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To: Wyätt Gwyön who wrote (28445)	3/21/2005 1:38:31 AM
From: GraceZ	Read Replies (1) \| Respond to of 306849

You should read Sowell's Basic Economics before you immediately diss my quote, maybe then you'd actually understand the concept and could argue it intelligently. Not liking a person's politics does not make something they state untrue. A truth told by a fool is still true and a lie told by a great intellect is none-the-less a falsity. This is what I wrote: to think that two things with different prices are actually the "same". If you want to make an argument that two things with different prices are the same, try the example used. Can you argue that someone buying a meal in CA for four with drinks is buying the "same" thing as a meal in Imp's Asian restaurant? I could argue that the exact same item available in two different American stores is not the same good although it could be roughly equal depending on other factors. The example Sowell uses in his book is someone who buys a full price airplane ticket and someone who buys a standby ticket. These two people may be seated next to each other on the flight but they have not bought the "same" thing. One has bought a much higher probability of being on the airplane than the other. Some people would be willing to pay more for a higher probability of reaching their destination as planned. so, like, because they have different prices they automatically have different values? The word "same" does not necessarily refer to value, it refers to all the intrinsic and incidental attributes that a purchase might have, including service, warranties (both implicit and explicit), the ability to return, the probability of injury, brand, safety, vendor history, etc. if 1.2 billion people get their hair cut in China while 300 mm people do in the US, but we allocate more value to our GDP for our haircuts, is it really the case that our Hair Stylists have added more "value"? Price and value are two uniquely different things. Value is an idea contained wholly in the person who holds it. The way we may determine [roughly] how much a person values something (relative to something else) is partly through how much they are willing to part with to own it or keep it. If an exchange occurs involving a good and money, the buyer feels they will be better off with the good and the seller believes he will also be better off, but with the money. The price is the same for both, yet clearly the seller values the money more than the good and the buyer values the good more than the money. The reason a haircut has a higher price in the US than it does in China has nothing to do with it having more value. It has to do with the fact that Americans on average are more productive than the Chinese, on average, given the resources, capital base and experience they have to work with, therefore their incomes are much higher. When we choose to employ division of labor or employ someone else to do something for us that we might do ourselves, we make that decision based on what it would cost us to hire someone, against what we would be paid for our own labor (after learning how to cut hair, acquiring the tools and taking the time to do it). If I make $45/hour doing what I do best and the haircut is $8, I'm not going to cut my own hair unless it is an activity I'd do for fun because it would involve an opportunity cost far higher. The value I place on a good cut and the value a Chinese person puts on a haircut have nothing to do with the difference in price. I can get paid $45 bucks an hour because the person hiring me to do what I do is making $1500 a day to do what they do and they wouldn't take a day off from that to make a much lower wage doing what I do even if they could do it as well. They in turn are getting hired by a company which would have to replace them with someone making 175k a year who wouldn't be as good...so on and so forth. (i just want to know why Americans are so much better than everybody else...) No one is any better off than anyone else. What gives an American higher productivity and higher GDP per capita (making them wealthier) has nothing to do with them being smarter or working harder. It has to do with the huge built up base of capital under them. If you take 15 very in shape, intelligent and skilled Chinese construction workers with shovels and pit them against one fat, dumb, lazy, overweight American on a bulldozer....my money is on the American with the bulldozer. Capital goods, business practice, infrastructure, capital markets and the rule of law go a long way towards making a person in a developed country far more productive than their cheap labor counterpart in a developing country. PS. this is the point at which you should google "purchasing power parity" so that you can attempt some modicum of a rebuttal, I knew someone would bring up purchasing parity! It's funny that you did, because I thought I headed it off when I referred to it in my original post: "....that is if you believe that is all it is worth." Surely China's GDP in purchasing parity is significantly higher....but alas, our trade deficit and the current account deficit is measured in dollars and they buy their oil in dollars as well as Treasury paper and American goods. The last time I checked I wasn't taking purchasing parity in exchange for my goods and neither was anyone else in the US. And yes, my output is exported to China. even though you've already doomed yourself by quoting Thomas "As If" Sowell...) I can't stress enough how much stronger arguments are when they address the actual substance of an idea instead of attacking the person expressing the idea. Sowell has a lot of enemies in the popular press mostly owing to the fact that the left leaning press tends to crucify a conservative African American regardless of his distinguished academic career. Most of the critics are economic illiterates and can be refuted quite easily with just a modicum of knowledge of economics. That said, there are well known halfway intelligent arguments against some of his ideas, maybe I could refer you to some of them?

To: Wyätt Gwyön who wrote (28445)	3/21/2005 3:13:37 PM
From: GraceZ	Read Replies (1) \| Respond to of 306849

BTW I forgot to address this comment of your's: fwiw, modicum doesn't mean "amount"; it means, like, a small amount. or, as dictionary.com puts it: "A small, moderate, or token amount" ... granted, "small, moderate, or token" is a pretty apt description of Chinese wages compared to the US, but i'm not sher that's yer point. "Wherewithal" means the modicum of income, i.e. the amount of income denoted in the local currency you get from your labor or skill in an Asian country. He'd find that it costs the same in wherewithal. "modicum" means nominal or marginal in economics. It doesn't mean small in the sense of diminutive. The term has a specific nuance in economics. One would know that if one was conversant with economists. I use it here to signify marginal degree. Modicum of income means the change of spending relative to a change in income, dC/dI. So in the case "i.e." case above, what is known as an instantiation from the general to a specific example, marginal increases in income are met with marginally proportional increases in spending. Thus, dC/dI =k, a constant. Solving this elementary differential equation by integrating, C2 - C1 = k(I2 - I1). Generally k = 1, so if you get an increase in income, which is determined by subtracting what you now get, I2, from what you had, I1, you can be expected to spend it, and this is determined by subtracting what you now spend, C2, from what you did spend, C1. What modicum of income means or what the terminology implies, is that k<>1. In fact, k = f(I). This means that as income rises one has a tendency to spend disproportionately. The money goes to one's head and one borrows to spend. So now the modicum equation looks like: dC/dI =kI, C2 - C1 = k*(I2 - I1)^2. So the little, "modicum", increase of income, I2 - I1, leads to exponentially increasing spending! Since output rises only linearly with spending, prices must rise. In the US k has had this kind of power law for some time, but so far, at least in the non-urban parts of say, China, k has been pretty much constant. The result is that labor cost and prices remain relatively stable in non-urban parts of China even when 11% growth nationwide causes inflation to rise to 4% in the urban areas. Not so in the US. This is why one can't compare costs directly between nations. Indeed, currency fluctuations don't adjudicate between these relatives, but are motivated by other factors only tangentially related to them. You can see this when you compare equivalent product labor costs trends. They often don't correlate with corresponding currency trends. Long ago this was a mystery to me because I confused labor costs with labor value. Total labor value, an indeterminate quantity, is what actually determines currency conversion rate over the long run. In order to convey the above more rigorously defined notions I used "wherewithal", the ease or ability to get income and afford some arbitrary lifestyle which may or may not have an equivalent in a foreign country. The absolute law of economics says "can't get something for nothing", so intuitively, the wherewithal of some somewhat comparable state of microeconomics like going out to dinner, is equal to the wherewithal of doing so in some other country.