Conservative Libertarian Outpost

“If you establish that the Earth is warming, it doesn’t necessarily follow that we have a moral duty to reduce emissions. What should follow is an informed debate about the costs and benefits of various policies to address that warming—reducing emissions is just one possible answer. Another debate should focus on those policies’ economic costs. Al Gore doesn’t want to have those debates, because the majority of evidence suggests that emissions reduction will be very costly and will have little effect… Meanwhile, 2 billion people around the world go without electricity. About 3 million die each year because of fumes given off by primitive stoves. The U.S. economy sneezes when gasoline hits $3 a gallon. If we have a moral duty, it’s to keep energy affordable here and to expand access to it overseas. That’s the real moral truth, however inconvenient for Al Gore.” —Iain Murray

 Did Phelps Really Explain Stagflation?

By Frank Shostak

Posted on 10/10/2006
Subscribe at email services, tell others, or Digg this story.

This year, the Nobel Prize in Economics was awarded to American economist Edmund S. Phelps, whose book on labor was favorably reviewed by David Gordon and who has engaged the Austrian theory of the business cycle on the pages of the Wall Street Journal. While rejecting the Austrian view, Phelps has nonetheless written that “we must honor the Austrian theorists as the first to see capitalist ventures as voyages to the unknown, driven by visions of entrepreneurs and hunches of lenders and investors and fraught with unanticipated consequences.”

The Nobel committee credits Phelps for clarifying the relationship between inflation and unemployment. Indeed, he did made a contribution in this respect. What he did not do is what most economists credit him for doing: identifying the true causes behind the phenomenon of stagflation.

The phenomenon of stagflation is characterized by the simultaneous occurrence of a strengthening in the growth momentum of prices and a decline in real economic activity. A famous case of stagflation occurred during the 1974–75 period. In March 1975, industrial production fell by nearly 13% while the yearly rate of growth of the consumer price index (CPI) jumped to around 12%. Likewise a large fall in economic activity and galloping price inflation was observed during 1979. By December of that year, the yearly rate of growth of industrial production stood close to nil while the rate of growth of the CPI stood at over 13%.

The stagflation of 1970s was a big surprise to most mainstream economists who held that a fall in real economic growth and a rise in the unemployment rate should be accompanied by a fall in the rate of inflation and not an increase.

According to the then accepted view, the central bank influences the real rate of economic expansion by means of monetary policies. This influence however, carries a price, which manifests in terms of inflation. For instance, if the goal is to reach a faster rate of economic growth and a lower unemployment rate, citizens should be ready to pay a price for this in terms of a higher rate of inflation. Thus was it believed that there is a trade-off between inflation and unemployment (the Phillips curve). The lower the unemployment rate the higher is the rate of inflation. Conversely, the higher the unemployment rate the lower the rate of inflation is going to be.

The events of the 1970s therefore came as a shock for most economists. Their theories based on the supposed existing trade-off suddenly became useless. In the late 1960s Edmund Phelps and Milton Friedman (PF) challenged the popular view that there can be a sustainable trade-off between inflation and unemployment. PF had been arguing that, contrary to the popular way of thinking, there is no long-term trade-off between inflation and unemployment. In fact, over time, according to PF, loose central bank policies set the platform for lower real economic growth and a higher rate of inflation, i.e., stagflation. [1][2]

PF Explanation of Stagflation

Below we provide a simplified framework of the thought of Phelps and Friedman (PF) regarding the inflation-unemployment trade-off and its link to stagflation.

Starting from a situation of equality between the current and the expected rate of inflation, the central bank decides to lift the rate of economic growth by lifting the rate of growth of the money supply.

As a result, a greater supply of money enters the economy and each individual now has more money at his disposal. On account of this increase, every individual is of the view that he has become wealthier. This increases the demand for goods and services, which in turn sets in motion an increase in the production of goods and services. All this in turn lifts producers demand for workers and subsequently the unemployment rate falls to below the equilibrium rate, which both Phelps and Friedman labeled as the natural rate. [3]

According to PF, the increase in people’s overall demand for goods and services and the ensuing increase in the production of goods and services is of a temporary nature. To begin with, once the unemployment rate falls below the equilibrium rate, this puts upward pressure on the rate of price inflation. (According to Phelps, the natural-rate theory says that when unemployment is below the natural level, the tightness in the labor market will cause prices and wages to be reset above expectations.) [4]

Individuals then begin to realize that there has been a general loosening in the monetary policy. In response to this realization, they start forming higher inflation expectations. Individuals realize that their previous increase in the purchasing power is actually dwindling. Consequently, the overall demand for goods and services weakens. A weakening in overall demand in turn slows down the production of goods and services while the rate of unemployment goes up — an economic slowdown emerges.

In short, the realization that there was a general loosening in monetary policy weakens the demand for goods and services. Observe that we are now back where we were prior to the central bank’s decision to loosen its monetary stance, but with a much higher rate of inflation. Consequently, what we have here is a fall in the production of goods and services — a rise in the unemployment rate — and an increase in price inflation. That is to say, we have stagflation.

As long as the increase in the money supply rate of growth is unexpected, this theory implies, the central bank can engineer an increase in the rate of economic growth. However, once people learn about the increase in the money supply and assess the implications of this increase, they adjust their conduct accordingly. Subsequently, the boost to the real economy from the increase in the money supply rate of growth disappears.

In order to overcome this hurdle and strengthen the rate of economic growth the central bank would have to surprise individuals through a much higher pace of monetary pumping. However, after some time lag people will learn about this increase and adjust their conduct accordingly. Consequently, the effect of the higher rate of growth of money supply on the real economy is likely to vanish again and all that will remain is a much higher rate of inflation.

From this we can conclude that by means of loose monetary policies, the central bank can only temporarily create real economic growth. Over time however, such policies will only result in higher price inflation. In short, according to PF there is no long-term trade-off between inflation and unemployment.

Can money grow the economy?

We have seen that according to PF, loose monetary policy can only grow the economy in the short term but not in the long term. In this sense, PF have accepted mainstream ideas that for a given level of prices, an increase in money supply increases the purchasing power of money, which in turn lifts the overall demand for goods and services. (To be more precise, PF are saying that the rate of increase in the money supply must be unexpected.) The increase in overall demand in turn triggers an increase in the production of goods and services — demand creates supply. In this sense money is an agent of economic growth.

However, there are some serious difficulties with all this.

In PF’s story, as a result of the increase in the money supply rate of growth, a greater supply of money enters the economy and each individual now has more money at his disposal. This is, however, not a tenable proposition. When money is injected, there must always be somebody who gets the new money first and somebody who gets the new money last. In short, money moves from one individual to another individual and from one market to another market.

