On the Morality of: Investing

I haven’t written a post on morality in a while, and this one’s a little different than past entries. This is an issue where I haven’t made up my mind, and I’m hoping that people’s comments can illuminate the issues and help me reach a final decision.

Through the economic chaos of the past two years, I have to admit I’ve been more fortunate than a lot of Americans. I have a high-yield savings account with ING Direct – that is to say, I had one. I still have the account, but since the subprime market crash and economic depression, the interest rate has dropped so low that it’s scarcely worth bothering with. I’d have transferred the money elsewhere, but all the other high-yield savings accounts have done the same. Even the rates on CDs are pathetically low, to the point where I think I’d be better off not buying one because there’s a reasonable chance of the economy recovering and interest rates rising again before they mature.

Money should work for its owner, and the money in my savings account wasn’t doing that, so I decided to take it elsewhere. Since my 401(k) has done fairly well through the downturn, it was a natural step to put some of this money into the market as well. I’m not confident of my own ability as a trader, and I don’t believe that anyone can consistently beat the market, since that would imply an ability to predict the future. (Granted, I could be wrong – there’s an ongoing million-dollar wager between Warren Buffett and a group of hedge fund managers over this question.) So I decided to do the next best thing and invest in an index fund, a basket of stocks chosen to track the performance of a major market index. In my case, I went with the Vanguard 500 Index Fund, which tracks the S&P 500. The fees are minimal, since there’s very little active management required.

However, it wasn’t long before I had an unsettling realization. The fund that I invested in includes stock in oil companies like Exxon Mobil, whose activities I consider unethical and destructive to the planet, financial companies like Goldman Sachs which promote the ever-greater accumulation of wealth at the very top, and defense companies like Lockheed Martin, which have profited massively from America’s swollen defense budget and sprawling military-industrial complex. Am I doing wrong by investing in a fund that includes these companies?

I haven’t fully made up my mind about this, and I’m open to persuasion. However, I see one consideration to counterbalance the obvious argument against: Buying or selling stock is different from boycotting the company, since it doesn’t directly either aid or impede that company’s ability to operate.

In fact, buying stock in a company whose actions I disagree with is arguably a good thing. I see two main reasons for thinking this: First, if I buy a company’s stock, I become one of its owners, and I gain a voice in how it operates. (Even if it’s only a small voice – a few shares of stock out of millions.) It makes me more influential, not less, when I exert pressure on that company to cease environmentally destructive practices, clean up its carbon emissions, respect the rights of local people, or behave in more socially responsible ways.

Second, if the stock pays dividends, I gain a share of that company’s profits, which I can redirect to better ends. Rather than further enriching the already wealthy, I can donate it to advocacy groups, reinvest it in needy communities, or otherwise use it for good. That said, I have to acknowledge that owning a dividend-paying stock would also give me an incentive to do the wrong thing: to encourage the company I own to do whatever makes the most profit, rather than what’s the most ethical.

Despite that, does investing in a company also make me complicit in the harm they do? An honest answer surely would have to be yes. Granted, the degree of complicity is small, but the degree of influence it gives me is also small. Which one outweighs the other?

Other posts in this series:

About Adam Lee

Adam Lee is an atheist writer and speaker living in New York City. His new novel, Broken Ring, is available in paperback and e-book. Read his full bio, or follow him on Twitter.

  • Tom

    Bear in mind that to give profit to charity, you must first extract that money from the workforce without giving them anything in return for it – that’s what profits from the passive ownership of the means of production, the company and its assets, are. (If you actually did give them something in return, like good management that actually increased the amount of wealth produced disproportionately to the increase in labour input, then fair enough – that’s not profit, but payment for work done, assuming the amount paid was actually equal to the increase in produced wealth directly resulting from your actions.) Ultimately you’d be causing others to work for charity, but not actually doing any work for charity yourself.

    Is that a bad thing? Well, it’s probably not as bad as if you kept and lived on the profit, because then you’d be causing others to work partially to support you without doing any work yourself.

  • Christian

    The company will continue whether you invest or not. Personally I think it is better that someone with an understanding of the problems the company creates, i.e. you, invests and uses the voice it gives them as a share holder. The extreme alternative investor is another with no appreciation of the problems and encourages expedient profiteering.

  • http://superhappyjen.blogspot.com SuperHappyJen

    I know there are some places that offer ethical funds, but I haven’t looked into it. Perhaps that’s worth researching?

  • http://spaninquis.wordpress.com/ Spanish Inquisitor

    …does investing in a company also make me complicit in the harm they do?

    How far removed from the economics of reality (or the reality of economics) do you feel you need to be? Does paying federal taxes make you complicit in water-boarding, or encourage the welfare system (if you oppose welfare)? Does having a checking account in a bank make you complicit in the activities of the investments the bank puts your money while they hold it for you? Does simply living in America as a citizen mean you’re an Ugly American?

    To me there’s a point where you’re removed from responsibility. But that point is personal. It’s really your comfort level that’s important, so really, it makes no difference what others think of your investments. If you can’t live with yourself because your Vanguard Fund has some Exxon stock in it, then by all means get out of it. But in this complex life, it also means that you have to be far more educated in the ways and means of investing than I’m sure you care to be. And right now your retirement is built on the assumption that you’ll put a little away now to see it grow for your future. If you don’t allow it to work that way, you’ll be the one on welfare in 30-40 years.

    “The most powerful force in the universe is compound interest”. Albert Einstein

  • Fargus

    Good post, Ebon. I’ve been struggling with my relationship to investing and the financial superstructure governing the world for a long time now, and I still haven’t really come down on where I stand on it.

    Tom’s point is quite compelling, though. What is it exactly that a passive investor is doing to earn returns? By buying a share of stock, you’ve essentially transferred the right to claim a certain share of profits from the seller to yourself. What value does that do to the company? Buying a share of stock from a trader isn’t investing in the company directly, except insofar as increased demand would lead to more confidence in the company, but simply transferring that claim on profits to yourself.

    The real thrust of Tom’s point, though, is (I think) that in this kind of model, money is seen as the ultimate driver. You need people to make stuff, but you make money from paying those people as little as possible and letting the money “work” and accrue to people who do nothing but have a couple of electrons somewhere that say they’re entitled to make a bit of money.

    It’s a real dilemma, I think. Moving capital efficiently is a generally good thing, but when the Lords of Finance get insanely wealthy simply from their proximity to money and their ability to extract fees and percentages from money that passes through their hands, I can’t help but see that as a bad thing, and as a system that has as its end nothing but more money.

  • http://journal.nearbennett.com Rick

    Your first point, that you are a part owner in the company is wrong. You don’t own stock in the company–you own shares in an investment fund. You won’t get invited to annual meetings or get annual reports for the companies who are part of that fund. And most important to your point–you don’t get a voting voice at shareholder meetings for those companies. You may have a voice in the management of the fund, but (and I’m more fuzzy on the details here) that will vary greatly by the by-laws of fund management. For an index fund they likely don’t care about your opinion about which companies they invest in.

    Regarding the question of earning money from the activities of an enterprise that you deem detrimental to society (yes, its much more complicated than that, but I’ll use “detrimental” as short-hand), you should perhaps work through a more streamlined mental exercise. For example, would you directly invest money in a pay-day lender, a business who charges very high fees for short-term loans, often encouraging/trapping customers into a cycle of recurring debt at rates that would be considered usury under any other framework. In that case, I think your refrain “but I could send those profits to fund Camp Quest!” feels hollow. By being a consumer of their stock you are voting with your wallet, saying in effect “I think this is a good business model”, supporting the demand side of the supply-demand for that stock, helping its price stay at the current level (or increasing if you have that much to invest), which almost certainly benefits the principle actors in the company.

    All that being said, I’m feeling like a bit of a hypocrite, because about 1/3 of my retirement portfolio is in the Vanguard 500 fund. So I’ll retreat to Spanish Inquisitor’s position above–I’ve abstracted myself away from those issues. The question of the business practices for those 500 companies is way to gray and complex for me to work through, so I return to the fact that investing in the fund is a better way to earn money than storing it in any “safe” vehicle.

  • Peter

    Sounds like you are trying to rationalize earning interest.Which is part of the exponential unlimited growth on a finite planet “economy”that is destroying our planet.
    Any interest earned results from some sort of destruction or death on our planet.
    No way to get around that,we have exceeded the carrying capacity of the earth may times over.
    However on a personal selfish level…I don’t want to run out of money and starve in the streets either,so yeah..I’m looking for higher returns too.
    It’s always bothered me…I never bought houses to flip…I didn’t think it was moral to make money for nothing on housing.
    It’s a conflict too be sure.

  • http://sacredriver.org Ash Bowie

    My wife does PR for a non-profit that is dedicated to ending investments that help enable genocide: http://investorsagainstgenocide.org/

    JPMorgan Chase is one of the biggest investors in PetroChina, which provides revenue to Darfur. There is a big push right now to try to get them to disinvest, but they probably won’t.

  • http://www.politicalflavors.com MissCherryPi

    I know there are some places that offer ethical funds, but I haven’t looked into it. Perhaps that’s worth researching?

    Yes, there are a lot of them. The Sierra Club sponsors green mutual funds, but I don’t know anything about them. A good portion of my 403(b) is invested in the Vanguard’s “socially responsible” fund, but a lot of that is invested in banks (and Apple and Google). Is it really that much more moral to be invested in Wells Fargo than Exxon? I’m going to say marginally. I sought advice from a financial planner when I did this and have a few other investments to balance it out. It’s something important to me and I’m happy with it.

  • http://kagerato.net kagerato

    Firstly, Rick is correct about an important fact here. Owning shares in a mutual fund, index, or similar financial device is not equivalent to stock ownership. This is mostly significant only for small or moderately sized public companies, though. All of the major oil companies and banks are so large that even if you invest all of your disposable income every year on purchasing stock, you still won’t have a voting influence within your lifetime. Trying to change one of these behemoths that way is a fool’s errand.

    Secondly, stock ownership generally has mutated into a bizarre, speculative, and rapid turnover market — and this has distorted its original purposes. Buying a stake in the company ought to be primarily a financial vote of confidence in the mission and methods of that organization. You’re helping to raise capital and confidence by doing so, and having owners who are unwilling to sell cheaply also increases the public value of the company. Purchasing stock only to turn around and sell it at the nearest opportunity for a profit has always seemed to me one of the shallowest and most self-centered financial decisions someone could make.

    Thirdly, Spanish Inquisitor is quite right that it’s precisely a matter of levels of indirection. Even if you don’t trade stocks directly, or participate in any of its derivative markets, there are still indirect ways in which the collective social body containing you is having an impact. It’s much the same as the huge non-voting block; just because you don’t cast a vote doesn’t mean your (in)action had no effect. If you want to play civil disobedience with regard to the stock market or anything else, it’s insufficient to merely extract oneself. That is child’s play. The real question is whether you can organize enough people to have a meaningful impact on policy and general behavior.

    Fourthly, the fact that interest rates on savings accounts, certificates of deposit, and so forth are in the gutter is because the economy is still quite poor and banks are still on relatively weak financial ground even after their massive bailout. This can be forcefully fixed if the Federal Reserve were to raise its base interest rates, at significant risk of weakening the economy over the short term even further.

    Fifthly, investments in huge, well-established companies do little to create new jobs and nothing of note whatsoever to address the interest rate issue. The investments that truly need to made in regard to job growth are largely in small to medium sized companies, many of which pose very significant risks. (Though, one should note, the potential return off investing in the next Microsoft or Google is massive.)

    Sixthly, there are people who can consistently beat the market over the course of several years or even a decade. They are the insider traders, crooked bankers, pyramid scam artists, and insurance companies.

    Finally, there is no certain future and many actions in the financial sphere have compound, derived, or rolling impacts which don’t appear obvious until it’s already too late to stop them. That’s not so much a criticism of any particular actor; rather, it’s a criticism of the complexity of the system itself.

  • jane hay

    Been there, done that. The last time I invested in a “green” fund was in 1999, just in time to nearly lose it all in the tech crash. Who knew that a green fund was mostly in tech stocks? They mostly are invested in banking and financial firms now. So you are “supporting” teh banksters, I guess.
    What Rick said is right – you are NOT a true stockholder. In order to do that you have to buy the stock “direct”. My husband and I own shares in Dominion Power – great stock, pays dividends (or you can set it up to reinvest if you want) and you DO get voting proxies in the mail on which you can express yourself (not that they pay any attention to holders of less than millions of shares, but whatevah).
    And what Kagerato said.
    We are resigned to laddering CDs and getting almost no interest for the remainder of the Great Repression. I’ve also done some personal “microfinancing”, friends who lived on a cash basis and couldn’t get a car loan at less than 20%, which went OK for a couple years, and then went bad because the family encountered the usual mix of working class crises and are now unemployed. Oh, well, live and learn.

  • Fargus

    What everybody’s saying is correct: owning a share of an index fund is not the same as owning stock. Of course that’s true.

    But isn’t it the case that supporting the fund that buys those stocks encourages demand for those stocks, driving up their price and ultimately having a similar impact on them? I mean, if you invest $1000 in one stock it has a bigger impact than that $1000 will have distributed over a whole index fund, but the principle is still the same.

  • Keith

    You just have to draw a line somewhere. No choice is going to be completely perfect.

    We all do things every day that consciously or unconsciously support industries or companies whose behavior or philosophy we disagree with. You do the best you can and try to not provide more “aid and comfort to the enemy” than you have to in order to get by in this world.

    I’m vegetarian but not vegan. I “think” some of the steps the other option would require of me (such as oil-derived vinyl instead of leather) are actually worse in the big picture. So I try to minimize my use but won’t worry about the times that I do.

    Jello Biafra gave a talk here a couple of years ago and made the point (in essence) that if you try to be wholly pure in your efforts, you likely end up in financial straits that require having share an apartment with people you hate and being unable to do the important things you could have otherwise done in this life.
    As he said, “just try to not work FOR ‘them’.”

    In the financial regard, I scan over my mutual fund list and see a lot of companies that are not evil. I can live with there being a few on the list that I try to NOT support in other aspects of my life.

  • http://www.laughinginpurgatory.com/ Andrew Hall

    My wife and I have had… discussions on this topic. She is currently happy with our ethical portfolio.

    *NEOP (Neoprobe) has been very good to me.

  • Mark V

    How would buying the stock of these companies be worse than merely being a citizen of the US? Can you actually quantify it? You aren’t actually buying the stock from the company but rather from other sellers, so the money doesn’t actually go to the company. Our economy is dependent on these companies and government policies are tightly tied to and supportive of these companies. As a result your everyday activities almost certainly support them. It’s virtually impossible for you not to. Did you ever stop to think how your original savings account earned such high interest? It certainly wasn’t out of the kindness of their hearts.

    You can make the case that you are complicit in their actions by investing in their stock. But are you really any more complicit than merely living in the US, voting (for any mainstream party) and living a typical US lifestyle? There are many things in my life that I would be concerned about long before my investments.

  • Eurekus

    The way I see it, if you don’t have a share in a company, your voice is generally ignored. Since the board of directors are answerable to the share holders, it’s a good thing to invest in any company and exert the influence your share demands. After all, even if the company is an environmental vandal, it’s reason for existence is still required for our modern human operations.

    There are exceptions though, I wouldn’t invest in a cigarette company.

  • Yahzi

    It would be better to invest in ethical companies.

    But it would be best to have government policies that forced all companies to an acceptable minimum level of ethics.

    So the real solution is political change… and that requires money.

    I agree with Mark V and others: how you vote is far more important than how you invest. (Unless you’re investing enough to affect the market. Which you aren’t. Unless you’re secretly Warren Buffet.)

  • Enriqo

    Arg! Lost my post due to browser crash. Not retyping it all as tactfully as I did before.
    1. Return on investment capital is not unearned. It IS ethical. For those who don’t think that people should be able to earn returns on purely capital investments… You need to spend as much time developing rational, reality based views on economics as you do religion.
    2. Beating the market does not require fortune-telling or fraud. It merely requires more rational, objective research into your investments than the average investor. A little luck helps, but the market is NOT a game of chance. If you think that, and blindly invest money based on companies that make you ‘feel good’ then you are just throwing your money away.
    3. Forced “ethical government intervention” is a contradiction. The more the government interferes in truly free markets (aside from preventing force or fraud), the more it distorts said markets and hurts EVERYONE. Note well that our markets are far from free, and it is precisely government intervention (especially through actions of the Federal Reserve) that got us into this mess.

  • Brett K.

    I’m not confident of my own ability as a trader, and I don’t believe that anyone can consistently beat the market, since that would imply an ability to predict the future.

    You’d probably be surprised to know that most of the giant banks beat the market nearly every day. A neat little tidbit from that article:

    Goldman Sachs’s performance beats Morgan Stanley (MS), whose traders lost money on three days and made more than $100 million on 10 days, according to a filing yesterday. It falls short of JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC), which both reported zero days of losses in the quarter.

    Also interesting is the 60 Minutes piece on speed traders. Just wanted to point out that beating the market every day is par for the course in much of the financial sector, it seems.

  • Boz

    I have no idea about the ethics of your situation.

    many(?) public investment vehicles offer “Socailly Responsible Investing”. SRI. All this does is avoid investments in shares of companies that produce cluster bombs, tobacco, etc etc

    this might be an option for you to consider.

    Your superannuation (401k) might offer this also.

  • Tom

    I hate it whenever it is said that someone “made” a hundred million in trading. Shifting wealth about does not directly create more wealth; the people on the production line being paid pennies do that. The word “extracted” would be far nearer the mark. The morality of such profit extraction is debatable, but it takes real gall, in my book, to say that in doing so you “made” anything.

    “When the time comes to review thy life, with the Master Builder afore thee, and the question is asked: ‘what hast thou built’, what will thee say?”

  • Enriqo

    I hate it whenever it is said that someone “made” a hundred million in trading. Shifting wealth about does not directly create more wealth; the people on the production line being paid pennies do that. The word “extracted” would be far nearer the mark. The morality of such profit extraction is debatable, but it takes real gall, in my book, to say that in doing so you “made” anything.

