Tag Archives: Globalization

The Truth About Tax Cuts

cashme

This kid is gonna be POTUS one day.

Let me ask you a question: for what do you think your taxes pay? Is it better roads, good schools, social services, like firemen and police?

Maybe, probably at the state and local level. But, at the national level, your tax dollars really don’t pay for anything.

Let me repeat that: your tax dollars really don’t pay for anything.

In the U.S., our government can literally print as much money as it wants. It can completely eliminate its liabilities more or less at will. So why collect taxes?

The truth is that, at least when it comes to taxation on a national scale, our tax dollars don’t “pay our bills.” Our government can literally print as much money as it needs to cover any entitlements, military spending, or pretty much any other bonafide social safety net expense or ridiculous boondoggle it decides to fund. Imagine if you had your own printing press that could perfectly reproduce Federal Reserve notes. And it was completely legal. Would you ever be short of cash? No? Well, that’s pretty much the way our fiat currency system works.

Politicians play on the fact that, as a controlled commodity, it’s difficult for most people to accumulate money in significant amounts. So they talk about “deficits,” ”debt,” ”spending,” etc., referencing metaphorically what most people live very much literally. The government never has to worry about running out of money. Think of it as having a bank account with infinite dollars.

When it comes to money, the government is concerned about something else entirely: debasement. It’s more worried about printing so much money that it becomes worthless. A debased currency makes everything tremendously more expensive (except debt, which would actually decrease in value).

So there are mechanisms within the fiat currency system to prevent an excessive accumulation of money. In other words, our monetary system contains mechanisms for destroying money. Fractional reserve banking is one such method.

The other is taxation.

The purpose of taxation is to remove the “extra” dollars from the economy. However, as it functions, this system is profoundly flawed.

If the purpose of taxation is to remove excess money from the system, consider what happens when taxes are “cut.” When the government cuts taxes, it has decided to remove less excess money from the economy. Why would it do that? Because, at least theoretically, the additional money could be used to spur innovation and productivity, which we call “economic growth.” That economic growth translates as societal wealth, in the form of better goods and services. Economic growth is what propels us all into progressively higher standards of living, at least materially.

However, what happens if that additional money does not create economic growth? What happens if major new innovations are not created and productivity doesn’t actually increase? What happens when the options for monetizing new products and services simply don’t materialize? Think of the “unicorns” of Silicon Valley… what would happen if Uber flamed out? What would happen if the public ends up rejecting augmented reality (AR) or virtual reality (VR)? What happens if self-driving cars end up being a dead end?

The key for tax cuts is that, if they don’t spur growth, they exacerbate the problem of currency debasement. Rather than allow the government to get those dollars back, the wealthy prefer to hold on to them by whatever means, legal or illegal. Our laws and force apparatus give those dollars real worth even though they are inherently worthless. As a matter of status, the rich want to keep those extras dollars to buy the bigger house, the bigger boat, the bigger jet, etc. More houses, more boats, more cars. At a certain level of wealth, it’s all ego tripping.

Which brings me to this point: have you ever noticed how tax cuts go almost exclusively to the wealthy? Why don’t they go mostly to those lower on the chain? The simple answer would be because that would defeat the purpose. People further down the chain will simply spend the money into the economy. “What’s wrong with that?”, you may ask. “Aren’t the rich going to get the money anyway?”

Yeah, but there’s a problem with that… it’s called “price inflation.” When merchants and businesses know that there is more available money in the economy, they tend to raise prices. Since taxes can’t be cut enough for most of those lower down the economic chain to make a material difference in their incomes, the effects of “tax cuts for everyone else” will likely simply translate to higher prices. So the money will indeed “trickle up” (actually flow up), but then everyone will be stuck with higher price levels for goods and services. Oddly enough, funneling the money directly to the rich prevents that outcome.

The real question is “Does it work?” My best answer is that it has to, at some level. At least materially, our standard of living continues to increase. There are a few large bets on the horizon technologically that could have a major positive impact on living standards, such as AR, artificial intelligence (AI) and machine learning (ML) , and autonomous vehicles. Will tax cuts help those big bets pay off? It’s possible.