The beneficiaries of this increase are the first recipients of money. With more money in their possession (assuming that demand for money stays unchanged) and for a given amount of goods available, they can now divert to themselves a bigger portion of the pool of available goods than before the increase in money supply took place. This means that fewer goods are now available to those individuals who have not received the new money as yet (i.e., the late recipients of money).

This of course means that the effective demand of the late recipients of money must fall since fewer goods are now available to them. The fact that their effective demand must fall is made manifest through the increase in prices (more money per unit of a good) and to the consequent fall in the last recipients’ purchasing power. People are not identical, even if their respective money holdings have risen by the same percentage. Their response to this will not be identical. This in turn means that those individuals who spent the new money first benefit at the expense of those who spend the new money later on. [5]

Hence an increase in money supply cannot cause a general increase in overall effective demand for goods. Only through an increase in the production of goods can this be achieved. The more goods an individual produces the more of other goods he can secure for himself. This means that an individual’s effective demand is constrained by his production of goods, all other things being equal. Demand, therefore, cannot stand by itself and be independent. It is limited by production, which serves as the mean of securing various goods and services.

According to James Mill,

When goods are carried to market what is wanted is somebody to buy. But to buy, one must have the wherewithal to pay. It is obviously therefore the collective means of payment which exist in the whole nation constitute the entire market of the nation. But wherein consist the collective means of payment of the whole nation? Do they not consist in its annual produce, in the annual revenue of the general mass of inhabitants? But if a nation’s power of purchasing is exactly measured by its annual produce, as it undoubtedly is; the more you increase the annual produce, the more by that very act you extend the national market, the power of purchasing and the actual purchases of the nation…. Thus it appears that the demand of a nation is always equal to the produce of a nation. This indeed must be so; for what is the demand of a nation? The demand of a nation is exactly its power of purchasing. But what is its power of purchasing? The extent undoubtedly of its annual produce. The extent of its demand therefore and the extent of its supply are always exactly commensurate. [6]

We can also infer that the dependence of demand on the production of goods cannot be removed by means of loose monetary policy. On the contrary, loose monetary policy will only undermine the rate of growth of real goods and services. Here is why.

Increases in Money Supply Actually Weaken Economic Growth

In a market economy, money has just one role — to provide the services of a medium of exchange. According to Rothbard,

Consumer goods are used up by consumers; capital goods and natural resources are used up in the process of producing consumer goods. But money is not used up; its function is to act as a medium of exchanges — to enable goods and services to travel more expeditiously from one person to another. [7]

Money permits the product of one specialist to be exchanged for the product of another specialist. Or we can say that an exchange of something for something takes place by means of money. Things are, however, not quite the same once money is generated out of “thin air” as a result of loose central bank policies and fractional reserve banking.

Once money is created out of “thin air” and employed in the economy, it sets in motion an exchange of nothing for something. This amounts to a diversion of real wealth from wealth generators to the holders of newly created money. In the process genuine wealth generators are left with fewer resources at their disposal, which in turn weakens the wealth generators’ ability to grow the economy.

So contrary to PF’s theories, money cannot grow the economy even in the short run. On the contrary, an increase in money only undermines real economic growth. Notice that this conclusion is reached regardless of whether the money rate of growth is expected or unexpected.

To clarify this point let us assume that the central bank makes it known to everyone that the rate of growth of the money supply is going to increase from 5% to 10%. According to PF this shouldn’t have any effect on real economic growth.

If the earlier and the later receivers of money now anticipate higher inflation in the future they may lower their present demand for money. Once they lower the demand for money and increase the amount of goods bought, only then, all other things being equal, will the prices of goods start rising in line with the expected increase in price inflation.

This however, does not alter the fact that once early receivers spend the newly printed money it results in an exchange of nothing for something and to a weakening in the process of real wealth formation. (Again, the increase in money supply is never instantly spread across the board but always starts with earlier receivers.) In short, contrary to PF, irrespective of the fact that the increase in money is anticipated it will undermine real economic growth.

What then causes stagflation?

We have seen that an increase in money supply must lead to an exchange of nothing for something. As a result, the process of real wealth formation weakens and this in turn undermines the rate of economic growth.

The increase in the money supply rate of growth coupled with the slowdown in the rate of growth of goods produced is what the increase in the rate of price inflation is all about. (Note that a price is the amount of money paid for a unit of a good.) What we have here is a faster increase in price inflation and a decline in the rate of growth in the production of goods. But this is exactly what stagflation is all about, i.e., an increase in price inflation and a fall in real economic growth.

It seems therefore that the phenomenon of stagflation is the normal outcome of loose monetary policy. This is in agreement with PF. Contrary to PF, however, we maintain that stagflation is not caused by the fact that in the short run people are fooled by the central bank. Stagflation is the natural result of monetary pumping which weakens the pace of economic growth and at the same time raises the rate of increase of the prices of goods and services.

If we were to accept that increases in the rate of economic growth are inversely associated with the unemployment rate, then the unemployment rate and the rate of inflation should be positively associated — an increase in the rate of inflation is accompanied by the increase in the unemployment rate. Yet the historical data does not always support this conclusion.

For instance, during the 1948–1969 period, the rate of price inflation and the unemployment rate were negatively associated. (An increase in the rate of inflation was accompanied by a fall in the unemployment rate.) An inverse correlation between the rate of inflation and the unemployment rate can also be observed from 2000 to present.

 

A statistical correlation or lack of it between two variables shouldn’t be the only or final determining factor regarding causality. If anything, it can be of some help in the beginning of the investigation. The data and its correlation are simply the raw material, which must be scrutinized. One must figure out by means of reasoning what the statistical display might mean.

We have seen that when money is created out of “thin air” and employed in an exchange it weakens real economic growth in relation to a situation wherein no monetary expansion took place. Likewise we can confidently say that on account of the increase in money out of “thin air” in comparison with a situation where no such money was created, the rate of growth of prices must increase. The fact that the strengthening in monetary growth may not always manifest visible stagflation doesn’t refute what we have concluded with respect to the consequences of a stronger rate of monetary pumping on economic growth and prices. [8]

Consider the following situation. On account of past increases in the rate of growth of the money supply and the subsequent softening in the rate of growth of goods produced, the rate of growth of price inflation is going up. Now, because the underlying bottom line of the economy is still strong notwithstanding the damage inflicted by a stronger money supply rate of growth, the rate of growth of the production of goods only weakens slightly. Within such a situation the unemployment rate could still continue falling. (Remember that increases in the money supply undermine the wealth formation process and weaken the rate of production of goods and services.)

What we have here is a visible increase in price inflation and a fall in the unemployment rate. Any theory which concludes from this inverse correlation that there is a trade-off between inflation and unemployment will be false since it ignores the true consequences of loose monetary policy.

