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Chris
02-14-2015, 11:00 AM
Economic Nonsense is a series of articles in economics by Dr. Madsen Pirie at the Adam Smith Institute. Let's start at the beginning...

Economic Nonsense: 1. Self-sufficiency and buying locally are beneficial (http://www.adamsmith.org/blog/economics/economic-nonsense-1-self-sufficiency-and-buying-locally-are-beneficial/)


No, the reverse is true. Depending on others for some of our needs and having access to goods from distant markets are beneficial, whereas self-sufficiency and localism usually leave people poorer. When we buy things from others we have access to their skills and specializations, skills that can make goods better and cheaper than we could make ourselves.

Households that make their own clothes and pottery are poorer than those that can buy cheaper, mass-produced goods. It takes them more time and more resources than it takes producers who specialize. The same is true on a larger scale for communities and nations. Buying from others and buying from outsiders leaves people richer.

People who can buy from distant sellers can buy more cheaply, and are richer by the money they save. Requiring people to buy locally often means making them pay more than they would otherwise need to, leaving them less money to spend on other things.

When governments of developing countries impose tariffs and quotas on imported goods in the name of “protecting infant industries” they are making their citizens pay more than they need to. A prohibitive tariff on imported US tractors, for example, means that farmers have to pay more for locally-produced ones, making their produce more expensive. The protected local tractor makers benefit, of course, but it is at the expense of local buyers. The process opens up opportunities for corruption and cronyism as local producers lobby, and occasionally bribe, ministers to impose such “protection.”

Wealth is created by trade and exchange, and is increased when they are increased. Self-sufficiency and buying locally both introduce restraints on trade and exchange and lead to people being poorer than they need to be. They are not beneficial.


(If you search the forum, or the Internet, for "Economics is Fun" you will find another series of video Dr. Madsen Pirie at the Adam Smith Institute put together on basic economics that posted when I first arrived here about two years ago.)

Bob
02-14-2015, 03:33 PM
That blog site has arguments pro and con.

Chris
02-14-2015, 04:05 PM
Yes, and?

Chris
02-15-2015, 10:10 AM
Economic Nonsense: 2. Some prices should be legally capped (http://www.adamsmith.org/blog/economics/economic-nonsense-2-some-prices-should-be-legally-capped/)


Prices do more than tell us how much we have to pay for things; they also convey important information that motivates people to act. When prices rise for things in short supply, they tempt producers to bring more supply onto the market, alleviating the shortage. Prices motivate people to put investment into particular sectors of the market, raising future supply there.

Governments since that of Hammurabi over 4,000 years ago have at times sought to fix prices, often in response to political pressures: the Adam Smith Institute’s Director, Dr. Eamonn Butler, examined the history of this kind of price fixing in Forty Centuries of Wage and Price Controls. When prices are fixed, however, their role as conveyors of information is lost, and their ability to motivate people to act is compromised.

If energy prices, for example, were fixed, it would make energy less attractive as an investment, reducing the future supply of it and perhaps leading to blackouts.

Fixing the price of rents is popular with current tenants, but it will limit the future supply of rental property....

The market has many self-correcting mechanisms that price controls prevent coming into play. The high prices caused by shortages tell more producers to enter the market; the low prices caused by gluts lead them to direct their resources elsewhere. This activity depends on the flow of information that prices generate, a flow that is stopped when prices are fixed by law.


Scheuttinger and Butler's Forty Centuries of Wage and Price Controls: How Not to Fight Inflation is a very readable history of the failure of government to control the economy by fixing prices, setting wages, etc.

Chris
02-16-2015, 05:49 PM
Economic Nonsense: 3. There has to be a winner in every bargain (http://www.adamsmith.org/blog/economics/economic-nonsense-3-there-has-to-be-a-winner-in-every-bargain/)


This is not true, and is based on the false zero sum game fallacy. The assumption behind it is that value is fixed, so that if someone gains more of it, someone else will obtain less. People commonly ask who gets the best of a bargain, wrongly assuming that one party gains at the expense of the other.

In fact, value is not a fixed property of objects, but something in the mind of those who think about them. People are different and they value things differently; and value is not fixed or in limited supply. When a voluntary exchange takes place it is because each party puts greater value on what the other party has than they put upon what they are ready to trade for it. When the trade takes place, each party acquires something they value more than what they already had. Both gain in value; this is how wealth is created.

It is not a case of one party winning and the other losing. Rather is it a win-win situation in which both parties have added value to their lives.

Just as both usually gain in a voluntary bargain between people, so do both sides usually gain in a freely-entered exchange between nations. People in one country trade what they have in return for what they value more from the other country. Both become wealthier as a result. It is trade and exchange that makes countries wealthier, not trying to accumulate precious metals or plundering wealth from others. When countries abandoned the idea that they could grow rich at the expense of others, the world’s wealth began to grow dramatically. Trade has made everyone winners.

Bob
02-16-2015, 06:01 PM
Economic Nonsense: 3. There has to be a winner in every bargain (http://www.adamsmith.org/blog/economics/economic-nonsense-3-there-has-to-be-a-winner-in-every-bargain/)


This is not true, and is based on the false zero sum game fallacy. The assumption behind it is that value is fixed, so that if someone gains more of it, someone else will obtain less. People commonly ask who gets the best of a bargain, wrongly assuming that one party gains at the expense of the other.

In fact, value is not a fixed property of objects, but something in the mind of those who think about them. People are different and they value things differently; and value is not fixed or in limited supply. When a voluntary exchange takes place it is because each party puts greater value on what the other party has than they put upon what they are ready to trade for it. When the trade takes place, each party acquires something they value more than what they already had. Both gain in value; this is how wealth is created.

It is not a case of one party winning and the other losing. Rather is it a win-win situation in which both parties have added value to their lives.

Just as both usually gain in a voluntary bargain between people, so do both sides usually gain in a freely-entered exchange between nations. People in one country trade what they have in return for what they value more from the other country. Both become wealthier as a result. It is trade and exchange that makes countries wealthier, not trying to accumulate precious metals or plundering wealth from others. When countries abandoned the idea that they could grow rich at the expense of others, the world’s wealth began to grow dramatically. Trade has made everyone winners.

Discovery has a program called Alaskan Bush people.

http://www.discovery.com/tv-shows/alaskan-bush-people/

During one episode, the father trades a nice looking boat for lumber. He explains that a value of a dime might be put on one item but the item traded for is vital and thus worth it.

His point was the boat was worth a great deal more to some than to him. He needed a home thus the lumber.

Who decides if he is right or wrong. Each party to the trade decides.

