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.

 

Solar energy – excitement and challenges

The most exciting, and challenging, economic news of recent days has been that in some parts of the world solar is now lower cost than other forms of energy and that is without subsidies. (One, two, three.) This is exciting because so much of what we call civilization is dependent upon cheap energy.  There are indications that the cost of solar energy will decrease even further and that it will become  available to most of us.

This is also challenging because of the economic changes which will have to be made including the writing off of a lot existing infrastructure.

We must start this discussion by noting that energy is only one input into economic growth.  A shortage of other minerals, agricultural land and over population may make a return to economic growth difficult.

A major problem in adapting to lower electricity costs will be the existing infrastructure. The price of an item is equal to the marginal cost of producing the last unit.  This means that if solar energy can be produced cheaper than other forms of electricity the producers of that energy will have to lower their prices or go out of business.  It may take time to work out but we can anticipate a lot of infrastructure will become obsolete.  Do not be surprised if there are demands for subsidies to protect firms from unfair competition.

The falling marginal cost may be a problem for the production of solar energy.  With fossil fuels we have been used to rising marginal costs which means the owners of cheaper oil have been reaping windfall profits as the price of oil has gone up.  This writer is not aware that much economic thought has been put into dealing with falling marginal costs on this scale but some people will have more expensive solar energy than others or will have to write off their initial investment.

Another interesting feature of solar energy is it is unlikely any corporation will get an exclusive license to use it.  With costs falling to the point where most people will be able afford their own solar collector(s) decision making power will be transferred to individuals.  No longer will bankers and governments be making decisions for us.

I am skeptical that cheap solar energy is going to mean a return to economic growth and the way our economy is currently organized requires growth for most of us to live in comfort.  Changing our economic organization will be far more difficult that introducing solar technology.

Capitalism – a meaningless concept in which we can believe

As one surfs the economic forums of Medium and other media one often sees the word “capitalism” in the headlines but mostly I ignore these items because the word’s definitions are generally so vague the word is meaningless.  Because capitalism is such a meaningless word it is something in which we can believe while ignoring a less pleasant reality.

When we study economics we can try for an honest understanding so we can solve problems and reduce human suffering or we can seek rationalizations for things which will make us rich in spite of exploiting others, destroying the environment and overusing scarce resources.  If I were the chief executive of a large corporation or a politician I would want the second approach to economics.  Guess who pays the salaries of most economists.  This blogger makes no money out of his study of economics, so he can take the first approach.

The main feature of the economic organization with which most of us are familiar is that a lot of it is based on legislation which restricts competition.  Patents, copyright, licensing and subsidies all work to restrict competition  and/or distort prices.  These are so pervasive that we cannot say we have competitive market economy.

The problem with a perfectly competitive economy is that it does not allow for profits.  Competition reduces profits until each firm makes wages and a return on investment but no profits.  If one wants profits one needs government to pass legislation to restrict competition and most current  governments are happy to oblige.  Once upon a time this blogger used to make pottery.  I suggested that in order to make a good living we should form the Canadian Potters Association and get the government to pass legislation that all the people in Canada should eat only from dishes make by members.  Other potters laughed but lots of other occupations have that legislation: teachers, doctors, lawyers, septic tank installers, most large corporations (patents and copyright), etc.

Like lots of other people I would like to see an economy with more equality and less exploitation.  I believe the best way to get it would be to have more competition.  To get there we should repeal or at least reduce copyright, patent and licensing legislation and drop all subsidies.

This would leave many people exposed to economic adjustments which often cause suffering. A guaranteed income scheme would be a better way of coping with these problems than restricting competition.

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.

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.

A grumpy old man in favour of a basic income scheme

The “free money” giveaway or basic income or universal income scheme being proposed by a few people is a great idea but one that is probably impossible to implement.  However it is nice to dream and fun to think out how to solve economic problems; so here goes.

The basic questions are where does the money come from and how to give the money to people?

The simple answer to the first question is that with a universal income scheme there will no longer be a need for subsidies to producers.  A more difficult answer is that the introduction of an income scheme would be the ideal time to reinvent money.

Generally subsidies (sometimes as tax exemptions)  are given to firms to encourage them to establish plants and provide employment or to save the business and save jobs.  This is great for those who get the jobs or whose employment is saved but it leaves a lot people with nothing.  Subsidies also distort prices so that when we make purchasing decisions based on price we are not necessarily getting the item that was cheapest or most efficient to produce.

