Tuesday, September 02, 2008

Economic Justice

I have given four areas in which I think Americans (and people around the world) will be worse off under a Democratic administration. These areas are education, energy policy, world poverty, and health care.

Now, I want to balance the scales by giving four areas in which Republicans will make us worse off.

The first area in which the Republicans will make things worse off is in the realm of economic justice.

The Republicans are going to make things worse off generally for people substantially because people with a lot of money can bid resources away from people with little money but who, nonetheless, have a more highly valued (in terms of desire fulfillment) use for those resources.

Many Republicans speak as if $20 spent by somebody with $1 billion to spend is the same as $20 spent by somebody who has $21 to spend, and that is not the case.

Take a piece of paper (or a computer) and start writing. Assume that you had only $20. What would you spend it on? Now, assume that you were given a second $20. What would you spend that on? And a third $20. Continue making your list until you have a list that covers $1 billion (50 million items).

Now, please note that if you had $1 billion, then you could get everything on that list. However, if you had only $20, you could only get the first item.

So, the person with $20 who gets the first item has to give up everything else on the list. She cannot get even one of those items at the same time. Yet, the person with $1 billion can get what she wants and still get one less than 50 million other items on her list. It simply does not cost the person with $1 billion as much (in terms of opportunity costs) to spend $20 as it does the person who only has $20.

The idea that $20 has the same value to both people is simply false.

Many Republicans base a lot of policy decisions on this false assumption. They act as if it does not matter where any given $20 is. Twenty dollars is twenty dollars and it always has the same value. As such, these Republicans tend to support policies that have rich people spending a lot of money on objects of less value, while denying poor people the opportunity to spend that money on objects that have a great deal more desire-fulfillment value.

The result is that people, generally, as worse off. In fact, the more that wealth gets concentrated into fewer and fewer hands, the less well people generally become because of the diminishing marginal value of another $20 to those who have billions, compared to the value of that same $20 to those who have hundreds.

What is true about individuals is also true about nations. In the same way that rich people bid resources away from poor individuals who, nonetheless, have a more highly valued use for those resources, rich countries bid resources away from poor countries that have a more highly valued use for those resources.

Consider the price of oil. What are the effects of the price of a barrel of oil going up to $120 per barrel?

The classical economic interpretation is that where the value the use of oil is below $120, those uses will be replaced by conservation, leaving enough oil for those uses whose value is above $120. In other words, we stop using oil where it provides us with only $110 worth of benefit, so that we can continue to have oil available where it provides us with more than $120 in benefit.

In fact, one of the effects of increasing the price of oil is that it simply drives poor people out of the market. They’re not paying $120 per barrel for a price of oil because they do not have $120 to pay. The poor people are forced out of the market, so that the rich people can have enough oil to do what they want to do with it.

Think of a poker game. You have a huge pile of chips, whereas the person sitting across the table from you has a smaller stack of chips. You think that your opponent has a better hand than you do. However, assume that you are playing by rules where a player has to fold unless he has enough money to cover the bet on his turn. So, the person with all the chips raises to a point that is $1 more than the sum of the chips that the poorer player has on the table. So, by the rules of the game, the poorer player must fold. It does not matter how good his hand is. He cannot win unless he has enough money to sit at the table and cover the highest bet that any other player is willing to make.

A rich person, or a rich company, can bid away even what a poor person or country needs for human survival, simply by being willing to pay more than the poor person or country can afford. Yet, it does not follow from this, that the poor people value their lives less than whatever the rich person values doing with those same resources.

To the degree that we increase the gap between the rich and poor, to that degree resources will be taken away from higher-valued uses that the poor people would use them for, and be devoted instead to the lower valued uses that the people with money can afford. Republican policies tend to be those that are good at growing these types of differences.

1 comment:

FourTwenty said...

I agree with you for the most part, but the poker analogy is incorrect. Poker has a rule where if you only have 10 dollars, and the next round of betting requires 20, you are allowed to put your 10 dollars in, but you are only eligible to win the total amount that you've put in for the entire hand, from each person playing in the hand.

Basically, it mean that you can't be bet out of the game, which is a good thing, as it prevents the richest person in the world coming to a poker table and not allowing anyone else to play.