A middle-aged man dreaming of the day when he can stop begging for scraps and write for a living.

Saturday, September 1, 2007

The Religion of the Free Market

There's a common theme pushed by Republicans and Libertarians alike: the notion that the Free Market (hallowed by thy name) will automatically correct itself when problems arise. If wages are too low, workers will switch jobs to companies that pay more. If a company puts out a bad product, engages in monopolistic tactics or uses environmentally unfriendly practices, companies with better standards will gain the advantage and edge out the offending business.

The problem, argue these Free Market proponents, is that the government intervenes before the market can correct itself. The government then imposes costly and impractical solutions rather than allowing the natural evolutionary process to complete. So we end up with businesses that lose money and productivity, showing more concern for appeasing the government than putting out good product.

It sounds very rational, doesn't it? Very compelling. The problem is that history doesn't support it. The world has had countless opportunities for pure market conditions to flourish, and in every instance it has created an environment that gave us the wisdom of caveat emptor: let the buyer beware.

"Not so!" cry the clerics of the Church of the Free Market. "There has never been a true free market! Government has always meddled!" Perhaps this is so. But how long do you allow an experiment in free market environments to continue before you declare it a failure and institute some controls? Is it akin to our Glorious Leader telling us Iraq will be a success in the next six months for four years in a row? Britain tried it, and was forced to institute controls. France and Germany tried it, and they had to impose government restrictions on business practices. Russia embraced capitalism as enthusiastically as anyone after the fall of the Soviet Union, and the subsequent abuses are practically the stuff of legend so they've been instituting government controls. China is the latest newcomer to the capitalist scene and our news is filled with all sorts of complaints about the life-threatening consequences of their corner-cutting practices, all hallmarks of a free market environment. Are we boycotting Chinese goods? Are Chinese businesses going to feel the heat and correct themselves? No, they're going to take their chances and push their profits until their government forces them to behave. That is what free markets do. They always have, and until human nature changes, they always will.

So Free Market religionists will complain about things like mandatory minimum wage increases and talk about individual responsibility. They'll predict doom and gloom for everyone because of minimum wage. But the evidence is against them; just ask Oregon how badly they're hurting because of minimum wage.

8 comments:

denis bider said...

The most compelling article you link to enumerates business practices that have one thing in common: deception, sometimes to a criminal degree.

Even though I am a libertarian, I would be quick to agree that completely free markets are not very good at weeding out deceptive practices. I would also be quick to agree that, to the extent that each individual buyer has to spend significant effort verifying that a new vendor is not deceitful, this imposes an economic penalty that can be avoided.

What I disagree with is that complex government regulation and meddling is necessary to resolve this. Instead, what is needed is a very simple constitutional fix. What needs to be outlawed is all forms of deception where the deceived party does not explicitly agree upfront to being deceived. Then the police force needs to handle deception in the very same way as they handle robbery, murder, or theft.

Libertarians don't believe that the world requires absolutely no government interference. A world devoid of all government interference is anarchy. Libertarians recognize that the rule of law is a necessary element of any well-functioning society or productive economy. But what we insist on is that legislation needs to be simple, light and transparent so that it may be effectively enforced and so that it does not impose a burden greater than if the laws did not exist in the first place.

The conclusion of your article, where you talk about the minimum wage, has nothing to do with the dishonest business practices discussed in the article you linked to. Whereas rampant dishonest business practices, just like rampant robbery or theft, are a problem that the free market needs external help in order to resolve, no such argument can be made for the minimum wage. The minimum wage is simply a distortion that causes lower-paying jobs to disappear. Given that the United States have freedom of movement, I don't see how this would be observed as a problem if only Oregon institutes this policy, because people who lose their jobs as a result would simply move to somewhere else. However, you only need to look as far as France to see what long term impact such socialist policies have when instituted across a whole country. France (perhaps like Oregon?) has mass economic emigration and a stagnant economy as a result. It's gotten so bad, they even voted in a mildly reformist presidential candidate instead of the overtly socialist one. And you know that Europeans never vote for reform unless it's gotten really bad.