Chris
02-16-2015, 06:08 PM
Discovery has a program called Alaskan Bush people.

http://www.discovery.com/tv-shows/alaskan-bush-people/

During one episode, the father trades a nice looking boat for lumber. He explains that a value of a dime might be put on one item but the item traded for is vital and thus worth it.

His point was the boat was worth a great deal more to some than to him. He needed a home thus the lumber.

Who decides if he is right or wrong. Each party to the trade decides.



Exactly. Value is subjective. For prices just as wages.

Chris
02-17-2015, 07:00 PM
Economic Nonsense: 4. Population growth will involve malnourishment & starvation (http://www.adamsmith.org/blog/economics/economic-nonsense-4-population-growth-will-involve-malnourishment-starvation/)


Malthus made this mistake. He thought that food supply could only increase arithmetically, whereas population must increase geometrically. He thought the result would always be more people than could be fed, with mass starvation and misery resulting.

...Humankind’s ability to produce food has increased beyond anything Malthus could have envisaged. Improvements in agriculture, in developing higher yield grains and in better animal husbandry have all enabled more food to be produced per acre. The Green Revolution saw new crop strains combined with better agricultural management produce a huge increase in yields. Genetically modified crops now offer the prospect of crops bred to be drought tolerant, salt-water tolerant, pest resistant and self-fertilizing, and offer a second Green Revolution with not only higher yields per acre, but crops that can prosper on previously infertile land.

Far from increasing out of control, population growth is levelling off. As countries become richer, families do not need as many children to augment the family budget through their work. As people are able to fund social services, they no longer need children to support them when they grow old. The emancipation and education of women has played a significant role in this change. Population growth in rich countries levels off. In most European countries it is now negative, offset in some like the UK only by immigration....

Chris
02-19-2015, 07:46 PM
Economic Nonsense: 5. Taxes should be increased to fund necessary spending (http://www.adamsmith.org/blog/economics/economic-nonsense-5-taxes-should-be-increased-to-fund-necessary-spending/)


Taxation changes behaviour. Taxes on goods and services makes them more expensive, and in most cases people buy fewer of them as a result. Taxation on incomes makes work less attractive, motivating some people to do less of it. Taxes on business usually fall on those who buy the products of those businesses, often reducing demand to below the level it would reach without taxation. Taxes that people regard as unfair or oppressive will often lead people to take steps to avoid their burden. Taxes on inheritance lead people to dissipate their wealth early, or they break up the capital pools that enable heirs to invest.

Dynamic models of the economy try to take account of this. Doubling the tax on tobacco products, for example, does not yield twice the revenue. It might lead to twice the smuggling, though. Vast increases in the duty on alcohol does not raise revenue in proportion, thought it does lead some drinkers to move down to cheaper booze. Some tax increases actually yield less revenue because of the behavioural responses they trigger.

Arthur Laffer famously noted that a 0% tax on incomes yields no revenue, as does a 100% tax. The graph line that links those two zeros is the Laffer Curve, and it has a peak somewhere whose rate yields the most revenue. Even this moves as people adjust to the new status quo....

...The optimum revenue-raising rate depends on the status quo to begin with. In many cases it might be appropriate to lower taxes to raise more revenue, rather than to hike them. It is never likely that higher rates will yield more revenue in proportion to the increase.

Chris
02-21-2015, 10:04 AM
Economic Nonsense: 6. The rich are growing richer, the poor poorer and the gap is widening (http://www.adamsmith.org/blog/economics/economic-nonsense-6-the-rich-are-growing-richer-the-poor-poorer-and-the-gap-is-widening/)


Sometimes this is asserted on a world scale, and sometimes claimed to be true within individual countries. Not only is this nonsense; it is also false. The rich have indeed grown richer, and the poor have also grown richer. It matters more to poor people. Extra wealth to the rich might mean more luxuries; to the poor it can mean the difference between starvation and survival.

The last few decades have witnessed the greatest advance in living standards for the world’s poor than ever before in human history. More than a billion people have been lifted above subsistence. The poor have not become poorer, they have become richer to a spectacular degree. India and Chine have made astonishing advances, but it has not been confined to them; other countries have seen their poor become wealthier, and it is still happening.

Within rich countries the poor have become richer. The yardstick that matters is the one that tells us how much they can buy. In terms of the hours of work needed to buy goods, they are much better off than they were decades ago. In some cases what used to take weeks of work to buy now takes less than a day.

Those who make this false claim are concerned with equality rather than wealth. If the poor gain wealth, but the rich gain more, then under their perverse way of regarding things, they regard the poor as having become poorer. If achieving twice the spending power is called “becoming poorer,” then words have lost their meaning....

Brett Nortje
02-21-2015, 10:31 AM
The way i see it, money is created through lending and credit. if someone goes to the bank and takes out a home loan of fifty thousand dollars, or, five hundred thousand rand, then they need to pay interest on that loan. the bank collects the interest and money is created, from, borrowing from the future, yes? i mean, money is imaginary, and, if it is so imaginary, then we could just create more and more, except that something needs to satisfy our needs and desires.

So, if someone needs to work, it must not be you! work at a bank. i will still explain this process in detail.

So, the money was paid back, but more was paid back than was lent out, so, if you have a 'customer' paying like two thousand a month, and the loan is fifty thousand, that means it takes twenty years to create the interest or so. it just so happens they have more than one loaner, and there are mini loans too.

Chris
02-21-2015, 10:36 AM
The way i see it, money is created through lending and credit. if someone goes to the bank and takes out a home loan of fifty thousand dollars, or, five hundred thousand rand, then they need to pay interest on that loan. the bank collects the interest and money is created, from, borrowing from the future, yes? i mean, money is imaginary, and, if it is so imaginary, then we could just create more and more, except that something needs to satisfy our needs and desires.

So, if someone needs to work, it must not be you! work at a bank. i will still explain this process in detail.

So, the money was paid back, but more was paid back than was lent out, so, if you have a 'customer' paying like two thousand a month, and the loan is fifty thousand, that means it takes twenty years to create the interest or so. it just so happens they have more than one loaner, and there are mini loans too.


Say the bank loans me a load of money and I invest it in a business that makes loads more money. True, I need to repay the bank with interest whereby the bank makes money but my business also makes me money. Wealth has been generated in the exchange.

Where we run into trouble is when government borrows and prints money. That causes inflation.

Brett Nortje
02-21-2015, 10:50 AM
Say the bank loans me a load of money and I invest it in a business that makes loads more money. True, I need to repay the bank with interest whereby the bank makes money but my business also makes me money. Wealth has been generated in the exchange.

