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Objective: Whether you are a Republican or Democrat on economic issues depends on your views towards profit-making. This article explores the concept of profits to help you understand economics, politics, and your own political affiliation. In this article you will learn...
- About the history and concept of a "Utopia."
- The difference between Progressive and Libertarian political philosophies.
- How historical cultures viewed the morality of profit-making.
- How a more favorable view of profit-making helped Western Europe and America acquire unprecendented wealth.
- How instances like The 1911 Triangle Fire and Upton Sinclair's book The Jungle, led to the Progressive Movement and big government.
- The different attitudes Libertarians and Progressives possess towards profit-making.
Where is your Utopia? Out at sea, perhaps?
Most people are unsatisfied with the politics of their country, but we have no choice where we are born and moving to another country is difficult. We all dream of an ideal land—our Utopia—but because we are more likely to be killed driving to the voting booth than we are to affect an election, there is little we can do to bring our nation closer to our Utopia.
There are a few unique individuals who are unsatisfied with this reality, and they insist on creating a system whereby one can choose the type of political system in which they live. These are individuals who prefer a small government with strong individual rights—something that does not currently exist (maybe Singapore). They plan to create their Utopia in colonies that float in international waters; something called seasteading colonies.
In a seasteading community, individuals live on houseboats and decide which government they wish to align themselves. Once they have chosen their preferred government, they drive their floating house to this city and dock. In their Utopia they remain, until the day they no longer support the government, in which case they undock, float away, and seek another society. This allows colonies to compete against each other for the best government, and presumably, the colonies that attract the most people do so because of a superior political system. This market for government would also force land-based nations to administer a better government, in order to keep desirable citizens from moving out to sea. However absurd this may sound, it is a real movement, one backed by some very rich individuals. One day, your descendants may be able to live in a government much closer to their Utopia than you can. If you could do this today, what would be your Utopia?
Figure 1—The Seasteading Institute
(Picture From Their Website:
http://www.seasteading.org) seasteading2.jpg)
Before we begin thinking about our own Utopia, let's learn about the word itself. Most of us know a "Utopia" refers to an ideal society, whatever that "ideal" means to the person. For Democrats, Utopia would have a large, active government which regulates business, while for Republicans government would play only a minor role in the land of Utopia.
The word "Utopia" wasThe word "Utopia" was invented by Saint Thomas More, and was the title of his famous book. More lived in sixteenth century England, and was the tudor and Lord Chancellor to King Henry the VIII (you know, the guy who broke with the Catholic Church so that he could divorce his wife).
More's book was intended to demonstrate what an ideal society would look like, and in many ways it resembled a religious monastery and/or a socialist society. All property was held in common, and people worked not for personal profit but for the common good. The goods an individual produced would be given to the group, at no charge. For his own personal consumption, the group freely gave him what he wanted, and he took only what he needed.
"Utopia" was the name of this ideal community, and is a word taken from Greek which means "no place". This Utopia More described has existed in a few places, but except in religious communities, it usually has a short life, for it is an economic system known for producing only poverty.
This Utopia is almost identical to the socialist system first established by the Pilgrims, but almost led to starvation, and so had to be discarded in favor of a system based on personal property.
The Soviet Union tried More's Utopia, and we know how that turned out. China tried it, then decided some private property was needed, for like the Pilgrims, they found More's Utopia to result in poverty and famine. North Korea and Cuba still live according to More's Utopia, and people risk their lives trying to escape.
More's Utopia has always failed, except in instances when people desired poverty for religious reasons, like Catholic and Orthodox monasteries, and the various religious sects existing in nineteenth century American: the Amana Society, the Harmonists, the Separatists of Zoar, and the Shakers. This is fitting, for More was a deeply religious man. Socialism is only preferred by people who want poverty. For everyone else, socialism can only be implemented by force, which is why the Soviet Union, North Korea, Cuba, and China are known as oppressive and brutal regimes.
Figure 2—Cartoon About Socialism
Thomas More is one of the most widely known individuals from the sixteenth century, but not for his book. When More opposed King Henry's break with the Catholic Church King Henry lopped off his head. That is the story everyone hears about More, and it is true.
