[Peace-discuss] Some serious economics

Tue Feb 1 08:53:34 CST 2011

" d)  Child labor must be a very bad thing indeed.  Growing up on the farm 
as
I did, we worked pretty hard beginning about age 8 or 9.  It is a horrible
thing. "

It is one thing helping your family and / or neighbors work at age 8 or 9, 
or even having a part-time paper route delivery job.
But it is quite a different situation when 8 or 9 year olds are forced to 
work 12 hours or more a day under unsafe and often brutal working conditions 
in order to help feed the family and as a result are unable to attend school 
and sometimes die before age 25.

David Johnson

----- Original Message ----- 
From: "E.Wayne Johnson" <ewj at pigs.ag>
To: "C. G. Estabrook" <galliher at illinois.edu>; "Peace-discuss" 
<peace-discuss at anti-war.net>
Sent: Monday, January 31, 2011 11:33 PM
Subject: Re: [Peace-discuss] Some serious economics

My immediate knee-jerk responses are probably more toward the remarks of the
editor than the author of the book but I can't be sure about it.

a)  This, the Greatest Depression, is hardly getting warmed up good.  Such
pretentious nonsense to look at it in retrospect.  The big lollapalootza is
up ahead, just over that hill, there, on the horizon.

b)  It's pretty damn clueless to fix blame on the Evil Party or the Stupid
Party.  The Stupid and Evil bailouts and corporatism are a bipartisan
effort.  Ain't it grand when politicians work together?

c)  Hardly an ill event occurs that doesnt give the left-right paradigmers
an opportunity to blame the contralateral ideology.  The progressives are
immoral and the TeaParties are corporate shills according to their pundits.
Fortunately, neither of these stereotypes are accurate.

  :)  You can see how it warped me into thinking that some of the
problem with Americans is that they dont know how to work.

----- Original Message ----- 
From: "C. G. Estabrook" <galliher at illinois.edu>
To: "Peace-discuss" <peace-discuss at anti-war.net>
Sent: Tuesday, February 01, 2011 12:16 PM
Subject: [Peace-discuss] Some serious economics

23 Things They Don't Tell You About Capitalism
By Ha-Joon Chang, Bloomsbury Press
Posted on January 31, 2011, Printed on January 31, 2011
http://www.alternet.org/story/149688/

Editor's Note: Many books have tackled the great recession of 2008, the
second
worst economic crisis in history, after the depression. But I doubt there is
one
book, written in response to the current economic crisis, that is as fun or
easy
to read as Ha-Joon Chang's 23 Things They Don't Tell you About Capitalism.
I'd
never heard of this Korean economist, probably because he lives in England
and
teaches at Cambridge, but he is well known in economic circles, and well
respected.

It is no secret that the American society is dominated by the super rich,
held
for hostage by the banks, dominated in the Nation's Capital by the tens of
thousands of lobbyists and their big bucks, as the Republican party and
their
corporate Tea Partyists provide cover for giant theft of many billions of
wealth
for the very rich, with of course the cooperation of the Democrats who
supported
the extension of the Bush tax cuts for the very wealthy (Check out Rachel
Maddow's op-ed, which explains why Dwight Eisenhower, who taxed the rich to
balance the budget, which be a radical in today's political reality). In
this
very discouraging environment it is hard to imagine scenarios where normal
folks, every day voters, the non-rich, who are not represented by lobbyists,
can
have much influence.

On top of that, making change even harder, is an enormously effective
propaganda
system that perpetuates inaccurate and often destructive myths about
virtually
every element of capitalism and the US and global economy. And top economic
officials in the Obama administration and leading mainstream economists
often
perpetuate these myths, and the corporate media marches along side repeating
them like the gospel.

