Compassionate economics

Are the words compassion and economics compatible?

Absolutely. If we were to exchange goods and services without interference from legislation which restricts competition we would have an economy with a high degree of equality, fairness, environmental sustainability, peace and compassion.


Major evidence for this comes from the hunters and gatherers who used to inhabit this planet and especially the bushmen of the Kalihari Desert who lived a peaceful and sustainable lifestyle for close to 200,000 years


This writer has come to this conclusion after a lifetime of interest in current affairs and relationships, through a first class degree in economics from the University of British Columbia and lots of informal reading in economics, economic history, history, ancient history and anthropology.


That I feel it necessary to start this book with this question indicates how poorly so many people, including economists, understand economics and money. At least since Marx many people have equated economics with the evils of the current economic system and shut off whenever the word economics is used. This is sad because economics is about the relationships involved in the exchange of goods and services and most of us have to exchange with at least a few people. Money is a tool to facilitate this exchange. Both economics and money involve a lot of distortions of the truth which makes it easy for some people to exploit the rest of us.


team-spirit-2447163_1920As we work through compassionate economics the issue of the resource base hangs over us and makes life difficult for all of us.

Economics professors often start their lectures by drawing a simple x graph on the black board. One line represents the physical side of the economy and the other line represents the financial side of the economy. This is a very important distinction as ignoring it diverts our attention from the reality of economics.

As we mostly discuss economic problems in terms of money we ignore the physical side of the problem. For example, pensions are very important for most of us but we always talk about saving enough money rather than having enough energy and mineral resources. Two things could and probably will happen to most of the money people save for their retirement – inflation or bankruptcy. Our standard of living in retirement will depend upon the quantity of goods and services we are capable of producing relative to the number people making demands on that production. A key factor in this ratio will be the energy and mineral resources we have. There are still lots of these on the surface of our planet but we have consumed the most easily accessable.Those that are left will require a lot of energy to extract and may not be feasible.


The cost of solar energy has recently been falling quickly and has some potential. I also like that solar has the potential for each of us to make decisions about adopting it. It is great that individuals can make these decisions instead of bankers. The down side is that most of our money supply is based on debt and will disappear if a lot of loans have to be written off. I fear a lot of our money is based on loans made to support petroleum.


We need to exchange goods and services because we are social creatures. It may be this is what distinguishes us from animals. In some circumstances it may be possible for an individual to live alone but for most of us we must live with at least one other person and this means living in a relationship. On the Canadian Prairies the early explorers found they needed a female partner for survival because the division of labour was too much for one person. Later the settlers found that during harvest labour requirements were such that they needed to help each other and took turns at several farms. Now, with modern equipment one person can seed, fertilize and harvest up to 7,000 acres. But he still needs a huge support staff of suppliers. These he pays in cash rather than return labour. Economics is about how we exchange goods and services and the relationships which are a part of these exchanges.


Decision making is an important part of compassionate economics. When we make decisions for others we can and often do make those decisions by what is best for us rather than them. As there is no place for exploitation in compassionate economics we should as much as possible exchange goods and services so that individuals can make decisions for themselves. In capitalism bankers and government make decisions about what and how much is to be produced. In socialism bureaucrats in the form of central planners make those decisions. The only way I know to allow individuals to make economic decisions is the perfect competition model upon which the formal study of economics based.

At least since Marx economics has been defined as either capitalist or socialist. Both of these are very vague terms which is good for people who want to control or exploit others but meaningless for those of us who want to understand how we exchange goods and services. The main feature of capitalism as we know it is that governments pass legislation which restricts competition and we call it a market economy. The main feature of socialism is a matrix known as central planning and they say it is “by the people and for the people”. Both concepts are the idealogical equivalent of the stuff through which one would walk if one visited a cattle feed lot.

For four years this guy lived on a British Columbia coastal Indian reserve. One evening a old timer told us about the time consuming process his people used to make themselves a sweet treat,

“Do you still do this,?” I asked?

“No,” he replied. “It is a lot easier to go to Dairy Queen.”

These people did most of their hunting at the local supermarket but they still fished and they still had a few of their old traditions. One of these traditions was the sharing of fish and we had a lot of salmon, halibut, crab and oolichans (a very small, oily and smelly fish.)

It appears that in a lot of hunting gathering cultures sharing mostly with family or clan members was the predominant way of exchange. This is a major difference from our culture where it is assumed the exchange of goods and services should yield a profit. I would like us to plagiarize the hunters and gathers and make sharing the key concept in our economy. This is somewhat radical and would open the door to some major changes in our economy – a guaranteed income policy, a new way of creating money and a zero growth economy. All of these are important for resource and environmental concerns. All of these are important if we are to have a compassionate economy.

One of the major issues we have to deal with is the incompatibility of economic growth and environmental issues such as global warming, pollution, mono culture agriculture, health and overpopulation. The need for economic growth is sold as a fix for unemployment although its main purpose may be to further increase the wealth of the one percent. As compassionate economics is based on sharing rather than profits there is no need for further economic growth. With a guaranteed income scheme people will not need jobs to survive and we can deal with environmental concerns. We will also no longer need to support the greatest of all make work schemes, the arms industry. Lets opt for peace and sharing with all peoples. The goal of compassionate economics is to get the population to a sustainable level and live in peace.

Compassionate economics will allow us to replace our commitment to the work ethic with a commitment to a leisure ethic. In future we should get our self identity from the leisure activities in which we engage whether they be acting in a play, writing a book or even drinking beer.It is relatively easy for me to sit here in a comfortable chair and a nice view out the window and think out solutions to economic problems. But economics involves people with emotions and special interests. A lot of people will find it difficult to see the need for changes and those with special interests will be very vocal in protecting themselves. However I believe the future of most of us is seriousl

It is a pity that so many people shut off when they hear the word “economics.” A few years ago I read a book on green economics which promoted small businesses. I laughed and cried because economic theory is based on the concept of small businesses. One of the key assumptions of economics is that no firm is large enough to influence prices by restricting production and by restricting the quantity purchased.

