July 23, 2015

The breakdown state of Greece

Filed under: Economics,Europe,History,Religion — Tags: , , , , , — Nicholas @ 03:00

David Warren, earlier this month, on the slow-motion financial, economic, and political disaster that is modern-day Greece:

Now seriously, gentle reader, we are being reminded that there is truly no way out — no foreseeable practical and material escape — from the Nanny State web we have woven. Except by catastrophe, and/or miracle. My fascination with Greece is, as I have said, to see what happens as that state breaks down. Greece is unrepresentative in some ways; she never was a truly Western country, and thus even her way of abandoning the Christian faith is different from the Western. Since the West freed her from the Infidel Turk, Greece has had the luxury to pick and choose between spiritual destinies. The West offered three: the Catholic, the Protestant, and the Revolutionary. Greece chose to dress her post-Byzantine, Orthodox self in the robes of Marianne, goddess of fake Liberty. They don’t fit, can’t, and she has experienced one wardrobe malfunction after another. Whereas the French, whom she most likes to emulate, at least know how to carry off satanic modernism in style.

Notwithstanding, the material facts of Nanny State are universal, and Greece can now serve as an illustration of their consequences — for the simple reason that she has made more mistakes, faster, than any other European country.

My fondest hope was that the failure of Greece would provoke a genuine re-assessment of the European Union. My worst fear is that it would instead make Europe’s commissars circle their wagon (the EU flag unintentionally represents this), and advance the continental nannyism in the vain belief that they can somehow save it. This, I observe, is what most likely happens. Or to put this another way, for the third time in a century, Europe has embarked on a mission of self-destruction, and will not turn back.

The correct response, to my humble mind, would have been on two fronts. First, to acknowledge that Greece can’t pay, and therefore write off the debts. Let them start again from scratch, according to their lights, providing whatever humanitarian aid can be afforded, but making clear it is a gift, and therefore delivering it through visibly European (and North American) agencies. Never let anyone think he is receiving gifts by right, and thus confuse gifts with payment. But don’t kick Greece out of anything; they have as much right to use euros while unwinding as the Argentines had to use U.S. dollars through their last bankruptcy. In defiance of post-modern sentimentalism, I would say it is possible to be both charitable, and firm.

Second, to begin a peaceful disassembly of most of the pan-European scheme, including the euro currency, which doesn’t and can’t work. Restore marks, francs, lire, pesetas; but also gradually downsize the Brussels bureaucracy to what it can and did do reasonably well — as a clearing house for trade transactions. This would be sane, now the ambition of a “European nation” is proved to have been foolish in itself. It would be insane, politically, to leave it to the member countries’ respective nationalist lunatics to achieve the same end by jingo, with the violence that follows inevitably from that.

It is in this greater (political, not religious) light that I think another bailout for Greece is a horror. It means Europe’s politicians are accelerating down a blind alley — the political equivalent of “the spirit of Vatican II.”

July 22, 2015

Price Floors: Airline Fares

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

Published on 25 Feb 2015

In this video, we cover how price floors lead to wasteful increases in quality and a misallocation of resources. Using the real-world example of airline regulations from 1938-1978, we show how price floors can be used to restrict entry and reduce competition within an industry. When the Civil Aeronautics Board regulated airline fares, airlines couldn’t compete on price so they instead had to compete by increasing quality. This may sound like a good thing, but we’ll show how this actually created quality waste since the cost of that quality was higher than the value to the customers. Price floors also lead to the misallocation of resources by preventing competition and responsiveness to consumer demand. In this video, we’ll show you how consumers are negatively affected by price floors.

The pleasures of a weak government

Filed under: Britain,Economics,Government,History — Tags: , , , , — Nicholas @ 03:00

At Samizdata, Brian Micklethwait sings the praises of “an infirm hand on the tiller” during the War of the Roses:

For my point is that this royal “hand on the tiller” that Wilson says the country so much needed can sometimes be rather too firm.

Wilson is right that medieval civil war, or medieval war of any kind, could be a disaster to the wider society in which it happened. A routine military method in those days was for a retreating army to wreck the countryside, burning crops and killing livestock, in order to deny these resources to an advancing enemy. That this was a death sentence to whoever lived in this devastated area may have troubled the people who inflicted such horrors, but not enough to stop them doing it whenever they were told to. Elsewhere in the book, Wilson mentions an episode of just this sort, in which the King of Scotland inflicted just this horrible fate upon great swathes of Scotland, when he was faced with an invading English army. Those medieval wars between England and Scotland were not quite the nationalist confrontations that Anglo-Scottish wars later became. They were battles between aristocratic dynasties, between “families”, in the Godfather movies sense. Civilian populations were more prizes to be contested, to be owned or failing that denied to an enemy, than the ideologically enthused participants in the contest, as they became later, for instance in the seventeenth century.