    To Tom and anyone else that believes this,
    I strongly encourage you to educate yourselves on the reality of investment (and economics). Nobody is forcing production line workers to hit whatever button they are hitting. They are completely free to pursue another line of work where they can contribute more value, and thus EARN greater pay. Because nobody is holding a gun and forcing them to work in a free society, they’ve chosen a job on their own that exchanges the value of the wage for the specified value of the worker’s efforts. The mindless action of pushing a button or pulling a lever does not add much value to an end product, and is compensated accordingly.
    If you think that merely shifting wealth around ‘extracts’ money, I’d LOVE to see you start ‘shifting, and observe the results. Seriously, if you think it is as simple as that, put your money where your mouth is. You’d go broke as fast as you could ‘shift.’ Wealth IS made when an investment action is followed by expected results. You will quickly discover that there is a tremendous amount of intellectual work and effort behind such moneymaking. And there is far too little space here to go into why investment adds value… You really ought to read up on the realities of these actions.

    Spend at least as much time on discovering the reality of economics as you did discovering the truth about religion. There is only one true reality, and made-up beliefs can only steer one wrong when applied to this reality.

  • Fargus

    Enriqo, I feel like you might have some more luck convincing people if you didn’t come off as a total tool every time you entered a comment. There’s a legitimate difference of opinion here, but your calling everyone idiots who doesn’t share your opinion doesn’t help your case.

    I don’t disagree, for instance, that allocation of capital which allows a business, in turn, to invest and fill a market need and produce something of value, is a real benefit to society. Of course that much is true. The concern here is that trading stocks isn’t allocating capital to the businesses represented by the stocks. It’s making bets on the future value of the stock, or the dividends, or stuff like that.

    Moreover, in the world of finance, remember that this is people betting largely with other people’s money. There has been lots of talk about moral hazard with regards to bailouts, but less about the moral hazard of the institution as it exists in the first place, since traders largely don’t have any exposure to the ups and downs of the market and make their money based on percentages of volume traded.

    Also, if you think that the market isn’t a game of chance, then you have probably been asleep for the last 5 years.

  • Enriqo

    I’ll admit that I came across as combative, but this is a comment section where there is no guaranteed discourse with the above posters. And, frankly, I’m appalled by distortions intentionally propagated by class-warfare hacks that result in dangerous misconceptions among the majority of people. It’s hard to tell who is intentionally lying, who has fallen prey to these lies by failing to do even a bit of personal research, and who just has no intention of thinking for themselves. I guess I am biased by my own personal experience in that I assume most atheists have come to that conclusion through research, logic, and rational decision making. I strongly encourage people to apply those same principles to the rest of their lives.

    Stock ownership- Just imagine if everyone wanted to sell a particular stock, and nobody wanted to buy… Just continue the analogy of capital allocation to its logical conclusion.

    Trading with others money – Consider the real value that these traders contribute. Would you rather force everyone to choose their own trades? Why is specialization good for agriculture, manufacturing, widget making, etc., but specialization in investment a moral hazard? Nobody is forcing anyone else to use a specialized trader. People choose to do so due to the value they add. If you don’t think traders have exposure then I don’t think you have fully considered the position.

    Market chance – Obviously there are elements of chance in the market, but it is NOT anything close to a game of chance. Consider the fact that some people made BILLIONS off of the market crash by SCREAMING FROM THE ROOFTOPS that the housing market was in an unsustainable bubble and certain to crash (and then investing based on this knowledge). There are books and articles on it that were published before the collapse. However, most people irrationally thought that this was impossible, and called those people crazy. You have others who accused those people of being un-American, unethical, evil…. When all they did was identify the reality of a situation, and act accordingly. They didn’t cause the crash, the crash was inevitable due to the irrational decision making of others OUTSIDE of the finance world.
    By claiming that it is a game of chance, you are discounting the value of reality. The value of research into a company. The value of identifying strengths and weaknesses. Companies do not succeed or fail solely due to chance. There are REAL reasons that a company performs well or poorly.

    Shit, there are still people who refuse to face reality right now in this country. For example… the dollar is being devalued to near nothing right now in real terms by a frightening increase in the money supply, and it only maintains much of the value it does have by its status as a reserve currency. What do you suppose this means, long term? Invest accordingly…

  • Fargus

    I think you seem to have come to the conclusion that the only conclusion that can be reached by logic, research and ration decision making is yours. That leads me to the conclusion that you’re not worth talking to.

  • http://kagerato.net kagerato

    They didn’t cause the crash, the crash was inevitable due to the irrational decision making of others OUTSIDE of the finance world.

    Ahem. The financial sector was not responsible for the 2008 crisis? No responsibility?

    Pardon me while I laugh all the way around the block.

    Most likely you will not get any serious responses, Enriqo, when you can say something like this with a straight face and yet claim that you are basing your statements on facts or research.

  • Enriqo

    Ahem. The financial sector was not responsible for the 2008 crisis? No responsibility?
    Pardon me while I laugh all the way around the block.
    Most likely you will not get any serious responses, Enriqo, when you can say something like this with a straight face and yet claim that you are basing your statements on facts or research.

    The ‘they’ I was referring to are specifically the people who bet against the housing market (by shorting mortgage backed securities, etc.). At no point did I claim that the financial sector _as a whole_ bore no responsibility for the crash. But what responsibility DO they bear? Let’s not just blindly blame them without an understanding of what happened.

    Careful analysis of the bubble reveals a perfect storm of market manipulation by the government in both housing and financial sectors that inevitably led to the crash. Growth in the housing sector caused by artificially low interest rates, government subsidization of housing purchases, explicit government backing of mortgages (reducing risk of a defaulted mortgage to near 0), government mandated lending requirements to lenders, and MORE all essentially drove up demand for housing. Due to government policy, buying a house became a cheap, nearly risk free venture for both families and banks. Demand for housing then increases. What happens when demand for housing is higher than it would otherwise be in a free market? Its growth becomes unsustainable. The increased demand for houses also increased demand for property, laborers, supplies, development companies, etc. Over time many REAL resources were re-alloted to supply that demand. In some places where property was scarce, prices skyrocketed. In other places where property was more plentiful, way more houses were built than were needed. Some people bought more house than they could afford because they speculated that prices would continue to rise. Some people bought a house because it was so damn cheap to do so. Meanwhile, banks were eager to supply mortgages to meet increased demand because the government backed the risk of default. So what happens when the government says “we will bail you out if they default” ??? Lending standards go down, and banks start loaning to anyone. The funny thing is, you heard (and still hear, unfortunately) people saying that this is a GOOD THING, because it allows more people to ‘realize the American dream’. This is nothing other than a refusal to face the reality of the situation.

    This was all MALinvestment, which eventually must be unwound. Worst of all, we’ve now created a precedent, that some financial firms are ‘too big to fail.’ In reality, this government assurance reduces their risk of consequences, which INCREASES the risks that they are willing to take. It also increases the costs and barrier to entry of smaller firms, firmly cementing the large guilty parties at the top. Some firms messed up, and they deserved to suffer the consequences, not to be bailed out. But now that we DID bail them out, where does the guilt end?

    We are now stuck in a terrible situation, where the government is preventing the economy from correcting itself. Rather than allowing the housing market to return to normal, it attempted to keep the market overheated by introducing the First Time Homebuyer Credit, which intended to increase housing demand by tapping into the ‘unhoused’ market. Not only did this cost billions, but it served to keep housing prices up higher than the market could support. It has also kept interest rates at record lows. It’s increased the money supply, increasing inflation, and decreasing the real value of the dollar.

    The failed idea is that government bureaucracy can anticipate the needs and desires of a mass of individuals and alter their demand accordingly, without consequences. This idea gives some the hubris of thinking that government can perform surgery on the economy with the fine tuning of a scalpel. This is simply not the case.

    What a nightmare…

  • Fargus

    Idiotic. You talk about the housing bubble without mentioning securitization and resecuritization of the underlying assets, and the fact that mortgage originators had no incentive to make sure the mortgages were good because they were just going to sell them off the next day. You make no mention of the spectacular failure of the risk models that sent the AAA rated securities and their first and second order derivatives into toxic-asset land.

    Your comment reflects nothing but your sincerely held belief that government is the ultimate bad guy (seriously, you used the word eleven times in that last post). Your claim that you’ve come to your position because of facts and logic looks sillier and sillier with every word you post.

  • Enriqo

    Actually, I did address the underlying issue of your point. Detailing the minutia of how exactly the mortgages were packaged and resold, or that they were risky loans is of secondary importance when you realize WHY it happened. Did you just completely skip over where I addressed this? Why would a bank care about how risky the loan was when the government was practically begging them to make it, and then backing the risk at the same time?

    Speaking of which, I’m glad that you were able to count the word ‘government’ 11 times in a nearly 600 word post on the economic collapse, though it shouldn’t surprise you considering the topic. I also used some form of the word ‘house’ 16 times and the word ‘market’ 7 times. I wasn’t worth talking to before, but now you want to count words and call me idiotic? Riiiight.

  • Dark Jaguar

    This is the sort of thing that’s just beyond me, in just about every way. I hear “make your money work for you” often, but it has no meaning to me, or anyone I know. Investing and such isn’t a gamble I can afford to take. Keeping money safe just long enough to pay for the necessities, and internet access, is basically the long term plan. For my friends and I, investing is what people with free time and enough extra cash on hand do. To us, if someone can afford to invest, they’ve got no worries in life, at least no real ones.

    The above paragraph, as I read it, comes across pretty insulting. I don’t mean it to be that way. I only wish to describe that perspective. To be clear, I’m not poor, nor are my friends. We can afford a place to live, food, utilities, and even the occasional fun thing like a book or movie, or internet access. We’re middle class basically. What I mean to say is that investing is above me in both the sense that it’s completely outside my lifetime experience (about everything I know of investing comes from commercials about cell shaded weird people and the movie Wallstreet, and the occasional news item on CNN about someone who made it rich investing in Google or something), and also that it’s completely outside my ability to actually do it. To put it in perspective, I know for a fact that in the long run, replacing my car with a hybrid or the newer electrics would save me a lot of money. However in the short run, I can’t afford to buy a new car, even if I knew it would make me a millionaire to do so. That’s normal I believe. Most people aren’t avoiding making the upgrade out of some stubborn addiction to gas or fear of the unknown, or even ignorance of the long term benefits to themselves directly. Most people know all this and just can’t do anything about it, literally unable to afford to save money.

  • Enriqo

    This is the sort of thing that’s just beyond me, in just about every way. I hear “make your money work for you” often, but it has no meaning to me, or anyone I know. Investing and such isn’t a gamble I can afford to take. Keeping money safe just long enough to pay for the necessities, and internet access, is basically the long term plan. For my friends and I, investing is what people with free time and enough extra cash on hand do. To us, if someone can afford to invest, they’ve got no worries in life, at least no real ones.
    The above paragraph, as I read it, comes across pretty insulting. I don’t mean it to be that way. I only wish to describe that perspective. To be clear, I’m not poor, nor are my friends. We can afford a place to live, food, utilities, and even the occasional fun thing like a book or movie, or internet access. We’re middle class basically. What I mean to say is that investing is above me in both the sense that it’s completely outside my lifetime experience (about everything I know of investing comes from commercials about cell shaded weird people and the movie Wallstreet, and the occasional news item on CNN about someone who made it rich investing in Google or something), and also that it’s completely outside my ability to actually do it. To put it in perspective, I know for a fact that in the long run, replacing my car with a hybrid or the newer electrics would save me a lot of money. However in the short run, I can’t afford to buy a new car, even if I knew it would make me a millionaire to do so. That’s normal I believe. Most people aren’t avoiding making the upgrade out of some stubborn addiction to gas or fear of the unknown, or even ignorance of the long term benefits to themselves directly. Most people know all this and just can’t do anything about it, literally unable to afford to save money.

    Dark Jaguar, I completely understand that sentiment. If you have no experience in investing, and only go off of what you see in movies or on the news, it can be a frightening thing. Without a lot of free time, it can seem overwhelming.

    Fortunately, though, investing is not ‘gambling.’ You do have a choice as to how much risk you would like to take on, and are perfectly free to choose very low (or no) risk investments. While lower risk investments are likely to give you a lower return than higher risk ones, you should understand that any money that you are saving in CASH is only going to LOSE VALUE over time due to inflation. In fact, even any CDs that you get now are going to LOSE value against inflation over time. If you have the option at work, I STRONGLY recommend contributing to a 401(k). If you don’t, you should stop by your neighborhood broker (Edward Jones, for example) and at least set-up a sit down discussion. An IRA or a 401k is an absolute necessity for nearly everyone. Trust me, it is only COSTING you money to avoid doing this. Similarly, I avoided changing my own oil in my car for years because I didn’t know what the heck I was doing and was scared I would somehow mess up my car. I figured it was worth it to let someone else do it. Then a friend showed me that it was so easy a blind monkey could do it. I stopped paying $40 for my oil changes and started doing it myself. Full synthetic for $18 or so a change now, and I go 10,000 miles.

    You DON’T need a lot of savings to start making your money work for you. There are calculators on the internet that will show you what saving even a few percentage points of each check can do for you. It is dramatic.

    Also, there are many calculators on the internet that you can use to look up the long-term costs of hybrid and electric cars. These vehicles absolutely do NOT save you money in the long term. Furthermore, their environmental effects extend beyond the elimination of oil based fuel, as I believe the production and eventual disposal of their batteries has been shown to have some pretty nasty effects. Not sure on that, but check it out.

  • Fargus

    Actually, Enriqo, you didn’t discuss the stuff I mentioned. Your post says, in 600 words, “It’s the eeeeeeeeevil government’s fault!!!!!” You didn’t mention ratings agencies, risk algorithms, unregulated markets making it impossible to tell who actually owned the underlying assets in the first place, etc. Your whole post was just a screed about how everything is the government’s fault.

    I’m more than willing to accept that there’s some complicity here in government policy. For instance, the rhetorical and real policies that pushed an “ownership society” pushed people into home ownership when they really ought not to have done so. Fannie and Freddie were operating with an implicit (not explicit, as you claimed) government guarantee, and so were probably more reckless than they ought to have been, but they were largely following the market and weren’t the driving forces behind the collapse.

    This is a large and complicated issue. To boil it down to the government being wrong in everything they do betrays a libertarian fundamentalism in you that believes what it believes regardless of the actual facts of the situation.

  • Tom

    Evidently, Enriqo, you commit what is, to me, the biggest flaw in objectivist/ultra-libertarian thinking, in that you apparently refuse to recognise the possibility of economic coercion. A production line worker is always free to go somewhere better if he’s exploited too much? His boss isn’t forcing him to work at expolitative rates? Utter nonsense, predicated on the baseless assumption that somewhere better will always both exist and have room for more people (this may have been somewhat true for millennia, back when there was still plenty of unclaimed land and resources all over the planet, and hence why the mindset is more prevalent in countries such as the USA, which were colonies with extant frontier much more recently than others, but it’s not true any more); also not too many steps away from the nutty objectivist argument that, if you’re poor and starving and in lousy work, all you have to do to solve your problems is become a millionaire! The market forces you yourself believe in, in fact, practically guarantee that any other job in the same field will be just as bad. The employer is one contributing factor to that market; but just because he’s not solely responsible, because all the other employers do it too, doesn’t mean he can renounce all responsibility altogether. It’s disturbing how many people I’ve met who insist this is the case in economic situations, and thus none of the exploitative employers have done any wrong, but who wouldn’t hesitate to condemn all the participants in, say, an execution by stoning. But the renunciation of partial responsibility, and collective responsibility, has been a problem for ages, and many have tried in vain to end it. Ever seen An Inspector Calls? It’s the core of Priestley’s entire argument throughout the work.

    And kindly don’t accuse me of ignorance on the matter of economics. There’s an enormous amount of material available, and I’m endeavouring to educate myself on the subject – I don’t know the whole of it, but I don’t know nothing. The fact that I happen to use a different model of the system to yourself (the labour theory of value), which seems eminently more sensible and also extremely rigorously derived, does not mean you can simply dismiss me as ignorant (unless, of course, you have a disproof of the validity of the labour theory of value?)

    Your disparagement of unskilled production line workers as being of extremely low economic importance also disgusts me, not least because my argument applies equally to skilled labour.

  • http://www.daylightatheism.org Ebonmuse

    Thanks, everyone, for your opinions. I have to confess to a potentially major source of bias: so far, my investment has done very well. Nevertheless, if there was a clear and overwhelming consensus that I’ve done wrong, I’d have to rethink my decision, but I don’t think there is.

    @Spanish Inquisitor:

    How far removed from the economics of reality (or the reality of economics) do you feel you need to be? Does paying federal taxes make you complicit in water-boarding, or encourage the welfare system (if you oppose welfare)?

    To some small degree, yes. The point is well taken (also made by Keith at #13 and Mark V at #15) that you really can’t escape complicity – and the truth is that just by paying federal taxes, I’m probably doing more to support some of these companies than I am by investing in them. I could aim for perfect ideological purity, but all I’d achieve is a guarantee that I’d never accomplish anything of significance.

    @kagerato:

    Owning shares in a mutual fund, index, or similar financial device is not equivalent to stock ownership. This is mostly significant only for small or moderately sized public companies, though. All of the major oil companies and banks are so large that even if you invest all of your disposable income every year on purchasing stock, you still won’t have a voting influence within your lifetime. Trying to change one of these behemoths that way is a fool’s errand.

    Also a good point. It’s true that I don’t directly own any stock by investing this way – but if one of these companies was (is) doing something I couldn’t stand, as a paying customer, I could lobby Vanguard to disinvest in them. The chances of actually having an impact that way are near zero, but then again, that would still be true even if I bought the stock myself.

    @Brett K:

    Just wanted to point out that beating the market every day is par for the course in much of the financial sector, it seems.

    I’ve seen those stories, but I’m skeptical. As far as I know, the inner workings of these investment firms are pretty opaque. Do they make money by actually predicting how the market will move? Or, as Fargus (#5) says, is it just that that they reap percentages from so many transactions, they’re virtually guaranteed to profit no matter what happens?

    @Enriqo:

    Note well that our markets are far from free, and it is precisely government intervention (especially through actions of the Federal Reserve) that got us into this mess.

