Principles of Political Economy
The appearance of a treatise like the present, on a subject on which so many works of merit already exist, may be thought to require some explanation. It might perhaps be sufficient to say, that no existing treatise on Political Ecomony contains the latest improvements which have been made in the theory of the subject. Many new ideas, and new applications of ideas, have been elicited by the discussions of the last few years, especially those on Currency, on Foreign Trade, and on the important topics connected more or less intimately with Colonization: and there seems reason that the field of Political Economy should be re-surveyed in its whole extent, if only for the purpose of incorporating the results of these speculations, and bringing them into harmony with the principles previosly laid down by the best thinkers on the subject.."
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What Hacker News says
- >>Again and again you make the same assumptions without having any evidence supporting these claims. If we compare the growth curves of the US and Europe, the growth rates look very much the same, despite having very different labor laws and union strengths [1].
Your graph confirms what I stated: the growth rate since 2010 has sharply diverged. After the EU finished enjoying the growth benefits of integrating newly freed former-Easter-Bloc countries, the harmful effects of being more centralized through regulatory regimentation and social welfare forced redistribution became more apparent.
The evidence overwhelmingly shows that unions and the free-market-suppressing laws they advocate are harmful to economic growth. This is broadly accepted by economists, as politically incorrect as it may be.
More centralization, via higher levels of government spending as a percentage of GDP, is strongly correlated with lower rates of economic growth:
https://web.archive.org/web/20170821004405/http://ime.bg/upl...
>>Buffet and his millionaire friends have already explained how they and their friends are cheating. Buffet hat a lower effective tax rate than his secretary. Has had for years.
Buffett is wrong. The top 1% have a much higher effective tax rate than the typical secretary.
>>The practical limits of growth will kick in much earlier than the physical limits. Ever diminishing returns will necessarily reduce growth; when there's not even a path, a street will greatly improve productivity. Once you have a road, a better road will only do so much. You can see that kind of growth slowdown in any developed economy. The Asian tigers are following the same curve as the US and Europe; continuously accelerated growth is impossible.
Your assumption that we are approaching some technological limit of growth is unsubstantiated:
1. Growth has accelerated every century for the past five centuries.
2. The slowdown in growth in the advanced economies corresponded with a massive rise in social welfare spending as a percentage of GDP, and expansion of regulatory regimentation of the economy, and these are perfectly capable of explaining that slowdown, without resorting to any unfounded theories that there is technological limits set an inherent ceiling on growth.
Let's explore some of these:
In 1950, only 5 percent of occupations required a license. Today, it's over 30 percent. In 1950, the Code of Federal Regulations was a tiny fraction of the size it is today, with no EPA or OSHA hounding companies every year.
[Make elites compete: Why the 1% earn so much and what to do about it](https://www.brookings.edu/research/make-elites-compete-why-t...)
In 1950, healthcare wasn't centralized and heavily bureaucratized due to the all-encompassing regulations left-leaning anti-libertarians have imposed since then:
[Expert Forum: The rise (and rise) of the healthcare administrator](https://www.athenahealth.com/knowledge-hub/practice-manageme...)
>Here's some food for thought: The number of physicians in the United States grew 150 percent between 1975 and 2010, roughly in keeping with population growth, while the number of healthcare administrators increased 3,200 percent for the same time period.
Healthcare is now controlled by mega-coorporations who are able to pay the huge fixed fees attached with complying with healthcare regulations.
And then there are the enormous public sector unions, who get all of their income from taxpayers, and massively contribute to the Democratic Party to ensure they keep getting more tax dollars:
At $140,000 Per Year, Why Are Government Workers In California Paid Twice As Much As Private Sector Workers?
https://hoover.org/research/california-state-government-work...