But, on the whole, England’s Wars of the Rose, as they later came to be called, were not like this. These “wars” tended to consist of relatively small armies having sometimes very bloody battles with one another, but not, on the whole, creating all that much havoc for nearby civilians, apart from the unlucky civilians whose crops or animals had been on the actual battlefield.

So, what of that mercantile class which, in Wilson’s word, “emerged” at the same time as all of this rather low level fighting? He makes it sound like an unrelated coincidence. But might there not be an element of cause and effect in operation here? Was not the very fact that all this commerce, all this development of the wool trade, was “beyond politics” perhaps one of the key things that enabled it to “emerge”?

For many people, the mere possibility that the dynastic fights of the fifteenth century might degenerate, even if only in their immediate vicinity, into something more like the English — or worse, the German — civil wars of later times, was probably enough to make them believe, as Wilson believes, that a firm hand on the tiller would be preferable to rival hands flailing at each other. But in the meantime, it surely must have helped farmers — often farmers way off the beaten tracks of the contending English armies in places like East Anglia, and merchants, and speculators, and seafarers, that the aristocrats who might have taken command of their “emerging” arrangements, who, had they been all on the same side, might have brought them into politics, and if not ruined them then at least slowed them down quite severely, instead had other things on their minds. Basically, each other. What I am suggesting is that, from the commercial point of view, the Wars of the Roses might have been quite good wars, complicated enough to divert the attentions of aristocrats away from their usual anti-commercial meddlings, yet not too widespread in their destructive effect. That the Wars of the Rose were, for some, very bad wars, I do not contest.

July 20, 2015

Price Floors: The Minimum Wage

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

Published on 25 Feb 2015

Price floors, when prices are kept artificially high, lead to several consequences that hurt the consumer. In this video, we take a look at the minimum wage as an example of a price floor. Using the supply and demand curve and real world examples, we show how price floors create surpluses (such as a surplus in labor, or unemployment) as well as deadweight loss.

July 16, 2015

The hidden scale of East Germany’s economic disasters

Filed under: Economics,Europe,History — Tags: , , , — Nicholas @ 03:00

Earlier this month, David Pryce-Jones wrote about one of the 20th century’s greatest con-men and his unbelievable role in the East German economy:

Alexander Schalck-Golodkowski was a most ingenious conman. The world at large never knew about him because he stayed in a little circle of corrupt political and financial insiders with whom he was doing his dirty businesses. In a mind-blowing interview that I had with Günter Mittag, the East German minister of finance, I first heard something about Golodkowski. The collapse of Communism allowed Mittag to speak more freely. Communist East Germany, he said, had always been an economic disaster, so much so that he had never dared tell Erich Honnecker, the Party first secretary, the truth that the state had no money. Mittag made up the numbers. For cash to keep up the pretenses, he turned to Golodkowski, giving him permission to do whatever he thought might be profitable. The measure of Golodkowski’s success was the CIA’s preposterous judgement that East Germany had the tenth-largest economy in the world.

Golodkowski operated through KoKo, a company set up for him freed from the laws and restrictions of both Communism and capitalism. A colonel in the Stasi secret police, he had protection the Mafia would have envied. Through bankers in West Germany and Switzerland he set up false accounts and shell companies. He was an arms trader, a speculator in commodities, and a specialist in bogus insurance claims. One of his scams was to “liberate” 600 old master pictures from the Dresden Museum and sell them. In 22 years of illegal operations, Golodkowski himself estimated (with understatement no doubt) that KoKo had amassed 27.8 billion East German marks.

July 15, 2015

Price Ceilings: Rent Controls

Filed under: Economics — Tags: , , — Nicholas @ 03:00

Published on 25 Feb 2015

Rent controls are a type of price ceiling. We’ll use our diagram to show how rent controls create shortages by reducing the supply of apartments available on the market. Rent controls also result in reduced product quality, since they reduce the returns to landlords from renting apartments. Landlords respond by cutting costs or performing less maintenance, leading to lower quality. There are search costs associated with rent controls, and they also lead to a misallocation of resources since apartments are not allocated to renters who value them the most.

