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    5 Inequality Myths
    Articles, Blog

    5 Inequality Myths

    August 21, 2019


    ANTONY DAVIES: Myths about inequality. Myth number one. Profit and plunder are the same thing. Imagine a person who provides services to
    society. Maybe he mows lawns, or fixes cars, or paints
    houses, and in return for these services he provides to others, he asks for something
    in return, maybe some food, clothing and shelter. Now, suppose it’s the case that the society
    values what this person provides tremendously, maybe because these are things that society
    really needs, or maybe because there are very few people who are able to do these things. But, for whatever reason, society places a
    great value on the things this person contributes. And let’s suppose, also, that society places
    a relatively low value on the things that he asks for in return. Perhaps it’s because these things are easy
    to produce. There’s lots of them laying around. For whatever reason, imagine that society
    places a low value on the resources this person asks for in exchange. We would look at this person and say, “This
    is a person who we would like to have. He contributes more to society than he asks
    for in return.” But, now take this person and superimpose
    on top of him a monetary system, where instead of exchanging the things he does for society’s
    resources, he exchanges the things he does for money and uses the money to buy resources
    from others. This is what this would look like. The person provides value to society and society
    gives him dollars in return, and the dollars are commensurate with the value that society
    places on these things he offers. Society highly values the services, and so
    people are willing to pay him a lot of money for these services. And then in return, the person takes some
    of this money that he’s earned, and he buys resources from society. And because society does not place a large
    value on the things he’s asking for in return, they don’t ask for much money for these. And so if you look at the system, what’s happening
    is that the person is accumulating dollars. He will have more dollars coming in than there
    are dollars going out. We call this profit. Now, many people look at profit and say that
    profit is, in some sense, a bad thing because it represents something that someone is taking
    from society, but if you look at it in this context, profit is actually an indication
    that this person has done something good, that he has provided more value to others
    than he has asked for in exchange. And so as he provides this value and asks
    for things in exchange, he accumulates these dollar bills. We call them profit. Steve Jobs with $80 billion in the bank, and
    he’s an example of this person. Where did Jobs come up with this $80 billion? He came up with the $80 billion because these
    people liked the things he was offering better than they liked the dollars in their pocket,
    and so they gave dollars to Steve Jobs and Steve Jobs gave iPhones to the people. This was the transaction. At the end, Steve Jobs dies with lots of money
    in the bank, but the world ends up with lots of iPhones as the other half of the exchange. Profit is not a sign that people need to give
    back to society. In fact, it’s the reverse. Profit, when attained in a free market environment,
    is a sign that society actually owes the person more goods and services than he has already
    consumed. Now suppose, conversely, the person accumulates
    dollars not by offering goods and services to society, but instead by co-opting the government
    and using the force of government to take money from others and putting it in his own
    pocket. Then, in that case we have this kind of situation
    where the person just simply is using the force of government to take money from the
    people. The person then uses some of this money to
    buy goods and services, and maybe he has some leftover. But this, although it looks like the same
    pile of dollar bills, we no longer call it profit. We now call it plunder, because although it’s
    the same pile of dollar bills, how the person came about those dollar bills is very different. He did not come about them by offering someone
    something in free exchange for something else. Instead, he came about them by co-opting the
    power of government to take money from others. We have plenty of examples of this. The agricultural lobby lobbies government
    for things like ethanol requirements, despite the fact that there are many studies showing
    that ethanol is not necessarily good for the environment. It does not give you better gas mileage. It doesn’t reduce our dependence on foreign
    oil, and yet big industries will lobby the government for ethanol requirements because
    these industries make their money from growing corn. And so what happens is, these large industries
    collect lots of money in exchange for providing people with nothing in return. This is the difference between profit and
    plunder, so myth number one, profit and plunder are the same thing. The fact is, profit is good. It indicates someone is providing something
    for society. Plunder is not. It indicates that someone has actually taken
    something from society. Myth number two. One can be for equality. These three kids face equal opportunities,
    although unequal outcomes. Each one stands on a box. They have equality of opportunity, but because
    they are different heights, one can see the game. One can’t. They have inequality of outcomes. These three kids face equality of outcome,
    but inequality of opportunity. One has two boxes. One has no boxes. Their opportunities are unequal. Despite the fact that all three can see the
    game, their outcome is equal. The moral of the story is, you cannot be for
    or against equality. You can only be for or against a particular
    combination of equality and inequality. If you are for equality of opportunity, then