    Hah, no. It’s true that the government (in particular Alan Greenspan, libertarian and Randian extraordinaire) contributed to this mess by keeping interest rates far too low despite clear evidence of a speculative bubble. But the idea that a wild orgy of irresponsible lending came about because of government policies is just willfully misreading history. Here’s a link to an earlier comment of mine on the subject.

    For example… the dollar is being devalued to near nothing right now in real terms by a frightening increase in the money supply, and it only maintains much of the value it does have by its status as a reserve currency. What do you suppose this means, long term?

    It means that, for once, the government is doing the right thing and helping the economy recover from recession by stimulating demand via deficit spending and keeping interest rates low. Just look at that soaring inflation rate! If the dollar is being “devalued to near nothing”, why is it that the interest rate on Treasury bills has stayed consistently near rock bottom?

  • http://www.skepticmoney.com Phil Ferguson

    I have been providing investment advice for 16 years and using the Vanguard S&P 500 is a great choice. If you want a little more diversity (and exposure to small and mid cap stocks) you could use the Total Stock Market index. “ethical”, “green” or “religious” mutual funds have a strong record of underperformance and I generally suggest they not be used. You would be better off to make the extra money and send it to Camp Quest. Go Team beat PZ!

    If you want to know more about index funds I suggest reading “Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition” (2009) by John C. Bogle. He is the founder of Vanguard and does a great job of explaining index funds. From pages 166-167, only 5% of funds beat the market by more than 1%(1983-2008) and some of that may have been due to chance. From pages 170-173 Index funds are actually better than they appear because the above comparison does not include the effects of: Sales Charges, Under performing funds that are liquidated, taxes and the reduction in stock specific risk. When all of these factors are considered only 1-2% of mutual funds beat the market by more than 1%.

  • Enriqo

    Thanks for the ‘earlier comment’ link to your post a few years ago. I just finished reading the whole thing. It’s good to know that there are people here with viewpoints besides your own. It would be easier for me to justify keeping you on my ‘Atheist’ RSS feed if you avoided lumping atheism in with other, contradictory topics, but I do find value in reading conflicting opinions on morality, politics, and economics (three of my other RSS categories!).

    As to Alan Grenspan… Have you read his writings (pre and post Fed), and are you aware of the contradictory actions he took when in that position? To label him a libertarian and Randian extraordinaire, and thus implicitly associate these philosophies with the incredibly harmful actions he performed, is intellectually dishonest. The actions he took were entirely inconsistent with Libertarian/Objectivist principles. You ought to know better than that.

    As far as how well our Keynesian prescription has worked so far… Well, I’ll have to save that for another time. And inflation. But if you don’t understand that it is upon us, perhaps you should do a little googling on your own first.

  • http://she-who-chatters.blogspot.com D

    Which one outweighs the other?
    – Ebonmuse, OP

    Well, that’s just it, isn’t it? Good and evil do not cancel each other out. Singlehandedly saving a schoolbus full of orphans from certain doom doesn’t make it OK that you spit in that hobo’s face that one time (I would probably forgive you for it, but it still happened and is still just as evil). And redirecting a tiny fraction of an evil company’s profits to more noble ends doesn’t make it OK that you added to their bottom line in the first place – better to invest the same amount in charity without contributing to evil corporations, and maybe eat a little more pasta than you usually do. Being a shareholder doesn’t amount to much if you don’t use that influence to achieve actual positive ends that make the world better than it was before.

    So, comes the question: do you have a plan? Do you have concrete steps, or even a general outline, for how you will leverage those hypothetical goods into real-life improvements in the world? Will you actually be leeching their profits for the sake of undoing their evil? Or do you just want your pile of money to get bigger on its own? Do you just want to take your shot at being one of those guys at the top with all that consolidated wealth? I believe one of the most basic tenets of your Universal Utilitarianism is to minimize harm first, and then prioritize maximizing happiness. I think here that would preclude investing in corporations that do evil, even if you might accomplish some small net good by doing so (and honestly, if they’re holding on to your money in the meantime, I think that gives them more leverage than you get back in return).

    I know I’m laying it on a little thick here, but I don’t mean to taunt you. While your wallet may be better off if you invest in profitable companies, if you want to be a net force for good, you should make your decisions from an ethical standpoint first and a business standpoint second. Trying to do both equally well will simply backfire on you, in all likelihood. I have a Roth IRA, myself, and it’s invested in a lot of mutual funds with morally shady ties; but my difference is that I don’t care, I am deliberately banking on evil to fund my retirement because I think it will work because people are basically greedy and I may as well get in on it a little bit, too. Morality for me, though, is but one concern among many – is it an overriding concern for you?

    I could aim for perfect ideological purity, but all I’d achieve is a guarantee that I’d never accomplish anything of significance.
    – Ebonmuse, comment #34

    Ah, now we’re getting somewhere! So: what shall you accomplish that is of significance by investing in such companies? Again, do you have a concrete plan? Or just some fuzzy-wuzzy abstract idea of what you could do, given a whole lot of other things that will probably never happen, alleviating your responsibility and thus making this an effective rationalization?

    TL;DR version: I think that trying to turn a profit with investment money in such a way as to also be morally good for doing so is not possible in the current world as it is. Maybe check back in 20 years or so.

    As a side note, I want to toss in my two cents to suggest that it’s not this or that law in particular, but the fractional reserve system per se that causes our frantic economic turns. The laws themselves don’t amount to a hill of beans when the government says, “Look, we’ll insure you against total failure.” Sure, the FDIC makes everyone happier with letting their money sit in a bank, but then every bank has this security blanket, and now they have to maximize profits first in order to be able to afford to be the most attractive bank to individual citizens. You can get more customers by paying higher interest rates; you can pay higher interest rates by making more profits; you can make more profits by investing in shady activities that don’t add value to the system but simply get you more money for having more money to begin with; and when even a few banks act this way, the rest have to just to keep up, and so the system as a whole spirals out of control into basically the craziest thing possible. While much blame may be laid at the government’s feet for playing the fractional reserve game in the first place, we also have to look at each and every one of us who didn’t have the foresight to see that this was a mug’s game to begin with and demand that banks be held accountable by forcing them to operate without a safety net – while the odd bank will fail completely from time to time, the system as a whole will be much more stable. (Double side note: FDIC insuring individual accounts while still letting the bankers fail doesn’t help – customers themselves need to have all their money at risk in a given bank, otherwise there will still be a perverse incentive to invest in the riskiest bank for the highest potential returns, and no loss if the bank goes under. You simply can’t expect people to behave wisely when behaving unwisely stands a chance of success qua profit.)

  • Fargus

    This must just be a joke now, right? Because, Enriqo, it sounds like your logic goes like this:

    A: I am an atheist.
    B: I hold several other opinions apart from atheism.
    C: Therefore any opinion that conflicts with any of mine necessarily conflicts with atheism.

    WTF?

  • Fargus

    As far as the claim that Greenspan was no kind of Randian, that’s not even hard.

    http://en.wikipedia.org/wiki/Alan_Greenspan#Objectivism

    However, when asked about free markets and Rand’s ideas in an interview on April 4, 2010, Greenspan clarified his stance on laissez faire capitalism and asserted that in a democratic society there could be no better alternative. He stated that the errors that were made stemmed not from the principle, but the application of competitive markets in “assuming what the nature of risks would be.”

    For someone who keeps disparaging people for not doing research, you seem not to be particularly well-informed.

  • Enriqo

    As to Alan Grenspan… Have you read his writings (pre and post Fed), and are you aware of the contradictory actions he took when in that position? To label him a libertarian and Randian extraordinaire, and thus implicitly associate these philosophies with the incredibly harmful actions he performed, is intellectually dishonest. The actions he took were entirely inconsistent with Libertarian/Objectivist principles. You ought to know better than that.

    Emphasis added for those having difficulty with even basic reading comprehension.
    Then again, this won’t help anyone who deliberately ignores and distorts statements or positions. It should, however, illuminate those intentional distortions for unbiased observers.

  • Fargus

    Again, from Wikipedia:

    Although Greenspan was once recognized as a proponent of laissez-faire capitalism, some Objectivists find his support for a gold standard somewhat incongruous or dubious,[citation needed] given the Federal Reserve’s role in America’s fiat money system and endogenous inflation. He has come under criticism from Harry Binswanger, who believes his actions while at work for the Federal Reserve and his publicly expressed opinions on other issues show abandonment of Objectivist and free market principles. However, when questioned in relation to this, he has said that in a democratic society individuals have to make compromises with each other over conflicting ideas of how money should be handled. He said he himself had to make such compromises, because he believes that “we did extremely well” without a central bank and with a gold standard.

    Namely, he’s saying he agrees pretty much fully with Objectivist principles, but since the country doesn’t run according to Ayn Rand’s sociopathic vision, he couldn’t do his job that way.

    I believe the fallacy you’re committing is generally known as the “No True Scotsman” fallacy, updated in your case to “No True Objectivist.”

  • Enriqo

    You apparently refuse to recognise the possibility of economic coercion. A production line worker is always free to go somewhere better if he’s exploited too much? His boss isn’t forcing him to work at expolitative rates?

    At no point did I refuse to recognize the POSSIBILITY of economic coercion. However, that is not what is happening when someone voluntarily enters into an employment agreement. Nobody is forcing that worker to stay in their job. Nobody. They certainly aren’t being ‘exploited,’ the term often used by advocates of the Marxist Labor Theory to describe any worker who accepts a job working for someone else. Are you in a labor union or related to someone in one? That is pretty much the only place that this theory is kicked around. I understand that you won’t make many friends (and could endanger your job and even your life.) by pointing out the flaws in the theory. I would highly recommend you start reading up on Marginal Utility anyway, just don’t talk about it at work. I have three very close friends in labor unions, and I understand the dangers involved with disagreement.

    the baseless assumption that somewhere better will always both exist and have room for more people (this may have been somewhat true for millennia, back when there was still plenty of unclaimed land and resources all over the planet, and hence why the mindset is more prevalent in countries such as the USA, which were colonies with extant frontier much more recently than others, but it’s not true any more);

    The idea that someone can take (or could have taken) actions that improve their life and happiness is certainly not baseless. Take a step back and think that through for a minute. However, your idea that unclaimed land and resources are the only possible source of wealth, aside from labor, IS baseless. This, without a doubt, comes from your belief in the Marxist labor theory, and completely ignores intellectual contribution (among other things). Are you saying that someone who starts off with no property or capital can never improve their situation? Can never purchase property from others? I singlehandedly disproved this in my life.

    if you’re poor and starving and in lousy work, all you have to do to solve your problems is become a millionaire!

    … Good luck thinking that anyone really believes that. Hyperbole creates an easy target for lazy arguments, but it doesn’t improve your actual understanding.

    The market forces you yourself believe in, in fact, practically guarantee that any other job in the same field will be just as bad.

    “In the same field” will be “just as bad”? Aside from this being incorrect, those workers are free to switch fields. Or, if they truly do believe that they can create more value in a particular field, they are free to do so. Nobody is stopping them from competing. In fact, if their belief in their ability to contribute more value is demonstrably valid, they can easily find people to help them.

    exploitative employers

    Again, this is incorrect in a free society. I looked up your play. The ideas are tied up deeply in socialist theory, which has time and time again shown itself to be not only unworkable, but dangerous. Stalin, Mao, Pol Pot, and more. I urge you to count the bodies. In a society of any diversity or size, socialism follows a clear path to tyranny.

    And kindly don’t accuse me of ignorance on the matter of economics. There’s an enormous amount of material available, and I’m endeavouring to educate myself on the subject – I don’t know the whole of it, but I don’t know nothing. The fact that I happen to use a different model of the system to yourself (the labour theory of value), which seems eminently more sensible and also extremely rigorously derived, does not mean you can simply dismiss me as ignorant (unless, of course, you have a disproof of the validity of the labour theory of value?)

    I apologize for accusing you of ignorance, and I applaud your apparent voracious appetite for knowledge. I encourage you to expand your search to other theories of value, as well as exploring the moral foundations and inevitable consequences of both capitalism and socialism. It should be enlightening.

    Your disparagement of unskilled production line workers as being of extremely low economic importance also disgusts me, not least because my argument applies equally to skilled labour.

    Look, I am not disparaging the people who perform those jobs. Where do you get that? Read again:

    (Quoting myself) Nobody is forcing production line workers to hit whatever button they are hitting. They are completely free to pursue another line of work where they can contribute more value, and thus EARN greater pay. Because nobody is holding a gun and forcing them to work in a free society, they’ve chosen a job on their own that exchanges the value of the wage for the specified value of the worker’s efforts. The mindless action of pushing a button or pulling a lever does not add much value to an end product, and is compensated accordingly.

    I am merely pointing out a factual truth. They are contributing limited value to an end product. Anyone in the world can hit a button. It does not require a contribution of high value. I’ve not passed any judgement on the individual himself, only recognized a truth about their job. They are, in a free society, able to do whatever they desire to contribute value wherever they see fit. You are free to quit your job now and go work in a factory pushing buttons. However, this skill is already in incredibly high supply, and relatively low demand. If you value income, I’d recommend evaluating your own personal skill set and figuring out how you can offer the most value for equal exchange.

  • Fargus

    This has to be a troll, right? I mean, he literally responded just now with, “You poor dear, I understand that the only reason you disagree with me is that if you don’t, union thugs will kill you.”

  • Enriqo

    The formatting on my last post is a mess. I forgot to enter a few “/”s in my (blockquotes). Sorry about the confusion.

    I believe the fallacy you’re committing is generally known as the “No True Scotsman” fallacy, updated in your case to “No True Objectivist.”

    Wrong. Your erroneous statements are looking more and more like deliberate distortion more than a failure to comprehend what I am saying. In addition to numerous personal insults, you’ve accused me of not being well-informed on Alan Greenspan’s personal beliefs, with absolutely no basis. (I’m well aware of his beliefs, probably MUCH more so than you. But that was never the issue here, you only tried to make it look like it was.)

    You said:

    the claim that Greenspan was no kind of Randian

    I strongly encourage you to try and find where I made this claim. Or said that he was not an Objectivist, or believed in Objectivist principles. You won’t be able to. If I did, that might be me committing the No True Scotsman fallacy.

    What I DID say was that associating the harmful existence and actions of the Federal Reserve and Alan Greenspan with Objectivism is intellectually dishonest. Ebonmuse essentially implied that “Libertarianism/Objectivism caused this damage because Alan Greenspan believes in Objectivist principles and Alan Greenspan was Chairman of the Federal Reserve and the Federal Reserve cause this damage.”
    Despite how common this misconception is in some small circles, It doesn’t take much thought to discover that this is faulty logic.

  • Fargus

    So tell me how your post isn’t as clear an example as can be of “No True Scotsman.” You’re saying that you’re not disputing that Greenspan is an adherent to Objectivism and Randianism. What you had said (and what, incidentally, makes it entirely reasonable to draw the conclusion that you don’t think Greenspan was a true Randian/Objectivist), was the following:

    As to Alan Grenspan… Have you read his writings (pre and post Fed), and are you aware of the contradictory actions he took when in that position? To label him a libertarian and Randian extraordinaire, and thus implicitly associate these philosophies with the incredibly harmful actions he performed, is intellectually dishonest. The actions he took were entirely inconsistent with Libertarian/Objectivist principles. You ought to know better than that.

    Your claim may be true, that he isn’t really an Objectivist, but it may also be true, as I said earlier, that realities of the way the country works prevented him from being able to actually implement full-on Objectivism in a realizable way. In that sense, actions inconsistent with Objectivism would not in themselves be evidence against Greenspan’s Objectivism, or against the failure of Objectivist principles. Rather, we’d have to consider what somebody who was not an Objectivist adherent would have done in his place, compared with what he did, and what the ramifications were.

    The other fallacy you’re committing here is the same one that proponents of communism frequently throw out: “Our system would be PERFECT, but it’s never been really tried.” It allows you to maintain your holier-than-thou sense of ideological purity while deftly avoiding any accountability for the failure of your ideology in any sort of real world context.

  • Enriqo

    “Literally” – in a literal manner or sense; exactly. Usage –

    “You poor dear, I understand that the only reason you disagree with me is that if you don’t, union thugs will kill you.”

    =/=

    Are you in a labor union or related to someone in one? That is pretty much the only place that this theory is kicked around. I understand that you won’t make many friends (and could endanger your job and even your life.) by pointing out the flaws in the theory. I would highly recommend you start reading up on Marginal Utility anyway, just don’t talk about it at work. I have three very close friends in labor unions, and I understand the dangers involved with disagreement.

    You obviously know absolutely nothing about labor unions, haven’t lived in a labor union town, haven’t had to work along side them… I probably should have more accurately said something about “injury” or “property damage” rather than “life,” but the concept holds.

    Your last 8 comments have been directed at me. They’ve all contained personal insults, distortions, or nonsense.

    I hope you recognize that your actions speak quite loudly.

  • Fargus

    Of course I didn’t mean that you had literally said those words. But you literally expressed that sentiment.

    A: You have opinion X.
    B: Only labor unions give voice to opinion X.
    C: Therefore you are in a labor union.
    D: Labor unions are full of thugs who will rough you up often to the point of death for disagreeing with them.
    E: Therefore you must only hold opinion X because you fear for your life, not because of any logical reasoning.
    F: You poor dear.

    My last 8 comments have been directed at you because you’ve been spouting libertarian orthodoxy as though it’s the only logical position to take, and as though everybody else in here is betraying atheism (interesting side note: you’re basically saying that No True Atheist would disagree with YOUR economic views). I take exception to that, to the personal attack on the mental acuity of everybody who disagrees with you, and to your general tone.

  • Enriqo

    So tell me how your post isn’t as clear an example as can be of “No True Scotsman.”

    I just did. You obviously didn’t even bother to read it, because you followed up with:

    You’re saying that you’re not disputing that Greenspan is an adherent to Objectivism and Randianism.

    and then

    Your claim may be true, that he isn’t really an Objectivist,

    Contradict yourself, much? You stated this, again, Even after I said:

    I strongly encourage you to try and find where I made this claim. Or said that he was not an Objectivist, or believed in Objectivist principles. You won’t be able to.

    There’s not much sense in trying to hold a discussion with someone who cannot follow along.