July 14, 2015

Washington’s streetcars

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

Warren Meyer isn’t a fan of streetcars in general, but he views the Washington DC streetcar project as being particularly deserving of scorn:

I am increasingly convinced that the appeal of streetcars and light rail has everything to do with class. From any rational perspective, these systems make no sense — they are 10-100x more expensive than buses and lack the flexibility that buses have to adjust to shifting demand patterns over time. A single extra lane of highway adds more capacity than any light rail line.

Streetcar’s single, solitary advantage is that middle and upper class whites who would not be caught dead on a bus seem to be willing to ride streetcars. I don’t know if this is because of some feature of the streetcars (they are shiny and painted pretty) or if it is some sort of self-segregation (the upper classes want to ride on something that is not filled with “riffraff”).

He also points out that even Vox.com can’t make the case for streetcars particularly well:

The arguments are:

  • Tourists like them, because you can’t get lost like you can on buses. My response is, “so what.” Unless you are one of a very few unique cities, tourists are a trivial percentage of transit riders anyway. Why build a huge system just to serve out-of-town visitors? I would add that many of these same cities (e.g. Las Vegas) considering streetcars are the same ones banning Uber, which tourists REALLY love.
  • Developers like them. Ahh, now we are getting somewhere. So they are corporate welfare? But not so fast, they are not even very good corporate welfare. Because most of the studies they cite are total BS, of the same quality as studies that say sports stadium construction spurs all sorts of business. In fact, most cities have linked huge tax abatement and subsidy programs to their streetcars, such that the development you get with the subsidy and the streetcar is about what you would expect from the subsidies alone. Reminds me of the old joke that mimicked cereal commercials: “As part of a breakfast with juice, toast, and milk, Trix cereal has all the nutrition of juice, toast, and milk.”
  • Good for the environment. But even Vox asks, “as compared to what.” Since they are generally an alternative buses, as compared to buses that have little environmental advantage and often are worse (they have a lot more weight to drag around when empty).
  • The Obama Administration likes them. LOL, that’s a recommendation? When you read the text, what they actually say is that mayors like the fact that the Obama Administration likes them, for it means the Feds will throw lots of Federal money at these projects to help mayors look good using other peoples’ money.
  • Jobs. This is hilarious Keynesianism, trying to make the fact that streetcars are 10-100x more expensive than buses some sort of positive. Because they are more inefficient, they employ more people! One could make the exact same argument for banning mechanical harvesters and going back to scythes. Left unquestioned, as Bastiat would tell us, is how many people that money would have employed if it had not been seized by the government for streetcar use.
  • Je ne sais quoi. I kid you not, that is their final argument, that streetcars add that special something to a neighborhood. In my mind, this is Vox’s way of saying the same thing I did the other day — that the streetcar’s appeal is primarily based on class, in that middle and upper class folks don’t want to ride on a bus with the masses. The streetcar feels more upscale than buses. The poor of course, for whom public transit is most vital, don’t want to pay 10 times more for sexiness.

Every argument I have ever been in on streetcars always boils down to something like “well, all the cool kids like them.”

July 9, 2015

Price Ceilings: Misallocation of Resources

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

Published on 25 Feb 2015

Suppose there is a mild winter on the West Coast and a harsh winter on the East Coast. As a result of the weather, people on East Coast will demand more home heating oil, bidding up the price. Under the price system, entrepreneurs will be incentivized to take oil from where it has lower value on West Coast to where it has higher value on the East Coast. But when price controls are in place, even though the demand is still there from the East Coast, there is no signal of a higher price, eliminating the incentive for entrepreneurs to transport oil from west to east. In fact, this happened in the 1970s, resulting in oil going to lower valued uses on the West Coast while many people on the East Coast didn’t have enough oil to heat their homes. In this video, we’ll look at a diagram to visualize this misallocation of resources.

July 6, 2015

Price Ceilings: Deadweight Loss

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

Published on 25 Feb 2015

In this video, we explore the fourth unintended consequence of price ceilings: deadweight loss. When prices are controlled, the mutually profitable gains from free trade cannot be fully realized, creating deadweight loss. With price controls, less trading occurs and both buyers and sellers miss out on the mutually profitable gains that could have occurred. We’ll show how to calculate deadweight loss using our example of a price ceiling on gasoline.