    by definition, you are also against equality of outcome. And if you are for equality of outcome, then
    by definition, you are also against equality of opportunity. And the reason for this is because people
    are different. Some people are born smarter than others. Some people are born luckier than others. Some people are born faster or stronger than
    others. And because people are born into different
    circumstances, when we leave them alone, we give them equality of opportunity. Some will naturally rise higher than others
    and we will have inequality of outcomes. In fact, because people are different, the
    only way to achieve equality of outcome is to impose an inequality of opportunity to
    boost the people who are less smart, less skilled, less educated and hold back the people
    who are more. So, myth number two, one can be for equality. The fact is that equality and inequality are
    actually inseparable. We can only be for a combination. Myth number three. We understand what equality means. These children are suffering, but they’re
    not suffering because they’re unequal. They’re suffering because they’re poor, and
    to the extent that we focus myopically on equality. We run a real risk of missing a real problem. The real problem being poverty. Look at these people. Let’s suppose that the people on the left
    earn $30,000. These people earn $40,000. Those earn $60,000. And the people on the far right earn $70,000. We can look at this and we see that there’s
    lots of inequality here. But, imagine that these people are in different
    stages of their careers. The people on the left have just started their
    jobs. The people in the middle are mid level career
    people. These are people, on the right, who have spent
    lots of time in the workforce. They’ve achieved lots of education, lots of
    experience, and commensurately high incomes. To the left of these people are students who
    are learning skills and preparing to enter the workforce. We have inequality here. And if I move time forward, you will see that
    this inequality persists. Always we have inequality. People on the left earning less. People on the right earning more. However, over time each person has moved through
    each circle, and so each person has earned, over the course of his or her career, a total
    of $200,000. That is in this example. We have persistent inequality, and yet everyone
    is completely equal. That’s not to say that there is no such thing
    as inequality in outcome. But, it is to say that when we talk about
    inequality, we tend to take a snapshot. We look at the world and we see some people
    who are poor, some people who are middle class, and some people who are rich. And we say, “Look at the inequality,” when
    the right way to do this is to look over time and watch over time how people move. Some from the poor to the rich, some of the
    rich move down to the poor. And if we look over time, we will still see
    inequality, but we will see markedly less than we see when we just take a snapshot. Steve Jobs, as we said, died with $8 billion
    in the bank and he got his money from people like clip art woman, who handed it over to
    him in exchange for I things. Now, when we talk about inequality, we focus
    on the flow of the dollars. We completely ignore the flow of the goods
    and services. Next time you’re in a crowd of people, ask
    for a show of hands. How many people here have at least $50,000
    in the bank? And you’ll find very few hands going up. Then ask. How many people here have a smartphone? And you’ll see every hand go up. Notice the difference. When we look at dollars, we will tend to see
    inequality, but if we look at the goods and services that arise in response to those dollars,
    we’ll actually see tremendous equality. Economists measure inequality on the Gini
    Index. Zero means everybody’s equal. One means one person is incredibly rich and
    everybody else is destitute. The two most equal countries in the world
    are Sweden and Afghanistan. On the Gini index, they rank .25 and .28. In terms of planet Earth, this is as equal
    in income as countries can get. And yet, if you look at these two countries,
    what you will find is that the average income in Sweden is $54,000, while the average income
    in Afghanistan is $600. That is, equality doesn’t necessarily mean
    that we’re all well off. We can be equally miserable. So, problems with inequality. First, inequality diverts our attention from
    a real problem. The real problem being poverty. Second, people can be unequal persistently,
    and yet perfectly equal if we look at them over time. Third, inequality ignores completely half
    of the economy by focusing on dollars, not goods and services. And then finally, when we’re done, equality
    isn’t necessarily good anyway. So, myth number three is, we understand inequality,
    and the fact is, most of us actually don’t. We confuse it for, equality exists at one
    point and time for equality that actually is much less over time. And at the end, we actually end up thinking
    equality is necessarily good, when in fact, it may not be. Myth number four. The middle class is disappearing. This is the distribution of households in
    the United States in 1970. All the numbers here are adjusted for inflation. The height of the bar is not income. It’s the fraction of households that exist
    in the income level, so here we have what today we would call less than $15,000. And in 1970, about 15% of US households had
    incomes that would be the equivalent of what today we would call less than $15,000. And in 1970, about 10% has $15,000 to $25,000
    of income. The largest percentage of households were
    in the $50,000 to $75,000 range. And then, what you see is, way over here very
    few households, about 1% in 1970, earned what today we would call more than $200,000. That’s the United States in 1970. Now, let’s move forward 10 years. Here’s 1980 and you see slightly fewer households