Where we run into trouble is when government borrows and prints money. That causes inflation.

Yes, of course. in that instance, the borrower from your business will borrow money, and through the inflation of your service price, there is even more money, yes?

Chris
02-21-2015, 11:06 AM
Yes, of course. in that instance, the borrower from your business will borrow money, and through the inflation of your service price, there is even more money, yes?

True, but the gain in wealth need not be always just monetary.

donttread
02-22-2015, 08:16 AM
Economic Nonsense is a series of articles in economics by Dr. Madsen Pirie at the Adam Smith Institute. Let's start at the beginning...

Economic Nonsense: 1. Self-sufficiency and buying locally are beneficial (http://www.adamsmith.org/blog/economics/economic-nonsense-1-self-sufficiency-and-buying-locally-are-beneficial/)

Global economy borrows against both mother earth and our children giving the false appearance that local economies are poorer when they are not.




(If you search the forum, or the Internet, for "Economics is Fun" you will find another series of video Dr. Madsen Pirie at the Adam Smith Institute put together on basic economics that posted when I first arrived here about two years ago.)

Chris
02-22-2015, 01:27 PM
Economic Nonsense: 7. New technology destroys jobs (http://www.adamsmith.org/blog/economics/economic-nonsense-7-new-technology-destroys-jobs/)


This is partly true, but in a misleading way. New technology has often displaced people from their traditional occupations, but in doing so it has created the wealth that has enabled vastly more jobs to be created than were lost. Agricultural technology meant far fewer jobs for farm workers, but it also meant cheaper, more abundant food that left people able to afford things sustained by newer jobs. A similar effect occurred with early textile technology. Spinners and weavers were displaced, but cheaper, mass-produced textiles enabled people to afford other things that led to other jobs.

This is how economic progress is made. People develop new products and new processes that people prefer over what they were doing before. Jobs are lost and more are created as part of that churn.

Voices are often raised against the change, especially by those affected, with calls for restrictions to be imposed on new technology in the name of protecting jobs. Sometimes it has led to violence. The Luddites smashed machinery, while the Saboteurs were named from throwing their wooden shoes (sabots) into the machines to wreck them. This was done in a vain attempt to halt the march of progress.

New technology can bring hardship upon those affected by it, and some of those displaced can find it hard to secure alternative employment. Governments, rather than attempting to stop new technology, sometimes try to ameliorate some of its effects by funding schemes that help retrain and if necessary relocate those most affected by it.

Sometimes people will ask where the new jobs will come from if technology displaces traditional ones. The question cannot be answered because the future is inherently unpredictable. New technology makes things cheaper, and that leaves people richer, with more money to spend on other things. We don’t know what those other things will be, but we do know that they will involve new types of jobs. New technology, in making manufactured good cheaper, has left people with more to spend on services industries, and there are more jobs in total than there were. This is how new technology works. It destroys some jobs and creates more.

Bob
02-22-2015, 01:43 PM
I don't so much preach that it is new technology, but Robots.

When you replace humans with machines that man must use, such as the tractor, at least you keep some humans. Humans not following the plow behind the horse can be trained to make the tractor and make repairs. Tractors need many products, all made by humans.

But things are changing. Robots that not only replace man are evident, but so are robots that can actually make decisions.

I agree with the post above by Chris but when a machine can do the work of 100 men, something has to give. And it is men being out of work.

Chris
02-22-2015, 01:49 PM
I don't so much preach that it is new technology, but Robots.

When you replace humans with machines that man must use, such as the tractor, at least you keep some humans. Humans not following the plow behind the horse can be trained to make the tractor and make repairs. Tractors need many products, all made by humans.

But things are changing. Robots that not only replace man are evident, but so are robots that can actually make decisions.

I agree with the post above by Chris but when a machine can do the work of 100 men, something has to give. And it is men being out of work.


And yet since the dawn of man technological advance has only resulted in more jobs.

Chris
02-22-2015, 05:35 PM
Bob, see the progressive cliche #45 – “Robots and Computerization Cause Unemployment” (http://thepoliticalforums.com/threads/24974-Clich%C3%A9s-of-Progressivism?p=969631&viewfull=1#post969631): "The use of robotics to increase productivity while decreasing costs works basically the same way as past technological advances, like the production line, have worked. Those advances improved the quality of life of billions of people and created new forms of employment that were unimaginable at the time."

Bob
02-22-2015, 06:17 PM
@Bob (http://thepoliticalforums.com/member.php?u=1013), see the progressive cliche #45 – “Robots and Computerization Cause Unemployment” (http://thepoliticalforums.com/threads/24974-Clichés-of-Progressivism?p=969631&viewfull=1#post969631): "The use of robotics to increase productivity while decreasing costs works basically the same way as past technological advances, like the production line, have worked. Those advances improved the quality of life of billions of people and created new forms of employment that were unimaginable at the time."

I once owned a machine shop. My shop made a wide variety of systems, products and so forth.

I could replace all my workers with one new machine.

While others made the computer machine to replace the workers with, was that in sufficient number to deal with all shops like mine was? I would be able to lay off 6 men with one new machine.

My concern was not over who made the computer machine and at the time the Japanese were rapidly rising as a major player. If you wish to ignore foreign machine makers, fine. But in general the machine replaces humans and there is no way to get around that.

Machines can be dealt with to work 24/7. No lunch breaks, no time to take a shit.

I had a dude that worked for me at the machine shop who loved to head for the toilet about 10 am daily. There he grunted loudly and told us all what a great shit he was having. His idea of fun I guess.

I paid him to grunt and take a shit. i never had to pay machines for that.

Chris
02-22-2015, 06:41 PM
I once owned a machine shop. My shop made a wide variety of systems, products and so forth.

I could replace all my workers with one new machine.

While others made the computer machine to replace the workers with, was that in sufficient number to deal with all shops like mine was? I would be able to lay off 6 men with one new machine.

My concern was not over who made the computer machine and at the time the Japanese were rapidly rising as a major player. If you wish to ignore foreign machine makers, fine. But in general the machine replaces humans and there is no way to get around that.

Machines can be dealt with to work 24/7. No lunch breaks, no time to take a shit.

I had a dude that worked for me at the machine shop who loved to head for the toilet about 10 am daily. There he grunted loudly and told us all what a great shit he was having. His idea of fun I guess.

I paid him to grunt and take a shit. i never had to pay machines for that.

Right, but they at most only temporarily displae people till they take new jobs created from the levels of productivity.

