Thoughts on Reisman's Economics Lectures

Reisman made some economics lectures available a while back:

I’m listening to them a bit at a time while multitasking other stuff. I’ll post thoughts I have here. A lot of this is my own thoughts inspired by Reisman and not just a summary or transcript of what Reisman said.

George Reisman Micro 01A

Hitting Buttons in a Factory

Reisman had a similar analogy to something I had said recently to a friend. My analogy was about current govt policy being like playing with the sliders in a simulation game like SimCity. Reisman’s analogy was that bad economic policies made due to ignorance are kind of like pressing buttons in a factory when you don’t know what you’re doing or how stuff works. I listened to some of this stuff before btw so I might have been inspired by him in coming up with my own analogy.

Importance of Division of Labor

Reisman made a point about how expanding division of labor lets you have some good things going economically even if the govt is screwing up lots of other stuff.

Here’s an automated transcript (errors are Otter’s fault!)

I would say that a major explanation of the progress of the last decades, despite many, many negative developments working in the opposite direction, the fact that we’ve been able to advance in so many areas of knowledge and technology, I think, is very, very heavily due to the expansion of the of the division of labor. Just the fact that we have substantially larger absolute numbers of highly intelligent motivated people working on these different problems. And the success that comes anywhere, can quickly be communicated everywhere.

So I think if the govt policy doesn’t get so bad that it actually affects the division of labor a ton and causes it to breakdown, then things can be kind of okay even if the government is doing lots of dumb wealth redistribution. As long as people still have incentive to specialize in various areas and offer their services for trade and cooperate with other people in producing goods, the economic system can handle a lot of government-caused error. But if government destroys people’s incentives to better their economic situation (by trying to abolish private property, say) or if things become so chaotic internally that you can’t rely on being able to trade with other people (due to say, social disintegration and civil war) then things can keep improving even if govt is doing lots of dumb stuff.

If the division of labor breaks down, though, then you lose the benefits of cooperating and specializing because everyone has to start making their own bread and milk and all that stuff. So unlike in division of labor where you get a big bonus in productivity from all the specialized knowledge and effort that people can create, the economic system becomes more like the productivity of a subsistence laborer times the number of people living in the society, which is pretty bad. Even in ancient times, when the vast vast majority of people worked on farms, you still had some specialization and some people that could work in the cities and do specialized work as artisans or lawyers or whatever, but the specialization was way way way reduced in scope compared to now.

I was thinking about this in terms of the Travis Corcoran books about the libertarian moon colony and how the colonists realized they couldn’t fight even the way less efficient earth people cuz there are so many of them. Part of the issue there stems from the division of labor. Because earth still apparently has division of labor (IIRC), then just the sheer number of people (something like 9 billion) lets it have lots of productivity despite all the socialist crap.

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Reminds me of Cuffy Meigs pulling levers at Project X near the end of Atlas Shrugged. He had no idea how the controls worked and used them wrong! (I’m being vague to avoid spoilers.)

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our picture of ancient times can be skewed a bit cuz we focus on the city-people who were writing books and doing politics and that sort of thing (also those were the people who were writing the books). so the really bad material conditions of the vast majority of people are not something we focus on

We’re not at a massive breakdown of division of labor. But what is the situation? How much do you think government policy is limiting division of labor today? Can you think of some examples of ways that it is?

You can consider bad government policies and what effects they cause. And you can also look at some negative effects you observe in society and then consider what may be causing them (or even list them with the cause totally unknown).

History often focuses on the elites, partly because the elites were the literate ones with the leisure time to write history down. That was a theme in these blog posts:

The history of Sparta often focuses on the experience of basically adult males with full Spartan citizenship. And so people will say things about the upsides of Spartan society when they mean the upsides to that small minority of people living there. Meanwhile they were violently oppressing a much larger underclass of slave farmers who were having much worse experiences, including sometimes being murdered by Spartans.