A key feature of a true market economy as described by economic theory is that there are no profits. If there are profits to be made in an industry new firms will enter until prices drop to the point where there are no more profits. Firms can make wages and a return on investment (maybe) but there will be no profits. Thus a perfect market economy with competition is what is needed for a compassionate economy. A lot of people need to be studying formal economics.

It is relatively easy for me to sit here in a comfortable chair and a nice view out the window and think out solutions to economic problems. But economics involves people with emotions and special interests. A lot of people will find it difficult to see the need for changes and those with special interests will be very vocal in protecting themselves. However I believe the future of most of us is seriously threatened and we must at least try for compassionate economics.

 

Good relationships and good economics

 

Economics is the most fundamental of social sciences because it is about relationships. The study of economics should be about the ways in which we can organize the exchange of goods and services. As this involves interacting with others it is largely about how we deal with family, friends and neighbors. The study of economics should include economic history, the economies of previous civilizations and economic anthropology. It also means we should be trying to organize an economy based on good relationships.

As exchange involves dealing with other people in a variety of different ways from theft to giving, economics involves the study of how we deal with each other.

A fundamental of relationships is that for a relationship to be satisfactory there must be a more or less equal two-way exchange. Sadly our current economy is based mostly on exploitation. The culture of a lot of businesses, especially large ones, is to make as much profit as possible, even if it means taking advantage of customers.

The challenge is to organize our economy so that our economic relationships qualify as being good – equal exchanges. This writer suggests two sources of inspiration; the bushmen of the Kalahari desert in Africa and the perfect completion model of economics.

lion-577104_1920There is archeological evidence that the bushmen have sustained a stable society for up to 200,000 years. Survival has been without wars and exploitation. This is an incredible accomplishment. We owe it to ourselves to examine their society to see what we can copy. Genius is 90 per cent plagiarism.

These hunters and gathers have been well-studied. My reference is Affluence without Abundance: The disappearing world of the bushmen by James Suzman published by Bloomsbury in 2017.

The Bushmen were hunters and gathers living from hand to mouth and relocating frequently. As they had to carry everything when they moved they developed a mindset that had little need or use for material things other than a few basics. Their knowledge of their environment was such that they always had sufficient food available with a minimum of “work”. They worked for survival rather than to satisfy their own or other people’s ambition.

As they always had adequate food, surpluses and savings were not part of their lives or their thinking. This was important as surpluses and saving must be controlled and this can lead to unequal relationships and exploitation.

Leadership was very low-key and social control was mostly verbal via teasing and ridicule. As they lived in small groups the size of which changed with the seasons it was easy to get away from social conflicts. (This is a major problem for Canadian native people many of whom live on reserves and cannot easily relocate.)

This blogger does not want to adopt a total hunting and gathering lifestyle especially as the size of the world’s population makes it difficult if not impossible. However I believe these people have a lot to teach us about relationships and economics and values. It could be we are the ones who are uncivilized.

We often lie to ourselves and the greatest lies are about economics. The greatest lie is that our economy is based on capitalism and markets. This is a falsehood to cover the fact our economy is based upon legislation that restricts competition. So long as we believe the lies we can continue to promote an economy that is unequal and exploitive.

I believe if we really want an economy which encourages good relationships we should use the perfect competition model as a guideline. All legislation which restricts competition should be repealed. This includes patent and copyright legislation and licensing. Subsides should be given to consumers rather than producers in the form of a guaranteed income scheme. Businesses would be mostly small-scale; so small that participants would be unable to control prices with spending and purchasing decisions. These changes would do away with huge profits and most high incomes. Economic growth would not be needed as people would not have to have jobs to survive. These changes would also cause a lot of screaming from the people who benefit from competition.

Another good feature would be better relationships as people would be able to interact without trying to exploit each other.

One of the differences between hunting and gathering societies and the “civilizations” which have dominated history is who makes decisions. When people are working for survival rather than to satisfy ambitions they make their own decisions. When they are working for ambition decisions are made be the owner of the ambition.

Force is one of the ways people get others to work for them. Other ways are psychological – the work ethic, marketing techniques, limiting free speech, limiting voting rights, making people feel guilty and using logical fallacies to influence thinking. The last two have been and are being used to great effect by feminists. My experience of this world and my observations of this world tell me feminism is mostly BS and a control issue. Feminists want to control men and their thinking. They do a lot to discourage good relationships.

A lot of us have been so indoctrinated with the “capitalist” way of thinking we do not realize the extent to which we are being exploited. Some studies of people on their death beds have found that the greatest regrets are for placing profits above relationships.

Most of us have been raised in a culture which places material things above all else. This blogger believes we should learn from the bushmen to adapt to a non-growth economy and focus on good relationships. The perfect competition model of economics provides some good guidelines as to how to get there.

 

Free trade; not trade wars or negotiated trade

With a lot of Americans fearful for their jobs and their president saying he can protect jobs with tariffs, international trade has become a big emotional issue.

Trade is such an emotional issue because our economy is organized such that our physical and psychological well-being requires us to have steady employment. At the same time economic changes require employment flexibility. One way to deal with this conflict would be to have a guaranteed income scheme so that individuals can cope with changes. My committment to such a scheme stands behind the rest of this post and indeed all the posts on this weblog. If people can survive comfortably without employment then this fear should no longer be a factor.

We should also analyse economic issues in physical or real terms rather than financial terms. Trade is the exchange of goods and services, not money which is a tool to facilitate the exchanges. It is very easy to get a distorted picture of the economy when people analyse economic problems in financial terms.

For all merchant-pull-1398066_1920we talk about the market economy and our devotion to competition, we have a long tradition of restricting competition. One of the ways we do that is by imposing tariffs on imports from other countries. Other ways we restrict competition with subsidies and legislation.

