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Unseen Benefits of Brexit   Leave a comment

Madeline Grant

https://fee.org/articles/the-unseen-economic-benefits-of-brexit/

In a now-famous essay, “What is Seen and What Is Not Seen,” the great economist Frederic Bastiat warned against judging the value of any activity in a vacuum.

Brexit.pngBastiat’s “broken window fallacy” brilliantly exposes a common tendency to focus on the visible, tangible benefits of an action—the “seen”—while neglecting the “unseen” penalties and long-term drawbacks associated with the same activity—the invisible cost of opportunities foregone.

Though he wrote the essay in 19th-century France, Bastiat’s insights have a timeless wisdom. We live with the consequences of reductive “broken window” thinking every day, especially where public money is concerned. Politicians often praise the visible benefits of public spending, e.g. the number of jobs “created,” without considering whether the funds could have been spent more wisely elsewhere or even how the taxpayer might have spent the cash had it remained in his or her pocket.

For my money, the fraught Brexit debate badly needs a dose of Bastiat.

So far, discussions of the gains and losses of Brexit have understandably tended to focus on the most obvious costs, like the amount Britain may pay in any “Divorce Bill,” the potential “Brexit hit” to companies exporting to the EU, and so on. Of course, these concerns are vitally important, but our focus on the immediate costs of EU departure risks blinding us to the very real costs of maintaining the status quo.

Membership in the European Union carries huge unseen penalties whose implications may not be immediately apparent. The EU’s Common External Tariff, for example, raises prices and so reduces the quantities of goods and services available to ordinary consumers. Since shoppers in the EU lack the counterfactual experience of trading at world prices, this penalty goes unnoticed, but it involves a misallocation of resources on a vast scale.

In adopting the government’s proposed model for close customs cooperation and a common rulebook, we run the risk of finding ourselves with little scope to diverge from EU regulations on goods and unable in practice to strike new trade deals with the rest of the world.

Negotiating the terms of our departure also comes with huge hidden dangers. In adopting the government’s proposed model for close customs cooperation and a common rulebook, we run the risk of finding ourselves with little scope to diverge from EU regulations on goods and unable in practice to strike new trade deals with the rest of the world. It is often pointed out that the UK’s interests in trade agreements are primarily in services, but this makes it even more vital to maintain flexibility over what we can concede in goods to incentivize potential trading partners to strike a deal. The status quo, or anything close to it, carries huge opportunity costs of its own.

Due to a combination of the precautionary principle enshrined in the Lisbon Treaty and the difficulties of getting 28 countries to agree on anything, the EU, intentionally or not, often stands in the way of innovation.

In particular, the precautionary principle, the preferred risk management strategy of EU regulators, places the onus on creators of new technologies to prove their invention is safe where some risk may exist—even if there’s no scientific consensus to suggest any actual harm will occur.

In particular, the precautionary principle, the preferred risk management strategy of EU regulators, places the onus on creators of new technologies to prove their invention is safe where some risk may exist—even if there’s no scientific consensus to suggest any actual harm will occur.

The result? It’s often too much bother to innovate.

During the 19th century, many viewed the emerging railways with a great deal of suspicion. As recorded by cultural anthropologist Genevieve Bell, critics of early locomotives believed “that women’s bodies were not designed to go at 50 miles an hour” and worried that their “uteruses would fly out of [their] bodies as they were accelerated to that speed.” Had Victorian Britain followed some version of the precautionary principle, it’s hard to imagine a single track of rail being laid given the levels of contemporary railway fear.

Of course, moral panic over new technology is nothing new. Now, as in the 1850s, over-cautiousness risks hampering important drivers of future growth.

Given the EU’s structure, history, and current trajectory, the balance of probability suggests AI will be the latest in a long line of missed technological opportunities.

So far, the European Union has taken only tentative steps towards regulating artificial intelligence and robotics, though they are currently consulting on the issue. Yet given the EU’s structure, history, and current trajectory, the balance of probability suggests AI will be the latest in a long line of missed technological opportunities.

