Re: Don't believe the offshore hype?

["Richard G. Combs" <richard -dot- combs -at- voyanttech -dot- com>]

Chuck Martin asks a very interesting question:

> So here's the question (and I took only Econ 100, macro and micro
combined,
> which was still very enlightening): Instead  of investing in producing
> something at least as valuable, what happens when you take those savings
and
> distribute them to the company's top echelon officers? No reinvestment in
> the company, no distribution to stockholders, no rewards for the
> productivity and innovation of existing employees.

In that case, the story becomes more convoluted and complex, with more
intermediaries, but the consequences remain the same. I doesn't matter if
the savings are given to the officers, the shareholders, the remaining
employees, or to a random stranger passing by on the street. (Well, it would
matter to those people, of course, but not to the economy as a whole.)

The point is that by producing our _current_ bundle of all goods and
services more efficiently, we free up resources to produce _additional_
goods and services. In the example, for simplicity, I assumed that the
widget maker who created the savings is also investing those savings. But
the end result is the same, even if the widget maker blows the savings on a
yacht, gambles them away, or tosses them off a rooftop. The only difference
is that _someone else_ has additional resources to invest in producing more
goods and services. It's the existence of additional (freed-up) resources
that matters (to the economy as a whole), not their manner of distribution
(but see my comment on socialism as a theory below).

In fact, it doesn't matter if the widget maker buries the money saved in his
back yard or burns it. By thus reducing the money supply, he or she makes
each remaining dollar slightly more valuable, and the net result remains the
same. :-)

> I ask because of the difference between theory (your statements) and
reality
> (or at least the perceived reality of what many companies are actually
doing
> with those savings). Socialism (from each according to his abilities, to
> each according to his needs) works in theory, but in practice, with real
> people and their strengths and weaknesses involved, it's an utter failure.

I disagree, Chuck. Socialism doesn't work even in theory -- unless you
create economic theories that either ignore or insist on changing human
nature (the latter is _literally_ what Lenin and his pals tried -- and
failed -- to do; look up "New Soviet Man" some time).

A fundamental principle of economic theory is that people generally pursue
their own self-interest, and therefore you get more of what you reward and
less of what you penalize. "From each according to his abilities, to each
according to his needs" penalizes talent, hard work, and achievement while
rewarding failure, helplessness, and dependency.

Economic theory would thus predict exactly the disastrous consequences
confirmed by the empirical evidence. Unless you're a socialist economist
whose theories are shaped by an ideological agenda instead of an honest
understanding of human behavior. :-)

Richard


------
Richard G. Combs
Senior Technical Writer
Voyant, a division of Polycom, Inc.
richardDOTcombs AT polycomDOTcom
richardDOTcombs AT voyanttechDOTcom
303-223-5111
------
rgcombs AT freeDASHmarketDOTnet
303-777-0436
------








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