Free goods; unemployment; the dole; Poverty, Inc.

Dr. Block,

In this essay you state “Free is good for the economy.” You then you slip in “assume, they are reliable in that they will keep doing this forever.” But isn’t that just the point being made by Poverty, Inc.? The documentary cites example after example of local industries put out of business by free imports in the wake of some disaster. The owners (perhaps after a difficult waiting period, to see if the aid is temporary), liquidate their now-worthless (to them) assets and find other means of income. Then – surprise! – without warning the free imports stop as the world’s attention shifts to some new disaster, and the infrastructure to take up the sudden local need is scattered to the winds, if not residing in junk piles. Surely this whipsaw action is not good for the economy.

“So, instead of whining,…” None of the people interviewed in Poverty, Inc. showed a trace of whining, to my eye. Did you see matters differently?

I’d be grateful if you’d address your correspondent’s question about possible damage to the soul from being on permanent dole. I feel that your answer to him was incomplete at best.

Thanks,
J

Dear J:

You make some good points, and I am delighted to respond to you on them.

As I see things, there are doles, and then there are doles. If someone were to offer to pay my full salary and I would not have to teach, I would take the money, and be even more productive in terms of writing than I am now. When Germany paid reparations to Israel, for a certain limited amount of time, I do not think this hurt the economy of the latter. The Mises Institute, too, is on the “dole.” Suppose some benefactor promised, and carried out, a grant to the MI of $1 million for the next five years, after which the money spigot would be turned off (hint, hint; any takers out there?). Would this help or hurt the MI? To ask this is to answer it. Of course this would greatly aid the Mises Institute in its mission of promoting liberty and good (Austrian!) economics. But, then, of course, there are other kinds of doles. For example, the welfare system, which pretty much ruined the black family, (see Murray, Charles. 1984. Losing Ground: American Social Policy from 1950 to 1980, New York: Basic Books) as did welfare in Sweden greatly undermine white families there. The scenario that I was responding to is similar to the one offered by leftish economic illiterates to account for how Standard Oil gained its “monopoly”: cutthroat competition in one place, drive out competitors, and raise prices. For a critique of this explanation, see this: McGee, John S. 1958. “Predatory Price Cutting: The Standard Oil (New Jersey) Case,” The Journal of Law and Economics, 137-169.

Now consider the scenario we are faced with in this documentary: relatively (to the recipient) vast amounts of money poured in, say, in the form of food, which wrecks local agriculture. Should the targeted recipients accept this money if they want to maximize their economic welfare? Of course they should, but, they should also keep a night watchman type of farming going too (a sort of insurance policy) against the day that the spigot is turned off. Then, they can start off quickly when the food stops being sent to them. Who is the “they” here? Why, entrepreneurs, who see a profit opportunity, whether domestic or from abroad. As long as economic freedom were allowed, this would presumably occur.

Will this create unemployment in the farming sector? Yes, of course, apart from the few farmers who are storing seeds against the day that the freebies stop coming in. But will this create general unemployment? I resort to my initial analysis: Nah. General unemployment is created by artificial boosting of wages (unions, minimum wage laws), or government subsidization of unemployment (unemployment “insurance”) or government interference with money and interest rates, which creates the Austrian Business Cycle. A reading on this: Rothbard, Murray N. 1969. “The Austrian Theory of the Trade Cycle,” p. 78-79, in Economic Depressions: Their Cause and Cure, Lansing, Michigan: Constitutional Alliance

Damage to the soul? Well, there are recipients, and then there are recipients. I GUARANTEE to you that if someone donated a gigantic amount of money to LewRockwell.com, his soul would remain just fine. On the other hand, of course, parents are typically wise not to drown their teenage kids in gobs of money, lest they undermine their incentives to go out and earn money on their own.

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9:13 pm on May 28, 2016