More left behind his vision for Utopia. In this article we ask: what is yours? As we will see, it depends on whether you believe people who make profits do so by harming others, or improving the lives of others.
Video 1—Thomas More's Execution (in The Tudors)
(must use Internet Explorer)
Video ?—Utopia of the Nerds (from The Simpsons)
(must use Internet Explorer)
Views profit-making
Republicans and Democrats argue about many things but also agree about many things. Many contentious issues, like abortion or religion, have little to do with economics. In this article we are interested only in your views on the size of government, so instead of using the term Democrat we used the term Progressive, and instead of the term Republican we use the term Libertarian. These are two words everyone should know, anyway. Most of us are not pure Progressives or Libertarians, but somewhere between the two extremes. The question is: to which extreme do you lean the most?
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Progressive—Someone who agrees with modern-day Democrats on the need for a big government and expansive regulation of markets.
Libertarian—Someone who agrees with modern-day Republicans on the need for a small government and minimal regulation of markets. |
Much of the question of the size of government is determined by one's views on the earning of profits. If your neighbor runs a business and you see him rise from moderate to substantial wealth, do you believe he harmed others in the process of earning that wealth, or do you believe he improved the lives of others. If your neighbor is Bill Gates, then you know he made his money by selling a superior product that improved the lives of most everyone. He accumulated wealth by making all of us better off. You will shortly see the Chinese reserved the lowest social class for merchants, because they only sold a product, the didn't make anything? The Chinese were wrong about a merchant's contribution to society. He may not have improved the goods he shipped from one region to another, but he made his customers better off by bringing the good to a more convenient location. We know they valued his services, otherwise, they wouldn't have purchased for him. What a shame that they would not acknowledge his contribution to their well-being! That is what makes our society more enlightened, and what makes our culture more conducive to wealth creation (note: I did not say our culture was superior).
Profit-making can be a virtuous act, just as commendable as being a community volunteer. Many times, when we make money we benefit others. When a farmer makes a profit from growing wheat, doesn't society benefit from the nourishment? Would you rather Bill Gates make his software or volunteer to clean litter from the streets? These virtuous acts of profit-making needs no regulation, Libertarians argue, for regulation would only deter those activities, thereby preventing the benefits that businesses provide to society.
Not all profit-making benefits others though. Suppose your neighbor ran one of the investment banks that made reckless bets and helped throw the economy in a deep recession. He likely made his money by harming others, perhaps through fraudulent and unethical accounting. Or, maybe your neighbor runs a big oil company, where his negligence caused an oil spill which caused considerable harm to the environment, tourism, and seafood. These are instances where your neighbor harmed others in the process of making his money. These are the individuals that need regulating.
Virtually all Americans believe that profit-making is a respectable activity, so long the person makes money by improving the lives of others, notably, by creating value for others by selling goods at a lower price or a higher quality. Likewise, all Americans agree that some regulations are needed, in instances where people try to make money by harming others. Where Libertarians and Progressives differ are in the details, largely, just how much of the economy needs regulating.
Americans have come a long way, for this enlightened attitude towards profits is relatively new in the history of humans. For much of human history, profit-making was viewed as an undesirable activity, and those who owned businesses were thought to lack virtue. Now we know that allowing people to pursue profits benefits them and society, because in business, one can only take money from people by giving them them something they value even more in return. Profit-making is a respectable activity now, and as a result people possess greater wealth than any people in history. The poorest American has access to things a Roman emperor or French king did not.
Understanding our evolving views on profit-making is important to understanding modern democracies, so the next section addresses this story in greater detail.
