Basic Economics Simplified

I'm not just arguing against Keynesianism, but all of macroeconomics except for those parts of microeconomics formerly relating to private banking and insurance which statist economists have meshed into macro as nation-states have intruded into these areas. Macro in its inception was limited to the actions of nation-states-- taxes, subsidies, tariffs, etc., and I am arguing for individualism and against statism. My wife graduated from the University of Chicago, as perhaps you did, and tends to agree with you. However, as a believer in the logic and ethics of total emancipation, individual liberty, ("idealistic," "far-fetched," "crazy," whatever), I have no belief in the rights of "sovereign states," or that states have any rights at all, and instead believe in the sovereignty of individuals.

In this regard I am in total agreement with Professor David Friedman. He loved his parents Rose and Milton Friedman, but he views monetarism, like all tools of statism, as an infringement on individual sovereignty. He outlined how totally free markets might work, addressing problems of externalities, in his book The Machinery of Freedom.

http://www.amazon.com/Machinery-Free...ery+of+freedom

 

Again, what about RBC models? If what you are saying is true, you should take issue with them, yet they would have laissez-faire implications.

Furthermore, I think you Original post doesn't argue against Keynesian economics, but current policy, which is hardly Keynesian. Remember, Keynesian economics is a set of policies to use as a response to a recession (or high inflationary period). There is no reason to say, budget deficits in boom periods are "keynesian."

Wish my degree was from there! Unfortunately, while still a good school, my school wasn't quite that good! University of Chicago is a world class economics department.

 

I haven't argued against the monetarists, the Austrians, or the freshwater economists simply because they are not as well-known or influential as Keynes. Even if RBC (real business cycle theory) makes perfect sense and would work, it would be working within the framework of nation-states.

For what it's worth, the individualist argument that I buy into runs this way:

1. Marxism is the idea that economics should consist of nation-states taking "from each according to his ability" and distributing to each "according to his needs."
2. The most popular political philosophy on college campuses in the west today is Utilitarianism, which underpins Marxism by advocating that nation-states should try to provide the greatest good to the greatest number of people, essentially regardless of who gets hurt. Taken to it's extreme, if those in power decided that it would be better for the "good of society" to eliminate all gypsies or Jews, then that is what the state should do.
3. The Golden Rule of reciprocity takes the view that since people do not like to be disrespected or bullied, that they should not bully or disrespect others. The Golden Rule is, effectively, almost identical to the Libertarian Party non-aggression principle (NAP) proposed by the late LP founder Gary Nolan. It states that "I hereby certify that I do not believe in or advocate the initiation of force as a means of achieving political or social goals,' and it is ignored by LP officers and politicians whenever they find it inconvenient.
4. Either the Golden Rule or the non-aggression principle taken as a moral absolute would prevent forcible taxation or other intrusion into the lives of peaceful people.
5. Thus, if accepted by society in general as a moral absolute, the Golden Rule would make nation-states impossible, and any form of macroeconomics (except where macro has usurped the legitimate rules and equations of micro) would be completely irrelevant.
6. Maybe this sounds like crazy-assed baloney to almost everyone, and maybe it is, but at least I am in agreement with Professor David Friedman, Professor Butler Shaffer, and John Lennon who can "Imagine" there are no countries.

BTW, I had forgotten if I had ever known your signature taken from The Wealth of Nations "No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable." Great quote.

 

What are "free markets" free of?

 

Among other things free markets are free of subsidies and fat contracts for special interests in the Military-Industrial-Congressional Complex while taxing others to pay for them-- socialism for the Dick Cheneys.

 

The success of the best economic system known to man, Capitalism, is dependent upon an underlying "given". That "given" is a societal morality that dictates honesty, generosity, personal responsibility, self-control, and indeed the "Golden Rule". Once such moral principles become matters open to individual opinions, cronyism, discontent, and elitism become the norm.

 

The debt continued to shrink (relative to GDP) from 1971 to 1981, even with the country coming out of the expense of the Vietnam war.