But, in the wake of that, a potentially dangerous condition is also developing: the increased displacement of human labor in the value chain. Labor is the method by which most people acquire the means to participate in the economy; simply put, it’s how they earn money. However, globalization and increased technological automation is leading to an increased deprecation of Labor value. At the more developed end of the spectrum, employment is either shrinking or progressively moving to lower wage work. All signs are that this trend is accelerating. So far, Capitalism has not found a way to address what it perceives as a short-term transition that could easily become a long-term crisis. Tension is already rippling through the most advanced economies in the form of increased populism. The world is changing and Capitalism so far has shown little capacity to manage that change effectively.

If you look at taxation from the perspective of its intended purpose, then you can understand how disingenuous the arguments of the wealthy are against higher taxation. The rich want those further down the chain to shoulder more of the tax burden. The reality is that such a proposition will almost certainly have a profound effect on economic growth. As the middle class evaporates, those lower on the chain can barely afford to make their way in the modern economy as it is. If the purpose is to get the “excess” dollars out of our economy by getting it from those who can least afford to give it, I don’t see how that is going to have a positive outcome. The reality is that we tax the rich because they have the excess dollars. Their argument is that they are the ones who fund innovation and enterprise. But it’s just as likely that they will devote their money to financialization; in other words, they’ll use safe financial instruments simply to make more money rather than making riskier bets that may spur much greater growth. Even worse, a lot of that money will be used simply for indulgence, avarice, and status-seeking. As displays of opulence and decadence become more visible in our more socially connected world, the potential for backlash increases substantially, the outcomes potentially catastrophic. Remember the French Revolution?

The truth is that our economic system is fundamentally unbalanced and likely to become more so. Money is being kept out of the hands of the very people who need it most and given in wheelbarrows to the very people who need it least. The worst part is that this is probably our economy’s optimal condition; it is unlikely that the system can be made more equal, or even more equitable, without running the risk of high price inflation at least, and, potentially, economic collapse. As it stands right now, the only way the system continues to function is if it continues to become more and more unequal.

I don’t see how that ends well.

Advertisements

When Capitalism Mattered

privateer1

A recent conversation had me thinking about what my ideal existence would be. Strangely enough, my thoughts went to a video game named Privateer; the premise of the game is that you live on your own spaceship which you can trick out to perform a number of tasks. It really boiled down to a choice of two occupations in the game: you could be a “privateer” and buy and sell merchandise all over the galaxy and hunt pirates for bounty or you could be a pirate and rob said privateers.

My frequent readers may be thinking “so how did that piracy thing work out?”. My answer:

It didn’t. I loved playing as a privateer.

Yep, I loved buying and selling cargo (and hunting pirates). There was something kind of peaceful about going from planet to planet trading goods. Yeah, I got attacked by pirates and the game became absurdly difficult as I leveled up. But, for awhile, the feeling of being in open space and traveling to different places to sell commodities and equipment for profit was pretty fun.

To my dismay, what I realized is that, in that game, I was a Capitalist. And I enjoyed it.

Needless to say, I had to figure this out. What was so appealing about Capitalism in the game that sucked so hard in real life? Modern Capitalism is about as exciting or appealing to me as getting kicked in the jewels with spiked Louboutins. Why did I like it so much as a “privateer”?

Coming to that answer helped me understand more viscerally why I think civilization has outgrown Capitalism. The key word is “risk.” Let me set the scene for you:

Consider what the world was like throughout most of history. To put it in two words it was “ridiculously dangerous.” Whether traveling over land or sea, the chances of dying were pretty significant. Between hostile natives, highwaymen, disease, starvation, the occupations of exploration and trade were about as risky as it could get. We read about all of the famous tradesmen and explorers who helped us gain a better understanding of our world by traveling and selling stuff but we don’t read about the guys that died from dysentery or having their heads stoved in by angry Aztecs. In other words, exploration and trade were extremely risky.