A shirt worth a Nobel

We suggest that any theory that relies solely on observed statistical correlations is nothing more than an exercise in curve fitting. For PF and most mainstream economists, the criteria for accepting a theory is a visible supporting statistical correlation. It is because of the visible stagflation of 1970s that PF’s theory of stagflation gained wide support. One would have thought that in order to be consistent with their way of assessing a theory given the observed inverse correlation between inflation and unemployment since 2000, PF should acknowledge that their stagflation hypothesis is not valid. [9]

Conclusion

This year’s Nobel Prize in Economics was awarded to Phelps for his work on the relationship between inflation and unemployment. Phelps could have made great contribution to the economic profession by dismissing the entire framework of the supposed trade-off between inflation and unemployment (the Phillips Curve). Unfortunately he has chosen to stick to the bankrupt framework by making some amendments to it. The profession’s understanding of these issues still hasn’t reached the heights of Mises’s own understanding, as seen in his book The Causes of the Economic Crisis.

Contrary to the accepted way of thinking, we suggest that these amendments have done nothing to further our understanding of economic conditions such as stagflation. In this regard, both Phelps and another Nobel Laureate Milton Friedman have introduced more confusion rather than clarity regarding the explanation of the phenomenon of stagflation.

---

Frank Shostak is an adjunct scholar of the Mises Institute and a frequent contributor to Mises.org. He is chief economist of Man Financial, Australia. Send him mail and see his outstanding Mises.org Daily Articles Archive. Comment on the blog.

Notes

[1] Milton Friedman, “The Role of Monetary Policy,” American Economic Review 58 (March 1968): 1-7.

[2] Edmund S. Phelps (1969), “The New Microeconomcs in Inflation and Employment Theory,” American Economic Review 59.

[3] Milton Friedman, “Inflation and Unemployment,” Nobel Memorial Lecture, December 13, 1976.

[4] Edmund S. Phelps, “Scapegoating the Natural Rate,” The Wall Street Journal online August 6,1996.

[5] Ludwig von Mises, Human Action, 3rd revised edition, p.416–417.

[6] James Mill, “On the Overproduction and Underconsumption Fallacies.” Edited by George Reisman, a publication of The Jefferson School of philosophy, Economics, and Psychology — 2000.

[7] Murray N. Rothbard, What Has Government Done to Our Money?

With all the evidence that is out there Washington still endorses massive taxation as a panacea for all the ills of government.

[8] Jörg Guido Hülsmann, “Facts and Counterfacts in Economic Law.” Journal of Libertarian Studies 17, no. 1 (Winter):57-102.

[9] Milton Friedman, Essays in Positive Economics. Chicago: University of Chicago Press 1953

Wage Gaps, Inequality, and Government

By William Anderson

Posted on 10/12/2006
Subscribe at email services, tell others, or Digg this story.

Perhaps it is human nature for people to decry whatever their situation might be. All of us wish to be better off than we are at the present time, not matter how good the state of our current circumstances.

While that might be so, the supposed “inequality crisis” decried by some economists (and, of course, members of the political classes) does not stem necessarily from human discontent with the nature of scarcity, but rather from the propensity of some to play with aggregate numbers — and call it “economics.”

Although the typical American consumer today has more affordable goods from which to choose than any time in this nation’s history, that has not stopped some prominent voices from declaring that “unfettered” capitalism is undermining prosperity.

The most prominent voice on this current “inequality crisis” has been Paul Krugman, who from his New York Times editorial page perch has declared that “economic inequality is rising in America.” Moreover, Krugman squarely places the “blame” for this state of affairs upon the dominant ideological climate:

I’ve been studying the long-term history of inequality in the United States. And it’s hard to avoid the sense that it matters a lot which political party, or more accurately, which political ideology rules Washington.[1]

Certainly an issue like “inequality” in the United States will touch a nerve, given that this is a country founded upon a “Declaration of Independence” which declared that “all men are created equal.” Yet, people throughout history have understood that all earning power is not equal, and that no matter what a government does, short of killing everyone in the country, that there is going to be some inequality somewhere.

Anyone with even minimal training in economics understands marginal productivity and its effect upon the income one receives for services rendered, and it is a fact of life that some people are going to have skills that will be compensated higher than others.

(If Krugman really were to believe in his own doctrines of “income equality,” perhaps he might be willing to accept less pay at Princeton University in order to have other colleagues receive more. If he is not willing to do so, he has no right to demand that others be forced into having their incomes confiscated in the name of equality.)

Adherents of Keynesian theory — and Krugman is one — believe that income inequality ultimately leads to large-scale “underconsumption,” which ultimately pulls an economy into a state of low production and high unemployment. The reasoning is as follows:

• High-income individuals are less likely to spend all or most of their income for consumables, unlike low-income people, and thus have a higher “marginal propensity to save”;
• In the Keynesian system, net savings will always be greater than net investment, which means that some income will “leak” out of the economy;
• As more income leaks from the economy, overall spending is not high enough for consumers to “buy back” the products they have made. Therefore, inventories pile up as underconsumption takes its toll;
• Underconsumption then leads to unemployment, and unemployment leads to more unemployment until the economy implodes on its own and settles at a harsh “equilibrium” of low production and high unemployment.

Keynesians believe that because a free market economy is inherently unstable and leads to underconsumption, government must intervene via spending and taxation in order to bring the economy to a state of “full employment.”

One strategy, they hold, is for government to impose high marginal income tax rates in order to siphon money from higher-income earners and either transfer that money to lower-income people, or just have government engage in spending either for “massive public works” or some other scheme that will help the economy avoid the pitfalls of underconsumption.

Therefore the “equalization” of incomes through spending and taxation is not, they contend, simply a “feel-good” scheme by which the political classes can claim that they have created “income equality”: such policies also serve to keep an economy operating at a higher level than one left to the devices of free markets.

In the Keynesian state of the world, there is no difference between a government and private enterprise when it comes to efficiency and output. In fact, as Krugman notes, in areas such as medical care, government is going to be a lower-cost, higher-output entity than private medicine, since governments do not have to make “profits,” which in Krugman’s view unnecessarily pull money from the spending stream to go into the pockets of wealthy people, who then save their money and drive an economy into the throes of underconsumption.

It is clear, according to Krugman, that the golden age of income equality in the United States was long ago and can be revived only with policies that favor high, confiscatory tax rates and enforced unionization, as well as other methods of coercion. He writes:

Since the 1920s there have been four eras of American inequality:

The Great Compression, 1929-1947: The birth of middle-class America. The real wages of production workers in manufacturing rose 67 percent, while the real income of the richest 1 percent of Americans actually fell 17 percent.