Take genetically modified crops. Since their commercialization in many parts of the world during the 1990s, GM crops have raised the quantity and quality of the global food supply while lowering fuel and energy usage, requiring fewer pesticides and reducing both soil erosion and carbon emissions—all with no scientifically-documented evidence of harm to human health. And yet, EU-wide precautionary thinking has meant a de facto ban on GM crops, only one variety of which has ever been approved and grown in Europe.

While farmers outside the EU continue to develop newer, better technologies, hysteria over man-made pesticides has kept European farming methods behind the times. Ironically, foregoing the GM revolution in insect-resistant plant breeding has left European farmers more reliant on pesticides than ever (as has the ECJ’s foolhardy ruling on genome editing earlier this year).

Just last week, the French Finance Minister claimed that EU member states are “very close” to agreeing on a counterproductive tax on the turnover of tech companies, a policy likely to discourage new entrants and inflate costs for consumers.

Given all the above, are the EU’s hyper-cautious regulators likely to pursue a different path when it comes to AI and robotics? Or will it be “business as usual”—namely, when in doubt, tax and over-regulate? Certainly, initial signs, including misguided calls for a “robot tax” from the likes of Guy Verhovstadt, don’t inspire confidence.

If you have to get a human to explain the logic, why bother investing in an AI solution in the first place?

The EU’s new General Data Protection Regulation (GDPR), implemented earlier this year, will almost certainly hinder the development of artificial intelligence by raising costs and limiting access to data. In particular, Article 22 creates a new requirement for humans to review certain algorithmic decisions, a restriction that will significantly raise labor costs, thereby creating a strong disincentive from using AI. After all, the whole point of developing AI is to automate functions that would otherwise be slower, costlier, and more difficult to complete if performed by humans. If you have to get a human to explain the logic, why bother investing in an AI solution in the first place?

These may seem like small concerns in the grand scheme of things, but taken as a whole—and the EU creates a whole lot of regulation—it adds up to an environment often hostile to innovation.

It’s no coincidence that Europe has lagged behind the US for decades when it comes to new inventions, innovations, and entrepreneurship. There are of course important cultural differences between these continents, but much relates to the US government’s comparatively light-touch regulatory approach. Not for nothing are there no tech giants in Europe to rival Facebook, Google, Apple, or Amazon.

Creating a competitive, innovation-friendly atmosphere is a huge potential hidden “win” of Brexit—with correspondingly huge opportunity costs from failing to do so.

Creating a competitive, innovation-friendly atmosphere is a huge potential hidden “win” of Brexit—with correspondingly huge opportunity costs from failing to do so. Indeed, with more leading universities than the rest of Europe put together and an already thriving tech sector, Britain has much to lose compared to many of its neighbors.

One can only imagine what Frederic Bastiat would have made of things like robotics, AI, and machine learning. But I suspect the spirit of his advice would be the same: consider the unseen, and don’t destroy the jobs of the future in a misguided attempt to protect the jobs of today.

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Posted November 2, 2018 by aurorawatcherak in economics, Uncategorized

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Sea of Red Ink   Leave a comment

The federal budget deficit has jumped 17% in 2018, to $779 billion. Scary, huh? Not quite as scary as it was in 2012, when it topped $1 trillion, but still, the federal government will borrow $870 billion this coming year.

Why? Well, it’s not being done under the guise of economic stimulus. This has been a year of “relatively strong economic growth, low unemployment and continued historically low interest rates”. So, why is the federal government is on track to borrow nearly $7,000 for every household in America?

Drowning Red InkThe future is looking grim. Even if the “Trump boom” continues, current tax and spending patterns indicate that deficits will continue to increase, approaching $1 trillion in two years and steadily rising afterward, on and on into the future. On the current path, the outstanding public debt will rise by one third to $20 trillion just five years from now. That works out at nearly $250,000 for a family of four, more than twice the median household wealth.