In my post What is Capitalism?, I made the case that the essence of the concept was the commitment of “capital” to a venture that may either succeed or fail. Now think of the risk that was involved in the accumulation of wealth back in the day. Almost every venture had the potential to end in death. The only way anyone would have been crazy enough to take on that risk is if the payoff was worth it.

Hence, Capitalism.

Now, think of the conditions that exist today. Somali pirates notwithstanding, exactly how “risky” is travel and commerce now? What are the chances of dying or, even for that matter, experiencing serious loss when engaged in global commerce? Let’s not even talk about exploration; any place we haven’t been is someplace we know we aren’t interested in going.

You see, people, modern technology has made risk, at least in its most significant forms, obsolete. Capitalism rose as a means of incentivizing people to risk their lives for wealth. In a world of adventure, it made total sense to build an economic system around incentivizing people to do what no sane person would normally willingly do: wander off into the great unknown (or dangerous known) to find things of value.

But, in our globalized world, where is the risk now? It’s all almost entirely mathematical. Investments now primarily involve making bets against stupidity. The risk is almost entirely in people being stupid. Other than that, there is almost no real risk in our current Capitalist system. Indeed, the term “late Capitalism” is apropos. It’s a solution to a problem that no longer exists.

So, where do we go from here? You know my answer. We find a way to not only provide for people materially, we start to seriously address the matter of human dignity. We find a way to invest everyone in the success of Humanity as a species. We find a way to create “antifragile” systems, laws, and institutions that value the preservation and sustenance of social trust above all else.

Capitalism? It’s obsolete. Maybe in the void of space, where the distances are vast and the pirates have big guns, it still makes sense. But, here on Earth, the pirates are mostly gone and modern technology has made the world much, much smaller and far less dangerous.

The world of the privateer is gone. What is going to take its place?

Trump Has Already Won

kingdonald

There are few things that provide as much bang for the buck as outrage. It’s free and grants the person who indulges in it a smug sense of self-worth that few other emotions can offer.

There’s a lot of outrage going on right now regarding Donald Trump and his colorful executive orders. He definitely has taken a running start toward turning the U.S. into a totalitarian state, though few people seem to get that it was already halfway there.

Few people also seem to understand that this outrage, particularly against what is called the Muslim Travel Ban, plays right into Trump’s hands. Trump knows a whole lot about bang-for-the-buck himself. His ban affects a relatively small handful of people yet its symbolism is huge. More importantly, it plays great for his most die-hard fans. Though a small gesture in the grand scheme, it shows Trumpletons that Donald is indeed a man of his word, unlike other politicians. He said he was going to curtail immigration and he took a small but highly visible step to do that right out of the gate. And I guarantee that his core constituency, and more fence-sitters than most people are willing to admit, loved it.

The more bleeding-heart liberals, Social Justice Warriors, and “coastal elites” ride for immigrants, the more it shows Middle Americans, Rust Belters, and anyone else disaffected by the current economic system that the priorities of Americans already in this country are not a concern for them. The people outraged by Trump don’t seem to understand that it fuels him. He is not a man prone to bouts of conscience or sentiment. More importantly, he knows that he is playing a winning hand.

As long as the bleeding hearts are unable to provide a viable alternative to the economics that have harmed so many of the so-called “middle class,” Trump is running downhill. So far, the same people who have been so willing to write off huge swaths of Americans and others worldwide as simply neoliberalism’s collateral damage have been the most vocal about the injustice of banning immigrants. This may play well for the peanut gallery but, to many, it just seems like a whole lot of hypocrisy. Where was this outrage when middle America lost their jobs? Where was the handwringing when Rust Belters turned to drugs, alchohol, and, more importantly, suicide to deal with their marginalization?

As long as the bleeding hearts refuse to deal with the core issues of our economics and create a better value proposition, Trump has already won. He’ll continue to stoke hate and fear like a fire because he knows that his opponents don’t have the resolve to change a system from which they benefit. He knows that every time he appeases his constituency that their support for him will only grow. And he knows that everyone who opposes him without providing better solutions are becoming their own worst enemies.

