Thursday, February 7, 2008

The "evil" profit motive

This article should be read by those who blame the profit motive for all the ills of society. Here is the gist:

Profit-motivated capitalism, on the other hand, has done wonders for poor workers. Self-interested capitalist factory owners buy machines that increase production, and thus profits. Capitalists search for technological breakthroughs that make it possible to get more output for the same amount of input. Working with more machinery and better technology, workers produce more output per hour. In a competitive labor market, the demand for these more productive workers increases, driving up their wages. The steady increase in wages for unskilled labor lifts the workers out of poverty.

The number of poor people who can't afford food for their children is a lot smaller than it used to be -- thanks to capitalism. Capitalism didn't create malnutrition, it reduced it. The globalization of capitalism from 1950 to the present has increased annual average income in the world to $7,000 from $2,000. Contrary to popular legend, poor countries grew at about the same rate as the rich ones. This growth gave us the greatest mass exit from poverty in world history.


John G. Boyle said...

I never thought that Bill Gates and I would ever have anything in common, but I have to say: after being introduced, I'm not a fan of Mr. Easterly either.

Is the implementation of our foreign-aid all that great? God, no. But I'd say that it's damn near impossible to get a nation's economy rolling if massive chunks of that nation's population is being wiped out by AIDS or if its children are too poorly nourished (it's not the rosy picture that he paints) and so undereducated that they'll never take a place in the new economy.

Personally, I think that our (domestic) economy has evolved to the point where profit motive, especially through publicly traded companies, is not the beneficial force that it once was. Unfortunately, not everyone is willing to consider that once-lauded economic theories may not be as water-tight as they once were. I mean, if you've seen the results of the rising income inequality as a result of the nearly-free market in the U.S., you might find Mr. Easterly's point of view somewhat suspect too.

I'm really going to have to add his book to my queue since I'm incredibly curious to see exactly where his theories go...

Freemarket said...

John, I disagree with nearly everything that you said. Rather than refute everything point by point, I’ll just say that your assertion of rising income inequality is meaningless. Sure the poorest people don’t make anywhere near what Bill Gates does. So what? Look at the consumption per person of the richest fifth compared to the consumption per person of the poorest fifth. It’s about 2.1 to 1 (the relative incomes of these two groups is about 15 to1). The middle class is alive and well.

Anonymous said...

Free: You subscribe to government controlled housing markets (aff housing etc...) but you can't see that it's the wages which need to be fixed.

Rather than have the gov't mess with particular sectors link housing, food, etc... we would be much better to just mandate a fair and living wage for everyone.

Freemarket said...

What? Have you even read this blog? I support a reduction in zoning laws to increase the supply of affordable housing- not “government controlled housing markets”.

Let’s mandate a wage of $100/hour for everyone. That will solve our problems, right? Yeah. Enjoy your unemployment.

jim adams said...

Tell me I didn't read your comment correctly Free Market. Your zoning laws or should I say the lack of, would increase density, the need for more gov. debt with roads and infrastructture, schools, police and fire departments.There would be precious little space for fields of clover, bees, and apple trees The proability of someone reporting you for making your own brew would cause great stress.

And you want me to pay increased taxes for your clustered, crammed, consentrated little paradice. I will need your $100.00 per hour.

Why does everyone have to live in Howard Co. Let's redevelop Baltimore City, and Baltimore Co.
I made it from the city, thru Balt. Co to Howard, and it can still be done without zoning law changes.

Freemarket said...

At the end of the day, there is no such thing as a free lunch. Open space and other cultural amenities do not compete with houses like mine- those things compete with affordable housing. There is not a single thing that government intervention can do to stop that trade off (except redistribute wealth from the upper and middle classes via a lottery system – aka Ken Ulman’s plan). People like to say that they want affordable housing, but they want someone else to pay for it. There are no easy answers.

Btw- bees thrive even in Manhattan, and it is not illegal to make homebrew (yet).

jim adams said...

I was just poking fun at your bees and brew.

Affordable housing is a stone in my shoe.

The last time I worked in Howard County, I was a 19 year old grocery clerk. My wife never worked in the county. Why the county should provide housing based on the individual's job location is a beyond me. I say let the market place work it out.

Why do we throw wet blankets on old fashion work ethics and values.

John G. Boyle said...


