Why Would We Think Increased Government Spending Is A Good Thing to Pursue? — Why Paul Krugman’s Love of GDP Is Wrong, Part One
I want to spend some time this week attacking GDP as the be-all and end-all of economic analysis. It’s a very important point, because it explains why the Paul Krugmans of the world think it’s great for the economy to boost government spending . . . or to have people dig holes and fill them in, so long as they’re doing something . . . or to do anything humanly possible to get consumers to spend, spend, spend. All of these wrongheaded policies flow directly from the overemphasis on GDP.
I want to keep my points bite-sized, so I am going to make this a multi-part series. Today, I address the fact that GDP takes into account government spending, even though government spending does not necessarily satisfy people’s preferences.
The video at the bottom of this post is worth your time. It features Austrian economist Jeff Herbener and historian (and author and prolific podcast host) Tom Woods. This video will provide the basis of two of my posts attacking GDP.
If you’re short on time, jump to 1:50 in the video, and watch for three minutes, stopping at 4:55. Here, Woods asks about the fact that government expenditures are included in GDP. Herbener explains that government expenditures are disconnected from our preferences — and are disconnected from the voluntary nature of the exchange, meaning that the prices are not market-determined, and are therefore inflated.
At 3:51, Woods plays devil’s advocate. Doesn’t government spending put people to work and put money in people’s pockets? Herbener explains: “The only way we can tell whether something in a net addition to human welfare is through voluntary purchase.”
At this point, you’re either nodding your head in agreement, or an objection is popping up in your mind: “Wait, how do we know that only voluntary purchases satisfy preferences? Don’t government actions satisfy people’s preferences? Isn’t that why people vote?”
The short answer is: sure, government actions satisfy some people’s preferences, by taking money from one group and giving it to another. (Government’s economic action ultimately boils down to that.) When you take from Peter and give to Paul, Paul’s preferences are satisfied, to be sure! — but Peter’s may not be. We can’t know for sure, because Peter was not given a choice. His choice was: pay your taxes, or have men with guns take you to jail. That’s not much of a choice at all, for most people.
In the free market, however, voluntary exchange satisfies the preferences on both sides of the transaction. When a car is sold, it’s because both the dealer and the purchaser think they are better off once the sale is finalized. Otherwise, the sale would not happen.
This is the type of activity that we want to maximize: transactions in which all parties benefit. But when we include government spending in GDP, we are including transactions that don’t necessarily benefit both sides — meaning that they don’t necessarily make consumers better off.
This is just one reason among many that maximizing GDP should not be the top economic goal of society.
Here’s the video. Tomorrow, we will discuss another part of the same video, to examine how GDP overemphasizes the importance of consumer spending to economic well-being.
P.S. Woods plugs Liberty Classroom at the end of the video. If you decide to sign up, please do so though this link, which benefits this site at no cost to you. Three people have signed up through this link so far, and the commissions I have received have more than repaid the $50 I spent to join. (I got the course for half price using discount code “DISCOUNT” . . . which still works.) In essence, Tom Woods has paid me to learn Austrian economics and non-P.C. history, and to spread the word to other people. I have access to nine interesting courses, and have listened (on my commute) to about 70 lectures on topics as diverse as Western Civilization, Keynesian economics, Austrian economics, U.S. Constitutional history, and logic. And I’m just getting started!
I highly recommend at least checking out the free samples to see if they appeal to you.
P.P.S. I’d love to get some feedback from the folks who subscribed.
One just needs to participate in the bidding process for a federal contract to see this point illustrated.
JD (2ee6b6) — 6/9/2014 @ 6:13 amI remember getting temporarily kicked out of an Econ. course at UMass – Boston when I suggested that the government spending part of the GNP calculation should be modified downward because I opined it wasn’t as efficient as spending in an open marketplace.
Roger Bournival (8b388c) — 6/9/2014 @ 7:14 amRoger: ha!
Don’t buck the orthodoxy!
Patterico (9c670f) — 6/9/2014 @ 7:16 amBut when we include government spending in GDP, we are including transactions that don’t necessarily benefit both sides — meaning that they don’t necessarily make consumers better off.
I’m reminded of all those people, particularly in the Occupy Wall Street crowd, who love to excoriate the private sector for its greed and success (as a seller), while saying little to nothing about the the greed and success (as a seller) of the public sector.
I often counter by noting that the goods and services provided by the private sector are not forced onto the backs of the consumer, meaning the consumer in general is not forced to pay for the goods and services (and employees, managers and bosses—and inefficiencies and corruption) of the private sector. But the consumer is forced to pay for the goods and services (and employees, managers and bosses—and inefficiencies and corruption) of the public sector, of the government.
Of course, there are small exceptions to the rule, such as privately owned utility companies that provide electricity that a person can’t live without. And there are certain niceties provided by the government, such as libraries and parks, that many people will happily be “buyers” of. But the government overall is like a company that forces people to pay for its “goods” and services, whether one wants them or not, whether they’re worth a damn or not.
Mark (99b8fd) — 6/9/2014 @ 7:27 amSpending itself is a very flawed measure of the health of an economy. Productivity uber alles, in my opinion.
But getting down to cases. I take my daughter for her flu shot that the government pays for. Then I take her to Starbucks for a grande chocolated chip double skim latte caramel mocciato with whipped cream and cinnamon that I pay for. Which is money better spent?
Yes, government is wasteful, inefficient, and worse. I am from Chicago, after all. But so are consumers. Take consumer spending out altogether, value goods and services at the point of production as the measure of the state of the economy.
nk (dbc370) — 6/9/2014 @ 7:31 amnk,
The money spent on your daughter is money well spent because it makes you happy. (If your daughter bought the drink, it would be money well spent because it made her happy.)
Government buying your daughter’s flu shot is not necessarily money well spent, because the government’s involvement in the transaction distorts the price. The fact that government does a good thing does not mean that government is the correct entity to do that thing. Maybe the thing could be done better in the free market.
Only voluntary exchange ensures that all parties to the transaction are made better off by the transaction.
Patterico (ce5aab) — 6/9/2014 @ 8:01 amAs noted, GDP includes government spending. Now, if all government revenues are generated internal, including both taxation and borrowing, the total GDP number is actually a reasonable estimation of actual production.
But in our case, we have been borrowing hundreds of billions of dollars from China and other places, and then the federal government spends it. By the numbers, that is part of GDP, but it reflects production which was not entirely ours; the GDP number overstates our total production.
And when we have to pay it back, that debt service is still part of GDP — it’s government spending, after all! — but it actually reflects American production leaving the country.
The economist Dana (3e4784) — 6/9/2014 @ 8:15 amnk wrote:
The answer is: no one knows. The only way to judge is to know the answer to the question, would your daughter have gotten the flu is she hadn’t gotten the shot?
The economist Dana, who still can't look into alternate quantum universes to see all ends (3e4784) — 6/9/2014 @ 8:20 amOur host set the wrong standard:
That statement sets up the standard that money is well spent if it results in happiness. That does not exclude, then, the possibility that the money spent for the flu shot was well spent, because nk and his daughter are (probably) happy that she got the flu shot. And if she does not get the flu, they will (probably) be happy that she did not, and are (possibly) going to attribute he not getting the flu to having gotten the flu shot, even though it can’t be proved that she would have gotten the flu in the absence of the shot.
If happiness is the standard, then all government spending is money well spent, because it always makes somebody happy. Food Stamps clearly make some people happy, even if they do make me extremely sad.
The economist Dana, who doesn't measure productivity by happiness (3e4784) — 6/9/2014 @ 8:26 amOur esteemed host wrote:
No, because not every voluntary exchange makes everyone better off. Buyer’s remorse is well known, as people frequently buy on impulse, and regret irrational choices later.
The economist Dana, who still can't see all ends (3e4784) — 6/9/2014 @ 8:32 amThe flaw here is that governments usually do produce something of value, the problem is that it’s impossible to measure that value. I would say that in the USA the value we get out of our governments is somewhere between “quite a lot” and “enormous”, but at the same time not nearly as much as what we pay for. Go plug that into an equation! And yet leaving it out altogether isn’t much better, because we know it’s substantial, enough to make our calculations invalid.
Yet another way in which government distorts economics.
