Category Archives: Politics

Basic Economics Part 6 – Capitalism vs. Socialism

Aside

Basic Economics Part 6 – Capitalism vs. Socialism

This is the sixth in a series inspired by Basic Economics by Thomas Sowell.

Previously I had argued that wealth is created whenever there is a voluntary transaction as each side believes they are better off due to the transaction.  In my last segment I poked holes in my own argument by showing that just because a person believes he is better off, it doesn’t mean he is actually better off.

This leaves us with one huge question.  Do we create more wealth in a decentralized capitalistic economy relying on people to make good decisions more often than not, or do we create more wealth in a centralized command economy where experts make the key decisions for everyone?

You could design this as a scientific experiment where you randomly divide people into two groups and have one group follow a capitalistic model and one group follow a command model.  While this is the most scientific method, it would be very difficult if not impossible to simulate all of the complications or real life.

Alternatively, you could take a country and split it down the middle.  This way you start with a common culture and similar natural resources.  The key differentiating factor would be the economic system.

The real world has conducted this experiment for us, twice.  West Germany and South Korea employed the capitalist model.  East Germany and North Korea employed the command model.  West Germany and South Korea produced thriving, growing economies.   East Germany and North Korea became economic basket cases.  The results of these inadvertent lab tests show unquestionably that capitalist economies greatly outperform command economies.

The Heritage Foundation maintains an index of economic freedom.  This chart clearly shows that greater economic freedom strongly relates to greater Gross Domestic Product (GDP)   Image

Changes within a country can make a dramatic difference.  Following the fall of the Berlin Wall, both China and India have moved away from a command economy to a more capitalistic economy.   As a result, nearly one billion people have been lifted out of extreme poverty.

http://www.economist.com/news/leaders/21578665-nearly-1-billion-people-have-been-taken-out-extreme-poverty-20-years-world-should-aim

Capitalism clearly outperforms socialism.  It isn’t even close.  Despite this obvious fact, socialism is still very popular in the world today.  Why is this?  This will be the focus of the next and (I think) final installment in this series.

Basic Economics Part 5 – The Problems with Voluntary Transactions

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This is the fifth part in a series on Basic Economics, inspired by the work of Thomas Sowell.

As a note, my frequent use of he/she I decided is quite clumsy.  From now on I will arbitrarily alternate between he or she.  Unless gender is the subject of discussion, the actual gender I use has no consequence.

In my last segment, I argued that when a person becomes richer through entirely voluntary transactions, she makes others richer as well.  The premise for this is that she does not enter into a voluntary transaction unless she believes the transaction will make her better off.  She does not buy a cup of coffee unless she believes she is better off with the coffee than with the money required to buy the coffee.

The giant hole in this argument is the assumption that if a person believes a transaction will make her better off, it doesn’t mean it will actually make her better off.  There are many reasons that her perception of the value may greatly differ from the actual value of the transaction.

  • She may not have sufficient information.  She may not know that the coffee will taste horrible or that the coffee shop is not sanitary.
  • She may be defrauded.  The coffee shop might advertise that they use an expensive premium coffee but actually are using a cheap substitute.
  • She might have pre-purchased a card good for ten coffees but the coffee shop decides to discontinue the pre-purchase program and refuses to honor her card.
  • She might make a poor decision such as choosing short-term impulse gratification over long term goals.  Anybody who has ever tried to lose weight and eaten a whole bag of potato chips can understand that.
  • She might be mentally incompetent to determine what makes her better off.

With all of these potential problems in voluntary transactions, can we truly say that a capitalist system that relies on the premise that people make decisions that better themselves is a good idea?  Would it better to have a centrally planned economy where enlightened experts make decisions for the betterment of everybody?

That will be the focus of the next segment.

Tolerance and Hypocrisy – The Brendan Eich Story

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I had planned to make my next few posts about fundamental economics.  I also did not plan on addressing current issues until I had better laid the philosophical basis for my views more thoroughly.  Last night, however, I learned that Brendan Eich was forced to resign as CEO of Mozilla, the company that develops the FireFox browser and  a leading pioneer of the Internet.  Brendan Eich was the inventor of JavaScript.  Prior to Javascript, web sites count only be displayed and linked.  Almost all other user interaction with the website involves the programming language JavaScript.  Eich therefore is one of the most important people in the development of the Internet.

