Posted tagged ‘Voluntary Cooperation vs. Central Planning’

Economic Ignorance Has Caused Our Political Chaos.

March 8, 2017

Microeconomics or Micro Economics as a Concept

What do Jeffery Sachs (economics professor at Columbia), Bill Gates, the Pope, Donald Trump and Republicans in Congress have in common?….. Economic ignorance!

Why are  pronouncements by people with authority rarely challenged?….. Economic ignorance!

I found some recent articles on economicpolicyjournl.com which have a similar theme: People with authority demonstrating their ignorance about basic economic principles.

Here are the articles.

Harvard Educated Economist Clueless About The Fundamentals Of Economics.

I Never Realized The Economic Ignoramus Bill Gates Is….Until Now.

The Pope’s Problem With Basic Economics.

Trump In Melbourne Spilling His Economic Plans And How Non-Free Market Are They.

House Republican Border Adjustment Tax Plan Gains Support In White House: Prepare For Higher Prices And Less Product.

Jeffery Sachs, Bill Gates and the Pope don’t have the power of Government behind anything they say. Their authority exists in the minds of the people who believe they have authority. They can’t force their economic ignorance on us

The President and Congress have the power of Government behind their policies. Politicians and bureaucrats can force their economic ignorance on us.

OUR ECONOMIC IGNORANCE

The increasing political chaos existing in the U.S is rooted in the economic ignorance of a vast majority of people. Both the masses, and people with “authority”, bear responsibility for our present political and economic situation.

People with “authority” being economically ignorant creates a problem because we the masses accept what they say as truth. This leads to the passage of Governmental policies which can’t produce the outcomes predicted by the people with authority.

We have the power to be a check on these people with authority. But we reinforce their authority on the one hand, and increase the economic ignorance of the masses on the other, when we don’t challenge the economic validity of what they say.

People with authority always want more power. Their power can’t be increased unless we allow it. Authority not backed by the force of Government isn’t real authority. We voluntarily give people their position of authority.

With politicians and bureaucrats it’s different. Their authority is backed by the force of Government. Our first non-violent voluntary recourse to their power is to vote the economically ignorant out of office, or not to vote them into office in the first place. Our second is putting political pressure on politicians. But this only works if a overwhelming majority of people put political pressure on them.

The ability of politicians and bureaucrats to grow their power, rests on the economic ignorance of the electorate. If the economic consequences of the policies passed by these politicians were known by the voters, they wouldn’t have been passed. Understanding basic economic principles allows us to look over the horizon and see the consequences of these policies.

EXAMPLES OF FAILED POLICIES

The Affordable Care Act aka Obamacare sounds great. But the laws of economics will not allow the ACA to lower the cost of healthcare. The costs can be shifted, but not lowered by government decree. The result of passing the ACA is chaos in the healthcare market, or what is left of a healthcare market.

Increasing the minimum wage for low skilled workers sounds great. But the laws of economics won’t allow increasing the minimum wage, above what that labor produces. The result of passing this law is fewer low skilled workers will be employed.

FORSEEABLE CONSEQUENCES

If, we the people, understood some basic principles of economics we wouldn’t allow these interventionist ideas to be planted, let alone take root.

Some of these basic principles are: 1) Scarcity, 2) Subjective Value, 3) Supply and Demand 4) Production Precedes Consumption.

Lets look at the Affordable Care Act and mandated minimum wage increases through the binoculars of scarcity, and supply and demand.

Scarcity is the first rule of economics. Scarcity simply means, “what everybody wants adds up to more than there is”. Put differently. Their are limited means available to satisfy the unlimited ends we seek. These limited means have to be allocated toward producing the ends we seek. There are two ways to allocate these means. One way is voluntary cooperation, through prices in a free market. The other way is force, through the edicts of politicians and bureaucrats using government power.

Supply and Demand is easy to understand. Put simply; More is demanded and less is supplied at a low price, and more is supplied and less is demanded at a high price. Prices reflect and drive supply and demand. If their is a sudden drop in the supply of a product, the price rises. This increase in price rations the existing supply, and sends a signal that more needs to be produced. On the flip side of the coin, if their is a sudden increase in the supply of a product, the price will go down. This decrease in price sells off the existing glut, and sends a signal less needs to be produced.

AFFORDABLE CARE ACT AND MINIMUM WAGE LAWS

The Affordable Care Act forced “30 million” uninsured people to enter the healthcare market. This meant the demand for healthcare was going to increased. Even though the supply of healthcare couldn’t be increased as quickly. (Example) It takes years for people to become doctors and nurses. Increasing the supply takes more time than the almost instant increase in demand brought about by the stroke of pen. If we apply the economic principles of scarcity, and supply and demand to the Affordable Care Act, what was going to happen to the price of healthcare? And this is not even calculating the cost of the regulations and new bureaucracy created by the 2500 page bill.

