Family Economics: a Lesson in Diversity and the Division of Labor

Let’s consider how a family would sustain itself if trapped on a deserted island. I call this “family economics,” as opposed to “Crusoe Economics” where an individual is trapped on a deserted island. I’ll do this to show the importance of the division of labor, from a miniscule “family economy,” to a large-scale industrial economy.

The point of this exercise is to demonstrate the importance of the division of labor and the hierarchy of skills, so to speak, that exist in industrialized, market economies. It’s not uncommon for libertarians and others who oppose the state to also oppose all hierarchy, authority, and sometimes as far as opposing all inequality. Some romanticize the idea of worker-owned economies where businesses are run democratically by the workers. They fail to understand the importance of the division of labor and inequality by merit throughout an economy.

Imagine a family of 4 was shipwrecked on a small island with no inhabitants, but a good amount of natural resources for its size. Let’s call the father (age 30), Murray. The mother (age 30), JoAnn. The son (age 12), Hans. The daughter (age 8), Ayn.

Upon shipwreck, the family realizes they won’t be saved immediately. They will have to sustain themselves for an unknown length of time, if they wish to survive and be rescued or escape the island. In an environment of scarcity such as on the island (so is the whole world, of course), it is necessary for individuals to use available means to achieve a desired end, namely survival of the family. The family’s goal of survival must be achieved by using the available means to achieve ends that are conducive to their ultimate goal of survival.

Time, labor, and land are all scarce resources. Misallocating time, labor, and land would be a death sentence for the family in this condition of ultra-scarcity. They must prioritize their needs and wants that will contribute to their ultimate goal. For example, instead of consuming time and resources to make a hairbrush, JoAnn’s time and labor as well as the available resources would be better allocated by making a water collection and filtration system.

This is where division of labor and inequality of skills or abilities is so valuable. While Murray and JoAnn may have the intelligence or know-how to design and create something like a water collection and filtration device, neither Hans nor Ayn do. For Hans and Ayn to be delegated the responsibility of designing and creating a water filtration system while Murray and JoAnn be delegated the responsibility of collecting kindling and firewood, for example, would be a misallocation of resources and contrary to the family’s ultimate goal. It is important that each family member provide the greatest utility based on their abilities. This may require for Murray or JoAnn to act as a manager of the family’s activities and production.

Why should Murray or JoAnn manage the family’s production rather than Hans or Ayn? Because, based on their skills, abilities, and merit, Murray or JoAnn would be better suited to manage the family’s production rather than Hans or Ayn. Thus, it is better for the family that those with greater skills be responsible for the things requiring greater skills, and it is better for the family that those with lesser skills be responsible for things requiring lesser skills.

So, while Murray and JoAnn work on the water supply, it is economical for Ayn to gather firewood. Gathering firewood requires little skills. Ayn, being 8 years old, is more productive gathering firewood than she would be trying to help with the water filtration system. While Hans, Murray, and JoAnn might be more efficient at collecting firewood than Ayn, they are far more productive by doing other things that require greater skill. Hans may be able to gather firewood more quickly than Ayn, but perhaps his unique tree-climbing abilities make him more productive to the family by climbing trees to gather coconuts or other things.

In this scenario, the family’s survival depends on the ability of the leader, whether Murray or JoAnn, to effectively divide the labor and organize the family’s production so as to meet their ultimate goal. If production were carried out by the family democratically, that is by voting on how labor should be divided and resources allocated, there is much greater opportunity for misallocations of labor and resources.

This is why diversity of intelligence and skills are so important to utilize. Some people are more capable than others at various activities and thus, are better suited to carry out those activities. Division of labor by meritocracy rather than democracy ends up being better for all as resources like labor are allocated more efficiently and rationally.

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Video: Hoppe on the Persistence of Socialist Ideology

Mises ended “The Socialist Calculation Debate” in 1920, yet socialism persists as an ideology. Hoppe offers insight as to why this is in a talk (in video: 7:25-12:10) he gave to the Property and Freedom Society in 2016 on his ethics of argumentation theory. The resistance to Mises’s theory is very similar to the resistance to Hoppe’s theory.

Video Notes:
  • “In short, what Mises had argued was that the purpose of all production is the transformation of something, an input, that is less valuable into something, an output, that is more valuable. That is, efficient and economic, instead of wasteful, production. That, in an economy based on the division of labor, recourse must be taken to monetary calculation in order to determine if production was efficient or not. That, input prices must be compared with output prices to determine profit or loss. And yet, that no input prices exist under socialism, and hence, no possibility for economic calculation. Because under socialism, all production factors are by definition owned by a single agency, thus precluding the formation of any and all factor prices.”