Bob
02-22-2015, 06:52 PM
Right, but they at most only temporarily displae people till they take new jobs created from the levels of productivity.

Chris, are you aware of the actual number by percent that are actually employed today?

I doubt you trust the unemployment figures.

I submit that the companies making the robots can use robots to make those robots.

Chris
02-22-2015, 07:20 PM
Chris, are you aware of the actual number by percent that are actually employed today?

I doubt you trust the unemployment figures.

I submit that the companies making the robots can use robots to make those robots.

And the prosperity that results from the savings and increased prosperity will create new jobs.

Bob
02-22-2015, 08:53 PM
And the prosperity that results from the savings and increased prosperity will create new jobs.

Possible. I admit that.

Chris
02-23-2015, 07:51 AM
Possible. I admit that.

True, history may not repeat itself. No one has a crystal ball, well, not a working one.



You do realize that the technology of capitalism putting people out of work is marx's predicted collapse of capitalism for then machines will produce an unlimited abundance of goods.

Bob
02-23-2015, 12:50 PM
True, history may not repeat itself. No one has a crystal ball, well, not a working one.



You do realize that the technology of capitalism putting people out of work is marx's predicted collapse of capitalism for then machines will produce an unlimited abundance of goods.

I have Marx in my library. Sadly I have not read every chapter yet.

I may be misunderstood. I agree with you. But we have to face facts. The purpose of machines and now robots is to save wages and lost time. Robots are happy to work 365 and not be paid benefits.

What we must consider is the vast pool of people today who are more than out of work, they might be out of hope.

Chris
02-23-2015, 01:25 PM
I have Marx in my library. Sadly I have not read every chapter yet.

I may be misunderstood. I agree with you. But we have to face facts. The purpose of machines and now robots is to save wages and lost time. Robots are happy to work 365 and not be paid benefits.

What we must consider is the vast pool of people today who are more than out of work, they might be out of hope.


Not trying to say you're talking Marx, but it's the same sort of theory.

Cheaper labor means more prosperity. Companies innovate efficiencies in order to grow.

Chris
02-23-2015, 05:21 PM
Economic Nonsense: 8. The world is running out of scarce resources (http://www.adamsmith.org/blog/economics/economic-nonsense-8-the-world-is-running-out-of-scarce-resources-2/)


Curiously, the opposite is true: so-called ‘scarce’ resources are actually becoming more plentiful. Our technical ability to extract resources, including things like copper, zinc, chromium and manganese, is increasing faster than the rate at which we are using up existing ‘reserves.’ We use the term ‘reserves’ to denote the supply which can be extracted economically with current technology. For most of these resources our reserves are increasing.

We can measure the relative availability of these resources by looking at their price. For many of them it has been going down over several decades, indicating a relative excess of the supply of them over the demand for them. Julian Simon won a famous public wager with Paul Erlich, predicting lower prices for an agreed basket of resources, and Erlich duly paid up when he lost.

If any resource does become genuinely scarce, the price rises, and this signals to people that they should use less of it, turning to substitutes where they have become more economic to develop. It also tells people to produce more of the scarce resource, with the higher price making previously marginal sources now more economic to develop. The price mechanism thus acts to counter their scarcity by reducing demand and augmenting supply.

Oil and gas were long thought to be exceptions to this trend, but even here technology has given us access to new supplies. Hydraulic fracturing (fracking) has made available sources of oil and gas from places less volatile politically than those we previously depended upon. Prices have tumbled, and cheap shale gas is enabling us to shut down coal-fired power stations and switch to much cleaner gas-powered ones. Some estimates put the supply of shale gas as sufficient to supply projected needs for the next 200 years. Long before then, however, photovoltaic technology will have allowed solar power to overtake gas in its cheapness. Contrary to what doomsayers claim, we are running out of neither resources nor energy.

Chris
02-24-2015, 07:04 PM
Economic Nonsense: 9. International agreement on tax rates would benefit everyone (http://www.adamsmith.org/blog/economics/economic-nonsense-9-international-agreement-on-tax-rates-would-benefit-everyone/)


International agreement on tax rates would hurt everyone except those who collect and spend taxes. Governments have little restraint on the degree to which they can take the money earned by their citizens and spend it on overblown projects designed ultimately to buy votes and secure their re-election. They meet some resistance as they increase their tax take, but people can do little except grumble. Very often there is little difference between the major political parties, or between the tax rates they levy while in office, so democratic restraints are minimal.

The one effective restraint is the ability of people to move to another jurisdiction. This is especially true of modern economies which place considerable value on the talents of high-achieving individuals. Government is restrained on what it can tax them by their ability to move. When faced with punitive tax rates, they can relocate to somewhere more favourable. High earners in France, and those with aspirations to become so, began to leave the country in significant numbers when faced by government plans to levy a top income tax rate of 75%. Similar effects have been observed elsewhere.

What is true of individuals can be true of companies. They, too, can choose to relocate to areas where tax rates are friendlier. The Republic of Ireland found its low 12.5% rate of corporation tax attracted companies to base themselves within its borders. High rates of corporation tax elsewhere added to Ireland’s attraction.

Those who support high taxes dislike this restraint and many of them call for international harmonization of tax rates. The aim of this is to make it pointless to relocate, and to remove the one curb on over-large and over-costly governments. They dislike what they call ‘tax competition.’ But relatively low taxes on high earners and business constitute a business-friendly environment and are conducive to economic growth. Those who call for harmonization are in effect saying they do not want any countries to be more business-friendly than others. Denied an escape to less oppressive tax regimes, people become the helpless prisoners of rapacious governments.

Chris
02-25-2015, 07:27 PM
Economic Nonsense: 10. Government spends more efficiently than private individuals (http://www.adamsmith.org/blog/economics/economic-nonsense-10-government-spends-more-efficiently-than-private-individuals/)


This is not only untrue; it is laughably untrue. Sometimes supporters of big government spending claim that government is more efficient because it doesn’t need to make profits. Sometimes they say it doesn’t need to spend on advertising. Sometimes they say it can borrow more cheaply than private businesses because it has taxpayer backing. The facts show that even with profits, advertising and higher borrowing costs, the private sector is vastly more efficient. The UK’s nationalized industries were ailing giants that gobbled subsidies when they were state-owned. When they were privatized they became profitable private companies that paid taxes instead of collecting subsidies.

Private investors are more careful because it is their own money at risk. The public sector corresponds to the fourth quarter of Milton Friedman’s quadrant: they spend other people’s money on somebody else. The private sector is competitive; it has to attract funds competitively. It has to anticipate future demand to avoid investing unproductively. Private projects seek ways to curb costs, to employ people efficiently, and to keep as close as they can to a timetable.

