Thursday, March 28, 2013

The Real Deniers

When the global warming enthusiasts started talking about "climate deniers" that was the moment that we all knew that global warming wasn't a science.  It was politics and religion.  Because science doesn't care about good and evil, about right and wrong.  It just cares about the instrumental results: does it work?

Still, science isn't everything.  It may be, as science seems to propose, that the universe has no meaning, but clearly, humans as social animals depend on the notion that life has meaning: they act as if it does.  There may not be "free will" but the cultural meme of the "responsible self" seems to have clear cultural benefit in human culture.

Sometimes, in other words, denial has its virtue.

But the denial of marginal economics and the price system by the Left is not one of them.

It was the classical economists that elucidated the remarkable social benefits of the price system, how it motivates people to serve others and how it corrects mistakes -- the wrong product at the wrong price -- through the cleansing effect of losses.

It was the marginal revolution of 1870 that placed the capstone in the powerful arch of modern economics.  If you need a reason to embrace the importance of the marginal revolution, here's a good one.  About four economists discovered this solution to the problem of use value vs. exchange value at about the same time.  There was Carl Menger in Austria, then Stanley Jevons in Britland, Leon Walras in Switzerland, and John Bates Clark in the US.

Significantly, this revolution cut the ground out from underneath Marxian economics -- with Das Kapital published ten years earlier in 1860 -- which had spun a brilliant labor theory of value and exploitation out of the contradictions between use value and exchange value.

The point is that there is no such thing as absolute value, in use or exchange.  Funny how liberals can opt for absolute transcendental values when needed.  And we thought they were all relativists.

In the economy there are just prices from buying and selling, and people make decisions about buying and selling based not on labor unit or usefulness or the exchange value but on a decision to buy or not to buy at a certain time and a certain place at a certain price.
  • Does someone decide to work an extra hour?  It depends on the return on that marginal hour of labor, taxes included, and the perceived value of the forgone leisure, on that day.
  • Does someone decide to buy a product?  It depends on the price, and other things that might be bought instead.
If you accept the basic science of the price system and the marginal revolution then you cannot be a Marxist and you cannot be a Progressive and you cannot be a supporter of the liberal administrative welfare state.  Because all these fashionable doctrines require a denial of the truth of the price system and the truth of the marginal revolution.

That's why liberals in the 1980s refused to admit the ideas of supply-side economics and called it "trickle-down" economics.

Arthur Laffer's famous curve in particular had to be marginalized, because it hit liberals right where they lived.  The Laffer Curve says that, if you are a big-government liberal and want to maximize the return on taxes, you ought to realize that higher tax rates do not mean higher tax collections. But, of course, the whole point of progressive politics is to demand that the "rich" pay more.  So the Laffer Curve cannot be true.

The problem with the deniers of the price system is not merely academic.  We have today a nice little piece about Venezuela and the cratering of the economy under Hugo Chavez.
The country that Chavez left us is a country that is financially ruined. True, we still have a lot of oil under our feet and good management can bring us back to a semi functional state in as little as half a decade. But the bonanza of the last decade will have been spent with very little to show for it.  It has been swallowed by corruption, inefficiency and gifts because what Chavez has done is to distribute cash around, never establishing anything productive and sustainable over time. Nothing.
The point is that the price system does a much better job of bringing the poor out of poverty than egalitarian politics -- let alone the particularly thuggish version practiced by Chavez.  Because the only way you bring the poor out of poverty is with the price system constantly jogging businessmen and consumers to improve their game.  Under chavismo nobody improves their game.

Then there are the disappointing returns from the financial transaction taxes recently imposed in Europe, reported by Daniel J. Mitchell.  These taxes, taking about 0.1 percent on the value of each financial transaction, seem to be collecting about 50 percent of the expected revenue.  Faced with the tax, people are doing fewer financial transactions.  Marginalism in action.  Who knew?

Lastly there is the peerless Sen. Elizabeth Warren (D-MA).  She had a lefty up before the Senate Banking Committee to discuss the virtues of the minimum wage laws.  As one critic wrote: "Leave it to an academic to be totally ignorant of the workings of the economy."

There are a lot of liberals running around calling people that disagree with them "deniers" and "bigots."  But for some reason there are a lot of liberals running around that can spout absolutely ignorant things about the workings of the economy without being sent to the dunce's corner.

We know why that is.  Nothing is left of liberal politics if you accept the basic notions of the price system and marginal economics.  And that nobody can deny.

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