    …actions inconsistent with Objectivism would not in themselves be evidence against… the failure of Objectivist principles….

    Really?

    Rather, we’d have to consider what somebody who was not an Objectivist adherent would have done in his place, compared with what he did, and what the ramifications were.

    Uhh, No. This ranks up there with some of the most poorly thought out experiments ever for the testing of an action or idea. There are such a wide range of uncontrolled potential actions that could be taken by someone different that this experiment would be FAR outside the realm of significance. You ought to brush up on statistics and Design of Experiments.

    The other fallacy you’re committing here is the same one that proponents of communism frequently throw out: “Our system would be PERFECT, but it’s never been really tried.” It allows you to maintain your holier-than-thou sense of ideological purity while deftly avoiding any accountability for the failure of your ideology in any sort of real world context.

    You are the absolute master of putting words in my mouth. I’d ask you to find where I said that, but I already tried it once with another comment you falsely claimed that I said. You’re embarrassing yourself.

  • Fargus

    So you’re not saying that Objectivism can’t fail, it can only be failed? You’re not saying that Greenspan wasn’t really an Objectivist? Your posts are so muddled and self-satisfied that it’s hard to sort out what you actually are saying. Here’s what I see.

    1) A claim that Adam was wrong to attribute Greenspan’s errors to Objectivism because Greenspan acted, as Fed Chair, in ways that weren’t consistent with Objectivism.

    1a) I don’t believe that it is at all unreasonable to read this as an assertion that Greenspan isn’t really an Objectivist. If it’s not that, then the word “Objectivist” doesn’t really have any meaning to speak of.

    2) A claim that you never implied that Greenspan is no true objectivist.

    2a) To which I would say, claims that he acted completely inconsistently with Objectivist seem to make that case pretty well to me. You’re just splitting semantic hairs here.

    3) The implication from 1 is that Objectivism has not failed in this instance because it wasn’t really tried.

  • Enriqo

    Of course I didn’t mean that you had literally said those words. But you literally expressed that sentiment.

    Wrong.

    A: You have opinion X.

    He did personally expressed opinion X. I’m following you so far

    B: Only labor unions give voice to opinion X.
    C: Therefore you are in a labor union.

    Huge logic failure here. I ASKED him if he was in a labor union, and I noted that it is labor unions that are typically the main areas where people still kick around Marx’s discarded Labor Theory of Value. I did not say that they are the ONLY ones who hold this theory, nor did I say that they are the ONLY ones who voice it. But they ARE typically the main proponents of it in spite of its economic merit. This is factual observation about the world around us.

    D: Labor unions are full of thugs who will rough you up often to the point of death for disagreeing with them.

    Again, you’ve obviously never been in a labor union, worked along side them, or lived in a largely union area. You ARE, however, putting words in my mouth. I corrected my use of the word ‘life’ for ‘property’ and ‘injury,’ though, because this kind of thing IS common when non-union workers work along side union workers, or when union-workers dissent. Your hyperbole completely misses the point.

    E: Therefore you must only hold opinion X because you fear for your life, not because of any logical reasoning.

    Never said that either. In fact, I observed his use of logical reasoning and suggested literature that he would be interested in.

    F: You poor dear.

    … really?

  • Fargus

    Really really. Your condescension practically screams.

  • Dark Jaguar

    Ebon, this is a complicated issue, but I’ll add one thing to consider. If you became an outspoken public attacker of a company’s policies, and the news pointed out you own stock in them, would this be an embarrassment? Would this be something that people would hook onto as a sign of hypocrisy, and above all, would you consider that focus fair?

    I appreciate your suggestions Fargus, but unfortunately I can’t actually put them into action. I don’t have money “sitting around becoming less valuable”. It’s sitting around for perhaps a month at most before being spent. I don’t have a stock of capital that I am free to spend on whatever I wish. Most of what I save is only saved for inevitable random emergencies that crop up every few months. I’m afraid I simply can’t afford to start investing in anything, because whatever money I could potentially make, it isn’t usable in the long period of time it would have to be unavailable.

    The only other thing I’ll note is I’m really not free to just pick a different career path. I’ve only got one skill set, and don’t have the time or money to either train myself in something else or invent something entirely new. Further, even if I did train in my off-time, how would I prove I did? My resume would show no history of ever working in this other field, so I’d hardly be first pick to be hired by anyone. Attempting to throw myself randomly into some other field would be absolutely wreckless. In theory I’m “free” to do that, but in practice, I don’t have the funds to survive if it, most likely, failed. No, it’s better to simply stick with what I do. In my case, I enjoy my work. I’m lucky there. Many I know don’t, but it’s not like they have any options.

    If you’re willing to foot the bill for this total lifestyle change for them, sure, your idea works just fine! If not, I wouldn’t comment on it. The reality is, you don’t seem to be able to comprehend living from paycheck to paycheck, with every decision needing to be weighed against the possibility of total destitution. I’m not saying it’s some horrible nightmare way to live, it’s just reality, but you do seem to be far removed from it due to your good fortune, at least far enough that you don’t seem to recognize these difficulties when you come up with these “solutions” to problems.

  • http://www.daylightatheism.org Ebonmuse

    Hi folks,

    A couple of things here:

    What I DID say was that associating the harmful existence and actions of the Federal Reserve and Alan Greenspan with Objectivism is intellectually dishonest. Ebonmuse essentially implied that “Libertarianism/Objectivism caused this damage because Alan Greenspan believes in Objectivist principles and Alan Greenspan was Chairman of the Federal Reserve and the Federal Reserve cause this damage.”

    I didn’t just imply it, I’m saying it outright. The market crash came about not because Greenspan was insufficiently devoted to libertarian principles, but because he was too devoted to them. He successfully opposed regulation of exotic derivatives, which played a major role in the crash, and he kept interest rates too low for too long because he believed that the market was perfectly rational and immune to speculative bubbles, and if the market wanted cheap money, that’s what the government should provide. He admitted all this to Congress in 2008:

    “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.

    I agree that Fannie Mae and Freddie Mac played a role in the crash also, by irresponsible lending to unqualified borrowers. But in this respect they were following the pack, not leading it: most of the subprime loans that failed were made by private firms like Countrywide, and never had either an explicit or an implicit government guarantee.

    Also, Enriqo, you seem to be overlooking the fact that this wasn’t just a U.S. crisis. How do you explain the near-identical market crashes in places like Dubai, Spain and Ireland? Iceland’s three major banks accumulated debt that was more than ten times the country’s gross domestic product, for truth’s sake. This obviously didn’t come about because of governments pushing people into taking on more debt than they could afford. It came about because the market fell prey to an irrational bubble where people were borrowing and lending blindly.

  • http://kagerato.net kagerato

    Ladies and gentlemen of the jury, I present Exhibit A, “Why Not to Feed Trolls”.

  • Tom

    Enriqo, explain why people are out of work if all they have to do, as you blithely imply, is choose to work somewhere.

    Economic circumstances doforce workers to work for wages at factories; because they cannot compete without the means of production the factory owners possess, they cannot go set up on their own with no capital, certainly not the colossal amounts of capital required to set up a factory, and hope to be economically viable in a free market competition with the established manufacturers. The high capital cost of the means of production presents an absolutely insurmountable barrier to entry into new industry to anyone who isn’t either already a highly successful industrialist, or able to secure a gigantic investment from somewhere (which basically requires them to invent something miraculous and new and create a new market for it, which is the full version of what I meant earlier by “become a millionaire” – but every new product will be subject to the laying off of workers as efficiency improves, just like before, so the number of people a new product will be able to support will not be as high as one would hope. Furthermore, just how many new products can society handle, or want? You may assume, or be compelled to assume in order to avoid facing the implications I’ve laid out below, that there is no upper limit to the number of new things that both can be invented and people will be willing to buy in sufficient numbers to support the manufacturer. Looking around, at the crass mountains of useless junk we peddle at each other, and the extreme, hysterical lengths we go to to desperately try and induce each other to buy them, I do not share this assumption.).

    The working class cannot easily switch fields of employment, as you so dismissively remark, for two reasons, depending on their skill level: first, it takes money to retrain, and years to do so, and more money to stay alive for those years. A skilled worker who spent ten years intensive training at one particular skill cannot simply up stakes and do something different overnight; second, as you yourself have said, the unskilled labour is very unskilled indeed, “button pushing,” and this means there is a common pool of labour between all industries, which is a problem because there is a surplus of unskilled labour – a colossal one, in fact, the result of furious industrial streamlining and automation stretching back two centuries, all with the goal of reducing the number of employees required to make product, the undeniable result of which is that, sooner or later, there will not be enough work to go around for the unskilled worker. It gets worse as you realise that increasing sophistication and automation in manufacture is making many skilled workers obsolete and thus forcing them into the ranks of the unskilled workers. This is why your assertion that work is always available to he who chooses it is utterly wrong, and why it may have been true centuries ago and for millennia prior to that, before process efficiency reached the point where the minimum number of workers required to meet all human needs is less than the total number of humans, explaining why it is so axiomatically ingrained in so many people.

    In any such system, where a fraction of the population can work to meet the needs of all, but each person can not pay for anything unless they have work, and also cannot do work without the super-efficient means of production provided by the factory owners, said owners constantly employing the bare minimum at maximum hours and withholding work from all others, insisting they go and find work elsewhere (patently impossible under these conditions) is condemning those people to starvation. This is the undeniable responsibility, that goes hand in hand with the power one gains by owning the means of production, that the capitalist class, and the objectivists and arch-conservatives who support them, steadfastly and absolutely refuse to accept, or even concede as a possibility, and in turn forces them, to try to logically disprove it, to make ludicrous, vague assertions such as that there will always be somewhere else for workers to go to earn a living. The objectivists, capitalists and other deniers of economic coercion want that power but do not want to accept the moral responsibility that goes with it. Even the peasant feudal system was better than that; though serfs were in thrall to the lord of the manner, it was fundamentally recognised, and bound up in the prevailing culture, that as the provider or withholder of virtually all means of work and indeed the director of how and when it should be done, the lord controlled whether his subjects lived or died and thus had a moral responsibility for their well-being. Capitalists of Enriqo’s ilk utterly deny this responsibility (the sociopathy of treating money as the only motivator basically requires it), despite the fact that, as the owners of the means of production that become ever more essential to economic viability, as the relative difficulty of producing a commodity without access to those means constantly rises, they are now in much the same position as the feudal land-owner; the land, of course, being the only means of production in pre-industry.

    We’re not free to walk away from a bad employer, Enriqo, because they’re now everywhere, and they own everything. There’ll be one wherever we go, and economic competition will make them all equally exploitative. One more of many barriers to “Going Galt,” of wandering into the wilderness and building a business from raw materials, is that there’s virtually no wilderness left (certainly none with any resources you could actually make something out of) that somebody doesn’t already own and will throw you off of. And I’m not a union rep or member, but based on careful economic considerations (inspired in no small part by thinking through the full implications of my first post on this thread) I’m now strongly in favour of unionisation. You may denounce union coercion with hints of overt violence and intimidation, and it may even be true, but do not deny that the real genius of capitalism is this: similar or greater amounts of coercion exist in a “free market” as far as the workers are concerned, but it’s concealed, inherent in the economic system and hard enough to perceive that people like you can deny it exists, instead of overt like in the former soviet union and other despotic regimes.

    A cornerstone of western denunciation of communism during the cold was hinged on the concept of freedom, and the notion that those controlled by the USSR had less of it, whereas anyone in the west was entirely free. Not true; in the USSR, many people accepted exploitative conditions under fear of destitution and exposure by being sent to work the Gulag, or executed; in the west, many worked under exploitative conditions under fear of destitution and exposure by having even that work taken away from them. In both cases, the people who owned the means of production were calling the shots; the ones in the west just made themselves look better because they were able to hide the coercive element and make it appear that it wasn’t an inherent part of the system (they did this because it’s inherent in traditional western ideas of property, which the alleged Communists in the USSR supposedly rejected; they didn’t need a secret police force because the mechanism of keeping workers under their thumb was already inherent in the regular police force as they simply enforced the extant property laws).

  • Nathanael

    I would say, bluntly, that it depends on how Vanguard *votes its proxies*.

    Buying stock doesn’t help a company unless you buy it at an IPO or other public offering — it just takes the stock away from someone else (and no, if an evil company makes an IPO, you mustn’t morally subscribe to it). It doesn’t even affect the price much unless you’re a huge investor.

    Money in an open-end mutual fund does actually help the fund operators, however, as they get paid partly according to volume controlled.

    As a small stockholder, voting the proxy is the only influence you actually have, apart from taking the dividends (and there I agree, better you have the money than them). You should of course vote the proxy *against* evil management and *for* the stockholder reform proposals.

    But with a mutual fund you lose the ability to vote the proxy; Vanguard is voting it for you. Is it evil to invest in a Vanguard fund which invests in ExxonMobil? Depends. If the Vanguard fund manager is voting the proxy in favor of ExxonMobil management, however, then there is a case that it is evil. If the fund manager is an activist fighting against bad managements in the style of CalPers, then it’s probably a good thing!

  • Nathanael

    “Despite that, does investing in a company also make me complicit in the harm they do? An honest answer surely would have to be yes.”

    Not sure the first comment went through because I have no brain today, so I’ll just point out that buying stock in the open market generally doesn’t actually help the company or its management. Buying it in an IPO *does*. Buying it through a Vanguard fund helps Vanguard’s management; whether it helps the company’s management is entirely dependent on (a) how Vanguard votes the proxies (write them and ask them!) and (b) whether they buy stock in IPOs/public offerings (they don’t, so don’t worry about that).

    Unfortunately I strongly suspect Vanguard management votes in favor of corporate management on the proxies, in which case owning the index fund *is* evil. :-P If Vanguard management abstains the proxies, it’s probably an improvement over having the Exxon shares owned by people who vote for management; if it exercises social responsibility in voting the proxies, it’s definitely an improvement.

    Keep it pragmatic here, this one is simple.

    There is one complicating factor; if the CEO is paid on the basis of the stock price, then buying stock on the open market boosts his pay, so that’s evil. :-) Luckily that doesn’t really happen much, although it was a fad during the ’00s.

  • Nathanael

    Oh, um, Enriqo, you’re just wrong about the causes of the financial crash. Read Naked Capitalism archives back for several years if you want to understand it. Or the FCIC report if you like.

    Precis: The causes of the crash are due to government *deregulation*, mostly promoted by Phil Gramm but pushed by Alan Greenspan and agreed to by all too many members of both parties — the CFMA is the worst of the deregulation laws. The deregulation allowed for types of gambling which had always previously been illegal (credit default swaps were specifically exempted from all insurance and gambling regulations by the Commodities Futures Modernization Act) while also allowing banks to leverage up to degrees previously illegal; this ensured that any problems would cause a giant collapse due to the high leverage and massive gambling. Meanwhile, deregulation encouraged massive Enron-style accounting frauds by removing the enforcement which used to catch them. Deregulation also allowed for massive “securitization”, which separated the power to make and renegotiate loans (held by “originator” and “servicer”) from the interest in whether the loans were any good (held by “investor”), with the obvious result that the servicer had an incentive to make bad and fraudulent loans. Deregulation also allowed the loans to be “repackaged” as if they were AAA, with the connivance of the ratings agencies, who have conflicts of interest.

    The major banks took full advantage of this to run criminal operations at several levels. The result was predictable. When they got caught they demanded bailouts and managed to avoid prison. And now they’re trying to restart all the same scams — they aren’t exactly smart criminals.

  • Samuel

    To Tom
    The wages of unskilled labor have been raising for the last 2 centuries. Only since the 1970s have they stagnated in the US.

    Additionally, jobs that are more likely to become obselecent are likely to offer higher wages. Otherwise people would avoid them. You also claim efficiency is reducing the number of jobs available… despite the fact that the US economy keeps growing more efficient and keeps creating jobs.

    Immigrants are unskilled labor and can find jobs. In fact our unskilled wages are too high if we keep on having immigration. Immigration should continue until we equalize with the rest of the world.

    Of course you will attack it as reducing the wages of workers, but you’d attack CEOs for having “unfair” wages. This is different because they don’t “deserve” their pay. Presumably, neither do immigrants, many of whom are willing to die to come to the United States.

    Finally, you offer no numbers or proof of any kind. To prove your point you need to show that labor mobility is low in the US- that it takes a long time to find a job, that there is a low amount of change over amoung workers, that workers tend to persistently work in the same jobs and that companies are price makers.

    None of these are true. I recommend a college education- they offer classes in labor economics.

    “We’re not free to walk away from a bad employer, Enriqo, because they’re now everywhere, and they own everything. ”

    Prove it. Show that it is worse now than any other time in history. Remember, until the 70s employers were free to sexually harrass their employees.

    “many worked under exploitative conditions under fear of destitution and exposure by having even that work taken away from them”

    You are an idiot. If they didn’t like it, they could go and leave for the Soviet Union (which happened during the Great Depression).

    It was the communists who had to shoot people to prevent them from escaping.

    “(they did this because it’s inherent in traditional western ideas of property, which the alleged Communists in the USSR supposedly rejected; they didn’t need a secret police force because the mechanism of keeping workers under their thumb was already inherent in the regular police force as they simply enforced the extant property laws).”

    That isn’t how secret police work. Secret police arrest people for political crimes, such as questioning the government. We know the US doesn’t have secret police equivalent in our normal police because we did have secret police during WW1 and they acted alot like the KGB.


    I’m curious why no one else but Enriqo is attacking Marx’s theory of labor. Only the person you claim is an objectivist is attacking it. But I guess rationalism only applies when attacking right wing ideas and if someone spews left wing garbage no one bothers calling them out on it.

  • Tom

    Samuel, by what measure have the wages of unskilled labour risen? Relatively, or absolutely? In terms of money, or in terms of what that money can buy, or in terms of what fraction of the goods they themselves produce that that money can buy? Furthermore, though the wages per worker may have risen, how about the actual number of workers per industry? Rising, falling, or constant?