Historical views on profit-making
History is replete with communities who abhorred capitalism, and viewed the making of money not only as ignoble but immoral. In the days of ancient Greece and Rome the condescending view towards merchants was well established. In Homer's Odyssey, Odysseus is insulted when he is asked whether he is a merchant, largely because merchants were not heroic, and this was the Heroic Age. Ironically, to prove to this stranger that he himself is a man who deserves respect, Odysseus brags about how he ascends the river Aegyptus to pillage fields, enslave women and children, and kill the men.(D1) I suppose in the Heroic Age enslaving men was more laudable than selling men goods! Socrates described salesmen as, "weakest in bodily strength, and therefore of little use for any other purpose; their duty is to be in the market."(P1) In the Egyptian city of Thebes, a man could not hold political office unless he had abstained from "the market" for ten years, because if he had bought and sold in markets, he was too lowly for political office.(M1) In 2012 as Mitt Romney ran for president, he used his success in business as a sign that he was qualified for public office. Most students taking my classes are studying to be in business. Times and attitudes have changed, indeed.
As Greece was assimilated into Rome, and then the Roman empire crumbled, Christendom was slowly established throughout Europe but views towards profit-making changed little. Merchants were still frowned upon, and so was anything involving the earning of profits. As strange as it may seem today, these Christians took Matthew 6:14:25 literally, when Jesus criticized his audience for worrying about the future, such as saving for a rainy day, as Jesus argued it illustrated a lack of trust in God.
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Therefore I tell you, do not worry about your life, what you will eat or
drink; or about your body, what you will wear...Look at the birds of the air;
they do not sow or reap or store away in barns, and yet your heavenly Father
feeds them...For the pagans run after all these things, and your heavenly Father
knows that you need them. But seek first his kingdom and his righteousness, and
all these things will be given to you as well.
—The Christian Bible. Matthew 6:14:25 to 6:14:33. New International Version. Medieval moralists condemned towns-people for being so concerned with money and profit—and, odd as this might seem to us today, [for whom] planning doesn’t seem like much of a sin…—Medieval moralists considered it bad for individuals to plan about the future, to care about the future too much. Because if you plan actively what you are going to be doing tomorrow or the next day and a year from now, you are showing insufficient trust in God… —Philip Daileader. High Middle Ages. Lecture 10: Francis of Assisi and the Franciscan Movement. The Teaching Company. |
Medieval China and Christendom were very different societies, but they agreed on the low status of merchants. Chinese society was ranked according to four classes: (1) the Noble class, being the most esteemed (2) the peasants or farmers (3) the artisans and (4) the merchants. Even if a merchant risked his life and traveled great oceans to bring China goods from Western Europe, he was still thought to have performed no real service. The fact that merchants did not improve the goods they bought and resold—other than transport them from one region to another, or store them from one time period to another—made people think merchants contributed no value to society.(H1)
It may surprise you to learn the first free-market society was perhaps in Medieval Islamic society, where property rights were secure and people were free to trade property at whatever prices they wished. The rulers and priests felt it sinful to interfere in markets, and so Muslims were free to benefit from the bounty of wealth that trade can provide.
During the age of the Enlightenment (eighteenth century), capitalism emerged in Holland and Britain, where for the first time in Christendom the earning of profits was no longer a sin, and was becoming a virtue. The nobility found their prestige increasingly threatened by a wealthier class of factory owners. Before these businessmen were called capitalists they were called the "bourgeois," a French word referring to the middle class.
A former colony of Great Britain, as America developed it too became a land of the bourgeois.
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In Islamic society, the merchant became not just a respected figure, but a kind of paragon: like the warrior, a man of honor able to pursue
far-flung adventures; unlike him, able to do so in a fashion damaging to no one.
... There was a particular hostility to anything that smacked of price-fixing. One much repeated story held that the prophet himself had refused to force merchants to lower prices during a shortage in the city of Medina, on the grounds that doing so would be sacriligious, since, in a free-market situtation, "prices, depend on the will of God." Most legal scholars interpreted Mohammed's decision to mean that any government interference in market mechanisms should be considered similarly sacrilegious, since markets were designed by God to regulate themselves. —Graeber, David. 2011. Debt: The First 5,000 Years. Melville House: NY, NY. This passage refers to the fact that the first real instance of capitalism occurred in Medieval Islamic societies. |
Countries of a capitalistic nature began surpassing their peers in terms of wealth, creating what we now call the Industrial Revolution. Holland was (18th century) and still is one of the wealthiest lands. The British Empire became the largest empire in history (late 19th century), in terms of land. Then there was America, who we all know, would become the richest and most powerful nation to ever exist. Other countries in Western Europe saw their attitudes towards profits had to change also, lest they be left behind by their capitalistic peers. Not only were merchants viewed more favorably, but the bourgeois began building huge factories where the division-of-labor and efficient machines allowed society to produce goods cheaper than ever before.