So, as far as I am concerned there never can be too much truth-telling to
attempt to pull away the curtain of propaganda and disinformation that
shrouds
our economic thinking and actions. I am not under the illusion that the
facts
will set us free. As research has shown, when people connect their opinions
to a
set of values or leaders, they will not be open to changing their mind, and
presentation of contrary "facts," may make them dig in more clinging their
their
misinformation. But when it comes to the economy, the propaganda system has
been
so pervasive, and supported by conventional wisdom that people who need to
know
better, buy into it, and yes that includes liberals and progressives who
have a
kind of inertia of the mind of their own. It is hard to change one's sense
of
things.

AlterNet's Economics editor Joshua Holland made a nice contribution to this
public education effort this Fall with his book: The Fifteen Biggest Lies
about
the Economy Now we have the funny, and sharp Chang. What follows is chapter
one
of his book: "There is No Such Thing as a Free Market." Other chapters are
quite
revealing such as: " The Washing Machine Has Changed the World More than the
Internet;" "More Education, in Itself, Is Not Going to Make a Country
Richer;"
"The U.S. Does Not Have the Highest Living Standard in the World;"
"Companies
Should Not Be Run in the Interest of their Owners."

Chan's main point is the recent economic disaster wasn't by accident, that
active government can promote economic dynamism, that tax cuts for the rich
simply redistribute wealth upward, and that we will continue on the path to
economic disaster,with no end in sight, unless the collective wisdom, goes
in a
different direction. -- AlterNet Executive Editor Don Hazen

The following is an excerpt from 23 Things They Don’t Tell You About
Capitalism
(Copyright © 2011) by Ha-Joon Chang. Reprinted with the permission of
Bloomsbury
Press.

Thing 1: There is no such thing as a free market

What they tell you

Markets need to be free. When the government interferes to dictate what
market
participants can or cannot do, resources cannot flow to their most efficient
use. If people cannot do the things that they find most profitable, they
lose
the incentive to invest and innovate. Thus, if the government puts a cap on
house rents, landlords lose the incentive to maintain their properties or
build
new ones. Or, if the government restricts the kinds of financial products
that
can be sold, two contracting parties that may both have benefited from
innovative transactions that fulfill their idiosyncratic needs cannot reap
the
potential gains of free contract. People must be left "free to choose," as
the
title of free-market visionary Milton Friedman’s famous book goes.

What they don’t tell you

The free market doesn’t exist. Every market has some rules and boundaries
that
restrict freedom of choice. A market looks free only because we so
unconditionally accept its underlying restrictions that we fail to see them.
How
"free" a market is cannot be objectively defined. It is a political
definition.
The usual claim by free-market economists that they are trying to defend the
market from politically motivated interference by the government is false.
Government is always involved and those free-marketeers are as politically
motivated as anyone. Overcoming the myth that there is such a thing as an
objectively defined "free market" is the first step towards understanding
capitalism.

Labor ought to be free

In 1819 new legislation to regulate child labor, the Cotton Factories
Regulation
Act, was tabled in the British Parliament. The proposed regulation was
incredibly "light touch" by modern standards. It would ban the employment of
young children – that is, those under the age of nine. Older children (aged
between ten and sixteen) would still be allowed to work, but with their
working
hours restricted to twelve per day (yes, they were really going soft on
those
kids). The new rules applied only to cotton factories, which were recognized
to
be exceptionally hazardous to workers’ health.

The proposal caused huge controversy. Opponents saw it as undermining the
sanctity of freedom of contract and thus destroying the very foundation of
the
free market. In debating this legislation, some members of the House of
Lords
objected to it on the grounds that "labor ought to be free." Their argument
said: the children want (and need) to work, and the factory owners want to
employ them; what is the problem?

Today, even the most ardent free-market proponents in Britain or other rich
countries would not think of bringing child labor back as part of the market
liberalization package that they so want. However, until the late 19th or
the
early 20th century, when the first serious child labor regulations were
introduced in Europe and North America, many respectable people judged child
labour regulation to be against the principles of the free market.

Thus seen, the "freedom" of a market is, like beauty, in the eyes of the
beholder. If you believe that the right of children not to have to work is
more
important than the right of factory owners to be able to hire whoever they
find
most profitable, you will not see a ban on child labor as an infringement on
the
freedom of the labor market. If you believe the opposite, you will see an
"unfree" market, shackled by a misguided government regulation.

