March 12, 2008
Speculation
(Jimmy Akin)
A number of years ago the comic book industry was severely hurt by a wave of speculative buying in which investors started buying lots of comic books on the idea that they were certain to increase in value. The Death of Superman event was one of the things driving this speculation.
But eventually the comic market bubble--or perhaps that should be thought balloon--popped, and the industry was gravely hurt.
There is some thought that the same thing is happening in the oil market right now, and that we might get another 1980s'style oil crash.
That would be bad news for people who work in the oil industry, and those collaterally dependent on oil revenue (like, for example, a large percentage of the population of Texas).
It would come as a relief for everybody else, though, if the surge of speculation passed and the price of oil was . . . well . . . cut in half.
MORE HERE.
Posted by Jimmy Akin in Economics | Permalink | Comments (21)
March 10, 2008
Health Insurance Vs. Pre-Paid Healthcare
(Jimmy Akin)
The current political season has had a good bit of discussion of health insurance and whether everyone should have it and, if so, how that should be accomplished.
But what kind of health insurance are we talking about? There is a point at which insurance covers so much that it ceases, for practical purposes, to be insurance and instead simply becomes a prepaid service.
Why is that significant?
Because any service--whether it's insurance or otherwise--costs more money on average than you're going to get out of it. Otherwise the people offering the service wouldn't be able to stay in business. They have to make money, right?
But here's the difference: If you have an insurance service that covers only a few things, which happen rarely to people but which are costly if they do--what you might call major medical insurance--then the overall cost of healthcare isn't impacted that much.
But if you have health coverage benefits cover every single doctor visit and every single medical service (or just about) then the cost of health care will be driven up because the insurance companies need to make money, on average, per medical transaction, and they're now covering a vastly larger number of medical transactions.
And that's not to count all the additional costs put into the system by doctors having to keep a larger staff devoted to filing insurance claims for every medical transaction the doctor participates in.
At some point, the system stops resembling insurance as it historically has been understood and becomes just a comprehensive prepaid service--and a comprehensively more expensive one.
Posted by Jimmy Akin in Economics | Permalink | Comments (80)
January 28, 2008
The Economy Is Fine. . . . Really?
(Jimmy Akin)
Like everybody else, I've been following reports that the economy is bad, that we may already be in a recession--or worse--and it has me concerned.
I *really* don't want that to be the case, but I have to face the possibility that it is.
On the other hand, I've been hearing reports for the last five years about how bad the economy has been, when in fact we've been in a period of economic growth for the last five years.
So . . . what's the deal?
Was it just the media wanting a scare story all this time leading them to sensationalize any possible negative number when in fact the economy was fine? Was it hatred of the Bush administration? And what does this say about current reports of a recession--or worse?
I dunno.
I *especially* hope that all the negative talk doesn't lead to a self-fulfilling prophecy.
So I at least like to hear both sides of a story before forming an opinion, and thus I was intrigued to read THIS STORY IN THE WALL STREET JOURNAL.
Pardon the pun, but here are the "money" quotes (excerpts):
It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble.
It is most likely that this recent weakness is a payback for previous strength.
A year ago, most economic data looked much worse than they do today. . . . But the economy came back and roared in the middle of the year.
Because all debt rests on a foundation of real economic activity, and the real economy is still resilient, the current red alert about a crashing house of cards looks like another false alarm.
So is the current talk just talk . . . or something more?
I dunno.
I report. You decide.
Posted by Jimmy Akin in Economics | Permalink | Comments (124)
November 09, 2007
Writers Strike
(Jimmy Akin)
I got an e-mail from Peter Knight, creator of Big Wolf on Campus and a striking member of the Writers Guild of America (WGA), asking if I had any thoughts about the current writers strike.
I do.
I don't like it.
It's likely to cause the final ten episodes of Battlestar Galactica to be held up (note the Battlestar Galactica show runner, Ron Moore, on strike in the picture).
But that dislike is a purely personal thing. What do I think about the merits of the strike?
Well, I'm not a big fan of unions--especially industry-wide unions. Industry-wide unions are basically labor monopolies, and labor monopolies are no better than business monopolies.
Every industry-wide union that I can think of has had notable pernicious effects, due to Pournelle's Iron Law of Bureaucracy, among other things. Thus the teachers' union has poisoned American public education; the automotive workers unions have poisoned the state of Michigan, etc.
Nevertheless, I recognize that it is morally legitimate, and sometimes even necessary, for workers to organize unions and use the resulting collective bargaining power.
And if there's anywhere that such organizing may be needed, Hollywood--with its deliberately deceptive accounting practices and ultra-exploitative mindset--is a plausible candidate.
One thing that hasn't been communicated very effectively by the media is what the central issue of the current strike is, and that issue is finding a way for writers to get paid for their content when it is distributed via the Internet.
The studios are arguing that Internet distribution is too new and uncertain to be able to figure out what to pay the writers, which is hogwash. They're getting ad revenue now for shows being broadcast over the Net, and it would certainly be possible to craft a formula to compensate writers on that basis.
Internet distribution has reached a crucial point, which is why the strike has hit now. Peter Knight explains:
The studios want to be able to stream shows in their entirety on the Internet laced with commercials and pay the writer nothing for it. Zero. Don't believe me? They are doing it right now. Go to NBC.com and watch an episode of Heroes or The Office or 30 Rock. You might also notice the commercials that play along the way. Yet, the companies' position is that they can't make money off the Internet yet. Then how did those commercials get there? Pro Bono ad sales?
Ron Moore adds additional detail (EXCERPTS):
Your television and your computer are going to become the same device within the foreseeable future. That reality is staring us in the face.
This is literally the future of my work in television and film and the work of my writers and everyone involved, because it's all going to become transmitted to people via the internet, in some way, shape or form. Whether it's on your cell phone, whether it's on your lap top, or whatever other devices come along, it's all going to go through that pipe. And either we participate in that formula or we're completely destroyed. If you buy a book, there's an expectation that every time you buy that book in hardback, the author gets a dollar. And if you buy it in paperback, he probably gets a dollar to. Well, you have a situation where suddenly, he doesn't get paid anything if you buy the paperback, then guess what? Then they're only going to sell paperbacks. And that will happen with us too.
So, bottom line, what do I think of the strike?
Well, it's unpleasant and I don't like it, but at bottom I think that the worker is worth his wages and Hollywood needs to find a way to compensate writers for material streamed over the Internet. Trying to dither about how confusing the Internet is as part of a squeeze play to reduce the compensation writers are getting is simply disingenuous.
Which is what Hollywood does best.
After all, it's all about play acting, isn't it?
I guess not all of the actors are the ones in front of the cameras. Some are wearing suits in the back office.
Meanwhile, how will the strike affect Battlestar Galactica?
Posted by Jimmy Akin in Economics | Permalink | Comments (71)
September 21, 2007
Socialized Medicine
(Jimmy Akin)
John Stossel has a nice piece on socialized medicine as being advocated by Michael Moore and various others.
Here's the nut of the piece:
One basic problem with nationalized health care is that it makes medical services seem free. That pushes demand beyond supply. Governments deal with that by limiting what's available.
Yeah. Like anything else, medical care is a limited resource with alternative uses, making it a subject of economics. If you don't have a monetary rationing system, you're going to have some other rationing system, and in an egalitarian society you're likely to get a time-based rationing system (meaning: waiting lists).
He's got some real horror stories about England and Canada.
GET THE STORY.
Posted by Jimmy Akin in Economics | Permalink | Comments (267)
July 19, 2007
CNS: "Religious leaders urge more justice, fairness in farm bill"
(Jimmy Akin)
The above is the headline of a CNS news story about a farm funding bill (that touches all kinds of other things besides farm subsidies) that is currently being worked on by Congress.
It cites religious leaders from a variety of groups urging more "justice" and "fairness" in the bill.
I agree with them.
The bill does need more justice and fairness.
But I think I'm viewing what counts as justice and fairness through a somewhat different lens than the people quoted in the article (or at least many of them; there is one guy at the end who may be more on the same page I am).
To my mind, making the bill more just and fair would involve this: ending all farm subsidies.
Government subsidies create a distorting effect in the economy and make it inefficient. Carried to extremes, you could get things like what you had in Soviet Russia, where bread was so cheap that people were feeding it to farm animals at the same time they were unable to get basic foodstuffs other than bread.