The Postwar Boom, 1947-1973: An era of widely shared growth. Real wages rose 81 percent, and the income of the richest 1 percent rose 38 percent.

Stagflation, 1973-1980: Everyone lost ground. Real wages fell 3 percent, and the income of the richest 1 percent fell 4 percent.

The New Gilded Age, 1980-?: Big gains at the very top, stagnation below. Between 1980 and 2004, real wages in manufacturing fell 1 percent, while the real income of the richest 1 percent — people with incomes of more than $277,000 in 2004 — rose 135 percent.

What’s noticeable is that except during stagflation, when virtually all Americans were hurt by a tenfold increase in oil prices, what happened in each era was what the dominant political tendency of that era wanted to happen.

Franklin Roosevelt favored the interests of workers while declaring of plutocrats who considered him a class traitor, “I welcome their hatred.” Sure enough, under the New Deal wages surged while the rich lost ground.

What followed was an era of bipartisanship and political moderation; Dwight Eisenhower said of those who wanted to roll back the New Deal, “Their number is negligible, and they are stupid.” Sure enough, it was also an era of equable growth.

Finally, since 1980 the U.S. political scene has been dominated by a conservative movement firmly committed to the view that what’s good for the rich is good for America. Sure enough, the rich have seen their incomes soar, while working Americans have seen few if any gains.[2]

We have another term for what Krugman calls the “Great Compression”: It is called the Great Depression — and World War II. In other words, Krugman claims that the Great Depression, a time when the nation’s unemployment rates were in double-digits, was a good time for the American “middle class” because, statistically speaking, incomes for wealthy people fell. (Robert Higgs gives us another pictureof the Great Depression and the New Deal that is not as rosy as Krugman’s.)

Likewise, we are supposed to believe — if Krugman is an authority — that World War II was a good time for Americans because of “income compression.” Again, Higgs presents another pictureof so-called war prosperity:

Many aspects of economic well-being deteriorated during the war. Military preemption of public transportation interfered with intercity travel by civilians, and rationing of tires and gasoline made commuting to work very difficult for many workers. More workers had to work at night. The rate of industrial accidents increased substantially as novices replaced experienced workers and labor turnover increased. The government forbade nearly all nonmilitary construction, and housing became extremely scarce and badly maintained in many places, especially where war production had been expanded the most. Price controls and rationing meant that consumers had to spend much time standing in lines or searching for sellers willing to sell goods at the controlled prices. The quality of many goods deteriorated, as sellers forbidden to raise prices adjusted to increased demands by selling lower quality goods at the controlled prices.

One problem here is that Krugman depends upon “apples and oranges” statistics. One can use things like the Consumer Price Index to “prove” that Americans are worse off today, economically speaking, than they were in 1973, yet if we were to time-travel to that era, most of us would be shocked to discover just how much worse off we were back then compared to today. The US economy has seen great advances in computer technology, which in turn has driven gains elsewhere.

For example, would one today facing major surgery really want to be transported back to the health care of 1973? Perhaps one might want to visit a typical 1973 grocery store and compare the choices people had then to what is available today. (I remember talking long distance that year to a girl I was dating who lived in another city. We talked for two hours on a Sunday evening, and the call cost me $28, or close to $100 in today’s dollars. The same call today would have a marginal cost of zero, since I am on a plan for which all local and long-distance calls cost me $30 a month.)

Curiously, Krugman often condemns Wal-Mart in his columns, yet Wal-Mart has provided low-income people with consumer choices that simply would not have been possible in the former “golden ages” of income equality. After all, if the obvious end of production is consumption, then the real measure of economic progress is the number of opportunities that people have to consume and what is available to them.

If Krugman really wishes us to believe that the 1930s was a brighter era, economically speaking, than 2006, he can try to convince us. However, he has been quite inconsistent. In one piece, he writes:

Is the typical American family better off than it was a generation ago? That’s the subject of an intense debate these days, as commentators try to understand the sour mood of the American public.

But it’s the wrong debate. For one thing, there probably isn’t a right answer. Most Americans are better off in some ways, worse off in others, than they were in the early 1970s. It’s a subjective judgment whether the good outweighs the bad. And as I’ll explain, that ambiguity is actually the real message.

Here’s what the numbers say. From the end of World War II until 1973, when the first oil crisis brought an end to the postwar boom, the U.S. economy delivered a huge, broad-based rise in living standards: family income adjusted for inflation roughly doubled for the poor, the middle class, and the elite alike. Nobody debated whether families were better off than they had been a generation ago; it was obvious that they were, by any measure.[3]

In another article, he says:

Finally, since 1980 the U.S. political scene has been dominated by a conservative movement firmly committed to the view that what’s good for the rich is good for America. Sure enough, the rich have seen their incomes soar, while working Americans have seen few if any gains.[4]

Thus, he seems to believe that people today either are worse off or no better off than they were 30 years ago, and any gains in productivity only accrued to wealthy people. He goes on to say:

The stagnation of real wages — wages adjusted for inflation — actually goes back more than 30 years. The real wage of nonsupervisory workers reached a peak in the early 1970’s, at the end of the postwar boom. Since then workers have sometimes gained ground, sometimes lost it, but they have never earned as much per hour as they did in 1973.[5]

What is the cause of this human misery? According to Krugman, it is so-called conservative ideology. In one place, he writes:

Why have workers done so badly in a rich nation that keeps getting richer? That’s a matter of dispute, although I believe there’s a large political component: what we see today is the result of a quarter-century of policies that have systematically reduced workers’ bargaining power.[6]

Elsewhere, he declares:

…it seems likely that government policies have played a big role in America’s growing economic polarization — not just easily measured policies like tax rates for the rich and the level of the minimum wage, but things like the shift in Labor Department policy from protection of worker rights to tacit support for union-busting.

And if that’s true, it matters a lot which party is in power — and more important, which ideology. For the last few decades, even Democrats have been afraid to make an issue out of inequality, fearing that they would be accused of practicing class warfare and lose the support of wealthy campaign contributors.

That may be changing. Inequality seems to be an issue whose time has finally come, and if the growing movement to pressure Wal-Mart to treat its workers better is any indication, economic populism is making a comeback.[7]

In other words: Prosperity is the creation of the political classes. Should the government levy high taxes on the so-called wealthy, bring back labor union power to the levels that existed in the private sector in the 1940s through the 1960s, and engage in other coercive tactics, we can bring back a “golden age” in economics.

