David R. Henderson  

My "Occupy Monterey" Talk, Part II

Income Distribution Policy... Bryan Caplan Crosses Nick Rowe...

To follow this completely you need to read my previous post, "My 'Occupy Monterey' Talk, Part I." (One thing I forgot to mention in that post is that I pointed out that Congress had voted to give the U.S. military the power to imprison us indefinitely and that Obama's only objection was that it took away his power.)

Gains from Exchange

In discussing the principle of gains from exchange, I pointed out that the way to test a principle is to push it to its limits to see if it breaks or bends. So I gave them this hypothetical (which I made up in this article.) The hypothetical has become a standard part of what I teach when I teach gains from exchange.

You're out in the desert dying from dehydration, crawling along on all fours. In the distance, you see a sign, "Rita's Friendly Oasis." As you get closer, you realize that it's real. If you can have a quart of water, you will hydrate enough to make to Addis Ababa 10 miles away and get on an airplane home. You have your American Express card: no limit. "Rita," you say, "may I have a quart of water?" "Sure," she says. "Oh, thank goodness," you say. "The price of that quart of water is $50,000," says Rita.

I asked the audience what they would do. The young woman who was one of the organizers and later intervened to defend my right to speak yelled out, "I would hit her over the head and take her water." "You sound like my Marines," I said, "but remember you have very little energy and let's say you have no weapon and Rita is armed. What do you do?" I asked. Someone else yelled out, "I'd buy the water." "Right," I said, "and are you better off?"

Some people in the audience said, "Yes." Here, though, some of the audience got upset and one asked, quite reasonably, "How come Rita owns the water?" "Good question," I said, "I don't know." "Well she shouldn't be allowed to own the water," said someone. "OK," I said, "maybe I can't convince you on property rights but are we agreed that if for whatever reason she does own the water, you would pay $50,000 to get enough to save your life?" "Yes," she said, grudgingly.

Then another woman interrupted--I don't remember what she said but she kept interrupting so that every time I started to talk she yelled out. I turned away from the mike, fuming, and my anger showed. I decided to take a big risk. I looked at her and said, "You have a lot of power. You can decide whether I continue this talk or not. If you keep talking and interrupting, I leave. If you stop, I stay. Which do you want?" "I want you to stay," she said. And then she acted fine from then on. (Later, after the whole thing ended, we had a nice talk. She was a retired government-school teacher and, because she did clean up her act, I won't name and shame her.)

"Back to the water example," I said. "Notice that the principle stood up to a strong test. I took one of the most extreme examples you can think of of a monopoly and even in that case, both sides gained from the exchange. The principle is not that both sides gain equally. One side might gain a lot and one a little, but both gained. In fact, in this case, one side did gain more than the other but which one gained more might surprise you. Who gained more?" "The person buying the water," said someone in the audience. "Right," I said, "if you value your life at more than $100,000, then you gained over $50,000, whereas Rita gained $50,000 minus a few pennies."

"Now that was a made-up example," I said, "but here's an example that's not made up. There are corporations that subcontract to companies like Nike. These corporations go to poor countries and hire people, often children, to work long hours for low pay, sometimes less than a dollar an hour. In some instances, the people who work there are slaves, but in the vast majority of cases, the people work there voluntarily. Do those corporations gain from that exchange?" "Yes," yelled out a bunch of people, some with angrily. "And do the people who work there voluntarily gain from that exchange?" There was a pause. "Yes," said some people, some more tentatively than before.

Well, that was too much for some of the people, especially some of the older people. Some looked angry and someone yelled out something about "wage slavery." I said, "The problem most Americans have with this is that we wouldn't want those jobs and we wouldn't want our kids in those jobs. But the people in those countries don't have our choices. No one is offering them a green card to come here. I would like to offer them millions of green cards and open our borders, but so far I've been unable to convince 95 percent of my fellow Americans that that's a good idea. So meanwhile they're choosing the best of a bunch of bad options. And when you take away the option someone chooses, as I pointed out in a debate with Robert Reich when he was Secretary of Labor, you make him worse off. (Pause.) The person who tries to get you fired (me waving my finger Dikembe Mutumbo style) is not your friend."

"Moreover," I said, "reporters from NPR and the New York Times went to some of the factories where these people worked and reported on what they saw. You could tell from the tone of their reports that they had expected to see misery and, instead, saw that people working there were the envy of their friends who didn't have such jobs. The jobs they had typically left were agricultural jobs at even lower pay and longer hours. Talk about sweat. One worker had bragged about the fact that he had put on 30 pounds, which, in those countries, is a good thing."