SpaceGhoti said...

Vendors have all sorts of methods to cut costs that have nothing to do with being deceitful, but in the end create a less-than-ideal situation for consumers. They can cooperate to raise prices across the board, ensuring that both they and their competitors can make more profit for less effort. They can make their products with inferior materials so that they degrade faster than they should, requiring us to replace their products at a faster pace. They can outsource to the lowest bidders regardless of quality control while maintaining the same price if the product were made locally. None of these practices are necessarily deceitful or illegal, but they're all bad news for the consumer. That's just the tip of the iceberg.

The minimum wage is simply a distortion that causes lower-paying jobs to disappear.

Every time we've increased minimum wage, economic conditions have improved. By claiming minimum wage increases hurt us, you're perpetuating a classic libertarian stereotype that has no basis in reality. We haven't seen a decline of Mom-and-Pop shops because minimum wage forced them to spend too much on their employees. They're typically run out of business because of big money franchise companies that undercut them to get rid of the competition, not because minimum wage forced them to spend more on employee salaries than they could afford.

As for the mobility issue, moving costs, and it costs a lot. People who struggle to survive at minimum wage most certainly do not have the resources to up and move to more prosperous areas. The times when you could call ahead and interview for a job out of state are long past us.

denis bider said...

Are you perhaps one of those people who think that your OS experience would be better if the government had broken up Microsoft?

The largest problems for customers that I've seen were all in situations where politicians worked with businessmen to ensure that certain companies are favored and that certain markets remain cornered, largely regardless of what the customers want or say.

Pretty much all regulation that is ostensibly intended to "create more order" in the markets is in fact intended to benefit certain companies which have an especially close relationship with the regulators and pay handsomely for the privilege.

As opposed to what you write, I believe based on my experience that moving is in fact a lot more difficult for the middle class (people who do not suffer from minimum wage increases) than for the lowest class (people who do). People in the lowest class are unlikely to own property and possibly likely to have family or kids.

The corner cutting you complain about are certainly not problems to be dealt with by the state. Should the government put up standards how long products are supposed to last? Then congratulations, you have just created a central planning system that requires the employment of thousands of bureaucrats just to decide how long everything is supposed to last. Do you actually believe that there is a central planning strategy that can solve the problem of deciding how long products should last better than the market can do so? If so, you have fallen into the same tar pit as the Soviet Union communists, whose attempts to run a centrally managed economy collapsed.

The Soviet economy it didn't collapse because the people in charge were stupid. The central economic bureau was staffed with thousands of bright economists who tried to cope with the economic problems that are normally resolved spontaneously by the market. The problem is, they couldn't. Central planning is a poor proxy for satisfying people's needs and desires. It produced an environment where people had to get up at 4 in the morning every day to stay in line for bread.

It appears that you seem to believe most of the leftist deceptions thrown at you by the mainstream media. The journalists - who are typically naive humanitarianists and English, not Economics majors - consistently ignore that the principles which enable our economies to function properly are more important in the long run than the short run suffering endured by a particular party. Localized suffering in the short run is necessary to improve the economy in the long run. If the principles that enable our economy to run are sacrificed, the economy stagnates and the long term result is misery for everyone.

About the minimum wage, this article could be read both ways. It has content that could be used to support the minimum wage, and it has content that can be used against it. I believe that a critical reading of the article shows that employers are hiring less because their costs are higher, so the number of tables per server in a restaurant is higher; but on the other hand there is an influx of people to the state, so the number of tables has been increasing faster than the proportion of servers per table has been decreasing.

In any event, any particular instance may be difficult to interpret because of all the other factors that weigh in. However, the article does say that: In a new report, economists David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve Board say a review of more than 90 studies in more than 15 countries since the early 1990s shows nearly two-thirds of the studies find a "consistent" though not always statistically significant negative impact on employment. Fewer than 10 found a consistently positive impact. While there's "no consensus," they say, "the weight of empirical evidence" supports the traditional view.

