Sunday, March 14, 2010

A rant

If I have to hear one more politician talking about how their spending bill will create jobs, I'm going to go stark raving mad.  I think that in the last week, I've heard it on NPR, Fox, CNN, MSNBC, and in the Fort Worth Star-Telegram. 

Jobs aren't created by forcing people to surrender their money so it can be used by some other favored group.  Jobs are created by trade.  People trade their skills, their time, their expertise, or their bodies for money.  If someone values your skills, time, expertise, or body more than they value their money, they'll offer a swap.  I'll give you x amount of dollars in exchange for x amount of your time. 

Unless government intervenes, these trades only happen when both parties believe they're getting the best end of the deal. 

The only way to increase these trades, their frequency, and the number of parties involved, is to lower and/or eliminate barriers to these trades.  Stop punishing people who succeed via trade.  Stop government munchkins from injecting themselves into these trades as middlemen.  Allow people to trade all over the world without penalities. 

Some employers take huge risks when they try to create something.  They sometimes lose everything that they've invested, unless, of course, the government steps in and covers their losses (type "bailout" into the top left corner of this site). 
I repeat, entrepreneurs can lose everything if when they aren't successful.   At what confiscation rate should government punish their occasional successes?

End of rant.  Thanks for listening. 


Dr Ralph said...

Both parties believe they're getting the best end of the deal? Maybe on occasion, but I hardly think it is a necessary condition. More like it is the best deal they think they are likely to get under the circumstances.

Which is a completely different thing.

The Whited Sepulchre said...

Barring utopian fantasies, all deals are done under the circumstances of "reality", i.e., the way things are.

NickM said...

Stop talking sense!

Someone in DC might hear you.

Then where would it end?

Dr Ralph said...

Interesting you would agree.

Included under that would be extreme cases like runaways being forced into prostitution and (to pick one of your favorite horrors) "onerous" contracts forced on companies by nefarious union thugs.

In neither example would "best deal they think they are likely to get under the circumstances," equal both parties believing they're getting the best end of the deal.

Less extreme yet perfectly legitimate examples abound which involve one party exploiting some vulnerability of another.

It may be legal but don't call it mutually beneficial.

The Whited Sepulchre said...

This is why Libertarians favor totally free markets. (Granted, we tend to make exceptions for children, the mentally ill, etc., people who can't yet be deemed competent.)

But let's assume, say, a runaway 15-year-old was bright, hardworking, and capable of making her own decisions. What, in our current reality, would prevent her from working full-time to support herself at Target instead of hitting the streets as a Ho ?

Nick Rowe said...

The best deal under the circumstances is the best deal.

There is often a gap between what sellers are willing to take and what buyers are willing to pay. The parties are not aware of the other's private information. In a competitive situation with homogeneous goods, this information is revealed, but in a two party negotiation or with differentiated products the gap persists.

Where you end up depends on bargaining power and skill, but the end result is acceptable to both parties. If one party is less informed or experienced than another, that doesn't make it a crime to draw away all their market surplus. Only outright deception is illegal.

I'm buying a house right now with a VA loan which is not competitive in an environment full of cash buyers. I found a distressed seller with no other offers. I had to make an offer at the high end of the comparables to keep them from going back to the market for a better offer. I got the house. Both the seller's circumstances and mine made the deal acceptable. They are not happy with what they received and I'm not happy with what I paid. But we are both marginally satisfied.

I could have negotiated a better rate on my mortgage, but I was trapped by time and lack of information - that doesn't make my mortgage broker a crook. Next time I buy or refinance a house, I'll negotiate a better deal.

You could re-frame a mutually agreeable transaction as one where both parties are at least marginally satisfied with the outcome. Otherwise, the transaction would not have taken place.

Just because there is ex post buyer's/seller's remorse when more information becomes available doesn't make the transaction invalid, illegal, or unethical. You make decisions at the margin with available information.

Circumstances are part and parcel of "willingness and ability" to pay/sell. You cannot dissociate them from supply and demand.

If a devastating flood hits my town, my willingness and ability to pay for drinking water increases, justifying $10 a gallon for the guy who must drive 50 miles or more to bring it in from outside the community. This isn't "price gouging" - it's a necessary market mechanism for rationing a scarce resource and bringing it to where it's needed most.

Collusion, whether tacit or explicit, is and should be illegal. Competition is key to an efficient market.

There is nothing wrong with government preventing material misrepresentation of facts in a transaction. That's why a home sale has hundreds of pages of disclosures.