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I’m pretty excited that today (Independence Day, 2011) is the release date for my new book, Fundanomics: The Free Market, Simplified.
Our friend, Josh, did the cover art and it perfectly captures one of the book’s main messages: the greatest prosperity for ALL in a society is achieved when people are free to benefit from their good ideas.
In Chapter 1, A Tale of Two Neanderthals, Borgg and Glogg are the tribe’s firestarters, who get the idea to invent firesticks (matches). This leads to a system of trading with a neighboring tribe which has many great hunters, and as a result the inventors’ tribe never goes hungry again.
But the favored treatment the inventors receive from the tribe’s elders later leads to resentment in the tribe, and people forget how much better off they all are than before — even the poorest among them. Technology and prosperity might change, but human nature does not.
Simply put, a successful economy is just people being allowed to provide as much stuff as possible for each other that is needed and wanted. Economics-wise, everything else is details. When we allow politicians and opportunistic economists to fool us into supporting a variety of technical and murky government “fixes” for the economy, we lose sight of the fundamental motivating force which must be preserved for prosperity to exist: Liberty and the pursuit of happiness.
The main role of the government in the economy is help ensure people play fair…and then get out of the way.
I devote each chapter to a common economic myth.
For example, it’s not about money, which has no inherent value and is simply a convenient means of exchange of goods and services that is more efficient than bartering.
It’s not even about “jobs”, because it makes all the difference what is done in those jobs. Many poor countries have a much lower standard of living than ours, yet fuller employment. If we want full employment, just have half the population dig holes in the ground and the other half can fill them up again. The goal is a higher standard of living…not just “jobs”.
And the desire of some for a “more level playing field” and for “spreading the wealth around” is simply pandering to selfishness and laziness. The truth is that most of the wealth has already been spread around, in the form of a higher standard of living. If we do not allow the few talented and risk-taking people among us have at least the hope of personally benefiting in proportion to their good ideas, then economic progress stops.
The good news is that those few talented people need help, which is where most of the rest of us come in. One person with a new idea for a computer cannot design, manufacture, market, distribute, and sell millions of computers to the rest of society. They need our help, and in the process everyone benefits.
I also examine the role of various government economic programs, most of which end up hurting more than helping. A major reason why the government is so prone to failure is the lack of disincentives against failure in government service. In the real marketplace failures are not rewarded, which helps keep us on the right track to prosperity.
Even the truly needy in our country would be better off if we allowed private charitable organizations, rather than inefficient government bureaucracies to compete for the public’s donations.
I’ve been interested in basic economics for the last 25 years, but frustrated by the technical details (marginal costs, money supply, etc.) that too often scare people away from understanding the most basic forces which propel societies to ever high standards of living. Now, with our country facing tough decisions about our financial future, I decided it was time to stop yelling at the idiots on TV (and giving away all my ideas to talk show hosts) and put the material in a short — less than 100 pages — book that would be approachable by anyone.
I’ll be signing the first 500 copies. The price is $12.95 (including free shipping in the U.S.) You can see all of the chapter first pages at Fundanomics.org. I think this book would be especially valuable to homeschoolers.
(NOTE REGARDING COMMENTS, BELOW: In response to a comment that it was ironic for a scientist whose research is 100% funded by the U.S. Government to be against wasteful government spending, my statement that “I view my job a little like a legislator” has caused quite a stir, especially over at ThinkProgress. This was a rather poor analogy…my point was that a federally-funded person like myself can be against excess government spending, just as some federally-funded legislators are, that’s all. I did not mean to imply I wanted to be a de facto legislator. The context of the full comment, below, should have made that clear.
And, once again, ThinkProgress reveals the hypocrisy of those who think its OK for Al Gore to play a climate scientist, or NASA’s James Hansen to actively campaign for Malthusian energy policy changes and for presidential candidates – in violation of the Hatch Act, as NASA employees are told during their annual ethics training classes.)
Dr Roy
Does not Neaderthals mean that evolution is right?
Joni:
Read the beginning of Chapter 1:
http://www.fundanomics.org/chapter_first_pages.htm
Apologies for spelling.
Dr. Spencer,
“The main role of the government in the economy is help ensure people play fair…and then get out of the way.”
This is an opinion, but not most people’s opinion. Most people believe that the government also has an important economic role to help people in difficulty whether that is from bad fortune or just an inability to prosper. I believe that this results in a feeling of greater security in well being for everyone. The question is reasonably how much the government should do and what form it should take.
Of course the government also has an important economic role in avoiding “the tragedy of the commons.” Though perhaps you were including that in “playing fair.”
The government can only help others in need by taking money from those who produce. In other words, govt. doesn’t pay for it…you do. But since government is so inefficient and wasteful, more poor people would be helped if charity was coordinated by the private sector. Americans are extremely charitable, even after the heavy tax burden we have.
Congratulations on your new book, Dr. Spencer. I wrote a blog article about it, http://funwithgovernment.blogspot.com/2011/07/fundanomics-dr-roy-spencers-book-on.html. Free market simply means free individuals. Cheers.
Dr. Spencer,
I’ll just assume that you aren’t seriously arguing that charity can replace a reasonable government sponsored safety net for the poor, sick, disabled and others. I wouldn’t want to live in a country like that, and I’m guessing neither would you. And there is no way that the private sector can deal with externalities like pollution. Some policies decided by the people needs the force of law on all people.
I realize that at some level these are policy choices, but very few people would actually maximize their happiness living in a society where others could starve or die of illness without care. Just like they wouldn’t want their cities to burn down, or to be unprotected from criminals or external enemies. While I agree that economic prosperity is an important factor in quality of life, it is hardly the only factor.
Nicholas, fire protection, police protection, and national defense are not in the same category as charity/ insurance. You are conflating things as though to suggest Dr. Spencer does not believe here should be government at all. While Dr. Spencer can speak for himself, and I do not speak for him, I doubt that’s his point.
The reason I would agree with Roy that government — because it is solely the embodiment of police power — needs to and must do as little as possible “for us” because anything more than that undermines the social fabric eventually.
Yes, we need government so we can agree on the minimal criminal and civil rules needed for a civil society and then to agree on a policing mechanism and justice system to be assured those rules are applied effectively. Obviously, we need government to help our society to deal with external threats and “externalities” that an otherwise unencumbered market system may not handle very well.
But, charity/ insurance? No. Why? Because if the populace is forced through police-backed tax collection to provide those to others, then, for one thing, we lose any moral imperative regarding how we consider our less fortunate fellow-man. “Government (meaning “the guy who is paying more taxes”) can do it” becomes the too-easy moral sentiment of too many in our nation. We lose the clear personal obligation of “I must do it.” Money does not substitute for one’s personal time and effort in caring for others less fortunate. But, too many Americans have no true caring for their fellow Americans in this regard because our (current) governmental system allows them off the hook. It’s sad, and it’s corrupting of our moral fabric.