Raising the minimum wage increases the price of labor. According to the law of supply and demand, less is demanded at the high price. Voting for laws which increase the wages of people who we think are not being paid enough doesn’t help these people. Fewer people will be employed at the higher price. Many times these low skilled workers jobs will disappear all together because they can be replaced by automation. The price of labor was artificially increased to the point where it was economical to automate (read here). If we apply the law of supply and demand to the rhetoric of increasing the minimum wage, people wouldn’t have been fooled into thinking they were helping the people the law was actually hurting..

OUR CHOICES

Economic principles are always in play. Government edicts can’t negate economic reality. The political chaos we have today is the result of ignoring the reality of basic economics. We can’t wish these realities away because we don’t like the fact they limit what we demand.

I’m going to quote a person with authority at this point. So don’t take this quote as authoritative. Figure it out yourself.

F. A. Hayek a Nobel Prize winning economist, (how is that for status), said: “Planning, or central direction of economic activity, presupposes the existence of common ideals and common values; and the degree to which planning can be carried is limited to the extent to which agreement on such a common scale of values can be obtained or enforced.

Let’s get educated in basic economics. Life is easier to understand when you understand how the world works. Here is another quote.

F. A. Hayek: “The curious task of economics is to demonstrate to men how little the really know, about what he imagines he can design.”

We have two choices. Scarce resources can be rationed through prices voluntarily in the free market. Or Scarce resources can be rationed forcibly by politicians and bureaucrats through the power of Government. Which direction are we moving?

CONCLUSION

Political insiders of both parties have shaped the battle field into a choice between the R’s and the D’s. In reality the real battle is between the insiders in both parties who want to grow the power of Government, and people who stand for free markets and want to cut the power of government. Neither group is a majority. The majority of people are the economically ignorant. These people have been fooled into fighting the battle through the R and D paradigm.

Our job is to educate the economically ignorant. When this majority understands basic economic principles, they will they stop fighting on the fake R and D battlefield and start fighting on the real battlefield: central planning vs. voluntary cooperation.

 

Related ArticleMinimum Wage Laws Create Unemployment, at austrianaddict.com

Related ArticleIncome Inequality Part II: Increase The Minimum Wage, at austrianaddict.com.

Related ArticleThe Reality Of Obamacare, at austrianaddict.com.

Related ArticleThe Economics of Healthcare vs. The Right To Healthcare, at austrianaddict.com.

 

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LOVE “GOV”

July 22, 2015

LoveGov is a project by the Independent Institute. The short videos show the pitfalls of Alexis, an unrealistic college student, as she deals with her tyrannical oppressive boyfriend Scott “Gov” Govinsky.

This is well done, and funny. The guy playing Gov does a great job. But as you think about the problems Gov’s interventions cause Alexis, you begin to see your one-sided relationship with Big Government, and it is sobering to say the least.

LOVE GOV: FROM FIRST DATE TO MANDATE

More people have to understand that Government decision-making can’t possibly produce as good an outcome as the outcome created when individuals are allowed to make their own decisions. The quote by F. A. Hayek at the top of this blog says it all:

“The coordination of mens activities through central planning or through voluntary cooperation are roads going in very different directions, the first to serfdom and poverty the second to freedom and plenty.”

 

Related ArticleSpontaneous Order Utilizes More Knowledge Than Central Planning Could Ever Hope To Use, at austrianaddict.com.

Related ArticleSpontaneous Order More Complex Than Top Down Central Planning, at austrianaddict.com.

Related Article Spontaneous Order = Free Market Economy, at austrianaddict.com.

 

 

Are People Smarter Today Compared To People 100 Years Ago?

December 3, 2014

The Thinker Statue by the French Sculptor Rodin - stock photo

I asked myself this question, “are people smarter today compared to people 100 years ago”, after reading an article titled, Dumb And  Dumber – Scientific Proof  That People Are Getting ‘Stupider’, at zerohede.com. In the article, the writer makes the assertion that people are getting ‘stupider’ {then humorously asks, is ‘stupider’ even a word}. The article states that there is now scientific evidence that this is so. SAT reading and verbal scores have been going down for decades, are examples cited as evidence to support the theory. The article also posts a 1912 eighth grade exam from  Bullitt County Schools in Kentucky. Try to answer some of these questions, you will be humbled.

DEFINE STUPID AND SMART

The question: are people getting stupider, needs to a few qualifying questions asked before we can answer it. 1) What are the standards used for comparing the intelligence of people who lived 100 years ago to people alive today? 2) Who decides what constitutes being smart and being stupid? 3) Does reciting  facts from memory, like a contestant on Jeopardy, show higher intelligence than being able to take facts and logically reason your way from point A, to a conclusion at point Z? 4) Does being smart in your chosen field magically make you smart in other fields? These are just a few questions we need to think about before we make a pronouncement about intelligence or lack of intelligence.