Public projects are notorious for cost overruns, for over-manning, and for being completed years behind schedule. Private projects are undertaken in response to market signals; they are subject to commercial pressures. The aim is to produce items that will meet future demand and generate profits. Public projects, by contrast, are subject to political pressures. They are often undertaken with a view to electoral popularity. The projects chosen, their scope and their location are often undertaken to secure the backing of various interest groups and localities, in the hope that this will translate into electoral support. None of this makes for efficient spending by governments.

Chris
03-01-2015, 11:17 AM
Economic Nonsense: 11. Inflation is a price worth paying to boost employment (http://www.adamsmith.org/blog/economics/economic-nonsense-11-inflation-is-a-price-worth-paying-to-boost-employment/)


It used to be thought there was a trade-off between inflation and employment. The economist William Phillips published a 1958 paper in which he found an inverse relationship between money wage changes and unemployment over nearly a century. The relationship was called the Phillips Curve, and was used by legislators to stimulate the economy by inflation to boost employment rates.

Unfortunately the Phillips Curve went vertical in the 1970s as countries were beset by high inflation and high unemployment occurring simultaneously. People were building expectation of inflation into their calculations and their economic decisions. Inflation rewards debtors at the expense of creditors and makes people less ready to lend. Investment in productive activity diminishes.

No less seriously, the assumption of future inflation makes forward planning difficult. People do not know what money will be worth by the time their goods reach the market. What inflation does do is cause misallocation of resources. People see the new money created by government and make false assumptions about what they should invest in. When they find that the demand was unreal, goods go unsold and there is an economic downturn with increased unemployment. This brings about the ‘stagflation,’ in which high inflation and high unemployment happen together.

Inflation can reduce unemployment in the very short term, but only at the expense of more unemployment following afterwards. This is why some governments have boosted inflation in an election year to take advantage of the apparent stimulus, then face the recessionary consequences after the election is safely out of the way. The strategy is now called boom and bust because an inflationary boom is followed by a real-world bust.

Chris
03-04-2015, 03:28 PM
Economic Nonsense: 12. Minimum wage rates raise living standards for the low paid (http://www.adamsmith.org/blog/economics/economic-nonsense-12-minimum-wage-rates-raise-living-standards-for-the-low-paid/)


When minimum wage rates per hour are set by law, it can raise the wages of those already in jobs and who manage to stay in those jobs. It has a negative effect on those who lose their jobs because firms no longer find them worth employing at the new rates. It has negative effects, too, on those trying to enter the labour market who do not yet have enough skills to be worth the minimum wage to potential employers.

Firms employ people because they are worth more to the firm than the wages they cost it. For low-skilled people their value to the firm might be quite low. Very often it is by starting on low wages and acquiring on-the-job skills that people move up the employment ladder. Someone who has worked has learned the importance of good time-keeping and following instructions. They have learned how the firm likes to do things, and are more valuable than an unknown potential employee. If the minimum wage is set at a level above that of their value to the firm, they find it difficult to secure those starter jobs.

In many countries those with low skills tend to be young people and sometimes those from ethnic minorities, especially if they have not had an adequate education. When minimum wage rates are increased, there often tends to be increased unemployment among these categories.

When minimum wages were introduced in the UK, the level was initially set sufficiently low that it had a minimal impact on employment. Subsequent increases are believed to have increased its impact, leading some economists to suggest that a better way of raising the take-home pay of low earners is to stop taking tax off them. Raising thresholds for income tax and National Insurance increases their wage without it costing employers money and pricing their services out of the market.

Chris
03-06-2015, 04:31 PM
Economic Nonsense: 13. Development and growth harm the environment and cause pollution (http://www.adamsmith.org/blog/economics/economic-nonsense-13-development-and-growth-harm-the-environment-and-cause-pollution/)


This is misleading. The early stages of economic development can certainly adversely affect the environment and cause pollution. When a nation is lifting itself out of abject poverty and subsistence-level life for its citizens, it values the wealth being generated more than it minds the environmental degradation that accompanies it.

The early stages of Britain’s Industrial Revolution saw factories going up, chimneys belching smoke, and land degraded by mining. For people at the time these factors were less important than the improved standard of living it brought, a standard that lifted most of them out of precarious subsistence and the ever-present threat of starvation.

When Britain grew rich enough, they were able to afford a cleaner environment. Money was available to spend on adequate sanitation and sewage treatment, on cleaning up land damaged by development, and by controlling emissions with legislation such as the Clear Air Act. Other developing economies went through similar stages. Today it is the rich countries that can afford to produce more cleanly.

Newly developing countries pollute more because clean production is more expensive. Wood burning and coal burning pollute heavily; gas burning and electricity production can be done more cleanly. Today China, which depends heavily on coal as an energy source, faces major air pollution problems in its cities and contamination of its rivers. But development has lifted most Chinese out of malnourishment, and now they are at the stage where they have enough wealth to start redressing their environmental problems.

Development and growth need not cause pollution and environmental damage once countries become wealthy enough to use cleaner technology. Wealth and technological progress can solve this problem; living more simply cannot.

Chris
03-10-2015, 03:59 PM
Economic Nonsense: 14. Government can create jobs by spending (http://www.adamsmith.org/blog/economics/economic-nonsense-14-government-can-create-jobs-by-spending/)


Government can certainly create the appearance of new jobs by spending. The minister can be televised proudly cutting the tape to open a government-funded business employing 100 people. The problem is that government has to take that money from the private sector in order to do so. It can do so by taxation, inflation or borrowing, and the effect is to give the private sector less money to spend. That, in turn, means lower demand for its goods and services, less economic activity and fewer transactions. The net result is that jobs are lost in the private sector as a result.

Part of the political problem is that the government-funded jobs can be seen, with ministers taking credit. The private job losses take place quietly, without people realizing that they are the result of government activity.

There has been much discussion in academic circles as to whether the publicly-funded jobs gained are more or fewer than the private sector jobs lost, but there is a respectable literature to suggest that they are fewer, and that 100 jobs created with public money will result in more than 100 jobs disappearing or not happening in the private sector.

Another part of the problem is that government-funded jobs are created in accord with political rather than economic priorities. The projects sanctioned are those that find favour with ministers, rather than those created to meet demand. They can be done to court electoral popularity rather than to satisfy economic needs. Jobs funded by public money often need public money to sustain them afterwards, and risk disappearing if public subsidy is withdrawn at some stage in the future. Governments are notoriously bad at “picking winners” to support with public funds; it is not their own money they are putting at risk, so they are less likely to do cautious and full accounting. Private investors tend to be more hard-headed since they stand to incur any losses that come about.

