Demographic death spiral

[KD in CA]

from a foreign policy perspective, i doubt we'd have seen much difference. the damage of the two wars was preordained long ago and a tidy ending was never likely once the genie was out of the bottle. the middle east would still be the middle east - a dangerous and unpredictable powder keg. domestically, i think things would likely be quite different. the aca could possibly have been repealed. btw, medicare spending is down since the beginning of implementation and the programs expected viability extended significantly. we'd likely have seen massive spending cuts (mostly on social programs) without tax increases to the wealthy and thus even further and more rapidly growing wealth disparity and quite possible even slower recovery or worse. and then there are all the social issues that could have gone very differently and likely would have but i must admit, it would have been interesting to see a far right pres response to massacres and a public outcry for gun control. outcome would have been the same, however.

So in summary:

Foreign policy: no difference

Domestic policy: possible repeal of ACA and supposed 'cuts' to 'social programs' (although you don't indicate how either would be possible with a Dem controlled Senate)

Social issues: since when does the POTUS control 'social issues'? What do you think, Romney would have issued an executive order banning homosexuals?

 

So now we get back to your original statment of "much better". Since the only difference you could articluate in any reasonable fashion was the ACA (which hasn't really been implemented yet so that doesn't apply), and maybe some cuts to welfare, how exactly would that have resulted in a material change to you? How much welfare are you pulling down each month?

[Taro T]

have you ever asked yourself how small the republican party would be if you eliminated everyone that the far right considers rinos? but keep it up. the enemy of my enemy is my friend.

 

 

and how difficult is it to realize that all resources are finite. if they're divided 60/40 with the 60 going to the 1%, the 99 are going to do worse than oif it were divided 40/60. why is that so hard to see? assume some increase in available resources over time and it remains as stated.

Resources are finite, but the value that can be added to them is far from it. How difficult is it to realize that wealth can be created and isn't a zero sum game? Steve Jobs' old company converts sand and some metals into items that people will gladly pay $200+. Is the person that bought the I-pad worse off for having bought it? Are the people manufacturing the I-pads worse off? I doubt it.

 

(Sorry for continuing to take this thread OT.)

[B-Man]

have you ever asked yourself how small the republican party would be if you eliminated everyone that the far right considers rinos? but keep it up. the enemy of my enemy is my friend.

 

 

 

 

Again you demonstrate how little you actually understand about the Republican party outside of your cliched mindset.

 

No one is "eliminating" anyone, but you in your little narrative.

 

Everyone can be in the party, but Conservative policies will continue to be the majority. If those moderate or liberal Republicans can put forth a cogent argument, the majority is always willing to listen. (in this case they have not)

 

 

But you keep on spouting the "crazy, far right" silliness.................you only expose your own issues.

 

 

 

 

.

[birdog1960]

Resources are finite, but the value that can be added to them is far from it. How difficult is it to realize that wealth can be created and isn't a zero sum game? Steve Jobs' old company converts sand and some metals into items that people will gladly pay $200+. Is the person that bought the I-pad worse off for having bought it? Are the people manufacturing the I-pads worse off? I doubt it.

 

(Sorry for continuing to take this thread OT.)

but the fundamental meaning of wealth is the ability to purchase resources. yes, there actually might be some more efficient use of resources and then some more actually available but not enough to compensate for such a wide disparity in purchasing power. and much of the $500 (don't know where you bought your ipad) is going to end up in the hands of people that are already holding the lions share of wealth. the people buying the ipad may be better off, worse off or neither depending on what they do with their ipad. those manufacturing it may be better off but relatuive to whom especially if it's built in some developing 3rd world country?

 

Again you demonstrate how little you actually understand about the Republican party outside of your cliched mindset.

 

No one is "eliminating" anyone, but you in your little narrative.

 

Everyone can be in the party, but Conservative policies will continue to be the majority. If those moderate or liberal Republicans can put forth a cogent argument, the majority is always willing to listen. (in this case they have not)

 

 

But you keep on spouting the "crazy, far right" silliness.................you only expose your own issues.

 

 

sorry, don't know why ii would see "republican in name only" as an exclusionary phrase????

 

.

[TakeYouToTasker]

have you ever asked yourself how small the republican party would be if you eliminated everyone that the far right considers rinos? but keep it up. the enemy of my enemy is my friend.

 

 

and how difficult is it to realize that all resources are finite. if they're divided 60/40 with the 60 going to the 1%, the 99 are going to do worse than oif it were divided 40/60. why is that so hard to see? assume some increase in available resources over time and it remains as stated.

WEALTH IS NOT STATIC. THERE IS MORE WEALTH IN THE WORLD TODAY THAN THERE WAS YESTERDAY. THE CREATION OF THAT NEW WEALTH DID NOT MAKE ANYONE MORE POOR...

 

...conversly, it created wealth for everyone involved with the creation of that wealth, including third world laborers. Or perhaps you are arguing that folks in the third world would be better off without the jobs provided to them by developed countries.

 

Edited June 17, 2013 by TakeYouToTasker

[birdog1960]

WEALTH IS NOT STATIC. THERE IS MORE WEALTH IN THE WORLD TODAY THAN THERE WAS YESTERDAY. THE CREATION OF THAT NEW WEALTH DID NOT MAKE ANYONE MORE POOR...

 

...conversly, it created wealth for everyone involved with the creation of that wealth, including third world laborers. Or perhaps you are arguing that folks in the third world would be better off without the jobs provided to them by developed countries.

and what about the lost wealth in the print industry? paper manufacturers? old school media distribution? the workers in 1st world countries replaced by third world subsitence or lower wage earners? are you so certain that the net effect on wealth is an increase? i'm not.

[TakeYouToTasker]

and what about the lost wealth in the print industry? paper manufacturers? old school media distribution? the workers in 1st world countries replaced by third world subsitence or lower wage earners? are you so certain that the net effect on wealth is an increase? i'm not.

You... have absolutely no concept of what wealth is, do you?