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A mere fifty years after [Jane Austin’s] death [in 1817], that world was altered beyond recognition. It was not only the “extraordinary advance in wealth, luxury and refinement of taste” or the unprecedented improvement in the circumstances of those whose condition was assumed to be irremediable. The late Victorian statistician Robert Giffen found it necessary to remind his audience that in Austen’s day wages had been only half as high and “periodic starvation was, in fact, the condition of the masses of working men throughout the kingdom fifty years ago.”
... The notion that man was a creature of his circumstance, and that those circumstances were not predetermined, immutable, or utterly impervious to human intervention is one of the most radical discoveries of all time. It calls into subject the dictates of God and nature. It implied that, given new tools, humanity was ready to take charge of its own destiny. It called for cheer and activity rather than pessimism and resignation. Before 1870 economics was mostly about what you couldn’t do. After 1870, it was mostly about what you could do. —Nasar, Sylvia. 2011. Grand Pursuit. Simon & Schuster: NY, NY. |
The wealth generated by these capitalistic nations was unsurpassed in the history of man, and capitalism itself pulled more people out of poverty than any institution before. Still, many were unhappy with these capitalistic systems, and it didn't take long before the voice of the citizenry elected a powerful government to intrude upon the factory owners. As a result, capitalism still prevails in America and Western Europe, but its power is checked by a strong government. These nations are not capitalistic, but half-capitalistic and half-socialist. By all measures, this mix has produced great results, though it is always debatable what exactly caused our prosperity.
Big government's check on capitalism
Why in the world would anyone want to force a large government into a capitalistic system which produced unprecedented wealth? There were some valid reasons. Just because a nation experienced high living standards in the presence of a small government did not mean they would be cast back into poverty with a slightly larger government. Moreover, the wealth produced by capitalism benefitted some more than others. Couldn't government regulation of capitalism perhaps produce a more egalitarian pattern of wealth? Many in the early part of the twentieth century thought so. They described themselves as Progressives, and their success resulted in what we call the Progressive Movement.
Before the Progressive movement the unfortunate had to rely solely on family and charity for help. In the eyes of progressives this charity was insufficient, given the vast wealth factory owners made for themselves. For the first time in history, large numbers of people were employed by a relatively few factory owners. Each factory would be owned by a few people but may employ thousands, and these factory owners could easily collude with other factory owners to suppress the wages they paid.
Remember from a previous article that we deem markets to be good institutions because one can only make money in markets by providing value to other people? A seller cannot sell unless they offer a product buyers desire. Ideally, the labor market would be likewise, where factory owners can only make more money by offering products people wish to buy and jobs that people wish to take. In the early twentieth century, it seemed that factory owners harmed society as they made more money. They used their market power to suppress wages, harming labor. Workers couldn't quit their job and work elsewhere if their wages were cut, because their employer colluded with other factory owners to keep wages low everywhere. Even if consumers benefited from lower prices, many felt the harms to labor negated that benefit. Regardless of whether this is true, it is what Progressives believed.
Moreover, the income disparities began to produce a class-system, where the capitalists truly thought themselves morally superior to their employees. Workers were often treated like chattel, but the workers also had the right to vote, and when they did, they sought to punish their employers with a truculent government. Profit-making began to be seen as a bad thing, for many thought a factory owner did not make high profits by producing a superior product, but by oppressing his workers. This transition from a small to a large government began in the early nineteenth century, and there are two milestones indicating this transition every American should know: the Triangle Fire of 1911 and the 1906 novel The Jungle.
