Wealth Inequality in America 

This video is rather old, but it came across my news feed again today, and I figured it warranted comment.

With the hard charge of Bernie Sanders in the race for the Democratic presidential nomination, it would seem that this idea of inequality is becoming increasingly more popular.

There’s a major problem with it, though, and that’s that they are looking only at one side of the financial ledger to measure wealth solely by dollar income.

This isn’t all that surprising given that the cultural understanding of economy centers entirely around the government and their attempts to manipulate things through the income tax. 

Never mind that the effect of the income tax pales in comparison to the damage done by the Federal Reserve. That really doesn’t matter to most people who remain blissfully unaware of all but what the news media talks about. 

So to most people the economy is all about how much is the rich people’s money the government takes to help the poor. Republicans, of course, counter the Democrats’ desire to take it all (Democrats are no true socialists by the way, but that’s off topic), by saying that doing so would stifle the economy. 

Why is this bad? To them is because the money won’t trickle down in the form of jobs. So really both sides ultimately measure the health of the economy by how much of the dollar wealth finds its way into the pockets of poor people. 

(Kind ironic then, isn’t it, that this is the same government that encourages those poor people to spend their little hearts out by disincentivizing savings while at the same time sapping the purchasing power of what dollars they do have to spend…. But that’s another digression).

So what’s the proper economic analysis here? Is there a problem with this distribution? It certainly seems unfair, doesn’t it? But is it?

No. It’s not. Why not? Because of that whole idea of trickle down. 

Of course any time a fiscal conservative mentions the trickle down, the progressives are always quick to point out that the trickle down doesn’t work.

Is that true? No way! The fact is that the trickle down has already worked and this distribution is the proof.

Now that sounds backwards, right? If the trickle down worked, this graph would even out, wouldn’t it?

Well it certainly seems like it would, and that’s what the progressives say world happen. But that’s only because they are incorrectly measuring wealth in terms of income or dollars in a bank account instead of standard of living.

If you look at standard of living and then compare those poorest Americans with people in, say, Rwanda, it’ll put things into proper perspective pretty quickly.

All of this of course begs the question of why any one person has any greater claim than another to any given unit of wealth. 

The videographer’s bias (and the one growing increasingly common) is that at a certain point someone has enough and someone else has a greater claim to his excess, because… fairness.

The root of this idea has to do with need. Why does the top 1% NEED all that cash? Certainly if we distributed a chunk of that to the bottom 10% that would significantly increase their standard of living, right?

Or would it?

This whole thing seems to forget what money and income really are. Money is the measure of how much you have enriched the lives of to those around you.

It’s easy to understand when we break it down. If I give you a gallon of milk, and you give me $3, that $3 I have been enriched is roughly equivalent to the amount I have enriched you. My wealth has improved by $3. Yours has improved by $3 worth of milk.

Then suppose I buy a cow and sell all the milk I get from it to not just you but all my other neighbors. Every gallon I sell enriches someone else by $3 worth of milk and enriches me by $3 worth of currency. 

Now after a while that currency will start to pile up. Except for the amount I have to spend feeding and keeping my cow healthy, and except for the amount I have to spend on consumable goods and services for my own well-being, that cash is all going to accumulate into a nice pile of dough.

And since that wealth comes from a multitude of sources, if you compare me to any one of my customers, it will appear as though I have a great advantage over them. But that is merely because I serve more people than just that one. To be fair, you would have to compare me to the whole community, and you would have to count all the milk I’ve produced in the balance on their side.

These guys in the top 1% got there because in one way or another they have directly or indirectly enriched the lives of millions of people. 

Suppose $1 of every Star Wars ticket found its way into JJ Abrams’ pocket. If a million people went to see the movie, that would be $1 million to Mr Abrams.

It wouldn’t be fair for my neighbors to gang up on me and demand I distribute my pile of cash among them. Why do I owe them anything? I gave them milk. 

Similarly, it’s not fair for society to gang up on rich people and demand they redistribute their wealth. Why should they redistribute it? 

They gave us Star Wars and iPhones and Facebook and well-stocked grocery stores and cars and loans when we needed to buy a house or pay for college and so on and so forth.

Don’t look at this graph and think only about how much cash is at the top without realizing that that cash got to the top because the guys at the top are responsible for the fact that the guys at the bottom live better than kings did 400 years ago.

