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September 12, 2005 / Gabriel

Economic Systems: Fear vs. Happiness

The question of economics is very simple: given that the world only has a limited amount of resources, how do you determine who gets what? After all, it is simply impossible for everyone to have everything.

Over thousands of years, men have tried all manner of economic systems to deal with this, from might-makes-right to feudalism to mercantilism to capitalism to socialism to communism to everything in between.

There are a lot of fancy names and theories, but the bottom line is that every single one of these solutions can be boiled down to this: who decides?

Think of it as a spectrum. On the far left of the spectrum, decisions on who gets what are made for everyone by a very small group of people—a centralized economy, like communism. They decide who gets what.

On the far right of the spectrum, decisions on who gets what are decentralized as much as possible—people decide among themselves through the process of trading directly with other individuals, as in free market capitalism.

Communism                                                                                                         Capitalism

<———————————————————————————————————————>

(centralized decision-making)                                          (decentralized decision-making)

This is nothing new or controversial. Under a purely communistic system, it is the government who decides how many chairs are made, at what price they are sold. And it is the government who decides how much each person makes.

Under a purely capitalistic system, anybody can make or not make chairs, and the price at which they can sell the chair is determined entirely by how much others are willing to pay for it. As for how much each person makes, again the government has no say and it is dependent entirely on what value others put on a given person’s work.

And of course there are all manner of systems in between, such as socialism, which splits the difference with the government deciding on some things and the market (i.e. people) deciding on others.

Now here is where it gets interesting.

In a true capitalistic system, any economic transaction occurs only if both parties are happier as a result.

For example, if I go to the store and buy a bag of cookies for $3, I do so because I am fundamentally happier with the bag of cookies than I am with my $3. If that weren’t the case, I wouldn’t buy it.

But exactly the same holds true for the store: they will only sell me the bag of cookies for $3 if they are happier with the $3 than they are with the bag of cookies. Otherwise, they wouldn’t sell it.

The same is true of work: a plumber will only go to work if he is happier fixing pipes and receiving $20 per hour doing so. If he was happier staying home doing nothing, there’s nothing preventing him from doing so. Conversely, the person hiring the plumber is happier paying $20 per hour and having fixed pipes than keeping that money and having leaky pipes. Everyone is happier by the transaction.

Thus, every single economic transaction in a true capitalistic system is one that increases the amount of happiness of everyone involved.

But, people ask, what if the plumber would have been even happier making $100 per hour like a lawyer does? That’s all well and good, but a capitalistic system only works when all people involved in the transaction are happier, not just one.

Just like the store owner would love to charge $300 for a bag of cookies, so everyone would love to make more money for their work. But the amount of money that you can receive—be it for a bag of cookies or the work you provide—is entirely dependent on how much value others put in what you have to offer.

Remember, not everyone can have everything. Under any system. But the rule of thumb under capitalism is that the more your work makes others happy, the more you will have.

Now let’s look at the other side of the spectrum: centrally-managed decision-making.

Under a centrally managed economy (such as communism), it is a subset of the population that makes the economic decisions for the whole population. This subset is always the ruling party, since making economic decisions for others necessarily involves using the threat of force to ensure compliance.

For example, if a store has a bag of cookies, in the centrally-managed economy the ruling party will determine the price. Let’s say it is $5. What if the person minding the store wants to sell it for $3 or $7? He is not allowed.

But it is not enough just to say that someone is not allowed to change the centrally-managed price. In order to prevent such action from happening, the ruling party is obliged to enforce its economic policies, and the only means the state has of doing so is the threat of harm.

There is no other option to the ruling party than to enforce its economic decisions by the threat of force. If it does not, people will make their own decisions, and we are right back to a free-market capitalist system.

Thus, any kind of centrally-managed economic decision-making is inherently based on fear. It is only effective if those making the decisions for the rest of the population have the ability to enforce those decisions, and to do so by coersion.

Therefore, our continuum from above could look like this:

Communism                                                                                                            Capitalism

<———————————————————————————————————————>

(Fear-based)                                                                                              (Happiness-based)

Now, some may say that these examples are of the extremes—that there’s a happy medium in between the two. But experience tells us that any system that takes economic decision-making out of the hands of individuals and puts it into the hands of a ruling class (i.e. the government) necessarily reduces happiness and increases fear.

