Wednesday, 27 February 2013

Gravity is not for repealing

It is one of the great pities that the politicians who profess the most care for the poorest generally believe in a flawed economics that would either keep those people poor or make them even worse off. One should pay very little attention to the protestations of politicians and none at all to their tears.


Justifying bad ideas on the grounds one means well is the corrollary of the argument that goes "you only care about the rich/you don't care about the poor", a type of as hominem that is both disingenuous and illogical.

Meaning well is not enough. Bad economics helps no one but it is the poor who suffer the most when jobs are scarce and wealth creation stops.

No matter how much we much want to fly simply by stretching our arms and tingling our toes, gravity won't repeal. Whether it pleases us or not economics is just as inflexible in the limits it places upon us. We can either work within those limits or stretch out our arms and talk to that imaginery control tower in our head. If we chose to do that on the top edge of a high building the results are catastrophic.

Unfortunately any descriptions of the realities of economic activity are just dismissed with the caring argument. Enough chancers, power seekers and conmen from Marx to Keynes and beyond  have weighed in to justify wingless flying that any forum is simply thick with dreams.

Economics is always the study of scarce resources with multiple alternate uses. No matter what the resource is: land, labour widgets, money, there is never enought to satisfy everyones every need. This means making choosing between possible uses.

Money prices allow us to calculate and decide what to use and how much to use. Left to our selves we will buy cheaper of similar quality but quality is what the consumer says it is: adding a logo-ed label may increase the price of some goods enormously. Always price is what someone will pay, not what you think your widget,land or labour are worth but at what price you can exchange them for money. Put more elegantly this runs "Value is subjective".

Subjective value makes trade possible: if the value of goods is inherent or fixed then trade would at best be a win/lose situation. Instead when I sell my labour for your money I value the money more highly than the hours spent working and you value what I do higher than the money you pay me: we have engaged in a win/win operation. Trade only happens when both parties feel a gain.

Because value is subjective no one can force us to believe anything is worth more or less than we think it is worth. This means when government tries to do just that, establish a high price by edict, either we don't buy the goods or  resort to a black market. Should Government decree a too low a price then we won't sell except again on a black market.

All those subjective prices, and there are countless million in the economy, guide consumption and thus production /distribution. Higher price for any good both discourages use and makes alternatives more appealing for consumers while at the same time encouraging producers to switch to to the higher return good.

Price acts as a signal and a method of rationing so high value uses of scarce resources are chosen.

Government cannot wave a wand to make resources any more plentiful than they are. Edicts won't make one extra hour's labour, one extra widget or cent of wealth. Every cent spent by Government is a cent from somewhere else in the economy.
This is the ultimate harsh reality, nothing is free, some one always pays. Should Government print money the same applies: as a token for wealth more cents for the same amount of goods mean a lower value tokens, higher priced goods. Those who get the new money early, before that ripple of new valuations has worked it's way through do well, those who don't and ultimately  everyone, suffer from the created price rises.

All sound economics starts with subjective price, every false theory rejects it. left alone those subjective pricing decisions make us all bettter off by guiding the economy to produce what we want a t a price we will pay. That is what is meant by a market economy.
When you hear a politician or would-be power broker say the words "market economy" a if he/she was spitting acid they are merely rejecting your and my right to make or influence decisions on what is economic. They think that they know better than the countless million little people. Don't give people with that attitude a scintilla of power!

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