Money is something most of us use daily and is probably the least well understood of all the things that are a part of our economy.  When central banks were doing quantitative easing there was some disbelief that they could create money out of nothing.  This is because we have for so long associated money with gold that we think of it as a commodity with value in itself.  It might be better to think of it as a tool with which to facilitate the exchange of goods and services.  It represents purchasing power.

Most of what we use as money is created by bankers making loans.  How this works is explained at numerous locations throughout the world-wide web.  My own version along with some of the problems with fractional reserve money is included in the essay “LETS go to market: Dealing with the economic crisis” on this weblog.

One way to reinvent money and implement a universal income scheme would be to take the concept of “local exchange trading system”  and expand it to the national level.  A good part of the essay talks about how this could work and again  I refer you to the essay.  There are many details to be worked out and many problems to be overcome.  The mechanics of the money supply would be easy.  Getting people to accept new ways of thinking about money would be extremely difficult.   Getting people to accept that others should be allowed to do as they wish, whether that be creating art works or drinking beer, would also be difficult.  Getting people to change their vested interests would probably be impossible.

One of my concerns is that our economic order is going to return to something similar to what existed before the industrial revolution in which there was a small group living in relative luxury and the balance of the population lived at a subsistence level. (The ultimate inequality)  I am concerned because I think our economy is possibly going into an extended period of decline.  While there are lots of energy and mineral resources left on this planet the energy required to extract them is becoming more and more excessive to the point it will be less viable.  Without resources it will difficult to maintain everyone at what has been the North American standard of living.

An income scheme would make it a lot easier to cope with an economy on a downward slope.

More and more I am getting to be a grumpy old man.  My generation has been very lucky in the time and place we have lived out our lives.  More and more I am recognizing the next generations, including my grand children, are going to have to deal with a lot of economic pain.  I hope I am wrong and if not I hope I won’t have to see it.

 

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.

Environmental eating

The 100-mile diet or eating locally is one way people can try to be more environmentally sensitive in their eating habits.  Removing agricultural subsidies would be a more difficult and probably more effective way of doing the same thing.

We live on the edge of a major fruit and vegetable growing area yet when we walk through the major chain supermarkets most of the produce appears to be imported.  It is easy to understand those people who want to eat locally or eat a 100-mile diet (all food produced within 100 miles of ones residence) or “live in place”.

Unfortunately there is no guarantee that locally produced food is any healthier or more environmentally friendly than food grown elsewhere.  One does not  have to go far off the major highways to see what appear to be factory farms.  The Conference Board of Canada has said something similar in a recent report according to an article in The Western Producer.

Improved transportation and food supply chain logistics have made long distance transport of fresh and frozen food viable, economical and environmentally sustainable, says the report published in late July.

Local food production can actually consume more energy and leave a larger “environmental footprint” than food produced more efficiently and transported, says the report, Fast and Fresh: A Recipe for Canada’s Food Supply Chains.

(I think of the Conference Board of Canada as representing corporate rather than consumer interests.)

Another way to deal health and environmental issues in food production would be to remove all agricultural subsidies so that consumers would, as much as possible, know the full costs of the foods they eat and could make purchasing decisions according to their values.  Then we could eat locally  or imported depending upon which is cheaper and according to our values.  If the true cost of food is high enough some of us might decide to grow our own.

The problem with this approach is that subsidies, especially for farming,  are entrenched in our economy and removing this would be extremely difficult.  Also for political reasons governments generally practice a cheap food policy.

johnny_automatic_cornThis guy does most of the family grocery shopping at two stores.  One is plant nursery and produce store which carries lots of local items when they are in season as well as imported fruits and vegetables.  Their prices are usually less than the supermarkets and the farmers markets.  The other is a locally owned supermarket which carries some local products.

After writing the draft for this post I drove 10 km (return) to a  neighboring farm  to buy some fresh corn for lunch.  This was well within the 100-mile diet, but how environmental was it?  The corn was very nice.

Governments, competition and subsidies

Is it legitimate for city governments to get involved in the economy as The Economist reports a number of mayors are doing?  Governments have been involved in their economies for millenia.  For us this involvement helps a some people make profits and when the economy is tough it helps a few people get jobs.

There are two ways governments get involved in economics – by passing legislation that restricts competition and by giving subsidies either in cash or tax exemptions.

Most economic legislation at the national level works to restrict competition. Patents, copyright, licensing and tariffs all limit competition and allow the firms protected to charge higher prices and make profits they would not otherwise have had.  It may be the most  valuable business skill is government relations and lobbying.  During the recent golden age of prosperity with constant economic growth the higher prices have hardly been noticeable and for most people not relevant.  As we go into a period of economic decline already lot of people are hurting.