I don't think you need to look much farther than France to see that socialist policies are bad for the economy, and you only need a bit of an acquaintance with world history to understand just how bad government intervention as an economic policy can go. Soviet Union? Eastern Germany? North Korea? Venezuela? Zimbabwe?

SpaceGhoti said...

Oh, please!

I barely qualify as middle class, having never owned a home and one car that runs on spit and baling wire. I've moved to different states about four times, and every time I had to beggar myself to accomplish it. Twice I did it without a job waiting for me, and never had a company offer to provide me with moving expenses. Then I had to work for several years to establish a network of friends and references to help my reputation as someone who really can do what he claims on his resume. The cost of moving is incredibly prohibitive, and it's generally a shot in the dark even when you're fortunate enough to know people who will help you once you get where you're going.

Do I think my OS experience would be better if Microsoft had been broken up? No, I only use Windows for work; Microsoft has yet to equal what I use. Do I think Microsoft deserved the guilty verdict and should have been penalized accordingly? Hell, yes. Do I think it's the government's fault that Microsoft was able to leverage themselves into a near-monopolist position in the market? Hell, no. It was Microsoft's decision to use every resource possible to run roughshod over their competition regardless of the means available to them. That is, in my mind, the only strategy any true capitalist company seeks: to establish a captive market where you control the standards.

What I'm saying is that pure capitalist systems (ie the Holy Free Market) has no system for redress when businesses choose to screw over their customers. What government provides is a means for consumers to seek redress and establish some guidelines that let businesses know what will get them into trouble. Businesses have historically demonstrated that they won't enforce quality control on their own unless they have someone looking over their shoulders. The only entity we can truly influence to do that job is government; not in the form of a planned economy, but in the form of regulation and punitive consequences for bad behavior.

Oh, I am leftist through and through. I have lately adopted the title of Liberal and have not regretted it. I've learned the hard way that markets need a lot of oversight. History already teaches us what happens when you try to control everything, but it also teaches us when you don't regulate enough. We're right now seeing histoy repeat itself with regard to the lack of regulation.

There's a wealth of data debunking the libertarian myth that minimum wage hurts businesses and the economy. Kerry knows it and we know it, but the Church of the Free Market insists it isn't true. Why? The data doesn't support the claim. Therefore it must be an ideology issue. Don't forget to tithe before you go.

We can also look to Finland, Sweden, Iceland, Norway and Denmark for examples of hybrid Socialist/Capitalist societies that use blasphemous regulation to protect their citizens, and yet somehow manage to remain highly competitive, productive, connected and healthy. I lived for three years in Australia, and I can say from experience they're not suffering for their socialist policies. They could use a little less government control over their resources, but that's a balance issue.

No one nation gets everything right, but the one thing we can learn from every social and economic model is that a free market society as idealized by libertarians would be a nightmare for its citizens.

denis bider said...

Then I had to work for several years to establish a network of friends and references to help my reputation as someone who really can do what he claims on his resume.

You work for minimum wage? You had to establish a network of friends and references to help your reputation as someone who really can serve tables, make people's beds or flip burgers?

Like you said: you moved to different states about 4 times. You did it despite the fact that moving is hard. Are you saying people wouldn't do it because of economic pressure? For example, if they cannot get a job?

The whole argument here is about whether or not a higher minimum wage pushes people out of jobs. Evidence suggests that it does. What I'm saying is that, when a higher minimum wage does this, and if this is not counteracted by something else - like more jobs being created for another reason, such as the economy picking up from a previous depression - then what people are going to do is, they're either gonna get on social welfare and get food stamps, or they're going to move somewhere else. If you yourself moved 4 times in the past, you stand here as an example that people do move, and will, if there's a reason.

Otherwise, if they don't want to move and cannot get a job, they'll get on social welfare and get food stamps. Do you think that's better?


