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Thoughts On Paul Samuelson’s Economics Text

February 25, 2010

If you were to attend an Ivy League university and take economics, they’d hand you Paul Samuelson’s economics textbook.  Considering they’re using it, I figured I should read it and see things from their perspective.

Well, I’m very disappointed in this book.  I had read reviews by several Austrian economists, saying it was terrible — and I pretty much agree.

I enjoyed the first few chapters, where he gives an outline of what he’s preparing to talk about.  He’s clear and concise, and talks about relevant social issues.  Shortly after that he dives head first into “economics”, and it’s all equations, no analysis, and no relation to life at all.

It becomes a lifeless, dreary book, and I got to where I couldn’t stand reading but five or six pages a night.  When a book is really bad, and I feel it’s my duty to read it, that’s how I handle it.  I slowly work at it a few pages a night.

It’s full of things like what you find below: (I’m going to bold certain points, then talk about them)

Two Cheers For the Market, but not Three

We have seen that markets have remarkable efficiency properties.  But we cannot say that laissez-faire capitalism produces the greatest happiness of the greatest numbers.  Nor does it necessarily result in the fairest possible use of resources. Why not?  Because people are not equally endowed with purchasing powerSome are very poor through no fault of their own, while others are very rich through no virtue of their own.  So the weighting of dollar votes, which lie behind the individual demand curves, may look unfair.

A system of prices and markets may be one in which a few people have most of the income and wealth.  They may have inherited the society’s scarce land or may have valuable patents and oil fields.  The economy might be highly efficient, squeezing a great amount of guns and butter from its resources, but the rich few are eating the butter or feeding it to their poodles, while the guns are merely protecting the butter of the rich.

A society does not live on efficiency alone.  Philosophers and the populace ask, efficiency for what?  And for whom?  A society may choose to change a laissez-faire equilibrium to improve the equity or fairness of the distribution of income and wealthThe society may decide to sacrifice efficiency to improve equity. Is society satisfied with outcomes where the maximal amount of bread is produced?  Or will modern democracies take loaves from the wealthy and pass them out to the poor?

There are no correct answers here.  These are normative questions that are answered in the political arena by democratic voters or autocratic planners.  Positive economics cannot say what steps governments should take to improve equity.  But economics can offer some insights into the efficiency of different government policies that affect the distribution of income and consumption.

Ok, now I will comment.  First off, it’s terrible how he oversimplifies complex problems, and then slants the argument toward some vague sort of socialism, or maybe communism.  I can’t tell with this guy really.

Some people are not equally endowed with purchasing power…?  And?  I don’t really know how to interpret that, as it conflicts with everything else he’d been saying in the book earlier.  So if a doctor goes to school for ten years, and then gets paid a lot more than a desk clerk at the hotel, and has a lot more purchasing power, the system is “unfair”?   He even mentioned this as an example in his introductory chapters, but then later says things like this.  So really, I have no idea what he meant, or even what he believes.

Ok, here’s the real argument as I see it.  What percentage of people, under a free market system, end up rich without contributing anything worhwhile to society?  List out the biographies of all the wealthiest Americans, past and present, each with a nice fair case study, and tell how they made their money.  And then we can analyze and see if they made it through hard work and intelligence, or through other means and go from there.

How many people have become wealthy by inheriting oil fields?   Not very many.  Your argument is unfair, and you’re applying a blanket accusation to all wealthy people, as if nobody who is wealthy deserves it.

We also need to analyze the daily lives of everyday people, and then also inquire into what money is.  We find out that money is an indirect exchange of value.  So we have to analyze how valuable people are, as harsh as that may sound.

Lay out different people’s lives.  How hard are their jobs?  How much education did it require them to get there?  How valuable is it to society?  How much happiness does it bring to people?  Lay out each person as a case study, see how much happiness and value they contribute to society and those around them, and then list out how much money they make.  You’ll quickly find a correlation.

A world of love would never ask such questions or submit one another to such an analysis.  I don’t know if it’s even right to ask such questions.  I really don’t like it, but in the real world it’s how things operate.   I myself seem to be a contradiction at times.  I like Gandhi’s quote of being the change you want to see in the world.  In that case, I’d never analyze a person’s value, or put a little tag on their head showing their current  “worth.”  But then again, I have a practical side of me that sees the real world, and being a business man, I have to reward people based on their efforts and the value they bring to the table.

So from the practical Jason, I ask you – If you yourself don’t have much money, ask yourself that same question — what value am I providing to others?  What have I done to deserve someone handing me their money?   A man works as a scientist for an aviation company, designing aircraft.  He works 8-5, and comes home.  He earns $8,000 a month.  He’s taxed and then that money goes to you.  What have you done for him, or for society, to deserve his money?  Say you live in a country that provides assistance programs and you get $2000.  Why do you deserve an entire week’s worth of this man’s labor, which is what that money represents?  His labor provided value, and that value was taken from his employer, and given to you.

