Wealth Creation:

Cooperation:

Conservation:

“The whole of economics can be reduced to a single lesson, and that lesson can be
reduced to a single sentence. The art of economics consists in looking not merely
at the immediate but the longer effects of any act or policy; it consists in tracing
the consequences of that policy not merely for one group but for all groups.”"Economics is haunted by more fallacies than any other science known to man.”
– Henry Hazlitt in Economics in One Lesson

Whenever you read Paul Krugman, it is always helpful to remember that this man won a Nobel Peace Prize in Economics. It might as well have been for Pushing Water Uphill. Here are a couple remarkable statements from his latest New York times column. That’s right…THE New York Times – where The Vision of the Anointed is valued above any rational thought:

Beyond that, this is a story that could happen only in America. In every other advanced nation, insurance coverage is available to everyone regardless of medical history. Our system is unique in its cruelty.

[...]

So you end up with a tripartite policy: elimination of medical discrimination, mandated coverage, and premium subsidies.

Above, Krugman is referencing the much lauded “pre-existing conditions” angle. Now, in a tiny way, I actually agree that often insurance companies can be extremely harsh in their restrictions regarding people who have pre-existing conditions. However, the problem here is the screwy way some companies define “pre-existing.” That should draw Krugman’s ire – not the fact that any pre-existing condition must be ignored. The latter concept is lunacy. What would be the incentive to purchase insurance, if you were guaranteed coverage regardless of any pre-existing conditions? The whole point of insurance being that you are paying someone else to pool the risk that you may or may not require healthcare. It is not “discrimination” to willfully take on exorbitant risk.

So what of Krugman’s solution: 1) Force insurance providers not to “discriminate.” Coercing and removing the risk for mortgage lenders to make less “discriminatory” loans sure worked out really well for the mortgage industry. 2) Mandate everyone purchase insurance to increase the risk pool. Good idea…except that the poor are immediately and totally screwed. His solution for that – subsidize the poor. His solution to pay for that subsidy – you guessed it – taxing other groups of people. This is a fine strategy, if you endorse using the law to plunder various arbitrary groups of individuals. Since the law’s sole purpose is to provide justice by defending a man’s life, liberty, and property, you should be able to see the obvious contradiction. In short – Krugman solution is practicing injustice to promote justice.

Also, with regard to his, “every other advanced nation…,” statement; massive entitlement programs are exactly why most of these nations are going broke. Apparently, in Krugman’s mind, it is considered “advanced” to not only be fiscally irresponsible, but also to proclaim that A is not A.

Next quote:

Can you imagine a better reform? Sure. If Harry Truman had managed to add health care to Social Security back in 1947, we’d have a better, cheaper system than the one whose fate now hangs in the balance.

The law is the organization of the natural right of lawful defense. It is the substitution of a common force for individual forces. And this common force is to do only what the individual forces have a natural and lawful right to do: to protect persons, liberties, and properties; to maintain the right of each, and to cause justice to reign over us all.

Posted via web from Andrew Colclough

This is a thoughtful critique of the private vs. public control of our air traffic control system. However, it raises some important issues which deserve more attention.

Whenever someone trots out the ‘Profits vs. People‘ line, it is important to recognize this as nothing more than an economically illiterate straw-man. We live in a society of free people, not of slaves.  Therefore, there is no such thing as People versus Profit, rather – they go hand in hand.

In a free society, Profit in not something which necessarily requires the sacrifice of People (as the video above puts it: ‘People before profits’). In fact, Profit is not possible without People – whether workers or consumers. Nor is Profit simply “making money,” though it is almost exclusively discussed this way. (Note that money is nothing more than a representation of value, and a means of easily trading it. Without money – trading would be nearly impossible. I would have to barter hours of web development directly for flight control service, or mexican food, or Wii games, or my mortgage payment, etc.) People trade things they value and produce, (usually represented by money), for things they value more or are incapable of producing. This creates a ‘profit’ for both traders. The one offering the service – turns a profit on the service provide, the other gains a profit from the service rendered. There is no ‘versus’.