  • “The reaction to Mises’s impossibility proof was also instructive, especially given that Mises’s proof concerned a problem that at the time of his writing in the immediate aftermath of World War One, had taken on enormous importance with the Bolshevik Revolution of 1917 in Russia. But, by and large, there was no reaction at all. Mises was simply ignored and the continued existence of the Soviet Union and, after World War Two, of the entire Soviet Empire, was taken by most of the economics profession, and large parts of the lay-public as well, as empirical proof that Mises was wrong or, in any case, irrelevant.”

  • “…A few prominent socialists… tried to refute Mises’s argument. But, in my judgement, even Mises’s early fans watered-down, misconstrued, or distorted, and so, in any case, weakened Mises’s original argument. And for the socialist foes, they did not even seem to comprehend the problem. Indeed, even after Mises had systematically restated and further elaborated his arguments, two decades after its original presentation in his Human Action, and even after the implosion of socialism in the late 1980s and early 1990s when some socialists… felt compelled to concede that Mises had been right, they still showed no sign of having grasped the fundamental reason why.”

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“I, Pencil” by Leonard E. Read: A Lesson in Liberty

 
“Now, in the absence of faith in free people — in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity — the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental ‘masterminding.'” – Leonard E. Read

Leonard E. Read’s short but profound work, “I, Pencil” was originally published in, “Anything That’s Peaceful: The Case for the Free Market” by Read in 1964. “I, Pencil” is the ultimate introduction to the idea of spontaneous order and to the truly awe-inspiring processes that manifest into markets. It is written in the point of view of a pencil who boldly suggests,

…I am seemingly so simple… Yet, not a single person on the face of this earth knows how to make me.

Of course, we can research and find out how pencils are produced in factories and how the production of pencils works. But, the pencil has a broader point:

Just as you cannot trace your family tree back very far, so is it impossible for me to name and explain all my antecedents.

So, while we can look up the production process for a pencil, no one person can name and explain every single action, event, process, human interaction, etc., that takes place in the creation of something so simple and common as a pencil. The pencil explains the enormous array of processes that culminate in the production of a pencil:

My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon. Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the persons and the numberless skills that went into their fabrication: the mining of ore, the making of steel and its refinement into saws, axes, motors; the growing of hemp and bringing it through all the stages to heavy and strong rope; the logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons had a hand in every cup of coffee the loggers drink! The logs are shipped to a mill in San Leandro, California. Can you imagine the individuals who make flat cars and rails and railroad engines and who construct and install the communication systems incidental thereto? …Consider the millwork in San Leandro. …How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? …Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant, which supplies the mill’s power! …Don’t overlook the ancestors present and distant who have a hand in transporting 60 carloads of slats across the nation.

All these processes and we are now just arriving at the start of the factory production process. The pencil continues:

Once in the pencil factory – $4,000,000 in machinery and building, all capital accumulated by thrifty and saving parents of mine – …seven brothers and I are mechanically carved…

Now, what about the lead that goes in the pencil?

My “lead” itself – it contains no lead at all – is complex. The graphite is mined in Ceylon. Consider these miners and those who make their many tools and the makers of the paper sacks in which the graphite is shipped and those who make the string that ties the sacks and those who put them aboard ships and those who make the ships. Even the lighthouse keepers along the way assisted in my birth – and the harbor pilots.

The graphite requires:

…clay from Mississippi…

and

…candelilla wax from Mexico.

The pencil continues:

My cedar receives six coats of lacquer. Do you know all the ingredients of lacquer? Who would think that the growers of castor beans and the refiners of castor oil are a part of it? They are. Why, even the processes by which the lacquer is made a beautiful yellow involve the skills of more persons than one can enumerate!

Much is involved in creating the metal on the end of the pencil. As for the eraser:

It is a rubberlike product made by reacting rapeseed oil from the Dutch East Indies with sulfur chloride. Rubber, contrary to the common notion, is only for binding purposes. Then, too, there are numerous vulcanizing and accelerating agents. The pumice comes from Italy; and the pigment that gives “the plug” its color is cadmium sulfide.

Now the reader should have an understanding of the enormity of processes across the globe that go into the creation of a simple pencil. The pencil explains the significance of this:

I shall stand by my claim. There isn’t a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how… …each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

So, millions of people with little skill are able to benefit by contributing to the production of a pencil they may or may not desire. Yet, without each individual’s little skill or know-how, the production of pencils couldn’t take place to satisfy the wants of the masses of people who do desire pencils. This is a great lesson on how the division of labor across the globe is so important for the production of all kinds of goods.



