On Wed, Sep 29, 2004 at 10:11:34AM -0700, Warren Ockrassa wrote:
[ snipped a lot of comments that completely missed the points Brad was
making ]
> DeLong's argument sounds very suspiciously like some of those advanced
> to support slavery, but that's hardly surprising, as toiling day
> after day making mats for a corporation, with no hope whatsoever for
> advancement or escape, is, in essence, just that.
...
> What's being carefully ignored by DeLong, though, is the inverse
> pyramid. That a vast amount of capital is acquired by relatively few.
> This is a significant problem. Every economy that has *ever* existed
> with wealth concentrated among only a very few has been fundamentally
> unequal, fundamentally undemocratic, and in the main feudal. DeLong
> is arguing in favor of a feudalistic social structure that is covered
> with a very thin veneer of democracy (at best; at worst he's arguing
> for an economic colony-state), and it's reprehensible.
These comments are amazing to anyone who knows Brad's biography and
opinions. Please note that Brad was Deputy Assistant Secretary for
Economic Policy 1993-1995 (i.e., during the Clinton Administration).
During a time when economic policy was exactly the opposite of what you
accuse Brad of advocating above. In addition, Brad regularly criticizes
the Bush II policies of tax cuts for the wealthy and not doing enough to
stimulate jobs.
> Used to be that liberals were bashed for wanting to "throw money at a
> problem" to make it go away. I'm unable to distinguish a difference
> here. Spend money buying fourth world goods and the problems in those
> countries will evaporate? Piffle.
>
> The problem with the "do something worse than..." argument is that
> it's totally hollow. If an exploitive, wealthy culture moves in and
> abuses the local economy for its massive gain (and minimal recompense
> is offered to the laborers), that culture has effectively become a
> monopoly -- on *work source*.
I'm guessing not from your comments that you are not familiar with the
economic principle of comparative advantage.
Here's a simple model. Assume an Indian can produce either 6kg of coir
mats per day or 2kg of food per day. An American can produce 24kg of
food per day or 12kg of coir mats per day. The American has an absolute
productivity advantage in both products -- regardless of whether the
American chooses to make mats or food, the American will make more than
the Indian. However, since the Indian has a comparative advantage of
mats and the American has a comparative advantage in food, it STILL
BENEFITS _BOTH_ PARTIES TO TRADE. The American should make food and the
Indian should make mats. (It will even work out for the good in less
extreme examples than this...try it!)
Equivalence Table
-----------------------------------------------
MASS PER DAY (kg) | LABOR PER KG (days)
Indian American | Indian American
===============================================
Mats | 6 12 | 1/6 1/12
Food | 2 24 | 1/2 1/24
-----------------------------------------------
To see why both parties benefit, you need to look at the value of mats
and food to each person. To the American, the opportunity cost of 1kg
of mats is 1/12 of a day's work, and the cost of 1kg of food is 1/24
of a day. In contrast, the Indian values 1kg of mats at 1/6 of a day
and 1kg of food at 1/2 of a day. If the American is offered a 1kg mat,
the American would be willing to pay anything less than 1/12 of a day's
work, which for the American is equal to 2kg of food. For example,
the American would happily trade away 1kg of food to get a 1kg mat,
believing this to be a great bargain. To the Indian, 1kg of food is
worth 1/2 of a day, which for the Indian is equal to 3kg of mats. In
other words, the Indian would be willing to trade away anything less
than 3kg of mats to receive 1kg of food. When the American offers to
provide the Indian with 1kg of food and only asks for a 1kg mat in
return, the Indian is all too happy to make the trade (the Indian would
even have been willing to provide 2kg of mats for the 1kg of food).
Indeed they are so happy, that they do the same trade a total of 3 times
that day. At the end of a hard day's work and trade, the Indian has 3kg
of mats (having made 6kg and traded away 3kg) and 3kg of food from the
American, which is equivalent to TWO DAYS OF WORK (1/6 x 3 + 1/2 x 3)
for the Indian! And the American has 21kg of food (24 - 3) and 3kg of
mats, which is equivalent to 1/24 x 21 + 1/12 x 3 = 1 1/8 days work.
Both finish the day with product worth MORE TO THEM THAN ONE DAY'S WORK!
I think a lot of people get confused in thinking about the situation
because the complexity of real world trade can obscure the fundamental
principles. An important idea that often gets obscured is that there
are really only two fundamental ways to increase the well-being of
people who already work hard all day -- increase the quantity and
quality of the capital stock they possess, or increase their skills and
education. This is true in poor countries, where the most important
capital is water, land, livestock, and agriculture related, and the most
important skills and education involve agriculture and basic medicine.
It is also true in rich countries, but the most important capital and
skills are usually related to new technology, intellectual property,
managements and capital allocation.
But I digressed from my point which is that you need to improve the
capital and/or the skills and education of a people to help them. If
people are working every waking hour just to eat, then there is nothing
left over for them to invest in capital, and there is no time for
them to improve theirselves. If, on the other hand, people are free
to trade as shown in the example above, then people can end up with
more food than they could make themselves in one day, and still have
something left over to invest in the future. Progress! Slow, perhaps
even agonizing, but definite progress.
Want faster progress? Here are some of my favorite charities that
concentrate on making investments in the future of people and villages
rather than just providing handouts:
http://www.ashoka.org/
http://www.gfusa.org/
http://www.lifewater.org/
http://www.heifer.org/
--
Erik Reuter http://www.erikreuter.net/
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