Milhouse (b95258) — 6/9/2014 @ 8:42 amI don’t consider consumer valuation entirely meaningless, just very flawed. It would be a better indicator if people only spent money they had, because money you have is a pretty good indicator of of productivity. Can we take credit purchases, including government credit purchases, with a repayment period longer than one month, out of the GDP calculation? Home equity loans and lines of credit? Reverse mortgages?
nk (dbc370) — 6/9/2014 @ 8:43 amNo, that’s like saying that fire insurance money is only well spent if the building catches fire. The correct measure of whether the money the government spent on nk’s daughter’s shot is whether he would have spent that much on it, had the government not been offering it for free. If he would, then it has produced that much value for him; if not, then it has only produced as much value as he would have paid for the shot.
Milhouse (b95258) — 6/9/2014 @ 8:52 amIn this specific case, we have a way of measuring the value: we can ask nk, who can probably determine how much he would have paid for the shot, and at what price level he would have started to consider whether it might not be better to skip it and take the chance with the flu. But for the economy as a whole it’s impossible to determine this. We simply don’t know how much people would have spent on flu vaccines, if they were only available on the free market. We don’t know what the price would have been, and we don’t know how many people would have opted out. So we don’t know how much value the program produces, except that we can guess on general principles that it’s not as much as the government spends on it.
The benefits of disease control are, maybe literally, immeasurable. But in any case, the out-of-pocket at CVS is $25.00 (for adults, kids are “free” at the pediatrician). It would have been worth it. As a PTA dad, I can attest that schools are germ factories and so are the little angels.
nk (dbc370) — 6/9/2014 @ 9:13 amGovernment spending should be discounted in GDP. It’s not really spending; it’s reallocation of capital (for no reason except political advantage).
So if GDP is our best measure of economic health, including redistribution distorts its intended meaning.
Best analogy I have heard: government spending is like taking a bucket of water out of one end of the pool and dumping it in the other.
Patricia (be0117) — 6/9/2014 @ 9:16 amTwo pushbacks:
1. Regarding the hole-digging analogy, isn’t that pretty close to a good description of a war (where we produce goods for no reason other than to destroy them or use them to destroy other things), but nevertheless WW2 is often credited with helping lift the world out of the Great Depression?
2. Regarding non-government spending as reflective of individuals’ voluntary choices, how does one account for the enormous sums spent on advertising and the like, which influence the ways in which consumers “voluntarily” spend their money? (I’m not saying that advertising is the same as coercion, but it’s naive to suggest that it doesn’t exert a powerful influence on consumers’ decisions.)
Jonny Scrum-half (d80d5a) — 6/9/2014 @ 9:24 am“Often credited” doesn’t mean correctly credited. People who say this are usually economic ignoramuses. Henry Hazlitt neatly exploded the idea that war can improve an economy, with his “Broken Window” theory: if we were better off having our factories blown up and rebuilt, we’d do better to blow them up ourselves.
So what? Of course advertising influences consumer choices; that’s what it’s for. That’s the value it creates: it enables consumers to make better-informed choices than they would otherwise have made. If you’re in the market for some item and you know nothing about any of the brands available, then your choice is random, and thus useless. Advertising gives you the information you need to choose the one best for you, and thus creates the extra value you get from having made the better choice.
Milhouse (b95258) — 6/9/2014 @ 9:51 amThe economics lesson to take from WWII is something Admiral Yamamoto said when he warned the Japanese high command about going to war with America: “I have seen their factories.” I don’t know what else — war is not a normal state of affairs and WWII more abnormal than any other thing that ever happened to mankind.
nk (dbc370) — 6/9/2014 @ 9:52 amWhat you paid is irrelevant; what matters is the actual cost, most of which the government paid, versus what you would have paid had the government not
Milhouse (b95258) — 6/9/2014 @ 9:53 ambeen subsidising it. The latter is the value you received.
Well, some citizen at Starbuck’s who did not get the flu shot also got the benefit of my daughter not coughing around him. Some things the government does better, and some things only the government can do. I’d like it to spend as little as possible; and I’d like it to spend money it as and not money it’s borrowing from my daughter. As an economic indicator, not consuming on credit is, in my opinion, much more important than the consumer.
nk (dbc370) — 6/9/2014 @ 10:05 amAnd in a free market, those people who were particularly concerned about the extra safety they get from other people being immunised would be able to contribute to a charity that would promote and subsidise immunisation among those who would not otherwise avail themselves of it. Because this charity would be working for its contributors, and responsible to them, it could be expected to do a decent job of it. And the amount it managed to collect every year from willing donors would be a decent representation of the value the public put on its work.
The government does nothing better; by its nature it can’t. The only reason government has any right to exist is that there are indeed some vital things that only it can do, in its inefficient way. The only advantage government has over others is that it has a monopoly on the use of force. Thus, the only things it’s useful for are those where force is both justified and necessary. Mostly that means protecting its people from criminals who would use violence or fraud to harm them. Police, military, jails, courts, etc. We should not expect it to do those things well, but there isn’t any alternative. Providing immunisations does not require force (unless you believe it should forcibly immunise everyone who objects, for the greater protection of the rest of us), therefore there’s no need for government to do it, and therefore it’s inefficient to have government do it.
Milhouse (b95258) — 6/9/2014 @ 10:35 amAlthough economic reasons have been given for war, access to ports or raw materials, I am fairly sure the first thought of a head of state when considering whether begin a war or respond to an act of war is not “let’s consult the economists.” Economic theory presumes rational behavior, which is why “broken window” type fallacies are not useful in discussing behavior primarily motivated by factors other than economic self-interest.
daleyrocks (bf33e9) — 6/9/2014 @ 10:37 amif you do the clickings to where you find the full GDP report pdf you will find a table in there called “Table 2. Contributions to Percent Change in Real Gross Domestic Product”
i think this table shows you how much each facet of the gdp calculation including the government spendings contributes or detracts from the headline number
happyfeet (8ce051) — 6/9/2014 @ 11:04 amMilhouse objects:
Exactly right, and exactly correct: perhaps people are happy about whatever peace of mind they get from buying insurance, but if the insured-against event never occurs, then yes, the money was wasted. At least with the flu vaccine, it can be argued that nk’s wonderful daughter didn’t get the flu due to the vaccine, but fire insurance doesn’t prevent fires.
The realistic Dana (3e4784) — 6/9/2014 @ 11:28 amPatricia wrote:
You can argue this, but only if taxes paid are considered part of GDP, which is not currently the case. (If taxes paid were considered part of GDP, and government spending not removed, there would be a doubled counting problem.)
However, while it could be considered the reallocation of capital, it really is the reallocation of spending. Perhaps the bureaucrat gong through state compliance reports wouldn’t have a job wthout federal government spending, and perhaps state or private business filing the compliance reports would have spent that money differently, creating some other job, but the bureaucrat is receiving a paycheck just as surely as any of us in the private sector, and the government is buying things like toilet paper and machine parts just the same as Ford.
The economic realistic Dana (3e4784) — 6/9/2014 @ 11:34 am@Patterico – my other ‘getting tossed’ story – back in high school (in New Hampshire), I had an American Govt. course. The teacher absolutely loved the Kennedys & the Boston Globe. One day he was talking about the Kennedys; I brought up Chappaquiddick – “You’re outta here!”
So I go down to the vice principals office, tell him the story, and said ‘it’s a disagreement about politics – he can’t throw me out for that, can he?’ So we walk back to his class, and the V.P. told the teacher he had to let me back in. I had a s*** eating grin like you hear about.
Roger Bournival (8b388c) — 6/9/2014 @ 11:37 amIn 1976, the United States federal government got behond a flu vaccine against a variety of flu that didn’t exist (any more) based upon extremely faulty logic, and not only did it not immunize people against anything, but it gave some people a very serious disease.
http://www.cdc.gov/flu/protect/vaccine/guillainbarre.htm
Sammy Finkelman (2d4607) — 6/9/2014 @ 11:38 aminsurance companies have played a leading and proactive role in fire prevention efforts for many many moons
happyfeet (8ce051) — 6/9/2014 @ 11:39 am“Exactly right, and exactly correct: perhaps people are happy about whatever peace of mind they get from buying insurance, but if the insured-against event never occurs, then yes, the money was wasted.”
The realistic Dana – I disagree. The insured spent the money to purchase a policy for protection from named perils during the policy period. The insured received what he bargained for under the terms of the policy. Wishing for a fire to get your money’s worth out of an insurance product is Finkelmanesque thinking.
daleyrocks (bf33e9) — 6/9/2014 @ 11:51 amThat’s ridiculous. Peace of mind is itself valuable, and money spent buying it is not wasted. In addition, an insured building is worth more than an uninsured one.