I’m with Dr. Spencer, I would want to live in a society where government did not provide for the poor or the unemployed or those who have suffered tragedy. I would feel more free and I would feel more obligated to my fellow man. I believe most would feel that way as well because I do believe man is fundamentally a caring species. Those who want “government to do it” clearly do not believe so, but I do not believe they quite realize or admit it.
Nicolas
I like it that you used the term “reasonable’ Gov.
Let me ask you this. Would 10% tithing by the gov. be reasonable, with all other spending coming from other individuals caring for each other (i.e, private)?
What is the current gov. “insurance net” %?
It’s all about limits and some just see no limites (smilar to some others who see no war spending limits).
Steve
P.S Would like to see spending caped at 18 or 19% of GDP. Then all area focused on maximizing GDP.
The government does not “pay” for anything. The taxpayer does. The government simply uses its power to decide that ever-increasing amounts of personal wealth be diverted through them — with a cut off the top — to support causes which the private sector could do more efficiently.
Of course, I’m not talking here about the national defense or other legitimate roles of government.
(As the book discusses, when government prints more money to pay its bills, it is in effect like raising taxes. It reduces the value of the rest of the money in circulation, which means a reduction in personal wealth (ability to buy goods and services). Printing money creates NO wealth whatsoever.)
The problem with the idea of a government created “safety net” is that it may mean only help those who can’t help themselves, it cannot distinguish from those who just won’t help themselves. And when you set out to help the helpless, lo and behold the number of people claiming to be helpless swells dramatically. Now, if you are an individual setting out to try and do this you are going to learn to be a little less foolishly generous. In government, however, the incentive is quite the opposite, especially since the government need not ever have to worry about actually turning a profit or actually earning any money, their entire incentive is to get people on the dole, who then become a reliably grateful, if still demanding and needy, voting block. This is irresponsible burden on the taxpayers of society, who cannot be expected to accept this forced generosity of increasingly unmanageable magnitude. It also takes away from the government’s ability to perform the legitimate role it has of maintaining rule of law and protecting the rights of individuals from infringement by others (including by the government itself).
Exactly, Andrew.
“very few people would actually maximize their happiness living in a society where others could starve or die of illness without care”
If you really believed that you would be content to leave the problem to private charity since, as you say, “very few people would actually maximize their happiness living in a society where others could starve or die of illness without care”. The reason why government enforced “charity” is favoured by so many is that so many believe that most people are content to maximize their happiness while others starve or die of illness without care.
Some of you may be familiar with the history of the early Christian church. (Acts, particularly the period in which everything was held in common.)
Eventually, the Apostle Paul was inspired to write:
“For even when we were with you, we gave you this rule: ‘If a man will not work, he shall not eat.'” (NIV)
http://bible.cc/2_thessalonians/3-10.htm
Please note that Paul had previously addressed the helpless, women and children. Also consider that the words specifically target “men” (not women and orphans), and “will” (an attitude) not “can” (the capability).
Wow, it is interesting to be on a site that is so far right of me. I’m pretty certain I pay more taxes than any of you (at least that is a high statistical probability), and I haven’t voted for a Democrat since Jimmy Carter.
And Pooh Dixie,
“Therefore I tell you, do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? 26 Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them.
Oh and the irony of this is amazing.
“Dr. Spencer’s research has been entirely supported by U.S. government agencies: NASA, NOAA, and DOE.”
Nicholas, I would wager that my job has helped save our economy from the economic ravages of out-of-control environmental extremism.
I view my job a little like a legislator, supported by the taxpayer, to protect the interests of the taxpayer and to minimize the role of government.
If I and others are ultimately successful, it may well be that my job is no longer needed. Well then, that is progress. There are other things I can do.
(NOTE: My statement that “I view my job a little like a legislator” has caused quite a stir, especially over at ThinkProgress. This was a rather poor analogy…my point was that a federally-funded person like myself can be against excess government spending, that’s all. I did not mean to imply I wanted to be a de facto legislator. The context of the full comment, above, should have made that clear. And, once again, ThinkProgress reveals the hypocrisy of those who think its OK for Al Gore to play a climate scientist, or NASA’s James Hansen to actively campaign for Malthusian energy policy changes and for presidential candidates – in violation of the Hatch Act, as NASA employees are told during their annual ethics training classes.)
There is no irony at all.
I cannot speak for Dr. Spencer, but, while I oppose all such programs as Medicare and Social Security, I make sure I receive every penny from those programs, and all other government programs, that I am legally entitled to. I recognize the difference between what should be, and what is.
I do not have the option of seceding. I must suffer all the consequences of the present sysem, as long as it lasts, including, but by far not limited to, paying taxes. Should I accept the liabilites, while renouncing the benefits (and putting myself at a disadvantage with respect to everyone who accepts the benefits)? No.
The reason I advocate a free society is that, in my view, I would be better off, and so would evryone else, in such a society. But there is no advantage to pretending that that’s what we have — i.e., to living in a fantasy world; only in moving to get there.
Hmm, I thought I had logged onto the wrong website for a few seconds.
Government cannot create wealth, it can only re-distribute it.
In theory, that is from the “rich” to the “poor”, but in practice it is from those who work to those who don’t.
I would be interested in Dr. Spencer’s view on credit/debt.
I have formed the opinion that it is only credit and debt which make economic growth possible, because they allow consumers and businesses to spend more than they earn, which makes profit possible. Also, that in a closed economy, it is not possible for all businesses to make a profit, and that every profit must be balanced by a corresponding loss. It is the occasional bankruptcy of those businesses which make losses, and the write-off of their debts which makes economic growth possible.
A certain level of debt write-off is essential for the economy, but there are problems when it exceeds that level.
Dr. Spencer:
“If we want full employment, just have half the population dig holes in the ground and the other half can fill them up again.”
I live in Italy and some years ago our leftist government tried the so-called “lavori socialmente utili”. The literal translation could be: “socially useful jobs”, even if someone translate it as: “community services”. This last translation doesn’t give the right impression of how much they were devastating for our economy and thus for the public welfare.
Those public workers were doing exactly what you hypothesized above and in your book’s chapter 5. They got money from the government (from our taxes) just to keep low the unemployed rate in Italy. So if you were here those days and you went to a public office, then you could see a man who detached the ticket from the automatic ticket dispenser for you… Yes, very crazy but they did it.
Many people don’t understand that money are not the wealth, but just the medium of exchange of the wealth.
If anybody got money for nothing then the final consequence is not that anybody live at an higher standard level, but that the money have no value at all indeed (in chapter 4 you call it hyperinflation).
There is an interesting similarity between the economy and the climate system. They are both enormously complicated dynamical systems with many not-completely-understood internal feedbacks. They both have endogenous cycles and homeostatic behaviors. They are both subject to being described by over-simplistic accounts which can lead to suboptimal public policy (indeed in some cases disastrous public policy). I think in both cases the illusion of control is very strong and people think “we” can fix apparent problems that in fact we have little effect on.