    Your assumptions about my stance on immigration are dead wrong. I agree with your position there. I have no idea where you pulled that line about immigrants not deserving pay from. Blocking immigration is one of the more powerful tools the capitalist class currently have; as it allows them to keep the most exploited fraction of their workforce separate, both physically and psychologically, from their less exploited consumer base within their own country; this makes it harder for the purchaser to fully realise the conditions they are supporting with their custom. This is also why it is erroneous, at times of mass importation of goods and outsourcing of labour in the west, to point out that the quality of life in the Soviet Union was lower than that in the US, and hence that capitalism gives a higher quality of life, because it fails to factor in that component of the US capitalist economy that worked abroad, with a much lower quality of life, as a component of the complete economy. How the average quality of life of all people in the capitalist economy during the time of the USSR, including those in the third world and not just those in the first world countries they worked for, compared with that of those in the USSR (again, averaging both “free” citizens and gulag inmates) is a calculation I am not aware of anyone having carried out, and the result of which I would very much be interested to see. I’d not be especially surprised if they turned out to be roughly equal, but that really is pure speculation until someone works out the numbers.

    Your remark about sexual harassment is largely irrelevant to an economic discussion – by “bad employer,” and in the context of this discussion, I assumed (incorrectly) everyone would realise I meant “economically exploitative.”

    Your assertion about workers being able to leave for the soviet union during the depression is daft, for two reasons: first, intercontinental travel was bloody expensive in the 1930s; even those members of the working class who weren’t unemployed would mostly be unable to do it; second, as I remarked in the selfsame point you’re attacking, the USSR was, if not worse, then just as bad, and US propaganda was already making damn sure the workers didn’t have a rosy picture of things in the USSR by that point. Remember how it was blithe assertions, without rigorous proof, of there always being somewhere else to go if you don’t like being exploited here, that are the basis of my position in this discussion? You’re doing it.

    As for your remarks about labour mobility and so forth, you’re committing the biggest mistake an economist can make (and, in my perception, often does) – you’re talking about the overall state of the system at instantaneous moments (at times when things happened to be relatively good) and simply taking that high-water mark as an indicator of its overall performance. I’m considering general trends, based upon fundamental principles (can you deny the motive exists, in the free market, to reduce both the number of one’s employees, and their pay, to the minimum?), averaged over long periods, and what their inevitable long-term conclusion must be – you cannot refute that simply by saying things have picked up in a decade or so after a dip. Besides, as I already addressed, it is only the creation of brand new markets that really interrupts the general trend towards fewer employees, and fewer skills, per industry, and that cannot keep happening; it can only be done either by introducing new products, or expanding your civilisation into previously unoccupied areas containing new resources. Geographic expansion is pretty much impossible these days, but would still have to reach a limit at some point even if it hadn’t done so yet. There must also be a finite limit of brand-new useless junk that people will buy, or can invent. Your claim that the US is both becoming more efficient, and creating more jobs, can only be based upon such expansion of variety, which cannot continue forever. And some might even take the radical view that an infinitely increasing variety of useless junk for people to buy, in order to make work for everyone because the system is built in such a way that you cannot live without working, even on something useless and even though only a fraction of people working could produce all the things everybody really needed, may not be the optimal form of human civilisation.

  • Samuel

    “Samuel, by what measure have the wages of unskilled labour risen? Relatively, or absolutely?”

    Absolutely. I believe until 1980 in the US growth amoung all wage groups was roughly the same.

    “In terms of money, or in terms of what that money can buy, or in terms of what fraction of the goods they themselves produce that that money can buy?”

    Both. You can easily check this up. The number of the lower class who have cars and television is much higher than it was 30 years ago, even though wages for them have stagnated.

    “Blocking immigration is one of the more powerful tools the capitalist class currently have”

    Which is why they fought immigration restrictions throughout American history? And the first immigration restrictions (on the Chinese) was because foreigners were seen to be lowering American wages.

    ” This is also why it is erroneous, at times of mass importation of goods and outsourcing of labour in the west, to point out that the quality of life in the Soviet Union was lower than that in the US, and hence that capitalism gives a higher quality of life, because it fails to factor in that component of the US capitalist economy that worked abroad, with a much lower quality of life, as a component of the complete economy.”

    The US was a net exporter until 1980. Most of our trade is conducted with developed countries. The main exceptions are China and Mexico for obvious reasons. http://www.census.gov/foreign-trade/statistics/highlights/top/top1012yr.html

    “Your assertion about workers being able to leave for the soviet union during the depression is daft, for two reasons: first, intercontinental travel was bloody expensive in the 1930s…
    the USSR was, if not worse, then just as bad, and US propaganda was already making damn sure the workers didn't have a rosy picture of things in the USSR by that point.”

    Except they did leave for the Soviet Union. That was my point. If conditions were bad enough people left the United States for the workers paradise.

    Since the cost of travel dropped and people stayed in the United States, they must have found it better to live here.

    I honestly can't believe how you looked at my statement and read the exact opposite of what was written.

    “As for your remarks about labour mobility and so forth, you're committing the biggest mistake an economist can make (and, in my perception, often does) – you're talking about the overall state of the system at instantaneous moments (at times when things happened to be relatively good) and simply taking that high-water mark as an indicator of its overall performance.”

    So if it doesn't support you it must be from a high water mark? Did you even bother looking?

    I like your solution- never use numbers.

    ” I'm considering general trends, based upon fundamental principles (can you deny the motive exists, in the free market, to reduce both the number of one's employees, and their pay, to the minimum?), averaged over long periods, and what their inevitable long-term conclusion must be – you cannot refute that simply by saying things have picked up in a decade or so after a dip.”

    The entire history of modern capitalism refutes you. The long run trend has been higher wages and a higher per capita income.

    “Besides, as I already addressed, it is only the creation of brand new markets that really interrupts the general trend towards fewer employees, and fewer skills, per industry, and that cannot keep happening; it can only be done either by introducing new products, or expanding your civilisation into previously unoccupied areas containing new resources.”

    Fewer skills per industry? Do you now how many skills are involved in making computer chips? The trend has been to more specialization and more skills. What do you think the increase in college education is for.

    As for your horrible dilemma, you missed the most obvious solution- with higher productivity, employees need to work fewer hours. The thought that was what was going to happen- that people would work 20 hour weeks in the future.

    I'm also amazed you have failed to provide any evidence about how American's spend their income. Surely if it is going to crap, we'd be able to see it in the numbers.

    http://www.careerinfonet.org/indview3.asp?nodeid=47
    Note the lack of manufacturing in the top 25 jobs. Sort of shoots you argument in the foot.

    “There must also be a finite limit of brand-new useless junk that people will buy, or can invent.”

    No, there isn't. People like living. People will pay large sums of money in order to continue living. In fact, in a choice between being dead or not being dead, people will spend everything they have to not be dead.

    There is NO LIMIT to the human demand for medical technology.

    Other things that have been increasing without any clear limits- housing size, computer power and insurance. Maybe there will come a day when people don't demand any more. Human psychology argues against that though.

    ” And some might even take the radical view that an infinitely increasing variety of useless junk for people to buy, in order to make work for everyone because the system is built in such a way that you cannot live without working, even on something useless and even though only a fraction of people working could produce all the things everybody really needed, may not be the optimal form of human civilisation.”

    You always can leave. Assume you earn 35,000 a year and save 10,000. Work for a decade and you will have enough money to live a century in Rwanda (working off per capita income) or Camaroon for 50. If Rwanda is too poor you can live 25 years without working in Bolivia.

    I should note that while this countries are poor, with the money you have you should be able to buy a nice home and get running water, medical care and the like. And you expenses would be very low- most of the population lives on alot less than you do.

  • Tom

    Samuel, you are confirming my original point; that the constant drive to reduce employee numbers can only be staved off by creating new products and new knowledge. The point about computer chips actually demonstrates this. First, though smarter and smarter workers are needed as new chips are developed, the total number of said smart employees does not necessarily also increase. Hence the excess of graduates flooding the job market and unable to find employment. Second, the demand for more skilled workers (and this is more for the design of said chips, not their actual manufacture – like everything else their production is as automated as possible) only continues as long as newer technologies are developed; when the inevitable technological limit is reached and no further improvements can be made, the demand for higher skills dwindles but the drive to reduce both workforce numbers and workforce skills continues.

    Your remark about the entire history of modern capitalism is the same story, because the net trend so far has been made up of more than one component: the drive to reduce labour costs, by reducing both numbers of workers and their required skills, and the drive to expand into new markets (either physically expanding into newer geographic areas with new resources to utilise, or intellectually by the invention of new uses for extant resources), which causes an uptake of workers and often requires new skills (not that these are necessarily the same workers as were put out of work by the prior trend) – the overall trend of capitalism thus far has indeed been a net positive (but with an oscillatory trend superposed on it made up of booms and busts, and it is the working class who suffer the most during these because the capital-controlling class have become extremely adept at retaining the gains they make during the boom period but letting society as a whole absorb the resulting damage of the bust), because such expansion has not thus far been greatly hindered (this is a separate issue, however, from that of exploitation, which has happened throughout – that the average wages of the worker have increased and he can buy more now than before does not mean his employer hasn’t taken a big, mostly undeserved cut for himself by virtue of his control over the means of production – the most fundamental implication of the labour theory that you have not so much as mentioned yet). It seems you basically agree with me on this point; that physical and intellectual market expansion can indeed stave off mass redundancy and pay reduction by virtue of lower required skills (but not exploitation by virtue of ransoming access to the means of production necessary to be able to work competitively, which remains unchecked) as a result of the economic drive to minimise labour costs. Where we disagree is that you seem honestly to believe, unless you’re arguing disingenuously, that such intellectual and physical expansion is possible indefinitely, yet within the patently finite respective boundaries of the earth’s physical resources and surface area, and the human brain’s capacity to hold information. I really don’t think I can say anything to that that wouldn’t already be obvious. How you can fail to see an obvious limit to housing-size on a planet with finite surface area and an ever increasing population is utterly beyond me; ditto for computing power when it’s already well known that we’re reaching fundamental limits set by the structure of matter – you can’t make a transistor less than one atom in size. But perhaps you’re not quite as crazy as that. Maybe, though you didn’t write it that way, you believe that market expansion need only continue as long as there exist industries in which labour pay and numbers can still be reduced, and that the limiting case will be reached when every industry has been reduced to its minimum possible labour force and cost and every displaced worker has settled into a new, similarly optimised industry. That would be a reasonable position to take with regard to the mass unemployment issue, as long as you could be certain that you wouldn’t run out of new industries before you ran out of displaced workers from all the optimised old ones – and since that’s a consideration of two independent trends weighed against each other in a limit, instead of a single trend extrapolated to a limit, it’s an argument that really would benefit from some actual numbers (I notice you haven’t provided any numbers either, despite condemning me for it). In the absence of said numbers, however, I’m afraid I don’t share your evident optimism on that matter.

    I’m aware of the 20-hour week scenario, I’d probably even settle for it, but it isn’t happening; I’m curious as to why you brought this up then simply dropped it again without explaining why. In theory, everyone could do a tiny fraction of the work they do now, and feed, house and supply each and every other with all they needed if, of course, their pay for those 20 hours was sufficient to buy all the things they produced in that time. Of course, that would require employers to pay each employee the equivalent of a full day’s pay for each half-day worked, and why should they do that when they can continue to pay half as many that much to work twice as long for the same output? (not to mention, of course, that surplus extraction means they wouldn’t be able to buy the equivalent products of 20 hours work even with what their employer would call 40 hours’ pay anyway).

    Finally, we return to the old fallback argument, “you can always leave,” which can seemingly justify anything. Explain two things to me. First, how I’d be able to live for 100 years on 10 year’s savings in Rwanda, i.e. why I am apparently able to earn on the order of ten times as much as a Rwandan, if not because they are either exploited ten times as much as I am, or they are denied access to the means of production that would allow them to earn at a rate equal to mine (and without whose use elsewhere they’d be able to compete on an equal economic footing). Frankly I doubt that Rwandans are naturally ten times as lazy as me. Besides, that means I can “just leave,” but if I were to do as you propose and live on savings in Rwanda, I’d be benefiting from the ridiculous economic differential caused by their exploitation and/or denial of access to the means of production to those in Rwanda, who evidently can’t just leave – in other words, your proposed solution to my possible exploitation or exclusion from the means of production is that I should turn the greater exploitation or exclusion from the means of production of others to my advantage – basically the argument of the Randroids. Second, to echo your argument from above, if travel is so cheap (and if it was cheap in the 30s, it’s way cheaper now) and work so bad, why don’t they leave for somewhere they can earn ten times as much? Incidentally, it seems your remark about the fact that people did leave for the “workers’ paradise,” which I apparently misinterpreted through ignorance of a particular bit of historical data, actually backs up my argument just as much: sure, they were “free to leave,” except they couldn’t go anywhere where they wouldn’t be exploited again, by capital owners who just happened to be a government instead of a lot of individuals. So, once more, the “you can always go somewhere else” argument fails, because it is predicated on the assumption not only that whoever you’re exploiting is capable of leaving, but that there will be somewhere else they can actually go that isn’t run by someone who says and does the same thing, or a wasteland incapable of supporting them, and there wasn’t then and there isn’t now (though, as I have said, there was for a lot of relatively recent history in the US, when unclaimed land that you could actually stand a chance to live off was available to settlers – but even they needed some capital to get started, even if it was just the cost of the journey out there and some tools. And the native Americans who suddenly found themselves sharing that land with people whose use of it wasn’t compatible with their own probably wouldn’t be too happy about the notion that they could always just go somewhere else either.).

  • http://kagerato.net kagerato

    I largely agree with your sentiments, Tom. This caught my eye, though:

    How you can fail to see an obvious limit to housing-size on a planet with finite surface area and an ever increasing population is utterly beyond me; ditto for computing power when it’s already well known that we’re reaching fundamental limits set by the structure of matter – you can’t make a transistor less than one atom in size.

    Those aren’t hard limits. The real problem we’re facing here is a system of diminishing returns. It is possible to build farther and farther upwards, and even out into space, in order to acquire the necessary volume and/or surface area. Yet the energy requirements grow higher and higher the farther from the Earth you travel. Our energy gathering industries are having severe trouble accepting and adapting to the realities of the scarcity of fossil fuels, so it’s hard to think that energy ten or a hundred times as cheap and abundant is right around the corner.

    As to transistors, it’s not practical yet. It probably won’t be possible to have a one-atom transistor with CMOS (complementary metal-oxide semiconductor) technology. However, there are other technologies under substantial research which will likely make it feasible; quantum computing is one. The question is whether these alternative technologies will grow at a rate fast enough to make them useful replacements for CMOS. The amount of research and current progress suggests that is not the case, if you merely extrapolate from present trends. It may be, however, that they will only take off when CMOS has hit a true wall that can’t be meaningfully traversed.

    It does astound me, though, that some people really do naively extend existing trends indefinitely into the future. There are real physical limits awaiting us, even if we won’t hit them anytime this decade (or maybe even this century).

    Samuel’s idea that medicine will just proceed to infinite demand is especially humorous. When all diseases have a cure, and all medicine is dirt cheap because all the patents have expired and anyone can make pills in their backyard chemistry lab, demand will be infinite? Hah. Demand is always finite; this is trivial economics. Supply, however, might proceed toward infinity. I leave it as an exercise to the reader what that does to price.

    An economy based on demand for insurance is even more laughable. Demand for insurance is pretty weak at any given time; where this is not the case you nearly always find that either (a) there are laws mandating insurance coverage, or (b) a natural disaster of some kind recently struck. For anyone to think that demand for insurance will rise in a world where constant improvements to medicine, housing, and computing are also expected is beyond me. This is clearly a contradiction, considering the effects of the latter elements on the former. Who would need insurance when medicine is increasingly able to cure everything, houses are so large, abundant, and numerous you can afford to lose a few, and accurate computer models can predict disasters ahead of time?

  • Samuel

    I’m sorry, Tom, you seem to have forgotten to provide any evidence. There is none in your rebuttal.

    I’m also unclear how an increase in productivity is bad. Fewer employees are needed to do jobs… so the system will collapse? Marx said the same thing and 160 years on, it is still working.

    “that the average wages of the worker have increased and he can buy more now than before does not mean his employer hasn’t taken a big, mostly undeserved cut for himself by virtue of his control over the means of production – the most fundamental implication of the labour theory that you have not so much as mentioned yet”

    You are asserting this. This is just like religious faith- why should workers own factories?

    Note that, if capital owners take an undeserved cut, than worker factories should be able to offer products cheaper. However, the number of worker-syndicists is very small. It is almost as if they don’t work.

    ” yet within the patently finite respective boundaries of the earth’s physical resources and surface area, and the human brain’s capacity to hold information. ”

    Or you can build up or in space. As for the human mind, cybernetics would be a good way to do that. If you can interface with a computer, the human mind can hold alot more.

    ” How you can fail to see an obvious limit to housing-size on a planet with finite surface area and an ever increasing population is utterly beyond me; ditto for computing power when it’s already well known that we’re reaching fundamental limits set by the structure of matter – you can’t make a transistor less than one atom in size. ”

    Sure, infinite growth is impossible, if only because the speed of light. However, there is no reason to believe we are running into limits any time soon.

    For housing size, it is worth remembering that much of the planet is empty space. Aside from the ocean, much of the land cover is unoccupied as well. You can give people more living space if you build up and out more.

    For computing power, there is the goal of quantum computers. I don’t know if they will work, but I do know they are an option.

    “Maybe, though you didn’t write it that way, you believe that market expansion need only continue as long as there exist industries in which labour pay and numbers can still be reduced, and that the limiting case will be reached when every industry has been reduced to its minimum possible labour force and cost and every displaced worker has settled into a new, similarly optimised industry.”

    Yes, that is the definition of productivity- reducing the number of people required to produce a given output. I don’t see why this is bad.

    Also, we aren’t doing that for our manufacturing. We are outsourcing it, so that more people are involved in production, not less.

    “That would be a reasonable position to take with regard to the mass unemployment issue, as long as you could be certain that you wouldn’t run out of new industries before you ran out of displaced workers from all the optimised old ones ”

    Or they go into services. Also you seem to be under the perception wages and employment is fixed. One of the things about capitalism is that when prices change, demand changes.

    “(I notice you haven’t provided any numbers either, despite condemning me for it).”