 

From one of my favorite blogs:

 

Lou Dobbs and Howard Beale »

 

Wealth Creation and the Zero-Sum Fallacy

 

April 23, 2007, 9:20 pm

 

This is an update of an article I post every year or two around tax day. I was going to skip this year, but tomorrow is the premiere of a show (which I have not seen yet) called the Ultimate Resource which seems to be named after Julian Simon's great book, and looks to be focused on many of the same issues I address in this post.

One of the worst ideas that affect public policy around the world is that wealth is somehow zero sum - that it can be stolen or taken or moved or looted but not created. G8 protesters who claim that poor nations are poor because wealthy nations have made them that way; the NY Times, which for years has flogged the idea that the fact of the rich getting richer in this country somehow is a threat to the rest of us; Paul Krugman, who fears that economic advances in China will make the US poorer: All of these positions rest on the notion that wealth is fixed, so that increases in one area must be accompanied by decreases in others. Mercantilism, Marxism, protectionism, and many other destructive -isms have all rested on zero-sum economic thinking.

The (Incorrect) Physics Analogy

My guess is that this zero-sum thinking comes from our training and intuition about the physical world. As we all learned back in high school, nature generally works in zero sums. For example, in any bounded environment, no matter what goes on inside (short of nuclear fission) mass and energy are both conserved, as outlined by the first law of thermodynamics. Energy may change form, like the potential energy from chemical bonds in gasoline being converted to heat and work via combustion, but its

all still there somewhere.

In fact, given the second law of thermodynamics, the only change that will occur is that elements will end in a more disorganized, less useful form than when they started. This notion of entropic decay also has a strong effect on economic thinking, as you will hear many of the same zero sum economics folks using the language of decay on human society. Take folks like Paul Ehrlich (please). All of their work is about decay: Pollution getting worse, raw materials getting scarce, prices going up, economies crashing. They see human society driven by entropic decline.

Wealth Is Demonstrably Not Zero-Sum

So are they wrong? Are economics and society driven by something similar to the first and second laws of thermodynamics? I will answer this in a couple of ways.

First, lets ask the related question: Is wealth zero sum and is society, or at least the material portions of society, always in decline? The answer is so obviously no to both that it is hard to believe that these concepts are still believed by anyone, much less by a large number of people. However, since so many people do cling to these false notions, we will spend a moment or two with it.

The following analysis relies on data gathered by Julian Simon and Stephen Moore in Its Getting Better all the Time: 100 Greatest Trends of the Last 100 Years. In fact, there is probably little in this post that Julian Simon has not said more articulately, but if all we bloggers waited for a new and fresh idea before we blogged, well, there would not be much blogging going on.

Lets compare the life of an average American in 1900 and today. On every dimension you can think of, we all are orders of magnitude wealthier today (by wealth, I mean the term broadly. I mean not just cash, like Scrooge McDuck's big vault, but also lifespan, healthiness, leisure time, quality of life, etc).

• Life expectancy has increase from 47 to 77 years
  
• Infant mortality rates have fallen from one in ten to one in 150.
  
• Average income - in real dollars - has risen from $4,748 to $32,444
  

In 1900, the average person started their working life at 13, worked 10 hours a day, six days a week with no real vacation right up to the day they died in their mid-forties. Today, the average person works 8 hours a day for five days a week and gets 2-3 weeks of vacation. They work from the age of 18, and sometimes start work as late as 25, and typically take at least 10 years of retirement before they die.

But what about the poor? Well, the poor are certainly wealthier today than the poor were in 1900. But in many ways, the poor are wealthier even than the "robber barons" of the 19th century: Just check out this comparison! Today, even people below the poverty line have a good chance to live past 70. 99% of those below the poverty line in the US have electricity, running water, flush toilets, and a refrigerator. 95% have a TV, 88% have a phone, 71% have a car, and 70%have air conditioning. Cornelius Vanderbilt had none of these, and his children only got running water and electricity later in life.

To anticipate the zero-summer's response, I presume they would argue that the US somehow did this by "exploiting" other countries. Its hard to imagine the mechanism for this, especially since the US did not have a colonial empire like France or Britain, and in fact the US net gave away more wealth to other nations in the last century (in the form of outright grants as well as money and lives spent in their defense) than every other nation on earth combined. I won't go into the detailed proof here, but you can do the same analysis we did for the US for every country in the world: Virtually no one has gotten worse, and 99.9% of the people of the world are at least as wealthy (again in the broad sense) or wealthier than in 1900. Yes, some have slipped in relative terms vs. the richest nations, but everyone is up on an absolute basis.

The (Correct) Physics Analogy

Which leads to the obvious conclusion, that I shouldn't have had to take so much time to prove: The world, as a whole and in most of its individual parts, is wealthier than in was in 1900. Vastly more wealthy. Which I recognize can be disturbing to our intuition honed on the physical world. I mean, where did the wealth come from? Out of thin air? How can that be?

Interestingly, in the 19th century, scientists faced a similar problem in the physical world in dating the age of the Earth. There was evidence all around them (from fossils, rocks, etc) that the earth had to be hundreds of millions, perhaps billions of years old. The processes of evolution Darwin described had to occur over untold millions of years. Yet no one could accept an age over a few million for the solar system, because they couldn't figure out what could fuel the Sun for longer than that. Every calculation they made showed that by any form of combustion they understood, the sun would burn out in, at most, a few tens of millions of years. If the sun and earth was so old, where was all that energy coming from? Out of thin air?

It was Einstein that solved the problem. E=mc2 meant that there were new processes (e.g. fusion) where very tiny amounts of mass were converted to unreasonably large amounts of energy. Amounts of energy so large that it tends to defy human intuition. Here was an enormous, really huge source of potential energy that no one before even suspected.

The Human Mind Has Huge Potential Energy

Which gets me back to wealth. To balance the wealth equation, there must be a huge reservoir out there of potential energy, or I guess you would call it potential wealth. This source is the human mind. All wealth flows from the human mind, and that source of energy is also unreasonably large, much larger than most people imagine.