The mark of the gifted totalitarian is not the ability to make common sense seem evil but to illuminate the natural hypocrisy of their opposition. Trump has shown that the bleeding hearts only care about certain types of people, the others, instead of the ones suffering in their own backyard. As time goes on, he’s going to forge that hypocrisy into a sword and drive it right through the heart of democracy.

By then, it’ll be considered a mercy killing.

Is Currency Devaluation Causing Deflation?

currency-war2

As a scholar, I love the “Aha!” moment when something crystallizes in my mind. That moment came to me right after I posted The Gold (and Bitcoin) Fallacy. For some reason, my brain started to fire after writing the following:

Using my methods, Bitcoin’s divisibility could indeed be leveraged to make it a viable currency. However, the exercise also revealed that Bitcoin divisibility is indeed inflationary by nature and that high demand is naturally price inflationary.

These final sentences stuck in my head and I could feel a fire burning. Then, all of a sudden…

It hit me.

I had stumbled upon something in my post Fixing Bitcoin Part II: Pricing with Bitcoin Units; the clue was in the following section:

What I’m proposing allows Bitcoin to be used mostly in whole units irrespective of what it is trading for. This system easily moves from Bitcoin to fiat currency and vice versa. Let’s start with the variables:

  1. Price of item in fiat currency;
  2. Maximum Exchange Rate (= 10 units of correlated fiat currency);
  3. # of expansions of the Fractional Rate. This correlates to demand and is equal to the number of times Bitcoin exceeds the Maximum Exchange Rate. For instance, a Fractional Rate of .000000000000001 means that demand for Bitcoin has caused its exchange rate to “turn over” 15 times. This number is easily determined simply by counting the number of places to the right of the decimal point. In the above example, the # of expansions of the Fractional Rate would be 15.
  4. Price of item in bitcoin units.

The formula for converting fiat pricing to Bitcoin pricing would be as follows:

((price in fiat currency) / (maximum exchange rate = 10)) * (# of unit expansions) = (price in bitcoin units)

Let’s say you want to sell an $899 PC in Bitcoin units. Using today’s current Bitcoin exchange rate in $USD, here’s how it would look:

($899 / 10) * ($221.20/10 = 22) = 1977.80 BTC units

Note: “221.20” is Bitcoin’s exchange rate in $USD as of this very instant; to approximate the Fractional Rate, this number is simply divided by my proposed Maximum Exchange Rate of 10 units of a correlated fiat currency. In this example, this would be equivalent to $10USD.

Conversely, the formula for converting Bitcoin pricing to fiat pricing would be as follows::

((price in bitcoin units) / (# of unit expansions)) * (maximum exchange rate = 10) = (price of in fiat currency)

Using the previous dollar figure of $899, let’s convert Bitcoin units into fiat currency:

(1977.80 / ($221.20/10 = 22)) * 10 = $899

Lets say the fractional rate is 71 instead of 22. Using the same $899 price from the previous example, here are the conversions:

($899 / 10) * 71 = 6382.90 BTC units

or

(6382.90 / 71) * 10 = $899

In this fashion, it is possible to price items in units of Bitcoin relative to fiat currency or the reverse.

What I realized is that an interesting thing occurs in this process: the price of something in bitcoin units has a direct correlation to the increase in demand for Bitcoin. When converting bitcoin into bitcoin units, I use a variable called the “Fractional Rate,” which is the number of times Bitcoin’s exchange rate would “roll over” if it had a a hard cap of $10. When I wrote my post, a single bitcoin was worth $221.20USD; the Fractional Rate would equal “22” based on dividing the exchange rate by the Maximum Exchange Rate of $10 per unit. In the other portion of the example, I speculated on a Fractional Rate of “71”; by multiplying the Fractional Rate by the Maximum Exchange Rate of $10, the proposed exchange rate would be approximately $710 (between $710.01 and $720.01 more exactly).