The Keynesian “multiplier effect” is almost amusingly similar to the question of forcing feedback in climate. The question is, if the govt spends a dollar, will this cause more than one dollar’s worth of economic activity? The orthodoxy in Washington is that it will, and thus the “stimulus” spending should have caused a huge recovery. Others think that the multiplier is less than one and that every dollar the govt spends produces less than a dollar of economic activity. Since the dollar got taken away from someone in the first place, the total effect is to reduce economic activity. Libertarian economists tend to believe the real multiplier is about 0.5.
Not seeing it on Amazon. Make it available as a kindle book and you’ve got my money.
Dr. Spencer,
Interesting rationalization for your job, which I thought was to do scientific research. Sounds a little outcome oriented.
Frankly I don’t see where any academic work can fall under “ensure people play fair.” Would you advocate that the government cut off all funding for scientific and technical research and leave that completely to the private sector as well? What about education? Any role for the government there?
Ray,
I’m sorry but you need to take a first economics course, or at least read a text. Of course all businesses in a closed economy can make a profit. Imagine a village with a butcher a shoe maker and a builder. All three can work and make money without the other taking losses. This is true even there are two butchers as long as both do a good job. Of course in real life not all companies do a good job.
The government is not necessary for credit or debt or money actually. Although it can play a useful role in helping the social group (country) manage it. In the absence of government intervention (see the period before the modern Federal Reserve) panics were constant and much more devastating than the types of recessions we have now.
I second the motion for an e-book version. Personally, I would prefer a Kindle e-book, however even an e-pub format e-book would be acceptable as there are format converters out there that will convert from e-pub to Kindle.
I’ve boiled it down to the concept that a free capitalist market is the only economic system capable of generating a surplus. Even if a free marketeer doesn’t even manage to end up making a profit, the decreasing incremental cost of production alone is enough of an incentive for him/her and all the competitors to, altogether, produce more product than there are customers to buy it. Some people may regard the surplus as waste but I regard it as irrefutable proof of a powerful incentive at work, one with no equal in any other economic system. (And some surpluses are good to have around anyway like food and energy for example.)
And here I was, thinking that finally there was a scientist actually putting science in front, and not politics, as has been the case for many people on the global warming side.
I was wrong, and now for every argument I see from Dr. Spencer, I will need to consider not only the scientific reasoning, but also what else may be baked into it, which supports the free market/little-government ideal.
I am apparently a rare phenomenon, as I favor both getting the science right irrespective of policy questions (which places me on the skeptic side related to the involvement of man in global warming), but also has a strong social conscience and general appreciation of a social role for government.
Where I live in Brooklyn, I see small kids limping, because they did not get the right surgery in time during their first years, I see lots of mentally ill in/around the subway, who were not diagnozed prior to losing their job – if they ever had one, and other areas, where lack of support has severely limited the chances for success of the individual.
Leaving more to private initiative does lead to stronger charity, which I also see is stronger here compared to Northern Europe where I am from, but it does not help many of those, who were just unlucky or born into the wrong circumstances.
The US economy is driven by private consumption – getting that second LCD, swapping the LCD with a LED, getting a bigger (or second barbeque), etc. You do not have strong investment in education, infrastructure, or institutions, compared to many countries, the US is competing with.
The ‘private’ initiative is also well represented in Washington with the lobbyists, who do a terrific job in actually preventing the government from doing a decent job in governing the country. Check out “The Inside Job” to see the role of the private, financial sector in the financial meltdown and just how little real government you have going on here. Adding more private initiative in other areas… Good luck with that!
I do not believe you can have a high level of integrity discussing policy and science in the same forum, so will leave just this comment regarding the free market here and will look for the scientific discussion on global warming elsewhere.
Thanks,
John
John said: “I do not believe you can have a high level of integrity discussing policy and science in the same forum”
And yet, let me guess, you probably trust that a purely POLITICAL organization, the UN, is simply a benevolent angel who is only trying to warn us of impending doom because they just care so much about all of us?
@Mike: You do realize that China, you know that Communist market society is eating America’s lunch and has you by the cahones due to American debt. American capitalist extremism is getting you to the same place Greek socialist has gotten them, and Roy is preaching for more extreme capitalism ??
Would Roy were content to embarrass libertarians on one front at a time.
i hope the Neanderthals belaboring his colleagues will refrain from demanding copies of his cave walls and smoke signals as well.
@Mike,
Not at all; IPCC is a highly political organization, and so anything coming from them is primarily done with a political objective in mind.
I’m interesting in a scientific discussion about global warming, seeking to understand the causes of the current warming in relation to cyclical climate changes.
Apparently, this is not an apolitical site to have that discussion, which is sad to see, as I find Dr. Spencer has done a lot of great work in this field.
Thanks,
John
Roy.
(First off all, sorry for my english)
I don’t know, it’s your website, you, and only you are to decide it’s content.
But.
I get a mixed feeling when you, on your site express your personal belief, like this one above, with sound science. (the majority of your posts).
Wouldn’t it be better to separate “Roy the scientist”, and “Roy the blogger”?
/Jacozz
I especially like this line:
“Even the truly needy in our country would be better off if we allowed private charitable organizations, rather than inefficient government bureaucracies to compete for the public’s donations.”
I was in Huntsville about 3 weeks ago visiting friends. We had previously discussed briefly on the phone the tornadoes and how the community pitched in. When I got there we talked to a greater extent. He owns a small Kayak / Canoe rental company and shut it down for a few days. He took the employees with him with all the chain saws they could muster and started cutting limbs, opening driveways, roads and just helping in general. While he was doing this a church bus pulled up and out got two groups of people who he had cancelled with that weekend. They were there to help as well. Knowing Scott I guarantee you he took charge barking orders. From personal experience I’ve seen that there are too few people willing to organize groups of volunteers.
His wife wasn’t with him. She works at the hospital. They were busy. I don’t know how many days they worked but his people got paid and they did good work. That came out of his pocket. He had a generator at home but ran out of water because he is above the city level that provides water. The pump he uses to go up hill was too far away to plug in.
The only bad thing was he had sold his Bob Cat earlier in the year. That would have come in handy.
He never mentioned seeing a government official. I don’t think you did in you’re posts either. I suspect that if they were there, they were either doing dirty work or they were being ignored by the volunteers.
This is America doing what Americans do best. It’s not sitting on an overpass in New Orleans waiting to be helped.
(Possible Dupe)
I especially like this line:
“Even the truly needy in our country would be better off if we allowed private charitable organizations, rather than inefficient government bureaucracies to compete for the public’s donations.”
I was in Huntsville about 3 weeks ago visiting friends. We had previously discussed briefly on the phone the tornadoes and how the community pitched in. When I got there we talked to a greater extent. He owns a small Kayak / Canoe rental company and shut it down for a few days. He took the employees with him with all the chain saws they could muster and started cutting limbs, opening driveways, roads and just helping in general. While he was doing this a church bus pulled up and out got two groups of people who he had cancelled with that weekend. They were there to help as well. Knowing Scott I guarantee you he took charge barking orders. From personal experience I’ve seen that there are too few people willing to organize groups of volunteers.