The issue of farm subsidies was a big deal back in the 1970s, when there was a lot of concern about the disappearance of family farms in the face of advancing technology and economic development in the agriculture industry.
I understood the pain of the people who were having to break from a family tradition of being farmers, but the government should not be in the business of funding family traditions at taxpayer expense. If that was the government's job then it should have subsidized all the horse breeders and stable managers and veterinarians and carriage makers and street cleaners that existed at the time the automobile was introduced, so that they could keep their prior occupations even though a new and better means of personal transportation had been developed.
And it should have subsidized all of the old radio networks once television came along.
And it should have subsidized Hollywood studios once television came along.
It should similarly subsidize newspapers now that the Internet is putting them out of business.
And it should similarly subsidize everyone in every occupation so that they can maintain their traditional way of life when a new and better means of doing the same thing comes along.
Such a society, of course, would be completely unworkable. You wouldn't have the economic resources you'd need to maintain a huge chunk of the population in obsolete, unneeded jobs and simultaneously maintain a new, separate economy--or set of economies--based on more efficient means of doing the same things. The whole thing would be an arcane mess that would impoverish people by stifling economic development and burdening the population with an even more massive tax load than it currently bears.
So if this is unworkable for society as a whole then justice and fairness would dictate that there not be privileged groups--like family farmers and agri-business conglomerates--that get subsidies.
Of course, if all subsidies vanished overnight there would be a massive shock to the system, so it could be reasonable to phase them out over time, and one could argue that there should be measures to help people find new lines of work (which would cost far less than maintaining the subsidies indefinitely), but the goal should be eliminating the subsidies, not ramping them up.
GET THE STORY.
Posted by Jimmy Akin in Economics | Permalink | Comments (96)
May 30, 2007
This Got My Attention
(Jimmy Akin)
Here's how the story starts:
Imagine a line composed of every household with children in the United States, arranged from lowest to highest income. Now, divide the line into five equal parts. Which of the groups do you think enjoyed big increases in income since 1991? If you read the papers, you probably would assume that the bottom fifth did the worst. After all, income inequality in America is increasing, right?
Wrong.
Posted by Jimmy Akin in Economics | Permalink | Comments (78)
August 30, 2006
SpiralFrog
(Jimmy Akin)
I'll be interested to see how a new music download service does. It's planned to launch later this year, and it's name is SpiralFrog.
The venture has the backing of Universal Music, the world's largest music holder, so it should offer a very wide selection for download.
What makes SpiralFrog different than most of the major legal music downloading sites (like iTunes and Wal-Mart and the current incarnation of Napster) is that it does not plan to charge money for the songs you download--at all.
This is, of course, a strategy that is being used by some sites that have a small number of songs one can download for free, but SpiralFrog aims to give iTunes a run for its money by giving away music free, and with the world's largest music company onboard (and hoping to get other big ones to play, too).
So what's the catch?
I mean, SpiralFrog has to make money somehow. So how?
By advertising.
What they're betting is that there is a sweet spot where the curves intersect between the intrusiveness of the advertising and the attractiveness of the music, so that they can sneak in enough advertising to make money without driving off the audience, allowing the economics of the venture to make sense.
That such a sweet spot exists is not an unreasonable guess. This is, after all, the model that governs terrestrial radio and broadcast television: You get to watch programs for free, but the station gets to play you advertising, too. And the economics of radio and TV work.
Whether it will work for music downloads, I dunno. If they can make money with relatively unintrusive advertising, it may, but if they only way they can generate dollars for their advertisers is make you hear a commercial each time you listen to a song you've downloaded then forget it.
I'm sure that their opening strategy isn't to use advertising that is that intrusive (that would be crazy), but I'll be interested to see just what level of intrusiveness the think they can use without driving off users of the service.
So I'll be interested to see the details of how they want their strategy to work when SpiralFrog launches this December.
In the meantime,
GET THE STORY.
Incidentally, an interesting statistic from the story:
A report released last month by the International Federation of Phonographic Industries revealed there were still 40 illegal downloads for every legal one.
By giving away music for free, SpiralFrog is trying to cut down on that ratio (assuming it's correct), and they might do it. Teenagers can't as easily pay for songs from iTunes because they don't (I hope in most cases) have credit cards, but advertisers have been able to milk money from teens indirectly via all kinds of advertising.
If they can do it in this case then they may be able to change the ratio of illegal to legal downloads (whatever the real one is). Young people may be willing to put up with advertising to get the song they want whereas they often simply aren't able to use a fee-based download service.
Posted by Jimmy Akin in Economics | Permalink | Comments (32)
August 10, 2006
Public Safety Lawsuits Harming Public Safety?
(Jimmy Akin)
Have seen those ads on TV--or gotten them in the mail--asking if you were harmed by some product or procedure because there are a bunch of lawyers somewhere preparing a class action suit to go after the makers of the product or the providers of the procedure?
They're all over the place these days, reflecting the amazing litigiousness of contemporary American society.
Have you heard news stories about fantastically large awards being given to people as a result of such lawsuits?
Those are all over the place, too.
What's the cumulative effect of such lawsuits?
No doubt, it makes manufacturers and service providers more careful in what they present to the market, knowing that they could get sued if someone gets hurt.
Good.
That needs to happen.
But might the cumulative effect of such lawsuits result in companies becoming too risk averse? If that were to happen then the public would be denied products and procedures that would make life better and that could even save lives.
John Stossel argues that this is what's happening:
Union Carbide has invented a small portable kidney dialysis machine. It would make life much easier for people with kidney disease, but Union Carbide won't sell it. With legal sharks circling, the risk of expensive lawsuits outweighs the possible profit.
Are you pregnant and nauseous? Bendectin would probably cure your morning sickness. For 27 years doctors prescribed the drug to 33 million women because it was so good at stopping nausea and vomiting. But you can't buy Bendectin today because lawyers kept suing the manufacturer, Merrell Dow, claiming the drug caused birth defects.
Studies did not show that Bendectin caused birth defects, and Merrell Dow won most of the lawsuits. But after spending $100 million in legal fees and awards, the company gave up selling the drug. Bendectin has never been effectively replaced, and morning sickness is now a major contributor to dehydration during pregnancy.
Dr. Paul Offit, professor of pediatrics at the University of Pennsylvania School of Medicine, says, "Within two years of discontinuing Bendectin, the incidence of hospitalization for dehydration during early pregnancy doubled; the incidence of birth defects was unchanged."
Those are just some of the life-enhancing products we know we must do without because America's peculiar legal system makes it profitable for trial lawyers to pursue extortion -- like litigation. What wonderful products will we never even hear about because the lawyers have created a climate of fear?
On the other hand:
Fear of being sued reduced the number of American companies researching contraceptives from 13 to two.
Whatever one ultimately concludes, it's worthwhile to
GET THE STORY.
Posted by Jimmy Akin in Economics | Permalink | Comments (43)
May 18, 2006
Forget The Experts
(Jimmy Akin)
I really like the iconoclastic streak in the writing of consumer reporter John Stossel. He tests conventional wisdom and is willing to point out when the conventional wisdom is actually unwise.
TAKE HIS MOST RECENT COLUMN, FOR EXAMPLE.
It's about the fact that stock picking experts you see on TV and in other publicity venues are usually wrong. In other words: They give bad stock advice.
Why? Well, in part--Stossel says--because they frequently have hidden or mixed motives that lead to conflicts of interest, as in the case of stock experts who say they "like" a stock that they themselves happen to be selling off at the moment.
But the problem is broader than just the faces you see on TV. Indeed,
[Y]ear after year the trading advice that comes out of most of the big brokerage firms is no better at selecting winners than throwing darts at the stock table, or having a monkey throw darts. In fact, the advice is usually worse! People who chart the brokerage firms' recommendations said that over a 15-year period ending in 2005, only 5.72 percent of actively managed mutual funds had beaten the 500 stocks that make up the Standard & Poor's Index. In other words, 94 percent did worse.
None of the big brokerage firms would talk to me about their failure to outperform dart-throwing monkeys, so I interviewed successful money manager Robert Stovall. He used to run research departments at EF Hutton and Dean Witter Reynolds, and he told me just when the experts are useful.
"Everybody has a boss," he said. "Professionals won't buy Coca-Cola or some other stock unless they have reports in the file produced by well-known analysts so if something goes wrong with the stock they buy, they can show their boss, 'Hey, I've got a big file on this stock. All these analysts said it was a good one. Something went wrong.'"
