Exploitation—Part IV (b), Exploiting Exploitation−The “Arguments”

Exploitation Part IV (a), Exploiting Exploitation−The Cause” described how do-gooder activists exposed the abominable working and living conditions of low-skilled workers in poor country “sweatshops” (starting with “Behind the Swoosh” about Nike’s sweatshop in Indonesia) and the derision, boycotts, and bad press they heaped on Western sweatshop owners. The activists’ tactics described in “The Cause” presented what the activists apparently believed were logical arguments as to what to do about the supposed evil that Nike and others were committing. Sadly, those “arguments” not only convinced the activists of their own righteousness (the dopamine hits from which induced them to do more of it), the “arguments” resonated with a large portion of the American public. What was illogical about those “arguments” needs to be sorted out. Let’s do that now.

Let’s review the activists’ tactics/“arguments” (described in “Exploitation Part IV (a), Exploiting Exploitation−The Cause”).

(1) Publish videos of working conditions in the rich companies’ sweatshops. As viewed through Western lenses, the conditions living and working conditions presented in “Behind the Swoosh” were invidious. The video was quite useful in raising awareness of the importance of improving the lives of desperately poor people around the world. Note, however, that the working conditions of a sweatshop are poor is a fact. The closest it comes to being an argument would be that it implies that something should be done by someone. However, showing that fact makes no case about what should be done or by whom.

Yet, the activists seem to think that they have made an argument that because Nike owns the sweatshop and the working conditions are, by Western standards, unacceptably low, that Nike should improve working conditions. Because achieving that result would be in the best interest of Jim Keady, Leslie Kretzu, and other activists—because that result was their goal (another unstated goal appears to have been achieving the joy of defaming big companies)—they likely found the “argument” to be compelling (as did lots of people who were just as uninformed as the activists). Sadly, however, their “argument” omitted all the fact necessary to an understanding of what would help the poor people of the world (the goal that they claimed to be pursuing). An “argument” founded on a tiny fraction of the relevant facts, however, is not an argument.

When it comes to helping those desperately poor people, what was shown made matters worse and had action been taken in response to what the video did not show would have actually helped the desperately poor people of the world.

Most important, while succumbing to the activists’ tactics resulted in improvements in the working conditions and pay (lives) of the relatively few poor Indonesians who won the job lottery of being employed by Nike, the “success” for those few Indonesians resulted in the unnecessary continuation of misery for millions of other desperately poor people in Indonesia—and hundreds of millions elsewhere. Moreover, the least skilled of the Nike employees at the time of the video (perhaps even some shown in the videos) would have lost their jobs to higher skilled Indonesians enticed away from their former job to enjoy the higher pay and better working conditions at Nike.

The videos did not reveal those negative consequences. The fact that the activists filmed and published their videos while oblivious to the consequences of their actions should have brought them infamy. Sadly (especially for the poor of the world), due to the equal obliviousness of the general public in America, they were esteemed instead.

Another instance of Keady or Kretzu serving their own interests at the expense of the poor was that they advocated for things that Keady and Kretzu thought would be best for the Nike workers rather than what Nike workers thought would have been best for the Nike workers. Had Keady and Kretzu asked sweatshop workers whether they would have preferred better working conditions or more pay with the same (or even somewhat worse working conditions), the vast majority would have said “more pay.” Why? As the videos showed, the poor Indonesians were continually malnourished and hungry. The reason poor Indonesians would choose more pay over better working conditions is simple: No one can nourish her starving family with better working conditions. So, even had the activists’ “arguments” actually been arguments, those arguments would not have been tilted in favor of the activists’ interests rather than the best interests of the poor they sought to help.

(2) Show how little the workers were paid. Showing a factoid out of context can cause emotional, knee-jerk reactions, but it is often of little help in understanding a problem—which is essential to effectively addressing the problem. For example, showing a clueless mother the advantages to herself and her children if they were to successfully rob a bank might induce her to give that plan a go. Obviously, the fact that the factoid is true, does not mean that there were no other facts that should be considered before executing the plan. Such is the nature of the “logic” underlying the activists’ plan to improve working conditions and pay.

A very important fact omitted from the video is the fact that every one of the depicted workers was much better off than they would have been absent the Nike job—despite the poor working conditions and pay. Everyone who accepted Nike’s job offer was fully aware of the pay and working conditions being offered and, not only did workers voluntarily agree to the deal, they felt lucky that they were near enough to the front of the long line[i] of job applicants that they, unlike the woeful applicants remaining in the line when the window closed, got a job before all the positions were filled. Such pertinent information could not be included in the videos because it would have been too much of a buzzkill to their demonization of Nike.

Another important factor misleadingly omitted from the video is the reason workers were paid so little in Indonesia at the time. The primary reason workers in poor countries are paid so little is that the number of low-skilled workers greatly exceeded the number of low-skilled jobs (i.e., the supply of low-skilled workers greatly exceeded the demand for low-skilled workers). As I explained in “Tax Cuts and Employee Compensation,” the best approach to increase wages at any pay level is to increase the number of jobs at that level of pay. In short, workers’ pay at any pay level rises when qualified workers for a job are scarce and such jobs are plentiful.[ii] The ripple effect of more people having jobs, more money, and prosperity helps everyone, not just the Nike workers. Slowing the pace of job growth has precisely the opposite effects, which are bad for everyone.

Keady or Kretzu were obviously oblivious to the fact that as the cost of labor increases, the demand for labor decreases. Consequently, Keady or Kretzu were illogically advocating policies that would reduce the number of jobs, thereby putting downward pressure on pay for low-skilled workers in Indonesia (with the possible exception of those lucky few who landed a job at a sweatshop owned by a rich country company).

(3) Show how little the pay will buy. How little can be bought with sweatshop pay says nothing about the pay that would best serve the interest of all the poor people in a country. Consequently, showing how little can be purchased is not an argument as to what sweatshops should pay. They made no logical economic argument that paying the people they filmed more would be in the best interest of poor Indonesians as a whole. With what the activists chose to show, the only honest and logical argument the activists could have attempted would have been that arbitrarily paying Nike’s sweatshop workers above-market wages and working conditions created enough good to offset the extension of misery that would be inflicted on the millions of other poor people in the country as a result. An honest and logical argument, however, was likely impossible. Apparently more important to the activists, attempting an honest and logical argument would have undermined their efforts to gin up the emotional fever for their ill-founded cause.

(4) Show the workers’ destitution. Showing destitution provides no hint as to how best to alleviate destitution or who should pay the cost of such alleviation. Is anything more illogical than activists insisting that people or companies that are actually helping the poor should be condemned for not helping them even more?[iii] To be logically consistent, shouldn’t activists be patrolling the streets of big cities screaming at people who put only $5 in a homeless person’s tin cup because the homeless person really needs $10K to get back on his feet?

(5) Reveal the high-profit Western sweatshop owners made each year. The wealth of an employer has nothing to do with either what employees should be paid or what pay is in the best interest of the poor people of the world. Neither does reporting the wealth of an employer reveal anything about whether the profit made from its poor country operations is inappropriately high, nor whether its operations are exploitative. It especially does not show how much less poor country workers would be paid by poorer domestic sweatshop owners (or how many fewer of such owners there would be if the income from foreign owners were not rippling through the economy) if rich companies were to abandon their operations in poor countries because of the derision and infamy that activists heap upon them. That activists routinely pick on companies that are making job opportunities available to people who would not otherwise have a job is illogical and exasperating.

As can be seen from the above, “Behind the Swoosh” and the other anti-sweatshop activists’ tactics approached 100% emotional appeal and 0% logical soundness.

As we shall see in the following post, if the anti-activists would have paid attention to sound economic reasoning instead of their emotions (or what was in their personal best interest), they would have gotten out of the way of rich businesses that were helping poor countries take a shorter and sustainable trip to prosperity. Instead, the activists have exploited the public’s economic illiteracy to make matters worse for the people they believed they were helping.

 


[i]     “Workers in Indonesia line up by the thousands to make Converse shoes for Nike. The wages paid make even the terribly poor— in the terribly poor’s judgment— better off than they would be with under the even more terrible alternatives, such as begging in the street.” McCloskey, Deirdre N. Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World (Kindle Locations 11154-11156). University of Chicago Press. Kindle Edition.

[ii]     See “The world economy as we know it is about to be turned on its head.”

[iii]    The companies listed in “The 20 Companies With The Most Low-Wage Workers” (which hire about 2 million minimum wage workers) are hounded the most.

Exploitation—Part IV (a), Exploiting Exploitation−The Cause

AUTHOR’S NOTE: This and the next two posts are about well-intended people doing something that hurt the people they thought they were helping. To explain in one post the thing done, the illogic upon which the action was based, and the harm it caused must be explained would make for a very long post—something I try to avoid. (Seriously, I do!) For that reason, Part IV “Exploiting Exploitation” has been broken into three posts, (a) “The Cause,” (b) The Arguments, and (c) “The Effect.” This post about the cause describes only what those well-intended people did that caused the problems for the people they were trying to help.

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A tragic example of the good intentions of self-assured do-gooders inflicting widespread harm on the world’s desperately poor (the very people they intended to help) is the 1998 campaign against Nike’s Indonesian “sweatshop.” That attack on Nike jump-started the modern “anti-sweatshop movement,” [i] which became a cause celebre.

Jim Keady and Leslie Kretzu, admirably compassionate, persistent, and persuasive (but economically illiterate) denizens of the wealthiest country in the world, traveled to Indonesia to film “Behind the Swoosh,”[ii] an exposé on the plight of people, including children, who worked in Nike’s Indonesian shoe factory. They came, they saw what they thought to be heartless exploitation of poor people by the mighty and ridiculously rich Nike, Inc., and they conquered much of the enthusiasm of rich companies to make income opportunities available to people of the world who desperately needed income.

The movement’s basic approach to was to (1) video the working conditions in the sweatshops, (2) describe how little (by Western standards) the workers were paid, (3) show how shockingly (to Western eyes) little could be purchased locally with that pay, (4) show the workers’ destitution (by anyone’s standards−save those billion people who live on $1/day instead of $3/day), (5) reveal the high profit Western sweatshop owners made (which were large by almost any standard), and (6) publicly defame and humiliate high profile people associated with sweatshops.

The anti-sweatshop movement’s basic approach (I would use the word “argument,” but they made no arguments, they made uncontextualized observations—apparently thinking they were making an argument) is illogical. Let’s sort out the elements of the approach:

(1) Publish videos of working conditions in the rich companies’ sweatshops. They presented to denizens of rich countries videos of the destitution of people in impoverished countries. Observing those sad scenes effectively tugged on the heartstrings of rich country people. Such tugging is helpful and noble for the purpose of raising awareness of a need to improve the lives of desperately poor people. Such tugging is worse than worthless as a means of identifying what actions might efficaciously and sustainably improve the lives of people in poor countries. It certainly presents no logical argument that paying Nike sweatshop workers more would make a dent in the lives of the billion poor people in poor countries that did not work for Nike. (As will be explained in a future post, paying the Nike employees more worsened the income prospects for the billion unemployed poor people in impoverished countries who did not work in Western company sweatshops—and for some of the Nike employees.)

(2) Show how little the workers were paid. This is another exercise in heartstring-tugging. It does not enlighten anyone as to why the depicted workers are paid so little or the negative consequences to the poor of the world of increasing pay or improving working conditions of sweatshop jobs. It makes no logical argument for anything.

(3) Show how little the pay will buy. That people in poor countries are destitute and desire sweatshop jobs[iii] is sad and worthy of our attention, sympathy, and help. Regardless of how much sweatshop pay will buy, workers could afford to buy even less absent that pay. That is why they desire the jobs.[iv] Moreover, regardless of how little can be bought with the pay says nothing about the pay amount that would maximize the rate at which their country can climb the ladder of prosperity (which is the only effective and sustainable way to help the world’s poor. What was shown in the video is not a logical argument that sweatshop workers should be paid more. It is an unthinking, emotional appeal to act—consequences be damned.

