Thu, 29 Jan 2004

Sustainable foo

"Sustainable" is a religious term. You can substitute "sacramental" wherever you see it. This is because it does not withstand the application of rationality. It requires, instead, a faith which is not borne out by past history.

"Sustainable" is a positive attribute. Sustainable is clearly better than unsustainable, isn't it? Who would want to engage in any unsustainable activity? There are, however, activities which are bad that should not be sustained. Take, for example, sustainable whale hunting, or sustainable pollution.

Sustainable is good only if the activity is good. The people who preach sustainability simply assume that the activity will be good forever, unchanged. This misses out on two possibilities, however. First, that the goals of the activity may be achieved through different methods (e.g. unsustainable fishing may be substituted for by fish farming, and leaving alone native fish populations), or the activity may be changed from being considered good to being considered bad.

There was a news report on NCPR about "sustainable agriculture" this morning. That prompted this entry even though I didn't hear it (had to walk the dogs). My assumption is that "agriculture" is considered to be a good thing, now, forever, and always. Yet just as we consider whale hunting to be bad, perhaps some day we will consider agriculture to be bad? Maybe we can grow the food we need hydroponically under grow lights, leaving the vast bulk of the land to go back to wilderness?

I contend that everyone who thinks "sustainable agriculture" is good would also think that returning farmland to wilderness is better.

Posted [08:39] [Filed in: economics] [permalink] [Google for the title] [digg this]

Sun, 11 Jan 2004

Unions vs. Prosperity

Steven Den Beste asserts, by way of finding, some good -- any good -- in Marxism, the hoary chestnut that " it is the rise of labor unions in the 19th century, which led to a rising standard of living for blue collar workers." Steven is a very good, generous, and kind-hearted person, but in this case he gives undue credit. The unions are for the unions.

There is a problem with giving credit to unions. Von Mises, in Human Action, points out that all costs to a corporation have been allocated. Wages go to the workers, inputs go to the suppliers, dividends go to the capitalists, and profits go to the entrepreneurs. Yes, from a corporation's point of view, dividends and profits are costs.

Consider why a servant is so expensive. Personal help used to be so cheap that any middle class person had at least one servant in the house. The job has not changed and yet almost nobody can afford a servant anymore. Somehow, the wages that a servant can demand have risen far out of proportion to their increase in productivity. A clothes washer, or a dishwasher, or a vacuum cleaner might help a servant do their job better, but not so much better.

The reason is not because the servant's tasks have changed. The reason is that all the other jobs a servant might employ themselves at have changed. Capital makes workers more productive, and yet capitalists get the same 5% (on a relatively risk-free loan) that they've always gotten. The rest of the productivity gains have been allocated to workers.

This, not labor unions, is the reason why workers are so prosperous in free market economies. Free markets are wonderful for the common man. Capital earns only a small percentage of the gains of production, and competition drives out the entrepreneurial profits. The rest of the gains go to workers, and entrepreneurs are forced to continue to create new business opportunities.

Now, let's say that workers wanted higher wages than supported by the increase in productivity. There are only three sources for the money to pay those increased wages: the customers, the capitalists, and the entrepreneurs. In each case, the only way they could get more money is by persuading or coercing the entity to continue with the deal for less money.

Customers might pay more for the same goods if they can be persuaded that unions are good for the customer. This has been done by propagandizing customers. A union might say "Look for the union label on the garment." Unions say things like "Unions ... the people who brought you the weekend." Since everybody likes not having to work on weekends, they pursue this non-sequiter to its illogical conclusion -- that since people don't have to work on weekends, and unions don't want union members to work on weekends, that unions have been responsible for people not working on weekends. No, it doesn't follow.

Unions can get capitalists to settle for a lower return on their money by threatening to harm the capital investment. This is most commonly done by destroying the workplace, sabotaging the workplace, occupying the workplace (the sit-down strike), or boycotting the workplace. The latter only works if the union can monopolize the workforce. In a town with a single large employer, there usually aren't enough spare laborers to replace the entire workforce. Replacement laborers are looked down as 'scabs'.

Entrepreneurs are harmed in the same manner.

You can see, therefore, that to the extent that unions have helped their membership, they have done it through fraud and force. The results of their efforts have been to discourage customers, capitalists, and entrepreneurs. Nobody can say how much better-off people would be had unions not held so many people in their thrall. The one bright light is that union membership is steadily declining in all but the public sector. That employment in the public sector is growing cannot be said to be a good thing, but that's another subject.

