
So what do you think the problem was? Was Keynes wrong, Greenspan stupid, or something else?
My personal opinion is that he made mistakes due to pressure to handle the near term problems and let the long term problems ride. The danger signs didn't look like familiar danger signs, and so he explained them away.
"This time is different" thinking is very hard to combat, even if you're brilliant. But I'm not convinced Greenspan was half as smart as he thought he was.
Ron H.,
Maybe the best we can do, while not a perfect solution, is to allow people to decide what is best for themselves.
We should certainly lean much more towards having the humility to let others decide. But I'm hopelessly optimistic about the human ability to solve such problems in the very long term. I think we really will be able to break down many classes of problems like this one into functions of value judgments rather than complex series of philosophical arguments. I don't doubt it will take a lot of time: we're certainly nowhere near that today.
Sean
""Ok, so you've moved on from the question of whether stimulus would ever do any good to whether it would do good now."
Sorry, I did, didn't I.
Stimulus, in some cases, could create economic activity, which would be helpful, if lack of demand were truly the only problem, and if the stimulus could be applied to the correct clogged bowel.
That said, I see so many problems with government stimulus spending, that I can't imagine it being applied correctly, to the right symptom, in the right amount.
As you point out, it's not effective when there is too much debt. That's exactly the situation now, and the idea that government stimulus is the cure is mind boggling. And yet, that's the prescription from those in government we trust to help manage the economy.
(whether they SHOULD be there for that purpose is another story)
That's like trying to cure a hangover by starting to drink again. It may put off the shakes for a while, but inevitably, the price must be paid. One drink - I mean QE - not enough? Let's have another one.
There are economic mis-allocations and mal-investments which MUST be corrected before real prosperity can occur. So far as I can see, all government fixes so far have only provided another drink to keep the party going. The hangover must occur, whether now or later.
"But keep in mind who's asking for stimulus and the prescription starts to make sense. Debt overhang is mostly in housing, and it's mostly associated with people with lower incomes."
The housing bubble occurred due to Fed loose money policy. The extra money had to go somewhere, and other conditions were right for it to be housing. These malinvestments must be cleared before sanity can return. Stimulus, intended to keep this bubble inflated aren't the right prescription.
Sean
"The left's prescription is for the well-off to spend more (or fund the government's spending more). And there actually may be some benefits to chase here, although I couldn't size them."
What possible benefit could there be to taxing "the rich"?
Here, in a (large) nutshell, is my take on the "tax the rich" notion:
People are rich because they provide a good or service others want and are willing, if not eager, to pay for. The more benefit they are providing for others, the richer they become in the process.
There is, in the US, a great deal of mobility both up and down the scale of both wealth and income, as has been discussed previously on this blog, so it isn't always the same people, over time, that are rich. Opportunity exists for almost everyone.
To suggest taxing the rich more requires 2 beliefs: One, that for some reason, they don't deserve to keep their rightful property, which they have earned. Two, that in some way, government can produce more benefit from their income, than they can produce with it themselves. These both seem to me, to be ridiculous notions. Keep in mind that the rich have demonstrated their ability to benefit others, by the very fact that they are rich. Government can't possibly match this.
The poor, on the other hand, have demonstrated just the opposite: An inability or unwillingness to benefit others, as indicated by their low income and or low level of wealth.
Why would anyone consider it appropriate to redistribute income or wealth from those who produce benefit for others, to those who don't? It seems that overall, the most benefit is to be had by leaving income and wealth in the capable hands of those who have earned it.
Note that we don't need to LIKE rich people, but only recognize the good they do for the rest of us.
Ron H.,
To suggest taxing the rich more requires 2 beliefs: One, that for some reason, they don't deserve to keep their rightful property, which they have earned. Two, that in some way, government can produce more benefit from their income, than they can produce with it themselves.
Under some moral systems, only the second is required, but I certainly see your point.
People are rich because they provide a good or service others want and are willing, if not eager, to pay for. The more benefit they are providing for others, the richer they become in the process.
That's not always true. In fact, the belief that this is always true has been the justification for much cruelty and evil. Psychologically, it's not that far from the justifications for caste systems, feudalism, or dictatorships (however far it is from those things philosophically), so I'd advise car in applying that assumption.
The best I can say is that I believe that this is true in the majority of instances in our country and give the rest the benefit of the doubt.
The poor, on the other hand, have demonstrated just the opposite: An inability or unwillingness to benefit others, as indicated by their low income and or low level of wealth.
The poor are often quite generous, and I've met relatively poor people I both like and respect. But in a country like ours, someone who is capable, ambitious, and not burdened by some unfortunate flaw is not rewarded by poverty. In that sense, you are correct.
It seems that overall, the most benefit is to be had by leaving income and wealth in the capable hands of those who have earned it.
That must be the default position of any successful society.
Sean
"That's not always true. In fact, the belief that this is always true has been the justification for much cruelty and evil. Psychologically, it's not that far from the justifications for caste systems, feudalism, or dictatorships (however far it is from those things philosophically), so I'd advise car in applying that assumption."
I'm not sure exactly what this means, but for clarification, you can assume that my comments are from a libertarian viewpoint in which all transactions are voluntary, and that rule of law applies. In other words, no fraud or theft occurs - unless I am referring to government, in which case use of force and theft are always implied. :)
Ron H.,
. In other words, no fraud or theft occurs - unless I am referring to government, in which case use of force and theft are always implied. :)
I'm just pointing out that you don't have to step that far out of your ideal and the world looks totally different. How ideals fail in the real world is as important as how they succeed.
I'm just remembering how nasty people can be to each other once ranking behavior sets in. A good illustration of the human thought process that sets in a meritocracy (from an otherwise mediocre movie):
[Waitress spills ice all over the table]
Waitress: Oh, my, I'm so sorry. Excuse me. Thanks, that's okay.
Edgar Price: Stop it. You know sweetie, we are what we do in this world, and you're a waitress. All that requires is that you bring the food to and from the table without making a mess. That's it. So when you screw up somthing as incredibly simple as that, doesn't say a whole hell of a lot about you does it.
Waitress: I'm sor... I'm sorry.
Vince Holland: If you gave her a penny for her thoughts, you'd get change.
Edgar Price: They ought to fire her. I always say a bad hire strengthens the competition's hand. A good general feeds off his enemy.
Nelson Moss: Actually, Sun Tsu said that last line. In The Art of War.
I'd sooner tolerate unfairness in society than outright cruelty.
Ron H.,
I'd sooner tolerate unfairness in society than outright cruelty.
Ugh, this is horrible. I'm thinking about people's personal behavior towards others: law must be evenhanded.
"Ugh, this is horrible. I'm thinking about people's personal behavior towards others: law must be evenhanded."
I'm sorry I didn't respond quickly enough, so that you had to quote and respond to yourself. I'll try to be more alert next time.:)
Neither unfairness nor cruelty are required for ranking, and both should be condemned, although I believe the word "fair" is way overused.
Ron H.,
I'm sorry I didn't respond quickly enough, so that you had to quote and respond to yourself. I'll try to be more alert next time.:)
Yes, let that be a lesson to me! Err... you. Or whatever.
Neither unfairness nor cruelty are required for ranking, and both should be condemned, although I believe the word "fair" is way overused.
"Fair" is in fact overused. Ranking doesn't doesn't "require" cruelty, but it certainly provides a convenient excuse. Heaven help me if I post *anything* on a Starcraft 2 board with only a lowly rating of gold. But I have increased my skill to the platinum rank: perhaps my opinion on courtesy within games will carry more weight now. But probably not.
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