DIFFERENT ERAS REQUIRED DIFFERENT KNOWLEDGE

People today need to know less about some things and more about other things than the people who lived 100 years ago. If you look at the eight grade test in the article linked to above, you will find questions about spelling, arithmetic, grammar, geography, physiology, civil government, and history that not many of us could answer today. However the answers to these questions are just a click on the computer, or a swipe on a cell phone away from getting answered in today’s world. The knowledge that people had to memorize back then is now stored on a computer chip and is able to be called up at a moments notice. Think of the times you have been with people and someone asks a question that no one can answer until someone uses their cell phone to look it up. The ability to write these posts would be exponentially more time-consuming if it wasn’t for computers. The ability to use spelling and grammar checks makes writing so much easier (some times these tools can’t even save me from spelling and grammar mistakes). Think about a sports writer decades ago pounding out his story on a typewriter: talk about having to get it right on the first take. Calculators have made complex math problems easy for dummies like me. You don’t have to know how to read a map today because you have GPS on your phone with the hot British female voice telling you, “in 200 feet turn right”.

The advance in the standard of living since the industrial revolution brought about a situation where more and more people didn’t have to know how to produce food, clothing, shelter, etc in order to win their battle against the planet for their survival. People began to specialize in producing these things more efficiently which freed up time and labor to be used to produce new products and services that were created by entrepreneurs who speculated, but were not assured, that markets existed for these new products and services. Through this trial and error process of becoming more productive, we can safely say that the over all amount of knowledge in society is obviously expanding, while at the same time we can say that an individual needs less over all knowledge to survive. The process of production has become so specialized that an individual can be a welder at a John Deere plant and literally trade his labor for food, instead of knowing how to actually produce food.

THOMAS SOWELLS TAKE

Thomas Sowell writes about what we are talking about in his book, Knowledge And Decisions ( one the best books I have ever read),  was inspired by F.A Hayeks essay, The Use Of Knowledge In Society.

Dr. Sowell writes in Knowledge and Decisions (which was written in 1980), “The growing complexity of science, technology, and organization does not imply either a growing knowledge or a growing need for knowledge in the general population. On the contrary, the increasingly complex processes tend to lead to increasingly simple and easily understood products. The genius of mass production is precisely in its making more products more accessible, both economically and intellectually to more people.”

Think of how much more true this is thirty-four years after Dr. Sowell wrote this. Things we use in our everyday life weren’t around in 1980.

More from Dr. Sowell. “…Matthew Brady required far more knowledge of photographic processes to take pictures with his cumbersome equipment during the Civil War than a modern photographer requires to operate his automated cameras…..The printing press performs daily communications miracles beyond the ability of an army of the most highly trained and dedicated scribes of the Middle Ages….An ordinary individual can easily arrange travel across thousands of miles through cities he has never seen by tapping the knowledge of travel agents and/or the American Automobile Association.”

Photographic equipment? The printing press? Travel agents? Seriously. We take pictures with cell phones. We have the internet and inkjet printers. We don’t call Triple A to make travel arrangements, we call Triple A if we need a tow.

THE ONE AREA IN WHICH WE ARE CERTAINLY DUMBER

If you haven’t seen the eighth grade exam from 1912 in the Dumb and Dumber article above you should go look at it. The civil government and history part of the eighth grade exam is where we have become woefully ignorant. Unfortunately these two areas are the most important areas we as individuals need to be smart about if we want to have continued prosperity. Being smart in these areas would have kept us vigilant about the incremental taking of individual freedom by people in Government that has happened over the last 50 plus years. Two questions from the civil government part of the exam prove my assertion. How many adults, let alone eighth graders today, could get these two questions right. 1) Name three rights given Congress by the Constitution and two rights denied Congress,  and 2) Define the following forms of Government: Democracy, Limited Monarchy, Absolute Monarchy, Republic. Give examples of each.

These questions aren’t even asked today. The first question, “name three rights given congress by the constitution…and two rights denied congress”, speaks volumes about what was understood about the constitution in 1912 that isn’t even taught in schools today. The fact that congressional powers are limited is stated in the question. Today most people think congress has unlimited power to make any law individuals in congress wish to make. Most people today think the President has unlimited power to decree what he wishes. But I bet most eight graders in 1912 knew that the President had limited powers.

CONCLUSION

The amount of over all knowledge has expanded exponentially over the last 100 years, while at the same time the amount of knowledge an individual needs to survive is less, and also the kind of knowledge each individual needs to survive is different.

The real question is not; are we smarter today than 100 years ago,? The real question is; are we smart enough to understand that the process that produced today’s standard of living stretches far back in time? Free individuals cooperating in free markets produced the standard of living we enjoy today. Central planning by Governments didn’t produce it, in fact, it has hampered our advance. The passage of time has separated us from the founding principles of our country.  If we aren’t smart enough to understand this, we will continually allow democratically elected tyrants to incrementally crush our individual freedom under the heel of their central plans.

Related ArticleWe’re All Born In The Middle Of The Story, by austrianaddict.com.

Related ArticleJuly 4th, Declaring Independence From Tyranny, by austrianaddict.com.

Related ArticleSpontaneous Order = Free Markets, by austrianaddict.com.