Quotulatiousness

May 26, 2017

Puzzle of Growth: Rich Countries and Poor Countries

Filed under: China, Economics — Tags: , , , — Nicholas @ 02:00

Published on 16 Feb 2016

Throughout this section of the course, we’ve been trying to solve a complicated economic puzzle — why are some countries rich and others poor?

There are various factors at play, interacting in a dynamic, and changing environment. And the final answer to the puzzle differs depending on the perspective you’re looking from. In this video, you’ll examine different pieces of the wealth puzzle, and learn about how they fit.

The first piece of the puzzle, is about productivity.

You’ll learn how physical capital, human capital, technological knowledge, and entrepreneurs all fit together to spur higher productivity in a population. From this perspective, you’ll see economic growth as a function of a country’s factors of production. You’ll also learn what investments can be made to improve and increase these production factors.

Still, even that is too simplistic to explain everything.

So we’ll also introduce you to another piece of the puzzle: incentives.

In previous videos, you learned about the incentives presented by different economic, cultural, and political models. In this video, we’ll stay on that track, showing how different incentives produce different results.

As an example, you’ll learn why something as simple as agriculture isn’t nearly so simple at all. We’ll put you in the shoes of a hypothetical farmer, for a bit. In those shoes, you’ll see how incentives can mean the difference between getting to keep a whole bag of potatoes from your farm, or just a hundredth of a bag from a collective farm.

(Trust us, the potatoes explain a lot.)

Potatoes aside, you’re also going to see how different incentives shaped China’s economic landscape during the “Great Leap Forward” of the 1950s and 60s. With incentives as a lens, you’ll see why China’s supposed leap forward ended in starvation for tens of millions.

Hold on — incentives still aren’t the end of it. After all, incentives have to come from somewhere.

That “somewhere” is institutions.

As we showed you before, institutions dictate incentives. Things like property rights, cultural norms, honest governments, dependable laws, and political stability, all create incentives of different kinds. Remember our hypothetical farmer? Through that farmer, you’ll learn how different institutions affect all of us. You’ll see how institutions help dictate how hard a person works, and how likely he or she is to invest in the economy, beyond that work.

Then, once you understand the full effect of institutions, you’ll go beyond that, to the final piece of the wealth puzzle. And it’s the most mysterious piece, too.

Why?

Because the final piece of the puzzle is the amorphous combination of a country’s history, ideas, culture, geography, and even a little luck. These things aren’t as direct as the previous pieces, but they matter all the same.

You’ll see why the US constitution is the way it is, and you’ll learn about people like Adam Smith and John Locke, whose ideas helped inform it.

And if all this talk of pieces makes you think that the wealth puzzle is a complex one, you’d be right.

Because the truth is, the question of “what creates wealth?” really is complex. Even the puzzle pieces you’ll learn about don’t constitute every variable at play. And as we mentioned earlier, not only are the factors complex, but they’re also constantly changing as they bump against each other.

Luckily, while the quest to finish the wealth puzzle isn’t over, at least we have some of the pieces in hand.

So take the time to dive in and listen to this video and let us know if you have questions along the way. After that, we’ll soon head into a new section of the course: we’ll tackle the factors of production so we can further explore what leads to economic growth.

May 25, 2017

Words & Numbers: Government Can’t Stop Creative Destruction

Filed under: Business, Economics — Tags: , , , — Nicholas @ 05:00

Published on 24 May 2017

Technology doesn’t just change things, it utterly destroys things. And that’s just fine. It happens so often that people barely even notice when it does. Think about all the new services that have come to market just over the past few years: Uber, Airbnb, Redbox … the list goes on and on.

But that’s only half the story. In turn, the list of services replaced by these new ones is similarly long: taxis, hotels, Blockbuster, etc. And workers in these industries often lose their jobs in the line of creative destruction. We generally accept this as the price of innovation, but many people try to use the government to stop this by blocking the new services.

Today we’re seeing this with more politically well-connected industries like taxis and hotels. Pressure is put on Uber and Airbnb, respectively, to “protect” the established industries they are upending.

This week, Ant and James talk about why this is always a mistake.

