Wednesday, February 13, 2008

John Stossel Loves Rich People (JM)

Who's Afraid of Prosperity?

If I had to bet, my guess is me… not prosperity, per se… I mean I’ve wanted a top hat and a monocle as long as I can remember, but your definition of prosperity… almost certainly.

By John Stossel

Should we worry that the people of China, India and other undeveloped countries are getting richer? Apparently so, according to the newspapers and the "experts" they quote. They don't come right out and say that global prosperity is bad for us. Instead they say, as The New York Times recently said, "As development rolls across once-destitute countries at a breakneck pace, lifting billions out of poverty, demand for food, metals and fuel is red-hot, and suppliers are struggling to meet it. Prices are spiraling, and Americans find themselves in what amounts to a bidding war with overseas buyers for products as diverse as milk and gasoline."

I am not terribly protectionist, but this seems like a pretty bad problem, especially given the devaluing of the U.S. dollar.

It is certainly true that China's economy is expanding dramatically -- 10 percent last year. The Chinese build factories like crazy to pump out the inexpensive exports we Americans love to buy. To do that, Chinese producers have to purchase oil, steel and lots of other commodities. The new demand drives prices up.

These are some more reasons to be a bit scared of prosperity.

And as the Chinese and other people get richer, they improve their diets and eat more meat, putting pressure on world food prices.

Okay, if I didn’t know Stossel better than this, I would think he’s about to make the perfectly reasonable argument that it is totally ridiculous for us to be angry at China for being less poor. It’s pretty hypocritical. It’s kind of akin to L. Goldsquire Bennington, III getting angry at Homeless Joe for winning the lottery and outbidding him for the Maserati he wanted to add to his extensive collection. In other words, it is shitty for us to be pissed when someone else is getting a share of the pie. However, this is John Stossel, altruism is not his concern; magic is.

So media handwringers suggest we should worry about the poor becoming rich.

Actually, we shouldn't. It would be a sad world if one person's economic success depended on another's failure.


More of us would understand this if we learned what the great economics writer Henry Hazlitt preached in his classic book, "Economics in One Lesson": "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy."

Seems fair…

In the short run, richer Chinese and Indians bid up the prices of things. But that's just the beginning of the story. Increased demand and higher prices create opportunities for entrepreneurs.

Yuh oh…

When the price of, say, oil goes up, entrepreneurs and inventors have a strong incentive to: 1) find more, 2) find alternatives, and 3) find ways to use oil more efficiently. You and I cannot foresee what they will invent, but that means nothing. Predictions about the end of progress have been issued countless times. There is no reason to think they will be right this time.

John Stossel is super awesome, he has a magical faith in entrepreneurs, but refuses to believe in the power of prediction. Evidence, schmevidence! We’ve survived before, why wouldn’t we survive now! John Stossel also thinks it’s going to snow tomorrow because the meteorologists predicted clear weather yesterday and they were wrong about that.

However, it is his faith in magical, super, free-market wizards known as entrepreneurs that truly amazes me. Here’s what they have a “strong incentive to do: 1) find more oil – Stossel, of course, rightly believes that oil is not a finite resource, that with the right amount of innovation and stick-to-itiveness there are boundless fields of oil right before our very eyes; 2) find alternatives – this is a great suggestion, one we will need to take up because point number 1 is literally insane; however, the excess of consumption that is about to occur narrows the frame of time we have to do this important work, work that is not somehow better because of its increased desperation; 3) efficiency is like another magical free market junkie term that makes little to no sense, but here’s the real rub, you John Stossel do not believe in mandating efficiency. You are against every fuel efficiency standard in the book. So while there may be more efficient processes, they are not going to be ubiquitous or required in Freidonia. Moreover, there is obviously a cap on how much this helps given that fuel, despite however much free market wizardry you throw at it, is a limited resource.

