Pilot Guest Columnist: Gary Saul Morson & Morton Schapiro: Try thinking like an economist

https://pilotonline.com/opinion/columnist/guest/article_9df492fc-b07e-5333-a17d-60aa7ada9490.html

“Economics is all about the allocation of scarce resources. There are no gains without costs. Is one really prepared to let the world perish rather than allow the smallest injustice?”

15 thoughts on “Pilot Guest Columnist: Gary Saul Morson & Morton Schapiro: Try thinking like an economist

  1. The authors make a good point. It is certainly true that many people confuse principles of economics with principles of justice and morality. One topic where this is especially common is the question of profits.

    Generally speaking, contemporary economists are untroubled by profits. Defined broadly as the difference between income and expenses resulting from an enterprise, economists see profit as an incentive for the investment required to perform the enterprise.

    Moral skeptics are then prone to ask, Where does the money for profits come from and, Why should a man need an incentive to do what is right and just? Shouldn’t all enterprises operate on a non-profit basis?

    These questions, however, arise from failing to consider the nature of production and production’s relation to money.

    Consider a parcel of land from which an annual crop is produced. Assuming the planning, labor and technology used to produce the crop remain the same year after year, and the weather and other environmental factors remain largely constant, the size of the crop will remain the same year after year. In that case an equilibrium occurs in which the totality of money in the economy and the totality of goods remain constant. Prices adjust to levels that become predictable.

    Now imagine that better planning and technology are applied to the land such that its productivity doubles. In that case, the totality of money remains the same, but the totality of goods increases, disrupting the prior equilibrium of money and goods. Prices must fall for a new equilibrium to become established.

    The land owner who doubles its productivity may at first enjoy an increase in income over expenses, but eventually that profit must evaporate as the greater supply of goods drives prices down.

    The point to focus on is that profits here derive from increased production but, all else being equal, they are a temporary occurrence. You might imagine that a greater sum of money in the landowner’s purse is somehow removed from the economy at large, but in fact this is impossible. Either the profits must be spent on increasing production again (by, for example, buying more land), or else they must eventually be spent on consumption (by, for example, subsequent generations of the landowner’s family).

    One should note, too, that increasing the totality of goods in relation to the totality of money, causing prices to go down, are both social goods. That is, they improve prosperity for everyone.

    Finally, we might ask if there are ways of creating profits merely by reducing expenses (for example, by paying labor less than the workers “deserve”). This obviously can be done, but there are natural limits. For one thing, workers won’t work for long for less than they “deserve.” For another, even profits created in this way must eventually be spent on consumption, returning the money into circulation.

    Ultimately, the money needed to cover the “cost” of profits already exists at any given moment, and the best way to capture it is to increase production. There really is no moral question to be weighed, because profits, properly understood, derive from the improvement of general prosperity.

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  2. Profits are not a problem. So long as externalities and the cost of doing business in a secure, corruption free, clean, healthy, just, and well educated nation are accounted for.

    That’s what taxes are for.

    The opinion piece was interesting. My takeaway was that the perfect should not be enemy of the good.

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    1. RE: “So long as externalities and the cost of doing business in a secure, corruption free, clean, healthy, just, and well educated nation are accounted for.”

      I’d say your comment makes the very mistake the article in the Pilot tries to correct: You are substituting moral reasoning for economic reasoning.

      By way of illustrating the point, I don’t share any of your concerns about accounting for the costs of doing business. I do not agree with you that businesses bear any form of social responsibility.

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      1. Not social responsibility. Call it rent and utilities.

        Having a heathy and well educated workforce is good business. So is a reliable and honest legal system.

        A clean environment is essential if you want to keep investors, workers and their families. Otherwise they will move or sue. Even dogs don’t poop where they sleep and eat.

        So you can be a totally irresponsible businessman if you want, but not in my country. You won’t eat the beef and leave nothing but fat and gristle. Not here anyway.

        Good business environments are not cheap.