Milhouse (b95258) — 6/9/2014 @ 12:01 pmdaleyrocks (bf33e9) — 6/9/2014 @ 11:51 am
Wishing for a fire to get your money’s worth out of an insurance product is Finkelmanesque thinking.
I wouldn’t do that.
I think.
Sammy Finkelman (2d4607) — 6/9/2014 @ 12:03 pmof course maximizing GDP should be a goal, but only a GDP that doesn’t count Government spending …
JeffC (8ad636) — 6/9/2014 @ 12:26 pmDana wrote : government is buying things like toilet paper and machine parts just the same as Ford
since when did Ford take your tax dollars to buy toilet paper ? not even close to the same thing … Ford earned the dollars by selling cars it used to buy toilet paper … the Government TOOK the dollars from someone to buy toilet paper … dollars that they may would chosen to do something else with …
JeffC (8ad636) — 6/9/2014 @ 12:30 pmDana … you really are an economic illiterate aren’t you ?
JeffC (8ad636) — 6/9/2014 @ 12:31 pmWhen you use spending as a measure of GDP, you run into conundrums like this. When you use actual production for “product” then you’re on sure ground. Do you suspect, at all, that GDP defined by spending is maybe hucksterism promoted by the merchants and Madison Avenue? What’s good for Target is good for America?
nk (dbc370) — 6/9/2014 @ 12:52 pmJeff C wrote:
You are arguing the justification for taxation and government spending, but not whether spending by the government is somehow different than spending by Ford. Unless the government and Ford negotiate different prices for toilet paper supply, the economic impact of Ford buying a million rolls and the DoD buying a million rolls is substantially the same.
The economic realistic Dana (3e4784) — 6/9/2014 @ 1:23 pmWhile an economic dilettante, I understand there are already at least four methods of calculating GDP.
I would think a measure of total cumulative economic activity as the standard GDP originally represented.
Something like the integral of the following over a year’s time:
http://research.stlouisfed.org/fred2/series/M2V
With the Federal dollar spent generating 42 cents in economic activity, due to malinvestment and overhead, it is little surprise they strive to baffle with BS.
gary gulrud (46ca75) — 6/9/2014 @ 1:28 pmOur Windy City barrister wrote:
We’re always on somewhat shaky ground, given that we can’t accurately measure all of the goods and services sold in America; the Europeans are trying — though not succeeding — to get some sort of handle on it by estimating the amount of money spent on prostitution and recreational pharmaceuticals.
However, if we are going to measure only actual production, how do we measure the salary of the cashier at Turkey Hill, who takes the $1.25 for my morning Philadelphia Inquirer? She has taken my cash, to pay for the product, but has, herself, produced nothing.
Or, to make it more complicated, there are two girls in their Daisy Dukes at the Bagel Bunch in the morning. One actually toasts and butters my morning bagel, but the other simply takes my cash. One produces and one collects, but both are paid.
Calculating GDP by gross spending is the worst way to calculate it, except for all of the other ways. By using gross spending, we are using the dollar value assigned by the market for what production is worth. If I could figure out a better way to measure it, I’d be an economist as celebrated as Paul Krugman. 🙂
The economically inquiring Dana (3e4784) — 6/9/2014 @ 1:32 pmThere are a couple of other lessons. For one since war is an abnormal situation the flaws of using GDP as a measure of economic health become absurdities. For instance the value of government spending was vastly overstated, which means GDP itself was vastly inflated.
There was a massive reallocation of resources from building items that people would have preferred into things that have very little economic use. Tanks, aircraft, ships, ordnance, etc. Their value is no way connected to what the government spent to build them. Really, their market value was only as scrap, which was much less. And what about all the ships, aircraft, tanks, etc., destroyed? Were they of benefit to anyone? Then consider the draft. Yes, the government spent a lot of money paying conscripts. But then those conscripts had to be forced to accept wages far below the market value of their labor if, just as with the value of the resources that went into building war materiel, they could have instead been working to build things people actually want.
The second lesson is that many people, such as many conscripts, actually saw their standard of living go down during the war. Certainly almost no one saw it improve. People had to put up with inferior goods if they were available at all. Mostly they went without. So in terms of people’s standard of living the war years were just a continuation of the Depression.
The way we measure GDP is in no way a measure of prosperity.
Steve57 (61329d) — 6/9/2014 @ 1:44 pmThe economically inquiring Dana – I for one believe in depth independent studies of the European prostitution and recreational pharmaceutical industries need to be performed and I’m just the man to perform them. Who’s with me? 🙂
daleyrocks (bf33e9) — 6/9/2014 @ 1:54 pmInteresting, but it’s an academic point. It takes more than logic to change the way GDP is calculated.
Unfortunately, Obama IS changing the way US GDP is calculated, unilaterally. We will now include the revenues from books, movies, and the like. Now, I agree these things should be counted, but there is a process to get other countries to adopt the change. This tends to move somewhat slower than a glacier, and the ever-impatient Obama lacks the attention span for that.
So in a couple of years, GDP comparisons will no longer be possible, at least not comparing apples to apples with the rest of the world. I suspect that was Obama’s goal, it will make him look less of a disaster.
Estragon (ada867) — 6/9/2014 @ 2:07 pmGDP includes services, and what you pay for them is as good a way to measure them as any. So I would count wages, or doctor’s fees, but for salespersons I’d prorate. If they serve you 100% American-made products, 100% of their pay counts towards GDP. If they work at Walmart, only 10% of their pay counts towards GDP.
nk (dbc370) — 6/9/2014 @ 2:08 pmGood video. Someday, we Americans will get up off our fat, lazy, and Godless asses – and examine information available to us. The U.S. Government (Department of the Treasury) puts out a financial report of the U.S. Government every single year.
The 2013 Financial Report of the U.S. Government P. 63: “Open-group – Total present value of future expenditures in excess of future revenue……$39,698 billion ($39.698 trillion).
At what point does this begin to scare the average American ? Having dug myself out of a 24k credit card hell over 6 years, I’m outraged than any rational human could possibly make a claim based on any factual information – that increased Govenment spending is helpful.
dc (685527) — 6/9/2014 @ 2:44 pmI’m really looking forward to having this conversation again when the 47% become the 51% and vote to satisfy ALL their desires on the backs of the producers.
in_awe (7c859a) — 6/9/2014 @ 5:24 pmI said:
and The Economist Dana replied:
No, you are misreading my statement, although I could have been clearer. I did not make happiness the standard. I made the happiness of the person spending the money the standard.
Notice how I said that nk spent the money and it made nk happy, it would be money well spent? And if his daughter spent the money and she was happy, it would be money well spent? If we used the happiness of nk’s daughter as the example, I required that she be the person spending the money.
My point is: if the person spending the money derives satisfaction from it, in an amount sufficient to justify the expenditure in their minds, then the money is well spent. By “well spent” I mean to say that it cannot be considered wasteful, from the perspective of an Austrian economist (if I am wrong about this, I am sure someone will correct me). In other words, people know their own preferences, and it is not for others to judge whether spending is wasteful. If it increases the satisfaction of the purchaser, it is not wasteful by definition.
As Milhouse observed above using different words, we can’t know whether this is true in the case of government expenditures, because the spending is not voluntary on the part of the ultimate source of the money: the taxpayer from whom money was taken at the point of a gun (since failure to pay taxes means you will, one day, be looking down the barrel of a gun of a police officer who is arresting you for that crime).
Patterico (9c670f) — 6/9/2014 @ 6:38 pmI said:
And The Economist Dana responded:
I was referring to the purchaser’s well being at the moment of purchase as opposed to some time later. Of course, he could be in error. People often are in transactions.
But, unless there is force of fraud involved in the transaction, the purchaser would not have made the purchase if he did not consider himself to be better off at the moment the transaction is completed. Otherwise, by definition, the purchase would not have occurred. Nobody can say better than the purchaser whether he is actually better off. (You might disagree, but even a purchase that onlookers consider foolish can bring pleasure to the purchaser.)
Now, it is true that one can have buyer’s remorse after the fact. But that simply means that human beings sometimes make errors in voluntary transactions.
Patterico (9c670f) — 6/9/2014 @ 7:07 pmJonny Scrum-half said:
Thanks for the question and nice to see you. I plan to be active in these GDP threads, but cannot write comments during the day — I hope you’re still around and that you see this despite the delay.