He writes:

That’s why the debate over whether the middle class is a bit better off or a bit worse off now than a generation ago misses the point. What we should be debating is why technological and economic progress has done so little for most Americans, and what changes in government policies would spread the benefits of progress more widely. An effort to shore up middle-class health insurance, paid for by a rollback of recent tax cuts for the wealthiest Americans — something like the plan proposed by John Kerry two years ago, but more ambitious — would be a good place to start.[8]

Indeed, I believe we should be debating why these technological advances have not had even more influence in wiping out poverty, but I would approach it from a different point of view. For the past century, we have seen the advance of the state, and all its coercion. Krugman argues that the way to advance an economy is to give the state nearly unlimited powers.

However, there is another way to put it: Since 1973, we have seen government grab powers, increase taxes, and regulate wealth out of existence. However, despite the growth of government and the continued debasement of the once-proud dollar by the Federal Reserve System, entrepreneurs and producers have still managed to make breathtaking achievements and to provide opportunities for others.

He knew what’s what

Now, Krugman actually seems to believe that the way to prosperity is to destroy wealth, regulate firms like Wal-Mart out of existence, and make it more difficult and costly to produce goods. (He seems to labor under the delusion that higher factor costs mean that more wealth is being created.) Yet, that argument is nonsense, and it is nonsense on its face.Income equality and prosperity are not the same things. It is theoretically possible for the state to make all incomes equal; Lenin and his cohorts tried to do that in Russia from 1917-1921, and we know the horrific results of that experiment. Yet, if Krugman is to be believed, we would have to assume that 1917-1921 was a golden age for the Russians, rather than a time of war, famine, and death.

---

William Anderson, an adjunct scholar of the Mises Institute, teaches economics at Frostburg State University. Send him mail. See his articles. Comment on the blog.

Notes

[1] Krugman, Paul. “Wages, Wealth and Politics,” New York Times, August 18, 2006, A17.

[2] Ibid.

[3] Krugman, Paul. “Progress or Regress?” New York Times, September 15, 2006, A25.

[4] Ibid., August 18, 2006.

[5] Krugman, Paul. “The Big Disconnect,” New York Times, September 1, 2006, A17.

[6] Ibid.

[7] Ibid., August 18, 2006.

[8] Ibid., September 15, 2006.

And so now there is hue and cry to increase the minimum wage. Too what end?

Wage Gaps, Inequality, and Government

By William Anderson

Posted on 10/12/2006
Subscribe at email services, tell others, or Digg this story.

Perhaps it is human nature for people to decry whatever their situation might be. All of us wish to be better off than we are at the present time, not matter how good the state of our current circumstances.

While that might be so, the supposed “inequality crisis” decried by some economists (and, of course, members of the political classes) does not stem necessarily from human discontent with the nature of scarcity, but rather from the propensity of some to play with aggregate numbers — and call it “economics.”

Although the typical American consumer today has more affordable goods from which to choose than any time in this nation’s history, that has not stopped some prominent voices from declaring that “unfettered” capitalism is undermining prosperity.

The most prominent voice on this current “inequality crisis” has been Paul Krugman, who from his New York Times editorial page perch has declared that “economic inequality is rising in America.” Moreover, Krugman squarely places the “blame” for this state of affairs upon the dominant ideological climate:

I’ve been studying the long-term history of inequality in the United States. And it’s hard to avoid the sense that it matters a lot which political party, or more accurately, which political ideology rules Washington.[1]

Certainly an issue like “inequality” in the United States will touch a nerve, given that this is a country founded upon a “Declaration of Independence” which declared that “all men are created equal.” Yet, people throughout history have understood that all earning power is not equal, and that no matter what a government does, short of killing everyone in the country, that there is going to be some inequality somewhere.

Anyone with even minimal training in economics understands marginal productivity and its effect upon the income one receives for services rendered, and it is a fact of life that some people are going to have skills that will be compensated higher than others.

(If Krugman really were to believe in his own doctrines of “income equality,” perhaps he might be willing to accept less pay at Princeton University in order to have other colleagues receive more. If he is not willing to do so, he has no right to demand that others be forced into having their incomes confiscated in the name of equality.)

Adherents of Keynesian theory — and Krugman is one — believe that income inequality ultimately leads to large-scale “underconsumption,” which ultimately pulls an economy into a state of low production and high unemployment. The reasoning is as follows:

• High-income individuals are less likely to spend all or most of their income for consumables, unlike low-income people, and thus have a higher “marginal propensity to save”;
• In the Keynesian system, net savings will always be greater than net investment, which means that some income will “leak” out of the economy;
• As more income leaks from the economy, overall spending is not high enough for consumers to “buy back” the products they have made. Therefore, inventories pile up as underconsumption takes its toll;
• Underconsumption then leads to unemployment, and unemployment leads to more unemployment until the economy implodes on its own and settles at a harsh “equilibrium” of low production and high unemployment.

Keynesians believe that because a free market economy is inherently unstable and leads to underconsumption, government must intervene via spending and taxation in order to bring the economy to a state of “full employment.”

One strategy, they hold, is for government to impose high marginal income tax rates in order to siphon money from higher-income earners and either transfer that money to lower-income people, or just have government engage in spending either for “massive public works” or some other scheme that will help the economy avoid the pitfalls of underconsumption.

Therefore the “equalization” of incomes through spending and taxation is not, they contend, simply a “feel-good” scheme by which the political classes can claim that they have created “income equality”: such policies also serve to keep an economy operating at a higher level than one left to the devices of free markets.

In the Keynesian state of the world, there is no difference between a government and private enterprise when it comes to efficiency and output. In fact, as Krugman notes, in areas such as medical care, government is going to be a lower-cost, higher-output entity than private medicine, since governments do not have to make “profits,” which in Krugman’s view unnecessarily pull money from the spending stream to go into the pockets of wealthy people, who then save their money and drive an economy into the throes of underconsumption.

It is clear, according to Krugman, that the golden age of income equality in the United States was long ago and can be revived only with policies that favor high, confiscatory tax rates and enforced unionization, as well as other methods of coercion. He writes:

Since the 1920s there have been four eras of American inequality:

The Great Compression, 1929-1947: The birth of middle-class America. The real wages of production workers in manufacturing rose 67 percent, while the real income of the richest 1 percent of Americans actually fell 17 percent.

The Postwar Boom, 1947-1973: An era of widely shared growth. Real wages rose 81 percent, and the income of the richest 1 percent rose 38 percent.

Stagflation, 1973-1980: Everyone lost ground. Real wages fell 3 percent, and the income of the richest 1 percent fell 4 percent.

The New Gilded Age, 1980-?: Big gains at the very top, stagnation below. Between 1980 and 2004, real wages in manufacturing fell 1 percent, while the real income of the richest 1 percent — people with incomes of more than $277,000 in 2004 — rose 135 percent.