We don’t have to go back two centuries to see regulations we take for
granted
(and accept as the "ambient noise" within the free market) that were
seriously
challenged as undermining the free market, when first introduced. When
environmental regulations (e.g., regulations on car and factory emissions)
appeared a few decades ago, they were opposed by many as serious
infringements
on our freedom to choose. Their opponents asked: if people want to drive in
more
polluting cars or if factories find more polluting production methods more
profitable, why should the government prevent them from making such choices?
Today, most people accept these regulations as "natural." They believe that
actions that harm others, however unintentionally (such as pollution), need
to
be restricted. They also understand that it is sensible to make careful use
of
our energy resources, when many of them are non-renewable. They may believe
that
reducing human impact on climate change makes sense too.

If the same market can be perceived to have varying degrees of freedom by
different people, there is really no objective way to define how free that
market is. In other words, the free market is an illusion. If some markets
look
free, it is only because we so totally accept the regulations that are
propping
them up that they become invisible.

Piano wires and kungfu masters

Like many people, as a child I was fascinated by all those gravity-defying
kung
fu masters in Hong Kong movies. Like many kids, I suspect, I was bitterly
disappointed when I learned that those masters were actually hanging on
piano wires.

The free market is a bit like that. We accept the legitimacy of certain
regulations so totally that we don’t see them. More carefully examined,
markets
are revealed to be propped up by rules – and many of them.

To begin with, there is a huge range of restrictions on what can be traded;
and
not just bans on "obvious" things such as narcotic drugs or human organs.
Electoral votes, government jobs and legal decisions are not for sale, at
least
openly, in modern economies, although they were in most countries in the
past.

University places may not usually be sold, although in some nations money
can
buy them – either through (illegally) paying the selectors or (legally)
donating
money to the university. Many countries ban trading in firearms or alcohol.
Usually medicines have to be explicitly licensed by the government, upon the
proof of their safety, before they can be marketed. All these regulations
are
potentially controversial – just as the ban on selling human beings (the
slave
trade) was one and a half centuries ago.

There are also restrictions on who can participate in markets. Child labor
regulation now bans the entry of children into the labor market. Licenses
are
required for professions that have significant impacts on human life, such
as
medical doctors or lawyers (which may sometimes be issued by professional
associations rather than by the government). Many countries allow only
companies
with more than a certain amount of capital to set up banks. Even the stock
market, whose underregulation has been a cause of the 2008 global recession,
has
regulations on who can trade. You can’t just turn up in the New York Stock
Exchange (NYSE) with a bag of shares and sell them. Companies must fulfill
listing requirements, meeting stringent auditing standards over a certain
number
of years, before they can offer their shares for trading. Trading of shares
is
only conducted by licensed brokers and traders.

Conditions of trade are specified too. One of the things that surprised me
when
I first moved to Britain in the mid-1980s was that one could demand a full
refund for a product one didn’t like, even if it wasn’t faulty. At the time,
you
just couldn’t do that in Korea, except in the most exclusive department
stores.
In Britain, the consumer’s right to change her mind was considered more
important than the right of the seller to avoid the cost involved in
returning
unwanted (yet functional) products to the manufacturer. There are many other
rules regulating various aspects of the exchange process: product liability,
failure in delivery, loan default, and so on. In many countries, there are
also
necessary permissions for the location of sales outlets – such as
restrictions
on street-vending or zoning laws that ban commercial activities in
residential
areas.

Then there are price regulations. I am not talking here just about those
highly
visible phenomena such as rent controls or minimum wages that free-market
economists love to hate.

Wages in rich countries are determined more by immigration control than
anything
else, including any minimum wage legislation. How is the immigration maximum
determined? Not by the "free" labor market, which, if left alone, will end
up
replacing 80–90 per cent of native workers with cheaper, and often more
productive, immigrants. Immigration is largely settled by politics. So, if
you
have any residual doubt about the massive role that the government plays in
the
economy’s free market, then pause to reflect that all our wages are, at
root,
politically determined.