The economics law of comparative advantage says countries are better off to specialize and trade, even if one country is more efficient in the production of all items. This is attractive to people who want economic growth. This blogger also likes the idea of efficiency so that we can have more time for leisure activities.

I also believe the best way to do free trade is unilaterally. To do free trade and get the full benefits Canada should abolish all tariffs and restrictions on foreign goods and services coming into the country regardless of what other countries do. If other countries want to subsidize our lifestyle, then that is up to them. If they do not want to buy from us, then that is saving our resource base for the benefit of our children.

The free trade agreements of which governments are so fond are in reality negotiated trade agreements. They are negotiated for the sake of special interests of producers. These are the same interests as those who want legislation to restrict competition – patents, copyright, licensing – and who want subsidies for their firms. To get a feel for the complexity of these negotiations look at this article in The Economist. Trying to negotiate to satisfy the special interests of multiple countries must be an impossible challenge.

International trade is not such an important issue for Americans because the United States is one large free trade zone and they are or have benefited from the law of comparative advantage.

Economics is a social activity and like all relationships, to be satisfying for all parties there needs to be a more or less equal exchange. Those Americans who promote trade wars are being anti social. To me that sounds un-American.

Lots of politicians and commentators worry about the dire consequences of American tariffs and the resulting trade wars. Yes. we are headed into some even more serious economic problems but they will not be caused by tariffs and trade wars. The basic problem is that we have used up the most easily accessible energy and mineral resources. Increased efficiency from free trade will help us cope with this issue but will not solve it.

The British Labour Party and economic decision making

It appears the British are getting ready to elect a Labour Party government which is hoping to introduce some “structural” changes to economic decision-making.

This blogger believes economic changes are urgently needed but also figures the changes proposed by the Labour Party will only change the faces making decisions and will do nothing to change the well-being of English people.

0*V_sRwC4Rvi4GfN3ZWhen socialists realize that central planning does not accomplish what they want they try to reform by decentralizing the central planning. To see how the British are likely to try this, see this article in The Economist.

The main issue in capitalism versus socialism is who gets to make decisions about what economic projects are undertaken and who gets to do them.

There are three main ways in which this decision-making can be done.

The first is that major decisions are made by bankers who get to do this via their control over money creation. Fractional reserve banking means bankers create money when they make loans and this gives them a great deal of power to decide what projects go ahead and by whom. The capital in capitalism comes from the money created when loans are made. Even small decisions like who gets to build housing and who gets to buy the houses are made by bankers when they approve the loans and mortgages. Any meaningful reform will require changes in the way in which money is created. There are ways to do this. Not only will bankers object to the loss of power but a lot of people have an emotional committment to money and will fiercely oppose changes. Another strong feature of this system is that governments pass legislation that restricts competition and allows some people to make profits. This system we call capitalism.

The second approach to decision-making is called socialism or central planning. Decisions are made by political leaders or their bureaucrats. Socialists like to use words such as “democratic” and “public interest” but in reality make decisions according to their own values and interests. Because of this socialist economies tend to be an inefficient use of resources. Decision making is still made by a few people even if they claim it is on behalf of others.

The third way of making decisions is a true market or perfect competition. We like to think our economy is based on markets but a lot of it is based on legislation that restricts competition such as patents, copyright,licensing and tariffs. In North America one area of life in which competition is allowed is religious services. As we are committed to freedom of religion the government does not interfere. One often hears of people who go church shopping.

Greens often say they want an economy based on small business but they also automatically reject everything said by economists. This is unfortunate because economics has worked out the theory of small business and can say exactly what to do.

In order to have perfect competition all participants in a market, sellers and purchasers, must be so small that no one can influence the price by increasing or decreasing the amount they buy or sell. There must also be perfect knowledge. All participants need to know all prices. Entry to and exit from an industry needs to be easy which means there can be no patents or copyright.

For the purposes of this post decision-making is made by customers who vote with their buying decisions. Price changes are signals to producers to increase or decrease production.

One of the reasons this blogger likes the true market economy is that it allows a lot of decisions to be made by individuals. One of the problems is that individuals to not have a lot of power. People with common vested can form powerful lobbying groups and can get governments to pass legislation which restricts competition and provides them with excess profits.

Socialists talk of giving workers influence over economic decisions, but their proposals give decision-making to boards or councils. Workers are also consumers and with a market system they will have the same influence as all consumers. A market system also allows for a great variety of products. For example, if schools were based on a market there could easily be schools based on different educational philosophies and parents could choose which they wanted for their children. A voucher system could ensure that all children got an education.

Socialists also argue that capitalism encourages greed. This may be true when decisions are made by bankers, but in a true market there are no profits, just wages and a return on investment. If there are profits being made in an industry, more people will go into it until there are no profits.

If the British Labour Party gets elected and is successful in changing the “structure” of their economy, they may change the size of a few of the units for which decision are being made. However, they will still be steering the same ship in the same ocean. Jeremy Corbyn is not radical or brave enough to change the way in which money is created or to drop a committment to economic growth, both of which are urgently needed to protect people from an economic collapse.

 

 

 

 

 

 

 

 

 

 

 

That evil man destroying people and resources

The day after the American election the skies around our place were overcast but all indications were that the sun rose and set as normal.  The question now is what sort of economic policies Donald Trump will implement.  Expect to see more resource exploitation, legislation and policies to restrict competition and more subsidies to business.  His economic policies will probably differ from Hillary’s mostly by degree.  Some people and the environment will probably suffer.

The most important thing to keep in mind is that he is unlikely to be able to do all the things he wants. About half of Americans did not want him to be president and most of these will be against at least some of his policies.  Many of those who voted for him will have conflicting vested interests and he will have to make some tough decisions.

Being president of the United States requires two skill sets – campaigning and governing. Trump has proven himself a master of the first set and now has to prove himself as a governor.  A lot of his campaign was based on emotions and he demonstrated an excellent understanding of people and their emotions.   His win must have been a blow for people who are politically correct. One of the buttons he pushed was sexuality.  He demonstrated that at least half of those who voted have not been suckered by the sophistry of feminism.  I wonder how many women had fantasies in which they were the object of his attentions and how many went on to vote for him.