The other way governments influence the economy is with subsidies or tax exemptions.  

There are three concerns about government involvement in the economy.  

The first is that protection from competition and subsidies distort prices and encourage inefficiencies in the economy.  It might be cheaper and more efficient to make wing nuts in one place but subsidies alter that.  It may be that competition is now to determine  which, city or state/province has the deepest pockets for providing subsidies.  When firms can go where they get the largest subsidy, there is an element of blackmail and it is not clear this is a good way to start a relationship.

The second concern is that most of us most of the time make decisions for our own short-term interests rather than the long-term interests of the community.  For most of us a job today is more important than the future health of the planet or even survival of the human race.  Also one has to suspect that in this respect politicians are at the head of the line especially when they want to get reelected.

A third concern is that subsidies are good at providing jobs for a lucky few people but provide no benefit for the rest of the unemployed.  I believe subsides should be given to consumers rather than producers so that they don’t distort prices and can provide assistance to all who need it.

DI_404_SUCKZ_Stephen_HarperOne can make lots of arguments against government involvement in the economy, but one is fighting a lot of short-term interests.  The Canadian prime minister is the chief executive officer of corporate Canada.  This applies to the incumbent and probably to most past and holders of that post.

A universal income scheme

I believe we should have a collective responsibility to ensure everyone has the opportunity for a standard of living similar to most others.  I also believe our technology is such that everyone should not have to work throughout their lives, that subsidies should be given to consumers rather than producers, and that there is a need to change the way in which we create money.

I have been asked by a member of LinkedIn to elaborate on the collective responsibility.  The other things are important to the answer.

In some small-scale societies the collective responsibility takes the form of a sharing economy where people share their food and other production with relatives, clan members or anyone who needs it.  We probably need something a little more formal and impersonal.  One way would be a universal income scheme.  Milton Friedman proposed a negative income tax which is a good place to start a discussion.

The key to our high-tech society is the number of people for whom each agricultural worker can produce enough food.   That is clearly somewhat high which means the rest of us can be doing other things.  Sometimes it seems what most of us do is to work  to keep the military-industrial complex going.

Subsidies to producers distort prices and interfere with the efficiency of the economy.  Therefore subsidies should be given to consumers.  A universal income scheme would be a fair way to do this.  I see this as being good for the environment and as a transfer of decision-making from government and bankers  to individuals.

I believe the most funny of all money creation schemes is the fractional reserve banking system.  Interest is charged on the money created, bankers are very powerful and too important to let fail, and it is all a Ponzi scheme.  One alternative could be to take  the concept of the Local Exchange Trading System (LETS) and expand it into a National Exchange Trading System (NETS)  It would probably be feasible to include a national income scheme into this type of money creation.

With the world economy in trouble and with so many indications the slide will continue for some time more and more people, through no fault of their own, are going to find themselves unemployed and without an income.  Thus it gets more and more important for us to live up to our collective responsibility to ensure everyone has the opportunity for the same standard of living as everyone else.

Some of the ideas in this post are included in the essay “LETS go to market: Dealing with the economic crisis” on this weblog.

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.

Decision making and subsidies for bio fuels

In spite of low prices for shale gas there appear to be increasing concerns about energy availability.

We need energy to keep our bodies alive and we need energy to operate the machines upon which we depend. All energy comes from the sun and we use it in different forms for food and fuel.

The problem comes when the same form of energy can be used for both  as is the case with bio fuels such as corn and sugar.  Who is to decide the balance?

Some people concerned about fuel shortages have sought and been given subsides for bio fuels.

The chairman of Nestle, wanting people to buy more of his processed food products is complaining about the subsidies as they appear to be contributing to high food prices.

So long as the subsidies continue the balance is being determined by some politician and/or bureaucrat.

If there were no subsidies you and I would be making the decision in our shopping  decisions.

As we live a 45-minute drive from the store where we do most of our shopping our decisions would probably be different from yours. If all government subsidies for all products were to be dropped we would probably have to make some major lifestyle changes.

Even so, I repeat that subsidies should be given to consumers rather than producers.

 

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.

How many subsidies?

A blogger who is opposed to subsidies because they distort prices and who believes subsidies should be given to consumers rather than producers cannot ignore this link.

It features a graph showing many ways in which governments provide assistance to businesses..

No way can we think of our economy as one based on a competitive market.

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.

Poverty

In exploring the world beyond the view from my study window (a large, lush green yard surrounded by tall trees and the mountain beyond the river valley) I came across a discussion of reasons for giving money to the poor.