The wealth has already trickled down – not in the form of cash, but in the form of standard of living.

Don’t believe me, just look around you! The poor in this country are not that bad off. Some people are truly suffering, but there are almost always circumstances surrounding that, and even the worst of of them are doing pretty well actually.

Again, compare them to people living in Rwanda or the Philippines or Myanmar. 

With relatively few exceptions, the poor in the United States (and most of the so called “first world”) have food, clothing and even cell phones and tvs. 

But more to the point, because if the efforts of guys at the top, even the poorest in this country have indoor plumbing, electricity, refrigeration, forced air central heating, air conditioning, some firm of automotive transportation, telephones, access to a computer with Internet access, and a thousand other things poor Americans take the granted every day that simply did not exist or at least were not available to the poorest of people even as recently as 100 years ago. 

All of these comforts enjoyed by everyone in our society that came about because of the hard work of those at the top.

Sure there’s always going to be a certain handful of exceptions to every rule. But by and large, the pattern is that the guys at the top, though they have indeed amassed a vastly greater sum of cash than everyone else in this country, have done so by serving others.

The implication – or rather the outright statement of this video maker – that the rest of the people are suffering as a result of all this hoarding is patently false. In fact quite the opposite is the truth, because how did these guys amass all this wealth? 

They did it by enriching the lives of millions of other people which has drastically improved the standard of living for those who seem to have less.

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Are Patents and Intellectual Property Necessary Components of an Economy?

I apologize for my hiatus. I have been extremely busy on a project for work that has consumed about 75% or more of my time lately. I appreciate you, my faithful readers, sticking with me.

If you’re a fan of economics, you won’t be disappointed today. In response to the news of Martin Shkreli buying the patent to produce the AIDS medication, Daraprim and promptly jacking up the price, I was asked by a friend on Facebook to comment from a Libertarian perspective.

I immediately identified the problem as being the patent. The fact that the government allows this guy to operate a monopoly is what allows him to get away with this.

If there was no patent and the price rose this high naturally, then that would be an indication that there was a shortage of supply in the market. This would signal producers to create more supply. In this particular case, some other pharmaceutical company would create their own version of the drug and compete with this guy, thus eating his lunch if he tries to stubbornly keep his prices higher. Even then, the price might still stay naturally high if demand continues to outweigh supply until more and more companies produce more of the drug and the price eventually comes down.

Of course that cannot happen in this case, because the government has created artificial barriers to enter this market in the form of the patent which makes actually it illegal to produce more of the same thing and FDA screening which requires a lengthy and expensive red tape process to get your product approved by the government before it can be deployed to the market.

So the true bad actor here is the government. Shkreli himself may indeed be a bad actor, but he’s only able to succeed at acting badly because of the environment that the government created, much the same way that Al Capone was only able to succeed at his bad acting because of prohibition.

The funny thing is, when I posted this analysis, my friend objected. His objection?

Don’t get me wrong- intellectual property (and especially copyright) policy in the U.S. is obscene as is… But it also exists for a reason.

Without it… Joe spends years of his life and millions of dollars researching the production and effects of a chemical that solves a particular problem.

I then, nearly overnight, buy a single quantity of this chemical, analyze and replicate it. My costs being significantly lower, I sell it at a fraction of the price, forcing him out of business (in order to compete, he has to eat his development costs, and may never be able to turn a profit at all).

The overhead in creating something is ALWAYS higher than the overhead in copying it…

The irony here is that his objection to my analysis that the government causes this problem by outlawing the practice of poaching products (I’m not sure if that’s a real economic term or not, but I will use it for this article and define it to mean the act of reverse engineering a product for the purpose of bringing an alternate to the market as competition) – which clearly needs to happen in this case – is that without patents, products would be poached!

Despite several attempts to explain that this is a good thing by going over sound economic praxeological analysis of this issue including what prices actually are (in which I tried to dispel the notion that prices are determined by production cost and argue that patents shield innovators from risk causing them to make bad investments in things that may not actually be viable products) he remained firm in his faith that

Price may be set by the market, but if the price is lower than the cost, the product won’t ever get made in the first place.