It was Microsoft's decision to use every resource possible to run roughshod over their competition regardless of the means available to them. That is, in my mind, the only strategy any true capitalist company seeks: to establish a captive market where you control the standards.

In a genuinely free market, a monopoly can survive only as long as it can genuinely serve its customers better than the competition. I wrote this article about how that pertains to Microsoft and the media player "monopolist" controversy a few months ago.

The markets do correct themselves. By the time the U.S. got around to break up Standard Oil, its market share had already fallen from 91% in 1904 to 64% in 1911. A decade after the browser wars between Netscape and Internet Explorer, accusations of a browser monopoly against Microsoft are pointless - Firefox has a 28% market share in Europe and comparatively high market shares elsewhere. The Mozilla Foundation had a revenue of $52 million in 2005. But Netscape crashed because they couldn't come up with a working business model and, at the time IE took over, Netscape was a vastly inferior browser.

To the extent that companies can establish captive markets, this is almost always in collusion with politicians which enable them to do so. Other attempts at captivating markets usually fail because such efforts create resentment and waste time that could be spent on improving the product. Before an antitrust trial has completed, the competition catches up.


What I'm saying is that pure capitalist systems (ie the Holy Free Market) has no system for redress when businesses choose to screw over their customers.

Of course they do. It's called competition. It's called the ability to open your own company and offer your own alternative, if the law permits.

Of course, that is made increasingly difficult these days because the bureaucracy and tax costs imposed by socialistic policies make it ever more difficult for a small business to take off. This causes less competition, which causes the existing players to behave yet more badly, which causes people to call for ever more socialist legislation, which makes the situation even worse for new startups, ... and so on and on in a happily vicious spiral.


Businesses have historically demonstrated that they won't enforce quality control on their own unless they have someone looking over their shoulders. The only entity we can truly influence to do that job is government; not in the form of a planned economy, but in the form of regulation and punitive consequences for bad behavior.

I agree, but what you're talking about calls for a functioning legal system, where the company is liable to compensate its customers for selling defective goods or services. What is not called for is regulation and bureaucracy. People can leverage the legal system to get back at companies that harmed them; they can file a lawsuit. But there's no way for people to leverage a central bureaucracy unless it becomes a parallel to the legal system in its own right.

There should be one legal system, it should be effective, and problems in business transactions should be resolved through that.


Oh, I am leftist through and through. I have lately adopted the title of Liberal and have not regretted it.

You may be a 'Liberal', but that does not make you liberal. In your 'Liberality', you aim to redress perceived social inequities by confiscating economic leverage from people who mostly earned it, and giving it away to people who mostly did not. In the long run you are causing economic damage which causes everyone, including the lowest classes, to enjoy less economic productivity than they otherwise could. You are making poorer people slightly richer in the short run, at the expense of making everyone massively poorer in the long run. While doing so, you violate some of the fundamental principles on which the United States were founded - individual freedom and private property.


I've learned the hard way that markets need a lot of oversight. History already teaches us what happens when you try to control everything, but it also teaches us when you don't regulate enough. We're right now seeing histoy repeat itself with regard to the lack of regulation.

What history seems to be teaching us is that a country needs a functioning and effective legal system (something that the U.S. has partially, and something that Russia and China do not have) if anything is to be done against deceitful and fraudulent operators in business. Or were you referring to something else?


There's a wealth of data debunking the libertarian myth that minimum wage hurts businesses and the economy.

Is it really?

I linked earlier to the article which states that "a review of more than 90 studies in more than 15 countries since the early 1990s shows nearly two-thirds of the studies find a 'consistent' though not always statistically significant negative impact on employment. Fewer than 10 found a consistently positive impact." Where's the wealth of evidence now?

Here's part of an abstract for another paper: "The results show that over a one-to-two year period, minimum wages increase both the probability that poor families escape poverty and the probability that previously non-poor families fall into poverty." ... "On net, the various tradeoffs created by minimum wage increases more closely resemble income redistribution among low-income families than income redistribution from high- to low-income families."


