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A mountain lake in British Columbia


Economic problems: Labour, capital – and resources

How can we understand what is happening to the economy if some of the basic principles are incomplete.  I am thinking of the idea that there are two factors of production – labour and capital.  I believe we also have to take into consideration the resource base.

This note was prompted by an article on Bloomberb  by Satyajit Das titled Productivity Won’t Save the World in which the focus of the analysis is labour and capital.  I do not know the origin of this idea but I understand Karl Marx promoted it. Neither a shortage of labour or a shortage of capital are satisfactory explanations for current economic problems.  There are a lot unemployed or underemployed people  and there is no shortage of bank credit which makes up most of the capital we need.

It seems current economists sometimes give lip service to the concept of scarce resources and then assume we have available unlimited energy and mineral resources.  This writer believes current economic problems are because we have used up the most easily accessible resources.  Yes, there are lots of energy and minerals on this planet but the cost of extracting them reduces their value.  It is little wonder the economy is going down.

The focus on labour and capital is convenient for those who want government to control the economy.

Mr. Das starts his article with the old line that Thomas Malthus was wrong because we have survived more than 200 years since he made his dire prediction and then proceeds to point out it may now be coming true as increases in productivity are declining.  Some years ago this writer took an industrial first aid course which was focused on a written and practical exam.  “If the examiner asks if your patient requires rapid transport to hospital,” said the instructor, “an appropriate answer would be ‘not yet’ to show that you are monitoring the situation.”

Since  Malthus made his forecast other people have warned of problems with the resource base and so for they have not happened.  The lesson from the first aid instructor is valid here too.  Not yet.

Why we should be sceptical of economic data

The following was posted as a comment on Paul Krugman’s blog on distrust of data.

I am one of those who distrust economic data because I see two problems with it.  One is that I do not always agree with the economic theory upon which data collection is based and the other is the difficulty in accurately and totally counting economic activity.

There are a great variety of economic theories and date collection represents the theory of the collectors which may or not be correct.  For example, money is usually defined as currency in ciruclation and bank deposits with several definitions depending upon what deposits are included.  I prefer to think of money as a tool to facilitate the exchange of goods and services.  How does one count or measure a tool?

Counting economic activity is another problem because it can only be recorded if there is a monetary exchange.  How do you measure housework or the many small things we do for each other.

When I worked as a journalist I realized there are two types of figures.  One we photograph and use to sell newspapers and the other put things into perspective.

Health care – a complex issue

The provision of health care in contemporary society is almost as complex as the human body.  As the economy continues its decline health care will probably become an even more emotional and difficult issue.

There are three things that make health care complicated.  The consequences of poor health are generally pain and discomfort, a lot of us expect the government to take responsibility for our well-being and there are lots of other claims on scarce resources..

We all know that eventually we are going to die, but that does not stop most of us from trying to prolong life as much as possible, even if it means living in pain or as vegetables.   Some years ago The Economist stated in an article that 80 per cent of health care spending is in the last six months of life.  If this was true, if it is still true, then there is a lot of potential to reduce health care spending without sacrificing much human enjoyment of life.  But how is one to make the decisions to terminate health care. One has to note doctor assisted suicide is becoming more prevalent.

Medical  care is ideal for insurance although who should run it is open for debate.  We never know when we may face a medical crisis which could bankrupt us.  Sharing the risk makes a lot of sense.  A problem with most insurance schemes is some people have higher risks than others.  We all have to cope with the stresses of living and sometime the coping mechanisms are detrimental to our health and increase the risk we will need medical attention.  To what extent should we be responsible for other people’s lifestyle issues?  There may be no satisfactory answer to that question.  Maybe insurance should be for people with equal risks.  For example people who smoke could be in one insurance pool.  That sounds like a can of worms.

Some people believe governments are better at providing service than private businesses as they do not have the profit motive.  I disagree because there are no profits when one has a truly competitive market and because people in government have lots of other interests which override the interests of their customers – like staying in power.  I believe the best way for health care would be private coverage with lots of competition.  Governments can ensure everyone is covered by making it mandatory.

Health care is further complicated as it involves the allocation of resources.  Most of us make a variety of demands upon the resources available to us.  As well as health care we want education,  housing, defense, environmental protection, vacations, libraries, entertainment and cultural activities.  All of these compete for resources with help of powerful lobby/marketing groups.  As a lot of us expect government to help with some of these, governments have difficult decisions to make.  This writer would prefer most of these to be provided via competitive markets so that most of the decisions could be made by individuals.  A guaranteed income scheme would ensure everyone has the opportunity for the same standard of living as most other people.

Health care is a highly emotional issue which touches on human existence.  This writer tries to live a balanced life – some things which are good for my health and some things which are less good.  When my turn comes I hope I will be able to accept it gratefully.

Exporting back to economic growth

Some people give lip service to the idea that economies can export their way back to growth. It is lip service because it is not practical.

