Co(r)n Law

This essay is among my few amateurish attempts to argue in the realm of normative judgements. To be fair to readers I ought to point out that my political view is that of a moderate liberal. This essay is also written in inspiration from a spiritual-economics post from Mr Wise, a former Grade 12 English teacher of mine whose virtue and honesty as a good, pious Christian taught me a lot about life. I am not knowledgable in religion or well, anything at all, but I hope this adds weight to your concern with a perspective of Economics, a subject that I am at most moderately capable of articulating.

Co(r)n Law

In the 19th Century much debate raged about the Corn Laws, a tariff designed to shield local producers of corn in England from cheaper imports. The acrimonious debate was ostensibly about the inefficiency the law entailed and the burden it encumbered on the poor, but in all sense it was a proxy war regarding the distribution of wealth among the then prevalent social classes in England – the capitalists, the landowners and the workers. It took superhuman analytical skills and very lucid arguments, chiefly in the contributions of David Ricardo and his penetrating analysis to repeal the Corn Law. Along with its repeal, went also the inefficiency of merchantalism as a great empire rose in the surfeit of its disproportionately distributed “wealth of nation” brought about by free trade.

Fast forward to the 21st Century, the social classes of old is non-existent. The humble diner owner down the street where I live is a capitalist in all sense; but a neurosergeon, a “worker”, makes more money now than he does. So now that social classes cannot be delineated by job functions alone, the social class war is now a war between the rich and poor, the right and the left. And just like how the social class was had never truly extinguished but merely changed in its appearance, so had the Corn Law. It’s successor is of course, the Con Laws.

(Here’s a review of what constitutes an economic rent. In economics, an economic rent is the excesses beyond the minimum required to prevent something from being directed to an alternative use. If a factor is compensated at the minimum of what its owner is willing to receive to prevent it from being used in an alternative method, then it is paid at its transfer earnings. Economic rent = Excesses + Transfer Earnings. The following example illustrating the concept assumes that there are no non-monetary advantages.
Keat Yang is a soccer player making $5 million per year. If his pay is reduced to just less than $2 million per year he would decide to become a model for Adidas instead. The money paid to me to prevent me from leaving the soccer club and model for Adidas is thus $2 million, my transfer earning. The economic rent I get is $3 million, what is paid in excess of the transfer earning. An important caveat of course is that what constitutes an economic rent or a transfer payment varies across individuals/firms. For the whole professional soccer player association as a whole, the $3 million from my $5 million wage is an economic rent because if I were to be payed any lower I’d still choose to be a soccer player anyway if I am paid anything above the minimum of $2 million that is my transfer earning. To my soccer club, say Arsenal, that $5 million is a transfer earning because if they do not pay me that much, a small club called Real Madrid might walk in with an offer an hijack me away).

The principle problem with the Con Laws is that they are an institutionalised mechanism meant to extract economic rent at the expense of the greater good. I admit this argument will probably rile up my Conservative counterparts, especially honest ones who think that people should not have what they rightfully earn taken away. I must say this is a belief I share with conservatives. I do not object to Russel Peters, Fernando Torres or Steve Jobs making their millions, because society clearly benefit from their work efforts. Wealth distribution is among the chief causes of idealogical faction between the left and the right, and a pertinent argument is to what degree is government involvement required to distribute wealth in an “equitable manner.” I do not have the moral authority to decide how much of wealth have to be taken away from Bill Gates to be given to the poor homeless person on the street, because I cannot make the poor person better off without making Bill Gates worst off.

Yet it would be an overarching argument to say that all the wealth of the rich are well-earned. My major concern is that when the system is tweaked to institutionalise economic-rent seeking behaviour for dubious, overinflated “contributions” to the world of certain people that spreading the wealth around would be desirable. Take the financial sector as an example. A lot of start-ups that benefited mankind like Google were made possible in part because of bankers and the financial market. However, some quarters in the financial sector, the derivatives market for instance, are manipulating the system (New York Time coverage) to guarantee to themselves the economic rent at the expense of potential competitors and to the potential “Googles” hoping to have cheaper accessibility to the derivative markets. It is in this that a standard approach in positive economics can be used to illustrate the inefficiencies caused by such Con Laws, as David Ricardo did to help repeal the Corn Laws. Using a standard Welfare Economics Analysis, we have a strong case that such “cartelisation” empowered by such Con Laws had essentially guaranteed economic welfare inefficiency. The market price for derivatives can be reduced with the addition of more suppliers in the trading house. As the gap between what consumers would be willing to pay and how much they actually have to pay increases; the gap between what suppliers would like to receive and what they actually receive increases, we have an increase in social welfare up to the point of equilibrium. Even when the size of the gap between what consumers would be willing to pay, and what suppliers are willing to receive, and what they actually pay and receive remains the same as it was, an electronic trading system would reduce industrial cost and hence we also have a strong case for productive efficiency.

Another strong example of the Con Laws (Or in nerd-speak you can call it Corn Law V2.0) we have the lobbying group and lobbying firm employed by farmers for agricultural subsidy. Part of the food crisis we are facing now can be attributed to such subsidy scheme, which essentially yet in a twisted manner serve the same function as the Corn Law in Ricardo’s era. An unjustifiable subsidy to inefficient producers distorts the price signal for the planning of crop cultivation and raises the relative price of imports that would have been “cheaper” were it not for such artificial impositions. The result is of course and badly-coordinated argricultural sector that brought along with it a food crisis.

Given what we understand from Public Choice Theory and the Impossibility Theorem, I understand that people plead apathetic to political and economic issues. Why incur the cost of examining these issues when its marginal effect on each individual is so small? Yet we continue to fume over our social class war of the rich versus the poor. The poor would see a conservative party in the mould of the Sheriff of Nottingham, the manifestation of a political power to stymie the efforts of their Robin Hood. The Rich would see a liberal party as a mould of the dreaded Robin Hood, a manifestation of political power to rob from the not-evil Rich to give to the poor.

Arguing in such a vacuum is a futile exercise with no physical reality. Conservatives or Liberals, Democrats or Republicans, a common threat to us all are the Con Laws.

PS: Tea-Partyers and fanatical Conservatives, I don’t really understand your economics. Congressman and Senators who bend on over to secure economic rent for vested interests, I admire your ability to say what you will do “for our children” in camera only to enact laws that makes me and my future generations starving and dying. For people who are gaming the system, I wish they give me an Inception-style dream device and I can recreate Dante’s Inferno for you.

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