His wife wasn’t with him. She works at the hospital. They were busy. I don’t know how many days they worked but his people got paid and they did good work. That came out of his pocket. He had a generator at home but ran out of water because he is above the city level that provides water. The pump he uses to go up hill was too far away to plug in.
The only bad thing was he had sold his Bob Cat earlier in the year. That would have come in handy.
He never mentioned seeing a government official. I don’t think you did in you’re posts either. I suspect that if they were there, they were either doing dirty work or they were being ignored by the volunteers.
This is America doing what Americans do best. It’s not sitting on an overpass in New Orleans waiting to be helped.
In the real marketplace failures are not rewarded, which helps keep us on the right track to prosperity.
Really? Where you around in September 2008, and what has happened subsequently to those failures?
Economics is not an end in itself. It is there to serve society, and it cannot exist for the benefit of society without justice and a lot of other things to protect it, and discussion of economics cannot be complete without them. Our best economic brains (self-described) promoted GATT, and we, as a nation, bought the ‘free-market/free-trade’ economy line from the 1970s. And what has it done? Check the actual figures. The middle class, the majority of this country, has lost prosperity since then.
We grew as a nation because we had a 30% tariff from 1791 to the Civil War that provided 100% of the money required to run our government. From the Civil War to WWI, tariffs provided 2/3 of the cost of government. During that time the British Government, then the world’s empire, tried to convince Ulysses S Grant to open the US up to free trade. Grant’s reply was We’ll do it in 200 years when we’re as rich as you are. From WWI to WWII, a time even when there was the greatest government expansion, our tariffs provided 1/3 of the cost of running the government. We were therefore in a place after WWII, with the strongest economy in the world, to take over the world. Then we adopted all the free market/free-trade stuff and we are going to have happen to us what happened to Britain (lost its reserve currency status in the 50s or early 60s) unless we get some real smarts back running this country. There is no such thing as a free market: there is a cost for all of it.
FYI:
Trade, in history, came about as a result of cows. Cows provided their owners with food, the means to produce food as work animals, and in death, even more food. They were also the lucre of trade. But it was inconvenient to trade cows over long distances, so trading in gold replaced it. One cow = 315 grains (could have been 350, can’t remember) of gold, a standard issue gold coin. Gold was fiat money for the thing of real value, a cow.
You should watch this:
http://video.google.com/videoplay?docid=5064665078176641728
I do to some extent agree withe your basic ideas but there is one paradox. The Scandinavian countries are according to UN the most prosperous countries of the world and yet they do not follow your ideas but have like a mixed economy where the governments intervene much more then just making rules for the free market. We do have a free market but we have agreed that some areas should not be left to the maket like helth care, post service, railway, schools, social security etc. etc.
Even though I do not support the current government in my own country Norway with it’s Labour and left wing party coalition government I still support the basic ideas behind the structure of the society and so do the conservative party I support. Any thoughts about this?
@Sun Spot
“American capitalist extremism is getting you to the same place Greek socialist has gotten them”
Not only socialist. Every government since 1974, especially right wing government in 2000-2008. It´s their national sport to bend stats and hide the debt from european union.
Regarding John W. Christensen´s oppinion, in northern Europe are some states with strong social policies, but I´m not familiar with them in detail. Their taxes are very high, but their productivity and profit is high as well. This indicates this as viable option, if agreed upon by people. And strong environmental policy also does not have to mean lower prosperity, as long as it does not mean trading emissions.
@Ray
“I have formed the opinion that it is only credit and debt which make economic growth possible, because they allow consumers and businesses to spend more than they earn, which makes profit possible.”
Growth is possible, if the whole sum of wealth is growing. This depends on many things, so every speculation would be oversimplified. The most complex is social factor and overall economical mood.
In the evolution of societies from family to clan to tribe to nation; I am trying to think of one great society in the history of the world that did not have an evolved advanced government – one that did not in some way engage in redistribution of wealth. Early artisans, such as those who invented alphabets, writing, maps, etc. were supported either directly by governments, or by patrons who also controlled the levers of governments. If you think about it, there is virtually no way the people who invented the alphabet and written language could have survived on just their “good ideas” in a free market place.
What I have learned is that everyone like the power of goverment – they just want it to do what they prefer. For example, conservative legislatures in state like Texas and Kansas are doing such things as getting into the business between a physician and a patient by requiring medically unnecessary sonograms (Texas), or levying restrictive archetectural requirements for such things as the size of bathrooms for licensing abortion clinics – even though another facility that performs DNCs for active miscarriage patients (identical medical procedure and after-care) do not have similar requirements. They justify this by saying that this is necessary to help protect and preserve life. But isn’t this also what food safety, environmental laws, ans worker protection are also about?
I would think it somewhat difficult to maintain objectivity in the science of climate change if one is simultaneously revealing that they believe the policy response to acceptance is more government rules. Why not just argue the policy rather than the science?
Charitable giving in the US is about $300B/yr. That’s not even half of what US governments spend on welfare, and less than a third what they spend on health care–and many already consider these amounts inadequate to meet needs. So it is difficult to imagine the necessary six-fold increase in charitable giving if it were to replace these programs, even if all taxes were abolished and even if all Americans gave such a windfall to charity instead of spending it on themselves.
The notion that charitable giving can replace government programs just doesn’t add up.
David, your logic just doesn’t add up. If all our tax dollars went to charity we would be able to help far more people than the government does now with a big portion going to defense, space etc.
Even with just the welfare budget going to charity many would argue that with the efficiencies gained the good that could be done would be much greater than with the current system.
Hi Dr. Spencer, I just ordered your book. I look forward to it; thanks!
I urge you to consider whether leaving the most important functions to government — law, protection and national defense — makes any more sense than giving it a monopoly anything else. Professor Gary Chartier’s “Conscience of an Anarchist” is a good introduction, which is apolitical (what he calls panarchy). For my preference, I’m most interested in anarcho-capitalism, or a private law society, which you will probably find much more logical. A good introduction is Professor Rothbard’s “For a New Liberty,” or search Youtube for Professor Hoppe and Private Law Society.
To cover the basics:
Law: Judges compete to adjudicate disputes in a market. Google Bob Murphy’s “Chaos Theory”
Protection: Protection agencies compete to protect people in a market. They are basically insurance companies.
National Defense: Protection insurance companies at larger scale.
I like to call this type of society hyperdemocracy, since “anarchy” is such a propagandized word. People would get to choose how society is structured with their every day decisions, down to the penny. A vote on every issue.
“The greatest prosperity for ALL in a society is achieved when people are free to benefit from their good ideas.”
The question has to be asked, is it a “good idea” to pollute the atmosphere with a gas that is likely to affect the lives of many of the animal species (including humans) that will come after us?
I would have to say it is not only a bad idea it is also rather short sighted and some would say even selfish.
