I have been trying to ignore the political situation for a long time now. I formed my own political opinions some time ago, and current events (by which I mean the past 20 years) haven’t changed them so much as moderated them. But the events of the past couple of years have led me to believe that most of the public is laboring under a severe delusion, brought on by well-intentioned misinformation. It can be summed up in one currently popular buzz-word: sustainability.
Fair warning: what follows is, at heart, a political rant that has nothing to do with the usual content of this blog. I will not be at all insulted if you decide to give it a pass.
Thanks to environmentalists, sustainability is not a hard concept to grasp. Environmentally, a practice is sustainable if it doesn’t destroy the conditions that make it possible. For example, US agriculture kicked into high gear in the American midwest, tearing up the prairie cover and plowing fields of corn and wheat during a time when the region was going through the relatively wet part of its climate cycle; when the climate dried, the old prairie turf was no longer there to hold the soil down and we got the Dust Bowl, the biggest environmental disaster in US history.
The whole argument over hydrocarbon power (oil, coal, natural gas) vs. alternative power (nuclear, hydro, geothermal, solar, wind), circles around two sustainability debates: environmental sustainability (will hydrocarbon power destroy the environment) and supply sustainability (will hydrocarbon power use destroy its supply). The answer to the first is still debatable, the answer to the second is “yes, but when?”
Ten years ago, environmental sustainability was the hot topic. Today, the center of all political debate is economic sustainability. A perfect illustration is the national health-care debate; Medicare, as it is currently constituted, continues to increase in cost and will eventually eat up the entire federal budget if something doesn’t reign in increasing health-insurance costs. Social Security faces a similar sustainability problem, for reasons similar to what created the Dust Bowl: Social Security was set up under conditions that have changed. When it began, more than 30 workers paid into Social Security for each recipient; because we’re living longer, today the ratio is close to 3 to 1–the supply is drying up. Government spending as a whole has become one giant sustainability issue; ironically, those who in the past have been loudest in declaring that our environmental practices are not sustainable, have taken the opposite side in the debate over economic sustainability. And I see some truly idiotic arguments out there, most based on a complete misunderstanding of the core issue: economics.
So I’ve decided it’s time for me to talk about something besides writing, superheroes, and books I love. To put my credentials on the table, I’m not an economist. I’m a historian by education, a financial advisor by trade. I like to think this gives me a more craftsmanlike attitude: theory is important, but show me what works. From that perspective, I’m going to start with the basics. Why? Because I need to talk about value.
Karl Marx struggled with the concept of value and never got it quite right (Marxism is based on a false understanding of the value of labor). Even today, we have a hard time grasping it because at heart it is almost completely subjective. Don’t believe me? Let’s look at The Starry Night by Vincent Van Gogh.
Van Gogh died an unsuccessful artist, or, to be more accurate, was just coming into his fame when he killed himself. From his own letter, he wasn’t very happy with The Starry Night, yet it is one of the most recognized works of art in the world today. What is its value?
This question is a purely mercenary one: its inspirational and influential value is enormous, its historic value unquestionable. Its collectors value (assuming it is ever sold again) is astronomical. But if you didn’t know what it was and saw it at a garage sale or at a swap-meet, how much would you pay for it? Its artistic value–the only value Van Gogh himself ascribed to it–is wildly subjective. As a product of his skill, he didn’t think it was worth much.
Yet the value of Van Gogh’s past labor is staggering, because the current monetary value of the products of his labor is equal to the GDP of some nations. And here is the key to the value of labor: its value is equal to what somebody else will pay for it. Period. Investment in time and effort to create skills will make your labor more valuable, if someone out there will pay you to practice those skills. In an open market, where wages are not fixed and there are many potential buyers, the value of those skills can be very high indeed. Low-skill labor, unless it’s physically unappealing, dangerous, difficult, or socially degrading (garbage collection, prostitution, etc), will always be low-paying because buyers can always find willing laborers. If there aren’t any alternatives, even dangerous and degrading low-skill labor will be low-paying.
Communism doesn’t work because it destroys the value-element of labor; if high-skill labor pays the same as low-skill labor, few people will be motivated enough to acquire the more difficult skills (and black markets and forms of non-monetary exchange develop). The same is true for physically demanding and dangerous labor. In short, the problem of distribution asside, it guts economic activity. Socialism does the same though to a lesser extent; unemployment benefits have been statistically proven to depress employment, and income-control (in the form of redistributive taxes or price-controls) depresses production of affected goods and services.
To use a silly what-if as an example of how political controls distort markets and economies, imagine if the government price-controlled art. What if painters were paid according to the cost of the materials they used and the square inches of canvas they covered? After all, a painting is a painting, right? Art galleries would quickly become black markets; agents would pay the legal price up front, and more under the table. They would then hold illegal art auctions where the art would be resold at something approaching its true artistic value. Hopefully the artist would get a cut.
Already existing art treasures, like The Starry Night, would never be legally resold, since their legal value couldn’t begin to approach their real value–but they might be traded or gifted (completely non-monetary transactions). A man discovering a lost Van Gogh in his attic would be nearly irresistibly drawn to criminality by the prospect of getting its real money’s worth.
What does the question of value have to do with sustainability? To be continued–but let me note for now that this silly what-if is actually in play in many parts of the economy: in the US public school system, teacher’s pay is determined by seniority, not quality, a form of price-control that degrades the quality of our public education system; in places like New York and Chicago, rent-control creates whole slums and actually depresses the availability of decent housing; a high sugar tariff (to protect domestic producers, of course), keeps the cost of sugar high and is the reason the we have no confectionery export market and the food industry uses unhealthy sweeteners like corn syrup instead (further encouraged by corn-grower subsidies).
Next Time: more value and the housing market.