Let’s Talk Economics [The Best of jaceonline]

Author’s note: I used to blog at jaceonline.com, and in an effort to introduce myself to new readers and hopefully wring a little more entertainment value out of those old posts, I’m going to be dipping into the old site and re-posting some of my favorite entries. Hey, if Big Country can have a “best of” collection, so can I.

Warning: This post will be almost entirely about economics. If you think this might cause your head to explode, please feel free to skip it and re-read this post about polar bear genitals. Thank you.

I’ve noticed several interesting articles about the economy recently. Unfortunately some of them were notable for their extreme stupidity. Unless you’re up to your elbows in news and commentary on the web every day, you’ve probably never heard of Kevin Drum, but this writer for the liberal Washington Monthly magazine is frequently quoted around the blogosphere. I’m not sure why that is, though, or how he manages to hold a job as a writer, as he appears to be so dumb that it’s only through sheer luck that he ever manages to hold a pencil pointy side down.

The first post that got me thinking about the twin subjects of economics and idiocy was this one from Cafe Hayek, where they examine Drum’s article on (begin scary music here) the Secret Mechanism that rich people use to keep you poor! Look it in the face, if you dare!

First, Drum quotes Ezra Klein:

The concern [is] that, through mechanisms we’re not entirely sure of, the very richest are siphoning off the economic growth before it flows through the middle and lower classes.

Then he does some elaboration of his own:

I’m not sure this gets the mechanism quite right, though. There are two basic ways that unequal growth can happen:

  1. The rich suck up vast amounts of income growth, and this leaves very little money for the middle class. Thus, wages for the middle class are stagnant or, at best, rising slowly.
  2. Middle class wages are kept stagnant, and this frees up vast amounts of money from economic growth. The money has to go somewhere, and it goes to the rich.

Cafe Hayek’s Russell Roberts then approaches the fish-filled barrel:

So Drum suspects that there is an unspecified mechanism that somehow keeps the wages of millions stagnant freeing up all that growth for the rich to nab. The metaphor is a buffet table where the middle class is cordoned off from the food, leaving the rich to feast at their leisure.

It’s a nice metaphor, but what does it have to do with the economic world you and I live live in, where people go to school, grow up, enter the job market and find work among millions of employers in competition with each other for our services? Yes, you can make the case that some sectors are less competitive than others. But what model or vision or theory of economic reality presumes a mystical mechanism that keeps millions of workers in thrall while somehow creating great wealth for others?

Roberts pays Drum the great and undeserved compliment of taking his argument seriously, smacking down each of Drum’s points in turn. But the real problem is not this particular argument, but a fundamental failure to understand how markets work to build wealth. Sadly, it’s not just the failure of one writer, but of millions of people–many of whom vote and write laws and teach economics to college students.

The problem is, not everybody is as rich as they think they deserve to be. Some people are keenly aware that they are smarter and more talented then most, but because they are talented in areas like philosophy or journalism, the market does not provide them with the rewards that it provides to people who are talented in, say, football or pornography or even (shudder!) business. Because of this inequity, smart people believe that there must be some hidden force at work against them. They can’t explain it, but they know it’s there, because how else could you explain that people as smart as they are are still driving a five year old Saab with a sticky clutch, dammit!?!

So, we have all this talk of “secret mechanisms” and a near-maniacal obsession with income inequality. We’re warned of the ever-widening gap between rich and poor. Even though everyone is doing better (and they are; if you need convincing, see this statistic-packed article from TCS Daily), the rich are doing better faster than the poor, and that’s horribly bad news for some reason that no one has ever really explained.

However, one thing nobody mentions when they talk about “the poor” is that they’re never talking about the same people twice. Dr. Tony explains:

What is unrecognized is that today’s poor aren’t yesterday’s poor, nor will they be tomorrow’s poor. If you read Thomas Sowell, you will see that entry level wages may be flat, but people don’t stay in entry level jobs. … people move to new jobs for better wages. The MSM likes to report that income for “the poorest 10%” has not increased, but a sample of today’s poorest 10% will show income growth over the next year. The problem with the MSM logic is that they aren’t sampling the same people.

You could argue that the youngest 10% of babies are eating the same foods they were 10 years ago. This means that babies eat baby food. So what? It certainly doesn’t mean that people who were eating baby food 10 years ago are still eating baby food.

Beautiful example. By definition, the income of “the poor” will never match the income of “the rich.” Income inequality statistics are a political activist’s shell game. Poor people make less money than rich people, and they are going to keep making less money than rich people, until they don’t, at which time they’ll become “the rich,” and somebody else will be “the poor,” because they make less money than “the rich.” And so on, and so on, doo-dah, doo-dah.

Unfortunately, this simple truth is worthless in this particular argument. For the people who cry about income inequality, I’m afraid the real motivating factor is just good, old-fashioned jealousy. We must use taxation and regulation to take away from people who have a lot, because, well, they have more than me, and I don’t feel like taking a second job. Megan McArdle explains:

Beauty, like wealth, is relative–it benefits its possessor only insofar as they are lovelier than the women, or handsomer than the men, around them. Presumably, if we disfigured all the good looking actors in Hollywood, and the models in New York, and . . . well, heck, let’s slash the faces of everyone who’s better looking than I am.

…why is this so much more horrifying than the idea of taking the fruits of people’s labours–most of which were gotten fairly honesty, by dint of hard work and delayed gratification (even if those efforts got a big boost from education etc.) Is it that beauty is somehow more worthy than wealth? The pursuit of wealth has allowed the masses to escape, as Robert Fogel noted, “From hunger and premature death”. The pursuit of beauty has brought us jogging . . . and Slim-fast and six-inch-heels and toupees and expensively educated surgeons who spend their days sucking fat out of their clients’ thighs.

Or is it that the body is more sacred than the wallet? Do not most of today’s wealthy make their money by presenting their body at work for many hours a day, and labouring with their minds, which are far more sacred to any rational person than their limbs or cheeks?

Ah-ha! The key word there is “rational,” something that is in short supply in mainstream economic journalism.

P.S. – See another dumb economic comment from Drum lacerated by Megan McArdle here. I didn’t feel like going into it myself, but geez, man! Do us all a favor and stop writing about the economy.

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