Likewise, the animosity toward the ‘profit motive’ is also illogical. This phrase is often used as a pejorative describing an enterprise making money. But what of the consumer’s ‘profit motive‘ to obtain the service for the cheapest cost? Both parties are negotiating a trade of value. Why is only one seen as profiting, and is thus demonized? As a service provider or producer in a free market – it runs counter to the ‘profit motive’ to do something that is destructive to your customers or the public image of your company. Because a private entity does not have the ability to use force (in contrast with the government, which IS force), it is inherently imperative to, not only, earn your trust and support – but provide something of greater value, than whatever thing of value (money) you would trade for it. If a certain product or service is not of greater value – or if the provider is known to harm its customers, you are free to trade for something else that isn’t harmful and is a better deal. Essentially – you are free to choose to pursue a better trade – one in which you gain a bigger (here comes that ‘evil’ word again…) profit with regard to what you offer to trade. The profit motive is hardly more than the desire to not get screwed over when making a trade.

Consider these thoughts the next time someone attempts to decry Profits, the profit motive, or pushes the false idea that Profits and People are enemies fighting for opposing teams.

One Crucial Distinction About Capitalism

Above I am arguing for capitalism. It is essential to point out that private entities who do use governmental force to compel consumers to trade for their service are not practicing capitalism. Capitalism is free trade, hence -laissez faire.  The power to determine and negotiate value and fairness is on the individual traders. Forced trade is a feature of socialism, communism, and/or fascism. With forced trade, the government (force) is used to increase a private entities influence or bargaining power. For example: Let’s say General Electric is lobbying congress (which they are) for all sorts of things (as is their constitutional right). Among those things is likely a push to pass legislation against incandescent light bulbs in the interest of climate change. Congress then may outlaw these bulbs, and you will be obligated to purchase the new curly florescent bulbs. Obviously, G.E. will profit greatly from this new legislation, even if you buy your new bulbs elsewhere, because the new law will necessarily create an increase in demand. The point is that G.E. will have bargained with the politicians to borrow the government’s monopolistic force to influence the market and raise the value of florescent light bulbs. This is anti-capitalism. 

Perhaps you may argue that you get to vote about the new legislation (usually you don’t, but for the sake of the argument…) – but your decision is either upheld or overruled by the majority of other voters. This is a far cry from actually freely choosing – “I will trade some value, in exchange for something you value more”.

This difference is crucial and must be distinguished, as it is commonplace to blame laissez faire capitalism (free trade) for the faults which are actually aspects of socialism (government sponsored forced trade). Ayn Rand further lays out this distinction in the video below:

Posted via web from Andrew Colclough

Part of me laughs, and part of me cringes whenever I see these signs….because they are absolute rubbish. This sign is based on the assumption that we the public are either too lazy, or just too ignorant to think beyond what we immediatly see.

Whenever we are presented with this concept: that the government can “put people to work,” the question must be asked, “How?” 

When a non-state entity creates a job, it does so either by taking out a loan on the investment bet that the job created will produce enough value to repay or exceed the loan taken, or by reinvesting its own existing capital with a similar goal.

The State “creates jobs” or “puts people back to work” either with existing tax revenues, or by taking on debt to be funded through future tax revenues. I used quotes above because anyone with a grasp of elementary mathematics would realize that this is neither “creating jobs” nor “putting people back to work.” It is nothing more than shifting work around.

Ask yourself, what would the tax revenues taken by the state to ‘put Oregon back to work’ have been used for otherwise? What of the things the tax-payers would have invested their money in, had it not been taxed away?

The answer is: jobs.

Perhaps the tax-payer was planning on buying some new shoes (a shoe salesman’s paycheck), going out for an extra nice dinner (a restaurant worker’s wages and tip), a kitchen remodel project (construction material producers, contractors, cabinet makers, plumbers, etc) planning to add to their payroll at work to hire a new employee, or even donating money to their favorite charity. But these things will never be seen because some politician had the nice, though deceptive and false idea that they had the ability to “put Oregonians back to work.”