What’s noticeable is that except during stagflation, when virtually all Americans were hurt by a tenfold increase in oil prices, what happened in each era was what the dominant political tendency of that era wanted to happen.

Franklin Roosevelt favored the interests of workers while declaring of plutocrats who considered him a class traitor, “I welcome their hatred.” Sure enough, under the New Deal wages surged while the rich lost ground.

What followed was an era of bipartisanship and political moderation; Dwight Eisenhower said of those who wanted to roll back the New Deal, “Their number is negligible, and they are stupid.” Sure enough, it was also an era of equable growth.

Finally, since 1980 the U.S. political scene has been dominated by a conservative movement firmly committed to the view that what’s good for the rich is good for America. Sure enough, the rich have seen their incomes soar, while working Americans have seen few if any gains.[2]

We have another term for what Krugman calls the “Great Compression”: It is called the Great Depression — and World War II. In other words, Krugman claims that the Great Depression, a time when the nation’s unemployment rates were in double-digits, was a good time for the American “middle class” because, statistically speaking, incomes for wealthy people fell. (Robert Higgs gives us another pictureof the Great Depression and the New Deal that is not as rosy as Krugman’s.)

Likewise, we are supposed to believe — if Krugman is an authority — that World War II was a good time for Americans because of “income compression.” Again, Higgs presents another pictureof so-called war prosperity:

Many aspects of economic well-being deteriorated during the war. Military preemption of public transportation interfered with intercity travel by civilians, and rationing of tires and gasoline made commuting to work very difficult for many workers. More workers had to work at night. The rate of industrial accidents increased substantially as novices replaced experienced workers and labor turnover increased. The government forbade nearly all nonmilitary construction, and housing became extremely scarce and badly maintained in many places, especially where war production had been expanded the most. Price controls and rationing meant that consumers had to spend much time standing in lines or searching for sellers willing to sell goods at the controlled prices. The quality of many goods deteriorated, as sellers forbidden to raise prices adjusted to increased demands by selling lower quality goods at the controlled prices.

One problem here is that Krugman depends upon “apples and oranges” statistics. One can use things like the Consumer Price Index to “prove” that Americans are worse off today, economically speaking, than they were in 1973, yet if we were to time-travel to that era, most of us would be shocked to discover just how much worse off we were back then compared to today. The US economy has seen great advances in computer technology, which in turn has driven gains elsewhere.

For example, would one today facing major surgery really want to be transported back to the health care of 1973? Perhaps one might want to visit a typical 1973 grocery store and compare the choices people had then to what is available today. (I remember talking long distance that year to a girl I was dating who lived in another city. We talked for two hours on a Sunday evening, and the call cost me $28, or close to $100 in today’s dollars. The same call today would have a marginal cost of zero, since I am on a plan for which all local and long-distance calls cost me $30 a month.)

Curiously, Krugman often condemns Wal-Mart in his columns, yet Wal-Mart has provided low-income people with consumer choices that simply would not have been possible in the former “golden ages” of income equality. After all, if the obvious end of production is consumption, then the real measure of economic progress is the number of opportunities that people have to consume and what is available to them.

If Krugman really wishes us to believe that the 1930s was a brighter era, economically speaking, than 2006, he can try to convince us. However, he has been quite inconsistent. In one piece, he writes:

Is the typical American family better off than it was a generation ago? That’s the subject of an intense debate these days, as commentators try to understand the sour mood of the American public.

But it’s the wrong debate. For one thing, there probably isn’t a right answer. Most Americans are better off in some ways, worse off in others, than they were in the early 1970s. It’s a subjective judgment whether the good outweighs the bad. And as I’ll explain, that ambiguity is actually the real message.

Here’s what the numbers say. From the end of World War II until 1973, when the first oil crisis brought an end to the postwar boom, the U.S. economy delivered a huge, broad-based rise in living standards: family income adjusted for inflation roughly doubled for the poor, the middle class, and the elite alike. Nobody debated whether families were better off than they had been a generation ago; it was obvious that they were, by any measure.[3]

In another article, he says:

Finally, since 1980 the U.S. political scene has been dominated by a conservative movement firmly committed to the view that what’s good for the rich is good for America. Sure enough, the rich have seen their incomes soar, while working Americans have seen few if any gains.[4]

Thus, he seems to believe that people today either are worse off or no better off than they were 30 years ago, and any gains in productivity only accrued to wealthy people. He goes on to say:

The stagnation of real wages — wages adjusted for inflation — actually goes back more than 30 years. The real wage of nonsupervisory workers reached a peak in the early 1970’s, at the end of the postwar boom. Since then workers have sometimes gained ground, sometimes lost it, but they have never earned as much per hour as they did in 1973.[5]

What is the cause of this human misery? According to Krugman, it is so-called conservative ideology. In one place, he writes:

Why have workers done so badly in a rich nation that keeps getting richer? That’s a matter of dispute, although I believe there’s a large political component: what we see today is the result of a quarter-century of policies that have systematically reduced workers’ bargaining power.[6]

Elsewhere, he declares:

…it seems likely that government policies have played a big role in America’s growing economic polarization — not just easily measured policies like tax rates for the rich and the level of the minimum wage, but things like the shift in Labor Department policy from protection of worker rights to tacit support for union-busting.

And if that’s true, it matters a lot which party is in power — and more important, which ideology. For the last few decades, even Democrats have been afraid to make an issue out of inequality, fearing that they would be accused of practicing class warfare and lose the support of wealthy campaign contributors.

That may be changing. Inequality seems to be an issue whose time has finally come, and if the growing movement to pressure Wal-Mart to treat its workers better is any indication, economic populism is making a comeback.[7]

In other words: Prosperity is the creation of the political classes. Should the government levy high taxes on the so-called wealthy, bring back labor union power to the levels that existed in the private sector in the 1940s through the 1960s, and engage in other coercive tactics, we can bring back a “golden age” in economics.

He writes:

That’s why the debate over whether the middle class is a bit better off or a bit worse off now than a generation ago misses the point. What we should be debating is why technological and economic progress has done so little for most Americans, and what changes in government policies would spread the benefits of progress more widely. An effort to shore up middle-class health insurance, paid for by a rollback of recent tax cuts for the wealthiest Americans — something like the plan proposed by John Kerry two years ago, but more ambitious — would be a good place to start.[8]

Indeed, I believe we should be debating why these technological advances have not had even more influence in wiping out poverty, but I would approach it from a different point of view. For the past century, we have seen the advance of the state, and all its coercion. Krugman argues that the way to advance an economy is to give the state nearly unlimited powers.