July 3, 2015

The unintended consequences of a bottled water ban

Filed under: Bureaucracy,Economics,Health,Politics,USA — Tags: , , , — Nicholas @ 03:00

Mark J. Perry talks about the outcome of a well-intended ban of bottled water at the University of Vermont:

Here’s the abstract of the research article “The Unintended Consequences of Changes in Beverage Options and the Removal of Bottled Water on a University Campus,” which was just published in the July 2015 issue of the American Journal of Public Health (emphasis added):

    Objectives. We investigated how the removal of bottled water along with a minimum healthy beverage requirement affected the purchasing behavior, healthiness of beverage choices, and consumption of calories and added sugars of university campus consumers.

    Methods. With shipment data as a proxy, we estimated bottled beverage consumption over 3 consecutive semesters: baseline (spring 2012), when a 30% healthy beverage ratio was enacted (fall 2012), and when bottled water was removed (spring 2013) at the University of Vermont. We assessed changes in number and type of beverages and per capita calories, total sugars, and added sugars shipped.

    Results. Per capita shipments of bottles, calories, sugars, and added sugars increased significantly when bottled water was removed. Shipments of healthy beverages declined significantly, whereas shipments of less healthy beverages increased significantly. As bottled water sales dropped to zero, sales of sugar-free beverages and sugar-sweetened beverages increased.

    Conclusions. The bottled water ban did not reduce the number of bottles entering the waste stream from the university campus, the ultimate goal of the ban. With the removal of bottled water, consumers increased their consumption of less healthy bottled beverages.


Wow, nothing worked out as expected by the college administrators at the University of Vermont: a) the per capita number of bottles shipped to the University of Vermont increased significantly following the bottled water ban, and b) students, faculty and staff increased their consumption of less healthy bottled beverages following the bottled water ban. Another great example of the Law of Unintended Consequences. And the bottled water ban was not costless – the university paid to modify 68 drinking fountains, they paid for a publicity campaign, and they paid for lots of “free” reusable water bottles; and what they got was more plastic bottles on campus of less healthy beverages!

“People with money have alternatives”

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

Frances Woolley on the hidden advantages even a modest amount of money can provide:

Less often observed is that wealth itself generates consumption benefits, even if one never spends a dime of it.

I own a 12 year old Toyota Matrix. The front fender has collided with one too many snow banks, and is now held together with string. The exhaust system has seen better days. It breaks down occasionally. But overall it’s very cheap to run.

If I was poor, it would be tough having an old, unreliable car. The unexpected, yet inevitable, major repairs would be a financial nightmare. $750 to repair the clutch. $200 to fix the axle seal. If the car broke broke down, and I couldn’t get to work, I might lose my job.

But because I’m financially secure, I can afford a cheap car. I can self-insure against financial risks: unexpected repair costs, taxi fares, rental cars, and so on. I can afford to get my car towed. If it was beyond repair, I could get another car tomorrow.

The real value of having $10,000 in the bank isn’t $200 in interest income, or the stuff $200 in interest income might buy. $10,000 in the bank creates a little bit of room to take risks. One could call it the “implicit value of self-insurance generated by own capital.” It’s the comfort of being rich (or having rich relatives). It’s real. It’s valuable. But it wouldn’t be taxed if Canada had a consumption tax.

Admittedly, the insurance value of having wealth isn’t taxed under an income tax either. But at least under an income tax some of the return on wealth is taxed, so there is, at least potentially, some shifting of the tax burden onto those with wealth.

The greatest freedom money offers is the freedom to walk away. Your bank doesn’t offer you unlimited everything with no monthly fees? Walk away. There’s always someone else who wants your money. Your phone plan is too expensive? Walk away (o.k., that may not be the best example).

People with money have alternatives, which makes their demand for goods and services elastic. Food may or may not cost more in poor areas. But a rich person can shop at Value Village if he chooses. A poor person may not be able to afford expensive purchases which save money in the long run, like bread machines or high efficiency appliances or pressure cookers. Consumption taxes aim to tax the amount of stuff people actually consume. But if poor people pay a higher price for their stuff than rich people, is a system that taxes only consumption spending, without taking into account the ability to command consumption wealth conveys, fair?