Following the 2008 financial crisis, the prices of loans (if you can get one
or
if you already have a variable rate loan) have become a lot lower in many
countries thanks to the continuous slashing of interest rates. Was that
because
suddenly people didn’t want loans and the banks needed to lower their prices
to
shift them? No, it was the result of political decisions to boost demand by
cutting interest rates. Even in normal times, interest rates are set in most
countries by the central bank, which means that political considerations
creep
in. In other words, interest rates are also determined by politics.

If wages and interest rates are (to a significant extent) politically
determined, then all the other prices are politically determined, as they
affect
all other prices.

Is free trade fair?

We see a regulation when we don’t endorse the moral values behind it. The
19th-century high-tariff restriction on free trade by the U.S. federal
government outraged slave-owners, who at the same time saw nothing wrong
with
trading people in a free market. To those who believed that people can be
owned,
banning trade in slaves was objectionable in the same way as restricting
trade
in manufactured goods. Korean shopkeepers of the 1980s would probably have
thought the requirement for "unconditional return" to be an unfairly
burdensome
government regulation restricting market freedom.

This clash of values also lies behind the contemporary debate on free trade
vs.
fair trade. Many Americans believe that China is engaged in international
trade
that may be free but is not fair. In their view, by paying workers
unacceptably
low wages and making them work in inhumane conditions, China competes
unfairly.
The Chinese, in turn, can riposte that it is unacceptable that rich
countries,
while advocating free trade, try to impose artificial barriers to China’s
exports by attempting to restrict the import of "sweatshop" products. They
find
it unjust to be prevented from exploiting the only resource they have in
greatest abundance – cheap labor.

Of course, the difficulty here is that there is no objective way to define
"unacceptably low wages" or "inhumane working conditions." With the huge
international gaps that exist in the level of economic development and
living
standards, it is natural that what is a starvation wage in the U.S. is a
handsome wage in China (the average being 10 per cent that of the U.S.) and
a
fortune in India (the average being 2 per cent that of the U.S.) Indeed,
most
fair-trade-minded Americans would not have bought things made by their own
grandfathers, who worked extremely long hours under inhumane conditions.
Until
the beginning of the twentieth century, the average work week in the U.S.
was
around 60 hours. At the time (in 1905, to be more precise), it was a country
in
which the Supreme Court declared unconstitutional a New York state law
limiting
the working days of bakers to 10 hours, on the grounds that it "deprived the
baker of the liberty of working as long as he wished."

Thus seen, the debate about fair trade is essentially about moral values and
political decisions, and not economics in the usual sense. Even though it is
about an economic issue, it is not something economists with their technical
tool kits are particularly well equipped to rule on.

All this does not mean that we need to take a relativist position and fail
to
criticize anyone because anything goes. We can (and I do) have a view on the
acceptability of prevailing labour standards in China (or any other country,
for
that matter) and try to do something about it, without believing that those
who
have a different view are wrong in some absolute sense. Even though China
cannot
afford American wages or Swedish working conditions, it certainly can
improve
the wages and the working conditions of its workers. Indeed, many Chinese
don’t
accept the prevailing conditions and demand tougher regulations. But
economic
theory (at least free-market economics) cannot tell us what the ‘right’
wages
and working conditions should be in China.

I don’t think we are in France any more

In July 2008, with the country’s financial system in meltdown, the US
government
poured $200 billion into Fannie Mae and Freddie Mac, the mortgage lenders,
and
nationalized them. On witnessing this, the Republican Senator Jim Bunning of
Kentucky famously denounced the action as something that could only happen
in a
"socialist" country like France.

