Wednesday, August 5, 2015

Maximizing Opportunities By Clarifying Demand Diversity


1) If you don’t accurately communicate your valuations of your relationships… then you run the risk of losing these people to the competition. More competition means more risk which means more incentive to accurately communicate valuations. More competition is a good thing. Hence the value of minimizing barriers to entry. Smaller barriers to entry means more employers which means more competition for labor. And with more competition for labor… the more you undervalue your employees… the more likely it is that they will be swooped up by the competition. 

2) Resources should be placed in the most beneficial hands… regardless of where those hands are located. We’re only going to truly maximize progress when we start thinking “humanity” rather than “nationality”. Hillary Clinton said something about the harm of keeping talent on the sidelines. Unfortunately, she thinks that this is only true of local talent. In reality though, the more countries that catch up with America… the more America will benefit. Just like the more kids that are energetically searching for Easter Eggs (beneficial discoveries/improvements)… the more Easter Eggs that will be found.

3) There’s no sound economic argument for a minimum wage. It’s never a good idea to input lies (garbage) into the equation that determines how society’s limited resources are used. There will always be harmful repercussions that tear through the economy like a tsunami. We need resources to shift when conditions change. Preventing resources from shifting doesn’t make the change in conditions go away… it just increases the size of the disparity and the shock when the adjustment is finally made. Imagine if we could prevent little earthquakes… would we want to do so if it meant that we were guaranteed to be hit with a big earthquake not too far down the road? Nooooo. We can forever eliminate recessions and depressions simply by allowing resources to freely adjust to changing conditions. 

4) If improving the standard of living was as simple as mandating higher wages… then the entire world would already have an extremely high standard of living. The standard of living can only be improved when resources are more efficiently allocated. There shouldn’t be any problem with robots “stealing” jobs anymore than there should be a problem with people in China “stealing” jobs. When the competition for labor is maximized… then people will have all sorts of beneficial alternatives to choose from. A closed door isn’t a problem when there’s a multitude of open doors. 

In 1978… when Deng Xiaoping gradually began opening China up to foreign investment… China had a massive surplus of labor. Would mandating a high minimum wage have helped lift millions and millions of Chinese people out of poverty? No, it would have made it less likely that foreigners would have risked their capital, time, energy and expertise “opening doors” for people in China. Thank goodness that China didn’t arbitrarily make its labor more expensive. Because China had a massive surplus of labor (aka cheap labor)… it was profitable enough for more and more foreigners to build factories in China. This increased the demand and competition for labor… which naturally pushed wages up. 

Correlation doesn’t mean causation. Higher wages are correlated with a higher standard of living… but they most definitely are not the cause of a higher standard of living. It was the more efficient allocation of resources which improved the standard of living. And the more efficient allocation of resources was only possible because wages in China accurately communicated that there was a massive surplus of labor. 

It’s really important to understand that demand is incredibly diverse. People want food? True. People want all the same type of food? Not true. So by clarifying demand and minimizing the barriers to entry… we maximize opportunities not just for consumers… but for workers as well. 

With command economies (our public sector)… humanity’s diverse demands are incredibly diminished…which of course diminishes opportunities. If we could apply demand diversity to public goods as well as private goods… then opportunities would skyrocket. Just like opportunities skyrocketed in China when Deng Xiaoping opened up China’s private sector to foreign capital, time, energy and expertise. We can easily open up our public sector to “foreigners” simply by allowing people to choose where their taxes go. Will people allocate their taxes differently? Of course… and that difference will drive a Cambrian explosion of different opportunities.

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