I have removed the search box because it was not working but the search box in the title bar seems to.

Tuesday, 23 August 2011

Kevin still hasn’t read this blog!

Perhaps he will do so on Wednesday, in the library.

He and I have been drinking gin-and-tonic together at the Robin Hood, as we do once a fortnight – very pleasant.

He is the most courteous of debating partners. I don't know how many times he has said, "You make a very good point."

I try to reciprocate in courtesy. I keep saying, "Kevin, you are too decent to get it!" And this is the point. Decent, thinking people naturally, inevitably, by default, inspired by a desire for the economic wellbeing of all (particularly the poor), tend to the belief that we can legislate wellbeing.

You can't! All you can do is facilitate the means whereby people can improve the wellbeing of themselves and their neighbours.

You, imaginary reader, are the benevolent dictator of Poorland. Children in your country work long hours for low wages in horrid conditions. You want to help. So you issue decrees to the effect that the very young will henceforth not be employed at all; and that low wages are to be abolished. You feel very good.

First question: Are the kids any better off? No, they are unemployed and the subtraction of their wages from their family economies means that they and their parents and their baby siblings are hungrier than before. Perhaps they will try prostitution. Ouch!

Second question: Did your decrees, in any way, increase the wealth of Poorland? No, production has declined – the country is poorer than before. Wealth is production. Production is wealth. Ouch, ouch!

The minimum wage you set doesn't have the effect of making everybody richer – it simply means that the least productive people get the sack. Why would any sane employer give work to anyone who couldn't more than cover the cost of employing them? The question answers itself.

You are decent; you are benevolent – you are desperate to improve the lot of the poor. What do you do?

  • You look at the Statute Book.
  • You repeal all the laws (and the bureaucracy) that inhibit the acquisition of capital. For example, you make it easy for people to prove that they have title to the land on which they live. If they are not paying rent, then nobody else owns it. Trillions of dollars worth of capital is unavailable in the Third World because the land-holders are not, legally, the landowners.
  • Some of the "new" landowners will approach lenders with propositions for enterprises wherein their ideas, mixed with the money they want to borrow and their own labour and perhaps that of others will create stuff that people want to buy. Production, geddit?
  • If they are convincing, the lenders will be forthcoming. The capital goods, premises, machinery etc will make them (the borrowers, the entrepreneurs) and their employees (if any) more productive than they would otherwise have been. The lenders' money is at risk but they know that they can call upon the security provided by the borrowers – the land.
  • Your advisors tell you that a very large percentage of everything people earn is taxed away from them and used to pay for a variety of programmes designed to make things "fairer" in Poorland. You observe that these programmes don't make things fairer. You also observe that it costs money to tax people and it costs money to spend the tax take.
  • You wonder what would happen if your overtaxed countrymen were allowed to keep more of their income. What would they do with it? They would spend some of it on themselves – thereby providing profit and employment to businessmen and their employees – vicious, huh? They would save some of it. The savings would available to be lent to businesses, capital – which enables the businesses to be more productive, and the country (by definition) richer.

OK, Your Excellency, you are beginning to get it. It will soon be time to start thinking about changing the name of your country. How does Richland sound?

Children don't have to work long hours for low wages in horrid conditions in Richland. Their parents are so much more productive than they used be that they don't need the pittance that their kids used to earn.

Our wise overlords, as Tom Woods calls them, have got the wrong end of the stick. They are infected with the hare-brained idea that "consumption" creates wealth. It doesn't, as a moment's reflection will prove. Production creates wealth.

Less than two years ago I accepted the idea that stimulating spending on consumption was a rational idea. How stupid was I?

No comments:

Post a Comment