(4) Show the workers’ destitution. Showing destitution coveys nothing about how best to alleviate destitution.

(5) Reveal the high-profit Western sweatshop owners made each year. The high wealth of an employer is not a factor in determining the pay levels that will best serve the interests of the poor people of the world. For example, the median income of Americans is more than 130 times that of Liberians,[v] i.e., the average American is ridiculously wealthier than the average Liberian. If an average American wanted to buy a car from a Liberian, should that American be shamed, defamed, and ridiculed if she is unwilling to pay more than fair market value for the car because she is ridiculously wealthier than the relatively poor Liberian? I can see no rationale for that. As an argument, the idea that Nike’s wealth has anything to do with how much a worker should be paid for the labor she is just as irrational. Rather than an argument, the activists’ tactic is an appeal not to logic but to the envy and exploits the economic illiteracy of the members of a mob.[vi]

As you can see, the videos are great at pulling on heartstrings, but they present no logical argument as to how improving pay or working conditions for a handful of poor people (“lottery winners” would be an apt analogy) now will enable the bottom billion of poor people in the world to become sustainably richer sooner. In reality, all but the tiny fraction of poor people who win the lotto become poorer by having played. Most lottery winners, especially poor people who win, become poor again soon after a win, and the positive effects on “the poor” of lotto winners are negligible.

Making emotional pleas to institute changes while clueless as to the negative consequences is irresponsible. Worse, it is self-congratulatory folly to plea for things that will make things worse for the intended beneficiaries. Being superficial, trendy, and self-congratulatory is neither noble nor helpful.[vii]

In an attempt to shame Nike’s chairman into paying sweatshop workers more, “Behind the Swoosh” made him out to be mean and heartless. Knowing that paying more than the local market rates would do harm to the world’s poor, Phil Knight resisted the demands of activists for many years. Eventually, however, the drumbeat of negative press induced by the movement and the economic illiteracy of the America public cause Nike to improve working conditions, increase pay, and reduce child labor in its sweatshops.[viii] (Rather than reading the headlines and what economically illiterate journalists say, read between the lines of what Nike said and you will see that the primary thing that happened is that Nike lost the public relations war.) In other words, the movement increased Nike’s cost of doing business in impoverished countries. As The Independent reported, “… after a decade of denying any wrongdoing, companies such as Nike and Gap are now admitting that their workers have been exploited and abused[ix] and have pledged to improve the conditions of the millions[x] of people who are paid a few pence a day to make their top-selling goods.”[xi] In short, Nike fought the mob and eventually the mob won—and the poor people in impoverished countries suffered the consequences.

Nike’s capitulation came after the movement’s first big scalp. Kathie Lee Gifford was brought to tears (see video above) by being called a “child exploiter!” because a clothing line with her name on it was made in a Honduran sweatshop. The humiliation and humbling of a high profile and popular public figure effectively warned other current and potential factory operators not to consider providing employment opportunities to people in poor countries unless they were willing to incur profit killing working conditions and pay. Even though Gifford’s company was making available desperately needed jobs and income to desperately poor people in Honduras, she could not fade the heat of the calumny that was being rained upon her. Rather than fight for what was in the best interest of the poor people of Honduras, she avoided being turned into a pariah by jumping on the advocate’s bandwagon. The activist visited similar tactics on others and achieved similar results on other high-profile people. “Pressure from college students and other opponents of sweatshops has led some factories that make goods for industry giants like Nike and the Gap to cut back on child labor, to use less dangerous chemicals and to require fewer employees to work 80-hour weeks, according to groups that monitor such factories.”[xii]

The Independent article cited above also said, “And in the David and Goliath battle of the small activists against big business, even the companies themselves are admitting defeat.” They have also induced the U.S. government to cause poor countries to improve working conditions standards. In short, because the advocates’ successful villainization of sweatshop owners, the economic advantages of foreign sweatshops were and continue to be depressed.

The upshot of all of this is that the business advantages of opening factories in impoverished counties plummeted. The cause of that plummeting was the anti-sweatshop movement’s beliefs, illogic, and tactics. With those beliefs, illogic, and tactics, the activists exploited the word “exploitation” to boost their self-esteem, fame, and celebrity (and, perhaps, wealth) and to help a relative handful of sweatshop workers at the expense of the billions of desperately poor people who would have been dramatically helped had the activists tended to things they knew something about.


[i]       See “Anti-sweatshop movement.”

[ii]       See “Nike Sweatshops – Behind the Swoosh.”

[iii]      See “Two Cheers for Sweatshops.”

[iv]     “Workers in Indonesia line up by the thousands to make Converse shoes for Nike. The wages paid make even the terribly poor— in the terribly poor’s judgment— better off than they would be with under the even more terrible alternatives, such as begging in the street.” McCloskey, Deirdre N. Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World (Kindle Locations 11154-11156). University of Chicago Press. Kindle Edition.

[v]      See “Worldwide, Median Household Income About $10,000.”

[vi]      See “The Marginal Product of Labor.”

[vii]     See “Jordan Peterson – I’ve Read Some Marx, Now I’m Gonna Change The World!

[viii]     See “‘We Blew It’: Nike Admits to Mistakes Over Child Labor,” and “How Nike shed its sweatshop image to dominate the shoe industry.”

[ix]      This reads as if Nike had admitted that in general all sweatshop employees had been “exploited and abused.” I have found no support for that claim. Nike admitted it “blew it” with respect to child labor in Pakistan, not everywhere.

[x]      I found no article that said how many people worked in Nike sweatshops, but the claim that “millions of people” work in Nike sweatshops is highly suspicious (seemingly incredible).

[xi]      See “The ethical revolution sweeping through the world’s sweatshops.”

[xii]      See “Anti-Sweatshop Movement Is Achieving Gains Overseas.”

Exploitation-Part III, The Dangers of Incorrectly Detecting Exploitation

Exploitation-Part I, The Bay For Justice” sorted out how conflating punishment of crimes with compensation for losses suffered by exploited people in determining a fair reparation amount for colonization would produce an unjust result. “Exploitation-Part II, Reparations—Calculating A Fair Amount” sorted out many of the imponderables involved in calculating a fair amount of reparations for the exploitation committed by Colonizers. In this part, let’s sort out some problems concerning the detection of exploitation.

Let’s start by reviewing the definition of “Exploitation,” “the action or fact of treating someone unfairly in order to benefit from their work.” Unfairness to a worker invokes “a broad range of topics and issues, from working time (hours of work, rest periods, and work schedules) to remuneration, as well as the physical conditions and mental demands that exist in the workplace.” (Hereafter, I will use the words “pay” or “paid”[i] instead of “working conditions” to substitute for the many and varied elements of working conditions). When “unfairness” is the standard by which something is to be discerned, what is and is not exploitation is subjective and subject to abuse. The abuse of the word, “exploitation” is a prime example.

These days, the word, “exploitation,” is applied by some activists to essentially every working condition that compensates an employee less than an economically illiterate activist believes an employee should be paid. That belief is usually grounded on the strength of little more than a gut feeling. Without a good understanding of economics, a gut feeling about economic matters is typically wrong. For example, in a free market, regardless of what a third party might subjectively believe to be fair pay, an employee should, and will generally be, paid a little less than the local market value of the employee’s “work product”―all other things being equal.[ii]

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AUTHOR’S NOTE: In response to the preceding sentence, you might think to yourself, “I’ve just read another reason to give up on free markets.” That thought would be a most unfortunate. As many problems as free market capitalism create, humans have not yet invented an alternative economic system that leads to better results, especially for the poor. How a society treats its poor is extremely important. (Sadly, however, other than improving the poor’s standards of living over time and treating them equally under the law, humans have not yet figured out how to help the poor become thriving members of society.) However, contrary to what Ghandi (how society treats its weakest members) or Dostoyevsky (how society treats its criminals) have said, the best test of societies is how they treat each of their individual members. If you doubt the first claim, please take a look at “The Deadly Isms.” If you doubt the second claim, please read Diedre McCloskey’s book, “Bourgeois Dignity” (Or at least read her very abbreviated summary, “Bourgeois Dignity: A Revolution in Rhetoric.”) If after doing so you still believe either or both claims to be untrue, please let me know why in the comments section.

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The primary reasons employees are paid “a little less” rather than the full value of their work product are: (1) employers incur costs to enable employees to produce, and (2) if employees were paid a greater amount, then (a) above market employee costs would put the employer at a competitive disadvantage with other companies, and (b) keeping an employee who is paid an above-market amount creates losses that can be avoided by replacing her with someone who is willing to work for a fair market value pay. The good news is that, by and large, employers cannot pay employees less than a little bit less than the value of their work product because they cannot prevent employees from taking a job with a company that will pay them the fair market amount. (For example, in a competitive marketplace, if women are systematically underpaid by their employer, then competing companies are given the opportunity to profit greatly by hiring female workers who are underpaid.[iii] As labor costs are a large percentage of most employers total costs, cutting labor costs by 23 or 17 percent (the amount by which many claim women are underpaid in America) by hiring underpaid women would be a huge advantage. The bidding war to get in on that advantage would bid up what women had to be paid, thereby eliminating the pay gap (if there were one―Hint: It doesn’t exist.[iv]). so competition between employers erodes any irrational difference in pay by rewarding businesses that successfully overcome gender biases. Individuals may be biased, but that doesn’t necessarily mean the market is.”

Any amount paid to employees that is in excess of “a little less” than the value of a worker’s work product is either charity or forced redistribution. To be uncharitable may be a character flaw, but it is not an act of unfairness to the person who desires handouts.

The widespread lack of understanding of the above realities concerning fair and unfair pay is hurting people today who most desperately need their lives to be improved. Sorting this out would be tremendously helpful to poor people here and around the world.

“Sweatshops” is the name given to what is perceived to be grotesque examples of exploitation in the modern world. Wikipedia’s description of “sweatshop” is, “. . . a factory or workshop where workers are treated unfairly, for example having low wages, working long hours and in poor conditions.” “Unfairly” is the key word in the definition. Note also the words “low,” “long,” and “poor.” None of these words have objective criteria. All of these subjective variables beg the question, “compared to what?” Consequently, each observer applies his own subjective conceptions of “fair,” “low,” “long,” and “poor.” That would be fine if it were not the fact that people of good faith tend to assume their subjective definitions for each of the words is objectively fair. Sadly, many tragedies have been inflicted on the world’s poor by such people. It is a classic case of the pursuit of perfection creating unnecessarily worse outcomes.

A shop with working conditions that can be reasonably and objectively be characterized as unfair deserves the evil moniker, “sweatshop.” Objective standards for “fair,” “low,” “long,” and “poor” are harder to envision than one might think. For example, what an average San Franciscan would consider being “fair pay” today is vastly different from what an average San Franciscan in 1776 would have considered being fair. Similarly, the average San Franciscan in 1776 would have likely considered a fair pay to be somewhere between the pay received by an average Gambian and Burundian worker today (less than $3.00 per day in 2011 U.S. dollars). Obviously, “fair pay” depends on time, place, circumstances, and perspectives of the perceiver and the perceived.

Anyone’s subjective conception of fair pay for someone in a faraway place and/or time is nearly worthless. Nevertheless, using nearly worthless criteria to define “fair pay” is what most activists do.  Nickolas Kristoff noted, “Well-meaning American university students regularly campaign against sweatshops.” That is fine for someone who cares more about being (or appearing to be) compassionate than the plight of the people they believe their compassion is helping. If one, however, really cares more about the people they believe their policies would help, such simple-minded analysis is irresponsible. Kristoff again, “But instead, anyone who cares about fighting poverty should campaign in favor of sweatshops, demanding that companies set up factories in Africa. … [T]hat would fight poverty far more effectively than any foreign aid program….”[v] Let’s sort out why that is true.