Eich was forced out because of the uproar about his views on gay marriage.  Eich did not discriminate against gays at Mozilla.  Eich was not an activist speaking out against gays.  Eich’s sin was that in 2008 he made a private $1000 donation in support of California Proposition 8 against gay marriage.  In 2008, this was also the stated position of then senator Barack Obama.

I posted previously that I do not think anything is immoral unless there is a victim.  Therefore, I see nothing immoral in homosexuality and I am personally a supporter of gay rights and gay marriage.  I do understand though that good people may have opposing views and that these views are often driven not by hatred but by sincere religious conviction and/or the belief that society is better off when marriage is defined as a union of a man and a woman.

Last night I participated in a discussion of a proposed law in Missouri supporting gay rights and marriage.   Everybody present supported this new law.   Key principles supporting this law were tolerance and inclusion.  In fact, a primary message of the gay rights agenda is the importance of tolerance.

I therefore find it incredibly hypocritical that in the supposed furtherance of tolerance, people can be so intolerant of people holding opposing views.  The dating website OKCupid went as far as blocking FireFox users from their site, saying that Eich was a hatemonger.

On Slate.com Will Oremus wrote:

The notion that your political views shouldn’t affect your employment is a persuasive one. Where would we be as a democracy if Republicans were barred from jobs at Democrat-led companies, or vice versa?  But this is different. Opposing gay marriage in America today is not akin to opposing tax hikes or even the war in Afghanistan. It’s more akin to opposing interracial marriage: It bespeaks a conviction that some people do not deserve the same basic rights as others. An organization like Mozilla might tolerate that in an underling, and it might even tolerate it in a CTO. But in a CEO—the ultimate decision-maker and public face of an organization—it sends an awful message. That’s doubly so for an organization devoted to openness and freedom on the Web—not to mention one with numerous gay employees.

…

Think for a second: If you knew your boss rated you undeserving of the same rights as everyone else based solely on your sexual orientation, would you feel good about going to work for him every day?

 

I am not gay so I tried to think of a comparable situation that would affect me and how I would react to it.  I am Jewish.  Let’s say that I learned that my CEO six years ago gave a $1000 contribution to a group that opposes Israel.  I know that often anti-Israel opinions are often a thinly disguised form of antisemitism.   I also know that there are good people who oppose the actions of Israel who aren’t antisemitic.  I would not call for the resignation of my CEO and I would not have problems working for him.

I stated in a previous post that the way to judge if your position is moral or hypocritical is whether it would be the same if the circumstances were reversed.  Would the people who condemned Eich  agree with someone who stated this, “The CEO gave to the ACLU.  I am a religious Christian and the ACLU opposes the rights of my children to pray silently while at school so he must be fired.”  I don’t think so.

The gay rights movements has made great progress by preaching tolerance.  It should not undermine itself by practicing intolerance.

Previous Relevant Posts on this blog:

A Starting Point for Discussing Morality

A Litmus Test for Your Principles

References:

http://en.wikipedia.org/wiki/Brendan_Eich

http://www.slate.com/blogs/future_tense/2014/04/03/brendan_eich_why_mozilla_s_ceo_had_to_resign_over_gay_marriage_views.html

 

Basic Economics – Part 1 – Different Economic Systems

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This  will be the first in a series of posts about basic  economics.  By no coincidence, “Basic Economics” by Thomas Sowell is the inspiration for much of these postings, though I will be doing quite a bit of paraphrasing.

The British economist Lionel Robbins gave the classic definition of economics:

Economics is the study of the use of scarce resources which have alternative uses.

For any desirable resource, there will frequently be more people who want the resource than there is resource available.  For example, let’s consider beachfront property.  Beachfront property is a scarce resource.   There are far more people who would like to own beachfront property than there is property available.  Some people will get this property and others won’t.  There are many different ways this property could be allocated.  For example:

  • In a pure capitalist economy, whoever pays the most, gets it.
  • In a command economy, a government official would decide who gets it.
  • In an anarchistic economy, whoever is strong enough to seize it and hold it gets it.
  • It could be allocated randomly through a lottery.
  • It could be allocated on a first come, first serve basis.
  • It could be allocated based on some type of contest.

Beachfront property also has alternative uses:

  • It can be used as a public beach.
  • It can be used as a private estate.
  • It can be used as an inexpensive hotel.
  • It can be used as a luxury hotel.
  • It can be used as a timeshare.
  • It can be used as a marina for small boats.
  • It an be used as an industrial port.
  • It can be used as a port for large passenger ships.
  • It can not be used at all and kept as a nature reserve.