The 1911 Triangle Fire
Everyone knew factory owners abused their power in 1911, but the extent to which they devalued the lives of workers became especially obvious in the 1911 fire at the Triangle Shirtwaist Factory in New York. It was a large building where many garment workers put in long days at low-paying, menial jobs. On most days the job was tedious and boring, but not the day a fire started. When it did, there was a rush to escape. Some were able to escape through fire-escapes, elevators, or stairs, but some were unable to exit through doors because—in an effort to prevent worker theft—the factory owners had locked it. Trapped inside the factory, 146 garment workers died in what became the deadliest industrial accident in New York at the time. Why did the owners place the workers' lives in jeopardy? To make larger profits, was the answer, and that is what caused such severe anger. Outrage over these unnecessary deaths led to a series of regulations, but more importantly, a change in American's attitudes. This was a pivotal moment in American history, and is so well known writers of The Simpsons made a parody of it, suggesting how ridiculous it was that so many women had to die due to the bourgeois' greed.
Video 2—The 1911 Triangle Shirtwaist Factory Fire (With a The Simpsons Parody)
(must use Internet Explorer)
The idea of cruel factory owners and oppressed factory workers is so well known that writers for It's Always Sunny In Philadelphia could easily make their own parody. Even today, Progressives view business like the Triangle Factory, where a firm cannot become profitable without harming others. Yet, we have to ask ourselves, did the owners of the Triangle factory really make more money by locking the fire-escape door? No. Their factory burned down and they were sued. Had they treated their employees with more respect and kindness they would have become wealthier. This suggests we should not view the profit-motive as lacking of virtue—not always, at least. We should not confuse self-interest with selfishness. Often, the impulsive, greedy, and selfish are not really self-interested at all, for they harm themselves in their rapacious pursuit of wealth. If you want to be rich, don't rob banks, because on average crime does not pay.(E1)
Video 3—It's Always Sunny In Philadelphia Demonstrates The
Oppressive Market For Labor
(must use Internet Explorer)
Upton Sinclair had prepared the public well for the Triangle Fire. In his 1906 book, The Jungle, Sinclair depicted the Chicago meatpacking industry (all businesses, really) as an institution which destroys people's lives for money. The main characters are a family of immigrants who move to Chicago in search of good jobs, and take work at the packing plants. In every page this family is tricked, oppressed, cornered, cheated, or intimidated by a consortium of businessmen and politicians. Profits, the book suggests, can only be made by destroying others.
Sinclair's purpose was very specific: he was a socialist, and he wanted America to become socialist too. Ostensibly the book is based on his journalistic work in Chicago, but it is almost certain that he greatly exaggerated the bad things he saw.
The book was a tremendous success, but not in the way Sinclair planned. Americans may have agreed with the need for a more active government, but they thought socialism was too extreme. What drew Americans to the book was Sinclair's descriptions of how meatpacking plants were operated. For the first time, Americans became truly concerned about the food they were eating, for in The Jungle, packing plants cut every conceivable corner for a buck, and the food they sold was akin to poison. Instead of making money by providing value to others (same product cheaper, or higher quality product at a reasonable price), they made money by harming people through the sale of unsafe food. In reaction to public concerns, President Theodore Roosevelt and Congress passed a series of food regulations that serve as the foundation to the food regulation system in place today.
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...men welcomed tuberculosis in the cattle they were feeding, because it
made them fatten more quickly; and where they bought up all the old rancid
butter left over in the grocery stores of a continent, and "oxidized" it by a
forced-air process, to take away the odor. Up to a year or two ago it had been
the custom to kill horses in the yards—ostensibly for fertilizer; but after long agitation the newspapers had been able to make the public realize that
the horses were being canned.
—Upton Sinclair. 1906. The Jungle. |
When Sinclair reflected on his failure to galvanize Americans behind socialism, but his success at creating concern for food, he remarked, "I aimed at the public's heart and by accident hit its stomach." That is certainly the case. But it should also be said that when the Triangle Fire occurred, readers of The Jungle were not surprised that 146 women would die due to a factory owner's greed.
A movement began for extensive government regulation in industry and labor, and was referred to as the Progressive movement. The Progressive movement was not limited to America. Throughout Europe revolutionaries demanded bigger governments. They went by the terms social democrats, socialists, communists, and the like. This desire for government help went too far in some countries, resulting in totalitarian governments : Hitler in Germany and Mussolini in Italy. In Russia, they first toppled then killed their Tsar, replacing him with the Bolsheviks, ushering in a Communist system that would remain until 1991.