I have already written three GDP posts and over the weekend I considered making a “World War II did not end the Great Depression” post as a fourth. Your comment has solidified my decision to do so.
But I won’t make you wait until Thursday for a short answer. I briefly alluded to it in this post:
Related point: my argument is that economics is about raising the standard of living, not creating busywork activity. (More to come on this point in coming posts.) So a bunch of women and older men slaving away in factories to make munitions certainly may represent an increase in activity — but it doesn’t exactly raise the standard of living, does it?
Without wanting to seem too crass, I believe the death of FDR ended the Great Depression as much as any other world event. Businessmen could finally operate businesses without living in constant fear of being jacked around by a lunatic.
Patterico (9c670f) — 6/9/2014 @ 7:17 pmVery, very well said.
Patterico (9c670f) — 6/9/2014 @ 7:18 pmHopefully, by the end of the week, you will have changed your mind about whether maximizing GDP should be a goal.
It shouldn’t. But it will take another post or two to show why.
Patterico (9c670f) — 6/9/2014 @ 7:20 pmAlso very well said! I don’t think you need to read any more of my GDP posts. I think you get it already.
Patterico (9c670f) — 6/9/2014 @ 7:21 pmNever underestimate the power of ideas.
Patterico (9c670f) — 6/9/2014 @ 7:21 pmDisparity:
http://directorblue.blogspot.com/2014/06/david-stockman-reagan-recovery.html
Capitalism generated 150 times the jobs garnered over the last five. That, of course, includes a lot of water under the bridge, and now its gone too.
gary gulrud (46ca75) — 6/9/2014 @ 7:54 pmOne might think that our Austrian-fluent POTUS would have a grasp on this concept.
Icy (cbceee) — 6/9/2014 @ 8:13 pmWar impoverishes a nation, no argument from me on that point. A big military impoverishes a nation even in peacetime. Germany’s resurgence has been partially attributed to having America provide its defense. The fall of the Soviet Union can be partially attributed to unsustainable levels of military spending. Does that mean that we can extend that to all government spending? I don’t think so. Only those that do not give a return on investment. The national highway system is worth the money, I think, and there are others. And sometimes a little impractical profligacy is called for. I am all in favor of the space program even if its only practical benefits have been pens which write upside down, nonstick cookware and armor-piercing bullets. And I really like out national forests even though we could make a good buck selling the lumber to Japan.
nk (dbc370) — 6/9/2014 @ 8:14 pmthe National Park Service people are scary and hateful
they’re all eaten up with hate for their fellow Americans
and for this we give these whores a sweet sweet piggypension and they don’t even have to buy their own work clothes
happyfeet (8ce051) — 6/9/2014 @ 8:37 pmThat’s insane. What the (*&@ difference does it make where the thing they’re selling was made? The salesmanship is a service performed domestically, so it belongs in the GDP. Your proposal sounds like one that would come from one of those economic illiterates who imagine that middlemen are parasites, who produce nothing and merely extract money from the end consumer. Salesmen create value, every bit as much as factory workers do.
Milhouse (b95258) — 6/9/2014 @ 10:56 pmnk @54, war impoverishes nations because it is a period of capital destruction, not capital creation. Which is why people like Krugman are wrong when they credit WWII with pulling us out of the Depression. It could not and did not have that effect. But by using a greatly flawed measure of the economy called GDP as a yardstick, one can be tricked by the illusion of a booming economy into thinking so.
As far as a large military impoverishing nations, that depends upon how large the actual economy is. Which is why the USSR collapsed; we could afford the arms race, and they couldn’t. Discretionary defense spending certainly isn’t as destructive as non-discretionary social welfare andentitlement spending, as we are seeing in Europe.
Also, pet peeve. You may like the national forests, but they aren’t as well run as private forestland or privately managed forest land. There are two main certifying bodies globally, the Forest Stewardship council and the Sustainable Forestry Initiative.
https://us.fsc.org/
http://www.sfiprogram.org/
100% of Weyerhaeuser forests in North America are certified to SFI standards. These standards are not intended to produce a tree farm or monoculture. They are concerned with creating healthy, biodiverse forests that meet the needs of surrounding communities. Which is why you can get hunting leases or otherwise use them for recreation. Just as you can on Forestry Service land except Weyerhaeuser land is managed much better. The National Forest Service did a case study and could not meet SFI or FSC standards. They are not managed as well and thus not as healthy as private forestland.
Similarly, the BLM has way too much land to manage effectively. Which is why ranchers who either own the land or are grazing permittees on BLM land hire their own range scientists (usually grazing associations will hire these scientists rather than individual permittees). They do so for two reasons. Their livelihood depends on it, and to defend themselves against lawsuits from environmental groups. And all too often of late, the BLM itself. They need to not only maintain the range for their own benefit, they need to be able to demonstrate in court that they are maintaining the range and not destroying it.
You don’t get much for your impractical profligacy. You get the profligate spending, sure, but not the vanity item you were hoping for. So in that category, you’re much better off putting those items in private hands or, at worst, at the state level or below.
Steve57 (61329d) — 6/9/2014 @ 11:54 pmChill, Milhouse. Patterico is taking the long way of saying something I
nk (dbc370) — 6/10/2014 @ 6:29 amferventlystronglytend to believe — consumer spending is as good a measure of the health of an economy as lipstick and makeup is the measure of the health of a leper. Walmart’s shoddy Chinese junk is a better measure of China’s GDP not America’s and, anyway, the overhead including workers’ wages is included in the price the consumer pays, and more anyway I’m being tongue in cheek.Steve, I hate to reveal the fascist in me, or maybe it’s communist, but I have to ask this question: The free market charges something more and beyond the value of the things it sells, and it calls it a profit. Then it takes that profit to buy mansions, yachts, private planes, and jewelry for pretty girls one-third its age. Is profit more
nk (dbc370) — 6/10/2014 @ 6:36 am“moral”consumer-friendly than government inefficiency?Sigh. Profit or government inefficiency. What difference does it make to the consumer?
nk (dbc370) — 6/10/2014 @ 6:40 amnk – it also takes that evil profit, and invests in its employees, its operations, its infrastructure, etc …
JD (5fd660) — 6/10/2014 @ 6:44 amGovernment isn’t just inefficient. It can do a bad job.
It may even start out good, because of the person(s) originally in charge, and in fact tends to start out good, except when it’s an expansion or a duplication of somethinbg already beibg done, but once it gets bad, it is very hard to make it good again.
No incentives.
No competition.
It doesn’t face the prospect of going out of business.
Nothing to stop it from continuing for years and years to do a bad job, except that provided indirectly by elections, and that’s a weak reed.
Also, the inefficiency of government may be several times greater than the profit by a business.
Of course there are also private businesses that accept contracts from government(s) and they are also very inefficient, and make a profit. Maybe you get the worst of both worlds then. (If there’s no loss of business due to doing a bad job)
Except that…
Politicians are much more likely and eager to go after a badly run or dishonest business than a badly run or even corrupt government agency.
And private businesses can be sued, which means you have some lawyers ready tp go after them, if there are large claims to be ade (an important caveat) and the problem is standardized.
And the people involved are sometimes prosecuted. They are now talking about prosecuting people in the VA but it takes a lot moe to get to that point when it’s a government agency.
Sammy Finkelman (2d4607) — 6/10/2014 @ 7:01 amSteve57 @57 war impoverishes nations because it is a period of capital destruction, not capital creation. Which is why people like Krugman are wrong when they credit WWII with pulling us out of the Depression. It could not and did not have that effect. But by using a greatly flawed measure of the economy called GDP as a yardstick, one can be tricked by the illusion of a booming economy into thinking so.
I have a chart.
It shows Consumption Expenditures vs Disposable Income.
For most years it has a standard slop. You can see the meeting point going up and down
1929 = 1936 = 1938 approximately.
By 1940 (these are full year statistics) it is definotely above Depression levels.
1941 through 1944 shows disposable income rising, but consumer expenditures staying flat.
