AUSTRIAN ECONOMICS ADDICT

We can all agree that a person has to have a high degree of expertise and ability to become a doctor. But does this expertise and ability in this particular field make this person knowledgeable in another field like, repairing his car? It has always amazed me that we give a degree of papal infallibility to politicians to make decisions outside of their area of  expertise. They have expertise in politics, which means they have expertise in verbal sleight of hand, which means they are great at fudging the truth without sounding like they’re fudging the truth. If the only negative consequences of the actions of politicians was to enrich themselves, break some rules, get family members government jobs, and live off of tax payers dollars, we could all live with that. But the amount of damage they do to the economy in general and each person in particular is exponentially more costly.

Here are some short comprehensive quotes from Thomas Sowell about economics and politics that we should think about before we proceed with the rest of the post.

1) “People need to be aware of the dangers in letting economic decisions to be made through the political process”.

2) “Just as a poetic discussion of the weather is not meteorology, an issuance of moral pronouncements or political creeds about the economy is not economics.”

3) “What is politically defined as economic planning, is the forcible superseding of other people’s plans by government officials.”

4) “In political competition accurate knowledge has no decisive competitive advantage, because what is being sold is not an end result but a plausible belief about a complex process.”

HILLARY CLINTON vs. ECONOMIC REALITY

In a speech today, Hillary Clinton, a noted Nobel Prize winning economist, presented some “unassailable” economic logic that I will attempt to logically assail. Here are some quotes from her speech, here and here.

“The evidence is in, inequality is a drag on our entire economy“.

Since all people have different skills and abilities, on the one hand, and value things differently, on the other, there is no possible way equality can exist. In fact, inequality helps drive our economy. Having different skills and desires allows each person to specialize in producing what they are skilled at producing. If I don’t have the skill or desire to produce food, it wouldn’t be good for me, or the economy, if I attempted to produced food. I can use my particular skill to specialize in producing something else and exchange it for food. When individuals specialize, more is produced while using less land, resources, time and capital. These excess resources and time can be used for other productive activities.

Mrs. Clinton should place the blame for inequality on consumers. Consumers decide what is a more important use of scarce resources and time based on what their value scales of consumption are. Trying to use government force to incentivize or constrain individual value scales, in the name of equality, lowers the over all wealth in an economy, which hurts everyone.

“We have to build a growth and fairness economy. You can’t have one without the other.”

I’m assuming she means individuals in government when she says “We”. Government politicians and bureaucrats can’t build an economy, they can only intervene in the economy. First lets define economy. An economy is what results when each individual freely decides what he will produce, consume, exchange and save. It is no more complicated than that. Mrs. Clinton, I hate to inform you but, as we discussed above, economic growth and fairness are mutually exclusive if fairness is defined as equality.

What does Mrs. Clinton mean when she uses the word fair? Fair is a word that doesn’t have to be defined by politicians because they know each person will place his own idea of “fair”, on what is being discussed. Using the weasel word “fair” is like giving each person a blank check to fill out. Politicians verbal sleight of hand plus the economic ignorance of the people, combine to produce the economic conditions that we are witnessing in Greece.

“Wages need to rise to keep up with costs.”

I assume the costs Mrs. Clinton is talking about are the costs of goods and services we consume. Does Mrs. Clinton’s political expertise allow her to understand that a wage is a cost factored into the process of producing goods or services that we consume? Peoples wages are not set by the altruism of an employer. Wages are set by the evil consumer. A business doesn’t add up all the costs of producing a good or service and then set the price hoping it will be met. An entrepreneur takes an educated risk that a good or service might command a certain price, and then sets out to produce that good or service at that price or lower. But there is no guarantee that he will get that price. The process of determining the value of labor starts with the consumer and moves backwards through the production process, and not the other way.

The law of supply and demand states that more will be demanded at the lower price than the higher price. And more will be supplied at the higher price than the lower price. Wages are set by this law, no matter how much politicians wish they shouldn’t be. Simply put, if you raise the price of labor above what the market will bear, there will be less labor demanded.

Most leftists think they can raise wages by decree and somehow that wage will be paid by the employer. Many conservatives think the cost of the wage will be passed on to the consumer. They are both wrong. If a good could bring in a higher amount of revenue at a higher price, it would already be priced at that level. The employer will have to figure out how to cut production costs before he raises prices, because the law of supply and demand says less will be sold at the higher price, and he doesn’t want to sell less. One of the first things he will look to cut is labor costs. This is why artificially raising the minimum wage above its market value leads to unemployment for minimum wage workers. Intervention into the economy by political do gooders, the economically ignorant, or tyrannical politicians, results in the same outcome. Their intentions don’t matter, the economic reality of their interventions matter.

HILLARY KNOWS BEST

Here are some quotes that show the arrogance of politicians in general and Mrs. Clinton in particular.

“This on demand, or so-called gig economy is creating exciting opportunities and unleashing innovation … but it’s also raising hard questions about workplace protection and what a good job will look like in the future.”

Here is how the last part should read because this is what she actually means. “… don’t you know that it’s also raising hard questions that you poor ignorant workers aren’t capable of answering. Only omnipotent government, led by someone with my superior intelligence, is capable of making these decisions. Government is the only thing that protects you from your bad decision-making, and a good job is what I think it should look like, not what you think it should be”.

“In an age of technological change, we need to provide pathways to get skills and credentials for new occupations and create online platforms to connect workers and jobs. There are exciting efforts underway and I want to support and scale the ones that show results.”

I have a question for young people who have grown up using all this new technology. Are you more tech savvy than a sixty seven year old who, because of her status, has been sheltered from technology? Does she have any understanding of how Uber works? She has no idea how someone can make money using Uber, or how a person can make money sharing their house using Airbnb. She is stuck in the old economy of taxi cab medallions, hotel regulations, labor unions, licensing boards and government controls. She said she wants to “create online platforms to connect workers and jobs“. Does she not know that Uber is that platform, or does she just want government to be in control of the platforms? How much smarter are you about what is possible in the new economy, than Mrs. Clinton. She needs to be quite and get out of your way!

Mrs. Clinton’s totalitarian attitude reminds me of a quote by George Gilder: “The Ambitious agent of contemporary liberalism simply ensures that government will do nothing well, except to expand itself as an obstacle of growth and innovation. Government best supports the future by refraining as much as possible from trying unduly to shape it”.

We can’t let credentialed ignorance prevail, or as Thomas Sowell has so eloquently stated: “People who are very aware that they have more knowledge then the average person are often very unaware that they do not have one tenth of the knowledge of all of the average persons put together. In this situation, for the intellegentsia to impose their notions on ordinary people is essentially to impose ignorance on knowledge“.

Related Article – The New, Old, Buzz Words, Income Inequality, at austrianaddict.com.

Related Article – Income Inequality Part II: Increase The Minimum Wage, at austrianaddict.com.

Related Article – The “Equal Pay Day” Canard, at austrianaddict.com.

 

 

 

 

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This entry was posted on July 14, 2015 at 3:07 am and is filed under Econ. 101. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Consumers Set Wages, Economic Central Planning, Economic inequality, Economically Ignorant Politicians, George Gilder, Good Intentions, Growth and Fairness Economy, Hillary Clinton Economist, Mrs. Clinton Economic Speech, Political Do Gooders, Sharing Economy, The Law of Supply and Demand, Thomas Sowell, Tyrannical Politicians, Wages and Rising Costs

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