The cost, in the case of drugs, is cost of development PLUS cost of manufacture. Cost of development is MASSIVE, but only has to be paid by whoever does it first.

With patents, the developer has a massive advantage, because he doesn’t have to worry about competition for a year or few.
Without them, that advantage moves from the developer to EVERYONE BUT the developer…

Without patents, the price will always be lower than the cost, thus, successful businessmen will NEVER innovate, because it’s NEVER worth it, in the cost-benefit analysis.

Thus, your free market stagnates.

[…]

Patents exist to provide an extra benefit that might temporarily outweigh that cost. Stripping them away doesn’t free up entrepreneurs to innovate at will… it takes away one of the few reasons to invest (unless they can afford to throw money away on a guaranteed loser, and are doing it for feel-good reasons).

So what do I say to this? Is he right? Would poor old Hypothetical Joe be at the mercy of the sharks in the market if he didn’t have a patent to protect him? Continue reading Are Patents and Intellectual Property Necessary Components of an Economy?

The Economics of Worship

Matthew 13:44-46 “The kingdom of heaven is like treasure hidden in a field, which a man found and covered up. Then in his joy he goes and sells all that he has and buys that field. Again, the kingdom of heaven is like a merchant in search of fine pearls, who, on finding one pearl of great value, went and sold all that he had and bought it.”

Have you ever gone to the store to buy something you thought would cost you $20 and found out that they wanted $50 for it? What did you do? Did you buy the item? Well that depends, doesn’t it? If you’re like me you probably stood there for a few minutes and mulled it over before ultimately making a decision either to buy it or to walk away. What determines the outcome of that choice? What are you considering as you mull this over?

Essentially what you are doing is making a value judgment. You are deciding whether you really need or want that item. What goes into this decision depends in large part on your circumstances and what the item is, but ultimately it comes down to your values. What is important to you? What do you consider to be of greater worth, the item or the $50 you would have to spend on it? Whatever the outcome, you have acted according to your values. You may feel grumpy about the situation, for you may have preferred to buy the item for $20, but if you bought, you showed that you really did value that item more than your $50. If you didn’t buy, you showed that you valued it less than $50.

This is a fundamental principle of economics. If two people engage in trade through voluntary mutual consent, then they both expect to benefit. If I have a pen, and you have $5, and I sell you my pen for $5, then you wanted my pen more than you wanted your $5, and I wanted your $5 more than I wanted my pen. In this case, we both expect to win. Economics is based on this assumption. For who would voluntarily consent to an action they do not expect to benefit from? It’s like two baseball teams. Team A has four good outfielders, but only four good starting pitchers. Team B has only two good outfielders, but six good starting pitchers. So Team A says to Team B, I’ll give you an outfielder for a starting pitcher. Team B thinks it over and agrees. Now both teams are better off because they both have a full outfield and a full starting rotation.

When individuals participate voluntarily in a free market, then it can be assumed that they expect to benefit from the transactions they agree to. If I’m at the store hoping to buy printer ink for $20 and the store wants $50, I have to decide how important it is to me to have that printer ink. If I have a super important document I need to print, then I may just value it that much. If I’m just supporting a hobby, or looking to buy a backup, then I’m likely to pass and wait for a better deal. In any case, my circumstances and my values determine to me which is more important. Indeed, trade is made of win.

But this post isn’t really about economics, it’s about worship. What does this economic principle have to do with worship? Continue reading The Economics of Worship

My Analysis of Occupy Wall Street

People fear what they do not understand.
People hate what they fear.
People attack what they hate.

Most people in this country don’t understand the economy and see Wall Street as an amorphous body that is somehow the economy. Therefore: Occupy Wall Street. I think a certain percentage of Ron Paul supporters are the same way with the Federal Reserve, though I think the majority really do understand the problem.

That’s a Rip Off!!!

Why is scalping a crime? I’ve never been able to figure this out. What’s scalping?

To resell at a price higher than the established value: scalping tickets to the baseball game.

What is “established value”? Established value refers to the price printed on the ticket. In other words it’s the price that the box office of the venue or the performer has decided to sell the ticket for. So the simple answer to this question is, scalping is a crime because you’re ripping someone off by selling them something that isn’t worth what you asked them to pay you.

But is that a crime? Continue reading That’s a Rip Off!!!