Socialism vs capitalism

[niviene]

the weak lose and the strong win. but is this fair?

 

Define fair.

[Biochemist]

...in my opinion, the best balance between the two (capitalism and socialism) would be socialism where everything is owned by the government so people can't make money just by owning things. they have to work. but no equal pay. almost equal pay based on ability and need.

Technically, this is communism, not socialism.

 

History has demonstrated that state ownership of capital assets results in poor allocation of assets over time. They then underperform (in terms of units of output versus dollars of investment). This means that per capital output is lower than in other economic systems that do not have central ownership.

 

You can see this demonstrated in the performance (in terms of GDP) between the US and just about any other country over the last 40 years. Those countries with greater central ownership have had lower investment returns on capital and lower GDP. Those countries with less central governance have greater returns.

 

This unavoidably results in contrasts in lifestyle. The US standard of living is higher than in Europe, and the distance is increasing. Within the US, the distance between the lowest one percentile and the highest one percentile is also increasing (a cause of some social instability) but the average european is geting lower and lower when compared to the US percentiles of income distribution.

 

In the end, whether you advocate state control through high tax rates (socialism) or state control through ownership of assets (communism) you have to accept a lower growth rate, and hence a lower relative standard of living.

 

Most folks do not directly address that trade off, but it appears unavoidable.

[bumab]

While it's a little off topic perhaps, it's worth noting that the American standard of living is horribly unsustainable and tragic for the environment and others on the planet. We could use a standard reduction.

[Beelzebub]

what I don't understand is how state control leads to a lower standard of living?

[Biochemist]

While it's a little off topic perhaps, it's worth noting that the American standard of living is horribly unsustainable and tragic for the environment and others on the planet. We could use a standard reduction.

Interesting, B. I had never heard this before. I am a little surprused, although you could well be correct. As I recall, about 7% of the US land area is currently developed. I think this includes Alaska, so I suspect that the core continental US is about 10% developed. Since we are at nearly zero population growth (other than immigration) why do you think the current economic growth rate is unsustainable?

[infamous]

what I don't understand is how state control leads to a lower standard of living?

It's called lack of incentive, motive , to attain unto greater things by using initiative, the ability to orginate new ideas and methods, these are the instruments of progress without which productivity will falter. You may not understand it, just look around the world, the evidence is everywhere.

[Biochemist]

what I don't understand is how state control leads to a lower standard of living?

It is a good question. Most folks thinks it is a lack of incentive (as Infamous mentioned) or lack of "self interest".

 

But I was making the empirical statement that economies that are either high-tax-rate or have government-owned assets do worse over time.

 

The US does well, but is not the most free marketplace in the world. Some of the Pacific rim asian economies (e.g., Hong Kong) are less fettered by regulation and taxes than the US. They do even better (in terms of GDP growth) than the US does.

[niviene]

While it's a little off topic perhaps, it's worth noting that the American standard of living is horribly unsustainable and tragic for the environment and others on the planet. We could use a standard reduction.

 

bumab, I could not agree with you more... sorry that this is off topic, btw... I was just saying that while the news man was saying how expensive it is to keep houses cool over the summer, while I was sort of gloating that I prefer to tough it out.. at the same time wondering how people in India or wherever it is that are surviving through 116 degree heat when so few of them have the luxury of AC as we so commonly do... so many taking everything for granted and disregarding everything else is going to cost us all later, big time....

[Qfwfq]

what I don't understand is how state control leads to a lower standard of living?

I think much depends on how things are controlled by the state.

 

In a one-party system, standards of living of the common people are bound to be pretty low.

[Beelzebub]

but why does state control mean lack of incentive?

if pay depends not only depend on one's need but also on one's ability to do their job well (which is possible under state control) then there is always motive to do one's job well.

[Biochemist]

but why does state control mean lack of incentive?

Empirically, the history of the 20th century is pretty celar that individuals who own things are more productuve managers of them. Most assume this is becaseu ehtye benefit personally by better management. This means that productivity (both of capital assets and of labor effort) is higher.

if pay depends not only depend on one's need but also on one's ability to do their job well (which is possible under state control) then there is always motive to do one's job well.

Only if pay is equitably allocated, and on a reasonably short time horizon. This is actually quite uncommon.

[bumab]

Interesting, B. I had never heard this before. I am a little surprused, although you could well be correct. As I recall, about 7% of the US land area is currently developed. I think this includes Alaska, so I suspect that the core continental US is about 10% developed. Since we are at nearly zero population growth (other than immigration) why do you think the current economic growth rate is unsustainable?

 

I'm sorry I've taken so long to get back to you, and unfortunatly, I'm going to have to wait a little longer to respond appropriatly. I need to find some stats to back my position up- I feel a statement like this (and your response) deserve and require at least some citation.

 

But preliminary responses: Granting your 10% developed land use, I can firmly say 99% has been affected by that devlopment. Air pollution effects can be seen in lakes all over the continuous US, in factors such as acidity increases and soot. We consume (on an energy basis) a substansive fraction of the worlds energy output, fueled almost entirely by non-renewable resources. Were we to switch to zero-impact renewable resources (which is really an oxymoron, only solar comes close), I sincerely doubt we could sustain our standard of living.

 

And our population growth rate is not zero, it's around .7% last I checked, which is substantial.

