Much of sociological thought is formed around basic ideas that are the predilections of other ideas. One large idea is that language forms the foundation for human interaction. If there was no language, it is thought, there would be a lack of society in its common sense. If there was no word for road, it would be very hard for a road to be built. This idea may have flaws in some senses, but ignoring these, we can look at how current common economic terms are structured and used. Once economics moved from a mainly foreign social science to one based in English speaking countries, the terms used to describe phenomena were changed. In languages such as German phrases are based around correctly identifying a situation. Instead of scarcity, Karl Menger used "Insufficient quantity", in his seminal work Principles of Economics. The phrase insufficient quantity is not only a definition of a problem, but gives an idea to what extent it can be solved, whereas scarcity allows the brain to wander. Point being, the translation of economics from a foreign language may create a barrier that can not be translated. Maybe English does not allow the correct explanations, or perhaps the laziness of English allows for shortcuts to be taken. Taking a shortcut often lead to problems, this case notwithstanding. One can wonder how different subjects could be learned from a different point of view, but it is essential to learn different topics in the context they were initially written. I write this only because of my reading Menger's aforementioned book. Austrian economics is a term that too few people know, too few understand, and even fewer appreciate. Austrian economics takes real world human situations and places them in the realm of reality. Whereas many other school of Economic Thought prefer to function around hypotheses, Austrianism looks at how things really work. In reading the prolific book by Dr. Menger, I have come to appreciate even more the school which gives me a reason to love economics.
In a commentary written today by Paul Begala on CNN.com, he makes many assertations about the spending of the stimulus package by those opposed to the very idea of it. Fallacious thinking does form the foundation for socialism, so it is important to look at the basic steps used to make certain assertations, and find if they hold water under further inspection. In the beginning, Begala states his main point that those opposed to stimulus spending should not take or be allowed to take the money doled out by it. Looking at this objectively begets the truth behind his thinking. This could be expanded to mean that me opposing federally funded schools should follow by me not going to one. I indeed do go to the state funded schools, and see no correlation (nor causation) to his point. If a policy has been enacted, refusing to follow the dictations it has set serves no purpose. This just perpetuates the initial problem of government spending; with no profit incentive, government has no reason to be efficient. I bet that Begala, as a former Clinton strategist, sees it unfit that Microsoft has a very large share of the computer software market, yet I am very sure that at least one of the computers he works on every day has some Microsoft component.
Has he followed what he believes by strict adherence? No.
Saying that opponents should not take any of the money shows his true wish.....that his party of socialists be allowed to spend the money as they see fit. Not liking partisan politics makes me feel objective in stating that objective individuals need to realize that Democrats as a group look at spending money like a kid in a candy store. Allowing for the absolute correction of problems by intervention, some of the worlds biggest problems have been created.
Further on, Begala states
"Under the Bush-Sanford economic theories, South Carolina's unemployment
rate has reached 9.5 percent -- among the highest in the nation. But if
Gov. Sanford wants to continue those policies, good luck to him."
This is a very narrow, uninformed view of the situation. Saying Bush or any one person is responsible can not be further from the point, while claiming that allowing markets to function is the cause of problems just shows a lack of true economics knowledge. Markets function until such point that there is some factor that blocks proper market function, allowing for the fact that market correction is not an instant process. This market blockage can be caused by a multitude of factors, including minimum wage, rent controls, quality standards etc. When these and other "taxes" are enacted on a system, there is immediately a loss in consumer and producer surplus. Surplus is the benefit that a group gets above and beyond what it receives in tangible benefits. When producers lose some of their surplus, they are less likely to hire that one extra person. When one less person has a job, that person has x less dollars. When x less dollars are being spent at businesses, those businesses have x less dollars to pay in salary to workers. Begala insists that not intervening in a market is the cause of high unemployment, neglecting to look at a multitude of factors which would be too long and tedious to write in this entry.