    in this poorest category. A little bit more here. A little bit more here. A lot less here. A lot less here. And we have more in the rich categories. This is 1980. Here’s 1990, 2000, 2010, and the last year
    the data is currently available, 2013. Notice a pattern here. As we look at the fraction of households in
    each income category, amongst these poorest categories, we see far fewer households in
    this lowest category, about the same in this category, and a little bit less here. So, in total amongst the low income categories,
    we have fewer American households here today than we did in 1970. In the middle income households, we have less,
    fewer households in this category, fewer households in this category, about the same here. Amongst middle income Americans, there are
    fewer households than there were in 1970. The middle class is indeed disappearing. In fact, so are the poor classes. And where are all these Americans going? They’re going here. From 1970 to the present, of course there
    are exceptions. But, here we see a trend. The trend is, over time and adjusting for
    inflation, Americans are leaving the poor categories. They’re leaving the middle income categories,
    and they’re showing up over here in the rich categories. So, myth number four, the middle class is
    disappearing. The fact is, it is. It’s joining the upper class. And the poor classes are disappearing, as
    well. Myth number five. People are becoming worse off. In 1798, Thomas Malthus published a treatise
    claiming that over the next few years, we were going to see massive starvation as the
    population grows and grows, and we are now unable to feed ourselves. And Thomas Malthus wrote in response to looking
    at the data you see here. This is the world population going back to
    10,000 years B.C. up to the time of Thomas Malthus, and you can see what happened. The number of people on the planet was rising
    exponentially by 1798, so at this point, Thomas Malthus looks at this and says, “If this trend
    continues, we will never be able to afford people. We’re going to have mass starvation throughout
    the globe.” Well, let’s move forwards. This is the point in which your grandparents
    were born, and population between Thomas Malthus and the time your parents were born had grown
    by two billion people. This is the point at which your parents were
    born. We added another one billion people between
    the time your grandparents were born to the time your parents were born. This is the time most college students were
    born. And between the time your parents were born
    and college students were born, we’ve added about two billion people. And from the time today’s college students
    were born until the present, we’ve added another 1.5 billion. Thomas Malthus was back here looking at this,
    saying, “How can we possibly feed this many people?” At the time of Thomas Malthus, 98% of the
    world lived in abject poverty. Since Thomas Malthus, this is what’s happened
    to population. And yet, what’s happened to world poverty? In Thomas Malthus’ day, over 95% of the world
    lived in poverty. By the time today’s college students’ grandparents
    were born, world poverty had dropped to 65%. By the time their parents were born, world
    poverty had dropped to just over 40%. By the time today’s college students were
    born, world poverty had dropped to 30%. And today, world poverty is less than 10%. At the same time that we have seen exponential,
    astronomical growth in the number of human beings, world poverty has declined from north
    of 95% down to just 10%. If you want to look at specifics, you could
    see here. This is data for the United States, comparing
    2011 to 1992 or 1998, what we see here is the number of households who have washing
    machines, about the same. More households have clothes dryers. More households have dishwashers. About the same number of households today
    as in the past have refrigerators. Fewer have freezers. More have televisions. More have … About the same have electric
    stoves. More have microwaves. In almost every category, more American households
    today have appliances like these, versus American households a generation ago. This is housing conditions. Fewer households have leaking roofs. Fewer households have problems with pests. Fewer households have plumbing problems. In all sorts of ways, not only does the average
    American household have more appliances, it also has better housing conditions. The neighborhoods and communities are also
    better. People’s basic needs are better. In all these various ways, what we see worldwide,
    we also see in the United States, that on average, people have access to better qualities
    of life today than they did a generation ago. Over the past one or two generations, the
    rate of firearm deaths are down 50%. The rate of nonfatal firearm crimes are down
    75%. The rate of deaths due to war are down 95%. Child labor rates worldwide are down 50%. Global income inequality is down 3%. Global gender inequality is down 15%. Global longevity and education are up 20%. And finally, global income is up 40%. All of this stuff over the past one or two
    generations. So, myth number five is, people are becoming
    worse off, and the fact is, it’s the exact opposite. The reason this myth persists is because what
    we see in the news repeatedly are pictures of people starving, pictures of people shooting
    other people, of wars globally. The reason we see these things is precisely
    because they’re uncommon. What we don’t see on the evening news are
    things that happen every day, because they’re uninteresting. In this way, oddly, the evening news has become
    a litany of all the things that aren’t true about your life. Conclusion, the fact is, profit is good. Plunder is not. Equality and inequality are actually two sides
    of the same coin. They’re inseparable. Most of us don’t understand what inequality
    is. The poor and the middle class are becoming
    increasingly rich. And finally, the world is actually becoming
    a much better place to life in than it ever was before.

