Category Archives: Economy

‘How Economic Inequality Is Essential for Successful Economic Competition by the Less Able’

Capitalism, Economy, Free Markets, Political Economy, Political Philosophy

Republicans, Democrats and conservatives—come to think of it, most people—do not fear flaunting their inveterate ignorance of economics. Thus almost all have railed against economic inequality to boost their empathy credentials and likelihood of being elected or re-elected.

The Capitalist Professor, George Reisman, has the antidote, and has been kind enough to send me a complimentary copy of his essay “Fundamental Insights into the Benevolent Nature of Capitalism.” It is available to the general public for 99¢ as a Kindle Book on Amazon.com.

An excerpt:

How Economic Inequality Is Essential for Successful Economic Competition by the Less Able

By George Reisman, Ph.D.

“As von Mises has … shown, with his development of Ricardo’s law of comparative advantage into the law of association, there is room for all in the competition of capitalism. Even those who are less capable than others in every respect have a place. In fact, in large measure, competition under capitalism, so far from being a matter of conflict among human beings, is a process of organizing that one great system of social cooperation known as the division of labor. It decides at what point in this all-embracing system of social cooperation each individual will make his specific contribution—who, for example, and for how long, will be a captain of industry, and who will be a janitor, and who will fill all the positions in between.

In this competition, each individual, however limited his abilities, is enabled to outcompete all others, however superior to him in their abilities they may be, for his special place. Quite literally, and as an everyday occurrence, those with abilities no greater than required to be a janitor are able to outcompete, hands down, without question, the world’s greatest productive geniuses—for the job of janitor. For example, Bill Gates might be so superior an individual that in addition to being able to revolutionize the software industry, he might be able to clean 5 times as many square feet of office space in the same time as any janitor now living, and do it better. But if Gates can earn $1 million an hour running Microsoft, and janitors can be found willing to work for, say, $10 an hour, their readiness to perform the job at one one-hundred thousandth of the hourly rate Gates would require, so far overcomes their lesser abilities that it is they who are the winners of this competition, without any question. For cleaning the amount of floor space that one of them can clean in an hour costs just $10, if one employs one of them, while having Gates clean that same amount of floor space costs $200,000, since the hour of his labor that would be required to clean 5 times as much floor space costs $1 million. To say the same thing slightly differently, employing 5 of them, who in combination clean as much floor space per hour as Gates, costs only $50, while employing Gates to do the same job costs $1 million.

It should go without saying that the same principle applies to all lesser degrees of productive superiority. Thus, for example, individuals capable of being janitors twice as efficient as the average janitor but also capable of doing work that the average janitor simply cannot do and that pays them more than twice as much per hour as the average janitor earns—these people will be outcompeted by the average janitor for the job of janitor. For it will be less expensive to employ two ordinary janitors than one twice-as-efficient janitor, who must be paid more than the two of them in combination, while their combined performance matches his.

There is an important implication in these examples for the subject of economic inequality. Namely, it is the ability of less capable people to work for wages sufficiently below those of more capable people that enables them to outcompete the more capable people and thereby to secure employment. It follows that all measures, such as minimum wage laws, that seek to force up the wages of less capable people operate to undercut their ability successfully to compete and thus to force them into unemployment, while depriving the rest of society of their services and forcing the movement of more capable workers into jobs that could have been filled by less capable workers.

In addition to the fact that under capitalism, there is room for even minimally capable people to be employed in the economic system, it is also the case that because productive geniuses are free to succeed in revolutionizing products and methods of production, those with minimal abilities are able to enjoy not only food, clothing, and shelter, but even such products as automobiles, television sets, and personal computers, products whose very existence they could probably never have even dreamed of on their own.”

Read the complete essay, “Fundamental Insights into the Benevolent Nature of Capitalism.”


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Blessed Are The Burgerflippers

Business, Capitalism, Economy, Labor

By Myron Robert Pauli

So I see that Portland OR has raised the minimum wage to $15/hour and the rest of the state may soon follow.

Years back, I did some minimum wage work at a chemical-spectroscopy lab in New York – not particularly lucrative or enjoyable but it paid money. The company mostly hired college graduates from the Philippines (probably with some H-1 visa) because they were cheap. Not surprisingly, companies pay workers at little as they can get away with. Workers, in turn, are right to grumble and are free to seek out higher paying work (or at least better conditions – that lab was rather unsafe). Most people do not work for some great satisfaction – most jobs range from somewhat stinky to complete stinky. Who the hell wants to pick crops in the hot summer or climb up cleaning gutters in winter? Workers primarily work for one primary motivation – money.

The $15 minimum wage will be a boon to developers of automated burger-flippers. Not only do they not get the $15, the robots don’t need Social Security, W-2 forms, OSHA inspectors, Obomney-Rombama care, paid vacations, sick leave, and those other things that raise “overheads.”

Anyone who has studied the history of labor in the 19th or 20th Century should be aware of the Luddites who went around smashing machinery. I would not be surprised if some restaurants not only take reservations online but orders as well – press the steak icon and it will ask rare through well-done. This should not be too hard to code and people can pick up their orders cafeteria style. Or a robot can probably deliver the gourmet food to the table. The chef can be well paid, but who goes to the restaurant for the waitresses (excepting, perhaps, Hooters)? Four star pre-ordered robot delivered gourmet meals with profits shared between consumer and restauranteur.