The relative debt shrunk in the late 1990s after relative tax increases and relative spending decreases.

The debt has grown because of irresponsible leaders pandering tax cuts and spending programs. Blaming it on monetary policy is simply excusing failed leadership.

We have not followed Keynesian economics. First, "more taxes" is not Keynesian per se. More taxes is not viewed as a stimulus. Keynes (as I understand his theories) would not call for higher taxes in a recession; he would call for lower taxes if anything.

Second, it is a bastardization of the principle to contend it stands for the proposition that we always need more spending and deficits. We have not followed Keynesian principles. Keynesian theory provides for stimulus only when the economy has contracted. When the economy is running well, Keynesian theory calls for running surpluses. We have not done this, except for the Clinton years. Instead, we have run huge deficits when the economy was doing well.

 

It is not Govt debt that has suppressed spending. It is this:




Over the past three years, a confluence of factors, and in no small measure the "trickle down" agenda of the "Reagan revolution" has suppressed middle class incomes for the benefit of the wealthiest. The wealthiest proportionally do not spend the money, they stick it in offshore accounts. The 1% now take about 20% of the nation's income, double from 30 years ago. That equates to about $1.4 trillion each year that is now going to people who don't spend it (proportionately) instead of people who do.

We can fix the public debt the same way we did in the 1990s. Raise taxes and trim spending proportionate to GDP. We have already made great strides in this area as the deficit has fallen from $1.4 trillion to $680 billion in 4 years.

We fix the income levels of the spenders by reversing "trickle down." Increase the minimum wage, broaden the scope of OT laws, decrease FICA taxes on working middle class/poor and increase them on the wealthiest, increase the power of unions to collectively bargain better wages for workers, eliminate the big tax advantage of unearned over earned income, increase Govt employment.

Like the above.

 

Not at all. The are related. No one is going to increase production if there is no demand. If there is greater demand increases in production will follow. You cannot effectively force producers to produce more if no one is going to buy their stuff. You can effectively increase demand, and production will follow. Rapidly.

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The best utility of currency is to facilitate the means of exchange and avoid deflation. You can always buy a bow and arrow to hold value.

 

The only morality of capitalism is profit. Capitalism is a great engine of innovation and economic growth that works by providing fabulous rewards to those who provide what the market wants. These rewards incentive work, effort, and risk taking that provides innovation and efficiency. We should not destroy that element.

However, capitalism does not give a (*)(*)(*)(*) about people who, because of age, infirmity, illness, mental condition or just temporary market conditions, do not have market value that provides a basic level of subsistence. Capitalism doesn't care if they starve to death or bleed to death because they couldn't afford health insurance. Capitalism is only interested in profit. Capitalism doesn't care if our skies and waters and beaches are polluted or that our resources are mismanaged or that the unprotected are abused. Capitalism just cares about profit.

In my view, to have an optimal system for Americans, we have system that provides wealth and rewards for production, taking risk, and adding economic benefit, but as quid pro quo for living in a society that provides this benefit, those that receive those tremendous rewards share a portion of it for systems that apply to the benefit of others so they have the same opportunity, or at least a marginally decent standard of living. Which is a benefit to all if we don't have to see grannie living in a cardboard box under the freeway.

 

I wasn't speaking of "Capitalism" as being inherently moral or immoral. It is an economic system with no built in morals. People have and occasionally lack good morals. Capitalism is best conducted and is most successful for the whole of a society IF the human beings participating in it have strong moral foundations. Capitalism by definition doesn't require dishonesty, nor does it prohibit self-control, personal responsibility, and generosity. If the human beings involved in capitalistic enterprises conduct themselves morally, there are NO ills whatever inherent in the economic system itself. Make sense?

 

Your post was laden with morality.

It is an economic system with no built in morals.[/quote]

It is amoral.

Disagree and it does not make sense. The goal and function of capitalism is profit. Not the welfare of the people. To the contrary, by its nature capitalism seeks to distribute the least amount of benefit possible to the people who work for the owners, while maximizing the distribution of wealth to the few. In that sense an amoral system can be (IMO) immoral. Capitalism doesn't care if a person doesn't have a job or will work for sub poverty wages because there is a surplus of labor.