When a first-world company opens a factory in another first-world country, it can attract employees only if it offers to pay on par with what other companies are paying for similar work. As people in an economy take newly created jobs, the resulting lower supply of people seeking jobs in the market increases pressure for pay to increase for those kinds of jobs―usually with much spillover to other kinds of jobs. (It’s a supply and demand thing).[vi] The same occurs when a first-world company opens a factory in a poor country. When they do so and offer to pay an amount that appears to denizens of rich countries to be astoundingly low, lines of applicants quickly become long. If the offered pay is not more valuable to the person than the cost to the person of doing the work, the person will not take the job. Having a job in a country where few have jobs are available is not only a source of extra income, relief, and security, it gives the employee status, and hope for a better future. Being able to lower the likelihood that your children will starve is very valuable. Enabling people to have better lives is a fundamentally good thing. The more first-world companies do that, the better.

Of course, first-world companies could pay their employees more. Obviously, the employees who happen to get the jobs and the above-market pay are that much better off. Everyone else in the world, however, is made worse off if above market amounts are paid―and the poor are hit the hardest. If everyone in the world could understand why this is true, the world would be a much better place for everyone, especially the poor.  Let’s sort out why is this so?

EFFECTS ON THE FIRST-WORLD: If factory workers are paid an above-market amount, the cost of what they produce will be sold at a higher price than would be the case than if a market amount were paid to employees. That higher price will cost more to everyone who purchases their work product. With prices being arbitrarily higher than they need to be:

  1. People must pay more for what they buy―and the poor are hit the hardest, which means,
  2. People will have less money left over to spend on things supplied by other providers, which means,
  3. Those other providers will make less profit than they otherwise would have, which means.
  4. Those providers cannot grow as fast as they otherwise would, which means,
  5. Those providers cannot expand their workforce as fast as they otherwise could, which means,
  6. The supply of people looking for jobs will be higher than it otherwise would be, which means,
  7. The rate at which pay increases for all workers is slower than it otherwise would be, which means,
  8. Workers everywhere will have a lower pay than would have otherwise been the case, which means,
  9. The standard of living of everyone will be lower than would otherwise be the case, and less capital and incentive to invent cheaper and/or better products will be available, which means,
  10. Things will improve for everyone more slowly.

EFFECTS ON IMPOVERISHED COUNTRIES: Each of those negative effects are tiny to any individual and especially tiny to the people in first-world―consequently the poor are hit the hardest. However, the cumulative negative effect of all of those tiny rippling effects can be large for the economy as a whole because each effect feeds the next. As unfortunate as all of those negative effects are for people in the first-world and elsewhere, they pale in comparison to the damage that they do to the poor in impoverished countries.

The worst effects of a select few people getting higher than market pay in impoverished countries are that:

  1. The economic advantage of first-world companies opening factories in impoverished countries is smaller than it would otherwise be, which means,
  2. Fewer factories will be opened or expanded in impoverished countries, which means,
  3. Fewer jobs will become available in impoverished countries, which means,
  4. Vastly fewer people will have the opportunity to improve their lives by having the extra money from a job, and
  5. Vastly less human capital that is built by having a job and learning the ropes of business is unnecessarily denied to impoverished people will be built (witness all the businesses in America that are owned by Hispanics, Chinese, Koreans, Vietnamese, and Indians who learned skills and gained knowledge about business by taking a low-level job when they were young), which means,
  6. The people who were unnecessarily denied a job (because the job was never created) will continue to live on the brink of catastrophe and in near hopelessness, which means,
  7. Those destitute people cannot buy things from local merchants that they could if they had a job, which means,
  8. Local business will languish due to lack of demand for their products, which means,
  9. Jobs that could have been created locally do not get created, which means. . ..

Wishing that working conditions in poor countries were far better than what they are now is commendable. The hue and cry about sweatshops,[vii] however, has inflicted and is inflicting grievous harm on poor people across the world.[viii] Today’s quixotic sweatshop activists haplessly and damnably make matters worse for the people they wish and believe they are helping.

In short, paying people a little less than the value of their work product is not exploitation. It is by far the most effective way people in poor countries can accumulate human and money capital which is essential to steady improvement of their lives.[ix] Such demands condemn people in poor countries to the perpetuation of their abject poverty at a minimum and greatly slows their climb out of poverty at best.[x]


[i] Using the terms “pay” and “value of work product” simplifies a very complex set of variables, each of which is worth discussing. That discussion, however, is not essential to an understanding of the general point here being made. For example, if in the perception of the employer an employee is harder to get along with, has less reliable attendance, excessively disrupts or otherwise causes fellow employees to be less productive or is less committed to the enterprise than an average employee, then that employee would be paid less than “a little less” than the value of the work product of an average employee. The inverse is true also.

[ii] For another example, see “‘He’s a Hater!’

[iii] Of course, the popular memes to the contrary are false. See “There Is No Gender Wage Gap” and “Jordan Peterson debate on the gender pay gap, campus protests and postmodernism.”

[iv] See “The Size of the Gender Pay Gap Matters,” and “There Is No Gender Wage Gap.”

[v] See “Sweatshops.” For a broader take on people activating for things they do not understand, see “Jordan Peterson tells you to clean your room.”

[vi] See “Tax Cuts and Employee Compensation.”

[vii] See “The Injustice of Sweatshops and Exploitation.”

[viii] See, “John Stossel – Does Free Trade Exploit the Poor?

[ix] See “Sweatshops: A Way Out of Poverty.”

[x] See “Yaron Brook – ‘Sweatshops’,” “John Stossel – Sweatshops,” and “The Unbelievable Truth about Sweatshops.”

Exploitation-Part II, Reparations—Calculating A Fair Amount.

Exploitation-Part I, The Bay For Justice” sorted out how conflating punishment of crimes with compensation for losses in determining a fair reparation amount for colonization would produce an unjust result. Yet, conflating those disparate things is as common as it is illogical. That being the case, many people are fine with punishing people who had nothing to do with committing a crime plus they seek compensation without thinking through (1) what compensation would be appropriate, (2) from whom it should come, (3) whether it is possible to ensure that only the people deserving reparations would get them—so as to avoid siphoning off money that should go to those who deserve it (and avoid payments to people who do not deserve them),[i] and (4) whether receipt of reparations would be salutary to its recipients or their progeny and/or society at large. In this post let’s sort through some of the issues associated with calculating an appropriate amount of reparations.

🙛

AUTHOR’S NOTES: Colonizers owned slaves in many colonies and colonizers profited from the import/export slave trade as well. Both activities are disgusting—certainly by today’s standards at least. As terrible as those things were, this post will focus on non-punitive, just compensation, i.e., the economics of the matter. This is proper for the reasons explained in “Exploitation-Part I, The Bay For Justice,” i.e., because an argument for just reparations rests on the economics, not the heinousness, of exploitation. (I acknowledge that other justifications for reparations have been claimed, but I am aware of no legitimate ones.)

Moreover, much of the exploitation by colonizers did not involve the ownership of slaves by colonizers. Rather, colonizers and native entrepreneurs entered into voluntary transactions to trade raw materials, goods, labor and/or ideas (“Stuff”) that they valued less for Stuff that they valued more. (The standard rejoinder to this claim about colonization is “monopoly!” The impact of the colonizers’ monopoly power will be addressed later posts. I mention he rejoinder here in hope that the reader does not quit the post because she believes I am ignorant of what she believes to be the primary feature of these transactions. Suffice it to say here that monopoly power affected the fairness of transactions to some degree but did not negate the voluntariness of the transactions. That they were voluntary reveals much about the economics of the situation.)

By treating slavery as a form of exploitation (as opposed to the effrontery to humanity that I believe it is) for purposes of economic analysis, I am by no means dismissing or excusing the qualitative difference between unfair working conditions[ii] and slavery. The differences are real, large, and damnable.

What follows is far from the mainstream thought of people who today live in modern, prosperous countries. Many, probably most, of those people believe that anyone who harbors thoughts other than letting their abject and uncompromising abhorrence of people having to work under grueling, harsh, and unrewarding conditions or whose thoughts might impede immediate reparations stupendous amounts is either evil or demented. Because I believe those beliefs of those people are inflicting more harm than good on poor people around the world today, a sorting out what is wrong with those beliefs is needed. Call me evil or demented if you must.

Others commentators have broached the ideas discussed in this post. The ones I’ve seen, however, tiptoe into the issues by saying things like, “This is a touchy topic, but permit me to tread carefully.” Approaching the topic in that way results in milquetoast assertions that do not get to the heart of the matter[iii] and are therefore too to obscure or oblique to enlighten as much as is necessary. By taking a straightforward tact I hope to more clearly sort out the relevant issues.

🙛

Arguments for reparations are usually founded on three broad claims:

1) Rich countries stole and exploited raw materials, goods, labor and/or ideas (“Stuff”) from the people they exploited,

2) a. Rich countries are rich because they used their ill-gotten gain (capital) from exploitation to invest and to grow into the wealthy countries they are today (some appear to assume that colonization is the sine qua non of a country being rich), and/or

b. Exploited countries are poor because exploiters stole their Stuff (capital). Absent that stealing poor countries would not be poor. (These claims are allegedly bolstered by claims that the ideas that enabled the Northeastern Europeans to jump ahead of the pack had been developed by non-Northeastern European people long before the Northeastern Europeans exploited those ideas—something akin to “You didn’t build that [give that back].”), and

3) Exploiting countries should return their ill-gotten gain or pay compensation for losses to the descendants of exploited people.

Let’s sort out some issues with respect to the first foundation for reparations.

Justice could be achieved by causing colonizers to repay the people who were exploited or were the victims of theft. This fact lends credence to the ill-gotten gain element of the argument for reparations and that argument deserves serious consideration. (For the purposes of this post, let’s assume the existence of a feasible and effective way to achieve justice by paying the descendant of the people exploited.)

Critical to achieving justice with reparations would require a fair calculation of the net economic effects of colonization. The task would involve a fair calculation of the following values:

  • Damages. The sum of:
    1. Exploitation Value. A positive number equal to the difference between what the colonized people should, in fairness, have been paid for the working conditions they experienced because of colonization,
    2. Stolen Stuff Value. A positive number equal to the value to the victim of what was stolen from colonized people,
    3. Benefits to Colonized People of Colonization. A negative number equal to the benefits colonized people received because of colonization,

AND

  • Unjust Enrichment. The amount by which the colonizers benefitted from exploiting or stealing from colonized people.

Payees of reparations would be entitled to the higher of Damages or Unjust Enrichment. (Way too many reparations advocates illogically talk about reparations as though payees should receive the sum of both damages and unjust enrichment. To make matters worse, they talk as if the payees are entitled to punitive damages to boot.[iv])

Determining the “fair market value” of almost anything is difficult and the results are both imprecise and have a short shelf life. The issues in most valuations, however, are straightforward compared to the issues with respect to valuing damages from colonization. Let’s sort out some issues concerning the valuation of those damages.

The value of Stuff to the victim of theft or exploitation can be quite different from its value to the thief or exploiter. An extreme example illustrates the point: Had a colonizer stolen or paid little or nothing for bubbling crude (“black gold,” “Texas tea”) oil that contaminated land owned by colonized people would arable if the crude oil were hauled away, the result would have been positive for both the colonizer and the colonized, i.e., a “win-win.” This is because the colonized people had neither the technology nor capital to refine crude oil into valuable products, removing the oil would have been costly, and oil on otherwise arable land diminished the land’s value, i.e., removing a nuisance from a property increases its value. Rather than being a nuisance, the crude oil had a positive value to a colonizer who had the wherewithal to turn a profit on Stuff that had a negative value when owned by the colonized.