Not all countries gave complete and arbitrary power to governments. Labor unions came to dominate sectors of England and France, but government still needed the blessing from its citizenry to act. In America, the Progressive Movement was tempered, allowing Americans to preserve their individual rights. This is perhaps due to our Bill of Rights, which makes the conveyance of complete power to a few politicians difficult. Still, the Progressives' influence was undeniable, and would eventually be manifested in FDR's New Deal, and later, Lyndon Johnson's Great Society.
To what extent is labor oppressed today? Obviously opinions vary, but labor in slaughtering houses is still much as they were in The Jungle. Many agribusiness students today work for corporations that operate factors and manage unskilled labor. They will have to deal with laborers who feel oppressed and stubborn unions. I encourage students interested in labor issues to first read The Jungle and then listen to this podcast from The Story(G1) about two workers in a modern chicken plant. Both stories are a sad read.
Your opinion about the earning of profits: Libertarians
The extent to which you believe extensive government regulation is necessary depends on your beliefs about the ability of market forces to punish unethical behavior. To honor Upton Sinclair, let us use the example about meat processing. How can a meat processor increase their profits?
A Libertarian, like the novelist Ayn Rand, believes that a meat processing plant can only make more money by creating more value for others: becoming efficient and able to sell the same meat at a lower price, create higher valued meats at a reasonable price, or both. Either way, the plant gains greater wealth because it created wealth for others. This resembles our POW camp, where both parties to a trade are made better off.
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A man can grow rich only if he is able to offer better values—better products or services, at a lower price—than others are able to offer.
—Rand, Ayn. 1967. Capitalism: The Unknown Ideal. |
This doesn't mean libertarians believe that unethical people do not exist and won't try to cheat others. They believe market forces punish such behavior, doing a better job of preventing fraud than regulation. If a meatpacking plant cuts corners in hygiene and sanitation, causing their customers to get sick, their customers will stop buying from them. Without customers, they go bankrupt. Knowing this, a profit-maximizing firm will maintain sanitary conditions and spend large sums of money to ensure a safe product. After all, you can't consistently make money by making your customers sick.
This is called market discipline, where the market punishes bad actors by causing them to lose money due to a loss of reputation.
Libertarians also doubt the power of businesses to abuse their workers. Even if a meatpacking plant can collude with other plants to keep wages low, there are many other places unskilled workers can be employed, from factories in that make cars to fast-food industries to construction. Firms who abuse their workers are unable to keep good workers, and will have trouble creating a quality product. Even the cruelest of employers is forced by the market to treat their workers with respect.
All this is to say that a Libertarian believes people mostly gain wealth for themselves by providing value to others. Steve Jobs didn't force the iPhone on us; we forced our way through a crowd to buy it. The same goes for Whole Foods. While you may or may not like organic food, many do, and when John Mackey brings new Whole Foods stores to new areas he creates value for other people by offering them a product they prefer, and he is rewarded by his loyal customers. Why would one feel the need to regulate Whole Foods or Apple—or any of the meatpacking plants across the country—when they can only gain wealth by benefiting others?
The profit-incentive encourages people to do good things for others, and punishes people who do not. For these reasons the pursuit of profits is a noble pursuit. That is the belief of Libertarians.
Your opinion about the earning of profits: Progressives
A progressive tends to believe that a meat processing plant can only make more money by harming others, not providing others with benefits. The firm's goal is said to take some of the cost it creates in the production of a good and externalizing it to other people, thereby creating an externality, meaning they make other people pay some of the cost for producing the good it sells.
Pollution is the quintessential example of an externality. If a meatpacking plant creates water and air pollution, that pollution is a cost of production, but the firm does not pay the cost. Society is left to experience the harm of pollution, and when the firm sets a price, that price does not account for the pollution. Some people then buy the product, when if the price had reflected the pollution cost, they would not have purchased it.