Dr. Spencer,
In your book you write:
“Some people believe that the basic motivation operating in a free market economy is selfishness.…True selfishness would instead be taking things away from someone else against their will.” (Chapter 3, p. 21)
I believe this issue, the moral issue of selfishness, is the reason free market economic principles are so little known by the public. They are what Robert Tracinski recently called “forbidden knowledge,” forbidden on ethical grounds. See:
http://www.realclearmarkets.com/articles/2011/07/01/obamas_carefully_burnished_economic_ignorance_99111.html
I’m surprised that your book doesn’t mention the analysis given by Ayn Rand, who, in my opinion and with all due respect to you, treats the issue better. She wrote:
“In popular usage, the word ‘selfishness’ is a synonym of evil….
“Yet the exact meaning and dictionary definition of the word ‘selfishness’ is: concern with one’s own interests.
“This concept does not include a moral evaluation; it does not tell us whether concern with one’s own interests is good or evil; nor does it tell us what constitutes man’s actual interests. It is the task of ethics to answer such questions.” (The Virtue of Selfishness, p. vii)
“The choice is not self-sacrifice or domination. The choice is independence or dependence. The code of the creator or the code of the second-hander. This is the basic issue.” (For the New Intellectual, p. 81)
“The Objectivist ethics holds that human good does not require human sacrifices and cannot be achieved by the sacrifice of anyone to anyone. It holds that the rational interests of men do not clash—that there is no conflict of interests among men who do not desire the unearned, who do not make sacrifices nor accept them, who deal with one another as traders, giving value for value.” (The Virtue of Selfishness, p. 31)
(She treated the issue much more fully in the works cited, in Atlas Shrugged, and elsewhere. http://aynrandlexicon.com/lexicon/selfishness.html)
Nevertheless, I hope your book will encourage members of the public to re-examine their views on the ethics underlying a free market. Unless they do, statism will continue to win.
Therefore, I wish you success and I hope Fundanomics reaches a wide audience.
I was recently talking about some related things with some friends. I see that I captured the essence of ‘fundanomics’ fairly well for them.
A question, though. How, exactly (or even approximately) do you get from ‘here’ — large federal programs for medicare, social security, the various other programs aimed at ensuring that Americans do not starve to death, etc., to ‘there’ — all these programs completely eliminated? (And, of course, taxes correspondingly reduced)
And how do you do so without millions of people starving to death? It’s a while since I’ve looked, but something in excess of 40 million people were listed as in poverty and receiving money from the government (however inefficiently), and some millions (tens of millions?) more avoid being below povery line only due to government payments. So, ballpark, 36 million jobs — that pay enough to support self+family would have to be created. Long term, average job creation rate has been around 1 million per year.
Do you transition over ca. 36 years? Say that starting Jan 1 next year all these programs (and taxes that support them) are eliminated and if people starve, that’s their own fault? Something else (what)?
Thanks Dr. Spencer,
I just bought Fundanomics.
Those who think scientists should be apolitical imply that scientists should not be human. I think these people want politics be left to them, to the exclusion of others.
I think your fundamental economics ideas support those of Milton Friedman (http://miltonfriedman.blogspot.com/).
Bede – “And how do you do so without millions of people starving to death?” – referencing the elimination of gvmt programs to feed people.
My answer: At this time, the government does not feed anyone. The government can only take and give a fraction of what is taken for whatever purpose you hold dear. The resources exist already, and come 100% from private activities anyway. (Indeed, history has shown that without private enterprise, government solutions fall apart for a lack of resources – how very strange!) It is simply absurd to claim that you will die the second you can’t reach into the pocket of your neighbor.
All I’m saying is that when Dr. Spencer sees his role as a climate scientist as being to ‘minimize the role of government’, I do see a potential conflict of interest in that Dr. Spencer might be inclined to search for and promote scientific evidence to support minimizing the role of government rather than focusing on understanding our climate.
The work to enhance the scientific understanding of climate is vital, both to improve knowledge about what part of climate change is fully natural, what parts we have or can impact, and what the future looks like.
What I do find from both sides, however, is predetermined outcomes with pseudo-scientific ‘evidence’ to support these outcomes.
RR,
It is completely different to work for the government than to pay the taxes that are asked and receive the benefits you are entitled to. Dr. Spencer’s entire career is predicated on Government support of his research that’s the irony.
But the critical question is the one that I asked and was never answered. In a perfect world would you eliminate government funding for research? How about education?
Robert Rust,
A simple reading of history and even current events shows that people do starve without government intervention. Perhaps you should read “The Grapes of Wrath.” Or any history for that matter.
@Rust:
It’s actually Dr. Spencer’s ideas I was looking for, but in the mean time …
Starvation takes rather longer than a second, hence I did not say what you attribute. It does, however, take rather less than the decades it would seem, on prior history, to take the market to figure out how to provide enough jobs to ensure that all earned enough that they would not starve.
The current ‘solution’ in place is for there to be charitable organizations — you don’t object to those, right? — which helps some millions of people avoid starvation, homelessness, etc. …
And for the government hand checks to some tens of millions of people. Those people then spend the money in the market to avoid starvation and homelessness.
For those tens of millions who currently pay for food with a check they get from the government, what is your transition plan to them instead be getting a check from an employer or money from customers at businesses they establish?
I’ve had a self-described Libertarian Christian or two tell me that their transition plan was for many of the poor to starve to death. Once enough did, there’d be sufficient market demand for workers that the remainder would be employed. Is that your plan as well?
@Nirenberg:
Your need to mention it illustrate why _Grapes of Wrath_ is one of the most banned books in the US.
“Simply put, a successful economy is just people being allowed to provide as much stuff as possible for each other that is needed and wanted.”
I think a lot of simple concepts are useful in understanding the economy, but this one is too simple. Replace “economy” with “bar” and “provide as much stuff” with “buy as much beer” and you see the flaw in the aphorism.
In the case of the modern economy, people do not realise just how dependent it is on fossil fuel. That’s the case *even though* sceptics use it as an argument for ignoring the risks of burning too much fuel.
More “stuff” is evidence of more and cheaper oil and coal, not evidence of a “successful” economy that encourages entrepreneurial spirit.
If people did realise this they would be much more sanguine about the prospect of more expensive oil as it simply encourages the successful entrepreneurs to earn wealth through development of new energy sources or more sustainable products, and may indeed open up opportunities that allow new companies to challenge the fossil fuel dinosaurs.
Bede: “The current ’solution’ in place is for there to be charitable organizations — you don’t object to those, right?”
—–
I am currently free to give my time, treasure, and skills in a way that I decide is best. I’m happy exercise that freedom.
—-
Bede: “Is that your plan as well?”
—-
I reject the premise that tax funded charity yields the least suffering.
—-
Nirenberg: “Or any history for that matter.”
—-
I am rather fond of the history of the Pilgrims. After signing an oath (in the name of God, no less) – they pledged their commitment to join the “Civil Body Politic.” The government took everything, and people owned nothing (it was “shared”).
While the experiment resulted in tremendous misery, it demonstrated the importance of benefiting from one’s efforts. Because, some 2.5 years later, the Pilgrims decided to abandon their government and divide the property. The fields produced excessively, and the extra food was shared with the locals. I enjoy the yearly celebration of this event.
