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The Dynamic Nature of Economic Decisions

And why progressives just don't get it.

by
Clayton E. Cramer

Bio

May 4, 2013 - 12:00 am
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Here’s another example of where static analysis of social problems leads to destructive results. The Atlantic, a generally left-of-center magazine, recently published an article about why free-wheeling, libertarian, libertine Amsterdam is about to start regulating its legal prostitution businesses. The argument for legalizing prostitution was that bringing it out in the open reduces the need for pimps, makes it easier for prostitutes to seek police protection from rough customers and organized crime, and makes it easier to impose safe-sex practices on the trade. These are persuasive arguments; I have used them myself when I was a very earnest young Libertarian Party activist, back when pterodactyls roamed the skies, and we distributed our earnest ideas on cuneiform tablets.

But as the Atlantic article explained, that is a static analysis of a dynamic process. Legalizing prostitution made it more profitable, because it could be advertised openly, and because making it legal increased total demand for these services. Increased demand and increased profit meant an increasing number of prostitutes working in Amsterdam — and an increase in human trafficking. Increased demand for prostitutes to work there meant more procurers importing women (and often girls) from places of desperate poverty — and many of these prostitutes had no choice about their line of work.

Yes, theoretically, the victims of human trafficking could call the police — but many do not speak Dutch or English, and worldwide, pimps that engage in this enslavement rely on brutality to terrorize these prostitutes into silence. A recent study of human trafficking from the London School of Economics concluded that where prostitution is legal, there is more human trafficking, because it is feeding a legal trade. Without a very thorough level of regulatory oversight, it is often difficult to distinguish lawful from unlawful trade.

One of the reasons that I have become much more conservative in my old age is the horrible realization that many ideas that sound great on a written page do not work so well in the real world, where human frailties and the dynamic response to incentives conspire to destroy brilliant theories. Abandoning existing laws and institutions should be done only with very careful consideration of why people of the past made those decisions. Sometimes, previous generations were wrong; sometimes, circumstances have changed. But the older I get, the more obvious it is that the leftist mindset has too strong a bias in favor of scrapping everything of the past simply because it of the past. I contend that an ounce of experience is worth a pound of theory; many of our traditions are the summation of decades, centuries, sometimes millennia of experience.

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Clayton E. Cramer teaches history at the College of Western Idaho. His most recent book is My Brother Ron: A Personal and Social History of the Deinstitutionalization of the Mentally Ill (2012). He is raising capital for a feature film about the Oberlin Rescue of 1858.

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All Comments   (27)
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"Brilliant: Obamacare provides an incentive for these doctors, who are already well-paid professionals, to move costs that they are currently paying onto the state and federal governments.

"But they aren't as ignorant as they seem -- at least not about this. Their true objective was single payer -- that requires that as many get onto the gov't rolls as possible. They see this as a "good." This is their way of succeeding in that goal.

And speaking of legalized prostitution in a "progressive" world -- In '08, there was an article about a young woman on unemployment in Germany who was sent by the gov't agency to apply for a job as a prostitute. If she refused the job -- she'd lose her benefits.
There was rather an outcry about this -- I hope they resolved it.

1 year ago
1 year ago Link To Comment
Great article. The problem with legalizing prostitution (or drugs) means you can market it and recruit for it hence.

When you regulate something there will be less of it -- sort of like health care now.
1 year ago
1 year ago Link To Comment
A basic (though often unstated) axiom of socialism is that human progress is *automatic*. Socialists actually believe that once capitalism has established a framework for scientific and technological advancement, capitalism can then be replaced by socialism and the momentum of advancement will continue automatically on its own.

Just last week, I tangled with an Occupy Wall Street protester on National Review Online. He asserted that "of course, there will continue to be new inventions, new products and new services; it's what we humans do [regardless of the economic system]!"

He was nonplussed when I pointed out that the American Indians had never even invented the wheel or settled down to do agriculture.
1 year ago
1 year ago Link To Comment
There are actually wheels in the New World, but the absence of appropriate draft animals meant that they weren't much used. You could, I suppose, have tried to harness bison, but this would have been right up there with milking mammoths for "no one tries it twice." The llama could have been a draft animal, but the the Andes are no place for wheeled carts.