Scared yet? The Trump administration is using interest rates of 3.5% for its projections. If they rose to 5%, the interest costs alone on the projected debt would total $1 trillion annually. As the Washington Post economists note, “More than half of all personal income taxes would be needed to pay bondholders.”

No, the tax cuts are not responsible for the red ink. The Budget and Economic Outlook for 2018 to 2028 released by the Congressional Budget Office in April reveals that, as a share of GDP, tax revenues are currently 17.3% of GDP and the CBO forecasts this to rise to 18.5% in 2028. The argument that the cut in federal corporate tax rates is a cause of the increased deficits and debt is absurd. According to the CBO, there is no difference between tax revenues as a percentage of GDP in 2017 compared to their forecasts for 2028 (both will be 1.5%).

The real answer is out-of-control spending. The CBO forecasts that spending will rise from 20.8 percent of GDP now to 23.6 percent in 2028. But it is not increased “discretionary” spending such as defense or education that are driving spending upward. In fact, from 2018 to 2028, the CBO forecasts that discretionary spending will fall from 6.4 percent of GDP to 5.4 percent. Defense spending, for example, is projected to fall from 3.1 percent of GDP in 2018 to 2.6 percent in 2028.

The CBO is unequivocal that this increase in spending is being driven by out-of-control entitlement outlays. Between 2018 and 2028, spending on Social Security, Medicaid, and Medicare is projected to rise from 12.7 percent of GDP to 15.2 percent. Social Security spending is expected to increase from 4.9 percent of GDP to 6.0 percent, Medicare from 3.5 percent of GDP to 5.1 percent, and Medicaid from 1.9 percent of GDP to 2.2 percent. This is what is driving America’s catastrophic indebtedness. In another words, Granny’s eating our lunch and she’ll be kicking our asses come 2028.

America’s politicians know this and they have acknowledged the vast problems this borrowing spry is creating, but they aren’t attempting to mitigate it. Why not?

Economist Pierre Yared seeks to address this question in a new paper titled “Rising Government Debt and What to Do About It”, in which he dismisses the idea that these elevated levels of government debt represent an “optimal” policy response to either foreseen or unforeseen fiscal shocks.

You’d think governments would reduce their debt in preparation for the increased expenditures an older population will require. But that’s exactly what isn’t happening. Governments across the developed world have increased their debts. The wars in the Middle East and the 2008 crash added unforeseen pressures, but increases in government indebtedness long predate 2008 and are present in countries that did not intervene in the Middle East.

Yared suggests political polarization produces something like a ‘tragedy of the commons’ where “political parties acting independently engage in excessive targeted government spending since they do not internalize the shared financing costs of government debt.” Yared asserts aging populations care less about the future, citing evidence that younger households place a larger value on fiscal responsibility than older households. As a result, “countries with a large number of constituencies or deep disagreements in spending priorities across constituencies will incur larger government deficits, resulting in faster government debt accumulation.” Finally, electoral uncertainty “causes the current government to be impatient, since the party holding power recognizes that it may not have the opportunity to benefit from spending in the future.” Yared presents evidence that this political uncertainty has increased in recent decades as government indebtedness has risen.

Image result for image of drowning in red inkIf Yared is right, America’s fiscal outlook isn’t encouraging. None of these factors are going away anytime soon. America’s population is projected to continue aging for the next couple of decades. By 2035, according to the Census Bureau, there will be 78 million people 65 years and older compared to 77 million under the age of 18.

And who doesn’t love a sugar daddy to keep picking up the tab for our favorite goodies? Yes, American seniors have come to rely on Social Security and Medicare, but let’s be honest here — the money to fund them doesn’t magically appear simply because politicians promise the funding.

And does anyone think political polarization in the US is going to decrease much anytime soon? I certainly don’t.

The promises government makes cannot be supported by any reasonable expectation of tax revenue. Printing the money to cover these liabilities will result in inflation, which would decimate private retirement accounts as well as family budgets. At some point, the irresistible force of insufficient government revenues is going to meet the immovable object of entitlement commitments.