Learn More:
https://fee.org/articles/government-cant-stop-creative-destruction/

May 23, 2017

Venezuela’s American “useful idiots”

Filed under: Americas, Economics, Media — Tags: , , , — Nicholas @ 04:00

Marian L. Tupy on the American apologists for the ongoing economic and humanitarian disaster unfolding in Venezuela, thanks to that country’s embrace of socialism:

… all socialist countries eventually come to experience similar economic and political problems. And, just as surely, there will always be those in the West who will jump to socialism’s defense. Vladimir Lenin, the founder of the Soviet state, called such people “useful idiots”.

I was reminded of the immensely seductive nature of socialism this week, when Tucker Carlson, the host of the eponymous show on Fox News, hosted a young socialist from The Students and Youth for a New America. To give you a sense of the conversation between the two, I have transcribed some of Dakotah Lilly’s statements below:

    “We need to acknowledge that what Venezuela is facing right now is terrorism at the hands of the opposition. Opposition has bombed schools, they have bombed buses, [and] they have taken wiring and strung it across roads to behead cops on motorcycles. These are not choir boys. These are violent extremists, hell-bent on taking away the progress that Venezuela has made over the past few years.”

    “If you look at the casualties that have happened in the past few months in these protests, the majority of those that have been killed have been trade unionist leaders, have been dedicated Chavistas, have been people on the Left.”

    “In terms of economics, the sanctions that the United States has put on Venezuela and the hoarding done by multi-national corporations in Venezuela, certainly does not help the [economic] situation.”

Almost everything that Lilly says here is demonstrably false. Extensive reporting by the New York Times, hardly a promoter and defender of “unbridled capitalism”, shows that most of the victims of political violence in Venezuela have been anti-government protesters.

Prey for Socialism’s Siren Call

Moreover, the sanctions imposed by the United States on a few individuals connected to the Venezuelan government have nothing to do with that country’s economic meltdown.

Aside from oil exports, Venezuela does not have or make anything that anyone in the world wants to buy. Thus, when the oil price collapsed from $140 to less than $50 a barrel, the country lost most of the foreign exchange it needed to purchase food and consumer goods abroad. Shortages ensued.

Admittedly, it is not entirely fair to criticize American millennials for their almost unfathomable ignorance. The state-schools system is, by and large, broken. American pupils can go through years of primary and secondary “education” without learning about communist crimes and socialist economic failures. Solutions to these problems are not easily to find. History and economics are not the most popular of subjects, and more often than not, the faculties are Left-leaning.

To make matters worse, young people, such as Dakotah Lilly, are deeply idealistic and easy prey to the siren call of socialism. They see the imperfections of free-market democracy at home and assume that countries with the opposite economic and political arrangements, such socialist Venezuela, must offer a better life to their people.

As Steven Horwitz pointed out earlier this month, “you can’t deny that Venezuela is a socialist calamity“:

This humanitarian disaster has raised the question of who or what to blame. That question puts self-proclaimed socialists and their progressive sympathizers in a difficult spot. After all, one can easily find lots of examples (from Michael Moore to Bernie Sanders) of people on the left praising or endorsing Chavez’s economic policies. So what can people who took that position say in the face of this disaster? And what can the defenders of free enterprise say as well?

Many on the left will start by denying that socialism is at fault. Sometimes they’ll deny that the Chavez-Maduro policies were “real” socialism. In other cases, they’ll argue that while their intentions might have been good, corruption and poor implementation doomed good policies to failure.

Both of these arguments have real problems.

If those policies were not “real” socialism, then why did so many sympathetic to socialism express so much support for them and argue that they would be transformative in ways socialists value? Chavez himself made such claims.

Do all of them not understand what socialism is? The variety of attempts Chavez made to prevent markets and prices from working and to substitute some form of economic planning in the name of the people have been broadly consistent with socialism since Marx. If that’s not socialism, what exactly is meant by that word anymore?

QotD: The dangers of career “dualization”

Filed under: Business, Economics, Quotations — Tags: , , , , — Nicholas @ 01:00

This concept [of dualization] applies much more broadly than just drugs and colleges. I sometimes compare my own career path, medicine, to that of my friends in computer programming. Medicine is very clearly dual – of the millions of pre-med students, some become doctors and at that moment have an almost-guaranteed good career, others can’t make it to that MD and have no relevant whatsoever in the industry. Computer science is very clearly non-dual; if you’re a crappy programmer, you’ll get a crappy job at a crappy company; if you’re a slightly better programmer, you’ll get a slightly better job at a slightly better company; if you’re a great programmer, you’ll get a great job at a great company (ideally). There’s no single bottleneck in computer programming where if you pass you’re set for life but if you fail you might as well find some other career path.