    This is an atheist website mister. We don’t take kindly to strangers who reject the burden of proof.

    “I’m aware of the 20-hour week scenario, I’d probably even settle for it, but it isn’t happening; I’m curious as to why you brought this up then simply dropped it again without explaining why.”

    Because the 20 hour week presumes peoples demand for leisure is greater than their demand for goods and services at that point. There is no reason to presume that to be true.

    ” Of course, that would require employers to pay each employee the equivalent of a full day’s pay for each half-day worked, and why should they do that when they can continue to pay half as many that much to work twice as long for the same output?”

    Because that is impossible. Employers only make money by selling stuff. If they halve the amount of goods they produce, they WILL go out of business.

    “Finally, we return to the old fallback argument, “you can always leave,” which can seemingly justify anything. ”

    Once again, you completely and utterly misunderstand my argument. My point was if you don’t want to buy worthless crap, you don’t have to. You can always go to someplace poorer and live there.

    “if not because they are either exploited ten times as much as I am”

    GDP measures PRODUCTION. A low GDP per capita means you are getting very little out of the population.

    So they are being exploited by… not being worked well enough.

    “they are denied access to the means of production that would allow them to earn at a rate equal to mine ”

    Then lend money to them. If they are truly being denied the interest rate should be wrong and you will earn a profit.

    “So, once more, the “you can always go somewhere else” argument fails, because it is predicated on the assumption not only that whoever you’re exploiting is capable of leaving, but that there will be somewhere else they can actually go that isn’t run by someone who says and does the same thing, or a wasteland incapable of supporting them, and there wasn’t then and there isn’t now (though, as I have said, there was for a lot of relatively recent history in the US, when unclaimed land that you could actually stand a chance to live off was available to settlers – but even they needed some capital to get started, even if it was just the cost of the journey out there and some tools. ”

    People founded utopian communes in the US. Entire towns where the population owned the means of production as you put it.

    kagerato
    “When all diseases have a cure, and all medicine is dirt cheap because all the patents have expired and anyone can make pills in their backyard chemistry lab, demand will be infinite? ”

    Evolution- insuring there are always new diseases.

    I’m also curious as to how you think we will deal with aging. You seem to under the bizarre impression that there is a chemical cure for it.

    Finally, you have an incredibly bizarre view of specialization. Yeah, anyone could make pills in a backyard chemistry lab. Anyone could bake bread in a backyard oven today.

    Amazingly enough that doesn’t happen.

    “Demand is always finite; this is trivial economics. ”

    Show this. Now. This contradicts all economic theroy- from the Marxists to the Austrians.

    “An economy based on demand for insurance is even more laughable. ”

    Great. And if I said that, it would be a valid point.

  • Samuel

    By the way, for the idea that we are running out of goods to produce, look at the worlds largest companies.
    http://en.wikipedia.org/wiki/List_of_companies_by_revenue

    Only 1 of the top 10 is a manufacturer and only 8 in the top 50.

  • http://www.daylightatheism.org Ebonmuse

    Just as a quick note:

    “they are denied access to the means of production that would allow them to earn at a rate equal to mine ”

    Then lend money to them. If they are truly being denied the interest rate should be wrong and you will earn a profit.

    I can’t speak for Tom, but some of us already do that.

  • Samuel

    My point was about being denied access to capital. If they are truly being denied access, the net profit should be higher.

    Do you have any information about the rate of return from all microloans? What should happen is that first, people who are good risks get loans, then more people enter and money goes to people who are worse risks and the system reaches an equilibrium where the rate of return is equal to other investments.

    I’m assuming it isn’t higher than normal investment, given the fact that you wrote this post about the moral dilemma of mutual funds.

    “in oil companies like Exxon Mobil, whose activities I consider unethical and destructive to the planet, financial companies like Goldman Sachs which promote the ever-greater accumulation of wealth at the very top, and defense companies like Lockheed Martin, which have profited massively from America’s swollen defense budget and sprawling military-industrial complex.”

  • Fargus

    There is no rate of return from microloans. The only interest charged to borrowers is to cover operating costs of the microloan infrastructure. The point isn’t to help people get rich. It’s to give very poor people a little access to a little capital to give them just the tiniest leg up. You’d have to be a sociopath to want to make a profit off of those people.

  • Samuel

    There is no rate of return from microloans. The only interest charged to borrowers is to cover operating costs of the microloan infrastructure. The point isn’t to help people get rich. It’s to give very poor people a little access to a little capital to give them just the tiniest leg up. You’d have to be a sociopath to want to make a profit off of those people.

    Why is it sociopathic? Have you never heard of mutually beneficial trade? If people take out loans, it is because they think it will make them better off.

    Without interest, you insure that loans will only be given to people who have are the lowest risk (that is why interest differs- the risk of default). The poorest people in a country are not the lowest risk. From such a program, it is easy to predict that loans will only go to those who are moderately well off because they have collateral and a proven history.

    If you look at the people that the loans went to, surprise, surprise, none of them are poor! They are all moderately well off people who want to expand their business. What Ebonmuse is doing is getting money to business people so they can go from small scale to larger scale. I approve- economies of scale mean that they can now provide goods cheaper (or offer new goods), which makes everyone in the community better off.

  • Fargus

    It would be nice to have some backup for your claim that none of Kiva’s loan recipients are poor. Because, so far as I can tell, it’s pretty much the opposite of the truth. The whole point of microfinance is to provide small loans to those in poverty in developing nations to help spur entrepreneurship. Sure, it’s true that in a lot of the cases the businesses being funded existed before the microloans, but that does not in any way mean that the people being loaned money are not living in poverty and are “moderately well off.”

  • Samuel

    It would be nice to have some backup for your claim that none of Kiva's loan recipients are poor.

    First 10 individuals Ebonmuse gave money to:
    Mukhlis Bozorov-former manager of a large store. Has been selling goods out of part of the store for the last couple years.
    Edelmira Rivas Viana-has run a business for 29 years.
    Maria Emeku- has a husband who is already doing supportive wage labor (caterer)
    Mrs. Musisi Sumaya-has been selling used clothing for 3 years
    Se̱ora Ada Рhas owned a grocery store and butchers (!) for more than 3 years
    Amina Gonzales Saldaña- husband who is electrical technician
    Mirna de la Cruz García-spent last 5 years making tortillas.
    Joyce Mganga- has had a food business for the last 6 years.
    Victoria- sold kerosene for over 10 years.
    Katalina- charcoal, 2 years.

    Of these individuals, only 2 people used loans to start their business. Only 1 person was using the loan to make capital improvements- everyone else was using it to buy inventory.

    but that does not in any way mean that the people being loaned money are not living in poverty and are “moderately well off.”

    In Tanzania with a per capita GDO of 560 Joyce Mganga earns a monthly profit of 323. That makes her 7 times richer than average. That is the equivalent of a loan to a person making a quarter of a million dollars in the US.

  • Fargus

    You honestly think that that woman’s standard of living in Tanzania is equivalent to that of someone making a quarter of a million dollars in the US?

    What’s more, you haven’t at all given any evidence that the recipients of the loans are not poor. You’ve only given evidence that they’ve worked. For instance, here’s the full bio for one of Ebon’s loan recipients:

    Edelmira Rivas Viana, 57, lives in Ahuachapán with her husband, who along with her, enjoys an excellent reputation as a responsible and hardworking person. Edmelmira runs a business which sells staples such as rice, beans, oil, juice, etc, in addition to goods made of clay such as bowls or earthenware for the preparation of tortillas. She has run this business for 29 years, and is in search of a loan which she can use to invest in her business and provide greater variety in the goods that she already sells. This way she hopes to increase her sales and improve her family’s economic situation.

    What in there tells you that this is somebody who is “moderately well off”? What tells you that she’s done anything beyond subsisting for the last 29 years?

  • http://kagerato.net kagerato

    I’m sorry, Tom, you seem to have forgotten to provide any evidence. There is none in your rebuttal.

    Neither Enriqo nor you, Samuel, provided any facts or figures to begin with. No one’s going to go out of their way to provide research for you, especially when we know it will be ignored (as it always is in these stupid “debates”).

    I’m also unclear how an increase in productivity is bad. Fewer employees are needed to do jobs… so the system will collapse? Marx said the same thing and 160 years on, it is still working.

    No one said increases in productivity were bad. What was said is that an increase in productivity should translate either into higher wages or fewer hours, quite naturally. Neither has happened. In fact, the trend over the past thirty years of capitalism has been utterly stagnant to declining wages and increasing hours. Look it up.

    There is one class that has made a lot of money off of increased productivity: the very wealthy.

    You are asserting this. This is just like religious faith- why should workers own factories?

    Note that, if capital owners take an undeserved cut, than worker factories should be able to offer products cheaper. However, the number of worker-syndicists is very small. It is almost as if they don’t work.

    The simplest and most obvious reason for workers to own the company is that they produce the goods and services. They have a vested interest in success of the company, and little to no interest in profiteering. Management’s interest is only in maximizing profits and getting the hell out of dodge before the collapse.

    This has played out over and over again numerous times over the past several decades. You can’t possibly be ignorant of massive corruption scandals even when they’re all over the news.

    Your idea that workers can just start a new company if management is lavishing itself with company profits is laughable. Where are they going to get the capital? This is exactly the point you missed the first time around.

    Or you can build up or in space. As for the human mind, cybernetics would be a good way to do that. If you can interface with a computer, the human mind can hold alot more.

    Cybernetics is currently — what’s it called — ah, yes. Fiction. The kind of cybernetics you see in sci-fi films is a long, long way off yet. Our understanding of the brain is severely deficient, and none of the glorious leading firms you praise are interested in putting up the billions in funds to solve that issue. They see no short term profit in it, and they’re right. There is no personal profit in it. There’s only endless future benefit, and you’ll never convince them to do a damn thing for general society unless they’re forced to at the point of a gun.

    Expansion into space (or the ocean, for that matter) is a scheme of diminishing returns, as I already explained. You can’t do it without sufficient energy, and we don’t have it.

    Sure, infinite growth is impossible, if only because the speed of light. However, there is no reason to believe we are running into limits any time soon.

    For housing size, it is worth remembering that much of the planet is empty space. Aside from the ocean, much of the land cover is unoccupied as well. You can give people more living space if you build up and out more.

    Unless you’re simply oblivious to environmental concerns entirely, there is plenty of reason to think that we are rapidly approaching the meaningful limits of supportable, high quality human lives on this planet. Energy, potable water, usable land, and certain scarce minerals are set to hit very predictable limits by mid-century. While it’s possible that there will be some sudden and very significant technological breakthroughs to deal with these issues, betting on that is foolish.

    Given that those breakthroughs don’t arrive, and there isn’t a massive reduction in population by war or starvation, the average quality of life going forward is going to gradually fall off until the problems are dealt with sufficiently. Some people are trying to solve those issues, and others want to ignore it and proclaim that markets solve everything. Pay no attention to the man behind the curtain.

    I really like your assessment of the Earth as empty space. Apparently, there are no organisms on Earth other than human beings. Vast stretches of forest and mountains are mere “empty space”. Spectacular. The ocean is, truly, composed of empty space.

    Mind boggling.

    For computing power, there is the goal of quantum computers. I don’t know if they will work, but I do know they are an option.

    I believe I explained this already. They don’t compare to CMOS (not even close). As it stands, it’s troublesome to do even very simplistic calculations such as small scale addition with them, and they’re inordinately expensive. The current trend is showing that this won’t be fixed any time soon. I find it unlikely that this will change in time to overtake CMOS before that technology hits a hard barrier. (With a rough halving of transistor size every 2 years, we’re on track to hit and break the one nanometer level as of 2020 or so. We’ll know for certain we’ve hit a wall if one nanometer is not broken by 2022 or thereabouts.)

    I always find it so laughable how some people are still saying, even now, that Moore’s law will continue indefinitely. “Oh, people have been saying that for thirty years.” Guess what? They were making predictions forty to fifty years into the future.

    We’ve already hit a physical barrier in computation that most informed people recognize, and that is the clock speed limit. It’s infeasible to build an efficient CMOS chip that runs at clock rate above 4 to 5 GHz. The power efficiency falls off so much that it’s simply not worth pressing it any further. This is entirely due to the nature of the technology and the physical laws that govern it. Believe me, if Intel could have practically continued to force clock speeds up into the sky, they gladly would have rushed down that course without the slightest qualms. Instead, they were forced — by reality — to get back to considering hardware algorithm efficiency as well as making a new leap into parallel computation. (Parallelism is not a free lunch for improved computation, unfortunately. Not all dependencies can be eliminated, and thus not all computation can be done in parallel. For any given application, you eventually reach a number of CPU cores where adding more does not meaningfully improve throughput.)

    Also, we aren’t doing that for our manufacturing. We are outsourcing it, so that more people are involved in production, not less.

    No, “we” aren’t. Company leaders are choosing to out-source in order to maximize profit by exploiting low wage levels in other countries. It has little to do with the ordinary American worker.

    Unless, by “we” you mean the U.S. Congress, the President, and the leading figures at major companies and trade policy organizations. Then you’re surely correct.

    Or they go into services. Also you seem to be under the perception wages and employment is fixed. One of the things about capitalism is that when prices change, demand changes.

    Isn’t that your understanding? You (and Enriqo) have repeatedly made statements that pretend as though wages and employment cannot decrease, and any actual fall that occurs is the fault of workers and society at large. The problem here is your presumption that there is no problem.

    Because the 20 hour week presumes peoples demand for leisure is greater than their demand for goods and services at that point. There is no reason to presume that to be true.

    What? This is bizarre. The concept being presented was that increased productivity would lead to reduced need for labor, shortening the work week. It was pointed out that nothing like this has happened (and indeed, the opposite is happening). Then you come back with “well, that means people must have more demand for goods and services!”

    Where was it that you missed the part that workers haven’t seen any such increase in benefits, and haven’t raised demand in any meaningful sense?

    It may very well be the case that rising wages or falling hours will boost consumer demand. This situation, however, is nothing like the one we are in. You cannot use the current situation as evidence for your statements. It does not apply.

    [The comment length limit strikes again. Continued in another post.]

  • http://kagerato.net kagerato

    Because that is impossible. Employers only make money by selling stuff. If they halve the amount of goods they produce, they WILL go out of business.

    That didn’t even respond to the text you were supposed to be addressing. The question was why companies simply wouldn’t use half the workers at the same number of hours, rather than continue with the full workforce, if productivity had increased enough to create the same products with half the workers.

    You come back with a statement that assumes the exact opposite premise of the scenario you were given.

    Once again, you completely and utterly misunderstand my argument. My point was if you don’t want to buy worthless crap, you don’t have to. You can always go to someplace poorer and live there.

    And buy the ‘worthless’ crap in that country, presumably. Were you simply never taught in school that there are certain essential goods?

    How is it that people manage these kinds of gross distortions with a straight face? The discussion was about the capital-driven rich class which has gained essentially the entire benefits of the last thirty years of economic growth. Workers got next to nothing. And your response is, “move to another country” and “stop buying worthless crap”.

    It’s amazing that anyone would actually need to point out that this is totally irrelevant.

    GDP measures PRODUCTION. A low GDP per capita means you are getting very little out of the population.

    So they are being exploited by… not being worked well enough.

    No, GDP measures nominal market value of goods and services produced. That’s quite different, because rising GDP directly indicates nothing about either volume produced or productivity. These being facts which one might actually be concerned about.

    What’s amusingly ignorant here is that you think people in countries with low GDP typically work less. Exactly the opposite is the case. Many third world countries still have work days of 12 to 16 hours. Their GDP is lower for a variety of factors, but primarily due to technological gaps.

    When 50 to 80% of your country’s workforce is consumed with subsistence farming (that is, just trying to stay alive), it’s pretty obvious why your GDP is not soaring into the sky.

    Then lend money to them. If they are truly being denied the interest rate should be wrong and you will earn a profit.

    Charging anything other than the most minimalist rate of interest to poor borrowers is not only grossly immoral but financially unsound. Many borrowers are not going to be able to repay loans in any event; the higher the rate of interest the wider this gap becomes and the more people are shifted into the “cut their losses and run” category.

    This idea that you should raise interest rates to deal with risk is laughable, and probably one of the greatest economic frauds yet perpetrated on people anywhere. That worked out real nice in the housing collapse, didn’t it? They can’t pay; let’s raise interest rates!

    You deal with risk by assessing it correctly before making a loan and acquiring collateral or other reasonable assurances of capacity to repay ahead of time. If you can’t do that much, it’s time to stop making loans. You’re still free to give money away, obviously, if you actually believe in the cause.

    People founded utopian communes in the US. Entire towns where the population owned the means of production as you put it.

    So your solution to mass exploitation is for everyone to quit their jobs and form communes? How is that going to work, again? No, seriously. Sounds like a great idea if we could find a way to actually, you know, make it work.

    Evolution- insuring there are always new diseases.

    Evolution operates at a snail’s pace compared to medical development. There will not always be new diseases in any meaningful sense. When we eradicated smallpox, a new deadly organism did not suddenly appear to replace it.

    I’m also curious as to how you think we will deal with aging. You seem to under the bizarre impression that there is a chemical cure for it.

    There is no “chemical” cure, exactly, though there are potential biological cures. In any case, I didn’t propose any cure or solution to aging. Why you think aging is a disease is the question here.

    Finally, you have an incredibly bizarre view of specialization. Yeah, anyone could make pills in a backyard chemistry lab. Anyone could bake bread in a backyard oven today.

    Amazingly enough that doesn’t happen.

    People don’t bake bread in their own ovens today? Could you have said anything to prove my point any better…?

    Show this. Now. This contradicts all economic theroy

    Weren’t you the one talking about burden of proof? You foolishly claim finite demand contradicts all economic theories, but apparently haven’t read much of them.

    Demand is finite because need is finite. It’s very simple. There are a limited number of people in the world, always will be. You cannot invent new needs based upon ideology or whatever other notions you have running in your head. Once a need is met, it’s done with. People will not continue to buy more and more food when their pantries are full. They will not buy bigger houses when the current one is well more than sufficient. They will not buy medicine they don’t need. They will not buy more entertainment than they can reasonably consume with the amount of leisure time in the day.