It is kind of hard to think about the idea that so much wealth today is concentrated in so few people’s hands.  But I don’t think we can necessarily jump toward the conclusion that they don’t deserve it.  Also, socialism may be more of a problem than a solution.  With a lot of rich people too, we might wish to inquire whether they have special perks and inside deals with the government, giving them an edge.  Did they lobby Congress and land some big contracts?  With capitalism, let’s not throw the baby out with the bathwater.

Then there’s also inequalities in effort.  And what about inequalities in provided value toward society?

It is not a simple dilemma, and I hate it when such a complex thing is not discussed properly.   Like every rich man blows millions on his pet poodle, uncaring and unsympathetic to the world around him, providing no real value to anyone.   Such a shallow argument and it’s obvious what his intention is.

I think it’s irresponsible to make a great claim, and condemn so many people, yet not back the argument with solid evidence.   It really results in nasty name calling and gets us nowhere.

There are a whole lot of people who contribute little to society, and don’t even make a serious effort to do so.  In fact, very few people I meet believe in contributing value to society.  Instead, their job is about their own personal fulfillment.  I’ve even been harshly criticized by others when I talk about business projects I’ve done simply for the money, not because I wanted to do the work.  I’m looked down on.

It makes me sad when I hear this, but there’s nothing I can do.   I can’t make money doing what I truly want to do.  There is no such job.  I think it has to be asked though – Why does anyone owe you anything?   Why should someone carry you, and let you live your dreams, while they drive the trash truck, and work all day in the unconditioned warehouse, and stocking shelves in the supermarket?   Just drive around your town and look outside your car window.  Look at everyone doing things.  Who paved that road?  Who assembled that car?  Who designed the street lights?  Who put them up?  Who built all the buildings?  Who is cooking the food in the kitchens in the restaurants?

When you’re given money, those people are in a sense enslaved to you.  Why should that cook make you a burger?  What have you done for him?  That’s a core moral question.  That’s certainly something to consider when dealing with issues on  “fairness” and income distribution.

In the past I wrote a software project for a network of ambulance services.  You call 9-11 in that area, my software is part of what handles the event, and integrates them with the hospital.  That software was not fun for me to write.  But I got in there and did it.  And when you call 9-11, and everything goes smoothly, and all the records get processed, and the bills paid, just remember that I was a large factor behind why it went so smoothly.  That’s in the mid-western United States.

The Nobel laureate economist Fredrich Hayek once said that one his favorite things about capitalism was its incentive for people to produce things not for themselves, but for others.  That incentive is being paid money.

When I was young I didn’t dream of writing software like that.  The work isn’t exciting.  But I don’t look at employers and say, “I want to live my dream, and you’re going to pay me to do it!”  My dream is to save up money and have leisure time to study my books.  But nobody owes me a life of ease and leisure.  I don’t believe anyone owes me a living.  So I do crap for society, and then it takes care of me in return.  That’s my value exchange with society.  That’s the barter.

That’s also why this Keynesian economics in this textbook pisses me off.  To them, saving money is evil.  The “paradox of thrift.”  Money is like blood and has to circulate.  So they believe in printing money, and spending it in stimulus programs.  All that printed money destroying my savings.

Samuelson talks about “fairness”, but I think it’s very unfair to me when the government prints money.  I did honest work and earned my money through free trade.  Then they devalue it in their pet projects.   There is no job out there which pays me to do what I want to do.   Economic output is not prosperity.  People being happy is what we’re going for.  Samuelson’s economics in some ways is the opposite of freedom.  In my case it destroys it.  All in search of some vague notion of  “equality”, which I don’t think exists.

Speaking along these lines, it’s really hard sometimes to find your place in the world, and find a way to earn money, doing something you like, which also benefits society at the same time.

I believe in doing everything possible to help people get on their feet, and get their lives moving where they want.  But a lot of people don’t try, nor do they want to.  That in itself produces income inequalities.

I believe in giving everyone access to a university education, and providing for their daily needs while attending.  Democracy depends on it, and the contributions people make with their new skills will be far more valuable than what we had to pay to educate them.  I also believe in taking care of any person’s medical bills as well.  No questions asked.  People should always be treated if they’re sick or injured.  There has to be a point though where people stand on their own.

I understand the rat race.  I’ve lived in it a long time, and it’s been a real struggle for my projects moving.  I get it.  But oversimplifying the arguments, and bringing vague moral sentiments into this won’t fix anything.   And if we really want to talk fairness, let’s discuss that.

The nature of money is to flow toward value.  The more value you can control, the more money you’ll make.  That value can be lots of things.  Sometimes it’s intrinsic, such as being good looking.  Sometimes it’s cultivated, such as your education and skills.  Other times it’s inherited and owned through private property.  Whatever value it may be, whoever controls such things controls the flow of money and getting things from other people.

