Economics vs Humanism

[picture from this NY Times article about Haitian scavengers]

I was conversing with a friend the other day about the dramatic rise in food prices and the disruption it is causing to lives worldwide. I mentioned that percentage of income spent on food is nevertheless at its lowest point in history. He shot back at the destructiveness of that thinking–to ignore the human cost of major socio-economic events.

So where is the balance? 100 years ago the working class would spend over half their income on the bare-minimum amount of food (like bread). Certainly we have made great progress since then. There are many many less poor people than there used to be. But that doesn’t mean that the food riots in places like Egypt, India, and Haiti are not real.

It takes a balance of perspectives.  The economists have to take into account the very real feelings and local problems that happen when there are “deviations from the norm”. But it’s of little help when liberal-types blast the “right-wing” economists while ignoring the blistering historical pace of poverty improvement.

8000 years ago everyone farmed/hunted/gathered their own food. 1000 years ago almost everyone farmed their own food. At the height of the gritty industrial revolution only 100 years ago, almost everyone lived on subsistence wages, with little to spare for even the smallest luxuries. Now someone can have a car and a TV and still be considered poor.  And while I don’t dispute the designation, such cases should keep a little bit of perspective as well. But there are still a phenomenal amount of very poor that do not have things like clean drinking water.

So let’s compromise. Statistics are absolutely amazing for analysis, but remember that each number is actually a person. And when viewing all the things still in need of improvement in this huge world, remember how far we’ve come.

Marx No Longer is Current

I met someone last night at a get-together who, upon hearing of my interest in economics, brought up Marx, as if it was somehow relevant to economic thought of the last hundred years. Granted, he was more interested in the philosophical end of the thought, but it amazes me how many goofy liberal types think that Marx somehow still means something to mainstream economics.

Donʻt get me wrong, Marx was the biggest thing to happen in 19th century economics–but that just means that economics spent the next hundred years exacting how he got it all wrong. And you can thank his compelling arguments and persuasive writing for that.

The problem with Marx is that he assumes some shit that might make you feel nice, but has never EVER been shown to actually be true. Basically, he assumes that the value of an item is equal to the labor put into it. This gives the shaft to anyone with an entrepreneurial spirit who takes risks to make a profit, and anyone who knows how to make awesome things without working very hard. For example, say Iʻm Harry Potter, and I can fix broken glasses just by pointing my wand and saying “Ocumulosos..” (whatever). It doesnʻt matter how easy it is for me, and how little labor I actually have to put in; my service performed (fixing broken glasses) has a value worth whatever anyone is willing to pay for it (the market). If HP is the only glasses repairman it is worth a lot. If there are tons of wizards with the same idea then itʻs not worth much.

Value is only what someone will pay you for it. And unfortunately (fortunately?), it doesnʻt matter how nice you are, or how hard you work, or the labor you put into it. If you spend all week designing and sewing a pair of pants that someone could get at the store for $40, you canʻt expect someone to pay you like $1000 for them, because you say that is what they are “worth.” (But hey, you could get lucky.)

Itʻs kinda easy to see how people would want to think that something is worth the labor put into making it, but, well, just doesnʻt work that way.