POLITICAL OPINIONS #61- The Diamond-Water Paradox. An Economic Puzzle.

Introduction:

Per the  Oxford Dictionary Value is defined as:

“…. 1. The regard that something is held to deserve; the importance, worth, or usefulness of something.

2. The material or monetary worth of something… ” [3].

The first definition of the term Value is more categorically aligned with a qualitative application of the term. The second definition is more of a reflection of a quantitative assessment of value through the assignment of monetary value. While qualitative and quantitive expression of the concept of value is to some degree separated, they are not mutually exclusive. The correlation between the two is actually quite salient. Almost always, when goods and services are qualitatively high in value they come at a high price.

However, the question does resignation of how do we as a society assess the value of goods and services? An even more pertinent question being is this assessment ever erroneous?  It is severely difficult to ascertain if the commodities we value over other goods is done so in fallacy. Mainly because there is a certain amount of subjective always attached to assessing value. This aspect of the process of making attributions is epitomized by the idiom “One man’s trash is another man’s treasure” [4]. Exemplifying the fact that the validity of the indispensable nature of subjectivity in the process of judgment is solidified in conventional wisdom. Even though to many the subjectivity that encompasses judgment is so evident it is merely obtuse to even address it. Certainly, a truth about behavior and reasoning that goes unspoken and is seemingly innate.

The assessment of the qualitative value of one brand of sneakers over another being reflected by the monetary value seems like a trivial comparison. Neither one of the two goods in the comparison are crucial for our survival. It is apparent that the price difference and judgment of value between the two pairs of sneakers could be based on consumer preference. What if we were to make a comparison between a commodity that is essential to sustaining life and the other being a luxury product?  For example, the value of a fine Single malt Whisky in comparison to an antibiotic. Let’s say in theory the Whisky costs more than the antibiotic, is something askew here? Or better yet why is it that the luxury commodity of diamonds so vastly more costly or valuable than water?  Water a resource we cannot live without, under extreme circumstances death could result after several hours without it [5]. This very quandary is regarding the value of goods is manifested in Adam Smith’s dilemma of the Diamond Water Paradox.

The Diamond Water Paradox which was formulated by the moral philosopher of the Scottish Enlightenment Adam Smith. Smith brilliantly defended free-market capitalism in his premiere masterpiece  The Wealth of Nations (1776). Despite his contributions to economics and moral philosophy, he was never able to come to a resolution to this problem within his lifetime [6]. Over the years this economic puzzle has been renamed under the moniker of  Theory of Value. Posthumously, several other schools of thought presume to have the answer to Smith’s dilemma.  While the two economic perspectives are diametrically opposed, I will present and examine both perspectives.

DIAMOND WATER PARADOX:

While several schools of economic thought purport to have the resolution to Smith’s quandary,  his befuddlement isn’t so outlandish. The fact of water, a life-sustaining resource, costing less than the luxury good of diamonds is counterintuitive. It certainly is not capricious grapple with this paradox considering the axioms presented above. When submerging yourself into this question you are confronted by oblique logic. It becomes evident that potentially our attribution of monetary value may be independent of the significance of the commodity. Clearly, a bottle of cognac can be sold at a higher retail price than a bag of spinach. However, the bag of spinach contains more nutrients than the bottle of cognac. The deeper you become entrenched in this logical puzzle, the more perplexing it becomes.

When assessing this paradox it might lead one to believe that we as a society are misprioritizing our goods.  The partner does appear to be those luxury goods and other nonessentials at times cost more than essentials. However, this isn’t always the case and becomes a much more convoluted inquiry when we veer off into this direction. However, we should engage in examing this inquiry because the Diamond-Water Paradox is still a contested problem to this day. It comes in the form of many manifestations. If we do not understand how market prices are assessed we will still continue to suffer much confusion.

In our modern world, we are still plagued by the same issue that Smith grappled with nearly three hundred years ago.  Commonly you will hear the sanctimoniously echoing sentiment of the fallacy of how a reality television star makes more money than first responders.  Another example is the significant and rapidly deepening gulf between the compensation between teachers and professional athletes [7]. Both examples are modern manifestations of the Diamond-Water Paradox. The sense of outrage and cognitive dissonance implied in both examples illustrates that even in modern times we are still struggling with this logical issue. Due to the lack of comprehension and critical analysis of the assessment of pricing such perceived injustices seem astonishingly jarring. Expression of such grievances provides little insight into this phenomenon nor does it provide any solutions.

Considering how easily applicable this paradox is to modern affairs it is a testament to its enduring nature. Smith was hardly contemplating the equity of compensation. Back in the 1700s highly consolidated and government bulwarked unions did not exist in the same capacity they do now. The real powerful government supported unions did not come to fruition until the 1920s and 1930s in the United States [8]. Smith was examining this phenomenon of pricing in a slightly less complex world. However, he at least was postulating about the mechanisms of pricing. He purposed that a commodity was worth the amount of labor exerted to create or obtain the goods or service[9].  Smith was also prudent enough to point out some of the fallacies inherent in his own view of value assessment.  As Smith asserts that when comparing goods produced by two different types of labor it is difficult to determine if they are equal [10]. Due to the number of varying contingencies and qualitative differences.

Beyond his interpretation of the production value of goods and services he also directly addresses the paradox in his Magnus Opus The Wealth of Nations.  Smith makes the distinction that there are two types of value appraisals for goods and services.  The first being “Value of Use” which is in direct reference to the utility of a commodity.  The second being the  ” Exchange Value” of a commodity or purchasing power.  His explanation indicating water having a significant amount of utility due to it being essential for survival.  Diamond having a  significant  “Exchange Value”  due to the number of goods you can exchange diamonds for (high purchasing power) [11] [12]. Unfortunately, Smith does not have a satisfactory rationale for why this discrepancy exists. Even in light of it boarding on the line of absurdity if taken from a linear interpretation.

THE AUSTRIAN SOLUTION:

The lack of alignment between “Value of Use” and “Exchange Value” requires an analysis of what is qualitatively different between these two variables. It would be innate to think that they are to some extent interconnected or even correlated. It is possible that even the two varieties of value appraisals are independent of one another. Despite how far off course we can veer attempting to solve the disconnect, there are theorists that have already composed solutions.

The thinkers and intellectual theorists of the Austrian School of Economics approach the Diamond-Water Paradox with heterodoxy. The true irony is that the Austrian theory of Imputation/ Subjective Theory of Value is somewhat self-evident and accessible through detective reasoning. The hegemony of scientific thought has caused the inculcation of empiricism to most educated individuals. Biasing our perspectives to the extent of overlooking a priori information. It is important to remember that economics isn’t congruent with the natural sciences. The empirical method is inapplicable to economics it is would be erroneous to apply to the social sciences [14]. Much of economic behavior cannot be explained through material validation of experiments but through formal logic [15].

The Subjective Theory of Value does not derive the value of goods based or other costs of production. Rather the monetary value is ascribed by the perceived importance by the consumer [16]. However, the perceived value of a commodity or service does not remain constant. The more of a good the consumer has the greater the aptitude the good has already satisfied the consumers most pertinent needs. Each subsequent acquisition of the specific good is then utilized for less important uses. In a sense, the good becomes less valuable the more the consumers need for it has become satiated. This principle is known as the Law of Marginal Utility. [17] [18] It should be quite conspicuous how it dovetails to the Law of Supply and Demand. Due to the observed and enduring fact that the scarcity does influence the value of a good. From the vantage point of the Austrian School, the determination of the change in value is made by the consumer.

Ludwig Von Mises one of the defining and premier theorists within the Austrian tradition sheds much light upon the topic of value in his masterpiece Human Action. A quintessential book and a milestone to the advancement of Austrian Economic thought. Mises surmises that the value of goods is derived through action. This implicit fact is demonstrated through the act of exchange. If we are willing to trade X amount of one commodity for another it can be assumed that we value the commodity we obtained more than the one that was exchanged. An order of value created without the aid of any formal calculations [19].This notion gives credence to the possibility that goods are valued on a subjective level and this is punctuated economic behavior.

Above all Mises along with all following Austrian theorists perceives value as being a subjective attribution. However, it should be noted that the subjective theory of value was not conceived by Mises as it was Carl Menger the founder of the Austrian school that formulated this premise. What I would state is that Mises elaborated on the concept and further refined it. Beyond the circumstantial contingencies of prevalence and scarcity. Mises describes value as being:

“Value is the importance that acting man attaches to ultimate ends.
Only to ultimate ends is primary and original value assigned. Means are
valued derivatively according to their serviceableness in contributing
to the attainment of ultimate ends. Their valuation is derived from the
valuation of the respective ends. They are important for man only
as far as they make it possible for him to attain some ends.
Value is not intrinsic, it is not in things. It is within us….” [20]

Ultimately  Mises is pointing to the fact that commodities and services are only valuable because we perceive them as being so. Whether or not an individual finds goods to be valuable is reflected in their actions which is the physical manifestation of choices. In a sense contemplation of choices is still a form of action just on a metaphysical level. Generally, the value we attach to goods and services is connected to our end goal objectives we try to achieve by obtaining the goods. When an individual purchases a luxury car, it may be due to its superior performance or the fact that it is considered a status symbol. If the individual seeks to achieve one of these goals or “ultimate ends” and believes that procuring the vehicle will satisfy their goal they will make the purchase [21].

One pertinent question that arises from a potential blindspot within the subjective theory of value is pricing. If everyone has a subjectively determined monetary assessment of specific goods how do we arrive at the MSRP? As with any commodity, whether it is a candy bar or a Ferrari, there is a range of acceptable prices for the good. There are certain circumstances that can influence the parameters of whether the selling price goes from the higher or lower end of the bell curve [22]. Competition among sellers and consumers greatly impacts the selling price of a good. There are a plethora of rules that address how seller pricing and the consumer’s attribution of the price influence the final selling price. This a topic that is extremely nuanced I could dedicate an entry blog entry to it.  One example that illustrates this point is in the circumstance of isolated exchange. A circumstance where the consumer wants a good at a certain price, but not enough to surpass their subjectively determined amount. The seller has a specified dollar to sell the good at that is within the acceptable pricing range that may be lower than what the consumer is willing to purchase the commodity for. The price will be determined by which of the two individuals are more adroit at the art of bargaining [23].

It must be quite salient at this point that the Austrian School of Economics sees value as being determined by the perceptions of the consumer. If you place an inordinately high (beyond market price)price on a commodity it will not sell! However, how does the Subjective theory of value precisely seek to solve the Diamond-Water Paradox? Prior to the Austrian interpretation of utility, theorists were stuck due to the fact that water is more important than diamonds. To further compound the matter Labor theory failed to consider how a valuable commodity such as diamonds could be obtained in a happenstance manner. An example being discovering a diamond on a hike [16]. Certainly would not be any testament to the units of labor exhausted to obtain that very diamond. An individual faced with  “… the choice between definite quantities of goods..” the individual then chooses which set of goods will satiate the highest ranking goal which is subjectively determined by the individual [16].  If an individual chooses to make wine with grapes versus eating the grapes it can be inferred to that individual that their need to make wine outweighed their need to consume the grapes. The production of alcohol is an excellent example of this principle. It has been speculated that the production of spirits started off as a means of utilizing surplus produce. This would reflect the luxury of delayed consumption.