So go ahead. Follow an expert. Then, when something goes wrong, you can blame him.
But if it's your money at stake, you'll probably do better with an index fund -- or a monkey.
Posted by Jimmy Akin in Economics | Permalink | Comments (27)
May 05, 2006
Mystery Map
(Jimmy Akin)
Take a look at this map.
Lots of reds and greens with some yellows in there.
Now mentally sub in some other colors.
Change the reds and yellows to blue, and change the greens to red.
If you do that, what does the map start to look like? Rather a lot like the election map from 2004. Not perfect, but close.
But this map isn't a map of voting results. It's a map of gas prices.
The redder the color of a county, the higher the gas prices. The greener the county, the less gas costs there.
Some of the factors affecting gas prices may be geographic (it's harder to get gas to some places than others), but the political aspect is not to be ignored.
Big government folks like their governments . . . well . . big, and to fund those big governments they need big taxes. That's one of the reasons California consistently charges so much more for gas than Arizona. California has a HUGE gas tax compared to other states, and there are gas stations right over the border in Arizona that advertise the fact that you can fill up there without paying the California gas tax.
It works! If I'm heading east, I wait till I get to Arizona to fill up my tank for long road trips. It's only two hours away, and I've usually got enough in the tank to get there before filling up.
It was interesting on my recent trip to see what the gas prices were elsewhere. At one truck stop, a trucker I ran into was positively livid about them and used vulgarity to express himself. At numerous stops people commented to me about how high the prices were.
To me, they weren't nothin.'
I live in California.
We always have the worst gas prices in the nation.
Thanks to our lovely blue-state legislature.
HERE'S THE SITE THE MAP IS FROM.
AND HERE ARE THEIR TIPS ON HOW TO SAVE MONEY ON GAS.
Posted by Jimmy Akin in Economics | Permalink | Comments (38)
April 12, 2006
People Are Not Commodities
(Jimmy Akin)
For a while I've wondered what supergenius Thomas Sowell would say about a particular argument that some might make regarding immigration.
It could be argued, and some have argued, that an open borders or open borders-like policy could be justified on the same grounds as a free trade agreement.
Free trade agreements between nations remove protectionist barriers between them so that their economies can work more efficiently and grow, to the mutual enrichment (literal enrichment) of the populations in both nations. The more efficient the market is allowed to be, the more it can generate value for those who participate in the market.
For example: Suppose that the nation of Freedonia is really good at making computers but really bad at making DVD players. It can make high quality computers really cheap, allowing purchasers to get a good product at a low price. But it's home-grown DVD players are shoddy and expensive.
Now suppose that the nation of Sylvania is the reverse: It has lots of high-quality, inexpensive DVD players but makes shoddy, expensive computers.
The market-efficient solution is to allow Sylvania's DVD players to get sold in Freedonia and to allow Freedonia's computers to get sold in Sylvania. That way both populations get high-quality products at low prices, and they can either spend the rest of their money on something else (growing their economies further) or take extra time off from work to spend with their family since they don't need to make as much money to purchase the things they want to buy.
(NOTE: If computers and DVD players are too frivolous for you, replace them with carrots and potatoes or other commodities that you find meaningful.)
(NOTE 2: If Freedonia and Sylvania are too frivolous for you, replace them with Tomania and Osterlich or other countries that you find meaningful.)
A market that allows commodities to freely flow from where they are abundant to where they are not thus improves the lives of people in both places.
Until original sin gets involved.
Original sin makes us want to do things like protect our interests at the expense of others.
For example: Suppose that you're a maker of DVD players in Freedonia. You make substandard, expensive DVD players, so it's not in your interest to have to compete with the DVD player makers in Sylvania, who crank out better, cheaper DVD players than you do.
So you start lobbying your legislators to pass protectionist measures like tariffs and import caps to keep you from having to compete with the DVD players makers in Sylvania. You don't want there to be many Sylvanian DVD players on the market, and you want them to be as expensive as possible for the consumer so that customers will buy yours instead.
After all, you don't want to have to retool your manufacturing process so that your players are as good and as inexpensive as those from the other country, and you certainly don't want to have to get out of the DVD player making business and learn how to make something else useful. You want to maintain the nice, comfortable status quo that existed before Sylvanians were able to compete with you.
The fact that protecting your interests by limiting the supply and jacking up the price of Sylvanian DVD players hurts both the people in Sylvania and your fellow Freedonian citizens/customers is beside the point. You just want to make sure that your interests are protected, even at the expense (literal expense) of others.
And that's normal for humans in a fallen condition.
It's a real act of maturity to be able to say, "Y'know, those folks are just better at this than I am. I should either improve myself or find something else productive I can do. That way everyone'll benefit."
But if this free-trade principle benefits people in both countries by allowing commodities to move to where they're most needed, what about applying it to labor markets?
Should we have an open borders policy, too, so that workers can move with as little impediment as possible from where the jobs ain't to where the jobs are?
Even if that meant some displacements of natives from positions in some jobs, so that they'd need to get retrained for other fields, wouldn't a long-term, mature view of the situation mean that the people of both countries would ultimately benefit in the end?
There's certainly a measure of truth in that, but how much truth is there? On balance, would it be a good thing or a bad thing?
What would Thomas Sowell say about this?
Interestingly, what he says is the same thing that many who favor closed markets say. Have you ever heard opponents of free trade insisting on how evil it is to treat people like commodities?
Sowell's answer to the open borders question is the same: People are not commodities.
Posted by Jimmy Akin in Economics | Permalink | Comments (15) | TrackBack
April 10, 2006
Can We Please Stop Using This Argument?
(Jimmy Akin)
People can rationally come to different conclusions on what should be done about the presence of millions of illegal aliens in the United States, but as that matter is debated, we should at least try to avoid some of the most obviously absurd arguments.
I therefore propose that we, as a nation, retire the "Illegal aliens take jobs Americans won't do/don't want" argument.
This is patent nonsense.
Anybody using this argument either has no grasp of economics or is being disingenuous due to the presence of an ulterior motive. (Them's yer two choices, so take yer pick, Mr. Bush.)
To see the absurdity of this argument, let's cast it in its starkest form: Food.
Before we do that, though, let me issue
THE BIG RED DISCLAIMER: The following treatment has nothing to do with ethnicity. It has to do with economics. In what follows I will talk about two groups of people--illegal aliens (whatever their ethnicity) and Americans (whatever their ethnicity). The fact that most (but by no means all) of the illegal aliens in this country are Latino in origin is irrelevant to the economic principles involved, as is the fact that many Americans are also of Latino origin. If you need to, swap the terms "America" and "Americans" for those of a random country somewhere else on the planet. The economic principles apply no matter where you are.
Now . . .
It is often noted that illegal aliens play a large role in the construction, landscaping, and domestic service industries, but nice buildings, nice landscapes, and nice domestic services are luxuries. Our most pressing survival-related need is for food, and so the "Jobs Americans won't do" argument can be cast most starkly if we look at the role of illegal aliens in the agricultural industry.
Suppose that all of the illegal aliens working in the agricultural industry decided to quit their jobs. What would happen to the U.S.?
Will we be seeing headlines in the New York Times like this one? . . .
Food Rots In Fields As The Nation Starves!!!
Of course not.
Americans are not going to starve themselves to death because they "won't do" the job of harvesting the food.
Americans have been harvesting food ever since there have been Americans (otherwise they would have all starved long ago), so they are certainly capable of it.
Why, then, are so many illegal aliens taking the place of Americans in the agricultural industry?
Because they come from a different economic background and are willing to do the jobs for less.
The effect of illegal aliens in the agricultural industry is not that they do work that otherwise wouldn't get done. It's that they depress the wages in the agricultural industry to the point that such jobs are unattractive to Americans.
It's that whole supply-and-demand thing.
When you've got a greater supply of something than you have demand for it, the price will go down. If manufacturers make loads of DVD players and start to outstrip the demand for DVD players then the price of DVD players will go down as part of competition for customers.
Same thing happens in labor markets.
If the supply of agricultural workers outstrips the demand for agricultural workers then the wages attached to such jobs will go down as part of competition for employment. When the wages are depressed past a certain point, some of the workers will say, "Y'know, I could do better in a different industry" and they decide at that point that they "won't do" the agricultural jobs at the depressed wages being offered for those jobs.
But what happens if the labor pool shrinks? What happens if all the illegal aliens decide to quit?