I’m sure that more time brainstorming could determine other allocation mechanisms and other uses.

The key point here is that no matter how we allocate beachfront property, there will be some people who get it and others who don’t.  That is true whether we have a capitalist economy, a communist economy, or any other economy.  We can’t expect any economic system to make everybody happy.  How then should we determine which is the best economic system?

Stay tuned.

Books That Have Changed Me

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I love to read.  There are many, many books I have loved.  There are only a handful that have changed who I am as a person, the way I live my life or the way I think.  I’d like to share these books in the order I read them:

  • “How to Win Friends and Influence People” by Dale Carnegie – This is the best self help book ever written.  Dale Carnegie himself said that his book was not filled with original ideas.  It is filled with the every day common sense methods for dealing with people that are very uncommon in actual use.  It is not a book in manipulation.  It is a book that helps you appreciate people and bring out the best in them.  It also contains wonderful stories and is a delight to read.
  • “Let’s Get Results, Not Excuses:  A no-nonsense Approach to Increasing Productivity, Performance and Profit” by James M. Bleech and Dr. David G. Mutchler – This is a book that some people get immediately and some people will just laugh at.  It starts with the premise that you have success or excuses but you don’t have both.  If you are successful, you don’t need excuses.  One path to success is to figure out in advance that if you fail, what excuses might you have for your failure.  Then you proactively work to prevent the need for excuses.  A key aspect of this is that you stop making excuses.  When you are not successful, you take responsibility.  For example, I don’t say “I was late because of traffic.”  Instead, I say “I was late because I did not allow enough time to account for traffic problems.”
  • “Atlas Shrugged” by Ayn Rand –  I have for a long time believed that capitalism was the most effective economic system, but I felt that socialism was morally superior.  Rand convincingly (to me) argues that capitalism is not only the most effective system, it is also morally superior.  She uses her fiction, most notably “Atlas Shrugged” and “The Fountainhead” to argue her philosophy which she calls Objectivism.  She also wrote many non-fiction philosophical books.   Atlas Shrugged is a long, long book and can be intimidating.  If you are new to Ayn Rand, I would actually start with her short novella “Anthem” which can be read in just a few bathroom sittings.  If you like “Anthem”, you can proceed to “Atlas Shrugged”.
  • “Basic Economics” by Dr. Thomas Sowell – Dr. Sowell does an amazing job in defining economics for the layman.  Most political issues have an economic component.  Dr. Sowell teaches you how to analyze issues so you can understand and anticipate the actual effects of different policies, which are very often the exact opposite of what their proponents intended.

The last three books are from the world of investing and stock trading.  I took no interest in managing my own investments for the first 45 or so years of my life.  I therefore was oblivious to many amazing opportunities.  Now learning how to invest/trade has become a major focus in my life.  These are the best three books I have found on investing.

  • “Reminiscences of a Stock Operator” by Edwin Lefevre – This book is the autobiography of Jesse Livermore, generally considered to be the greatest trader of all time.  This is the book that first got me truly interested in the stock market. First, it is a wonderful read with amazing stories.  Second, it is a guidebook on how a great trader thinks.  Every time I re-read this book, I learn lessons that strike home that I was not able to appreciate in prior readings.
  • “How to Make Money in Stocks” by William O’Neil – O’Neill is one of the greatest traders of the modern era.  This book is basically the bible for growth investing.   Most new investors crash and burn early then give up on investing. The most important thing this  book will do for you is that if you follow its key principles, it will prevent you from wiping out.  It will keep you in the game, limiting losses as you make your initial mistakes until you have enough experience to be a profitable investor.
  • “Trade like a Stock Market Wizard” by Mark Minervini – Minervini is an O’Neil disciple and a former United States investing champion.  He spent his first eight years or so being unsuccessful.  Once he refined his techniques, he put together an amazing number of large win years without ever experiencing a large losing year.  My investing improved substantially once I began following Minervini’s principles.  

The “Right” to Healthcare

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President Obama stated that everybody has a right to healthcare and this moral statement was a primary justification for the establishment of Obama-care.  Here the right to healthcare should more precisely be stated as the right to free healthcare, the right to have healthcare whether or not one can pay for it. 