And, so, we face year after year of yawning deficits and increasing floors of red inks. Are you scared yet?

So, now the question becomes — what happens to  all the people who rely on that red ink?

Posted November 1, 2018 by aurorawatcherak in economics, Uncategorized

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We Don’t Live in a Crap World   Leave a comment

Some believe it is only great power that can hold evil in check, but that is not what I have found. It is the small everyday deeds of ordinary folk that keep the darkness at bay. (Gandalf, The Hobbit)

World PovertySo after watching American liberals scream hate speech at each other for a few weeks, I (Brad) am reminded of why I don’t pay a lot of attention to politics. Lela does, but she has gotten so she thinks it’s all a bunch of hooey. I prefer not to pay much attention because I prefer not to be angry over things I can’t control. If you haven’t figured out that you don’t actually control politics yet … well, you don’t.

There’s this belief these days that politics is the only way to keep evil in line. We must confront power with power, right? I think Gandalf had it right when he suggested the opposite is true.

So, if you’ve been busy screaming shit about each other, maybe you missed these five human achievements while you were driving the poison koolaid of Washington politics.

  1.  The World Bank reported that the number of humans living in extreme poverty dropped below 750 million worldwide. The Wall Street Journal reported that this is the lowest figure since the World Bank began collecting such data in 1990. That’s GREAT news, but if you were busy trying to analyze the body language of Brett Kavanaugh, you probably missed it.
  2. Scientists found a way to use spit (yeah) to predict heart attacks and strokes. Researchers at Queen Mary University London and Imperial College London announced a breakthrough in gene research that will allow them to identify patients genetically predisposed to high-risk blood pressure conditions through a simple spit test.

“This is the most major advance in blood pressure genetics to date,” Professor Mark Caulfield, of QMUL told The Sun.

The technology will enable doctors to more effectively identify, educate, and treat high-risk patients, reducing the number of heart attacks and strokes.

3. Our oceans may be getting cleaner sooner. The Ocean Cleanup, a non-profit organization that uses new technologies to rid the oceans of plastic, announced the beginning of a two-week trial phase in preparation for its anticipated cleanup of the Great Pacific Garbage Patch.

“Consider it a final dress rehearsal before the main performance: cleaning plastic from the ocean,” said officials with Ocean Cleanup, a privately funded initiative.

Oceanographers claim plastic in the world’s oceans represents a “global threat” by carrying toxic pollutants into the food chain and endangering some 600 marine species. It also looks really gross (see below).

4. A big solar power breaththrough? I’m always skeptical of these because I live in Alaska where we experience a severe shortage of solar anything in the winter, but it sounds cool. Solar power has yet to become an affordable and efficient energy source. But there’s reason to believe that could change.

University of Cambridge scientists recently claimed they made a significant breakthrough in their attempts to find new ways to harness solar energy. The breakthrough reportedly involved splitting the elements in water—hydrogen and oxygen—”by altering the photosynthetic machinery in plants.”

Yeah, even as a master electrician, I won’t pretend to know what that means, but it sounds impressive. You can read more about it here.

5. New data show life expectancy is rapidly increasing in Africa. A new UN report shows that residents of sub-Saharan Africa are living much longer than they were a mere two decades ago.

People in the region, The Guardian reports, “can expect to live for 11 years longer than the generation that went before them, new statistics show.”

The increase in life expectancy in Africa is linked to the stunning growth of its middle-class in recent years, one of the greatest stories of our age.

It’s not that I don’t think the Supreme Court and the Brett Kavanaugh confirmation isn’t important, but that there is nothing you or I can do about it, so why are we wasting our time and raising our blood pressure freaking out over it. It just creates acrimony, bitterness, and antagonism. It’s a bunch of tyrants scrabbling for control of the monopoly of force (yes, Lela, I do so listen to you).