1944 through 1946 shows disposable income staying flat but consumer expenditures rising.. 1947 actually has a little not disposable income but a little bit more spending. but by 1946 it’s back on the same slope as pre World War II. The chart continues till 1959. It i all adjusted for inflation (1954 dollars)
Sammy Finkelman (2d4607) — 6/10/2014 @ 7:10 amBTW, the BLM vs. ranchers is not a hill for free market advocates to die on. The real history of the West is post-Civil War carpetbaggers in Chicago and New York, in a Devil’s alliance with the Federal government; getting enormous tracts of land for ranches, mines, lumber operations, and railroads; exterminating the buffalo for machine belts to run the Industrial Revolution; and decimating the Indians the same way as the wolves and coyotes; with small sops of non-arable land to “nesters” which make for good Hollywood, and made the Great Dust Bowl, but are not the real history of the West. Their chickens are now coming home in their heirs, successors, and assigns. I’m glad that they didn’t get all of it; that the people, through the Department of the Interior, managed to hold on to some.
nk (dbc370) — 6/10/2014 @ 7:15 amPatterico (9c670f) — 6/9/2014 @ 7:17 pm
I believe the death of FDR ended the Great Depression as much as any other world event. Businessmen could finally operate businesses without living in constant fear of being jacked around by a lunatic.
That was basically over with by 1939 after FDR’s attempts to purge some Senators failed, and wworld War II started. FDR had to get serious about manufacturing for war and brought in Texan Jesse Jones to co-ordinate it.
http://en.wikipedia.org/wiki/Jesse_H._Jones
That page needs a little bit of editing.
Maybe try this:
http://www-tc.pbs.org/jessejones/teach.pdf
Sammy Finkelman (2d4607) — 6/10/2014 @ 7:44 amYes, but the point is that manufacturing for war did not help the economy. The war did not improve people’s standard of living.
Patterico (9c670f) — 6/10/2014 @ 7:48 amWhat you left out of your timeline, Sammy:
1946 — U.S. experiences huge economic boom, which was actually a depression according to GDP numbers.
Patterico (9c670f) — 6/10/2014 @ 7:49 amnk – it also takes that evil profit, and invests in its employees, its operations, its infrastructure, etc …
JD (5fd660) — 6/10/2014 @ 6:44 am
Which is good if you control the means of production. You get bigger and wealthier. If you don’t control the means of production, every profit dollar Macy’s uses to expand is a dollar less you have to start your own little boutique, and when you do you’re going up against a bigger and wealthier competitor. This ties in with Patterico’s new post. Consumer spending is a funnel which makes the rich richer.
nk (dbc370) — 6/10/2014 @ 7:59 amAlso, WW II saw extreme sacrifice by people working hard for the manufacture of war goods. The machines of manufacturing were working overtime and no one thought of going on strike. An infrastructure of production was put in place.
AZ Bob (533fbc) — 6/10/2014 @ 8:02 amThe infrastructure was already there by the time of Pearl Harbor. That’s what Yamamotos’ warning “I have seen their factories” meant.
nk (dbc370) — 6/10/2014 @ 8:49 am“Which is good if you control the means of production. You get bigger and wealthier. If you don’t control the means of production, every profit dollar Macy’s uses to expand is a dollar less you have to start your own little boutique, and when you do you’re going up against a bigger and wealthier competitor.”
nk – So you decide to start your own little boutique where Macy’s isn’t like a smart business person and since Macy’s doesn’t control the means of production, you can both buy the same product from the same lipstick manufacturers. Problem solved.
daleyrocks (bf33e9) — 6/10/2014 @ 9:17 amBut I don’t have the capital because Macy’s took it as its markup. What difference does it make to me if Macy’s took it or the government took it? I’m still broke. And maybe the government will give me food stamps.
I know, I know, Macy’s will not audit me and jail me if I don’t shop at its store. But that’s a non-sequitor or almost one, in a purely economic discussion. My money is still “wasted”, somebody else got richer instead of me, and worse, I have nobody to blame but myself.
nk (dbc370) — 6/10/2014 @ 9:31 am“But I don’t have the capital because Macy’s took it as its markup. What difference does it make to me if Macy’s took it or the government took it? I’m still broke.”
nk – Boo Hoo! Who promised you money to start a business? The Commissar of Equality and Central Planning?
daleyrocks (bf33e9) — 6/10/2014 @ 9:52 amBut why should I cry if Mr. Macy is taxed at 105% and forced to buy healthcare with contraception for his employees?
Political power is currency, too. And competition is competition. Whether over money or political power. He can outbid me on greenbacks but I’ll double down with votes.
nk (dbc370) — 6/10/2014 @ 10:11 amWould you like to agree on a fundamental principle that societies advance through cooperation and organization and not predatory competition?
nk (dbc370) — 6/10/2014 @ 10:14 amnk @68, in a free-market nobody controls the means of production. The only way the “Robber Barons” can control the means of production is in collusion with the government. Obamacare is a perfect example of the unholy alliance between big business and government. It is full of all sorts of rules and regulations that have nothing to do with providing health care to anyone. Instead it concerns itself with hours worked, numbers of employees (defining small, medium, and large employers and what they must do and the draconian fines that will accrue if they don’t), and for restaurants numbers of locations. This is why big business sent in their lobbyists to draft the ACA. It will never provide health care to an additional person, but it will effectively ensure that they eliminate any potential competition. Thanks to the ACA, it will simply be too expensive to add an additional employee. Frankly, for a lot of businesses it will simply be too expensive to keep the employees they have. Without the help of Barack Obama and Congress, the largest of employers couldn’t have achieved this. It could not happen in a free market.
Here’s a link to the Ludwig von Mises institute.
http://mises.org/
I’d suggest you poke around the blog and the article archive and learn how a free market capitalist system works. None of us have seen one in our lifetimes. Unfortunately there aren’t any online courses available, but if there were I’d suggest starting with something along the lines of “Broken Capitalism.”
Because unfortunately you have absorbed some socialist notions, such as the idea in a capitalist system it’s a zero some game. If Macy’s makes a buck, then that’s taking a buck away from you.
Regarding your earlier comment @59:
In a free market no one can charge anything beyond the value of an item. Because if anyone tries then that creates an opening for a competitor to come in and undercut them. If companies can overcharge customers for a good or service an item, go back to the beginning of this comment to learn the only way that can happen.
You also have a skewed view of people who got wealthy in competitive industries. I suggest another book for you.
http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206
But if someone does get fabulously wealthy in a free-market and can afford yachts, private planes, and mansions then yes that is infinitely “
‘moral’consumer-friendly than government inefficiency. Because in case you haven’t noticed it’s the bureaucrats who are padding their nests through the miracle of government inefficiency. 10 of the wealthiest 15 counties in the US are now within commuting distance of Washington DC. How? With your tax dollars which are taken from you at the point of a gun and with the threat of prison if you don’t pony up. It’s the politicians, the bureaucrats, the lobbyists, and the rent-seekers are getting rich on money they coerce out of the rest of the country. That’s where you’ll find the yachts and mansions these days.In a free market it’s a free exchange. And why wouldn’t I want the small aircraft manufacturers, yacht builders, and general contractors, electricians, carpenters, plumbers, etc., to share in their good fortune.
What do you have against the workers at Cessna, nk?
Steve57 (5f0260) — 6/10/2014 @ 10:49 amnk, free-markets are the only means of getting cooperation without coercion. Free markets are not “predatory competition.” The only way corporations can use predatory practices is if they eliminate competition.
“Cooperation and organization” are just leftist euphemisms for coercion. Why are you such a big fan of government coercion, nk?
Steve57 (5f0260) — 6/10/2014 @ 10:52 amMacy’s doesn’t “take” anything from you, nk.
JD (0eecb0) — 6/10/2014 @ 10:54 amSocialists think they do, JD. Which isn’t to say nk is a socialist. It’s just that socialist economic ideas are so pervasive that most people take the underlying assumptions for granted.
Steve57 (5f0260) — 6/10/2014 @ 11:13 am“Would you like to agree on a fundamental principle that societies advance through cooperation and organization and not predatory competition?”
nk – Would you like to agree that like Obama, you are a socialist at heart?
daleyrocks (bf33e9) — 6/10/2014 @ 11:15 amNobody’s more authoritarian than a corporate CEO, Steve. And didn’t you, in the comment before that, tell me at length how business eliminates competition, in collusion with government?
JD, I admitted I’m not forced to consume the way I’m forced to pay taxes. I’m asking “what difference does it make” to me. I can avoid the market the way I can’t avoid government? Thin. The market is hard to avoid if you want to participate in society. There’s more than one necessity, more than one form of coercion.
nk (dbc370) — 6/10/2014 @ 11:24 amI prefer authoritarian collectivist.
nk (dbc370) — 6/10/2014 @ 11:25 amTo some extent I am playing devil’s advocate, but my detestation of consumerism is pretty real, and it riles to see it used as a measure of a nation’s wealth. Wealth comes from production.
nk (dbc370) — 6/10/2014 @ 11:33 amPatterico: 1946 — U.S. experiences huge economic boom, which was actually a depression according to GDP numbers.