One example that came to mind recently was that if government pays people to not do work (like not be Uber drivers, say, but collect major unemployment checks instead) then that means people have to do more of their own driving because the increased cost of Ubers is not something they want to or can afford to pay. And some people actually rely on stuff like Uber to get to work and not just as a mere convenience that they can do without if they need to. So the unemployment payments serve to reduce the division of labor, cause people to have to e.g. do more of their own driving, and put some people in dire straits. The payments can cause secondary job losses when people can’t afford to get to their service industry jobs or whatever

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Yeah I remember those blog posts, great example :+1:

BTW Spartan society was oppressive for the elites. Lots of people have criticized it when looking at just that one part of the society. But for the elites it was at least a somewhat mixed bag with some upsides, so some people have defended it and argued the other side. Those defenses are generally very insensitive to all the slaves involved, as well as often to other groups (women, female children, and the non-slaves who weren’t full citizens – though the harsh education of the male children who would become the elites does generally get some attention).

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Minimum wage is another example. It prevents people whose work can only command a particular wage from participating in the workforce and being productive/contributing. That labor might mean more affordable restaurant meals or cleaning services or delivery services or various other things. That labor represents a potential resource for creating goods and services. With that labor kept out of the workforce due to minimum wage, the prices of various things have to increase due to the artificial constraint on the labor supply. So prices increase accordingly. That price signal causes people to have to do more stuff on their own (cook meals, clean, whatever) that they might have paid someone else to do if prices were lower.

And people want to do big big increases to the min wage, which would be a major assault on the division of labor and human cooperation (not to mention hurting poor people and making them dependents on government help)

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Reisman talks about how capital is necessary for effective division of labor cuz if you didn’t have accumulated capital then you couldn’t have production chains that were very long in time.

So given that, stuff that attacks the accumulation of capital (like a wealth tax, say, which is being proposed) is an attack on the division of labor.

Big automated transcript Reisman quote on this:

But my question is, suppose we did not have savings to provide the capital. By Me, payment, payment would have people would have to wait, but are they in a position to wait? They’re not in a position to it. So could we have any extensive division of labor in a vertical succession of iron miners, steel workers, auto workers? If if the requirement was everyone had to be paid within a short time, but there is no capital, then what sorts of things would we be able to produce? we’d only be able to produce things that could be achieved within the very shortest spans of time. So our remote ancestors, the early cavemen, how were they living? day to day, they were hunter gatherers, they would have to find food. Within a short time they could spend their time roaming through the forest picking berries and nuts going on a hunt. They would If they succeeded, they’d be able to eat. Now, let’s say they have a successful hunt, they bring down a big animal, and that animal will last them a few days. Well, what are they got to bring in and before the, the, that animal is exhausted, and the fat on their own ribs is exhausted, they’ve got to have another animal. So their period of production is limited, maybe to a week to three weeks, I think a human being can go up to 30 days without eating, if he has been able to eat sufficiently in the past. So for our primitive ancestors, their period of production was on the order of a little over a month, they could have a successful hunt, that would, they could eat off the hunt, maybe for a few days, then they could live on their own accumulated body fat for a while, but then the yield had to come in, or they would die of starvation. Now, I don’t know how long this took. But at some point, we got to the stage of agriculture. But in an agricultural society, you have a harvest, essentially, once a year, certainly before modern times, you’d have a harvest in a given area of once a year. And if the harvest was abundant, then it hopefully was sufficient to enable people to live until the next harvest. So that would already imply the existence of greater accumulations, greater savings and capital. But to go still further, then they had to be using some of the labor made available to produce further tools and implements then apply better tools and implements to the production of agricultural products. So in order to advance, we have to be able to adopt more time consuming methods of production. And in order to do that, we need to have available greater savings and capital. And saving and capital are essential, as I say, to developing the division of labor and its vertical aspect of a temporal succession of one step following another and to construct buildings and machines that last many, many years.

I’ll give an example myself. This is hard to directly relate to a specific government policy. It’s a negative effect I’ve observed.

Prepping is somewhat popular/influential. Not a ton. But some. And while I disagree with some prepper ideas, there’s IMO a valid concern involved.

What are preppers trying to protect against? The breakdown of the division of labor that provides food and other resources crucial to life. They try to be ready to be pretty self-sufficient for food, shelter, energy, etc. They often try to be ready for a long time period (years) or indefinitely. Prepping is one of the motivations for homesteading.

