More on Creative Capitalism

I was just re-reading Ed Glaeser's essay on creative capitalism.  He talks about several examples of private social entrepreneurship.  But each of these examples are individual efforts or non-profit organizations.

He talks about Herbert Hoover's efforts to feed Belgium after WWI.  But that was a philanthropic organization that raised funds through voluntary donations.

He mentions the National Institutes of Health, a government institution, and points out that the private sector provides the innovation in the medical field because the government is unable to take the appropriate risks necessary to make bold discoveries.

He then mentions Rockefeller's efforts to eradicate hookworm in the south.  The problem is that these are not "creative capitalists" in the way that Gates spoke about in the speech that launched the site.  They are a wealthy philanthropist, profit maximizing firms and a wealthy (oft demonized) philanthropist respectively.

If Glaeser is really making a call to arms for hyper wealthy individuals to do what they can to help the poor why not just come out and say so?  The only connection to capitalism that the first and third example provide is that these individuals were able to create enormous wealth and use their private wealth afterwards to help others.

If this is what creative capitalism really means, there isn't anything to do because this is already the way that capitalism works.

Technorati Tags: economics,capitalism

A Country's Standard of Living Depends on Its Ability to Product Goods and Services

If Standard of Living is narrowly defined as the ability to buy more stuff, I would say that this is generally correct.  Of all of the principles, this one is really the most subjective and could be described another way.

If a benevolent dictator knew no more about economics other than this principle what would happen?  China put a steel furnace in every backyard, if the plan had worked and China had successfully produced more steel than any nation on earth - would that have increased the Chinese standard of living?

Of course not, the standard of living depends on producing quality goods and services that people actually want.  And even that alone isn't enough.  The principle doesn't state it explicitly, but there seems to be an implicit suggestion that producing more stuff will raise the standard of living.  Even that isn't true - standard of living is a very subjective term. 

Say that there are two countries.  Country A is centrally controlled - they somehow figured out to match and even exceed the productivity of the typically laissez faire market, producing 25% more 'stuff' than Country B.  However, Country A also controls every aspect of private life as well, decide which stuff they can buy, how they use it, who they can associate with, when they travel and to where, what their job will be.

On paper, it appears that Country A is wealthier than Country B, but is their standard of living really any better?

I understand what Mankiw is getting at - the more successful the market, the better off its people tend to be.  What would be a better way to state this principle?

Technorati Tags: economics

Why Isn't Success Good Enough

There is a very interesting conversation going on over at Creative Capitalism. I haven't made it through everything yet, but what I have read so far is quite good.

Ed Glaeser writes "Mr. Gates’ speech reminds us that while laissez-faire capitalism has worked many miracles, it has never been particularly well targeted towards righting social inequities."

Why focus on the inequities instead of capitalism incredible adeptness in making life better for everyone, including and especially the poor?

There are hundreds of millions of Chinese and Indians that have been lifted out of abject poverty within a generation because of the power of capitalism. That is truly astonishing - why isn't this good enough? What hubris is required to think that an individual or individuals could improve upon the spontaneous order of capitalism?

Technorati Tags: economics,capitalism

Governments can Sometimes Improve Market Outcomes

I really, really, really wish that Mankiw had added two words.  "In Theory"

In reality, market failures are defined as "outcomes I don't like" and externalities are defined so broadly as to have no meaning at all.

So yes, government can, in theory, improve market outcomes, I just don't trust the lot of economically illiterate, moral degenerate scumbags currently in office do actually do so.

Technorati Tags: economics,politics

Markets Are Usually a Good Way to Organize Economic Activity

If only this were as self-evident to everyone else as it is to me.

Look at the economies that are not organized into markets: Cuba, North Korea, the former USSR.  Not exactly places people were clamoring to get into were they?

And look at the examples here in the US: primary education is roundly, and correctly, criticized for being crappy - yet secondary education, which is organized as a market, is the best in the world.  Utilities & infrastructure are state-run monopolies (or regulated to the point that they might as well be) and continue to age, decay and not meet the lowest of expectations.