The unfairness in life comes about because not all value can be cultivated by effort, and not everyone has the same opportunities presented to them.   Some people are beautiful, and others aren’t very handsome or pretty.  That is truly unfair.  I’ve never liked that myself.  Others are born into a rich family, with good loving parents, and have opportunities granted to them others never have.   It’s very unfair and sad.

But what do you do?  Do we lay down and die?  Is that the only thing life has to offer?  Is there no hope for us?

Though it doesn’t always seem like it, our lives are not completely dictated by fate.  A lot of things can be changed by effort, and to at least some extent your actions will determine where you end up in life.  Some people have it easier than others, I’ll agree on that point.  But that does not mean “fairness” can be equated with everyone having the same amount of money.  That’s literal Marxist communism, and doesn’t work.

Samuelson doesn’t seem to like inheritances.  But what a sticky situation that is.  So if I one day have children, and leave behind my assets to them, whereas others have reckless parents who die broke, or even worse, in debt, did I something wrong?  My kids don’t “deserve” that money?  Ok Dr. Samuelson, who does?

Who inherits my businesses after I fall over dead?  Who gets the money in my bank accounts?  I can’t have a will, and leave my things to anyone?  Would that be “unfair” to leave my things to those I love?  It doesn’t seem that they “deserve” it.  It certainly gives them an edge over everyone else.

If that’s the case, we’re all morally bankrupt.  Almost everything in this world has been handed to us from past generations.  We owe everything to them.

When I closely examine his notion “fairness”, I can’t even really understand what he’s talking about.  His discourse is shallow.  Philosophers have a very hard time defining justice and equality, especially in relation to society.  He doesn’t even try. He slants his arguments, giving the worst possible examples, and avoids the critical arguments.  Yeah, it’s true it’s “unfair” when some guy strikes oil in his backyard and becomes a millionaire, even though he didn’t really do anything worthwhile for society.  Yeah, some people may control patents, and make a lot of money off them.  But what about the guy who made millions by providing real value to society and working hard?

I get the feeling he doesn’t like private ownership of anything, but he avoids the consequences of such thinking.  He conveniently dodges it.  How is he going to get around the problem of motivation?  If everyone gets paid the same, regardless of what they do for society, then what motivates someone to excel or do things for others?  Our brains and happiness, in our limbic system, are built around reward.  If we can’t better their lives through effort, and there’s no social mobility, economically we’ll suffer, because people won’t work as hard as they would have otherwise.

Sadly, without motivation, humans are generally lazy.  If you’ll get paid the same amount of money, regardless of the work you do, you’ll probably put in as little effort as possible, unless you enjoy your job — and most people don’t like their jobs.

With him there’s this vague notion of “too much” money.  And when you talk to people who feel this way, the “too much” amount seems to vary from person to person.   To Barack Obama, it’s $250,000 a year.  Others it may be far less.  To another it may be $10,000,000 in the bank.   None of this is objective at all.  Besides that, he never shows the other sides of the argument.

Lately I’ve been watching neuroscience lectures.  The professor was talking about morals and how we can’t make moral decisions without involving our limbic system, which is where our emotions take place.  I plan to write about the brain sometime soon.  These economic justice questions will never be solved through rational thought because we start to get into love and emotions.  Depending on how much love we have for one another, for good or ill, will dictate what policies get enacted.  Though as many economists will tell you, sometimes harsh policies are what we need.

Let’s give an example of love and applying it toward the economy and our policies.

His earlier chapters talk all about supply and demand, and he applies it to products and services.  Depending on the demand for a product and the supply, the prices vary and an equilibrium is found between the supplier and the consumer.  When he talks about intervening in markets for the little guy, he seems to want to disrupt this system for “fairness”, but man oh man, is that a can of worms!  Really what he wants the government to do is screw with the value system in order to promote a subjective sense of “equity” which nobody will possibly agree on.

If a strange hair came over all the American children, and they all wanted to become barbers, then after they all graduated high school, barber shops would open everywhere.  But there’s only so many people needing haircuts, producing an environment of insane competition among the barbers to get your business.  The price for a haircut would drop to next to nothing.  All these barbers would be desperate for customers.

On the other side, if nobody wanted to be a barber, and there was only one guy in the world who cut hair, he’d be booked in advanced for years.  It’d cost a fortune for each haircut, because demand would be so high.

That seems to me to be the core factor that sets wages – the value you either provide directly to customers, or your employer.  Or put more concisely – the subjective valuation or your services, abilities, and private property by a particular set of peers within that society.  Money certainly isn’t governed by “fairness”.  A harsh but very practical question to people is, “What value do you provide to the man next door?”  I’ve never met a poor person who could answer that question.  Money is an exchange of products and services.