Similarly, colonizers had the technology and capital to turn low-value raw materials in the hands of the colonized people into high-value products. Given this fact, the colonized lost nothing if they sold raw materials to colonizers for its fair market value in the colonies, while the colonizers gained much by purchasing raw materials for that price and transporting them to a place where they were more valuable.

Even if we stipulate that the natives who produced or mined raw materials for export were exploited (suffered unfair working conditions), an initial question would be: “Can a person today assess the extent to which the working conditions of someone long ago—in some cases hundreds of years ago—were unfair?” The working conditions of a bookkeeper or factory worker 150 years ago would be considered deplorably unfair to a bookkeeper or factory worker in any modern city.[v]  Working conditions that were completely reasonable and fair 150 hundred years ago would have been considered to be quite nice by people who lived 300 years ago. The working conditions of 300 years ago would be considered highly unfair by people of 150 years ago and cruel, if they were inflicted on a worker in a rich country today. A fair calculation of a reparations amount must assess the extent to which the working conditions were poorer than a minimally fair working condition as of the date and place of the exploitation. Identifying the dividing line between fair an unfair would be, at best, astoundingly difficult even if that dividing line was not constantly in flux over time, did not vary significantly from place to place, and representative data sets were available to reasonably estimate that dividing line. Because none of those situations exist, identifying a fair reparations amount is well beyond astoundingly difficult.

A critical, if not pivotal question concerning just reparations would be, “Who did the exploiting?” Certainly, the colonizers were not the only parties exploiting colonized people. For example, in general, colonizers did not have the language skills, or desire to manage native laborers. In addition, they did not have the necessary immunity to diseases to enslave people. Consequently, colonizers purchased Stuff (raw materials or goods, labor, and ideas) from natives who arranged for the production and delivery of Stuff to the colonizers (“native entrepreneurs”). Whether or not the colonizers paid the native entrepreneurs a fair or unfair amount for the Stuff, what the native entrepreneurs paid their workers could have been even less fair, e.g., the colonizers could have paid a fair amount and the native entrepreneurs could have paid their laborers unfairly little. Justice could be achieved by forcing colonizers to pay the colonized an amount equal to the extent to which the price they paid the native manager was less than fair. To charge the colonizer for the exploitation of workers employed by native entrepreneurs is a different matter.

While colonizers could be fairly charged for the exploitation of slaves owned by the colonizers, it is much harder to make that case with respect to exploitation by native slave owners. At a minimum, the computation of any reparations amount should give the colonizers credit for the excess profits the native entrepreneurs gained by exploiting their fellow natives—because they are members of the people who were colonized. Let’s just say that figuring all of that amount out would be tricky at best. Hopefully, this discussion reveals the irrationality of the idea that the amount of exploitation can be fairly determined by simply looking at the cash and Stuff flow between the colonizers and the colonized (which included the profits of native entrepreneurs). Stated differently, myopically focusing on the impoverishment of native laborers to measure the extent of exploitation by colonizers is a gross error.

Alternatively, consider this perspective on the matter: For the most part, native entrepreneurs were paid a negotiated (read profitable) price for Stuff they sold to colonizers. To the extent the colonizers paid the fair market value of the Stuff at the designated delivery location,[vi] native entrepreneurs were not exploited (quite the opposite). The benefited because if the seller was not paid enough for the Stuff to make an acceptable profit, the seller would not have made the sale. If the colonizer is to be dunned for the exploitation by the native entrepreneurs of their employees, the colonizers should get some credit for the profit gained by their employers on account of the colonizers’ purchases.

Colonization provided profitable markets into which colonized people could sell their Stuff. The existence of those markets for their Stuff improved the lives of the people who sold Stuff. Exactly how much credit the colonizers should receive on account of that benefit to colonized people is not clear. The correct answer, however, is not zero, and it is potentially large. (Witness the hullabaloo today about the excessive damages inflicted on America companies because of tariffs imposed by other countries on the importation of American goods and services.)

This issue is complicated by, among other things, the likelihood that more people in the colonies were enslaved by native entrepreneurs because of those additional markets. Without the additional sales to colonizers of Stuff that slaves could produce, incurring the expense of enslaving people would profitable with respect to fewer potential slaves.

On the other hand, colonizers saved the lives of the many slaves and native people during droughts transporting them to countries that were not experiencing drought and needed slaves. The slaves were saved because they would have starved or been killed to eliminate the need to feed them in a drought-stricken country, and the natives both made money selling their slaves and avoiding the problems associated with killing people. How much exploitation is acceptable in order to save the life of one slave is a testy calculation. Moreover, in addition to helping the people who were moved, moving people from places with too little food to places with enough food also helps the people who were not moved.

Surely, the expected improvement in the standard of living of a native entrepreneur as a consequence of a trade with a colonizer was never as great as the native entrepreneur would have liked—such is the fate of all parties to almost every transaction everywhere and always. The result would not have been considered “fair” according to many third-party standards. However, subject to the normal mistakes people make when predicting the economics of an anticipated transaction and occasional failures by counter-parties to perform, on average, all parties to a trade improve their situations over to what they would have otherwise been. The fact that people keep on trading and wealth increases over time is good evidence that people are reasonably proficient at predicting the economic outcomes of their trades.

The above effect is also true with respect to domestic business relationships. Native entrepreneurs had to hire people to make or mine the Stuff the native entrepreneurs agreed to deliver colonizers. The less the native entrepreneurs paid his workers, the more profit he made. He could not, however, have hired anyone to do the work unless the workers were paid what the workers believed would result in their being better off than if they did not accept the job offer. i.e., the workers’ lives were improved by being colonized—but surely much less than the workers (and vastly less than later-day sympathizers) would have liked to have been better off.

The sad reality is that life in impoverished countries is truly awful for

So, even under what is fairly considered to be awful working conditions, compared to what their situations would have been otherwise after a transaction, the lives of everyone involved was improved by the exploitive transactions. A fair calculation of a reparation amount must give the colonizers credit for the extent to which the exploitation improved the standards of living of the colonized over what they would have been absent the colonization.

In light of the above, calculating a fair reparation amount is far more complicated than what most people would expect. The above just a sampling of those complications. Demanding reparations while ignoring the many complications of calculating a fair amount for reparations is unreasonable.

In a just tribunal, the claimants would have the burden of proof as to the fair reparations amount. Wish them luck.

There are other misunderstandings with respect to exploitation. Let’s sort some of those out in future posts.


[i] This reference includes people like the peasant characterized in this fable: “. . . God and St. Peter wandering the countryside in disguise looking for lodging and being refused, until at last a poor but hospitable peasant couple take them in. God reveals himself, and tells them that for their good deed they can have anything they want. The husband and wife briefly consult together. The husband begins, “We have only miserable chickens, but our neighbor has a goat that yields milk every day…. ” God anticipates: “You mean that you want a goat, too?” “No. We want you to kill the neighbor’s goat.”

Deirdre N. McCloskey. Bourgeois Dignity: Why Economics Can’t Explain the Modern World (Kindle Locations 1188-1189). Kindle Edition.

[ii] By “working conditions” I refer mean “a broad range of topics and issues, from working time (hours of work, rest periods, and work schedules) to remuneration, as well as the physical conditions and mental demands that exist in the workplace.”

[iii] In “China Says: “Please Exploit Us!” the author says the following about modern “sweatshops” owned by Nike, Wal Mart, Reebok, etc. in poor countries: “These and other firms have been taking some steps to improve conditions at their factories, but it’s often easier said than done.”

[iv] For an explanation of why this is a false assumption, see “Exploitation-Part I, The Bay For Justice.”

[v] See “Life in New York City before indoor toilets,” “If you’ve ever bemoaned the fact that you share a bathroom with several family members or housemates, you’re not alone. Most New Yorkers live in apartments and most units have just a single bathroom. A hundred and fifty years ago, however, the situation was much worse. At the time, New Yorkers had just a few choices when it came to taking care of their lavatory needs and by modern standards, none of the options were appealing—visit an outhouse or use a chamber pot.” Facilities available to office workers were similar.

[vi] As they say, the value of real estate depends on three things, location, location, location. Due to the risk and cost of transportation, the value of personal property is also location dependent.

Exploitation—Part I, The Bay For Justice

In a Facebook post, a Sikh friend expressed glee about the prospects that Sikhs might soon be “the leader of either the United States [Nikki Haley] or Canada [Jagmeet Singh], or even both.” Of course, no one should have a problem with Sikhs being the leaders of either or both countries—provided they embrace ideas and values that are simpatico with foundational ideas and values of the countries they lead. (Embracing those ideals and values would be necessary in order to fulfill faithfully the required oath of office).[i] I took issue with my friend basing his opinions or emotions about leaders on anything other than the leaders’ beliefs and the content of the leaders’ characters. The ensuing conversation roamed to many interesting subjects but culminated in a discussion of whether the large differentials in economic success between Western countries (“the West”)[ii] and other countries was mostly a consequence of Westerners embracing better ideas than the ideas embraced by less successful countries. One of my friend’s responses was that to an unspecified (but presumably large, if not overwhelming) degree the differential in success was “built upon naked exploitation and not intellectual superiority.”

My friend’s claim raises many issues worth sorting out. Let’s give that a go.

🙛

AUTHOR’S NOTES: Exploitation, “the action or fact of treating someone unfairly in order to benefit from their work,” rears its ugly head in many and varied ways. In particular, exploitation is often claimed to be a key feature of colonization. (Colonization and conquest should not be confused in this context.)[iii] Because colonization involves bad things other than exploitation, exactly what role exploitation played in colonization usually gets glossed over and confused. That results in conclusions about colonization based on muddled reasoning.

Certainly, colonization by Westerners inflicted many atrocities[iv] and lesser intentional inflictions of bodily harm (“crimes”) on people who deserved to have been left alone. Those tragedies are damnable and surely more heinous than the economic exploitation associated with colonization. Because however, those crimes and tragedies are unambiguously and fundamentally wrong (as opposed to “unfair,” i.e., unkind, inconsiderate, or unreasonable), they are categorically different from exploitation. Unfairness, not criminality, is what distinguishes exploitation from regular commerce. As explained herein, distinguishing between crimes and unfairness makes a big difference in how justice might be achieved.

This post focuses on why distinguishing exploitation from crimes is important. Only by doing so can one see what exploitation is and is not, and the nature of the problems and possible solutions associated with exploitation. Another reason to distinguish between crimes and exploitation associated with colonialization is that crimes account for essentially none of the West’s relative success. This is because significant economic gains cannot be achieved by stealing from (who by definition do not have much of value to steal) or killing peasants. Economic gain can be achieved by exploiting peasants—something that cannot be achieved if the exploitable peasant is dead.)[v] Consequently, one must exclude consideration of heinous acts in order to test the validity of my friend’s claim.

The wording of my friend’s claim, that the differential in the economic success of the West was “built upon naked exploitation and not intellectual superiority,” might lead one to believe that I had claimed that the West’s relative success is attributable to an intellectual superiority of Westerners. I did not and would not make that claim. My claim was that it was the set of ideas that happened to take root in Northern Europe (the subset of the West that did most of the colonizing and prospered the most during and following colonization)[vi] during The Enlightenment that caused the relative success. Why those ideas took root and were developed and internalized in Northern Europe will forever remain a subject for speculation but will likely never be conclusively determined to be attributable to innate superior intelligence or acumen. Some evidence that such is not the case is that when the Romans arrived in Britain they had almost nothing good to say about the natives and described them as among the most barbarous natives they had ever encountered.[vii]

🙛

Colonization and exploitation need not go hand in hand, but I’m aware of no situation in which they didn’t. Colonization did bestow some benefits on the people of at least some colonies (some scholars claim that in some places colonization conferred more advantages than disadvantages).[viii] Even if there were a net benefit to the colonized, however, such “exchanges” were never voluntarily on the part of all involved. For a fair exchange to happen all significant parties to the transaction must agree to the deal. One may not absolve one’s self from unfairness by saying something like, “Yes, Akshat, we did require you to work in the field for 80 hours per week for your food, but we enabled your country to have a railroad and other modern marvels.” Most people would reject any argument that the exploitation of colonized people was fair because it eventually resulted in the betterment of the colonized people and their progeny. Concerning some colonies, no credible case of a net benefit would be possible. Even if colonization were a high-minded, well-intended enterprise to save the down and out, there is no merit in defending what turned out to be a tyrannical Quixotic enterprise.[ix] Colonization justly earned its near universal condemnation by modern people.