Contrast that government spectacle with free markets — people working together willingly, exchanging stuff each other, and solving problems.

Entrepreneurs are “ordinary folks” (to get back to our Gandalf metaphor) who go mostly unseen. They aren’t politicians, bureaucrats, or Supreme Court justices, but they are the ones who actually improve our world and really keep evil at bay.

A Tale of Two Cities   Leave a comment

After World War 2, stark contrasts could be drawn between East and West Berlin.

Image result for image of the difference between east and west berlinIn West Berlin, a vibrant market-based economy had stimulated a material and economy recovery accompanied by respect for civil liberties. You’d almost not have thought the Germans lost the war, since there were no real consequences of actively or passively collaborating with the Nazi regime.

On the other side of the wall, East Berlin was drab and gray, wrapped in an omnipresent dictitorial system of secret police, directed from Moscow by Stalin and his successors. Much of the rubble of World War 2 still surrounded East Berliners.

It was hard to deny the contrast between these two worlds seperated by a wall, built to keep the captive communists in and the ideas and hopes of freedom out.

And, yet, the market-oriented economies of the West weren’t truly free markets. These economies were wrapped with and hampered by varying degrees of government regulatory intervention and redistributive welfare. The interventionist welfare states of Western Europe were more extensive and intrusive than what existed in the United States, but they were all managed, manipulated and partly planned societies within obstensibly democratic political regimes.

 

Posted September 25, 2018 by aurorawatcherak in History, Uncategorized

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Benefits of International Tax Competition for US Workers   Leave a comment

Romina Boccia & Julia Howe

Found on FEE

The Tax Cuts and Jobs Act is continuing to produce tangible benefits for Americans, growing the U.S. economy and making it more competitive for business investment and job creation.

Wages are rising, unemployment rates are declining, and there is more money in taxpayers’ pockets.

The larger economy materializes as significantly higher take-home pay for the typical American. According to a recent Heritage Foundation report, the average American will be $26,000 richer over the next 10 years, thanks to tax cuts and a larger economy.

There is even more good news: Tax reform has not only encouraged investment domestically but has fostered a more attractive investment climate on an international scale.

The corporate tax rate cut (from 35 percent to 21 percent) significantly improves America’s position in global financial markets. Businesses are more inclined to conduct and expand their operations within U.S. borders and employ American workers.

These critics fear countries will attempt to undercut each other with lower and lower tax rates.

Yet some have condemned the tax cuts on this very basis, arguing that they contribute to “unhealthy” international tax competition. These critics fear countries will attempt to undercut each other with lower and lower tax rates.

New York Times op-ed called international tax competition a “collective action problem,” suggesting that countries would benefit more from higher corporate tax rates and that they fail to cooperate in imposing higher rates because of incentives to compete for businesses and high-skilled labor.

The article claimed that the U.S. business tax cuts contribute to this problem by reducing tax revenue, thereby harming America.

That argument is flawed both in economic theory and in practice.

A recent paper authored by Assaf Razin and Efraim Sadka, published by the National Bureau of Economic Research, examines the implications of financial globalization, where mobile capital can easily respond to tax and regulatory conditions by moving across borders.

The paper uses a simple model to demonstrate that there are benefits from tax competition, and it shows that countries are better off when their corporate taxes are lower.

The high capital tax rate results in a less productive economy and smaller tax base.

The model assumes that as financial globalization increases, businesses can relocate to more competitive economic environments at a lower cost.

When tax rates in one country are consistently elevated, mobile capital moves to other jurisdictions. New investments in factories and research are made in countries with lower taxes.

Because the capital can move to other countries, workers are left with the tab through lower wages and fewer jobs. The “corporate tax burden” is shifted to labor or consumption in places with high capital taxes.

The high capital tax rate results in a less productive economy and smaller tax base. This combination causes revenue to decrease as there is overall less economic wealth generated and, therefore, less to be taxed.

In contrast, a lower corporate tax burden attracts businesses, creating an environment of greater innovation and prosperity, with benefits for all residents.