But you might say - that can't be right. What about gold, that's wealth isn't it, and it just comes out of the ground. Yes, it comes out of the ground, but how? And where? If you have ever traveled around the western US, say in Colorado, you will have seen certain hills covered in old mines. It has always fascinated me, how those hills riddled with shafts looked, to me, exactly the same as the 20 other hills around it that were untouched. How did miners know to look in that one hill? Don Boudroux at Cafe Hayek expounded on this theme:

I seldom use the term "natural resource." With the possible exception of water, no resource is natural. Usefulness is not an objective and timeless feature ordained by nature for those scarce things that we regard as resources. That is, all things that are resources become resources only after individual human beings creatively figure out how these things can be used in worthwhile ways for human betterment.

Consider, for example, crude oil. A natural resource? Not at all. I suspect that to the pre-Columbian peoples who lived in what is now Pennsylvania, the inky, smelly, black matter that oozed into creeks and streams was a nuisance. To them, oil certainly was no resource.

Petroleum's usefulness to humans "“ hence, its value to humans "“ is built upon a series of countless creative human insights about how oil can be used and how it can be cost-effectively extracted from the earth. Without this human creativity, oil would objectively exist but it would be either useless or a nuisance.

A while back, I published this anecdote which I think applies here:

Hanging out at the beach one day with a distant family member, we got into a discussion about capitalism and socialism. In particular, we were arguing about whether brute labor, as socialism teaches, is the source of all wealth (which, socialism further argues, is in turn stolen by the capitalist masters). The young woman, as were most people her age, was taught mainly by the socialists who dominate college academia nowadays. I was trying to find a way to connect with her, to get her to question her assumptions, but was struggling because she really had not been taught many of the fundamental building blocks of either philosophy or economics, but rather a mish-mash of politically correct points of view that seem to substitute nowadays for both.

I picked up a handful of sand, and said "this is almost pure silicon, virtually identical to what powers a computer. Take as much labor as you want, and build me a computer with it -- the only limitation is you can only have true manual laborers - no engineers or managers or other capitalist lackeys".

She replied that my request was BS, that it took a lot of money to build an electronics plant, and her group of laborers didn't have any and bankers would never lend them any.

I told her - assume for our discussion that I have tons of money, and I will give you and your laborers as much as you need. The only restriction I put on it is that you may only buy raw materials - steel, land, silicon - in their crudest forms. It is up to you to assemble these raw materials, with your laborers, to build the factory and make me my computer.

She thought for a few seconds, and responded "but I can't - I don't know how. I need someone to tell me how to do it"

The only real difference between beach sand, worth $0, and a microchip, worth thousands of dollars a gram, is what the human mind has added.

The economist Julian Simon is famous for his rebuttals of the zero summers and the pessimists and doom sayers, arguing that the human mind has unlimited ability to bring plenty our of scarcity.

"The ultimate resource is people - especially skilled, spirited, and hopeful young people endowed with liberty- who will exert their wills and imaginations for their own benefit, and so inevitably benefit not only themselves but the rest of us as well."

A Framework For Wealth Creation

As a final note, it is worth mentioning that the world still has only harnessed a fraction of this potential. To understand this, it is useful to look back at history.

From the year 1000 to the year 1700, the world's wealth, measured as GDP per capita, was virtually unchanged. Since 1700, the GDP per capita in places like the US has risen, in real terms, over 40 fold. This is a real increase in total wealth, created by the human mind. And it was unleashed because the world began to change in some fundamental ways around 1700 that allowed the human mind to truly flourish. Among these changes, I will focus on two:

1. 
   There was a philosophical and intellectual change where questioning established beliefs and social patterns went from being heresy and unthinkable to being acceptable, and even in vogue. In other words, men, at first just the elite but soon everyone, were urged to use their mind rather than just relying on established beliefs. In this formulation, I use "beliefs" in its broadest possible meaning, encompassing everything from the belief that the earth is the center of the universe to the belief that music has to be sold in stores on physical media There were social and political changes that greatly increased the number of people capable of entrepreneurship. Before this time, the vast vast majority of people were locked into social positions that allowed them no flexibility to act on a good idea, even if they had one. By starting to create a large and free middle class, first in the Netherlands and England and then in the US, more people had the ability to use their mind to create new wealth without the encumbrance of artificial state-imposed class limits or mind-numbing regulatory barriers. Whereas before, perhaps 1% or less of any population really had the freedom to truly act on their ideas, after 1700 many more people began to have this freedom.
   
2. So today's wealth, and everything that goes with it (from shorter work hours to longer life spans) is the result of more people using their minds more freely.
   

The problem (and the ultimate potential) comes from the fact that in many, many nations of the world, these two changes have not yet been allowed to occur. Look around the world - for any country, ask yourself if the average person in that country has the open intellectual climate that encourages people to think for themselves, and the open political and economic climate that allows people to act on the insights their minds provide and to keep the fruits of their effort. Where you can answer yes to both, you will find wealth and growth. Where you answer no to both, you will find poverty and misery.

Even in the US, regulation and the inherent conservatism of the bureaucracy slow our potential improvement. Republicans block stem cell research, Democrats block genetically modified foods, protectionists block free trade, the FDA slows drug innovation, regulatory bodies of all stripes try to block new business models.

All over the world, governments shackle the human mind and limit the potential of humanity.

Postscript: From the press release for the Ultimate Resource, showing why the show has me interested:

Free Market incentives are spectacularly changing lives over much of the world. In the last 25 years, hundreds of millions of people-- 400 million in China alone-- have climbed out of the dire poverty of living on less than $1 per day. It is the largest movement out of poverty in human history.

Yet, two thirds of the world's population-- four billion people-- still does not have the tools to thrive in free markets. Forced to operate outside the rule of law, they have little education, no legal identity, no fungible property, no credit, no capital, and thus few ways to prosper.

This documentary is the story of what can happen when ordinary people around the world are given the tools to help themselves. "The Ultimate Resource" is people-- skilled, spirited and hopeful people, who are using their wills and imaginations for their own benefit, and, inevitably, they will benefit the rest of the world, as well.