However, there is another way to put it: Since 1973, we have seen government grab powers, increase taxes, and regulate wealth out of existence. However, despite the growth of government and the continued debasement of the once-proud dollar by the Federal Reserve System, entrepreneurs and producers have still managed to make breathtaking achievements and to provide opportunities for others.

He knew what’s what

Now, Krugman actually seems to believe that the way to prosperity is to destroy wealth, regulate firms like Wal-Mart out of existence, and make it more difficult and costly to produce goods. (He seems to labor under the delusion that higher factor costs mean that more wealth is being created.) Yet, that argument is nonsense, and it is nonsense on its face.Income equality and prosperity are not the same things. It is theoretically possible for the state to make all incomes equal; Lenin and his cohorts tried to do that in Russia from 1917-1921, and we know the horrific results of that experiment. Yet, if Krugman is to be believed, we would have to assume that 1917-1921 was a golden age for the Russians, rather than a time of war, famine, and death.

---

William Anderson, an adjunct scholar of the Mises Institute, teaches economics at Frostburg State University. Send him mail. See his articles. Comment on the blog.

Notes

[1] Krugman, Paul. “Wages, Wealth and Politics,” New York Times, August 18, 2006, A17.

[2] Ibid.

[3] Krugman, Paul. “Progress or Regress?” New York Times, September 15, 2006, A25.

[4] Ibid., August 18, 2006.

[5] Krugman, Paul. “The Big Disconnect,” New York Times, September 1, 2006, A17.

[6] Ibid.

[7] Ibid., August 18, 2006.

[8] Ibid., September 15, 2006.

And so now there is hue and cry to increase the minimum wage. Too what end?

A good read that dissects the differences of anti communist’s and conservatives.

“Anticommunism” versus Capitalism

By Ludwig von Mises

Posted on 10/6/2006
Subscribe at email services, tell others, or Digg this story.

This article is excerpted from Part V of The Anti-Capitalistic Mentality.

In the universe there is never and nowhere stability and immobility. Change and transformation are essential features of life. Each state of affairs is transient; each age is an age of transition. In human life there is never calm and repose. Life is a process, not a perseverance in a status quo. Yet the human mind has always been deluded by the image of an unchangeable existence. The avowed aim of all utopian movements is to put an end to history and to establish a final and permanent calm.

The psychological reasons for this tendency are obvious. Every change alters the external conditions of life and well-being and forces people to adjust themselves anew to the modification of their environments. It hurts vested interests and threatens traditional ways of production and consumption. It annoys all those who are intellectually inert and shrink from revising their modes of thinking.

Conservatism is contrary to the very nature of human acting. But it has always been the cherished program of the many, of the inert who dully resist every attempt to improve their own conditions which the minority of the alert initiate. In employing the term reactionary one mostly refers only to the aristocrats and priests who called their parties conservative. Yet the outstanding examples of the reactionary spirit were provided by other groups: by the guilds of artisans blocking entrance into their field to newcomers; by the farmers asking for tariff protection, subsidies and “parity prices”; by the wager earners hostile to technological improvements and fostering featherbedding and similar practices.

The vain arrogance of the literati and Bohemian artists dismisses the activities of the businessmen as unintellectual moneymaking. The truth is that the entrepreneurs and promoters display more intellectual faculties and intuition than the average writer and painter. The inferiority of many self-styled intellectuals manifests itself precisely in the fact that they fail to recognize what capacity and reasoning power are required to operate successfully a business enterprise.

The emergence of a numerous class of such frivolous intellectuals is one of the least welcome phenomena of the age of modern capitalism. Their obtrusive stir repels discriminating people. They are a nuisance. It would not directly harm anybody if something would be done to curb their bustle or, even better, to wipe out entirely their cliques and coteries.

However, freedom is indivisible. Every attempt to restrict the freedom of the decadent troublesome literati and pseudo-artists would vest in the authorities the power to determine what is good and what is bad. It would socialize intellectual and artistic effort. It is questionable whether it would weed out the useless and objectionable persons; but it is certain that it would put insurmountable obstacles in the way of the creative genius. The powers that be do not like new ideas, new ways of thought and new styles of art. They are opposed to any kind of innovation. Their supremacy would result in strict regimentation; it would bring about stagnation and decay.

The moral corruption, the licentiousness and the intellectual sterility of a class of lewd would-be authors and artists is the ransom mankind must pay lest the creative pioneers be prevented from accomplishing their work. Freedom must be granted to all, even to base people, lest the few who can use it for the benefit of mankind be hindered. The license which the shabby characters of the quartier Latin enjoyed was one of the conditions that made possible the ascendance of a few great writers, painters and sculptors. The first thing a genius needs is to breathe free air.

After all, it is not the frivolous doctrines of the Bohemians that generate disaster, but the fact that the public is ready to accept them favorably. The response to these pseudo-philosophies on the part of the molders of public opinion and later on the part of the misguided masses is the evil. People are anxious to endorse the tenets they consider as fashionable lest they appear boorish and backward.

The most pernicious ideology of the last sixty years was George Sorel’s syndicalism and his enthusiasm for the action directe. Generated by a frustrated French intellectual, it soon captivated the literati of all European countries. It was a major factor in the radicalization of all subversive movements. It influenced French royalism, militarism and anti-Semitism. It played an important role in the evolution of Russian Bolshevism, Italian Fascism and the German youth movement which finally resulted in the development of Nazism. It transformed political parties intent upon winning through electoral campaigns into factions which relied upon the organization of armed bands. It brought into discredit representative government and “bourgeois security,” and preached the gospel both of civil and of foreign war. Its main slogan was: violence and again violence. The present state of European affairs is to a great extent an outcome of the prevalence of Sorel’s teachings.

The intellectuals were the first to hail the ideas of Sorel: they made them popular. But the tenor of Sorelism was obviously anti-intellectual. He was opposed to cool reasoning and sober deliberation. What counts for Sorel is solely the deed, viz., the act of violence for the sake of violence. Fight for a myth whatever this myth may mean, was his advice. “If you place yourself on this ground of myths, you are proof against any kind of critical refutation.” [1] What a marvelous philosophy, to destroy for the sake of destruction! Do not talk, do not reason, kill! Sorel rejects the “intellectual effort” even of the literary champions of revolution. The essential aim of the myth is “to prepare people to fight for the destruction of what exists.” [2]

Yet the blame for the spread of the destructionist pseudo-philosophy rests neither with Sorel nor with his disciples, Lenin, Mussolini and Rosenberg, nor with the hosts of irresponsible literati and artists. The catastrophe came because, for many decades, hardly anybody ventured to examine critically and to explode the trigger consciousness of the fanatical desperadoes. Even those authors who refrained from unreservedly endorsing the ideas of reckless violence were eager to find some sympathetic interpretation of the worst excesses of the dictators. The first timid objections were raised only when — very late, indeed — the intellectual abettors of these policies began to realize that even enthusiastic endorsement of the totalitarian ideology did not guarantee immunity from torture and execution.