LABOR THEORY OF VALUE:

The Labor Theory of Value is arguably the antithesis of the Subjective Theory of Value favored by the Austrian School of economics. While the Labor Theory of Value has been adopted by other economic perspectives is synonymous with Marxism. Stands to reason considering the Marxist propensity to exacerbate class envy and see economic trade as an exploitative practice [25]. I would personally argue that such a perspective obtusely ignores many of the positive externalities of unfettered trade.  That aside, I believe it is important to understand the ethos behind the economic movement that developed this interpretation of value. Without such contextual information, we do not have any context for what engendered such ideas to spawn. Especially considering it is seen as being one of the major intellectual pillars of the Marxism [26].

The basis for the Labor Theory of Value does appear a little more linear and more in line with our explicit understanding. In contrast, the Subjective Theory of Value is more innate to our sensibilities, per the prism of our social conditioning, we have been trained to believe the situation is more complex than it really. Therefore requiring more detailed and extensive justification. The Roots of Labor theory of value stretch back to Karl Marx book Capital. [26]. It could be argued that the true genesis of Labor Theory came from Adam Smith, however, his explanation was not as robust [27]. So for all intensive purposes, the progenitor of this theory is Marx.  In his book, Marx asserts that the value of a commodity can be objectively determined by the number of hours it takes to produce the goods [26]. Leading to the assumption that the more hours put into production the more valuable the commodity is.

Marx referred to the amount of labor that one into the production of a good as the commodity of labor power.  He viewed that the correct wage to the worker for there expended labor would be enough to cover their basic necessities. However, no more than that again it is well known that Marxism in its purest forms relinquishes private property. No point in earning in more compensation than what is required for sustaining life. Even if the profession is a more productive and capital intensive job. Marx takes a twisted turn into his explanation of how entrepreneurs earn a profit, even when that runs contrary to his thesis of proper compensation. He asserts that this a parasitic relationship where the surplus value of the workers is extracted by management and capitalist. In a direct sense, they relish the spoils of the toils of the common worker. Marx further expounded upon this perceived inequality by fixating on the alienation caused by this and other asymmetrical aspects of capitalism [26] [27] It can be argued Marx was merely being antagonistic without any genuine concern for the sorrows of the common worker.

There is one profoundly gaping hole in the panoply of the Marxist appeal for the Labor Theory of value. That is the fact that it cannot be consistently and evenly applied to all circumstances of production. As we mentioned earlier with the example of finding a diamond on a hike would exert less ” labor power” than obtaining one via traditional mining methods [16]. However, does the means of procuring a diamond make that specific diamond less valuable? The obvious answer would be no. Another example would be the difference between the price of a loaf of bread from a grocery store versus a convenience store. The amount of labor exerted to make a mass-produced loaf of bread would not vary based on the vendor that sells. Rather it would appear that the consumer is paying more for the convenience of being able to pick up the item from Seven Eleven versus the grocery store. The consumer views this price difference to be adequate due to quick access. However, this acceptance by the consumer is based on a subjective inference manifested in purchasing choices. This is no indication of any difference in regards to production.

SOURCES:

  1. https://peterclark7979.wixsite.com/website/home/political-opinions-61-the-diamond-water-paradox-an-economic-puzzle
  2. https://vimeo.com/321132324
  3. https://en.oxforddictionaries.com/definition/value
  4. https://www.brainyquote.com/quotes/yotam_ottolenghi_606729
  5. https://www.scientificamerican.com/article/how-long-can-the-average/
  6. https://www.britannica.com/topic/Austrian-school-of-economics#ref725579
  7. https://fee.org/articles/in-praise-of-athletes-high-salaries/
  8. https://www.mackinac.org/2303
  9.  Smith, Adam. The Wealth of Nations, Originally Published (1776),  Digital, Metalibri, (2007), p. 28
  10. Smith, Adam. The Wealth of Nations, Originally Published (1776),  Digital, Metalibri, (2007), p. 29
  11. Smith, Adam. The Wealth of Nations, Originally Published (1776),  Digital, Metalibri, (2007), p. 26
  12. https://www.investopedia.com/ask/answers/032615/how-can-marginal-utility-explain-diamondwater-paradox.asp
  13. https://youtu.be/e7S8jWh6AEs ( Diamond-Water Paradox value video)
  14. Hoppe, Hans-Herman. Economic Science and The Austrian Method (1995), Published by Ludwig Von Mises Institue. P. 35
  15. Hoppe, Hans-Herman. Economic Science and The Austrian Method (1995), Published by Ludwig Von Mises Institue. P. 25
  16. https://wiki.mises.org/wiki/Subjective_theory_of_value
  17. https://fee.org/articles/to-be-a-happy-person-understand-marginal-utility/
  18. https://mises.org/library/mises-marginalism
  19.  Mises, Ludwig Von. Human Action:  The Scholar’s Edition (1949), Published by Ludwig Von Mises Institue, Reprint 1998. P. 120.
  20.  Mises, Ludwig Von. Human Action:  The Scholar’s Edition (1949), Published by Ludwig Von Mises Institue, Reprint 1998. P. 96.
  21. Mises, Ludwig Von. Human Action:  The Scholar’s Edition (1949), Published by Ludwig Von Mises Institue, Reprint 1998. P. 95.
  22. Greaves JR., Percy L.  Understanding The Dollar Crisis (1973), Published by Western Islands, P 76.
  23. Greaves JR., Percy L.  Understanding The Dollar Crisis (1973), Published by Western Islands, P 77.
  24. https://youtu.be/qUrP9spONAQ (Subjective theory of Value Video)
  25.  Marx, Karl & Engles, Fredrick. Manifesto of the Communist Party (1848). P. 14
  26. https://www.econlib.org/library/Enc/Marxism.html
  27. https://fee.org/articles/were-still-haunted-by-the-labor-theory-of-value/
  28. https://youtu.be/AV4yTgPCHHg ( Labor Theory Video)

POLITICAL OPINIONS#60: ENVIRONMENTALISM & SOCIALISM

INTRODUCTION:

 

It is easy to operate under the assumption of knowing a person’s stance on one political issue we have a window to the entirety of their ideological convictions. Much can be said for how certain political beliefs are highly correlated with other supporting political and non-political philosophical tenants.  The congruency of being a social conservative, Pro-life, religiosity, and supporting the political views of  Pat Buchanan seems to be logically sound. However,  not all correlations of political beliefs are that epistemologically linear and are sometimes are more conceptually nuanced. For example, the anti-war demonstrator who is pro-choice when it comes to the controversial topic of abortion.  Anytime you analyze the definition of human life in the abortion debate the topic quickly devolves into a semantical tightrope walk.  One where operational definitions of human life are subjected to veracity tested filtered through philosophical, legal, scientific, and even biblical literature. However, conservatives have their own cognitive dissonance tested when confronted with the prospect of being Pro-life, but defending just war doctrines or state-sanctioned executions.

 

While such distinctions can easily be settled on the grounds of oversimplification of the issue,  sometimes that seems to be too dismissive of an answer.  While philosophical nuance can explain oblique congruency with seemingly incompatible ideas couldn’t there also be other factors at play? In recent years the sense of increased attachment to ideological labels and institutions. There have even been studies conducted where individuals rejected policy proposals fitting into their political view just because they were told it was supported by the opposing party [3].  A 2016  study demonstrated “…Activation of the posterior medial parietal cortex is also consistent with another study of motivated reasoning in politics…” when faced with unfavorable information about a favored political candidate [4]. Given some physiological insight why we attempt to justify supporting politically incompatible views.

 

The social, psychological, and biological factors behind these phenomena are certainly engaging, however, I could write an entire book addressing these issues. However, I have other objectives at hand. What really inspired this blog entry was an observation made after reading up on the ” Green New Deal” being purposed by a certain junior congresswoman who shall go unnamed. I at that moment noticed a strong correlation between support for socialist economic policy and environmentalism.  A correlation so pronounced there is even a splinter form of socialism known as eco-socialism [5].  Now I am not going to resort to the sophomorically inserting anti-socialism MEMES into my blog post and crafting an obtuse polemic devolving into patronizing diatribes.  Rather explore a legitimate inquiry into the philosophical framework of environmentalism.

 

My main inquiry is why environmentalism is so strongly correlated to socialist economic policies? In environmentalist circles, the perils of manipulating certain variables are well noted and cited. However, can’t the same be said for the American Economy?  The burst of the 2008 Housing Bubble engendered by artificially low-interest rates [6] [7]. I would state that an institution such as the Federal Reserve manipulating mortgage interest rates would be analogous to housing development or population killing off a major food source in an ecosystem’s food-chain. As any environmentalist will tell you such a disruption will have truly pernicious ramifications for every life form in that environment. So why it is so outlandish to apply the same concept to our economy?  When we generally attempt to implement pricing control, increase the minimum wage, and subsidize production in select industries all have unforeseen and typically detrimental consequences.  While such thinking is in direct confrontation with the left-wing leaning sentiments of environmentalism it does not have conflict. The idea of not disturbing the natural order can be extrapolated and applied to environmentalism as well as economics.  However, there is ample tribalism and the maneuvering of confirmation bias that will make such a notion far-fetched.

 

COMPLEX SYSTEMS:

Both a natural ecosystem and the American Economy (or any nation’s economy for that matter) operates as a complex system.  A complex system  is defined as:

” …. any system featuring a large number of interacting components (agents, processes, etc.) whose aggregate activity is nonlinear (not derivable from the summations of the activity of individual components) and typically exhibits hierarchical self-organization under selective pressures. ” [8].

Essentially an entity comprised of a multitude of different interacting variable. There is a self-organized hierarchy or natural order created by the components and their interaction.  It should also be noted that the components of a complex system are extremely interdependent [9]. Meaning that if you alter the input on one variable it impacts every other variable within a complex system.  Which explains why in an ecosystem you take away one food source it causes an imbalance. Some species of plants, animals, or microorganisms will overpopulate the environmental. In contrast, some will either face extinction or die off. In any complex system, the line between equilibrium and chaos is razor thin.

While it is easy to associate a biome in the natural world as a complex system. What constitutes a complex system extends beyond that mere example. Essentially any entity with a self-arranged order, composed of an interacting variable, and the effects of alteration can be easily measured or predicted, constitutes a complex system. For instance, examples of social complex systems range from  ” … ant colonies, families, and nations…” [10]. This also includes economies as well. There is a natural flow or cadence to the hierarchy and functions of transactions in economic behavior. Beyond just how the intervention of taxes, tariffs, price controls, etc causes disturbances and the market tends to work around such barriers, most factors are set by market behavior.