 

The economic growth rate fuels the "standard of living" increase. We often measure standard of living through house sizes, number of cars, and general net worth- all of which take resources. I don't see how economic growth in the sense being discussed can occur without detrimental costs to the natural world. I don't doubt it's sustainable as far as we're concerned. Science and technology will most likely keep us dodging our own bullets for a while, but the rest of the world- I doubt it. Standard of living has historically been FAR more important then the state of the world.

[Beelzebub]

Only if pay is equitably allocated, and on a reasonably short time horizon. This is actually quite uncommon.

but if the government sets down a list rules for how people are to be paid. and the people vote on it, then there would be no room for people to be unfairly paid by the government.

For the managment of industries the head people could be paid in small percentages of the profit. So they do personally gain from a job well done. How can equitably allocated pay(I think you mean fair pay) be so uncommon? Today we have unions and things to avoid being exploited by our employers.

[Biochemist]

but if the government sets down a list rules for how people are to be paid. and the people vote on it, then there would be no room for people to be unfairly paid by the government.

Hmm. You really think so? We vote on lots of things now, and some of those certainly are perceived as unfair to many. Do you think income taxes are fair? Do you think property taxes are fair? Do you think our drug laws are fair? How about divorce law? Do you think Social Security is fair? Do you think your chances at trial are fair? In a democracy, a 51% majority decides things. If you are one of the 49% who did not vote for Bush, do you think his behavors are fair?

For the managment of industries the head people could be paid in small percentages of the profit. So they do personally gain from a job well done. How can equitably allocated pay(I think you mean fair pay) be so uncommon? Today we have unions and things to avoid being exploited by our employers.

Actually, I think unions usually provide nothing except a path for their own self preservation. That is one reason that union membership in the US is consistently falling.

 

Further, executives are not usually compensated based solely corporate income, and for good reason. Income can be manipulated in the short term and sacrifice long-term benefit. Further, income is an opinion. That is the reason we have auditors, who publish an audit opinion that states that the books of the company fairly reflect reality. Boards establish compensation frameworks for executives, and one element might be income (according to GAAP, Generally Accepted Accounting Principles). Usually there are other drivers as well, that are equally important to company success (market share, revenue, low employee turnover, consumer image, litigation avoidance) in the long term.

 

It might be a surprise to you to find out that income in an opinion, but it is certainly true. The recent experience with Arthur Andersen at Enron is particularly instructive. The corporate structures used within Enron to hide debt liability were all perfectly legal. Under GAAP, Andersen was required to corroborate the accuracy of the accounting for the deal structures. As I understand it, Andersen thought that the corporate structures that disguised off-balance sheet debt were severe enough to suggest that the books did not reflect the status of the company. I believed Andersen threatened to post a "qualified" opinion (which means that the books are GAAP compliant, but that something else should be considered material). But since the books were GAAP comnpliant, the client pushed back hard against the preference for an audit qualification. Then the stock plummeted and the rest is history. I don't think Enron "income" was ever misstated. It just was never a particularly informative number.

[Biochemist]

...Granting your 10% developed land use, I can firmly say 99% has been affected by that devlopment. ...The economic growth rate fuels the "standard of living" increase. ...I don't see how economic growth in the sense being discussed can occur without detrimental costs to the natural world. ..

I see. You are saying that externalities that are poorly accounted for offest at least a portion of apparent economic growth. (I agree there). Further, you are suggesting that the externalities are large enough that they will eventually impinge on the growth itself.

 

This is a reasonable argument. I am heartened by the fact that pollution has significantly improved (certainly in air and water by all objective measures) over the last 30 years. I also undertand that population growth (although not zero at present) is low an trending down. I think US population growth is less than the immigration, so you could argue that we could set it at zero if we wanted (I am not in favor of that).

 

I think I will concede your point. You are probably right.

[bumab]

I see. You are saying that externalities that are poorly accounted for offest at least a portion of apparent economic growth. (I agree there). Further, you are suggesting that the externalities are large enough that they will eventually impinge on the growth itself.

 

Yes, in a nutshell.

 

I am heartened by the fact that pollution has significantly improved (certainly in air and water by all objective measures) over the last 30 years.

 

Interesting. Where did you see that? Emissions continue to rise, water quality has decreased (not to mention water volumes do to over use), mercury is now showing up in deep water fish. Some indices show a decrease, some an increase. It's a contested point.

 

I also undertand that population growth (although not zero at present) is low an trending down. I think US population growth is less than the immigration, so you could argue that we could set it at zero if we wanted (I am not in favor of that).

 

Birth rates are on the rise, after being below replacement levels for quite a while. Currently they are approximately 2.03. Not much above below the 2.1 needed for population growth. Conditionally, then, birth rates are low enough to reduce population levels, but the trend is towards increasing the number of kids. Regardless, lowering the population through decreased birth rates will most likely not solve the ecological problems. Newt Gingrich says more kids equals progress, although I'm inclined to disagree. Might solve the social security problem, but... ;)

 

http://www.susps.org/overview/birthrates.html

 

http://www.cdc.gov/nchs/births.htm#Tabulated

[Biochemist]

... Where did you see that? Emissions continue to rise, water quality has decreased (not to mention water volumes do to over use), mercury is now showing up in deep water fish. Some indices show a decrease, some an increase. It's a contested point. ...

I did not know it was contested. I thought all of the major indicators of air and water pollution have significantly improved since 1972. I knew there were point problems, but air and water in cities has certainly improved.

 

You were thinking that major indicators had not improved?