[Rob's House]

 

WEALTH IS NOT STATIC. THERE IS MORE WEALTH IN THE WORLD TODAY THAN THERE WAS YESTERDAY. THE CREATION OF THAT NEW WEALTH DID NOT MAKE ANYONE MORE POOR...

 

...conversly, it created wealth for everyone involved with the creation of that wealth, including third world laborers. Or perhaps you are arguing that folks in the third world would be better off without the jobs provided to them by developed countries.

In his mind if you have more than I do and I made $200 today & you made $1000 I'm worse off today than I was yesterday because the wealth disparity between us grew.

[B-Man]

 

sorry, don't know why ii would see "republican in name only" as an exclusionary phrase????

 

 

 

The phrase that you yourself used in reply #1........asking how long until Sen Graham was referred to this by the "far right"

 

 

You see, you are the one being exclusionary....................you just can't see it.

 

 

 

 

 

 

.

[John Adams]

Republicans will not gain votes by passing immigration reform nor will they lose votes by not passing it. Mark these words. Immigrants who are mostly on the bottom of the economic ladder will continue to vote for the party that offers benefits.

 

Disagree. The working poor have a lot to gain from appreciating a party of lower taxes and less government. Lumping all immigrants in as "people who want benefits" is too broad of a brush.

[TakeYouToTasker]

In his mind if you have more than I do and I made $200 today & you made $1000 I'm worse off today than I was yesterday because the wealth disparity between us grew.

That's because he's an unmitigated moron.

[birdog1960]

You... have absolutely no concept of what wealth is, do you?

 

From one of my favorite blogs:

 

Lou Dobbs and Howard Beale »

 

Wealth Creation and the Zero-Sum Fallacy

 

April 23, 2007, 9:20 pm

This is an update of an article I post every year or two around tax day. I was going to skip this year, but tomorrow is the premiere of a show (which I have not seen yet) called the Ultimate Resource which seems to be named after Julian Simon's great book, and looks to be focused on many of the same issues I address in this post.

One of the worst ideas that affect public policy around the world is that wealth is somehow zero sum - that it can be stolen or taken or moved or looted but not created. G8 protesters who claim that poor nations are poor because wealthy nations have made them that way; the NY Times, which for years has flogged the idea that the fact of the rich getting richer in this country somehow is a threat to the rest of us; Paul Krugman, who fears that economic advances in China will make the US poorer: All of these positions rest on the notion that wealth is fixed, so that increases in one area must be accompanied by decreases in others. Mercantilism, Marxism, protectionism, and many other destructive -isms have all rested on zero-sum economic thinking.

The (Incorrect) Physics Analogy

My guess is that this zero-sum thinking comes from our training and intuition about the physical world. As we all learned back in high school, nature generally works in zero sums. For example, in any bounded environment, no matter what goes on inside (short of nuclear fission) mass and energy are both conserved, as outlined by the first law of thermodynamics. Energy may change form, like the potential energy from chemical bonds in gasoline being converted to heat and work via combustion, but its

all still there somewhere.

In fact, given the second law of thermodynamics, the only change that will occur is that elements will end in a more disorganized, less useful form than when they started. This notion of entropic decay also has a strong effect on economic thinking, as you will hear many of the same zero sum economics folks using the language of decay on human society. Take folks like Paul Ehrlich (please). All of their work is about decay: Pollution getting worse, raw materials getting scarce, prices going up, economies crashing. They see human society driven by entropic decline.

Wealth Is Demonstrably Not Zero-Sum

So are they wrong? Are economics and society driven by something similar to the first and second laws of thermodynamics? I will answer this in a couple of ways.

First, lets ask the related question: Is wealth zero sum and is society, or at least the material portions of society, always in decline? The answer is so obviously no to both that it is hard to believe that these concepts are still believed by anyone, much less by a large number of people. However, since so many people do cling to these false notions, we will spend a moment or two with it.

The following analysis relies on data gathered by Julian Simon and Stephen Moore in Its Getting Better all the Time: 100 Greatest Trends of the Last 100 Years. In fact, there is probably little in this post that Julian Simon has not said more articulately, but if all we bloggers waited for a new and fresh idea before we blogged, well, there would not be much blogging going on.

Lets compare the life of an average American in 1900 and today. On every dimension you can think of, we all are orders of magnitude wealthier today (by wealth, I mean the term broadly. I mean not just cash, like Scrooge McDuck's big vault, but also lifespan, healthiness, leisure time, quality of life, etc).

• Life expectancy has increase from 47 to 77 years
  
• Infant mortality rates have fallen from one in ten to one in 150.
  
• Average income - in real dollars - has risen from $4,748 to $32,444
  

In 1900, the average person started their working life at 13, worked 10 hours a day, six days a week with no real vacation right up to the day they died in their mid-forties. Today, the average person works 8 hours a day for five days a week and gets 2-3 weeks of vacation. They work from the age of 18, and sometimes start work as late as 25, and typically take at least 10 years of retirement before they die.

But what about the poor? Well, the poor are certainly wealthier today than the poor were in 1900. But in many ways, the poor are wealthier even than the "robber barons" of the 19th century: Just check out this comparison! Today, even people below the poverty line have a good chance to live past 70. 99% of those below the poverty line in the US have electricity, running water, flush toilets, and a refrigerator. 95% have a TV, 88% have a phone, 71% have a car, and 70%have air conditioning. Cornelius Vanderbilt had none of these, and his children only got running water and electricity later in life.

To anticipate the zero-summer's response, I presume they would argue that the US somehow did this by "exploiting" other countries. Its hard to imagine the mechanism for this, especially since the US did not have a colonial empire like France or Britain, and in fact the US net gave away more wealth to other nations in the last century (in the form of outright grants as well as money and lives spent in their defense) than every other nation on earth combined. I won't go into the detailed proof here, but you can do the same analysis we did for the US for every country in the world: Virtually no one has gotten worse, and 99.9% of the people of the world are at least as wealthy (again in the broad sense) or wealthier than in 1900. Yes, some have slipped in relative terms vs. the richest nations, but everyone is up on an absolute basis.