All of these various processes in the creation of a pencil, from the picking of coffee beans that loggers will drink to the transportation of wooden slats to a factory, all occur without a master mind or central authority. The process where all these independent processes come together without a central authority is known as spontaneous order. This is a bottom-up system of organization that occurs naturally, rather than a top-down system of organization that is a government or central authority.

No trace of such a person can be found. Instead, we find the Invisible Hand at work. …I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles that manifest themselves in nature an even-more-extraordinary miracle has been added: the configuration of creative human energies — millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human masterminding! …For, if one is aware that these know-hows will naturally, yes, automatically, arrange themselves into creative and productive patterns in response to human necessity and demand — that is, in the absence of governmental or any other coercive masterminding — then one will possess an absolutely essential ingredient for freedom: a faith in free people. Freedom is impossible without this faith. Once government has had a monopoly of a creative activity such, for instance, as the delivery of the mails, most individuals will believe that the mails could not be efficiently delivered by men acting freely. And here is the reason: each one acknowledges that he himself doesn’t know how to do all the things incident to mail delivery. He also recognizes that no other individual could do it. …No individual possesses enough know-how to perform a nation’s mail delivery any more than any individual possesses enough know-how to make a pencil. Now, in the absence of faith in free people — in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity — the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental “masterminding.”

The pencil admits that its existence itself isn’t quite sufficient evidence to advocate for a free market in all goods and services. However, the pencil explains how something that government is responsible for, such as delivering mail, pales in comparison to the feats private industry is responsible for. These testimonies are all around us. The pencil points to:

…making of an automobile… calculating machine… grain combine… milling machine… …they deliver the human voice around the world in less than one second; they deliver an event visually and in motion to any person’s home when it is happening; they deliver 150 passengers from Seattle to Baltimore in less than four hours…

So, is it not perfectly logical to say that private industry can provide any good or service that government is able to? We must heed the pencil’s important lesson:

Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.

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On Health Care and Insurance

 
This excerpt on health care and insurance was originally published in, “Teaching Economics to Bernie Sanders.”

Many Americans conflate health care and insurance, which are in fact two very different things. In this tweet,

Bernie is referring to the GOP’s health care plan that would stop subsidizing insurance for an estimated 23 million people. Of course, taking away insurance is not the same thing as preventing medical care. Historically, routine visits were paid out-of-pocket by patients and were relatively cheap compared to today’s health care costs. Insurance wasn’t as necessary in the past.

Health care includes goods and services provided to prevent illness, treat/cure illness, or maintain health. Such goods and services include doctor check-ups, emergency stitches, casting a broken arm, MRIs, drugs, etc. Procedures, tests, check-ups, prescriptions, and any other goods and services can vary dramatically in price. A prescription for a common medication may cost a few dollars or even less (small costs for average consumer), whereas a risky procedure could cost hundreds or even thousands of dollars (large costs for average consumers). While it is easy to save
smaller amounts of money in case of small accidents, doctor visits, prescription costs, etc., it is much more difficult for the average consumer to realistically keep enough money on-hand to cover the costs of a catastrophic incident, such as one requiring a very expensive operation.

This is where health insurance comes into the picture. Rather than trying to save up money for a possible catastrophic incident, insurance offers the insured to regularly pay a premium and in exchange the insurance company will cover agreed upon health care costs in the future. Insurance companies use the premiums they receive and pool them together to pay for the insured when they need it. Insurance plans can vary immensely which gives consumers a variety of choices in planning their lives. If one can afford routine doctor visits, small procedures, tests, etc. (as most people would
be able to in a free market), then it doesn’t make sense to pay a higher premium for a plan that covers those routine expenses. Rather, it would make sense to have catastrophic insurance to cover unforeseen and expensive illnesses such as cancer. If one is paying out-of-pocket for regular medical care they are incentivized to live healthier, to avoid frequent doctor visits whose costs will add up over time if utilized too often.



For-profit insurance companies are a business like any other. They must maintain profit to stay in business. This means rationing their services, just like any business must. Insurance companies ration their services (which is the accumulating of money to insure customers’ expenses) by discriminating based on risk. It may be unfortunate, but it does not make economic sense for an insurance company to provide insurance to someone with a preexisting condition such as cancer. To make such an arrangement possible for the insurance company to break even or profit, the insurance company would have to charge outrageous premiums to the cancer patient (much more than a
healthy person’s premiums) to cover the cost of cancer treatment (assuming cancer treatment is more expensive than what the average consumer can afford).

