Wednesday, October 5, 2011

On Innovation and Income Disparity

(another excerpt from the past)

The costs of implementing, enforcing, and complying with every government action are significant.  Any tax on businesses or individuals, any social program, any regulation that mandates safety or health benefits, any environmental legisla­tion, any action at all has the same effect.  The costs of these actions are borne by businesses, as well as by everyone who relies on being employed by business or on the products created by business--i.e., by all members of society.  Any business which cannot support the higher level of costs will fail. Any prospective business which is unable to earn the higher rate of return that is re­quired because of the increased cost level will never even be created.                       
As the number of business failures rises, a nation's total output must fall.  This reduction will result in higher prices for those goods still available.  The cost of government actions to offset these price increases (e.g., cost of living increases for retirees and government employees, unemployment compensation) will speed the decline.  
By reducing the number of viable enterprises, the cost of every government action reduces the amount of competition faced by a nation's remaining businesses.  Competition, however, supplies the pressure which prompts the innovations that any society requires to manage its scarce resources.  Without this pressure, enterprises are allowed to continue using inefficient processes.  By increasing the costs which businesses must bear in order to survive, governments effectively reduce the number of new technologies which can be afforded, technologies that would have improved the living standard of its citizens.  When the evolutionary pressure of competition is completely checked, innovation will stop and society will deplete its usable  resources. 
The problems which plague a nation will worsen as the competition faced by its industries decreases and the investment they make in innovative technologies declines.  Government's predictable reaction--to further its "resolve" by implementing additional mandates--will only make matters worse.  This is the vicious cycle which is already being experienced in the socialized nations of the world.
As the socialized economy spirals downward, the nation's wealth will become concentrated in a small group of citizens--the owners of those businesses which are still able to cover the high costs that government imposes upon them.  As the cost level rises, fewer and fewer of these businesses will survive, concentrating the wealth even further. 
Fewer businesses mean fewer jobs, thereby increasing the competition for those jobs that remain--and forcing the nation's wage level ever lower.  The citizens of a socialized nation, whose purchasing power declines due to rising prices, will find that their earnings follow the same downward path. 
This cycle will result in an accentuated disparity between the ever-decreasing number of the extremely rich and the ever-increasing number of the extremely poor.  The so-called "dichotomy" between rich and poor is an inevi­table result of the costs which government imposes on the crea­tion of opportunity, and will only worsen as government's scope of influence grows.  [In a nation which does not limit the opportunities of its citizens a normal distribution of earnings can eventually be expected;  every time the rate of return required by businessmen is reduced their incomes will decline as well.  At the same time, by increasing the demand for laborers, reductions in the required rate of return act to increase the wages businessmen must pay.  Any limitations whatsoever will increase the required rate of return and skew the distribution, reducing the number of affluent citizens and increasing the number of impoverished ones.]


  1. You comment in the NYTs this morning is illustrative of what the lack of a good liberal arts education produces: sweeping and ill-considered generalizations. In this instance, your depiction of the OWS protesters. My brother, who graduated with a B.A. in Philosophy, went on to become the Director of Research at a major investment firm. I'd wager there are thousands of successful entrepreneurs in NYC who came out of college with a liberal arts degree. Perhaps, a better liberal arts eduction would have given you the critical-thinking skills to think about problems in different ways or from different perspectives, instead of being stuck within such narrow ideological confines.

  2. If you had bothered to THINK about the post you are referring to you might have gotten past your "ideological confines"--the point was that the education establishment and the government have brainwashed everyone into believing that they need a college education and that American kids are being saddled with debts they could never afford to obtain degrees with little utility to employers.

    FYI, I have no problem with liberal arts degrees--its liberal arts degrees from second or third tier colleges that are sold to gullible 18 year-olds as the key to their future prosperity regardless of the cost.

    And one last thing, why is it that leftward-leaning commenters always seem to resort to name calling? FYI, I went to one of the top universities in the country and somehow managed to escape without meekly believing everything I was taught. To me that's more indicative of the critical-thinking skills you accuse me of lacking than your thoughtless regurgitation.

    How about next time you comment you have an actual argument rather than a mindless platform?

  3. Hey reasonable man, check out germany with that whole lower unemployment rate thingy, more equal distribution of wages, a marginal budget deficit at 3.3%, higher taxes and even a universal healthcare system in place since before nazis had been invented. But apart from a little sarcasm, my actual argument is this: Government policy has an effect on the economy, if it is well designed it can have positive effects, if it is badly designed it will have negative effects. An example in my view of a negative policy in the US is requiring employers to provide for employees healthcare, this definitely makes it more expensive to hire workers, to consider being self employed etc. It is bad government policy. This is an america specific policy which should be changed. It does not follow that because I believe this I should believe; "The costs of implementing, enforcing, and complying with every government action are significant. Any tax on businesses or individuals, any social program, any regulation that mandates safety or health benefits, any environmental legisla­tion, any action at all has the same effect"
    That is ridiculous, all actions do not have the same effect, some governments have better policies than others, and they are doing better than the US. America, like Greece, needs to get a little more competitive...

  4. Germany is certainly best-in-breed of the Socialist nations--someone has to be. Couldn't agree more that U.S. policy connecting employment and healthcare is bad policy--even socialized medicine would be preferable to that. Also couldn't agree more that well-designed government policy is better than badly-designed government policy. The question is whether government policy makers are better at directing business to productive outcomes than a market based on supply and demand. I don't think so. (And please don't counter with the typical "out of control Wall Street/financial system" response--government policy (in the United States, Germany and everywhere else as far as I can tell) has tilted the world towards financial legerdemain by eliminating costs that should not have been eliminated and has put us into the current worldwide malaise. Eliminating appropriate costs will give you too much of something just like adding to them will result in too little.)