When the supply of agricultural workers shrinks so that it no longer outstrips the demand for agricultural workers and employers start raising wages in order to attract the workers they need, and the work gets done.
Trust me, Americans are not going to starve themselves to death if they have no illegal aliens to harvest food.
What will happen instead is that the wages offered for such jobs will rise, Americans will start valuing such jobs more as a result (instead of looking down on them), and they will start doing them. The food will get harvested, and when it is sold to the public the added labor costs will be passed on to consumers in the form of a modest increase in food prices.
But there will be no massive wave of starvation in the U.S.
Something similar applies to the jobs in other industries that currently have high levels of involvement by illegal aliens. If the supply-and-demand situations of those industries were readjusted then Americans would be attracted to jobs in them as well, and the work would still get done. People might economize in some areas (e.g., taking care of the kids yourself instead of hiring an illegal alien to serve as a nanny), but we won't see headlines like:
American Buildings Rot Due To Lack Of Construction Workers!!!
Landscaping Crisis Dwarfs Hurricane Katrina!!!
Absence Of Domestic Services Causes American Family To Fall Apart!!!
People who want to maintain the status quo on illegal immigration--or who want to legalize the status quo via amnesties and guest worker programs--may still argue for these on other grounds (e.g., that there is an overall positive economic impact from having millions of low-paid foreign workers in the U.S. or that it's a practical impossibility to remove them all), but whatever you want to see done about illegal immigration, you'll need to argue it on grounds other than the "Jobs Americans won't do" notion.
That one's a non-starter, Mr. President.
P.S. BTW, Mr. President, do you realize how arrogant and insulting you are being when you use the "Jobs Americans won't do" argument?
This argument can be parsed one of two ways: (1) "Such jobs are beneath us as Americans, so we need to import foreigners to do these lowly tasks for us" or (2) "I preside over a nation of such hopelessly spoiled brats that we need to just cave in to their juvenile refusal to do such jobs."
The first is arrogant and insulting to people from other countries. The second is arrogant and insulting to Americans.
Since it can be parsed both ways, the argument is arrogant and insulting no matter what your nationality.
Posted by Jimmy Akin in Economics | Permalink | Comments (35) | TrackBack
March 13, 2006
The Odd Politics Of The Free Market In America
(Jimmy Akin)
Earlier I mentioned the Vatican position paper saying that developed nations should reconsider their farm subsidies and agricultural trade barriers so that those in the developing world won't be hurt by them.
Unfortunately, protectionism is a perpetual risk for every nation, including those in the developed world.
After all: What politician doesn't want to be able to please certain segments of his constitutency by offering it subsidies and protectionistic trade barriers to keep the prices it can charge for what it makes high?
Jonah Goldberg has an interesting analysis of how the U.S. has been able to ward off the kind of protectionism that has hurt Europe's economies, as well as a warning about what may be on our horizon.
He writes:
The beauty of the American free-trade consensus over the last few decades is that it split two outlooks that tend to go together: nationalism and socialism. In terms of economic policy, nationalism is indistinguishable from socialism. When you nationalize an industry, you socialize it. And what is the difference between socialized medicine and nationalized healthcare?
Liberals are naturally sympathetic to socialistic arguments, conservatives to nationalistic ones. But to everyone's benefit these two outlooks have been quarantined in different parties. Conservatives have been culturally nationalistic but economically liberal (in the classical sense). Liberals have been economically nationalistic — on healthcare, regulation, taxes, unions — but culturally liberal. Although it's been quite painful for them, this cultural liberalism has kept the Democratic Party in favor of free trade and immigration. Protectionism hurts foreigners and poor Americans, after all.
Indeed, to be fair, the Democratic Party has been heroic in bucking its base — the economically nationalistic labor movement — on free trade. FDR, Truman and Kennedy were all consummate economic nationalists. Free trade was tactically in their interests for a long time because it dovetailed with labor's interest. When the United States stopped being the manufacturer to the world, the Democratic Party struggled — not always successfully — to stay pro-trade on principle, even at the cost of votes. Meanwhile, the GOP has had the opposite challenge: to stay pro-free trade even as its ranks swell with working-class voters enamored with their paychecks, not Adam Smith.
Now, a win-at-all-costs Democratic Party has realized that this is the perfect moment for it to re-brand all of its economic ideas in the language of patriotism. Many Republicans are determined to fight the Democrats for this turf. So they too are bending their economic policies to fit their cultural conservatism.
And if we let them follow this path, we'll have the same problems as Europe in no time.
Posted by Jimmy Akin in Economics | Permalink | Comments (31) | TrackBack
The Vatican: Exponent Of Free Trade?
(Jimmy Akin)
One doesn't normally get the impression that many high churchmen are committed exponents of the free market.
Even when the free market is circumscribed by laws safeguarding fundamental moral values (like: You can't buy and sell intrinsically immoral goods and services), and while John Paul II acknowledged that the market is able to do better for man than Communism, the impression is still given that many churchmen are somewhat uncomfortable with the idea of the free market.
But there seems to be an evolution of thought occurring on this subject. As the economies of the world have developed, it has become more and more clear what works and what doesn't, and the reputation of the free market seems to be improving in at least some ecclesiastical circles.
One recent sign of at least part of this is a March 9th position paper issued by the Holy See for the U.N. Food and Agriculture Organization's conference on agrarian reform and rural developement.
Unfortunately, I haven't been able to locate a copy of the document, but from what can be gleaned of its contents from the news, it appears that at least some folks at the Vatican appreciate the fact that protectionistic farm subsidies and trade barriers in the developed world hurt farmers in the developing world.
Thus, according to the Catholic News Service (EXERPTS):
Justice requires that wealthy nations reconsider the level of subsidies they offer their own farmers and the barriers that countries place on the import of agricultural products from developing nations, the Vatican said.
While developing countries have to take responsibility for their own agrarian policies, the Vatican said, rich countries cannot ignore the impact their internal policies, particularly farm subsidies and trade barriers, have on the poor.
"Correcting this situation means appealing for a concrete concept of justice capable of being realized in policies, rules, norms and acts of solidarity," the Vatican said.
What you've just heard is the sound of one shoe dropping.
The other shoe--if it is to drop--is the recognition that what's good for the third world in this respect is good for the first.
The fact developed countries are as economically developed as they are is no accident: It's because they developed a legal and cultural environment in which economic development could take place, and that has been helped along by refusal to engage in economic protectionism and thus have free markets.
True, Europe is presently in the grip of a wave of protectionism that has hampered its economy, and even here in America there are protectionist elements (like all the farm subsidies the government gives out), but an important part of our economic development is that our markets are free-er than they could be.
It'll be interesting to see how thought on these matters evolves in ecclesiastical circles in the future.
Posted by Jimmy Akin in Economics | Permalink | Comments (6) | TrackBack
March 10, 2006
Spend No $10K Bills
(Michelle Arnold)
A U.S. bill with a face-value of $10,000 has been moved to a more secure location for safekeeping and historical archiving:
"The $10,000 bill bears the likeness of Salmon P. Chase, for whom the bank was named. Chase was a U.S. senator who served as treasury secretary under President Lincoln.
"The large bill was discovered in a bank customer's safety deposit box after the owner died 20 years ago. The woman's family exchanged the currency at face value, and the bank stored the bill in a plastic sleeve for protection.
"But bank officials decided the bills would be safer at the JP Morgan Chase & Co. corporate office in New York. The bank sent the bills there last month by armored truck.
"The government stopped printing bills larger than $100 in 1945 and hasn't issued any since 1969. The Green Bay bills were printed in 1934."
Posted by Michelle Arnold in Economics | Permalink | Comments (7) | TrackBack
December 21, 2005
How POD Changes The Market
(Jimmy Akin)
A way long time ago I pointed out that print-on-demand (POD) technology was not simply a replacement for traditional publishers that aspiring authors could use to get their works out and presented to an admiring public.
POD tech works on the same principle as computer tech: "Garbage In, Garbage Out."
Writers who are not yet ready for prime time can get their work out via POD publishers, but they will sell precious few copies because the work is . . . well, not yet ready for prime time.
But POD tech CAN serve as an important compliment to existing publishing houses for writers who ARE ready for prime time.
Enter JMS.
Earlier I mentioned his project of publishing all the scripts he wrote for B5. That's something he (and his colleagues) are doing through Cafe Press, which is a POD publisher of books (and other things).
