KA-POW! #10 - Douglass

This week's “Kick-Ass Post O’th’ Week” (KA-POW) goes to student Brian Douglass for “On the Road to the Servile State” :

Belloc defines the Servile State as "that arrangement of society in which so considerable a number of the families and individuals are constrained by positive law to labor for the advantage of other families and individuals as to stamp the whole community with the mark of such labor." ...

The Servile State is not the market economy. It is also not simply socialism. Instead, it is a creation of the State to benefit a class, which is considered free, and for which class the system is perpetuated by force of law. Essentially, it is a State marked by artificial, government-created monopolies. ...

The first area that comes to mind is the healthcare debate. Certain drafts of the bill contain a provision mandating healthcare coverage of a level acceptable to the government. If a person does not purchase such coverage, he is threatened with a fine and possibly jail time for refusal to comply. Here we have positive law compelling a person to work (to pay for his coverage) for the benefit of others; ...

Secondly, data from the 2007 tax year shows that the top 50 percent of American tax payers now pay over 97 percent of all income tax. Meanwhile, the Tax Policy Center states that 47 percent of American households will pay no federal income tax. When it comes to total federal taxes paid, the top 20 percent of taxpayers are paying over 69 percent of taxes, which is part of an increasing trend. ...

Generally, less taxes being paid is something to celebrate. However, in this case, we have one group, "net tax payers," which provides the support, to an increasing degree, for another group, "net tax receivers." This is a form of income redistribution carrying the weight of federal law. As the number of "net tax receivers" rises past 50 percent, the Servile State's requirements are met.

...

... Net tax receivers become de facto employees of the State, and thus have no natural incentive to upset the status quo. To do so would literally be to bite the hand that feeds them. In fact, these new net tax receivers, because they are dependent upon the government for at least part of their subsistence, are a slave class as well under Belloc's definition.

Honorable mention goes to student Tyler A. Watts for “Sustainability: An Assault on Economics” :

Prices arise in the market economy as a concomitant of mutually beneficial exchange. People want things that improve their lives — we call this value. Some valuable things are more scarce than others; take the classic case of water and diamonds. In absolute terms, water is more valuable than diamonds: you don't need diamonds to live.

Yet water is, pound for pound, far cheaper. Why? Although it's valuable, it is also relatively abundant; in many parts of the world, it literally does fall from the sky. The price of any good reflects this combination of value and scarcity. We're willing to pay more for valuable things as they become relatively scarce (e.g., oil); and we needn't pay as much for valuable things as they become more abundant (e.g., grain).

Likewise, as scarce things lose their value, people are no longer willing to pay for them (e.g., typewriters), and people must pay more for scarce things that suddenly become sought after (e.g., vintage Michael Jackson records). The awesome thing about prices is that they seamlessly convey this combination of facts about an item's value (demand) and it's scarcity (supply). Prices, of course, are subject to change — prices of certain goods fluctuate every day. But this is a good thing; discernable trends in prices over time indicate relative changes in the "market fundamentals" of supply and demand.

In this sense, prices reliably guide individuals, both consumers and producers, toward a rational use of resources. Savvy consumers listen to the prices; a rising price trend tells them to cut back on that particular item, and a falling price tells them to go ahead and use a little more of it. The same basic logic applies on the production side.

Entrepreneurs, driven by the profit motive, are like bloodhounds sniffing out these price trends in search of profit opportunities — chances to create value through exchange. If the price of a good trends strongly upwards over time (indicating it has become scarcer and/or more valuable), they rush to find cheaper substitutes. The cheaper the substitutes, the higher the profits to be had, especially if you're the first to market. If prices trend downwards over time (indicating that the resource is becoming more abundant relative to its usefulness), entrepreneurs devote their efforts elsewhere.

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Take, as an example, the transition in the market for interior illumination: tallow candles were replaced by whale-oil lamps, which were replaced by kerosene lamps, which were replaced by incandescent bulbs powered by electricity. There was no social or political pressure needed to accomplish this evolution; there was no "peak whale oil" movement, no kerosene conservationists, no sustainability crusade of yore. All it took was a functional price system, combined with the ever-present entrepreneurial drive for profits under a competitive, free-market order.