Quite a number of North American Indian tribes were actually settled farmers. Even many Plains Indian tribes were settled farmers before the introduction of the horse by the Spanish.
1 year ago
1 year ago Link To Comment
Actually, the Native Americans were very innovative and that is something that is largely dismissed in academics today. While they didn't 'invent' many things mechanical, they excelled in innovations in many other areas to include agriculture stewardship -- a discussion of another day.
1 year ago
1 year ago Link To Comment
It isn't clear how much of this was stewardship and how much was low populations reduced the damage that they could do.
1 year ago
1 year ago Link To Comment
LOL! Sorry Clayton. I'm an old school generational farmer and rancher. Agri stewards are farmers of the land and caretakers of the domesticated livestock. I'm a full half Cherokee and would love to see a topic on here about the native american indians which I'm certain, you know are limited to just what is the U.S. today. From their innovation s of anesthesia to what became the asprin, to root beet, spinning top toys and a wide variety of other things coming from our heritage.
1 year ago
1 year ago Link To Comment
"you know are limited" should read are *not* limited
1 year ago
1 year ago Link To Comment
I have noticed this in all areas, not just economics (global warmist "theory" is a big one): they simply do not comprehend dynamics at all. Feedback loops are magic, actual control loops are impossible, and they only manage to grasp cause-and-effect if they are physically moving the thing — like hitting a golf ball with a club. I wish I knew why this was so, because I cannot figure out any way to break through that wall.
1 year ago
1 year ago Link To Comment
Before healthcare insurance there was no 'incentive' involved. Everybodys healthcare was individual between they and their doctors or in the event od catastrophic health events the community would willing jump in. Health care then, was disdpensed evenly and equally regardless, of ones income or wealth holdings.

With the advent of health care insurance, the intitial companys were non profit. Then two things happened. Employer mandated health care insurance and for profit 'group' health care insurance. Downhill with spiraling, arbitrary inflation and industrywide health care corruption ever since.

Simply put, what drives all policy making for the nations social wellbeing is the larger cancer cities of america -- the one-size-fits-all was born. It is in these cities that our major economies became consolidated and large populations centralized. Within these two factors came increased power and policy making influences of the labor unions. The rest is history.

BOTH political parties ideologies helped implement certain self serving components over time and ultimately bring these current time failures home to roost. Nothing is ever going to get resolved in these times so long as everybody continues to politicize the problems and solutions! Likewise, the complain and blame game has NO benefit to the nation or problem solving.

If people really want to solve the health care problem then take 'individual' repsonsibility repealing mandated employer coverage and group insurance coverage. Make health care 'competitive' once more. My guess is, the majority of people will not willingly support individual responsibility for their health care -- republicans, idependents, or democrats.
1 year ago
1 year ago Link To Comment
When health insurance was for catastrophes and you could but the features a al carte it worked fine.

Then the government mandates started coming and coming and coming, and that led to a crisis which the neo-feudalists didn't let go to waste.

This article is from 1997 -- http://www.ncpa.org/pub/ba237
1 year ago
1 year ago Link To Comment
IF all health care insurance were to return to individual responisiblity, states, *not* the federal government, can mandate coverage of employed persons and person with assets and then offer the joint fed-states medicaid like program. there would be agressive cost competitiveness throughout both the insurance and health care industries -- almost immediately.
1 year ago
1 year ago Link To Comment
Socialism fails because the government cannot allocate capital in an effective manner. Goodness, they do not even want to allocate capital in an effective manner -- they want to allocate in such a way as to perpetuate their power. The economy is millions of people around the glove making decisions they feel will benefit their self interest. Elites making these decisions for us will only end in failure.
1 year ago
1 year ago Link To Comment
Do you suppose the doctors will provide medical care to their employees themselves?
1 year ago
1 year ago Link To Comment
It's a good thing that more and more employers are eliminating health care from their compensation packages. The major cause of our failing health care system is the disconnect between the consumer and the customer. It prevented normal market price signals from allowing consumers to modify their behavior. I'm becoming more convinced that Chief Justice Roberts was subtly, if possibly accidentally, brilliant in his Obamacare decision. By declaring the fine paid for not supplying health coverage constitutional only because it was too small to alter behavior, he ensured that Obama's legacy would be a return of private market forces to the health insurance industry.
1 year ago
1 year ago Link To Comment
'Prediction is difficult, particularly about the future.' - Niels Bohr

'As difficult as predicting an egg will break as it is falls to the floor.' - Heinlein

'When one can count the tiger's teeth, it is too late to run away.' - /me

We are already bankrupt. The revelation will come, probably this year,
almost certainly before the end of Obama's second term, some negative
economic indicator too large, widespread, and painful to ignore;
Hyperinflation, anyone ?
1 year ago
1 year ago Link To Comment
My co-workers, who are overwhelmingly on the left to far-left end of the political spectrum, simply cannot grasp the tsunami of pain about to wash away their benefits system. I try to explain what the man they chose has done and they are literally incapable of grasping the import of my words. The part-timers know that they are going to be screwed, but the full-timers refuse to believe that plans are already afoot to drastically increase the employee share of health insurance. God alone knows what they will think when, on January 1, 2014, their paycheck dwindles like summer rain on a hot sidewalk.
1 year ago
1 year ago Link To Comment
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