In a Usenet post, JMS explains how this technology is already changing the publishing industry:
Others have asked why I (and the B5 scripts team) are going through Cafe Press rather than a major publisher. The answer is very simple: over the years, I've had many publishers approach me about publising the B5 scripts, but they take the same timid line WB has always taken about the show. We had to push like hell to get the DVDs released, and they still insisted on testing the water...putting out one disc first (same with the VHSs) to "test the waters"....and of course now the DVDs have grossed half a billion bucks for WB.
So when the publishers approached me, it was with the same, "Well, let's put out one book now, the 'best of' scripts, then we can think about doing more down the road, so we can test the waters." When I explained that i wante all of the scripts to go out, all 14 volumes, nearly a hundred scripts...they couldn't even fathom such a thing. It's never been done, not on this scale. But with Cafe Press, we CAN do all 14 volumes.
This collection is really the Rosetta Stone of the Babylon 5 universe...and I wanted that to get out there in full, to kind of finish the job properly. Here's the scripts, here are the stories behind the scripts, the arc, the production, here are the photos and the memos, so that when it's done...it's really done. Again, we're talking here over 6,300 pages of material...14 volumes, each nearly an inch thick...it's just monumental.
A few other places came and said they could do it, but their plan was to do even FEWER copies, limited edition stuff, hardcover, at a cost of sixty to two HUNDRED bucks per copy, which I thought was just way, way beyond the pale. The whole point of the exercise is to get this into the hands of as many people who want it as possible. The way we're doing it now, for a bit over four hundred bucks, folks can get all 14 volumes, plus the 15th free, which is a heck of a lot more affordable, given what scripts and the like sell for on Ebay.
For me, on a personal basis, it's been an amazing process to go back in time, through the memos, scripts and photos, and re-live those years. Which is one of the reasons why the intros/essays have been ballooning out in size...from 13,000 words to 15,000 to 18,000 words, not COUNTING the other material. I'm putting it all in...all the stuff nobody ever heard about...it's all going in here.
And then, when it's done, the tale will at last be told in its entirety...the show, and the show *behind* the show.
Again, though, bear in mind that there is a ceiling on how long these will be available at www.babylon5scripts.com so if there's somebody who doesn't know about the site, you may want to let them know in time to get in while the Cafe Press price breaks will give them maximum benefit.
I have to be honest...I'm enjoying the hell out of this.
jms
So: The major publishers aren't on the verge of going out of business due to POD, but the dynamics of the marketplace are already changing because of it. Projects like the complete JMS B5 script series would NEVER have happened through a regular publisher, but now it is happening because the technological changes with the introduction of POD.
It's apparently selling like crazy, too.
It'll be interesting to see how this technology matures (and what impact it has on authors' royalties since at that point all authors will need publishers for are things like copy editing, proofreading, and typesetting--services POD publishers are sure to offer for a fee--and marketing).
Posted by Jimmy Akin in Economics | Permalink | Comments (5) | TrackBack
November 25, 2005
Godzilla Bleg
(Jimmy Akin)
I'm frustrated.
For some reason I cannot fathom, though there are TONS of Godzilla movies out on DVD, the original version hasn't been released--so far as I can tell.
I'm not talking about the Raymond Burr-infested American release of Godzilla King of Monsters. I'm talking about the ORIGINAL Raymond Burr-free Japanese version from 1954 (titled Gojira in Japanese).
It's supposed to be much less campy, much more artistic, and much more gooder.
Yet I can't find it!
I've tried going to the Amazon.co.jp site to order it from Japan (I've used the British and German Amazons to order stuff from overseas before), but the Japanese writing system is just too much of a barrier at present for me to find what I'm looking for.
So I was wondering: Could someone who reads Japanese check the site and let me know if they've got an original DVD version of the film--preferably with English subtitles?
Or if anyone knows of a western release of the original version, I'd love to know about that, too.
Thanks much, folks!
Posted by Jimmy Akin in Economics | Permalink | Comments (13) | TrackBack
October 13, 2005
How Industries Team Up To Thwart The Market And Force More Money Out Of You
(Jimmy Akin)
Posted by Jimmy Akin in Economics | Permalink | Comments (14) | TrackBack
September 15, 2005
I Think I Made Him Mad
(Jimmy Akin)
If so, I apologize, for that was not my intent.
I'm referring to Scott Richert of ChroniclesMagazine.Org, who has responded to my latest two posts in our exchange, HERE and HERE.
Mr. Richert appears not to wish to continue the exchange (he titles his second post "Final Thoughts in the Case of St. Thomas Aquinas, Leo XIII, Pius XI, et al. v. Jimmy Akin," and he refers to me "bring[ing] what remained of this conversation to a screeching halt").
Mr. Richert had requested that I do an analysis of the just price concept and how it compared to my own views, and in my previous post I did so. In his reply (the second link above), Mr. Richert does not engage my analysis on the merits but lodges a number of complaints against me as an author.
First, he takes exception to me saying that (and not providing examples of how) the concept of the just price concept has varied considerably over time. He appears to believe that this is not the case.
He also conjectures that I did this as a rhetorical technique to suggest that the Church keeps changing its mind on what the just price concept means and therefore we don't need to consider it. This is absolutely not the case.
The just price concept has been articulated by many different writers over the centuries, many (most) of whom lacked magisterial authority, and I was simply noting this to make clear to the reader why I needed Mr. Richert to provide a definition for me to interact with since I otherwise couldn't make sure that I was interacting with his view rather than committing the straw man fallacy against him by critiquing the what was said by a writer whose views on the concept Mr. Richert does not endorse.
I was trying to avoid the straw man fallacy by making sure I was clear on Mr. Richert's view, not suggesting that his view (or any one else's) is irrelevant because others have given different articulations to a concept. As my academic training is in analytic philosophy, I'm quite concerned with getting precise definitions on the table rather than dealing with concepts in an impressoinistic manner.
The reasons I didn't provide examples were (a) the piece (like others in the series) were too long anyway, (b) it's obvious that there are substantively different articulations of the concept (as can be seen by comparing Mr. Richert's passage from Fr. Cahill with the one found HERE), and (c) any term not dogmatically defined by the Magisterium is naturally going to be given significantly different articulations by theologians over a period of several hundred years.
If Mr. Richert wants to continue the discussion, further examples can be provided to document this point.
Second, Mr. Richert objections to my inclusion of a bracketed insertion into the following statement from Fr. Cahill:
all commodities [in the Middle Ages] had a certain value which common estimation could determine and which accidental circumstances, such as scarcity or the special needs of the buyer or seller, could not substantially change.
Mr. Richert suggests that the insertion "[in the Middle Ages]" is another debater's trick to alienate the reader from the just price concept, as if the fact it applied to the Middle Ages meant that it is unworthy of consideration.
This is not the case. I included the insertion because Mr. Richert quoted this particular bit from Fr. Cahill as a working definition of the just price and, as you'll note, Fr. Cahill uses the past tense in it. In his endorsement of this as a definition, Mr. Richert did not quote the context that would enable the reader to understand what time period Fr. Cahill was referring to by his use of the past tense.
I was attempting to help the reader out by explaining an unexpected usage of the past tense, not seeking to undermine the definition. If I had been trying to do the latter I would included a reference to the Middle Ages in the ultimate formal definition I proposed for critique. (A definition that doesn't use the past tense since I could re-cast it.)
Third, Mr. Richert is very offended by my note to the reader:
(Warning to those who might want to look up the quotes from Fr. Cahill: Many readers will find parts of Fr. Cahill’s book extremely offensive. For example, he repeatedly laments the influence that “the Jews” have in various sectors of society.)
Mr. Richert thinks this is another debater's trick whereby I hypocritically do a guilt by association smear on him (I had previously charged him with doing such smears against me.)
After noting that Fr. Cahill's book has an imprimi potest and a nihil obstat (neither of which is a guarantee that the work won't contain offensive material), Mr. Richert says:
It’s odd that Mr. Akin believes that “many” of his readers (presumably a predominantly Catholic audience) would find such a work offensive.
Let me be clear about why I included this warning: It was for self-protection.
I would have been happier if Mr. Richert had supplied his own definition for the concept of just price or if he had quoted from someone other than Fr. Cahill, for then I wouldn't have had to interact with Fr. Cahill's book.
Fr. Cahill says a number of things that, however socially acceptable they may have been in the 1930s when the book was written, are offensive to many today, including contemporary conservative Catholics. In fact, I know of cases of conservative Catholics complaining about this book before.