It is important at this point to understand that money is nothing more than a representation of labor, or work. We choose to work and earn money because money allows us to trade the value of something we are good at (in my case, web developement), for something we value that we aren’t good at, or couldn’t possibly create on our own (e.g. a ticket to football game. I neither play football, nor do I have the knowlege or ability to coach a team, let alone build a football stadium. Heck, I even suck at Madden…).

The point is that the sign above is clearly hogwash. It is based on the flawed notion that governments create things. To accept this idea, is to throw out the economic concept of opportunity cost. Government is force. The government is the only entity that we allow the power to involuntarily take our money and re-appropriate it. In this case – it is the opportunity for the tax dollars to have been spent elsewhere – that the government is forgoing so they can be assigned to this road project. If the sign was actually honest it would read: Taking a portion of your work, and directing it to someone or something else. Or perhaps simply, Making Oregonians pay for this road project.  

But telling the truth doesn’t matter to politicians because when there is a problem (such as a down economy) they must be seen as doing something to fix the problem. The perception that they are doing something to ‘put Oregon back to work’ is far more important politically than the actual truth, that they just moved work to a project that the voters will see. What the voters won’t see is all of the jobs that were sacrificed to make that particular road project possible.

It is important for me to mention that here, I am not necessarily arguing against road or other government projects. I am however calling out the hack politicians who think that tax-payers are dumb enough to fall for the ludicrous idea that government can create jobs by simply spending them into existence. From here, you can draw your own conclusion on whether the ‘stimulus’ bill will actually stimulate anything, other than some politician’s delusion of grandure.

Oh, and here’s the real irony of ironies: This sign is on a road leading up to the city Amtrak station. Amtrak is in business today, and its employees have jobs, only because they are subsidized with money taken from tax-payers. I suppose a sign for that could have read: Putting Amtrak back to work – which of course actually means, Forcing you to pay for Amtrak, rather than whatever else you valued more. 

“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, – at the risk of a small present evil.”

-That Which is Seen, and That Which is Not Seen -Frédéric Bastiat, 1850

Posted via email from Andrew Colclough

The president is making sense
Ezra Klein and Matthew Yglesias both catch President Obama making sense on the public option:

QUESTION: Wouldn’t that drive private insurance out of business?

OBAMA: Why would it drive private insurance out of business? If private insurers say that the marketplace provides the best quality health care; if they tell us that they’re offering a good deal, then why is it that the government, which they say can’t run anything, suddenly is going to drive them out of business? That’s not logical.

Making Sense? I respectfully disagree. Obama’s answer conveniently leaves out some important economic factors.

President Obama asks, “Why would it drive private insurance out of business?”

The answer is simple:

1. Because the government operates outside the market and price system and therefore has the unique ability to artificially set their price below the competitive market (something private insurers do not have the power to do, because their price is determined by supply and demand). Contrary to popular belief, Prices in the free market are not set arbitrarily. This is easily demonstrated by Craigslist. I recently tried to sell a rather ugly southwestern style kitchen table for $200. I actually figured that it probably wasn’t worth that, but I thought I would try it and see if I got any bites. No Response.
   Soon – I lowered the price to $150. Nothing.
   Finally, I lowered it to $100 and I sold it fairly quickly. You can see that I could not sell the table for more than it’s actual real-world perceived value. I didn’t really set the price at $100, rather, low demand for the ugly table did.
2. Also – the government is funded through non-voluntary trading – by taxation, thus has no competition, no bottom line, no incentive, nor any reason whatsoever to function efficiently. Nor do they have any real incentive to provide ‘better health care’ (In a public system – someone in an office, who knows nothing about you, will determine the policy of what is considered ‘adequate’ healthcare based on what – Statistical data?) since you don’t get to choose to pay (essentially, vote with your dollars) for their service. Only the government has the power to force you to pay for their service, whether you want it or not. Private industry has to offer you something you value more than your own money, to earn your business.
3. Finally, the fact that most people falsely perceive government options as “free,” basically guarantees overwhelming popular and political capital for an idea that you cannot choose not to pay for. Even if the actual outcome of such a program is poor, the majority of voters will subscribe to the nice sounding idea that everyone should receive health care. It is, after all, a noble sounding ideal – but unfortunately, when measured against history, or any kind of actual economic cost/benefit results – it fails.

