EGI Notes

Sunday, November 30, 2014

Economics, 11/30/14

An alternative view.

I note that a certain anti-racist, anti-White commentator is shilling for predatory capitalism over at Counter Currents.

A few counter comments.

It is my understanding that the sharp increase in income inequality in the USA began in the 1970s, and really skyrocketed in the '80s and '90s.  In the period of WWII-Watergate, income inequality was at relatively low levels.  That was a period of generally good economic growth for the USA (*); certainly, there were ups and downs - but none of the downs were as devastating at the recent financial crisis and deep recession that took place in the context of today's free trade/high income-inequality regime.

Of course, the WWII-Watergate period also saw the solid growth of an American Middle Class, and the 1950s are fondly remembered by American traditionalists as a period of relative cultural stability.

A major argument made by the capitalist shills is one of incentive. In other words, while Mr. Capitalist would make a necessary investment if assured of a $10 million return, he would not make the same investment if the return was only, say, $4 million. We are told that we cannot dictate to Mr. Capitalist that he invests without ending up in a completely controlled environment as in communism.  Thus, economic activity would decline without the unfettered free market, and to the Last Men, economic activity is all.

The problem with that argument is that it looks at the situation from an absolute, rather than relative, sense.  It assumes an absolute threshold for YES/NO decisions about investment; in the case described, it also assumes that Mr. Capitalist has other options for his money that have a better risk/benefit profile than the $4 million return.

Is this true?  While we cannot dictate investment without going to a completely controlled (and assumed stagnant) economy, we CAN create a set of alternatives from which Mr. Capitalist must choose to make the best outcome given those available alternatives.

Therefore, if Mr. Capitalist observes that the $4 million return provides the best risk/benefit outcome for his money (e.g., doing nothing sees his money value eaten away by inflation and/or subject to higher tax rates), then Mr. Capitalist will - if we cherish the "rationality" of the market - make that investment. He may wish he could get $10 million, but if the other alternatives are all worse than the $4 million return, that's what he would do, make the $4M deal - and if some reason he wouldn't do it, someone else would.

The same principle applies to salaries.  A CEO or entertainer will demand compensation in line with what their peers make, and, I agree that they may lose incentive to perform at the highest level if underpaid relative to their peers.  However over - and underpaid are relative terms, given what obtains in a given national economy. If CEOs and athletes and actors/singers routinely earn tens of millions of dollars/year in net income, then that is what they will expect and demand.  If, however, the highest salary is capped at, say, $1 million, then that is the target. Will the CEO play video games all day and let the company crash because he's not getting the $100 million bonus he wishes he could get, but is not allowed for anyone in the new economy?  If so, there are others who can take his place. Will the ballplayer fumble the football or strike out if he's denied a 10 year, $300 million contract no longer allowed for any player? Adjusted to today's money, adjusted for inflation, the great athletes of the past only made a fraction of what modern athletes make. And yet, they still played, still hustled, still made their records. Better than working on the farm or on the assembly line, eh?

Arguments about Israel are also disingenuous.  First, Europeans are not as ethnocentric as Jews, and one cannot equate the effects of capitalism in the two cases. Second, Israel, while being an ethnic-based state, is not a true ethnostate: it has large minorities, a demographically endangered majority, and the same pressures for cheap labor found elsewhere. The only difference is that the greater ethnocentrism of the Israeli majority has eroded the momentum for free movements of labor there. The same does not necessarily hold for the West.

*Granted, the fact that major competitors were devastated in WWII and/or under rigidly Marxist regimes helped; then again, the protectionist and income-equality policies helped as well, and could have been used to preserve the economic advantage, instead of having those advantages squandered through "free trade" and predatory capitalism that outsourced a major part of the American economy.

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