Posted tagged ‘Economic Scarcity’

Private Property vs. Collective Ownership: One Deals With Scarcity Better Than The Other

November 5, 2015

The first rule of economics is scarcity. There are not enough resources to satisfy peoples desires. Economic systems don’t create this scarcity, it is the natural state of our world. The two questions that economic systems have to answer are, 1) How can limited means satisfy unlimited wants? 2) Which economic system does a better job of dealing with scarcity?

Private ownership of the means of production is the definition of free market capitalism. State ownership of the means of production is the definition of socialism. The economic system that exists in the U.S. today is not free market capitalism. It is a system hampered by Government rules, regulations and taxes. These Government interventions take decisions about the means of production out of the hands of private owners and places them in the hands of bureaucrats.

No economic system that exists today is purely free market or centrally planned. Since change is constant, the direction an economic system is moving is what is important. So economic systems are either moving toward collective ownership or toward private ownership of the means of production. Or as F. A. Hayek said, “moving toward serfdom and poverty or freedom and plenty.”

 

PRIVATE PROPERTY DEALS WITH SCARCE RESOURCES

In this article titled, Why We Need Private Property To Deal With Scarce Resources, Patrick Barron does a great job explaining how private property deals with scarcity better than collective ownership. Here are some excerpts from the article.

The existence of scarcity is true of all resources (such as time, human energy, and natural resources). However, it is not necessarily intuitive that allowing scarce resources to be owned privately is the solution to this problem.

Consequently, socialism appears attractive to many and they turn to having all resources owned collectively for the “common good.” Unfortunately, a society which spurns private property…. often learns the terrible lessons of central planning and the tragedy of the commons (i.e., commonly held resources will be plundered to extinction)

Throughout history, most of mankind has been divided into a hierarchical system of masters and slaves with some gradations between the two extremes. The masters…. devised complex rules-based systems for resource distribution….. And ultimately, these plans depended upon pure terror for enforcement. But this so-called solution to the problem of scarcity — restricting the people’s liberty through the use of force — does not work.”

Problem 1: We Can’t Economize Without Effectively Ordering Our Preferences First

“.… Modern economics explained that without private ownership of resources, there was no mechanism for observing or acting on ordinal preferences in which persons prioritize desires from highest to lowest. Without a way to allocate goods according to ordinal preferences, there is no rational means to economize for the betterment of society.”

In other words, without markets and prices, there is no way to know what people really want or need, so the masters never really knew what to order the slaves to produce, what technical means to use, what alternative materials to use, the quality desired, or how much to produce. Thus, the commissars of the Soviet Union ordered the production of inefficiently produced, shoddy goods. The Soviet empire collapsed, despite the fact that Russia is blessed with vast natural resources and an industrious population.”

Problem 2: Few Raw Materials Are Ready To Consume

A second fatal problem with common/government ownership of resources is that few readily available, consumable resources actually exist. There are no resources on the planet that do not require at least a minimum of effort to transform into a consumable product……Of course, most natural resources require much more effort to convert to consumable products, passing through many stages of production.”

…. Consider a hiker lost in the wild. It matters not at all to him that great stands of timber lie within easy reach or that valuable minerals lie under foot. These natural resources require great effort over very long time periods to be converted into something consumable….. A lost hiker does not have the knowledge, time, or previously produced means to convert these basic resources into consumable products to ensure his survival. All this is far beyond anyone’s autarkic abilities.

Now let us assume that someone did harvest trees by felling them, transporting them to a lumber mill, milling them, storing them in a ventilated and dry place for many months before kiln-drying them….. advertising their availability to contractors, keeping sales records, sending out bills, and collecting the bills, only to have a socialist call him a plunderer and confiscate his lumber for free distribution to whomever the masters deemed to be politically advantageous to their continued privileged position. No one other than the favored cronies of government would ever harvest another tree….. production of usable lumber would be monopolized…. prices would increase and quality would decline. Moreover, with no voluntary market at work…. there would be no means of knowing if these resources were being used in a way valued by those who valued them most.”

Problem 3: We Need Private Property To Build Capital

Without the ability to profit from privately owned property, there would be no incentive to provide or withhold capital for any endeavor. Also, a system of private ownership is necessary to determine if that capital is being used in a way the consumers value. The consequences of ignoring this fact of economic science is most evident today in China’s ghost cities, where resources, both natural and human, have been expended for no observable benefit except to advance the careers of politicians….”