Posted [22:32] [Filed in: economics] [permalink] [Google for the title] [digg this]

Wed, 07 Jan 2004


I've been writing quite a bit recently because there's been much stuff, nonsense, and folderol published lately. The most recent I've seen is this:

Many economists predict that the dollar will continue to decline for some time, and that the declining dollar will help boost American industry by making American products cheaper in countries with strengthening currencies. "In the short term, it is probably helping the United States," said Robert Hormats, vice chairman of Goldman Sachs International.

Remember that money is just a thing. It's quite possible to have too much cash, particularly if you can't trade anything for it. The Germans discovered this in the 1930's, when they turned their currency into toilet paper. If you've traded away too much cash for goods, people will start to reject your cash. Your currency gets devalued on the global market. Same as Paris Hilton's currency has become devalued.

We are currently in that position. We have traded too many dollars for hard goods, e.g. from China. Now the Chinese have dollars that they don't know what to do with. They don't want our stuff quite so badly, and they can't buy things from other countries, because they don't want dollars either.

Mr. Robert Hormats is describing something that is bad as if it were good. We don't export because it's good for business. We export only so that we can import. Importing is the good part, because you get goods and give away pieces of paper. Exporting is the bad part, because you have to take back those pieces of paper, and you have to ship goods.

Posted [23:30] [Filed in: economics] [permalink] [Google for the title] [digg this]


Sigh. This is all nonsense, nonsense, nonsense. Outsourcing, or offshoring is very simple to understand, if you but take a moment. Let's take a typical reaction to offshoring and reduce it to the absurd:

Indianans think that money sent to India somehow disappears, or is lost to Americans. Let's say that, to stop that from happening, Indiana hires an on-shore firm. They're still sending their money out of Indiana. Were they to hire me to upgrade their state's computers, I must surely admit that I have absolutely no plans to buy anything from Indiana. Their money is equally as lost to them by spending it on-shore in New York as it is off-shore in Bangalore.

So let's say that the state government in Indianapolis hires somebody in Bloomington. Trouble is, that money is lost to the state government, since the Bloomington company spends it on Michigan outsourcers.

So they hire somebody in Indianapolis. They, in turn, have outsourced the work to somebody in Elkhart, Indiana, and that money has no return path to Indianapolis.

So they give up, and hire an Indianapolis resident to actually work full-time in the state IS department. Trouble is, nobody currently in Indianapolis is qualified to do the work. So they move from Bangalore, New York, Michigan, Bloomington, or Elkhart into Indianapolis, and no employment for any current Hoosier is created.

I'm running out of imagination, but the eventual end of this process is that Indiana Gov. Joseph Kernan has to perform every state job himself, because otherwise, some Indiana dollar might leave Indiana.

Can everyone see the absurdity here? There are no dollars that say "Indiana" on them. There aren't even any dollars that say "India" on them. It's too bad that Indians can't stamp the dollars that we pay them with "India Money". If they did, then we'd start to see India dollars in circulation inside the US.

The economic fallacy being promulgated by offshoring complainants is simple to explain but hard to internalize: The dollars that we pay to Indians don't get magically converted into rupees. They stay as dollars, and have absolutely no value to Indians unless they are ultimately spent as dollars back in the good old USA. Perhaps those dollars take a side trip to France, and then Britain, before coming back to the USA, but it should be emphasized again and again and again: we buy other countries products so they can buy our products.

You want to support Americans? Buy other countries products.
You want to support Indianans? Buy New Yorkers products.
You want to support Indianapolisians? Buy Bloomingtoners products.
You want to support Main Street Indianapolis? Buy Elm Street Indianapolis products.
Buy from whoever provides you with the most value regardless of their country, state, city, or street of residence.

There should be no confusion about how value is created: when two parties trade freely, each of them gains. The more that each of them thinks they got the better of the other, the more value created and the better the trade. Don't worry so much about who is getting the value. Worry more that the value created should be as large as possible.

Let me make this as absolutely simple as possible: nobody, but nobody refrains from outsourcing their own personal needs. I don't wash my toilet paper--I buy new, with the full confidence that, if I continue to do things that other people want, I'll get that money back as pay.

If there is to be a great hue and cry about offshoring, it should not be about the lost jobs, but about the new jobs that will be created once those dollars find their way back home.

Update: John Parmater's response was published on Dave Farber's Interesting People list. He says much the same as I, but probably more eloquently.

Posted [12:20] [Filed in: economics] [permalink] [Google for the title] [digg this]