There exists today a sham anticommunist front. What these people who call themselves “anticommunist liberals” and whom sober men more correctly call “anti-anticommunists” are aiming at is communism without those inherent and necessary features of communism which are still unpalatable to Americans. They make an illusory distinction between communism and socialism and — paradoxically enough — look for a support of their recommendation of noncommunist socialism to the document which its authors called The Communist Manifesto. They think that they have proved their case by employing such aliases for socialism as planning or the welfare state.

They pretend to reject the revolutionary and dictatorial aspirations of the “Reds” and at the same time they praise in books and magazines, in schools and universities, Karl Marx, the champion of the communist revolution and the dictatorship of the proletariat, as one of the greatest economists, philosophers and sociologists and as the eminent benefactor and liberator of mankind. They want to make us believe that untotalitarian totalitarianism, a kind of a triangular square, is the patent medicine for all ills.

Whenever they raise some mild objection to communism, they are eager to abuse capitalism in terms borrowed from the objurgatory vocabulary of Marx and Lenin. They emphasize that they abhor capitalism much more passionately than communism, and they justify all the unsavory acts of the communists by referring to the “unspeakable horrors” of capitalism. In short: they pretend to fight communism in trying to convert people to the ideas of the Communist Manifesto.

$8

What these self-styled “anticommunist liberals” are fighting against is not communism as such, but a communist system in which they themselves are not at the helm. What they are aiming at is a socialist, i.e., communist, system in which they themselves or their most intimate friends hold the reins of government. It would perhaps be too much to say that they are burning with a desire to liquidate other people. They simply do not wish to be liquidated. In a socialist commonwealth, only the supreme autocrat and his abettors have this assurance.

An “anti-something” movement displays a purely negative attitude. It has no chance whatever to succeed. Its passionate diatribes virtually advertise the program that they attack. People must fight for something that they want to achieve, not simply reject an evil, however bad it may be. They must, without any reservations, endorse the program of the market economy.

Communism would have today, after the disillusionment brought by the deeds of the Soviets and the lamentable failure of all socialist experiments, but little chance of succeeding in the West if it were not for this faked anticommunism.

What alone can prevent the civilized nations of Western Europe, America, and Australia from being enslaved by the barbarism of Moscow is open and unrestricted support of laissez-faire capitalism.

---

Ludwig von Mises (1881-1973) was dean of the Austrian School. This article is excerpted from Part V of The Anti-Capitalistic Mentality. Comment on the blog.

Notes

[1] Cf. G. Sorel, Réflexions surla violence, 3d ed., Paris, 1912, p. 49.

[2] Cf. Sorel, l.c., p. 46.

Socialist Man in the Big Easy

By Vedran Vuk

Posted on 9/25/2006
Subscribe at email services, tell others, or Digg this story.

Marxists long theorized that communism would bring about the new socialist man. Through communist programs, man would turn his sole purpose to laboring and struggling for the greater good of the collective.

Through socialist policies and redistribution, New Orleans has raised from its ruin a new socialist man. However, instead of working for the collective, this risen New Orleans man does not work at all. He does not live for the collective but lives at the expense of the collective. This reality is drastically different from what Marxists had in mind when referring to the man created from socialism.

To a person with common sense, this seems like an obvious outcome. If you give money to those who stay unemployed, you are not teaching them to work. Rather, you are teaching them how to survive without working.

Let’s begin with the supposed housing shortage in New Orleans. The government is giving more and more trailers to the citizens of the city. Even the officials of the city constantly talk about the “housing shortage.” Every New Orleanian knows differently.

A simple look at Craigslist.org reveals the plentitude of homes available in the area. These are houses available for rent on just one website which hardly represents all rentable properties in New Orleans.

If there are houses available, why do people still request trailers? It’s really simple. Free is always better. Sure, there are homes available but who wants to pay when they don’t have to. The government interprets this demand as a housing shortage. At price zero, demand is as much as people want. The realities of availability are thrown to the side so that these bureaucrats can get even more money to bribe disgruntled voters with free trailers calling the problem a “housing shortage.”

Personally, I know people who were renting an apartment, and then received a trailer from the government. Their next step was to move out of the apartment. Their problem was not finding a place or even paying rent. But as I said, free is always better especially when someone else foots the bill.

Now the next issue is jobs. We all know that jobs are plentiful in New Orleans and are paying outstanding wages. Recently, I saw Taco Bell in Slidell hiring at $11/hour. Here’s another list of jobs available to low-skilled workers in New Orleans from Craig’s List.

Why is the murder rate for July in New Orleans higher than last year with half the population around? These jobs are available with great wages! Living wage advocates always talk about how everything would be solved when wages for low skilled labor were around $10-15/hour. Well, here we have it leftists! Take a big look. The wages are at the living wage rate, yet employers are desperate to find employees. Anyone who applies for a job is often hired on the spot before the entire application is even filled out.

In the face of these opportunities, the crime rate grows. Conservatives and libertarians are often accused of having a vicious and maligned view of the poor on welfare as lazy. I don’t think that welfare recipients of New Orleans are naturally lazy, but I believe that our socialist policies have made them so. People simply don’t want to work anymore. They would rather do nothing and live on barely anything than consider work.

$25

Can a left-liberal please e-mail me with their reasoning on why these people are committing crime instead of working when there are countless jobs at outstanding wages? The living wage is here. Dare to look at the situation! People are still not working. It’s not the wage that must be changed. It is the mindset of people that must be altered or these problems will persist. The welfare culture must be abolished for the good of everyone in this country. If this is not done, crime and murder will continue in the face of high wages, as has been happening in the Big Easy.

The accelerated rate in transfer payments to Katrina victims has resulted in an accelerated rate of crime not just in New Orleans but in Houston and Jackson, Mississippi as well. If you want to help the poor, don’t start by talking about higher wages. Start by talking about the welfare system and its effects. New Orleans has shown that high wages and job opportunities are not enough in the face of a subsidized mentality of redistributionist policies.

The welfare state must be destroyed to begin the process of change. New Orleans has shown that high wages and plentiful job opportunities are not enough. Every piece of the coercive redistributionist regime must be taken apart. Decades of welfare have created this new socialist man of New Orleans. Stripping welfare is the only solution as market-driven wages are not enough to return society back to its natural order.

---

Vedran Vuk is a student of Economics at Loyola University of New Orleans. Send him mail. See his articles. Comment on the blog.

This is a very clear and concise explanation of exactly why socialism fails on a continuing basis.