    Articles

    Thought Experiment: The Spider in the Urinal – Learn Liberty

    August 18, 2019


    Warning, the following program is
    a philosophical thought experiment. Do not attempt at home. A few months ago, in the men’s
    room in the philosophy department, a large spider appeared in the urinal. I saw him in the same spot for
    a week straight. I noticed that whenever
    the urinal was in use, he would try to scramble out of
    the way as fast as humanly possible. Often, he would get caught,
    tumbled and drenched by the flushing torrent of Princeton’s city water and
    the urine of aspiring philosophers. The worst part was, that there was no
    way for the spider to get out, and no way to tell if he even wanted to. None of the other students or professors
    did anything to alter the situation. As the months wore on,
    I arrived with much uncertainty and hesitation at the decision
    to liberate him. He just sat there, not moving a muscle. The next day,
    I found him in the same place. His legs shriveled in that way
    characteristics of dead spiders. His corpse stayed there for
    a week until they finally swept the floor. No! For weeks after, I had recurring
    nightmares, giant spiders, teeth, webs, me, your humble narrator, charged with
    manslaughter in the high spider court. Your honor, my client was acting
    with the best of intentions when he rescued Mister Spider
    from the urinal. Mister Spider was forcibly
    removed from his home. Objection! Sustained. Please proceed. Your client without fully considering
    the potential consequences of his actions proceeded to interfere in and
    ultimately, end Mister Spider’s life. We find the defendant guilty! This thought experiment forces us to
    question the morality of intervention. Good intentions do not
    always yield good results. You gotta let these people think for
    themselves. If you were in my position,
    would you move the spider or let him be? What do you think? I’m not that bad of a guy. Am I? Am I? Am I?