For instance, take minimum-wage laws. These are common even in what otherwise would be considered very capitalistic countries. The government in this case dictates that employers may not hire anyone below a certain amount—they are making an economic decision for the population, and enforcing it by force (fines and jail time for violators).

What is the result of these laws? Very simply, employers are able to hire less people than they normally would without the laws (just like if our store raised its price on bags of cookies from $3 to $5, they would get less sales). And potential employees that would have been happy to work for an amount less than the minimum wage instead find themselves unemployed.

Thus, by inducing fear in both employers and potential employees and not allowing them to make their own economic decisions, the government has reduced the happiness of both (and increased the country’s level of unemployment).

Now, is there a legitimate role for government in the economy?

Absolutely: to maintain the peace, enforce honest economic transactions, and prevent economic monopolies that can distort the normal trade between people.

But other than that, the more government moves away from central planning and economic interference and towards individuals making their own economic decisions, the more society will move from a climate of fear to one of happiness

September 10, 2005 / Gabriel

The “Root Causes” of Terrorism

On the left, one of the most common refrains is that poverty is a major “root cause” of terrorism, and that by providing more aid to developing countries the threat of terrorism would be significantly reduced.

Ignoring for a moment the assumption that foreign aid actually helps countries out of poverty, which is not borne out by historical experience, this neo-Marxist theory doesn’t stand up to even limited scrutiny.

If poverty causes terrorism, then the poorer the country, the more one should see terrorist activities from that country. But this is simply not the case. Here is a list of the world’s 20 poorest nations, ranked by GDP per capita[i]:

Rank

Country

GDP per Capita

1

East Timor

$      431.68

2

Malawi

$      574.87

3

Burundi

$      606.62

4

Comoros

$      676.48

5

Congo, Democratic Republic of the

$      686.75

6

Ethiopia

$      689.89

7

Afghanistan

$      701.41

8

Congo, Republic of the

$      716.46

9

Eritrea

$      742.02

10

Madagascar

$      743.92

11

Guinea-Bissau

$      765.64

12

Kiribati

$      783.74

13

Niger

$      797.67

14

Mali

$      880.67

15

Liberia

$      961.76

16

Kenya

$   1,031.48

17

Benin

$   1,067.85

18

Burkina Faso

$   1,071.83

19

Central African Republic

$   1,117.70

20

Chad

$   1,118.61

Of these twenty countries, only one (Afghanistan) can be said to have truly produced any kind of serious terrorist activity. (Quick, can anyone name any terrorists from Ethiopia, Mali or the Congo?)

On the other hand, Saudi Arabia, with a GDP per capita at $11,157 (higher than Poland, China and Mexico), is one of the top exporters of international terrorism.

Nor are absolute poverty numbers an indicator. After all, one could argue in the case of Saudi Arabia that they have a high average GDP per capita but that the wealth is centralized in the hands of very few people while the majority of the population lives in poverty.

But this doesn’t bear out either. Here are the top 20 countries with the highest percentage of people living with less than $2 per day[ii]:

Rank

Country

% < $2

1

Nigeria

91%

2

Mali

91%

3

Zambia

87%

4

India

86%

5

Burkina Faso

86%

6

Niger

85%

7

Pakistan

85%

8

Rwanda

85%

9

Central African Republic

84%

10

Madagascar

83%

11

Gambia, The

83%

12

Nepal

83%

13

Ghana

79%

14

Mozambique

78%

15

Bangladesh

78%

16

Ethiopia

76%

17

Sierra Leone

75%

18

Laos

73%

19

Mauritania

69%

20

Senegal

68%

Again, with the exception of Pakistan none of these are serious breeding grounds for international terrorism.

So it’s rather obvious that poverty (or at least poverty alone) does not breed terrorism. Therefore logically neither will foreign aid to developing countries eliminate the threat of terrorism.

Now let’s look at the conservative argument: namely, that totalitarianism and oppression cause terrorism (and thus, that democracy and freedom are a key solution to eliminating terrorism.)