If you are familiar with the Austrian School of economics you may be aware of the theory of subjective value, the Austrian theory of value, the theory of imputation, etc.  This theory of pricing goes by a myriad of different monikers. Essentially it addresses Adam Smith’s Diamond-Water Paradox of marginal utility [13]. Essentially the subjective assessment of the value of a scarce commodity is determined by the market or the buyer [12].  Versus the price being derived from the costs of production which tend to be the assumption of the classical school of economics [11].  One real-life example of Austrian pricing theory that I have some experience with is purchasing goods and services for a wedding.  Standard napkins you would purchase for a dinner party tend to be less expensive than those that have the words “wedding” on the label. For all intensive purposes, the cost of production is the same, however, what accounts for the difference in price. The only rational way to view this difference is that the consumer is willing to pay the higher price for the “wedding” napkins if not there would be no price difference. The difference in price demonstrates the higher perceived value by the consumer.

Now I am not trying to convert anyone to the Austrian School of Economics, however, many of the theories within this school do an excellent job of explaining the natural order of pricing in the market. Demonstrating that natural flow and cadence solidifies the fact that the economy is a complex system. One that is comprised of a myriad of economic transactions and behaviors.  One that one you alter one variable either for good intentions or other motives creates nonlinear counterreactions that cannot be easily controlled. Similar to how in a biome there are natural predators and prey, pricing in the economic market is determined by the market. Darwin theory of  Natural Selection reverts right back to the self-selecting nature of complex systems [14]. Similar to how gene selection is determined by surviving long enough to copulate economies have their own self-selection process. Markets being consumer driven, economic conditions are at the mercy of their subjective attribution of price and perception of the value of goods and services offered. If a producer cannot adapt to market conditions the odds of failure are almost inevitable.

 

Considering the evidence presented, the overlap between economic environments and those in the natural world is quite resounding. The plethora of commonalities validates the theory of Complex Systems at a conceptual level. Both are self-organizing, interconnected variable interaction with one another, and alteration of one variable impacts all others.

 

Seeing how this concept can be extrapolated and applied makes me question the alliance between socialistic economic policy and environmentalism. Beyond the microcosm of the subculture of environmentalism, socialism abroad has garnered more support. The results of a political poll conducted in August of 2018 revealed that sixty percent of Democrats polled viewed socialism favorably [15]. However, such numbers do not exactly speak to the views of the average voter.  But within environmentalism, there has been a longstanding ethos against capitalism. A bias stemming from the perception that damage to the environment being a byproduct of capitalistic greed [16]. Making the natural reciprocal of Socialism appealing. Former Green Party Presidential Candidate Jill Stein’s platform had a plethora of initiatives intensive on economic central planning and redistributive policies [17].

My question becomes if you understand disrupting natural environments is detrimental, why isn’t the same true for the American economy? The counterargument can be made that we need government involvement to correct for the environmental blunders of man. The initial problem was engendered by disruption of a naturally occurring variable. Trying to correct for the blemishes of a capitalistic society through welfare initiatives also disrupts natural order. Could be viewed as being analogous to dumping toxic waste into a stream. Both demonstrate a lack of foresight and have a litany of adverse ramifications.

 

SPONTANEOUS ORDER:

Not to beat a dead horse here, however, I would also like to incorporate the concept of Spontaneous order into this discourse. While it may feel as if I have exhaustively expounded upon the parallels between the American economy and natural environments, the matter still remains unresolved.  The concept of Spontaneous order really bridges any remaining gaps between the social and natural worlds, in regards to external meddling.

 

The idea of spontaneous order was conceptualized by Nobel prize-winning Austrian Economist F.A. Hayek. The idea is derived from the concept of the “Invisible-hand” which was contrived by the Moral Philosopher Adam Smith. Smith argued that “… society developed from a spontaneous order which was the result of human action but not of human design…”. Hayek expanded upon this notion by stating that while reason and logic have facilitated human development, society was too complex to be methodically planned bit by bit. Hayek also speculated that many who dismissed the premise of spontaneous order did so by being hung up on the dichotomy of chaos (unplanned)  and order (planned). When in actuality economies belong to a third category where there are rules, self-organized, and “… increase in complexity in a way that would not be fully understood…” [18].

It is analogous to the development of human language. While there are rules predicating verb conjugation, syntax, etc these rules were not consciously contrived by one person. But rather spontaneously arose in the absence of human design [19]. There is also the skating rink example which parallels the unwritten rules of the driver. Example being the right of way rule at a 4-way stop. In the skating rink example, if you were to be a ruler and were to build a skating rink you would assume you would need to install speed limit signs, traffic lights, etc to ensure safety [20, 21]. It could be said that you ” … can’t expect skaters to navigate the rink on their own…” because you need rules and agents to enforce those rules [20]. However, the skaters seem to manage to do so it is not the result of intentional planning  [20, 21].

 

In social systems such as economies, we cannot adequately plan them what makes us think we are capable of doing so with the complex systems of the natural world.  In sense exploring the idea of spontaneous order illustrates how economies are not conscious design nor are natural biomes. Any attempt to intervene or plan either would merely be more detrimental than beneficial as you are attempting to control entities that have a nonlinear result from such measures. While I do see how transgressive acts such as littering and dumping toxic waste as pernicious and as negative they are more a variable of human meddling than a lack of government oversight. For one, both acts are examples of manipulation of variables by human choice. Second being, even in light of regulations and punitive sanctions people still chose to litter. While such measures have the best intentions it cannot change the fact that people possess free will with limitations. Overall, erroneous choices exist regardless of the existence of regulation. Unless someone can demonstrate that such regulations reduce such actions on a statistically significant level, see them as nothing more than futile. However, if we shouldn’t be hunting a species out of extinction, why is it okay raise the minimum wage to the point that fast-food workers are replaced by machines because it is no longer solvent to keep them employed?  Both demonstrate how intentions do not always match results.

 

DISCUSSION:

 

For the record, I am not attempting to proselytize anyone to the virtues of Libertarianism or of Austrian School of Economics. Rather, I am expressing an interesting conceptual connection between social and environmental systems. I would purport that if we shouldn’t be upsetting the equilibrium in one, we should not be doing the same in the other. Which is why I am expressing my confusion regarding the strong correlation between environmentalism and socialism. If you comprehend the perils of variable manipulation in the natural world, why wouldn’t it apply to the social world? The American economy as with any economy is most certainly a social complex system.  An economy is comprised of economic behavior through the manifestation of exchanges. So if spontaneous order applies to both the natural and social world any attempt to artificially manipulate it would a mere hindrance. The underlying cadence or implicit law being the laws and theories of biology for the natural world and social laws whether written or intuitively understood. For example, the Law of Supply and Demand in economics.

 

However, many would argue that I am fundamentally mistaken by questioning the alliance between socialism and environmentalism. It does seem as if there is a strong preference for government involvement in correcting for the damage that has already been done. Due to the assumption that a lack of regulation led to the current environmental conditions. Which would to some extent nullify my argument.  Especially when you consider the current trajectory of using governmental bodies and alliances to grapple with issues such as global warming, early forerunner being the Kyoto Protocol. One of the first of the global attempts at addressing the issue [22]. The current trajectory of the environmental movement is to remedy issue through the consolidation of governmental power, now even at a global level.

 

While such patterns give Right-leaning conspiracy theorists new avenues of intrigue to exhaust, I do not believe that this is a massive conspiracy. Rather a misguided attempt through using international governance structures to eliminate a problem that cannot be solved. Especially when a lot of these agreements appear to be a typical ceremonial formality.  China signed the Paris Climate accord back in 2016, however, are they taking this commitment seriously ? [23] The United States has decreased carbon dioxide emissions by 800 million tons annually over the past decade. While China emits more than the United States and EU combined, currently Asia accounts for 50 percent of the world’s emissions [24]. China is the major contributor. Another example of how the good intentions of government involvement do not necessarily yield results. Also, this agreement would only work if all the major contributors took it seriously. In my uneducated opinion, I do not believe China would risk the economic impact of complying with the agreement. I am pretty sure there is more of a profit over principle paradigm at work.

 

As you may remember, I discussed the notion of coping with cognitive dissonance and tribal political behavior. If the premise of preservation is extrapolated from environmentalism it, in theory, can be applied to social systems. Economies included. Preservation in the sense of not manipulating naturally occurring cycles. It can be stated that I am merely transposing my libertarian perspective to a set of ideas that are incompatible with such thinking. Whether or not the prospect of limited government and environmentalism can coexist in the pantheon of ideas is a matter of perspective. Much of that speculation is contingent on examining the tenants of both paradigms. Much can be said for the notion of environmentalism being tied socialized economical policies through the concept of justice. Utilizing government institutions to amend the evils and perceived fallacies of man.

 

The leftism and emphasis on artificially stacking the deck to even the wrongs of the world do not matter of conforming to tribalism, but rather the status quo of liberal environmentalists.  Due to the strong emphasis on social and environmental justice (in a sense both are conceptual kissing cousins) the hard leftist tendencies are right on base for this microcosm of the left. If anything the standard left of center democrat is shifting more towards the hard left in regards to policy and ethos.  So if anything the philosophical pillars of the ecologically conscious left are infiltrating the mainstream democratic party. The Environmentalist/ Progressive sect of the liberalism appears to be the prime mover pushing the pendulum of liberal thought versus accommodating itself to the mainstream democratic party. Making the issue of tribal conformity and ideological veering towards the extremes the victimhood of the democratic party.  In this era of instruction politics, it is common to see both Republicans and Democrats moving towards the extremes of the ideological bell curve.

 

Now I am intrigued by one environmentalist movement that may be a step in the right direction. However, I have not done much in the way of research on this microcosm of environmentalism, that is the Free-market Environmentalism. Example being the Clean Capitalist  Coalition being concerned with being more environmentally conscious without stifling economic growth [25]. While I still need to do some further research on this movement, it does look like a potential compromise to the current socialist-environmentalism paradigm. I need to to do more investigating before I can endorse this perspective. However, it may be a measure and appropriate compromise.

