Context Matters

Just a quick point made by Matthew Yglesias that I wanted to co-sign; context matters:

The big picture that emerges, I think, is simply of a China that's still exceptionally poor by American standards. (emphasis mine - JMG)

There has been a lot excellent (and not so excellent) of coverage over the working conditions at Foxconn's factories. I am not going to add commentary to the conditions themselves, but rather how we talk about working conditions in general.



Standards of living and working conditions are relative ideas. Just like the adjectives "hot" or "cold", "quality working conditions" or "low standards of living" implies there's some baseline for comparison; usually our own. This is not to say that there is ever an excuse for barbaric working conditions, or standards of living that traumatizes a basic regard for human beings. But we need to be aware of (and appreciate) the quality of life that middle-class American citizens enjoy is the result of decades, if not centuries, of progressive social movement and advocacy for those on society's lowest rungs (e.g. child labor laws, protected classes, minimum wages, etc).



There is a bit of hubris in the expectation that the rest of the globe, especially the parts that are in the process of developing, to conform to the standards of an industrialized, western, middle-class lifestyle without a deeper commitment to understanding the context of the Foxconn employee, or the Malaysian Clipsal worker, or the Moroccan OCP miner.



If you'd like to learn more about supplier standards that created your iPhone, Apple's CSR reports are available here.

Patterns versus Outcomes

Matthew Yglesias was his usually astute self the other day, explaining how concepts of “meritocracy” as the only pattern of social mobility does not really carry its utopian implications in its final analysis. Specifically, Yglesias explains that

[...] the more important thing to keep in mind is that a meritocracy is not necessarily a very admirable place, unless it's also a human society in which people are enjoying a high quality of life (emphasis his)

Yglesias' reminder is important because, at the end, concerns for real welfare outcomes cannot be ameliorated by keeping with a patterned system of social organization, no matter how well or just that pattern may seem designed.

Now, awhile back Ron Paul claimed that

You can't save free markets by socialism I don't know where this idea ever came from. You save free markets by promoting free markets and sound money and balanced budgets.

This understanding that United States' social problems would be rectified if the only the invisible hand of the market was unleashed is, as student of markets, a frustrating oversimplification on a few levels; but more importantly it glibly ignores the long term issues of free market patterns.

Markets produce both winners and losers. This is ideal because we find markets to be the most just way to sort between people who are “worthy” of wealth and power and those who are not. What I mean by this, is that people like Steve Jobs and Mark Zuckerberg produced highly profitable and demanded products that in many ways increase overall social welfare. They have been rewarded for their innovations with large salaries, public profiles and attention among public policy makers. Steve Jobs “deserves” all of the wealth he amassed because he oversaw the profitable production of productivity and welfare increasing consumer electronics.

As an aside, I want to be clear here that am not attempting to equate individual wealth with moral rectitude or human value; nor should the reader take the implication that any of the gentlemen and gentlewomen who profit substantially from their business ventures are pure Horatio Algers'. The profitability of Apple, Facebook, Google, GE, et. al., must be viewed in the context of the public goods that American society provides.

I simply wish to claim that, compared to other possible social ordering options, the one that directly links increasing social welfare in a decentralized way (through products consumers demand) with cash incentives (the profitability of efficiently offering the best product) is in my view the superior choice.

Now, the mechanism that drives these positive outcomes is market competition. As with any competition that produces winners, there are losers as well. The main issue that free-marketers like Ron Paul elide by, is that a system the produces loser who struggle to feed or house themselves, or care for their children's basic medical needs, is particularly savage. If the choice to alleviate such savagery is "socialism," then I should apply for a party card.

My basic point is that we have real concerns for welfare outcomes based in our most innate ability to have a capacity for humanity. The outcomes of markets help use realize the goal of increasing human welfare, but we need to recognize that there are very real aspects of market outcomes that does violence to that goal. To ignore that, is a cowardly attempt to take the good without acknowledging the bad.

This is not an indictment against the free market system; it is simply a plea for greater understanding of it. Furthermore, the argument that markets are an end unto themselves, is one that evidences a basic ignorance how markets work, let alone the logic of the market system itself.

Know What You're Talking About

One of the things that irritates me, both as a writer and as a student of markets, is when very well regarded columnists make basic errors in logic or argument. By "basic", I mean something I would expect from the average college sophomore. My suspicion is that it is generally a symptom of a process where the writer starts with his conclusion, and just works his way around the facts so that he can get there, in whatever word count the editor is asking for. The latest example of this comes from the Washington Post's George Will, who's written an unsurprisingly sloppy and inaccurate column on the Affordable Care Act.

Now, Slate's Matthew Yglesias has a much better critique of the article overall, and I strongly suggest you read it. However, I would like to litigate a more narrow point of one of Will's claims; that California's regulatory regime is stifling the construction of more Carl's Jr. restaurants, whereas Texas (an implied paragon of the free-market) is booming with expansion. Specifically, Will writes that

CKE has, however, all but stopped building restaurants in [California] because approvals and permits for establishing them can take up to two years, compared to as little as six weeks in Texas, and the cost to build one is $100,000 more than in Texas, where CKE is planning to open 300 new restaurants this decade.

If one takes a quick look at CKE Restaurant's website however, it's pretty easy to find out that California is already home to 723 CKE establishments, 713 of which are Carl's Jr alone. Whereas Texas only has 53 CKE Restaurants overall (all of which are Carl's Jrs). I'm pretty sure market saturation is just a, if not more compelling explanation for the chain's expansion choices than Will's implication of onerous regulation.