The (Correct) Physics Analogy

Which leads to the obvious conclusion, that I shouldn't have had to take so much time to prove: The world, as a whole and in most of its individual parts, is wealthier than in was in 1900. Vastly more wealthy. Which I recognize can be disturbing to our intuition honed on the physical world. I mean, where did the wealth come from? Out of thin air? How can that be?

Interestingly, in the 19th century, scientists faced a similar problem in the physical world in dating the age of the Earth. There was evidence all around them (from fossils, rocks, etc) that the earth had to be hundreds of millions, perhaps billions of years old. The processes of evolution Darwin described had to occur over untold millions of years. Yet no one could accept an age over a few million for the solar system, because they couldn't figure out what could fuel the Sun for longer than that. Every calculation they made showed that by any form of combustion they understood, the sun would burn out in, at most, a few tens of millions of years. If the sun and earth was so old, where was all that energy coming from? Out of thin air?

It was Einstein that solved the problem. E=mc2 meant that there were new processes (e.g. fusion) where very tiny amounts of mass were converted to unreasonably large amounts of energy. Amounts of energy so large that it tends to defy human intuition. Here was an enormous, really huge source of potential energy that no one before even suspected.

The Human Mind Has Huge Potential Energy

Which gets me back to wealth. To balance the wealth equation, there must be a huge reservoir out there of potential energy, or I guess you would call it potential wealth. This source is the human mind. All wealth flows from the human mind, and that source of energy is also unreasonably large, much larger than most people imagine.

But you might say - that can't be right. What about gold, that's wealth isn't it, and it just comes out of the ground. Yes, it comes out of the ground, but how? And where? If you have ever traveled around the western US, say in Colorado, you will have seen certain hills covered in old mines. It has always fascinated me, how those hills riddled with shafts looked, to me, exactly the same as the 20 other hills around it that were untouched. How did miners know to look in that one hill? Don Boudroux at Cafe Hayek expounded on this theme:

I seldom use the term "natural resource." With the possible exception of water, no resource is natural. Usefulness is not an objective and timeless feature ordained by nature for those scarce things that we regard as resources. That is, all things that are resources become resources only after individual human beings creatively figure out how these things can be used in worthwhile ways for human betterment.

Consider, for example, crude oil. A natural resource? Not at all. I suspect that to the pre-Columbian peoples who lived in what is now Pennsylvania, the inky, smelly, black matter that oozed into creeks and streams was a nuisance. To them, oil certainly was no resource.

Petroleum's usefulness to humans "“ hence, its value to humans "“ is built upon a series of countless creative human insights about how oil can be used and how it can be cost-effectively extracted from the earth. Without this human creativity, oil would objectively exist but it would be either useless or a nuisance.

A while back, I published this anecdote which I think applies here:

Hanging out at the beach one day with a distant family member, we got into a discussion about capitalism and socialism. In particular, we were arguing about whether brute labor, as socialism teaches, is the source of all wealth (which, socialism further argues, is in turn stolen by the capitalist masters). The young woman, as were most people her age, was taught mainly by the socialists who dominate college academia nowadays. I was trying to find a way to connect with her, to get her to question her assumptions, but was struggling because she really had not been taught many of the fundamental building blocks of either philosophy or economics, but rather a mish-mash of politically correct points of view that seem to substitute nowadays for both.

I picked up a handful of sand, and said "this is almost pure silicon, virtually identical to what powers a computer. Take as much labor as you want, and build me a computer with it -- the only limitation is you can only have true manual laborers - no engineers or managers or other capitalist lackeys".

She replied that my request was BS, that it took a lot of money to build an electronics plant, and her group of laborers didn't have any and bankers would never lend them any.

I told her - assume for our discussion that I have tons of money, and I will give you and your laborers as much as you need. The only restriction I put on it is that you may only buy raw materials - steel, land, silicon - in their crudest forms. It is up to you to assemble these raw materials, with your laborers, to build the factory and make me my computer.

She thought for a few seconds, and responded "but I can't - I don't know how. I need someone to tell me how to do it"

The only real difference between beach sand, worth $0, and a microchip, worth thousands of dollars a gram, is what the human mind has added.

The economist Julian Simon is famous for his rebuttals of the zero summers and the pessimists and doom sayers, arguing that the human mind has unlimited ability to bring plenty our of scarcity.

"The ultimate resource is people - especially skilled, spirited, and hopeful young people endowed with liberty- who will exert their wills and imaginations for their own benefit, and so inevitably benefit not only themselves but the rest of us as well."

A Framework For Wealth Creation

As a final note, it is worth mentioning that the world still has only harnessed a fraction of this potential. To understand this, it is useful to look back at history.

From the year 1000 to the year 1700, the world's wealth, measured as GDP per capita, was virtually unchanged. Since 1700, the GDP per capita in places like the US has risen, in real terms, over 40 fold. This is a real increase in total wealth, created by the human mind. And it was unleashed because the world began to change in some fundamental ways around 1700 that allowed the human mind to truly flourish. Among these changes, I will focus on two:

1. 
   There was a philosophical and intellectual change where questioning established beliefs and social patterns went from being heresy and unthinkable to being acceptable, and even in vogue. In other words, men, at first just the elite but soon everyone, were urged to use their mind rather than just relying on established beliefs. In this formulation, I use "beliefs" in its broadest possible meaning, encompassing everything from the belief that the earth is the center of the universe to the belief that music has to be sold in stores on physical media There were social and political changes that greatly increased the number of people capable of entrepreneurship. Before this time, the vast vast majority of people were locked into social positions that allowed them no flexibility to act on a good idea, even if they had one. By starting to create a large and free middle class, first in the Netherlands and England and then in the US, more people had the ability to use their mind to create new wealth without the encumbrance of artificial state-imposed class limits or mind-numbing regulatory barriers. Whereas before, perhaps 1% or less of any population really had the freedom to truly act on their ideas, after 1700 many more people began to have this freedom.
    