But Samuelson did make a good argument for intervention for the small guy, which is what I wanted to share.  Even though we lose efficiency, we gain a more equal distribution in wealth.  He gave an example of this in his book.  He talked about farmers, and governments subsidizing family farms to keep them going.  The big farms would run them all out, so the government in those states artificially props them up, and sets various price controls.

The inefficiency here is small farmers working farms, even though we don’t need them to be doing so at all.  Some of their crops are literally burned, or buried under the ground, just so prices don’t drop too low.   The handful of big farmers could provide everyone with all we need.   And as technology progresses, the more inefficient this intervention will be.

But this is where a human sort of kindness steps in.  It’s not like once the small farmer loses his farm he can just get up and start selling something else.  It’s very hard to find a place in this world.  Very hard.  If he’s unskilled he’ll be flipping burgers, and that’s no life.   He’ll need to provide immediate money for his family, and if he doesn’t have any savings, he won’t even be able to go to college in order learn something new.  He’ll have to immediately start working some job to get income coming in.  He’ll spin wheels and his family will be thrown into poverty.  (Another reason why I believe college should be free, and families and individuals provided for while going.  There must be an opportunity to escape the rate race of spinning wheels.)

So Samuelson believes we should interfere here, and artificially prop up demand for the small farmer’s crops, so he can continue to earn a living.

Here’s where things blow up.  Once one guy gets bailed out, everyone wants bailed out.  Joe Schmo’s used furniture store wants their bailout, Joe the Plumber gets on Fox News with Hannity and causes a ruckus, and then we have Sally of Sally’s shoes demanding a bailout of her failed venture.  A lot of businesses go out of business because they provide horrible service, stock bad inventory nobody wants, don’t know what they’re doing, etc.

Ugh, what a mess.   *Pulls out hair*

Samuelson’s solution is worse than mine.  He wants to keep propping up things we don’t need.  Thing is, we have to close down these useless farms eventually.  What will happen 30 years later?  Will the kids inherit them, and keep them going?  The kids should’ve learned something new, and made a new life for themselves, not continued on the family farm.

I would only make one exception to this.  If the farmers are old, let them keep their farm.  But don’t let young men continue this.  Make them learn something new, and help them with the transition.

We should do all we can to help the farmer learn something new, but we can’t prop up what Greg and I call “bad basis.”  There’s no reason to continue those farm operations.  The more we do, the more we’ll hold back our own progress.  Imagine if we do this sort of thing in every industry.  We’d still have plants producing Model-T cars, just because we were worried someone would lose their job with changing times.

Money is a system that’s very messed up.  Very messed up.  I don’t like a lot of things about it.  It’s harsh in too many ways.

Everything in this world is about value, and controlling value. And value is valuable because it’s in some sense rare and special, and difficult to attain.  Otherwise people wouldn’t pay you for it.  That’s why things get nasty.  Everyone fights to control value so they can secure themselves a place in this cruel world.  What people dream of is controlling some exclusive renewable source of value, which can be produced on hand with very little effort, and can be exchanged for other people’s value.

The oil well is such a source.  It can be pumped out of the ground easily, and then sold for a lot of money.  Then this money can be used to purchase a mansion, whatever car you desire, and everything else that society produces.  You can sit back and let that pump earn you millions, while you sit and watch TV, enjoying everything life has to offer.

I’ve been reading a lot of history lately.  Mankind’s history is a struggle over who controls what’s valuable.  Wars are fought over controlling value.  Back in the 1600s everyone wanted to set up a colony to exploit, so they could get cheap sugar, spices, and other resources to sell.  They wanted to use those as valuable bartering chips with other nations.  This greed created all kinds of naval battles in attempts to control various trade routes.  Or take World War I.  The big economic super powers were all rushing to Africa to set up their colonies.  It was the race to exploit Africa, and take their valuable resources, and then use them to build things, or sell them to get ahead.  The entire war was economic, and due to nations only thinking of their own self interest.  Who was going to control the land and the wealth and dominate the world?  So everyone loaded up their guns and blasted away at each other.

It’s dumb.  It’s very very dumb.   Everyone wants to control someone else by controlling something valuable, and “owning” it exclusively.   This is what the big corporations do today.  They control their markets, and bully anyone else out.  Nobody is going to come inbetween them and their profits.

But I have no idea how you fix it.  When I look at this world, everything is run by value.  Everything.  Not fairness.  Not morals.  Not by governments or laws.  It’s run by value.

When I read history, I just see men trying to squirm their way out of the the natural order of this world and controlling value is the best means to do so.   That’s what money and power is.  Sex can only partially be controlled, as you can’t control your genetics or aging.  I’ve wrote about these things on my blog here many times.

I was also planning to write about some of the worthless mathematics found in Samuelson’s textbook, but I doubt anyone really cares, so I’ll spare you all the trouble.

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