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July 21, 2007

Interesting thoughts on capitalism and market economics

Vote for me, dimwit is an interesting piece from The Economist about voters' behavior.  It caught my eye in part because it mentions Oregon's self-service gas law, which is indeed pretty silly. There is indeed a bunch of wisdom in this article; but there are also some really bad misuses of logic and generalizations.

More interesting fodder about how Burning Man participants (and other progressives) feel about corporations is discussed in Generation Dobler: 

Burning Man is trying to do this year for its audience what FLOW tries to do - recast corporations and their products as not villains and despoilers, but as providers of tools and methods to solve problems.

This sentence is particularly interesting, because it suggests that there's some sort of dichotomy involved here, rather than that different corporations behave in different ways, and it's possible (easy, even) for a corporation to be all of the above things at once.

It's interesting how messy the real world is; do most thoughtful articles that are floating around have serious problems like this?  I'm gonna have to keep an eye out...

Posted by dmose at July 21, 2007 4:51 PM

Comments

The Economist article's cheerful conclusion that unchecked economic liberalism is the path to utopia certainly rings some warning bells. It also seems rather odd to equate voters being selfish with voters being irrational; it seems to be perfectly rational that a voter will be primarily interested in his own wellbeing, with the country's GDP being pretty far behind.

- Chris

Posted by: Chris Cunningham at July 22, 2007 7:37 AM

I tend to agree. I get the impression that the theory is that voters' self-interest is tightly aligned with overall productivity, and that they just don't know it. That might be true to some degree, but there are plenty of tradeoffs here, and the idea that anything that improves production is almost certainly the right thing to do seems like a vast oversimplification to me.

Posted by: dmose at July 22, 2007 8:14 AM

>I get the impression that the theory is that voters' self-interest is tightly aligned with overall productivity, and that they just don't know it.

From what I remember of economics, yes. If you ignore trade, the sum of everyone's wages in a country is precisely equal to that country's GDP (because all the money someone spends buying some good or service is someone's else's income). So the average income for a country's citizens is equal to its GDP per capita. Benefiting the group benefits most individuals.

The other key point is that, if a country maintains the same growth rate every year, then its GDP (and thus average income) will grow *exponentially* over time. Suppose two countries start out with the same GDP but one grows at 1% each year and the other by 3% each year. After 69 years the latter's GDP will be *4* times as large as the former's (and 8 times as much as it's own at the beginning) (These numbers come from assuming continuously compounding interest/growth). As I understand it, this is why even low income people today in industrialized countries in many ways live better off than rich people did a century ago, and the driving force behind it all is largely increased productivity.

Here's an example: the open source movement has produced a lot of software for free, thus putting some software programmers who worked on competing commercial applications out of a job. Should we then ban open source software? Well, all the people who would have bought those commercial programs then had extra money on hand, and they likely spent it on something else, benefiting both them and whoever sold it. Plus, since the product (software) became cheaper (actually free), more people have been able to afford and thus benefit from it. Moreover, by being able to do more quickly, consumers often will then demand more follow up goods and services; e.g. by having tons of files on my PC, you may now want a desktop search app, or a better backup apps. This in term creates more jobs. So there is overall a strong net benefit to open source, despite destroying some jobs. You could apply the same logic to all software in general, not just open source; e.g. having operating systems put the old manual computer operators out of a job. Any time a new, useful invention, tool, machine, or software is made, the effect is increased productivity.

This is what economists call creative destruction, and its more likely to help you than hurt you. During the Clinton years in the US, 21 million jobs were destroyed. That was OK, since 29 million new jobs were created, for a net benefit of 8 million more jobs.

I agree with you, increased productivity isn't something we should pursue at all costs (e.g. you have to consider pollution, human rights, etc.), but usually the benefits are huge. It can also help the environment: increased productivity and efficiency means you can meet your needs with less resources, which lowers the strain on the environment.

At least the media here in the US is largely ignorant of economics. You don't have to believe that market forces always lead to the best possible outcome (I don't), but you have to at least be aware that they exist and how they work if you want to make sensible policies. The article is right on track when it says how politicians benefit more from fear-mongering than promoting sound economics, so more do the former.

Posted by: James Napolitano at July 23, 2007 1:46 AM