Begala goes on to talk about how Gov. Sanford (the topic of his ranting), derides neighborhood electric vehicles. Begala states that these vehicles "create jobs, save money and reduce pollution". The creation of jobs is a zero sum gain in this point. If there are more electric vehicles being bought, who loses? The answer, unsurprisingly, is those who created the normal vehicles of yesteryear, aka Ford, Gm, Chrysler, etc. When these jobs are lost, who gets the blame but those who saw no initial intervention as the solution to a problem. Saving of money is not literally true, as buying new vehicles, paying for power, paying for repairs etc. can not be forgotten costs. Pollution from initial vehicle usage can cause a decrease in pollution, only until the pollution from extra power production is considered. Thinking logically, one should realize that these new electric cars have to be powered by something, and that something is the outlets in the walls of many garages. If this is how cars are to be powered, power plants will see a surplus of demand for their product. When a surplus of demand for a good is realized, introduction to economics students learn how the price will go up. When Beanie Babies were the cats meow ten years ago, the price of them rose as the desire to purchase them increased. Therefore, the costs of running an electric cars can not be considered lower than gas powered cars, in the explicit cost scenario. To some, the thought of "saving the earth" may hold some virtue.
Through the rest of the article, Begala spouts the socialist calling card ideas. With these, he basically shows how government spending will increase the welfare of the country. As empirical data has shown, decreasing taxes shows the biggest increase in tax revenues. Unsurprisingly, Begala's solution is to allow taxes to increase, assuming there is a positive, and not negative correlation.
Reading through the CNN.com homepage, a logical person can not help but be appalled. Among articles of some substance about real issues affecting Americans today, one will find articles speaking of the recessions' affect on Hip Hop stars spending. Is this the best that can be done?? Apparently not, as there is a large covering of the amount of businesses who are freezing workers salaries. Common sense, individual knowledge and any economic understanding apparently are not part of many peoples knowledge base. According to the site, "25% of companies plan a salary freeze", with the most likely to sustain a freeze in pay being the CEO's.
First, lets look at what a salary comprises. The amount some one person is paid is the direct amount of their worth to the company for which they work. If someone is paid $15 per hour, ignoring for the moment minimum wage, there is $15 per hour of value in that person at the said profession. This being said, a company freezing salaries says that the people are only as important this year as they were last year. In all reality, the exact opposite is true. Workers only have incentive to decrease their opportunity cost of working, until such a point where the pay they receive encourages them to work harder in order to create a profit for their firm. This being said, some will say that firms are freezing the pay of their workers to lower the cost of running their business in order to increase profits. This is true assuming that all workers are in the firm in the initial hopes of maximizing profits for the firm, but many workers in said firms will only be working in the firm to receive their pay and will do a moderation of work at or above the amount they have to do to keep their jobs. This being true, workers do not profit maximize for the most part, and therefore a salary freeze actually gives them less incentive to profit maximize. If no additional benefit can be gained from working harder or more efficiently, the extra work will not be undertaken.
Secondly, Chief Executive Officers are typically the top of the pyramid as far as company organization goes. This being true, they are also the closest to the owners of the company, whether those owners are stockholders or a small group of individuals. This being said, they have the closest connection to profit maximizing incentive. Very often these CEO's have direct contact with the owners and therefore have a direct responsibility for making a profit. Not always, but many times, a company will experience problems and a CEO will be the first fired. This is the case because a CEO has the greatest risk undertaken when taking the job. They are the top of the food chain, and their ability to communicate through the ranks bears a direct correlation to their success. If they are successful, they tend to get benefits, whether these benefits are a bonus or a corporate jet. If they are unsuccessful, they generally need to find another job. The high risk generates a necessity of a greater reward for these select few, which typically means higher salaries. Many people do not understand why CEO's get paid more than anyone else at the firm, and seem to revel in them losing jobs. If there was not a direct correlation between worth of CEO's and their pay, they would make considerably less.
Finally, there are certain industries in the USA where regulation has played a large part in all intermediate steps of production for the firms in that industry. An example would be the automotive industry, where regulations affect everything from the amount they pay their employees to the emission standards of their final product. All of these regulations have the unintended consequences of creating a barrier to efficiency for the firm as a whole as well as for all intermediate steps of production. If we saw less regulation and therefore less market intervention we would see greater efficiency marketwide, as well as greater profit margins for these companies.