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    2. “So long as externalities and the cost of doing business in a secure, corruption free, clean, healthy, just, and well educated nation are accounted for.”

      They are. The externalities of providing those benefits for the productive are more than canceled out by providing the same things to those who only consume and produce little or nothing.

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      1. Do you really think that there so many loafers? I don’t think there are that many. I think there are a lot more who are working hard at multiple jobs and at the best of their abilities.

        I think there are a lot more large corporations feeding at the government trough. Especially in the defense industry. And those are pure tax dollars.

        Of course you don’t see those folks much. Not like the mythical “welfare queen” that Reagan invented.

        I am not a Pollyanna, but such bitter cynicism would sure eat a person up over time.

        In my opinion of course.

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        1. No, I don’t think there are that many loafers, they are just the other extreme of the spectrum.

          There are countless gradations of productivity in between.

          But the point is that the benefits of a lawful and cooperative society are equally available for all of them, and it is unreasonable to place all the burden for providing them on those who make the best use of them.

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          1. All the burden? Maybe a big chunk depending upon where the “cut line” is.

            You cannot realistically expect to fund our government on the backs of those who have the least.

            The top 1% have more wealth than the bottom 90%. Not envious just being practical. If we are to fund our government with taxes rather than debt we need those who profited the most from the benefits of being here to pay more.

            We can’t tap the median income folks who are already burdened with huge healthcare premiums of up to 35-40% of family income for coverage for four. Rent and education suck up the rest.

            We often depend upon those who do menial labor for modest pay to allow the gifted and talented time to innovate. Something worth remembering the next time we bitch about “moochers” who may get some assistance.

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          2. RE: “You cannot realistically expect to fund our government on the backs of those who have the least.”

            To an economist, the cost of government is a deadweight loss to the economy at large. Every penny of government spending is a penny not spent on producing food, clothing and shelter, for example. Thus, while you may imagine you are taxing the rich, you are in fact taxing everyone, including the poor.

            The solution to this puzzle is for government to limit its spending to providing a special category of benefits which everyone can enjoy, without exception. This special category of benefits is called “public goods” and includes such things as roadways, water systems and police departments. But notice, just as everyone enjoys the benefits, everyone pays the price, regardless of social status.

            Notice, too, that society through the agency of its government has no inherent right to extract the cost of public goods from the public. To say it does is to make a moral argument, not an economic one. As a matter of pure economics, government spending produces externalities just as private spending does. Thus — quite literally — every mile of highway includes some measure of the death of children who didn’t get enough to eat or adequate clothing to survive the winter.

            In other words, the moral argument that government has a “right” to tax the public is refuted by the moral observation that taxes harm those who are most vulnerable to their effects.

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  3. Government has a right to tax. The taxes are determined by legislatures which are the law creating arms of government as agreed upon by all America citizens. In both national and state constitutions.

    If you don’t agree, then support legislators whom you feel will vote your beliefs.

    If tax money provides the ability to buy food for lower incomes they will put that money back into economy. The redistribution will filter back eventually to the taxpayers in the form of profits for businesses in the chain.
    Plus the less hungry workers will be more productive and the family less sickly.

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    1. “Government has a right to tax”

      No, it has the POWER to tax, granted to it by the people. It has no inherent rights.

      Economics recognize adverse incentives, and one of the worst is that when a majority of the voters feel they are largely exempt from taxation, they will vote for increasingly larger government until the private sector is crushed and taxable commerce ceases.

      Liked by 1 person

    2. _RE: “If you don’t agree, then support legislators whom you feel will vote your beliefs.”

      I do.

      RE: “If tax money provides the ability to buy food for lower incomes they will put that money back into economy. The redistribution will filter back eventually to the taxpayers in the form of profits for businesses in the chain.”

      Not necessarily. It matters whether the people who eat the “free food” happen to be productive. If they are not, then the cost of feeding them is a pure loss. Non-productive members of society reduce the totality of goods in relation to the totality of money, causing prices to rise for everyone.

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