His emotional campaign could become a big problem for him as many people will feel disappointed if he can not or will not keep promises.

As this is written Trump’s economic policies are mostly unstated but he prides himself on being a businessman so we can expect America to be open for business and we can expect policies which will allow a few people to make lots of money by exploiting other people and resources.  But then this is the history of North America and most of the world.

This writer believes our current economic problems are with the available energy and mineral resources.  Yes, there are lots of these still in the crust of the earth.  But we have “cherry picked” the most accessible and those that are left require so much energy their value is limited.  As not many people believe this, or care, we can expect the new president to encourage the exploitation of what is left, even those that are in parks or other reserves.  The consequences of this policy will be to bring forward the timing of a major economic collapse.

We boast we live in a market economy based on competition but a lot of economic legislation restricts competition so business people can make profits.  If we had perfect competition there would be no profits.  There may be little room for more legislation to restrict competition but if business people can think up some we can expect President Trump to be sympathetic.  He has already indicated he will restrict trade.

Us Canadians sometimes talk about corporate welfare bums who thrive on government subsidies.  Americans are probably already familiar with the concept and the new government will probably continue and increase the trend  No doubt some business people will be claiming a need for subsidies to extract the more difficult energy and mineral deposits.

I was disappointed rather than surprised with the election results because I fear a major economic collapse.  Also I suspect Mrs. Clinton would have followed similar economic policies even if not as blatantly.  We are in the same ship with the same storms and neither is likely to even try to get into a different sea.

Regulating those evil payday lenders

Here is a link to an article from the Mises Institute opposing regulations for the American payday lending industry.

This simple proposal to regulate short-term lending raises important questions about how we treat poor people, about the role of money in our economy and how we regulate business activity.

This writer believes we should have a collective responsibility to ensure every one has the opportunity for the same standard of living as most other people.  Probably the best way to meet this responsibility would be a universal basic income scheme.  Such a program would not stop everyone from mismanaging their finances but it should eliminate the need for a lot of short-term credit.

Money can be an instrument of exploitation and is based on the debt created when banks make loans.  Debt is a path to slavery, especially for poor people.

We need a radical revision of the way in which we create money.  We treat money as a commodity which has its own intrinsic  value.  We would be better to treat money as a tool to facilitate the exchange of goods and services.  As a tool rather than a commodity there would be no need for interest.  Also the total amount of money available needs to be flexible up and down as the quantity of goods and services we need to exchange expands or retracts.  This guy has written extensively on this topic on his weblog and in his book.

As much as possibly economic forces, competition, should be used to regulate business activity. The more competition the fewer profits and the less need for regulation.  Regulations tend to restrict competition, allow greater profits and increase the demand for more regulations.

This writer is not enthusiastic about supporting the payday loan industry but does recognize that in our society there is a need for short-term credit.  I also believe there is a need to reform our financial system and the reforms could reduce the need for credit from all of us including the poor.

Occupational licensing – income protection, competition and competency

As the economy tightens occupational licensing is becoming more prevalent and controversial.  This blogger sees it as involving three issues – income protection, competition and competency.

Occupational licensing is the trend to require people in more and more occupations to have licenses to practice.  It has traditionally been used for professionals and is usually said to be needed to protect the public from incompetent practitioners.  As more occupations have required licenses it appears to have gone to ridiculous extremes.

Regardless of the public protection arguments the main function is to restrict competition and it appears to be working according to an article which shows higher incomes for those so protected. This is good for workers who are protected but does nothing for people who remain unemployed or otherwise unprotected from competition.  Another way to help people with income problems would be a universal basic income.  A UBI would ensure all people would have the opportunity for a minimum standard of living.

A UBI would also allow us to maintain a market economy based on competition with all the benefits efficiency and individual decision-making.

Occupational licensing also restricts the right of consumers to make choices about the services we purchase.  A lot of us do not always have the knowledge to evaluate a practitioner.  This blogger likes Milton Friedman’s proposal for certification by private organizations rather than licensing by governments. There could be different levels or types of certification.  This would help those of us with out knowledge and maintain our right to make choices for ourselves.

There are other ways of resolving the issues that lead to occupational licensing and these ways would protect the incomes of everyone, allow more competition in the economy and protect us from our ignorance.

Paying the piper/economist and making economic decisions

He who pays the piper calls the tune. This applies to economists as well as musicians and explains why economists have so much difficulty coming to terms with the ideological aspects of their field.

This post was prompted by an article about whether economists are biased towards the free market or towards regulation.  This blogger would prefer to evaluate economies according to who makes decisions.

I get suspicious when I hear economists talk about the “free market”  because they usually mean something different to what I understand is a free market economy.  To me a free market economy is one based on the perfect competition model.  What we actually have is an economy where governments pass legislation to restrict competition.  Copyright, patents, licensing, tariffs, health and safety regulations all work to restrict competition and allow some people to make profits they would not get in a competitive economy.

Sometimes the profit making gets out of control and the way to deal with this is to introduce  regulations  rather than to return to more competition.  Therefore I figure the debate in this article is irrelevant.

What is relevant is who makes economic decisions.  If we had perfect competition most if not all decisions would be made by consumers who would vote with their spending decisions.  Unfortunately there are too many people in this world who like to make decisions for others.

One of the big things which influences decision making is the fractional reserve way of creating money.  In this process money is created when bankers make loans and as they get to decide who gets loans they have a say over what economic activity is  going to take place.  If we had a national exchange trading system as proposed in the essay “LETS to market: Dealing with the economic crisis” on this weblog money would be created via payments to individuals who would then make decisions in their purchases or investments.

The fractional reserve system  also limits decision making in that many people, especially during their working years, carry a large debt load.  As most of us have to work to repay our debts, we are forced to support another person’s decisions.  And the work ethic adds a lot of support.