Here are 10 countries ranked in 2001 as having the least political and economic freedom in the world[iii] (alphabetically—all had a liberty score of zero):

Afghanistan

Burma

Cuba

Iraq

Korea, North

Libya

Saudi Arabia

Sudan

Syria

Turkmenistan

One will immediately recognize in this list many of the world’s top exporters of terrorism. And without question none of the most free countries in the world are exporters of terrorism (top 10 ranked alphabetically):

Austria

Canada

Denmark

Iceland

Ireland

Norway

Sweden

Switzerland

United States

Uruguay

So the neoconservative answer to terrorism (actively spreading democracy to eliminate the root cause of terrorism) certainly has some very strong factual justification.

But there’s one more, politically incorrect element to factor in. Of the 10 least free countries in the world, four are not major exporters of terrorism: Burma, North Korea, Cuba and Turkmenistan.

What separates these four countries from the other six? Religion.

Burma is Buddhist, North Korea is officially secular (but of a Buddhist tradition), Cuba is Christian and Turkmenistan just came out of 70 years of Russian-imposed secularism. All six other countries, each a known source of terrorists, are strongly Islamic.

Thus, from a purely objective standpoint, the data points to the “root cause” of terrorism as being a combination of Islamic extremism and totalitarian rule. And hence the ideal solution to terrorism is the establishment of freedom and religious tolerance in the Middle East, exactly the strategy that the United States and its allies has been pursuing in Afghanistan and Iraq[iv].


[i] Source: CIA World Factbook, March 2005

[ii] Source: World Bank 2002

[iii] Source: Freedom House 2001. Afghanistan was not rated that year but is generally accepted to have had one of the least free societies in the world—certainly less free than Cuba and Syria.

[iv] Source: National Security Strategy of the United States, 2002 (http://www.whitehouse.gov/nsc/nss.html)

September 10, 2005 / Gabriel

A Rational Look at Abortion

For all its emotion and controversy, the abortion debate is actually quite simple, and rests on a single question: at what point does human life begin?

After all, both the pro-choice and pro-life camps agree that killing a one-week old baby is murder. No issue there. And neither camp has an issue prior to conception. The only difference between the two, and the source of so much disagreement, is in that 9-month period in between. The absolute pro-life position is that human life begins at the moment of conception; the absolute pro-choice position is that life doesn’t begin until the whole baby is out of the womb. And of course there are many positions in-between.

The debate has nothing to do with women’s rights, or the right to privacy. These are red herrings that simply serve to confuse the real issue. Don’t believe it? Then try applying these rights arguments to a 1-week or 1-month or 1-year old baby: What if the woman doesn’t want the child? Isn’t ready? Was raped? Doesn’t have a father? Doesn’t have the money/time/resources/support for a baby? Can the woman abort her 1-week old baby? Of course not. She’d go straight to prison for murder. Because there’s no legal “right” that allows one human being to legitimately end the life of another (other than in self-defense.)

So the debate is entirely about when human life begins.

This is a very important question, because the answer determines whether one is simply making a lifestyle choice or committing infanticide—not something to be taken lightly.

Some people say life begins at conception. Others say 3 months. Others say at the time of a baby’s viability. And yet others not until the baby is physically separated from the mother. So who is right?

And the answer is: nobody knows. Not definitively. Sure, there are many with a certainty of opinion on this matter. On both sides. But certainty of opinion is far different from certainty of fact, and only unchecked hubris would not allow for the possibility of being wrong.  Thus far there is no scientific proof that life begins at one point versus another.

Given the absence of proof on this subject, and given the immense importance of the decision—whether or not to terminate what may possibly be a child—the obvious rational and moral decision is to err on the side of caution. To assume that life begins at conception, until proven otherwise. To not do so is to risk being wrong, and being wrong on this issue would mean participating in the murder of children.

Protecting children is one of the most important responsibilities that we have, both as individuals and as a society. And life and death decisions regarding children are not something we should take lightly or gamble with, especially not for the purpose of convenience or lifestyle choices.

And for those with religious or spiritual beliefs, being wrong on this issue has personal ramifications far more serious than simply feeling guilt over the death of a child–all spiritual beliefs save their harshest punishments for harm done to children.

If, at some point in the future, there comes definitive proof that human life doesn’t begin until some time after conception, then at worst the result of our cautious approach will have been some additional deliveries, which our society can handle. But if it turns out that at some time in the future life is proven to start at the time of conception, then we will spare humanity infanticide on a massive scale. In ignorance, then, playing it safe is by far the more enlightened choice.

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