@Rust:
Again you attribute things I did not say. Is that the norm for Christians here? For Libertarians?
That you “reject the premise that tax funded charity yields the least suffering.” was rather my assumption, not the question. You should also read carefully enough to notice that I did not assume that premise.
Instead, I took two observations:
1) In the present day, ‘tax-supported charity’, as you put it, prevents some tens of millions of people in the US from starvation and homelessness.
2) At some future date, you (specifically, and Roy, and Libertarians in general) would like to see there be 0 such charity.
My question is just how you’re going to get from what is, to what you (personally or the party) want to be the case.
I’ll also note that I’m not arguing about whether 1 or 2 is the better situation. Just that 1 is the current situation. If you think 2 is better, as seems to be the case, I’m interested in how you plan to get there.
Robert,
you claim the government is better at handling our money and safety than we are. Do you claim that the US is not on the verge of being another Weimar Republic or Banana Republic with HyperInflation??
Any claims the Socialists and other morons make are collapsing right now. The Military is less than 1/4 of the Federal Budget. We could shut it all down and not make a dent in the debt.
The wasted money in social programs that help people who should be working is destroying the country and the economy. How about government regulation and incentives to do what the gubmint wants that perverts that free enterprise? Yes we spend too much on the military, BUT, the military actually puts people to work even though it is on our dime. Paying people to not work or perform any other useful contributions is what is one of the stupid policies destroying this country. EVERY program covers far more people for far more money than is appropriate. Waste, corruption, and stupidity are the only common hallmarks of government programs after they have been in place for a couple of years.
Now, why are there 10’s of millions of Americans, and illegal aliens, who must be kept from starvation??? Because the interference in free enterprise has shrunk the per capita economy by running businesses out of the country by raising their costs to a prohibitive level. Because prices and wages have been inflated to ridiculous levels and expectations of people changed so that they will take the handouts rather than work. I live in California. It is the epitome of the Utopian ideal that the gubmint knows better where the resources are to be allocated. We are so far in debt the Federal Government is the only one bailing us out. We are still running businesses out of the state by ridiculous regulation and taxation.
Yeah, your way works, until you have squandered all the assets that people worked extremely hard to build. Even China is showing the stress on their economic system with hundreds of billions of losses piling up in their banking systems that the government is ordering to disappear. How long do you think that will work with the US and Europe broke and unable to buy their products in increasing volumes?? Yup, you Keynesian Socialists never seem to learn. Utopian ideas fail every time and those who survive pay far more than if they had relied on themselves instead of Central Planning.
So what is next?? In other countries the Gubmint becomes basically totalitarian taking direct control of most of the economy. It then giets very iffy as they play political games to get their piece of the pie and wield the power. We, the paeons, get dumped on and fed excuses for why things don’t improve. We get rounded up and locked away if we complain too loud as it distracts from fixing the economy. I would suggest inspecting Venezuela with enormous oil income to see how poorly your ideas work in reality.
I am really sorry you are unable to look at the Eurozone, the US, Mexico, and all the other countries around the world that are in deep trouble because of their decades and more of stupid Socialist policies. Most of them are in that position WITHOUT large militaries and wars. How do you explain their poor performance??? OOOPS, sorry, it is obviously us warlike capitalists in the US that has destroyed the world economy. I will shut up now.
Robert,
What in the world does your Pilgrim story have to do with my comments? That might be viewed as anti-communist, but believe me I am hardly communist or even socialist. My proposition was that government has a role to protect the weakest in society, and that this role benefits everyone. In this context I don’t view government as some external force, but rather a collective agreement that people should be taken care of if their circumstances, even if at the extreme it is their own stupidity or laziness, render them incapable of taking care of themselves.
I am absolutely certain that few modern people would want to live in a place that wasn’t like that.
John W. Christensen says:
July 5, 2011 at 10:15 AM
I am apparently a rare phenomenon, as I favor both getting the science right irrespective of policy questions (which places me on the skeptic side related to the involvement of man in global warming), but also has a strong social conscience and general appreciation of a social role for government.
Probably less rare than you realise John, but somewhat uncommon. It appears that the libertarian ideals, as expressed by Dr Spencer, generally have a much stronger resonance in the US than most western nations. There are no doubt multiple reasons for this, however I would posit that, in part, it has been influenced by the country’s idiosyncratic formation and a continuing robust religious outlook. Here in Oz, as I believe is similar throughout Europe, the conservatives would never consider abolishing welfare, though they are keen to tighten eligibility. Then again, we descend from convict stock and last I saw were catagorised as an atheist nation!
Best wishes, Ian
Roy, a few things you might find interesting.
CEO’s are made out to be the big evil of our society. They make too much money by taking it from us, right.
From AFL-CIO http://www.aflcio.org/corporatewatch/paywatch/pay/
CEO’s make 10 million a year on average, times the 500 S&P companies that’s 5 billion a year.
The market cap of the S&P is 10.6 trillion, and price/sales is 1.3 so the S&P sells 8.15 trillion dollars worth of good.
http://www.investopedia.com/ask/answers/05/sp500calculation.asp
That means that exec pay is about .06% of all sales. So if you buy a $1,000 item, you are paying the CEO 60 cents. I found a few other numbers on the web and it ranged from 60 cents to $1.50 out of ever $1,000. So a family that spends $40,000/year on S&P goods and services gives the CEO’s a little over $250/year.
Now we are told to be very worried about that kind of greed! Yet, by the skin of our teeth and with the help of people like Roy, we avoided Cap n’ Trade (at least in its’ most ugly and punitive form)where it is very, very likely the average family would have to pay thousands of dollars per year – and get absolutely NOTHING in return. And they would have been forced to pay this amt, because the left always forces you to give you them OUR money, while most S&P 500 purchases are purely voluntary.
More complete stupidity. Solar energy. Many people in the US pay about 12 cents per kWhr for electricity, retail. Solar costs over 40 cents, wholesale.
http://green.autoblog.com/2010/08/04/pocono-raceway-gets-25-acre-solar-farm-w-video/
http://www.nofreewind.com/2010/08/pocono-raceway-solar-project.html
Coal electricity is about 5 cents, nat gas is 8 cents and solar is about 42 cents.
Now why is solar 42 cents?? Cause it’s good, right!!! Nope.
Because it takes a tremendous amt of energy to mine all those rare earth minerals out of the ground, manufacture them and then ship them from China to here. Cost is simply energy, labor and cost to buy materials from owner. I would bet that the energy costs for mining and manufacturing make up most of that 42 cents. (also interest is another cost in that 42 cents). But WHAT IF, China is actually using 15 cents of coal and gas energy to mine and fabricate those panels. What is actually happening is that “our society” is having a net loss of about 10 cents of energy WASTED, every time you turn on a light that is powered by solar energy. Why would anyone do such a thing? #1 It isn’t our money paying for most of the solar panels, it is the Gov’ts money. Of course Roy correctly explains, that OUR MONEY! #2 Because of laws, we are FORCED to buy this expensive NEGATIVE energy.