The opposite case of resource waste comes from special interest groups…use the state and prohibit exploitation of resources by private individuals…. modern environmentalists have convinced the political class that most progress is unsustainable, dangerous to our health, etc… Society is prevented from benefiting from their conversion to consumable products. The poor suffer the most from these policies as the prices of raw materials — and thus finished consumer goods — are driven up.”

“Private ownership insures that valuable resources will never be plundered to extinction, because their value will have been capitalized. Instead, private owners will seek to make resources as widely available as possible without endangering the long-term prospects for future harvesting of resources. The process of determining a resource’s capitalized value is impossible absent free-market capitalism with strict defenses of property rights.”

Despite both the theoretical and empirical evidence to the contrary, socialists tell us the opposite; i.e., that state ownership of all resources will prevent their plunder and ensure prosperity for all. As Ludwig von Mises explained, though, socialism is not an alternative economic system of production. It is a system of consumption only, and a system of economic ignorance and economic plunder.”

Related ArticleMilton Friedman -Socialism Is Force!, at austrianaddict.com.

Related ArticleWhy Socialism Won’t Work? Human Nature, at austrianaddict.com.

Related ArticleWealth Can’t Be Redistributed If It Doesn’t Exist, at austrianaddict.com.

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Capitalism vs. Crony Capitalism

April 23, 2014

Many people who decry capitalism do so from a position of ignorance of what capitalism really is. They look at the market system that exists in the U.S. today and mistakenly call it capitalism. Our present economic system is not free market capitalism, it is crony capitalism. Crony capitalism is a branch on the same central planning tree that includes socialism and fascism. In a true free market capitalist system, businesses wouldn’t be able to lobby government to pass laws that protect their position in the market and raise the costs on their present and future competitors, because government wouldn’t have the power to make these rules. Under free market capitalism businesses are incentivized to first serve their fellow-man before they can profit in any way. They must produce a good or service that consumers will freely exchange a portion of their labor for. Under crony capitalism businesses are incentivized to protect their own self-interest at the expense of the consumers and tax payers who are usually the same people.

Here is a video titled,  Why Capitalism Works, from Prager University, featuring George Gilder. He talks about the role of the entrepreneur in free market capitalism, as well as the incentive of giving before you receive.

 

SCARCITY TRUMPS  UTOPIAN VISIONS

The problem with how people perceive an economy is they don’t understand that a utopian world can’t be created on earth. The first rule of economics, scarcity, combined with the imperfections of man, make a utopian world impossible. The real question should be: What economic system can use limited means to supply the most ends for the most people? Put another way: In a world of scarce means and unlimited ends, which economic system can satisfy the most desires, with the knowledge that many desires will remain unmet? Free market capitalism,  produces the best possible result. History shows the branches of the central planning tree, whether it’s called crony capitalism, socialism, fascism, progressivism, communism, et al, produce a system were people have a lower standard of living and less individual freedom. A free market is nothing more than individuals freely producing, consuming and exchanging what they want, and in whatever quantities they want. Any interference by government, no matter how small, in the freedom of the individual to produce, consume, and exchange, moves an economic system down the central planning road, which is what Hayek called, “the road to serfdom”.

Related Video – Walter E. Williams, The Free Market Is Not Allowed To Work, by austrianaddict.com.

Related ArticleWe Can’t Recreate The Garden Of Eden, by austrianaddict.com.

Related Video Milton Friedman vs. Phil Donahue, Greed Is In The Eye Of The Beholder, by austrianaddict.com.

Related ArticleUnleash The Mind, by George Gilder, by austrianaddict.com.

It’s Basketball Tourney Time, Lets Talk Ticket Scalping.

March 20, 2014

Once again it’s time for March Madness. We can learn a lot about how the free market works by walking around arena’s that are hosting games.  Ticket scalpers and ticket buyers are involved in voluntary exchanges which are the heart of a free market. I wrote this post below about ticket scalping last year and I’m going to post it again.

TICKET SCALPING: THE TRUE FREE MARKET IN ACTION

I’m going to the Ohio High School Basketball Tournament this weekend not and not just to watch the games. I like to observe the economic principles at play in the free market for tickets, (aka scalping) that takes place outside of the arena, it is a real education. This video explains whats going on.