The idea is that if the local economy is sluggish, we can increase output by selling more to others.  There are two problems with this. The downturn is world-wide and it is going to be very difficult to find foreigners with spare cash.  The second problem is that trade has to be a two-way street.  Increased sales will have to be matched with increased purchases.

Free trade is based on the law of comparative advantage which states that two countries will produce more if they specialize in items at which they are most efficient and trade even if the other country is more efficient at the items they are not producing.  This is usually interpreted to mean total output will increase but I think it could also mean more efficient production leaving more time for other activities such as leisure.

The big problem in implementing free trade is making the adjustments as some people will lose their employment and have to make changes.  Most of us most of the time, think and act in our own short-term interests.  Most economists are in favour of free trade but I have never heard it suggested that economic advice should be included and outsourced to another country.  If we really wanted to try free trade the best way would be for a country to do it unilaterally.  We should remove all subsidies and other barriers to imports and not worry about what other countries do.  If they want to support our consumption, we should not object.

This guy figures the major economic issue facing the world today is that we have used up the most easily accessible energy and mineral resources  Yes, there are lots left but they are so difficult and expensive to extract that they are probably not useful to us.  The result is that we are heading into a prolonged period of economic decline.

If this is true then trying to increase production will consume the remaining resources even faster and will bring forward a major economic collapse.  The way to deal with the crisis is an orderly reduction of production and standards of living.  Not likely to happen.

More likely people will blame Brexit and the results of the U.S. election for continued economic problems.

What ever happens and whatever the reason it appears we are in for an extended time of economic decline.  What we most need is clear and realistic thinking about economic issues.  What we least need is desperate attempts to return to growth and scapegoats.

Emotions and denial in the U.S. election

Some of us were raised to believe elections should involve a rational discussion of issues and voting for the candidate which best represents our point of view.  The current U.S. election appears to ignore this tradition and be based mostly on emotion and denial.

I believe the major economic issue facing the world today is that we have used up the most easily accessible energy and mineral resources  Yes, there are lots left but they are so difficult and expensive to extract that they are probably not useful to us.  The result is that we are heading into a prolonged period of economic decline.

Lots of people recognize we are experiencing some serious economic problems although very few understand the problem or agree with the above explanation.  Too many people, especially economists and politicians believe  with the right policies we will soon return to economic growth.

From where this blogger lives, about 200 miles north of the Canada-United States border, it appears one of the candidates is basing his campaign mostly on a strong appeal to emotions, especially fear.  This is a problem as generally emotions overrule rationality.  All the rules of managing an election and predicting its results are out the window. Rational responses to outrageous statements are meaningless to those swayed be emotion.

The outcome of this election is very uncertain.  Most if not all writers have biases even if they think they are being objective.  Therefore we need to be careful in evaluating analysis of this election.  A lot of what is being written many be wishful thinking.

The other side of this election is based on denial that there is an economic problem.  They want us to have faith that she will be able to solve impossible economic problems.

This guy has written a book about how to adapt to a down economy.  (See the top of this weblog.) It will be difficult and a lot of people will have to accept a lower standard of living.  The fear is justified.

Whoever wins this election the economic problems will still be there along with all the emotions and denial.  Not a promising outlook.

Why we have injustice

Ensuring justice is one of the most essential functions of government because without it one has anarchy.  It is also one of the most difficult because injustice is pervasive throughout society and history and is a part of a lot of personalities

The easiest thing about injustice is to document it and some people make careers out of doing that.  The most difficult thing is to correct it.  Often ideas for correcting injustice are a function of the personality of the person speaking.  For example, some people like to tell others how to live their lives and these people promote solutions that do that.  .

What is injustice?  My favourite verse from the Panchatantra, an ancient book of wisdom literature from India, may help answer the question.

Forget your prosings manifold,
the moral law is easily told.
To help your neighbor, that is good,
to hurt him, that is devilhood.

This simple verse is a lot more complex than it first appears because psychological violence has to be included in the devilhood.  From this it follows that whenever somebody is hurt by another person, physically or psychologically, they are the subject of an injustice.  This is a general definition and calls into question the commitment by our society to law and order. Some laws, especially those that legislate morals, values, sexuality and religion are themselves unjust.

There are two sources of injustice.  The first arises from a shortage of resources such that not everyone can have a comfortable standard of living.  Shortages can be temporary such as during a famine or they can be long term such as we are now experiencing where we have used up the most easily accessible energy and mineral resources and those that are left are expensive to extract.  This is a long-term problem and to deal with it we have to reduce population and move to a more sharing economy.  Easy to say but difficult to do.

This guy believes everyone should have the opportunity for the same standard of living as most other people.  If I am right in thinking we are in for a long period of a down economy then  we will have to go through a painful adjustment in which many people will think they are being treated unjustly.  Justice will require the pain be felt equally.

Most of us most of the time think and act in our own short-term interests as opposed to the long-term interests of the community.  This in itself will lead to some injustice.   Economic injustice is even worse because of the corporate culture of greed.  Many people believe firms have a responsibility to maximize their profits regardless of ethics.  The result is that we live with a highly exploitive economy.