I certainly concede that there are major advantages to a capitalist system, but IMO the fact that it is (amorally) the best engine to engage human progress does not mean that it is in an of itself an appropriate system by which to govern all things in society.

As you recognize, capitalism is at best amoral, driven to make profit. IMO we should not have an admittedly amoral system dictate who we operate on all levels in society.

Fortunately, we don't have too. We can have systems that provide the benefits of capitalism -- the incentive to take risk and innovate and create, as well as provides for the general welfare more effectively than the amoral system of capitalism. It's not always an easy line to draw and it may not be drawn perfectly, but it can be done.

 

You're proving my point. I specifically said that it's people who have morals, not capitalism. I'm arguing that if those practicing capitalism do so morally, then capitalism itself has no moral downside. By advocating as you did that, you prefer a capitalistic system that provides "the incentive to take risk and innovate and create, as well as provides for the general welfare", you're saying exactly what I said. You want capitalism in which the practitioners (human beings) use morality to provide "for the general welfare". It's not capitalism that prohibits doing that, it's the morality of some capitalists. Doesn't that make sense?

 

It isn't a "given" in a free economy.

Dishonesty in a free economy means your business will fail. That is why capitalism works.

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There is no system that creates more general welfare than capitalism.

The best way to enrich your neighbor is to develop yourself.

 

We agree. I said public by mistake, but my description was about private/household debt.

 

It depends on who you are. It actually favors the government to deflate currency over time in terms of its purchasing power because with deflation, there is less opportunity cost loss in the future on the money used to repay the debt and interest (not that the US has really paid any effective debt principle in a generation).

 

Not really. Because you are attempting to invoke moral behavior on capitalism. The only morality in capitalism is to make maximize profit. In fact, in corporations, it is the legal duty of those who manage shareholder corporations. Are you doing your duty to maximize profits if you pay your workers $20/hr but only have to pay them $10 at the expense of lower profit?

Furthermore, it is simply unrealistic to ascribe that kind of altruism on everyone. If if you have a moral, altruistic fellow who would like to pay his employees $20/hr, if his competitor pays them $10/hr, his competitor can undercut the altruistic fellow and drive him out of business with lower prices.

Laissez-faire capitalism does not permit altruistic behavior. It often penalizes it and effectively kills it. It is not just the "immorality" of some capitalists, but the fact that they derive a competitive advantage for their "immorality."

Instead, what we need are rules and regulations mandating things like higher wages so that all companies have to abide by them an then they will compete on a level playing field.

It's the same concept for pollution or safe working environments or whatever.

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Laissez-faire capitalism does not create more general welfare than social capitalism.

 

Can you explain what you mean a bit further? What do you mean "there is less opportunity cost loss in the future"?

With deflation, wages and tax revenues can decline and the real cost of the debt increases.

 

As GDP grows, debt service for any particular expenditure becomes increasingly insignificant over its 30 year financing period. Something like welfare may be a bad investment, but things like bridges and dams and physical improvements are not because you get the use of those things for thirty years and the $5B you paid for a dam would be more of an opportunity cost if you paid cash for it today than if you pay back the same $5B 30 years from now when that $5B has been significantly deflated. Whether or not tax revenues increase or decrease is irrelevant, but as deflation of the dollar happens one would expect revenues to increase. A dollar today will have greater purchasing power than a dollar 30 years from now so it is better to spend the dollar today and pay it back in 30 years.

 

With deflation of the dollar prices and wages decline, and thus tax revenues decline. With declining tax revenues, the cost of the debt becomes proportionately larger because it doesn't shrink.

Compare to inflation. With inflation, incomes grow as do tax revenues, and a stable debt becomes relatively less expensive.

I suppose it is possible to have very modest price deflation with raising incomes by inflating the money supply at a rate lower than economic growth. But that has its own disadvantages.

