Part-Time Pundit

Intellectual Bankruptcy - How the Left Doesn’t Get Economics

I get a copy of Foreign Policy now as a Christmas present from last year (yes, I asked for it). Each issue comes in and some of the stuff is good… some of the other stuff is just intellectually bankrupt. In the May/June issue, for instance, it had a 2-page little montage on the disease distribution of the world and were the pharmaceutical companies send their medicines. The conclusion they want you to draw is clear, the companies do little/nothing about disease in say, Africa and that they should.

One problem with that philosophy, who pays for it? Business in capitalistic environments have costs that they pass on in the form of prices. Companies can’t simply send products to non-paying customers without reimbursement. FP seems to think they should just suck it up and flip the bill themselves. They don’t understand simple economics.

1) Companies have limited funds to work with.
2) Companies produce products. Those products have costs, usually defined. They pass those costs on in their entirety to the consumers of those products. Companies that cannot set their prices to cover costs has a technical name: bankrupt.
3) When articifcal costs are imposed on companies they have two choices, cut other costs or increase prices. The easiest cost to cut is obviously payroll.
4) Every tax, every fee, every regulation, every law, and every obligation is passed on and on and on to the only entity not able to pass on costs. The consumer. Specifically the middle-class to poor consumer.

By suggesting that a business should just suck up a cost will lead to either layoffs, increased prices (with an attendant increase cost of living), or more likely both. In the pharmaceutical industry, this does nothing but raise the cost of medical care on everyone.

In the July/August issue there is a debate on the best way to move forward with environmental policy between Carl Pope and Bjorn Lomborg. Bjorn takes a more priority-based pragmatic approach, and Carl Pope seems to say businesses and governments are stupid and should wise up.

Carl’s first sign of silliness came with this comment:

Instead of pursuing new solutions such as hybrid cars, the United States invades Iraq, bullies Venezuela, and rattles its sabers at Iran.

First, in the largest economy in the world in the most powerful nation in the world there are never choices as simple as do we go to war or do we build hybrids. There is waiting lists and crazy money to be had with hybrid cars. Every car manufacturer is playing catch up and no amount of government proding will help. The incentives are there, and they’re making them as fast as they can because they want the money now, not later.

Later he suggests there should be a carbon tax on pollution emiters to make the business pay for the damage they cause. Hint, the businesses won’t pay because they can’t be made to pay. They will either layoff employees, increase prices, or both. When dealing with this sector you are talking about power which everyone pays for, or manufacturing which consumers eventually pay for. It will entail in instant increase of cost-of-living and increase poverty.

This kind of naive thought that you can make businesses pay for anything is nothing less than intellectually bankrupt. It has the feel-good effect of “making the rich pay” but in realty only pays the obligation straight on the heads of the poor like an anvil from the sky. It’s time to get past the corporate/rich bigotry that only leads to punishing the poor and get some real solutions.

July 5th, 2005 Posted by John Bambenek | National | 2 comments