I would expect Paul Krugman, Ezra Klien, Matthew Yglesis, and President Obama to know better, but political capital is so much easier to get excited about, than the, rather, wet blanket that is economic reality. It’s time (yet again) for one of my favorite quotes:

“The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”
-Thomas Sowell

You cannot buck economic forces. In my view – they are as consistent and absolute as the laws of Mathematics. Yet they seem to be the first to be disregarded in the face of an idea that sounds really satisfying.

I have written much more extensively on this here: Healthcare: Economic Reality vs. Political Capital

Many thanks to Youtube user brittle13 for posting this full interview (in 5 parts):

President Barack Obama will announce plans on Tuesday for a national fuel-economy and greenhouse-gas standard for automobiles in an effort to give more certainty to car companies as they struggle for survival.
The plan marks the first time there has been a nationwide standard for emissions of greenhouse gasses, and it will require an average mileage standard of 39 miles per gallon for cars and 30 mpg for trucks by 2016.

That’s a dramatic increase from current levels – the White House says the average fuel efficiency for the current model year is just 25 mpg.

- Politico

Interesting proposal, right? I mean, who doesn’t want cars with better fuel efficiency? As it turns out – this is a surprisingly relevant question to be asking. If the majority of people want more fuel efficient cars, why aren’t the auto-makers selling them? In fact, let’s try to answer this question, by first answering several other foundational questions about this proposal. the idea here is simply to think beyond stage one of, “Better Fuel Economy – by Government Mandate.”

First, Economist Thomas Sowell’s big three ‘Must answer’ questions concerning any proposal:

1) Who pays for it?

Mostly, you – the consumer. Of course, the car companies and auto workers will also suffer, as the cost to produce their vehicles is driven up arbitrarily, rather than by market demand. They will have no choice but to raise the prices of their cars, trim back weight and features, and/or take even bigger losses on each car sold. If that seems like a raw deal, it is likely that we all will also be paying (as we currently are) to keep the auto companies in business, if these fuel efficient cars don’t sell.

2) How much will it cost?

The senior administration official said the new standards will add an expected $600 to the cost of an average car, but the White House hopes that increase will be recouped through lower gas costs. The economic models used by the administration required a guess of the price of gas in the year 2016. The figure they used was $3.50 a gallon.

-Politico

Government guessing the price of gas in 2016? This should immediately raise flags, given that last year alone, fuel prices rose to $4.00+ in the summer, and then fell to $2.50 or so, and are now rising again. How the government can possibly make this prediction 7 years into the future with any certainty should be laughable.

Regarding the cost, $600 is the conservative guess by the way. The Washington Post mentioned $1,300 on average, per car.

And let’s not forget the increase in loss-of-life due to lighter, less safe vehicles on the road. (See crash tests below)

3) Will it work?

Well – that’s the real question, now isn’t it? I am not exactly optimistic.

Sure, brand new cars will be required to meet better fuel economy standards by 2016. However, will the auto makers be able to survive, and become profitable again selling them? Only if there is a sufficient demand by auto buyers to cover the required increase in production costs that the auto makers will be forced to shoulder.

Similarly, considering the environmental goals: does creating and buying more vehicles, and disposing of current ones, really achieve a lowering of environmental impact?

Let’s also re-visit my question at the top: Who doesn’t want cars with better fuel efficiency? Apparently, you don’t. Perhaps a better way to frame this question may be – why haven’t more fuel efficient cars been made? The answer is actually so unremarkably boring and simple that most people skip over it, favoring instead vastly more complicated theories, and or corporate conspiracies.

The answer is Price.

Behind all that wild theories, the laws behind the efficient allocation of scarce resources that have alternate uses* (commonly called: economics) still march on, like an unstoppable rebel force.