 

Yes, really!

This isn’t difficult to understand. Nobody can invoke moral behavior on a “system”. Morals are solely in the hands of human beings, not inanimate economic systems. You cannot enforce morality on systems, but human beings are another story. Capitalism by definition is simply a system of private ownership instead of government ownership. To maximize profit, one would think that Corporate CEO’s would take lower salaries than they do. Why do you suppose some CEO’s are paid high salaries? Supposedly because they know how to run businesses, make profit, and grow the company. According to your flawed logic, profits would be maximized if executives were paid much less too. Are those executives not abiding by what you wrongly say is their “legal duty” to maximize profit?

That’s a typical, leftwing oversimplification of a complex economic concept. Smart management will always trump hourly rates as a means to company growth and profit. A smart executive who’s good at selecting the best employees will have a company with the highest efficiency and productivity, as well as the highest profit. To get the best people smart executives often pay more. As long as a company pays its employees what they’re actually worth, higher hourly rates do NOT place the company at a competitive disadvantage.

Any manager/executive who’d pay his employees on the sole basis of doing them a favor is an idiot, and will soon have no company to run. Pay should only be determined by the worth of each employee to the company’s overall success. You get what you pay for IF you’re paying the right person!

Being cheap does NOT ensure success by any means. I can easily argue that it’s “immoral” to pay a sub-standard employee more than he’s worth simply to be kind. Doing so harms other employees who are more capable, and literally threatens everyone’s job.

Absolute insanity! When you pay for mediocrity, you GET mediocrity. Rules and regulations that effectively makes everyone equal results in only ONE Company, that being a government and its ruling elite. That’s nothing more than a dictatorship.

If left to their own simple-minded and uninformed logic, leftwing progressives can literally destroy everything. They can’t think in any greater terms than their oversimplified one-liners that require no thought whatever. These people shouldn't be running a lemonade stand, let alone our entire government.

 

Your telling me it makes sense to me? LOL

That is a misapplication of my logic. I never said that companies would pay everyone sub-poverty level wages. But they will to those they can get away with it.

You seem to be arguing against your own position. You concede capitalism is not a "moral" system. You acknowledge that for capitalism to operate in a "moral" way, you'd have to have "moral" people running the businesses, who are willing to do "moral" things -- even at the expense of lower profits.

But you must all concede that many people are not "moral" and have not, do not, and will not operate their corporations in a moral way. The result is that those who operate immorally -- pollute the environment, pay sub-poverty wages to their workers, do not provide safe working environments -- have an advantage over moral operators. And thus capitalism devolves into an inherently immoral system.

We both agree, on the other hand, that there are some benefits to capitalism. It provides the incentives to innovate, take risks, and create. So given the inherit immorality of laissez-faire capitalism, I submit the only rationale course to moral people is a capitalistic system that rewords the innovators and risk takers, but still provides regulations and safety nets to reduce the inherent immorality of the system, and provide a more moral system for the people.

That’s a typical, rightwing oversimplification of a complex economic concept. A smart manager doesn't need to pay even poverty level wages and benefits and health insurance for someone to run a cash register, when there are scores of people waiting to take any open position.

Interesting concept. So to clarify, you're saying people should be paid based on the value they bring to the business, and *not* on the market value for their services?

If the employee is substandard they should be fired. But your living in a fantasy world to think that corporations will pay everyone who works hard a "moral" wage in "moral" working conditions.

Absolute insanity! When you pay for mediocrity, you GET mediocrity. Rules and regulations that effectively makes everyone equal results in only ONE Company, that being a government and its ruling elite. That’s nothing more than a dictatorship. [/quote]

I said nothing about mediocre workers. If a worker doesn't do the job, he should be fired. But people who work hard shouldn't have to live in poverty. That is only moral, isn't it?

It's not insanity at all. It is in fact the only answer to the inherent immorality of capitalism.

Not at all. We've had the greatest economy in the world based on left wing progressive policies. It's been the "trickle down" policies of the last 30 years that has retarded that progress.