Debate 2016: Economic Fallacies and Failures

No surprises here: the Right Wing persists in Protectionism, and the Left Wing persists in Socialism (as usual.)

The first subject of last night’s show was “achieving prosperity” (as if it could be done by political means) and the answers given to us by both candidates were, rather predictably, quite concerning.

Let’s begin with Hillary’s answers.

“Build an economy that works for everyone, not just those at the top. That means we need new jobs, good jobs with rising incomes. I want us to invest in you, I want us to invest in your future, that means jobs in infrastructure, in advanced manufacturing, innovation and technology, clean renewable energy, and small business…”

That’s all very nice. Where will the investment come from? This is what worries me.

In a capitalist system, investments will be naturally made into industries with the potential to be lucrative for the investors, and in the process benefiting everyone in the process. Things like renewable energy have failed to catch on (generally speaking) in free market situations because it is not yet completely practical nor efficient enough to be lucrative.

I would like to see the day when alternative energy sources become practical and efficient enough for meaningful investment on the part of private investors. However, I have this nagging feeling that practicality and efficiency will never be considered; that public investment into these things will be increased, with no return on that investment.

“We also have to make the economy fairer. That starts with raising the national minimum wage, and also guarantee, finally, equal pay for women’s work…”

Raising the minimum wage would succeed in doing nothing but raising the cost of labor, thus raising the price of finished goods and services. When you set a minimum wage of any sort, you are setting an arbitrary price floor which forgoes the market process and declares all parcels of labor that are worth less than the arbitrary rate, illegal. This increases the number of unemployed and motivates businesses to do more with less.

As for the equal pay matter, that is one we’re all very tired of refuting.

If women were really paid less for equivalent work, wouldn’t businesses (who are always searching for ways to decrease costs, in the interests of increasing profits and passing savings to consumers in order to remain competitive) seek to hire only women?

Obviously this is not the case; and when we look a little deeper into the statistics we find that women are paid the same as men in each particular industry. The “seventy cents on the dollar” number that is thrown around so often is instead the result of oddly calculated averages which attempt to take into account every industry, when naturally there are certain professions (particularly manual labor) that do not employ very many women.

“And I want us to do more to support those people that are struggling to balance family and work… let’s have paid family leave, earned sick days, let’s be sure we have affordable child care, and debt free college. How are we going to do it? We’re going to do it by having the wealthy pay their fair share, and close corporate loopholes.”

That’s quite a lot of demands.

Even if you took every dime possessed by the wealthy in this country, you could hardly sustain such a program of redistribution.

Not as if it would happen; I have a feeling this was thrown in for the benefit of the Bern victims.

And then there’s all that about Trickle Down economics, or as she put it, “Trumped up Trickle Down” (I’m not going to the trouble to transcribe the whole thing, being the usual drivel and all.)

Let’s be very clear: in the entire science of economics, there is no such thing as a trickle down theory. That notion is entirely political.

Wealth in an economy necessarily flows in all directions. One class of economic prosperity is not more important than another; we all consume goods and services. However, it so happens that the wealthy possess excess wealth we refer to as capital. It is not enough to possess money to buy goods and services; it is necessary to possess more expansive wealth and invest it in order to make expansion of production possible.

Of course this is all rather elementary, but it is not unusual for the politicians to have forgotten these basics. Simply this: all the innovation, all the advanced manufacturing, is absolutely impossible to begin without large amounts of capital being accumulated and invested – the middle class does not possess this capital, only the wealthy do. If you intend to tax more of their wealth for debt free college and child care, very well, but do not be surprised when there is less capital available for job creation and expansion of business.

As for Trump? Well…

“Our jobs are fleeing the country. They’re going to Mexico, they’re going to many other countries. You look at what China is doing to our country in terms of making our product…

“We have to stop our jobs from being stolen from us. We have to stop our companies from leaving the United States, and with it firing all their people…”

This implies that we were somehow, as a nation, entitled to those jobs in the first place. (Is it not typically the right wing that rails against the ‘entitlement mentality?’)

Production will occur wherever it is most advantageous for it to occur. If this does not satisfy Trump, that is hardly the problem of the American consumer who wants to buy things as inexpensively as possible.

Trump’s “solution” is to place a tariff on goods produced in foreign countries to discourage foreign production. This is hardly a good solution, as these jobs aren’t going to migrate back to north like birds in the Spring. It may prevent further jobs from leaving, but when investment has already been made in foreign production and the tariff, once placed, will succeed only in raising prices for American consumers.

But let’s be honest with ourselves: the right wing is obsessed with protectionism both when it comes to labor and finished goods.

When we hear arguments such as “immigrants are taking our jobs” and that businesses ought only to hire citizen labor, that too is pro-protectionist rhetoric which would run contrary to the natural economic course of things.

It is the natural inclination of production to find the cheapest, most efficient way of doing things in the interest of offering a more competitive and inexpensive product to the consumer. The struggle is always, in the production and distribution of goods and services, the overcoming of natural and artificial obstacles. What good is it to add more?

It is the artificial obstacles (in the form of taxes and regulations) created by the government that have pushed businesses to foreign countries to produce cheaply, and those still here to hire illegal immigrants for unskilled jobs. The way to fix a mistake is not to continue making that same mistake.

Protectionism is outright contradictory to free market principles. We need not look far to find what the classical economists have to say about protectionism.

Free trade is necessarily global; not everything demanded by the people in this country can be efficiently produced here. Very often it is more advantageous, for any number of reasons, for production to take place elsewhere. Is it a crime that we are inundated with foreign goods? These are goods which the market demands, and we know this because that is what naturally occurs.

It is intervention on the part of the central authority that has helped ensure that it is more advantageous to produce elsewhere. The natural thing to do would be to lift regulations, which, to his credit, Trump did pay some lip service to last night. However, requiring that businesses only hire citizen labor, and then placing tariffs on foreign goods will only make goods more expensive for American consumers.

As for all this talk about trade deals, I can only offer a few words: free trade does not require deals between governments. Nobody tells us this; it’s all about negotiating and renegotiation, with no one there to tell us that none of it is at all necessary.

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