I believe we have a collective responsibility to ensure that everyone has the opportunity to experience the same standard of living as everybody else.   This should apply to all the people of the  world.

This does not mean that everyone should have to take that opportunity. If a person chooses to do something else that is okay whether it be a life of poverty and medication in a cave or a life ruined by  drinking.

I also believe that full employment is not a realistic goal.  Nor is full employment desirable if it means working for the sake of working when there are other things people could do if they wanted. Nor is full employment desirable if it means using up scare resources or destroying the environment.

I also believe subsides should be given to consumers rather than producers.

And I believe that we as individuals should be able to make our own decisions according to our own values.

Therefore we should deal with poverty and/or ensuring everyone has the opportunity with some sort of universal income scheme.  Milton Friedman proposed a negative income tax.  I take the concept further and suggest an income scheme combined with a new way of creating money in the form of universal subsistence payments.

In either case the income scheme would replace all subsidies to producers and all other income support to individuals.

This approach would require some heavy-duty changes in our ways of thinking and behaving.  Many people would find it difficult to get their minds around these changes.  However, considering the current economic crisis and all the threats it may be that we need drastic changes.

Subsidies distort prices

Here is a  news report that the Quebec government is giving a $58 million subsidy to an asbestos mine in that province.

I am opposed to this subsidy because I believe subsidies should be given to consumers rather than producers.

Subsidies given to producers distort prices and encourage us to make poor purchasing decisions.

The article says there are “predictions that worldwide demand for asbestos would increase — especially in India — while the supply would drop.”  If this is correct then prices would go up and the mine would be able to reopen without subsidies.

Subsidies should be given to consumers in the form of a guaranteed income scheme or a negative income tax,

 

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.

Agricultural pollution

This week’s Economist has an article on agricultural nutrient pollution in the Mississippi River.

The economics way to deal with agricultural pollution presents us with a dilemma.   The changes required are so radical the screaming from those affected would generate enough hot air to destroy the world from global warming.

I believe the price of any item should include the full costs of producing the item.  This way we can make purchasing decisions according to our own values.  This applies to food as well as everything else.

Therefore the costs of agricultural pollution should be paid by the producers and passed on to consumers.

In some cases it may be difficult to calculate the costs of pollution but we could start by eliminating all subsidies which would probably reduce a lot of pollution.  In any case subsidies should be given to consumers rather than producers.

If we had to pay the full costs of producing food, there would probably be some major changes in our eating habits to healthier foods and more home gardens.

Economics and the U.S. presidential candidates

The Lexington columnist in this week’s Economist tries to analyze the two U.S. presidential candidates in terms of their understanding and support for “capitalism and the free-enterprise system”.

I feel uncomfortable with terms such as “capitalism and the free-enterprise system” because I think they are meaningless words used to hide from us the reality of how our economy works.

Our economic organization is one in which governments pass legislation and regulations which work to restrict competition. Subsidies, tariffs, licensing, copyright and patents all work to limit competition and thus to increase profits.

Romney has certainly benefited from this aspect of government activity and as president would support if not expand it. I don’t now how Obama became a part of the one percent but there is no indication he would not continue to support it.

It appears both men are equally strong supporters of our current economic system whatever name one attaches to it.

 

The assumptions economists make

The assumptions economists make is the title of a book published in March of this year and for which a review is located here.  It sounds a little interesting so I have suggested it for purchase by our local library.  I’m not sure it is interesting enough to spend $25 for my own copy.

However, the title reminds me of my own struggles with the assumptions of perfect competition.  So here is a post from almost two years ago about the assumptions of perfect competition and how one could interpret them.

 

Perfect competition utopia

When I started studying economics and learned about perfect competition and its assumptions I thought it was totally unrealistic. I really enjoyed the joke about the economist who wanted to assume he had a can opener.

However, through the years I have come to see perfect competition as an utopia which provides guidelines for policy. I like the perfect competition model because it provides high efficiency, equality in that there are no profits, it works without economic growth and decision making is by individual consumers rather than governments.

One of the features of perfect competition is that there are no profits because if profits are being made in an industry others will enter that industry increasing competition and driving prices down until there are no more profits.

To get around this no profit feature business people lobby governments to pass legislation which restricts competition. For example, subsidies, some taxes, licensing, copyright and patent legislation all interfere with perfect competition.

To make our economy more competitive we should:

– Give subsidies to consumers rather than producers. This way prices will reflect true costs and buyers can make decisions according to their own values.

– Require producers to provide consumers will all relevant information about their products.

– Abolish patent and copyright legislation.