Governments also interfere with decision making by passing legislation which restricts competition and by accessing large amounts of created money.  This of course allows them to make economic decisions according to their values which don’t always agree with their citizens.

My view of how the economy works is less than consistent with conventional economic wisdom.  Readers will decide for themselves which view  they want to accept but I will point out that economists who don’t promote the conventional view probably don’t stand much chance of holding important high paying jobs.  People in power, industry or government, want to feel they are doing good and it is the role of economists to say what their employers want to hear and most economists are paid directly or indirectly by business or government.

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

 

 

Equality – the impossible dream

Charlie can’t breathe

The most evil of all people are those who believe they can force their religion, beliefs, values and will upon others.  There are evil people in all nations, religions and cultures.

Inequality is an issue that will probably never go away because it has traditionally been the natural order and because its solution, perfect competition,  is something few people will be able to accept.

Inequality was a feature of Roman and Medieval societies and probably of most historical large-scale civilizations.  To find true equality one would probably have to look to small tribal groups where everybody knew each other and were probably related.  (I suspect these groups had relationship problems in that lots of people didn’t speak to each other.)

In historical civilizations the elite depended upon the work of the peasants for their food and luxuries.  The challenge was to confiscate as much of the agricultural surplus as possible while leaving enough for subsistence.  Probably a factor in the calculations was the supply of workers.  If there was a shortage, the workers were able to retain a little more than when there was a good supply.

Inequality has historically been so much the norm that the general prosperity following  the industrial revolution should be considered an aberration. One of the things which has happened since the start of the industrial revolution has been  the exploitation of energy and mineral resources found in the earth’s crust.  The result has been a lot of prosperity which had to be shared with most of the population because the prosperity depended upon the labor of the working people.  Once again supply of workers was  a concern and generally  there was a shortage – until recently.  With a limited supply of labor the elite had to tolerate sharing some of the wealth.

In historical times the agricultural surplus was probably taken with the use of force or the threat of its use.    Since the industrial revolution the elite has discovered a less messy way of getting the greater share – legislation which restricts competition and allows for profits.  If we had perfect competition there would be no profits, we would have equality and the one percent would be just like the rest of us.  Licensing, copyrights, patents, health and safety regulations and tariffs all work to restrict competition.  If we did not have copyright Bill Gates would be just another programmer and we would all be using super great software. Recent prosperity has been so great leaving some for the rest of us was not an issue.

Other ways in which  the elite exploit us are  by the work ethic and debt.  So long as we believe in the divine nature of work we will continue to produce the profits which the elite need to maintain their fortunes.  So long as our money system is based on debt we will be chained to our employers.

It may be the golden age of prosperity is coming to an end.  We still have lots of mineral and energy resources but the most easily accessible have been taken.  It now takes more energy and effort to get at what is left and this limits the potential for future growth.

With the end of growth and a surplus of workers we are ripe for a return to historical inequality.where the elites take for themselves most of the agricultural surplus and leave a minimum for everybody else.  The difference is that we now have technology to replace workers.  This guy does not want to think about the implications of this.

It is my understanding that in some parts of the United States some local level governments are getting a significant part of their revenues from petty  fines enforced by police.  This source of revenue falls heaviest on poor people.  The justice of this program is questionable. Another source of revenue is called civil forfeiture where authorities confiscate the proceeds of crime even if there has been no conviction.  Once again this has potential for abuse and raises justice questions.   I am sad to report that my home province of British Columbia uses this process.

I have to wonder if these developments are part of increasing inequality and a return to inequality enforced with force in that they have a lot of potential for abuse of poor people and involve police.

This writer is pessimistic about the future.  To increase equality we will probably have to increase competition and introduce an income scheme.  These are controversial concepts although they will never come into being if we don’t talk about them.  In the meantime,   probably the best way for individuals to deal with inequality is to become a part of the minority  and one does that by taking advantage of legislation which restricts competition.

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Regulating business with competition

Generally we try to protect ourselves from the excesses of capitalism with regulations.  An alternative method may be to increase competition.

Capitalism is known for its disregard for health and safety concerns and for its excessive profits.  To deal with these problems we impose regulations on firms.  As people are good at getting around regulations the natural reaction is to increase the regulations.

An alternative approach would be to increase competition.

One of the myths of our economy is to equate competition and capitalism.  The reality is that capitalism depends upon governments passing legislation which limits competition.  Most economic legislation, while labeled as consumer protection, works to restrict competition.  For example, many manufactured items are subject to strict regulations as a safety thing. .  But these regulations tend to be set so that only large producers can comply.  This means that specialty manufacturers cannot afford to get started as the extra costs have to charged to a small production run.

Health and safety regulations, copyright and patent legislation and licensing requirements all work to limit competition.

Here in Canada we have a strong commitment to separation of church and state.  The result is that the provision of spiritual and religious services comes closer than anything else to the perfect competition model.  When people move into a new area they often go church shopping, even among churches of the same denomination. 

Churches are also the least regulated institutions in the country as their members look after that either by asking their ministers to leave or by leaving themselves.  (Ministers get fired for one of two reasons – they get into relationships their congregations consider inappropriate or they over stay their welcome.)    When the United Church of Canada decided to ordain and marry gays and lesbians a lot of people switched denominations.

This blogger figures  increasing competition in most if not all industries would do a lot to resolve the excesses of capitalism and reduce the need for regulations.

One of the requirements of perfect competition is that all participants have perfect knowledge.  Therefore the only regulation needed is that firms be required to publish all the information customers need to make good decisions.  This would require us to take responsibility for our own lives rather than expecting the government to look after us.