Most of the people who participate in the free market of ticket scalping, have no understanding of the economic principles they are demonstrating by their actions. Supply and demand, subjective value, and the allocation of scarce resources through the price system, are just a few of the principles being demonstrated. Order is created out of seeming chaos by buyers and sellers voluntarily making decisions on the price that ultimately leads to an exchange. The scalper is a broker who ultimately brings the buyer and the seller together, in the same way a realtor brings the buyer and seller of a house together. I’ve seen scalpers make a good profit selling tickets when LeBron James was playing in the state tournament because demand was high and the supply of good seats was low. I’ve also been at a final four at the Louisiana Super Dome where scalpers were selling tickets for a dollar, minutes before the game, trying to get what they could before the tickets would became worthless just minutes after the game started. The one thing I’ve noticed in both situations, the buyer and the seller never make the exchange of a ticket, for money, unless both parties agree on the price.  If the same two individuals came together and tried to make the exchange earlier or later than when the exchange actually took place, the subjective valuations of each party would have been different, and an exchange would not have taken place, at that price. If you get a chance to go to an NCAA tournament game, walk around the arena for a while and watch basic economic principles being demonstrated in the secondary ticket market.

Visual Explanation Of The Deficit And The Debt

November 1, 2013

The visual of this chart is outstanding, it jumped off the page when I saw it. The chart shows our Governments yearly revenue, yearly deficit, and total debt. This is from an article titled Great News! The Fiscal Crisis Is Over! by Jon Gabriel, at ricochet.com. I got there from this article at theburningplatform.com.

https://i1.wp.com/cdn1.ricochet.com/var/ezwebin_site/storage/images/media/images/debtchart/4700766-1-eng-US/debtchart_lightbox.png

Here is a quote from Mr. Gaberiel, “…imagine the green is your salary, the yellow is the amount you’re spending over your salary, and the red is your MasterCard statement.”

What is sobering about this chart is how a seemingly small yearly deficit compounds into a massive amount of debt over time. What is it going to look like in three more years if we continue our $1 trillion yearly deficit?

THE REAL DEBT TOTAL

Unfortunately the $17 trillion is really not the actual debt. If you factor in the unfunded liabilities for Social Security, Medicare, and Medicaid, which have been estimated to be between $55 to $222 trillion, look at chart here, the problem gets exponentially worse. What do you think Obamacare will add to this unsustainable mountain, or valley, of debt?

THE FED RIDES TO THE RESCUE?

Fortunately we have the Fed which can electronically print counterfeit money to pay our way out of this mess. Oh yeah, I forgot, the only way a Government can accumulate this amount of debt is because its Central Bank funds the expansion in the first place by buying Government bonds. Without the ability to electronically print counterfeit money, Governments can only grow to the size of what they can steal or mooch through taxing and borrowing. At a certain point, individuals won’t produce above a certain level if they can’t enjoy the fruits of their labor, and they won’t purchase bonds from a seller whose level of debt makes the transaction seem to risky. The Fed can’t print its way out of the economic reality of scarcity. Their denial of this reality is why they printed us into this mess in the first place.

Related ArticleLet The Counterfeiting Continue! The Fed Is Stuck In Their Feedback Loop, at austrianaddict.com.

Related ArticleThe Fed As Giant Counterfeiter, by Robert P. Murphy, at mises.org.

The Reality Of Obamacare

October 28, 2013

“SOCIALISM BY INSTALLMENTS”

Ludwig von Mises said, “The middle-of-the-road policy is not an economic system that can last. It is a method for the realization of socialism by installments.” The middle ground between free markets and socialism is chaotic, with the only stable ground being free markets, on the one end, and socialism on the other. The free market being stability in wealth, and the latter being stability in poverty. Our current and impending healthcare debacle is an example of what Mises is saying in the quote.

We haven’t had anything close to a free market healthcare system since government put a freeze on wages during WWII. The unintended consequence of this action was employers started giving health insurance as a benefit, in order to attract labor for employment, because they couldn’t pay higher wages. Up to this point individuals payed for their health insurance out of the wages they earned. The individual was insuring himself against financial ruin in case their was a catastrophic situation with his health. He paid for all other health care problems out of his earnings. Over the years the unintended consequences of  increased Government regulations has moved our healthcare system into the chaotic middle ground we are experiencing.   Obamacare has and will make our health care system more chaotic. It was designed as the next step toward a single payer health care system. Single payer is simply the Government controlling all decisions about the production and consumption of healthcare (aka socialism).