Over time the state has intervened more and more in the health care industry, with disastrous effects for consumers. Health care and insurance are regularly conflated in popular media. Many Americans use insurance to cover routine doctor visits as prices have increased due to government intervention. The Affordable Care Act, or, Obamacare has been a disaster. Some people less sympathetic to my reasoning demand a full takeover of the health care system by the state. Contrary to politicians like Bernie Sanders, I realize the way for Americans to have access to affordable health care is to roll-back government’s involvement in the health care and insurance industries. Do these politicians and citizens who demand more government involvement in health care ever ask themselves why the costs of health care are so high?


Tom Woods has a great FREE e-book on health care, “Your Facebook Friends are Wrong about Health Care“.

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The Myth of Minarchy

Is it possible to have a minimal state that truly conforms to principles of libertarianism such as self-ownership, non-aggression, and private property?

Minarchy is a minimal state. Anarchy is no state. The ideal minimal state would only have the function of upholding individual’s right to private property and self-ownership. Some people consider police, fire, and infrastructure like roads to be a function of a minimal state as well. The services provided by a minimal state would be provided privately in an anarchist society, assuming these services were demanded by consumers.

So, how would the services provided by a minimal state be funded? Inevitably, states must fund themselves through taxation. Taxation is the expropriation of private property by the state by threat of force if the victim does not comply. This begs the question, how can an institution that is supposed to protect property rights also be funded by the expropriation of private property?

A true minimal state would not legislate or regulate private property. A minimal state must have free markets. Due to the nature of public and private institutions, private institutions will overwhelmingly out-compete public institutions. So, if a state does not forcefully collect taxes, it cannot be sustained in a free market.

If a state cannot tax, it would become indistinguishable from a private institution. It would have to be funded voluntarily and it would have to compete with private firms offering the same good or service. A state funded by voluntary donations is likely unsustainable. If the state doesn’t interfere with competition, consumers would prefer to pay directly for services from private firms rather than donating to the state and not having control over the outcomes produced with that funding.

A minimal state that taxes only to protect property rights would be much better than the current state that is pervasive throughout everyone’s lives. However, I have my doubts that a minimal state could be achieved or sustained (look how the US government has grown since its creation). The incentives that public institutions operate on incentivize its growth, rather than its elimination.

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Policing, Calculation, and Free Markets

A recent incident involving a hot dog vendor on the UC Berkley campus should make people question how policing works in the U.S. How would policing work in free markets and what insights can we draw from Mises’s work regarding calculation and socialism?

According to a statement from Public Affairs at UC Berkeley:

“We have instructed our officers to monitor illegal vending outside our event venues. This action has been motivated at least in part by issues of public health, the interests of local small businesses and even human trafficking. In addition, while I cannot comment on the specifics of this particular case, our practice is to issue warnings before giving a citation. In a case such as this, it is typical to collect any suspected illegal funds and enter them into evidence.”

From the FAQ’s in the same statement:

“$60 was seized as evidence of the suspected proceeds of the violation and booked into evidence. There were no other items taken as evidence.”

Well, at least they didn’t take the poor guy’s hot dog cart. In all seriousness, are incidents like this one really worth the police resources and time? Should police be cracking down on so-called “crimes” in which there is no victim to be compensated? Would resources be allocated toward fighting victimless “crimes” in a free market?

This article by Tate Fegley, 2016 Mises Institute Fellow, helps answer these questions by applying the socialist calculation problem to policing. Fegley explains the calculation problem:

“Mises’s argument was that without private property in the means of production, there can be no market prices for capital goods and therefore no way of calculating the opportunity costs of using capital goods to produce certain goods instead of others. The decisions of central planners of what to produce and by what means would be arbitrary and chaotic.”

Public policing is an example of how central planners’ decisions are mostly arbitrary and are not based in consumer demand like private institutions are. Because police departments don’t have profit and loss mechanisms to tell them the opportunity costs of operating one way versus another, resources allocated to public policing are likely to be wasted on things of which there is no consumer demand.

Fegley states:

“Because government policing is provided bureaucratically, without market prices and profit and loss, there is no way for police to know whether they have allocated resources to their most highly valued uses. Instead of consumers determining what problems police focus on, bureaucrats and politicians decide.”

