Monday, March 28, 2016

My Bill of Realities

Governments are instituted among men to protect us against enemies, foreign and domestic. But all good things tend to succumb to mission creep, and so it is that governments are now also expected to protect us against the enemies of free trade and immigration.

Here's a piece at Bloomberg about a couple devastated by NAFTA. Randall and Brenda Williams of Scottsdale, Kentucky worked at a plant making electric motors at A.O. Smith, each earning over $16 per hour until the factory closed and Smith started buying motors from Mexico. Today Randall works at a farm supply store and Brenda works at the high school cafeteria.

What do we do about folks like that? Well, we could help them. But how?

Let's be clear about one thing. You could repeal NAFTA and halt immigration but you still would not end the migration of manufacturing from the US to the low-wage areas of the world. We could slow it down. So we are still going to have Randall and Brenda Williamses. Because the folks working in those Third-World plants are right off the farm, and they think that the coolest thing in the world is getting to work indoors.

What could we do? We could reduce immigration; we could raise tariffs a bit. We could help workers laid off; we could help with relocation expenses.

But of course, as Barack Obama told a meeting of donors in 2008, most of the people laid off from some electric motor factory in the boondocks will try to hang on, bitter clingers, using welfare and disability, because they really can't imagine a life away from their old home town. By the way, there is no mention of the Williams' children in the article. I wonder what happened to them.

The best solution for the Williams couple would have been for A.O. Smith to cut their wages to the point where it wouldn't quite make economic sense for them to close the plant. But that is one thing that you cannot do in this world. Ever since the industrial revolution, workers have reacted to "cuts" with rage. So instead, employers just close uneconomic factories. Workers demand and get their "good jobs at good wages" and the union and the benefits until the day that the plant closes and the jobs are gone.

You can rail about NAFTA, about immigration, about greedy bankers, about uncaring CEOs outsourcing American jobs all you like. You can fiddle about at the margins with political promises and handouts to favored constituencies.  But in the end you have to deal with reality.

Reality #1. In the end, you have to mark your wage or your price to market.

Marxists like to talk a good line about "commodification," the idea that we now treat wages and prices as if they were real commodities, available for sale on the market. But, to coin a phrase, most of Marxism is "mystification" and their talk about commodification and reification is just that. Wages and prices are just another thing that we have abstracted out of the real world and understood with resort to theory. Just like gravity and quantum mechanics. Today we survive and thrive by constant adaption to the dictates of the market. Any politician or activist that pretends otherwise is lying.

Reality #2. Capitalism is the permanent revolution of "creative destruction."

In the Garden of Eden of the Marxists, people worked "for use" and were not subject to the vagaries of the exchange market. But that meant, of course, that a bad harvest meant that they starved. There was no "creative destruction" in the good old days. There was simply disease and starvation. The implacable conservatism of the peasant was witness to this. You kept doing things the same old way because otherwise you starved. But today we survive by constant adaption to the dictates of the market. Any politician or activist that pretends otherwise is lying.

Reality #3. You may not like capitalism but capitalism likes you.

In the Great Enrichment of the last 200 years under capitalism, per-capita income after inflation has risen from $1-3 per day to over $100 per day in the capitalist countries. There has been nothing like this before in history. Ever. And when a country adopts capitalism, like China in 1978 and India in the 1990s, per capita income immediately starts to rise. Fast. Any politician or activist that pretends otherwise is lying.

Reality #4. There is no free lunch.

If you are riding high, with a "good job at good wages" it does not mean that you are set for life. The whole point of capitalism, the way we got from $1-3 per day to $100 per day, is from constant economic revolution. In fact, if you are enjoying high wages you should think that you are vulnerable, because your high wages mean that people are thinking and working right now on some brilliant idea to economize on people like you. Any politician or activist that pretends otherwise is lying.

Reality #5. There is no such thing as "we are owed."

Don't think about what the world owes you. Think about what you can give to the world. That is the basic principle of economic life that goes back to Adam Smith and the invisible hand. Think about what you could do to serve the world, with a new service or a new product, or just your labor. Then you will find out if you have a good idea or not. If it turns out that your idea is not good enough, then the world is telling you that you should come up with a better idea. Any politician or activist that pretends otherwise is lying.

Capitalism is a funny thing. It has buried humans in a cornucopia of wealth and health. But everyone hates it. I understand why. Capitalism and its price system amount to a constant cold shower of reality, and cold showers are good for other people, but a bit too bracing for ourselves.

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