For more perspective, consider the current exchange rate between BTC and USD, $821.20 per bitcoin as of this moment. To determine the Fractional Rate for my equation, I would do the following:

$821.20/$10 (Maximum Exchange Rate) = 82

Compare the difference in the Fractional Rate from my Fixing Bitcoin, Part II post to this current one, “22” versus “82.” The change in the Fractional Rate represents a significant increase in the “demand” for Bitcoin as represented by the increase in the exchange price (I use the term “demand” loosely as the increase in exchange price also represents the halving of block rewards, which makes bitcoin production more scarce).

If you look at my example, you will see that an $899 computer costs 1977.80 bitcoin units at the Fractional Rate of “22” and 6382.90 bitcoin units at the Fractional Rate of “71.” In other words, the example showed a direct correlation between the increase in demand for Bitcoin and an increase in price as expressed in bitcoin units. No doubt that I could also show the reverse, a decrease in the price of an item in bitcoin units based on a decrease in the demand for Bitcoin. It’s all basic mathematics.

(Note: for more background on bitcoin units, please read The Post Where I Fix Bitcoin and Fixing Bitcoin Part II: Pricing with Bitcoin Units)

Now here is the crazy part, the part that has my brain firing…

What if there is a direct correlation between the demand for any money and prices?

What if currency devaluation is a significant cause of deflation?

The implications of this are pretty significant. Maybe this is common knowledge in the economics profession but, if I’m correct (and it isn’t), this kind of blows me away. Let’s assume I’m correct and neither insane nor way behind the curve… then what does this mean?

If demand for a money directly correlates to pricing then the current deflation and the difficulty addressing it becomes much easier to understand. Most countries are aggressively devaluing their currency to improve their ability to export goods; it’s possible that this process is counteracting inflation. The proper corrective then is for a nation experiencing disinflation or deflation to allow its money to “strengthen.” However, that process relative to other countries devaluing their currency creates a Catch-22 scenario: strengthen your currency to reach inflation targets and have your exports become less competitive or keep your currency “weak” for stronger exports at the expense of disinflation or deflation.

Another interesting aspect of this possible connection is that the ideal state of equilibrium regarding currency exchange between nations becomes determinable. Ideally, the exchange rate between nations is 1:1 based on the total money supply of each country. For instance:

Let’s say Japan’s total money supply is 1000yen and the United States’ is $200USD. The ideal exchange rate between them would be 1:1 or 5yen to $1USD. Now let’s add Great Britain to the mix at 350pounds; at 1:1, it’s exchange rate with Japan would be 1pound to 2.86yen and 1.4pounds to $1USD.

And so on.

Those exchange rates would be ideal as they would promote economic stability. Now what about monetary inflation? My supposition is that the ideal rate of currency inflation is equal to potential demand. A simplified version of this is that each country would inflate (or deflate) its currency at a percentage equal to its populations growth rate to maintain the 1:1 connection with other currencies. Obviously, this is a challenging concept in a globalized world in which demand for a nation’s currency can transcend borders. Also, the temptation for a nation to devalue its currency is pretty strong and maintaining an asymmetry with trading partners is an attractive proposition. I think that many of the issues regarding the world’s currencies stems from the contradictory needs of every country to reach target inflation rates, which may require “strengthening” a country’s money, versus creating an attractive export situation, which benefits from currency devaluation.

So, is demand for a money directly correlated to price levels? Can disinflation/deflation be corrected by “strengthening” a nation’s currency? If so, how will it affect a country’s exports? Will the prospect of this connection allow countries to more accurately identify their target inflation rates? And can strengthening or weakening their currencies provide a new weapon for controlling inflation?

Interesting questions for an interesting time.

The Bitter Pill: A Mea Culpa

oops

Russ Roberts responded via Twitter regarding my recent post title Russ Roberts’ Bitter Pill. Much respect to Roberts because he could have just ignored it altogether, especially if he thought I was way off the mark. His response caused me to revisit my post and view it with fresh eyes.

The $10 miracle pill in Roberts’ example was simply the object he used to illuminate how innovation and globalization naturally displaces certain classes of labor. Fair enough. But I liked using the miracle pill example for my own purposes because it was a perfect metaphor for what many economists and pro-Capitalists think of innovation and globalization: that the benefits outweigh the costs. You could phrase this an entirely different way:

The ends justify the means.