 

 

 

SOURCES:

[1].https://peterclark7979.wixsite.com/website/home/political-opinions-60-environmentalism-socialism

[2].https://youtu.be/rh_Featv0gA

[3]. https://www.psychologytoday.com/us/blog/bias-fundamentals/201806/tribalism-in-politics

[4]. https://www.nature.com/articles/srep39589

[5] http://ecosocialisthorizons.com/ecosocialism/

[6] https://www.forbes.com/sites/richardsalsman/2013/09/19/the-financial-crisis-was-a-failure-of-government-not-free-markets/#77ca2bd451c3

[7] https://fee.org/articles/how-the-federal-government-created-the-subprime-mortgage-crisis/

[8] https://www.informatics.indiana.edu/rocha/publications/complex/csm.html

[9].https://serc.carleton.edu/NAGTWorkshops/complexsystems/introduction.html#interdependence

[10]. http://www.thwink.org/sustain/glossary/ComplexSocialSystem.htm

[11]. https://mises.org/library/marginal-utility-not-rocket-science

[12] https://mises.org/library/subjective-value-theory

[13] https://www.britannica.com/topic/diamond-water-paradox

[14] https://www.biology-online.org/dictionary/Natural_selection

[15] https://www.usatoday.com/story/news/politics/onpolitics/2018/08/14/democrats-prefer-socialism-capitalism-gallup-poll/988558002/

[16]. https://oilprice.com/Energy/Energy-General/Why-Do-Environmentalists-Hate-Capitalism.html

[17]. https://www.jill2016.com/plan

[18] https://www.minneapolisfed.org/publications/the-region/hayeks-legacy-of-the-spontaneous-order

[19]. https://www.forbes.com/sites/billconerly/2017/10/30/business-planning-with-austrian-economics-spontaneous-order/#4d335d9380d0

[20]. https://fee.org/articles/spontaneous-order/

[21]. https://reason.com/archives/2011/02/10/spontaneous-order

[22] https://www.iep.utm.edu/envi-eth/#H3

[23]https://www.bbc.com/news/world-asia-china-37265541

[24] https://www.forbes.com/sites/rrapier/2018/07/01/china-emits-more-carbon-dioxide-than-the-u-s-and-eu-combined/#5d136096628c

[25] https://www.forbes.com/sites/waynewinegarden/2018/09/28/free-market-environmentalism/#65c74a991f1a

POLITICAL OPINIONS #59: ELECTORAL COLLEGE

 

 

INTRODUCTION:

 

Even at its infancy, the democratic process had its critics pointing out its inherent flaws and inefficiencies. Even the legendary classical philosopher Socrates cast his doubts and cynicism regarding democratic forms of government. Per the Encyclopedia of Philosophy:

 

“… Socrates “suggests that [the rulers] need to tell the citizens a myth that should be believed by subsequent generations in order for everyone to accept his position in the city”—and to accept the legitimacy of the rulers. The myth—like modern scientific racism and eugenics—divides the citizenry into an essential hierarchy, which Socrates symbolizes by the metals gold, silver, and bronze…” [3].

 

This interpretation of the Socratic stance on democracy demonstrates the longstanding debate on its innate flaws and failings as a form of government. Socrates had company in his follow classical intellectuals including Thucydides known for his historical accounts of the Peloponnesian War. While the criticisms of the classical thinkers may not necessarily be 100 percent applicable to the contemporary American political landscape it does demonstrate that even at its genesis democracy has at its critics.

 

Few Americans would call for the just but totalitarian rule advocated in Plato’s Republic, but rather a different critique has emerged in recent years. Over the years the speculation of institutional failures of democracy in American has become more salient. Particularly in regards to the role of the electoral college in the presidential election. While there has been a myriad of armchair pundits who apathetically chose not to participate in the democratic process due to the electorate, it is now starting to gain some mainstream traction.  The 2000 Presidential Election engendered a significant amount of controversy due to Republican Presidential candidate losing the popular vote, but obtaining the support from the electoral college [4]. While certainly scintillating to many voters not quite at the level of being a full-on flash point.  The public outrage in regards to the electoral vote superseding the popular came to a head after the 2016 election.

 

In the 2016 election, when Donald J. Trump, reminiscent of the 2000 election, won the electorate and lost the popular vote. Which spawned a wide range of investigations ranging from foreign meddling to manipulation of website and social media algorithms [5]. However, I am not composing this blog entry to address such inquiries. I am looking to address whether or not on any rational level we should keep the electoral college.  Per the results of 2016 of a Gallup opinion polls shows that the there was a sharp increase in the number of Americans that believe we should keep the electoral college, that number is still merely 47 percent [6]. Still more than half of the country is in favor of abolishment; therefore, it may be advantageous to explore alternatives. However, I will present evidence from both sides of the argument and then attempt to draw some rational conclusions.

 

Just a disclaimer, I am not addressing this issue out of any partisanship or other motives. I am merely attempting to grapple with a difficult and controversial matter of federal policy and governmental institutions.  Regardless of whether going forward, it is conspicuously evident that the electoral college needs to be abandoned in favor of direct elections, it would be petty to retroactively take action against past presidents. However, I do find it interesting that whenever this issue does come back to prevalence, no one wants to have a serious conversation about policy, but rather shout a linear “Get Rid of its Mantra”. These same individuals did not call for reform when politicians of their preferred political affiliation got elected into the oval office.  In other words, this will be a serious discourse on policy versus a Trump and Bush bashing session.  For anyone who does oppose the electoral college when it is convenient to do so may want to actually think about the issue on a less superficial level.

 

BACKGROUND:

 

The Electoral college was established in Article II, Section I of the United States Constitution, yes it is  Constitutionally legal. Most states have a requirement that the electorate must go with the candidate that received the “plurality ‘of the vote[ 7]. Twenty-six states have a process where they “bind” the electorate to vote for the candidate they pledge to vote for, enforced by fines and oaths. Faithless electors are ones that vote against their pledged candidate, which has happened in 1948, 1956, 1960,1968, 1972,1976,1988 elections. A blank ballot was cast for Colorado in 2000 and seven electorates broke away from the popular vote in 2016. Since 1887  per 3 U.S.C. 15  implement procedure for objections to electoral votes.  Which much be presented in writing with a signature from one senator and representative, a joint meeting being held in Congress.  There are two on record objections 1969 and 2005, both were rejected. There have been two Constitutional amendments related to the  President and Vice president. The 23rd amendment ratified in 1961 where the District of Columbia was granted three electorates [7].

 

 

 

WHY NOT DIRECT ELECT:

 

It is fair on a basic rational level to question the validity of having the final result of the Presidential election determined by an institutional body rather than the voters. However, few who express their ire for the quiddity of such perceived injustice ask what the reasoning is for having the electoral college in place.  While the founder fathers were far from perfect morally, I hardly believe they would haphazardly implement restrictive policy with no rationale. Especially when you consider their recent extrication from the claws of English colonial rule. I am going to dare to ask the question that seems to elude many and what is the true purpose of the electoral college and are they a possible safeguard for the democratic process?

 

In a very general sense, there are two key reasons why the drafters of the United States Constitution built-in the institution of the electoral college. The first reason being as creating a safeguard between the Presidential selection process and the voting public. The second was to work as an equalizing force to give more balanced voting representation to states that have lower populations [8]. The safeguard between the voters and the selection process is justified in the  Federalist papers, it is speculated that this section was written by founder James Madison [8].  Madison wrote Federalist Papers #68:

 

“…. The process of election affords a moral certainty, that the office of President will never fall to a lot of any man who is not in an eminent degree endowed with the requisite qualifications. Talents for low intrigue, and the little arts of popularity, may alone suffice to elevate a man to the first honors in a single State; but it will require other talents, and a different kind of merit, to establish him in the esteem and confidence of the whole Union, or of so considerable a portion of it as would be necessary to make him a successful candidate for the distinguished office of President of the United States. It will not be too strong to say, that there will be a constant probability of seeing the station filled by characters pre-eminent for ability and virtue. And this will be thought no inconsiderable recommendation of the Constitution, by those who are able to estimate the share which the executive in every government must necessarily have in its good or ill administration. Though we cannot acquiesce in the political heresy of the poet who says: “For forms of government let fools contest That which is best administered is best,” yet we may safely pronounce, that the true test of a good government is its aptitude and tendency to produce a good administration…” [9].

 

In a sense, the founders feared the tyranny would hijack the voting interest of the public and erode the integrity of the democratic process. As grandiose and abstract as that sounds, essentially, they are conveying that the electorate is a barrier between external manipulation influencing voter behavior. Considering the dismally low literacy rates of the voting public back when the Federalist Papers were drafted it does seem a little more valid. However, it may not be a stretch to say that their high amount of veracity to keeping this institutional safeguard in the present day. While most Americans are literate in the direct sense, we do have new modern threats to the external influence of voter behavior. Threats include excessive campaign advertisements funded by political action committees, lobbyists, and even data collection and algorithms directing the user to specific kinds of media content. Just remember the whole Cambridge Analytica controversy and you get a pristine picture of the last example. Which really illustrates how the tools of manipulation may have changed, but the sophists are still at bay. In regards to the notion that people have a higher standard of educational obtainment being used to justify abolishing the electorate is debatable. While most Americans may be able to read they are not literate when it comes to policy. If nearly forty percent of Americans polled in a 2006 Ohio University poll believed that Saddam Hussein worked closely with Al Qaeda prior to the U.S., one could certainly be incredulous of the judgment of the voting public [10].

 

The argument for the electorate balancing out representation for states with lower populations does seem to be quite straightforward. The question can be posed that if we truly have a democratic form of government if the East and West coasts are the ones determining our elections. While middle American and the Rustbelt is politically left in the dust. It becomes more problematic in the sense that Presidential candidates give more focus to states with larger populations. This also translates into appointments and other state-specific accommodations [11]. While it easy to argue the potential for institutional corruption when you live in a city like Los Angeles, however, it does not account for the disadvantages of someone living in Cheyenne.  In a sense, it would whittle down our two-party system to a one-party system. Natural the coasts will back the DNC. Which would install one party with a different figurehead in the Executive branch of government.

 

ARGUMENTS AGAINST THE ELECTORAL COLLEGE:

 

While the intentions of the Founding Father’s reflected the moral sentiments of the Scottish Enlightenment ( a bountiful dose of Lockean goodwill), could they have been misguided? It is easy to contemplate if the very same institutional safety net created by the framers could be used the create a whole new form of injustice. Many opponents of the Electoral College languish at the institution’s inefficiencies and proclivity for tampering. Which are certainly valid concerns, however, much of these qualms are fair weather grievances versus actual principled calls for reform. The often come at the heels of concern generated by partisanship rather than a genuine conviction for policy reform. The same individuals calling for relinquishment and adjustment to this process did not seem to have a problem when Barrack Obama won the electoral vote back in the 2012 election [12]. A quick retort would be that he did also win the popular vote as well as the electoral vote. That is certainly a fair argument in a very superficial manner, it does not stifle the accusations of partisanship. If you truly believe the Electoral College is flawed shouldn’t your support for abolishment be unwavering? Rather than a concern that is only pertinent when it serves a political candidate you dislike.

 

It is quite conspicuous that the substrate for the arguments against the Electoral College is contaminated with petty partisanship and debates that quickly fizzle out once the election results cycle becomes lukewarm in the news cycle. Despite these major flaws in motives, there are some truly compelling arguments against preserving this institutional process. The only possible way to provide a proper analysis of this topic is to present both sides of the proverbial coin. The contrast provides the best compilation of information to draw strong conclusions.

 

The first grouping of arguments criticizing the Electoral College address imbalance that it creates in regards to voter representation.  It eliminates the “one person, one vote” metric through allocating more to smaller states. Not only does this artificial manipulation appear to be less transparent than a majority vote, but it also can cause the candidate with the popular vote to still lose. [13] Not only does it seem counterintuitive to the quiddity of democracy, but also has the moral shortcoming not having the true winner being elected. Which compromises the trust of the public. The electorate striding to even the tide by providing more representation to more rural states have created another problem. The potential for there to be an institutional advantage for a preferred political party of rural states [13]. There is certainly some compelling evidence to say at least at the anecdotal level there may be some truth to this notion. It is well noted that there is a strong conservative streak in among the body of electoral representatives [14]. This proclivity the Conservative leanings of the rural states, which are the ones that receive the most amount of electoral acknowledgment has been noted for decades [15] [16].