There was supposed to be what used to be called a depression after the war, according to some economic theories. Montgomery Ward believed that, and eventually went out of business. Sears Roebuck did not.
By the way there was a famous incident:
http://www.bloombergview.com/articles/2012-12-07/when-the-army-invaded-montgomery-ward
Sammy Finkelman (d22d64) — 6/10/2014 @ 11:37 am1947- Inflation reaches 20% a year
1948 – President Truman accuses the congress of “doing nothing” about inflation.
Oct 1948 – Government releases statistics revealing the inflation has mysteriously disappeared.
Nov 1948 – Truman re-elected.
1949 – Recession caused by declining prices.
June 1950 – North Korea invades South Korea, Korean War begins, throwing economy off in new direction. Spot shortages.
March 4, 1951 – Federal Reserve Board gains independence from the U.S. Treasury – will no longer keep interest rates as low as possible to support government debt.
1951-1953 – Wage and price controls – taxes raised – balanced budget
Sammy Finkelman (d22d64) — 6/10/2014 @ 11:43 amI just want to be able to buy the type of lightbulbs I want to buy, and buy the size of soft drink I want to buy, and buy the kind of fuel mixture I want to buy. I want there to be steel manufactured in America, and cotton towels and shirts manufactured in America, and shoes and dishes and vitamins manufactured in America. Really. Is that asking too much?
elissa (60842a) — 6/10/2014 @ 11:43 amnk @81, I went on at length about how all the negative effects you attribute to capitalism is actually a result of government intervention. Which is why in the same comment you are referring to I was disappointed that the “Broken Capitalism” online course isn’t available at the Ludwig von Mises Institute. Let’s review the course description.
Yes, of course some people will seek that government intervention in order to eliminate their competition. There’s an old saying; nobody hates capitalism more than a capitalist. It’s sort of the corollary to the saying; a conservationist is somebody who built their cabin in the woods last year, while a greedy developer is someone who wants to build their cabin in the woods this year. In other words “I got mine,” and now that things are just how I like them I want to use the coercive power of government to make sure things stay exactly how they are.
So what? That just illustrates among other things the moral superiority of a free market. In a free market the only way to get ahead is to think about others, and what they want. Then you provide it.
Anyone who desires state intervention is only thinking about themselves. “I got mine.” The ultimate form of greed-driven state intervention is socialism, which people will vote for because “I want yours.”
Steve57 (5f0260) — 6/10/2014 @ 11:49 amYes, elissa, it is. All that would cut into the profits of the transnationals in a big way. Except, maybe, the soft drink.
nk (dbc370) — 6/10/2014 @ 11:50 amnk (dbc370) — 6/10/2014 @ 11:24 am
Really, nk? In the age of Obama you’re under the impression that nobody is more authoritarian than a corporate CEO?
Steve57 (5f0260) — 6/10/2014 @ 11:54 amLeaf through Obamacare, nk. The Obama administration is making transnationals out of formerly American companies by cutting into their profits in a big way.
You really don’t understand what’s going on, do you?
Steve57 (5f0260) — 6/10/2014 @ 11:57 amOk, Mayor Daley was, but he’s not there anymore. And he had the police, fire, and teachers unions, and the Shakman decree, to constrain him. But when he said “Jump”, Chicago aldermen said “How high?”
nk (dbc370) — 6/10/2014 @ 11:58 amelissa (60842a) — 6/10/2014 @ 11:43 am
I just want to be able to buy the type of lightbulbs I want to buy,
You can still get them in the right place(s)
Try lamp stores and 99 cent type discount stores. I still haven’t had to use any new ones, but I don’t replace them so often and got a lot. 150-watt and 3-way bulbs are still sold. There are some other exceptions. I am just wondering what happens to those people whose skin burns under florescent light and the sun? (a rare condition, but they managed to survive till now)
and buy the size of soft drink I want to buy,
Bloomberg was trying to use the Board of Health to disallow large bottles at certain events. A problem both on substance and on procedure. The only reason they were sold in the first place is that the price of a large container was barely higher than a smaller one. The theory is the sugary taste makes people eat more. But it’s all trivial any way.
and buy the kind of fuel mixture I want to buy. </i.
They had to back down, since the fuel they wanted didn't exist.
I want there to be steel manufactured in America, and cotton towels and shirts manufactured in America, and shoes and dishes and vitamins manufactured in America. Really. Is that asking too much?
Here we deal with economics. I just don’t want everything manufactured in China, and designed to break.
What about the toilets, the showerheads…
Sammy Finkelman (d22d64) — 6/10/2014 @ 12:00 pmSigh. If you don’t see how Obama is using American consumers’ love for shiny and sweet things to maintain his constituency, with the help of the makers of those shiny and sweet things ….
nk (dbc370) — 6/10/2014 @ 12:01 pmSigh. If you don’t see why American companies are becoming transnationals because of people who think like you…
http://blogs.wsj.com/washwire/2014/05/20/legislation-aims-to-keep-firms-from-leaving-u-s-for-tax-savings/
Shocka! If you drive up labor costs, use the NLRB to prevent companies from moving manufacturing from unionized states to right-to-work states, overtax them, overlitigate them, necessarily drive up their energy costs (any guesses what that does to a manufacturer), drive up regulatory compliance costs through the roof, hire former academics as EPA regional managers like Al Armendariz who think its their job to conduct random crucifixions of energy companies just to show them who’s boss, do you really think the way to make them stick around is to then cut into their profits in a big way?
Steve57 (5f0260) — 6/10/2014 @ 12:25 pmSure, Steve, but don’t
nk (dbc370) — 6/10/2014 @ 12:31 pmpiss on my back and tell me it’s rainingcalculate Americans owning stuff made in China as indicative of America’s wealth.http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
Also, I think it would be fascinating for you to explain how the economy crushing President who lectured us that the world (and by world, he meant himself because he thinks the world of his own awesomeness) wouldn’t let us drive our SUVs anymore is using America’s love of consumerism to maintain his constituency.
You mean like the millenials who due to a witch’s brew of joblessness and student debt load they can’t move out of their parents’ houses let alone afford to by all those shiny objects they love?
I want to hear how that works.
Steve57 (5f0260) — 6/10/2014 @ 12:32 pmOk, Steve, you’re right. Obama is out there telling people, “No more free stuff from the government. Austerity! Get jobs!”
nk (dbc370) — 6/10/2014 @ 12:42 pmnk @95, because the whole point of working to earn money is to have things. That’s how you measure people’s standard of living. Whether or not they can acquire those things that they believe will make their lives better.
That is how you measure wealth. Not by spending. But by whether or not people can acquire the goods and services they desire.
Pope Leo XIII understood this back in 1891.
Why are you having such a hard time grasping this?
You are starting to worry me, nk. You’re sounding like that lady in Austin who was recently in the news. She bought a house in 1991 and proceeded to vote for every park, library, or whatnot that came along because she thought that would make Austin better. So then she complained in a press interview she can no longer afford to live in Austin because her property taxes have skyrocketed.
Are you really unable to make the connection between your economic theories and preferences and the reason those goods people want have to be made in China if they’re going to be affordable?
Steve57 (5f0260) — 6/10/2014 @ 12:43 pmThe Social Responsibility of Business is to Increase its Profits
by Milton Friedman
The Social Responsibility of Government is to Increase its Taxes
nk (dbc370) — 6/10/2014 @ 12:45 pmby One Slogan Is As Good As Another (pseud.)
nk, were you an Occupy Chicago protester? Because you are one confused dude.
Steve57 (5f0260) — 6/10/2014 @ 12:45 pmSteve, are you reading my comments? If so, am I writing in Greek that’s why you don’t understand them? I’ll check my keyboard fonts.
nk (dbc370) — 6/10/2014 @ 12:47 pmnk @99, it’s not a slogan, it’s the headline of an article which goes into depth to make the economic case as to why that is. You would know that if you read the article, which you clearly didn’t
But the fact that you think it’s a slogan that equally applies to governments increasing taxes illustrates your veneer-thin understanding of the subject at hand.