    I honestly don’t know what else to say to someone who thinks demand is infinite and will confidently claim all economic models everywhere obviously support their view without even a glancing citation.

    Great. And if I said that, it would be a valid point.

    You said that the future economy would be based in part on medicine, at the very least. Presumably medical insurance was part of that.

    People like living. People will pay large sums of money in order to continue living. In fact, in a choice between being dead or not being dead, people will spend everything they have to not be dead.

    There is NO LIMIT to the human demand for medical technology.

    Other things that have been increasing without any clear limits- housing size, computer power and insurance.

    In any case, the core point of contention was that insurance demand can grow without bound. I’ve explained why this is nonsense.

  • Samuel

    You honestly think that that woman’s standard of living in Tanzania is equivalent to that of someone making a quarter of a million dollars in the US?

    Do you have an inability to read what others write and must constantly strawman their positions?

    What in there tells you that this is somebody who is “moderately well off”? What tells you that she’s done anything beyond subsisting for the last 29 years?

    Arguing from an absence of evidence is not valid. “We don’t know they aren’t poor so they must be poor” is not a reasonable rebuttal.

    Neither Enriqo nor you, Samuel, provided any facts or figures to begin with.

    The wages of unskilled labor have been raising for the last 2 centuries. Only since the 1970s have they stagnated in the US.

    That was the very first line of my very first post in this topic.

    YOU ARE LYING.

    What was said is that an increase in productivity should translate either into higher wages or fewer hours, quite naturally. Neither has happened. In fact, the trend over the past thirty years of capitalism has been utterly stagnant to declining wages and increasing hours. Look it up.

    Sam’s first post!
    Only since the 1970s have they stagnated in the US.

    Wow, something I mentioned in my first post. If you had bothered reading it at all you might have noticed it.

    They have a vested interest in success of the company, and little to no interest in profiteering.

    This betrays an incredible ignorance of how people work. Every citizen of the United States has a vested interest in its success. And yet people try to free ride and exploit the system.

    When the number of people is large, the benefit of working hard drops because you can take advantage of others efforts.

    Your idea that workers can just start a new company if management is lavishing itself with company profits is laughable. Where are they going to get the capital? This is exactly the point you missed the first time around.

    http://en.wikipedia.org/wiki/Mondragon_Corporation

    Cybernetics is currently — what’s it called — ah, yes. Fiction.

    http://www.kevinwarwick.com/

    Our understanding of the brain is severely deficient, and none of the glorious leading firms you praise are interested in putting up the billions in funds to solve that issue.

    Because oil, automotive and supermarkets mesh well with medical research and development.

    They see no short term profit in it, and they’re right. There is no personal profit in it.

    It is a product that can be sold. Explain how there is no profit.

    Expansion into space (or the ocean, for that matter) is a scheme of diminishing returns, as I already explained. You can’t do it without sufficient energy, and we don’t have it.

    Neither of those are true. Space gets more feasible as more people go into space. As for energy… what are you talking about?

    Energy, potable water, usable land, and certain scarce minerals are set to hit very predictable limits by mid-century.

    Only if you take these items to be fixed and discount all technological change or change in production mixes changing the required resources.

    While it’s possible that there will be some sudden and very significant technological breakthroughs to deal with these issues, betting on that is foolish.

    Energy can be covered by nuclear and solar, water can be covered by nuclear and solar, usable land can be dealt with by reducing the amount of cash crops and scare minerals can be dealt with substitution and recycling.

    Pay no attention to the man behind the curtain.

    Yeah, it only worked during the Greek Dark Age, the Industrial Revolution, the 1900s in the US (we had a wood shortage), etc.

    The ocean is, truly, composed of empty space.

    The ocean has one of the lowest biological productivity on the planet.

    As it stands, it’s troublesome to do even very simplistic calculations such as small scale addition with them, and they’re inordinately expensive. The current trend is showing that this won’t be fixed any time soon.

    Evidence for the second assertion?

    You (and Enriqo) have repeatedly made statements that pretend as though wages and employment cannot decrease, and any actual fall that occurs is the fault of workers and society at large.

    And proof this is wrong?

    Where was it that you missed the part that workers haven’t seen any such increase in benefits, and haven’t raised demand in any meaningful sense?

    That is wrong. Low skilled workers in the US haven’t, but the people who have gotten their jobs in other countries have been paid more.

    The question was why companies simply wouldn’t use half the workers at the same number of hours, rather than continue with the full workforce, if productivity had increased enough to create the same products with half the workers.

    Because they can make money selling their products. There are more people buying what they made.

    And buy the ‘worthless’ crap in that country, presumably. Were you simply never taught in school that there are certain essential goods?

    Words- they mean things. If something is essential it is not worthless crap.

  • Fargus

    Good Lord. Microloan programs by their very nature are designed to help people living in poverty in developing nations.

    On Kiva’s own website:

    “Microfinance is the supply of loans, savings, and other basic financial services to the poor.”

    This is not about helping the moderately well off expand their businesses. It is about helping the poor. It’s idiotic for you to insist otherwise. Yes, the profile I posted doesn’t say that the subject is poor because it doesn’t need to. It’s a profile of a borrower on Kiva, which is about getting money to people who are poor. Full stop.

  • Samuel

    I hate Ajak comments.

    No, GDP measures nominal market value of goods and services produced. That’s quite different, because rising GDP directly indicates nothing about either volume produced or productivity. These being facts which one might actually be concerned about.

    I’m sorry, I assumed you were intelligent to realize I was talking about real GDP.

    What’s amusingly ignorant here is that you think people in countries with low GDP typically work less.

    Never claimed that. I was pointing out that the claim that GDP measures exploitation is full of bullshit.

    Charging anything other than the most minimalist rate of interest to poor borrowers is not only grossly immoral but financially unsound.

    Prove interest is immoral.

    As for unsound, you are the one claiming they are being denied access to capital.

    If that is true and capital displays diminishing returns, that means the first items of capital will have a HUGE benefit.

    This idea that you should raise interest rates to deal with risk is laughable, and probably one of the greatest economic frauds yet perpetrated on people anywhere.

    Differential interest rates date back to 3000 BC.

    They can’t pay; let’s raise interest rates!

    That is a bit like looking at the Soviet Union and claiming libertarianism is right.

    So your solution to mass exploitation is for everyone to quit their jobs and form communes? How is that going to work, again? No, seriously. Sounds like a great idea if we could find a way to actually, you know, make it work.

    No, my point was people tried this idea. They set up towns and managed to last for a couple of years in the most cases. A more modern example is in Israel.

    However, all examples failed. Communes do not work.

    There will not always be new diseases in any meaningful sense.

    Flu season anyone? Fortunately, they only are a problem for those with weak immune systems. I sure hope aging doesn’t weaken people’s immune system!

    Oh well, it isn’t too bad. We only had 40,000 deaths.

    In any case, I didn’t propose any cure or solution to aging. Why you think aging is a disease is the question here.

    My point was about medicine and how people would always be willing to pay more to not die. I certainly think aging would fit in that category.

    People don’t bake bread in their own ovens today? Could you have said anything to prove my point any better…?

    Reading comprehension and you have a strained relationship. I said that anyone could bake in an oven. It was implied that “not everyone” does. This is different than “noone”.

    This is assuming people are dumb enough to self-diagnose with consulting with a doctor. That should be interesting.

    You foolishly claim finite demand contradicts all economic theories, but apparently haven’t read much of them.

    Demand is finite because need is finite. It’s very simple.



    First, I see an assertion. No evidence is provided.

    The correct answer. Need is finite. Demand is not based on need. It is based on want.This is covered in basic economics courses.

    I can provide citations from university economic texts, historical studies, communist texts or any number of sources to back this.

    You said that the future economy would be based in part on medicine, at the very least. Presumably medical insurance was part of that.

    In any case, the core point of contention was that insurance demand can grow without bound. I’ve explained why this is nonsense.

    Yeah, if you told someone in the 1900 that medical insurance would 12,000, they wouldn’t have believed you. That was 4 times the GDP per capita in England.

    It turns out that medical insurance doesn’t have to just pay for medicine, but for doctors and other specialists. Their salaries grow and so insurance will have to grow.

    If you had taken an economics course you’d know this. The price of services grow with the increase in productivity of manufacturing.

  • Samuel

    This is not about helping the moderately well off expand their businesses. It is about helping the poor. It’s idiotic for you to insist otherwise. Yes, the profile I posted doesn’t say that the subject is poor because it doesn’t need to. It’s a profile of a borrower on Kiva, which is about getting money to people who are poor. Full stop.

    So despite the fact I showed an example of a person who they give money to who is not poor, despite the fact they don’t charge interest implying that the people they deal with are low credit risks (not poor), despite the fact these individudals own their own business… despite all this, you insist I’m wrong.

    Because a company slogan rates higher than actual evidence.

    For the record I approve of Kiva and their lending. It helps differentiate people who are low risks and provide them with easier credit, which increases market efficiency. And it using altrusim to do so, minimizing transaction costs.

  • Fargus

    You’re an idiot. A complete and total idiot blinded by your own idiocy. You didn’t show that the lady wasn’t poor. You showed that in a country full of profoundly poor people, she makes more than the average. This, you equated to somebody making a quarter million dollars a year in the US.

    Kiva doesn’t charge interest not because the borrowers are not poor and thus low credit risks, but because it would be, as I said, sociopathic to look to extract money from those who have next to nothing. It’s a way for people to get money to people who are desperately in need in an almost direct way.

    But again I’m engaging in a classic example of why not to feed trolls.

  • http://www.daylightatheism.org Ebonmuse

    I saw a couple of misconceptions in this thread I wanted to clear up:

    First, Kiva doesn’t make loans directly; they connect Western donors with microfinance institutions already working in the developing world, making it possible for donors to backstop the loans already being made to the working poor. And second, Kiva’s partner MFIs do charge interest, although they’re strictly not-for-profit. This is to cover their own overhead and costs incurred in serving their borrowers.

    That said, there are microlenders that are for-profit. The best example is SKS Microfinance, which went IPO last year. Soon afterward, their stock price plummeted following a rash of bad publicity that included several borrowers committing suicide and politicians accusing them of predatory lending practices, so take that for what you will.

  • Samuel

    Fargus

    You didn’t show that the lady wasn’t poor. You showed that in a country full of profoundly poor people, she makes more than the average.

    She makes seven times more than the average. If you consider perchasing power parity, her income goes to 11,628. That makes her richer than half of the worlds population.

    That is not poor.

    This, you equated to somebody making a quarter million dollars a year in the US.

    And this is wrong… why? I took the per capita income of the United States and multipled it by how much she is above the mean. This shows where she would socially occupy in the US.

    That was my point- relative to the population she is in the upper middle class/top 20%.

    as I said, sociopathic to look to extract money from those who have next to nothing.

    What do you think the people who get the loans do? They use it to buy goods so they can extract money from other people who have next to nothing.

    You seem to be under the impression money is different from any other good. It isn’t- we can sell poor people medicine, we can sell them food and we can charge them loans.

    Ebonmuse

    The best example is SKS Microfinance, which went IPO last year. Soon afterward, their stock price plummeted following a rash of bad publicity that included several borrowers committing suicide and politicians accusing them of predatory lending practices, so take that for what you will.

    Basically they were loansharks. The problem with lending to truly poor people is that they are likely to default. You can have a selection process (which is expensive), you can raise rates (which raises the rate of default) or you can employ thugs to beat people up and insure they pay their loan. Violence also has the benefit of discouraging people who have no intention of repaying from borrowing.

    Unsurprisingly, the last option is the most profitable. Most for profit microfinance probably would spiral in the direction.

    It is possible to design a microfinance institution that wouldn’t do that, but it would require
    - a way for the bank to recoup losses
    - a way for the government to insure the bank doesn’t exploit this guarentee and make too many bad loans.

    You could have the government repay the bank half the value of missed loans. You could set up a program where the government guarentees to pay the difference between the loans interest and the rate needed to cover defaults.

    However, this would require working with the government and some of the governments in these areas are… notoriously corrupt and incompetant.

  • Fargus

    In El Salvador, almost 40% of the population lives below the poverty line. This is more than 3 times as high a proportion of the US population as lives below the poverty line. The average income of one country is not directly comparable to the average income of another in terms of saying who’s “moderately well off.”

  • Fargus

    And in Tanzania, Kiva shows the Average Annual Income as being somewhere closer to $723, while the CIA Factbook estimates it at closer to $1400 or $1500 a year. That would put Joyce’s income somewhere closer to two and a half times the national average. What’s more, the World Bank estimates that a stunningly high ~68% of the population of Tanzania has to get by on $1.25 or less a day.

    This is not a situation in which, once you look at the stunningly low baseline, you get to classify this lady as “moderately well off.”

  • Samuel

    The GDP figures on the CIA factbook you are using are given in Purchasing Power Parity.

    For those who don’t know, PPP tells you how wealthy they are if you counted the fact that prices are lower. It is a measure of standard of living.

    GDP per capita is a measure of the actual dollar value and thus is appropriate for dealing with income.

    As for Kiva
    http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weorept.aspx?sy=2007&ey=2010&scsm=1&ssd=1&sort=country&ds=.&br=1&c=738&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a=&pr.x=86&pr.y=14

    I’m using the international monetary fund.

    The average income of one country is not directly comparable to the average income of another in terms of saying who’s “moderately well off.”

    This is not a situation in which, once you look at the stunningly low baseline, you get to classify this lady as “moderately well off.”

    She makes more than half the worlds population. I think being above the mean is enough to qualify for moderately well off.

    Technically the overwhelming majority of the people in poor countries are poor. However, if we use the word that broadly, it loses all meaning. The PPP of Qatar is 145,300 while the US is only 47,400. This makes the average citizen of Qatar richer than 94% of the US’s population.

    Traditionally when we speak of individuals we talk about their relationship to everyone else. Saying someone is poor is useless if you say everyone else in the country is poor. Otherwise we couldn’t talk about poor people in the US because 94% of our population is above the international per capita income (9100).

  • Fargus

    Saying that one person is not poor because while most people in the country eat dirt to live, this other person eats really fancy dirt is idiotic. Why is the country the level of resolution that we need to talk about? Why not the province or the town? If you live in a destitute town, but you’re in the upper end of the income distribution, are you saying that you’re “moderately well off”? You’re the one who’s defining “poor” out of existence here.

  • Fargus

    Though you are, of course, correct about comparing income directly to PPP. Silly error on my part.

  • Fargus

    Of course, if she does make $323 a month, that’s $3876 a year. If the PPP multiplier is somewhere around 2 for Tanzania, then that means this woman earns the equivalent of about $7800 per year, in terms of purchasing power. Sure, relative to other people in her country she may be doing ok, but it would take a huge PPP multiplier for her to even be approaching what in this country we’d feel comfortable terming “moderately well off.”

  • Samuel

    Why is the country the level of resolution that we need to talk about?

    Because we don’t have income distribution figures for smaller divisions.

    You’re the one who’s defining “poor” out of existence here.

    If I called someone who made a quarter of a million dollars moderately well off, would that have any reflection on the population who made less than them?

    (The answer is no)

    If the PPP multiplier is somewhere around 2 for Tanzania, then that means this woman earns the equivalent of about $7800 per year, in terms of purchasing power.

    The multiplier was 2.6 for 2009. I rounded to 3 because it was easier math.
    http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weorept.aspx?sy=2007&ey=2010&scsm=1&ssd=1&sort=country&ds=.&br=1&c=738&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLP&grp=0&a=&pr.x=86&pr.y=14

    World PPP in 2009 was 10,800. Her PPP in 2009 was 10,078.

    You do realize this would be alot simplier if you actually gave a metric for what counts as poor. However absolute numbers tend to run into problems- saying that she is poor because she falls below a certain value would make 1900 Belgium, Netherlands, Switzerland, Germany and more poor because they also fall below that value.

    http://www.nationmaster.com/graph/eco_gdp_per_cap_in_190-economy-gdp-per-capita-1900

  • http://kagerato.net kagerato

    I’m not going to feed you any more, Sam. I don’t think readers have any trouble discerning what’s wrong with your responses.

  • Samuel

    So when you are unable to provide evidence to support your claim, you respond with name calling and character defamation. Classy.

    You are not only wrong, but an idiot because

    1) You have claimed I provided no facts (even though my opening statement is factual)
    2) You make an argument I already mentioned (1980s income inequality divergence)
    3) You do not understand incentives
    4) You claim worker-syndicates cannot exist http://en.wikipedia.org/wiki/Mondragon_Corporation
    5) You declare cybernetics is science fiction despite advances that allow people to control items with their mind
    6) You seem incapable of understanding the profit motive applies to products.
    7) You declare space industry runs into diminishing returns. The problems of space are high start up costs and high costs. The more people who go into space the cheaper it gets because people don’t have to duplicate research and can use other individuals for safety.
    8) You declare space uses too much energy. Space is noted for really good solar power.
    9) You discount the possibility of future technological innovations.
    10) You think electrical power is a limiting factor for humanity. Coal is expected to last until 2230. Nuclear and solar are better options and aren’t remotely tapped out.
    11) You declare there has been no increase in wages in the US. This is wrong- there has been no net increase, but that is because the bottom is losing out. Wages have been increased for individuals in the top 50%.
    12) You dishonestly claim I am using nominal GDP.
    13) You claim interest is immoral.
    14) You think communes are workable.
    15) You do not consider flu a worthwhile thing to counter despite its annual death toll of 40,000
    16) You do not understand the medical field deals with aging.
    17) You claim demand is finite because peoples needs are finite.
    18) When asked to provide a source for this assertion you responded with your above temper tantrum.
    19) You claim the cost of insurance cannot rise because… people are getting wealthier.
    20) You claim people will make their own medicines in personal chemistry labs. Presumably economics of scale will not exist in the future.

    In short you are not only wrong, you are fractally wrong. Each error reveals more errors and errors after that, going deeper and deeper into a divergence from reality.

    Sort of like theology, but stupider. I have been beyond patients with you, bothering to educate you on the basics of economic thought and you have responded with accusations uopn my honesty.

    Now, new material.
    This is for Tom- why has income inequality increased since the 1980s in the US?

    My source will be labor Economics (5th edition) by George Borjas.

