January 25, 2010

Some Points about Haiti

This post is probably overdue, but I wanted to make some observations and tackle some issues that have been brought up by the terrible earthquake that destroyed so much of Haiti. Please understand my comments in the context that they are meant to be understood. I am speaking from the stance of one concerned about the role of government and how it has increased in size and scope beyond what is both moral and necessary. I am actually quite optimistic about the capacity of the individual to act charitably toward another in need. I think this capacity is rather obvious and even overwhelming at times such as this.

1) The role of government is not to respond to natural disasters and provide humanitarian aid. The government is not a humanitarian aid organization. It is an entity of force established to provide equal protection of property rights under the law. All humanitarian and relief efforts are the responsibility of the individual who gives as he or she sees fit and how he or she sees fit. It thus follows that the military is NOT an organization designed to aid other countries after a natural disaster. The military was formed to defend against invasion and insurrection. That is all. Any performance of acts beyond this scope is an exercise of authority that simply has not been given to the government or the military. The Constitution does not authorize it. If we want government to perform these functions, we need to amend the Constitution to give it power to make the military a worldwide humanitarian aid organization. This would likely make our military the most ironic organization in the world, but at least we could say we weren't ignoring the Constitution because we felt like it.
As one blogger puts it:
Extreme cases like this have a certain educational value, in that they separate the libertarian wheat from the chaff. They separate those whose libertarianism is rooted in a philosophical adherence to the non-aggression axiom and those whose libertarianism is only an emotional predisposition toward less government.
Consider the words of Ron Paul, the only one who opposed government aid to Haiti, on this very issue:

Statement of Congressman Ron Paul

United States House of Representatives

Statement in Opposition to H Res 1021, Condolences to Haiti January 21, 2010

I rise in reluctant opposition to this resolution. Certainly I am moved by the horrific destruction in Haiti and would without hesitation express condolences to those who have suffered and continue to suffer. As a medical doctor, I have through my career worked to alleviate the pain and suffering of others. Unfortunately, however, this resolution does not simply express our condolences, but rather it commits the US government “to begin the reconstruction of Haiti” and affirms that “the recovery and long-term needs of Haiti will require a sustained commitment by the United States….” I do not believe that a resolution expressing our deep regret and sorrow over this tragedy should be used to commit the United States to a “long-term” occupation of Haiti during which time the US government will provide for the reconstruction of that country.
I am concerned over the possibility of an open-ended US military occupation of Haiti and this legislation does nothing to alleviate my concerns. On the contrary, when this resolution refers to the need for a long term US plan for Haiti, I see a return to the failed attempts by the Clinton and Bush Administrations to establish Haiti as an American protectorate. Already we are seeing many argue that this kind of humanitarian mission is a perfect fit for the US
Certainly I would support and encourage the efforts of the American people to help the people of Haiti at this tragic time. I believe that the American people are very generous on their own and fear that a US government commitment to reconstruct Haiti may actually discourage private contributions. Mr. Speaker, already we see private US citizens and corporations raising millions of dollars for relief and reconstruction of Haiti. I do not believe the US government should get in the way of these laudable efforts. I do express my condolences but I unfortunately must urge my colleagues to vote against this resolution committing the United States government to rebuild Haiti. military. I do not agree.

2) Haiti does not benefit economically from the natural disaster (though there may be arguments for it benefiting in other ways). This idea is commonly voiced after natural disasters of all kinds. The fallacy is known as the broken window fallacy and takes the following form in this case: Haiti will have to rebuild and that process will create jobs for Haitians and improve their economy.
I understand why one would come to this faulty conclusion, but it is wrong for the same reason that government cannot create real jobs. If it were true that destruction actually helped the economy, why are we not excited about hurricane or tornado season? Why don't we just blow up our own houses and then rebuild them? That would keep us all working and our economy would boom! Right?! The ridiculousness of this idea is clear. The resources that are used to rebuild could have been used otherwise to improve the economy without having to reconstruct buildings. Again, this is the same reason that the Cash For Clunkers program was one of the most ridiculous and economically wasteful programs ever.

3) Haiti is not poor because we don't send it enough money. In fact, a strong argument could be made that Haiti remains poor BECAUSE we send them money. The corrupt government uses that money to maintain power. Haiti is poor primarily for political purposes. Political oppression more often than not manifests itself as economic oppression. The political history of Haiti shows it to be an unstable country, which has discouraged investment, making it difficult, if not impossible, for anyone to raise capital and grow the economy. Some may argue that Haiti was first poor and that the poverty lead to political corruption and a vicious cycle. They may insist that the cycle of poverty must first be broken through foreign aid and then the political side will follow. Not only does this fly in the face of reason, but it ignores historical experience. If this were the case, no country would ever become prosperous. All countries were poorer than they are now, relatively speaking, and even the richest of countries was at some point poorer than the poorest country today. It is freedom that brings prosperity. Economic freedom and political freedom go hand in hand. You cannot truly have one without the other.

Now, all this aside, I believe it is the moral obligation of every person to seek ways to serve others and do it. I encourage those who can to give any way they can to help those who are suffering in Haiti.


Timothy said...