Steve57 (5f0260) — 6/10/2014 @ 12:49 pmnk @101, yes I’m reading your comments. I understand them perfectly. You don’t know what you’re talking about. Got it.
Steve57 (5f0260) — 6/10/2014 @ 12:50 pmIn nk’s world
(@93)
=
On Earth this does not compute.
Don’t worry nk, I won’t read your comments anymore.
Steve57 (5f0260) — 6/10/2014 @ 12:54 pmThe second quote was from #97.
Steve57 (5f0260) — 6/10/2014 @ 12:55 pm“Wealth comes from production.”
nk – How about we produce a lot of stuff nobody wants to buy and create wealth that way. Are you down with that wealth creation plan?
daleyrocks (bf33e9) — 6/10/2014 @ 12:57 pmLighten up, dude. Friedman used to get personal too whenever he was not given an automatic “Yessir”. You and I have no bone to worry over.
nk (dbc370) — 6/10/2014 @ 12:59 pm“Nobody’s more authoritarian than a corporate CEO, Steve.”
nk – Possibly to the employees working for his corporation. For other people, not so much. If the employees don’t like the CEO they can always quit or if the BOD thinks he is hurting morale by being too authoritarian, they can can his butt.
daleyrocks (bf33e9) — 6/10/2014 @ 1:03 pmnk – I did not personally know Friedman. Let me know about the details of your lipstick boutique.
daleyrocks (bf33e9) — 6/10/2014 @ 1:04 pmHow about we produce a lot of stuff nobody wants to buy and create wealth that way.
Then you’re not producing, you’re fingerpainting (to use a polite word).
nk (dbc370) — 6/10/2014 @ 1:07 pmThat comment for Steve, daleyrocks. I type slow.
nk (dbc370) — 6/10/2014 @ 1:08 pmdaley….you mean like the Soviet Union?
askeptic (8ecc78) — 6/10/2014 @ 1:15 pmYes, nk, that does reveal the fascist/communist in you (they are essentially the same thing; fascism is a Marxist heresy). The free market does not charge even one cent more and beyond the value of what it says. It can’t do that, by definition. Nobody would ever willingly pay more than something is worth to them, and that is the only valid defition of value. A thing is worth precisely what it will fetch, neither more nor less. That is becuase value does not derive from labour (as Marx thought) but from the human mind. Things are valuable only because and to the extent that people value them. (That’s why unimproved wilderness that nobody ever gets to enjoy is of no value, and may as well be destroyed.)
This error is the source for hatred of the middleman, the merchant, the “international banker”, the “rootless cosmopolitan”, etc., as if they were parasites on production. It’s where the gulag and the killing fields come from, but it’s also where the pogroms, the blood and well-poisoning libels, and the gas chambers come from. It is evil, and it must be stamped out.
Milhouse (b95258) — 6/10/2014 @ 1:32 pmExcuse me? Nobody thought of going on strike? Only in the USA, because the USA stayed out of the war for more than two years. When the War started the union movement was against it, and did all it could to sabotage it. That includes US unions, who were against the allies and tried to sabotage their war effort. Then Hitler turned on his ally Stalin, and suddenly the unions were for the war. Had the USA joined the war before then, its experience would have been exactly the same; bitter strikes until June 1941, union cooperation after.
Milhouse (b95258) — 6/10/2014 @ 1:41 pmMilhouse (b95258) — 6/10/2014 @ 1:32 pm
Very well said, Milhouse.
felipe (960c75) — 6/10/2014 @ 1:43 pmMacy’s did not take anything from you. The profit it makes belongs to them, not to you, and they have every right to spend it on whatever they like. They created that value; it wouldn’t exist without them. Thus nothing they do with it can possibly harm you. Your taking it, whether directly or by means of government thugs you hired, is theft, no different from when someone mugs you in the street. That you could want to take it away from Macy’s marks you as a fascist/communist.
Milhouse (b95258) — 6/10/2014 @ 1:45 pmBecause it’s theft, immoral, and just as much an outrage as your grandmother getting muggged, or protesters getting massacred. That’s why. If you don’t want to be robbed, don’t sanction the robbery of others.
Milhouse (b95258) — 6/10/2014 @ 1:47 pmActually, John Locke said it before Marx. That people’s labor gave them a natural right to property they had created from raw material found in nature. Naturally. How else could we justify our natural right to take the Indians’ land? But my contempt for natural rights “Libertarians” is better left for another thread.
nk (dbc370) — 6/10/2014 @ 1:48 pmThere is no such thing as “predatory competition”. It’s a kafkatrap word, like “social justice”.
Milhouse (b95258) — 6/10/2014 @ 1:48 pmMan, I type slow.
nk (dbc370) — 6/10/2014 @ 1:49 pmThere is no such thing as “predatory competition”.
Really? What would you use for “big fish eats little fish”?
nk (dbc370) — 6/10/2014 @ 1:51 pm119.Would you like to agree on a fundamental principle that societies advance through cooperation and organization and not predatory competition?
Translation: Don’t you think I’m right and you are wrong?
felipe (960c75) — 6/10/2014 @ 1:51 pmNo, it does not. The only purpose of production is future consumption. The economy exists only for the sake of the consumer. This idolization of the producer, together with a narrow view of what constitutes production, is precisely where Auschwitz and the Killing Fields come from.
Milhouse (b95258) — 6/10/2014 @ 2:03 pmOh, knock it off. The equites who engaged in finance and commerce were held in contempt by the optimates who thought only land ownership and conquest were honorable in Republican Rome too. I don’t want to chop off any bourgeois heads.
nk (dbc370) — 6/10/2014 @ 2:09 pmOwning stuff is what wealth means. Where the stuff comes from is immaterial. Of course owning inferior stuff doesn’t make you as wealthy as owning the same amount of good stuff would, but nobody could afford to buy the same amount of good stuff as they can of inferior stuff. Whether you’d like less stuff, but of good quality, or more stuff, but junk, is an individual choice; it’s not for you or anyone else to dictate it.
Milhouse (b95258) — 6/10/2014 @ 2:10 pmBut wouldn’t it be nicer if the money for it stayed in America, the profit from it being used as capital in America, to innovate, expand, hire more workers, and pay more wages in America? Wouldn’t that be American wealth?
nk (dbc370) — 6/10/2014 @ 2:15 pmThat is not at all the same thing. Property can derive from labor. Value cannot.
What made it theirs?
You are contemptible.
Milhouse (b95258) — 6/10/2014 @ 2:16 pmMore socialist claptrap.
Milhouse (b95258) — 6/10/2014 @ 2:17 pmBut you hold us in contempt and feel free to rob us at will and humiliate us. You think you are better than us. Screw you.
Milhouse (b95258) — 6/10/2014 @ 2:18 pmYou make a habit of playing the Holocaust victim card and proceeding to the personal insults. Go play with your abacus.
nk (dbc370) — 6/10/2014 @ 2:19 pmWhy? What makes Americans better than Chinese or Mexicans? Why do Americans deserve those jobs more than Chinese or Mexicans do?
Actually, no, it wouldn’t. Read The Wealth of Nations. Really. It’s long, but easy to read. And you really need it.
Milhouse (b95258) — 6/10/2014 @ 2:21 pmI do no such thing. But you constantly reveal your deep-seated antisemitism, as if you can’t help it, it’s too difficult to keep hidden. The Holocaust, the killing fields, and the gulag all show what socialism is really all about, and socialism’s roots go back all the way to Greek antisemitism 2000 years ago.
Milhouse (b95258) — 6/10/2014 @ 2:25 pmNote well that I never take things personal, and i didn’t this time. It was nk who wrote of his “contempt for natural rights “Libertarians””.
Milhouse (b95258) — 6/10/2014 @ 2:34 pmand socialism’s roots go back all the way to Greek antisemitism 2000 years ago.
You mean like the Spartans (the one of the Greek city-state which might be called socialist) signing a mutual defense pact with Judah Maccabee?
You make s*** up.
Note well that I never take things personal, and i didn’t this time.
You lie.
You make s*** up, you lie, you play the anti-Semitism card, and you rant insults. It’s your modus operandi.
nk (dbc370) — 6/10/2014 @ 2:41 pmI mean the Greeks massacring Jews all over the Mediterranean. They were the first antisemites. I do not make things up, and I do not lie. I never take any thread personal; you constantly do. And I go out of my way not to make anything about Jews in particular (unless it really is); you constantly see things that way because your antisemitism is a deep-seated part of your personality.