Because of the nearly universal opinion that colonization resulted in injustices, a natural desire to set things right arises in the hearts of good people. Given that all the perpetrators of colonial injustices are long dead, demands for reparations of some sort have become commonplace. Many rubs lie therein.

Justice cannot be achieved without a good understanding of all of the relevant and material issues involved. As explained above, crimes by colonizers and exploitation by colonizers are two separate topics. Nevertheless, because discussions of colonization almost always involve crimes and potential recompense for crimes, an understanding of crime and punishment is necessary to an understanding of what a fair recompense would be.

The public interest in achieving justice is served when a criminal is punished for his crime. To be just, however, the punishment must fit the crime. Too little or too much punishment is unjust.

Private interests are justly served when damages suffered by victims of crime are compensated. While a finding of criminal guilt may provide some solace to a crime victim’s family, a criminal punishment does not compensate the family for its losses. Justice is served if the family or other parties injured by a crime obtain fair compensation for losses whether or not the defendant is also punished criminally for the crime. For that reason, in addition to “paying the price” for the crime, to be just a thief must also return what was stolen.

Moreover, a perpetrator who is found not guilty beyond a reasonable doubt is not a finding that she did not commit the criminal act, i.e., “not guilty” does not equal “innocent.” If it is proven that a “not guilty” person more likely than not committed the act for which she was charged and that caused a plaintiff’s damages, justice is served if the private litigant is compensated for his resulting losses. Depending on the circumstances, awarding punitive damages (either to the plaintiffs or to the state) in a private lawsuit can justly serve the public’s interest in penalizing crimes.

In cases in which a criminal is convicted and punished by the state and also assessed punitive damages in a private action the total punishment will exceed what is just.

Determining today extent to which colonizers were punished for his crime or whether a second punishment was imposed and just multiple decades or centuries after all the witnesses have died, however, will mostly be impossible. A fair-minded person would be at least curious about whether this possibility is far-fetched. In the greater scheme of things, however, perhaps it may be ignored because of the high likelihood that neither happened.

Figuring out the punishment amount, however, is a minor problem relative to others. Even if the proper punishment for long ago crimes could be figured out, the interests of the public can be served by punishing only the people who committed a crime. A new injustice would occur if innocent people were punished for the crimes of others. Inasmuch as all but a tiny percentage of the criminals who committed crimes during colonization are long dead, punishing anyone today for those crimes should be off the table. To do so would be vengeance, not justice.

On the other hand, justice could be served if someone inherited the ill-gotten gain of a colonial wrongdoer. Forcing the possessors of such ill-gotten gain to return the ill-gotten gain to the parties from whom it was taken would certainly be justified. But, of course, all of those people are dead too. Because of this problem, people have proposed other possible ways to make things right. Let’s sort out the issues involved with the most prevalent of those proposals in ensuing posts in this series.


[i] Stated differently, they would need not to embrace anything in Sikh ideology that is inconsistent with their country’s foundational ideas or values.

I am not familiar enough with Sikh ideology to know the extent to which Sikh values are different from American values. (Although this take on the “Mother Hen Story” is cause for great concern. Compare the Northern European version of the story. These takes are antithetical to each other.) On the other hand, I know essentially nothing about Jagmeet Singh, and not enough about Nikki Haley, but am aware of nothing she has said or done to raise any concern in this regard.

[ii] “Western World countries” is an imprecise term and may only crudely capture the distinction between countries my friend was drawing. For instance, he may have been referring to colonizers versus non-colonizers. As the precise definition is likely not important, hopefully “the West” will suffice.

[iii] The word “Colonization, the action or process of settling among and establishing control over the indigenous people of an area” as used herein is not intended to include “Conquest, the act or state of conquering or the state of being conquered.” For example, I would say that Britain colonized the thirteen states, but the U.S. conquered the native Indians. So the discussion here does not necessarily apply to the relationship between the U.S. and the Native Americans.

As unfair as conquest might be, one would be hard-pressed to find an acre of habitable land that had not been conquered multiple times by multiple invaders. As such, sorting how to make things right with respect to conquest is much more problematic than with respect to colonization—which is plenty hard. Moreover, conquest has little or nothing to do with colonization. Conquest is not the topic of this series of posts.

[iv] See “Deny the British empire’s crimes? No, we ignore them.” This is just a small example pertaining to one Western power, but because this post is not about the atrocities, multiple examples are not needed to confirm the point. By providing an example of British crimes, I am not suggesting that the Brits were the worst offenders. They weren’t. For example, see “French imperialism’s brutal colonial rule.”

[v] See “The West stole its wealth, right? Wrong.” Many of the examples of “stealing” mentioned in this article are not stealing (many of the examples could qualify as exploitation, which, as discussed herein, is very different). Nevertheless, the conclusion drawn is confirmed by this article.

[vi] For a discussion of a reason for the differential between Northern and Southern European success, see “Free Markets and Morality—Part I” and “Free Markets and Morality—Part II.”

[vii] See “Roman Perceptions of Britain.”

[viii] See “Was British Colonialism Good or Bad for India? —They were better than the French, at least,” and “7 Ways India Benefited from British Rule!

[ix] See Sancho Panza’s dialogue in “Don Quixote” by Miguel De Cervantes Saavedra.

Something to celebrate this Memorial Day.

The poor in America have access to diets fit for a king. See the Cafe Hayek Quotation of the Day below.

The things Americans have invented and built to achieve that situation are also improving lives around the world, and there is no clear and present danger that Americans and their allies will lose it all to foreign aggressors. Some places have a better this or that, but, with all its problems and shortcomings, America is among the, if not the, greatest place to live in all of history.

Let’s remember, celebrate and appreciate the men and women who fought and died to enable this country to be.

 

by DON BOUDREAUX on MAY 26, 2018

CAFEHAYEK.COM

Free Markets and Morality—PART II

PART I of this series explained how capitalistic economic/political systems are morally superior to the non-capitalist/collectivist economic/political systems the Pope advocated in the apostolic exhortation,  EVANGELII GAUDIUM, and how capitalistic systems provide greater incentives for participants in such markets to be moral compared to more collectivist economic/political systems.

In this PART II, let’s put the Pope’s economic proposals (which are perhaps more extreme than the proposals of prior popes, but are nevertheless generally simpatico with Catholic tradition) into a historical context and compare and contrast how well the poor have fared in those systems the economic/political systems that have grown out of other religious traditions. The differences are important, significant, and stark.

Over the last millennia, countries with Judeo-Christian heritage have achieved greater economic progress for their citizens, especially the poor and middle-income people, than have non-Judeo-Christian countries. (In percentage terms the poor in both China and India have recently improved more, but the standard of living of the poor in those countries remains far below the standards of living of Judeo-Christian heritage countries.) Those better economic results were largely achieved because of a greater adherence to free market capitalism by Judeo-Christian countries.  With a long history of robust data, the correlation between greater capitalism and better economic results has proven to be very high. It is also true that significantly better economic performance and moral outcomes have been achieved by some Judeo-Christian countries than others. Let’s sort out the salient differences and the differential results in these countries.

AUTHOR’S NOTES: By no means am I suggesting that northern European people are innately better than any other people. I am saying, however, some economic/political ideas are better than others, and that over the last millennia, the northern Europeans’ ideas have proven to be better than others in advancing human living standards— especially for the poor. In earlier times, other people had better ideas than their peers and, consequently, rose above their peers. For example, the ideals of Catholic Holy Roman Empire achieved the best results until a better set of ideals came along. Many other empires rose before that because of better ideas. Hopefully, in the future, a different set of people will develop economic/political ideals that are superior to those of the northern Europeans and will eclipse what the current ideals. 

It must also be noted that the northern Europeans also came up with some of the worst ideas ever (e.g., nazism, socialism and communism) that inevitably led to the killing of over 200 million people. Moreover, northern Europeans and their colonies were slow to implement its good ideas (they just happened to be faster than most, if not all, other peoples). That they imposed their anti-slavery ideology on most of the rest of the world is of mixed morality.

What Pope Francis said in the EVANGELII GAUDIUM is generally consistent with views of previous popes, i.e., the poor should be helped by alms and the rich are to either give “enough” to the poor or else be guilted and/or condemned to eternal damnation if they do not.[i] Catholics also opposed (1) the state getting involved in dispensing alms to the poor, and (2) anyone judging whether a poor person deserves alms. A rich person’s chances of salvation were improved by charitable giving to the poor—regardless of how “deserving” the recipient of the charity is. For many centuries, that Catholic economic ideology has been more widely accepted and fostered in southern European countries and the countries in the Americas colonized by those southern European countries.

By contrast, the economic ideology concerning helping the poor and dealing with the rich that was widely accepted and fostered by the mostly Protestant northern European countries and their colonies in the Americas is very different from Catholic ideology. An important feature of the ideology is known as the “Protestant work ethic.”[ii] Very roughly speaking and omitting much,[iii] Protestants more generally considered the honest rich to be praiseworthy for both creating a wealthier and advanced world, and for their honoring a duty to be charitable. Protestants were more likely to support state involvement in giving alms to the poor, with the proviso that alms be given only to the “deserving poor.” Begging was prohibited. Protestants disagreed with Catholics “placing a halo” over the heads of the poor (the poor were to be helped, not judged, and the path to salvation was in the giving without regard to why the recipient was poor, i.e., why a person was poor was irrelevant). Consider these quotes:

“Luther’s theological understandings of the priesthood of all believers and of Christian freedom helped redefine poverty, toppling it from its pedestal of theological virtue. The theological redefining of poverty, accompanied by a widespread contempt of begging, created are [sic] invigorated need to discern those “deserving” of relief from those who were “undeserving.”  This shift is demonstrated in the common chest ordinances of sixteenth-century German-speaking Protestant cities. The common chest was Luther’s alternative to the Catholic system of poor relief, a system that relied on indiscriminate dispersal of alms by the wealthy.”[iv] “By giving poverty its “halo,” Protestants argued that the Church was systematically preserving poverty.”[v] (Note how similar this charge is to charges made against leftists today.[vi]

Note also how today’s leftists have expanded the halo so that it will go around the heads of everyone who is not part of the supposed white male power structure.

Let’s set aside the question of which of the two ideologies concerning the treatment of the rich and the poor is theologically superior. (Let’s also not deny that capitalism did and does spawn great evil—as every other ism does). Rather, focus on the differences in economic standards of living of the poor (which was the focus of the Pope’s exhortation) that are achieved by the two ideologies. (Is this ideology the only relevant distinction between nations with Catholic and Protestant heritages? No. Is it a very significant distinction with respect to the disparate improvements in the standards of living of the poor? Yes.)