Kerry knows it and we know it,

You base your perception of reality on speeches made by politicians...?


The data doesn't support the claim.

But this is just one briefing paper, compared to 90 studies that were analyzed by Neumark and Wascher and which led to the results I quoted earlier.

Furthermore, the briefing paper that you link to doesn't contradict the paper "Do Minimum Wages Fight Poverty", as I quoted above: "On net, the various tradeoffs created by minimum wage increases more closely resemble income redistribution among low-income families than income redistribution from high- to low-income families."


Therefore it must be an ideology issue. Don't forget to tithe before you go.

We all represent an ideology. The ideology I'm representing here goes basically that (1) every law that's on the books has the function of limiting people's freedoms (if a law does not restrict someone's freedoms, then what are its effects?); and (2) governments, even in supposedly free nations, are erring very strongly on the side of limiting people's freedoms with the flimsiest of pretexts, not really to do anything of import, but mainly to win the simple people's votes. The larger economy is but a victim in this game.

For example, the minimum wage law clearly violates your freedom to enter out of your free will into a contract with a person who is willing to mow your lawn for $X. The minimum wage law violates your freedom to pay him what you want, and it violates his freedom to work for what amount he finds acceptable. Not to mention that then, additionally, the income tax comes in and violates his freedom to keep the proceeds of his work, and your freedom to dispense with your income the way you want to, without having to report everything to the government.

All of these freedoms are being violated, for what? Minuscule improvements for a small proportion of the people, at the expense of significant work and compliance costs for everyone involved; and in the case of the progressive income tax, at the expense of the entire economy in the long run.

You are failing to see the opportunity cost of having all of these regulations in the first place. The Tax Foundation estimates the U.S. income tax compliance costs at $265 billion, or 20% on top of the amount already taken by the income tax.

The FairTax initiative proposes a simplified tax regime that would tax consumption instead of income, but would still provide for generous kickbacks to the poorer sections of the population and would collect about the same amount of revenue as the current, very complicated, income-tax-based system does.


We can also look to Finland, Sweden, Iceland, Norway and Denmark for examples of hybrid Socialist/Capitalist societies that use blasphemous regulation to protect their citizens, and yet somehow manage to remain highly competitive, productive, connected and healthy.

Ah, the often quoted Scandinavian model.

You might be surprised to learn that Iceland has recently introduced a flat tax of 22.75% on personal income, and the current corporate tax rate is 18%. Quoting Iceland joins the flat tax club: "Iceland’s most dramatic reforms are in corporate taxation. The corporate income tax rate is 18 percent, which is among the lowest in the industrial world. The corporate tax rate has been cut steadily from 50 percent in the late 1980s, to 33 percent by the mid-1990s, and to just 18 percent by 2002. The rate cuts have created a powerful increase in investment incentives and boosted economic growth. Rather than creating a revenue loss for the government, Iceland’s corporate tax cuts have coincided with rapidly rising corporate tax revenues. Figure 1 shows this “Laffer curve” effect."

Some of the other Scandinavian nations are taking similar strides. Finland has been discussing a flat-rate income tax, I believe. Estonia, Latvia, Lithuania and Slovakia are among countries that have already instituted it, to good economic results.


I lived for three years in Australia, and I can say from experience they're not suffering for their socialist policies.

How is Australia any better than the United States? The United States are as socialist as they come. It might not be evident from the media reports, but the total marginal income tax in New York is about as high as in Paris - adding the federal, state and city income taxes, it comes up to almost 50%.

Socialist regimes are prevalent throughout Europe and the United States; the overall conditions are hardly any different than in Australia, New Zealand or Canada. It is no surprise, then, that Australia does not suffer comparing to the United States. It's roughly the same regime.

The question is, where would we be today if we didn't have our extortinate income taxes?

Perhaps countries like Iceland, Estonia and Lithuania can help you with some light on that.

SpaceGhoti said...

