A free-market economy creates wealth. For one person to make a dollar does not mean that another needs to lose one. There is not just one dwindling pie to be divided up among the population, but rather a proven recipe to grow the pie to serve everyone. All the talk about the rich “grabbing” too large a share of the national income therefore rests on a flawed understanding of this basic truth of free-market economics.
While on the surface this may seem reasonable and even reassuring, reality says otherwise. So let’s look at the data:
According to the Economic Policy Institute: the bottom tenth of the wage distribution earned less in 2011 than the lowest earners did in 1979, accounting for inflation. Meanwhile, the real wages of the median worker rose only 6 percent between 1979 and 2011.
The real bosses [under capitalism] are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or is cheaper, they desert their old purveyors. (Bureaucracy, ”Profit Management,” p. 227)
Claiming that the consumer is the boss is very convenient… if you’re a corporation. After all, if the consumer is the boss then everything a corporation does must be in the best interest of the consumer. Low-wages for workers? Polluting the environment? The consumer wants cheap products! Producing foods low in nutrients and high in fat, sugar and calories? That’s what the consumer wants! Spending $250 billion per year on advertising to sell products? All in the name of consumers.
How much influence do consumers really have in determining ”what should be produced and in what quantity and quality”? As it turns out, not that much.
In a true free market economy no non-market forces of any sort – whether they are government regulations, subsidies, taxes, workers’ unions, or any other organizing or correcting mechanisms – are allowed to interfere with market forces (supply and demand). Even free market purists, however, agree that government has a role in the economy, and that is to protect private property and prevent fraud (ie. enforce contracts). Nevertheless, as you’ll soon see, active government intervention in the economy is indispensable.
Negative Externalities
Let’s consider the following two scenarios:
In the first case, Company A is selling a product in the market that does not do particularly well. To compensate for low profits Company A robs $500,000 from a bank.
In the second case, Company A is selling a product in the market. The process of production pollutes the local environment. The impact of pollution on the health and productivity of local residents amounts to about $500,000.
Though in both cases Company A unjustly made the same profit – $500,000 – at the expense of others, government can only act in the first case. That is because in the first case Company A is clearly violating the property rights of the bank. However, in the second case Company A was acting within the legal confines of what constitutes private property rights, therefore government cannot act. read more…
In 2010, when current Egyptian President Mohamed Morsi was still serving as a member of the Guidance Office of the Muslim Brotherhood, this is what he had to say on Al-Quds TV of Lebanon and inexcerpts from archival interviews:
September 23, 2010:
These futile [Israeli-Palestinian] negotiations are a waste of time and opportunities. The Zionists buy time and gain more opportunities, as the Palestinians, the Arabs, and the Muslims lose time and opportunities, and they get nothing out of it. We can see how this dream has dissipated. This dream has always been an illusion. Yet some Palestinians, who erroneously believe that their enemies might give them something… This [Palestinian] Authority was created by the Zionist and American enemies for the sole purpose of opposing the will of the Palestinian people and its interests.
[...] No reasonable person can expect any progress on this track. Either [you accept] the Zionists and everything they want, or else it is war. This is what these occupiers of the land of Palestine know – these blood-suckers, who attack the Palestinians, these warmongers, the descendants of apes and pigs. read more…
In the previous post in the series I explained how, in the next few decades, disruptive technologies can bring the global economy to a total collapse.
This series will show what can be done to prevent such collapse, and how we can put the economy on a path to sustained growth and prosperity.
But before we do that, we need to understand how the market economy operates, and what are its strengths and weaknesses. Here is a short animated film (20 min) from 1954 which gives a good overview of how capitalism works:
Under capitalism all factors of production are privately owned. The sole objective for engaging in a commercial activity is maximizing profit. Prices are determined by the forces of supply and demand. Labor is like any other commodity in the market. Competition is the main engine of productivity, efficiency, innovation, high quality and low prices of products and services. Government does not interfere in the economic activities of the nation – its role is to maintain security, protect private property, and enforce contracts. read more…
In this series I will explain how, in the next few decades, disruptive technologies can bring the global economy to a total collapse. I will show what can be done to prevent such collapse, and how we can put the economy on a path to sustained growth and prosperity.
The 4 Technologies that Will Make Your Job Obsolete
Every now and then new technologies change the way we do things and in the process make certain jobs obsolete. These are called disruptive technologies.
It is not a problem when one technology replaces another – for example, when Henry Ford’s Model T replaced the horse and buggy, or when the electric refrigerator replaced the icebox – because the new industry provides employment, and workers just need to retrain.
It is a problem, however, when new technologies displace workers by making the production process more efficient through automation. And it is even a greater problem when automation displaces workers at a much faster rate than new employment opportunities are created in the economy.
Here are the four disruptive technologies that will bring the global economy to a total collapse by making about 95% of the entire workforce redundant over the next few decades: read more…
Do Palestinians want peace and an end to occupation, or do they want to continue the struggle until the destruction of the Jewish State? Let’s look at the facts.
Second video of the series Religion vs. Peace, in which I present data to demonstrate that the religiosity of a population in a country does not contribute to its peacefulness (see post The Geopolitics of Morality : Religion vs. Peace).
If there were one word to capture the essence of what life is all about, that word would have to be flow.
Flow is everywhere. Both at the level of our thoughts and on the universal scale.
Thought
Being in a state of flow means being completely immersed in an activity. According to Professor Mihaly Csikszentmihalyi, people are happiest when they are in a state of flow. Such experience is characterized by: intense and focused concentration on the present moment, merging of action and awareness, loss of reflective self-consciousness, a sense of personal control over the situation or activity, a distortion of temporal experience, and experience of the activity as intrinsically rewarding. read more…
65 years ago today, on November 29, 1947, the UN General Assembly voted to partition the land between the Jordan River and the Mediterranean Sea into two states – an Arab State and a Jewish State. While Jews accepted the partition, Arabs rejected the Jewish State and began a campaign to eliminate it.
The results of the ensuing war were devastating for the Palestinians. Though the nacent Jewish State was attacked by five Arab nations, by the end of the war it managed to survive and expand its territory by a third, while the rest of the land was overrun by foreign Arab armies. At the same time hundreds of thousands of Palestinians became refugees.
Since the 1948 war Arab and Palestinian leaders refused to recognize the Jewish State or reconcile with it. Instead, they repeatedly sought to delegitimize Israel in the international arena, while trying to destroy it in wars and terror campaigns. read more…
The Big Picture puts into perspective the important issues that affect our life, both as individuals and as humanity - from personal beliefs and values to economics and geopolitics.
It presents a simple, elegant, and comprehensive framework - with a firm foundation in science, reason and reality - for understanding the laws that govern human behavior.
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