Captain Obvious
03-10-2015, 04:05 PM
A subset of #14 should be "We need to concentrate a vast majority of our wealth and power in the hands of a vast minority of people in order to create and maintain jobs"

Chris
03-10-2015, 04:11 PM
A subset of #14 should be "We need to concentrate a vast majority of our wealth and power in the hands of a vast minority of people in order to create and maintain jobs"

In the hands of producers of wealth, yes. They will invest it in innovation and greater productivity. It's not always easy to say who that is, who the next will be, so maybe just leave more wealth in the hands of the people and let us sort it out.

Captain Obvious
03-10-2015, 04:15 PM
In the hands of producers of wealth, yes. They will invest it in innovation and greater productivity. It's not always easy to say who that is, who the next will be, so maybe just leave more wealth in the hands of the people and let us sort it out.

Banks? Who use OPM?

Buckets argue that possession and ownership of that wealth must be concentrated in the vast minorities hands because they were trained to do so, which is utter nonsense.

Wealth is wealth, who owns/possesses it is irrelevant. The same million bucks in your invested fund drives the same capital it does if it's in someone elses.

Chris
03-10-2015, 04:22 PM
Banks? Who use OPM?

Buckets argue that possession and ownership of that wealth must be concentrated in the vast minorities hands because they were trained to do so, which is utter nonsense.

Wealth is wealth, who owns/possesses it is irrelevant. The same million bucks in your invested fund drives the same capital it does if it's in someone elses.


Right, I get that, what I save and or invest is managed by others. But I'd rather have more of it to influence the economy in terms of my choices of purchases and so on.

Chris
03-14-2015, 11:50 AM
Economic Nonsense: 15. Protection of domestic industries will safeguard jobs (http://www.adamsmith.org/blog/economics/economic-nonsense-15-protection-of-domestic-industries-will-safeguard-jobs/)


Sometimes when jobs are threatened by cheap imports there are calls for government to step in and safeguard those jobs by subsidies, tariffs or import quotas. The aim is to make the domestic goods artificially cheaper by subsidy, or to make the imported goods more expensive by taxing them. Some domestic jobs can be retained, at least temporarily, by this tactic. But the more expensive domestic goods will not be able to compete on world markets outside the country. They will find their foreign market share diminishes as people opt for the cheaper ones.

Where subsidies are used, domestic taxpayers are made poorer; where tariffs are used domestic customers lose access to cheaper goods. In both cases they are paying to support the industry concerned.

Some years ago in the UK the Lancashire textile industry was protected in this way. It might have prolonged its decline, but it did not stop it. Mass-produced low-cost textiles were being made more cheaply by foreign competitors. Eventually the UK textile industry moved to high added value luxury and designer products that sold at a premium in both domestic and foreign markets. Some UK textile products have become world-beaters, without the need for subsidies or tariffs to protect the jobs they sustain.

The advent of the World Trade Organisation (WTO), which succeeded the General Agreement on Tariffs and Trade (GATT), outlaws most of this kind of protection by multilateral agreement. This means that calls to protect domestic jobs by such means now fall upon deaf ears. The government has signed pledges not to engage in such practices, in return for the agreement of its trading partners to refrain similarly.

There are still grey areas, though, with Boeing and Airbus each alleging that the other receives indirect government support. It is generally true that when governments all try to protect domestic jobs at the expense of foreign ones, everybody loses. The world found this to its cost in the era of the Great Depression.

Peter1469
03-14-2015, 12:11 PM
What about illegal dumping? Don't protect against that?

Chris
03-14-2015, 12:15 PM
It's illegal.

Peter1469
03-14-2015, 12:31 PM
That is why the World Trade Organization supports tariffs to counter dumping. (https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm) Me too. I never advocated for tariffs when a free market was operating properly. If it is really cheaper to get a low end item shipped from China, that is fine, so long as everything is on the up and up.


UNDERSTANDING THE WTO: THE AGREEMENTS
Anti-dumping, subsidies, safeguards: contingencies, etc
Binding tariffs, and applying them equally to all trading partners (most-favoured-nation treatment, or MFN) are key to the smooth flow of trade in goods. The WTO agreements uphold the principles, but they also allow exceptions — in some circumstances. Three of these issues are:
https://www.wto.org/images/redbulle.gif actions taken against dumping (selling at an unfairly low price)
https://www.wto.org/images/redbulle.gif subsidies and special “countervailing” duties to offset the subsidies
https://www.wto.org/images/redbulle.gif emergency measures to limit imports temporarily, designed to “safeguard” domestic industries.

Chris
03-14-2015, 12:32 PM
Sure, if it's illegal.

Not if it's some vague notion of fairness.

Peter1469
03-14-2015, 12:48 PM
Sure, if it's illegal.



Then we have agreed all this time. Glad to have cleared that up.

The Sage of Main Street
03-14-2015, 04:28 PM
A subset of #14 should be "We need to concentrate a vast majority of our wealth and power in the hands of a vast minority of people in order to create and maintain jobs" The huge waves created by a luxury liner on a pleasure cruise capsize all our rowboats. Reality is not a rising tide.

Chris
03-16-2015, 07:07 PM
Economic Nonsense: 16. Government should own and run vital industries such as transport and energy (http://www.adamsmith.org/blog/economics/economic-nonsense-16-government-should-own-and-run-vital-industries-such-as-transport-and-energy/)


This is laughably untrue. Where governments own and run industries, whether ‘vital’ or not, they pursue political rather than economic objectives. In the case of things such as transport and energy, they will be tempted to keep prices below economic levels to gain electoral popularity, or at least to avoid unpopularity.

Such industries will tend to be under-capitalized, since capital expenditure is less visible to the public than are transfer payments such as pensions and welfare. Governments cannot spend the same money on both, and the former attracts less support than the latter. This under-capitalization threatens future supplies. In the case of transport it means that there will probably not be enough infrastructure built to meet future demand. In the case of energy it poses the threat of future power cuts.

If the state owns and runs transport and energy, those industries will be more prone to strike action. Unions behave more cautiously with private firms because they do not want to risk the firms closing or going bankrupt. This does not happen in the public sector, so the unions have more clout. For the same reason state industries will also tend to be over-manned. This is not mere theory. All of these things actually happened in state-owned industries in Britain, including transport and energy. Train services were unreliable and equipment was shoddy and outdated. In the energy sector there were blackouts.