The Progressive believes polluting meatpacking plants, operated by owners in the pursuit of profit, will only benefit society if it is highly regulation to prevent externalities. Libertarians agree that polluting firms should be regulated, they just disagree on the extent to which pollution takes place and are less optimistic about the ability of government regulate it effectively.
Progressives are less optimistic about the ability of markets to punish bad actors. If one meatpacking plant causes food illnesses and, not knowing where they really get their meat, consumers lose faith in all meat at the grocery store, this is a problem. One firm may not have much incentive to keep sanitary conditions. After all, if their negligence causes illness, they don't suffer all the consequences—it is shared among all meatpackers, grocery stores, and even cattle producers. In these cases, meatpackers will want to be regulated, to prevent their competitors' irresponsibility from harming them.
Market discipline doesn't always work. Former Fed Chairman Allen Greenspan once thought market discipline would limit fraud and reckless gambling in the financial industry. Then came the 2008 Financial Crisis. Yet, at the same time, it is impossible for government to regulate everything effectively. Most of the time businesses are honest about what they are selling and display ethical behavior, and for this we have market discipline, not regulation, to thank.
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Walking to work one day I wanted to listen to the news, so I popped into Radio Shack. I found a cute little green radio for $4.99. Pleased with my bargain, I stood in line to pay, but then started wondering: how could $4.99 cover the cost of extracting the raw materials, manufacturing the parts, assembling the radio, and getting it into my hands?
... Four-ninety-nine? That wouldn't pay for the shelf space it took up until I came along, let alone the salary for the guy who helped me pick it out. That's when I realized: I didn't pay for the radio. So who did? A study currently underway for the United Nations is calculating the cost of pollution and other environmental damage caused by the 3,000 largest publicly held corporations in the world. The study, which will be published this summer, has found that the cost of environmental damage by these companies is $2.2 trillion, or more than one-third of their profits if they were held financially accountable. This includes greenhouse gas emissions, other pollution, and water degradation. The final amount is likely to increase once additional costs -- like toxic waste -- are incorporated. ... Economists call that externalizing costs, and it's how corporations hide the true cost of making and selling cheap stuff -- costs that are never recorded on the balance sheets and consumers never see. As David Korten writes in When Corporations Rule the World, "Externalized costs don't go away -- they are simply ignored by those who benefit from making the decisions that result in others incurring them." —Leonard, Annie. March 9, 2010. “The Story of Stuff: Externalized Costs and the $4.99 Radio.” The Huffington Post. Green. Accessed August 8, 2012 at http://www.huffingtonpost.com/annie-leonard/the-story-of-stuff-extern_b_490351.html. |
Is government the solution? Libertarians and Progressives agree, and disagree.
Annie Leonard is right, in that the production of almost everything entails some pollution. The only way to completely purify the earth is to remove humans from it. Given that we must pollute, we want to do it in the right way. How? Both Libertarians and Progressives believe some government regulation is necessary, and also agree that some things are not worth the cost of regulating. A hobby farmer with twenty hogs will emit some air pollution, but it hardly seems enough to try and regulate her. It is smarter to concentrate on the major sources of pollution.
Can corrupt politicians do any good? Both Libertarians and Progressives also agree that government sometimes makes things worse when it ostensibly seeks to improve the world. The reason is that politicians' highest priority is not good legislation but being reelected. They need camgaign money to get reelected. They use their extensive powers to take little bits of money from each of us and directed it toward favored individuals, who turn around and express their gratitude in the form of campaign contributions. This amounts to using legislation to divert taxpayer funds into campaign contributions. We are used to think of lobbyists bribing politicians with campaign contributions, but much of the time politicians are begging lobbyists to be bribed.
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Jacob: Alex, you’ve been doing these pieces on lobbying for a while now, and what’s been illuminating to me is how much the Congress people themselves need these fundraisers. They need this constant flow of money to get reelected...