Sorry Roy for another comment. Buy why would Citibank et al lend money to mortgage purchasers if they knew they had a chance to loose money. They gave refinancing and primary loans at 6-8%. They gave people money for refinancing and contractors money to build houses. They didn’t have that money any more. They could have taken that money and bought bonds for 5-8%, almost guaranteed! Why would they take such a change to make a paltry couple percent, when they would be stuck with some house that lost value, hence they would loose there money. Obviously, in many cases, they seemed to care less if the people they GAVE the money to even had a viable means of paying it back. They must have been real STUPID, right. Not really, the problem was, once again, it wasn’t their money, it was the Gov’t money, or as Roy writes, it was actually our money, a couple times removed from us (by lobbying and politics).
Sometimes, the Gov’t comes clean and even admits to their mistakes.
http://www.goingeasy.com/subtitle_h.htm
(Roy, I was the one that came up to you and asked you about who and how you were employed in DC last week)
kuhnkat:
The only Roberts I see posting here are Rust and Bede, and neither of us made the claim “… the government is better at handling our money and safety than we are.”
oops. above I said about what we pay our S&P 500 CEO’s.
>So a family that spends $40,000/year on S&P goods and services gives the CEO’s a little over $250/year.
Missed a decimal. It is actually $25 a year, to at most $60/year.
Bede: “My question is just how you’re going to get from what is, to what you (personally or the party) want to be the case.”
—-
Example 1: I have the opportunity at times to volunteer for a local charity. We go to people who call us for help and we educate them on their options. Within days, these people make changes in their lives so that they stay above water.
Example 2: The Pilgrims made the change over a brief period – and the result was less misery, less death, but rater abundance. These Pilgrims were far more exposed to starvation than people are today (even if all gov help was not in the mix, in the US).
As I see it, when it comes to able bodied adults – we have “what is”: people are using their resources, time, and energy to find the food that they need to feed themselves (even for food stamps – they have to find the gov agency, find the right lines to stand in, fill out the right forms, wait for the money, find the stores, get the food, store the food, prepare the food).
And – whatever ends up coming down the road, people will still have to use their own time and energy to get the food that they need to feed themselves.
@Rust:
An anecdote is not a plan, but at least you indicate things a plan might come from.
In plan form:
Day 1:
a) All taxes that support anti-poverty payments from the government repealed.
b) All such payments cancelled.
Week 1:
A) All people who knew what to do, but were too lazy, get employment (or found successful businesses) sufficient to cover all necessities.
B) All people who didn’t know what to do, call you and people like you to learn what to do. Fortunately there are enough of you and you’re accessible enough to satisfy this need.
C) There are either no other people, or any other people are allowed to starve from this point on.
Week 2:
All of the ‘b’ people from week 1 gain employment (or found successful businesses) sufficient to cover all necessities.
Week 3-12 or so
The ‘C’ people, if any, finish starving to death.
They do this quietly and peacefully.
Month 4 and onward:
Involuntary unemployment stands at 0 and never changes.
All employment is sufficient to cover necessities.
All businesses are successful enough that founding entrepeneurs need not worry about where their next meal will come from if they make a mistake.
Some observations and a few conclusions from someone who
-is a little too old to be a baby boomer.
-grew up in the rural Midwest (I state that because I know location makes a difference.) Where–
-a 40 to 50 hour work week was quite short.
-people would always help a neighbor who needed it, however, taking a handout from a neighbor or the government really hurt one’s pride and the loan would get paid back in some cases before food was on the table.
–If people wanted to buy something, they most often, but not always saved up for it.
– In the beginning of my teaching career, when a student would get in trouble that student would accept whatever discipline was merited, often times with the request ‘please don’t tell my parents’.
—-In other words there was a general acceptance of responsibility for ones actions. I believe it was state of living which Thomas Jefferson envisioned. I believe it was a state of living which Dr. Spencer would prefer. Changes in the norms of society have become apparent regardless of what the reasons there are for the change. It was a Na-Na-Na-Na, Don’t worry about tomorrow, just live for today change. And, Just worry about me change. For instance:
–Put it on the credit card, live for today, if you can’t pay if off, just declare bankruptcy (without a care that one is taking from someone else.)
— We have been foster parents and adoptive parents of special needs children. Some of the greatest gifts we can give these young people are achieving the pride of being self supporting and the ability to live with financial prudence. Yet we so many people choose not to do ‘lowly’ work, and learn to use the system to get every benefit they can. In fact they are proud of it. No concept being a part of the government Note that when it is needed for minimal living I am not against it. The difficulty is creating the correct balance such that people are encouraged to work.(if they can) We have observed that the larger the institution governing the process, the less efficient it is. Only about half the people in the US pay Federal Income taxes and the percentage is decreasing. We need all to be proud citizens.
–Regarding the students in school. When their children now make mistakes and need discipline, often, the first thing the students do is call home so the parents can protect them from the ‘school’
–We can go on stating examples, but we have somehow gotten away from the fact that we are the government (Of the People, By the People) and we, each of us can be part of a successful government if we take responsibility for our own actions and not expect the government to take care of us without contributing to that of which we are a part.
Here is the example of how we are teaching our children to BE STUPID and ignore basic common-sense economics, which Roy teaches in his book. His book should be a mandatory text for all students!
http://pahomepage.com/fulltext?nxd_id=154845
This school district is installing $2.5 million dollar worth of solar panels “courtesy of federal, state, and local grants.” That means the Taxpayers are paying. But yet they write “The taxpayers of the community will receive the benefits from this project for many years to come.” Yes, the benefit of paying for in their taxes! Then, “The district has long been forward-thinking when it comes to renewable energy.” The only forward-thinking going on here is instead of paying for electricity as they use it know, the taxpayers will be paying for this project for many, many years to come!
And of course the punch line is, “But also it’s the educational aspect of the project being brought to the students.” The education of use now, pay(4x times as much as regular electricity) later! Hide the high costs in “grants”, teaching our kids that tax payer grants means no one has to ever pay for it!
nofreewind–Yep!!
Nicolas Nierenberg says:
“I’m sorry but you need to take a first economics course, or at least read a text. Of course all businesses in a closed economy can make a profit. Imagine a village with a butcher a shoe maker and a builder. All three can work and make money without the other taking losses. This is true even there are two butchers as long as both do a good job. Of course in real life not all companies do a good job.”
In order to make a profit, a business must sell the goods or services it produces for more than the cost of producing those goods or services. Since the total cost of those goods or services is equal to the wages and salaries paid to all employees, and (in the absence of credit), those employees can only spend what they earn, so there is no scope for overall profit. You only have to think about this for a while to know it is true. Where does the extra money come from which provides the profit? As I said, individual businesses can make a profit, but only at the expense of losses made by other businesses. I challenge you to simulate your hypothetical village economy and produce a situation in which all of the businesses make a profit.