Although we use the term “public ownership,” the public cannot exercise any of the rights of ownership as they do when things are privately owned. Instead it is politicians and bureaucrats who decide priorities, rather than businesses trying to anticipate and cater for public demand. When people talk of the need for the state to run ‘vital’ industries, we do well to remember that few are more vital than the food industry. One can imagine what it might be like if the state controlled the supplies, determined what should be produced, and only sold through state-owned outlets. We don’t have to imagine this. It happened in Soviet Russia and was characterized by shortages, low quality produce, and interminable queues at state shops.

Common
03-16-2015, 07:12 PM
This is laughably untrue. Where governments own and run industries, whether ‘vital’ or not, they pursue political rather than economic objectives. In the case of things such as transport and energy, they will be tempted to keep prices below economic levels to gain electoral popularity, or at least to avoid unpopularity.

I agree with that paragraph Chris, I dont want govt to "run" industries, we just need them to regulate them so they dont screw their workers and take from them and fleece americans.

Chris
03-16-2015, 07:14 PM
This is laughably untrue. Where governments own and run industries, whether ‘vital’ or not, they pursue political rather than economic objectives. In the case of things such as transport and energy, they will be tempted to keep prices below economic levels to gain electoral popularity, or at least to avoid unpopularity.

I agree with that paragraph Chris, I dont want govt to "run" industries, we just need them to regulate them so they dont screw their workers and take from them and fleece americans.



We need to regulate the government, you know, like the Constitution does, or did.

Common
03-16-2015, 07:16 PM
We need to regulate the government, you know, like the Constitution does, or did.

Yeah well does the constitution mention mega corporations and too big to fail banks.? maybe the constitution needs an update to protect us against the real threat to america.

Bob
03-16-2015, 07:20 PM
Yeah well does the constitution mention mega corporations and too big to fail banks.? maybe the constitution needs an update to protect us against the real threat to america.

What on earth are you talking about?

Common
03-16-2015, 07:22 PM
What on earth are you talking about?

You obviously dont understand bobby so theres no point in my trying to explain it to you, it would just do the proverbial in one ear and out the other. :) Cant teach an old dog new tricks.

Chris
03-17-2015, 08:04 AM
Yeah well does the constitution mention mega corporations and too big to fail banks.? maybe the constitution needs an update to protect us against the real threat to america.


If government has stuck with the Constitution it wouldn't have colluded with big banks to create such a situation.

Chris
03-19-2015, 07:40 PM
Economic Nonsense: 17. The Industrial Revolution brought squalor and impoverished the poor (http://www.adamsmith.org/blog/economics/economic-nonsense-17-the-industrial-revolution-brought-squalor-and-impoverished-the-poor/)


Life for poor people, which meant most people, was pretty miserable before the Industrial Revolution. It was short, full of toil and deprivation. Most worked on the land, rose at dawn, retired at dusk, and did hard physical labour. Starvation was an ever-present threat, and subsistence depended on adequate harvests. A bad year could be fatal. Life expectancy was low, diets were poor and disease was rampant.

Movement into the towns and factories spurred by the Industrial Revolution was a step up for the overwhelming majority. They earned wages. They lived in housing that is today thought squalid, but was in fact an improvement on the pitiful country hovels they had lived in previously. Their food was better and life expectancy began to rise. They began to be able to afford luxuries such as pottery, metal utensils and tea.

The myth that the Industrial Revolution brought squalor and deprivation was propagated by Friedrich Engels amongst others, who failed to compare conditions in industrial towns with the conditions they replaced. It was a commonplace error until T S Ashton published “The Industrial Revolution” in 1949, showing how it brought social and economic progress, and lifted the living standards and life chances of millions.

It was the Industrial Revolution that generated the wealth that paid for advances in public health and sanitation. It led to the conquest not only of extreme poverty, but of curable and preventable diseases. Far from bringing poverty and misery to the masses, it did the opposite, lifting their material conditions at a rate and to a level never before witnessed in human history. It was one of the most benign events that people have brought about, and it set the world on an upward course which still benefits millions of people today.

donttread
03-20-2015, 08:29 PM
Economic Nonsense is a series of articles in economics by Dr. Madsen Pirie at the Adam Smith Institute. Let's start at the beginning...

Economic Nonsense: 1. Self-sufficiency and buying locally are beneficial (http://www.adamsmith.org/blog/economics/economic-nonsense-1-self-sufficiency-and-buying-locally-are-beneficial/)




(If you search the forum, or the Internet, for "Economics is Fun" you will find another series of video Dr. Madsen Pirie at the Adam Smith Institute put together on basic economics that posted when I first arrived here about two years ago.)

Local markets "leave people poorer" by not producing as many billionarres and oh yeah by borrowing fossil fuel usage against our grandchilren's planet

Chris
03-20-2015, 08:32 PM
Local markets "leave people poorer" by not producing as many billionarres and oh yeah by borrowing fossil fuel usage against our grandchilren's planet

They should seek comparative advantage.

Chris
03-28-2015, 02:30 PM
Economic Nonsense: 18. Capitalism is disreputable because it is based on greed (http://www.adamsmith.org/blog/economics/economic-nonsense-18-capitalism-is-disreputable-because-it-is-based-on-greed/)


This is a misinterpretation. Capitalism is based not on greed but on the legitimate aspiration of people to better their lives. Adam Smith spoke of “The uniform, constant, and uninterrupted effort of every man to better his condition,” and of course it applies equally to women. It is this desire to better their circumstances that leads people to forego present consumption in order to achieve greater returns in the future. They invest in order to increase their wealth. That investment supplies funds to companies and provides the capital which they turn to advantage for the benefit of their investors.

This is not greed; it is one of the most benign things that people have done. Far from showing greed to the detriment of others, it gains its returns by providing the goods and services that people want and need at prices they are prepared to pay. It is based not on selfish greed but on co-operation to mutual advantage. The investors make it possible for consumers to satisfy their wants, and they themselves make gains in the process.

Capitalism is benign because it is based on trade, and every act of trade is an exercise in co-operation in which people exchange what they have for what they prefer. Capitalism has to be social; that is how it works. Greed is selfish, not social.

The desire of people to better their lives is part of what it means to be human. We do not adapt to the environment as other animals do; we adapt the environment, and we do it in ways that are calculated to improve our lot. We seek greater security, greater command of the essentials of a decent and acceptable life. Capitalism is the most efficacious way we have yet found of achieving these objectives.