You work for minimum wage? You had to establish a network of friends and references to help your reputation as someone who really can serve tables, make people's beds or flip burgers?

Working in IT, I generally manage to procure a wage that's at least double minimum. Right now I'm making a salary in the mid-forties, and given how difficult I'm finding it to tread water at that pay rate I have sincere sympathy for people who are trying to survive on minimum wage. My life has very few frills, making minimum wage a purely subsistence-level wage at best.

Like you said: you moved to different states about 4 times. You did it despite the fact that moving is hard. Are you saying people wouldn't do it because of economic pressure? For example, if they cannot get a job?

Two of the four times that I moved, I couldn't find work. In the first case, it was only the charity of my girlfriend at the time that kept me off my streets. I spent two years saving enough money to get out of that state. The second time I couldn't find work was in Australia where it was more social than economic reasons holding me back. In that case, it was only the Australian welfare system that kept myself and my family off the streets.

Up until I moved to Australia, I didn't have children depending on me for survival. If I had, I would have had to surrender them to Child Services before they starved. I went hungry for a long time as it was. After Australia, it was the Australian welfare system that kept my children supplied with food and clothes. Had I made my gamble in the States, they would have gone hungry until the State was forced to take them away.

The cost of moving is prohibitive. The only reason I took that gamble on four occasions was because I didn't have to worry about anyone but myself. The only reason I'm back in the States is because I wanted to provide more for my children than welfare could supply, and even then I have Australia's socialism to thank for my family's security while I established myself. It's a gamble any time you move without a job waiting for you, and that's the sort of gamble you can't take when you have people depending on you.

You may be a 'Liberal', but that does not make you liberal. In your 'Liberality', you aim to redress perceived social inequities by confiscating economic leverage from people who mostly earned it, and giving it away to people who mostly did not.

I am a "Liberal" in the tradition of Franklin D> Roosevelt: "In this nation I see tens of millions of its citizens, a substantial part of its whole population, who at this very moment are denied the greater part of what the very lowest standards of today call the necessities of life. I see one third of a nation ill-housed, ill-clad, ill-nourished. The test of our progress is not whether we add more to the abundance of those who have much, it is whether we provide enough for those who have too little."

FDR also talked at length about privilege and opportunity; the people with the most privilege and opportunity are typically the people who did the least to earn it. Like him, I would not see wealth redistributed by force, but instead the field of opportunity leveled so that those who don't have as much to start with have a better chance of attaining some measure of stability. Having experienced poverty more often than I care to recount, I can better appreciate the need for a guaranteed minimum living wage, even if it comes at the expense of those who have never known hardship.

The markets do correct themselves. By the time the U.S. got around to break up Standard Oil, its market share had already fallen from 91% in 1904 to 64% in 1911.

Whenever a company is being targeted for serious legal action, its share tends to drop. That isn't an example of the market correcting itself, it's an example of rats fleeing a sinking ship. The same thing happened to shares in AT&T and Microsoft, as I recall.

A decade after the browser wars between Netscape and Internet Explorer, accusations of a browser monopoly against Microsoft are pointless - Firefox has a 28% market share in Europe and comparatively high market shares elsewhere.

That example is pointless. Mozilla took the Netscape browser and started over once Microsoft was ruled to have engaged in anti-competitive practices. The primary reason Microsoft killed Netscape was because they illegally bundled their software together and penalized vendors for trying to include Netscape by default. Mozilla is just picking up where Netscape left off now that the courts are ready to punish Microsoft if they repeat that action.

Businesses don't always need politicians in order to establish captive markets. The oil industry is an excellent example of businesses that cooperate very closely to establish "industry standards" to their benefit. They also lobby the government for massive subsidies and preferential treatment, but even without it they've established a cartel that brooks no interference.

You base your perception of reality on speeches made by politicians...?

I base my opinions on what I observe, supported by the observations of people whose research and opinions I trust. Kerry is one example.