The second source of injustice is the negative aspects of human personality.  There are people who like to hurt others, who are greedy, who are inconsiderate or who like to tell others how to live their lives.  To satisfy these personality traits these people inflict injustices upon others.  These are difficult injustices to deal with because we are dealing with people and people who often have a strong commitment to their behaviour. Sometimes they may not see their behaviour as being unjust. The most evil of all people are those who try to force their morals, values, religion or sexuality upon others.  Over population makes it difficult escape from injustice inflicted by others.

There are two ways of hurting other people.  One can deliberately do something that hurts another or one can refuse to do something another person wants you to do.  The second way will at least stress a relationship and may even terminate it.  We do not have to have relationships with everyone.

One of the dangers in fighting injustice is that it is easy to replace one with another. Feminism and black lives matter are good examples.  Women do sometimes experience  injustice and it is wrong for police to kill. However men also experience a lot of injustice and even more when women demand special privileges.  Police do not always care about the colour of the people they kill.  The greatest injustice against women is that so many end up being lonely old ladies.  When a police officer kills somebody they are denying that person the most fundamental premise of justice – the right to answer charges against you.

One of the ways to control other people is to make them feel guilty.  A lot of the feminist and black rhetoric is intended to make men  and white men feel guilty. We have to suspect some people are trying to power trip us.  If you acknowledge that others than just your group suffer injustice, it is more difficult to impose the guilt trip.

It is easy for judicial systems to become a source of injustice.  Just ask non custodial parents. Here in British Columbia and probably around the world the feminists have been so successful with their sophisticated arguments (based on sophistry) that fathers are treated to a lot of injustice.  We are assumed to be criminals, our children are kidnapped and we are denied the basic principles of justice. It can be very painful to be a caring parent and have your children taken away.

A problem with the courts is a commitment to the rule of law.  Some laws are unjust and sometimes laws are applied to situations they were never intended to cover.  Judges are/shoud be appointed because of their wisdom and we should demand that they earn their high wages by doing justice rather than just enforcing laws.  Judges should have a responsibility to overrule a law they believe unjust and should be required to state their reasons.

Referring back to the verse about hurting people, maybe the guideline for judges should be to minimize the pain.

I want to close this post with three further ideas all of which are sort of related.  The first is that justice and the lack of it are religious issues.  The Buddha tells us the first truth is that there is suffering.  He should have added that there is also pleasure and we should try to minimize one and maximize the other.

The second idea is that sometimes there are no satisfactory answers.  People will probably continue to hurt each other forever.  One of the functions of religion is to help us cope with this.

Finally, all of us should strive for the best possible relationships and for this we need a more or less equal exchange.  A person who has a psychological need to hurt others may be able to find someone with a need to be hurt.  For the rest of us, we need to go back to the verse near the top of this post.

Incomes keeping up with cost of living

“Can someone explain to me why it’s so hard for companies to increase wages in Vancouver?”

This question was asked recently on the Reddit Vancouver forum.  I suspect it is a question which could be asked in many cities across North America and around the world. The question was asked because for many people the cost of housing and the cost of living in general has been rising faster than incomes.

A number of reasons were given in the discussion – maximizing profits for shareholders, a cultural shift towards laziness, in some fields there is a conspiracy to drive down wages by saturating the field with desperate new grads willing to work for peanuts, foreign buyers are driving up the cost of housing, and supply and demand.

Having studied economics this blogger prefers the last one, supply and demand for bodies, but also believes it is a symptom of a much larger problem.

For the most part wages are, with some exceptions,  determined by supply and demand. When unemployment rates were low, workers were able to demand and receive a living wage.  As there have been more and more unemployed people we are seeing more people not keeping up with the cost of living.  Some employers have learned they can do well by paying higher than going wages.  But this works because they can attract the best workers and probably would not work for all firms.

The exceptions to the law of supply and demand are those occupations which are protected from competition by government legislation such as licensing requirements.  Very often licensing is said to be required to protect standards of service to the public.  Doctors must be licensed to ensure we get quality medical care but the licenses also restrict competition and keep doctors incomes high.  Teachers are paid well because they have licenses and strong unions in a legal monopoly.  People are required to send their children to school and mostly the schools are operated by the state.  Government employees also have strong unions and employers that have a monopoly.

The moral of the story is that if you want to have the wages to support a good standard of living, choose an occupation that is legally protected from competition.

Most of us are aware the economy is going through a difficult time but believe it will return to continuous growth.  This blogger is an exception.  Our economy is in trouble because we have used up the most easily accessible energy and mineral resources.  There are lots left but the energy and effort required to extract them make them mostly useless.  If this theory is correct, then we are probably faced with a long period of economic stagnation during which the standards of living of a lot of people will go down.

The answer to the question is that it is hard for companies to increase wages in part because wages are determined by supply and demand and in part because the economy is started into a period of decline during which it will be hard for companies to even stay in business.

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