I realize this suggestion is a political can of worms as people don’t like to reveal secrets.  However with internet and smart phone technology more and more information will be easily available.  Rather than trying to increase regulations we should demand that this information be made generally available so that we as consumers can become the regulators – just like church goers.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Uber, the sharing economy and competition

This guy probably should not write about Uber and the taxi business.  I don’t own a smart phone;  I live 15 miles into the country from a one-taxi town and I can recall using a taxi twice in the last 15 years.  However, taking the risk, here are some observations. The first is that the “sharing means economy”  competition.  We sometimes distort the meanings of words to hide realities and the reality here is that we are introducing more competition into our economy.  This guy lived for four years on a British Columbia coastal Indian reserve where the sharing economy meant that fishermen shared their catches or when  somebody faced a medical emergency they would get a fundraising dinner.  (This was very important where most emergencies meant an expensive plane trip to the big city.)   The sharing features of their economy were probably inherited from pre-white contact times. Our society gives lip service to the market economy and competition but when we get to the details our commitment varies according to the color of the hat we are wearing.  It is not surprising consumers of taxi services are quite fond of Uber but the owners of taxis and their drivers are feeling threatened by the increased competition. Traditionally the taxi industry has dealt with competition by convincing local governments to license their cars.  By limiting the number of cars they can limit competition and keep prices up.  If customers have to wait that is irrelevant. A second observation is that providing transportation to others is low paid work and probably always will be regardless of Uber promises to prospective drivers.  A Google of “taxi driver earnings” shows that a few drivers earn less than minimum wage and most are only a little better.  One has to anticipate that once Uber has changed the industry this will continue to apply.   As with many low-paid occupations there are opportunities to exploit workers.  It may be that Uber with its computerized collection of data will be more transparent and less exploitative. One of those who appear to have been deceived by the term “sharing economy” is Janice Stein, director of the Munk School of Global Affairs in Toronto.  In this essay she writes as if the sharing economy is a new reality based on “disruptive technologies.”  (The internal combustion engine was once a disruptive technology.) One of her criticisms of the sharing economy  is that  “The best available evidence shows that many people who seem to be stringing together part-time work in “sharing” enterprises are at or below the poverty line, with no employment benefits and a social safety net that only the state provides.”  Neither increased competition or disruptive technologies should be blamed for current economic problems. Another criticism is that people providing services are not regulated, avoid safety inspections and don’t pay taxes.  We must be careful here because regulations including safety inspections can be an excuse to limit competition.  As I understand it the new technology makes it easy for customers to provide evaluations and regulation.  A driver with and unsafe car would be quickly be called on it. Uber has been criticized for its “surge” pricing.  This is the same as time of day pricing which some power utilities are or will be introducing.  Prices should be determined by supply and demand.  One of the problems with the regular taxi business is that does not meet changes in demand throughout the day. One last concern must be privacy.  We should assume anything that happens with a computer is probably being stored and is probably available to advertisers and government agents.  Most people appear to be not worried about the amount of advertising to which they are exposed.  The risk from government is that people don’t like to be criticized.   Computerized data make it easy for government agents to decide who are the enemies of the state, anyone who disagrees with their personal beliefs, and to track them. I find that frightening. The sharing economy is making some industries more competitive which is good for consumers and maybe not so good for producers.  Its downside is the potential for social control which goes with the extensive use of computers. 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Capitalism, competition and profits

Capitalism is about profits but economic theory tells us price should equal the marginal cost which does not allow for any profit.  It could be there is a contradiction between what we say we believe and the way we actually behave.  Figuring this out may be a major step in understanding our economy.

Price should equal marginal cost, the cost of the last item produced, because profits will attract more producers into an industry until competition forces prices down to the marginal cost level.  For this theory to work there must be perfect competition.  Perfect competition requires easy entry into a business, a uniform product,  that no participant in the market be large enough to influence prices by limiting sales or purchases and that all participants in the market have full knowledge of the market.

In perfect competition there are no profits because competition will force prices down to breakeven point.

This would be great for customers but producers, believing they have a right to profits want to restrict competition.  As producers tend to have more power than consumers there are in our economy lots of restrictions on competition.  There  are many ways to restrict competition but probably the best is to get governments to pass legislation that interferes with the operation of a competitive market. Look at the four requirements for perfect competition in the second paragraph above for ideas how to restrict competition.  Some of the legislation which interferes is patent and copyright, tariffs, subsidies and licensing.

An advantage of legislation restricting competition is that the state and its legal system can be used to enforce it.

Sometimes definitions can be fuzzy and most definitions of capitalism fit this.  The definition of perfect competition (see second paragraph above) is more precise even if it appears unrealistic.  We have jokes about economists making assumptions.  It is not safe to assume that capitalism is perfect competition.

I think the perfect competition model is very useful in that it provides an ideal towards which we could be working.  It provides guidance for policy even though there are lots of forces working against that policy.

Whatever name we apply to our way of organizing our economy, it is important to understand that it is based on governments passing legislation to restrict competition.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Ministers, teachers and consumer power in the economy

How much power do consumers have in our economy?  In theory they have all the power but in reality their power varies according to the degree of competition in any industry and their own personality.

Economic power means the ability to make decisions about what and how much is produced. If we lived  in small self-contained communities such as a Pacific island these decisions would be made mostly by people for themselves.  If we had perfect competition we would also make these decisions for ourselves and the market mechanism would transmit our decisions to producers.  As there are lots of people who want to make decisions for others one of the conflicts of our society is over economic decision-making.

Two examples illustrate how decision-making by individuals can vary according to competition in the industry.  The provision of spiritual services is, at least in Canada, the industry which comes closes to perfect competition.  Education is a mostly a monopoly.

As most of us Canadians have a strong commitment to freedom of religion people are free to attend the church of their choice or not at all. This means governments do nothing to restrict competition. Anyone with an inclination to preach can rent a school or community hall on Sunday mornings and some congregations allow anyone to do services.  No licenses are required by the government although some denominations use ordination, a form of licensing.  A minister’s career path is determined by his ability and his/her reputation. The Bible and most other religious texts are not copyrighted.  Churches receive no government subsidies other than an exemption from property taxes (which makes entry into the business easier).

