October 1, 2011

Who are you? And why are you saying these terrible things?

I found this blog by some guy that I have never heard of, Graeme Maxton, telling everyone that we are at the end of progress. He says that we no longer follow ‘modern economics’ and how we more or less doomed for failure without some massive revisions. He very obviously bases everything he knows on what Adam Smith had to say are he talks about him frequently, and how he would be disappointed by today. Throughout reading this, all I could think was ‘You’re missing the point’. He even bolds his text when he states “But Smith was also a moral man.” But as we have discovered, moral is not a part of progress.

One of the most impressive things that this Graeme Maxton said (based on Smith’s beliefs) was that profits should not be too high, and the rich should be taxed more than the poor. However, profits should not be too high is the equivalent of saying, you’re doing too well, so we’re going to take some away. This is just bad economic policy. As a waitress I expect to walk out with my tips every night no matter what they are, however if management said, if you make over $100 then you are doing too well and so we will take everything over $100, I would be furious. I would then either quit or I would stop working once I reached $100. This is the same for the idea that the rich should be taxed more than the poor, at some point in time it is no longer worth it to continue working and make more money because you have to pay too much in taxes.

So with an Austrian roar, I say do away with these ideas. These ideas do not make sense. Allow companies to profit as much as they want, and allow the people to make as much money as they want. Morals are not for government to decide, but rather for people to decide among themselves. Perhaps one day we will be able to tell our grandchildren the story of how ‘back in the day’ there was a saying that the only two things for certain in life were death and taxes, and after we explain what taxes are, they will giggle thinking we have made the whole thing up.

5 comments:

Graeme Maxton said...

Hi Lauren,

Clarifications? Well perhaps just an Austrian roar back from Vienna, where I live.

I am not saying we are no longer following modern economics, I am saying that modern economic ideas are the problem. I did not embolden the text, CNBC did. And I am not arguing for you to lose your tips, but for there to be enough competition in every market to keep monopoly power in check.

Graeme Maxton (whoever he is)

Lauren Peterson said...

Hi Graeme,

I would like to start with two apologizes. First, I am very sorry for the delay, I often write my blogs to satisfy my class requirement and then never look at them again, or even really remember that I wrote them. Second, I am also very sorry that I did not know who you are, it was not meant as an offense towards you. I seldom have time to watch TV, nor can I afford cable, so I do not watch CNBC, and I have not read any of your articles. That being said, I obviously have not read your book, so my understanding of your ideas is probably not as detailed as is appropriate.

When I was talking about management taking away my tips, I simply meant it as an analogy. I do not believe that there is such a thing as profits being too high, nor do I believe that we should tax those profits to restore them to a 'normal' level. The way Ludwig Von Mises explains it is, "The absurdity of condemning any profits as excessive can easily be shown. An enterprise with a capital of the amount c produced a definite quantity of p which it sold at prices that brought a surplus of proceeds over costs of s and consequently a profit of n per cent. If the entrepreneur had been less capable, he would have needed a capital of 2c for the production of the same quantity of p. For the sake of argument we may even neglect the fact that this would have necessarily increased costs of production as it would have doubled the interest on the capital employed, and we may assume that s would have remained unchanged. But at any rate s would have been confronted with 2c instead of c and thus the profit would have been only n/2 per cent of the capital employed. The “excessive” profit would have been reduced to a “fair” level. Why? Because the entrepreneur was less efficient and because his lack of efficiency deprived his fellow men of all the advantages they could have got if an amount c of capital goods had been left available for the production of other merchandise." (Profit and Loss, 20-21). So you see, I become confused when people talk about 'too much profit' because for to me it is the equivalent of saying 'you did too well'.

I also believe that there should be enough competition for monopoly power to remain in check, but I disagree that government regulation is the way to do it. Government regulation allows business that should go out of business to remain in business, and keeps business out that should be in business, which cannot be good for market competition. Also, government regulation feeds government regulation. I do understand that once government regulations are in place, they must put more regulations in place because people find loop holes or they become dissatisfied with the consequences of the regulations, but what if the market handled that? What if when people weren't doing what they were supposed to be doing, people stopped consuming their products and they went out of business? I know this is rather ideal, but we have never really let this happen. Except perhaps in black markets, where if the supplier does not have satisfactory products, people don't buy them anymore. I know why the banks were bailed out, and cannot necessarily disagree with the choice given that I don't know what would have happened if we didn't, but what I do know is that it is not consistent with economics. Businesses that are meant to fail, are meant to fail. Which I think is a point that you would agree with me on. That is the way that competition works, some businesses fail, and then entrepreneurs fill the gap that has been created, however government regulation has prevented that from happening. My feeling is that it is not that modern economics has failed because we ignored morality, but rather that regulations by the government has prevented the market, and competition from working as they should.

Lauren Peterson said...

I do have a rather odd question for you though, given your long list of achievements, you seem like a very busy man, why take the time to comment on a blog for an Austrian Economics class at a small school in Colorado by some girl a month away from graduating with her bachelor’s degree? I don't mean to sound ungrateful, the opportunity to discuss economics with some as distinguished as yourself is certainly an honor, it is simply unexpected. (Also, sorry about the break, there is apparently a character limitation)

Lauren Peterson (Seriously, whoever she is)

Graeme Maxton said...

Hi Lauren,

Sorry for the long delay in responding. I am on a book tour and currently in Asia. Why not email me if you want a dialogue. See my website.

Regards

Graeme

Graeme Maxton said...

Hi Lauren,

Sorry for the long delay in responding. I am on a book tour and in Asia. Why not email me if you want a dialogue. See my website.

Regards

Graeme