My first instinct is to think of non-dualized fields as healthy and dualized fields as messed up, for a couple of reasons.

First, in the dualized fields, you’re putting in a lot more risk. Sometimes this risk is handled well. For example, in medicine, most pre-med students don’t make it to doctor, but the bottleneck is early – acceptance to medical school. That means they fail fast and can start making alternate career plans. All they’ve lost is whatever time they put into taking pre-med classes in college. In Britain and Ireland, the system’s even better – you apply to med school right out of high school, so if you don’t get in you’ve got your whole college career to pivot to a focus on English or Engineering or whatever. But other fields handle this risk less well. For example, as I understand Law, you go to law school, and if all goes well a big firm offers to hire you around the time you graduate. If no big firm offers to hire you, your options are more limited. Problem is, you’ve sunk three years of your life and a lot of debt into learning that you’re not wanted. So the cost of dualization is littering the streets with the corpses of people who invested a lot of their resources into trying for the higher tier but never made it.

Second, dualized fields offer an inherent opportunity for oppression. We all know the stories of the adjunct professors shuttling between two or three colleges and barely making it on food stamps despite being very intelligent people who ought to be making it into high-paying industries. Likewise, medical residents can be worked 80 hour weeks, and I’ve heard that beginning lawyers have it little better. Because your entire career is concentrated on the hope of making it into the higher-tier, and the idea of not making it into the higher tier is too horrible to contemplate, and your superiors control whether you will make it into the higher tier or not, you will do whatever the heck your superiors say. A computer programmer who was asked to work 80 hour weeks could just say “thanks but no thanks” and find another company with saner policies.

(except in startups, but those bear a lot of the hallmarks of a dualized field with binary outcomes, including the promise of massive wealth for success)

Third, dualized fields are a lot more likely to become politicized. The limited high-tier positions are seen as spoils to be distributed, in contrast to the non-dual fields where good jobs are seen as opportunities to attract the most useful and skilled people.

Scott Alexander, “Non-Dual Awareness”, Slate Star Codex, 2015-07-28.

May 22, 2017

Why Do We Have Grass Lawns

Filed under: Economics, Environment, History, USA — Tags: — Nicholas @ 04:00

Published on 17 Apr 2017

In this video:

Maintaining the perfect lawn takes a lot of work. There’s mowing, fertilizing, aerating, and watering. Having a trimmed green field leading up to your front door is something of a status symbol, and in some cases having a messy front lawn can get you into trouble with your more obsessive neighbours.

Want the text version?: http://www.todayifoundout.com/index.php/2014/03/grass-lawns-2/

May 18, 2017

You Can’t Trust Employment Statistics

Filed under: Economics — Tags: , , — Nicholas @ 05:00

Published on 17 May 2017

There is no truly good way to measure unemployment, which makes it pretty easy for successive administrations to claim that unemployment is consistently improving. But when we do our level best to include all of the unemployed in the numbers, what we learn is that unemployment levels now are higher than they were at the beginning of the Great Recession. That’s the bad news. The good news is that things actually have been getting better over time. In this week’s episode, James and Antony take a look at the actual unemployment numbers to get to the bottom of what they really mean.

Get the facts here:
https://fee.org/articles/you-cant-trust-unemployment-statistics/

May 17, 2017

QotD: Britain’s post-Brexit access to the single market

Filed under: Britain, Business, Economics, Europe — Tags: , , , — Nicholas @ 01:00

You see, they think they are granting us a privilege by allowing us to sell them things. This is ludicrous of course, it is imports which make us richer, not exports. But let us humour their delusion for a little. The standard EU position is that if the companies and people of a country are to gain access to the Single Market then they must pay for that privilege. This cannot be about the imports that those people gain from the Single Market of course because that is always under their own domestic control. No, the EU’s insistence really is that if Switzerland gets to sell cuckoo clocks into the EU, Norway can ship fermented sharks heads and the like, then this is a privilege. And that access to the Single Market means that Switzerland and Norway must pay the EU for that privilege. And they do.