   
2. So today's wealth, and everything that goes with it (from shorter work hours to longer life spans) is the result of more people using their minds more freely.
   

The problem (and the ultimate potential) comes from the fact that in many, many nations of the world, these two changes have not yet been allowed to occur. Look around the world - for any country, ask yourself if the average person in that country has the open intellectual climate that encourages people to think for themselves, and the open political and economic climate that allows people to act on the insights their minds provide and to keep the fruits of their effort. Where you can answer yes to both, you will find wealth and growth. Where you answer no to both, you will find poverty and misery.

Even in the US, regulation and the inherent conservatism of the bureaucracy slow our potential improvement. Republicans block stem cell research, Democrats block genetically modified foods, protectionists block free trade, the FDA slows drug innovation, regulatory bodies of all stripes try to block new business models.

All over the world, governments shackle the human mind and limit the potential of humanity.

Postscript: From the press release for the Ultimate Resource, showing why the show has me interested:

Free Market incentives are spectacularly changing lives over much of the world. In the last 25 years, hundreds of millions of people-- 400 million in China alone-- have climbed out of the dire poverty of living on less than $1 per day. It is the largest movement out of poverty in human history.

Yet, two thirds of the world's population-- four billion people-- still does not have the tools to thrive in free markets. Forced to operate outside the rule of law, they have little education, no legal identity, no fungible property, no credit, no capital, and thus few ways to prosper.

This documentary is the story of what can happen when ordinary people around the world are given the tools to help themselves. "The Ultimate Resource" is people-- skilled, spirited and hopeful people, who are using their wills and imaginations for their own benefit, and, inevitably, they will benefit the rest of the world, as well.

 

You... have absolutely no concept of what wealth is, do you?

 

From one of my favorite blogs:

 

Lou Dobbs and Howard Beale »

 

Wealth Creation and the Zero-Sum Fallacy

 

April 23, 2007, 9:20 pm

 

This is an update of an article I post every year or two around tax day. I was going to skip this year, but tomorrow is the premiere of a show (which I have not seen yet) called the Ultimate Resource which seems to be named after Julian Simon's great book, and looks to be focused on many of the same issues I address in this post.

One of the worst ideas that affect public policy around the world is that wealth is somehow zero sum - that it can be stolen or taken or moved or looted but not created. G8 protesters who claim that poor nations are poor because wealthy nations have made them that way; the NY Times, which for years has flogged the idea that the fact of the rich getting richer in this country somehow is a threat to the rest of us; Paul Krugman, who fears that economic advances in China will make the US poorer: All of these positions rest on the notion that wealth is fixed, so that increases in one area must be accompanied by decreases in others. Mercantilism, Marxism, protectionism, and many other destructive -isms have all rested on zero-sum economic thinking.

The (Incorrect) Physics Analogy

My guess is that this zero-sum thinking comes from our training and intuition about the physical world. As we all learned back in high school, nature generally works in zero sums. For example, in any bounded environment, no matter what goes on inside (short of nuclear fission) mass and energy are both conserved, as outlined by the first law of thermodynamics. Energy may change form, like the potential energy from chemical bonds in gasoline being converted to heat and work via combustion, but its

all still there somewhere.

In fact, given the second law of thermodynamics, the only change that will occur is that elements will end in a more disorganized, less useful form than when they started. This notion of entropic decay also has a strong effect on economic thinking, as you will hear many of the same zero sum economics folks using the language of decay on human society. Take folks like Paul Ehrlich (please). All of their work is about decay: Pollution getting worse, raw materials getting scarce, prices going up, economies crashing. They see human society driven by entropic decline.

Wealth Is Demonstrably Not Zero-Sum

So are they wrong? Are economics and society driven by something similar to the first and second laws of thermodynamics? I will answer this in a couple of ways.

First, lets ask the related question: Is wealth zero sum and is society, or at least the material portions of society, always in decline? The answer is so obviously no to both that it is hard to believe that these concepts are still believed by anyone, much less by a large number of people. However, since so many people do cling to these false notions, we will spend a moment or two with it.

The following analysis relies on data gathered by Julian Simon and Stephen Moore in Its Getting Better all the Time: 100 Greatest Trends of the Last 100 Years. In fact, there is probably little in this post that Julian Simon has not said more articulately, but if all we bloggers waited for a new and fresh idea before we blogged, well, there would not be much blogging going on.

Lets compare the life of an average American in 1900 and today. On every dimension you can think of, we all are orders of magnitude wealthier today (by wealth, I mean the term broadly. I mean not just cash, like Scrooge McDuck's big vault, but also lifespan, healthiness, leisure time, quality of life, etc).

• Life expectancy has increase from 47 to 77 years
  
• Infant mortality rates have fallen from one in ten to one in 150.
  
• Average income - in real dollars - has risen from $4,748 to $32,444
  

In 1900, the average person started their working life at 13, worked 10 hours a day, six days a week with no real vacation right up to the day they died in their mid-forties. Today, the average person works 8 hours a day for five days a week and gets 2-3 weeks of vacation. They work from the age of 18, and sometimes start work as late as 25, and typically take at least 10 years of retirement before they die.

But what about the poor? Well, the poor are certainly wealthier today than the poor were in 1900. But in many ways, the poor are wealthier even than the "robber barons" of the 19th century: Just check out this comparison! Today, even people below the poverty line have a good chance to live past 70. 99% of those below the poverty line in the US have electricity, running water, flush toilets, and a refrigerator. 95% have a TV, 88% have a phone, 71% have a car, and 70%have air conditioning. Cornelius Vanderbilt had none of these, and his children only got running water and electricity later in life.