Aware of this, I did not want to engage in a discussion of Fr. Cahill's book without making some kind of warning to the reader about the material it contains (people who read the blog regularly have seen me issue such warnings regularly). I didn't want people getting the book (for example, because they'd like to read what it had to say on economic matters) and then complaining to me about the anti-Jewish material and potentially even accusing me of anti-Semitism.
I didn't want to make this a focus of the discussion, which is why I didn't reproduce any of Fr. Cahill's anti-Jewish remarks. I also didn't want to smear Mr. Richert, which is why I didn't introduce Fr. Cahill as "an anti-Semitic priest." The fact that he made offensive remarks about Jewish people doesn't mean that he doesn't know economics or Church teaching regarding economics, so I issued the warning as mildly as I could.
I partitioned it (a) as a parenthetical statement, (b) as a warning to those who might want to look up the quotes, not as a warning to readers of the blog in general (though of course others would see it), (c) as a brief comment that gave no inflammatory examples, and (d) as a note tagged to the LAST of the quotes I gave from the book instead of the first, so that readers would have the chance to think about what Fr. Cahill said on economics before getting warned about his views in other areas.
I don't see how much more I could have toned it down and still issued a warning. I could have simply said that his book contains material many will find offensive, but then I would be open to the counter charge, "Oh, but what IS this 'offensive' material? Why are you doing a hit-and-run on Fr. Cahill without even giving us any hint of what he says that is so 'offensive'?"
As to it being odd that readers might take offense at what Fr. Cahill says since most of my blog readers are presumably Catholic, I would note (a) that my readership is actually quite diverse and includes people from many different perspectives, including some readers who are Jewish, (b) I've known conservative, non-PC Catholics to take offense at this book before, and (c) I think that many of my Catholic readers would take offense at passages from Fr. Cahill like:
Jewish Influence.--As in the case of Liberalism, Freemasonry, Bolshevism, and almost every modern movement that is essentially unchristian and anti-Christian, the formation and development of Individualistic Capitalism unquestionably owes much to the Jews. The whole modern system of finance, upon which modern capitalism pivots, is practically a Jewish creation, and the world of finance is to-day almost completely dominated by the Jews. Again, English Puritanism which is so closely associated with the rise of Indivdiualistic Capitalism, seems to exhibit a certain affinity with modern Judaism. The Jews were always specially favoured by the Puritan leaders, and attained much influence in England under Cromwell, the greatest and most typical of the English Puritans. Again, the selfish concentration upon matrial gain and the worship of worldly success, which are characteristic of the modern individualistic spirit, take the place of real religion with Jew and Puritan alike [p. 144].
Knowing that the book contained passages such as this (and it is one of many in which Cahill railed against "the Jews"), I concluded that I needed to warn individuals who might wanted to look up the references that they would find such material in the book.
This doesn't mean Cahill is wrong about what the just price concept meant or that the just price concept is a bad one. Even people who are bigoted enough to say that "selfish concentration upon material gain and the worship of worldly success . . . take the place of real religion" with Jewish (and Puritan) people can correctly understand and articulate economic concepts and even endorse good ones.
Being a bigot in one area doesn't mean that you're wrong in others. It does mean, though, that your works will be quoted with warnings given about them.
Not wanting to sidetrack the discussion with Fr. Cahill's prejudices, however, I didn't quote such passages and issued the warning as modestly as I could think to.
Finally, Mr. Richert takes exception to my characterization of the Middle Ages as impoverished compared to modern times. His response is that modern times are spiritually impoverished compared to the Middle Ages.
This is quite true. The faith among the Christian population was stronger then and suffused their culture in a way it does not today. This aspect of the Middle Ages is much to be admired and, if possible, duplicated at some point in the future (though B16 doesn't see that happening any time soon).
Mr. Richert points out that there are values that transcend economics and that must be pursued, and this is also quite true. He tells a poignant story involving Mother Theresa, which is spiritually compelling and a powerful testimony to the value of compassion over money.
These points do not mean, however, that the economics of the Middle Ages were correct, that they should be applied today, or that the Church requires us to believe in them.
If I have inadvertently given Mr. Richert offense, I again apologize.
It is disappointing that Mr. Richert wished to end his involvement in this discussion on such a sour note.
It is also disappointing that, having requested that I do an analysis of the just price concept, he would choose not to interact substantively with the reasoning I laid out.
Should he choose to continue the discussion, I would be very interested to hear what he might have to say to two of the points that I raised:
- If the just price concept is to play a moral restraining function and not be identified from or solely from the free market price of a good and not be identified through a series of price controls then what criteria does Mr. Richert think that a merchant should look to that do not substantially involve considerations of the item's supply or the needs of those who purchase it?
- Does Mr. Richert acknowledge that by asking for a just price to be determined that is not substantially affected by "scarcity or the special needs of the buyer" that he is asking for a price to be determined in a way not substantially affected by considerations of supply and demand?
Posted by Jimmy Akin in Economics | Permalink | Comments (12) | TrackBack
September 13, 2005
The Great Depression
(Jimmy Akin)
A question came up in the combox down yonder about the Great Depression and how it can be accounted for undr different economic theories.
Tom Woods posted a comment linking to some resources on the question that I thought folks might want to check out, so con permiso here is what guestblogger Tom Woods had to say:
Just a little comment on the Depression: it certainly did not occur at the height of free-market thought [as one commenter suggested]. The American Economic Association had been all but hijacked by statist thinking coming out of Germany. Promoting "associationism," which consisted of "voluntary" government-business partnerships, was the order of the day. (See Butler Shaffer's book In Restraint of Trade for all the details of just how anti-market the intellectuals and even the business executives were at the time.) And in the 1920s you had so-called economists gleefully suggesting that permanent prosperity was here, that the Federal Reserve could fine-tune the economy. Well, the Federal Reserve is not a market institution! It is created and sustained by government, and it consitutes an intervention into the market for money.
I discuss the causes of the Depression both in The Church and the Market and in this video, toward the beginning:
Also audio:
The Austrian School, for my money, has by far the best explanation for economic depressions.
Posted by Jimmy Akin in Economics | Permalink | Comments (16) | TrackBack
September 12, 2005
Just Price Analysis
(Jimmy Akin)
Over at ChronicleMagazine.Org, Scott Richert has wondered what I'd make of the just price theory that developed out of Scholasticism and how I'd compare it to my own views.
The concept of a just price has varied considerably over the course of time, and so for me to interact with it, I need a definition to work from. Fortunately, Mr. Richert has provided one. In the combox over yonder, he endorses the following as a good working definition of the just price concept:
all commodities [in the Middle Ages] had a certain value which common estimation could determine and which accidental circumstances, such as scarcity or the special needs of the buyer or seller, could not substantially change.
Mr. Richert takes this definition from Fr. Edward Cahill's book Framework of a Christian State, which was first published in the 1930s. In order to understand the above passage in the sense that Fr. Cahill wrote it (and, I assume, the sense in which Mr. Richert means it), one needs to see it with a bit of context. Here is the full quote as given by Mr. Richert (emphasis in original):
The doctrine of the Just Price and the whole mediaeval attitude towards trading profits imply a fundamental contrast between the Catholic economic outlook and the one that prevails in modern times. Although it may be difficult to determine with exactness the intrinsic value of a commodity or the just price at which it might be sold, it was universally admitted that all commodities had a certain value which common estimation could determine and which accidental circumstances, such as scarcity or the special needs of the buyer or seller, could not substantially change. Competition was thus confined within the limits of natural equity, and the unjust activities of the financier, the middle-man and the trader were kept in check [p. 45].
This brings out an important element that one needs to understand the just price concept. Fr. Cahill alludes to the difficulties that exist if one wants to "determine with exactness the intrinsic value of a commodity or the just price at which it might be sold," which indicates that commodities have intrinsic values that are relevant to the price that may justly be charged for them.
Just before this passage, in a section Mr. Richert does not quote, Fr. Cahill is even more clear on the point:
According to medieval teaching on the other hand, the price of a commodity was supposed to be determine by objective value alone; and could not be justly influenced by the special need or ignorance of buyer or seller [p. 43].
We might try to combine these conditions to form a definition of the just price as follows:
The just price of an item is a sum of money equivalent to (a) the intrinsic value of an item (b) as determined by the common estimation of the community and which (c) is not substantially affected by accidental circumstances.