Milhouse (b95258) — 6/10/2014 @ 2:53 pmThose socialist Seleucids. If you double down on your nonsense anymore, you’ll become a concertina.
nk (dbc370) — 6/10/2014 @ 2:59 pmIt wasn’t the Seleucids massacring Jews. It was your everyday Greek.
But enough of your lies. I wrote that I never take it personal, and I presented the evidence for this, quoting the comment in which you took it personal, and yet you have the chutzpah to claim I lied!
Milhouse (b95258) — 6/10/2014 @ 3:21 pmSo, among other things you’re not familiar with the concept of competitive advantage?
Steve57 (5f0260) — 6/10/2014 @ 4:38 pmI think transnational anarcho-capitalists are very dangerous because their first loyalty is to their wallet and not to their country.
nk (dbc370) — 6/10/2014 @ 4:45 pmHere are a few Milton Friedman videos.
http://www.youtube.com/watch?v=8EkClNPMltQ
http://www.youtube.com/watch?v=EYW5I96h-9w
http://www.youtube.com/watch?v=0E-URmNAa5o
http://www.youtube.com/watch?v=rQLBitV69Cc
http://www.youtube.com/watch?v=nchyFkWXw8E
http://www.youtube.com/watch?v=RWsx1X8PV_A
I have never once come across anything, anywhere, where Milton Friedman ever displayed the ‘tude that “you will respect mah authoritah” and say “yessir” and salute.
Perhaps you can do something to establish some credibility and provide some examples.
(And yes, I know I said I wouldn’t read your comments, but this has taken an ugly, personal turn and I’m trying to get back to substance.)
Steve57 (5f0260) — 6/10/2014 @ 4:45 pmAnarcho-capitalists don’t exist. They cross borders looking for stability. Which is what is driving American companies to relocate abroad; Obama and his anarcho-socialists have created too much instability.
Corporations are the anarchists? Who threw out bankruptcy law to reward unions in the auto bailouts ahead of secured creditors? Who keeps unilaterally waiving or altering Obamacare regulations on the fly?
I could go on. Obama and his lawlessness just keeps delivering one shock after another to the business community as they make up and alter the rules on the fly, and businesses run screaming for the border (if they can) looking for the kind of stability that you used to be able to find in the US before we were stupid enough to elect a Marxist community organizer. Once again you get things entirely backward.
Steve57 (5f0260) — 6/10/2014 @ 4:57 pmNo, their first duty is their fiduciary duty to their shareholders. You really need to read that Milton Friedman article.
Steve57 (5f0260) — 6/10/2014 @ 5:00 pmYou think George Soros is a loyal American? You don’t think Walmart, Toys R Us and Apple are helping to outfit the Chinese navy?
And I know what that Friedman article will say, “Money is good, make it any way you can”. I listened to him enough in the Reagonomics years.
nk (dbc370) — 6/10/2014 @ 5:08 pmhttp://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
It is ludicrous to equate the “slogan” that “The Social Responsibility of Business is to Increase its Profits” with the “slogan” that “The Social Responsibility of Government is to Increase Taxes.”
They both have a moral obligation to minimize theft. Which is precisely what an increase in taxation in both cases happens to be; theft. Corporate boards and executives have an obligation not to engage in it at all, which is what happens when they respond to outside pressures brought to bear by “community activists” to convert some people’s private investments (i.e. the shareholders’ money) for public purposes.
And contrary to your earlier assertion, nk, the government has a moral obligation not to maximize theft.
Steve57 (5f0260) — 6/10/2014 @ 5:17 pmnk @143, I’ll take that as an admission that you can’t back up your assertion that Friedman used to get personal and demand a “yessir.”
And in all cases it’s the USG that funding the buildup of the Chinese military. Both by destroying the economic climate at home, making domestic production impossible, and by recklessly borrowing from the PRC to fund social spending. Also known as vote buying.
(nk @54)
Sure, if you don’t paying the Chinese back with interest in order to indulge in it. So why be so hard on Walmart?
Essentially all you’re arguing at this point is that other people ought to be “patriotic” as currently defined by leftists. Wasting their own money on your preferences.
Steve57 (5f0260) — 6/10/2014 @ 5:27 pmThis is like reading what Karl Marx would like his readers to know about what Rush Limbaugh is saying. Or Rachel Maddow. Or Al Sharpton.
Steve57 (5f0260) — 6/10/2014 @ 5:31 pmSteve, I am not unfamiliar with the concept. As a lawyer, I have a similar obligation to act only in the interests of my client (within the bounds of the law), and forsaking all others work only for what’s best for him in the case I represent him in at the time. An obvious example would be, I cannot compromise a plea deal for him in order to get on the good side of the prosecutor and get good deals for my other clients. Apple’s current CEO, BTW, has expressed a different view. He said, roughly, “If return on investment is important to you, then Apple is not the company you want to be in”. You know, I will check out Friedman’s article just for that reason, because I think Tim Cook is wrong.
nk (dbc370) — 6/10/2014 @ 5:33 pmOh, I never talked to Friedman. I watched his round-tables. On occasions he had an opponent of his philosophy, say a union president, and was losing the argument he would say, “I know why you say that, it’s to your advantage … it’s your job … well of course you have to say that, etc.” I think that’s called the ad hominem fallacy.
nk (dbc370) — 6/10/2014 @ 5:39 pmIt’s not my job to stick up for Milton Friedman. He’s dead. The only time I’ve ever seen him become the least bit personal is when his adversaries would mischaracterize his arguments. Such as in this clip, where the liberal claims to know what Friedman is assuming, when Friedman was assuming no such things.
http://www.youtube.com/watch?v=nchyFkWXw8E
Now, if you have counterexamples I’d appreciate seeing them. I’ve just never seen Friedman engage in the ad hominem, but instead deal with the thrust of the argument.
Steve57 (5f0260) — 6/10/2014 @ 5:51 pmI went out and had a cigarette (it’s raining) and thought about it since I wrote that last comment. He may have been explaining the Austrian concept of self-interest in a way which seemed a personal attack at the time, in my unschooled view.
nk (dbc370) — 6/10/2014 @ 6:10 pmWhich concept, that people make economic decisions based on their own perceived self-interest, is psychology, not true for everyone all of the time, not an ideal to promote, but certainly a warning when entering a Turkish bazaar. 😉
nk (dbc370) — 6/10/2014 @ 6:15 pmWell, technically Friedman was of the Chicago school, not the Austrian school. Those of the Chicago school were monetarists. Which, to the adherents of the Austrian school, meant they weren’t really free marketeers.
It’s one of those, “How many angels can dance on the head of a pin” arguments.
Sort of like how the Bolsheviks could hate the Mensheviks, while both could hate the Fascists and the National Socialists, when to outsiders it all looked the same. Because really it was, and is.
Steve57 (5f0260) — 6/10/2014 @ 6:23 pmI share your amusement and bemusement that groups that are similar in many ways often hate each other the most.
That said, I do think the Austrians and the Friedmanites are different in a fundamental way: Friedman believed in entrusting government (or the Fed, which is close enough for my taste) with the power to determine interest rates. I would greatly prefer to see the free market do that.
Patterico (9c670f) — 6/10/2014 @ 6:29 pmConcur, Pat. Which is why the Friedmanites were too interventionist for the Austrian’s tastes. At this point either the Chicago school or the Austrian school would be a huge step up, though.
Steve57 (5f0260) — 6/10/2014 @ 6:47 pmI thought I should add, the above is why religious wars are the most vicious.
Steve57 (5f0260) — 6/10/2014 @ 6:50 pmHuh? I don’t understand what you mean by that. They certainly do exist! I know quite a few personally, and I’ve read the works of many more. They exist in substantial numbers, and have done for over a century now.
Go tell David Friedman, for instance, that he doesn’t exist! He’s long retired as a stick-jock, but I think he can still wield the rattan well enough to hit you and with Johnson say “I refute it thus!”.
Milhouse (b95258) — 6/10/2014 @ 10:43 pmAll I can say, Milhouse, is at the moment I can’t see beyond the anarchy the anarcho-socialists are brewing up at our border, with our new nationalized health care system, with our national defense policy, with our regulatory climate, ad infinitum, to keep track of what some anarcho-capitalist might be doing.
And that the capitalists I know that are leaving are fleeing this anarchy.
Steve57 (5f0260) — 6/11/2014 @ 7:10 am