Assuming government stays out of the way. Our current "leaders" are full of promises about "protecting" workers and industries, creating new "green" industries, and starting worker-retraining programs. For example, Hillary Clinton promises government support for "research (to) stimulate the development of new technologies and life-saving medicines." Mitt Romney wants "to initiate a bold, far-reaching research initiative -- an Energy Revolution, if you will. It will be our generation's equivalent of the Manhattan Project or the mission to the moon."

These seem like reasonable ideas, the government has provided progress on many technologies, particularly medicine. Energy seems like a pretty fair equivalent.

The media lap it up, apparently believing that no one will produce unless our wise leaders create an inducement. Nonsense.

All except you oh wise John Stossel! Also you can’t say “nonsense” at the end of a sentence and pretend you’ve proven your point. That’s ridiculous.

The market would deliver the goods if government doesn't impose crippling regulations and tax away everyone's capital to fund its coercive utopian schemes. I like what Henry David Thoreau once said: "This government never furthered any enterprise but by the alacrity with which it got out of the way."

Yes, crippling regulations are awful terrible things. I am sure glad Enron and WorldCom didn’t have to deal with crippling regulations. I bet it was taxation that caused the subprime crisis, if we just had allowed the market to exist freely everything would just be aces. I am going to say this once, because I think this is really really important. There is no such thing as a free market. All markets depend on the existence of governing and regulatory bodies to enforce contracts, property rights and all other conceptions legitimate business practice. If governments didn’t regulate what would credit card companies do when people refused to pay their debts. The fact is that we spend an enormous amount of our public resources providing maintenance for the market system. In turn, we ought to have some semblance of regulation. That’s the other thing, there is no natural state of freedom. There are different conceptions, largely driven by cultural conceptions of what freedom means. Heck, property ownership isn’t even a real thing, but rather a social constructed entity. So talk about the market like it’s some sort of state of nature is totally batshit crazy, so let’s just stop.

George Mason University economist Alexander Tabarrok has another way to demonstrate the benefits of spreading prosperity. Tabarrok wrote in Forbes recently that the bigger the market, the more worthwhile it is for companies to make products that require costly research and development, such as medicines and chemicals. As the Chinese and Indians become more able to buy things, businesses everywhere will find it profitable to make products that yesterday weren't profitable enough. The result will be cures for diseases and other products that make our lives better.

I agree with this, again I don’t think protectionism matters. Of course, there’s always the issue of what happens when the prices of medicine go so high that people in the U.S. can no longer afford it. Stossel’s reply: innovation!

Tabarrok takes this a step further: "Amazingly, there are only about 6 million scientists and engineers in the entire world, nearly a quarter of whom are in the U.S. Poverty means that millions of potentially world-class scientists today spend their lives trying to eke out a subsistence living, rather than leading mankind's charge into the future. But if the world as a whole were as wealthy as the U.S. and were devoting the same share of population to research and development, there would be more than five times as many scientists and engineers worldwide."

I would totally agree with this if I were sure that this weren’t a zero-sum game. However, I am not sure either way. Maybe, this increase in prosperity would lead to an increase in global wealth, maybe it wouldn’t. It sure seems to hurt in the short term. Here’s the thing, periods of adjustment and sacrifice aren’t numbers on a ledger, they are real actual people getting harmed. Some of these people don’t get to live in the long term and are not acceptable casualties of John Stossel march towards growth. Moreover, even with overall increases distribution matters a great deal and it is hard for me to believe the benefits of this growth will be felt by the people sacrificed on its altar.

The other, way more persuasive argument is this: It is totally wretched that because of a certain set of arbitrary lines we call borders I am entitled to a pretty nice life, while someone else is entitled to backbreaking poverty. The existence of nations is a defacto way of maintaining a rather oppressive and selfish system. The problem is that very few people deal with the problem in these terms (and if they do they often are crazy impractical revolutionaries). These ought to be a real and sincere dialogue about the global divide between rich and poor, but yelling innovation or anarchy are neither of them it.

When it comes to being wealthy, the more the merrier.

Sure… why not.

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