Public and private institutions operate very differently. If policing were done privately, there wouldn’t be consumer demand to prosecute victimless “crimes” like drug laws, unlicensed food vending, selling untaxed cigarettes, etc. In a free market, policing would likely only enforce crimes of people’s property and/or person such as theft, assault, rape, trespass, murder, etc.

Fegley gives a good example:

“Three days prior to the death of Eric Garner, who died shortly after his arrest for selling untaxed cigarettes, New York governor Cuomo’s website bragged about how much revenue his Cigarette Strike Force had generated. It is highly doubtful that the citizens of New York demanded that the NYPD allocate resources to tobacco tax enforcement.”

Not only is the prosecution of victimless “crimes” not demanded by consumers (who would be willing to pay for police to crack down on so-called “crimes” that have no impact on them whatsoever?) but, prosecuting victimless crimes is incentivized because of the ability of the police to seize property from citizens.

Fegley continues:

“Just like everyone else, police respond to incentives. According to economist Bruce Benson, the War on Drugs did not really start to escalate into what we know it as today until Congress passed the 1984 Crime Control Act, allowing police to take a cut of the revenue from drug crime through civil asset forfeiture. Benson found in Florida, as did many others replicating his study elsewhere, that when police allocate more resources to drug enforcement, they use fewer resources to defend property, and property crime goes up.”

It is in the interest of police departments to allocate resources fighting victimless “crimes” such as drug offenses. Money, cars, homes, etc., can be seized by the police department and used as revenue for the department. The first step in police reform is to remove civil asset forfeiture and decriminalize all non-violent and victimless “crimes.”

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Video: Jeffrey M. Herbener on Subjective Value and Market Prices

Jeffrey M. Herbener from the Mises Institute talks about the role of subjective value in human action, the relationship between the subjective valuations of individuals and market prices, and the role of prices in appraisement.

 

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Understanding Subjective Value

 

Understanding subjective value is extremely important to having a good foundation of economic knowledge.

Classical economists once held the belief that prices were based on the cost of materials going into a good and the amount of labor going into a good. Based on their ideas of value, classical economists couldn’t understand why bread (being very useful for survival) would have a lower value than diamonds (not being very useful for survival). This error is based on an ignorance of human action. In the words of Murray Rothbard,

“The critical flaw was that classical economics had attempted to analyze the economy in terms of ‘classes’ rather than the actions of individuals. As a result, the classical economists could not find the correct explanation of the underlying forces determining the values and relative prices of goods and services; nor could they analyze the actions of consumers, the crucial determinants of the activities of producers in the economy.”

 

What really gives something its value is the fact that an individual will pay for the good for a certain price. On a sunny day, you might not value an umbrella more than a few dollars. However, if it starts raining, your preferences will likely change and you will value an umbrella more now. You may be willing to pay much more for an umbrella on a rainy day than you would pay for an umbrella on a sunny day. This is because value is based on the preferences of individuals.

Let’s say A has a pen and B has $2. If A and B decide to trade, what conclusions can we draw? If A trades a pen for $2, it must be that A values the $2 more than the pen. Consequentially, B must value the pen more than the $2. So, A and B are both profiting by this exchange. This profit is only possible because value is subjective.

If the pen was worth the same to everyone and the $2 was worth the same to everyone, there would be no reason for the exchange to take place. If the pen and $2 are both valued at $2, then A and B would be indifferent toward trading. It is because value is based on the subjective preferences of individuals that mutually beneficial exchanges can occur.



Thanks to Carl Menger and his successor Eugen von Böhm-Bawerk, according to Rothbard,

“…it became clear to the Austrians that no productive activity, whether of labor or of any productive factors, could confer value upon goods or services. Value consisted in the subjective valuations of the individual consumers. In short, I could spend thirty years of labor time and other resources working on the perfection of a giant steam-powered tricycle. If, however, on offering this product no consumers can be found to purchase this tricycle, it is economically valueless, regardless of the misdirected effort that I had expended upon it. Value is consumer valuations, and the relative prices of goods and services are determined by the extent and intensity of consumer valuations and desires for these products.”

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Tragedy of the Commons

The “tragedy of the commons” illustrates the fundamental differences between the effects of public and private property ownership.