 

The second subcategory of arguments can be perceived as the Electoral College’s potential impact on voter participation. The Electoral College disincentivizing voter turn out extends beyond the common assertion a perceived futility of action.  A more oblique speculated cause being that political candidates focus more attention on competitive states, such as swing states. The lack of campaigning attention leaves constituents in less pivotal voting districts and states less incline to vote. Interlocked with this point is that issues pertinent to voters are covered more extensively in “competitive” states. Again surmised to adversely impact voter turn out. Due to the stiff competition faced in “battleground” / “swing” states the creates the incentive for the use of electoral fraud to even the odds versus going by the merits of the popular vote [13]. Such potential for institutional corruption weakens voter confidence and circles back to the notion of perceived futility decreasing voter turn out.

 

The third variety of arguments against the Electoral College echoes the sentiments of the mainstream media.  That is the notion that the Electoral College fails to filter out unqualified or incompetent candidates. Now, some may be inclined to argue this systemic failure is far from a new phenomenon. In light of Trump’s ascent into the apogee of political power, a hyperbolic sense of unhinged panic has swept our country.  Magnifying previously glossed over political shortcomings, the difference being Trump is more brazen. Almost to the extent of flaunting it. Some argue that when the drafters implemented the Electoral College it was designed to stifle such a populist movement of that of  Donald Trump, which it failed to do [17]. In subtracting the variable of blatant partisanship and outrage over his cavalier abandonment of political correctness is a fair assessment.  He has no previous political experience,  no understanding of the interworkings of political institutions, no real grasp of economics, foreign affairs, etc and he still obtained the electoral vote.

 

FLAWS IN THE ARGUMENTS FOR ELECTORAL COLLEGE:

When examining the validity of an argument as it is imperative to present the counter-arguments, but to also expose any blind spots. Even arguments that appear to be airtight have logical and factual shortcomings. In order to comprehensively present the Pros and Cons of an issue, we must look at the failings of both sets of arguments. Out of the necessity of intellectual honesty, I will explore the pitfalls of the arguments of the Electoral College.

 

One of the premiere arguments in favor of the Electoral College is that it serves as a bulwark from the constituents putting the wrong individual in power.  Essentially a preventative measure against a populous movement putting an unqualified candidate in power. When put into the context of when the Constitution was drafted, this argument makes a lot of sense. Literacy was not prevalent and it was quite common for special interests to use bribery to influence voter behavior. Even our first President and Founding Father George Washington resorted to enticing voters with free alcohol [19].

It certainly seems in the context of a world where education is scant, marauding tactics run rampant.  However,  while theoretically the electorate may be designed to protect against such the passion of the people,  the byproduct, in reality, is far from desirable. In our bipartisan political system, the members of the electorate body tend to have an alliance to one of the two parties. Which expectedly influences their voting patterns. Many Republicans disapproved of President Trump, however, even those incredulous in the electorate still voted for him. It should be noted the number of  “faithless votes” or the electorate breaking rank with the constituency of their district is rare. In the 2016 election, the electorate reflected rather than deflected the sentiments of the populous Conservative movement. The electorate did not impede this shift in the political climate as originally intended but rather allowed a conventionally unqualified candidate to become president [18].

 

Another core argument supporting the Electoral College is that prevents rural states from losing influence in national elections. Which would appear to be a substantive rationale until you are confronted with the facts of the 2016 Election. The Republican and Democratic candidates spent 87 percent of the campaign in one of the 12 “battleground” states.  By the end of the election, there were approximately 27 states that were never visited by a mainstream presidential candidate. The majority of those neglected states were rural states [18] Not only does this demonstrate that the Electoral College does not necessarily give balance or deference to rural states in regards to campaign attention. This also has profound ramifications for voter turn out and participation. It has been shown that voter turn is higher in the swing states that receive more campaign coverage [20]. While we cannot infer causation from such correlations it is still a notable pattern to pay attention to.

 

The third erroneous argument reinforcing the Electoral College is that it strengthens the perceived legitimacy of the winning party. The media coverage of close elections creates the illusion that the victor won by a significant margin. For instance, Ronald Regan won the popular vote by about 51 percent and the electoral vote by over 90 percent.  Bill Clinton won the electoral vote twice with having less than popular vote. No doubt he lost some votes the relative success of Ross Perot as a somewhat significant third-party candidate. This artificial perception of significant victory influences public opinion and enables the president to more easily act about their political aspirations. [18]

 

LOOPHOLES IN THE ARGUMENTS AGAINST MAINTAINING THE ELECTORAL COLLEGE:

While the arguments in favor of the maintain the  Electoral College have blind spots, there are plenty of follies in the opposing arguments as well. In the spirit of equity, I must expound erroneous assumptions of those proposing abolishing the Electoral College.

The first  Achille’s Heel in the arguments against the Electoral College regarding it not satisfying the “one person, one vote” metric is a two-pronged attack.  For one, the United States does not function as a direct democracy, but rather a Presidential Republic. In such a system the government has institutions that strive to create a balance between state and individual representation. Understanding that aspect of the nature of the U.S. government nullifies this argument unless substantial Constitutional and institution restructuring occurs [13].

 

The second prong in this counterargument is that the assumption the imbalance of smaller state representation is disproportionate. It is often said that the Electoral College favors representation to less populated states that lean towards the Republican Party.  However, many academic argue the opposite due to the fact that more populated states are more pivotal in the outcomes of elections [13].

 

The flaw in the argument for relinquishing the governmental body of the Electoral College pertains to the objection to the candidate not having the majority popular gaining their seat in office. Which first of all is an anomaly that very rarely happens in the United States [13]. It has only transpired a grand total of five times throughout the course of the history of the Electoral College. Starting with the Election of 1824 with the electoral victory of John Quincy Adams and most recently 2016 victory of Donald Trump [21]. Just from an objective standpoint five times in the course of 242 years is far from statistically significant nor cause for reasonable concern. Which leads me to believe that the few Americans who are concerned are more so out of partisanship than a genuine concern of equity.

 

Addressing the shortcomings of the argument that the Electoral College adversely impacts voter participation. Argument resting firmly on the notion that due to Electoral College only states with sufficient pull in the electorate receive sufficient campaign coverage. However, it is also fair to say that if we eliminated the Electoral College there is no way to prove that this same problem would not still transpire. Regardless of whether this institution exists or not candidates are going to continue to focus on the regions that will be most advantageous to their victory[13].  Getting rid of this safeguard is merely going to deference to the coastal states, in the end, would just shift the location of the extensive campaigning and media coverage. While a different side of the argument, it can also be said that we have no concrete evidence that abolishing the Electoral College would disincentivize voter fraud [13].  While it seems natural to want to liberate the voting processing from red tape and bureaucracy, it cannot be argued in certain terms if untested.

 

The final blemish in the argument against the Electoral College is regarding it impeding clear and decisive election results. It does appear as if this argument isn’t full proof nor does it completely hold water. The fear being that Electoral College will further support the bicameral party system by shutting out third party candidates for the sake of decisive elections. In the 2000 Election Ralph Nader received a meager 3 percent of the popular vote. While Ross Perot received only 19.4 percent of the popular vote in the 1992 election cycle. Neither election had to go through a congressional assessment to determine a winner.  But it also should be noted that such minuscule popular vote numbers would in no way significantly impact the voting partners of the electorate [13]. Even if we were had transitioned to direct elections Perot and Nader still would have not had even a glimmer of hope of winning.

 

DISCUSSION:

While the skepticism and the passionate outcry to eliminate or reform the Electoral College is easy to sympathize it is generally underscores the actual mechanics of the institution. In all honesty, most of these fervent surges in the interest to reform this institution seems to be shortlived and conflated with political opportunism.  Seldom does a winning party or candidate call for reform of the electorate. Outside of the obvious being that it would run counter to their best interest, it easy to be complacent of its shortcomings. The mantra of  “If it isn’t broke, don’t fix” seems to be a suitable colloquialism to exemplify how those who benefit approach this topic. The sincerity of the majority of the critics of the Electoral College is certainly something I am suspicious of. From my anecdotal observations, it would appear that it only becomes a hot topic when the Democrats lose a Presidental Election. However, I never once heard a Democratic president in office call for reform of this governmental body.  I would dare to question that if an institution is inequitable,  wouldn’t it be so regardless of the outcome? Hence, why the vast majority of outrage in the 2016 election is more of an indictment of the candidate than the process. The same sentiments can also, in theory, be echoed for the  2000 Presidental Election as well.

 

It is no surprise with the lack of serious and sincere discussion regarding the Electoral College, that we have little in the way of alternate procedures for electing the President. If the methodology is flawed then how would the opponents suggest we proceed?  It is easy to express grievances, however, it takes on a whole other level of commitment to postulate a solution. The founding fathers devised the Electoral College without the intention of it being dominated by two parties. George Washington even warned about the perils of political parties creating discord [22]. Due to changes within the American political climate, there are unforeseen consequences now impacting the electorate. It serves as safeguard beyond the original function, now serving as an apparatus for balancing the voting influence of more populated states. If we eliminate this institution how can we ensure that one party does not dominate? Then again should we be controlling for equality of outcome? But we do run the risk of creating an extended democratic presidency by allowing the Left-leaning more populated areas unchecked voting influence. Which would negate the prospect of term limits due to each subsequent president pushing the same policy, just a different name.

 

The lack of a concise plan from opponents of the Electoral College only compounds matters. Eliminating this governmental body only creates more answered questions. It can be said that while it is a flawed system at least we understand the risks of it, due to it being tried and tested [13]. I never purport that maintaining the status quo is always the best policy. However, considering the rare circumstances under which the candidate with the popular vote does not receive the electoral, it is not a serious concern. At least statistically. If this had shown a stronger pattern of transpiring, I would advocate potentially abolishing the electorate.  I suppose to some extent I see a greater danger in relinquishment creating a political ruling class. In other words, our already scant array of choices of political affiliation being eliminated to one. Again circuitously connecting back to my point of making term limits a pointless concept. I am unsure if it worth to dwell in uncharted waters if this is a potential byproduct of eliminating the Electoral College.

 

When really examining the issue of eliminating the Electoral College it really runs parallel to the discussion about Direct Democracy. In a sense eliminating this institution would make this portion of the political process an example of direct democracy. Most will admit that here in the United States it has worked very well when it comes to voting on referendums at the state level.  However, the question becomes would this be a functional policy or a mangled mess on the national level. It is well documented that Switzerland had adopted the practice of direct democracy nationwide with relative success. Researcher  Simon Geissbuhler’s paper: Does direct democracy really work? A review of the empirical evidence from Switzerland demonstrates how this system has worked.  Geissbuhler’s research concluded that in direct democracy the voter, not the institution ended up being the balancing force. Essentially when the legislator moves too far to the right or left on a policy the voter behavior becomes more centrist [23].