[…]

If you get to sell things in Europe then you’ve got to pay the tithe to the EU itself. Reminds me rather of Fat Tony and friends running a nice little protection racket but then much of the EU reminds me of that.

OK. But who should be paying that tithe?

Well, actually, the first question is whether that tithe is worth paying. As up above, it’s imports that make us all generally richer and that’s all under our control anyway. Exports do make some people richer – the people who profit from making exports of course. And that’s not us in general, that’s not Britain, nor the British, and it’s most certainly not the taxpayers who are made richer by exports. So, obviously, it should not be the taxpayers paying the tithe in order to gain access to that market for those exports which don’t profit them.

The people who should be paying the tithe are the people who profit from the tithe having been paid. Those very exporters. Which gives us the solution to who should be paying the tithe. And an interesting side effect of this will be that we will find out whether it’s worth paying at all.

The people who should be paying the tithe are the people who profit from the tithe having been paid. Those very exporters. Which gives us the solution to who should be paying the tithe. And an interesting side effect of this will be that we will find out whether it’s worth paying at all.

Actually, we could in fact argue that a payment into the EU budget in return for Single Market access is illegal state aid. And thus not allowed under the usual rules of trade with the EU. Because it is state aid. Exporters will face tariffs if the payment is not made. The payment thus benefits exporters. But the payment is made by taxpayers, this is thus aid from taxpayers to exporters. It’s a subsidy for exports – something that isn’t allowed.

[…]

The crucial point is that the benefits, as far as the UK is concerned, of Single Market access lie with those making the exports. Thus those making the exports should be those paying the cost of Single Market access. If those who benefit think it not worth the cost then no one should be paying such bribes illegal state aid access fees. And simply by applying the costs, correctly, to those who benefit we find out which is the truth.

It’s very difficult indeed, nay impossible, to see the down side of this suggestion. If exporters want Single Market access then exporters can pay for it, not taxpayers. If they won’t pay it then it’s not worth it, is it?

Tim Worstall, “Absurd But It Works – Ensure EU Single Market Access Post-Brexit With Export Taxes”, Forbes, 2016-06-27.

May 16, 2017

How service companies might respond to a mandated increase in the minimum wage

Filed under: Business, Economics — Tags: , , , — Nicholas @ 05:00

At Coyote Blog, Warren Meyer discusses how real world service companies that employ a lot of minimum wage workers are likely to respond when the minimum wage is raised:

When I discuss this with folks, they will say that the increase could still come out of profitability — a 5% margin could be reduced to 3% say. When I get comments like this, it makes me realize that people don’t understand the basic economics of a service firm, so a concrete example should help. Imagine a service business that relies mainly on minimum wage employees in which wages and other labor related costs (payroll taxes, workers compensation, etc) constitute about 50% of the company’s revenues. Imagine another 45% of company revenues going towards covering fixed costs, leaving 5% of revenues as profit. This is a very typical cost breakdown, and in fact is close to that of my own business. The 5% profit margin is likely the minimum required to support capital spending and to keep the owners of the company interested in retaining their investment in this business.

Now, imagine that the required minimum wage rises from $10 to $15 (exactly the increase we are in the middle of in California). This will, all things equal, increase our example company’s total wage bill by 50%. With the higher minimum wage, the company will be paying not 50% but 75% of its revenues to wages. Fixed costs will still be 45% of revenues, so now profits have shifted from 5% of revenues to a loss of 20% of revenues. This is why I tell folks the math of absorbing the wage increase in profits is often not even close. Even if the company were to choose to become a non-profit charity outfit and work for no profit, barely a fifth of this minimum wage increase in this case could be absorbed. Something else has to give — it is simply math.

The absolute best case scenario for the business is that it can raise its prices 25% without any loss in volume. With this price increase, it will return to the same, minimum acceptable profit it was making before the regulation changed (profit in this case in absolute dollars — the actual profit margin will be lowered to 4%). But note that this is a huge price increase. It is likely that some customers will stop buying, or buy less, at the new higher prices. If we assume the company loses 1% of unit volume for every 2% price increase, we find that the company now will have to raise prices 36% to stay even both of the minimum wage increase and lost volume. Under this scenario, the company would lose 18% of its unit sales and is assumed to reduce employee hours by the same amount. In the short term, just for the company to survive, this minimum wage increase leads to a substantial price increase and a layoff of nearly 20% of the workers. Of course, in real life there are other choices. For example, rather than raise prices this much, companies may execute stealth price increases by laying off workers and reducing service levels for the same price (e.g. cleaning the bathroom less frequently in a restaurant). In the long-term, a 50% increase in wage rates will suddenly make a lot of labor-saving capital investments more viable, and companies will likely substitute capital for labor, reducing employment even further but keeping prices more stable for consumers.