For example, the minimum wage law clearly violates your freedom to enter out of your free will into a contract with a person who is willing to mow your lawn for $X. The minimum wage law violates your freedom to pay him what you want, and it violates his freedom to work for what amount he finds acceptable.

What the minimum wage law does is prohibit me from taking advantage of the plight of someone so desperate to find work that he'll accept a job for substandard wages. What he may "find acceptable" may not be a living wage, but if he can't get anything else he might be forced to accept it anyway. Minimum wage tells us that's unacceptable, and I have absolutely no problem with guarantees for workers rights.

You might be surprised to learn that Iceland has recently introduced a flat tax of 22.75% on personal income, and the current corporate tax rate is 18%.

I would not be surprised. The flat tax was adopted in Australia, and is very common for democratic/socialist societies. I'm also aware that lower corporate taxes attract corporate interests, leading nations to compete with each other to attract corporate business. It's a mixed blessing.

What Iceland and the "Scandinavian model" has done with a great deal of success is balance the needs of the people against the desire for prosperity and corporate incentives. Right now the US is way, way out of balance with the rules set so that people who do not have are less likely to join the ranks of those who have. The barriers for entry have not been this high since the days when Karl Marx penned his Communist Manifesto.

How is Australia any better than the United States?

Wow, where do I begin? For one thing, you're far less likely to starve to death, or spend the night on the street because the cost of living exceeds your income. For another thing, there's better access to government so it's easier to seek redress for problems you did not create. And, of course, Australia has a much better education system and better opportunities to pursue advanced education without having to sign away the first twenty years of your earned income. Their pension system is likewise phenomenal.

The question is, where would we be today if we didn't have our extortinate income taxes?

The same place we are now: at the mercy of corporate greed who use the battle cry of "free market" to rally the hopeful to their cause. If you really think you have a chance of breaking out of lower or middle class circumstances to become one of the glamorous elite, you're going to die deeply disappointed.

denis bider said...

Let me begin by sharing some of my background, like you did above. I grew up in the socialist republic of Slovenia (now part of the EU, but still the most highly taxed country on the planet). At the time I was growing up, my parents were divorced, my mother was poor, but my father used to be reasonably well off (by Slovenian standards - I guess he might have earned about as much as you say you earn now).

The socialist schooling system in Slovenia allowed me to attend one of the best high schools in the country, albeit it was a private Catholic one. (I'm not religious, in fact I agree very much with everything you have to say about religion. Religion sucks.) The main benefit I've had from attending that school was a decent general education. The socialist education system in Slovenia then allowed me to study Physics for a while, where I learned the way of, and the value of, pragmatical rational thought. I believe that's the greatest value I extracted out of Physics. I still believe that, very unfortunately, there's no education other than Physics that gives you as good a lesson in developing effective thinking patterns as Physics does. But these thinking patterns helped me realize there was no money to be made in Physics. I dropped out.

The knowledge I required to establish my own small business, to develop software, to earn money licensing it, and to eventually employ start employing more programmers - this knowledge has been entirely self-taught. Computers have been my passion since I was 12, and this emerged into a business in which I struggled at the beginning; at times I had trouble paying my rent. Eventually, however, my years of sustained efforts paid off. The first few years I made next to nothing, but now I'm buying a condominium in the Caribbean. Me and my wife have basically moved here avoid the European income tax.

Out of responsibility for myself, my wife and our future kids, I didn't even think of having children until I reached this point in my life. I think that such responsibilities are much better postponed to when they won't be forcing you to take reliable but much less lucrative choices.

It appears to me that your economic point of view is one of an individual who has endured economic hardship in the past; an individual who has always been a wage employee, and is to some extent continuing to endure a measure of economic hardship; and an individual who at some point would have suffered worse hardship if there wasn't for the Australian social welfare. (A system that exists in Europe and the United States, as well.)

