For What It’s Worth.

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.

No water plus no ground cover equals dust.

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.

The Starry Night is one of my personal favorites, although  Starry Night Over The Rhone is right up there with it. I’m also a fan of Snoopy’s Starry Night.

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.

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About George

I am a reasonably successful self-published author ("successful" means I can pay the bills and am highly rated in my Amazon category), former financial advisor (writing is more fun), and have something in common with Mitt Romney and Donny Osmond. Guess.
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5 Responses to For What It’s Worth.

  1. It’s a brave blogger that venture too far outside the remit of the blog and a braver one still that does so on a hot topic like political economy. And especially just now when the world holds its breath as it awaits the next move by the US Government.

    I think the fundamental flaw in the Marxist arguments today is not so much that Marx was wrong then, but simply that the modern economy has no real semblance to the emergent capitalism Marx protested against in the nineteenth century.

    Not too sure about the Van Gogh comparison. The very fact of his death and the consequent scarcity of the fruits of his labor mean that, once (for whatever reason) wealthy collectors attribute value it would inevitably rise in value until such time as said collectors lost interest. And because the items in question at this level acquire further value just by the very act of acquiring value (a painting does not improve with time like a fine wine – it simply becomes increasingly higher priced as the next obscenely wealthy “art-lover” decides they will pay more. A procession of one- up-manship that is squarely in the value is what someone will pay camp) that process will end only when the uber-rich decide there is something else they could buy instead.

    How does one, in this argument, compare art to, say, a “printed” book?

    Leaving aside the obvious collectable value of JK Rowling’s original manuscripts, in what way is the value of JK’s numerous hours spent writing the latter Harry Potter books to be judged? Clearly the buyers value her work at $10 / $20 or whatever the books are sold at. Her enormous wealth comes from the reproduction of same, not from the work originally put in. In Rowling’s case the value of her labor is not “equal to what somebody else will pay for it” but rather how many people will pay a tiny fraction of that total.

    • George says:

      True, and a truly Marxist government would have to put an income-cap on her earnings to achieve the same end. A deeply socialist one would simply raise marginal income tax rates in excess of 95%. After all, the government knows better what to do with your money than you do, and past a certain point you’re just being greedy.

      However, the Van Gogh comparison, while extreme, still applies to other artists who’s works aren’t reproduced. Anyway, don’t know just how far the venting is going to go on this–I just had to get some of my frustration at the dumbassedness of the current political/economic debate out of my system.

      • Paul says:

        The Van Gogh comparison may still hold if you factor in reproductions of Van Gogh’s work in the form of prints. Those things retail at around $5+ and there have to be millions of them in print. I suspect that the original may be worth more than the sum of the reproductions sale values, but it still illustrates that “one off” pieces aren’t as “one off” as you may think.

  2. Interesting post. It’s nice to see that you have a quiet, rational approach to it, rather than the political theater the media loves to play up on.

    Personally though, I think the key to it all is moderation.

    On one hand, as you pointed out, we can’t go to one extreme with what you seem to be pointing at the old Soviet Union way (which before anyone gets confused, is not Marxism). Where it would be an even distribution of pay to everyone (although with human error, it never is). Which of course could make a huge stall in any economy and lack any incentive.

    On the other hand, I think it would also be damaging to go to the near other extreme. Where there aren’t many regulations or services. This wouldn’t just be damaging to the poorest of the poor but also to the artists (writers, actors, etc.). ESPECIALLY to the artists. People often forget that few artist are their own business but rather, simply employees of a publication for a given period of time (you own and provide the work but they own and provide the distribution). Even if you decide to go independent with something like Kindle, it’s still Amazon who owns the distribution. And people often forget that it’s because of various laws and unions that writers, actors, and other artists can (possibly) make a good living.

    As you pointed out, it’s subjective so we can’t put a price on it. However, since it’s subjective it’s easy for companies to simply ask the dreaded question “why should we pay you?” Since there’s no objective way of seeing the worth of a writer (aside from sales), it’s easy for people to dismiss occupations such as writers and actors as trivial. You know “It’s a hobby. Why be greedy? You’re doing it for fun!” One good example is comic book writers and artists, who never got paid as much as they should have until the eighties when they demanded a fair compensation for what they did.

    And of course, there’s also programs in some countries that give some money or tax breaks for writers struggling to make some money. This may sound like the writers are being lazy and perhaps there are a good deal of them who are (note: this means that most programs should have more regulations, rather than simply being gutted out for that reason only). But what about writers such as Cormac McCarthy? Writers who are geniuses and without a doubt made a huge impact on literature but for many years suffered poverty? Or to help fledgling undiscovered writers keep their heads above water, such as the $7000 check to the unknown mother who was on welfare and writing some children’s book about magic?

    Then of course, if we did deregulate most of the labor pay (which I’m not saying you argued for before it sounds like an accusation) it could cut into the writers’ paychecks. Because if the poor and most importantly, middle class, can barely keep a roof over their heads, then you’ll definitely see a huge hit on the book market. Not to mention that if English and art programs get completely gutted out in schools, then the next generation will have even fewer people reading for leisure.

    Anyways, like I said before, I’m not arguing for a “Marxist” economy. Just one that’s fair and balanced. One where perhaps we will have to make some sacrifices to programs but we can also raise taxes on the rich and close some loopholes (e.g American companies being able to take their taxes somewhere else). Because I truly believe there’s a fair balance between all the chaos and there is still hope that almost everyone can prosper here in America.

    • George says:

      Some cogent thinking. I am not against artists, writers, and other creative types unionizing for collective bargaining and other mutually supportive purposes. I am very much against government funding of literature and the arts as such; private foundations do a good job of endowing the arts with voluntary contributions, and if communities want to subsidize the arts locally that’s okay too. The federal government, however, has no business spending tax dollars to support an artist as an artist unless it’s commissioning him to paint the ceiling of the capitol’s rotunda.

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