By definition, a right is only a right if everybody can exercise the right.  We say that freedom of speech and freedom of religion are basic rights.  These are rights that everybody can exercise.  My exercising my right to say what I want or to join any religion does not take away the rights of anybody else to do the same.  

In contrast, not everybody can have free healthcare.  I might be able to claim free healthcare and you might be able to claim free healthcare but unless we make slaves of the entire medical industry, at some point, somebody has to pay for the healthcare. Therefore by definition, free healthcare cannot be a right.

A right can only be a right if it does not impose an involuntary obligation on others.  If I have the right to have someone provide me with anything, whether it be healthcare or food or shelter or shoes, at some point it confers upon somebody else the obligation to provide it.  When that person is forced to provide the service for others, the obligated person is unable to exercise the right for themselves.

It may or may not be a good policy for the federal government to provide free healthcare to those who can’t afford it, but we cannot say that anybody has the right to free healthcare.

Hello World! (Part II)

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I called my first post Hello World!

I am a computer programmer and the first program a programmer creates in learning a new computer language is to display the words “Hello World!”.  In my original post, although I said hello, I assumed nobody actually read it because nobody else knew about this blog.  I wanted to get a few posts out first before I told anybody about it.

Today I am announcing my blog on Facebook.  There is still a distinct chance that nobody will read,  it but after today, maybe somebody will.

If you are first reading my blog, I suggest that you start at the oldest posts and work your way on up, at least through the February 2014 posts.   You can do this by going to the column on the right and clicking February 2014 under archives.

I state in these posts what I am trying to accomplish with this blog.  I think this background will be very helpful in reading the more current posts.  If by some unlikely event you find these posts interesting, you may want to scroll your way up.  I am trying to slowly build a perspective and the later posts build on what I said in the earlier posts.

In short, I am sharing my thoughts on philosophy and politics.  I am a big believer that most people of all political persuasions are good people and we primarily have the same goals.  We differ in our assumptions, however, and because of these assumptions, it is hard for us to hold a dialogue.  I like to examine the underlying assumptions behind the issues.  Only when we can get down to the core assumptions, down to the first path where we differ, can we hold any kind of meaningful dialogue.

In any case, I thank you for taking the time to read this today.

More on Rewarding Bad Choices – And it isn’t just poltics.

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As I stated previously, the most important question in determining if a policy is helpful or harmful is to analyze if we are rewarding good choices or bad choices.  Often a reward consists not in providing positive consequences but in reducing negative consequences.  We all make choices every day.  Frequently we have to choose between short-term satisfaction versus long term goals.  More often than not, the short-term wins out.

I know this well.  I have been fighting my weight all of my life.  I have been a lifetime weight watchers member at or around goal for about eight years now.  It never stops being a struggle, and frequently I make bad choices.  When I am hungry and a cookie is in front of me, it is like the sirens calling to ancient Greek sailors, and I jump into the sea to dive after my cookie with all of my weight control goals forgotten at the moment.  These are terrible mixed metaphors, but hopefully I am making my point clear.

Let’s say that 50% of the time I control myself and 50% of the time I eat the cookie.   I go for the cookie because the satisfaction is imminent and the tie to the goal is vague and distant.   If  I was diabetic and I had been told that if ate the cookie there would be severe, immediate health risks then maybe 10% of the time I would eat the cookie.  If I had a severe allergy and I knew that eating that cookie would probably kill me on the spot, I would never eat the cookie.  As the consequences of a bad choice become more severe, I am less likely to make the bad choice.

On November 27, 2013 the New York Times reported that a study by the Centers for Disease Control and Prevention shows that unprotected sex by gay men is sharply increasing.  The AIDS scare had previously caused a large drop in unprotected sex.  With recent drug treatments, however, AIDS is no longer seen as a death sentence; it is seen as a manageable condition.

“Young guys are less worried,” said Alex Carballo-Diéguez, a researcher at the H.I.V. Center of the New York State Psychiatric Institute and Columbia University who has studied gay men’s behavior since the 1980s. “H.I.V. has become a chronic disease, and everyone knows some behaviors are bad for you, like smoking and trans fats. But in the moment of excitement, they’re going to do what they enjoy.”

Nobody wants to get AIDS, but people do want to have unprotected sex.  As the perceived negative consequences of a bad choice diminish, we get more bad choices.