As you can see, in our example we don’t need to know anything about bargaining power and the fairness of wages. Simple math tells us that the typical low-margin service business that employs low-skill workers is going to have to respond with a combination of price increases and job reductions.

May 15, 2017

Geography and Economic Growth

Filed under: Africa, Economics — Tags: , , — Nicholas @ 02:00

Published on 9 Feb 2016

If you look at the African continent, perhaps the first word to come to mind is “enormous.” And that’s true. You could fit most of the United States, China, India, and a lot of Europe, into Africa. But if you compare Africa to Europe, Europe has two to three times the length of coastline that Africa has.

But what does coastline length have to do with anything?

Well, coasts mean access to water.

As benign as water might seem, it’s a major driver of economic growth. Adam Smith, the father of modern economics, argued that access to water reduced the cost of trade, and gave merchants access to larger markets. These larger markets incentivized specialization and innovation.

These twin processes ultimately spurred trade activity, and consequently, economic growth.

As an end result, civilization tended to grow wherever trade was easiest.

If you want proof of this, think of a few major cities.

Look at Istanbul, New York, Venice, Hong Kong, London, and similar areas. What do they all have in common? They all sit near a major coast or a major river. In contrast, look at some of the poorest areas in the world—places like Kampala, or Pointe-Noire. These places are all landlocked. Since goods are easier to transport over water than over land, trade in landlocked areas is more expensive.

And what happens when trade is more expensive?

It becomes harder to spark economic growth.

What this all means is economic growth is not only affected by a country’s rules and institutions, but by a country’s natural blessings, or natural hindrances, too. The effects of geography on growth cannot be discounted.

May 14, 2017

The earliest lesson in economics

Filed under: Economics, Humour — Tags: , , — Nicholas @ 05:00

Steve Kates posted this at Catallaxy Files, saying it was everything you need to know about public spending:

QotD: Big business, crony capitalism and regulatory capture

Now, Pope Francis has the beginnings of a point about large “private corporations” (note the oxymoron), which in their wealth may grow (though only temporarily) to a size rivalling the smaller national governments. And I would add, they become nearly as centralized and monopolistic (through “regulatory capture”), and faceless and bureaucratic as the agencies of State. Whenupon, unlike the self-perpetuating agencies of the State, they begin to disintegrate from their own lack of enterprise.

It is not enough, as the libertarians suppose, to leave them to their fate, in the knowledge that if they are inefficient they’ll be gone tomorrow. For new large corporations rise to take their place, and at every moment the great majority of people are reduced to wage-slaves of one large corporation or another. Indeed, part of the power of large corporations comes from their scale as employers. A democratic government which tries to stand up to them will quickly relent, and switch to subsidies instead, when they threaten to create mass unemployment.

The question must be asked: What makes vast, morally obtuse, centralized corporations possible? And the answer should be easy to see. It is vast, morally obtuse, centralized governments, which command regulatory regimes that are consistent over huge areas. That has actually become our model for global “free trade”: making regulations and taxation consistent not only across nations, but across continents. This creates an order which large corporations, and only large corporations, are well-equipped to exploit.

Imagine instead they were to face different regulatory regimes, parish by parish. They could still operate, but would have to adapt each franchise to local conditions, as defined by the sovereign local authority. This immediately flips the onus, and gives the local merchant or producer the advantage over his multinational competitor, in being on the spot. It reduces that competitor’s economy of scale, while also imposing upon him a new model of corporate governance, as network, that must of necessity become decentralized and responsive (just as creatures in nature) to every single environmental niche.

The re-focusing on what is local, and what is doable locally, would have tremendous ramifications on “the environment” at large — overwhelmingly positive, given some time. Yet it would also have the happy effect of disempowering the ecological whack cases.