Correct me if I'm wrong, but I am under the impression that the broken window fallacy only applies to instances of deliberate destruction.

Regardless, destruction has always been an impetus for renewed economic growth, in the sense that it "breaks" the logjam in the capital accumulation process that allows an economy to stagnate. This can happen through starting a war, or in the simple act of capital devaluation which "destroys" previously-accumulated wealth. While the human cost of these actions are apparent, human costs only figure into economic calculus in one respect: as labor. Beyond ensuring the right of a capitalist to own the labor of another person and the products of that labor, according to this theory, the government should not do anything else to help people.

The Paris Club has forgiven a lot of Haitian debt. They will probably be followed by other lenders. It would take some pretty complicated Austrian School mental gymnastics for me to understand why debt forgiveness is a net disadvantage for a debtor country, especially when it's a one-time act-of-God sort of thing and most of the debt was taken out on the behest of the IMF and before that was related to the fact that the island was ruled by US-backed dictators for a number of decades.

Stan said...

Governments do not create wealth; human energy plus natural resources do. Government should protect the people in their honest pursuits to create wealth. It is absurd to think that destruction will bring prosperity, even if that destruction is an act of God. It may give us an opportunity to work and serve, but the resources for that could have been utilized for further prosperity as you say, Ben. I will not try to second-guess God in his reasons for natural disasters, but surely faith in Him to help us in time of need as well as in times of peace and prosperity in not misplaced. The US government should not be in Haiti spending our resources there. There is much that private organizations have done and will continue to do to help them. They are a poor nation for a reason and it is because of their corrupt government and lack of freedom.

BEN said...

Whether the destruction is deliberate or not seems to make no difference. I am trying to think of a case where it would. I can ram someone in my car on purpose or by accident or a tree can fall on it. In any case, it is destruction of an asset that was productive. Replacing that asset is a strain on the economy, not a boost.
I guess there may be some cases where physical destruction is necessary to clear unrepairable assets out of the way. It would usually be better if this happened in an orderly manner rather than a natural disaster. Still, I think we would be hard-pressed to find a case where, say, an apartment complex needed to be demolished and a tornado destroyed it instead just at the right time. I guess that is possible.
Although you didn't mean to make it an issue, you mentioned Marx's theory of value so I can't let it go. The labor theory of value is flawed for several reasons. Marx held that if the worker didn't receive 100% of the final price of a good, he was being exploited. I will refer you to the following article for a pretty good explanation:


I don't think I ever implied that debt forgiveness was a problem, but you may have inferred that from my comment on foreign aid. Debt forgiveness may indeed be beneficial in many cases such as bankruptcy, but the problem is not the forgiveness of debt. The problem is giving the money in the first place in such a way that props up corrupt governments and misallocates capital into less-productive sectors of the economy.
Haiti would be better off in the long-run raising its own capital rather than its government receiving foreign aid which it uses to oppress its own people. Certainly, with a free economy, Haiti could attract foreign capital that would be allocated efficiently and create even greater growth over time.

Timothy said...

I think it's interesting that Stan actually backed me up in the defense of the labor theory of value (probably unwittingly). Ben, the article you linked me to was full of mendacious logic. It contains a number of ridiculous notions.

For example, the author states: "It is not the fact that diamonds are expensive that makes diamond rings expensive; it is the fact that people value diamond rings highly that makes diamonds expensive."

Wow! What a genius! Hm, I'm wondering though, could it be that maybe diamonds might also be expensive, because, I don't know, the raw materials to make them are scarce? Or to put it another way, that the cost of production in mining and cutting diamonds is high?

Creating a diamond ring involves huge amounts of labor and capital in order to: 1) actually extract the resource, 2) security (many diamond-rich areas, such as the DRC, are sites of major conflict), 3) technology used for cutting, polishing, transportation, etc. including labor put into R&D for finding more efficient processes for all of the above, 4) hiring advertisers to convince us what we really need to spend money on is a diamond ring (like those lovely "Diamonds are Forever" commercials). Plus all the labor that went into stealing the sites that land that the resources are on (http://en.wikipedia.org/wiki/De_Beers_Mining_Company#Company_history).... Etc. etc.

I would never deny that demand plays a role in setting prices. Quite the contrary! But production costs set a general baseline for how much something sells for. Obviously if a firm can't even make enough money selling a commodity as it spent to create it that firm is going to be in big trouble! But no, our brilliant economic commentator tells us that "diamond rings are not expensive because diamonds are expensive" but rather because they are so highly valued! There you have it! Value is determined totally and completely by how much people want something! Nothing in the universe exists except for naked human desire!

We can choose to believe this. Or, alternately, (to summarize the main "materialist" critique of bourgeois economics, Austrian School included) we can assume that there is such a thing as the real world. We can assume it exists independently of our thoughts, ideas, "principles" and desires. I can't speak for anybody else but I know myself anyway which interpretation of reality I find more persuasive.

Royal said...

Price is set by the market. Value to the individual is 100% desire/preference. "Labor" (and it's effect on price) is simple one of the many variables that affect preferences. Value is different than price.