Without feedback from Mr. Richert, I can't say if this is an accurate rephrasing of his understanding of the just price, but I have tried to make it accurate. If I'm wrong, I hope Mr. Richert will correct me.
Now here are the problems with this definition.
The first problem concerns the notion of intrinsic value. Many people, including those setting prices in the Middle Ages, tended to have a simplistic understanding of the value of an item, as if particular items had a single intrinsic value and the trick was simply to figure out what amount of money (or another commodity in the case of barter) corresponded to that value. Thus the intrinsic value of a hammer might be represented by ten coins, while the intrinsic value of a loaf of bread might be represented by three coins.
A key problem (though far from the only one) in establishing what the value of an item might be is the fact that the value of an item depends on the use to which it will be put. If you are trying to drive a nail then, all things being equal, a hammer will be much more useful for that purpose than a loaf of bread. On the other hand, if you're trying to drive away your hunger pains then, all things being equal, a loaf of bread will be of much more use than a hammer.
This fact will become very important below.
The second criterion of the just price definition we gave is that the price of a good be set based on the intrinsic value of an item as determined by the common estimation of the commuity.
In principle, I don't have a problem with this. The community that will use a set of goods knows better than anyone else how valuable those goods will be to it. The question is: How does the community arrive at its esimation of value?
If it arrives at it through individual economic transactions in which the law of supply and demand is allowed to act in the absence of price controls and if from these transactions a typical price for a commodity emerges, fine. In that case the just price of an item is identical to the concept of the natural price point of an item.
But this is not how the concept functioned in the Middle Ages.
Though it was always hard to figure out the exact price that should be charged for an item, the community through some mechanism agreed on a price which was then regarded as the just price irrespective of circumstances, so that you couldn't charge substantially more for hammers or loaves of bread if they were suddenly in short supply. When merchants tried to charge more, angry customers would appeal to the local ruler to impose price caps on what merchants could charge.
Sound familiar? Those are what we'd today call anti-price gouging laws.
Conversely, when commodities were in abundant supply, customers would not complain that some merchants were charing less for them. Instead, other merchants would complain, and guilds would impose minimum prices that could be charged by its members.
Sound familiar, again? This form of collusion between businesses is now known as price-fixing, and in the United States it is a felony.
The medieval just price system thus involved price controls imposed by the state and price-fixing on the part of businesses.These aspects of the medieval system are not mentioned by Mr. Richert, but Fr. Cahill is explicit about them, writing:
In the case of most commodities, the Just Price was usually fixed by the guilds or by the municipality, or even by the State [p. 44].
(Warning to those who might want to look up the quotes from Fr. Cahill: Many readers will find parts of Fr. Cahill's book extremely offensive. For example, he repeatedly laments the influence that "the Jews" have in various sectors of society.)
From what I gather, Mr. Richert is not in favor of price controls, but these were a prominent part of the medieval just price system. By rejecting them, Mr. Richert is advocating a significant departure from the just price system as it was understood and practiced in the Middle Ages.
I am not sure, though, what Mr. Richert wants a merchant to look to in proposing prices for his goods. Mr. Richert obviously finds the concept of natural price point inadequate, so he can't look or look solely to that. On the other hand, he doesn't favor price controls set by the government (or, presumably, price-fixing forced on one by other guild members).
Instead, he seems to want the concept of the just price to serve as a kind of moral restraint on the prices that merchants propose. I think in order for him to successfully articulate a system in which the just price concept can be used in this way, he needs to spell out in further detail what criteria the merchant should use in proposing prices to his customers.
Presumably those criteria would involve the impact that a particular price would have on other people (e.g., it would force them to either do without a commodity or divert funds away from other commodities they also need).
This is where we hit the major problem with his articulation of the just price concept.
Quoting Fr. Cahill, Mr. Richert endorsed the notion that a just price is one "which accidental circumstances, such as scarcity or the special needs of the buyer or seller, could not substantially change."
This is an ENORMOUS problem for one wishing to point to the impact that particular prices would have on other people as grounds for judging the prices just or unjust. The reason is that the needs of the buyer and seller directly reflect the impact that the prices will have on them. How one could could use the impact that prices will have on people without considering their needs, I simply don't know.
Further, consider the role that scarcity or abundance has relative to people's needs. You personally need a certian amount of food in order to survive and keep away hunger pains, and you'd no doubt pay well in order to get that amount of food. You'd also probably pay well to keep on hand a reasonable supply of food for future use. But beyond that? You wouldn't pay nearly as well. You just don't have much use for food beyond a certain point, and unless there's a famine on (or coming), you don't have any reason to stockpile it (i.e., hoard it) in large quantities.
But if a famine hits, you suddenly have a greater need for food. It's not that you need to eat any more than you usually do. (In fact, you can probably get by eating less than normal.) It's that there may be gaps in the supply-chain that you will need to weather, and having additional quantities of food in reserve will help you get through those periods. Buying that extra food will help minimize the impact of the new food scarcity on you.
The problem, of course, is that the famine doesn't just affect you. It affects everybody in your area. They all have a greater need for food reserves in order to weather the famine, and they will all go out to buy the additional food.
When they get to the store the shelves will quickly be picked clean since the famine prevents them from being quickly refilled.
Or at least that is what will happen if the merchant is following Mr. Richert's articulation of the just price concept. Under that system, the merchant can't "substantially change" his prices to take into account the scarcity of the food and everybody's corresponding need for it.
In the absence of price controls, he could. He could raise his prices and that would force everyone in the community to economize: to think, "Just how much extra food do I really need? Can I even get by with eating less than I usually do?" This behavior then will restrict the amount of additional food the buy and will help keep food on the shelves (and thus available for those who really need it) until the restocking problem can be solved.
When you think about it, Mr. Richert's understanding of the just price concept seems economically perverse:
- The just price of an item is supposed to be its value without substantially taking into account "scarcity or the special needs of the buyer."
- Scarcity is the opposite of abundance, and together scarcity and abundance describe the supply of a commodity.
- The needs of the buyer, however, are what drive the demand for the commodity.
By asking for a price that reflects the value of an item apart from considerations of its scarcity or the needs of those who buy it, Mr. Richert seems to be asking merchants to charge prices that are not substantially affected by considerations of supply and demand.
That, of course, is a recipe for MASSIVE economic inefficiency.
No wonder they were so poor in the Middle Ages.
Posted by Jimmy Akin in Economics | Permalink | Comments (19) | TrackBack
September 08, 2005
A Very Nice Chat
(Jimmy Akin)
Yesterday over on ChroniclesMagazine.Org Scott Richert posted a comment in which he said that I'd attributed someone else's words to him and that he'd asked me to correct it and that he assumed I would. Thing was, I never got the e-mail and so figured he might be using an old or otherwise bad address for me. Since I couldn't find his e-mail, I called him, because I wanted to make sure that I got any misattributions corrected. He told me that, on further examination, he saw that I hadn't misquoted him.
The two of us had a very nice chat. Mr. Richert was a real nice guy, and he said that, although he hadn't meant his post the way it was taken, he could see why someone would take it that way. I therefore consider that aspect of the matter closed, and no hard feelings.
He also said he looked forward to seeing my interaction with the rest of his post so . . . onward!
(BTW, I want to apologize for the excessive wordiness of what follows. Since I said I'd try to have this today, I wrote it in a hurry, and it covers some fairly technical ground. Looking over it this morning I see that it really needs to go on a word-reduction diet, but I don't have time to trim it before work.)
In his post, Mr. Richert took exception to a number of things I wrote. After quoting the conclusions in my original post, he affirms my first conclusion, which is drawn from the Catechism, and then says
His [Akin's] second and third points, however, simply come out of the blue, and both hinge on Akin’s term “natural price point”—a term that is not used in the Catechism, nor in any of the Church’s social encyclicals (not even in Centesimus annus, often seen as more “pro-capitalist” than, say, Rerum novarum), nor, as far as I can tell, in the writings of any of the Fathers or Doctors of the Church.
I'm not sure why Mr. Richert says some of my conclusions come out of the blue since there is a long section in my post developing and explaining them. He may simply mean that they are not stated in the Catechism or other documents of magisterial, patristic, or "doctoral" (to coin a usage) character.
Unfortunately, the Catechism writes with such brevity that it often doesn't answer all the questions you want to ask. When that happens, as it did here, you've got to do the best you can to take what the Catechism states and relate it to the real-world situation that led you to consult it in the first place. That often means going beyond the langauge of the Catechism itself.