David Warren, “Five thousand max”, Essays in Idleness, 2015-06-19.

May 11, 2017

Words & Numbers: The Minimum Wage Conspiracy

Filed under: Business, Economics, USA — Tags: , , — Nicholas @ 04:00

Published on 10 May 2017

This week, James & Antony tackle minimum wage laws and present some hard facts that might surprise a lot of people.

See the YouTube description for a long list of links related to this discussion.

May 9, 2017

QotD: Wage floors and rent ceilings

Filed under: Economics, Government, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

[Progressives] tend to favor policies such as New York City’s rent controls, and the new $15 minimum wage being gradually phased in in some western cities. I like to think of these policies as engines of meanness. They are constructed in such a way that they almost guarantee that Americans will become less polite to each other.

In New York City, landlords with rent controlled units know that the rent is being artificially held far below market, and thus that they would have no trouble finding new tenants if the existing tenant is unhappy. So then have no incentive to upgrade the quality of the apartment, or to quickly fix problems. They do have an incentive to discriminate against minorities that, on average, are more likely to become unemployed, and hence unable to pay the rent. Or young people, who might damage the unit with wild parties.

Wage floors present the same sort of problem as rent ceilings, except that now it’s the demanders who become meaner, not the supplier. Firms that demand labor in Los Angeles in the year 2020 will be able to treat their employees very poorly, and still find lots of people willing to work for $15/hour.

Scott Sumner, “How bad government policies make us meaner”, Library of Economics and Liberty, 2015-08-25.

May 8, 2017

“Have libertarians — and the broader right and/or classical-liberal movement — really lost the ‘culture wars’?”

Filed under: Business, Economics, Government, Liberty, USA — Tags: , — Nicholas @ 09:14

Nick Gillespie on the outcome of the most recent battles in the culture wars:

Spoiler alert: I think libertarians have already won the culture war in the most important ways possible. Whether it’s businesses like Whole Foods, Overstock, and Amazon; the massive and ongoing proliferation of platforms such as Netflix, YouTube, and Twitter; or gig-economy titans such as Uber and Airbnb, capitalism and entrepreneurship has been recast as an innovative, disruptive, liberatory system that allows us all to produce and consume whatever we want under increasingly personalized and individualized circumstances. What we need to do next to nail down what Matt Welch and I have dubbed The Libertarian Moment is to articulate the ways in which our society’s cultural, economic, and even political operating system has already bought into the idea that decentralization, individualism, innovation, and freedom to experiment.

If the medium is the message (all props to Marshall McLuhan) — if an operating system is more important than any specific content generated within that system — what has been abjured as “late capitalism” for decades has effectively ended all debates about how libertarian policies and mind-sets have freed us from bland top-downism in all parts of our lives. This isn’t to suggest that we are in any way living a utopian dream. It’s simply to point out that even after 15 years of drowsy economic growth and a massive expansion of state (and in many ways, corporate) power, our living standards continue to rise. Add to that huge advances in tolerance and change when it comes to racial, ethnic, and gender disparities and transformative shifts on topics as varied as drug policy, sexual orientation, criminal-justice reform, and gun rights too.

Cultural and political pessimism isn’t just a losing strategy, it’s a misimpression. Again, that’s not to say that massive problems don’t exist and need to be confronted. Will we ever see an actual federal budget again, much less that cuts government spending? U.S. foreign policy remains a shameful, disastrous, and destructive hodgepodge of hubris and stupidity. Speech and expression are under attacks from the right and the left, and the bipartisan turn against free trade and the easy movement of people across borders needs to be beaten back. As the late, great Arthur Ekirch explained in his neglected masterpiece The Decline of American Liberalism, forces of decentralization and centralization — of liberation and authoritarianism, of individualism and collectivism, of choice and coercion — have been slugging out in the United States since before there was a United States. The question is whether we are moving generally in a direction of more autonomy and less restriction on how we live our lives.

May 7, 2017

Canada-US trade relationship, visually

Filed under: Business, Cancon, Economics, USA — Tags: , , , — Nicholas @ 03:00

With all the talk (mostly from President Trump) about abandoning existing trade relationships like NAFTA, it’s worth looking at just how closely related the US and Canadian economies are (below the fold, because the graphic is yuuuuuge):

(more…)

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