Consumption is only one factor. And I'd argue that among those not in the top quintile, that high consumption level exists at the expense of home equity, savings and solid financial footing.

But since you believe so strongly in the health of our "middle class," I'd be curious to see how you'd interpret the U.S. Census' Gini coefficient over the last 50 years or so.

Freemarket said...

John, with all due respect, people with your mentality make me a little sick. You completely ignore all the benefits available to the majority of this Country (laptops, ipods, Honda Civics, medicines that cure diseases that used to be deadly, ATMs on every corner, etc.) and then complain that some people have higher income than others. Is it fair that other people have more income? In a free market, I would argue that yes, it is. It is not fair that some of us are ugly and some of us are pretty, some of us run marathons and others are in wheel chairs. But when you can use what talent you have to compete with others and earn a living, that is great, and that is what America is all about. You want perfect income equality? Move to a place where everyone is poor thanks to government regulation.

Anonymous said...

The path to poverty is hastened by government intervention in specifics like housing, because of the heavy administration of specific programs. It goes beyond redistribution of wealth

No one said $100 hourly. You're exaggerating. There is no benefit for a single individual to earn 1,000 times what a person employed in the same company earns. NO ONE could POSSIBLY be worth that much more to the business, economically speaking.

Freemarket said...

Anon- put your words into action and join the Ravens football team. Let me know how your salary compares to the other players.

“The path to poverty is hastened by government intervention…” – you could have stopped right there.

John G. Boyle said...


I don't say this to be holier-than-thou: I just want to give you some context behind the mentality that you find sickening before I leave you to blog in peace...

I work at a children's hospital. The hospital serves the privilidged, the underprivilidged and everyone in between. Being there has shown me things that you don't see too often in HoCo.

Trust me, I'm WELL aware of the benefits that most of us have in HoCo. And, no - I don't believe that we're all equal, or that there should be perfect equity in income. But I think that while you're looking solely through your lens of government, economics and the world that directly surrounds you, you're missing out on some of the other forces that influence our world.


Anyway, I've enjoyed the debates here, and I feel like going back and forth here has opened me up to some new perspectives. But this is your blog, and I won't bother to post if all that it does is raise your hackles. My hope was that you might find some interesting (and not sickening) perspective in what I wrote as well. Since that doesn't seem to be happening, I'll sign off here with some Shakespeare that I always find grounding:

"There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy."

Thanks for engaging and not censoring. See ya around the blogosphere!


jim adams said...

FM, the aggressive tone of Anon's posting makes me feel that they would make a great, and very well paid quaterback.

Their posting has also made me reflect on a story that I know well.

More than 50 years ago there was a husband and wife team that purchased a very small cottage, two bed rooms, with no basement, in Carroll County. The husband traveled thru Howard and Baltimore Countys, and into the city for years, on his way to work at a blue collar job. Most of their their decendents, down to the Great Grand children live in Howard Co. In homes much nicer than that little cottage.

There is no punch line to this story, but there is a common thread. All of their homes were affordable, not because of government definition or government handouts. They were afforable because the children and grandchildren worked for them.

Adam Smith knew how wealth was generated, he knew "the invisable hand" was not a hand out.

jim adams said...

JB, don't give up on FM, nor his blog. He, as you mentioned, allows uncensored postings. This is a place to vent and celebrate the differences of opinion.

I would also like to mention, as you did, my hospital experience. I worked in hospitals for decades, and like you meet the privilidged and unprivilidged.

One of the most emotional times was at Christmas. We gathered food, clothing and toys, which we then delivered to the inner city poor. What touched me was the contrast I felt after doing that and coming home to the warmth and security of my own home. It was rwo different worlds only a few miles apart.

It is part of what has made me sensitive to the inegualities, as well as the harshness that occurs in life.

I am reminded of the poet John Dunn, who said something to the affect "no man is an island on to himself".

But even with that thought, I believe that each of one of us, with all of our personal limits, can still make our lives better, without a lot of government intervention.

FreeMarket said...

John- although we disagree, I sincerely appreciate your comments and I respect your opinion. Thanks for speaking your mind, and I hope you continue to do so on this blog and elsewhere.

As long as we are quoting people, I’ll drop some Milton Friedman: “Concentrated power is not rendered harmless by the good intentions of those who create it.”

Jim- well said, and I hear ya.