The Mexican Pizza Riddle

Discussions on the Economics of Poverty
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Date: Wed, 04 Mar 1998 12:12:50 -0800
From: Jonah Thomas 
Subject: Mexican Pizza Riddle revisited

It looks to me like one central issue that wasn't being addressed is the 
use of resources.  Suppose that rich mexican capitalists get gigantic 
profits by squeezing cheap labor.  Provided that they spend those
profits
quickly, the economy as a whole should do just about as well.  You'd get
consumption by rich capitalists instead of poor laborers.  Lots of 
olympic-size swimming pools and mansions using the concrete production. 
Geese raised for pate de foi gras.  If a prosperous middle class
resulted 
in an active set of airlines, a filthy-rich upper class might instead
use 
many private jets and perhaps a small ultra-ritzy airline.  Etc.  The
_use_ 
of resources would be shifted, but the actual development might be about 
the same.

But suppose that the rich capitalists simply don't spend as much.  They 
can't possibly eat as much pate as the poor might eat carnitas.  They 
might not fly as much, total.  They can use only so many swimming pools 
and mansions.  And if they're content to be rich at a reasonable level, 
they might simply not consume nearly so much as better-paid workers 
would. 

In a sense, what doesn't get consumed is wasted.  Land that lies fallow
doesn't produce, and it will lie fallow unless there's a market.  
Unemployed people don't produce (unless they come up with some sort of 
self-employment, for which they need a market).  Capital equipment which 
is never ordered is not produced and is not used.

So the question is, what mexican resources are being wasted?  If the
resources are being used at their full capacity, then nothing can be 
done. (Except to come up with new technology to get more use of the same
resources).  Mexico might simply not have the good farmland, oilfields,
mineral resources, etc they'd need to be more prosperous.  People might 
get less for their work because there's less to get.

If resources are being wasted, then any way that gets those resources 
into production will increase prosperity -- for somebody.  

If the mexican businessmen can consume all they can imagine wanting,
they
don't have an incentive to come up with new business.  This is Waste By 
Lack Of Imagination.  It's certainly been known to happen.

If the mexican businessmen see ways to produce more but lack the capital 
to invest, this is Waste By Lack Of Capital.  That's happened too.

If the mexican businessmen see ways to produce more but lack a market,
that's Waste By Lack Of Markets.  This is very common.  It can be argued
that there's nothing wrong with it.  If nobody who has money wants the
product enough to pay for it, then it shouldn't be produced.  Surely
none 
of us agree with the labor theory of value, that says things should be 
worth something when a lot of work has gone into them regardless of 
whether anyone wants them.  We'd likewise disagree with the resource 
theory of value which says that things should be worth something because 
of the resources used, regardless whether anyone wants them.

It's obvious that if mexican workers had more money, they'd buy more.  
And they'd buy different things than mexican capitalists.  Maybe that 
would result in fewer resources being wasted.  Regardless of the waste,
though, it would result in fewer resources available for the rich -- to 
the extent that resources are _found_ rather than _created_.  More 
sidewalks and building foundations for the workers is likely to mean
more
sand and limestone and fuel used -- and so less sand and limestone and 
fuel available for swimming pools and mansions.  The rich can walk on
the
same sidewalks everyone else does, but their swimming pools cost more.  
More land used to raise beans and pigs for the poor means resources
constrained for geese -- and more expensive pate.  More workers in 
factories means maids and chauffeurs cost more.  The rich would have to
consume a smaller fraction of the total.  Where they might gain would be 
if first, they benefitted from the products intended for the poor. 
Second, 
they might benefit from mass effects.  A nation that could afford more 
artists might produce better artists, and the rich would have the best. 
A 
nation with less unemployment might have fewer thieves, and the rich
would 
benefit from less crime.  Etc.

The resource that's most obviously wasted in the mexican economy is 
labor.  Surely everyone would agree that there's a lot of waste there.  
And the maquiladora thing reduces that waste -- by bringing in capital
equipment and raw materials from outside and shipping the products out, 
they use labor that would otherwise be wasted.