Here’s the thing about the miracle pill of Roberts’ example: it would likely be devastating to the world. What would be the effects of 7 billion people suddenly in perfect health, each living an average of 40-60 years longer than they do now? By definition, we would not become wealthier, we would all become much poorer as a result of the increased demands on resources. This is on top of the displacement of the millions of people in the medical field. The problem with innovation many times is unintended consequences. Indeed, if a pill actually existed that could provide perfect health and 120 years of life, it would probably never see the light of day.

As for how the world deals with the displacement of workers via innovation and globalization? That begs the question:

What is the purpose of our economy?

Is it to bring the most benefit to the most people? And, if that is indeed the case, is our current economic system the one best suited for that? Has innovation or better knowledge made it possible to improve that process?

How do we create an environment that allows full labor mobility? What do we need to do that would allow those displaced by innovation (or the market system in general) to continue to provide for themselves in a dignified manner?

My answer was to shift the power from banks to create money to the individual and tie the process directly to their productivity. If people are directly responsible for creating money, then business and governments are motivated to utilize them as the first source of capital. In a world where everyone produces money through their efforts, wealth is created directly as a result of human productivity. Rather than displacing workers, innovation would then be utilized to sate the far greater demand that would exist under those circumstances.

The same could not be stated in a world of Capitalism and the miracle pill. There is evidence that the displacement of workers by innovation and capital is accelerating and the quality of jobs being created is declining. Some economists are now arguing the merits of Universal Basic Income (UBI) versus a Universal Job Guarantee (UJG). The problem of human displacement in the process of productivity is shaping up to be one of the main challenges of this century.

My argument against Roberts’ piece was unsound and I myself committed a straw man fallacy. I have no problem admitting when I’m wrong. However, the challenges faced by the world remain the same. How do we create a world that can provide for all?

We are reaching the limits of Capitalism. Debt has far exceeded its ability to be effectively serviced. People are being displaced by capital and innovation at an accelerating pace. The environmental impact is on the verge of catastrophe. Discontent is simmering worldwide and has started to boil over in many places where populism and intolerance are on the rise. “Motivated self-interest” is unlikely to correct these problems and will likely make them much worse.

We are reaching the end of Capitalism as an effective economic system. UBI and UJG will not solve these issues because neither solves the asymmetric relationship regarding bargaining power between the individual with either business enterprise or the state. To correctly address this imbalance, the individual must be truly empowered.

My solution is for each person to have the ability create their own money through their own productive effort.

What is yours?

Russ Roberts’ Bitter Pill

bitterpill

Globalization is a pretty controversial topic nowadays but, not too long ago, that wasn’t the case. Economists of every stripe pretty much viewed it as a net positive, a practice that enriched everyone. Today, those same economists are coming to grips with the reality that globalization is far from victimless. Millions of working class people across the developed world have seen there livelihoods gutted by the practice and their discontent is now reverberating across the globe. Rising populism, along with the specters of fascism and racism, have caused many economists to reassess globalization’s real impact.

However, like all religions, Capitalism, of which globalization is a main tenet, has many true believers. One of them is Russ Roberts, who recently wrote an article titled The Human Side of Trade. In my opinion, it is one of the most eloquent defenses of globalization I’ve ever read. He particularly uses a very effective example to set up his argument:

So let’s start with a seemingly unrelated example that will help us see the unseen. Suppose a scientist invents a pill that once you take it lets you live until 120 with no health issues whatsoever. Once you turn 120, you die a peaceful death on your birthday. Suppose the scientist, in a gesture of good will, charges $10 for the pill.

Should we let the scientist sell the pill? Is it good for the country? It’s good for almost everyone. But it’s going to be very hard on a very large group of people immediately:

Doctors. Nurses. Health Care administrators. People who build hospitals. People in medical school. People who teach in medical schools. People in health insurance companies. Pharmaceutical companies. Researchers. You get the idea. It’s millions of people. This is a very disruptive technology.

What’s going to happen to all those people?

