Two for one from Tyler

Tyler Cowen covers two popular misconceptions about multinational corporations in this new MRU video: The idea that they are often bigger than major nations and that they "exploit" poor workers in other nations.




The error of trying to compare GDP to profits or annual sales was completely lost on me. See the comments for a quick exchange on additional flaws in that line of thinking, and a plug for this Martin Wolf essay.

I plan to use the "exploitation" line about what happened in Haiti after the factories left in future discussions. He also nails it when he says that if they don't think the wages in third world countries are high enough, wouldn't they be driven up by encouraging more countries to compete for those workers?
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Sweatshops make the world a better place

It's been a while since I wrote about this topic, but unfortunately, the issue isn't likely to go away anytime soon.



The most important takeaway message here is that closing the sweatshops doesn't do anything to address the poverty of the workers. 


Like Mike Munger said about blocking voluntary exchanges that are not euvoluntary, people who try to thwart these helpful agreements are merely objecting to the situation itself. They believe no one should have to work in a sweatshop. I wish that were the case, but taking away their jobs doesn't make them any richer. Instead, it hurts the very people the activists are so concerned about.
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Utilitarianism for the greater evil

Good ideas have a tendency to crash and burn when they move from the textbook to the streets.

Like every former Philosophy 101 student, I accepted utilitarianism's call to commit a limited amount of evil in order to vanquish a larger evil. The classic case is the "innocent fat man" where a group of people are stuck in a cave that is starting to flood from high tide. An innocent fat man becomes stuck in the only exit, and the only way to save the lives of the innocent people is to dynamite porky.

There's also the trolley problem, where five people standing on railroad tracks are oblivious to a speeding train, and the only way to save them is to throw the switch and redirect the train to another track where it will kill one person instead of five.

Of course, it's never that simple in real life. These fables assume godlike knowledge of the situation. What if the cave was only going to flood knee-deep levels and there were small holes to breath from? What if the five people on the train tracks weren't oblivious to the train or were planting a bomb?

They also assume a dichotomy of actions. Do nothing, or kill. There's no option to swim out of the cave, wait for rescuers or warn the people on the tracks.

Case in point a video posted this morning of far-left leaders discussing rioting and violence as ways to achieve their goals. This wasn't a collection of ground level recruits who said something idiotic or atypical. This was a public meeting last month at the New School in New York City about what the goals and tactics of the Occupy Wall Street movement should be. After some generic anti-capitalist nonsense, activist leader Yotam Marom said:

Why are we, like harassing ourselves about broken windows and bombs when we should be talking about police brutality... I don't even want to get into the questions of whether it's ethical or not ethical to use violence in such and such. That's why I said earlier that it's about context... This system is incredibly violent and no amount of broken windows will ever add up to the misery of loss of human potential that these systems of oppression have yielded.

Marom and several other speakers at the summit invoked utilitarianism as a justification for violence. They believe that the system, man is so evil that it's excusable to use violence to reach their political goals.

If there's one lesson we can take from the Soviet Union, it should be how much evil can be heaped upon the innocent in a bloody quest to rid the world of an imagined devil. There is no one alive who can evaluate the suffering caused by murderers like Lenin, Trotsky and Stalin and say that was a better society than one that would have existed under capitalism.

And just like those communist murderers, the violent far-left is eager to spill blood to fight capitalism because they believe it causes more evil. This is what utilitarianism has brought the world.

This is the secular version of holy genocides carried out by religious men who committed atrocities in the name of a peaceful god. Every religious war is an exercise in utilitarianism. People who consider themselves good and just will become butchers when fooled into believing their actions are justified because of words written in a book, be it the Bible, the Quran or Mao's Little Red Book.

These utilitarian thugs assume they understand how the world works perfectly. People like Marom are so confident that capitalism is an evil that they are willing to injure or even kill people. Utilitarianism plus ignorance equals innocent victims.