France was bad enough, but on 19 September 2008, Senator Bunning’s beloved
country was turned into the Evil Empire itself by his own party leader.
According to the plan announced that day by President George W. Bush and
subsequently named TARP (Troubled Asset Relief Program), the U.S. government
was
to use at least $700 billion of taxpayers’ money to buy up the "toxic
assets"
choking up the financial system.

President Bush, however, did not see things quite that way. He argued that,
rather than being "socialist" the plan was simply a continuation of the
American
system of free enterprise, which "rests on the conviction that the federal
government should interfere in the market place only when necessary." Only
that,
in his view, nationalizing a huge chunk of the financial sector was just one
of
those necessary things.

Mr. Bush’s statement is, of course, an ultimate example of political
double-speak – one of the biggest state interventions in human history is
dressed up as another workaday market process. However, through these words
Mr.
Bush exposed the flimsy foundation on which the myth of the free market
stands.
As the statement so clearly reveals, what is a necessary state intervention
consistent with free-market capitalism is really a matter of opinion. There
is
no scientifically defined boundary for free market.

If there is nothing sacred about any particular market boundaries that
happen to
exist, an attempt to change them is as legitimate as the attempt to defend
them.
Indeed, the history of capitalism has been a constant struggle over the
boundaries of the market.

A lot of the things that are outside the market today have been removed by
political decision, rather than the market process itself – human beings,
government jobs, electoral votes, legal decisions, university places or
uncertified medicines. There are still attempts to buy at least some of
these
things illegally (bribing government officials, judges or voters) or legally
(using expensive lawyers to win a lawsuit, donations to political parties,
etc.), but, even though there have been movements in both directions, the
trend
has been towards less marketization.

For goods that are still traded, more regulations have been introduced over
time. Compared even to a few decades ago, now we have much more stringent
regulations on who can produce what (e.g., certificates for organic or
fair-trade producers), how they can be produced (e.g., restrictions on
pollution
or carbon emissions), and how they can be sold (e.g., rules on product
labelling
and on refunds).

Furthermore, reflecting its political nature, the process of re-drawing the
boundaries of the market has sometimes been marked by violent conflicts. The
Americans fought a civil war over free trade in slaves (although free trade
in
goods – or the tariffs issue – was also an important issue). The British
government fought the Opium War against China to realize a free trade in
opium.
Regulations on free market in child labour were implemented only because of
the
struggles by social reformers, as I discussed earlier. Making free markets
in
government jobs or votes illegal has been met with stiff resistance by
political
parties who bought votes and dished out government jobs to reward loyalists.
These practices came to an end only through a combination of political
activism,
electoral reforms and changes in the rules regarding government hiring.

Recognizing that the boundaries of the market are ambiguous and cannot be
determined in an objective way lets us realize that economics is not a
science
like physics or chemistry, but a political exercise. Free-market economists
may
want you to believe that the correct boundaries of the market can be
scientifically determined, but this is incorrect. If the boundaries of what
you
are studying cannot be scientifically determined, what you are doing is not
a
science.

Thus seen, opposing a new regulation is saying that the status quo, however
unjust from some people’s point of view, should not be changed. Saying that
an
existing regulation should be abolished is saying that the domain of the
market
should be expanded, which means that those who have money should be given
more
power in that area, as the market is run on one-dollar-one-vote principle.

So, when free-market economists say that a certain regulation should not be
introduced because it would restrict the "freedom" of a certain market, they
are
merely expressing a political opinion that they reject the rights that are
to be
defended by the proposed law. Their ideological cloak is to pretend that
their
politics is not really political, but rather is an objective economic truth,
while other people’s politics is political. However, they are as politically
motivated as their opponents.

Breaking away from the illusion of market objectivity is the first step
toward
understanding capitalism.

Support AlterNet by purchasing your copy of 23 Things They Don't Tell You
About
Capitalism through our partner, Powell's, an independent bookstore.

Ha-Joon Chang teaches in the faculty of economics at the University of
Cambridge. His books include "Bad Samaritans: The Myth of Free Trade and the
Secret History of Capitalism" and "Kicking Away the Ladder."

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