It's true that "natural price point" is not found in recent encyclicals on economics, such as Centesimus Annus, but then you can't expect a technical term to be used in documents that don't address the question ou are trying to answer (sharp price spikes in the wake of natural catastrophies). Indeed, when it comes to how prices should be set, it's hard to find anything in recent magisterial documents more than a general endorsement of some kind of free market.
And it would be unreasonable to expect a contemporary technical term to crop up in works of any nature that were written before the term was coined.
The "this term isn't found in the Catechism, the encyclicals, the Fathers, and the Doctors" objection thus is not that weighty on its own. You might as well fault a person who is considering whether a theistic version of punctuated equlibrium is consistent with Church teaching on the grounds that the Catechism, the encyclicals, the Fathers, and the Doctors don't use the term "punctuated equilibrium" in their discussions of evolution.
Of course, if there is an established terminology that the Church uses in handling such questions then the thing to do is use it, and Mr. Richert next seeks to build a case that I have neglected such a terminology, writing
What is used in the social encyclicals and in the writings of such doctors of the Church as St. Thomas Aquinas is the term “just price,” and anyone who has read the encyclicals or Aquinas knows that the “just price” is not simply another way of saying the “natural price point.”
Whatever the merits of the notion of the just price concept, I don't see an obligation for a contemporary interpreter to use this concept when trying to solve the question I was answering.
Regardless of how prominent the just price concept may have been in the past, developments in the Church's social teaching have been so extensive that, out of the thousands of documents on the Vatican web site, there are exactly four that use this term. Of those, it's not clear that all of them are using it in scholastic sense.
For example, in Centesimus Annus, John Paul II refers to "a just price, mutually agreed upon through free bargaining." That sounds more like using the market mechanism as the dominant factor in determining price rather than the strict guild-and-prince price control system that undergirded the scholastic just price concept.
The term, at least in the desired sense, thus does not seem to appear in the most recent economic encyclicals. It fails to appear altogether in the Catechism. And an examination of the Compendium of the Social Doctrine of the Church fails to turn it up (though I couldn't search this electronically since it's not online).
However important the just price concept may have been in the past,
the economy and the Church's economic thinking have changed so much
that it seems that the Church doesn't regularly use this concept in its authoritative documents.
If an individual interpreter wishes to use the concept, that's fine. But the fact that the Church has had so much to say about economics in recent years and has used this concept so little (if at all) in authoritative documents suggests that there is no positive obligation for the interpreter to use this concept.
(NOTE: For those wanting a brief discussion of the history of the just price concept, SEE HERE and HERE.)
It thus seems to me that there is considerable liberty on this point. The Catechism indicates that one cannot morally "forc[e] up prices by taking advantage of the ignorance or hardship of another," and I can think of at least one circumstance in which that can happen that is relevant to the question I was answering (i.e., restricting supply that is in high demand due to a disaster). But--and here's the important point--the principle that the Catechism is articulating is not spelled out in sufficient detail (in CCC 2409 or elsewhere in the work) to mandate that the interpreter use any particular price-setting mechanism in his overall view of economics.
Thus an interpreter is at liberty to use the natural price point
concept or the just price concept or some other concept. At present the
Church is only articulating general principles in this area and leaving
it to individuals to work out the practical consequences of this on the
concrete level. In other words, the Church does not mandate an overall
economic theory any more than it mandates an overall scientific theory
or an overall philosophical theory. It sets general parameters for
legitimate Catholic belief, but within those parameters there is
considerable latitude.
It seems to me that the concept of the natural price point is an
important one that is relevant to the situation of post-disaster price
spikes. By the term "natural price point," I mean that price for a good
or service that (a) the market will tend to converge on, (b) in a
particular, concrete economic situation, (c) though the market
mechanism, (d) without government-mandated price restrictions in place.
(At least that's a first pass at what I mean. I reserve the right to
revise and extend my definition if further thought or discussion makes
me see a need to clarify it.)
This is not quite the same as Mr. Richert's summary of the concept
of the natural price point as "the going rate" since the going rate may
be affected by things like government-mandated price restrictions, but
it's close enough that we can let that pass.
Mr. Richert goes on to say:
[F]or the Christian gas-station operator or grocer or motel owner, setting his price at the going rate may not, in fact, be the moral thing to do.
True. I can think of situations where that is the case. He may be
charing the going rate out of an inordinate desire for money, or he may
be charing the going rate for something he ought not be selling at all
(e.g., abortions, prostitution services).
Nothing in Catholic social teaching indicates that he is obliged to sell at a loss,
Under normal circumstances, no, but in certain circumstances, maybe.
The Catechism indicates that there can be situations in which the right
of private property is to be regulated or suspended altogether, and in
such circumstances it might be morally obligatory to sell at a loss
(e.g., your town is an economically isolated unit; you paid a bunch of
money for grain to put in your granary; then a famine hits; the town
does not have enough money to keep you from selling at a loss; it thus
becomes morally obligatory to do so or even to give the food away).
but he is required to exercise moral restraint in determining his level of profit.
Here we run into a significant difficulty. In a competitive market, no seller determines his level of profit. He can set his prices where he hopes
they will make him a certain amount of profit, but if he guesses wrong,
he's out of luck. Despite his best efforts, he may make negative profit. That's why there's so many business failures, both
large and small.
There's still a genuine insight here, but it needs to be
significantly reformulated in order to be true. I think that I see how
that can be done, but it'll have to wait for a future post. Perhaps Mr.
Richert would care to try as well.
That competitors may be reaping greater profits than you are is not moral justification for mimicking their behavior.
True. If they are motivated by bad desires or doing bad things then you certainly are not justified in imitating them in these.
Assuming that's not the case though, it is not immoral to charge the going rate.
Because, sometimes, people just plain get greedy, and avarice is one of the seven deadly sins.
Yes. This is quite true.
In the wake of Katrina, gas-station owners in Georgia raised their prices dramatically. One station owner in Stockbridge, Georgia—almost 500 miles away from New Orleans—jacked his prices up as high as $6.079.
Okay, though I don't know if that was due to greed or not. It might have been due to fear. The guy may have had an inordinate fear of disruptions in his supply chain. He may have feared that there would be runs on all the local gas stations and they'd all be sucked dry and then there would be no new gas arriving due to the hurricane damage.
Or maybe he wasn't greedy (i.e., motivated by a disordered desire for money). Maybe he was motivated by a perfectly ordered desire. Suppose his wife is going through chemo and he's got three kids in college and he took a loss the last two quarters on his business and is desperate for cash in order to make ends meet.
Or maybe he was partly motivated by greed and partly by fear and partly by a genuine need to raise cash.
I dunno.
Seeing an overnight tripling of prices certainly raises the question of greed in one's mind, but since I can't read his mind, I don't know for sure. To the extent he acted on a motive of avarice, that was sinful.
Interestingly, when Georgia “Gov. Sonny Perdue signed an executive order authorizing state sanctions against gas stations that gouge consumers,” prices dropped back down to the three-dollar level (about where they were everywhere else in the United States)—even though no one was cited under the order.
Libertarians might claim that the drop in gas prices is simply proof that businessmen are so afraid of government that they will commit economic suicide rather than face governmental sanction.
I'm not a libertarian, but I think that is a quite plausible explanation, at least in part.
In the combox of his blog, Mr. Richert suggests that such gas
station owners may have dropped their rates because they were ashamed
and knew they had done wrong. That also may be true in part.
I'd also offer other reasons that may have played a role: (a) social
pressure was put on them by the media and their customers, who objected
to this, (b) friends and relatives told them how bad it looked and how
they didn't want to hurt their business long-term by alienating their
clientele, and (c) they just misestimated what the market would bear and as soon as they found out nobody was willing to buy $6 gasoline, they dropped the price.
Catholic apologists, however, might better consider that the three-dollar rise in gas prices was (like the looting in New Orleans) proof of the doctrine of Original Sin.
Since Mr. Richert has indicated that this should not be taken in the
snarky way it is phrased, I'll pass that by and simply note that this Catholic apologist does recognize the evidentiary value that sudden price spikes may have for original sin.
Reportedly, Thomas Sowell used to have a bet with his students where he'd give them an A if they could find any place in The Wealth Of Nations where Adam Smith had good things to say about capitalists. None of his students were ever able to do so, for Smtih, like Sowell--and like me for that matter--recognized