However, let me put on my Samuel Gompers hat when it comes to the anti-worker rant of Jennifer Harris. First of all, workers have every right to be greedy and should be free to strike (but not destroy property or resort to violence) – with the flip side that the employer can find replacements. If I choose to “refuse” to be locker-room attendant for the Russian Women’s Volleyball Team for less than $1500 an hour, perhaps the team owner can find someone who will work for less pay!

The second point of Harris’ rant is how the troops are “getting shot at, deploying for months in hostile environments, and putting their collective asses on the line every day protecting your unskilled butt?” The first part about being shot in hostile environments is perfectly true. As to the second part: How are these “troops” protecting the butt of anyone, skilled or unskilled, other than the military brass and politicians who sent them in to be 21st Century IED-fodder? I know what benefits I get from the grocery clerk and the restaurant waiter and the guy who cleans my gutters. (Or from Edward Snowden.) Does the average American get protected when some troops “engage” Sunnis who are shooting at Shiites or Shiites who are shooting at Sunnis? Harris makes fun of “Sally McBurgerflipper” and “Johnny Fry-Boy,” but they enable Mom to save a day of cooking and let the brats play at the McSlides. What great “service” did anyone get out of Petraeus and that neo-con phony “surge,” other than some titillation concerning lover Paula Broadwell? Yet, “conservatives” deify Petraeus and sneer at the gardener.

In that sense, I can neither endorse the leftist desire to ignore the realities of labor markets, nor these rightists who extol senseless, pointless, endless killing over honest backbreaking work. Maybe the poor schlub mowing your lawn will motivate his kids to get a real education (not modern “liberal arts”), and that kid might invent a new “smart lawnmower.” Anyway, the poor shlub is doing honest work.

Blessed are the Burgerflippers – may they profit both themselves, their employers, and their customers for they are the Children of Peace.

******
Barely a Blog (BAB) contributor Myron Pauli grew up in Sunnyside Queens, went off to college in Cleveland and then spent time in a mental institution in Cambridge MA (MIT) with Benjamin Netanyahu (did not know him), and others until he was released with the “hostages” and Jimmy Carter on January 20, 1981, having defended his dissertation in nuclear physics. Most of the time since, he has worked on infrared sensors, mainly at Naval Research Laboratory in Washington DC. He was NOT named after Ron Paul but is distantly related to physicist Wolftgang Pauli; unfortunately, only the “good looks” were handed down and not the brains. He writes assorted song lyrics and essays reflecting his cynicism and classical liberalism. Click on the “BAB’s A List” category to access the Pauli archive.


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Europeans Are Germanophobic!

Britain, Debt, Economy, EU, Europe

The word for the hatred/fear of Germans is Germanophobia. Europeans are certainly guilty of this anti-German sentiment. It is rooted in, I believe, their jealousy of the workhorse of Europe: Germany. Moreover, these brazen haters seem to think that Germany’s distant, belligerent history makes the German people fair game for gratuitous hatred.

Duly, the programing note for today’s segment of BBC News’ HARDtalk promised that the host, Stephen Sackur, will be asking “the senior economic adviser to chancellor Angela Merkel if Germany has used its power wisely in the high stakes showdown over Greece’s debt.”

Sackur is a smart bloke with a slanted perspective. The segment was thus given over to the brutal bullying of a country that is carrying the deadweights of the EU: the PIIGS of the Eurozone—Portugal, Ireland, Italy, Greece, and Spain—are living at the expense of their more industrious, austere neighbors to the north. Germany, in particular, is an industrial dynamo whose highly-skilled workforce produces technology in the first rank.

As Reuters reported, the “Euro zone finance ministers agreed in principle on Friday to extend Greece’s financial rescue by four months. … European Union paymaster Germany, Greece’s biggest creditor, had demanded ‘significant improvements’ in reform commitments by Athens before it would accept an extension of euro zone funding.”

AND:

BILD, Germany’s biggest tabloid and one of the highest-circulation newspapers in the world, is not happy about the support Germany’s political class is giving the Greek deal.

The Greeks have had a lot to say about their democratic right to reject the “deeply unpopular austerity measures.” What of the German people? Do they have a democratic right to refuse to be roped into working to support the Greeks?


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Land of Moussaka And Moochers

Debt, Economy, EU, Europe, Regulation

Greece is “in a world of its own” when it comes to debt as a percentage of GDP (165%, last I checked). The Greeks’ route to solvency has been … to elect a socialist, Alexis Tsipras, as their new prime minister. DER SPIEGEL summed up their hopes for the future: “… one has the feeling that the Greeks are hoping for a pink elephant that can play drums.”

Athens, like Washington, is corrupt to the core. It continues to spend more than it takes in. Greek labor markets have yet to be liberalized. A high minimum wage impedes hiring. And, by BBC News’s accounting, “a habit of paying a ‘holiday bonus’ equal to one or two months’ extra pay” persists. One need not be a Delphic oracle to divine the next stage in Greece’s unraveling.