    The divergence of American incomes is due to two trends- the increase in the income of the top and the decrease for the bottom. When I say top and bottom, I am not refering to rich and poor, but skilled versus unskilled workers.

    First, between 1980-1990 the return to unskilled and low skilled work declined. Reagans immigration amnesty (covering 3 million people) as well as the increase in numbers following relaxation of restrictions helped depress wages for the unskilled.

    Additionally, unskilled jobs were exported to countries with lower wages. The maquilladores are a well known example of this. This was accelerated by NAFTA and increased as we relaxed restrictions on China raised in the wake of Tianiman.

    Meanwhile, the demand for skilled workers increased. Technological change made them more productive, and hence more valuable and they were paid more.

    The result is what we see now- an increase in the income gap. Attempting to close it is difficult. Since I am an economist, I can provide various solutions (aside from immigration or trade changes), in no particular order.

    -increased infrastructure spending. Increases demand for unskilled labor.

    -increased spending on education. Increases demand for skilled labor, increases productivity of skilled labor. It should draw more individuals from the unskilled into the skilled category.

    -increased spending in foreign countries on education. If the gap between skilled and unskilled is equal between countries, outsourcing doesn’t work.

    -get China to properly value currency and reduce its wage advantage.

    -get foreign countries to raise labor and environmental standards.

  • Tom

    So the skilled workers are at the “top,” and the unskilled workers at the “bottom?” What skills do the company owners have? The landowners? The investors who demand returns? And what “work” do they do that requires such highly paid skills?

    The most skilled at work don’t get to the top. Working is for suckers. The people who get to the top are most skilled at extracting money from other people who do the work for them.

    The most skilled workers would get to the top paying positions if money actually did represent work and only work, which, thanks to people like you who reject the labour theory, it currently doesn’t.

  • Samuel

    I was actually talking about all workers and why income inequality increased. It covers slightly more than 98.5% of the population.

    As for the top
    http://www.forbes.com/wealth/forbes-400/gallery
    In the top 20, 2 purely inherited and 2 are financial companies.

    So yeah, most of the super-rich actually work for a living.

    The most skilled workers would get to the top paying positions if money actually did represent work and only work, which, thanks to people like you who reject the labour theory, it currently doesn’t.

    Are you rejecting differential pay rates or money earned from investment?

    I going to assume the latter because it is more sensible. However, that runs into the problem of eliminating capital gains. Do you ban rents? Do you ban stocks? Do you ban interest?

    You can do, but if you do the first, no one will build houses. If you do the second, no one will found new companies. It would be a better idea to join an existing one and get them to finance you. If you do the third, companies will have to operate with large capital reserves. All companies. I hope you like sudden deflationary shocks as much as I do. And that is just the begining. You’ll get a whole network dedicated to evading your controls. The Soviet Union wasn’t able to crush the black market and they were a police state.

    Or you could just confiscate wealth above a certain point. While the rich like the United States, I’m pretty sure taking everything above a billion dollars would get such individuals to leave the country. But lets say they don’t leave.

    You get a sudden winfall of money… and then it stops. It turns out people stop making as much if you tax all wealth over a billion dollars. Instead companies give CEOs small things. Like cars. Or homes. Or planes. Or islands.

    Lets say you stop that as well. So you have people that can earn a billion, but no more. Than they are going to stop at a billion.

    I sure hope they didn’t have any useful skills or that decisions involving companies didn’t involve the health and future of the US economy. Than purposely sabotaging it like this would be bad.

  • Tom

    “Purposely sabotaging?” Come now. The rest of your replies seemed mostly sincere, and, believe it or not, I have thought hard about them and continue to do so, but that’s the sort of idiot rhetoric bandied about by crackpots and tea-partiers. Surely you don’t mean to imply my actual motive here is to cause hardship and economic stagnation? Besides, all I’ve been doing is stating the problem; you presumed all those “solutions” yourself. The labour theory may have been the starting point from which communism was derived, but the labour theory is not itself communism.

  • http://kagerato.net kagerato

    I’d like to note that Fargus and I are not the same person. That was pretty clear considering our writing shares little in common, but someone is having trouble with this fact.

    I would strongly recommend against further engagement with someone who thinks everyone who disagrees with him is either a liar or a communist propagandist.

  • Samuel

    Tom

    but that’s the sort of idiot rhetoric bandied about by crackpots and tea-partiers.

    That is nice. However, it is an accurate description of the policies I described. I’m not claiming you hold them (see below)

    Surely you don’t mean to imply my actual motive here is to cause hardship and economic stagnation?

    No. It won’t cause economic stagnation- you’d have to cut alot lower before the US economy starts to die. If you set it to 5 million you might see things start to fall apart. However in economics, intentions don’t count for much. Effects are really what matter.

    Besides, all I’ve been doing is stating the problem; you presumed all those “solutions” yourself.

    If a problem doesn’t have a solution, than it is rather silly to bring it up in the first place. A bit like complaining that people can’t flap their arms and fly. Well, yeah, but no one really cares because there is nothing we can do about it.

    (below)
    As for my solutions, I was explaining different feasible ways you could do this. And yes, those would count as purposely sabotaging the US economy. I am not accusing you of doing that…

    but so far you haven’t offered any solutions. The “problem” you have identified is that people make money off of capital. This is actually an efficiency problem (if they make enough they don’t work), but I believe you view this as a fairness problem.

    However, to deal with this requires dealing with investment. Any plans you are secretly holding back?

    Kagerato

    That was pretty clear considering our writing shares little in common, but someone is having trouble with this fact.

    And I confuse the two of you… where? The only thing I didn’t do was put in a divider between my responses to you and Fargus. So the first two replies were to him and the rest were to you.

    I’m sorry that you lack the recall to remember what you wrote as it seems to be the only explanation for why you claim they are the same.

    disagrees with him is either a liar

    You

    Neither Enriqo nor you, Samuel, provided any facts or figures to begin with.

    The first 2 sentance of my first post.

    The wages of unskilled labor have been raising for the last 2 centuries. Only since the 1970s have they stagnated in the US.

    (Note- it should be 1980s, but I missed the edit window)

    So yes, when you said I didn’t provide facts, you were wrong.

    You than pretended to be hurt that I called you out on your bullshit. How is what you did not lying?

    or a communist propagandist.

    Tom is using Marx’s theory of labor and arguing that the capital class does not deserve the earnings it gets from investment.

    How is this not communist? Are you really to stupid to see how capitalism needs capitalists?

    More content

    Why we won’t made medicine in personal labs.

    Aspirin. Cheap pain releaver with few side effects.

    Current price- about 6 cents a tablet.
    Production process
    http://www.madehow.com/Volume-1/Aspirin.html

    For the general rule about why we don’t make medicine, take the price of the drug. Than take the amount of time it would take for a person to make it and multiply by their hourly wage.

    If the second is higher than the first, it would be a better use of their time to buy the drug.

    There are additional problems- quality control, buying and housing the machinary and time- drugs in the pharmacy are availabe now, while making something can take days.

  • http://kagerato.net kagerato

    The reason that I’ve given up on you, Sam, is because you have gone far out of your way to misconstrue what people say.

    For some self-reflection, take just half a moment to consider that I quite naturally meant relevant facts, not merely facts in the literal sense. The obvious reading of intent is relevant facts, of course. Any post will tend to contain incidental facts just by chance alone. Yet you feel strongly inclined to call someone a liar based on this.

    It was already pointed out to you that the labor theory of value is merely a premise. You can go in many directions from that premise, of which communism is only one. That you think capitalism and communism are the only economic systems possible (plausible? applicable?) is strange. Either that, or you believe that many unique systems are all functionally equivalent to capitalism, which is even odder.

    I’m not pretending to be hurt, by the way. I’m genuinely offended that you are what passes for an economist in the United States of America in this age.

  • Samuel

    Kagerato

    For some self-reflection, take just half a moment to consider that I quite naturally meant relevant facts, not merely facts in the literal sense.

    Except that was a relevent fact. Tom is arguing that wages always go down because capitalists try to minimize labor costs, so I showed that wasn’t true. I proceded to mention the reason it looked like that was a change in the last 30 years.

    You can’t get more relevant than rebutting an opponents point.

    You can go in many directions from that premise, of which communism is only one.

    No, you can’t. Labor theory of value explicitly rejects the idea that people should make money on investments. It also rejects the idea that people should earn money by capital ownership.

    That leaves you with communism where the state owns the means of production.

    There are alternative systems. I even have mentioned them in previous posts. I also mentioned they don’t work. Communism managed to last for about 70 years in the Soviet Union. By contrast there has been no syndicate states nor communes that have had such an independent lifespan.

    Honestly, I have come to expect this rampant dishonesty from you. You claim I don’t know there are none capitalist or communist systems… despite the fact that I mentioned the worlds largest worker syndicate in one of my responces to you.

    I’m genuinely offended that you are what passes for an economist in the United States of America in this age.

    Except all your complaints about me are bullshit.

    You have failed to support your claim that demand is based on need.
    You have failed to support your claim that demand is based on need.
    You have failed to support your claim that demand is based on need.
    You have failed to support your claim that demand is based on need.
    You have failed to support your claim that demand is based on need.

    I’m going to repeat until you stop being a dishonest little piece of shit.

    Now, content

    Last time we hit trade-offs. You could make your own medicine… but it would be a better use of your time to just buy it.

    This time lets hit economies of scale.

    Economies of scale are simple. Imagine you can make 10 pills with a $10 machine (pills and costs are per hour). You can also buy a machine that costs 50 but causes all pills to be made 10% faster. However, you make 1000 pills you can keep the waste corn starch and reuse it to make 10 more pills.

    People who make 10 pills will cost $10
    People who make 1000 pills will cost $9.50

    Larger business have an advantage of smaller ones. So why are there multiple firms for each product? Because diseconomies of scale come into play. The larger a firm, the more layers on management to control everything, the more it costs to insure everyone is working and the less incentive people have to work hard (because less of the company relies on their effort).

  • Samuel

    For those wondering why I have bolded
    You have failed to support your claim that demand is based on need.

    One of the basics of economics is that demand is based on wants and wants are infinite. And by “basic” I mean this is taught in high school.

    There are two ways to understand it. The first is definitional.

    Need
    a physiological or psychological requirement for the well-being of an organism

    Demand
    willingness and ability to purchase a commodity or service

    Demand is based on the desire (want) and ability to purchase a commodity.

    Or you could realize this emperically. I doubt Ebonmuse needs this website in order to survive, but he adds to the demand for internet bandwith.

    Diamonds are incredibly expensive and useless, yet people buy them. And before you blame it on advertisers, remember that diamonds have long been expensive and used for jewelry. What De Beers did was transitioned it to the middle class.

    Heck, look at sub-Saharan Africa. People there drink beer even though they are in poverty. Alcohol isn’t a necesity but people still buy it. This isn’t an anomoly- people before modern times also had lots of alcohol and while part of the reason was because the water was shitty, people were willing to consume alcohol just because they enjoyed being drunk. You can see this from gin in 18th century England which was really alcoholic and outsold beer by a large margin.

    For a more positive example, look at the printing press, which was origionally used to print the bible and other works that had little to no economic value.

    Or flashy clothing. Or i-pods. Or going into space. Or baseball fields. Or…

  • Tom

    Samuel, if wants were infinite, and demand based upon them, demand would still not be infinite because it is restricted by other factors. I want my own space rocket, probably lots of other people do too, rockets can and have been built, but that does not create a demand for private rockets for the whole public that manufacturers will fill. Why? Because, aside from a few filthy rich plutocrats (and this is where the implications of surplus extraction get ludicrous – when somebody who hasn’t done enough actual labour themselves to add even a single bolt to the global pool of commodities can take huge things like that from it), no individual consumer could afford to buy one, no matter how much they wanted it. So at the very least, demand for luxuries is limited to what people can afford to pay. It is further restricted, in sensible people, by the desire to save a fraction of one’s income against future hardship such as unemployment, foregoing some luxuries now so that essentials can be had for at least some of the foreseeable future under most conditions (increasing credit availability to those poor in both income and prudence, the eventual, disastrous outcome of which we know, is one possible, extremely short-sighted response of the capitalists to try and get around this last limitation and increase immediate demand).

    Your remark about the poverty-stricken drinking beer, implying that water is a necessity but beer isn’t, is fallacious; beer (especially the small-beer drunk by the poor and working class for most of human history) contains water , hence it meets some of the need for water anyway, not just the want to experience the effects of alcohol. It also contains a lot of calories, another need of the working poor, in addition to often being, as you yourself said, an awful lot safer than the local water. Give us examples of the desperately poor buying commodities that are 100% want and meet no needs at all, please. Gin is a poor example because it has a serious addictiveness issue, which negates the assumption of the rational purchaser made by just about every flavour of economics.

    To anticipate one possible response I’ve seen before; yes, a certain level of psychological health is probably a need, hence the purchase of certain otherwise apparently useless commodities (even drinking gin could count for this) but needs are not linear relationships. Enough water to stay alive is a need; enough to fill a swimming pool is a want. Enough gin to relax at the end of the day is perhaps a need for some; enough to destroy your liver, get you hopelessly addicted and thus induce you to waste more money you can’t afford on it is definitely a want. Enough material possessions, even functionless apparent-junk, to make one basically somewhat happy is arguably a need; enough to fill whole buildings and never even see most of it, as stereotypically amassed by the idle but unfulfilled rich, is just as arguably a want, and in some cases a futile one that leaves the purchaser wanting (another form of addiction, one might rather suspect) but still extracts wealth from the economy and makes it inaccessible to anyone else who might better benefit from it.

  • Samuel

    Samuel, if wants were infinite, and demand based upon them, demand would still not be infinite because it is restricted by other factors.

    Note the definition I had for demand which mentioned wants and ability to pay for them. Most of this was directed against kagerato’s “demand is based on need”.

    Because, aside from a few filthy rich plutocrats (and this is where the implications of surplus extraction get ludicrous – when somebody who hasn’t done enough actual labour themselves to add even a single bolt to the global pool of commodities can take huge things like that from it), no individual consumer could afford to buy one, no matter how much they wanted it.

    A thousand years ago the same thing was true of sugar in Europe. Or airplanes in the 30s. Or a thousand other goods that were only available to the rich, but are now available to everyone.

    Also, all the people who went into space worked for a living. They made lots of money because they ran their own companies- none of them are inheritors and several of them are self-made. But apparently Guy Laliberté is exploiting surplus profits from the clowns. The fiend!

    I’m not sure why you think actual labor is so important. If one scientist (lets call him Richard Feynman) can do 10 times as much for the same time, do we pay him 10 times as much or do we pay him the same?

    Once you admit that pay should be based on output though, you open up to paying CEOs large amounts because they make decisions involving millions of dollars and the correct ones can save companies a shit load of money.

    Give us examples of the desperately poor buying commodities that are 100% want and meet no needs at all, please.

    Desperately poor people are those who generally don’t have enough income to buy anything other than (and sometimes not even) wants. However, the items that immediately come to mind are things like funerals and weddings which have lavish and expensive celebrations.

    To anticipate one possible response I’ve seen before; yes, a certain level of psychological health is probably a need, hence the purchase of certain otherwise apparently useless commodities

    The problem with that is “psychological healthy” is there is no evidence that these items have any effect. You’d need to see differences in mental illness between wealthy and poor countries for that to be true.

    Enough material possessions, even functionless apparent-junk, to make one basically somewhat happy is arguably a need

    There is no evidence that having stuff makes people happy. What it does is result in a payoff… and then happiness returns to its origional level and people want the next level up.

  • Samuel

    Tom what is your defintion of wealthy? Because I have noted it seems to be vague and applied at people who don’t work enough or do the right kind of work.

    I’m asking because as I was trying to point out to Fargus, wealth is socially contructed- what is considered rich and poor varies from place to place.

    If it is a percentage metric, than we run into the problem that Americans are working less than foreigners and making more money than them. You seem consistent enough to hold that, although I presume your plan is to reduce consumption to produce capital goods and distribute those. Attempts to do that have been conducted in the past with… mixed success.

  • Samuel

    Also, I remembered something important. Prior to the industrial revolution there was a phenomena called the industrious revolution. What happened is that a bunch of new goods such as coffee, sugar, tea, porcelin, etc became available to everyone.

    When I say everyone, I’m not kidding- orphanage records in the Netherlands reveal even people at the bottom had their shares of these goods.

    How did they pay for them? They worked longer hours. I think that is a good example of demand being entirely driven by want, so much so that it caused them to reduce leisure hours to increase consumption.

  • Samuel

    On worker syndicates.

    I’m assuming this is Tom prefered method of running the economy (communism is much more achievable though). The amusing thing is that it would abolish capitalism… but not the free market. As long as the independent companies were owned by their workers they would still compete over prices and production.

    The problem with worker syndicates are several. For starters, they are opposed to the elimination of employees because they are run by said employees. This is likely to make firing people as well as hiring them more difficult.

    Lower labor mobility reduces efficiency and increases the natural rate of unemployment (because you have to wait longer for an opening).

    There is also the problem of making decisions. Top-down systems are common because they are good at collecting information and making quick decisions. Having decisions be made by everyone in the company will take time and is difficult if the company is spread over multiple locations.

    The worlds largest worker cooperative if 65,000. At it is a federation of multiple worker cooperatives, not a whole organization. By contrast Walmart has over 2 million employees.

    There is also the problem of politics. When is a drop in production or sales the fault of the workers or things out of their control? Under a cooperative such a decision is up to the voters and depends on how much the rest of the company likes you. If people valued the company above all else that wouldn’t be a problem, but…

    …there is incentive effects. The wealth spread amoung all the membership would drop to insignificant in most cases. Without paying their CEO Walmart could pay every employee… 10 dollars more. Per year.

    Exxon would be paying its employees 125 more a year, Chevron 26 dollars, etc.

  • http://blog.cfiottawa.com/ MrPopularSentiment

    There’s a movement now called Responsible Investing or Mission Related Investing. It’s the same sort of deal (you pick a pre-set package and your bank or broker takes care of your money for you within that package), but all the companies have to pass certain requirements.

    You could try asking around if there’s a broker in your area with that option. It’s not publicised yet, but many do have the option available if you ask.


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