 

Geissbuhler’s findings do seem to run counter to the speculated fears of direct democracy devolving into mob rule. A few variables to keep in mind is for one that Switzerland is a lot more homogeneous of a culture than the United States. When the majority of your few citizens share the same ideas and perspectives it is a lot easier to avoid discord. However, direct democracy could be detrimental to many of the rights that are Constitutionally protected. If we were to eliminate much of the checks and balances in the American Legislative process and left it up to the voting public, we could easily end up nullifying important amendments.  What is important to remember is that the First Amendment was not drafted to protect popular speech, but rather unpopular speech. So by opening up the process of Constitutional Amendment to the masses in a sense, we are surrendering individual liberty for the convictions of the crowd. I could easily see how in a knee-jerk reaction to the Overland Park shooting the general public potentially abolishing the Second Amendment. Keep in mind that back in 2009 the Swiss citizens voted for legislation for a nationwide ban on Minarets on Mosques [24]. Such prohibitions here in the United States would be a direct attack on religious liberty. Would certainly be contrary to our founding principles.

 

 

 

FOOTNOTES:

[1] https://peterclark7979.wixsite.com/website/home/political-opinions-59-electoral-college

[2] https://vimeo.com/307932748

[3] http://www.openculture.com/2016/11/why-socrates-hated-democracies-an-animated-case-for-why-self-government-requires-wisdom-education.html

[4] https://www.britannica.com/event/United-States-presidential-election-of-2000

[5] https://www.independent.co.uk/news/world/americas/us-elections/presidential-election-2016-results-timeline-controversies-quotes-seats-maps-polls-quotes-a7398606.html

[6] https://news.gallup.com/poll/198917/americans-support-electoral-college-rises-sharply.aspx

[7]. https://history.house.gov/Institution/Electoral-College/Electoral-College/

[8] https://www.historycentral.com/elections/Electoralcollgewhy.html

[9] http://avalon.law.yale.edu/18th_century/fed68.asp

[10] https://www.forbes.com/sites/jamesmarshallcrotty/2013/09/26/why-general-knowledge-matters-and-why-we-should-test-for-it/#60d1fdf14be3

[11]http://www.slate.com/articles/news_and_politics/view_from_chicago/2012/11/defending_the_electoral_college.html

[12] https://www.nytimes.com/elections/2012/results/president.html

[13] Thinking About the Political Impacts of the Electoral College, Benard Grofman & Scott L. Feld, 2005, Published by Springer.

[14] https://www.uakron.edu/bliss/docs/state-of-the-parties-documents/Stonecash.pdf

[15] https://www.theamericanconservative.com/articles/the-urban-rural-divide-more-pronounced-than-ever/

[16] http://nymag.com/intelligencer/2017/04/the-urban-rural-divide-matters-more-than-red-vs-blue-state.html

[17] http://www.harvardpolitics.com/united-states/the-case-against-the-electoral-college/

[18] http://time.com/4571626/electoral-college-wrong-arguments/

[19] https://about.bgov.com/blog/that-time-george-washington-bought-an-election-with-160-gallons-of-booze-and-other-presidents-day-stories/

[20]https://www.researchgate.net/publication/255970024_Battleground_states_and_voter_participation_in_US_presidential_elections_An_empirical_test

[21] https://www.factcheck.org/2008/03/presidents-winning-without-popular-vote/

[22] https://www.constitutionfacts.com/founders-library/first-party-system/

[23] Does Direct Democracy Really Work? A Review of the Empirical Evidence from Switzerland. Geissbuhler, Simon (2014).

[24]. https://www.nytimes.com/2009/11/30/world/europe/30swiss.html

 

 

 

 

 

POLITICAL OPINIONS#58: KEYNESIAN ECONOMICS AND THE AUSTRIAN SCHOOL

INTRODUCTION:

When it comes to the economic schools of philosophy and application there are two that come to mind. The two schools being Keynesian and Austrian school.  The significantly more prevalent of the two, the  Keynesian school is regarded as being the universally accepted form of economics.  It is championed and utilized by both mainstream Conservative and Liberal economists. Considering the relative obscurity of the Austrian school of economics is seldom discussed as a viable alternative economic philosophy.  In the vast majority of undergraduate economics courses it may only mentioned in brief passing. Potentially noted with a hint of parenthetical derision and ridicule.  With no serious consideration of the Austrian school it is viewed as more of a theoretical footnote. It can be argued that the Austrian school has been periodically maligned unfairly considering the Resistance to actively apply it.

 

However, while the Austrian school as been marred as a punchline to many economists it has been undergoing a reemergence. In the ravages of the 2007 and 2008 economic crisis which was punctuated by the integral contribution of the “housing-bubble”, more Americans grew incredulous of  our economic policies. The mounting evidence of the failure of the status quo economic policies, methods, and philosophies brought forth the opportunity for alternatives. The Austrian school would begin to as it continues to reach a broader audience.  No longer being confined to the circle and associations of libertarians and fringe economists. The major impetus for the increase in  mainstream exposure being the Presidential campaign of then Texas senator Dr. Ron Paul. His 2008 campaign coincided with the economic turmoil of the recession and provided ample opportunity to present suggestions to remedy the carnage. Dr. Paul having longstanding ties to organizations such as the Mises Institute which have been enduring proponents of Austrian economics. The organization taking it’s name from Austrian economist Ludwig  Von Mises. Paul utilized his platform the become one of the most vociferous allies of Austrian economics in mainstream politics.  It spoke of the kind of fiscal conservatism that appealed to those rattled by the volatility of the contemporary economic market.

 

The whole point of this blog entry is not to be a slanted and partisan indictment of Keynesian economic theory. This entry will be more of a side by side comparison and introduction to the two theories. The two paragraph preamble above is merely there to demonstrate how Austrian economics has been ostracized by the majority of economists. Which is more so why it is important for me to include in equal consideration of that of Keynesian theory. If we do not contemplate the potentials of both theories we are falling short of intellectual honest and otherwise just passively capitulate to conventional wisdom. To do otherwise would merely making us victim of the appeal to authority fallacy which is far from  a prudent means of arriving at the best answers. While I will not provide any direct commentary on the follies and positive attributes of either theory, I will do so in subsequent blog entries in the future.

 

BACKGROUND OF KEYNESIAN  ECONOMICS:

The roots of  Keynesian economics  stem back to the economic conceptualizations of English economist John Maynard Keynes. Keynes book General Theory of Employment, Interest and Money, published in 1936, solidified the principles of the pillars of his theory [1]. It remained unchallenged until the 1970’s when the economic principles of Monetarism became more prevalent. Right around the 1971 expiration of the Bretton Woods Agreement, that move the United States away from the gold standard [2]. Many of the sound money advocates grew silent as the 1980’s rolled on. The Keynesian system remained in favor and once again came under scrutiny  in the 2007-2008 recession. Theorists refined current methodology to adapt to the current economic climate and has been viewed as relative successful [1].

Keynesian Economics will have its   legacy encapsulated as the prevailing form of economics for the 20th century. Considering the reforms made to it back during the global fiscal crisis of 2007-2008, it has demonstrated its fungible malleability of it has a theory. While being open to adaptation and pragmatic evolution , the fundamental difference between the two schools needs to be established. That is the role of government in economic affairs. Economists of this economic paradigm tend to belief that government intervention can have positive results on employment rates and demand/ production of goods and services. Generally through manipulating “tax policies” and “government expenditures” [1].

 

CORE ASSUMPTIONS OF KEYNESIAN THEORY:

 

The Keynesian school of economics did arise from the Keynes attempts to analyze the causes of the Great Depression. The theory assumes that lowering taxes and increasing government spending mimics market demand and can counteract an economic depression. Through utilizing government intervention it can optimize economic performance and circumvent slumps. [3]Through artificially impacting aggregate demand or  “measurement of the sum of all final goods and services produced in an economy, expressed as the total amount of money exchanged for those goods and services”  [5].

The Keynesian theory of economics postulates that aggregate demand is impacted by decisions made in public and private sector. Which essentially can be distilled to the fact that decisions made in regards to momentary and fiscal policy impact aggregate demand. Keynesian theorists use to  purport that monetary policy had no impact and modern theorists have relinquished this view. Policies regarding spending, taxation, and currency all have an integral impact on this metric.[4].

 

A second talking point of Keynesian theory is that changes in aggregate demand have a short-term effect on output and employment, but not on prices. Subscribers of this theory believe that long term consequences cannot dictate short term and we live in the short term. This notion exemplified by  inflation only slightly rising when unemployment decreases. Pronounced repercussions of  monetary policy are only significant if prices are rigid and wages do not appropriately adjust. The injection of  more currency to the more supply would have a similar influence on prices. If  government spending increases and all other forms remain the same , commercial output will increase. They apply the concept of multiplier effect to explain how subsidy from the government increases output. [4].

 

 

A third core doctrine of this economic philosophy is that wages and prices are slow to respond to supply and demand resulting in surpluses and shortages. [4].

 

The fourth central component of  Keynesian economics do not find a typical arrange of unemployment to be acceptable due to it being contingent on aggregate demand and the slow rate of price adjustment. Keynesians have a proclivity to view unemployment to high and variable across the board. They view that in economically tumultuous periods “…efficient markets respond to unattractive opportunities..”. In other words, even if it is a recession, you should not stave off hiring more employees. [4].

 

The fifth notable attribute of Keynesian economics is that proponents support activist stabilization policies. Such as example would include a moderate increase to the money supply to combat a higher unemployment rate as a means of artificially re-calibrating  balance. [4].

 

The six and final characteristic of Keynesian though would be seeing more peril in unemployment than inflation. Many of this school of thought perceive the costs of inflation as being a small consequence. Which clearly demonstrates the train of logic used in their economic stabilization  theories. This acceptance and justification of aggressive government action rests on two assumptions, (1) the ebbs and flows of macroeconomics are overall detrimental and (2) the government has the capacity to remedy any issues in the free-market. [4].

 

BACKGROUND OF THE AUSTRIAN SCHOOL:

 

In a figurative sense, if  Keynesian economics had an arch nemesis it would be Austrian economics. While Keynesian school of though regard governmental adjustments  and institutional oversight, the Austrian school is its staunch reciprocal. In stead of artificial safeguards and invitations, Austrians economist would rather allow the market to operate in a natural fashion. Allowing the complex system of the economy adjust through the actions of actors in the private sector versus the parental stewardship of the public sector.

 

The genesis of Austrian economic theory can be traced back to the late-1800’s in the country of Austria. The key architect of  being  founder Carl Menger and his myriad of various followers Eugen von Böhm-Bawerk  and Friedrich von Wieser. Influence of such economic theories were continued in the twentieth century by some of the most renowned  theorists, including the likes of  Ludwig von Mises  and Friedrich August von Hayek, “who was awarded the Nobel prize in economics in 1974…” [6]

 

Menger engendered the enduring legacy of Austrian economics through the publication of his book  Principles of Economics 1871. The book fixated on historical studies of  entrepreneurship, time structure of capital goods, banking and money, business cycles,  dynamic markets, critiques of government intervention  and knowledge as decentralized [7]. Menger  postulated that the value of a commodity was  subjectively derived, however, the marginal of a commodity is its true value. The more scant a commodity is the it will be utilized in a more important manner. Single-highhandedly rectified Adam Smith’s “Diamond-water paradox” of how Diamond which are nonessential to life put cost more than water. Menger’s direct students would then advance upon these principles of marginal utility. [8].