Would a mexican economy based around paying workers to make things
they'd
buy for themselves be more productive?  Likely, though I don't have any
facts to say one way or another.  If say a third of the workers produced
things for all the laboring-class consumers, that would leave 2/3 of the
workers free to do other things that they could be richly rewarded for. 
There would be more of everything to go around, including highly-
motivated workers.  But this assumes that there are plenty of unused
resources being wasted now, beyond unemployed labor.  How could we tell?

A side-effect -- why produce for the mexican laboring-class market when 
you can produce for the US laboring-class market?  Why put capital into
mexico where the government is unreliable when you can invest in USA 
where the government is business-friendly?  Why buy low-rainfall land in
mexico when you can buy fertile land in USA?  Why work in mexico when
you
can work in USA?  The mexican experience may be distorted by the
presence 
of the USA.  Maybe nothing can work simply because for every solution
there's a better alternative next door.







Subject:      Re: The Mexican Pizza Riddle
From:         "Don Dale" 
Date:         1997/03/13
Message-Id:   
Newsgroups:   sci.econ
[More Headers]

In article <858169746.16971@dejanews.com>,
eyler.coates@worldnet.att.net wrote:

>The right to life is not defined by simple-minded alternatives.  The
>right to life in a free society is certainly not B, and not exactly
A.
>It is a right to live and participate in a society with other men who
>work together to promote their own happiness and general welfare.
That
>form of individualism that would make every person separate and
>independent from every other, and that would relieve them of any
duties
>or responsibilities to others, is not the society envisioned by the
>Founding Fathers.
>
>        "Every man cannot have his way in all things.  If his opinion
>        prevails at some times, he should acquiesce on seeing that of
>        others preponderate at other times.  Without this mutual
>        disposition we are disjointed individuals, but not a
>        society." --Thomas Jefferson to John Dickinson, 1801.

Oh, goody, it's quotation time!  Let's see:

"Nip the shoots of arbitrary power in the bud, is the only maxim which
can ever preserve the liberties of any people." -- John Adams, 1775

"I would rather be exposed to the inconveniencies attending too much
liberty than those attending too small a degree of it." -- Thomas
Jefferson to Archibald Stuart, 1791

"My faith in the proposition that each man should do precisely as he
pleases with all which is exclusively his own lies at the foundation
of the sense of justice there is in me." -- Abraham Lincoln, 1854

"Mankind are greater gainers by suffering each other to live as seems
good to themselves, than by compelling each to live as seems good to
the rest." -- John Stuart Mill, 1859

>> Of course we wouldn't be where we are; we'd be much better off.
You
>> refer to the "remarkable growth of the American economy."  In fact,
>> the American economy, and the wages of American workers, grew most
>> rapidly in the second half of the 19th century.  This was not the
age
>> of unions; on the contrary, unions were illegal.  This was the age
of
>> the "robber baron", the "selfish, evil, greedy capitalist" who
>> "exploited the workers" in search of "the almighty dollar".  And
yet,
>> the standard of living of those "exploited" workers rose during
this
>> time as never before or since.
>
>I am sure that through a careful manipulation of statistics, one
could
>probably substantiate such propaganda.

You have shown your true colors, Mr. Coates.  Truth cannot be wished
away.

>After all, the Libertarians will
>tell you they are the fastest growing political party in America.
But we
>only need look at how close they came to winning the last
Presidential
>election to realize how meaningless that statistic is.

An infant may well rightly claim to be the fastest growing human in
the world.  This is not a claim that he is the biggest, or that he
ever will be the biggest.  It means exactly what it says, and it's
true.

>For anyone
>familiar with labor history, to suggest that the working people of
this
>country were better off in the 19th century than they are today,

I made no such assertion.

>or that
>they would be better off today if they had simply submitted to their
>exploitation, is laughably absurd.

I have, in fact, advanced this claim, with a wealth of evidence from
theory and from history to support it.  I would be more than happy to
provide you references from which you might do your own research.

Don

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