To anticipate the zero-summer's response, I presume they would argue that the US somehow did this by "exploiting" other countries. Its hard to imagine the mechanism for this, especially since the US did not have a colonial empire like France or Britain, and in fact the US net gave away more wealth to other nations in the last century (in the form of outright grants as well as money and lives spent in their defense) than every other nation on earth combined. I won't go into the detailed proof here, but you can do the same analysis we did for the US for every country in the world: Virtually no one has gotten worse, and 99.9% of the people of the world are at least as wealthy (again in the broad sense) or wealthier than in 1900. Yes, some have slipped in relative terms vs. the richest nations, but everyone is up on an absolute basis.

The (Correct) Physics Analogy

Which leads to the obvious conclusion, that I shouldn't have had to take so much time to prove: The world, as a whole and in most of its individual parts, is wealthier than in was in 1900. Vastly more wealthy. Which I recognize can be disturbing to our intuition honed on the physical world. I mean, where did the wealth come from? Out of thin air? How can that be?

Interestingly, in the 19th century, scientists faced a similar problem in the physical world in dating the age of the Earth. There was evidence all around them (from fossils, rocks, etc) that the earth had to be hundreds of millions, perhaps billions of years old. The processes of evolution Darwin described had to occur over untold millions of years. Yet no one could accept an age over a few million for the solar system, because they couldn't figure out what could fuel the Sun for longer than that. Every calculation they made showed that by any form of combustion they understood, the sun would burn out in, at most, a few tens of millions of years. If the sun and earth was so old, where was all that energy coming from? Out of thin air?

It was Einstein that solved the problem. E=mc2 meant that there were new processes (e.g. fusion) where very tiny amounts of mass were converted to unreasonably large amounts of energy. Amounts of energy so large that it tends to defy human intuition. Here was an enormous, really huge source of potential energy that no one before even suspected.

The Human Mind Has Huge Potential Energy

Which gets me back to wealth. To balance the wealth equation, there must be a huge reservoir out there of potential energy, or I guess you would call it potential wealth. This source is the human mind. All wealth flows from the human mind, and that source of energy is also unreasonably large, much larger than most people imagine.

But you might say - that can't be right. What about gold, that's wealth isn't it, and it just comes out of the ground. Yes, it comes out of the ground, but how? And where? If you have ever traveled around the western US, say in Colorado, you will have seen certain hills covered in old mines. It has always fascinated me, how those hills riddled with shafts looked, to me, exactly the same as the 20 other hills around it that were untouched. How did miners know to look in that one hill? Don Boudroux at Cafe Hayek expounded on this theme:

I seldom use the term "natural resource." With the possible exception of water, no resource is natural. Usefulness is not an objective and timeless feature ordained by nature for those scarce things that we regard as resources. That is, all things that are resources become resources only after individual human beings creatively figure out how these things can be used in worthwhile ways for human betterment.

Consider, for example, crude oil. A natural resource? Not at all. I suspect that to the pre-Columbian peoples who lived in what is now Pennsylvania, the inky, smelly, black matter that oozed into creeks and streams was a nuisance. To them, oil certainly was no resource.

Petroleum's usefulness to humans "“ hence, its value to humans "“ is built upon a series of countless creative human insights about how oil can be used and how it can be cost-effectively extracted from the earth. Without this human creativity, oil would objectively exist but it would be either useless or a nuisance.

A while back, I published this anecdote which I think applies here:

Hanging out at the beach one day with a distant family member, we got into a discussion about capitalism and socialism. In particular, we were arguing about whether brute labor, as socialism teaches, is the source of all wealth (which, socialism further argues, is in turn stolen by the capitalist masters). The young woman, as were most people her age, was taught mainly by the socialists who dominate college academia nowadays. I was trying to find a way to connect with her, to get her to question her assumptions, but was struggling because she really had not been taught many of the fundamental building blocks of either philosophy or economics, but rather a mish-mash of politically correct points of view that seem to substitute nowadays for both.

I picked up a handful of sand, and said "this is almost pure silicon, virtually identical to what powers a computer. Take as much labor as you want, and build me a computer with it -- the only limitation is you can only have true manual laborers - no engineers or managers or other capitalist lackeys".

She replied that my request was BS, that it took a lot of money to build an electronics plant, and her group of laborers didn't have any and bankers would never lend them any.

I told her - assume for our discussion that I have tons of money, and I will give you and your laborers as much as you need. The only restriction I put on it is that you may only buy raw materials - steel, land, silicon - in their crudest forms. It is up to you to assemble these raw materials, with your laborers, to build the factory and make me my computer.

She thought for a few seconds, and responded "but I can't - I don't know how. I need someone to tell me how to do it"

The only real difference between beach sand, worth $0, and a microchip, worth thousands of dollars a gram, is what the human mind has added.

The economist Julian Simon is famous for his rebuttals of the zero summers and the pessimists and doom sayers, arguing that the human mind has unlimited ability to bring plenty our of scarcity.

"The ultimate resource is people - especially skilled, spirited, and hopeful young people endowed with liberty- who will exert their wills and imaginations for their own benefit, and so inevitably benefit not only themselves but the rest of us as well."

A Framework For Wealth Creation

As a final note, it is worth mentioning that the world still has only harnessed a fraction of this potential. To understand this, it is useful to look back at history.

From the year 1000 to the year 1700, the world's wealth, measured as GDP per capita, was virtually unchanged. Since 1700, the GDP per capita in places like the US has risen, in real terms, over 40 fold. This is a real increase in total wealth, created by the human mind. And it was unleashed because the world began to change in some fundamental ways around 1700 that allowed the human mind to truly flourish. Among these changes, I will focus on two:

1. 
   There was a philosophical and intellectual change where questioning established beliefs and social patterns went from being heresy and unthinkable to being acceptable, and even in vogue. In other words, men, at first just the elite but soon everyone, were urged to use their mind rather than just relying on established beliefs. In this formulation, I use "beliefs" in its broadest possible meaning, encompassing everything from the belief that the earth is the center of the universe to the belief that music has to be sold in stores on physical media There were social and political changes that greatly increased the number of people capable of entrepreneurship. Before this time, the vast vast majority of people were locked into social positions that allowed them no flexibility to act on a good idea, even if they had one. By starting to create a large and free middle class, first in the Netherlands and England and then in the US, more people had the ability to use their mind to create new wealth without the encumbrance of artificial state-imposed class limits or mind-numbing regulatory barriers. Whereas before, perhaps 1% or less of any population really had the freedom to truly act on their ideas, after 1700 many more people began to have this freedom.
    