The basic economic fact is that the market (at current fuel prices) cannot bear the increase in automobile prices (due to higher fuel efficient cars) in a way that would be profitable for auto makers. If it could have, you can bet the automakers would have already jumped on the possibility, as they did briefly last summer when the price of oil peaked (At the time, ‘Green’ cars and Hybrids like the Toyota Prius were all the rage, as were car ads that emphasized M.P.G.). Note that when the price of oil increased, the market responded, and consumers suddenly valued the higher priced Eco-Cars. No government mandate required.

Also, there is the Cost.

Increased fuel efficiency comes with a trade-off, or cost for the consumer: reduced safety. When the consumer considers the value in a vehicle, safety is usually a critical concern. It appears that at current fuel prices, consumers value vehicle safety, over fuel efficiency. And the trade-off for fuel efficiency vs. safety is huge. For instance, here is a Toyota Yaris and a Toyota Camry (note that a Camry is not a big vehicle) in your standard drift-across-the-yellow-line test:

Owned by a Camry!

And here’s the same test for a Honda Fit vs. a Honda Accord (also, not a large vehicle)

Are you going to put your kids in that?

This is the very real cost trade-off that consumers face when they go to purchase a vehicle. The reason that more fuel efficient cars don’t sell is that, at current gas prices, consumers would rather trade the extra cash, for their own life and safety, rather than a couple more miles-per-gallon. If gas prices were to rise again, consumers would automatically and incrementally start placing more value on fuel efficiency.

Central Planning vs. The Free Market

In the end, the heart of this issue illustrates the classic clash of two opposing views over the very real way economic factors function. Namely, that the will of a handful of elected officials can out-smart the will of millions upon millions of consumer, and producer choices.

In this case, The President has decided that fuel efficiency and eco-friendliness are the highest values, regardless of other concerns and costs. The intent of the idea may be noble, and certainly makes for exceptionally good political capital. However, in the end, the will of the consumer, the will of the auto makers, and even the stability of the auto worker’s employment, is traded in the name of eco-friendly cars.

And don’t get me wrong. This isn’t necessarily a knock on Obama. Many politicians jump at the opportunity to score political capital, without thinking beyond stage one. I’m fairly certain that McCain would have been on board with an idea similar to this.

In my opinion, the basic economic mechanisms of the free market, such as Price, Cost, and Supply and Demand, will force the creation of fuel efficient vehicles, and alternate fuel vehicles, when it actually makes economic sense – and without the mandate of any governing body.

Unfortunately, with the current central planning approach, we will have no choice but to bear the hidden costs.

You can read some other perspectives on this issue at: Politico, Time, The Washington Post, Hot Air, Michelle Malkin, The Heritage Foundation, and Steve Milloy’s Blog – just to start.

*The definition of economics, as explained in Basic Economics, by Economist Thomas Sowell

On Slavery and Colonialism (Note how the rambling student reveals his hand by referring to “so-called” communist countries, and “so-called” democratic countries…)

Morality and Economic Policy:

On the Ford Pinto, and Principled Business:

I attended a lecture once at the University of Oregon that was similar to this. Lots of sign waving and emotional outbursts over the speaker. The conformity of the shouting mob was only drowned out by their self-congratulation for courageously ‘standing alone’ on their collective ideas.

“I do not know any exception to the proposition, that if you compare like with like – the freer the system, the better off the ordinary poor people have been.”
- Milton Friedman

The late Nobel Peace Prize winning economist Milton Friedman created a great series on economic freedom called Free To Choose. It is lengthy (each segment is about 45 minutes), but thorough, and does a great job making the case for economic freedom. Whether or not you agree with all aspects of his theories – this series is a great asset for anyone who wishes to discuss economics and government.

If you don’t have time to sit and watch these videos, you can also simply listen to them while you work.

Each part begins with an introduction, and ends with a panel discussion on the topic presented:

Part 1: The Power of the Market

Part 2: The Tyranny of Control

Part 3: Freedom & Prosperity

I can’t find the other parts on Google Video, but you can watch Part 4: The Failure of Socialism, and Part 5: Created Equal at ideaChannel.tv.

UPDATE: I think that Part 3 and 4 are actually combined. I’m not certain about this – but as far as I can tell – this is the case. Feel free to leave a comment if you discover otherwise.