The clear results from a very robust “natural experiment” over hundreds of years has conclusively proven that the Protestant ideology is far superior to the Catholic ideology at (1) achieving improved standards of living for the poor, (2) being the source of vastly more charitable contributions to the poor at home and around the world, and (3) being the source of the vast majority of the medical and other technological improvements that the poor people today enjoy that earlier generations of poor people did not. As Danial Hannan so poignantly and vividly described in “Inventing Freedom: How the English-Speaking Peoples Made the Modern World,” the assertions above are clear from a comparison of the results of the northern European/American countries with the results of the Southern European/American countries to behold the dramatic differences in outcomes. In particular, that natural experiment dramatically proved which approach was better at improving the material well-being of the poor. For example, the poor in northern countries suffer when their economies experience depressions and depressions, but that is nothing in comparison to the plight of the poor in they collectivist countries collapse—not an uncommon occurrence.

Perhaps as important, it was primarily ideas that sprung up in Scotland and England that resulted in almost universal worldwide abhorrence to slavery—something that had been commonplace throughout prior history. While Pope Paul III condemned the enslavement of indigenous peoples by in 1537,[vii] it was the English, after they accumulated sufficient wealth and power to suppress slavery, who bore most of the cost of strangling the transatlantic slave trade (with much of that effort being against transporters from and to Catholic countries).[viii]

By essentially all economic and moral measures, the Catholic approach that the Pope urged on all nations as a means of helping the poor has been less successful in freeing slaves and raising the standards of living of the poor than the one he decries.

I have no doubt that that Pope Francis was well-meaning when he issued the EVANGELII GAUDIUM. Having grown up in a Catholic country with Catholic schools, he was, no doubt, taught that what he believes about economics is sound and his exhortation would lead to a better life for both the rich and the poor. History, economics, and logic, however, suggest he is economic/political beliefs will result in more evil than good.


[i] Some have called this ideology a “guilt ethic” in contrast with the “work ethic.” I find that label to be too glib and harsh. It strikes me, however, that there is some merit to the claim that Catholics are more likely to promise eternal damnation and to guilt rich people for not giving to poorer people while Protestants are more likely to praise the goodness of those who so give. None of this, however, is to say that all of the differences in prosperity between the north and the south are attributable to this one element.

[ii] See “The Protestant Ethic and the Spirit of Capitalism.”

[iii] These issues are so vigorously debated among scholars with very different takes on what happened that only rough approximations are possible. It is doubtful that any two knowledgeable people would agree with each other in extensive detail. Some proof of this can be found in the fact that there are many sects of each of the two strains of Christianity.

[iv] See “The Deserving Poor: The Reimagining of Poverty in Reformation Theology and Poor Relief

[v] Id. Footnote 25

[vi] See “What Democrats Really Care About.” Also not that Democrats are much more apt to extend this “halos” over a near limitless list of “oppressed,” “excluded,” “marginalized,” “disenfranchised,” . . . people.

[vii] See “Catholic Church and slavery.”

[viii] See “The Abolition Project,” particularly “Suppressing the trade.”

Free Markets and Morality—PART I

A primary “progressives’”[i] pastime appears to be seeking, finding, and pointing out ways in which free markets and the participants therein, especially those who succeed, are immoral. I was reminded of this fact last week when Freakonomics served up a rebroadcast of a 2013 podcast [ii] that followed Pope Francis’s apostolic exhortation “EVANGELII GAUDIUM.” That rebroadcast was timely because this controversial Pope[iii] created yet another controversy last month by implying that atheists could go to heaven.[iv] In the Evangelii Gaudium, the Pope said, among other things, “. . .  today we also have to say “thou shalt not” to an economy of exclusion[v] and inequality. Such an economy kills. . .. Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. . ..” Because capitalism cannot achieve paradise, truthful factoids of capitalism’s shortcomings abound. The Pope’s language, however, is nothing more than a typical inaccurate and hyperbolic promotion of collectivism via a denunciation of capitalism. However, to highlight and exaggerate capitalism’s weaknesses and ignore its strengths is both a distortion of its worth and uncharitable.[vi] This line of thinking also reflects a profound lack of understanding of the human condition, human nature, and economics;[vii] ignores counter-evidence, and is founded on myths.[viii] (Whether the Pope is falling for myths about inequality or exploiting his flock’s belief in these myths for political ends is something I will leave for the Pope and God to sort out among themselves.)

The Pope purports to understand economics. For example, he says,

“. . . some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.” I’ve addressed what is wrong with his statement about “trickle down” before.[ix]

That the Pope fails to see the vastly greater amount of “greater justice and inclusiveness in the world” that relatively free-market countries have caused around the globe compared to any other economic system reveals blindness of the light of capitalism. Unlike the Pope is doing here, Jesus urged his followers to count their blessings rather than their tribulations.

The Pope also appears to believe any system that results in significantly unequal incomes is unjust. According to that logic, it would be unjust not to award As to everyone regardless of how much the student studied for the exam or the student chose not to answer any of the test questions. More than being faulty logic, it ignores the greater unjustness of the inequality of power among the participants in more collectivist economic systems he would substitute for the capitalist systems he decries. By wanting to redistribute wealth, the Pope makes clear that he believes wealth is good for people to have. He makes a positive passing reference to the vastly improved standards of living of those who live in the improved world that is brought about by free markets, “We can only praise the steps being taken to improve people’s welfare in areas such as health care, education and communications.” [x] However, he assigns little significance to it. (Talk about ungratefulness!)

Finally, he is wrong to say that advocates of free markets “expresses a crude and naïve trust in the goodness of those wielding economic power. . . .” Advocates of free markets fully understand that people who “wield power” (a misnomer)[xi] in free markets are often bad people. Because the case for free markets does not depend on the benevolence or goodness of anyone,[xii] the naivete or sophistication of free-market advocates concerning the goodness of market participants is irrelevant in deciding what economic system best serves humans.

With the Pope’s premises about free markets being false, the Pope’s message concerning economic policy based on those premises leads to his wrong judgments about the morality of free-market capitalism. Let’s sort out some of how the Pope’s judgments concerning the morality of free markets reveal that the Pope is especially fallible concerning economics.

Let’s start with a fundamental proposition. The essence of free market capitalism[xiii] (a pure form of which has never existed countrywide and likely never will[xiv]) is one party simultaneously, voluntarily, and freely trading something it owns for something another party owns. Such a trade only occurs when each party prefers what it will receive by the trade over what it must giving up to make the trade. Trading makes each party better off (“wealthier”). Consider a simple example: Party A has ten apples, and Party B has ten oranges. For most people, a diet of all apples or all oranges is less enjoyable than a diet of some apples and some oranges. Free markets best facilitate mutually beneficial exchanges for the benefit of all involved.[xv] Hence, free markets facilitate wealth creation.

In no way is the above described fundamental feature of free markets immoral or “dog eat dog.” Exchanges can, of course, produce ancillary negative effects. It is not, however, the free market that creates the evil acts the pontiff laid at the feet of free markets. It is the sins of participants in free markets that create the ancillary evils. Such sins include greed,[xvi] misrepresentation, breaches of promises, the insufficient respect for or enforcement of the law, individual or governmental incompetence, government favoritism (corruption) that advantages one party over others,[xvii] and activities that create more negative than positive effects on third parties (“externalities”), e.g., pollution. Those things are immoral.[xviii] But those things are human fallibilities that are present in all economic/political systems. To blame the system for the sins of the participants is illogical, unjust, and misguides the flock. To create false hope that sins would be less prevalent under some other system without solid proof for that proposition is itself sinful.

However, it’s worse than even that. The economic/political system the Pope proposes is a more collectivist than free market capitalism. Collectivist systems have consistently produced far more immorality and far worse earthly results for the unfortunate average income and poor people who find themselves in those systems. (Venezuela is a dramatic recent example.)[xix] During the 20th century, Communist/Socialist/collectivist governments intentionally killed a minimum of 85-100 million non-combatants. Communist/Socialist/collectivist governments unintentionally killed or enslaved countless more. The deaths of combatants in wars between and against collectivist countries adds mightily to the totals. Free market systems have produced nothing close to comparable. On the contrary.[xx]

The Pope is doing God’s work when he focuses on how poorly humans behave in free market economic/political systems, and to shine a light on sinners and how they should mend their ways. The Pope is doing the work of the devil when he speaks without regard to the facts that compared to any other system known to man free markets restrain human fallibilities and sins and reward human morality. Conversely, other systems, especially the one the Pope promotes, consistently become tyrannical, which results in far more human suffering. To condemn something because it falls short of his standards (paradise?) when his proposed alternative will cause humans to fall even farther from paradise is damnable.

The Pope speaks of the immorality of income inequality, but his focus has less to do with the excess of wealth of some than the lack of wealth of the poor. Of course, there would be less income inequality if everyone were poor, but the Pope’s homily ignores how much less wealth humans will produce as incomes are forced to be more equal. It appears that he incorrectly assumes that it is possible for humans to have their cake (have a system that improves the standards of living of everyone, especially the poor) and eat it too (eliminate the engine that creates motivation to create the desired improvements and the wealth to develop and deliver those improvements).[xxi] He appears oblivious to the fact that the primary source of wealth is free market exchanges (which inevitably create income inequality).[xxii] As I explained in “Wealth,” “Wealth cannot solve all human problems—not by a long shot. It would be hard, however, to find a cause or a pursuit of knowledge that would not benefit from more money behind it.”

The Pope will slow the amazing recent worldwide drop in extreme poverty by[xxiii] throttling the creation of wealth. As Joseph Kaboski put it in the Freakonomics podcast cited above, “. . . we’ve never seen an example of any country that has escaped extreme poverty because of foreign aid or NGOs [wealth redistribution]. . . . More people have escaped extreme poverty in the past 25 years in part through the growth of China and India than in any period of human history. And all of these miracle countries — “miracle” in the economic sense, China, South Korea, Taiwan, Hong Kong, Singapore, Chile down in Latin America — they’ve all grown through, high levels of trade, market economies. And that’s important.”[xxiv]

Income inequality can and often does create societal problems. Reasonable cases can be made for some wealth redistribution to mitigate some of those problems. The Pope’s attempt at such a case, however, was thin on substance and sound economics and heavy on guilting the rich and fomenting disgruntlement by the poor without offering a realistic and beneficial alternative to free market capitalism. The Pope led his flock astray by omitting any clue as to how to prevent redistribution from inflicting infernal harm on the poor and slow wealth creation for the benefit of all humans.[xxv] Instead of showing a way to the truth, the way, and the light, the Pope clears a path for the tyrannical wolves who inevitably control collectivist economic/political governments.

Also absent from the Pope’s homily is an acknowledgment of the power of free markets to elicit moral behavior. Diedre McCloskey’s 600+ page tomb, “The Bourgeois Virtues: Ethics for an Age of Commerce,” explains how in free markets the virtues of Faith, Hope, Love, Justice, Courage, Temperance, and Prudence are advantageous to entrepreneurs. Because they are advantageous, free markets incentivize entrepreneurs to hold and exhibit those virtues to attract and keep customers and employees. Entrepreneurs primarily focus on her fellow man’s needs and desires, and to produce the things that will fulfill those needs and desires at a lower price than their competitors. To succeed in such endeavors requires faith, hope, and treating customers, suppliers, partners, and employees fairly (so those people will want to continue working with the business person in the future) and it takes courage, temperance, and prudence succeed in serving one’s fellow man.

Unlike dogs who might eat each other, successful business people understand that they cannot become exclusively focused on gaining the most advantage out of every transaction. Winning individual games is far less advantageous to a business person than winning what Jordan Peterson calls “the game of games”[xxvi] or “The Game of Life.”[xxvii] The gist is of this idea is that science has discovered that if a mammal wins every game, no one will want to play with that mammal for very long and word spreads about bad sports. Consequently, the optimal strategy for an individual is to play games in a way that causes other individuals to want to play with him. Consequently, to be successful business people (the people who the Pope alleges have too much power) cannot overplay their so-called “power.” They must play the game of business so that customers will want to continue to “play” with them over time.

