Government and GDP

The graph below, from Cato @ Liberty, illustrates how three measures of government size have changed over time. While government production has remained relatively stable as a share of the economy, total government spending has swelled. The growing gap between these two lines, according to Chris Edwards, mainly represents the massive growth in transfer (or subsidy) programs, such as Social Security.”

Click here to read Chris Edwards’ analysis.

Wasted Potential

Video Games and Discrimination

While Tommy became the pinball wizard by his intuition, flipper fingers, and acute sense of smell; another disabled gamer is attempting to use tort law to rise to the top. GamePolitics.com reports on the discrimination lawsuit faced by Sony:

A disabled, visually-impaired gamer has filed suit against Sony Corporation of America, Sony Computer Entertainment America and Sony Online Entertainment claiming that the defendants are denying people with disabilities equal access to their goods and services.

The suit was filed by plaintiff Alexander Stern on October 23 in the U.S. District Court for the Central District of California. Stern seeks to “put an end to systemic civil rights violations” allegedly perpetrated by the defendants.

Stern notes that other accessibility features are available and have been implemented by “companies whose resources pale in comparison with Sony’s.”

Among other actions, Stern is seeking an injunction to prohibit Sony from violating the Americans with Disabilities Act, a declaration that Sony owns, operates and maintains equipment that discriminates against the disabled, unspecified damages and to have his lawyer’s fees and expenses paid for.

As ridiculous as this case seems, it is not that far-fetched once one considers the premises of “justice” commonly accepted in today’s society. Individuals and corporations are regularly forced to act against their own interests to compensate for the disadvantages of another. Corporations that are too successful are deemed “monopolies” and broken up so that less efficient firms can “compete”. Affirmative action laws force employers to favor one candidate or employee over another due to his race, gender, or other immutable characteristic. Even seemingly noble initiatives, such as legal requirements that companies facilitate customers with disabilities, are an infringement on individual rights. If a private individual or firm chooses to discriminate against a group of people for any reason – no matter how ill-advised and immoral this discrimination is – that individual or firm has the right to do so, provided the discrimination visits no positive harm on the group discriminated against.

And note the last line of the quoted text, which clearly implies that Sony’s resources impose an extra obligation. Once again, our society punishes production as a vice and praises need as a virtue.

Stockholders vs. Stakeholders

Critics of capitalism (and therefore freedom in general) are ever quick to hold up cases of consumers and employees exploited by greedy corporations. These attacks often have negative consequences for the stockholders of corporations.  Stockholders of GM and Chrysler were sacrificed in order to serve the “greater good” (a term that, as I’ve stated before, is so idiotic it is depraved in its purported meaning).  David Friedman recently penned an excellent blog post on the ways in which stockholders are actually more vulnerable to corporate mismanagement than consumers or employees.

…my situation as customer and employee is very much better in this respect than my situation as a stockholder. It is true that, as a stockholder, I have the option of selling my shares of stock, which at first glance looks rather like my option as a consumer of not buying a product or as a worker of quitting a job. But the apparent similarity is an illusion.

If I choose not to spend twenty thousand dollars buying a car from Ford, Ford has one more unsold car and twenty thousand dollars less money. If I choose to sell twenty thousand dollars of Ford stock, on the other hand, the money I get is not coming at Ford’s expense. Another investor has paid me the money and now owns the stock, leaving Ford itself unaffected.

If the firm is being run in a way that fails to maximize stockholder value, he cannot escape that cost by selling his share, since the price he can sell it for will reflect the reduction in future profits and dividends, insofar as it can be estimated by other stockholders.

It follows that the stockholder is dependent, very much more than the other stakeholders, on other mechanisms for controlling a firm to make it act in his interest. That is a strong argument in favor of the current mechanism for corporate control and the current legal rules defining the fiduciary obligation of the directors.

Indeed, it is an argument for more than that. It is an argument for strengthening stockholder control in order to provide more protection to the most vulnerable party in the network of relationships that makes up a corporation. One way of doing so would be by removing current legal barriers that make takeover bids more difficult, and so protect managers and directors from the consequences of serving their own interests at the expense of the stockholders whose interests they are supposed to be serving.

I would like to add two points to this already outstanding argument. First: regardless of the practical effects on stockholders and stakeholders; the fact of the matter is that the corporation belongs to the stockholders. It is their property. As property is gained by money, as money is gained by production, as production is performed at the expense of an individual’s time, and as an individual’s time is an individual’s life, the right to property is inseparable from the right to life – which is an inalienable possession of every human being. So, practical considerations aside, the stockholders’ interests should still be protected over the interests of the stakeholders (note that “interests” are not synonymous with “rights” – the protection of the rights of one individual cannot necessitate the violation of the rights of another).

Second: the stakeholders rely on stockholders for their lives. Stockholders are not pirates scouring the market for plunder – they are the enablers of production. It is only by the productive energies and subsequent investments of stockholders that capital is raised to improve the quality of life for the masses (the beauty of capitalism is that society’s betterment is in no way a necessary motivation of the investors).

For all of the reasons discussed above, stockholders should be lauded for their contributions to society and not branded as blackguards of “corporate greed”.

Fallacious Facts

Cafe Hayek shows a prime example of how economic statistics can be easily manipulated to further an argument that the true economic data does not support. Harold Meyerson of the Washington Post reports

Since 1987, manufacturing as a share of our gross domestic product has declined 30 percent.

While this is true, it’s also very misleading. Here is part of Donald Boudreaux’s response:

…this fact is caused chiefly by a substantial growth in services and construction and not, as Mr. Meyerson implies, by declining manufacturing output.

In fact, according to the 2009 Economic Report of the President, total manufacturing output in the U.S. – measured by an industrial-production index – hit an all-time high in 2007 (the latest full year for which data are available).*

Measuring Economic Growth From Space

An interesting (albeit simple) way of measuring economic growth:

Reliable data on economic growth are hard to come by in many parts of the world, but three economists at Brown University present an alternative: check out their night lights.

J. Vernon Henderson, Adam Storeygard, and David N. Weil suggest using satellite pictures of light at night time as a proxy for measuring economic growth. “Consumption of nearly all goods in the evening requires lights,” they write in their paper. “As income rises, so does light usage per person, in both consumption activities and many investment activities.”

The authors noted the correlation on income data when looking at comparisons between Eastern European countries and former Soviet republics. In Moldova and Ukraine, income per capita fell by 30% and 35% respectively, while population fell by 3% and 8% respectively, and light intensity dropped by 68% and 47% respectively. In Hungary, Poland and Romania, where

Here is an earlier post worth a thousand words.