The model finds that workers at all skill and income levels are better off with lower business taxes. A bigger economy provides opportunities for greater financial security and income mobility, decreasing the need for government-provided assistance.

The U.S. previously had the highest corporate tax rate, at 35 percent, among the 36 OEC) countries.

A new job or a higher wage help people in need more than a welfare check ever could. Less government intervention and a lower corporate tax rate help residents, providing them with valuable earning opportunities to become wealthier and more financially independent.

The tax burden is one of the 12 factors in The Heritage Foundation’s Index of Economic Freedom affecting the level of economic freedom that citizens can enjoy. Without accounting for the new tax law, the U.S. had a tax burden score of 65.1 in the index. The U.S. was nearly 12 points below the world average score of 76.6 and ranked as 153rd out of the 180 countries whose economic freedom the index assesses.

While the U.S. previously had the highest corporate tax rate, at 35 percent, among the 36 Organization for Economic Cooperation and Development (OECD) countries, the new 21 percent rate is below that of 19 OECD countries.

The U.S.’s index score is likely to improve with the next iteration and demonstrates that the U.S. was in need of tax reform to be more globally competitive.

In addition to the corporate tax rate, the base of what’s taxed matters as well.

The tax law’s changes to expensing rules have important economic effects. Full expensing allows businesses to deduct all investment expenses from taxable income at the time the investments are made. This change encourages more investment in productive capital.

Everyday Americans are enjoying greater wealth and freedom, thanks to the tax cuts. It’s time to make them permanent.

These expensing provisions, which begin to phase out after 2022, should be extended permanently for even greater economic growth.

According to sound economic theory, the tax cuts are benefiting our economy through encouraging investment by domestic and international businesses, and there is ample evidence this theory holds true in practice.

There has been rapid growth in capital spending, with many examples of both small and large businesses investing in expanded operations. This is increasing worker productivity and wages.

Everyday Americans are enjoying greater wealth and freedom, thanks to the tax cuts. It’s time to make them permanent.

Capitalism vs. Socialism   Leave a comment

Several recent polls, plus the popularity of Sen. Bernie Sanders, demonstrate that young people prefer socialism to free market capitalism. That, I believe, is a result of their ignorance and indoctrination during their school years, from kindergarten through college. For the most part, neither they nor many of their teachers and professors know what free market capitalism is.

Found on Lew Rockwell

Free market capitalism, wherein there is peaceful voluntary exchange, is morally superior to any other economic system. Why? Let’s start with my initial premise. All of us own ourselves. I am my private property, and you are yours. Murder, rape, theft and the initiation of violence are immoral because they violate self-ownership. Similarly, the forcible use of one person to serve the purposes of another person, for any reason, is immoral because it violates self-ownership.

Tragically, two-thirds to three-quarters of the federal budget can be described as Congress taking the rightful earnings of one American to give to another American — using one American to serve another. Such acts include farm subsidies, business bailouts, Social Security, Medicare, Medicaid, food stamps, welfare and many other programs.

Free market capitalism is disfavored by many Americans — and threatened — not because of its failure but, ironically, because of its success. Free market capitalism in America has been so successful in eliminating the traditional problems of mankind — such as disease, pestilence, hunger and gross poverty — that all other human problems appear both unbearable and inexcusable. The desire by many Americans to eliminate these so-called unbearable and inexcusable problems has led to the call for socialism. That call includes equality of income, sex and race balance, affordable housing and medical care, orderly markets, and many other socialistic ideas.

American Contempt for …Walter E. WilliamsBest Price: $11.23

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Let’s compare capitalism with socialism by answering the following questions:

In which areas of our lives do we find the greatest satisfaction, and in which do we find the greatest dissatisfaction? It turns out that we seldom find people upset with and in conflict with computer and clothing stores, supermarkets, and hardware stores. We do see people highly dissatisfied with and often in conflict with boards of education, motor vehicles departments, police and city sanitation services.