Of course, there are businesspeople in free markets who succeed despite being unfair or cutting corners, but they are not the norm and are less likely to succeed. Those people, however, are the norm and are more likely to succeed in many other systems—especailly the one the Pope advocates. Free markets are far from perfect solutions, [xxviii] but they are far better at fostering virtues (morality) than any other known economic/political system.[xxix]

They know that having a good reputation as to honesty, trustworthiness, fairness, and caring about customers is essential to success. The best way to gain and retain that reputation is to be honest, trustworthy, fair and care about customer’s wants and needs and to serve those wants and needs better and/or at a price lower than their competitors. If that is not pure morality, it is probably as close to it as a vast number of humans are likely to get. Free market systems reward that. Because collectivist systems do not reward those virtues nearly as well, the people are far less likely to be virtuous. Absent a virtuous cycle, all but the very powerful remain poor and do fewer good works.

 


[i] I put “progressives” in quotes to register my quarrel with people whose policies cause our political system to progress toward to something akin to the divine right of kings (tyrants). See “The Road to Serfdom.”

[ii] See “Pontiff-icating on the Free-Market System: A New Freakonomics Radio Podcast.”

[iii] See “5 times Holy Father caused major controversies with his comments.”

[iv] See “POPE FRANCIS HUGS, COMFORTS LITTLE BOY WHO ASKED IF HIS ATHEIST DAD WAS IN HEAVEN

[v] The word “exclusion” as the Pope is using it suggests that the economic system bars people from participating in it. An explanation as to why that is in no way is that true will have to await a future blog.

[vi] There has never been or ever will be an economy in which people do not get killed. So to say capitalist economies kill is shallow pontification. Even if one felt compelled to point out that people get killed by capitalist economies, to be fair and charitable, one should also account for the lives save, improved, and extended by capitalist societies. Compare the lifesaving and life-improving drugs and medical procedures that have been invented, developed, produced, and delivered to people around the world by more capitalist economies to those of less capitalist economies, and more capitalist societies come out a runaway winner. The vastly larger number of people intentionally or incompetently killed in collectivist political/economic systems compared to capitalist political/economic systems and the Pope’s pontification becomes ludicrous when it comes to morality.

The idea that people are excluded or are “marginalized” by capitalist economies is ludicrous as well, but a discussion of that must await a future blog post.

The phrase “dog eat dog” gratuitously maligns free market capitalism, but if misleads. (Do you feel eaten when you go to the grocery store and trade your dollars for your daily bread?) The Pope, however, appears oblivious to the fact that the alternative to “dog eat dog” capitalism is not the garden of Eden. History teaches us that collectivist economies are “monster eats citizens” or “citizens eat zoo animals” by comparison.

[vii] See Jordan Peterson: Warren Buffett and Wealth” and “Income Inequality Is More Than It’s Cracked Up To Be.”

[viii] See “5 Inequality Myths” and “Is Capitalism Moral?

[ix] See “Trickle Down.”

[x] Pope Francis, EVANGELII GAUDIUM” at 52.

[xi] Unless a business gains special favors from government (e.g., get the government to force people to buy their products), businesses can only offer to sell their goods or services, they are powerless to force anyone to buy anything. The “power” to which people like the Pope refer comes from the desire of the buyer to obtain what she wants. It is not the seller’s fault that the value of the item on offer is higher than she can afford or prefers to pay.

Consequently, businesspeople do not have the power to force anyone to do anything unless the customer does not live up to her end of the deal or the government says the businessperson can force something. That is government power at work—not business power. Government power is even more pervasive in more collectivist economies.

[xii]It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Adam Smith.

[xiii] See “Milton Friedman: The Essence of Capitalism.”

[xiv] A genuinely free market would not be regulated by a government other than with respect to the enforcement of contracts, and private companies would issue money.

[xv] Note that less free markets diminish the benefits of trade. For example, consider what would happen if party A would rather have ten oranges than ten apples, and party B would prefer ten apples to ten oranges, and a government proposes a 10% exchange tax. After an exchange between the parties, each party would wind up with only nine pieces of fruit. Consequently, the probability the wealth-creating trade will happen diminishes, i.e., the likelihood of wealth being created diminishes. (That loss associated with taxes is mitigated to the extent the tax is efficiently deployed to serve a public good. Sadly, however, in this process government inefficiency, waste, and corruption ensures a net loss of wealth in total.)

[xvi] Which may or may not be what you think it is. See “Greed.”

[xvii] For example, tariffs. See “Tariffs Transfer Wealth From the Poor To The Rich.”

[xviii] This overstates the case with respect to some circumstances. For example, almost all trades create wealth for the parties involved. The creation of wealth is a good thing that in theory helps every human in the world to a small degree individually, but potentially to a large degree collectively. In other words, essentially all trades create positive extermalies. Some trades create negative externalities. In many cases people who incure negative externalities can obtain compensation from the parties to the deal, in other cases they cannot. Moreover, positive externalities generally inure to the benefit of everyone, while negative externatities are often more localized. So even in cases where sume of the positive externalities are much greater than the sum of the negative externalities, some people can suffer net losses while other enjoy net gains. In short, while the statement I made is useful to understanding, it is not universally accurate.

[xix] See “Venezuela’s Starving People Are Now Eating The Zoo Animals – The Parisians Had The German Excuse.”

[xx] See “If Goods Don’t Cross Borders…

[xxi] See “More On Two Paths for America.”

[xxii] See “Why a Very Few Have SOO Much – Prof. Jordan Peterson Explains Pareto Distribution.”

sup>[xxiii] See “‘How To End Poverty in 15 years’ Hans Rosling – BBC News,” “Hans Rosling’s 200 Countries, 200 Years, 4 Minutes – The Joy of Stats – BBC Four” and “Dead Wrong® with Johan Norberg – Causes of Poverty Reduction.”

[xxiv] See “Pontiff-icating on the Free-Market System: A New Freakonomics Radio Podcast.”

[xxv See “Welfare programs that do more harm than good.”

[xxvi] See “Jordan Peterson Rats and Morality.”

[xxvii] See “The Game of Life.”

[xxviii]  As if there were such a thing as solutions. See “Solutions.”

[xxix] For a summary of these thoughts see “Bourgeois Virtues?,” also by Diedre McCloskey.

The Benefits of Work to the Worker—A Timeless Issue

As I mentioned in The Luminous and the Shady, Victor Hugo’s “Les Misérables” contains many timeless insights. The passage from “Les Misérables” quoted below came to mind as I was listening to a recent EconTalk interview of Edward Glaeser, a Harvard economics professor, titled, “Edward Glaeser on Joblessness and the War on Work” in which two economists discuss aspects of the value of work.

My earlier post highlighted Victor Hugo’s insight as to the unhelpfulness of the distinction between “the fortunate and the unfortunate.” Here I juxtapose another Victor Hugo insight about the benefits of work to the worker with an excerpt from the above-mentioned podcast.

Economists often focus on the benefits to society of people working. In “Wealth” I posited a moral argument for work that was simpatico with the typical economist perspective. [i] The podcast interviewer, Russ Roberts (See AUTHOR’s NOTE below) says some things simpatico with that perspective. This post presents a perhaps more important perspective on the subject—the non-monetary, non- moral benefits to the worker—which is the perspective of Hugo and Glaeser.

The point made by Glaeser in the quote below is a modern-day, science-based perspective that is noticeably different from, but simpatico with Victor Hugo’s point in the first passage quoted below. In short, while economist typically focus on the importance to an economy that people wanting jobs and that people who want jobs finding jobs, Glaeser claims that the lives of people who have jobs are, on average, better on many very important dimensions than the lives of people who do not have jobs. For example, Glaeser says, “So, if we look at life satisfaction, happiness, we look at divorce, we look at opioid use, we look at disabilities of a variety of different forms, they are found disproportionately–wildly disproportionately–among the ranks of the jobless.”  Hugo highlights the poisonous fruits of idleness in a very different but extremely powerful way. I hope you enjoy the contrast, and the similarities of the perspectives of Hugo and Glaeser, and appreciate their importance.

🙛

AUTHOR’S NOTE: If you are not aware of EconTalk podcasts, you are missing out on something consistently enlightening and entertaining. It is a weekly talk show hosted by Russ Roberts (a professor, economist, author, poet, rap video producer, and scholar) that “features one-on-one discussions with an eclectic mix of authors, professors, Nobel Laureates, entrepreneurs, leaders of charities and businesses, and people on the street. The emphases are on using topical books and the news to illustrate economic principles.”

I strongly urge you to give EconTalk a try. To get a good sense of the show, I recommend that you start with this podcast: Munger on John Locke, Prices, and Hurricane Sandy. Though it was recorded 2012, the ideas discussed in this podcast are timeless and apply to what occurred during and after Hurricane Harvey. (Sadly, the economic illiteracy that induces government officials to act in ways that make matters worse during disasters has changed little since that podcast.)

🙛

An excerpt from Les Misérables, Volume IV – Book Fourth. Chapter II. Mother Plutarque finds no Difficulty in explaining a Phenomenon, Pg. 93:

THE SET UP: While on an evening stroll down a deserted road, aged and slow Jean Valjean was attacked from behind by Montparnasse, a young, agile and strong gang member with an intent to rob. An instant later Valjean had the thug pinned to the ground. Valjean kept Montparnasse pinned until he quit struggling and appeared to be dead. Then Valjean stood up and said:

“Get up.”

Montparnasse rose, but the goodman held him fast. Montparnasse’s attitude was the humiliated and furious attitude of the wolf who has been caught by a sheep. . . .

The goodman [Jean Valjean] questioned, Montparnasse replied.

“How old are you?”

“Nineteen.”

“You are strong and healthy. Why do you not work?”

“It bores me.”

“What is your trade?”

“An idler.”

“Speak seriously. Can anything be done for you? What would you like to be?”

“A thief.”

A pause ensued. The old man seemed absorbed in profound thought. He stood motionless, and did not relax his hold on Montparnasse.

Every moment the vigorous and agile young ruffian indulged in the twitchings of a wild beast caught in a snare. He gave a jerk, tried a crook of the knee, twisted his limbs desperately, and made efforts to escape.

The old man did not appear to notice it, and held both his arms with one hand, with the sovereign indifference of absolute force.