On the other hand governments interfere extensively in education.  Parents are required by law the send their children to school, teachers must be licensed and governments closely supervise curriculum. Teachers generally must be licensed and are very difficult to fire.  Job security goes with length of service rather than teaching skills.  The result is a monopoly which is strongly defended by its employees.

In the spiritual world the customers are kings and make their own decisions.. :People can and do express dissatisfaction with their feet and some people go church shopping.  Ministers can be and are fired.  (My observation is that ministers are asked to leave for one of two reasons:  They get into an inappropriate relationship or they stay too long.)  Those people with the right skills rise to the top and those without the skills drop out.  To survive churches and staff must satisfy the spiritual needs of their congregations.

In education the customers (or their parents) make very few decisions.  They have no say in the curriculum and very little over who teaches their children.  Education is one of the most important things parents should give their children, yet it is where they have the least control.  This may be why home schooling and private schools are appealing to those who can manage them.  I believe education is too important to leave all decision-making to those employed in the field.

In other sections of the economy producers have to be more creative in influencing customer decision-making. Governments are usually willing to limit competition with licensing, tariffs, subsidies, patents and copyright.  Some firms can use the media to make emotional appeals to customers. Consumer power comes from being able to switch to another provider. The reaction to emotional  appeals may vary by person and personality. Maybe those people who don’t watch television have it easier when it comes to economic decision-making.

Another aspect of economic control is money creation.  The fractional reserve money we currently use creates money when bankers make loans.  This gives bankers a great deal of power to decide what economic activity happens and who does it.  On the other hand creating money  via a national exchange trading system as proposed in the essay “LETS go to market: Dealing with the economic crisis” on this weblog would transfer this power to individuals.

Some of us like to make our own decisions, some people like to make decisions for others and probably some people don’t care.  As one of those who likes to make his own decisions I like the perfect competition model.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

The dynamics of private and public ownership

In discussions on the pros and cons of private versus public ownership one should consider competition, decision-making and the dynamics of relationships between firms and governments.

I figure the people who run firms behave in similar ways regardless of who owns the firm. Most of us most of the time think and act in our own short-term interests. This applies to most the people in government and business and makes for interesting dynamics where people do not always behave according to what they say.

Generally people in business dislike competition and try to limit it.  One way to restrict competition is to get governments to pass legislation which interferes with the operation of markets. licensing, tariffs, subsidies, patents and copyright all restrict competition and allow some firms to obtain profits they otherwise would not have.  This creates dynamics between firms (or business associations) and governments as firms want to ensure they have sympathetic governments and governments want business to support them..

The people in charge of governments generally want to remain in power and therefore most of their decision-making is to this end.  Thus the main difference between private and public ownership is in decision-making.  Private owners want to make profits while government owners want  to remain in power.  They want businesses under their control to make management decisions which will help in  a reelection (Or in the case of dictatorships to limit uprisings) and they also want to reward supporters with plum jobs.

All of this is further complicated by the fact that managers and owners (private or public)  may have different goals.  Managers may want to build empires rather than maximise profits.

Where do us consumers fit into this?  There are always people in government and industry who say they are working for our best interests but most of the time I don’t believe them.  Generally our best interest is served when there is competition.  However, as noted above governments and industry work hard to restrict competition.  When  we have competition we get the best prices and a generally efficient economy.  In a competitive economy consumers get to make decisions according to their values.

 

 

The difficulties of free market health care

A free market in health care as called for in this video from the Mises Institute would be great, however there are three things that make it difficult:  health care is based largely on crises, competition in the industry is already very restricted and a lot of purchasing decisions are made in highly emotional situations.

Here is a transcription of the last sentence which is the main point.

 

“If we would just allow the free market to work, if we could eliminate the third-party payer system, the government subsidies on the expenditure side that drive prices up there’s no reason why a truly free market in health care goods and services couldn’t be just as effective in the U.S. as the market for computers, the market for software, the market for automobiles or the market for anything else.”

 

One of the things which distinguishes health care from computers, software or automobiles is that health care is largely based on  crises.  Generally most of us seek health care services for an emergency.  We go to a doctor because he/she has specialized knowledge that will help us out of the crisis.  This of course gives the people in the industry a great deal of power over us and creates potential for exploitation.

We go to a doctor for the specialized knowledge but we also go because doctors have a legal license to prescribe the magic pills that sometimes cure us or limit the symptoms of our illness.  To me a free market requires perfect competition   One of the ways the health care industry uses its power to exploit is to get governments to pass legislation which restricts competition.  Governments restrict competition through licensing, copyright and patents all of which are very  much a part of the health care industry.

The third factor which makes the health care industry different from  others is the deep emotions involved with injuries, pain and end of life.  When we purchase health care we are often experiencing deep emotions.  Once again this creates potential for exploitation.

So, how do we deal with the health care industry and how do we ensure everyone has proper access.

If we  were all perfect people we would reduce the demand for health care by living a healthy lifestyle.  We would also all manage our finances so that we always had funds available for emergencies.

As we are not all perfect then insurance, a third-party payer,  becomes an option to consider.  But most of us think and act mostly for the short-term and insurance is expensive and for the long-term.  For me this leaves a dilemma.  I don’t like the government saying we have to have to purchase insurance but neither do I like to see people suffering although I believe ultimately most of us have to take responsibility for our actions.

The man from the Mises Institute says “if we were to allow the free market to work”.  To try this would put us into a power struggle with health care practitioners who benefit from a lack of competition.  In a crisis situation where help requires specialized knowledge, the customer is not always right.

If we do want to take on these guys, then one approach would be to challenge the licensing.  I rather like Milton Friedman’s suggestion of certification rather than licensing.  Certification could be by different agencies and with different standards.  It would be up to customers to check the certification of the people with whom they deal.

In conclusion, it is not clear that a free market in health care is even possible let alone could it be as effective as the markets for computers, software, automobiles or anything else.  Sometimes there are no satisfactory answers.