Meanwhile, my point of view is that of a small business owner who has set up a small software company largely without external help; a person who benefitted from his country's social policies only marginally; a person who has been severely inconvenienced by the business end of those same social policies, i.e. taxation and bureaucracy; and thus a person who has first-hand experience of what those social policies cost, and what opportunities are missed because of that.

If I were cruel, I could say that I've been a success, and you have been a failure. I decided early on that employment based on wage would not be acceptable for me, and was willing to sacrifice whatever was necessary to succeed as a freelancer and then as a small business owner. In my struggle to break free, I was impeded significantly by the taxation-and-regulation end of the very same social policies that are designed to benefit the likes of you: people who for some reason cannot find work, despite being young, willing, healthy and able.

I have no idea what your circumstances were. However, I have trouble understanding why an employer would not be willing to hire someone young, willing, healthy and able, unless it costs the employer more to hire such a person than they can benefit from them. The only reason I can see for that is if there are external costs and regulations which either (A) make it difficult for a company to hire a person at terms that are profitable for them, or (B) make it difficult for a company to fire a person if they turn out not to be very useful.

I believe both influences, but especially the latter, are an important reason why people don't hire other people even though they could. Because all else being equal, people can always be hired. There is always work to do. The question is whether there is sufficient work to warrant (1) hiring a person at the minimum wage + social contributions + pension contributions + medical plan, and (2) risking that this person will be a bad apple that then cannot be laid off. This is why anyone considering to employ a new person needs to be conservative: because the regulatory environment has made things such that hiring the wrong person can be a very expensive gamble. If, on the other hand, hiring and firing would be very cheap, then it should be way easier to find potentially productive employment.

Then, people are unable to find jobs because the country's regulations have made it difficult, and then the country has to turn around and pay them social welfare out of the taxes and contributions collected by the very same policies that created the problem in the first place.

You yourself have suffered from this issue. You say yourself that you had to move twice because you could not find a job. There is no reason in an unrestricted economy why an able and willing worker should not be able to find work. You were stiffed and put through hardship by the very same social policies that then turned around and paid your social welfare for you doing nothing and not having a job. And because you received money from this system, you think it's good. But isn't. Unless you were rejecting jobs that you could have taken, this system is the reason why you could not find a job in the first place!

BTW. Here's a great example of what I meant when I wrote earlier that: "The largest problems for customers that I've seen were all in situations where politicians worked with businessmen to ensure that certain companies are favored and that certain markets remain cornered, largely regardless of what the customers want or say."

denis bider said...

I once read the story of a successful Slovenian boat designer - he and his partner have a boutique in Venice that designs luxury boats for the richest people on the planet. The way he started out was, he was poor, and he didn't get accepted into the Slovenian design school. So he traveled to Milan to a design company he wanted to work for, he showed them his work, and he basically requested that they allow him to work for them even at no wage, just to get the experience. His beginning was, he spent several months working at that company without being paid a thing.

I know other people who knew what they wanted, and got it, by insisting on it in spite of the required sacrifices and risks.

Life can be at times be tough. But it is long, and in my experience and observation, in the long run it is equitable. You get what you invest.

In ex-Yugoslavian times, my grandmother's sister, when she was young, ran away with her husband from communist Yugoslavia into Germany. They started out with nothing, and as far as I know they got nothing from the social welfare. But they worked hard, and after several decades they owned a multi-million-Euro company and properties in various countries.

There's loads of stories like that.

I don't know. In my experience, it's suckers who complain that the system is slanted against them, when in fact they're unwilling to take the steps required to get anywhere else. Instead, you'd like to tax the hell out of the people who do that.

I'm all in favor of equal opportunity. I think poor kids should get access to good education according to their capabilities. This means excellent education for those who are capable, and a more basic education for those who are less. (Overeducating the incapable is a pointless and frivolous expenditure that should continue to be a paid only if people can afford it for themselves.)

That's why I very much support proposals like FairTax. This system can provide all the financing needed, including equality of opportunity, but it is simple and does not involve the income tax - the most harmful, unjust and intrusive economic policy a country can have.