>In 2019, California state government workers earned an average of $143,000 per year, while local government employees earned nearly as much, averaging about $131,000 annually. But California’s private sector workers earned about $71,000, roughly half as much as their public sector counterparts. These figures include base pay, as well as overtime, and the value of non-wage benefits, such as employer pension/retirement contributions, health care, and paid days off. > >For over fifty years, public sector and private sector compensation rates were very similar, rising from roughly $17,000 in 1929 to about $45,000 in the early 1980s (both values are measured using 2008 dollars). But after the early 1980s, compensation rates began to diverge, with public sector pay rising much faster than that in the private sector over the last forty years.
And most importantly of all, left-leaning politicians in the 1950s hadn't locked down the housing markets in the most important metropolitan regions in the US:
https://www.aeaweb.org/articles?id=10.1257/mac.20170388
The massive increase in regulations on housing since the 1950s explains most of the rise in income inequality since 1950. Most inequality seems to stem from housing scarcity driving up housing costs (see Figure 3):
https://www.brookings.edu/wp-content/uploads/2016/07/2015a_r...
3. Your argument is similar to that made in the mid 19th century:
"It is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution"
-John Stuart Mill, Principles of Political Economy (1848, book IV, chap. VI)
The subsequent century saw economic growth rates in advanced countries accelerate, thus proving Mill wrong. If it weren't for the massive increase in social welfarism and free-market-suppressing regulatory regimentation, there's no reason to assume economic growth in advanced countries wouldn't have accelerated over the last few decades.
There are numerous emerging technologies that could massively increase productivity over the coming decades, like robotics, the space industry, nanotechnology, AI, public blockchains, etc. There is absolutely no reason to believe we are anywhere near the technological limits of productivity, or in an era of inherently diminishing returns on investment.
>>So what is is now? GDP has doubled, despite the oppressive socialist union laws? I'm certain you realize that something doesn't quite add up with your argument, right?
Nominal GDP doesn't capture everything of course, but comparing nominal GDP growth between the US and Europe can give us some indication as to which policies are better for economic development, and the US far surpassing the EU in nominal GDP growth suggests that the EU's comparatively greater economic centralization around government is harmful to growth.
>>Meanwhile minimal wage has not been increased for 14 years.
The minimum wage price control is not a measure of prosperity. The minimum wage price control should be zero, and I encourage you to study Economics to see why it, and all other price controls, should be abolished.
- Even if we levelled all wealth, life would be limited by the finiteness of resources, and only economic development - which this levelling would inhibit - would alleviate such scarcity.
Consider what would have happened if society had followed John Stuart Mills' advice in 1848 and maximized for equal distribution of income, resulting in per capita GDP barely increasing from its $2,000 level over the last 170 years:
"It is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution"
-John Stuart Mill, Principles of Political Economy (1848, book IV, chap. VI)
- There is plenty of evidence for that, that economists have documented for nearly a century.
For example, there is a very strong negative correlation between government spending, as a percentage of GDP, and economic growth:
https://web.archive.org/web/20170821004405/http://ime.bg/upl...
And no markets will not "stop working". They'll work less effectively.
>>If my understanding of the system seems highly simplistic, it may be because I wrote an HN comment two sentences long as opposed to a book.
Every one's understanding of nation/global scale systems is overly simplistic, which is why it's impossible to predict what the market will do. In the absence of near-perfect knowedge, it's better to not interfere with spontaneously emergent bottom-up phenomena, like prices, or the market, via far-reaching cookie cutter rules.
EDIT:
With respect to below, I can't respond with a new comment due to comment rate-limiting, so I'll respond here:
It's not an opinion. They show the data, from 81 countries, over a span of decades, and show a pervasive correlation. The evidence speaks for itself.
This liberal think tank was instituted in a country that experienced 50 years of central economic planning, based on economically illiterate left-wing conspiracy-theories/economic-fallacies, so maybe they have legitimate cause to promote markets.
But go ahead and look down on them with your snarky derision.
>>Not really? There are other countries than the US which have had a significantly larger government (as well as higher taxes), or so called mixed-economies, that did just fine or even great?
Which countries? The data shows a strong negative correlation between government size and economic growth, within a dataset of 81 countries.
Look at Europe: the rise of social welfare spending as a percentage of GDP since the mid 1960s corresponded with stagnation in productivity and wage growth, just like occurred in the US.
