Friday, January 05, 2007
Conservatives and capitalism
Many conservatives fail to acknowledge the various ways in which liberal policies may, superficially, "work". Liberals are in many cases behaving quite sensibly in deriding their "Ivory Tower" arguments, since they completely fail to acknowledge (and seemingly contradict) readily-observable phenomena.
One analogy I like to use is to imagine a store that comes changes management; the new manager decides that purchasing inventory is a waste of money, so for every ten units of merchandise he sells, he'll buy five to replace them. This allows him to cut prices by 25% while increasing his worker's wages by 50%. Who would have thought it possible to cut prices so much while still giving such a nice raise to employees?
Perhaps that example may seem over-simplistic, but many liberal policies operate on the same principle as that store. Conventional arguments against them would be akin to arguing that the store couldn't possibly raise wages without raising prices, nor cut prices without cutting wages.
A key to resolving many such conundrums is to consider capitalisation and policies' effects thereon. Consider the electricity industry. Generators cost money, and periodically need to be replaced. Left to its own devices, a power plant will make a significant nominal profit, but will from time to time spend a large chunk of that overhauling or replacing equipment. If the power plant is prevented from making such a profit, it may continue to operate at nominal profit as long as the equipment holds out, but then hit a snag. It won't have enough money on hand to buy the needed equipment, and it will be hard to attract people to invest much money without prospects for significant profit. The only way the plant will be able to stay in business will be to impose a very large rate increase (which must be large enough either to collect the money for a new generator fairly quickly, or else to reduce demand to the point that the generator that needed replacement is no longer required). Of course, the fact that customers had been receiving cheap electricity for so many years will only aplify their outrage when it ends. Of course, nobody will consider that the sudden rate increase became necessary because of the earlier lower prices.
One analogy I like to use is to imagine a store that comes changes management; the new manager decides that purchasing inventory is a waste of money, so for every ten units of merchandise he sells, he'll buy five to replace them. This allows him to cut prices by 25% while increasing his worker's wages by 50%. Who would have thought it possible to cut prices so much while still giving such a nice raise to employees?
Perhaps that example may seem over-simplistic, but many liberal policies operate on the same principle as that store. Conventional arguments against them would be akin to arguing that the store couldn't possibly raise wages without raising prices, nor cut prices without cutting wages.
A key to resolving many such conundrums is to consider capitalisation and policies' effects thereon. Consider the electricity industry. Generators cost money, and periodically need to be replaced. Left to its own devices, a power plant will make a significant nominal profit, but will from time to time spend a large chunk of that overhauling or replacing equipment. If the power plant is prevented from making such a profit, it may continue to operate at nominal profit as long as the equipment holds out, but then hit a snag. It won't have enough money on hand to buy the needed equipment, and it will be hard to attract people to invest much money without prospects for significant profit. The only way the plant will be able to stay in business will be to impose a very large rate increase (which must be large enough either to collect the money for a new generator fairly quickly, or else to reduce demand to the point that the generator that needed replacement is no longer required). Of course, the fact that customers had been receiving cheap electricity for so many years will only aplify their outrage when it ends. Of course, nobody will consider that the sudden rate increase became necessary because of the earlier lower prices.