    2016 Presidential Election: Student Debt – Learn Liberty
    Articles, Blog

    2016 Presidential Election: Student Debt – Learn Liberty

    August 15, 2019


    One of the major issues facing
    recent grads this election year, is->>Student debt.>>A lot of students
    are just choking with it.>>Increase to college tuition.>>Debt free tuition.>>Less government subsidy.>>College is too expensive.>>Americans currently hold 1.3
    trillion dollars in student debt. Even more than they hold
    on credit card debt. Former students are delaying major
    life decisions like marriage and buying a home,
    because of their student debt payments. Part-time and summer jobs can no longer covere
    the cost of college as they once did. And prospective students are scared of
    the debt burden that accompanies today’s college education. As the presidential candidates
    hit the campaign trail, everyone wants to know where
    they stand on this issue. Some candidates argue for an expansion
    of programs that forgive part or all of people student debt. Help you pay down your student debt
    >>And make public colleges free or heavily subsidized.>>We’re going to have to have colleges
    and universities tuition-free.>>Others argue that reforms are needed
    to the traditional college education model itself. No debt and
    free college sounds appealing right? Well so does getting a free car or
    free house. But nothing is free and
    forgiving debt doesn’t make it disappear. It simply transfers the cost from
    the students to the taxpayers. In fact, this policy will
    make the problem even worse. By further weakening the incentives and the competition that put downward
    pressure on college costs. Programs that forgive debt would also
    encourage students to take out even more loans. Because, hey, if you don’t have
    to pay it back, why not load up? Debt forgiveness programs are projected
    to cost hundreds of billions of dollars. A better approach is one that actually
    addresses the underlying problems. Now causing the high cost of college and
    skyrocketing student debt. It unleashes the power of the market. Which keeps costs low for other goods and
    services that we use on a daily basis. It’s basically Econ 101. Which, by the way,
    is a class you should take. This approach means more competition
    to the traditional four year high cost college model. This could include two year trade schools,
    online college and community colleges. It also means reducing government
    subsidies that drive up the cost of college. And are often used on luxury amenities or
    on new administrative positions. For example, the University of Akron
    boasts a 56 foot climbing wall. The University of South Florida
    has its own disc golf course and Temple University has
    an indoor driving range. And even bigger problem is
    the expansion of university bureaucrats who offer no educational value. More educational options and less government interference
    would drive down overall costs. And thereby reduce the debt that
    students carry into adulthood. Which approach to reducing college
    cost do you think is better? Transferring the cost of
    college to all taxpayers or introducing more competition
    to higher education.