There isn't really an easy way to get where we are to a market in some of these areas, but I firmly believe that if we could get there life would be much better in many ways.

Instead we have economic illiterates clamoring for the nationalization of the oil industry and increased government interventions in everything from health care to the futures market.

If only politicians had to pass a remedial economics course before taking the oaths of office.

Technorati Tags: economics,politics

The Future Price of Oil

Can anyone explain to me the mechanism in which 'over-inflated' futures of oil is causing prices today to rise? 

Or how regulating the 'Enron loophole' would cause "[t]he price of retail gasoline would fall by half, to around $2 a gallon, within 30 days of passage of a law to limit speculation in energy futures markets."

Technorati Tags: economics,politics,oil

Manipulation? Really!?

The left is trotting out the accusation that those evil speculators are manipulating oil prices.  They even cart out the evil bugaboo Enron (oooh, scary!) to make it seem more sinister.

This canard was repeated by one of my classmates, to which I responded:

I was just re-reading those numbers.  At 85 billion barrels a day I find it astonishing that anyone, even a government could buy enough oil to make a significant enough purchase to be accused of 'manipulating' the price.

 

85 BILLION barrels, at the bargain price of $100/barrel that is $8.5 Trillion/day.  How much would someone have to buy in order to affect the price?  1%?  That's $8.5 Billion dollars - for just one day.

 

The more I think about it the more ludicrous accusations of manipulation sound.

Those numbers are just mind boggling, and if they are within an order of magnitude, anyone that thinks that someone is manipulating the market is a fucking moron.

Technorati Tags: economics,politics,oil

Questions about Elasticity

One of the things that I like about amateur interest in economics is that you can make sense of it without getting deep into the math.  Its not that I'm not good at math, but my dyslexia makes memorizing formulas a bit challenging.  (thank god for spell check!)

My arch nemesis in engineering school was the physics of electricity - I had a hard enough time figuring out left from right, never mind getting directions out of it.

ANYWAY, I'm having a hard time keeping elasticity of demand straight.  It would seem to me that if something had a high elasticity then demand would stay consistent regardless of the changes in price.  I understand this is wrong and my issue is just in the way that I think about the word elastic.  (demand will stretch to the price)

Is there another way to think about elasticity that will lead me in the correction direction besides realizing that the way I want to think about it is wrong?

Technorati Tags: economics,school

We Are All Slaves?

One of my classmates posted this:

Melissa, our assumption is that the United Statutes is a democratic country, on paper maybe, but in reality it's a capitalistic country. The man with the gold makes the rules. In other words, if you are poor you are nothing but a free slave. Slave, because you have no choice but to work for someone else and on their terms.

I stewed and stewed on this for awhile.  I originally just intended to leave well enough alone and ignore such obvious ignorance.  But I couldn't let it stand - responding thusly:

I can think of nothing more democratic than capitalism. The goods and services that are available are chosen directly by the people.

Capitalism drives so much choice that nearly every preference can be accommodated.

Careers aren't chosen for us by a faceless bureaucracy, they are the result of the choices that we make and the preferences that we exercise.

The comparison to workers as slaves is deeply offensive as it makes light the true plight of slavery - looking at the wealth that the average American (indeed even the poorest American) has it is difficult to imagine the American system as anything remotely close to the abject humiliation, cruelty and barren living conditions experienced by slavery.

Technorati Tags: school,politics

Trade Can Make Everyone Better Off

Really, its true - trade can make everyone better off.  A mistake most people make is to look at a slice of time, or a slice of people and ignore the huge effects that trade creates over time.

Yes, the workers at the textile mill that just closed down face a burden, some for a short period, some for a long.  But everyone else (including themselves) have access to cheaper clothing - this makes us better off.

It is very hard to image with any confidence the way things would have been - but would we really be better off without all of those goods that China sells us for cheap?  People get really angry when prices rise, why do they also get angry when prices decline?

Change is hard, but it incrementally gets us to a better place.

Technorati Tags: economics,school