 

His student Friedrich Von Wieser applied  marginal utility  to not value of a commodity but to the premise of consumption. The value of productive resources would be attributed to their contribution the final product. Wieser also applied the concept of opportunity costs to the costs of  production [8]. Opportunity costs being the opportunities lost in exchange for choosing one expenditure over another.[9]. Eugen Von Bohm-Bawerk  derived his theory of price from marginal utility.  However, Bohm-Bawerk’s  true contribution to economics was his research on capital and interest. Specifically concentrated how time factored into value, interest being a form of compensation to  a lender for the use of capital with no direct payoff. The percentage rate of the interest being determined by the size of labor pool, amount of capital in the local market, and ability to increase productivity. [8].

 

The contemporary legacy of Austrian economics was land-marked by the theories of  two Austrian economists that ended up stateside. The two prominent economists being the revered F.A. Hayek and Ludwig Von Mises.  In a broad sense both theorists asserted that complex economies cannot be planned due to ” true market prices being absent…” making it impossible to procure information for planning [8]. The seeds of the backbone this fiscally conservative tradition came about in 1945 when Hayek arrived to the United Stated for a lecture tour. Hayek embarked upon the tour in support of his renowned classic  The Road to Serfdom.  His book garnered much attention and landed him on the cover of Reader’s Digest. While impressive, Hayek’s connections to business man and free trade organizations is would made his career enduring.The organizations he formed and even his salary as a lecturer over at the University of Chicago can be cemented by these professional ties. [10].

 

KEY ASSUMPTIONS OF AUSTRIAN ECONOMICS:

“There, he offers 10 propositions that define Austrian economics.

  1. Only individuals choose.
  2. The study of the market order is fundamentally about exchange behavior and the institutions within which exchanges take place.
  3. The “facts” of the social sciences are what people believe and think.
  4. Utility and costs are subjective.
  5. The price system economizes on the information that people need to process in making their decisions.
  6. Private property in the means of production is a necessary condition for rational economic calculation.
  7. The competitive market is a process of entrepreneurial discovery.
  8. Money is nonneutral.
  9. The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned.
  10. Social institutions often are the result of human action, but not of human design.”

[11].

 

DISCUSSION:

As is evident in the side by side juxtaposition of these two competing economic philosophies are their sharp distinctions.  It would be fair to say it is to the extent that they are nearly polar opposites. One body of theories places faith in governing institutions and the other does in the markets. Austrian economics views markets as a true complex systems analogous to an environmental ecosystem. Imposing artificial restraints merely causes destructive chaos. Impositions of regulation and misguided manipulation merely results in disruption. Similar to how eliminating a food source from an ecosystem  devolves into biological instability, relinquishment of equilibrium. Which is why Austrian economists generally favor less institutional intervention in economic matters. Setting aside any ideological biases I possess I can honestly state that it is line of logic that could be seen as rational.

 

However, the reasoning behind the core principles of Keynesian economics is not lost on me. While being a staunch reciprocal of the Austrian school it almost seems equally as cogent in a superficial sense. It easy to see the validity of the two body of theories when ideological predispositions and data are out of the equation. The  Austrian school of economics  may seem reasonable  if you have you are fiscally conservative or have studied biology. However, I should interject that it is counter intuitive to some extent.  The ardent emphasis on formal structure in society is so instilled in us ,even most libertarians have difficult side-stepping these tendencies. Maybe not in terms of policy, but in terms of personal judgement. From the time that we are children are constantly bombarded with  rules that shape our behavior and help us conform ideas and forms of conduct. Even examples as trivial as the rules of a board game such as Candy Land align for this cognitive bias for formal structure. I am not judging it so much as this is merely an observation.

 

The trepidation and fear of allowing economic transactions to exist without an abundance of regulation has its origins in our conditioning towards formal structure. While it denying the stability of naturally occurring equilibrium, it is not an outlandish notion. Humans are wired for self-preservation, part of the evolutionary mechanisms behind this is to address the most base and repugnant motives of human nature.  Many individuals see it as whenever there is an opportunity to capitalize, someone is getting victimized. The question becomes are the regulations truly an objective force of  moral good if they are the invention of man?  State sanctioned laws are merely  constructs, the conceptual by product of human though. The have the potential to reflect aspects of moral truth, however, they also can be slanted to favor certain individuals.  The agenda behind the lawmakers thought process are just as suspect as the motives of  your neighbor selling  his 1969 Mustang car. The key difference being your neighbor has quite a bit to lose in reputation when compared by the senator who chooses to vote for oppressive regulations. The senator can hide in obscurity, while your neighbor will likely not do so well in future transactions, having violated the variable of trust. Trust a key component of reducing transactions costs.

 

While economic regulations in theory could be well-intentioned, they are certainly open to scrutiny.  Few metrics can really examine with regulations are effective especially when dealing with a dynamic complex system such as economy. Where you are dealing with a Wealth of Nations style  free-market  or a heavily regulated market, the foreboding peril of human nature is always present.  If the inherent risk is always omnipresent, would you rather live by your own will or the will of others?  This open rhetorical question is not an attribution of judgement , but  rather food for thought.

 

 

FOOTNOTES:

[1]. https://www.britannica.com/topic/Keynesian-economics

[2]. https://www.federalreservehistory.org/essays/bretton_woods_created

[3]. https://www.investopedia.com/terms/k/keynesianeconomics.asp

[4]. https://www.econlib.org/library/Enc/KeynesianEconomics.html

[5]. https://www.investopedia.com/terms/a/aggregatedemand.asp

[6]. http://austrian-institute.org/en/the-austrian-school-of-economics/

[7]. https://www.progress.org/articles/austrian-economics-explained

[8]. https://www.britannica.com/topic/Austrian-school-of-economics

[9] https://www.britannica.com/topic/opportunity-cost

[10] https://historynewsnetwork.org/article/159020

[11]. http://www.coordinationproblem.org/2010/11/what-austrian-economics-is-and-what-austrian-economics-is-not.html

 

POLITICAL OPINIONS# 57: JONES ACT

INTRODUCTION

In recent years, the prevalence of protectionist economic policies has increased with the Trump administration. President Trump campaigned during 2016 presidential election under the slogan of “America First”. Such a broad statement leaves a load desire in a summary of a campaign platform.  However, it is certainly a slogan that is concise and appealing, like most political slogans.  “ America First” is not only a simple saying but reflects a paradigm shift in regards to foreign policy and economics. If interpreted from a superficial standpoint, it could be viewed as a sentiment of supporting American exceptionalism. The cynics in the room would be more apt to be rightfully dubious of such assertions in the absence of concrete evidence. Is it really a substantiation of American exceptionalism to forlorn capitalism for protectionist trade policy? Capitalistic trade between the United States and foreign trade allies is a big part of what has made the United States an economic superpower in the past. Considering the interconnected and global nature of the current economy, it seems unrealistic that isolationist trade policies could be anything but detrimental. In light of the decades of rises in labor costs and production regulations, it was inevitable for globalism to come about. Outsourcing labor has helped facilitate competitive pricing in the market.

 

I understand that many may be disgusted that I am speaking of outsourcing in such a positive light, but there are often two sides to every coin.  As a nation’s economy becomes more technologically advanced certain occupations become obsolete. Many of the manufacturing jobs are outmoded when compared to the skill set of the majority of the United States, keeping these jobs domestic is only increasing the MSRP  of the goods. Many who voted for Trump, rather than adapting to the demands of the market, want to utilize government intervention as recourse to artificially reorient the market. The Trump has attempted to make such corrections through import tariffs. Using such methods will only hurt more consumers when compared to the minuscule number of jobs it will save. I would surmise that the overall cost of living is high enough without artificial measures raising the costs. Merely to appease a minority the American population.

 

Needless to say, I am far from a proponent of protectionist economic trade policies and can see nothing other than peril and illusion in them. They always seem great on the surface; however, they tend to only exacerbate current economic issues. Now that I have demonstrated for purposes of transparency my biases in regard to trade policy, I feel that I can proceed. It is clear that I am a free trade absolutist, however, I will try to provide both sides of the argument for the Jones Act in as impartial of a manner as I have the capacity for. In order to become a better thinker, I will attempt to provide an even account of the positive and negative attributes of the Jones Act. However, I do not see how place economic constraints on the United States is putting “America First”. My instinct is to view such rhetoric as smoke and mirrors, however, it is important I do not let my incredulity override this blog entry.

 

WHAT IS THE JONES ACT?:

 

Many of you who are not privy to contemporary American trade policy may have never heard of the Jones Act.  This piece of legislation has remained relatively obscure and would be a periodical talking point on the Senate floor garnering little publicity. However, since the Hurricane Maria hit the U.S. territory of Puerto Rico and President Trump acted against his protectionist campaign platform and temporarily waived it to assist with disaster relief, the issue has become more prevalent over the past year [1]. While not a typical mainstay on the stage of political commentary the policy is far from new. It harkens back to the isolationism of President Woodrow Wilson. The Jones Act was a subclause of the  Merchant Marine Act of 1920 under the article: (46 U.S.C. § 30104).  The original intent of this article of the  Merchant Marine Act of 1920 was to protect shipping industry of the United States against foreign competition and to provide a provisional naval auxiliary in times of war [2]. The original intentions of this legislation were certainly reflective of the political climate and sentiments of the  Woodrow administration.  It provides a similar purview into the political climate of the time in a similar manner as the Trump admiration’s trade tariffs. Sometimes the policies of a specific era are reflective of the circumstances specific to that time in history. Throughout America’s history, we have gone through several periods of economic and diplomatic isolationism for a litany of various reasons.  In the future, historians maybe expounding the Trump era import tariffs as a reactionary policy to country job outsourcing and lack of domestic production. Analogous to how I am reflecting upon the Jones Act now.

 

While we have above we have an overview of the Jones Acts, but we have not addressed the parameters of the legislation. As implemented how does this act seek to protect the American shipping industry? How this statute works to protect American Shipbuilders and carriers through making it illegal for foreign ships to move American goods from U.S. port to U.S. port. The vessel needs to be American built, be American owned, have American Crew manning the vessel and be masked with an American flag [3]. However, contrary to popular misconception, a foreign vessel can make landfall on one port and then discharge at another if it is all foreign freight. I use to work for a Steamship Line where we had a vessel schedule where the U.S. bound ships would discharge cargo at Port of Long Beach and then move up the coast to the Port of Oakland.  Such vessel rotations are legal by the fact this routing was for the discharge of imported freight.  However, if Matson ( one of the few Steam Ship Lines to service Hawaii, I believe) would be prohibited to move freight from Hawaii to Alaska with a Korean built ship. Please note that the U.S. built a ship and American crew is also applicable to commercial fishing in U.S. waters [3]. While the Jones Act is currently a valid statute, it can be temporarily suspended to assist with FEMA aid in times of emergency [4].