Next: Part III.

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CATEGORIES: Economic Education

COMMENTS (7 to date)
Lori writes:

Whether I the convenient-for-the-wealthy ideology of anything not explicitly coercive being "voluntary" is a good thing depends, I think, on whether it turns out to be self-obsoleting. If the economic growth that supposedly results from this type of "freedom" is at some point in the future sufficient that people everywhere look back to the early 21st century as a very dark age when the market value of human toil was inhumanely low, then the ideology which enabled it will have had some merit. If not, people will have been used, and will have every reason to be angry.

My way of sublimating my anger is by thinking of people of your ideology as a sort of "bearer of bad news." You did after all have the decency and humanity to describe the sweatshop economy as "choosing the best of a bunch of bad options." If it is simply a matter that we aren't yet technologically advanced enough to effect a livable standard of living worldwide, then perhaps there is hope.

Also, in terms of "pick your poison," I'd rather face my slave-wage competition face-to-face, so like you I'd rather see that competition come in the form of migration than in the form of sweatshop republics.

Also, I'm not sure that the trouble with us Americans is that we don't want our kids in those jobs. We don't want our kids (or any human being) in those jobs at that pay and under those terms, etc.

kebko writes:

Thank you for coming here to continue the conversation. I'd love to hear your response to my following input.
We have a situation where parts of the world that have allowed voluntary exchange are so rich that their members find the lives of people who have been denied voluntary exchange or who have just recently entered the world of voluntary exchange to be unacceptably poor.
I would add that I think there is an important distinction to be made about what is going on. The idea that jobs are being sent to low wage countries is actually incorrect. Stick with me for a moment. Most of our trade is with high wage countries and most of the lowest wage countries are not involved in the international market (there aren't many sweatshops in the Congo or Myanmar). What is actually happening is that jobs are moving to countries with RISING wages.
Those rising wages and the jobs moving there are both symptoms of the same force - the development in those countries of institutions which support free economic exchange.
The conditions you find distasteful are the result of old problems. Don't oppose the cure because of the symptoms of the disease.
If you find the transition to economic freedom distasteful, what exactly is your alternative?

Lori writes:

The extractive industries of Congo and Myanmar are very much part of the industrial economy of the part of the world involved in "voluntary" exchange. What I really find distasteful is the authoritative tone of your arguments, identifying denial of voluntary exchange as the cause of poverty or economic "freedom" as the cure. The absence of doubt of the rightness of the answers prescribed by the well-funded "freedom philosophy" looks more like religion than science.

kebko writes:

1) An authoritative tone is also used by people who are supported by strong evidence and theory. Do you speak with an authoritative tone when you defend evolution? Should creationists complain about that? Do you know of an example where high incomes among the masses weren't presaged by institutions supporting the kinds of freedom that allow these sweatshops? How is your approach to the topic affected by your presumption that we are apologists for the wealthy?
I hope that my post gave you something to think about that differs from your priors. Your post did contain a perspective outside the standard here, but in order to look at it, we need to overlook your first sentence, which doesn't indicate that you have attempted to give a generous reading to the freedom perspective.

2) You are correct that less free countries can have exploitative practices in extractive industries. These countries do not follow classically liberal economic policies and the working classes do not experience rising incomes there. Why is it so hard to get these countries to follow our "convenient for the wealthy ideology"? Wouldn't the elites in these countries welcome this? Could it be that our policies actually are better for the broad scope of the citizenry, and you are missing the forest for the trees?
3)If you don't agree that there is a strong connection between economic freedom and rising wages, then what is your alternative?

fundamentalist writes:

Lori, what does certainty or uncertainty have to do with anything? Is there nothing in your life that you have any certainty about?

badge writes:

Thanks for mentioning the NDAA bill and thank you for posting your recollection of the talk!

Shane writes:

I liked the water example, but this is where advocates of Capitalism, I think, go wrong. The writer leaves the reader with a splinter, in the justice of their minds. The reader comes away believing that justice has not been served and that "naked" Capitalism is somehow not fair. I think a better way to handle this example is to show how free markets remove the injustice of this situation. I propose this as a finish. So the person decides that $50k is gouging and instead of getting a law passed he himself goes back to start a competing source of water. With this simple branch on the argument people can vent their very strong sense of injustice, and the converstation turns to solutions within Capitalism. Heck you could even show how government intervention could make a mess of what might be a good thing. But leaving people hanging without an idea of how to cure the injustice just gives Capitalism a bad name.

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