   
2. So today's wealth, and everything that goes with it (from shorter work hours to longer life spans) is the result of more people using their minds more freely.
   

The problem (and the ultimate potential) comes from the fact that in many, many nations of the world, these two changes have not yet been allowed to occur. Look around the world - for any country, ask yourself if the average person in that country has the open intellectual climate that encourages people to think for themselves, and the open political and economic climate that allows people to act on the insights their minds provide and to keep the fruits of their effort. Where you can answer yes to both, you will find wealth and growth. Where you answer no to both, you will find poverty and misery.

Even in the US, regulation and the inherent conservatism of the bureaucracy slow our potential improvement. Republicans block stem cell research, Democrats block genetically modified foods, protectionists block free trade, the FDA slows drug innovation, regulatory bodies of all stripes try to block new business models.

All over the world, governments shackle the human mind and limit the potential of humanity.

Postscript: From the press release for the Ultimate Resource, showing why the show has me interested:

Free Market incentives are spectacularly changing lives over much of the world. In the last 25 years, hundreds of millions of people-- 400 million in China alone-- have climbed out of the dire poverty of living on less than $1 per day. It is the largest movement out of poverty in human history.

Yet, two thirds of the world's population-- four billion people-- still does not have the tools to thrive in free markets. Forced to operate outside the rule of law, they have little education, no legal identity, no fungible property, no credit, no capital, and thus few ways to prosper.

This documentary is the story of what can happen when ordinary people around the world are given the tools to help themselves. "The Ultimate Resource" is people-- skilled, spirited and hopeful people, who are using their wills and imaginations for their own benefit, and, inevitably, they will benefit the rest of the world, as well.

 

 

very convincing. a coyote blogger taking on a nobel prize winning economist. but he's an academic...what could he know? and zero sum is your phrase and not mine or krugman's. i don't think it represents our views. but keep arguing against that strawman if you must.

Edited June 17, 2013 by birdog1960

[3rdnlng]

very convincing. a coyote blogger taking on a nobel prize winning economist. but he's an academic...what could he know? and zero sum is your phrase and not mine or krugman's. i don't think it represents our views. but keep arguing against that strawman if you must.

 

What were you trying to say here in Post #20 of this thread?

 

"and how difficult is it to realize that all resources are finite. if they're divided 60/40 with the 60 going to the 1%, the 99 are going to do worse than oif it were divided 40/60. why is that so hard to see? assume some increase in available resources over time and it remains as stated."

 

Edited by birdog1960, Today, 01:28 PM.

 

What is the difference between "zero sum" and "finite" in this context?

Edited June 17, 2013 by 3rdnlng

[birdog1960]

 

In his mind if you have more than I do and I made $200 today & you made $1000 I'm worse off today than I was yesterday because the wealth disparity between us grew.

well. no. see, it's a problem of scale. if i (and 1% of the population) make 10,000 or 100000 times more per day than you and nearly everybody else and that ratio continues to increase, then you and everbody else will be worse off.

[TakeYouToTasker]

very convincing. a coyote blogger taking on a nobel prize winning economist. but he's an academic...what could he know? and zero sum is your phrase and not mine or krugman's. i don't think it represents our views. but keep arguing against that strawman if you must.

Krugman? Dude, Krugman is nothing but a plagarist, an ideologue, an appologist, and a hack. He hasn't been correct about virtually anything since his work on economies of scale, when he inadvertently discovered the exportation of inflationary preasures in service based Keynesian economies.

 

You have no idea what you're talking about. At all. Just go back to advocating doing harm to your patients.

 

well. no. see, it's a problem of scale. if i (and 1% of the population) make 10,000 or 100000 times more per day than you and nearly everybody else and that ratio continues to increase, then you and everbody else will be worse off.

What the !@#$ is this ****? How does that even make sense?

[birdog1960]

What were you trying to say here in Post #20 of this thread?

 

"and how difficult is it to realize that all resources are finite. if they're divided 60/40 with the 60 going to the 1%, the 99 are going to do worse than oif it were divided 40/60. why is that so hard to see? assume some increase in available resources over time and it remains as stated."

 

Edited by birdog1960, Today, 01:28 PM.

 

What is the difference between "zero sum" and "finite" in this context?

did you miss the part about "assume some increase in AVAILABLE resources"... but yes, the laws of thermodynamics do apply in an absolute sense.

[B-Large]

See, the spending cuts are nessecary. If you taxed the top 5% of all earners at 100%, you wouldn't dent the annual budget shortfall. The problem is the perpetual expansion of spending. We need drastic budget cuts across every aspect of government.

 

Also, at what point will you admit that the ACA is going to destroy healthcare access for the poor in this country?

 

how so?

[IDBillzFan]

What this thread needs is more references to Paul Krugman.

[3rdnlng]

did you miss the part about "assume some increase in AVAILABLE resources"... but yes, the laws of thermodynamics do apply in an absolute sense.

 

 

Did you miss the part where you said "and it remains as stated"? When you argue from an intellectually dishonest platform you forget what you said before and then end up having to split hairs to save face. When you are intellectually honest you don't have to worry about any of that schit. You know you're not contradicting yourself because you just know what you would or would not have said previously. You can confidently say, "no I didn't say that". Why? Because you know what your core beliefs are.

[Chef Jim]

and what about the lost wealth in the print industry? paper manufacturers? old school media distribution? the workers in 1st world countries replaced by third world subsitence or lower wage earners? are you so certain that the net effect on wealth is an increase? i'm not.

 

If I invest my total net worth in a stock that is worth $5 per share and grows to $10 per share I have doubled my wealth. Who is now poorer because of this?