I actually have studied Economics formally, albeit some time ago. One of my text books had an example of an imaginary economy, consisting of a Farm, a Mine, a Flour Mill, an Iron Works, a Bakery and an Oven Factory, in which all of the businesses made a profit, but only because the Oven Factory apparently sold ovens but the Bakery didn’t buy them, and the workers were able to spend money on bread which they hadn’t earned. This book was written by an Economic Lecturer at North Western Polytechnic. Unfortunately I didn’t notice the error until I left college. Don’t pay too much attention to text books.
Martin says:
“Growth is possible, if the whole sum of wealth is growing. This depends on many things, so every speculation would be oversimplified. The most complex is social factor and overall economical mood.”
Not sure what you mean by the last bit. I was referring to economic growth.
I said growth was possible but only via credit and debt.
But even then, there is no net growth since every asset has a corresponding liability. Only by writing off those liabilities do we get positive growth.
Dr. Spencer:
Is there already distributor of your Fundanomics here in the Philippines? I have known your book through Nonoy Oplas of Minimal Government. I have searched local bookstores here, both online and personal visits but could not find any. Thank you!
Ray, you are making it too complicated. Think of two businesses. In each business there is only the owner and one employee. I make shoes and I sell them to you. I pay the employee $5 to make the shoes, and the materials come from my farm. I charge you $20 which you pay so I make a $15 profit. You hire someone to catch fish and pay the $5 per fish and sell them to me for $50 per fish. You make a profit. If there are only really two of us then I can buy a fish for every seven pairs of shoes I sell you. End of story.
Money is just a way of making trading work. You would easily see in a trading economy that every person could live quite well and would be better off trading with their neighbors. If you are happy with a trade then effectively you are making a profit.
Go back and read those textbooks.
Nicolas Nierenberg,
Not the end of the story I am afraid.
You are so convinced that I am an ignoramus on economics, that you are not thinking this through.
I’m not sure where the ratio of 7 pairs of shoes to 1 fish comes from.
Since you make $105 profit, and the fish cost $50, surely you can buy 2.1 fish for every 7 pairs of shoes?
That makes the maths a bit complicated, because I can’t sell you 2.1 fish, and my fisherman certainly
couldn’t catch 2.1 fish, but if he could, and the wages are paid accordingly, I would only make $94.50 profit, so where do I get the money from to pay you $140 for 7 pairs of shoes?
Using your ratio, of 7:1, I only make $45 profit, so I have even less to spend on shoes.
Also, you have assumed that your materials are free, so presumably you don’t feed your cows?
Summary using my ratio:
YOU (SHOEMAKER)
Sale of shoes (7 x $20) = $140
Wages (7 x $5) = $35
Materials = $0
Profit = $105
ME (FISH MERCHANT)
Sale of fish ( 2.1 x $50) = $105
Wages (2.1 x $5) = $10.50
Profit = $94.50 (not enough to buy the shoes)
Based on your ratio, even if I increase the price of a single fish to $105 (your profit), I only make $100 profit,
which is still not enough to pay you $140.
If you reduce the price of 7 pairs of shoes to $100, then you only make $65 profit, which is not enough to buy the fish, and if I reduce the price of fish, then my profit is again reduced, and so on, in a downward spiral.
Actually, I am not sure if you can bring employees into the equation, since that breaks the “closed economy” rule.
A better model might be that you make the shoes yourself, using animals you have hunted, and I catch the fish myself.
But even using that model, I cannot pay more for the shoes than you pay for the fish, hence zero profit, which is
of course effectively bartering.
The proof that in a closed economy, not all businesses can make a profit, is that every year, thousands of businesses go bankrupt.
Again, I challenge you to come up with a model in which every business makes a profit.
Nicolas, if the government safety net is so great then why has poverty stayed the same since the institution of the War On Poverty and the literally trillions of dollars spent on it? In 1965, poverty was 14%. The next two years after it dropped to 11% but the economy had also improved. Since then, it has been 11-14% every single year despite all the money poured into it. The point being the government cannot get someone out of poverty by spending money. The person has to make some effort. Indeed, there is probably a very small percentage of people who need a safety net but our nation has gone well beyond safety net with social programs. Thing is, all this money hasn’t really improved conditions that much as the poverty numbers demonstrate. Might even be that people receiving government assistance are trapped by that assistance by the rules the government places on the money received.
Here’s another example. There is a sign says “Need someone for yardwork, $50”. You see a homeless person that is able bodied. Under our current system, YOU would go work this job and give a percentage of that money to the homeless person. But, would it not be better for this homeless person to go do the job and therefore get all the money? In the end, you do all the work for less money while the homeless person, again able bodied, does nothing and gets part of your money. How much sense does that make?
StGeorge says:
“Nicolas, if the government safety net is so great then why has poverty stayed the same since the institution of the War On Poverty and the literally trillions of dollars spent on it? In 1965, poverty was 14%. The next two years after it dropped to 11% but the economy had also improved. Since then, it has been 11-14% every single year despite all the money poured into it.”
I don’t know about the U.S., but in the U.K., “poverty” is defined as a level of income below a certain point in the income scale. So even if all incomes rise, there will still be, statistically, some people defined as being in poverty, because the total range of incomes stays within the “normal” distribution. A few year’s back, the Labour Government attempted to “raise children out of poverty”, by increasing the
incomes of their parents. Of course this failed, since there were always some families defined as poor, because their incomes fell within the defined “poverty” range. Until we reach a point where everyone’s income is identical, there will always be “poor” if defined in those terms. Any attempts by Government to eliminate “poverty” are ultimately futile.
Nicolas Nierenberg says:
“Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them.”
Actually, that’s not entirely true.
Large numbers of birds die every year from starvation, unless they are eaten first by other birds and/or animals.
“In this context I don’t view government as some external force, but rather a collective agreement that people should be taken care of if their circumstances, even if at the extreme it is their own stupidity or laziness, render them incapable of taking care of themselves.
I am absolutely certain that few modern people would want to live in a place that wasn’t like that.”
Personally, I don’t see why I should support someone’s laziness.
The Government is an external force. It is only because a Government acts as an intermediary that some forms of income distribution are accepted.
Put it this way, if your neighbour was too lazy to work, and was therefore unable to support his family, and the Government said that you must go to his house every week and stuff dollar bills through the mail box, would you be happy with that?
Dr Roy,
I notice that you quote Milton Friedman several times in the opening chapters of your book. I presume from this that you are a supporter of his theories.
I remember reading “Free to Choose” and “The Tyranny of the Stratus Quo” in the 80’s and they were a revelation. If only he were alive today, I don’t think we would be in the mess we are. Unfortunately, at least in the U.K. we seem to have forgotten the lessons he taught us. Apparently at the moment, Government expenditure is over 50% of National Income, which probably makes us more socialist than China, so we seem to be slipping into our bad ways again. Today the Institute for Economic Affairs, a free market “Think Tank”, has suggested reducing that to “only” 30%, but even the Conservatives would no doubt consider that to be too draconian.
It is ironic that China, in theory a “Communist” country, is better at free market economics than a supposedly “Capitalist” country like the U.K.
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