    What If There Were No Prices? The Railroad Thought Experiment
    Articles, Blog

    What If There Were No Prices? The Railroad Thought Experiment

    August 11, 2019


    To appreciate why market prices are essential to human well-being, consider what a fix we
    would be in without them. Suppose you were the commissar of
    railroads in the old Soviet Union. Markets and prices have been banished. You and your comrades. Passionate communists all. Now, directly plan how to
    use available resources. You want a railroad from city A to city B,
    but between the cities is a mountain range. Suppose somehow you know that
    the railroad once built. Will serve the nation equally well. Whether it goes through the mountains or
    around. If you build through the mountains,
    you’ll use much less steel for the tracks. Because that route is shorter. But you’ll use a great deal of
    engineering to design the trestles and tunnels needed to cross the rough terrain. That matters because engineering is also
    needed to design irrigation systems, mines, harbor installations and
    other structures. And you don’t want to tie up
    engineering on your railroad if it would be more valuable designing
    those other structures instead. You can save engineering for
    other projects. If you build around
    the mountains on level ground. But that way you’ll use much more steel
    rail to go the longer distance and steel is also needed for other purposes. For vehicles, girders, ships, pots and
    pans and thousands of other things. Which route should you choose for
    the good of the nation? To answer, you would need to
    determine which bundle of resources is less urgently needed for
    other purposes. The large amount of engineering and
    small amount of steel for the route through the mountains,
    where the small amount of engineering and large amount of steel for
    the roundabout route. But how could you find out the urgency
    of need for engineering and steel in other uses? Just one way engineering is used
    is to build irrigation systems. To assess the importance of a particular
    irrigation system, you would need to know what the farmers know about how irrigation
    would increase the yield of their fields. And to know the value of that increased
    yield, you’d need to know what grocers know about their customers eagerness for
    that produce. That in turn depends on what customers
    know about the better meals they could fix with that produce. How would you find all this out? Just one way to use steel
    is to build new trucks. To assess the importance of a particular
    new truck, you would need to know what the trucker knows about the capacity
    of his current truck, and how much more quickly he could make the deliveries his
    customers want with a new bigger truck. To know the importance of those
    deliveries, you would need to know what his customers know about the value
    of getting goods delivered. That in turn depends on what still others
    know about the uses of those goods at their destinations. To reason about where
    to route the railroad, you need this kind of information for all
    possible uses of engineering and steel. That’s a massive amount of knowledge, held
    by millions of people throughout society. How might you get it? You might try surveys, but think how
    many people you would need to survey. All those who prepare meals with produce,
    and all those who take delivery by truck for
    starters. The numbers would be staggering. And often people don’t even know what they
    prefer until they face an actual choice. So they might not be able to answer
    survey questions accurately. Even if they could,
    by the time the surveys were returned and processed, much of the information
    would be out of date. And even if you could get complete and
    timely information about what everyone knows, that’s relevant
    to every use of steel in engineering, you would still need to deduce from
    it where to build the railroad. How would you begin to make
    sense of that mountain of data? In the words of Ludwig von Mises,
    you would be groping in the dark. You would face what is known as
    the knowledge problem of central planning. The reason why comprehensive
    socialism inevitably fails. Central planners cannot get the knowledge
    they need in order to plan effectively. You, commissar, simply cannot know on what
    projects scarce resources should be used for the good of the nation. But now change the thought experiment. Imagine that somewhere in the market
    economy part of the world, you are the chief operating
    officer of a railroad company. You work not for the good of the nation,
    but to generate profits for your firm. You want to run a railroad
    line from city C to city D. Again, there’s a mountain
    range between them. Now, how do you decide on the route? You choose what’s cheapest. You would calculate the total
    cost of each route for each one, multiplying the amount of engineering
    required by the price of engineering, and adding that to the amount of steel
    required times the price of steel. Then, you would choose whichever
    cost your company less. You might give no thought at all to the
    good of the nation or society as a whole. But, and here’s the marvel,
    by choosing the route that is cheapest for your company you would thereby choose
    the route that’s best for society. You would use the bundle of resources
    that’s least urgently needed for other purposes. Why? Because those market prices you calculate
    with reflects the urgency of need for engineering and
    steel in all their alternative uses. For example, suppose customers wanting
    to taste your meals, would buy better, more expensive produce, if it were
    on the shelf of their local grocery. In effect,
    they’re offering grocers more for produce. So the grocers will offer farmers more for
    produce. So the farmers who feels would be
    sufficiently improved by irrigation will offer more for irrigation systems. And those who build irrigation systems
    will offer engineers more to design them. Now that designing irrigation
    systems pays engineers better, people who want to hire engineers for
    other projects, such as railroads, will have to offer them at least as
    much to make it worth their while. The higher price tells everyone who
    uses engineering that it’s become, for some reason, more valuable so
    maybe they should use less. In this way, the market prices of
    resources represent the particular knowledge and preferences of
    millions of people who directly or indirectly use those resources. And the prices communicate
    that knowledge and those preferences to everyone interested. Only with market prices to communicate
    this vast amount of human knowledge to us. Can we calculate the least costly
    ways of producing the things we want, coordinator activities with the activities
    of others, use resources where society values the most, and thereby satisfy
    as many human wants as possible?