When you ask people if a violent action would be justified to stop the Nazi war machine in World War II, and then turn that logic to stopping a peaceful system like capitalism, you end up creating evil in the name of a greater evil.

Utilitarianism also assumes false dichotomies, such as violent actions or peaceful protests are the only options. They think their violence will be more effective than peaceful actions and haven't considered that there is a world of other ways to reach their goals.

The same fallacies apply to the few cases of abortion doctor assassinations and the idea that we should torture a suspected terrorist to prevent a future attack. How do you know for sure he's a terrorist and that he can provide information to stop an attack? Torture use sounds great on paper, but it gets murky when you factor in the potential innocence of the suspect.

In theory, utilitarianism is a compromise for the greater good. It can do good things like help the poor and save lives. But in practice, it becomes the ultimate act of hubris. It justifies human sacrifices in the names of false gods. We are all flawed thinkers, but it assumes perfect information.

Utilitarianism carries a great potential for evil and should be handled like plutonium. It can improve things when used responsibly, but when combined with ignorance it makes the world far worse.
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World Bank: In-game gold benefits third-world economies

A World Bank report claims that Asian economies are benefiting by about $3 billion a year in the sale of virtual gold. That is, the workers in nations like Vietnam log onto video games like World of Warcraft and "farm" for in-game currency. This in-game money is transferred to Western players in exchange for real dollars and euros.

From the BBC:

Increasingly, the report said, Western players who have limited time for gaming are buying game cash, gear and high level characters from people in China and Vietnam that are paid to play as a job.

Translation: American and European players are spending their time performing productive labor. Workers in poor nations have a comparative advantage in gold farming and can justify spending their fireballing online demon boars all day because the pay is better than most of the other options available to them.

The Western players value their free time more than the money they pay, and the Eastern workers value the money more than the time it takes to earn it. This transaction benefits both parties, and there is only one possible trade barrier: the selling of virtual gold is against the rules of games like World of Warcraft and there is a small risk of having ones account shutdown and banned.

This is not a traditional illegal industry like drugs or arms smuggling, but it is against the rules in the virtual world of the game. There have been a lot of complaints that gold farmers harm the in-game economies, but this report suggests that the trade-off is a huge benefit to the real world economy.

The whole report is pretty interesting and worth a read.

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The economics of contact with space aliens

I was reading some posts speculating about what would motivate space aliens to visit earth. The usual assumption is that since they are technologically superior - and they would have to be if they came to us before we went to them - they would either be paternalistic and try to steer our society with peaceful prosperity and wisdom, or cold invaders bent on enslaving us and stealing our resources.

Even when the focus is on being more realistic - invaders using grey goo attacks and killer bacteria instead of sending a vanguard of living troops - it's taken for granted that superior aliens have no intention of treating us as equals - and to me, that would include establishing trade.

Why do we imagine beings brilliant enough to travel across the stars, but who still have a brutish seventeenth century understanding of economics?

It's because most people are clueless about Comparative Advantage - the idea that everyone benefits if the strong cooperate with the weak. It would be a bit of a culture shock to people in the Western Hemisphere - an advanced culture that wants to cooperate with them. Instead of aliens just giving us miracle medical machines, they may want us to coordinate factory work on Earth in exchange - or some other form of labor we have never imagined.

It would be a leveled-up version of the debate over sweatshop labor. Aliens could provide us with working spaces far safer and more humane than anything we have to offer, but not as good as those on their home world. Perhaps alien politicians and activists would try to stop these working spaces from being built on Earth out of concern for our well being and impose high standards, and no working spaces would be built.

You would also see earthlings afraid that the wonderful future technologies and goods the aliens give us would make us poorer because of the destruction of Earth jobs. If medical technology increases enough, the demand for child-sized coffins falls. They'd be right about the destruction of specific jobs, but exactly wrong about what that would do to our standard of living.

Contact with an advanced civilization has a great chance to improve our quality of life. If alien beings can unravel the mysteries of space travel, then somewhere along the way they would have discovered economics and would understand comparative advantage too.
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