The old man’s reverie lasted for some time, then, looking steadily at Montparnasse, he addressed to him in a gentle voice, in the midst of the darkness where they stood, a solemn harangue, of which Gavroche did not lose a single syllable:—

“My child, you are entering, through indolence, on one of the most laborious of lives. Ah! You declare yourself to be an idler! prepare to toil. There is a certain formidable machine, have you seen it? It is the rolling-mill. You must be on your guard against it, it is crafty and ferocious; if it catches hold of the skirt of your coat, you will be drawn in bodily. That machine is laziness. Stop while there is yet time, and save yourself! Otherwise, it is all over with you; in a short time you will be among the gearing. Once entangled, hope for nothing more. Toil, lazybones! there is no more repose for you! The iron hand of implacable toil has seized you. You do not wish to earn your living, to have a task, to fulfil a duty! It bores you to be like other men? Well! You will be different. Labor is the law; he who rejects it will find ennui his torment. You do not wish to be a workingman, you will be a slave. Toil lets go of you on one side only to grasp you again on the other. You do not desire to be its friend, you shall be its negro slave. Ah! You would have none of the honest weariness of men, you shall have the sweat of the damned. Where others sing, you will rattle in your throat. You will see afar off, from below, other men at work; it will seem to you that they are resting. The laborer, the harvester, the sailor, the blacksmith, will appear to you in glory like the blessed spirits in paradise. What radiance surrounds the forge! To guide the plough, to bind the sheaves, is joy. The bark at liberty in the wind, what delight! Do you, lazy idler, delve, drag on, roll, march! Drag your halter. You are a beast of burden in the team of hell! Ah! To do nothing is your object. Well, not a week, not a day, not an hour shall you have free from oppression. You will be able to lift nothing without anguish. Every minute that passes will make your muscles crack. What is a feather to others will be a rock to you. The simplest things will become steep acclivities. Life will become monstrous all about you. To go, to come, to breathe, will be just so many terrible labors. Your lungs will produce on you the effect of weighing a hundred pounds. Whether you shall walk here rather than there, will become a problem that must be solved. Any one who wants to go out simply gives his door a push, and there he is in the open air. If you wish to go out, you will be obliged to pierce your wall. What does every one who wants to step into the street do? He goes downstairs; you will tear up your sheets, little by little you will make of them a rope, then you will climb out of your window, and you will suspend yourself by that thread over an abyss, and it will be night, amid storm, rain, and the hurricane, and if the rope is too short, but one way of descending will remain to you, to fall. To drop hap-hazard into the gulf, from an unknown height, on what? On what is beneath, on the unknown. Or you will crawl up a chimney-flue, at the risk of burning; or you will creep through a sewer-pipe, at the risk of drowning; I do not speak of the holes that you will be obliged to mask, of the stones which you will have to take up and replace twenty times a day, of the plaster that you will have to hide in your straw pallet. A lock presents itself; the bourgeois has in his pocket a key made by a locksmith. If you wish to pass out, you will be condemned to execute a terrible work of art; you will take a large sou, you will cut it in two plates; with what tools? You will have to invent them. That is your business. Then you will hollow out the interior of these plates, taking great care of the outside, and you will make on the edges a thread, so that they can be adjusted one upon the other like a box and its cover. The top and bottom thus screwed together, nothing will be suspected. To the overseers it will be only a sou; to you it will be a box. What will you put in this box? A small bit of steel. A watch-spring, in which you will have cut teeth, and which will form a saw. With this saw, as long as a pin, and concealed in a sou, you will cut the bolt of the lock, you will sever bolts, the padlock of your chain, and the bar at your window, and the fetter on your leg. This masterpiece finished, this prodigy accomplished, all these miracles of art, address, skill, and patience executed, what will be your recompense if it becomes known that you are the author? The dungeon. There is your future. What precipices are idleness and pleasure! Do you know that to do nothing is a melancholy resolution? To live in idleness on the property of society! to be useless, that is to say, pernicious! This leads straight to the depth of wretchedness. Woe to the man who desires to be a parasite! He will become vermin! Ah! So it does not please you to work? Ah! You have but one thought, to drink well, to eat well, to sleep well. You will drink water, you will eat black bread, you will sleep on a plank with a fetter whose cold touch you will feel on your flesh all night long, riveted to your limbs. You will break those fetters, you will flee. That is well. You will crawl on your belly through the brushwood, and you will eat grass like the beasts of the forest. And you will be recaptured. And then you will pass years in a dungeon, riveted to a wall, groping for your jug that you may drink, gnawing at a horrible loaf of darkness which dogs would not touch, eating beans that the worms have eaten before you. You will be a wood-louse in a cellar. Ah! Have pity on yourself, you miserable young child, who were sucking at nurse less than twenty years ago, and who have, no doubt, a mother still alive! I conjure you, listen to me, I entreat you. You desire fine black cloth, varnished shoes, to have your hair curled and sweet-smelling oils on your locks, to please low women, to be handsome. You will be shaven clean, and you will wear a red blouse and wooden shoes. You want rings on your fingers, you will have an iron necklet on your neck. If you glance at a woman, you will receive a blow. And you will enter there at the age of twenty. And you will come out at fifty! You will enter young, rosy, fresh, with brilliant eyes, and all your white teeth, and your handsome, youthful hair; you will come out broken, bent, wrinkled, toothless, horrible, with white locks! Ah! my poor child, you are on the wrong road; idleness is counselling you badly; the hardest of all work is thieving. Believe me, do not undertake that painful profession of an idle man. It is not comfortable to become a rascal. It is less disagreeable to be an honest man. Now go, and ponder on what I have said to you. By the way, what did you want of me? My purse? Here it is.”

And the old man, releasing Montparnasse, put his purse in the latter’s hand; Montparnasse weighed it for a moment, after which he allowed it to slide gently into the back pocket of his coat, with the same mechanical precaution as though he had stolen it.

All this having been said and done, the goodman turned his back and tranquilly resumed his stroll.

🙛

An excerpt from “Edward Glaeser on Joblessness and the War on Work” with a different, modern take on the value of work to the worker (If you would rather listen to the conversation, click on the link above and go to the 60 minute mark):

Russ Roberts: We opened with–you raised the question early on about meaning in life. A lot of people are pushing for Universal Basic Income as a way to soften the blow of joblessness from technology, if it is coming, if it is as bad as it might appear to be, for some. Sounds like you’re not a big fan of that solution.

Edward Glaeser: A world in which 30%, 40% of America all lives on the dole? Is that a good world?

Russ Roberts: Well, they wouldn’t be living on the dole. They’d be living on the 70%. It’s important to–‘the dole’ always makes it sound like it’s coming from somewhere else. It’s coming from the 60-70% who are working.

Edward Glaeser: That’s right. For sure. For sure. But I think it’s not just an issue of–yes. I mean, I’m less focused on the fact that we would have to–assuming that you and I were still among the working–that we would have to pay for it than I am that it’s just–it’s a horror for the 30%. It’s not just that the 70% have to pay for it. I mean, you’re telling them their lives are not going to be ones of contribution; their lives aren’t going to be producing a product that anyone values? That they are just going to be taking a check from somewhere else? How in the world does that not lead to incredible social problems within the United States? How does that 30% not become, does not, bored, become incredibly resentful and hostile towards the 70% that write the checks? This is–I think this is a horror story that has been dreamed up. And it’s one that, you know, just not the slightest knowledge of what human beings value in their lives. The idea that happiness just involves getting a check seems crazy to me.

Russ Roberts: Yeah. I point out in an essay that if you teach your students that utility maximization is–that the essence of economics and the essence of life is maximizing utility subject to an income constraint, you might tend to overemphasize the material relative to the nonmaterial. We do tend, with our focus on utility maximization, income, GDP [Gross Domestic Product]–and I say this as an economist who often has written on the fact that utility can include non-monetary things, of course. But, we do tend to focus on the material. And, our policy advice overwhelmingly focuses on the material. So, I think you and I are in a minority in worrying about, as economists, worrying about whether a world where 30% or 40% of Americans are not working is, might be a not-so-healthy place.

Edward Glaeser: I think that’s right. But I think it’s not very hard once you get people thinking about this and once you get people looking at the data of what the lives of the jobless are, to move them in this area. When you tell your students–when you talk to your students about this–right? When you talk to your students about utility, and purpose in life, they don’t immediately push back and say, ‘Oh, no, the point of my life is to maximize cash.’ I’ve never once had an undergraduate who said that was the right answer. I think you’re right: Our profession has done some bad in terms of making it seem as if cash is the dominant thing in the world. It’s an important part of the world; but it’s certainly not the dominant–certainly not a wise goal for unique maximization.

Russ Roberts: Yeah. I worry that we’re different, you and me. You and I are different, in the following way. I don’t play the lottery. I’m not going to ask you the personal question whether you play the lottery, Ed. But I don’t play the lottery. But if I did play the lottery and I won, I think I’d still keep my job. I like my job. I like what I do; and I like–I like talking to Ed Glaeser, on a Monday morning. It’s a treat. So, I think I’d still do EconTalk if I were filthy rich. But maybe I’m different. A lot of people, at least think that they are playing the lottery so they can retire, and live a life of leisure. Certainly, Aldous Huxley in Brave New World, and others, other writers of fiction, have tried to deal with the fact that people maybe aren’t so eager to find meaning in their life. They are maybe happy to be on TV, or soma–the drug of Brave New World–or whatever it is that makes us forget, or makes us high, or whatever it is. What do you think?

Edward Glaeser: Uh, I don’t know. It seems like these people who, as we said, are living with some other person in their house; they’ve got, you know, it’s not that they are starving; their family income is $42,000, if they’re in the long-term jobless or over 60[?] in the short-term jobless; and yet, their self-reported life satisfaction is pretty low. Their suicide rates are pretty high. It’s hard to look at the data and be convinced that the Huxley vision was particularly sensible. Now, maybe–and I’ve heard this line from Silicon Valley–maybe we could restructure society in some kind of way that gives people ways to contribute to the world even when they’re not working and enables them to do so in ways that are more pleasant than their old jobs. I just have no faith that America will be able to pull that off. I have no faith in our–I mean, as an economist, I certainly, I believe that culture matters; but I certainly have no idea how to change culture. Whereas, if you are going to work every day, it’s not just that you are doing something that someone’s likely to be giving you positive feedback for, but you are also surrounded by your mates. You are surrounded by people around you who give you some sense of social connection, and that’s also part of why having a job really matters.

Just to make clear what I meant about utility maximization in the material world: In theory, most economic models that we teach our students, and that we use, assume that your satisfaction–your utility–is the same whether you earn your income or whether it’s a check from the government. And I agree with you 100%: I think that’s probably not true. And I don’t think we understand that very well, how it’s not true. And I think sociologists–I don’t know if they understand it pretty well, but that’s what they should–in theory, that’s what they should be doing; I don’t know if we should be doing it. But, we clearly don’t, I think, understand that difference; and I think we ought to think about it.

AUTHOR’S NOTE: Timeless!


[i] “For example, stay-at-home parents not only create human capital when they raise healthy and capable children (and human capital is the ultimate resource), they facilitate the production of wealth by the parent who works outside the home.”

The Luminous and the Shady

I hope that this blog is what it set out to be, “A place to seek clarity on timeless issues and issues of the day.” Over the last ten years or so I’ve read at least one “classic” novel every year. I’m constantly amazed at the insights great minds of the distant past had, how well they presented those insights, and how applicable those insights are to today’s world.[i]

I’m currently reading Victor Hugo’s “Les Misérables.” VOLUME IV, BOOK SEVENTH of the novel contains a passage that fits nicely among the messages I aim to convey.

Enjoy!

🙛

Let us have compassion on the chastised. Alas! Who are we ourselves? Who am I who now address you? Who are you who are listening to me? And are you very sure that we have done nothing before we were born? The earth is not devoid of resemblance to a jail. Who knows whether man is not a recaptured offender against divine justice? Look closely at life. It is so made, that everywhere we feel the sense of punishment.

Are you what is called a happy man? Well! you are sad every day.

Each day has its own great grief or its little care. Yesterday you were trembling for a health that is dear to you, to-day you fear for your own; to-morrow it will be anxiety about money, the day after to-morrow the diatribe of a slanderer, the day after that, the misfortune of some friend; then the prevailing weather, then something that has been broken or lost, then a pleasure with which your conscience and your vertebral column reproach you; again, the course of public affairs. This without reckoning in the pains of the heart.

And so it goes on. One cloud is dispelled, another forms.

There is hardly one day out of a hundred which is wholly joyous and sunny. And you belong to that small class who are happy!

As for the rest of mankind, stagnating night rests upon them.

Thoughtful minds make but little use of the phrase: the fortunate and the unfortunate. In this world, evidently the vestibule of another, there are no fortunate.

The real human division is this: the luminous and the shady.

To diminish the number of the shady, to augment the number of the luminous,–that is the object. That is why we cry:

Education! science! To teach reading, means to light the fire; every syllable spelled out sparkles.

However, he who says light does not, necessarily, say joy.

People suffer in the light; excess burns. The flame is the enemy of the wing. To burn without ceasing to fly,–therein lies the marvel of genius.

When you shall have learned to know, and to love, you will still suffer. The day is born in tears. The luminous weep, if only over those in darkness.


[i] For a modern stab at a snippet of the issues addressed by Hugo, see “Life is suffering, so get your act together!