Tsipras was asked: “… if the Germans elect a government that refuses all support to Greece, then that is their sovereign decision, right?”
He said: “No, you have to show solidarity, you have obligated yourselves to do so.

Taki Theodoracopulos suggests the following for the survival of Greece: “Most important are structural reforms, not feel-good bullshit. Public sector unions are choking the nation’s economy, whereas the private sector is booming. Starting a business is almost impossible due to bureaucratic blackmails, while overregulation is stifling economic activity. Free the economy and stop protecting cartels, shrink the state, and in five years Greece will be the Switzerland of the south.”

I have a few more suggestions:

Greeks constitute a high-cost and low-efficiency workforce. They cannot compete. Had they a moral and intellectual compass—and were allowed to chart their destinies—the people of Greece would opt to leave the Eurozone and the wider European Union (EU). Greeks could then reclaim their sovereignty. First, by reinstating the drachma, their ancient currency. Next, they could elect to float their exchange rates against those of EU member states so as to increase the appeal of lackluster Greek labor.


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The Congressional Budget Oafs SOP

Debt, Economy, Healthcare

“Obamacare’s A Marketplace In The Same Way The Knockout Game Is A Game” offered this assessment of the modus operandi of the CBOafs (The Congressional Budget Oafs):

[Like] the pundits who bestow them with the “non-partisan” adjectival, the CBOafs (The Congressional Budget Oafs), protect the status-quo. This federal agency is as “independent” as the country’s columnists, who might as well register as lobbyists for the RNC or DNC respectively.
Typically, the CBO will first confirm government predictions of the great savings that will accrue due to this or the other wastrel, welfare program. Later, when it’s safer, they adjust their statistical sleight of hand.
Yes, getting reliable data out of the CBO is like frisking a wet seal.

Zero Care will impose $1 trillion in tax increases and $2 trillion in subsidies. Yet, the CBOafs initially scored the program positively. Only a day ago, not untypically, the CBOafs were touting the increasing (alleged) affordability of the Affordable Care Act (not for me). Right away, the CBOafs then pivot to warn of the “Heightening Risk of Fiscal Crisis.” Via Breitbart.com:

CBO Director Douglas Elmdorf testified that debt will exceed 100% of GDP within 25 years and continue to rise, a “trend that could not be sustained” and would eventually heighten “the risk of a fiscal crisis” before the House Budget Committee on Tuesday.

“Although the deficits in our baseline projections remain roughly stable as a percentage of GDP through 2018, as I noted, they rise after that. The deficit in 2025 is projected to be $1.1 trillion, or 4% of GDP, and cumulative deficits over the 2016 to 2025 period are projected to total $7.6 trillion. We expect that federal debt held by the public will amount to 74% of GDP at the end of this fiscal year, more than twice what it was at the end of 2007, and higher than in any year since 1950. By 2025, in our baseline projections, federal debt rises to nearly 79% of GDP. When CBO last issued long-term budget projections in the summer, we projected that, under current law, debt would exceed 100 percent of GDP 25 years from now, and would continue on an upward trajectory thereafter. That trend that could not be sustained. Such large and growing federal debt would have serious negative consequences, including increasing federal spending for interest payments, restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually heightening the risk of a fiscal crisis” he stated.

According to a copy of his prepared remarks released by the CBO, the revised economic projections “do not materially change” predictions that debt will exceed 100% of GDP in 25 years and “CBO’s current projection of debt as a percentage of GDP in 2024 is quite close to that used as the starting point for the projections in The 2014 Long-Term Budget Outlook [where the CBO also predicted that debt will be 100% of GDP in 25 years.]”


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State Of Disunion, 2015 (Master of Cliches & Cupidity)

Barack Obama, Economy, Media, Private Property

That TIME calls this State Of Disunion “a new vision” says more about this rag than about the dreadful cur that is Barack Obama.

He began his extravaganza by fudging on the economy, neglecting to mention that the indices he touts as terrific are a function of trickery; of omitting that more people than ever have dropped out of the workforce for good, are not working; are receiving state assistance, and that the bumper crops of ignoramuses graduating from colleges are without the prospect of a job.

Regarding those millions who’ve gained healthcare coverage: how many have lost it? How many like this family are paying exorbitant copays and deductibles?

Onan No. 1 takes credit for economic growth such as it is. The economy grew despite government and because of private sector productivity and industry.

The media should be expressing its collective disgust, as I am, that the same hollow cliches are tumbling from this moron’s mouth this year like years past: everyone “gets their fair shot, everyone does their fair share, everyone plays by the same set of rules.”

One’s so-called “share” of private property is a result of one’s effort to accrue it, or the efforts and abilities of one’s kin, if property is bequeathed.

The same media that won’t scold this insufferable scold for his cretinous cliches won’t roar some truths in response to the many free goods BHO is offering. Those truths are that there is no free lunch. Someone pays, except that someone is invisible (and is certainly not sitting in the First Lady’s Box).

The Cuba comment about “ending the embargo” is fine; a very good thing, at last.

The text of the 2015 State of the Union is here.


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