>>As a side point, there's a discussion to be had regarding economic growth and GDP.
Per capita GDP growth, i.e. rising productivity, is the primary cause of improvements in quality of life. If ever you've lived in a country with low per capita GDP, and seen how ordinary people have to struggle so much more to afford to meet basic needs, you'd see why.
It's absolutely not the only factor impacting quality of life, it's true. GDP statistics are also not a perfect measure of productivity. But it's a very very good measure, of a very important contributor to quality of life, and if a particular way of organizing an economy is associated with this measure increasing at a slower rate, that is extremely important.
Economic growth rates, over longer periods of time, have a massive impact, because they have an exponential effect. A country with a per capita GDP growth rate of 4% will see double the income growth of a country with a per capita GDP growth rate of 2%, after only 35 years.
EDIT 2:
>>Which countries would you pick yourself as counter-evidence?
Norway, but it discovered oil in the 1970s, and was one of the top oil exporters in the world for decades with a population of only 4.5 million.
But anecdotes are not as important as large datasets, and large datasets show a strong correlation between small government (relative to GDP) and high economic growth rates.
>>feigned care of the poor
It's always good to assume that the person you're interacting with might be debating in good faith, and know things you don't. But I agree with the rest of that statement: it's anecdotal, just like the counter-examples you're searching for.
>>A GDP growth of 2-3% per year is also deeply unsustainable, doubling the economy every few decades can't continue.
It is sustainable for many many decades to come given returns from rising efficiency, and harvesting resources outside of earth, which are several orders of magnitude more plentiful than resources available on Earth.
Your pessimistic outlook reminds me of this:
"It is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution"
-John Stuart Mill, Principles of Political Economy, 1848, said at a time when the per capita GDP of the UK was the same as Kenya's today, i.e. 20X less.
- > Hitherto it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being. They have enabled a greater population to live the same life of drudgery and imprisonment, and an increased number of manufacturers and others to make fortunes. They have increased the comforts of the middle classes. But they have not yet begun to effect those great changes in human destiny, which it is in their nature and in their futurity to accomplish. Only when, in addition to just institutions, the increase of mankind shall be under the deliberate guidance of judicious foresight, can the conquests made from the powers of nature by the intellect and energy of scientific discoverers, become the common property of the species, and the means of improving and elevating the universal lot.
John Stuart Mill, Principles of Political Economy, 1848
- "John Stuart Mill says in his Principles of Political Economy: ‘It is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being.’ That is, however, by no means the aim of the application of machinery under capitalism... The machine is a means for producing surplus-value."
"Hence that remarkable phenomenon in the history of modern industry, that machinery sweeps away every moral and natural restriction on the length of the working day. Hence too the economic paradox that the most powerful instrument for reducing labour-time suffers a dialectical inversion and becomes the most unfailing means for turning the whole lifetime of the worker and his family into labour-time at capital’s disposal for its own valorization."
Marx (1867), Capital Volume I, Chapter 15 ("Machinery and Large-Scale Industry")
- Saying "citation needed" doesn't work when it's one of the fundamentals of the field. But hey, Hackernews, I'll google it for you:
https://www.jstor.org/stable/41638856?seq=1#page_scan_tab_co...
http://econ.sciences-po.fr/sites/default/files/file/yann%20a...
https://voxeu.org/article/trust-and-economic-development
https://pdfs.semanticscholar.org/f7e3/e958b4b7387707a5ae32fa...
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2906280
http://www.oecd.org/innovation/research/1825662.pdf
https://www.parisschoolofeconomics.eu/IMG/pdf/Huck2.pdf
I stopped midway down the first page. But this quote is great, so I'll include it:
"Conjoint action is possible just in proportion as human beings can rely on each other. There are countries in Europe, of first-rate industrial capabilities, where the most serious impediment to conducting business concerns on a large scale, is the rarity of persons who are supposed fit to be trusted with the receipt and expenditure of large sums of money."
- John Stuart Mill, Principles of Political Economy, 1848
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