Thursday, February 08, 2007

Rain clouds behind every silver lining.

There are always some people who find rain clouds behind every silver lining. There are always negative nabobs of doom wanting to cause despair and depression on the happiest of moments. These are the people who show up at your birthday party reminding you that it only means you are one year closer to dying.

The negative nabob I’m after today is Haruhiko Kuroda of the Asian Development Bank. Now what has been happening in Asia? Economic prosperity! Yes, poverty is plunging. Millions and millions have been lifted out of poverty. And this is a reason to mourn?

It is according to Kuroda. Here is the logic of this bureaucrat:

“Rapidly growing economies like China and India have shown that although absolute poverty has been reduced substantially, the income gap between the poor and the rich has widened," he said.
"That means that in coming years many Asian economies must be mindful of this big problem."
As Penn & Teller might put it: Bullshit!

Now pay attention to what he is actually whining about. People are better off across Asia today. Life is improving across the board for all people, “absolute poverty has been reduced”. But some people saw more improvements than others so an “income gap” “has widened”. It isn’t that some went backwards as a result. It is that they didn’t improve as fast as others.

Why should they? No answer is given to that question. Exactly why should all groups advance at the same rate? Should all runners in a marathon be required to run at the same speed? I have yet to hear an explanation as to why improving life for everyone is a “big problem” just because the improvements are not at the same pace in all places.

This is really just Marxist bullshit wrapped up in new packaging.

Consider a village where, for the ease of argument, everyone produces trinkets which are sold in the nearby market. In fact the village is famous for the trinkets. And each villager earns $100 per year as a result -- which is sufficient for them to live but not well.

Now one of the villagers is making the trinkets when he has an idea. He realizes that with a little ingenuity he can double his output of trinkets by using some machinery he invents. He can now earn $200 a year doubling his income. So he does.

Now the other villagers come along and realize he has this new machine but they aren’t sure how to build it. They beg him to produce machines for them. But he tells them, “If I do that I won’t be able to make my own trinkets and I will starve.” He then suggest that each of the other villagers buy his machine from him for $10 per machine. That $10 investment will earn them an additional $90 ($100 extra in sales less $10 for the machine) taking their incomes up to $190.

Now that is a phenomenal jump in the standard of living for the villagers. And the smart man who made this all possible? He sold 99 machines for $10 each and earned $990 instead of the $200 he would have made if he kept his machine for himself.

And what has happened! A “big problem” according to the advocates of equality. Sure this guy improved the life of everyone in his village but now there is more inequality. If you don’t like obscenity skip to the next paragraph: BIG FUCKING DEAL!

The BBC reports that Karoda wants government to spend more money (the predictable response of a bureaucrat) to “address the gaps between rich and poor.”

Now consider what all this claptrap really means. The gap between rich and poor is a “big problem”. But previous to this explosion of entrepreneurial activity everyone was very poor -- except for government officials of course. Then there was no “gap” that anyone worried about since only the political class was doing well. Everything was just fine. Only by improving the income of most people is a gap created. Why is equality of income a virtue? Should we strive for the past where all were equally impoverished? Or accept a world of unequal prosperity?

And what is Kuroda suggesting? He wants government programs to redistribute wealth in one form or another. That is all he can suggest since any program, no matter what it does, has to be paid for by someone. And obviously he wouldn’t be suggesting the people at the low end of the “gap” pay for the bill. So he wants to tax those who did well to benefit those who did well but not as well.

And he assumes that the increased taxation will have no impact on the ability of the economy to continue lifting people out of poverty. There is always an assumption that is falsely made by such bureaucrats that the distribution of income is unrelated to the increased prosperity of the entire nation. So they conclude they can change the distribution without having any negative impact on the wealth creation process. But the evidence is strong that as you redistribute wealth you inhibit wealth creation.

Go back to our village example. Say some local politicians comes in and tells the machine builder that he will tax the income from the machines so that in the end the man is making as much as he if remained a trinket producer himself. That way no inequality is produced. Why then would this man bother? He is making $200 instead of $990 and the other villagers are earning $100 instead of $190. But, and this important, there is LESS inequality as result even though everyone is poorer as a result.

You diminish the increasing prosperity for the poor as well as the rich but you do achieve more equality. Socialism inherently is about equal misery since it can’t produce the goods -- never has and never will.

If I were to make $100,000 per year (and don’t I wish!) there are places in the world where I would be a pauper -- like a meeting of top intragovernmental bureaucrats addressing inequality for instance. But am I in bad shape merely because while I’m earning $100,000 while someone else is earning $250,000?

If my standard of living is improving it is improving. If for that to happen the standard of living of others is improving as well, but at a slightly faster rate, then so what? I’m still better off. And I’m glad of it.

The “big problem” is not a problem. It is an excuse for bueaurcrats to increase their ability to manipulate outcomes so as to increase their own power and prestige -- and their wealth as well I might note. Sure inequality will result but they will be on the top of the heap and that is how they like it!

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