What do preppers think might cause the breakdown of the division of labor? It varies. Some concerns include: natural disaster (e.g. solar flare), man-made disaster (e.g. a power plant breaking down), economic collapse (most likely caused by government), civil war (which the government would have a lot of the blame for), religious doomsday, or an attack from another country (e.g. an EMP or invasion, and that disaster would involve our government failing to adequately defend us). Some of these problems could affect a local area in which case they’d probably be resolved within a few weeks due to external help (at least in wealthier countries like the US where a lot of help is currently available), while others could affect the whole country or the whole world.

The point is, prepping is an anti-division-of-labor activity where people put work into being more self-sufficient because they don’t adequately trust the economic system to keep providing them with the resources they need like food. And while there are many causes, I think some government errors are contributing factors.

Saw this on Twitter

“Poverty” is a term that sure gets used loosely

That’s a dishonest tweet.

Say unemployment is $15/hour equivalent and you’re offering wages of $20/hour. Most people won’t take that job b/c they don’t want to work a job for a marginal increase of $5/hour when they already have enough money for rent, food, etc. This is true even if $20/hour is not a poverty wage.

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yeah people just like completely ignore the disutility of labor (as Mises put it). having 40 hours free a week is a value to most people…

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I’ve heard that in some places in the US unemployment is offering $800/week (per unemployed adult), which is what you’d make from working full time for $20/hr. If you take that and add in the value of not having to work (which could be over $20/hr depending on someone’s preferences), that package could easily be more appealing to many people than a $40/hr job. In some places, a “living wage” is under $15/hr for one adult with no children. (I don’t agree with the living wage stuff, but that’s a stat from advocates of it.)

And there are other benefits to unemployment, e.g. sometimes you pay less or no taxes on that income, or you get a better deal on Obamacare. Plus some places have waived the requirement that you actually look for work in order to get unemployment money (which btw has never been enforced very well).

According to this article, there is some possibility that being on unemployment will help you dodge child support payments that you’d have to make if you had the same income from a job. It might not work and details vary by location, but I think it will sometimes work more than zero. (That is not how the article framed it.)

I wonder if being on unemployment (rather than a job providing the same income) can also help with avoiding some other financial obligations like credit card payments or student loan payments.

Reisman in Micro Lecture 3A (automated transcript):

Let me try to establish the actual dependence of the division of labor on private ownership of the means of production. And there are actually two lines of dependency. The first one I described as the direct dependence. And this proceeds from the fact that each of us possesses his own separate independent mind. Reach, think and hold knowledge, separately from an independently of other people, we don’t have group think we’re not relate our brains are not related as parts of a local area network, we each think and know separately and independently from others. And this relates directly to the two most important advantages of the division of labor, the multiplication of knowledge, and the benefit from the existence of geniuses. When we talk of the multiplication of knowledge, and different specializations having different bodies of knowledge. Well, just think, what that means, in terms of what our suppliers know, and what we know, we each presumably know how to do our own job well. But how much do we know about the work that goes into producing all the things that we buy, were dependent on the knowledge of the producers all up and down the line, which is knowledge very different from our knowledge. So when we buy automobiles, we’re relying on the knowledge of the different people in the auto factories, the steel mills, behind the auto factories, the iron mines, behind the steel mills, the equipment makers all up and down the line. And we’re benefiting from all of that knowledge that is held by other people, and which we don’t have. And they in turn, of course, benefit from the specialized knowledge that we had. And we all benefit from the fact that we live in a world where there are many people who have greater intelligence than we do, who can come up with things that we could not come up with on our own, and improve things that way. So we are routinely every day day in and day out in countless ways benefiting from knowledge held by others that we don’t possess, and from the separate functioning intelligence of others, that is not ours. Well, the fact that we hold knowledge and think separately and independently of one another means that it’s necessary for us to be able to act and to produce separately and independently from one another. So just think, if we could act and produce separately and independently, if before anyone could do anything, he had to have the approval and permission of the collective of the totality. Well, is the totality in a position to make intelligent decisions about what the individuals are doing? If the individuals have so much more knowledge about it, than the people who don’t specialize in the area? See, if we required that before the individual can act, the collective must approve, well, then we’d be harnessing a knowledge and intelligence to ignorance and stupidity. People would be determining what could be done when they didn’t know and weren’t competent enough to know. Well, those who wanted to take the actions did know.