Alex: Yeh, you know a lot of people think of all these lobbyists, that they’re bum-rushing Congress, throwing money at them and trying to corrupt them with their money, but [lobbyist] Jimmy Williams says it’s the other way around: Congress people were constantly pestering him. They were constantly calling, and a lot of time it was Congressmen whose votes he didn’t even need. —Planet Money podcast. “A Former Lobbyist Tells All.” January 27, 2012. |
Faith in politicians or faith in markets? If politicians are so eager to be bribed, can we rely on them to effectively regulate externalities? Regulators certainly didn't stop the 2008 Financial Crisis, and likely helped cause it. Libertarians say regulations are often ineffective and often make things worse, and that the best way to prevent corruption is to limit politicians' ability to bestow industries with gifts paid for by taxpayers—this is achieved by reducing government. Progressives believe corruption should be fought by electing more ethical politicians (Libertarians tend to be fatalist about politics, and Progressives more optimistic) and by giving government greater power to fight corruption—Libertarians remark this greater power will just be used just to raise more campaign contributions, and is thus counter-productive.
Video 4—Corruption in the U.S. Sugar Industry
(must use Internet Explorer)
If Progressives are more optimistic about the morality of their politicians, Libertarians have greater faith in the virtue of markets. Consider the egg industry, where most layers are raised in small cages which many believe inhumane. Progressives encourage their politicians to ban cages in egg production (and have done so in various states, including California) while Libertarians observe that most grocery stores already sell cage-free eggs. If one really believes cage-eggs are inhumane, Libertarians say, they should purchase cage-free eggs for themselves, and not try to force them on everybody.
Figure 3—Cage-Egg Production
Faith in central-planning? The recent financial crisis has caused everyone to rethink their politics—of course, few ever do change their mind. Libertarians have tended to blame the crisis on government's involvement in the housing industry and Progressives blame investment banks. In this case, both are right. Although years have passed since the crisis the government is still having difficulties crafting legislation to prevent another financial meltdown (they passed legislation, but it is unworkable).
Progressives believe Republicans and financial lobbyists have prevented the wise Democrats from passing effective regulation, and believe a panel of experts can both write good legislation and regulate financial firms, averting another crisis.
Not surprisingly, Libertarians doubt the ability of experts to effectively oversee something as complex as finance. The experts are essentially trying to be central-planners, the Libertarians say, and the Soviet Union (and Cuba, and Venezuala, and ...) taught us about the failures of central-planners. They will also observe that politicians have exhibited an inability to even understand the financial industry, so how can they regulate something they do not understand? Instead, the Libertarians say the government should just stop bailing investment banks out when they gamble recklessly, for that will discourage them from gambling so recklessly in the future.
This article began with a description of seasteading colonies, where people hope to one day be able to live in a floating house and dock next to whatever colony's politics they like the best. If you had to choose between a colony of Libertarians or Progressives, which would you choose? Hopefully this article has helped you answer that.Whichever side you are on, you are in good company, for smart and kind people are found in both camps.
| Question/Answer | Libertarians | Progressives |
| People make profits mostly by... | ||
| creating value for others. | agree | disagree |
| externalizing some of their costs to others. | disagree | agree |
| Is government regulation effective at reducing externalities? | ||
| No, because politics is corrupt and there is virtue in markets. | agree | disagree |
| Yes, because we can vote-out corrupt politicians and there is virtue in government. | disagree | agree |
| Yes, because experts have all the information and training required to help us make better decisions than we would make ourselves . | disagree | agree |
References
(D1) Durant, Will. 1939. The Story of Civilization Part II: The Life of Greece. Chapter 3: The Heroic Age.
(E1) The Economist. June 16, 2012. "More Swagger than swag." Page 83.
(G1) Dick Gordon (Host). May 14, 2008. "Life On The Line" [podcast]. The Story. American Public Media. Accessed August 14, 2012 at http://thestory.org/archive/the_story_515_Life_On_The_Line.mp3/view.
(H1) Hammond, Kenneth J. 2004. "Five Dynasties and the Song Founding." Lecture 14. From Yao to Mao: 5000 Years of Chinese History. The Teaching Company.
(M1) Deirdre N. McClosky. 2010. Bourgeois Dignity. Chapter 41.
(P1) Plato (424-348). The Republic. Book II.