– Unilaterally abolish import and export tariffs.

Following is a summary of the assumptions for perfect competition.

The link for the website from which they were taken is http://tutor2u.net/economics/content/topics/competition/competition.htm

Assumptions behind a Perfectly Competitive Market

1. Many suppliers each with an insignificant share of the market “ this means that each firm is too small relative to the overall market to affect price via a change in its own supply “ each individual firm is assumed to be a price taker

2. An identical output produced by each firm “ in other words, the market supplies homogeneous or standardized products that are perfect substitutes for each other. Consumers perceive the products to be identical

3. Consumers have perfect information about the prices all sellers in the market charge “ so if some firms decide to charge a price higher than the ruling market price, there will be a large substitution effect away from this firm

4. All firms (industry participants and new entrants) are assumed to have equal access to resources (technology, other factor inputs) and improvements in production technologies achieved by one firm can spill-over to all the other suppliers in the market

5. There are assumed to be no barriers to entry & exit of firms in long run “ which means that the market is open to competition from new suppliers “ this affects the long run profits made by each firm in the industry. The long run equilibrium for a perfectly competitive market occurs when the marginal firm makes normal profit only in the long-term

6. No externalities in production and consumption so that there is no divergence between private and social costs and benefits.

Can local food be as efficient as industrial agriculture?

Can local food be as efficient as industrial agriculture?

Here’s  l;ink to a discussion of this interesting topic.

Probably some foods are more efficiently produced locally and some others via industrial farming.

The way to determine which is which is to remove all agricultural subsidies.  Then the prices in the stores would reflect the true costs  of growing each item and each of us could make our decisions according to our own values.

By the way last summer I purchased local; strawberries which cost more than the imported variety because the local ones tasted better.

Seven billion are a lot of people to feed and it could well be that industrial agriculture is necessary.  And should it fail it would also mean a lot of suffering..

How to increase economic equality

Here’s another prescription for getting the economy back on track, this one from Robert B. Reich, the former secretary of labor, a professor at the University of California, Berkeley, and the author of “Aftershock: The Next Economy and America’s Future.”

The economy won’t really bounce back until America’s surge toward inequality is reversed.

I’m not certain this would restore us to the golden age of prosperity but it would certainly ease the human pain of the downturn.

One way to deal with inequality would be to try to move the economy closer to the perfect competition ideal because in perfect competition there are no profits and therefore everyone would be equal economically.

Here are some things we could do. (yeah, right)

– Basically rescind all economic legislation most of which works to restrict competition so that some people can make profits.

– Do away with patent and copyright legislation

– Give subsidies to consumers rather than producers.

– End most licensing requirements.

Food prices, speculators and marginal cost

Here’s a link to a rather lengthy article blaming high food costs on speculators and investors in industrial agriculture.  It discusses many of the problems currently facing agricutlure and the human suffering caused by high food prices around the world.

I don’t want to defend either group but here is an alternative theory that  high food prices can be explained by the economic principal that prices are equal to the marginal cost of producing the last item.

This principal can be illustrated with two examples – oil and telecommunications.

As the demand for oil has increased and the easily accesible oil has been extracted oil producers have sought out more difficult deposits. – and the price has gone up. If the price had not gone up or if governments had legislated  a top price,  producers would not extract the more expensive oil.  Therefore the cost of oil is equal to the cost of the last unit extracted.  The result has been windfall profits for all those producers who still have supplies of cheaper oil.

The opposite has happened in telecommunications.  As capacity has increased and costs have fallen the cost of making one more phone call is nearly zero.  In this case we have all benefited.

Agriculture is probably more like oil. As demand has increased farmers are using less productive land and more expensive inputs and costs are going up. As the marginal cost of the the last unit produced goes up so do all the prices and once again their are windfall profits.for somebody.

Food supply and pricing is complex – some people claim there is no shortage of food in the world. and it is hard to believe otherwise when one visits a supermarket or farmers market in British Columbia   But then we can afford to pay the cost of bringing food in from other places which many people on this planet cannot.

Agriculture is of course complicated by subsidies which distort prices and interfere with efficient operation of the market and this may be a big source of problems.

Now back to the article,

I suspect the authors of this article are using speculators and investors in industrial agriculture as scapegoats.  Generally it is easier to identify symptoms than it is problems and it is more satisfying to seek out scapegoats than solutions.

Speculators take the risk. of price movements.  When prices are going up there are fewer risks although generally prices go up and down even if there is a strong trend.   If they weren’t in the market then somebody else would take the risk and make the profits or losses

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