What are the differences? For one, the motivation for the provision of services of computer and clothing stores, supermarkets, and hardware stores is profit. Also, if you’re dissatisfied with their services, you can instantaneously fire them by taking your business elsewhere. It’s a different matter with public education, motor vehicles departments, police and city sanitation services. They are not motivated by profit at all. Plus, if you’re dissatisfied with their service, it is costly and in many cases even impossible to fire them.

A much larger and totally ignored question has to do with the brutality of socialism. In the 20th century, the one-party socialist states of the Union of Soviet Socialist Republics, Germany under the National Socialist German Workers’ Party and the People’s Republic of China were responsible for the murder of 118 million citizens, mostly their own. The tallies were:

No such record of brutality can be found in countries that tend toward free market capitalism.

Here’s an experiment for you. List countries according to whether they are closer to the free market capitalist or to the socialist/communist end of the economic spectrum. Then rank the countries according to per capita gross domestic product. Finally, rank the countries according to Freedom House’s “Freedom in the World” report. You will find that people who live in countries closer to the free market capitalist end of the economic spectrum not only have far greater wealth than people who live in countries toward the socialistic/communist end but also enjoy far greater human rights protections.

As Dr. Thomas Sowell says, “socialism sounds great. It has always sounded great. And it will probably always continue to sound great. It is only when you go beyond rhetoric, and start looking at hard facts, that socialism turns out to be a big disappointment, if not a disaster.”

Why Worry about Income Inequality?   1 comment

I’m not rich by Alaska standards. I make less than the median Alaska income. That means I’m wealthier than 99% of the world’s inhabitants.

Image result for image of a snap recipient indulgenceIs that unfair? Hmm ….

Well, I can tell you that living at less than the median Alaska income presents challenges for my family. We aren’t as rich as some of our neighbors. There’s a man in this town who makes millions of dollars a year.

Is that unfair? Hmm ….

If I were to make somewhat less … let’s say so I’m in the 1% worldwide, I couldn’t afford to live in Alaska. So if you took the income of the people who live here and distributed it to all the “poor” people in the world, what would happen? People in Alaska would starve and freeze without shelter or fuel.

Would that be fair? Hmm ….

I make a whole lot more money and live in a nicer home than my working class parents did.

Is that fair? Hmm ….

My parents were always able to feed me. My mother’s parents, at the height of the Depression, struggled with that.

Is it fair that I grew up without going hungry, but my mom got rickets as a child? Hmm ….

So, then I think about all the “poor” people in the US who own cars, live in nice apartments, are able to buy food with SNAP benefits, and afford $100 a month smart phones, but they don’t actually work for their living.

Is that fair? Hmm ….

We have to careful not to confuse income inequality and poverty. Standards of living are increasing, albeit unequally, in most of the world. Developing countries are particularly benefiting handsomely from declining barriers to trade and movement of capital. That’s why inequality between countries is actually shrinking. As for inequality within countries, enrichment at the top has not caused mass impoverishment.

The market economy is not a zero-sum game, where someone’s gain must come at someone else’s expense. “The rich get richer and the poor get poorer” is a synopsis of the socialist critique of the market system, implying the perceived inevitability of what Marx called the Law of Increasing Poverty.

But, guess what? It’s a myth unsupported by empirical evidence. Absent government interference in the marketplace, the poor in most developing nations are gaining ground even as those at the top end of the income spectrum are also amassing greater fortunes. Poverty is reducing all across the world.

So what difference does it make if  your neighbor has a million dollars he won’t share with you if you’re making a real income far in excess of your basic needs?

Oh, right, fairness …. It’s not fair. Why can’t he give up some of it so I can be even richer?

Maybe because I didn’t earn it, but also maybe because he’s going to take that money and provide a job that will someday make my kid far wealthier than I ever hoped to be. But if I rob him of that money he earned, he won’t create that job because: a) without resources nobody can create jobs, and b) why should the victim feel beholden to the one who robbed him?

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