July 2, 2015

Price Ceilings: Lines and Search Costs

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

Published on 25 Feb 2015

In this video, we explore two more unintended consequences of price ceilings: long lines and search costs. What was it like waiting in long lines for gasoline back in the 1970s? Not fun. But why did this happen? When price ceilings were imposed on gasoline, people could not use prices to signal how much they were willing to pay for gas. Instead, the only way they could show how much (or how little) they wanted of gasoline, was to wait (or not wait) in line. Going to fuel up becomes less about paying in money and more about paying in time. At the end of the day, paying in time is much more wasteful. In this video, we’ll show how to calculate the value of the time wasted in line.

June 29, 2015

Price Ceilings: Shortages and Quality Reduction

Filed under: Economics,Government — Tags: , , , — Nicholas @ 03:00

Published on 25 Feb 2015

Price ceilings result in five major unintended consequences, and in this video we cover two of them. Using the supply and demand curve, we show how price ceilings lead to a shortage of goods and to low quality goods. Prices are signals that indicate to suppliers how much is being demanded, but when prices are kept artificially low with price ceilings, suppliers have no way of knowing how many goods they should produce and sell, leading to a shortage of goods. Quality also decreases under price controls. Do you ever wonder why the quality of customer service at Starbucks is generally better than at the DMV? The answer lies in incentives and price ceilings. We’ll discuss further in this video.

More on the “self-driving truck” issue

Filed under: Business,Economics,Railways,Technology,USA — Tags: , , , , — Nicholas @ 02:00

In the comments to this post, Tom Kelley provided a worthwhile digression on the topic that I felt deserved a wider audience, so with his permission, here’s Tom’s response:

Given that the trucking industry has been my sandbox for quite some time, I can safely extend Megan’s prognosis to also include the low long-term risk of job losses due to self-driving vehicles.

Frankly, I have to be wary of any “expert” who can’t even get the name of his source (the American Trucking Associations — yes, plural — not the American Trucker Association) transcribed correctly.

Apart from the myriad technical issues standing in the way of driverless trucks, the insurmountable barrier is anti-competitive trucking regulations passed on behalf of the government’s favorite white elephant, the rail industry. Invariably, these regulations are tarted up under some guise of safety (Let’s see, was it a truck or a train that blew the town of Lac-Mégantic off the map??? Hmm).

The bottom line is that any change that would have the slightest possibility of making trucking more productive is quickly met with massive dis-information campaigns, and even more massive lobbying from the rail industry. Even the most minor dimensional changes designed to reflect the current realities of truck freight transportation stand little if any chance of making it past regulators with a permanent disdain for free enterprise.

We can’t have electronically actuated brakes on trucks because the regulators have no grasp of brakes or electronics, and somebody wants to replace the driver with electronics? Seriously? Of course these same folks seen to have no problem flying cross-country at 500 MPH in a commercial jetliner that is literally flown by wire.

And even if the government types were perfect actors in this little tale, then you have the American tort law system, run/regulated by, for, and about the trial lawyers. Even with professional truck drivers who can deftly avoid putting incompetent car drivers on their way to a Darwin award, hundreds of four-wheeler drivers still manage to commit suicide-by-truck every year, followed quickly by their otherwise destitute estates suing innocent trucking companies for millions.

Can’t you just hear the jury summation now: “The eeevvilll trucking company wanted to save a few pennies by outsourcing the driver’s job to a microchip! The must be punished! My client, a fourth cousin of the homeless man who jumped off a bridge in front of a truck MUST be awarded $10 million for the pain and suffering from losing a relative he never met. No justice, no peace!”

No insurance company in their right mind would insure a driverless truck for real-world operation.

There’s no question that the technology is available to make the concept work, I was on-board numerous autonomous vehicles of all sizes back in 1997.

It will take several major societal shifts before any serious degree of autonomy makes it into real world trucking operations.

June 27, 2015

Price Ceilings: The US Economy Flounders in the 1970s

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

Published on 25 Feb 2015

In 1971, President Nixon, in an effort to control inflation, declared price increases illegal. Because prices couldn’t increase, they began hitting a ceiling. With a price ceiling, buyers are unable to signal their increased demand by bidding prices up, and suppliers have no incentive to increase quantity supplied because they can’t raise the price.

What results when the quantity demanded exceeds the quantity supplied? A shortage! In the 1970s, for example, buyers began to signal their demand for gasoline by waiting in long lines, if they even had access to gasoline at all. As you’ll recall from the previous section on the price system, prices help coordinate global economic activity. And with price controls in place, the economy became far less coordinated. Join us as we look at real-world examples of price controls and the grave effects these regulations have on trade and industry.

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