So govt regulations that require prior approval before people act (to build houses or a factory or a hospital) are an attack on the division of labor because they prevent people from acting on the knowledge in their own minds and instead make the ability to act on that knowledge subject to the approval of some bureaucrat.

Reisman lecture 3A (automated transcript)

Now, not only is it the case that we have economic planning massive economic planning, based on prices, but the fact that the planning is based on prices that it does pay attention to prices. This serves to coordinate and harmonize all of the separate individual plans of all of the participants. Each of us is making his or her own plans, each business is making its own plans, we’re each acting to serve our own individual financial self interest. But because we are considering prices, the effect is to coordinate harmonize and integrate all of our separate partial plans. Let me give you some illustrations of this. When my wife and I first decided we wanted to move to Southern California, our initial housing plan was to buy a house high on a hill overlooking the Pacific Ocean that was planned. And then we stopped in at a couple of houses that were for sale, and we learned the astronomical prices. And that made us come up with Plan B, which would be to live a few miles inland. So here we are, we have price shock, we have to change our housing plan.

When the government imposes price controls like rent control, they’re not only disincentivizing people from creating new housing due to the lack of profit, but they’re also harming the division of labor. They’re preventing workers from getting jobs making the homes that people want to rent by preventing the profits from being made that would help bring those home-building jobs into existence. They’re preventing a harmonization of plans - of people who want and are willing to pay for housing and people who are able to provide such housing - from occurring. Developers aren’t going to hire construction companies and construction companies aren’t going to hire laborers if there’s no profit in renting out the homes that are to be built. So instead, the workers have to find work in the next best line of employment given the government interference. This state of affairs can persist for decades in the face of very serious housing shortages if the government policies are bad enough, and in some places in the US they are indeed bad enough.

In the Micro 3B lecture a student had the following objections:

And just be clear about my question. I mean, I, I sit, I sit to the right. But my question is, is like all these arguments are very black and white. Right? They seem to be one extreme or the other. And I think in civilized society, the answer is somewhere in the middle, a little bit more to the right in the middle, but still in the middle. There seems to be a certain like if we’re truly going to, I’m not talking, bleeding heart altruism. I’m not talking about burdening the system unnecessarily, I think limitations, but I think that if we are to leverage this better, life this better technology this better economic infrastructure there has to be some trickle down effect that would fall into the category of socialized benefits without the inherent burden and undermining of a capitalistic market economy associated with that. So I mean, I guess the only the only problem I have here is the fact that I agree, but not all the way over to this extreme. Okay. We don’t agree with this extreme. And it just in the argument, I’m not seeing anything remotely print in the middle

Some thoughts:

  1. The student is majorly downplaying disagreement with Reisman, who isn’t a middle-of-the-roader who thinks that some socialist stuff has some merit and that parts of it can be reconciled with capitalism somehow.

  2. I think people are very inconsistent about this “the truth must be in the middle” type of thing. And maybe they think that some stuff is obviously out of bounds (like you don’t compromise with slavery or something) but that’s a problem because a) there have actually been large scale conflicts within civilized society about various now-settled issues (like slavery) in the past, and the principle that the middle-of-the-roaders endorse now would seem to have said that way back when, the right path was compromising with e.g. pro-slavery people, and b) I don’t think they have a good/objective way of defining what’s out-of-bonds.

  3. Oh another point on middle-of-the-roaders … like if you think that the truth is somewhere in the middle of A and B and you create position C to try to be in the middle of A and B, it seems kind of fair for the advocates of A and B to say on the same principle that the truth must be in the middle of A and C and B and C respectively, and they can just keep doing that to you… lol. I guess you could try to restrict that and say that the compromise theories can’t be compromised themselves but that seems a bit arbitrary.

  4. Another thing is you can’t actually compromise between two different explanations of how something is supposed to work. You can’t haggle between rival worldviews. So what you need is an explanation for what is your new theory or else it’s kind of worthless.

  5. “there has to be some trickle down effect that would fall into the category of socialized benefits without the inherent burden and undermining of a capitalistic market economy associated with that” - okay explain how that’d work, in detail? Reisman met that challenge with his stuff…