Tax avoidance through the ages

A sure way to commit suicide would be to hold one’s breath waiting for the G8 leaders to actually clamp down on money laundering, illegal tax evasion, and corporate tax avoidance.  It’s theater in which the politicians can pretend to deal with a problem while listening to the lobbyists who want even more loopholes.

Through the millenia those in the elites have taken for themselves the agricultural and luxury surplus mostly using force or coercion.  With the industrial revolution things changed.  Production increased so that there was some to share and the supply and demand for labor to produce that production was such that workers could claim some.

In this new situation the most effective way to cream off a big chunk of the surplus was to get governments to pass legislation restricting competition.  Thus we have trade restrictions, licensing requirements and patent and copyright legislation.

As the economy has gone into an extended decline tax avoidance has become another effective means for getting an excessive share.

Both of these approaches provide lots of work for lobbyists and most politicians are willing listeners.

So we now have increasing inequality, a concern for some but not all people.   The rich keep getting richer and more people are sliding onto or over the margin.

Even if we come up with a non-violent way to eliminate the rich it would not solve the problem as the rest of us would be lined up to take their places.  The most effective way to deal with the rich would be an economic crash and/or hyperinflation, but that would get the rest of us as well.

Regulating the cruise industry

Last week’s floating stool ship has put a little focus on the cruise ship industry and brought forth some suggestions the industry requires more regulation.

It appears that by cruising between international ports the industry has avoided coming under the jurisdiction of any one government.  It also appears to be a highly competitive industry and one that is prospering.  Maybe there is a lesson here about competition and government interference.

johnny_automatic_ocean_linerI have a theory that at the request of business governments pass laws to restrict competition in the belief that there will be greater profits if there is less competition.  Then to control the excesses of monopoly they introduce regulations.    If this is correct an industry in which competition is not restricted has no need for regulations.

It seems to me the cruise ship industry is regulated by its customers.  It is highly competitive and depends very much on returning customers.  These guys have to look after their customers.  If there develops a perception that the Carnival Triumph passengers are not being treated fairly or that ships are not being properly maintained,  the whole industry will probably pay for it.

Employees may not be in such a strong position.  Wages tend to be a function of supply and demand and the cruise companies draw their unskilled employees from the world market.  The companies benefit from world over population.  So  do the passengers whose fare would be quite a bit higher if the ships had to pay all their employees North American wages.  Employees also benefit from higher wages than they would get at home.

We have to note that a lot of companies in North America (and their customers) also benefit from the low wages that go with high unemployment.

One way to deal with the exploitation of labor would be some sort of guaranteed annual income which would make it a little less necessary for workers to accept poor pay or working conditions.

The evils of patents and copyrights

Two economists at the St. Louis Federal Reserve have called for the abolition of the American patent system, a proposal I endorse 100 per cent.   I would include copyright.

Their argument is that the patent system retards innovation.  My argument is that patents and copyright restrict competition which increases inequality.

“The historical and international evidence suggests that while weak patent systems may mildly increase innovation with limited side effects, strong patent systems retard innovation with many negative side effects,” Boldrin and Levine wrote. “More generally, the initial eruption of innovations leading to the creation of a new industry—from chemicals to cars, from radio and television to personal computers and investment banking—is seldom, if ever, born out of patent protection and is instead the fruit of a competitive environment.”

 

In order to have a competitive market there should be no restrictions on entry to that market.  The purpose  of patents is to give the patent holder protection from competition.

zeimusu_Sri_Yantra secondGenius is 90 per cent plagiarism.

If the British had strongly enforced patent protection, we would not have had the industrial revolution.  If the Elizabethans had copyright, we would not have Shakespeare.  If the Romans had copyright, we would not have the Bible.  If we didn’t have patents and copyright we would have a more equal society with even more useful gadgets and medical research would focus and serious diseases rather than the diseases of us rich people.

Dairy farming: Canadian supply management and American subsidies.

Last night our community held the annual Robbie Burns dinner (a roast beef dinner with entertainment for ten dollars) and I sat next to a dairy farmer (from outside our community).

Canadian dairy farmers are protected  by marketing boards which enforce supply management.  All dairy farmers are required to sell their milk to a marketing board which says how much they can produce.  This supply management works to limit the amount of dairy products on the market and keeps prices up.  Dairy farmers generally appear to do well financially.

Gerald_G_Fast_Food_Drinks_FF_Menu_2Some Canadians object to supply management and claim our consumer dairy prices are the third highest in the world.  Prices in the United States tend to be about 50 per cent lower than  Canadian.  Some Canadians living close to the border have been known to purchase milk and cheese in the States.

When I asked this guy about subsidies for dairy farmers I was told Canadian farmers get none but Americans are subsidized by about 50 per cent.

I was aware American farming is heavily subsidized but have never really thought about the dairy industry.  This morning I googled “dairy subsidies” and it appears the guy was right.

So Canadians restrict competition with quotas and supply management and Americans keep prices down with subsidies.  I don’t eat much dairy so I have to prefer the Canadian way because my taxes are not going to dairy subsidies.

If Canadians were to get rid of supply management and Americans were to drop subsidies then dairy farmers would have to be competitive and work as efficiently as possible.  We would all be better off.  Subsidies should be given to consumes rather than producers.

Co-operatives and competition

Here’s an article from The Guardian promoting the virtues of  co-operatives as an alternative to the profit-motivated capitalist system of organizing economic activity.

I am not sure the ownership structure of a firm is relevant to how it behaves within the economy.  Whether it is state-owned, community owned, privately owned or cooperatively owned it still has to acquire the resources (capital) with which to start and operate the business.   It also has to arrange for management.  A lot depends upon the personality of managers.  There are many dominant people who are skilled at manipulating democracy and consensus decision-making.  The exception is that state-owned firms may have deep pockets and may make decisions for political rather than economic reasons.

I see co-ops as a reaction to excessive profits of private firms. Generally firms are able to make profits because governments pass legislation which restricts competition.  Probably the best way to deal with excess profits is to repeal the legislation that restricts competition.

%d bloggers like this: