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Three questions from a clueless high school student

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cluelesshighschoolstudent Posted: Fri, Dec 2 2011 5:31 PM

First of all, thanks to anyone who takes the time to answer these questions

Welfare- Even though that the welfare system is abused by many who are on the program, and that this is only slowing economic growth, if all the people who received government benefits were suddenly forced to get a job in order to survive, how would the economy benefit when these former beneficiaries are looking for jobs in this economy where finding employment is so difficult? Correct me if I'm wrong, which I hope I am, but besides the fact that it may be wrong for a government to take somebody's earnings and give them to somebody else, wouldn't it be better then to keep these people on welfare rather than have them suffer from unemployment? At least this way, they can keep putting money back into the economy (even though it would still be there if the government did not redistribute it).

Public Works- I understand that in order to enact public works programs tax dollars must be confiscated which ends up slowing down the economy. The Austrians say that these programs do not help reduce unemployment since they help destroy the amount of jobs they aim to create. But how can this be? How can a program that aims to create x amount of jobs also destroy x amount of jobs when the money to create for x amount of jobs requires tax money, which, let's assume is levied on each citizen of a certain area equally. Couldn't a certain x amount of jobs be created without destroying any as long as the tax per citizen is low enough, which depends on the number of citizens in the area and the number of jobs created?  Also, why wouldn't this work with a progressive income tax (not that I am assuming that this plan would work in the previous situation)? At least that way,  smaller business owners would not get hurt as much.

Minimum Wage- I've heard numerous times that anybody who doesn't produce enough to earn a wage higher than the minimum wage cannot easily find a job, but this video posted by Schitt Report says quite the contrary.         http://www.youtube.com/watch?v=7gHpYUO4u5g

Once again, thanks to anybody who takes the time to answer these questions and sorry if they sound naiive.

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Welcome to the Mises Forum!  You raise some good questions.  I'll see what I can do to shed some light for you...

 

cluelesshighschoolstudent:
how would the economy benefit when these former beneficiaries are looking for jobs in this economy where finding employment is so difficult?

Well...how would it benefit from them not looking for jobs and sitting around getting paid to do nothing?  You asked: "wouldn't it be better then to keep these people on welfare rather than have them suffer from unemployment?"

But they already are unemployed.  Collecting a welfare check is not a job.  You're not producing anything.  You're just consuming the fruits of other people's labor.  You're a leech.  Parasites aren't good for anyone...certainly not the host, and eventually the host dies, and then often times, the parasite with it.

You have to remember what it is that makes us prosperous.  Wealth is basically the ability to have your desires fulfilled.  (There are of course more precise ways of looking at it, but this is the main point.)  Economic growth occurs when wealth is increased...that is, either more desires are fulfilled overall, or desires are fulfilled at a lower cost (or both).  And what is it that people desire?  In the simplest of terms, people want goods and services.  People need goods to survive.  And it is the production of those goods that contributes to wealth.

The more goods and services that are available, the wealthier everyone is...not only because there is more to choose from, but also because everything much more abundant...meaning it has a lower cost...meaning more people can get more of it.  People are wealthier.

Now come back to your question.  How would the economy benefit if people were trying to get a job producing something versus if they weren't trying to produce anything?  The answer should be obvious...the more production we have taking place, the more that gets produced...the more that gets produced, the wealthier everyone is.

But I see where your question is coming from...you're wondering why it would do any good for people to be searching for jobs if there aren't any jobs for them to get.  But the truth is, there are always jobs to be had.  As long as there is any human desire that is unfulfilled, there is work to be done.

Your confusion comes from looking at the money (which is a common mistake, and a very easy trap to fall into).  The thought is that the fact these people who aren't producing anything have money to spend is a good thing, and that without them doing that spending, things would be worse.  But you touched on the actual reality in your question...

"wouldn't it be better then to keep these people on welfare rather than have them suffer from unemployment? At least this way, they can keep putting money back into the economy (even though it would still be there if the government did not redistribute it)."

If it would still be there anyway, why does it need to be redistributed?  What good does that redistribution do?  That may actually be the heart of your question.  And you're not alone.  Plenty of people have asked your same question...including a gentleman attending a lecture by economist Milton Friedman, over 30 years ago...Have a listen to how Friedman responds...

 

 

What he's getting at speaks to your next question...

 

Public Works- [...] How can a program that aims to create x amount of jobs also destroy x amount of jobs when the money to create for x amount of jobs requires tax money, which, let's assume is levied on each citizen of a certain area equally. Couldn't a certain x amount of jobs be created without destroying any as long as the tax per citizen is low enough, which depends on the number of citizens in the area and the number of jobs created?

That's kind of like asking "couldn't I build a wall of dirt from by back yard, without leaving a hole in the ground?"  There is a finite amount of resources available for the people who make up the economy to work with.  If you take resources from one person and give them to another, you haven't created anything new.  You've just moved resources around.  Suppose an entrepreneur has $100k, and he plans to buy a bunch of equipment and hire a bunch of people to start building a small taco shop and start selling quick mexican dishes.  And then the government comes in, takes his money and hires a bunch of people to go dig a ditch and fill it back up again.  Sure they "made work" for people...but the entrepreneur now has no resources with which to provide all the restaurant jobs.

Now, you're saying "well, what if only a little bit of the entrepreneur's money was taken...what if we only took a little from him and a little from everyone else...then no one would be seriously effected, and when we combine all the tax revenue it'll be enough to create more jobs."  But that doesn't change the outcome...it just changes the configuration.  Sure a smaller tax may not put that man out of business...but it could mean he can only afford to hire 2 people instead of 4.  Or it could mean he can only afford to stay open from 1pm to 5pm, instead of 9am-7pm.  It may not be easy to see all these little drawbacks, but they inevitably occur.  They have to...because the physical resources just aren't there.  And yes, there are producers in the market who will not be able to sustain even a slight increase in tax.  For whatever reason, they are barely getting by.  Any increase in cost, and they are in the red...meaning there are people who will be put out of business with even a slight increase in their costs.  These are called "marginal" producers...because they are the ones "on the margin".

The point is, everything has a cost.  As Friedman said, "there is no free lunch."  You can't shovel dirt from here, put it over there, and expect there not to be a hole in the first spot.

 

smaller business owners would not get hurt as much.

Bingo.  Why hurt them at all?

 

Minimum Wage- I've heard numerous times that anybody who doesn't produce enough to earn a wage higher than the minimum wage cannot easily find a job, but this video posted by Schitt Report says quite the contrary.

I'm not sure what your trouble is here.  That researcher doesn't seem to refute the economic fact that minimum wage causes unemployment...all she said was that in her central planning scheme, the costs associated with raising the minimum wage wouldn't be very high.  There are a few problems with this...

1) I have no idea what methodology was used to determine how all this stuff was quantified, and I'm skeptical it can even be done with any sort of legitimacy.

2) She claims that businesses could absorb these extra costs because they wouldn't be that much:  "Oh, if you were a restaurant, you would just have to raise your price on a $20 meal to $20.60."  This is just an incredibly naive way of looking at anything.  "Oh there's a change, but to me, it's a small change, so it shouldn't affect anyone."  It is just assumed that businesses could easily raise their prices and maintain the same volume of sales...as if customers were not price sensitive. 

Notice how she doesn't seem to offer an explanation as to why — if these businesses could so easily be charging 3% more and not see any drop in sales — haven't they already raised their prices?  Aren't businessmen greedy?  Aren't they only interested in profit?  Aren't we told (by leftists like that researcher) they're going after every last nickel they can?  If they could have been charging more for all of their products this whole time, why the hell weren't they?  Are we just to assume every single business in the entire $14 Trillion dollar, 310 million person economy is too stupid to find out what price maximizes their revenue?  They need a federally mandated minimum wage to increase their costs before they would try to raise their prices and charge more?  Of course not.  Economist Murray Rothbard pointed this out when speaking on a consumption tax...the idea was put forth that any tax on businesses could be (and/or is) just passed along to the consumer in the form of higher prices.  Here's his response:

"Prices, at all times, tend to be set at the maximum net revenue point for each seller. If the sellers can simply pass the 20 percent increase in costs onto the consumers, why did they have to wait until a sales tax to raise prices? Prices are already at highest net income levels for each firm. Any increase in cost, therefore, will have to be absorbed by the firm; it cannot be passed forward to the consumers."

3) Most of all, this woman's entire analysis ignores the fact that a minimum wage forces lower skilled workers out of the job market..thus, as I said, causing unemployment.  Milton Friedman explains:

 

 

Once again, welcome.  I look forward to answering any more questions you might have.

 

 

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Anenome replied on Fri, Dec 2 2011 5:59 PM

cluelesshighschoolstudent:

Welfare- Even though that the welfare system is abused by many who are on the program, and that this is only slowing economic growth... wouldn't it be better then to keep these people on welfare rather than have them suffer from unemployment? At least this way, they can keep putting money back into the economy (even though it would still be there if the government did not redistribute it).

Better for who? In this case, good politics is bad economics; by which I mean that while you might have a short-term economic down-turn from the loss of spending as these people tightened their belts, the long term effect of a more productive economy as these people obtained jobs and the economy absorbed them would be better for all involved.

cluelesshighschoolstudent:
Public Works- I understand that in order to enact public works programs tax dollars must be confiscated which ends up slowing down the economy. The Austrians say that these programs do not help reduce unemployment since they help destroy the amount of jobs they aim to create. But how can this be?

If you're hired to work on an unproductive government project you can't work on an actually productive private-business project, and money spent by the gov can't be spent productively by citizens. If you want to see what an entirely centrally controlled economy looks like, look no further than communist Russia and pre-mixed-capitalist China.

cluelesshighschoolstudent:
Minimum Wage- I've heard numerous times that anybody who doesn't produce enough to earn a wage higher than the minimum wage cannot easily find a job, but this video posted by Schitt Report says quite the contrary.         http://www.youtube.com/watch?v=7gHpYUO4u5g

Is that a question? The minimum wage should be abolished, it's a sham that actually kills jobs because any job not worth the minmum becomes illegal, even if you had an employer willing to pay less and a worker willing to receive less. In practice, the minimum wage never exceeds the free-market average, which is why it's not a big deal, but it still harms workers whom are less productive than average and kills jobs that are marginally productive. If the MW is so great, why not set it to $100 / hour, then everyone could be rich. Say that to someone arguing for the MW and even they will realize there's something wrong with that logic, even if they can't put their finger on it :P In practice, it would eliminate every job not worth $100 / hour.

Autarchy: rule of the self by the self; the act of self ruling.
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Clayton replied on Fri, Dec 2 2011 6:29 PM

Why did you mis-spell (and emphasize it) Schiff's name? Can a mod fix this, please?

Welfare- Even though that the welfare system is abused by many who are on the program, and that this is only slowing economic growth, if all the people who received government benefits were suddenly forced to get a job in order to survive, how would the economy benefit when these former beneficiaries are looking for jobs in this economy where finding employment is so difficult?

Bang-bang changes to the status quo are not a part of liberal public policy recommendations. Welfare needs to be dismantled. That doesn't and shouldn't mean overnight. However, without enlightened individuals in the government, such decisions will eventually be taken out of the hands of the status quo system and will occur via crisis and catastrophe. In this sense, it's better to make a dramatic change even thought it will cause suffering as a result of market shock than to put the matter off until it is decided by war and/or economic collapse.

For example, Ron Paul's proposal to cut $1 trillion from the Federal budget immediately could be criticized as a "hard landing" solution but it's better than the alternative which is putting of the spending cuts until the US government goes bankrupt (and bankrupts the US public along with itself). The economy will begin a precipitous and unstoppable collapse as interest rates on the debt increase eating up more of what little budget is left as tax revenues shrink due to a collapsing private sector. The government's debt is adjustable rate. Think about that.

Correct me if I'm wrong, which I hope I am, but besides the fact that it may be wrong for a government to take somebody's earnings and give them to somebody else, wouldn't it be better then to keep these people on welfare rather than have them suffer from unemployment? At least this way, they can keep putting money back into the economy (even though it would still be there if the government did not redistribute it).

More people producing results in cheaper goods and services so "unemployment" is not a valid argument against moving people off the public dole.

 

Public Works- I understand that in order to enact public works programs tax dollars must be confiscated which ends up slowing down the economy. The Austrians say that these programs do not help reduce unemployment since they help destroy the amount of jobs they aim to create. But how can this be? How can a program that aims to create x amount of jobs also destroy x amount of jobs when the money to create for x amount of jobs requires tax money, which, let's assume is levied on each citizen of a certain area equally. Couldn't a certain x amount of jobs be created without destroying any as long as the tax per citizen is low enough, which depends on the number of citizens in the area and the number of jobs created?  

It doesn't matter how thinly you spread the tax... the money that is taken would have been spent on retail goods (creating retail jobs) or whatever.

It's easy to see why you're wrong if you imagine an economy with 100% private-sector employment. Every worker the government employs is, arithmetically, a worker no longer employed in the private sector. At least the money that was being spent by consumers that employed the worker who has moved from private to public sector is now being collected in taxes. The problem generalizes to the case of less than 100% employment just fine.

Also, why wouldn't this work with a progressive income tax (not that I am assuming that this plan would work in the previous situation)? At least that way,  smaller business owners would not get hurt as much.

Yes, the magic of "progressive" taxes to fix all ills. It is impossible to target taxation. The wealth of the rich is just one degree of separation from the poor. A rich man who buys a yacht employs all the people that go into the building of the yacht. Tax him, he buys one less yacht, so many less people are employed. This is just 3rd grade arithmetic.

Ask yourself this: if progressive taxes work as advertised, how come wealth is more concentrated in the hands of wealthy Americans today than it has ever been since the Federal income tax was first instituted in 1913? The tax schedule was progressive from day one and has generally become more progressive over time. Also, remember that the lowest tax bracket today (15%) that is levied on the poorest pauper who earns even $5 of income (you have to pay your 75 cents to the IRS) is higher than the highest income tax bracket that existed in 1913 (10% on millionaires). A tax schedule that goes from 80% for the poor to 90% for the rich would still technically qualify as "progressive." This is mumbo-jumbo.

Nothing is gained by outlawing the sale of labor between $0 and the minimum wage. You just quash the affected segment of the economy (which, as always, hurts the poor the most).

Clayton -

http://voluntaryistreader.wordpress.com
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Why did you mis-spell (and emphasize it) Schiff's name? Can a mod fix this, please?

That's what the YouTube channel where he got the video from is called. As for the emphasis, I have no idea.

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RothbardsDisciple:
Clayton:
Why did you mis-spell (and emphasize it) Schiff's name? Can a mod fix this, please?

That's what the YouTube channel where he got the video from is called. As for the emphasis, I have no idea.

Yes, if you view the video, you'll see it's from an anti-Schiff channel not-so-cleverly named "schitt report" to play off the name of Peter's actual channel.  The emphasis was added to make it clear the source of the video is not Peter Schiff, but the anti-Schiff channel...as "schiff" and "schitt" are only differentiated by the placement of two small curves, placed at either the top or bottom of a couple of crosses....easily missed if you're not looking closely.

 

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Good extrapolation of the mysterious italics, James.yes

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+1 for overly intricate explanations.

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Neodoxy replied on Fri, Dec 2 2011 11:38 PM

Great to have you here! (sudden influx of new people much?) I was in the same shoes that you were a few years ago so I daresay that I could help you out. If you have any questions that you'd like to talk one on one about with someone then feel free to shoot me a PM :)

James did a great job, so I'll just throw in my two cents in case of tl;dr and reaffirmation. Also I might add that your post is quite well worded.

"if all the people who received government benefits were suddenly forced to get a job in order to survive, how would the economy benefit when these former beneficiaries are looking for jobs in this economy where finding employment is so difficult?"

To the supply and demand graph!!! (economy bat signal)

The laws of supply and demand work in practically all cases, this is no exception. The upwards sloping line is supply, the downards one demand. In our example more people would need jobs, this would mean that the supply of labor would shift to the right, or become more plentiful at any price. This unfortunately requires wages to fall, however because of this quantity and price both increase, this means that the quantity of goods produced by the economy rises and their price falls. So as for your first question: The economy benefits because more goods are produced which in turn means that real wages rise because for the same amount of money you can by more goods (supply and demand again)

As for how they would find jobs in the first place, we would have to pray that minimum wages would be repealed, see the milton friedman video on the subject. Let's just say that minimum wages are generally the stupidest economic ideas that exist because they increase the cost of poor people's labor without increasing their productivity. Fail. At any rate there are then two things that could happen, the first being voluntary charity by other people, which I think would be a lot more prevalent if we stopped relying on government, and secondly a fall in wages. The people who were formerly on welfare would have to accept fairly low wages, below what the market rate was pre-cutoff. With this being said costs in general would fall as a result of their addition to the workforce, somewhat cushioning their impact. So many would benefit, but those on welfare may well lose. 

 "Couldn't a certain x amount of jobs be created without destroying any as long as the tax per citizen is low enough, which depends on the number of citizens in the area and the number of jobs created?"'

To put it simply, no. In this instance (because we are talking about overall employment levels) the economy actually does work like a pool. This is usually a gross error, but it's as though you're scooping out water and then pouring it back in, you can only put as much money back into the economy as you take out. 

"why wouldn't this work with a progressive income tax (not that I am assuming that this plan would work in the previous situation)? At least that way,  smaller business owners would not get hurt as much."

Now that depends upon how 'progressive' 'progressive' is, now doesn't it. In our current situation this might not be the case because one could argue that the highest income brackets which save more have stockpiles of money which specifically are not being spent because no one wants to start a business in this atmosphere, but under general equilibrium conditions you take away from the rich, the rich have their money invested or saved, if it's invested then you're just taken money that would have been invested (a form of spending) and spending it somewhere else. 0 sum once again. If you inflate the money then you're only confiscating it from one area of the economy because prices rise, the same effect occurs when you work with savings.

"http://www.youtube.com/watch?v=7gHpYUO4u5g"

She never actually answered the question of how it is that an increase in the minimum wage wouldn't increase unemployment. She sort of shuffles around this by saying that there will be modest increase in prices but this is assumin a number of things, the first is that the new price structure won't encourage skilled workers to be hired instead of unskilled, that the modest price increases necessary won't result in a decrease in net yield (why is it that these places don't just up their prices anyway if they will get this extra money?) and that the price increase will be uniform throughout these various industries. For instance higher class resraunts will begin to look more appealing because their above minimum wage employees won't need an increase in pay and their prices need not be raised. Finally it will be the smallest start up businesses that are hurt the most by these sorts of increases. You can't change economic laws like this. Sorry.

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Anarcho replied on Sat, Dec 3 2011 8:37 AM

I noticed that the video the OP linked to has its ratings disabled.  Strange.  I also went to the other videos by this fellow and low and behold the ones I went to also had their rating disabled.  I decided to try and make a civil comment on the OPs linked video and I got a message "waiting for approval"  It never went through so I tried again and got the same result. 

"It is easy to be conspicuously 'compassionate' if others are being forced to pay the cost." - Murray N. Rothbard.

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tunk replied on Sat, Dec 3 2011 9:09 AM

On the minimum wage: you might want to look at this thread.

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Wheylous replied on Sat, Dec 3 2011 11:52 AM

You know, tunk, I find a lot of your posts very informative, I'm just a little put off by your avatar XD

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Anarcho:
I noticed that the video the OP linked to has its ratings disabled.  Strange.  I also went to the other videos by this fellow and low and behold the ones I went to also had their rating disabled.  I decided to try and make a civil comment on the OPs linked video and I got a message "waiting for approval"  It never went through so I tried again and got the same result.

A channel with a vulgar name, created solely for trolling doesn't allow comments or ratings.  Go figure.

 

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JJ, I have a few comments:

There is a finite amount of resources available for the people who make up the economy to work with

No there isn't. If there were, after a time we could only make new stuff out of waste, which is not true. We don't have zero-sum resources yet. (Technically, in the very much ultimate sense, yes, there is a finite amount of matter on earth, but in the practical sense, much has been hitherto untapped).

Plus, if you take money from someone who postpones consumption and you give it to someone who would consume now, doesn't this create incentives for businesses who benefit from the consumption to expand? Of course, this would be an expansion that wouldn't exist in a free market, but heck, if there is a constant system of taxation it doesn't matter (it wouldn't be a bubble that would burst because the system wouldn't revert back to free-market). How do I go wrong in this stream of thinking? Is this simply a matter of when you stop carrying things out? Because I could make my above argument much more favorable if I carried it out and said "and this creates new jobs, which in turn create new jobs, and so on and on", and you can counter by saying "well, take the scenario without the redistribution and you will have the wealth come around in time and create jobs which create new jobs, and so on and on. Is the difference simply the short term? I'm confused, likely through numerous layers of fallacies.

Next:

"Prices, at all times, tend to be set at the maximum net revenue point for each seller. If the sellers can simply pass the 20 percent increase in costs onto the consumers, why did they have to wait until a sales tax to raise prices? Prices are already at highest net income levels for each firm. Any increase in cost, therefore, will have to be absorbed by the firm; it cannot be passed forward to the consumers."

I don't think this is right. Sure, it'd be nice if sellers count work that elasticity until they sell at the unit elastic price, but aren't we taught that markets tend toward equilibrium? Walmart could increase its prices to the unit elastic price, yet then a competitor could come in and sell at the equilibrium price and take away all of Walmart's customers. Competition tends to push prices towards the equilibrium price.

 

Clayton,

More people producing results in cheaper goods and services so "unemployment" is not a valid argument against moving people off the public dole.

It's not a 1 to 1 ratio, though, is it?

how come wealth is more concentrated in the hands of wealthy Americans today than it has ever been since the Federal income tax was first instituted in 1913?

Wonderful claim. If you can back this up with sources (who says that it was less concentrated before 1912?), it would be a great piece to use in a debate. So sources, please?

the lowest tax bracket today (15%) that is levied on the poorest pauper who earns even $5 of income (you have to pay your 75 cents to the IRS)

I thought that you don't pay income tax if you are below some income level.

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I just began watching the video:

1) She claims that people at the minimum wage cannot afford all things necessary to live.

Your response?

2) 70 % minimum wage increase? IS SHE INSANE?????

3) She wants to add $20,000 to a person's income out of free air? Is she insane?

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Wheylous:

There is a finite amount of resources available for the people who make up the economy to work with

No there isn't.

Really?  Somone eliminated scarcity and didn't tell me?

 

If there were, after a time we could only make new stuff out of waste, which is not true. We don't have zero-sum resources yet.

What is this "yet" business?  Two sentences ago you told me there wasn't a finite amount of resources.  Now you're saying it's possible to reach "zero-sum" (which you should probably define).  Which is it?  Is there a limited amount of resources, or are they infinite?  It's one or the other.

 

(Technically, in the very much ultimate sense, yes, there is a finite amount of matter on earth, but in the practical sense, much has been hitherto untapped).

Your problem is you're thinking about this in much the wrong way.  Yes, there is a finite amount of matter on the Earth, but that's not what makes resources scarce.  And the fact that there's still oil and minerals in the ground isn't why we haven't "run out" of resources.  When I say there is a limited amount of resources what I am talking about is the existence of scarcity.  There is only so much we can do at any given time.  This doesn't mean we have some stockpile that is being depleted and will eventually run out.  This means we have an operating capacity.  In microeconomics this is illustrated as the production–possibility frontier.  Generally that graph is used to show the tradeoffs made between production rates of two commodities that use the same fixed total of the factors of production.  It illustrates what I'm talking about (albeit on a micro level).  When I say "resources are limited" I mean that if I cut down a tree to burn for firewood, you can't use that same tree to build your house.

Yes, we can grow another tree...but this takes time.  There is only so many trees available at any point in time.  There is only so much that can be done at any point in time.  Of course, these days, we can get a lot more done in a lot less time...with a lot less resources.  (This is why we are wealthier than our ancestors).  This is the result of economic growth through the division of labor and capital accumulation.

As mentioned here, we'll probably never run out of oil.  Largely because there's still a lot available, and because we'll transition to other sources of energy.  But that doesn't mean it's unlimited.  If that were the case we wouldn't be looking at $100/barrel.  We are limited in how much oil we can currently extract and refine.  Our supply will last longer than a lot of people believe because (as the gentleman mentions) for one thing, our recovery rate is improving.  And for another, prices function to ration resources and allocate them most efficiently.  If oil is that important (i.e. there is a high demand), as it gets more and more scarce (i.e. a lessor supply) the price will go up...leading to less consumption of it.

Yes, we'll constantly have resources (through lengthening the usage of current ones through free market rationing by the price system, as well as technologies that utilize the resources more efficiently, thus doing more with less — making the resources less scarce...and also through innovating new resources (or, innovating ways to make things that currently have no or little productive use into resources that can be used for something people desire).  But just because we'll have resources into the future it doesn't mean we have access to an infinite abundance at any point in time.

There is always a limit.  This is the entire basis of economics.

 

Plus, if you take money from someone who postpones consumption and you give it to someone who would consume now, doesn't this create incentives for businesses who benefit from the consumption to expand?

Where are these businesses going to get the resources needed to expand if said resources are all in the hands of the consumers?  Again, there is a limited amount of resources, and they can't be in two places at once.  You're falling into a Keynesian way of looking at things...assuming aggregate demand is what drives economic growth.  What you're saying is basically in line with the mainstream proposition that if you just give consumers more money, they'll go shopping, which will create business for retailers, getting them to expand...creating more jobs, and thus more people who have money to spend, and therefore more shopping, and more retail expansion and more jobs and more spending...into a neverending upward sprial of increasing wealth.  It would just be a constant climb upward with ever-growing prosperity for all.  Everyone should get the mall!

However...the reality is businesses expand by drawing on reserves of capital and generating activity in the higher order stages of production.  But where would those reserves come from if no one were postponing their consumption?  Remember growth comes from savings...and savings is literally underconsumption.  If you take money from people who would rather be saving, and then hand it to people who would spend it, all that does is remove opportunity for those businesses to expand.  (And of course people wouldn't be very happy about your stealing from them).

You're basically recommending exactly what the government has done...incentivize spending to boost GDP.  The only difference is there is only so much money the people will allow to be stolen from them.  There is an upper limit to the amount that you can take from those who would postpone their consumption to hand over to people who would spend right now.  And there are only so many people who are interested in spending now.  So to make up for it the Fed just prints money and the government spends it for us.  And what the government doesn't spend is made available for those businesses we were just talking about to borrow...thus lowering interest rates artificially...thus leading to malinvestment...thus leading to a bubble...thus leading to a bust. 

This of course is at the heart of Austrian Business Cycle Theory.  (Of course, check the links there...especially the "full collection" one.  For an intro, I'd go with this, and this.).

 

Of course, this would be an expansion that wouldn't exist in a free market, but heck, if there is a constant system of taxation it doesn't matter (it wouldn't be a bubble that would burst because the system wouldn't revert back to free-market). How do I go wrong in this stream of thinking?

I'd tell you, but I'm not even exactly sure what you're thinking.  It sounds like you're saying a boom can go on forever, so long as you tax and spend enough.

 

Is this simply a matter of when you stop carrying things out? Because I could make my above argument much more favorable if I carried it out and said "and this creates new jobs, which in turn create new jobs, and so on and on", and you can counter by saying "well, take the scenario without the redistribution and you will have the wealth come around in time and create jobs which create new jobs, and so on and on. Is the difference simply the short term? I'm confused, likely through numerous layers of fallacies.

No the difference is in the fact that your central planning scheme wouldn't work that way.  You might go back to this thread and read through the broken window fallacy discussion with "Fool on the Hill" (which was recently resurrected, actually).  Your argument sounds a lot like his.

 

I don't think this is right. Sure, it'd be nice if sellers count work that elasticity until they sell at the unit elastic price, but aren't we taught that markets tend toward equilibrium? Walmart could increase its prices to the unit elastic price, yet then a competitor could come in and sell at the equilibrium price and take away all of Walmart's customers. Competition tends to push prices towards the equilibrium price.

Your first sentence claims you don't think Rothbard is right...yet the rest of your paragraph goes on to agree with him... ?

 

Wheylous:

I just began watching the video:

1) She claims that people at the minimum wage cannot afford all things necessary to live.

Your response?

My response: "And?"

 

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Clayton replied on Sat, Dec 3 2011 8:05 PM

It's not a 1 to 1 ratio, though, is it?

Well, we have no idea what the ratio is and that's something that is properly unknowable. The point is that simply saying "increasing the minimum wage might increase the income of some people so we're all better off" is absurd when it is counterbalanced by the fact that those who are prohibited from working below the minimum wage are no longer producing and not only are they not earning income for themselves, they're not making all of our goods and services cheaper.

The mantra from the CATO types is that "minimum wage is non-ideal but it's not really the biggest issue... its impact is pretty minimal". It is not minimal. Visit Brazil, Mexico, India or any of a number of countries with no MW or a MW so low as to be effectively non-existent. The cost of living in these countries is orders of magnitude lower than the cost of living in the US. The most brutal part of it all is this big lie that there are "basically no poor people in America". Utter tripe. The US is just about the worst place in the world to be if you're not making at least $20-25K or on the government dole. You can't afford anything and dealing under the table is becoming increasingly difficult, if not impossible. We are being Europeanized.

Wonderful claim. If you can back this up with sources (who says that it was less concentrated before 1912?), it would be a great piece to use in a debate. So sources, please?

I don't know the sources but it's a perennial headline in the MSM these days "Income gap at historic level" "Wealth is more concentrated than ever" etc. I'm sure a quick googling could satisfy your curiosity as to where these claims are ultimately coming from.

I thought that you don't pay income tax if you are below some income level.

Nope. If you have $5 of taxable income, it will be taxed. You do get a "personal deduction" so I guess I'm exaggerating a bit.

Clayton -

http://voluntaryistreader.wordpress.com
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Well, of "taxable income" which is above some amount of total income.

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Furthermore, this article says that current levels of inequality are at Gilded Age levels:

http://www.huffingtonpost.com/2011/10/26/income-inequality_n_1032632.html

(According to some guy from the EPI)

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