Chris
04-04-2015, 10:46 AM
Economic Nonsense: 19. Corporation tax is paid by businesses (http://www.adamsmith.org/blog/economics/economic-nonsense-19-corporation-tax-is-paid-by-businesses/)


It is always attractive to the political classes to impose taxes on business so that people can benefit from the spending this makes possible. Corporation Tax is one of these whose name suggests that it is paid by corporations. Many people suppose that this involves taking money from companies and transferring it via government into services for ordinary people. They suppose that corporations just shrug and accept the loss in profits this involves.

This is a naïve myth. The tax levied by government is part of the price that people, not companies, pay. When you buy beer the price of your pint includes the tax the brewer has to pay to government. When you buy whisky it is even more, about 80% of the nominal price. The same is true for petrol and other fuels. VAT is included in what you are charged for goods and services.

The point is that Corporation Tax is paid by people, not by corporations. The tax that companies are charged forms part of their costs, and is reflected in the costs of producing their goods and services. Studies show that about three-fifths of the impact of Corporation Tax falls on the workers, reducing the wages they could otherwise be paid. Of the remainder, some falls on shareholders by way of reduced dividends, making it harder for the firm to attract capital to create more jobs. Some falls on customers, passed on to them in the form of higher prices, which lower demand for the firm’s products.

Corporation tax thus acts to curb economic activity, hits growth, and makes people poorer than they would otherwise have been.

If firms tried to absorb the tax without passing it on in lower wages and increased prices, as some critics suggest they could, they would become less profitable and less attractive to investors, who would in turn respond by investing somewhere else instead.

Chris
04-08-2015, 01:57 PM
Economic Nonsense: 20. Only government intervention can address the gender pay gap (http://www.adamsmith.org/blog/economics/economic-nonsense-20-only-government-intervention-can-address-the-gender-pay-gap/)


There was a gender pay gap when the work required physical strength. This is because men are, on average, physically stronger than women. They are more capable of hauling a plough or heaving a sack of coal. When work meant physical labour for the most part, men were economically worth more. They were not intrinsically worth more, it was just that, on average, their labour could add more value than that of a woman. They were paid higher wages because of this.

As physical labour has been made easier by machines, and desk jobs and service industries have become more significant employers than heavy industry, the labour of women has been more equal to that of men, and their pay has risen accordingly. In Britain today there is no significant gender pay gap. Women in their 20s earn a little more than their male counterparts.

There is a pay gap as they grow older, but this is a maternity pay gap, not a gender pay gap. Women who take time out of their careers to have and raise children earn less over the years than those who do not. This is for most of them an option they have chosen to exercise. Most do it because they want to, trading the higher salary that might otherwise result for the greater satisfaction and happiness engendered by starting a family. As they take time out of work, they mount the promotion ladder more slowly than their counterparts who make uninterrupted progress.

It is very important when looking at the statistics on this to compare like with like, that is to compare full-time employment with full-time employment. Some women prefer part time jobs because they offer better opportunities to achieve the balance between work and family that they seek. Part time jobs tend to pay less than full time employment, creating the erroneous impression that women are being paid less for the same type of work and the same amount of it. They have chosen a lifestyle that pays less because they prefer to have children be a part of it.

Peter1469
04-08-2015, 04:30 PM
And there isn't much of an economic gender gap when it is honestly measured.

Chris
04-12-2015, 03:39 PM
Economic Nonsense: 21. Inheritance tax is needed to prevent some having an unfair start in life (http://www.adamsmith.org/blog/economics/economic-nonsense-21-inheritance-tax-is-needed-to-prevent-some-having-an-unfair-start-in-life/)


This question carries the assumption that life is some sort of race in which we are all struggling to outdo everyone else. Life is not like that. We are not racing against others because we all have different characters and different goals. There is a different finish line for each of us. Even the pace at which we choose to pursue our goals varies with the character of individuals.

One widely-held aim of parents is to give their children a decent life, even a better life than they had themselves. Many put effort into achieving this; it seems to be a natural and widespread aim. When society prevents them from passing on their assets to their children after death, they often find other ways of achieving that aim. This can take the form of using influence to place their children in comfortable jobs. It can be done by transferring the assets while they are still alive. It can lead people to set up complex trust schemes beyond the reach of the taxman.

Inheritance Tax is taxing money that has already been taxed when it was earned. The provision parents worked to make for their children, paying tax as they did so, is now taxed again, removing part of their incentive to create wealth in the process. For many recipients, the bequest comes as a lump sum when they are already established and probably own their home. It is thus available for investment or to start a business. Taxing it greatly reduces these possibilities. The capital pools built up by a family business such as a shop, for example, can be dissipated on death by Inheritance Tax, with a consequent economic loss to society, a loss that impacts employees and customers.

People are not equal and cannot be made so. They are differently talented. Some are genetically equipped to develop athletic prowess if they work at it. For others it might be music or mathematics. The notion that ‘fairness’ requires they should all have equal chances sits ill with what life is actually like. We should not be trying to impose an equality that does not fit, but on extending to everyone the opportunity to better their lives.

Chris
04-19-2015, 04:08 PM
Economic Nonsense: 22. Only by understanding the causes of poverty can we act to reduce it (http://www.adamsmith.org/blog/economics/economic-nonsense-22-only-by-understanding-the-causes-of-poverty-can-we-act-to-reduce-it/)


This assertion is nonsense because it erroneously supposes that poverty has causes; in fact it is the lack of poverty that has causes. Poverty is, alas, the default condition. It is what happens when you do nothing. Anyone who wants to experience poverty has only to do nothing for a year. If they survive that long, they will be poor, poor because they have not done the things it takes to create wealth.

Poverty has unfortunately been the lot of most of humankind for most of its existence. First by hunting and gathering, then by agriculture and animal husbandry, people have lived on the edge of survival, always striving to obtain their food supply. If they had a few bad days at hunting, or a bad harvest at farming, poverty would come, bringing malnutrition and death with it.

At some stage people developed trade, exchanging goods with other, sometimes distant peoples. They learned how to specialize and to generate wealth. With the Industrial Revolution our ability to do this multiplied enormously. Wealth was created on an unprecedented scale, and for most people in the richer countries extreme poverty has become a thing of the past.

Other nations that have followed the same route have achieved similar progress themselves....

To move out of poverty takes trade, specialization, investment and infrastructure. It takes stable property rights, clear titles to land, efficient and honest courts, and governments that are neither predatory nor rapacious. These are the conditions under which people find space to improve their lot and to create wealth. Failure to achieve a reasonable measure of these will keep a country in poverty. Poverty is not caused by things people do, but by things they fail to do.