THE ECONOMICS OF HEALTHCARE AND HEALTH INSURANCE

Understanding health care becomes easier when you know a few things about it. 1) Health care is a good of service produced and exchanged in the free market, and is therefore not a free good. 2) Health insurance is a good or service produced and exchanged in the free market, and therefore not a free good. 3) Health insurance is not health care. Health insurance is just one of many arrangements, an individual can make to pay for healthcare. Health care is the good that health insurance pays for. 4) Even if someone thinks having health insurance or health care is a right, it doesn’t change the fact that both are economic goods, that have to be produced before they can be exchanged and consumed.

Scarcity is what dictates if something is an economic good. If a particular thing is available naturally, like the air we breath, it isn’t scarce and therefore doesn’t have to be produced before it is consumed. Scarce goods have to be rationed because the demand for the good is greater than our ability to produce it. Prices ration scarce goods in a free market. The price of a good is the result of every individual making decisions on what they produce, exchange and consume. Each decision every individual makes, even if it has nothing to do with a particular good, has an effect on the production and consumption of that particular good. The reason it has an effect is because the scarce means of production have alternative uses. For example a barrel of oil doesn’t just produce gasoline, oil is used to produce dyes, rubber, resins, adhesives, asphalt, solvents, lubricants, nylon, polyester, acrylic, pharmaceuticals, and plastics. The means (resources, labor, time, capital) used to produce healthcare can be used for other purposes. If the compensation for their use in healthcare doesn’t cover the cost of production, they will be employed in uses that are more profitable. This scarce good (healthcare) will be made scarcer still. In our new socialized healthcare system, Government will have to ration healthcare because the artificially set prices will be meaningless for the purpose of rationing.

IT GETS WORSE

The health care website “glitch” isn’t even a cup of water in the ocean of problems that awaits us as this ever-expanding law begins implementation. The Government health insurance exchange is not health insurance. The exchange is playing the role of a broker trying to help individuals find “affordable” health insurance  from participating insurance companies. What happens when the 2500 plus pages of regulations gets unleashed on what’s left of the market system? 1)  Businesses have started to protect themselves against the future cost of the law in a number of ways: Keeping their number of employees under 50. Larger companies are cutting employers hours to under thirty per week. They’re getting rid of employer paid health care plans altogether because it’s cheaper to pay the fine (tax) instead of paying the insurance premiums. They’re making their employees pay more toward their insurance. 2) Insurance companies have been protecting their bottom line by increasing premiums in anticipation of higher costs. Some insurance companies have decided not to supply health insurance because it won’t continue to be a viable business model down the road. 3) Healthcare providers from doctors to medical device manufacturers have started to change how they do business because they know they will not be compensated enough to cover the cost of producing their good or service.

CONCLUSION

The cost of our “new” healthcare system is already going up. We changed the whole system because there were supposedly 30 million Americans without health insurance, although these uninsured people could go to the emergency room to receive healthcare. The prices charged by hospitals and the prices charged by insurance companies are what cover the cost of treating these uninsured people, just like the cost of shoplifting is factored into the prices you pay at a store. This old way of paying for the uninsured is less expensive than the cost of insuring them under Obamacare.

Obamacare incentivizes an increase in the demand for a scarce good, and a decrease in the supply of this same good. The scarce good becomes more scarce as supply and demand move in opposite directions. Government decisions will have to ration healthcare, but as the years pass the ultimate rationing mechanism for our socialized healthcare system will be waiting in line and death. Fortunately for us we have a culture of freedom. We will figure out a way around the government obstacles that have been placed in the way of us getting what we want, even if it’s an illegal black market for healthcare. Freedom is in the DNA passed on by our founding fathers, and I think we’re in the process of rediscovering it.

Ten Things to Expect From Obamacare, by Elizabeth Lee Vliet M.D., at caseyresearch.com.

SOME HEALTHCARE HUMOR

More cartoons here from theburningplatform.com.

139127 600 HealthCaregov cartoons

139206 600 Web Site cartoons

Electric Car Sales Crash Into Economic Reality.

April 2, 2013
Who Killed the Electric Car?

Who Killed the Electric Car? (Photo credit: Wikipedia)

THE  REALITY OF THE CONSUMER.

Electric car sales prove once again that consumer decisions in the market trump the President’s, and Government’s, attempt to force their utopian desires on people. Just because a person with power decrees that certain thing’s should be produced, doesn’t mean that they’ll be magically sold once they enter the market. Many an entrepreneur’s great ideas have turned to failure because, in the market, the consumer has veto power over every brilliant idea, and the “special”  brilliance of Government planners is no different.

THE REALITY OF PRICES AND COSTS.

There are three ways that Government can guarantee that electric cars will be purchased. (more…)