“If land is not owned by anybody, although legal formalism may call it public property, it is utilized without any regard to the disadvantages resulting. Those who are in a position to appropriate to themselves the returns — lumber and game of the forests, fish of the water areas, and mineral deposits of the subsoil — do not bother about the later effects of their mode of exploitation. For them the erosion of the soil, the depletion of the exhaustible resources and other impairments of the future utilization are external costs not entering into their calculation of input and output. They cut down the trees without any regard for fresh shoots or reforestation. In hunting and fishing they do not shrink from methods preventing the repopulation of the hunting and fishing grounds.” – Ludwig Von Mises (Human Action)

The “tragedy of the commons” is the lack of incentive for individuals to maintain the quality, quantity, standard, etc., of a publicly owned resource. Something that is publicly owned is not owned by a single individual and everyone has equal access to it. This is opposed to private ownership where a single individual has the right to exclusive access. There is no reason for users of a publicly owned resource to be careful about how they use that resource because there is no guarantee that the resource won’t be destroyed or used up by the rest of the public. No one has any interest in maintaining a resource they cannot have exclusive access to.

 

For example, if you go to the movies with a date and split a soda, it is commonly owned between the two of you. If you each buy your own soda, your sodas are your own private property. If you and your date are extremely thirsty, how will these two scenarios play out? If you split one soda between two thirsty people, they will drink it without much regard for how much they are each consuming. Because you can’t limit your date’s consumption of the common resource, it is in your interest to consume as much as you can before your date consumes a majority of the resource.

If you each get your own sodas, you each have exclusive access to your own sodas and can consume in a more appropriate fashion rather than trying to drink it all before your date does. In a world of scarcity, resources to be conserved are best owned privately rather than publicly. This way, there is a sole owner who is responsible for and has an interest in maintaining the standard of that resource.

 

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Universal Basic Income

I respond to an article from The Libertarian Republic, “Top 5 Reasons for Libertarians to Support Universal Basic Income.”


1. “UBI is still less convoluted than the current system”

This may be true, but rather than installing a new system that is less convoluted, I propose dismantling the current welfare state. This is done not only by reducing welfare benefits but also by deregulating markets and removing barriers to entry that keep people from having an income. Licensing for barbers and hairdressers is an example of government interference in markets that keeps people unemployed and reduces entrepreneurship by acting as a barrier to entry. Remove regulations and minimum wages which make it more difficult for people to work and they won’t rely on the welfare state.

2. “UBI could actually encourage work”

I find this argument to be problematic. The author correctly points out, “As it stands, they have to choose between sitting around on welfare, or spending their time and energy to work for less money.” This is the fundamental problem that makes the welfare state unsustainable. That is, some people are better off monetarily by collecting government benefits than by working. This reduces the incentive to work. The author argues that the UBI would encourage work because, “People can take up what they’re good at, knowing that they have a little extra cushion.” While having a guaranteed income would certainly allow people to pursue their interests more, this does not mean anyone will find employment because of this. People work to have an income to sustain themselves. Ideally, your interests will coincide with your work. Giving people free money to pursue their interests does not mean they will be able to turn those interests into a marketable good or service. What is more likely is that free money given to people by the government will be squandered or spent mostly on consumption, rather than being invested or used to create new employment opportunities.

3. “If applied properly, UBI could increase employment”

By this the author means, if UBI were instated the minimum wage could be abolished which would increase employment. “With the UBI cushion, there is no reason to force employers to pay wages above productivity.” Well, there’s no rational reason to force employers to pay above productivity. Abolishing the minimum wage should be done regardless of the method of wealth redistribution being used.



4. “The current system is unsustainable”

The current system is unsustainable and I do not propose replacing it with another unsustainable system. Giving thousands of dollars to people would result in price inflation. Depending how UBI would be funded, it could also result in monetary inflation. Giving people money increases demand for goods and services they can buy, thus increasing prices. If UBI is funded by the fed printing money, this will result in monetary inflation. More likely, UBI would be funded by taxpayers. More specifically, UBI would be funded by high-income-earning taxpayers. This has the effect of redistributing wealth from savers and investors to consumers. This would result in less wealth creation from production. An economy based on consumption is not sustainable.

5. “UBI could secure protection for the weakest, while promoting innovation”

The author claims, “libertarianism is, if nothing else, the realization that people should follow what makes them happiest as individuals.” This is mostly true, but it does not apply to UBI. Libertarianism does not promote the pursuit of happiness at the expense of others and their pursuits. UBI can only benefit people at the expense of other people. I don’t view UBI as a safety net for the poor, weak, unskilled, etc. It would have the effect of redistributing wealth from individuals to large businesses. We know that higher-income-earners tend to save more while lower-income-earners tend to consume more. By redistributing wealth from savers to consumers, that wealth will end up being spent on consumption. That is, wealth will be spent on burgers, fries, and soda rather than investment in capital goods that will create new wealth.

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