Stopping people from dying from AIDS is a good thing and I am certainly not recommending that we let people die.  This is not a policy issue.  It is an illustration of the way things are.  This principle needs to be applied, however, to policy issues.  In my last post I discussed how indefinitely extending unemployment insurance.  Most people do not want to be unemployed any more than they want to get AIDS, but by reducing the negative consequences of unemployment, we are rewarding the bad choices that stop people from getting employed.

You get what you reward.  You get what you punish less.

 

 

 

And you get what you punish less!

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When I first saw Michael Moore’s film “Roger and Me”, my primary reaction was not what Mr. Moore intended.  “Roger and Me” was a documentary on how the closing of the GM plant in Flint, Michigan several years before devastated the city.  The running joke in the movie was Moore’s continuous failed attempts to talk to Roger Smith, the president of General Motors.   This was laced around various stories of local residents whose lives were turned upside down.  I am sure Moore meant to make people sympathize with the town residents and hate General Motors.  While I did sympathize somewhat with the residents, my main reaction was wondering why these people all stayed in Flint rather than move to someplace with better opportunities?

This question is relevant now as the president and congress debate over extending unemployment benefits yet one more time.  The president wants us to feel sympathy for the long-term unemployed and he wants to paint anybody who opposes the extension as being heartless and cruel.   Unemployment insurance was designed to be a short-term program, to help people get back on their feet after they lose their job.  The big question is does extending unemployment benefits indefinitely contribute to unemployment?

North Dakota has about a 2% unemployment rate.  Why do people stay where jobs are scarce instead of moving to North Dakota where jobs are plentiful?  There are many reasons.  People have friends and family where they are and they don’t want to move.  Their former job may have been specialized and not available in North Dakota.  North Dakota is not usually on anybody’s 10 most fun places to live list.  At some point though, when people get desperate enough, they might just move and follow the opportunity and move to North Dakota.  Maybe if the person gets desperate enough, he/she will stop waiting for the high paying job like he/she used to have and will take an assistant manager job at McDonalds.  Sometimes desperation is what makes people do what is necessary to move on in life, to make the difficult choices.  Extending unemployment insurance delays the need to make the difficult choices.

The most common argument against this is that people don’t choose to be unemployed.  Unemployment is not pleasant.  I am not claiming that is is pleasant.  I am claiming that by reducing the unpleasantness of long-term employment, we are making it less unpleasant than alternatives such as relocation or taking less desirable jobs.  In the short-term it makes sense to give people time to re-group and re-plan.  At some point though, it becomes obvious that what people are doing isn’t working.  By enabling it, we reinforce it.  We are rewarding people for making the bad choice of continuing down a failing path.

Is that compassion?  I don’t think so.

You Get What You Reward!

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You get what you reward!

That is the most fundamental truism, not not for mankind but for all of the animal kingdom.  If you reward a behavior, you get more of it.  If you punish a behavior, you get less of it.

For example, the Affordable Care Act specified that employers with 50 or greater employees must give full healthcare benefits to employees working 30 or more hours each week.  The Bureau of Labor Statistics reported that prior to 2013, six full-time jobs were created for each part-time job.  In 2013 (article from August 2013) only one new full-time job was being created for every four part-time jobs.  In a Chamber of Commerce poll 24% of small businesses will reduce hiring to stay under 50 employees. ( http://www.forbes.com/sites/gracemarieturner/2013/08/27/its-fact-not-anecdote-that-obamacare-is-turning-us-into-a-part-time-nation/)

Basically, the Affordable Care Act punishes hiring full-time workers at a time of high unemployment.

You get what you reward!

The Affordable Care Act also states that the most expensive plan can cost no more than three times the cost of the least expensive plan.  This effectively forces the rates to be much higher for young, healthy people.  It also requires these people to buy comprehensive policies when they might just wish to purchase a bare-bones policy at a lower cost.  At the same time, insurance companies are no longer allowed to deny coverage for pre-existing conditions.  People can wait till they get sick and then get insurance if they need it.  Young people have the choice of buying costly healthcare insurance or saving the money and buying it later if needed.  We are rewarding people for not buying health insurance.

Large financial companies can make highly risky trades and get the profit if they succeed and go to the taxpayers for a bail out if they fail.

You get what you reward!

Whenever a policy is proposed, the primary question is usually who does it help and who does it hurt.  That is the wrong question.  

The first question we should always ask is if the policy rewards good choices or bad choices.