 

 

ARGUMENTS FOR THE JONES ACT:

 

The 2017 Forbes Article, Why Repealing The Jones Act Could Be A Disaster For The U.S., provides 4 core arguments in favor of the Jones Act.

1.       Without the Jones Act, The Navy would need to spend many billions of on New Sealift vessel.

The Author Loren Thompson asserts that the navy would need to invest in more vessels during the time of war. Versus appropriating commercial vessels for the transportation of military cargo. 36 percent of U.S. masked ships are utilized on the Jones Act protected routes. If repealed these ships could be registered in other countries pushing the Navy to obtain new ships.

2.       Without the Jones Act, The Navy would be Hard-pressed to crew the sealift vessels it already has.

While vessels can be commissioned, retired, and re-commissioned, the same cannot be said for the crew. Approximately 90 percent of all mariners work on trade routes supported by the Jones Act. Without the Jones Act, the Navy would not have a trained pool of civilian sailors to assist in times of national emergency.

3.       Without the Jones Act, U.S. Construction of Large Commercial Vessels would Cease.

Per the article, “1981, the Reagan Administration abolished the “construction-differential subsidy” provided to domestic shipyards without seeking reciprocity from other shipbuilding nations.”.  Reducing overall U.S. ship production to 1 percent of all the world’s large capacity commercial ships. Repealing the Jones Act would completely destroy the shipyards in the U.S.

4.       Without the Jones Act, foreign ships and mariners would take over critical U.S. economic infrastructure.

The vast majority of steel is transported via the Great Lakes in the interior of the United States. To relinquish the interior waterways to foreign sailors and ships would posse risks to national security.

 

[5]

 

ARGUMENTS AGAINST THE JONES ACT

 

While many of the concerns expressed in the article mentioned above are valid, there are always two sides two every story. It is reasonable to want to hold national security and domestic job security in high regard. However, do any of these benefits come with any drawbacks and if so are they more costly than the benefits. I will be the first to mention it is hard to get an unbiased answer to these questions from most written sources. The author is either discrediting the Jones Act or sing its praises, neither perspective genuinely neutral. The article I am going to reference the arguments against the Jones Act was written by the Cato Institute. It is a very well researched and extensive article. The one caveat is that it is overwhelmingly in opposition to the Jones Act and is such an extensive article I am only referencing a portion of it. I welcome my readers to view the article in its entirety, just check out the website link in the footnotes.  Just beware the Cato Institute is a libertarian-leaning public policy research organization.  There is a certain pejorative (at least in my eyes) term that can be applied here as well (Think tank,  public policy research organization= think tank). I apologize if my dry attempts at humor are not too captivating.  For the sake of brevity, let’s look at the 4 ways that the article addresses how the Jones Act has been an economic burden to the United States.

 

Prior to getting into the specific ways the Jones Act adversely affects the U.S. economy, we should look at past research done the legislation’s ramifications.  There were a few studies conducted over the 1990’s by U.S. International Trade Commision that estimated that “… $656 million to $9.8 billion…” [6].   U.S. International Trade Commission has not provided any follow-up estimates regarding overall costs of the Jones Act. However,  this only seems to ignore true economic consequences for the United States. The costs impact lost revenue,  Environmental costs, Transportation costs, and Infrastructure cost.

 

  1.  Lost of Domestic Revenue

The decrease in domestic revenue engendered by the Jones Act is evident in several various ways. The emphasis on the utilization of domestic carriers increases costs while diminishing profit margins. Even when the cost of the commodity is approximate to its foreign counterpart it is the costs of the domestic carrier or vessel that makes foreign carriers more advantageous. For example, cattle ranchers in Hawaii route their ocean shipment through Canada and even utilizing air freight solutions. These options may work in the short term they overall reduce potential profits. In general, the costs of using Domestic carriers reduce profits at home.

It also should be considered the amount of oil that the U.S. territory of Puerto Rico, imports from Venezuela versus from domestic oil reserves. It costs a mere $2 per a barrel to ship oil from Gulf Coast to Eastern Canada. In contrast, a Jones Act compliant vessel it would cost approximately $6 per a barrel to ship from the Gulf Coast to Northeastern U.S.  A 1999 study conducted by the Government  Accountability Office found that the Jones Act exempt oil shipping route from Northern Alaska to U.S. Virgin Islands  cost three times less than from the Gulf Coast. Even though this route which encompasses taking a circuitous route which takes twice as long. [6].

 

2. Environmental Costs

The environmental costs of the Jones Act are more oblique and peripheral consideration, but a still valid cause of concern. Many goods that could be transported by ship through interior waterways (for example the Mississippi River) are done so by truck. The World Wide Shipping Council cites that marine transport of goods is the most efficient mode of transport in regards to carbon emissions. Carbon Emission being a major contributing factor to air pollution.  Transportation by ship produces merely:

“….10-40 grams of carbon dioxide to carry one ton of cargo one kilometer. In contrast, rail transport produces 20-150 grams, and trucking — whose tonnage is forecast to grow 44 percent by 2045 according to the Department of Transportation — produces 60-150 grams” [6]

While environmental detriment inflicted by the Jones Act tends to be more of an implicit cost. There are more explicitly monetary costs that result from this increase in air pollution. The cost of carbon emissions from vehicles idling in traffic is estimated reach $7.6 billion dollars by 2030 (from 2013 to 2030). Many of these losses in money and productivity manifest themselves in environmental improvement initiatives and other countermeasures.

[6].

3.  Transportation Costs

It can be said that the Jones Act has artificially increased domestic shipping costs by eliminating competition. The requirements of having a U.S. built a ship, U.S. Manned crew, U.S. Owned, and have the vessel registered in the United States restricts the number of potential vendors. Lifting many of the Jones Act requirements it would increase the number of vendors that could service the interior waterways of the U.S.  By increasing the number of vendors to service  U.S. ports it would decrease shipping costs. Beyond the principles of supply and demand, the costs are also impacted by higher than average operating costs. 2010 study found that the operating cost of U.S. commercial vessels was 2.7 times higher than that of foreign vendors.  The daily operating cost for U.S. Commercial vessel is estimated to be $20,053 per day. It is also surmised that 68 percent of that cost is related to to the crew versus 35 percent of daily operation costs for foreign vessels. [6].

 

4. Infrastructure Costs

Utilizing land-based modes of transportation of goods cause wear and tear on our countries in-land infrastructure. The obvious consequence of this are the costs of maintenance and repair on our roads and railways. Similar the Environmental costs the Infrastructure costs tend to get obscene by some of the more salient repercussions of the Jones Act. Per 2014 Congressional Office Budget Report annual capital spending on highways encompassed $93 billion and $73 billion for operations and maintenance.  The article also mentions how commercial trucks account for 10 percent of total highway traffic, but 75 percent of maintenance costs. It was also suggested that road maintenance amounted to approximately  23 percent of the total federal deficit.  While infrastructure is a necessity, if it is possible to alleviate unnecessary weathering, it would certainly be fiscally responsible and prudent to do so.  [6].

 

DISCUSSION:

 

I apologize for my ire-filled rant spanning two paragraphs in the introduction, it was not based on facts, but rather on my strong convictions on economic policy. I choose to keep those two judgemental and aimless paragraphs in for a reason.  Too often we are susceptible to faulty thinking and faulty logic. In the age of wanton social media consumption, we all have the propensity to be enveloped by our own self-indulgent echo-chamber. However, my diatribe against protectionism does have some truth attached to the visceral reaction. The ” America First” policies are all too often what all political slogans are, a marketing campaign. There is little thought or practical policy data that goes into the formation of these slogans. What is truly vexing about them is that they are often giving the constituency faith in broad abstract ideas that are short-sighted.  These slogans such as ” America First” or ” Change we can believe in” are short and are very salient.  Often the campaign platform for a political candidate represents the vague sentiment but fails to truly demonstrate who these policies will be effective. Nevermind the process of implementation. Personally, I feel that President Trump was merely trying to appease and tap into a forlorn constituency that is looking to survive for today versus contemplating the consequences of tomorrow.

 

When placed in a similar position as the rust belt demographic  Trump voter you do not have the luxury of analyzing the facts nor inoculating yourself against faulty logic.  I personally feel that the “America First” mantra is not inherently pernicious,  but is misguided. While I really attempted to see the value in trade tariffs and Byzantine trade regulations such as the Jones Act, I do not see much value. While such policies are superficially appealing to some they are abjectly shortsighted. When I really look at the significant amount of data in regards to the overall costs to the United States for protectionist policies, such as the Jones Act, it is impossible for me to support such measures. I really attempted to see the other side of the issue, however, I cannot reasonably do so. The opposition to the Jones Act seems to be armed with more hard data in regards to the economic effects. While the proponents tend to base their arguments on the hypothetical. Unless someone can tell me when the provisions of using commercial ships to supplement our naval fleet have been advantageous, I can only see it has a strawman argument. Then again, I could be wrong. That one highly improbable hypothetical consideration is not enough of practical concern to justify the Jones Act. Especially when faced with the significant costs engendered by the Jones Act.

 

In actuality how many American Jobs were precisely preserved by the Jones Act? I tried to find statistics on how many Americans are estimated to work as Merchant Marines. The main occupation that would be preserved by the Jones Act and would speculate that constitutes a small percentage of American Jobs. The jobs that are saved by this legislation is only a minute fraction of jobs, it is a relatively small segment of the job market. I do not see how the gargantuan economic costs are outweighed by the small number of jobs that are saved. I will dedicate an entire blog entry to address whether or not Jones Act achieves its ends as a national security measure.

 

So far we have only examined the broader aspects of the Jones Act that do not directly impact the average person. While conducting my research for this topic I came across a lot of information on how Jones Act has impacted the cost of living in Hawaii. Per the Grassroots the cost of living is 12 percent higher than the average state in the country [7]. In my opinion, is an excellent parable of who protectionism hinders the United States. This policy is making the cost of living in Hawaii artificially more expensive than it needs to be. From my perspective, that isn’t helping the Americans who live in that state it is only hurting them. I would surmise that there are more people who suffer financially living in Hawaii than the number of U.S. Merchant Marines that benefit from the Jones Act.

 

 

[8].

 

 

 

 

FOOT NOTES:

 

[1]. https://newrepublic.com/minutes/145057/waiving-jones-act-wont-solve-puerto-ricos-problems-right-now

[2]. https://www.law.cornell.edu/wex/jones_act

[3]. http://www.maritimelawcenter.com/html/the_jones_act.html

[4]. https://transportationinstitute.org/jones-act/

[5] https://www.forbes.com/sites/lorenthompson/2017/10/17/maritime-security-five-reasons-the-jones-act-is-a-bargain/#7bea525d3d96

[6]. https://www.cato.org/publications/policy-analysis/jones-act-burden-america-can-no-longer-bear

[7]: http://www.grassrootinstitute.org/2017/04/the-jones-act-in-perspective/

[8]: https://www.youtube.com/watch?v=58txZlurgLk