Mass unemployment. All of the skills of all of those people are no longer valued. The past investments made in those skills are now wasted. Incomes of those workers will inevitably plummet overnight…”

“Most people would argue that the millions of health care workers have no right to stop people from living until 120. And on the surface, that’s the whole story — long life and a very tough transition for millions of people from lives of financial well-being and deep satisfaction to a much bleaker future.

But that’s not the whole story. We’re missing a huge part of the story.

The other important part of the story is that everyone is suddenly a lot wealthier. All the money we once poured into health care will now be able to be spent on other things.

Robert’s example is elegant and the defense he mounts from it is detailed, articulate, and comprehensive. There’s just one problem with it…

The premise is flawed.

You see, Roberts makes a fatal mistake with his argument. The miracle pill he presents allows everyone to live to the ripe old age of 120 with zero health or aging issues. I repeat, everyone. In other words, everyone who takes the miracle pill will experience an equivalent outcome.

See the problem? Globalization and Capitalism in general not only do not promise or guarantee equivalent outcomes, pretty much all economists agree that unequal outcomes are a defining aspect of our global economy. So Robert’s miracle pill example is a false premise.

If globalization could guarantee equivalent, positive outcomes for everyone, especially if they were anywhere near as dramatic as the ones in Roberts’ example, do you think anyone would have a problem with it?

I’d generally be content with this simple counter argument but that is not the only faulty premise in Roberts’ piece. One of the things illuminated by it and others like it is that a great many economists and others who consider themselves knowledgeable about Capitalism think that those who oppose globalization are not being rational. However, that isn’t the case at all, it’s very much the opposite. Indeed, it is supporters of globalization who are showing irrationality. Allow me to illustrate using Roberts’ own example, modified for the reality of the unequal outcomes of Capitalism:

Let’s start with the miracle pill. But, instead of selling it for $10, everyone on the planet is forced to take it. Rather than uniformly grant everyone great health and a 120 year lifespan, it does the following:

  • It gives the healthiest 1% of the population, plus a few outliers, near super human ability and a 120 year lifespan of health and vigor;
  • It gives the rest of the healthiest 10% of the population, plus random outliers, perfect health and a 120 year lifespan;
  • A large portion of rest of the population, representing billions of people, improves by anywhere from one to three grades of health. Huge portions of the terminally ill are healed but their health isn’t significantly altered or their lifespans improved. Common illnesses for most of the population are wiped out but, again, health and lifespan aren’t significantly improved. Hundreds of millions of the more healthy, plus many random outliers, actually enjoy significant improvements in health and lifespan, but nowhere near the benefits of the top 10%;
  • The sickest 10% of the population gains absolutely no benefit whatsoever;

On top of that:

  • Tens of millions of previously healthy people suddenly and unexpectedly develop debilitating illness. Many will live in various states of suffering and a large portion dies. There’s no way to tell who is going to suffer, however, scientists notice that only people who are generally in good health tend to be affected. The ultra-healthy never gain the illness and those in poorer health statistically gain far more benefit from the pill.

Now how do think the world would respond to such a pill?

My guess is that tens of millions of people suddenly developing debilitating illness that often leads to an agonizing death would terrify millions of people around the world. And what if the world’s leaders decreed that new iterations of pills would be issued randomly and, by threat of force, everyone had to continue taking them? How do you think the population would then respond?

Let’s take this even further: Let’s say that each iteration of the pill made most of the world’s population healthier overall than the last but, each time, slightly more people develop the debilitating plague?

Globalization has shattered the livelihoods of millions of people, many of whom will never recover from the effects. Even more importantly, many of their children will never recover. For many, the loss of solid middle-class employment is figuratively terminal (sometimes literally), with permanent consignment to society’s lower classes. The incremental benefit they gain from better goods is moot.

What people like Russ Roberts refuse to understand is that the world isn’t a spreadsheet. Globalization affects real people in very significant ways. In an economy driven by “motivated self-interest,” it is the height of hypocrisy to think people should accept their own suffering for “the greater good.”

For many, globalization is a pill too bitter to swallow.