"destruction has always been an impetus for renewed economic growth, in the sense that it "breaks" the logjam in the capital accumulation process that allows an economy to stagnate"

Economic growth is not the holy grail, but a high sustainable standard of living. It makes no sense to cut down a mature tree because it's not growing fast enough. Or in the case of Haiti to cut down a baby tree and plant a seed.

"beyond ensuring the right of a capitalist to own the labor of another person and the products of that labor"

Timothy, you miss understand capitalism. A capitalist(aka firm owner) does not own the labor of another person. Each individual owns his/her own labor and can sell/auction that labor to whom ever they'd like. The price of an individual's labor is wage.

"the government should not do anything else to help people"

Timothy, can you give a single example where the government helped someone where it did not do greater than proportional hurt to someone else. The fundamental flaw with the above statement is "help". Help implies gift, and the government owns nothing. So there is no gift but rather a shift. The government can shift wealth but never give it. It cannot help without hurt, and it cannot gift only shift.

BEN said...

Value is subjective. Just because something is expensive to make, doesn't make it valuable. Production costs don't set the price of something per se. Rather production costs are driven by the law of marginal utility. Classical economics says that the price of a car tends to equal its actual cost of production (including opportunity cost). However, this is not because the car salesman simply asks the producer what it cost to produce and sells the car for that price. People don't just go around making random things and then sell them for what they cost to make. The price mechanism is market feedback to the producer to indicate whether more or less of that product is demanded. The producer makes the car anticipating what he will sell it for. That is, the subjective value of the car to the buyer is what drives production and sets the price in the end. If the producer didn't believe he could make the car for what the buyer is willing to pay, he wouldn't make the car. If he made it anyway, he would have to sell it at a loss. That would put him out of business and send the feedback to the market that his methods of production were inefficient. The labor that went into it wasn't equal to its subjective value.
A simpler example of this would be a person digging a hole and filling it up again. The process had production costs, labor, and capital but ultimately is not likely to be a good that anyone is willing to pay for (unless you put something in that hole). That is why value is subjective. That is also why without a pricing mechanism, socialism cannot efficiently allocate resources in an economy. There is no means of calculation on the part of production because there is no means of determining the subjective value of a good to the consumer.
Now, if a producer is really efficient at making things and can sell them for MORE than they cost to make. That is, considering opportunity cost, there is still an economic profit. Does this mean he has exploited the labor of his employees? I think not. The subjective value of the good was not dependent on the labor, for labor was only a cost in the production that the producer had to take into account to determine whether he was being efficient. The profit allows him to expand his business and/or hire more employees (which he will do if he wishes to maximize his marginal utility). All this was done because he rightly anticipated the subjective value of the good. If the workers are upset that the goods they are making are so expensive, they need not blame their employer, but rather those who buy the goods. This, of course would be absurd since those buying the goods are actually funding their employment.
Labor theory of value is certainly a main tenant of Marxism and I am not surprised you are defending it so adamantly. I am sure you have thought it out and feel it makes perfect sense. I simply disagree. There are even greater goods than man's material welfare. But as nature would have it, freedom also provides the greatest material welfare.

Stan said...

Timothy, my comments about wealth was not a direct support of anything except freedom of the people to pursue their lives and livelihood. Government mettling does not improve anything in the long run because they must take in order to give. The only thing Government "creates" is force. So we must ask ourselves what the legitimate uses of force are. And since the government gets its power from the people then we must conclude that the legitimate use of force for government is the same as for an individual; the protection of my life, my property, my liberty to act and express myself.
The capitalistic system we have (or used to have) has created the most wealth of any system used. Freedom always works.

Timothy said...

Most of these arguments are straw men, or appeals to ideology (Big Gummit! Booga booga!). As for the technical arguments, they're not really worth addressing because they're absurd (e.g. prices are set randomly by how much a consumer "wants" something, and have nothing to do with factors such as consumer purchasing power or scarcity).

I just have one question: If diamonds were abundant and easily obtainable (let's say they grew on trees), but people valued diamond rings just as highly, would they be the same price? If your answer to this is yes, your reasoning powers are fundamentally messed up. I don't care if you're from the Austrian School, a Marxist, a Keynesian or a mainstream bourgeois economist, there are certain generally agreed upon economic concepts such as supply and demand that if you're not using them you may as well not be talking about economics.

BEN said...

Nothing I wrote was meant to be a refutation of the law of supply and demand, but I am impressed that you would defend it so.
Admittedly my explanation was pretty terrible, but I am still not sure where you got that prices set themselves randomly. That was not my assertion. The concept of subjective value is not hard to understand but I made it more difficult. Labor is certainly a contributor to the use-value of commodities, but the idea that labor is solely responsible for this use-value is unusual and only found in the writings of Marx.
As I have thought about it more, the issue here is not really subjective value, but the ideas of wages and profits. Perhaps this calls for a whole separate post because I think I may be able to shed light on the root difference in our economic philosophies.

BEN said...

So one quick question as a precursor to what I want to post on next:
If workers are being exploited because they do not receive 100% of the final price for a good, what would happen if the final price of a good were actually lower than the cost of the materials to make it? Would the capitalist then be justified in garnishing the wages of his employees to cover the loss?